WESTERN MINDANAO STATE UNIVERSITY

VISION
The Western Mindanao State University shall be the Center of Excellence and leading institution in human
resource development and research in the country and the ASEAN region with international recognition.

MISSION
To educate and produce well-trained, development-oriented and forward-looking professional and technical
manpower for the socio-economic, political and technological development of the Philippines. It shall endeavor to expand
the frontiers of knowledge and its uses to society through research in technology, the natural resources, physical and
social sciences.

COLLEGE OF LIBERAL ARTS: GOALS

a.) Be the center of excellence in the field of Communication Arts and Humanities as well as the Social
Sciences in Western Mindanao, the country and the global community;
b.) Train students to be productive citizens who are fully aware of their roles and participation in the society
who are globally responsive to the issues and concerns that generally affect them, their country and the
society;
c.) Promote competence among students in their respective program to prepare them in the social world of
work for a better and wholesome quality of life;
d.) Provide opportunity for students to develop their communication skills and creativity;
e.) Produce a new breed of competent Social Science practitioners in their areas of specialization imbued
with a high sense of social responsibility, and empowered to respond to the needs of various local and
global communities;
f.) Strengthen the cultural, moral, physical and spiritual values of students through proper guidance
counseling, interaction and intercultural dialogues;
g.) Facilitate the students’ production of research and extension output in their field of specialization.

1
BS ACCOUNTANCY DEPARTMENT: OBJECTIVES
a) To continuously upgrade the level of curricular disciplines that are responsive to the needs of the emerging
business industry;
b) To instil in the mindset of the Faculty, students and staff, the goals towards academic excellence
c) To ensure that the Faculty and the Administration will provide a learning environment for the students, and also
practice their duties and responsibilities within the bounds of ethics;
d) To encourage each student possible to develop their relational skills within their co-students in the Department,
within the college, going towards the University level until outside the institution;
e) To develop leaders from among the roster of potential students and also train them to be an inspiration to younger
Accountancy students on their given skills and abilitites;
f) To continuously maintain an environment that practices social responsibility and corporate governance.

BS ACCOUNTANCY PROGRAM: OUTCOMES

a) Have a high degree of competence in the practice of the accounting profession, including the processing of
financial reports, use of critical thinking as they will be exposed in an actual workplace;

b) Have effective oral and written communication skills in dealing with users of financial information, while
applying their problem solving skills for the formulation of informed decisions in appropriate cases;

c) Can demonstrate integrity in the practice of their profession; ever mindful of their civic social responsibility;

2
 WESTERN MINDANAO STATE UNIVERSITY
ACCOUNTANCY DEPARTMENT
COLLEGE OF LIBERAL ARTS

General Principles ofTaxation

LEARNING OBJECTIVES
After studying this chapter, you should be able to…
1. Describe the nature, purposes and coverage of taxation.
2. Describe the theory and basis of taxation.
3. Describe the basic principles of a sound tax system.
4. Identify the three inherent powers of the state.
5. Identify the various classification of taxes.
6. Enumerate inherent and constitutional limitations of taxes.
7. Describe the rule on Double Taxation.
8. Identify the various means of avoiding or minimizing the burden of taxation.
9. Identify the various sources of taxation.

Taxation
- It is the means by which the government raises income to defray its necessary expenses.

Purposes of taxation:

 To provide funds or property to finance the government’s activities

 To strengthen anemic enterprises (by giving tax exemptions)
 To protect local industries (imposition of high custom duties)
 Reduce inequalities of wealth (progressive taxes)
 Prevent inflation (increasing higher tax rates)

Coverage or Stages of Taxation

 Levy or Imposition – This involves the passage of tax laws which is generally a legislative act. In the Philippines, the taxing
power is exercised by Congress.
 Assessment – The process of determining the correct amount of tax due. This power is lodged to the Executive.
 Collection and Payment – the act of compliance with the tax law by the taxpayer. This power is lodged to the Executive.

Theory of taxation

- (Life blood theory) the existence of the government is necessary. In order for the government to be alive, it has to incur some
expenses. Therefore, the government has the right to compel contributions from their citizens.

Basis of taxation

- (Benefit-received theory) Taxation is based on the reciprocal duties of protection and support between the government and its people.

Nature of taxation:

1. Inherent in sovereignty
2. Legislative in character
3. Subject to constitutional and inherent limitations

Basic Principle of a sound tax system (FAT):

1. Fiscal adequacy – which means that the sources of revenue should be sufficient to meet the demands of public
expenditures.
2. Administrative feasibility – which means that the tax laws should be capable of convenient, just and effective
administration.
3. Theoretical justice/ equality – which means that the tax imposed should be proportionate to the taxpayer’s ability to pay.

THREE INHERENT POWERS OF THE STATE

1. Taxation
2. Police Power
3. Eminent Domain

3
Power to tax vs. Police power vs. Power of eminent domain

TAXATION POLICE POWER EMINENT DOMAIN

Power of the State to enact
such laws in relation to Power of the State to take
personsand property as may private property for public use
Power of the State to demand enforced
DEFINITION promote public health, upon paying to the owner a
contributions for public purposes
safety, morals, and the just compensation to be
general welfare of the ascertained according to law
public
Authority Government/political
Only the government or its political Only the government or its
Exercising the subdivision and public service
subdivisions political subdivisions
Power companies of public utilities
For the support of the For the promotion of Property is taken for public
PURPOSE
government the general welfare use
No transfer of title, at most,
Transfer of the right to
there is restraint on injurious
EFFECT Becomes part of public funds property whether it be
use of the
ownership or a lesser right
property
The public receives the GENERAL Maintenance of a healthy
Market value of the property
BENEFITS RECEIVED BENEFIT of protection of person, property economic standard of society
taken from him
and the promotion of the general welfare.
Limited to cost of regulation,
AMOUNT OF The owner is paid the market
No limit issuance of license fees
IMPOSITION value of the property taken
and/or surveillance
Relationship to
Superior to non- Superior to non-
the Inferior to non- impairment clause
impairment clause impairment clause
Constitution

CLASSIFICATION OF TAXES

A. As to the rate applied

Proportional Progressive Regressive

Based on a fixed percentage of The tax rate increases as the tax The tax rate decreases as the tax
the Tax Base base increases base increase

Ex. RPT, VAT Ex. Income Tax Ex. Walay

B. As to authority imposing it
1. National
2. Municipal/Local – RPTs, Community Tax/Poll Tax, Other taxes

C. As to measurement
Specific Ad Valorem
Measured by number, or based on weight or Based on the value of the property and may require
physical measurement the intervention of assessors and appraisers
Ex. Excise tax on lubrication oils, waxes, petroleum Ex. RPT, Liquors, Cigarettes packed by machine,
Automobiles

D. As to purpose
1. General - regular application of tax regulations; Levied without a specific or pre-determined purpose
2. Special - is a tax in addition to a regular tax (Discriminate); Application of some preferential tax (Benefit);
Levied with a special purpose

E. As to subject matter
1. Personal/Poll - Fixed amount imposed upon persons of a certain class without regard to property, trade,
business, or occupation. (Ex. Community Tax)
2. Property - Imposed on property (Ex. RPT)
3. Excise - Imposed upon the performance of an act; the exercise of a right; or the engaging in business or
profession. (Ex. VAT, Donor’s Tax, Estate Tax, Income Tax, Occupation Tax, Excise Tax)
F. As to burden
1. Direct - The liability for the tax (impact), and the burden thereof (incidence) fall on the same taxpayer (Ex.
Income Tax)
4
 2. Indirect -The liability or impact for the tax falls on the original tax, but the burden or incidence thereof is
shifted to another. (Ex. VAT, excise tax)
Limitation of taxation

1. INHERENT LIMITATIONS

a. non- Delegability
- As a general rule, the taxing power of the legislature may not be delegated. Exceptions to this non-delegability rule are:
1. The authority of the President to fix tariff rates, import and export quotas and etc.
2. Local government units. Ex. RPT
3. Delegation to administrative agencies for implementation of the tax laws, and collection of the tax to
the BIR.
b. Exemption of the government agencies and its other instrumentalities
c. Taxation must be levied upon solely for Public purpose
d. International comity
- This principle limits the authority of the government to effectively impose taxes on a sovereign state and its instrumentalities,
as well as on its property held and activities undertaken in that capacity. As a rule, the Philippine government cannot tax
foreign ambassadors nor impose RPT upon foreign embassies.
e. Territoriality

2. CONSTITUTIONAL LIMITATION
a. Due process
b. Equal protection clause
c. Freedom of speech
d. Non-infringement of religious freedom and worship
e. Non-impairment of contracts
f. Uniformity, Equality and Progressivity of taxation
- Uniformity – persons or properties failing under the same class should be taxed the same kind and rate of tax.
- Equality – the same means and method be applied impartially to all the members of each class.
g. No person shall be imprisoned for debt or non-payment of poll tax.
h. Limit on the congressional power to delegate to the president the authority to impose tariff rates, import export quotas, etc.
i. Tax exemption of properties actually, directly and exclusively used for religious, charitable and educational purposes
j. No law shall granting any tax exemption shall be passed without the concurrence of a majority of all the members of
Congress.
k. Non-impairment of the jurisdiction of the Supreme Court in tax cases
l. Veto power of the president
m. Need for the appropriation before money may be paid out of the public treasury
n. Non-appropriation of public money or property for the use, benefit, or support of any sect, church or system of religion
o. Treatment of taxes levied for a special purpose
Double taxation

1. Taxing twice;
2. By the same taxing authority;
3. Within the same jurisdiction or taxing district;
4. For the samepurpose;
5. In the same year or taxing period;
6. Some of the property in the territory.

*There is no constitutional prohibition against double taxation in the Philippines, though it is not favored.

MEANS OF AVOIDING OR MINIMIZING THE BURDEN OF TAXATION (TACSEE)

1. Transformation- Manufacturer or producers pays the tax and recoups himself by improving his process of production
2. Avoidance- Using legally permissible tax rates or methods of assessing tax
3. Capitalization- Increasing the value of property
4. Shifting- the burden to another
o Impact of taxation- who carried the original burden
o Incident of taxation- to whom the burden was transferred
5. Exemption- Grant of immunity from the obligation of paying taxes
6. Evasion- (fraudulent means to defeat or lessen tax payment

Note: With the exception of evasion, all are legal means of escape.

Different Sources of internal revenue: VOIDEED

a. VAT
b. OPT
c. Income tax
5
 d. Documentary Stamp Tax
e. Excise taxes
f. Estate tax
g. Donor’s tax
___________________________________________________________________________________________________________
Practice Exercises

1. Taxation as distinguished from police power and power of eminent domain.

A. Property is taken to promote the general welfare.
B. Maybe exercised only by the government.
C. Operates upon the whole citizenry.
D. There is generally no limit as to the amount that may be imposed.

2. The following are constitutional limitations, except

A. No imprisonment for non-payment of poll tax.
B. Non-impairment of the obligation of contracts.
C. Rule of uniformity and equity in taxation.
D. Exemption from income tax of charitable institutions, cemeteries, churches,
personage or convents appurtenant thereto, as well as all lands, buildings and
improvements actually, directly and exclusively used for religious, charitable and
educational purposes.

3. Which of the following statements is correct?

A. The President is authorized to increase or decrease national internal revenue tax rates.
B. One of the nature of taxation is the reciprocal duties of protection and support between the state and subjects thereof.
C. Every sovereign government has the inherent power to tax.
D. Income tax in an indirect tax.

4. A tax must be imposed for public purpose. Which of the following is not a public purpose?
A. National defense
B. Public education
C. Improvement of the sugar and coconut industries.
D. Improvement of a subdivision road.

5. Which is not an essential characteristic of a tax?

A. It is unlimited as to amount.
B. It is payable in money.
C. It is proportionate in character.
D. It is an enforced contribution.

6. Special assessment is an enforced proportional contribution from owners of land especially

benefited by public improvement. Which one of the following is not considered as one of its
characteristics?
A. It is levied on land.
B. It is based on the government’s need of money to support its legitimate objectives.
C. It is not a personal liability of the persons assessed.
D. It is based solely on the benefit derived by the owners of the land.

7. It is the privilege of not being imposed a financial obligation to which others are subject.
A. Tax incentive
B. Tax exemption
C. Tax amnesty
D. Tax credit

8. As to scope of the legislative power to tax, which is not correct?

A. Where there are no constitutional restrictions, and provided the subjects are within the territorial jurisdiction of the state,
Congress has unlimited discretion as to the persons, property or occupations to be taxed.
B. In the absence of any constitutional prohibition, Congress has the right to levy a tax of any amount it sees fit.
C. The discretion of Congress in imposing taxes extends to the mode, method or kind of tax, unless restricted by the constitution.
D. The sole arbiter of the purpose or which taxes shall be levied is Congress, provided the purpose is public and the courts may
not review the levy of the tax to determine whether or not the purpose is public.

9. Which of the following is a nature of taxation?

A. The power is granted by legislative action.
B. It is essentially an administrative function.
C. It is generally payable in money.
D. Without it the state can continue to exist.

10. Which of the following is not a determinant of the place of taxation?

A. Source of the income
B. Citizenship of the taxpayer
6
 C. Residence of the taxpayer
D. Amount of tax to be imposed

11. Which of the following statements is not correct?

A. An inherent limitation of taxation may be disregarded by the application of a constitutional limitation.
B. The property of an educational institution operated by a religious order is exempt from property tax, but its income is subject to
income tax.
C. The prohibition of delegation by the state of the power of taxation will still allow the BIR to modify the rules in time for filing of
returns and payment of taxes.
D. The power of taxation is shared by the legislative and executive departments of the government.

12. Statement 1 – The point on which tax is originally imposed is impact of taxation.
Statement 2 – Eminent domain is inferior to non-impairment clause of the constitution.
Statement 3 – As a rule, taxes are subject to set-off or compensation.
Statement 4 – As a rule, provisions on the validity of tax exemptions are resolved liberally
in favor of the taxpayer.

Statement 1 Statement 2 Statement 3 Statement 4

A. True False False True
B. False True True False
C. True True False False
D. False False True True

13. A tax system where the revenues are supplied mostly by indirect taxes.
A. Schedular C. Progressive
B. Proportional D. Regressive

14. A tax system where the greater bulk of the tax revenues is derived by direct taxes.
A. Schedular C. Progressive
B. Proportional D. Regressive

15. This is an inherent limitation on the power of taxation.

A. Rule on uniformity and equity in taxation.
B. Due process of law and equal protection of the laws.
C. Non-impairment of the jurisdiction of the Supreme Court in tax cases.
D. Tax must be for the public purpose.

16. This is a constitutional limitation on the power of taxation.

A. Tax laws must be applied within the territorial jurisdiction of the state.
B. Exemption of government agencies and instrumentalities from taxation.
C. No appropriation of public money for religious purposes.
D. Power to tax cannot be delegated to private persons or entities.

17. They exist independent of the constitution being fundamental powers of the state, except
A. Power of taxation C. Power of imminent domain
B. Police power D. Power of recall

18. The power to acquire private property upon payment of just compensation for public purpose
A. Power of taxation C. Power of imminent domain
B. Police power D. Power of recall

19. The power to regulate liberty and property to promote the general welfare.
A. Power of taxation C. Power of imminent domain
B. Police power D. Power of recall

20. The power to demand proportionate contributions from persons and property to defray the
expenses of the government.
A. Power of taxation C. Power of imminent domain
B. Police power D. Power of recall

21. Basic Principles of a sound tax system, except

A. Fiscal adequacy C. Administrative feasibility
B. Equality or theoretical justice D. Intellectual sensitivity

22. The tax imposed should be proportionate to the taxpayer’s ability to pay.
A. Fiscal adequacy C. Administrative feasibility
B. Equality or theoretical justice D. Intellectual sensitivity

23. The sources of revenue as a whole, should be sufficient to meet the demands of public
expenditures.
A. Fiscal adequacy C. Administrative feasibility
7
 B. Equality or theoretical justice D. Intellectual sensitivity

24. The tax laws must be capable of convenient, just and effective administration.
A. Fiscal adequacy C. Administrative feasibility
B. Equality or theoretical justice D. Intellectual sensitivity

25. Persons or things belonging to the same class shall be taxed at the same rate.
A Simplicity in taxation C. Equality in taxation
B. Reciprocity in taxation D. Uniformity in taxation

26. The tax should be proportional to the relative value of the property to be taxed.
A Simplicity in taxation C. Equality in taxation
B. Reciprocity in taxation D. Uniformity in taxation

27.The following are the nature of taxation, except

A. Inherent in sovereignty
B. Essentially legislative in character
C. Subject to inherent and constitutional limitation
D. Subject to approval by the people.

28. It literally means “place of taxation”; the country that has the power and jurisdiction to levy
and collect the tax.
A. Basis of taxation C. Scope of taxation
B. Situs of taxation D. Theory of taxation

29. The existence of the government is a necessity and that the state has the right to compel all
individuals and property within its limits to contribute
A. Basis of taxation C. Scope of taxation
B. Situs of taxation D. Theory of taxation

30. The reciprocal duties of support and protection between the people and the government.
A. Basis of taxation C. Scope of taxation
B. Situs of taxation D. Theory of taxation

31. Subject to inherent and constitutional limitations, the power of taxation is regarded as
supreme, plenary, unlimited and comprehensive.
A. Basis of taxation C. Scope of taxation
B. Situs of taxation D. Theory of taxation

32. Our National Internal Revenue Laws are

A. Political in nature C. Criminal in nature
B. Penal in nature D. Civil in nature

33. The levying or imposition of tax and the collection of the tax are processes which constitute
the taxation system.
A. Basis of taxation C. Nature of taxation
B. Aspects of taxation D. Theory of taxation

34. The process or means by which the sovereign, through its law-making body raises income to
defray the expenses of the government.
A. Toll C. Taxation
B. License fee D. Assessment

35. Enforced proportional contributions from persons and property levied by the state by virtue
of its sovereignty for the support of the government and for all public needs.
A. Toll C. Taxes
B. License fee D. Assessment

36. An escape from taxation where the tax burden is transferred by the one on whom the tax is
imposed or assessed to another.
A. Shifting C. Transformation
B. Exemption D. Capitalization

37. An escape from taxation where the producer or manufacturer pays the tax and endeavors to
recoup himself by improving his process of production thereby turning out his units of
products at a lower cost.
A. Shifting C. Transformation
B. Exemption D. Capitalization

38. An escape from taxation where there is a reduction in the price of the taxed object equal to the capitalized value of future taxes
which the taxpayer expects to be called upon to pay.
A. Shifting C. Transformation
8
 B. Exemption D. Capitalization

39. The use of illegal or fraudulent means to avoid or defeat the payment of tax.
A. Exemption C. Avoidance
B. Shifting D. Evasion

40. The use of legal or permissible means to minimize or avoid taxes.

A. Exemption C. Avoidance
B. Shifting D. Evasion

END