Income Taxation P1

Taxation - 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.

Nature of Taxation 3

1. Inherent is sovereignty – power is inherent as incident/attribute; essential to govt; exists apart from consti, without
being expressed by people/Congress to legislation.

- Can be exercised by govt even if Constitution is silent on subject.

- National Government: inherent; LGU: not inherent (can only impose when granted by Constitution or Congress.

- Constitutional provisions – constitutes limitations and are not grants of power to govt.

- Power to tax – not expressly provided in constitution but recognized by provisions.

2. Legislative in character – exclusively legislative, cannot be exercised by executive/judicial branches.

- Congress - only body that can impose taxes.

- Levy – can be made by local legislative body subject to limitations by law.

3. Subject to constitutional and inherent limitations – Most limitations are provided by constitution. The rest are
inherent and spring from nature of taxing power. It may/may not be provided in Constitution.

Scope of Taxation

In the absence of limitations prescribed by the fundamental law of the land (Constitution), the power of taxation is
unlimited and comprehensive, and if there is any limitation at all, it is the sense of responsibility of the members of the
legislature to their constituents.

Limitations of Taxation

Inherent limitations Constitutional limitations

Tax must be levied for public purpose No law impairing obligations of contracts shall be passed
Cannot be delegated No prison time for debt/non-payment of tax
Cannot do double taxation Rule shall be uniform and equitable
Govt instrumentalities and agencies within the said place Exempted:
are exempt from tax, in absence of clear proof of  Charitable institutions
contrary intent in the law  Churches
 parsonages or convents appurtenant thereto,
 mosques
 non-profit cemeteries
 and all kinds of lands, buildings and
improvements actually, directly or exclusively
used for religious or charitable purposes
Power is limited to territorial jurisdiction of the taxing Due process clause: “No person shall be deprived of life,
state. liberty and property without due process of law xxxx..” -
Article III, Section 1 of the 1987 Constitution
Cannot apply to foreign govt property/international
comity
Inherently legislative
Double taxation - taxing a person, property or right twice within the same year by the same taxing authority.

Taxation vs. Eminent Domain vs. Police Power

Taxation Eminent Domain Police Power

Reaches all person, properties, etc. Reached only a particular owner of Purpose: regulation
covered by tax property
There is payment of money by There is taking of property by Amount limit: license fee is enough
taxpayer government to carry regulation
 Taxpayer must benefit government property owner receives a benefit by
way of just compensation.
Purpose: raising revenues
Amount limit: none

Basic Principle of a Sound Tax System

1. Fiscal Adequacy – sources of revenue must be adequate to meet government expenditures and other public needs.
Taxes are lifeblood of government.

2. Theoretical justice - take into consideration the taxpayer’s ability to pay.

3. Administrative Feasibility - tax laws must be capable of effective and efficient enforcement and must not obstruct
business growth and economic development.

Tax

- Is a forced burden, charge, exaction, imposition or contribution assessed in accordance with some reasonable rule of
apportionment, by authority of a sovereign state, upon the person, or property, or rights exercised, within its
jurisdiction, to provide public revenues for the support of government, the administration of the law, or the payment of
public expenses.

Essential characteristics of tax

1. Forced charged, imposition, or contribution. Not an implied or express contract. Positive acts of government.

2. Based on taxpayer’s ability to pay.

3. Burden payable in money where backpay certificates must be used in payment of tax.

4. Imposed by state to person, property, or exercises within its jurisdiction, in accordance with the principle of
territoriality.

5. Levied by: the legislative body of the State. Taxes are obligations created by law.

6. Levied for: public purpose

7. Personal to the taxpayer.

Tax vs. License fee vs. Special Assessment

Tax License fee Special assessment

Imposed under power of state for
revenue purposes.
Contribution for maintaining
government functions
Generally unlimited as to amount.
Levied under police power
For regulation of
business/occupation
Must be less than expenses of issuing
license and supervision unless
business/occupation is non-useful.
Imposed due to increase in value of
land from public improvement
contribution of a person for the
construction of a public improvement
Exceptional both as to time and
locality

Imposed regardless of public

improvement
Contribution to support government
Exaction on taxpayer within
jurisdiction by taxing authority

Classification of Taxes

As to subject matter

1. Personal capitation/poll tax - A fixed amount upon all persons, or upon all persons of a certain class, residents within
a special territory, without regard to their property or occupation.

2. Property tax - A tax assessed against all properties, or all properties of a certain class located within the jurisdiction of
the taxing authority, in proportion to its value, or on some other method of appointment.
3. Excise tax - A charge upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation.
Not a personal tax or a property tax.

As to who bears the burden

1. Direct tax - One which is demanded from the person whom the law intends or desires to pay it.

2. Indirect tax - One which is shifted by the taxpayer to someone else.

As to determination of the amount

1. Specific 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 valorem tax - A tax or duty upon the value of the article or subject of taxation. A tax so much per centum of the
invoice or appraised value of the goods subject to the tax.

As to purpose

1. General tax - for general purposes of government.

2. Special tax - for a special purpose.

As to scope

1. National Tax – by national government

2. Local tax – by local government

As to proportionality

1. Progressive tax – When tax base increases, tax rate increases.

2. Regressive tax – When tax base decreases, tax rate increases.

3. Proportional tax – based on a fixed percentage on the amount of base (value of property or amount of gross
receipts).

Situs of Taxation

- Means place of taxation. This is a state/political unit which has jurisdiction to impose a tax.

- In the Philippines, there are different factors in determining the situs of taxation: residence; nationality; citizenship;
nature of tax; subject matter; object of the tax; and source.

- on person: properly levied on persons who inhabit or are residents of a state. Poll tax, on the other hand, applies
whether or not a person is citizen of PH or not.

- Factors in income tax law: nationality, source, and residence.

- on real property: situs is where the real property is located and applies whether the owner is resident or not of the
place it is located.

- in excise, donor’s, and estate tax laws: nationality, residence, and source are important.

- in business tax: place where business is performed/occupation engaged

- in sale of realty: where property is located