1.1.

0 : Nature, scope, classification and essential characteristics of taxation

Taxation refers to the practice of a government collecting money from its citizens to defray
government's cost of operations for public services.  Taxation is the practice of collecting taxes (money)
from citizens based on their earnings and property.

The primary purpose of taxation is to raise revenue to meet huge public expenditure. Most
governmental activities must be financed by taxation.

It is inherent in sovereignty – the power of taxation exists independent of any legislation. There is no

need to enact a law to exercise that power because that power springs at the moment you have the
existence of the state. This is inherent because this is based on necessity.

TAXATION has been defined as the power of the sovereign to impose burdens or charges upon persons,
property or property rights for the use and support of the government to be able to discharge its
functions. The three inherent powers of the State are:

1.   Police power

o The power of the state of promoting public welfare by restraining and regulating the use
of liberty and property.

  2.   Power of Taxation

o The process by which the State through its law-making body (Legislative Branch) raises
revenue to defray the necessary expenses of government.  

  3.   Power of Eminent Domain

o The power of the State to take  private property for public purpose upon payment of
just compensation.

Taxes are the enforced proportional contributions from persons and property levied by the law-making
body of the State by virtue of its sovereignty for the support of the government and all public needs.

The following are essential elements of a tax:

 It is an enforced contribution.

 It is generally payable in sum of money.

 It is proportionate in character. Payment of taxes is based on the ability to pay of the taxpayer
also known as "theoretical justice"

 It is levied on persons, property or the exercise of a right or privilege

 It is levied by the law-making body of the State.

  It is levied for public purpose only.

Taxes are likewise classified according to the following:

1. According to subject matter.

2. According to who bears the burden

3. According to determination of amount.

4. According to purpose

5. According to jurisdiction/scope or authority.

6. According to graduation or rate.

1.2.0 : Principles of sound tax system

Elements of Sound Tax Systems:

1.   Fiscal adequacy

o the fundamental purpose of taxation is to raise the revenue necessary to raise

government expenditures. It is therefore necessary that these revenues must be
adequate to meet government expenditures and sustain the level of demand for public
services.

    2.   Administrative feasibility

o tax laws must be capable of convenient, just and effective administration, free from
confusion and uncertainty. Complicated tax rules make the tax system difficult for
citizens to understand.

   3.   Theoretical justice

o A good tax system must be based on the taxpayer's ability to pay, meaning the tax
burden must be proportionate to the taxpayer's capacity to pay.

There are two limitations on the power of taxation, namely:

1.  Inherent limitations. These are restrictions arising from the very nature of the power to tax
itself. These limitations which exist despite the absence of an express constitutional provisions 

o Purpose must be public in nature.

o Territorial limitations

o Prohibition against delegation of the taxing power

 o International comity or treaty

   2.  Constitutional limitations . The following limitations prescribed in the  Constitution on the taxing
power of the government:

o Observance of the due process of law

o Equal protection of law

o Uniformity in taxation

o Progressive scheme of taxation

o Prohibition against imprisonment for non-payment of "poll tax".

o Prohibition against impairment of obligation of contracts.

o Free-worship clause.

o Prohibition against appropriation of proceeds of taxation for the use, benefit or support
of any church, sect or system of religion.

o Exemptions from taxes of the revenues and assets of non-profit, non-stock educational
institutions.

Situs of taxation literally means "place" of taxation. The state or political unit which has jurisdiction to
impose a particular tax may rightfully levy and collect the tax. The factors to be considered in
determining the situs of taxation are as follows:

1.  The subject matter (person, property or activity)

2.  Nature of the tax

3.  Citizenship

4.   Residence of the taxpayer

5.   Source of income (within or without)

6.   Place of excise, business or occupation being taxed.

The application of the situs of taxation is shown on the table below:

SUBJECT MATTER SITUS
Persons  Residence of taxpayer
Real property  Location of property
Tangible personal property  Location of property
Intangible personal property  Domicile of the owner of property
Income  Residence, citizenship, source of income
Business  Place of business
 Residence/citizenship of the transferor or
Gratuitous transfer of property
location of property
Double taxation on its strict sense referred to is direct duplicate taxation. In its broad sense, double
taxation is referred to as indirect double taxation. Direct double taxation means taxing twice:

1.  by the same taxing authority, jurisdiction or district.

2.  for the same purpose.

3.  in the same year or taxing period.

4.  on the same subject or object.

5.  the same kind/character of the tax

There is indirect double/duplicate taxation if any of the elements described above does not expressly
prohibit direct double taxation.

These are means of avoiding or minimizing the burden of taxation on taxpayers :

1.   Shifting

o the transfer of tax burden by the original payer to another. Transferred is not the
payment of the tax but the burden of the tax. 

  2.   Transformation

o the manufacturer absorbs the additional taxes imposed by government without passing
it to the buyers for fear of losing his market.

  3.   Evasion

o the taxpayer uses unlawful or fraudulent means to evade or lessen the payment of tax
to government. Also known as "tax dodging

  4.   Avoidance

o it is the reduction or totally escaping payment of tax through legally permissible means.
It is also called "tax minimization".

  5.   Capitalization

o the seller is willing to lower the price of the commodity provided the taxes will be
shouldered by the buyer.

  6.   Exemption
 

o it is an immunity, privilege or freedom from payment of a charge or burden to which

others are obliged to pay.

Listed here is the summary of the legislation process of how a bill becomes a law :

A.  Filing/Calendaring for First Reading

B.  First Reading

C.  Committee Hearings/Report

D.  Calendaring for Second Reading

E.  Second Reading

F.  Voting on Second Reading

G.  Voting on Third Reading

H.  At the House of Representatives

I.    Back to the Senate

J.  Submission to Malacañang

The Bureau of Internal Revenue (BIR) is an attached agency of the Department of Finance. It is tasked to
assess and collect all national internal revenue taxes, fees, and charges, and to enforce all forfeitures,
penalties, and fines connected therewith. The BIR is composed of one (1) chief known as the
Commissioner and four (4) assistant chiefs known s Deputy Commissioners. The Commissioner has been
broad powers in order to enforce tax law and include the following:

o Power to interpret tax law and to decide tax cases

o Power to examine books and other accounting records and obtain information.

o Power to make assessments

On the other hand, the Bureau of Customs (BOC) is also an attached agency of the Department of
Finance. It is charged with assessing and collecting customs revenues, curbing illicit trade and all forms
of customs fraud, and facilitating trade through an efficient and effective customs management system.
SOme of the BOC's major duties are:

o Simplification and harmonization of customs procedures to facilitate movement of

goods in international trade;

o Border control to prevent entry of smuggled goods;

 o Prevention and suppression of smuggling and other customs fraud

o Supervision and control over the handling of foreign mails arriving in the Philippines for
the purpose of collecting revenues and preventing the entry of contraband

The Board of Investment (BOI) is composed of seven (7) governors who are:

1.   The Secretary of Trade and Industry (DTI) who shall be concurrent Chairman of BOI.

2.   Three  (3) Undersecretaries from the DTI chosen by the President for a term of four (4) years

3.   Three (3) representatives from other government agencies and private sector also appointed
for a term of four (4) years.

The Philippine Export Zone Authority (PEZA) is attached to the Department of Trade and Industry tasked
to promote investments, extend assistance, register, grant incentives to and facilitate the business
operations of investors in export-oriented manufacturing and service facilities inside selected areas
throughout the country proclaimed by the President of the Philippines as PEZA Special Economic Zones.

It oversees and administers incentives to developers/operators of and locators in world-class, ready-to-

occupy, environment-friendly, secured and competitively priced Special Economic Zones.  As of February
2019, PEZA has over 396 fully operating economic zones that are spread across the country. n Fort
Bonifacio or Bonifacio Global City, there are 17 operating economic zones, including Bonifacio
Technology Center, Sun Life Centre, Picadilly Star, World Plaza and Eco Tower.  In Quezon City, there are
18 operating economic zones including the ELJ Communications Center in Diliman. In Pampanga, there is
one economic zone, Alviera Industrial Park. (Links to an external site.)

The provision of RA No. 7160 otherwise known as the  Local Government Code of the Philippines, shall
govern the exercise by provinces, cities, municipalities and Barangays of their taxing and other revenue
raising powers and that such taxes, fees and charges shall accrue exclusively to the local government
units (LGUs). The following taxes shall be collected by the LGUs as follows:

1.   Community tax under Sections 156 to 164 of the Local Government Code (LGC).

2.   Real Property Tax

3.   Local Business Taxes (Provinces)

o Tax on transfer of Real Property ownership 

o Tax on business of printing and publication

o  Franchise tax

o Tax on sand, gravel and other quarry resources

o  Professional tax

o  Amusement tax
   Municipalities may levy taxes, fees and charges not otherwise levied by provinces on the following
businesses:

o On manufacturers, assemblers, repackers, processors, brewers, distillers and

compounders of iquiors, distilled spirits and wines.

o On wholesalers, distributors or dealers in any article of commerce.

o On exporters and on manufacturers, millers, producers, wholesalers, distributors,

dealers or retailers of essential commodities such as rice and corn; wheat or cassava
flour cooking oil and cooking gas, laundry soap, poultry feeds and other animal feeds,
school supplies and cement.

o On retailers 

o On contractors

o On banks and other financial institutions

o On peddlers engaged in the sale of any merchandise

o On any business