UNIVERSITY OF PANGASINAN CHAPTER 1:
PHINMA EDUCATION NETWORK TAXATION
GROUP ACTIVITY
for
Income
Taxation
(BAM 031)
CHAPTER 1: INTRODUCTION TO
TAXATION
SUMITTED BY:
BUENAFE, GREVELLE G.
FRIANEZA MARLA DIANE D.
NAVORA, GRACE B.
PERRERAS, DAN JOSEPH C.
SAPLAN, DANILYN M.
WONG, MA. HANNAH MAE E.
SUBMITTED TO:
RHODERICK S. FERNANDEZ,CPA
INTRODUCTION TO
 TAXATION
-it is one of the inherent power of the
state.
-It is a State power, a legislative
Process and a Mode of cost
distribution.
 Theory of Taxation
-government’s necessity for funding
Is the THEORY OF TAXATION
-mutuality between the people and the
government is referred as BASIS OF
TAXATION
*Receipt of benefits is
CONCLUSIVELY presumed.
 Theories of Cost Allocation
1. Benefit Received Theory
2. Ability to Pay Theory
~Aspects of the Ability to Pay Theory~
A. Vertical Equity- proposes the one’s
ability to pay is directly proportional
to the level of his TAX BASES.
B. Horizontal Equity - requires
consideration of a particular
circumstances of the taxpayer.
 The Lifeblood Doctrine
-taxes are lifeblood of gov’t: taxes
should be prompt and certain.
 Implication of the Lifeblood Doctrine of
Taxation
1. Tax is imposed even in the absence of
a Constitutional grant
2. Claims for tax exemption re construed
against the taxpayer
3. The gov’t reserves the right to choose
the objects of taxation.
4. The courts are not allowed to interfere
with the collection of taxes.
5. (Income Taxation):
A. Income received in advance is
taxable upon receipt.
 B. Deduction for capital -Congress (Legislature) - the legislative
expenditures and prepayments taxing power is vested EXCLUSIVELY
is not allowed for it effectively IN CONGRESS.
defers the collection of income -Contemplates power to determine kind,
tax. object, extent, amount, coverage, and situs
C. A lower limit of deduction is of tax.
preferred when a claimable EXCEPTION:
expense is subject to limit. 1. Local government units are allowed to
D. A higher tax base is preferred exercise the power to tax
when the tax object has 2. President is empowered to fix the
multiple tax bases. amount of tariffs
3. Other cases that require expedient and
 Inherent Powers of the State effective administration of assessment
1. Taxation Power and collection of taxes
2. Police Power
3. Eminent domain B. CONSTITUTIONAL LIMITS OF
LIMITATION
Scope of Taxation Power: 1. Observance of Due Process of Law
 Unlimited, Aspects of Due Process
 Far-reaching, i. Substantive Due Process - an
 Plenary, assessment without a legal basis violates
 Comprehensive, the requirement of due process.
 Supreme ii. Procedural Due Process- government
shall observe the taxpayer’s right to
 LIMITATION OF TAXATION notice and hearing.
POWER Assessments
WITHIN 3 YEARS
A. INHERENT LIMILATIONS >From due date of filing of return
1. Territoriality of Taxation - Tax can be >From date of actual filing
imposed only within the territories of the Collections
state. WITHIN 5 YEARS
>from date of assessment
2. International Comity
-All states are equally sovereign. Not 2. Equal Protection of Law
taxing the properties, income, or effects of -Taxpayers should be treated equally
fellow states under the same circumstances and
Treaty agreements > Local tax law conditions both privileges conferred and
liabilities imposed.
3. Public Purpose- It must not be for
GENERAL PUBLIC PURPOSE 3. Uniformity Rule in Taxation
-Rule of taxation must be uniform (all
4. Exemption of the Government -Taxing articles or properties of the same class taxed
the government will not raise additional at the same rate) and equitable
funds but will only impute additional (apportionment must be more or less just in
costs. the light of taxpayer’s ability to shoulder tax
-Applies only to entities exercising burden).
government functions (acta jure imperii).
“Under dissimilar circumstances, Taxpayers
5. Non-delegation of the Taxing Power should not be taxed the same uniformity is
relative equality.”
 Lands, Buildings, and Improvements
4. Progressive System of Taxation from PROPERTY TAX
-Congress - Tax rates increase as Doctrine of Use
tax base increases “Exemption applies for properties
actually, directly, and exclusively used
5. Non-imprisonment for Non-payment for charitable, religious and educational
of Debt or Poll Tax - Taxpayer may purposes:”
imprisoned for non-payment of other “The constitutional exemption of religious
kinds of taxes where the law so expressly or charitable institution refers ONLY TO
provides. REAL PROPERTY”
Estafa Doctrine of Ownership
-debt acquired in bad faith -regardless of whether used in primary
-criminal offense punishable by operations or not, properties should be
imprisonment exempt
-not applied in the Philippines
TAX DEBT
9. Non-appropriation of Public Funds or
Arises from law; Property for the Benefit of any Church,
Arises from
demand of Sect or System of Religion
private contracts
sovereignty GENERAL RULE:
No appropriation of gov’t
Compromises: funds to any particular system of religion
Compromises: EXCEPTION:
Public interest,
Private interest Compensation of Priests, imams,
Crime
religious ministers working with the
military, penal institutions, orphanages,
Poll Tax: or leprosarium
a. Basic Community Tax
b. Additional Community Tax 10. Exemption from Taxes of the Revenues
-Non-payment of tax: and Assets of Non-profit, Non-stock
Imprisonment. Educational Institutions Including
Grants, Endowments, Donations, or
6. Non-impairment of Obligation and Contributions for EDUCATIONAL
Contract PURPOSES
-It should not set aside its obligations -Exemption on revenues and assets
from contracts by the exercise of actually, directly and exclusively devoted
taxation power. Tax exemptions granted for educational purposes
under contract should be honored and *Government Educational
should not be canceled by a unilateral institutions - EXEMPTED
government action. *Private Educational institutions -
minimal 10% tax
7. Free Worship Rule
-Tithes or offerings - not subject to
11. Concurrence of a Majority of All
tax
Members of Congress for the
-Properties or activities that are
Passage of a Law Granting Tax
proprietary or commercial in nature -
Exemption
subject to tax
-Absolute Majority -Vote of majority
of all members of Congress Approval
8. Exemption of Religious, Charitable or
of tax exemption
Educational Entities, Non-profit
Cemeteries, Churches and Mosques,
 -Relative Majority -Withdrawal of tax
exemption
12. Non-diversification of Tax Collections
-Never diversified or used for private
purpose it should be used only for
public uses.
13. Non-delegation of the Power of
Taxation
GENERAL RULE:
Exclusively in Congress
EXCEPTION:
On matters involving expedient and
effective administration and
implementation of assessment and
collection of taxes (Interpret and
clarify the application of law);
“Taxing process that are non-
legislative in nature”
14. Non-impairment of the Jurisdiction of
the Supreme Court to Review Tax
Cases
-Court of Appeals
-Supreme Court
15. Appropriations, Revenues, or Tariff
Bills shall Originate Exclusively in the
House of Representatives, but the
Senate may Propose or Concur with
Amendments
-Origination of bill: House of
Representatives
Senate may amend
16. Each Local Government Unit shall
Exercise the Power to Create its
Own Sources of Revenue and s
shall have a Just Share in the
National Taxes
 STAGES OF THE EXERCISE OF
TAXATION POWER
1. Levy or Imposition - enactment of tax
law by the congress and it is
called IMPACT OF TAXATION
-Legislative Act
“Tax bills must originate from House of
Representatives”
2. Assessment and Collection
 MATTERS OF LEGISLATIVE
DISCRETION IN THE EXERCISE OF
TAXATION
1. Determining the object of taxation
2. Setting the tax rate or amount to be
collected
3. Determining the purpose for the levy
which must be public in 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
 ASSESSMENT AND COLLECTION
- Implemented by Administrative Branch
- Incidence of Taxation
- Administrative Act of Taxation
 SITUS OF TAXATION (Place of
Taxation) - It is Tax jurisdiction that has the
power to levy taxes upon tax object.
1. Business tax situs- where the business
is conducted
2. Income Tax Situs on Service- where
the service is rendered
3. Sale of goods: place of sale
4. Property tax situs- Properties are
taxable in their location.
5. Personal tax situs- place of residence
 OTHER FUNDAMENTAL DOCTRINES
IN TAXATION
1. Marshall Doctrine
“The power to tax involves the power
to destroy.”
Taxation, an instrument of Police
Power.
-discourage or prohibits undesirable
activities
Excessive tax on cigarettes
2. Holme’s Doctrine
“Taxation power is not the power to
destroy while the court sits”
-encourage beneficial activities
 3. Prospectivity of Tax Laws
GENERAL RULE: -Prospective in
nature
-Ex post facto law is prohibited
EXCEPTION:
-Income tax may operate
retrospectively if so intended by
Congress.
4. Non-compensation or Set-off
GENERAL RULE:
-Taxes are not subject to automatic
set-off or compensation.
EXCEPTION:
-Taxpayer’s claim is due and
demandable
-Cases of obvious overpayment of
taxes
-Local taxes
5. Non-assignment of Taxes -Tax
obligations cannot be assigned or
transferred to another entity by contract.
6. Imprescriptibility in Taxation
Prescription - lapsing of right due to
passage of time.
Gov’t’s right to collect taxes does not
prescribe unless the law itself provides
so.
“Taxpayers who did not file a return or
filed fraudulent returns -do not prescribe”
7. Doctrine of Estoppel
-The gov’t is not subject to estoppel.
Error of EE = X Binding to the gov’t
8. Judicial Non-interference
-Lifeblood Doctrine
-Courts not allowed to issue injunction
against government pursuit to collect
tax.
9. Strict Construction of Tax Laws
“Taxation is rule, exemption is the
exception”
Vague Tax Laws
-construed against gov’t; in favor of
taxpayers
Vague Exemption Laws
-construed against taxpayer; in favor of
gov’t
 DOUBLE TAXATION
-Same taxpayer is taxed twice by the same tax
jurisdiction for the same thing.
 Elements of Double Taxation
1. Primary: Same object
2. Secondary:
Same type of tax
Same purpose of tax
Same taxing jurisdiction
Same tax period
 Types of Double Taxation
1. Direct Double Taxation
-All elements exist
2. Indirect Double Taxation
-At least one of the secondary
elements is not common for both
impositions
 ESCAPES FROM TAXATION
A. RESULT TO LOSS OF GOV’T
REVENUE
1. Tax Evasion (Tax Dodging)
-Illegal
2. Tax Avoidance (Tax Minimization)
-Legal
3. Tax Exemption (Tax Holiday)
-Immunity, privilege, or freedom
-Granted by Constitution, Law, or
Contract
All forms of tax exemption can be
revoked by CONGRESS except
those granted by CONSTITUTION
and those under CONTRACTS.
B. DO NOT RESULT TO LOSS OF
GOVT REVENUE
1. Shifting - transferring tax burden to
other tax payers.
Forms of Shifting
A. Forward Shifting
B. Backward Shifting
 C. Onward Shifting
2. Capitalization
3. Transformation

TAX
TAX AMNESTY
CONDONATION

General pardon;
“Tax Remission”
Absolute
Forgiveness of tax
forgiveness;
obligation
Fresh start

Civil and criminal

Civil liability
liability
Retrospective Prospective
Taxpayer pay gov’t No payment