General Principles of

Taxation and Income Tax

Atty. Christian Wilfred Morales, CPA
Taxation
Mode by which the State make exactions for
revenue to support its existence and legitimate
objectives. It is an enforce contribution. The State
cannot exist without taxation.
Purpose of Taxation
• Revenue generation
• Promotion of general welfare
• Regulation
• Reduction of social inequality
• Encourage economic growth
• Protectionism
Nature of Power of Taxation
• Inherent attribute of sovereignty
• Legislative in character
• Subject to constitutional and inherent limitations
Characteristics of Taxation
• Comprehensive
• Unlimited
• Plenary
• Supreme
Scope of Legislative Taxing Power
• Subject matter to be taxed
• Rate of Tax
• Purpose of Tax
• Apportionment of Tax
• Place of Taxation
• Method of Collection
Inherent Limitations
• Public Purpose
• International Comity
• Non-delagability of the Taxing Power
– Flexible Tariff Clause
– Taxing Power of LGU
• Exemption of Government Entities
• Territoriality
Constitutional Limitations
• Prohibition against imprisonment for non-
payment of poll tax
• Progressive system of taxation
• Uniformity and Equality
• Flexible Tariff Clause
Constitutional Limitations
• Votes required for tax exemption
• Tax exemption of religious, charitable and
educational institutions
• Veto Power of the President
• Non-impairment of SC Jurisdiction
• Non-appropriation for religious purposes
• Non-taxability of non-stock non-profit
educational institution
Doctrines
• Tax laws are construed in favor of the
taxpayer.
• Tax exemptions are construed in favor of the
State.
• Tax laws are prospective in their application.
• Tax laws are imprescriptible unless provided
for by the law.
• Double Taxation is not illegal per se.
Principles of a Sound Tax System
• Fiscal Adequacy
• Administrative Feasibility
• Theoretical Justice
Escape from Taxation
• Exemption and Amnesty
• Capitalization
• Shifting of Tax Burden
• Avoidance and Evasion
Impact and Incidence of Taxation
• Impact of taxation means the point at which a tax is
originally imposed. The taxpayer is referred to as
the statutory taxpayer, the one whom the tax is
formally assessed.
Impact and Incidence of Taxation
• Incidence of taxation means the point at
which the tax burden finally rests or
settles down. It takes place when
shifting has been effected from the
statutory taxpayer to another.
Income Tax
• Tax on all yearly profits arising from property,
profession, trade or as a tax on person’s income,
emoluments, compensation and the like.
• Imposed upon the privilege or receiving income or
profit. Hence, excise tax.
Kind of Taxpayers
• Individual – RC, NRC, RA, NRAETB,
NRANETB
•
• Corporation – Partnership, DC, RFC,
NRFC
•
Resident Citizen
• Citizen residing in the PH
• Citizen who stayed outside the PH for LESS THAN
180 Days
Non-Resident Citizen
• Citizen who works and derives income
abroad whose employment requires
him to be physically present abroad at
least 183 aggregate or continuous days
• Citizen who establishes the fact of his
presence abroad with a definite
intention to reside therein.
•
Non-resident Citizen
• Citizen who leaves the PH during the taxable year to
reside abroad either as an immigrant or for
employment on a permanent basis.
• Citizen who is previously classified as NRC and who
arrives in the PH at anytime of the year shall be
treated as NRC with respect to his income abroad until
his arrival.
Resident Alien
• An individual who is not a citizen of the
PH whose residence is within PH
provided that he is not a mere transient,
no definite intention as to his stay in
PH, or the purpose is an extended stay
necessary for an accomplishment of his
objective requiring a temporary
residence in PH.
Non-resident Alien Engaged in Trade or Business
• An individual who is not a citizen of the PH whose
residence is not within PH provided that his
aggregate stay in PH exceeds 180 days.
Income
• All wealth that flows to the taxpayer aside
from a return of capital.
• Income is considered received when it is
actually handed to a person or
constructively received by him
(Doctrine of Constructive Receipt)
Requisites for Income to be Taxable
• There must be a gain or profit.
• The gain or profit must have been actually or
constructively received.
• The gain or profit is not exempted by law or treaty.
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