INCOME TAXATION

Lesson 1

Basic Principle of
Taxation

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
At the end of this lesson, you should be able to know and understand the
following:

1. Inherent Powers of the State.

2. Definition of Taxation.
3. The Theory of Taxation.
4. The Basis of Taxation.
5. Theories of Cost Allocation.
6. The Lifeblood Doctrine.
7. The Limitations of the Taxation Power.
8. Stages of the Exercise of the Taxation.
9. Situs of Taxation.
10. Escapes from Taxation.

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
INHERENT POWERS OF THE STATE
1. Police Power
➢Is the general power of the State to enact
laws to protect the well-being of the people.
2. Eminent Domain
➢Is the power of the State to take private property
for public use after paying just compensation.

3. Taxation Power
➢ Is the general power of the State to enforce proportional
contribution from its subjects to sustain itself.
Sir Ervin Fernandez
INCOME TAXATION
Lesson 1 Basic Principle of Taxation
DEFINITION OF TAXATION
1. As a state power
➢Taxation is an inherent power of the State to enforce a proportional
contribution from its subject for public purpose.
2. As a process
➢Taxation is a process of levying taxes by the legislature of the State to
enforce proportional contribution from its subject for public purpose.
3. As a mode of cost distribution
➢ Taxation is a mode by which the State allocates its costs or burden to
its subjects who are benefited by its spending.
Sir Ervin Fernandez
INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE THEORY OF TAXATION

➢Every government provides a vast array of public services such

as defense, public order and safety, health, education, and social
protection among others.

➢Is the government’s necessity for funding

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE BASIS OF TAXATION

➢Is the mutuality of support between the people and the

government.

Taxes

GOVERNMENT PEOPLE

Public
Services

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THEORIES OF COST ALLOCATION
1. Benefit received theory
➢Presupposes that the more benefit one receives from the
government, the more taxes he should pay.

2. Ability to pay theory

➢Presupposes that taxation should also consider the
taxpayer’s ability to pay.

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE LIFEBLOOD DOCTRINE

➢Taxes are essential and indispensable to the continued

subsistence of the government. Without taxes, the
government would be paralyzed for lack of motive power to
activate or operate it.

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE LIMITATIONS OF THE TAXATION POWER
1. Inherent Limitations
➢Restrictions on the power exists from the very nature of the
power of taxation itself.

2. Constitutional Limitations
➢Restrictions on the exercise of the power of taxation as
expressly provided in the Philippine Constitution.

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE LIMITATIONS OF THE TAXATION POWER
1. Inherent Limitations
1) Territoriality of taxation
2) International Comity
3) Public Purpose
4) Exemption of the Government
5) Non-delegation of the taxing power

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE LIMITATIONS OF THE TAXATION POWER
2. Constitutional Limitations
1) Due Process of law
2) Equal Protection of the law
3) Uniformity rule in taxation
4) Progressive system of taxation
5) Non-imprisonment for non-payment of debt or
poll tax

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE LIMITATIONS OF THE TAXATION POWER
2. Constitutional Limitations
6) Non-impairment of obligation and contract
7) Free worship rule
8) Exemption of religious or charitable entities, non-
profit cemetery, churches and mosque from property
taxes
9) Non-appropriation of public funds or property for
the benefit of any church, sect or system of religion
10)Exemption from taxes of the revenues and assets of
non-profit, non-stock educational institutions.
Sir Ervin Fernandez
INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE LIMITATIONS OF THE TAXATION POWER
2. Constitutional Limitations
11) Concurrence of a majority of all members of Congress for the
passage of a law granting tax exemption.
12) Non-diversification of tax collections
13) Non-delegation of the power of taxation
14) Non-impairment of the jurisdiction of the Supreme Court to
review tax cases
15) The requirement that appropriations, revenue, or tariff bills shall
originate exclusively in the House Representatives
16) The delegation of taxing power to local government units

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
STAGES OF THE EXERCISE OF THE TAXATION
1. Levy or Imposition

➢The legislative act in taxation

➢The enactment of tax laws by Congress called impact of
taxation.
2. Assessment and Collection
➢The administrative act of taxation
➢The implementation by the administrative branch of the
government of tax laws

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE SITUS OF TAXATION

➢Is the place of taxation.

➢It is the jurisdiction that has the power to levy taxes upon
the tax object.
➢It is the reference whether the tax object is within or
outside the tax jurisdiction of the taxing authority.

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE SITUS OF TAXATION
1. Business tax situs:
Businesses are subject to tax in the place where the
business is conducted.
A taxpayer is involved in a car dealership abroad and
restaurant operation in the Philippines.
➢ The restaurant operation in the Philippines is subject to
business tax
➢ The car dealership abroad is exempt because the business
is conducted abroad

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE SITUS OF TAXATION

2. Income tax situs:

a) Services.
➢ Where the service is rendered

➢ A foreign corp. leases a residential space to a non-resident

Filipino citizen abroad. Rent income is exempt from
Philippine taxation.

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE SITUS OF TAXATION

2. Income tax situs:

a) Sale of Goods.
➢ Place of sale
While in Beijing, a non-resident OFW citizen agreed with a Chinese
friend to sell a gold bracelet to him. They stipulated that the that the
delivery of the item and payment will be made 3 days later in the
Philippines. The sale was consummated as agreed.
➢ The gain on sale will be taxable abroad and exempt in the
Philippine taxation.

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
THE SITUS OF TAXATION

2. Property tax situs:

➢ Location of the property.

An overseas Filipino worker has a residential lot in the Philippines.

➢ The taxpayer will still pay for the property tax despite absence
in the Philippines because the property is located therein.

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
ESCAPES FROM TAXATION
1. Tax Evasion
➢Also known as tax dodging, refers to any act or trick that
tends to illegally reduce or avoid the payment of tax.

2. Tax avoidance

➢Also known as tax minimization, refers to any act or

trick that reduces or totally escapes from taxes by any legally
permissible means.

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation

Sir Ervin Fernandez

INCOME TAXATION
Lesson 1 Basic Principle of Taxation
Tax Laws, Tax and Tax Administration
➢ Types of Taxation Laws
➢ Sources of Taxation Laws
➢ Types of Administrative Issuances
➢ Definition of Tax
➢ Elements of Valid Tax
➢ Tax System
➢ Tax Collection System
➢ Tax Administration

Income Taxpayers
➢ Types of Income Taxpayers

Sir Ervin Fernandez