THE INHERENT POWER OF THE STATE
1. Taxation power
- enforce proportional contribution from its
subjects to sustain itself
- raise fund to defray the necessary expense
of the gov’t
- to implement different project
2. Police Power
- enact laws to protect the well-being of the
people.
- regulate property and liberty.
3. Eminent Power
- take private property (real properties) for
public welfare and there is a compensation.
THEORIES OF TAXATION
1. Benefit Received Theory
 Benefited or not it assumed that you are
benefited already in tax.
 Presumption of benefit.
 the more benefit one receives from the
government, the more taxes he would pay.
2. Ability to Pay Theory
 the taxation also considered the taxpayer’s
ability to pay.
 taxpayers should be required to contribute
based on their relative capacity to sacrifice
for the support of the government.
ASPECTS OF THE ABILITY TO PAY THEORY
1. Vertical Equity
 directly proportional to the level
of his tax base.
 gross concept
2. Horizontal Equity
 consideration of the particular
circumstance of the taxpayer.
 net concept
3. The Lifeblood Doctrine
Taxes
 essential and indispensable to the
continued subsistence of the government.
NATURE OF TAXATION
 Legislative in Nature
- Only legislative department can impose
taxes
*There can be no taxes if there is no law
imposing taxes.*
 Inherent in Sovereignty
- It essential or important to the existence of
every government.
- even though there is no written law about
taxation the gov’t can still impose taxes.
- Maybe exercised although not expressly
granted by the constitution.
*the constitution only provides for the
limitation of taxation, not grant of power*
 Subject to inherent limitations
SCOPE OF TAXATION
 Unlimited (it is based on gov’t needs)
 Comprehensive (it applies all of the citizens. All
are affected))
 Plenary (needed by gov’t to function)
 Supreme but subject to limitations
THE LIMITATIONS OF THE TAXATION POWER
A. Inherent Limitation
1. Levied for Public Purpose
- Revenue generation for public purpose
2. Exemption of the gov’t from taxation
- Gov’t is exempted.
3. Non-delegation of legislative power to tax
-
4. Territoriality
- Within the boundaries of a country.
5. International Comity
- Gov’t to gov’t
- Dealing with other countries.
Vanity Tax – under the train law.
B. Constitutional Limitation
1. Due process of law
- Investigation
2. Equal protection of the laws
3. Non-impairment of oblicon
4. Non-imprisonment of non-payment of debt
and poll taxes
5. Rule of taxation should be uniform and
equitable
6. Promotion of progressive tax system
7. Veto power of the President
- No tax if now imploring
- Needs final approval of the President
- Legislative department enact
8. Absolute majority vote of all members of the
congress to enact a law granting tax exemption
9. Exemption from real property ta of religion or
religious organization
10. Exemption from taxation of non-profit non-
stock educational institution
- No profit distributed.
 - Actually 2. Property tax
A regardless of
Directly - Tax on property whether real/personal (Ex.
ownership
Exclusively Real property tax)
3. Excise or privilege tax
Types of School - Imposed upon the performance of an act
1. Public School enjoyment of privilege or engaging in an
 Gov’t-owned school (Exempted) occupation.
2. Private School - Performing an act (Ex. Income, estate,
 Non-stock non-profit Institution donors)
(Exempted) - Income distribution theory
 Proprietary Educational Institution  Onerous title transfer- exchange: sale
(Taxable)  Gratuitous – inheritance, donation
 As to who/incidence
ESSENTIAL CHARACTERISTICS/ELEMENTS OF TAXES 1. Direct
1. Enforced contribution - Demanded from persons who
- Contribution to the gov’t that you cannot shoulder also the burden of taxation
decline (compulsory or mandatory) of the tax (Income tax, Community
2. Generally payable in money tax)
- All payment for now is in money 2. Indirect
3. Proportionate in character - Demanded from persons shall
- Taxpayers ability to pay theory indemnify himself at the expense of
- Specific portion of specific things tax based one another (VAT and other
4. Levied on persons, property of exercise of right percentage tax)
or privilege by the law making body of the Progressive means: Direct should be greater
state which has jurisdiction over the object of than Indirect
taxation - Shifting-transfer of burden of
5. Levied for public purpose payments.
 As to determination of amount
PRINCIPLE OF A SOUND TAX SYSTEM 1. Specific
- Fixed amount by the head, number,
1. Fiscal Adequacy
or weight or measurement. (unit of
- Revenue must be sufficient to meet gov’t
measurement)
spending (not to incur deficit)
2. Equality or Theoretical justice 2. Ad Valorem
- Progressive or based on taxpayers ability to - Fixed proportion of the value of
pay. property with respect of which tax is
- Determination of tax rate: Income tax assessed.
3. Administrative feasibility  As to Purpose
1. Revenue
- Capable of convenient, just and effective
- Imposed to raise revenue for the
administration general purposes of the gov’t.
- Gov’t should seek alternative for - Revenue generation.
convenience 2. Special or regulatory
- How the gov’t will administer the taxes - Imposed for special purpose (sin tax
- Who manages the tax system: on cigarettes and alcoholic
 Bureau of Internal Revenue beverages)
 As to imposing authority
 Bureau of Customs
1. National Tax
- Imposed by the national gov’t.
CLASSIFICATION OF TAXES
 Income Tax
 As to subject matter - Tax on annual income, gains or
profits.
1. Personal, poll or capitation
 Estate Tax
- Imposed on persons residing within - Tax on gratuitous transfer of
specified territory without regard to their properties by a decent upon death.
property or occupation (Ex. Community tax)  Donor’s Tax
- Tax on gratuitous transfer of
properties by a living donor
  Value Added Tax
- Consumption tax collected by VAT
business taxpayers.
 Other Percentage Tax
- Consumption tax collected by non-
VAT business taxpayers.
 Excise Tax
- Tax on sin products and non-essential
commodities.
 Documentary Stamp Tax
- Tax on documents, instruments, loan
agreements and papers evidencing
the acceptance, assignment, sale or
transfer of an obligation, right or
property incident there to.
2. Local Tax
- Tax imposed by the municipal or local
gov’t.
 Real Property tax
 Professional tax
 Business taxes, fees and charges
 Community tax
 Tax on banks and other financial
institution
 As to rate
1. Proportional tax
- Fixed percentage of property,
receipts or other basis to be taxed.
(VAT and other percentage taxes)
2. Progressive or graduate tax
- Rate increase as the tax base
increases
- Equitable taxation because it gets
more tax to those who are more
capable.
- Lessening the gap between the rich
and the poor
3. Regressive tax
- Tax rate decrease as the tax base
increases. (income tax)
(Note: not applied in PH)
DISTINCTION OF TAXES WITH SIMILAR ITEMS
 Tax vs. Revenue
 Tax
- Imposed by the gov’t for public
purpose.
- Amount imposed
 Revenue
- All income collections of the gov’t.
- Amount collected
 Tax vs. License Fee
 Tax
- Emanates from taxation power
- Imposed upon any object
- Post-activity imposition
 License Fee
- Emanates from police power
- Imposed to regulate the exercise of
privilege such as the commencement
of a business or a profession.
- Pre-activity imposition.
 Tax vs. Toll
 Tax
- Levy of gov’t.
- Demand sovereignty
- Depends upon on the needs of the
gov’t.
 Toll
- Charge of the use of other’s property
- Demand ownership
- Depends upon the value of property
leased.
 Tax vs. Debt
 Tax
- Arises from law
- Non-payment of tax leads to
imprisonment
- Payable in money
- Draws interest only when the
taxpayer is delinquent
 Debt
- Arises from private contract
- Non-payment of debt not lead to
imprisonment
- Can be paid in kind (dacion en pago)
- Draws interest when it is stipulated
by the contacting parties or when the
debtor incurs a legal delay.
 Tax vs. Special Assessment
 Tax
- Imposed upon persons, properties, or
privileges.
- Levied without expectation of a direct
proximate benefit.
 Special Assessment
- Levied by the gov’t on lands adjacent
to a public improvement.
- Imposed on land only and is intended
to compensate the gov’t for a part of
the cost of improvement.
- Attaches to the land
 Tax vs. Tariff
 Tax
- Amount imposed upon persons,
properties, transactions or privileges.
 Tariff
- Amount imposed on imported and
exported commodities.
  Tax vs. Penalty
 Tax
- Imposed for the support of gov’t.
- Arises from law
 Penalty
- Imposed to discourage an act.
- Imposed by both gov’t and private
individuals
- Arises from bot law and contract
TYPES OF INCOME TAXPAYERS
A. Individual
1. Citizen
Under the constitution, citizens are:
a. Those who are citizens of the PH at the
time of adoption of Constitution on Feb.
2, 1987 (currently used)
b. Those born before Jan. 17, 1973 of
Filipino mothers who elected Filipino
citizenship upon reaching the age of
majority
c. Those whose fathers or mothers are
citizens of the PH
d. Those who are naturalized in
accordance with the law. (Hindi pumasa
sa A and C)
a. Resident citizen
- Filipino citizen residing/living in the
PH.
b. Non-resident citizen
 Wanted to migrate in other country.
Intention to reside in other country.
 Overseas Filipino workers not living
permanently in other country.
 Works and derives income from
abroad and whose employment
thereat requires him to be physically
present abroad most of the time
during the taxable year.
 He arrives in the PH with respect to
his income derived from sources
abroad until the date of his arrival in
the PH
*Filipinos working in the PH embassies or
PH consulate offices are not considered
non-resident citizens*
2. Alien
- Any nationality that is not Filipino
a. Resident alien
- An individual who is residing in the
PH but it is not a citizen thereof, such
as:
1. Without definite intention as to
his stay (1 year requirement)
(see: Length of stay B)
2. Definite purpose which require
an extended stay and to make his
home temporarily in the PH,
although it may be his intention
at all times to return to his
domicile abroad
(physically present and require an
extended stay)
b. Non-resident alien
- An individual who is not residing in
the PH and who is not a citizen
 Non-resident alien engaged in trade
or business (NRA-ETB)
- stay in the PH for an aggregate
period of more than 180 days
during the year.
*More than 1year it consider as
RA
 Non-resident alien not engaged in
trade or business (NRA-NETB)
1. Have a definite purpose and
promptly accomplish.
2. Will not reach more than 180
days
3. Taxable estates and trusts
- Individual taxpayers
- Separate entity
1. Estate
- Properties, rights (not terminate by
his death), and obligations of a
deceased person not extinguished by
his death.
- Still earns income.
Taxpayer of estate
 Judicial Settlement
- Individual taxpayers
- Taxable on the income of the
properties left by the decedent.
 Extrajudicial Settlement
- Exempt entities
- the income of the properties of
the estate is taxable to the heirs.
2. Trust
- Assets that segregates for the
benefit of beneficiary
- Grantor or trustor transfers
property to beneficiary manage
by a third party (trustee or
fiduciary)
 Irrevocable
- Individual taxpayer
 - The income of the property held in
trust is taxable to the trust.
- Hindi pwedeng bawiin
- taxable
 Revocable
- Not considered as individual
taxpayer
- The income of the property is
taxable to the grantor not to the
trust.
- Pwedeng bawiin.
LENGTH OF STAY
- Determine how long/length you are staying.
a. Citizen staying abroad for a period of at
least 183 days are considered non-resident.
(calendar year)
b. Aliens who stayed in the PH for more than 1
year as of the end of the taxable year are
considered resident.
c. Aliens who stayed in the PH for not more
than 1 year but more than 180 days are
deemed non-resident aliens engaged in
business.
d. Aliens who stayed in the PH for not more
than 180 days are considered non-resident
aliens not engaged in trade or business.
B. Corporations
- Shall include partnerships
- Includes profit-oriented and non-profit
institutional such as charitable institutions,
cooperatives, government agencies, and
instrumentalities, associations, leagues,
civic, or religious and other organizations.
1. Domestic Corporation
- Organized in accordance with PH laws.
- Incorporated in PH
2. Foreign Corporation
- Organized under a foreign law.
a. Resident Foreign Corporation (RFC)
- Operates and conducts business in
the PH through a permanent
establishment. (Ex. Branch)
- With operation
b. Non-resident Foreign Corporation
(NRFC)
- Does not operate or conduct business
in the PH
Special Corporations
- Domestic or foreign corporations which are subject
to special tax rules or preferential tax rates.
Other Corporate Taxpayers
1. Partnership
- Business org owned by 2 or more persons who
contribute their industry or resources to a
common fund for the purpose of dividing the
profits from the venture.
- Considered as corporate taxpayers.
Types of Partnership
a. General Professional Partnership (GPP)
- Both of them are corporation and
one of them is not taxable as a
corporation
- Pass on entities
- Partnership of professionals
- Corporation is not a taxable entity
b. Business Partnership
- One formed for profit.
- Taxable as a corporation
2. Joint Venture
- Combination forming one organization
- Business undertaking for a particular purpose
- May be organized as a partnership or
organization
- After the undertaking, it will be dissolved
Types of Joint Ventures
a. Exempt joint ventures
- There’s a project/service contract in
gov’t.
- Engaging in petroleum, coal, geothermal,
and other energy operations
- Pass-on entity
- Not treated as a corporation and is tax-
exempt on its regular income
- Venturers are taxable to their share in
the net income of the joint venture.
b. Taxable joint ventures
- Taxable as corporations
- Tax the joint ventures
3. Co-ownership
- Joint ownership of a property formed for the
purpose of preserving the same and/or
dividing its income.
- 2 or 3 owners
- Taxable if there is reinvestment
- Co-ownership that reinvests the income will
be considered as unregistered partnership
taxable as a corporation.
- Co-ownership that limited to property
preservation or income collection is not a
taxable entity. (exempted)
- Co-owners are taxable on their share on the
income of the co-owned property.