CHAPTER 1- INTRO TO TAX

TAXATION- It is an essential state power of the state, a process of levying taxes by the legislature and it
is where the state allocates its cost to its subject.

THEORY OF TAXATION VS BASIS OF TAXATION

Theory of taxation- the government’s necessity for funding. The government cannot exist without the
benefit from its people.
Basis of taxation- mutuality support between the people and the government. The “give and take”
process.

THEORIES OF GOVERNMENT COST ALLOCATION

THEORY OF TAXATION
> GOVERNMENTAL NECESSITY
* The existence of the government depends upon its capacity to perform its two (2) basic functions:
A.. to serve the people
B.. to protect the people
>NECESSITY
• > Existence of a government is a necessity and cannot continue without any means to pay for
expenses

BASIS OF TAXATION
>RECIPROCAL DUTIES OF SUPPORT AND PROTECTION
1) Support on the part of the taxpayers
2) Protection and benefits on the part of the government.

ASPECTS OF THE ABILITY TO PAY THEORY

VERTICAL EQUITY - extent on one’s ability to pay is directly proportional to the level of his tax base.
- Greater income = More taxable (Gross Concept)
HORIZONTAL EQUITY - requires consideration of the particular circumstances of the taxpayer
- He who has less expense should be taxed more. (Net concept)

THE LIFEBLOOD DOCTRINE – Taxes are the lifeblood of the government in short, government it is
dependable on taxes, without it, the government cannot operate or function.

THE INHERENT POWERS OF THE STATE ( E.E.T)

1) Taxation power - to enforce proportional contribution
2) Police power – to enact laws
3) Eminent Domain -to take private property for public use

SCOPE OF TAXATION (CUPS)

1) Comprehensive
2) Unlimited
 3) Plenary
4) Supreme

THE LIMITATIONS OF THE TAXATION POWER

A. INHERENT LIMITATIONS

TERRITORIALITY OF TAXATION
- The government CAN ONLY demand tax obligations upon its residents WITHIN its territorial
jurisdiction. Foreign countries aren’t taxable unless it has a business within the Philippines.

TWO-FOLD OBLIGATIONS OF TAXPAYERS

1. Filing of returns and payment of taxes (FOR-POT)
2. WITHHOLDING of taxes on EXPENSE and REMITTANCE to the GOVERNMENT (WERG)

EXCEPTION
INCOME TAXATION TRANSFER TAXATION
Residents and domestic Resident citizen, Non
corporations are taxable Resident Citizens and
WITHIN and OUTSIDE the Resident Aliens are
PH. taxable on TRANSFERS
OF PROPERTIES located
WITHIN or OUTSIDE the
PH.

INTERNATIONAL COMITY (mutual courtesy)

- All nations are equal

- Governments do not tax the income and properties of other governments.
- Governments give primacy to their treaty (agreement) obligations over their own domestic tax
laws.
 Embassies, international org., and their non-filipino staff are NOT subject to both income
and property taxes.

PUBLIC PURPOSE
- Taxation must be exercised absolutely for public purposes ONLY.

EXEMPTION OF THE GOVERNMENT

- The government cannot tax itself including all public properties.
- Income from government’s properties and activities conducted for PROFIT including income
from government-owned and controlled corporations is SUBJECT TO TAX.

NON- DELEGATION OF THE TAXING POWER

- The legislative taxing power is non-delegable and it is vested only in congress. Means that no
other person or a representative than the people in the legislature can meddle with taxes and
what has been delegated cannot be further delegated.
 EXCEPTION
1. Local governments units are allowed to exercise the power to tax
2. The President is empowered to fix the amount of tariffs
3. Other cases that require expedient, effective administrations, implementation of
assessment and collection of taxes.