Principles of Sound Tax System

1. Fiscal Adequacy

The source of revenue from taxation should be

sufficient to meet the needs of public expenditure.

2. Theoretical Justice

The tax burden should be proportionate with the

taxpayer’s ability to pay.

3. Administrative Feasibility

The tax law should be capable of fair enforcement

and implementation.
Quarter 2 Week 3 – A
(ABM_FABM12-Iih-j-15)
The learner defines income and business
taxation and its principles and processes.
EXERCISE
Republic Act 8293, section 176 states that: No copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the
Answer the following questions in your notebook: government agency or office wherein the work is created shall be necessary for
exploitation of such work for profit. Such agency or office may, among other things,
1. Define taxation. impose as a condition the payment of royalties.
This ABMPackage is published to be utilized by the Schools Division of Iloilo.
2. Define income tax. What are the basic principles of income ALL RIGHTS RESERVED. No part of this learning resource maybe
taxation? reproduced or transmitted in any form or by any means electronic or mechanical
without written permission from the Schools Division of Iloilo.
3. Enumerate and explain each nature of taxation.
Writer: MARYT. ANN
ROFEL N. COLONIA
TORREFRANCA
4. Explain the scope of taxation.
Graphic Artist: PATRICK T. LOMIGO
Layout Artist: KRISHEA MAE P. JARUDA
5. Enumerate and explain the characteristics of taxation.
Division Quality Assurance: Dr. KIM S. ARCEÑA
YLEM I. CAGURIN, MATM
EPS I - Mathematics: Dr. KIM S. ARCEÑA
Management Team:
Dr. Roel F. Bermejo, Dr. Nordy D. Siason, Jr.
Dr. Lilibeth T. Estoque, Dr. Azucena T. Falales
Ruben S. Libutaque, Lilibeth E. Larupay, Dr. Kim S. Arceña

Schools Division of Iloilo


GENERALIZATION
TAXATION
There are three state powers:
Police Power, or the power to enact laws for public health, public
morals, public safety and public welfare.
Characteristics:
Eminent Domain, or the power to take private property for public use
upon payment of just compensation.
Taxation, or the power of the state through the legislature, to levy
taxes or burdens upon subjects and objects within its jurisdiction in order
to raise revenues to carry out the legitimate objects of government.
Taxes
Taxes are compulsory contributions to the state coming from persons
and properties levied proportionately by the legislature for the purpose of
catering public needs.
Income and Business Taxation
Income tax is a tax on a person’s income, emoluments,
profits arising from property, practice of profession, conduct of
trade or business or on the pertinent items of gross income
specified in the Tax Code of 1997 (Tax Code), as amended, less
the deductions and/or personal and additional exemptions, if any,
authorized for such types of income, by the Tax Code, as
amended, or other special laws.
Basic Principles of Income Taxation
Taxation is the power by which the state raises revenue in its
jurisdiction to provide money to defray the necessary expenses of
the government from among those who in some measure are
privileged to enjoy its benefits and must bear its burden.
Though an inherent power, taxation is subject to inherent and
constitutional limitations
Scope:
1. The levy of tax is done for only a public purpose.
2. The manner of levy, enforcement and collection.
3. The subjects or objects of taxation may be: (i) persons (natural or
judicial); (ii) property (real or personal, tangible or intangible); or, (iii)
acts (such as business transaction, o the exercise of rights and
privileges).
4. The tax rate and tax amount, which shall be equitable and uniform.
5. The situs of taxation, which is exercisable only within the territorial
jurisdiction of the state.
1. Compulsory/Enforced Contribution
The subjects and objects of taxation are not given leeway
whether or not to pay the tax; hence, it is not voluntary.
2. Proportionate
The amount of tax paid is based on the taxpayer’s ability to
pay.
3. Legislative in Nature
It is neither the executive or the judicial branches who have
the power to tax. Instead, it is vested in the House of
Representatives (Lower House), where all tax bills are
introduced, and the Senate (Upper House). Both Houses
constitute the Philippine Congress. It is worthy to note that
the legislative branch is not involved in the collection
thereof.
4. Levy is for Public Purpose
The amount collected from taxation are used to support
government projects. Taxes are not utilized for private
purposes.
5. Generally Payable in Money
Taxes are paid using legal tender. In certain situations,
however, the government may enforce distraint of personal
property or by levy of real property to satisfy the tax liability
if the taxpayer has no money.
6. Jurisdictional
It is levied on persons and property upon which the State
has jurisdiction.
Inherent Power of the State

1. Police Power
The right of the government to appropriate private
property for particular uses to promote public
welfare

2. Eminent Domain
The power of the government to enact laws to
promote peace and order, public welfare, security,
health and safety

3. Taxation
The power of the government to raise money
needed to support its existence.

Sources of Revenue (Section 21 of the Tax Code)

1. Income Tax Quarter 2 Week 3 – B

2. Estate and donor’s tax (transfer taxes) (ABM_FABM12-Iih-j-15)
3. Value-added tax The learner defines income and business
4. Other percentage taxes taxation and its principles and processes.
5. Excise taxes
6. Documentary stamp tax Republic Act 8293, section 176 states that: No copyright shall subsist in any
7. Other taxes work of the Government of the Philippines. However, prior approval of the
government agency or office wherein the work is created shall be necessary for
exploitation of such work for profit. Such agency or office may, among other things,
EXERCISES impose as a condition the payment of royalties.
This ABMPackage is published to be utilized by the Schools Division of Iloilo.
ALL RIGHTS RESERVED. No part of this learning resource maybe
Answer the following questions in your notebook. reproduced or transmitted in any form or by any means electronic or mechanical
without written permission from the Schools Division of Iloilo.
1. What are the inherent limitations of taxation?
Writer: MARYT.ANN
ROFEL N. COLONIA
TORREFRANCA
2. What are the constitutional limitations of taxation?
Graphic Artist: PATRICK T. LOMIGO
Layout Artist: KRISHEA MAE P. JARUDA
3. Explain the bases of taxation.
Division Quality Assurance: Dr. KIM S. ARCEÑA
4. Enumerate and explain the three inherent powers of the state? YLEM I. CAGURIN, MATM
EPS I - Mathematics: Dr. KIM S. ARCEÑA
Management Team:
Dr. Roel F. Bermejo, Dr. Nordy D. Siason, Jr.
Dr. Lilibeth T. Estoque, Dr. Azucena T. Falales
Ruben S. Libutaque, Lilibeth E. Larupay, Dr. Kim S. Arceña

Schools Division of Iloilo

 GENERALIZATION
TAXATION Stages, Aspects or Processes of Taxation

Taxation is a sovereign act of levying burden. It is the means by which 1. Levy

the state raises income to defray the necessary expenses of the government.
It is a method of apportioning the cost of government among those who, in This is the act of imposing taxes on the persons,
some measure, are privileged to enjoy its benefits and must therefore bear properties, or acts done by the legislative branch of the
its burdens. government. Only Congress has the power to levy taxes.

This notwithstanding, taxes are not arbitrary in nature. It is subject to 2. Assessment

limitations to ensure that the power to tax is not abused or misused. In
doing so, the state aims to achieve uniformity of contribution and a just This is the act of ascertaining the amount of tax due and
apportionment of the burdens of government. payable from the taxpayer. It is done by an officer
authorized by law to perform said act.
Limitations
Taxation is subject to two limitations: inherent and constitutional. 3. Collection

Inherent Limitations (In the very nature of taxation) This is essentially an administrative function performed by
concerned government agencies who collect the requisite
1. It is levied only for a public purpose. taxes imposed.
2. The Congress cannot delegate the “power to tax” to others
entities or agencies.
3. Agencies and instrumentalities of the government exercising Bases of Taxation
essential governmental functions are exempt from payment of
taxes. 1. Necessity
4. It is subject to international comity; that is, the property of a
foreign state may not be taxed by another state if the former The state cannot exist without taxes. It needs taxes to pay
extends the same privileges to the citizens and properties of the valid government expenses.
latter.
5. It is subject to situs or territoriality. Situs of taxation is the State 2. Reciprocal Duties
or country which has jurisdiction to tax a person, property or
interest. As a rule, the taxing power cannot go beyond the While it is true that the taxpayer pays taxes to the state, he
territorial limit of the taxing authority. is able to recover the same in terms of benefits he receives
from the government. This includes, among others, the
Constitutional Limitations (Provided under the Constitution) general advantages and protection which the government
affords the taxpayer and his property.
1. Due process and equal protection clauses
2. Freedom of religious profession and worship Purposes of Taxation
3. Uniformity and equality of taxation
4. Non-impairment of contracts 1. Primary Purpose (Revenue/Fiscal)
5. No imprisonment for non-payment of tax To raise revenue for the support of the government
6. Revenue, appropriation and tariff bills shall solely originate from
the House of Representatives 2. Secondary Purpose (Non-revenue)
7. Exemption of property actually, directly and exclusively used for To regulate or control
religious, charitable and educational purposes pursuant to
Section 30 of the NIRC (Tax Code)
 EXERCISES
8. The taxpayer recovers the tax he pays to the government in the
form of general advantages and protection which the government
affords the taxpayer and his property.
a. Assessment
b. Collection
c. Necessity
d. Reciprocal Duties

9. Which of the following is not a characteristic of tax?

a. Legislative in character
b. Proportional
c. Voluntary in nature
d. Public Purpose Quarter 2 Week 3– C
(ABM_FABM12-Iih-j-15)
The learner expresses define income and business
10. It is a tax on a person’s income, emoluments, profits arising from taxation and its principles and processes.
property, practice of profession, conduct of trade or business or on
the pertinent items of gross income specified in the Tax Code of Republic Act 8293, section 176 states that: No copyright shall subsist in any
1997 (Tax Code), as amended, less the deductions and/or personal work of the Government of the Philippines. However, prior approval of the
and additional exemptions, if any, authorized for such types of government agency or office wherein the work is created shall be necessary for
income, by the Tax Code, as amended, or other special laws. exploitation of such work for profit. Such agency or office may, among other things,
a. Business Tax impose as a condition the payment of royalties.
b. Donor’s Tax This ABMPackage is published to be utilized by the Schools Division of Iloilo.
c. Estate Tax ALL RIGHTS RESERVED. No part of this learning resource maybe
d. Income Tax reproduced or transmitted in any form or by any means electronic or mechanical
without written permission from the Schools Division of Iloilo.

Writer: MARYT.ANN
ROFEL N. COLONIA
TORREFRANCA
Graphic Artist: PATRICK T. LOMIGO
Layout Artist: KRISHEA MAE P. JARUDA
Division Quality Assurance: Dr. KIM S. ARCEÑA
YLEM I. CAGURIN, MATM
EPS I - Mathematics: Dr. KIM S. ARCEÑA
Management Team:
Dr. Roel F. Bermejo, Dr. Nordy D. Siason, Jr.
Dr. Lilibeth T. Estoque, Dr. Azucena T. Falales
Ruben S. Libutaque, Lilibeth E. Larupay, Dr. Kim S. Arceña

Schools Division of Iloilo

 GENERALIZATION
Income and Business Taxation
5. Which of the following statements is true?
Income is any inflow (gains, profits, salary, wages, etc) which a
taxpayer receives.
Income tax is a tax on a person’s income, emoluments, profits
arising from property, practice of profession, conduct of trade or
business or on the pertinent items of gross income specified in the
Tax Code of 1997 (Tax Code), as amended, less the deductions
and/or personal and additional exemptions, if any, authorized for
such types of income, by the Tax Code, as amended, or other
special laws.
a. Agencies and instrumentalities of the government
exercising essential governmental functions are not
generally exempt from payment of taxes.
b. As a rule, the Congress can delegate the “power to tax” to
others entities or agencies.
c. As a rule, the power to tax can go beyond the territorial
limit of the taxing authority.
d. Taxation is subject to international comity; that is, the
property of a foreign state may not be taxed by another
state if the former extends the same privileges to the
citizens and properties of the latter.

EXERCISES 6. Which statement refers to the power of taxation?

a. The power of the government to enact laws to promote
peace and order, public welfare, security, health and
Choose the letter of the correct answer. Write your answer on a safety.
piece of paper. b. The power of the state through the legislature, to levy
taxes or burdens upon subjects and objects within its
1. It is any inflow which a taxpayer receives. jurisdiction in order to raise revenues to carry out the
a. Capital legitimate objects of government.
b. Expense c. The right of the government to appropriate private
c. Expenditure property for particular uses to promote public welfare
d. Income d. The separation of power of the 3 co-qual branches of the
government (executive branch, legislative branch and
2. Which of the following is not a state power? judicial branch)
a. Eminent Domain
b. Legislation 7. Choose the letter of the correct answer.
c. Police Power Statement 1- Levy is the act of imposing taxes on the
d. Taxation persons, properties, or acts done by the legislative branch of
the government. Only Congress has the power to levy taxes.
3. Which of the following is an inherent limitation? Statement 2- Collection is essentially an administrative
a. Freedom of religious profession and worship function performed by concerned government agencies who
b. Non-impairment of contracts collect the requisite taxes imposed.
c. Situs or territoriality
d. Uniformity and equality of taxation a. Statement 1 is False; Statement 2 is True.
b. Statement 1 is True; Statement 2 is False.
4. Which of the following statements is false? c. Both statements are True.
a. All taxpayers pay the same amount of tax. d. Both statement are False.
b. Taxation is legislative in character.
c. Taxes are enforced contributions.
d. The state cannot exist without taxes.
 EXERCISES
3. Choose the correct answer.
Statement 1 - A toll is a demand of ownership.
Statement 2 - Customs duty is a tax.
a. Statement 1 is False; Statement 2 is True.
b. Statement 1 is True; Statement 2 is False.
c. Both statements are True.
d. Both statement are False.

4. Which of the following is legal?

a. Direct Double Taxation
b. Retrospective application of taxes
c. Tax Dodging
d. Tax Minimization

5. It is charged pursuant to the police power for purposes of regulation.

a. Customs Duties Quarter 2 Week 3 – D
b. Debt
(ABM_FABM12-Iih-j-15)
c. License Fee
d. Special Assessment The learner defines income and business taxation
and its principles and processes.
6. These taxes are imposed on imports and exports.
a. Customs Duties
Republic Act 8293, section 176 states that: No copyright shall subsist in any
b. Debt work of the Government of the Philippines. However, prior approval of the
c. License Fee government agency or office wherein the work is created shall be necessary for
d. Special Assessment exploitation of such work for profit. Such agency or office may, among other things,
impose as a condition the payment of royalties.
7. Which of the following statements is false? This ABMPackage is published to be utilized by the Schools Division of Iloilo.
a. As a rule, taxes are not subject to set-off. ALL RIGHTS RESERVED. No part of this learning resource maybe
b. Indirect Double Taxation, though may not be unconstitutional, is being reproduced or transmitted in any form or by any means electronic or mechanical
discouraged so as not to bring undue injustice on the taxpayer. without written permission from the Schools Division of Iloilo.
c. Tax evasion is also known as tax minimization .
d. Tax laws may not be imposed retrospectively, unless expressed Writer: MARY
ROFEL ANN N. COLONIA
T. TORREFRANCA
specified therein.
Graphic Artist: PATRICK T. LOMIGO
8. It is an enforced contribution from owners of lands in return for improvements
Layout Artist: KRISHEA MAE P. JARUDA
on said land. Division Quality Assurance: Dr. KIM S. ARCEÑA
a. Customs Duties YLEM I. CAGURIN, MATM
b. Debt EPS I - Mathematics: Dr. KIM S. ARCEÑA
c. License Fee Management Team:
d. Special Assessment Dr. Roel F. Bermejo, Dr. Nordy D. Siason, Jr.
Dr. Lilibeth T. Estoque, Dr. Azucena T. Falales
Ruben S. Libutaque, Lilibeth E. Larupay, Dr. Kim S. Arceña

Schools Division of Iloilo

 GENERALIZATION
Taxes Doctrines
Double Taxation – This occurs when the taxpayers pays income taxes twice
on the same source of income. It is of two types:
A. Direct Double Taxation, which is unconstitutional; and,
B. Indirect Double Taxation, which, though may not be unconstitutional, is
being discouraged so as not to bring undue injustice on the taxpayer.
Prospectively – Taxes are applied prospectively. Tax laws may not be
imposed retrospectively, unless expressed specified therein.
Set off – As a rule, taxes are not subject to set-off (that is, a taxpayer
cannot refuse to pay tax on the ground that the government owes him an
amount equal or greater than the tax collected).
Tax Avoidance – This occurs when the taxpayer takes advantages of legally
permissible means of minimizing his tax liability. It is also known as tax
minimization.
Tax Evasion – This occurs when the taxpayer resorts to unlawful means to
lessen or refuse to pay his tax. It is also known as tax dodging.
5. Taxes versus Permit or License Fee
Permit or License fee is charged pursuant to the police power for
purposes of regulation. Tax is charged pursuant to the taxation
power for purposes of paying public expenditures
6. Tax versus Debt
Debt is a legal obligation based on contract. Tax is enforced
proportional contribution based on law.
7. Tax versus Subsidy
Subsidy refers to any monetary aid directly granted by the
government to an individual or private commercial enterprise.
Tax, on the other hand, is a compulsory contribution from
taxable entities to the government.
8. Tax versus Customs Duties
Customs duties are imposed on imports and exports. Customs
duties are taxes; the latter however is broader is scope than the
former.

Tax Distinguished From Other Fees EXERCISES

1. Tax versus Toll
A toll is money paid in order to use a thing, such as a road, bridge Choose the letter of the correct answer. Write your answer on a
or the like of a public nature. Toll is a claim of proprietorship; tax is piece of paper.
a claim of sovereignty. 1. Which of the following statements is false?
a. Taxes are applied prospectively.
2. Tax versus Penalty b. As a rule, taxes are subject to set-off (that is, a taxpayer can
Penalty is a sanction for violation of another person’s right. Toll may refuse to pay tax on the ground that the government owes
be imposed by private entities; tax is imposed by the government. him an amount equal or greater than the tax collected).
c. Tax Avoidance occurs when the taxpayer takes advantages of
3. Tax versus Special Assessment legally permissible means of minimizing his tax liability.
Special assessment is an enforced contribution from owners of d. Tax Evasion occurs when the taxpayer resorts to unlawful
lands in return for improvements on said land. Tax on the other means to lessen or refuse to pay his tax.
hand is not limited to land, as there are other subjects and objects
of taxation. 2. It is also known as tax dodging.
a. Retrospectively
4. Taxes versus Revenue b. Set off
Revenue refers to inflow resulting from income derived by the c. Tax Avoidance
businesses. In contrast, tax refers to inflow resulting from d. Tax Evasion
collections.
 GENERALIZATION
Answer Key

Quarter 2 Week 3 – A
Exercise
1. Answers may vary
2. Answers may vary
3. Answers may vary
4. Answers may vary
5. Answers may vary

Quarter 2 Week 3 – B
Exercise
1. Answers may vary
2. Answers may vary
3. Answers may vary
4. Answers may vary

Quarter 2 Week 3 – C
Exercise
1. D
2. B
3. C
4. A
5. D
6. B
7. C
8. D
9. C
10. D

Quarter 2 Week 3 – D
Exercise
1. B
2. D
3. C
4. D
5. C
6. A
7. C
8. D