Ateneo de Zamboanga University

School of Management and Accountancy

Fr Eusebio, SJ Campus, La Purisima St., Zamboanga City

LEARNING PACKET
TAX 01 B – INCOME TAXATION
First Semester, SY 2022-2023

LEARNING PACKET NO: 1a

TOPIC: GENERAL PRINCIPLES OF TAXATION
DATE: August -11, 2022
Week No: 1

NATURE AND CONCEPT OF TAXATION

Taxation is an inherent power of the State to enforce proportional contribution upon persons, properties or
rights in order to generate revenues to defray the expenses of the government.

Revenue refers to all funds or income derived by the government, whether from tax or any other source.

1. Grants received from another government;

2. Donation from non-government sources
3. Loans from private entities or from other government entities
4. Commercial revenues such as those received by government-owned or controlled enterprises
5. Administrative revenues such as fines, penalties and forfeitures;
6. Taxes such as internal revenues and custom duties

PURPOSE OF TAXATION

The primary purpose of taxation is to raise revenue. The revenue collected through taxes is intended primarily to
support the government in its various administrative functions.

The secondary purpose/s of taxation

1. To promote and strengthen unstable enterprises by giving tax exemptions.

2. To protect local industries against foreign competition through imposition of high custom duties on
imported goods.
3. To reduce inequalities in wealth and income by imposing progressively higher tax rates; and
4. To prevent inflation and improve economic and social activity. Taxes collected are expected to be given
back to the people in the form of economic and social benefits.
5. It serves as a regulatory measure of the government on some of its economic and fiscal activities.

SCOPE OF TAXATION

The power of taxation is unlimited, comprehensive, plenary and supreme. However, it is not absolute, since it is
subject to constitutional restrictions and inherent restrictions
THEORY AND BASIS OF TAXATION

Theory of Taxation

The power of taxation is based upon the theory that the existence of the government is a necessity.

Basis of Taxation

The inherent right of the government to impose income taxation is based on the following basic principles:

1. Benefit-received theory or principle -the government imposes taxes and in return the taxpayers receive
benefits from the State in the form of services, safety and protection to life, property and liberty.
2. Ability to pay theory or principle - taxes are imposed and collected by the government based on the
ability of the taxpayer to pay. The more income an individual earns, the higher the taxes will be
collected.

TAX LAWS IN THE PHILIPPINES

The basic tax laws of the Philippines:

1. The 1997 National Internal Revenue Code (RA 8424, as amended). When the law covers the whole
country, it is said to be national internal revenue law.
The NIRC regulates the following taxes:

a. Income Taxes
b. Estate and Donor’s Taxes
c. Documentary Stamp Tax
d. Excise Tax
e. Value added Tax
f. Percentages Taxes

2. Tariff and Custom Code of 1979 (PD 1464, as amended). This is intended to collect
a. Import duties
b. Export duties

3. Local Government Code of 1991 (RA 7160). This was a mandate from the 1987 Philippine Constitutions.
Each local government unit shall have the power to create its own sources of revenues and to levy taxes,
fees and charges. This regulates the following:
a. Professional tax
b. Real property tax
c. Community Tax
d. Business taxes and other fees and charges

4. National taxes imposed by special Laws. The government can levy tax for a special purpose. The money
collected shall be treated as a special fund and paid out for such purpose only. Special laws impose the
following taxes:
a. Travel tax-regulated by the Travel Tax Laws (PD 1183, as amended)
b. Special education fund taxes. This is governed by RA 5447.
c. Motor vehicle law, regulates collection of fees on motor vehicles.
d. Taxes on narcotic drugs. This is governed by RA 953.
SOURCES OF TAX LAWS

a. Philippine Constitution
b. Statutes and Presidential Decrees
c. Revenue Regulation by the Department of Finance
d. Judicial Decisions
e. Court of Tax Appeals (CTA)
f. Local Government Ordinances

INTERPRETATION OF TAX LAWS:

In interpreting tax laws, the following guidelines are usually followed:

a. Taxation laws have prospective application.

Unless otherwise there is a clear indication of the legislative intention, taxation laws are operative
and effective after the date of signing by the President. Taxation bill becomes a law once the President
has approved it.

b. Taxation laws are resolved in favour of the taxpayer in case of doubt.

In case a taxation law has several interpretations, it shall be resolved in favour of the taxpayer.

CHARACTERISTICS OF INCOME TAXATION IN THE PHILIPPINES

1. It is a national tax.
2. It is a general-purpose tax.
3. It is a direct tax.
4. It is an excise tax.
5. It is a progressive tax.

ASPECTS OF TAXATION (Stages of taxation)

1. Levying or imposition stage

2. Assessment and collection stage
3. Payment Stage

BASIC PRINCIPLES OF A SOUND TAX SYSTEM:

Tax system means the whole process comprising the stages of taxation.

1. Fiscal Adequacy
2. Equality or Theoretical Justice
3. Administrative Feasibility
SITUS OF TAXATION

Situs or place of taxation refers to the territorial jurisdiction of the State to impose the power of taxation, that is,
to charge and collect taxes on persons, properties or transactions.

1. Business, occupation or transaction- place where the business is conducted; the place where
the occupation is practiced; or the place where the transaction took place.

2. Real and Tangible personal property- Location of the property.

3. Intangible personal property-Domicile of the owner unless the property has acquired a
Business situs in another jurisdiction.

4. Income- place where the same is earned or citizenship or domicile of the owner.

5. Gratuitous transfer of property- Residence or citizenship of the taxpayer or location of the

property.

NATURE AND CHARACTERISTICS OF THE STATE’S POWER TO TAX (Nature of taxation)

a. Inherent Power.
b. Legislative in character.
c. Public Purpose.
d. Operating within Territorial Jurisdiction.
e. Strongest among the Inherent Powers of the State.
f. Subject to Constitutional and inherent limitations.

LIMITATIONS ON THE POWER OF TAXATION

1. Inherent Limitations- are those restrictions on the power that exists from the very nature of the
power of taxation itself.

2. Constitutional Limitations- are those restrictions in the exercise of the power of taxation expressly
provided in the 1987 Philippine Constitutions.

INHERENT LIMITATIONS:

a. Levied for public purpose.

b. Non-delegation of legislative power to tax.
c. Exemption of government entities from taxation.
d. Taxation laws are subject to International comity.
e. Taxation laws are confined within the territorial jurisdiction of the state.
f. Prohibition of double taxation.
CONSTITUTIONAL LIMITATIONS:

a. Due process.
b. Equal protection of the laws.
c. Rule of uniformity and equity in taxation.
d. Non-imprisonment for non-payment of poll tax.
e. Non-impairment of the obligations of contracts.
f. Non-infringement of religious freedom
g. No appropriation for religious purposes.
h. Exemption from property taxation of religious, charitable or educational entities, non profit cemeteries
and churches from taxation.
i. Exemption of revenues and assets of non-stock, non profit educational institution and donations for
educational purposes from taxation.
j. Concurrence by a majority of all members of the congress for the passage of a law granting any tax
exemption.
k. Power of the president to veto any particular item or items in a revenue or tariff bill approved by
Congress.
l. Non-impairment of the jurisdiction of the Supreme Court in tax cases.

The Supreme Court has the final judgment on the legality of any tax law and the penalty imposed thereon.

THREE INHERENT POWERS OF THE GOVERNMENT:

1. Power of Taxation.
2. Police Power
3. Power of Eminent Domain

Working Activities (20 points)

I. The inherent right of the government to impose income taxation is based on the following basic
principles: Explain (10 points)

a. Benefit-Received principle
b. Ability-to-pay principle

II. Why is there a need for Taxation? (5 points)

III. Explain the symbiotic relationship between the state and its inhabitants. (5 points)

PREPARED BY:

DF ESTRADA, CPA
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[Course Code] Instructors