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Republic of the Philippines

ISABELA STATE UNIVERSITY
Echague, Isabela

INCOME TAXATION

Philippine
Income Taxation

Compilation
of Activities

Submitted by:
ABIGAIL GRACE D. CASCO, BSA 2-3
Student
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Republic of the Philippines
ISABELA STATE UNIVERSITY
Echague, Isabela

INCOME TAXATION

Activity 1:
Basic Principles of Taxation

Instructions:

A. Answer the following questions (10points each)

1. Among the three state powers, why is taxation the most important while
police power is the most superior? Explain.
2. I guess we are quite familiar with the taxation and police power of the
government, but we rarely hear about the power of eminent domain.
Can you share your idea and give examples on how the power of eminent
is being exercised by the government?
3. Taxation power is inferior to the “non-impairment clause” of the
constitution. Explain why.
4. Taxes must only be used for public purposes. Can u give actual cases
wherein taxes are used for personal/private interest? What are the
implications?
5. Primary income from properties/activities of religious institutions are
exempt while secondary income from the said activities are taxable. Can
you give some examples of primary and secondary income of some
religious institutions?
6. One of the constitutional limitations of taxation is the “Non-
imprisonment for non-payment of debt or poll tax”. What are the
exemptions?
7. Can we use public funds or properties for the benefit of any church,
sect, or system of religion? Why or why not? Explain.
8. Can you choose one among the limitations of taxation power and explain
it further?
9. Give example for each classification of taxes:
a. Personal, poll or capitation
b. Property
c. Excise or privilege
d. Specific
e. Ad valorem
f. Progressive
g. Regressive
h. Proportionate
i. National
j. Local
10.Explain how taxes are distinguished from the following terms:
a. Toll
b. Penalty
c. Special Assessment
d. Permit or licensed fee
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Republic of the Philippines
ISABELA STATE UNIVERSITY
Echague, Isabela

INCOME TAXATION
e. Debt

ANSWERS:

1. Taxation is the most important among the three state powers because it is
necessary for the continuous existence of the nation. It is the primary source of
government revenue that is used to effectively and permanently perform
government functions. Taxation is exercised to raise revenue for the very
existence of the government to serve the people for whose benefit taxes are
collected which make the payment of taxes compulsory. Without taxation, the
other inherent powers would be paralyzed. For this reason, even the police power
of the government may be exercised through taxation power. On the other hand,
police power is the most superior because it has the power to make and implement
laws for the general welfare. It legislate protection, safety and welfare of all in
order to achieve the healthy economic standard of the society.

2. Eminent domain refers to the power of the sovereign state to take private
property for public purpose. It is founded upon the idea that the common
necessities and interests of the community transcend individual rights in property.
The government may only exercise this power if they provide just compensation to
the property owners. It can also be exercised following the strict rules prescribed
by the legislatures where it must be in a constitutional manner. Examples of a
public purpose are to build a dam, a highway or a national park which are
important resources that benefit the general public. It can also be used for
economic development in a community.

3. Taxation is inferior to the “non-impairment clause” of the constitution in the

sense that taxation should not violate the impairment clause of obligations and
contacts, wherein “non-impairment clause” is limited in application to laws that
derogate from prior acts or contacts by enlarging, abridging or in any manner
changing the intention of the parties. In entering into contracts, the State acts in
the same manner as a private individual or corporation and it may not use its
sovereignty as justification in impairing a valid contractual obligation which it has
assumed.

4. Tax evasion and tax avoidance are some of the actual cases when taxes are used
for personal or private interest. Tax evasion happens when a person or company
escapes paying taxes by concealing the true state of their affairs to tax
authorities. It covers evasion of income tax, excise duty and custom duty frauds,
while tax avoidance lowers a person’s tax bill by structuring the transactions so
that it can reap the largest tax benefits. Tax evasion implies as an illegal activity
where those caught evading taxes are generally subject to criminal charges and
substantial penalties, on the other hand, tax avoidance is valid if used by the
taxpayer in good faith. The law does not forbid it and it does not constitute tax
fraud.
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Republic of the Philippines
ISABELA STATE UNIVERSITY
Echague, Isabela

INCOME TAXATION

5. Examples of a primary income or tax exemption for the religious institutions are
charity works, and institution and funds established for the advancement of
religion which includes synagogues, congregations, seminaries, other religious
orders, and non-profit educational works. The Constitution grants tax exemption to
religious institutions particularly on assets actually, directly and exclusively used
for religious purposes. On the other hand, religious institutions pay taxes for rental
income and income from deposits and investments which is derived by a church.

6. While no person may be imprisoned for nonpayment of debt, an obligation

acquired through fraud may be criminally prosecuted. In such case, the fraudulent
act of securing the debt, and not his default in paying it, is punishable.

7. No, but with reservations. According to Article VI, Section 29 of the

Constitution, “No public money or property shall ever be appropriated, applied,
paid or used directly or indirectly for the use, benefit, or support of any sect,
church, denomination, sectarian, institution, or system of religion, or for the use,
benefit or support of any priest, preacher, minister, or other religious teacher or
dignitary as such, except when such priest, preacher, minister, or dignitary is
assigned to the armed forces, or to any penal institution, or government orphanage
or leprosarium.” This limitation is fundamentally supported by the principle that
taxes can only be levied for public purposes. Thus, the Congress has no power to
appropriate funds for private purposes with the exception specified in the cited
provision. The doctrine that was stated is to further stress the principle of the
separation of the church and State.

8. Equal protection of the law (a constitutional limitation):

“Equal protection of the law” means that all persons subject to legislation shall be
treated alike under similar circumstances and conditions both in the privileges
conferred and liabilities imposed. The purpose of this Constitutional mandate is to
protect the persons belonging to the same class against intentional and arbitrary
discrimination. There is denial of equal protection of laws if there is discrimination
in the implementation of tax laws. For instance, a tax ordinance applicable to
similar persons, firms or corporations in the same class which are subject to the
same rate are taxed impartially imposing the ordinance to some and favoring the
others.

9. Examples:
a. Personal, poll or capitation – Community tax
b. Property – Real estate tax
c. Excise or privilege – Professional tax; Income tax; Donor’s tax; and Value-
added tax
d. Specific – Excise taxes on wines, firework, and cinematographic films.
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Republic of the Philippines
ISABELA STATE UNIVERSITY
Echague, Isabela

INCOME TAXATION
e. Ad valorem – Real estate tax; Custom duties; Excise tax on fermented
liquors, cigarettes, gasoline and automobiles
f. Progressive – Income taxes; Estate taxes; and Donor’s raxes

g. Regressive – Sales tax; Fair tax; Flat tax; Gasoline tax; Tariffs
h. Proportionate – Real estate tax; Value-added tax
i. National – Estate and Donor’s taxes; Income tax; Excise tax; Customs duties;
and Documentary stamp taxes
j. Local – Community tax; Municipal licenses taxes; Professional tax; and Real
estate tax

10. Explain how taxes are distinguished from the following terms:

a. Toll
- A toll is a demand of proprietorship, is paid for the use of another’s
property and may be imposed by the government or private individuals or
entities; while a tax is a demand of sovereignty, is paid for the support of
the government and may be imposed only by the State.

b. Penalty
- A penalty is designed to regulate conduct and may be imposed by the
government or private individuals or entities. Tax, on the other hand, is
primarily aimed at raising revenue and may be imposed only by the
government.

c. Special Assessment
- Special Assessment is levied only on land, is not a personal liability of the
person assessed, is based wholly on benefits and is exceptional both as to
time and place. Tax is levied on persons, property, or exercise of privilege,
which may be made a personal liability of the person assessed, is based on
necessity and is of general application.

d. Permit or licensed fee

- License fee is imposed for regulation and involves the exercise of police
power while tax is levied for revenue and involves the exercise of the taxing
power. Failure to pay a license gee makes an act or a business illegal, while
failure to pay a tax does not necessarily make an act or a business illegal.

e. Debt
- Debt is generally based on contract, is assignable and may be paid in kind
while a tax is based on law, cannot generally be assigned and is generally
payable in money. A person cannot be imprisoned for non-payment of debt
while he can be for non-payment of tax except poll tax.