What is taxation?

-Inherent power of a sovereign state (government) to impose a charge or financial burden on

persons, properties or rights to
- Raise revenues for its use and support
- Enable it to discharge its functions
-Dictated by the needs of the government - exact any amount, except when There are prescribed
limitations, There is abuse of power

branches of government involved in taxation

a) Legislative: enacts the laws that impose the tax

b) Executive: promulgates the regulations that implement the law
c) Judicial: sees to it that the laws do not violate inherent and constitutional limitations on the
power of taxation, and the implementation is according to the letter and spirit of the law

three basic principles of a sound tax system

a) Fiscal adequacy – sources of revenue as a whole should provide enough funds to meet the
expanding expenditures of the government.
b) Theoretical justice – taxes must be based on the taxpayer’s ability to pay
c) Administrative feasibility:
- clear to the taxpayer,
- not unduly burdensome and discouraging to business,

- convenient as to time and manner of payment and

- capable of enforcement by competent public officials

5 essential characteristics of a tax

a) Forced contribution
b) Exacted pursuant to the legislative authority
c)Proportionate in character
d) Payable in money
e)Imposed for the purpose of raising revenue
f) Used for a public purpose
 three classification of a tax as to subject matter
a) Personal, capitation or poll tax (persons or residents of a specified territory)
b) Property tax (properties located within a taxing jurisdiction)

c) Excise tax (performance of an act or enjoyment of a privilege)

Gross income- the total income earned by an individual on a paycheck before taxes and other deductions.
(bahagi ng income na subject sa tax)

• Capital Gains Tax:

1) Bought 1,500 shares ABC Stocks in 2018 at P600/share.

Sold at P750/share. (750- 600) x 1,500 = 225,000

2) Bought XYZ Corp. 500 shares at P250,000, sold half at P650/share.

Cost- 250,000/500 500 (650-500)x250 = 37,500

3) Inherited 500 sqm. real property in 1990 then valued at P950,000. Sold at P2.75M. Zonal
value at P4,500/sqm and assessed value of P3,500/sqm. FMV is posted in the Daily
Inquirer at P3.25M.

Highest – P3,250,000 x 6% = P195,000

• Determine whether the following income sources require passive income tax withheld at source.
And if so, how much? I=PRT
1) Interest on FCDU deposits of $50,000 at 2.5% = $1,250 x 15% = $187.50

Interest on Peso time deposits of P125,000 at 3% = P3,750 x 20% - P750

2) Royalty income from book published of P100,000. = P100,000 x 10% = P10,000

3) Royalty income from a patented invention of P250,000. = P250,000 x 20% = P50,000

 4) Lotto winnings of P50,000,000. = P50M x 20% = P10M

5) Prize winning of P8,000 = NA

6) Dividend income from ABC Corp, a domestic corporation@ P1.50/ share on 20,000 shares
owned. = P30,000 x 10% - P3,000

Compute Tax due:

Levying- pagpataw
Tax is defined as lifeblood of the government
Collection of taxes -Also known as tax administration
Imposed to regulate conduct – Licence fee
Taxation- The act of laying a tax.
Legislative - The branch of the government that exercises the power of the taxation.
inherent- Limitation on the power of taxation not found in the Constitution.
international comity- Under this specific limitation, properties of foreign government are exempted from
taxation.
equitablity- It means taxes should be based on the taxpayer’s ability to pay and benefits received.
uniformity -It means taxable items of the same class should be taxed at the same rate.
Fiscal- A canon of taxation, which means that tax, should be sufficient to support and maintain
government expenditures.
non deligability- A principle which prohibits the delegation of a taxing power which has already been
delegated.
tax evasion- A form of tax escapes through illegal means, refers to a fraudulent act of minimizing taxes.
Ex. Non exclusions of sales
tax avoidance- A form of tax escapes through permissible or legal means. Ex. Tax option, shifting,
transformation