INCOME TAXATION Principles of Taxation

• As to Nature: Taxation is an
inherent power of the state, and
Inherent Powers of the State is essentially a legislative
Taxation power.
• As to Scope: The power of
• reaches all the persons, taxation is unlimited and
properties, etc. covered by the comprehensive, and if there is
tax. any limitation at all, it is the
• there is payment of money by a sense of responsibility of the
taxpayer. members of the legislature to
• the taxpayer is presumed to their constituents.
receive a benefit from the
government.
• is for purpose of raising Limitations on the Power of
revenues. Taxation
• there is no limit on the amount
of the tax that may be imposed. 1. Inherent Limitations

Eminent Domain • the tax must be levied for a

• reaches only a particular owner public purpose
of property. • the power of taxation cannot be
• there is taking of property by delegated
government. • double taxation, whenever
• the property owner receives a possible, must be avoided and
benefit by way of just prevented
compensation. • government instrumentalities
and agencies through which the
Police Power government exercises sovereign
• is for purpose of regulation. powers are exempt from tax
• the license fee should be, as a • limited to the territorial
general rule, just enough to jurisdiction of the taxing state
carry out regulation. • tax laws cannot apply to the
property of foreign
Taxation Definition governments
Taxation is the power inherent in
every sovereign state to impose a 2. Constitutional Limitations
charge or burden upon persons, • No law impairing the obligations
properties or rights to raise revenues and contracts shall be passed
for the use and support of the • No person shall be imprisoned
government, and to enable it to for debt or non-payment of a
discharge its appropriate functions. poll tax
• The rule on taxation shall be
uniform and equitable
• Charitable institutions,
churches, parsonages or
convents appurtenant thereto,
mosques, and non-profit
 cemeteries, and all kinds of
lands, buildings and
improvements actually, directly
or exclusively used for religious
and charitable purposes shall be
exempt from taxation.
Double Taxation
Double taxation is a tax principle
referring to income taxes paid twice
on the same source of income. It can
occur when income is taxed at both
the corporate level and personal level.
Double taxation also occurs in
international trade or investment
when the same income is taxed in two
BASIC PRINCIPLES OF A SOUND
different countries.
*Direct Duplicate or Direct Double
Taxation
ELEMENTS
- taxing twice for the same
purpose
- by the same taxing authority
- in the same jurisdiction
- for the same purpose
- in the same period
- some of the property in the
territory.
*Indirect Duplicate or Indirect
Double Taxation
- not repugnant to the constitution
- occurs when taxes on the property
are not imposed by the same taxing
authority.
- local and national governments
imposed taxes on the same property
during one taxable period. This kind of
imposition is legal.
CONSTITUTIONALITY OF DOUBLE
TAXATION
 Unlike the United States
Constitution, our Constitution
does not prohibit double
taxation.
 While it is not forbidden, it is
something not favored.
 However, where there is direct
double taxation, there may be a
violation of the constitutional
precepts of equal protection and
uniformity in taxation.
TAX SYSTEM
1. Fiscal Adequacy – the sources
of revenues, as a whole, should
provide enough funds to meet
the expanding expenditures of
the government.
2. Theoretical Justice – taxes
must be based on the
taxpayer’s ability to pay.
3. Administrative Feasibility –
tax should be clear to the
taxpayer, not unduly
burdensome and discouraging
to business convenient as to
time and manner of payment,
and capable of enforcement by
competent public officials.
THE PHILIPPINE INCOME TAX
LAW
 The first income tax law in the
Philippines was the US
Revenue of 1913, also known
as the Tariff Act or Underwood-
Simmons Act.
 It was signed into law by Pres.
Woodrow Wilson on October 3,
1913, and sponsored by
Alabama Representative Oscar
Underwood, but made to apply
to income earned from March 1,
1913.
 This law was amended by the
US Act of 1916 also known as
the Jones Act, the Philippine
Autonomy Act or the Act of
Congress of August 29, 1916.
 It contained the first formal and
official declaration of the United
States commitment to grant
independence to the Philippines.
 Among the salient provisions:
o Creation of an all Filipino
legislature (senate to
replace the Philippine
Commission which had
served as the upper
chamber of the
legistature).
 On October 3, 1917, the U.S.
Congress passed the War
Revenue Act of 1917,
increasing income taxes to
unprecedented levels in order to
raise more money for the war
effort.
 Act No. 2833 enacted on
March 9, 1919 was the first
income tax law passed by the
Philippine Legislative Body,
although it was patterned after
the US Act of 1916.
 On June 15, 1939,
Commonwealth Act No. 466,
otherwise known as the
National Internal Revenue
Code, was approved with Title
II thereof which took effect only
on July 1, 1939, but the
provisions of the income tax law
were made to apply to income
earned from January 1, 1939.
 On June 3, 1977, Presidential
Decree No. 1158 consolidated
the internal revenue law and
Presidential Decrees into a
single tax code known as the
National Internal Revenue
Code of 1977.
 In October 1985, Presidential
Decree No. 1994, after
amending certain provisions of
the National Internal Revenue
Code, called the Code the
“National Internal Revenue
of 1986.”
 Executive Orders during the
Revolutionary Government of
the Philippines in 1986
amended certain provisions of
the National Internal Revenue
Code.
 Tax Reform Act of 1977 (RA
8424) renamed the Code as
the National Internal
Revenue Code of 1977 which
is the present Income Tax Law.
*RA 9504
“An Act Amending Sections 22,
24, 343, 35, and 79 of RA 8424
as amended,” was signed into
law and made effective July 6,
2008
 Amendments: TAX DEFINED ESSENTIAL
*Increase of personal and CHARACTERISTICS OF A TAX
additional exemption,
*Compensation received by  a forced contribution upon the
minimum wage earners and person, or rights exercised
other concerns.  exacted pursuant to legislative
authority in the exercise of the
*RA 10653 taxing power of a sovereign
state
“An act adjusting the 13th
 proportionate in character
MONTH PAY and other benefits
 payable in money
ceiling excluded from
 imposed for the purpose of
computation off GROSS
raising revenue
INCOME for purposes of income
 to be used for a public purpose
taxation, amending Section
32(B), Chapter VI of the NIRC CLASSIFICATION OF TAXES
OF 1997, as amended”
 Signed on February 12, 2015 1. As to Subject Matter
and made effective February 2. As to Who Bears the Burden
27, 2015. 3. As to Determination of the
 The amount of P82,000.00 shall Amount
apply to the 13th month pay and 4. As to Purpose
other benefits received by 5. As to Scope
officials and employees of public 6. As to Proportionality or Rate
and private entities beginning *As to Subject Matter
January 1, 2015.
1. Personal, capitation or
*RA 10963
poll tax – a fixed amount
“Tax Reform for Acceleration and upon all persons, or upon all
Inclusion Act (TRAIN)” persons of a certain class,
residents within a specified
o Introduces omnibus territory, without regard to
amendments to the current their property or occupation.
NIRC 2. Property tax – a tax
-new sections assessed against all
-repealed a number of properties, or all properties
special laws and codal of a certain class located
provisions within the jurisdiction of the
-revised administrative taxing authority in
provisions proportion to its value.
o Effective January 1, 2018 3. Excise tax – a charge upon
the performance of an act,
the enjoyment of a privilege,
or engaging in an
occupation.
*As to who Bears the Burden 2. Regressive tax – a tax in
which the increase in the tax
1. Direct tax – one which is
rate is not proportional to
demanded from the person
the increase in the tax base.
whom the law intends or
3. Proportional tax – a tax of
desires to pay it.
a fixed percentage of
2. Indirect tax – one which is
amount of the base.
shifted by the taxpayer to
someone else.

*As to Determination of the

Amount

1. Specific tax – a tax which

imposes a specific sum by
the head or number, or
some standard of weight or
measurement, and which
requires no assessment
other than by the listing and
classification of the subjects
to be taxed.
2. Ad valorem – a tax or duty
upon the value of the article
or subject of taxation.

*As to Purpose

1. General tax – a tax levied

for the general purposes of
government.
2. Special tax – a tax levied
for a special purpose.

*As to Scope

1. National tax – a tax levied

by the national government.
2. Local tax – a tax levied by
a local government unit.

*As to Proportionality

1. Progressive tax – a tax in

which the increase in the tax
rate is proportionate to the
increase in the tax base.