Course Code TAX101

Course Title Income Taxation

Class BSA III
Instructor Leylane D. Olan, CPA
Prepared by Leylane D. Olan
Date January 2018
 After this meeting, you should be able to:
1. Define Taxation
2. Explain the various doctrines, theories and
principles of taxation
3. Describe the inherent powers of the state
4. Determine the scope and limitations of taxation
5. Determine the situs of taxation
6. Explain other fundamental doctrines in taxation
7. Determine what constitutes double taxation
8. Identify the various “escapes from taxation”

Taxation: General Concepts and Principles 2

 A state power
Inherent power of the state to enforce proportional
contribution from its subject for public purpose.
 A legislative process
Process of laying taxes by the legislature of the State to
enforce proportional contributions from its subjects for
public purpose.
 A mode of cost distribution
Mode by which the State allocates its costs or burden
to its subjects who are benefited by its spending.

Taxation: General Concepts and Principles 3

 System of government is indispensable to
relish the benefits of a civilized and orderly
society.
 Government provides a vast array of public
services.
 The government needs funding.
Government cannot exist without a system of
funding.

Taxation: General Concepts and Principles 4

 Mutuality of support
• Government provides benefit to the people thru
public services
• People provide the funds that finance the
government.
 Receipt of benefits is conclusively presumed.
• Hence, absence of benefit cannot be used as a
defense to avoid payment of taxes.
• Direct receipt or actual availment of gov’t services
is not a precondition to taxation
Taxation: General Concepts and Principles 5
 Taxation is a mode of distributing gov’t costs to the
people.
 General considerations in taxation:
 Benefit received theory – the more benefits you
get from the government, the more taxes you
should pay.
 Ability to pay theory
• Taxation should consider ability to pay
• Those who have more should be taxed more
even if they benefit less from the government.
• Can be Vertical Equity or Horizontal Equity
Taxation: General Concepts and Principles 6
 Taxes are the lifeblood of the government.
 Prompt and certain availability of taxes are an
imperious need
 Government’s ability to serve the people depends on
taxes.
 Hence:
• Imposed even without Constitutional grant
• Claims for exemption are construed against taxpayers
• Government can choose the objects of taxation.
• Courts cannot interfere with the collection of taxes.

Taxation: General Concepts and Principles 7

Natural, inseparable and inherent to every government.
 Taxation Power
• Power to enforce proportional contribution from its
subjects to sustain itself.
 Police Power
• Power to enact laws to protect itself and the well-
being of the people.
 Power of Eminent Domain
• Power to take private property for public use after
paying just compensation.

Taxation: General Concepts and Principles 8

Similarities:
1. Necessary attributes of sovereignty
2. Inherent to the State
3. Legislative in nature
4. Ways in which the State interferes with private rights
and properties
5. Exist independently from the Constitution.
6. Presuppose an equivalent form of compensation
received by persons affected by the exercise of power.
7. Exercise by LGUs may be limited by national legislature.

Taxation: General Concepts and Principles 9

Aspect Taxation Police Eminent Domain
Exercising Government Government Government and
Authority Private Utilities
Purpose For the support of To protect the For public use
government general welfare of
the people
Persons affected Community or Community of Owner of the
class of class of property
individuals individuals
Amount of Unlimited Limited No amount is
imposition (tax is based on (imposition is imposed.
gov’t needs) limited to cover (the gov’t pays
legislation) just amount of
compensation)

Taxation: General Concepts and Principles 10

Aspect Taxation Police Eminent Domain

Importance Most important Most superior Important

Relationship with Inferior to “non- Superior to the Superior to the

the Constitution impairment “non-impairment “non-impairment
clause” clause” clause

Limitation Constitutional Public interest Public purpose

and inherent and due process and just
limitations compensation

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 Comprehensive
 Plenary
 Supreme
 Generally unlimited
• but not absolutely unlimited
• subject to Constitutional and inherent
limitations

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 Inherent Limitations:
1. Territoriality
 Imposed within state boundaries, no encroachment
2. International Comity - Mutual courtesy or reciprocity
3. Public purpose
 Absolutely for public purpose or the common good
4. Exemption of the government
 Gov’t can tax itself but this is uncommon.
 Taxable: income from properties & activities for profits
5. Non-delegation of taxing power
 Legislative taxing power is vested exclusively in Congress.
 Doctrine of separation of the branches of government.
Taxation: General Concepts and Principles 13
 Constitutional Limitations:
1. Due Process of Law
2. Equal protection of the law
3. Uniformity rule in taxation
4. Progressive system of taxation
5. Non-imprisonment for non-payment of debt or poll tax
6. Non-impairment of obligations and contracts
7. Free worship rule
8. Exemption of religious, charitable or educational entities,
etc. from property taxes (if actually, directly and exclusively
used for such purposes)

Taxation: General Concepts and Principles 14

 Constitutional Limitations:
9. Non-appropriation of public funds or property for the benefit of
any church, sect or religion
10. Exemption from taxes of the revenues and assets of non-profit,
non-stock educational institutions
11. Concurrence of a majority of all members of Congress for the
passage of a law granting tax exemption
12. Non-diversification of tax collections
13. Non-delegation of the power of taxation
14. Non-impairment of the jurisdiction of te Supreme Court to
review tax cases
15. Appropriations, revenue or tariff bills must originate from
Congress
16. Delegation of taxing power to LGUs
Taxation: General Concepts and Principles 15
 Levy or imposition (impact of taxation)
◦ Refers to enactment of tax law
◦ Tax bill must originate from Lower House, but each
house may have their own version
◦ Tax bill cannot originate from Senate
 Assessment and collection (incidence of taxation)
◦ Tax law is implemented by the administrative branch
of government
◦ Administrative branch is the Executive branch (under
the Office of the President thru the Dept of Finance)

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 Fiscal Adequacy
◦ Sources of revenue are sufficient to meet government
expenditures
 Equality or Theoretical Justice
◦ Tax imposed must be proportionate to ability to pay
 Administrative Feasibility
◦ The tax law must be capable of convenient, just and
effective administration

Taxation: General Concepts and Principles 17

“Situs” – where something is taxed
1. Business tax –place where business is
conducted
2. Income tax on services –place where the
services are rendered
3. Income tax on goods – gain on sale is taxed in
the place of sale
4. Property tax – where the property is located
5. Personal tax– place of residence

Taxation: General Concepts and Principles 18

1. Marshall Doctrine – power to tax involves the power to
destroy (taxation is used to stop activities that the state doesn’t want)
2. Holmes Doctrine –Taxation power is not the power to
destroy if the court sits. (taxation is used to encourage people to do
the activities that the state wants them to pursue)
3. Prospectivity of tax laws– Tax laws are generally
prospective in operation. Constitution prohibits law
that retroacts, except under certain justifiable
conditions.
4. Non-compensation or set-off – no offsetting
5. Non-assignment of taxes
Taxation: General Concepts and Principles 19
6. Imprescriptibility in taxation – taxes do not prescribe
unless the law itself so provides.
7. Doctrine of Estoppel – when somebody is prohibited
from doing an act. This applies only to taxpayers and not the
government
8. Judicial non-interference –Courts generally cannot
interfere in the collection of tax
9. Strict construction of tax laws – Taxation is the rule,
exemption is the exception. Tax exemptions are strictly
construed against the taxpayer.

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Double Taxation occurs when the same taxpayer is
taxed twice by the same tax authority for the same thing.
Elements:
 Primary element – same object
 Secondary elements:
• Same type of tax
• Same purpose of tax
• Same taxing jurisdiction/authority
• Same tax period

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 Direct – all the elements of double taxation exist for
both impositions
 Indirect – at least one of the secondary elements of
double taxation is not common for both impositions
 e.g., tax imposed by national and local gov’t on the same
income
How to minimize double taxation:
 Tax exemption
 Allowing foreign tax credit
 Allowing reciprocal tax treatment
 By treaties or bilateral agreements
Taxation: General Concepts and Principles 22
“Escape” – that which limits or avoids the impact of taxation
 Tax evasion – “tax dodging”
 illegal means to reduce/avoid tax
 Tax avoidance – “tax minimization”
 legal means to reduce/avoid tax
 Tax exemption – “tax holiday”
 immunity, privilege or freedom from being subject to tax
granted by the Constitution, law or contract.
 may be revoked by Congress unless granted by the
Constitution or by contract.

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 Tax Amnesty
 General pardon granted by the government on unpaid
tax liabilities of a taxpayer for a certain period. It is a
waiver by the government of its right to collect the tax.
 Covers civil and criminal liabilities of the taxpayer
 Tax Condonation (or tax remission)
 Forgiveness of the tax obligation of a taxpayer under
certain justifiable grounds
 Tax Compromise
 An agreement with the government to pay a reduced
amount of tax from that which was actually assessed.

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