TAXATION

MARK JOHN D. GONZALES

➢ Certified Public Accountant
➢ Certified Tax Technician
➢ Chartered Tax Specialist (Royal
Institute of Singapore)
➢ Masters in Public and Business
Management Major in Business
Administration
 GENERAL PRINCIPLES OF TAXATION
OBJECTIVES:
At the end of the lesson, the student mus be able to comprehend and demonstrate
mastery of the following:
a. Concept of Taxation and its necessity for the government
b. Lifeblood Doctrine and its implication to taxation
c. Theories of government cost allocation
d. Inherent power of the state
e. Scope of the taxation power
f. Limitations of taxation power
g. Stages of taxation
h. Concepts of situs in taxation
i. Fundamental principles surrounding taxation
j. Various escapes from taxation
k. Concept of tax amnesty and condemnation
 GENERAL PRINCIPLES OF TAXATION
TAXATION
- inherent power by which the sovereign through its law-
making body raises revenue to defray the necessary expenses of
government from among those who in some measure are
privileged to enjoy its benefits and must bear its burdens.

- can also be defined:

A. As a State Power
B. As a Process
C. As a mode of cost distribution
 GENERAL PRINCIPLES OF TAXATION
CHARACTERISTICS OF TAXES

1. Enforced charge;
2. Pecuniary burden payable in money;
3. Levied by the legislature;
4. Assessed with some reasonable rule of apportionment; (see
theoretical justice)
5. Imposed by the State within its jurisdiction;
6. Levied for a public purpose.
GENERAL PRINCIPLES OF TAXATION
• The Theory of Taxation
- Government's Necessity for funding.
..

• The Basis of Taxation

- Mutuality of Support between the people and the government.

Public Services

Government People
Taxes
• Receipt of Benefit is conclusively presumed
- The direct receipt or actual availment of government services is not a
pre-condition to taxation.
GENERAL PRINCIPLES OF TAXATION
THEORIES OF COST ALLOCATION
a. Benefit Received Theory
- the more benefit one receives from the
government. the more taxes he should pay.

b. Ability to Pay Theory

- taxpayers should contribute based on
their relative capacity to sacrifice for the
support of the government.

1.VERTICAL EQUITY- the extent of one's

ability to pay is directly proportional to the
level of his tax base. Gross Concept

2. HORIZONTAL EQUITY- should consider

the particular circumstance of the
taxpayer. Net Concept
GENERAL PRINCIPLES OF TAXATION
THE LIFEBLOOD DOCTRINE
- taxes are essential and indespensable to the continued subsistence of the
government. Without taxes, the government would be paralyzed for lack of motive
power to activate or operate it.

IMPLICATIONS:
1. Tax is imposed even in the absence of a Constitutional Grant
2. Claims for tax exemption are construed against a taxpayer
3. The government reserves the right to choose the objects of taxation
4. The courts are not allowed to interfere with the collection of taxes.
5. In income taxation:
a. Income received in advance is taxable upon receipt.
b. Deduction of capital expenditures and pre-payments is not allowed as it
effectively defers the collection of taxes.
c. A lower amount of deduction is preferred when a claimable expense is
subject to limit.
d. A higher tax base is preferred when tax objects has multiple tax bases.
 SIMILARITIES OF THE THREE INHERENT POWERS

1. They are all necessary attributes of sovereignty.

2. They are all inherent to the State.
3. They are all legislative in nature.
4. They are all ways in which the State interferes with private
rights and properties.
5. They all exist independently with Constitution and are
exercisable by the government even without Constitutional
Grant.
6.They all presupposes an equivalent form of compensation
received by the persons affected by the exercise of the power.
7. The exercise of these powers by the local government units
may be limited by the national legislature.
 COMPARISON OF THE THREE INHERENT POWERS
POINT OF TAXATION POLICE POWER EMINENT DOMAIN
DIFFERENCE

EXERCISING Government Government Government and private

AUTHORITY utilities
PURPOSE For the support of the To protect the general For public use
government welfare of the people
PERSONS Community or class of Community or class of Owner of the property
AFFECTED individuals individuals
AMOUNT OF Unlimited (Based on Limited (Imposition is No amount imposed (
IMPOSITION government needs) limited to cover cost of The government pays
regulation) just compensation)
IMPORTANCE Most important Most superior Important
RELATIONSHIP Inferior to the “ Non- Superior to the “ Non- Superior to the “ Non-
WITH THE impairment clause” of the impairment clause” of the impairment clause” of
CONSTITUTION Constitution Constitution the Constitution
LIMITATION Constituional and inherent Public interest and due Public purpose and just
limitations process compensation
 SCOPE OF TAXATION POWER
(CPUS)
COMPREHENSIVE
PLENARY
UNLIMITED
SUPREME
 THE LIMITATIONS OF TAXATION POWER

INHERENT LIMITATIONS (TIPENd)

a. Territoriality
b. International Comity
c. Public purpose
d. Exemption of the government
e. Non-delegation of taxation power
 THE LIMITATIONS OF TAXATION POWER

CONSTITUTIONAL LIMITATIONS
01 Due Process of Law

02 Equal Protection of the Law

03 Uniformity Rule in Taxation

04 Progressive System of Taxation

05 Non-imprisonment for non-payment of debt or poll tax

 THE LIMITATIONS OF TAXATION POWER

CONSTITUTIONAL LIMITATIONS
01
06 Due Process
Non-impairment of Law
of obligations and contracts

02
07 EqualFree
Protection
worshipofrule
the Law
Exemption of religious or charitable entitities, non-profit
03
08 Uniformity cemeteries,
Rule in Taxation
churches and mosque from property taxes
Non-impairment of public funds or property for the benefit of any church,
04
09 Progressive System of Taxation
sect or system of religion

Exemption from taxes of the revenues and assets of non-profit,

10 non-stock educational institutions
 THE LIMITATIONS OF TAXATION POWER
.

CONSTITUTIONAL LIMITATIONS

Concurrence of a majority of all members of Congre for the

01
11
passageDue
of a Process
law grantingoftaxLaw
exemption

02
12 Non-diversification
Equal Protectionofoftax
the
collection
Law

03
13 Non-delegation
UniformityofRule
the power
in Taxation
of taxation
Non-impairment of the jurisdiction of the Supreme Court to
04
14 Progressive System of Taxation
review tax cases

The requirement that appropriations, revenue or tariff bills shall originate

15 exclusively in the House of Representatives
 THE LIMITATIONS OF TAXATION POWER
.

CONSTITUTIONAL LIMITATIONS

01
16 The delegation ofDue Process
taxation power toof LawGovernment Units
Local
 STAGES OF THE EXERCISE OF TAXATION\

1. LEVY OR IMPOSITION-Impact of Taxation

1. Object of Taxation
2. Setting the tax rate or amount to be collected
3. Determining the purpose for the levy which must be public use
4. Kind of tax to be imposed
5. Apportionment of the tax between national and local government
6. Situs of Taxation
7. Method of Collection

2. ASSESSMENT OR COLLECTION - Incidence of Taxation/Administrative

Act of Taxation
SITUS OF TAXATION
 SITUS OF TAXATION
SITUS is the place of Taxaxtion.

Examples:
1. BUSINESS TAX SITUS- place where the business
is conducted
2. INCOME TAX SITUS ON SERVICES- place where
the services are rendered.
3. INCOME TAX ON SALE OF GOODS- gain on sale
is subject to tax on the place of sale
4. PROPERTY TAX SITUS: location of property
5. PERSONAL TAX SITUS: place of residence
OTHER
FUNDAMENTAL
DOCTRINES IN
TAXATION
 OTHER FUNDAMENTAL DOCTRINES IN TAXATION
1. MARSHALL DOCTRINE: “ The power to tax involves
the power to destroy”
2. HOLME'S DOCTRINE: Taxation power is not the power
to destroy while the court sits.
3. PROSPECTIVITY OF TAX LAWS: An ex post facto law
is prohibited by the Constitution
4. NON-COMPENSATION OR SET-OFF
XPN: 1. When the taxpayer claim has already
become due and demandable
2. Cases of obvious overpayment of taxes
3. Local taxes
 OTHER FUNDAMENTAL DOCTRINES IN TAXATION

5. NON-ASSIGNMENT OF TAXES
6. IMPRESCRIPTIBILITY IN TAXATION
7. DOCTRINE OF ESTOPPEL
8. JUDICIAL NON-INTERFERENCE
9. STRICT CONSTRUCTION OF TAX LAWS
a. VAGUE TAX LAWS- construed against the `
government and in favor of the taxpayer
b. VAGUE EXEMPTION LAWS- construed against the
taxpayer and in favor of the government.
DOUBLE TAXATION
 DOUBLE TAXATION
DOUBLE TAXATION- occurs when the same taxpayer is tax
twice by the same tax jurisdiction for the same thing
ELEMENTS OF DOUBLE TAXATION
1. Primary: Same Object
2. Secondary:
a. Same type of tax
b. Same purpose of tax
c. Same taxing jurisdiction
d. Same tax period
TYPES OF DOUBLE TAXATION
1. DIRECT- all the elements are present
2. INDIRECT- at least one of the secondary elements is not
common for both imposition
 DOUBLE TAXATION

* It is not prohibited by the Constitution but only

discourage such act since it is oppresive and
burdensome to taxpayer.

HOW TO MINIMIZE IT?

a. Provision of tax exemption
b. Allowing foreign tax credit
c. Allowing reciprocal tax treatment
d. Entering into tax treaties or bilateral agreements
 ESCAPES FROM TAXATION

A. THOSE THAT RESULT TO LOSS OF GOVERNMENT

REVENUE
1. TAX EVASION- tax dodging, illegal act of redu
cing or avoiding the payment of tax
2. TAX AVOIDANCE- tax minimization, legal acts
of re ducing or avoiding escape from taxes
3. TAX EXEMPTION- tax holiday.immunity, privil
ege or freedom from being subject to a tax other
s are subject to.
- All forms of tax exemptions can be revo
ked by Congress except those granted by the
Constitution and those granted under contracts
.
 ESCAPES FROM TAXATION

B. THOSE THAT DO NOT RESULT TO LOSS OF GOVERNMENT

REVENUE

(1)Shifting – the process by which the tax burden is transferred from

the statutory taxpayer (impact of taxation) to another (incident of
taxation) without violating the law.

(2)Capitalization – a mere increase in the value of the property is not

income but merely an unrealized increase in capital. No income until
after the actual sale or other disposition of the property in excess of it
s original cost.

(3)Transformation – the manufacturer or producer upon whom the tax

has been imposed, fearing the loss of his market if he should add the
tax to the price, pays the tax and endeavors to recoup himself by
improving his process of production, thereby turning out his units at
a lower cost.
 TAX AMNESTY VS. TAX CONDONATION
TAX AMNESTY- general pardon granted by the gov't. for erring
taxpayer to give them chance to reform and enable them to be
part of society with a clean slate. Absolute forgiveness,
retrospective in application

TAX CONDONATION- forgiveness of the tax obligation of a

certain taxpayer under certain justifiable cause. (AKA Tax
Remission)

* Construed against the taxpayer and in favor of the

government
TAX AMNESTY VS. TAX CONDONATION
TAX AMNESTY TAX CONDONATION
Civil and Criminal Civil liabilities only
Liabilities
Operates retrospectively Operates retrospectively
by forgiving past (forgives unpaid
violations obligation and no refund
to paid obligation)
Conditional upon the Requires no payment
taxpayer paying the
government
 “If you talk, you are
only repeating what
you already know. But
END OF if you listen, you may
learn something new.”
LESSON 1 -Dalai Lama