Module 01 - General Principles of Taxation

BAINCTAX
Income Taxation
Fundamental Principles
General
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Principles
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INHERENT POWERS OF THE STATE

A government has its basic needs and rights which co-exist with its creation. It has rights to sustenance, protection and
properties. The government sustains itself by the power of taxation, secures itself and the well-being of its people by police
power and secures its own properties to carry out its public services by the power of eminent domain.
These rights dubbed as “powers” are natural, inseparable and inherent to every government. No government can sustain or
effectively operate without these powers. Therefore, the exercise of these powers by the government is presumed understood
and acknowledged by the people from the very moment they establish their government.
Taxation Police Power Eminent Domain
This is the power of the State to enforce This is the inherent power of a This is the power of the State to take
proportional contribution from its sovereign state to legislate for the private property for public use after
subjects to sustain itself. protection of the health, general paying just compensation. This is
welfare, safety and morals of the synonymous to expropriation.
public. It involves the power to
regulate both liberty and property for
the promotion of the public good.
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Fundamental Principles page 1
The police power of the State may be exercised through taxation because taxes may be levied for the promotion of the welfare
of the public.
Similarities
The three inherent powers of the State are similar in the following senses.
1. They are all necessary attributes of the sovereignty.

2. They are all inherent to the State.
3. They are all legislative in nature.
4. They are all ways in which the State interfere with private rights and properties.
5. They all exist independently of the Constitution. However, the Constitution may impose condition or limits. 6. They all
presuppose an equivalent form of compensation received by the persons affected by the exercise of the power.
Comparison
Point of Difference Taxation Police Power Eminent Domain
Exercising Authority Government Government Government and
private utilities
Purpose For the support of the To protect the general For public use
government welfare of the people
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Persons Affected Community or class of Community or class of Owner of the property

individuals individuals
Amount of Imposition Unlimited Limited to cover cost of No amount imposed
regulation
Importance Most Important Most Superior Important
Scope All persons, property, All persons, property, Only upon specific property
rights and privileges rights, privileges and
liberties
Transfer of Property Taxes collected become part No transfer, but only Transfer is effected in favor
Rights of public funds restraint on the exercise of of the State
property rights
Benefits Received No special or direct benefit No direct benefit but a A direct benefit results in
but the general benefit of healthy economic standard the form of just
general welfare of society compensation to the
property owner
TAXATION
Taxation is the inherent power of the state1, exercised through the legislature2, to impose burdens3 upon subjects and objects4
within its jurisdiction5for the purpose of raising revenues6to carry out the functions7 of government.
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Inherent Power of Taxation is one of the three inherent powers of the state, with police power and eminent domain.
the State Inherence means that even with the absence of an express grant of the Constitution, the State can
still exercise the power to levy and collect taxes.
Exercised through Only the legislative branch of the government can levy taxes, meaning, tax laws can only
the Legislature originate, specifically, from the House of Representatives. The Senate, however, may propose
tax laws to the House of Representatives. The executive branch is tasked in the enforcement of
said tax laws through the assessment and collection of taxes, whilst, the judiciary branch is
concerned with any tax-related cases that may emanate from the administration of taxes.
Impose Burdens The imposition of taxes to individuals, objects or privileges normally would cause a financial
burden to the taxpayer.
Subjects and Objects Different subjects may be considered in the levying of taxes. Common are those taxes on
individuals, properties and privileges. Taxation serves as a mode by which the state allocate its
costs to its subjects who are benefited by its spending.
Within its Jurisdiction The state can only tax a subject that is within its territoriality. This is true since it is one of the
inherent limitations of taxation. Taxing outside its jurisdiction would constitute impossibility of
collection and immorality of taxing subjects which do not receive benefit from the government’s
services.
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Purpose of Raising Taxes are the main source of funds which the state needs to conduct its public services. Though
Revenues the government also receives inflows from other sources, taxes generate the most to fund said
services.
Carry Out the Functions The government is the one responsible for the various public services like education and health.
In the conduct of said services, the government needs taxation to defray the costs associated to
said services.
Purposes of Taxation
The exercise of the power of taxation may be classified as to its purpose.
Revenue or Fiscal The primary purpose of taxation on the part of the government is to provide funds or property
with which to promote the general welfare and the protection of its citizens and to enable it to
finance its multifarious activities.
Non-Revenue or Taxation may also be employed for purposes of regulation or control, e.g., imposition of tariffs
Regulatory on imported goods to protect local industries, the adoption of progressively higher tax rates to
reduce inequalities in wealth and income and the increase or decrease of taxes to prevent
inflation or ward off depression.
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FUNDAMENTAL THEORIES AND DOCTRINES

Theory of Taxation A system of government is indispensable to every society. Without it, the people will not relish
the benefits of a civilized and orderly society. The power of taxation proceeds upon the theory
that the government has the necessity for funding; that it cannot continue without means to pay
its expenses; and that for these means, it has a right to compel all its citizens and properties
within its limits to contribute.
Basis of Taxation The basis of taxation is found in the reciprocal duties of protection and support between the
State and its inhabitants. In return for his contribution, the taxpayer receives benefits and
protection from the government. In short, both the government and the people receive
mutuality of benefits.
Benefit Received Theory This theory bases the power of the State to demand and receive taxes on the reciprocal duties of
support and protection. The citizen supports the State by paying the portion from his property
that is demanded in order that he may, by means thereof, be secured in the enjoyment of the
benefits of an organized society. Thus, the taxpayer cannot question the validity of the tax law
on the ground that payment of such tax will render him impoverished, or lessen his financial or
social standing, because the obligation to pay taxes is involuntary and compulsory, in exchange
for the protection and benefits one receives from the government.
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In return for his contribution, the taxpayer receives the general advantages and protection which
the government affords the taxpayer and his property. One is compensation or consideration for
the other; protection for support and support for protection. However, it does not mean that
only those who are able to and do pay taxes can enjoy the privileges and protection given to a
citizen by the government.
In fact, from the contribution received, the government renders no special or commensurate
benefit to any particular property or person. The only benefit to which the taxpayer is entitled is
that derived from the enjoyment of the privilege of living in an organized society established
and safeguarded by the devotion of taxes to public purpose. The government promises nothing
to the person taxed beyond what may be anticipated from an administration of the laws for the
general good.
Receipt of benefits conclusively presumed
Every citizen and resident of the state directly or indirectly benefits from the public services
rendered by the government. These benefits can be in form of daily free usage of public
infrastructures, access to public health or educational services, the protection and security of
person and property, or simply the comfort of living in a civilized and peaceful society which is
maintained by the government.
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While most public services are received indirectly, their realization by every citizen and resident
is undeniable. In taxation, the receipt of these benefits by the people is conclusively presumed,
thus, taxpayers cannot avoid payment of taxes under the defense of absence of benefit received.
The direct receipt or actual availment of government services is not a precondition to taxation.
Ability to Pay Theory The ability to pay theory presupposes that taxation should also consider the taxpayer’s ability to
pay. Taxpayers should be required to contribute based on their relative capacity to sacrifice for
the support of the government. In short, those who have more should be taxed more even if
they benefit less from the government. Those who have less shall contribute less even if they
received more of the benefits from the government.
Lifeblood Doctrine Taxes are the lifeblood of the government and should be collected without necessary hindrance.
They are what we pay for a civilized society. Without taxes, the government would be paralyzed
for lack of motive power to activate and operate it. The government, for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the lives of the
people and enhance their moral and material values. Taxes are the lifeblood of the government
and their prompt and certain availability is an imperious need. Put simply, taxes are needed by
the government to carry out its functions.
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Marshall Doctrine “The power to tax is the power to destroy.” Taxation power can be used as an instrument of
police power. It can be used to discourage or prohibit undesirable activities or occupation.
Holme’s Doctrine “Taxation power is not the power to destroy while the court sits.” Taxation power may be used
to build or encourage beneficial activities or industries by the grant of tax incentives.
Prospectivity of Tax Laws Tax laws are generally prospective in operation. However, tax laws may operate retrospectively
if so intended by Congress under certain justifiable conditions.
Non-Compensation Taxes are not subject to automatic set-off or compensation. The taxpayer cannot delay payment
or Set-Off of tax to wait for the resolution of a lawsuit involving the pending claim against the
government. Tax is not a debt; hence, it is not subject to set-off.
Exceptions:
a. Where the taxpayer’s claim has already become due and demandable such as when the
government already recognized the same and an appropriation for refund was made b. Cases
of obvious overpayment of taxes
c. Local taxes
Non-Assignment of Taxes Tax obligations cannot be transferred to another entity by contract. Contracts executed by the
taxpayer to such effect shall not hinder the government to collect taxes.
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Imprescriptibility in The government’s right to collect taxes does not prescribe unless the law itself provides.
Taxation
Doctrine of Estoppel The error of any government employee does not bind the government. It is held that the neglect
or omission of government officials entrusted with the collection of taxes should not be allowed
to bring harm or detriment to the interest of the people.
Judicial Non-Interference Generally, courts are not allowed to issue injunction against the government’s pursuit to collect
tax as this would unnecessarily defer tax collection.
SCOPE AND LIMITATIONS OF TAXATION

The power of taxation is the most absolute of all powers of the government. It has the broadest scope of all the powers of
government because in the absence of limitations, it is considered as comprehensive, unlimited, plenary and supreme.
However, the power of taxation should be exercised with caution to minimize injury to the proprietary rights of the taxpayer.
It must be exercised fairly, equally, and uniformly, lest the tax collector kill “the hen that lays the golden egg”.
Despite the unseemingly unlimited nature of taxation, it is not absolutely unlimited. Taxation has its own inherent limitations
and limitations imposed by the Constitution.
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Inherent Limitations
Territoriality Public services are normally provided within the boundaries of the State, thus, tax can be
imposed only within its territories. It cannot tax outside because foreigners do not derive
benefits from our government. The Philippines would not tax objects from foreign States as this
would amount to encroachment of foreign sovereignty.
International Comity This pertains to mutual courtesy or reciprocity between states. When a state enters into treaties
with other states, it is bound to honor the agreements as a matter of mutual courtesy and in case
such treaties are in conflict with local laws, the treaties are given primacy.
Public Purpose Proceeds from the collection of tax is intended for the common good, thus, tax must be exercised
absolutely for public purpose and cannot be exercised to further any private interest.
Exemption of the Taxation, being broad, the government can exercise the power to tax including upon itself.
Government However, taxing itself would not raise additional funds rather will only impute additional costs.
Non-Delegation of The legislative taxing power is vested exclusively in Congress and is non-delegable pursuant to
the Taxing Power the doctrine of separation of the branches of the government.
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Constitutional Limitations
As the power of taxation is inherent to every state, there is no need for an express stipulation of law for the State to exercise it.
In fact, the Constitution only tackles the power of taxation by imposing limitations on its exercise.
Due Process of Law No one should be deprived of his life, liberty or property without due process of law. Tax laws
should neither be harsh nor oppressive.
Aspects of Due Process:
Substantive Due Process – Tax must be imposed only for public purpose, collected only under
authority of valid law and only by the taxing power having jurisdiction. An assessment without
legal basis violates the requirement of due process.
Procedural Due Process – There should be no arbitrariness in assessment and collection of taxes
and the government shall observe the taxpayer’s right to notice and hearing.
Equal Protection of No person shall be denied the equal protection of the law. Taxpayers should be treated equally
the Law both in terms of rights conferred and obligations imposed. This rule applies where taxpayers are
under the same circumstances and conditions.
A common example of this would be the Congress cannot exempt sellers of “balot” while
subjecting sellers of “penoy” to tax since they are essentially the same goods.
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Uniformity Rule Taxpayers under dissimilar circumstances should not be taxed the same. Taxpayers should be
classified according to commonality in attributes. Each class is taxed differently but taxpayers
falling under the same class are taxed the same.
Progressive System In a progressive system, tax rates increase as the tax base increases. This is consistent with the
ability to pay theory. Moreover, the progressive system aids in an equitable distribution of
wealth to society by taxing the rich more than the poor.
Non-Imprisonment for As a policy, no one shall be imprisoned because of his poverty and no one shall be imprisoned
Non-Payment of Debt for mere inability to pay debt. It should be noted, however, that only the non-payment of Basic
or Poll Tax Poll Tax (cedula) is within the scope of this limitation. Non-payment of other taxes may result to
imprisonment.
Non-Impairment of The state should not set aside its obligations from contracts by the exercise of its taxation power.
Obligation and Contract Tax exemptions granted under contract should be honored and should not be cancelled.
Free Worship Rule The Philippine government adopts free exercise of religion and does not subject its exercise of
taxation. The properties and revenues (not commercial in nature) of religious institutions are not
subject to tax.
Exemption from The constitutional exemption of religious, charitable or educational entities, nonprofit
Real Property Taxes cemeteries, churches and mosques, lands, building, and improvements from property tax
applies for
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properties actually, directly and exclusively used for charitable, religious and educational
purposes.
Non-Appropriation This constitutional limitation is intended to highlight the separation of the church and the state.
of Public Funds To support freedom of religion, the government should not favor any particular system of
religion by appropriating public funds or property in support thereof.
Tax Exemption on The Constitution recognizes the necessity of education in state building by granting. This
Revenues and Assets exemption, however, applies only on assets and revenues actually, directly and exclusively
of Non-Profit devoted for educational purposes.
Educational
Institutions
Passage of Law The Constitution requires the vote of majority of all members of Congress in the grant of tax
Granting Tax exemptions. A quorum majority, however, is only required for the withdrawal of tax exemption.
Exemption
Non-Diversification Tax collections should be used only for public purposes. It should never be diversified or used in
of Tax Collections private purpose.
Non-Delegation of The impact of taxation cannot be delegated. The incidence, however, may be delegated on
Taxing Power matters involving expedient and effective administration.
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Non-Impairment of All cases involving taxes can be raised to and be finally decided by the Supreme Court of the
the Jurisdiction Philippines.
Origin of Revenue Bills Tax Laws should emanate from the House of Representatives, however, the Senate may propose
tax laws and may concur amendment.
Local Taxing Power This is a constitutional recognition of the local autonomy of LGUs and an express delegation of
taxing power.
STAGES OF EXERCISE OF TAXATION POWER

Levy or Imposition This process involves the enactment of a tax law by Congress. It is also referred to as the
legislative act in taxation.
Assessment and The tax law is implemented by the administrative branch of the government. Implementation
Collection includes the assessment or determination of the tax liabilities of taxpayers and subsequent
collection. This stage is referred to as the administrative act of taxation.
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SITUS OF TAXATION
Situs is the place of taxation. It is the tax jurisdiction that has the power to levy taxes upon the tax object. Situs rules serves as
frames of reference in gauging whether the tax object is within or outside the tax jurisdiction of the taxing authority.
Business Tax It is subject to tax in the place where the business is conducted
Income Tax on Services Service fees are subject to tax where they are rendered
Income Tax on Sale of Goods The gain on sale is subject to tax on the place of sale
Property Tax Properties are taxable in their location
Personal Tax Persons are taxable in their place of residence
Income Tax on Interests It is subject to tax on the debtor’s place of residence.
Other situs rules may be followed depending on the kind of tax being imposed.
Illustration 1.1 SITUS RULES

Nash E. Mulan, a Chinese national, resides in Sampaloc, Manila. He has the following
endeavors: • He has a car dealership business in Macau and a restaurant operation in Quezon
City.
• He renders consultancy services in the main office of a domestic company.
• He casually sells jewelry stored in Pasay City. During his trip to Palawan, he agreed to Kim Bong-Un to sell a piece of
necklace. They stipulated that it will be delivered in Pyongyang a week later.
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• Mr. Mulan owns a hectare parcel of land in Chonburi, Thailand.
The Philippine government can only impose business taxes upon Mr. Mulan relating to his restaurant operation since it is
within the territory of the country. Income tax on his consultancy services may also be collected since it is rendered within the
Philippines considering it is a domestic company. Regarding the sale of necklace to Kim Bong-Un, the Philippine government
can tax the gain from said sale since the sale was perfected in Palawan. The stipulation of delivery in North Korea is not
considered in this case. No local government unit in the Philippines can impose a real property tax on the parcel of land owned
by Nash since it is found in Thailand. Mr. Mulan, being a resident of the country, shall be subject to personal tax,
notwithstanding his Chinese nationality.
DOUBLE TAXATION
Double Taxation can be either direct or indirect. For a double taxation to be considered direct, all of the following
characteristics should concur:
a. Taxing the same object twice;

b. By the same taxing authority;
c. Within the same jurisdiction;
d.For the same purpose;
e. In the same period.
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Illustration 1.2 DOUBLE TAXATION
An example of a direct double taxation is as follows: The state taxes the income of self-employed individuals at 10% of its
monthly gross receipts. In addition, it also imposes a 2% annual income tax on the annual gross receipts. In this case,
self-employed individuals are burdened by paying the monthly and annual income tax based on their gross receipts (the
annual totaling all monthly gross receipts). It was imposed by the same taxing authority within the same jurisdiction, with the
same purpose of taxing the income for the same period.
The absence of one or more of the given circumstances does not constitute direct double taxation, thus, classifying it as an
indirect double taxation.
Constitutionality of Double Taxation:
The Philippine Constitution does not prohibit double taxation. However, while it is not forbidden, it is something not
favored. Such taxation should, whenever possible, be avoided and prevented. In addition, where there is direct double
taxation, there may be a violation of the constitutional precepts of equal protection and uniformity in taxation.
ESCAPES FROM TAXATION

Escapes from taxation are the means available to the taxpayer to limit or completely avoid the impact of taxation.
With Loss of Government Revenue

The following are the escapes from taxation that would result to loss of government revenue.
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Tax Evasion Also known as tax dodging, it refers to any act or trick that tends to illegally reduce or avoid the
payment of tax.
Tax Avoidance Also known as tax minimization, refers to any act or trick that reduces or totally escapes taxes by
any legally permissible means.
Tax Exemption Also known as tax holiday, refers to immunity, privilege or freedom from being subject to a tax
which others are subject to.
To further illustrate the difference between tax evasion and tax avoidance, refer to the table below.
BASIS TAX AVOIDANCE TAX EVASION TAX EXEMPTION
What is it? Hedging of tax Concealment of tax Not falling within scope of tax
Attributes Immoral in nature, which Illegal and objectionable, both Special privilege given by law
involves bending the law in script and moral.
without breaking it.
Concept Taking unfair advantage of the Deliberate manipulations in Application of concept of
shortcomings in the tax laws. accounts resulting in fraud. legislative grace
Legal Implication Use of Justified means Use of such means that are Non-compliance is not subject to
forbidden by law any legal implication
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Happened when Before the occurrence of tax After tax liability arises Imposition of taxes
liability
Type of act Legal Criminal Legal
Consequences Deferment of tax liability Penalty or imprisonment Non-payment of tax
Objective To reduce tax liability by To reduce tax liability by To provide legislative grace
applying the script of law exercising unfair means
Without Loss of Government Revenue

Escaping from taxation, however, may not result into loss of government revenue. Common examples of which are as follows.
Shifting This is the process of transferring the tax burden to other taxpayers.
Capitalization This pertains to the adjustment of the value of an asset caused by changes in tax rates.
Transformation This pertains to the elimination of wastes and losses by the taxpayer to form savings to
compensate for the tax imposition or increase in taxes.
Tax Amnesty vs. Tax Condonation

Tax Amnesty Tax amnesty is a general pardon given by the government to erring taxpayers. It generally
operates retrospectively by forgiving past violations. It is conditional upon the taxpayer paying
a portion of the tax.
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Tax Condonation Tax condonation or tax remission prospectively applies to forgiving any unpaid balance of tax.
The portion already paid is not refunded and no further payment is necessary.
References:
Banggawan, R. (2019). Income Taxation. Pasay City: Real Excellence Publishing.
Valencia, G. & Roxas, E. (2016). Income Taxation. Baguio City: Valencia Educational Supply.
Reyes, V. (2019). Income Tax Law and Accounting under the TRAIN Law. Manila: GIC Enterprises & Co., Inc.
Ampongan O. (2018). Income Taxation. Mandaluyong City: Millennium Books, Inc.
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Self-Check!
Basing on your readings, answer the following questions.
1. Identify and differentiate the three inherent powers of the State.
2. What is the difference between the theory and basis of taxation?
3. What is the scope of taxation and what are the sources of its limitations?
4. What are the acts considered as stages in the exercise of the power of taxation?
5. Explain the concept of situs and how it affects taxability of a transaction.
6. What constitutes a double taxation? Is it permitted?
7. How can a taxpayer escape from paying taxes?
Exercise 1.1 TRUE OR FALSE

Determine whether the following statements are true or false.
1. The Marshall Doctrine states that the power to tax is not the power to destroy while the court sits. 2. The administrative
act of taxation is primarily the duty of the Bureau of Internal Revenue. 3. The police power of the State may be exercised
through taxation because taxes may be levied for the promotion of the welfare of the public
4. A person cannot be imprisoned for non-payment of tax.
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5. Though the Senate is part of the Philippine Congress, tax bills cannot originate from it.
6. The primary purpose of taxation is to raise revenues of the government to defray its expenses on its performance of
public goods.
7. The basis of taxation is the government’s necessity for funding.
8. Tax laws are generally retrospective in application, meaning, application of which starts when the statute is enacted. 9.
The exemption of the government from taxation extends to government-owned and -controlled corporations. 10. The
Congress is the one primarily responsible for the collection of taxes.
Exercise 1.2 IDENTIFICATION

Identify the terminologies best described by the following statements.
1. The enforced proportional contributions from persons and property levied by the lawmaking body of the State
2. The power of the State to take private property for public use after paying just compensation 3. This refers to any
act or trick that tends to illegally reduce or avoid the payment of tax
4. This pertains to the elimination of wastes and losses by the taxpayer to form savings to compensate for the tax imposition
or increase in taxes
5. The place of taxation
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Exercise 1.3 MULTIPLE CHOICE
Choose the best answer from the choices provided.
1. A tax must be imposed for public purposes. Which of the following is not a public purpose? a.
Procurement of army weapons
b. Construction of rehabilitation centers for drug addicts
c. Construction of a satellite for a telco company
d. Expenses on the President’s state visits to other countries
2. Persons or things belonging to the same class shall be taxed at the same rate a.
Simplicity in taxation
b. Equality in taxation
c. Reciprocity in taxation
d. Uniformity in taxation
3. For double taxation to be considered direct, it should meet the following criteria, except a.
Taxing the same object twice
b. Same period
c. Same amount of tax
d. Same jurisdiction
4. This is an inherent limitation on the power of taxation
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a. Rule on uniformity and equity in taxation
b. Due process of law and equal protection of tine laws
c. Non-impairment of the jurisdiction of the Supreme Court in tax cases
d. Exemption of the government
5. Taxation as distinguished from police power and power of eminent domain
a. Property is taken to promote the general welfare
b. May be exercised only by the government
c. Operates upon the whole citizenry
d. There is generally no limit as to the amount that may be imposed
Exercise 1.4 SITUS RULES APPLICATION

Dina B. Nalican, Spanish by citizenship, obtained the income from the following during the year. • Having posted in Shoppy, a
customer browsing the online shopping application in General Santos City asked if she could inspect the car personally. It
was after the inspection in Zamboanga City that the customer agreed to buy the car. It is to be delivered to and paid by the
customer in Davao City.
• Dina has a hardware store located in Mactan, Cebu. She decided to close the main branch in Leyte five years ago.
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• She also lends thru the 5-6 system of lending in her residence in Quiapo. A debtor residing in Quezon City owes her
P60,000, inclusive of interests. They are to meet in Sampaloc for the payment of said debt.
• Dina owns a condo unit in Laoag City. A student from Cagayan rents said property and pays to Dina’s son (residing in
Vigan City) the rent when they meet up in Batac City.
Determine the situs of:
____________________________1. Tax on the gain on sale of her car
____________________________2. Tax on her hardware store
____________________________3. Tax on interest income earned
____________________________4. Tax on rental income earned
____________________________5. Personal Tax
Exercise 1.5 LIMITATIONS

Identify the source of the limitation on the power of taxation. Write C if it is constitutional, I if it is inherent, B if it is both constitutional
and inherent and N if it is not a limitation.
1. Imprisonment for non-payment of income tax
2. Non-delegation of the taxing power
3. Taxes collected must be used for public purposes
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4. Taxes can only be imposed within the territory of the State
5. Exemption from taxes of the revenues and assets of religious, charitable or educational entities, nonprofit cemeteries,
churches and mosques
6. No arbitrariness in assessment and collection of taxes
7. Taxes cannot be assigned
8. Tax treaties entered into with other contracting States must be honored
Case Study 1.1 THE SWEET TAX

To provide means for the rehabilitation and stabilization of the sugar industry so as to prepare it for the eventuality of the loss
of the quota allocated to the Philippines resulting from the lifting of U.S. sanctions against African countries, Congress passes
a law increasing the existing tax on the manufacture of sugar on a graduated basis. All collections made under the law are to
accrue to a special fund to be spent only for the purposes enumerated herein, among which are to place the sugar industry a
living wage and to improve their working conditions.
Sweet, a sugar planter, files a suit questioning the constitutionality of the law alleging that the tax is not for a public purpose
as the same is being levied exclusively for the aid and support of the sugar industry.
Is the contention of Sweet tenable?
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Case Study 1.2 WHO IS TO BLAME?
Many consider that it was untimely that the internal revenue office of Wakanda issued a memorandum circular during the
pandemic reminding guidelines on the registration of online businesses for tax filing. As enacted under Wakanda’s revenue
code, online businesses are liable to income tax on the gains from their sales.
One of Wakanda’s officials, Senator Jack A. Moon, questioned the internal revenue office on its issuance indicating that it was
not moral for it to run after online businesses and impose taxes on their income, more so that they are normally conducting
such endeavors for mere subsistence.
Is the senator’s contention tenable?
Case Study 1.3 IS IT EXEMPT?

A congregation owns a parcel of land. Most of it is directly used for its religious and educational endeavors. A small
commercial space was built beside the school it operates to rent out to businesses which would cater the needs of its students.
The proceeds from rentals are being used for charitable purposes.
Should the rental income and property be subjected to tax?
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BAINCTAX

INHERENT POWERS OF THE STATE

1. They are all necessary attributes of the sovereignty.

Persons Affected Community or class of Community or class of Owner of the property

FUNDAMENTAL THEORIES AND DOCTRINES

SCOPE AND LIMITATIONS OF TAXATION

STAGES OF EXERCISE OF TAXATION POWER

Illustration 1.1 SITUS RULES

a. Taxing the same object twice;

ESCAPES FROM TAXATION

With Loss of Government Revenue

Without Loss of Government Revenue

Tax Amnesty vs. Tax Condonation

Exercise 1.1 TRUE OR FALSE

Exercise 1.2 IDENTIFICATION

Exercise 1.4 SITUS RULES APPLICATION

Exercise 1.5 LIMITATIONS

Case Study 1.1 THE SWEET TAX

Case Study 1.3 IS IT EXEMPT?

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