lncome Tax Law and Accounting

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Chapter {
TA)(ATIOI{ AiID THE INCOME TAX
PRIIICIPLES OF TAXATION

1. Taxation defined.
. raxation is a power inherent in every sovereign state to impose a
charge or burden upon persons, properties or rights, to raise revenues,
for the use and support of the government, and to enable it to discharge
its appropriate functions.
2. Nature and scope of taxatbn.
As to nafure, taxation is an inherent power of the state, and is
essentially a legislative power. As to scope, in the absence of limi-
tations prescribed by the fundamental law or constitution, the power of
taxation is unlimited and comprehensive, and if there is any limitd,ion at
all, it is the sense of responsibility of the members of the iegislature to
their constituents.
3. Taxation distinguished from eminent domain.
Taxation reaches allthe persons, properties, etc., covered by the tax,
while eminent domain reaches only a particular owner of property.
There is payment of money by a taxpayer in taxation, while there is
taking of property by the government in eminent domain. ln taxation, the
taxpayer is presumed to receive a benefit from the government, while in
eminent domain, the property owner receives a benefit by way of just
compensation.
4. Taxation distinguished from potice power.
Taxation is for purposes of raising revenues, while police power is for
purposes of regulation. ln taxation, there is no limit on the amount
of the
tax that may be imposed, while in police power, the license fee must be,
as a general rule, just enough to carry out regulation.
5. Limitations on fhe rriwer of taxation.
(a) lnherent limitations:
(li The tax must be levied for a public purpose;
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lncome Tax Law and Accounting
(2) The power of taxation cannot be-delegated; .
rneans taxing a
igi 71. ru1e on doubls taxation. (Doub&a taxation year by the same
person, property or right twice within the same

(-) E:.X#Hiflli*r"*.,i*es and asencieo throush which the

government exercises sovereign powers eTgmpt from tax' in
?9
the absence of a clear proof of a contrary intent in the law;
(S) The power of taxation is limited to the tenitorial jurisdiction of the
taxing state;
(6) The iax taws cannot apply to the property of foreign govern-
ments (internationat comitY).
(b) Consfrt utional tim itation s (Examples):
(1) No law impairing the obligations of contracts shall be passed;
of a poll
iZi f.fo person shali-be imprisoned for debt or non-payment
tax;
(3) The rule on taxation shall be uniform and equitable:
i+i Cnaritable institutions, churches, parsonages or convents ap-
purtenant thereto, mosques, and non-profit cemeteries, and all
i<inas of lands, buildings and improvements ac'tually, directly.or
exclusivety used for retigious or charitable purposes, shall be
exemPt from taxation.
6. Basic principtes of a sound tax system'
pro-
(a) Fr'sca/ adequacy. The sources of revenues, as a whole, should
vide enougn tunds to meet the expanding expenditures of the
government;
tiaxpayer's ability
@) Th6oreticat iustice. Taxes must be based on the
to pay;
(c) Adminisiiative feasibility. The tax must be clear to the taxpayer, not
unduly burdensome and discouraging to business, convenient
as to time and manner of payment, and capable of enforcement
bY comPetent Public officials'

7. Tax defiPgd.
I
A tax is a forced burden, charge, exaction, imposition or contrbu-
tion assessed in accordance with some reasonable rule of apPor-
tionment, by authority of a sovereign state, upon the person, or
pro-
perty, or rights exercised, within its jurisdiction, to provide public reve-
 lncorne Tax Law and Accounting 1-3

nues for the support of government, the administration

of the taw, or
the payment of public expenses.
8. Essenfial characteristics of a tax.
(a) lt is a forced contribution;
(b) lt is exacted pursuant to legislative authority in the
exercise of the
taxing power;
(c) lt is proportionate in character;
(d) lt is payabte in money;
(9) lt is imposed for the purpose of raising revenue;
(t) lt is to be used for a public purpo$e.
9. Tax distinguished from license fee.
Taxes are imposed under the taxing power of the state for purposes
-
of revenue, while license fees are tevieo under tre potte power of
the
state. Taxes are forced contributions for the purpose or maintainint
govemrnent functions, while license fees are exacted primarily
gulate certain businesses or occupations. Taxes are generaily
to rJ
unrimited
as to amount, while license fees must not unreasJnably exceed
the
expenses of issuing the license and of supervision, unless the
business
or occupation being regulated is non-useful.
1 0. Tax d isti ng u ished from special
assessmenf.
A special assessment is imposed because of an increase in the
value of land benefited by a public improvement, while a tax
posed regardless of public improvements. A special
is im-
assessment is a
contribution of a person for the construction ol. a public lrp-ior"r"ni
while a tax is a contribution of a taxpayer for the sufport of the go-
vernment. A special assessment is exceptional both'is
to time alnd
locality, whire a tax may be a regurar exaciion on a taxpayer
anywhere
within the jurisdiction of the taxing authority.
11. Classification of taxes.
(a) ,4s to subject matter
(1) Personai capitation or pott fax.- A fixed amount
upon a[
persons, or upon all persons of a certain class, residents
within
a specified territory, without regard to their property or oc-
cupation.
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(2) Prcperty tax. - A tax assessed against all properties, or all

pioperties of a ceftain class, located within the jurisdiction of
ifre taxing authority, in proportion to its value, or on some other
method of aPPortionment.
(3) Excise tax. - A charge upon the performance of an act, the
enjoyment of a privilege, or the engaging in an occupation..An
excise tax is a tax which is not a personaltax or a property tax.
(b) As to who bears the burden:
(1) Direct tax. -one which is demanded from the person whom the
taw intends or desires to PaY it.
(2) tndirect tax. - one which is shifted by the taxpayer to someone
else.
(c) As to determination of the amount:
(1) Specfrc tax. - A tax which imposes a specific sum by the.head
or number, or some standard of weight or measurement, and
which requires no assessment other than by the listing and
classification of the subjects to be taxed'
(2) Ad valorcm tax. - A tax or duty upon the value of the article or
subject of taxation. A tax of so much per centum of the invoice
or appraised value of the goods subjec't to the tax'
(d) As to PurPose:
(1\ Generat tax. - At tax levled fior general purposes of govem-
ment.
(2) Specrattax.' A tax levied for a special purpose'
(e) As to scoPe:
(1) Nationat tax. -A tax levied by the National Government.
iZ) tocattax. - A tax levied by a local government'
(D As to ProPortionalitY:
(1) Progressive - A tax in which the increase in the tax rate is pro-
portionate to the increase in the tax base'
(2) Regressive - A tax in which the increase in the tax rate is not
proportionalto the increase in the tax base'
p\ p;oportionat- A tax of a fixed percentage of amount of the
base (value of the property, or amount of gross receipts, etc.).
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lncome Tax Law and Accounting

THE PHILIPPINE INCOilE TAX

whether gross or
lncome tax is succinctly defined as a tax on income,
by the government where the
tzilAit. Jur., socr.li is an imposition
"ii
test of faculty in taiaiion is income. ln the Philippines,
the income tax in
the National lnternal Revenue Code is:
(a) A national tax.lt is imposed by the National Govemment;
persons and pro-
(b) An excise fax. lt is a burden not laid directly upon
.-,perties.ltisneitheracapitationorpolltax,norapropertytax;
law intends to
(c) Adirect tax.llis demanded from the person whom.the
some other per-
impose it, anJ cannot be shified by the taxpayer to
son;
,general
(d) A gene raltax.lt is levied for the purposes of the $oV€lo:
ment;
(e)Anadvaloremtax,ltisleviedonvalueoramountoftheincomeof
the taxPaYer.
Revenue
The Philippine income tax law !s not the National lnternal
Code only. Also included are:
to cer-
(a) special laws, as they give preferential income tax treatinent
tain taxpayers, under certain conditions;
(b) Revenue regulations;
(c) Revenue circulars;
ioi nutings of the Bureau of lnternal Revenue;
ie) Opinions of the Secretary of Justice;the Philippines;
i0' Oecisions of the Supreme Court.of
ig) Oecisions of the Gourt of Appeals;
ifii oecislons of the Court of Tax Appeals; and
(i) Decisions of inferior courts'