INCOME TAXATION

TAXATION:

Definition:-the power inherent in every sovereign state to impose a charge or burden upon
persons, properties or rights, to raise revenue, for the use and support of the government, and to
enable it to discharge its appropriate functions.

- process or means by which the sovereign, through its law-making body raises income to defray
the necessary expenses of the government.

- It is a method of apportioning the cost of government among those who in some measures

  are privilege to enjoy   its benefits and must, therefore bear its burdens.

Purposes:  - to finance government operational expenditures

     - to carry out the national objective of social and economic development         

TAXES – the enforced proportional contributions, generally payable in money, levied by the
law-making body of the State by virtue of its sovereignty upon the persons or property within its
jurisdiction for the support of the government and all public needs.

Characteristics:         

-enforced contribution

                        -generally payable in the form of money

                        -laid by some rule of apportionment usually based on ability to pay

                        -levied on persons, property, acts,  privileges, or transactions

                        -levied by the State which has jurisdiction or control over the subject to be taxed

                        - levied by the law-making body of the State

                        -levied for public purpose

 

Nature of the power of taxation:    

-inherent in sovereignty

                        -essentially a legislative function

                        -subject to constitutional and inherent limitations

Basic principles of a sound tax system:        

-fiscal adequacy –sufficient to meet demands of public expenditures

                        -equality or theoretical justice-proportionate to the taxpayer’s ability to pay

-administrative feasibility-tax laws should be capable of convenient, just and  

effective administration

Classification of Taxes:          

·         As to subject matter or object

a)      Personal, poll or capitation-

b)      Property

c)      excise

·         As to who bears the burden

a)      Direct

b)      indirect

·         As to determination of amount

a)      Specific
b)      Ad valorem

·         As to purpose

a)      General, fiscal, revenue

b)      Special or regulatory

·         As to authority imposing the tax

a)      National

b)      Municipal or local

·         As to graduation or rate

a)      Proportional

b)      Progressive or graduated

c)      Regressive

INCOME TAX- referred to as tax on all yearly profits arising from property, professions, trades
or offices,

or as tax on a person’s income, emoluments, profits and the like. 

-          Generally regarded as an excise tax. It is not levied on persons, property, funds or profits
but upon the right of a person to receive income or profits.

Functions of income tax:      

-to provide large amounts of revenues

            -to offset regressive sales and consumption taxes

-to mitigate the evils arising from the inequalities in the distribution of income and

wealth which are considered deterrents to social progress, by means of a

progressive scheme of taxation

 
Situs of income for tax purposes:

Situs of taxation literally means a place of taxation; the country that has the power and
jurisdiction to levy and collect the tax.

Factors: the taxation jurisdiction or situs will depend upon the ff.;

1)      The nature of the tax and the subject matter thereof-person, property, act or activity

The accepted doctrine is that the taxing power of a State does not extend beyond its territorial
limits but within such limits it may tax persons, property, income, or business.

2)      The possible protection and benefit that may accrue both to the government and to the
taxpayer

3)      Domicile or residence

4)      Citizenship, and

5)      Source of income

Basis: with respect to income tax, the jurisdiction to impose and collect the same is based on the
fact that:

1)      The recipient of the income is a citizen or resident of the Phils, or

2)      The income is derived from the sources within the phils

The income tax is founded on the protection afforded by the State to the recipient of the income
in his person, in his right to receive the income, and in his enjoyment of it when received.  These
are rights and privileges which attach to domicile and citizenship.

THE PHILIPPINE INCOME TAX

Income tax is succinctly defined as a tax on income, whether gross or net.  In the Philippines, the
income tax in the National Internal revenue Code (NIRC) is:
 

·         A national tax. It is imposed by the national government.

·         An excise tax.  It is a burden not laid directly upon persons and properties.

·         A direct tax. It is demanded from the person who earned the income.

·         A general tax. It is levied for the general purpose of the government.

·         An ad valorem tax. It is levied on the value /amount of the income.

The Philippine Income Tax Law is not the NIRC only. Also included are:

a)      Special laws, as they give preferential income tax treatment to certain taxpayers, under
certain conditions.

b)      Revenue regulations

c)      Revenue circulars

d)      Ruling of the BIR

e)      Opinions of the secretary of Justice

f)       Decisions of the Supreme Court of the Phils

g)      Decisions of the Court of Appeals

h)      Decisions of the Court of Tax Appeals

i)        Decisions of the Inferior Courts

DOMESTIC CORPORATIONS- entities organized and constituted under the Corporation

code of the Phils.  But for income tax purposes, it includes:

·        Partnerships, no matter how created or organized

·        Joint stock companies

·        Joint accounts associations

·        Insurance companies

The term corporation does not include:

·        A general professional partnership

·        A joint venture or consortium formed for the purpose of undertaking construction projects;

·        A joint venture or consortium for engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating or consortium agreement under a service contract
with the government

A general professional partnership (GPP) – formed by persons for the sole purpose of
exercising their common profession, no part of income of which is derived from engaging in any
trade or business. The GPP is not a taxable entity.

DOMESTIC CORPORATIONS are subject to any or some of:

·        Capital gain tax

·        Final Tax on passive income

·        Normal tax (NT) or Regular Corporate Income Tax (RCIT)

·        Minimum Corporate Income Tax (MCIT)

·        Improperly Accumulated Earnings Tax (IAET)