TAXATION LAW

Taxation law refers to any law that arises from the exercise of the taxation power the
State.
Types of taxation laws
Tax laws — these are laws that provide for the assessment and collection of taxes.
Examples:
a. The National Internal Revenue Code (NIRC)
b. The Tariff and Customs Code
c. The Local Tax Code
d. The Real Property Tax Code
Tax exemption laws — These are laws that grant immunity from taxation.
Examples:
a. The Minimum Wage Law
b. The Omnibus Investment Code of 1987 (E.O 226)
c. Barangay Micro-Business Enterprise (BMBE) Law
d. Cooperative Development Act

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) VS. TAX LAWS

Generally accepted accounting principles or GAAP are not laws, but are mere
conventions of financial reporting.

In the preparation and filing of tax returns, taxpayers are mandated to follow the tax law
in cases of conflict with GAAP.
NATURE OF PHILIPPINE TAX LAWS
Philippine tax laws are civil and not political in nature.
Our internal revenue laws are not penal in nature because they do not define crime. Their
penalty provisions are merely intended to secure taxpayers’ compliance.
TAX
Tax is an enforced proportional contribution levied by the lawmaking body of the State to
raise revenue for public purpose.
Elements of a Valid Tax
1. Tax must be levied by the taxing power having jurisdiction over the object of taxation.
2. Tax must not violate constitutional and inherent limitations.
3. Tax must be uniform and equitable.
4. Tax must be for public purpose.
5. Tax must be proportional in character
6. Tax is generally payable in money.
CLASSIFICATION OF TAXES
A. As to purpose
Fiscal or revenue- a tax imposed for general purpose

Regulatory-A tax imposed to regulate business,

Sumptuary — a tax levied to achieve some social or economic objectives

B. As to subject matter
a. Personal, poll or capitation- a tax on person who are residents of a particular territory

b. Property tax - a tax on properties

c. Excise or privilege tax- a tax imposed upon the performance of an act, or engagement in an
occupation
C. As to incidence
Direct tax - When both the, the tax is s impact and incidence of taxation rest upon the same
taxpayer aid to be direct. The tax is collected from the person who is intended to pay the same.
The statutory taxpayer is the economic taxpayer.
2. Indirect tax When the tax is paid by any person other than the one who is intended to pay the
same, the case of business taxes the tax is said to be indirect. This where the statutory taxpayer is
not the economic taxpayer. The statutory taxpayer is the person named by law to pay the tax
D. As to amount

1. Specific tax -a tax of a fixed amount imposed on a per unit basis such as per kilo, liter or
meter, etc.

2. Ad valorem- a tax of a fixed proportion imposed upon the value of the object
E. As to rate
Proportional tax - This is a flat or fixed rate tax. The use of proportional tax emphasizes equality
as it subjects all taxpayers with the same rate without regard to their ability to pay.

Progressive or graduated tax -This is a tax which imposes increasing rates as the tax base
increase. The use of progressive tax rates results in equitable taxation because it gets more tax to
those who are more capable. It aids in lessening the gap between the rich and the poor.

c. Regressive tax — this tax imposes decreasing tax rates as the tax base increase. This is the
total reverse of progressive tax. Regressive tax is regarded as anti-poor. It directly violates the
Constitutional guarantee of progressive taxation.

d. Mixed tax — This tax manifest tax rates which is a combination of any of the above types of
tax.

F. As to imposing authority
1. National tax - tax imposed by the national government
Examples:
a. Income tax— tax on annual income, gains or profits
b. Estate tax — tax on gratuitous transfer of properties by a decedent upon death
c. Donor’s tax — tax on gratuitous transfer of properties by a living donor
d. Value Added Tax - consumption tax collected by VAT business taxpayers
Other percentage tax — consumption
E. Tax collected by non-VAT business taxpayers
F. Excise tax — tax on sin products and non-essential as alcohol, cigarettes and metallic
minerals. differentiated with the privilege tax which is also called excise tax.
G. Documentary stamp tax - a tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto.
2. Local tax - tax imposed by the municipal or local government
Examples:
a. Real property tax
b. Professional tax
c. Business taxes, fees, and charges
d. Community Tax
e. Tax on business and other financial institution
TAXES WITH SIMILAR ITEMS
Tax refers to the amount imposed by the government for public purpose.Rpevenue refers
to all income collections of the government which includes taxes, tariff, licenses, toll, penalties
and others. The amount imposed is tax but the amount collected is revenue.
TAX VS License fee
Tax has a broader subject than license. Tax emanates from taxation power.
License fee emanates from police power and is imposed to regulate the exercise of a
privilege such as the commencement of a business or a profession.
Tax vs. Toll
Tax is a levy of government; hence, it is a demand of sovereignty.
Toll is a charge for the use of other’s property; hence, it is a demand of ownership.
Tax vs. Debt
Tax arises from law while debt arises from private Contracts. Non-payment of tax leads
to imprisonment, but non-payment of debt does not lead to imprisonment.

Debt can be subject to set-off but tax is not. Debt can be paid in kind (dacion en pago)
but tax is generally payable in money.
Tax vs. Special Assessment
Tax is an amount imposed upon persons, properties,or privileges.
Special assessment is levied by the government on lands adjacent to a public
improvement. It is imposed on land only and is intended to compensate the government for a part
of the cost of the improvement.
Tax vs. Tariff
Tax is broader than tariff. Tax is an amount imposed upon persons, privilege,
transactions, or properties.
Tariff is the amount imposed on imported or exported commodities.
Tax vs. Penalty
Tax is an amount imposed for the support of the government.
Penalty is an amount imposed to discourage an act.

Penalty may be imposed by both the government and private individuals. It may arise
both from law or contract whereas tax arises from law.
PRINCIPLES OF A SOUND TAX SYSTEM
According to Adam Smith, governments should adhere to certain principles or canons to
evolve a sound tax system:
1. Fiscal adequacy
2. Theoretical justice
3. Administrative feasibility

Requires that the sources of government funds must be sufficient to cover government
costs. The government must not incur a deficit.
Theoretical justice
Theoretical justice or suggests that taxation should consider the taxpayer's ability to pay.
It also suggests that the exercise of taxation should not be oppressive, unjust, or
confiscatory.
Administrative feasibility
Administrative feasibility suggests that tax laws should be capable of efficient and
effective administration to encourage compliance.
The following are applications of the principle of administrative feasibility:
1. E -filing and e -payment of taxes
2. Substituted filing system for employees
3. Final withholding tax on non-resident aliens or corporations
4. Accreditation of authorized agent banks in the filing and payment of taxes