TAXATION is a means by which the sovereign state through its lawmaking body raises money

to defray the necessary expenses of the government.

Taxation is both a Power and a Process

 Power- refers to the inherent power of the state, co-extensive with sovereignty, to
demand contributions for public purposes to support the government.
 Process- it passes a legislative undertaking through the enactment of tax laws which will
be implemented by the Executive branch of the government to raise income from the
inhabitants in order to pay the necessary expenses of the government.

Theory and Basis of Taxation

1. Necessity Theory
Based on the principle of necessity, the government has a right to compel all its citizens,
residents and property within its territory to contribute money to support its expenditure.
The government cannot possibly exist or exercise its function of protecting its inhabitants
and financing its governmental function efficiently without the monetary support coming
from its inhabitants.

2. Benefits-Protection Theory
The basis of taxation is found on the reciprocal duties of protection and support between
the State and its inhabitants. The government collects taxes from its citizen in order that it
may be able to perform its governmental function. The citizen on the other hand pays
taxes to support the government in order that he may be continuously given with security
and benefits of an organized society.

3. Lifeblood Theory
Taxes are what we pay to have civilized society. Without taxes, the government would be
paralyzed for lack of funds to operate and activate its governmental function.

Objectives or Purposes of Taxation

1. Revenue purpose

The primary purpose of taxation is basically to raise funds or property with which the
State uses to promotes the general welfare and protection of its citizens.

2. Regulatory purpose

This is a secondary purpose of imposing tax. This objective is accomplished by (a)

regulating inflation, (b.) achieving economic and social stability, and (c.) by serving as
key instrument for social control.
 Examples:
- Sin taxes for "sin" products such as cigarettes and alcohols.
- Amusement taxes for "amusement places" such as night and day clubs, cockpits and
racetrack.

3. Compensatory Purpose

Taxation is also a means of giving back to its citizens the expected social and economic
benefits thru the following:
Taxes maybe imposed for equitable and fair distribution of wealth and income by
imposing higher taxes from those who earn more and use the funds collected to give
sufficient and efficient services to its inhabitants.

Example:
- Protecting local industries through imposition of tariffs on imported goods.
- Increasing taxes in periods of prosperity to curb spending power and halt inflation.

Nature of Taxation

1. Inherent Power of Sovereignty

2. Essentially a legislative function
3. For Public purposes
4. The strongest of all the inherent power of the government
5. Territorial in Operation
6. Subject to Constitutional and Inherent Limitations

Stages or Process of Taxation

1. Levy or Imposition
This process involves the passage of tax laws through the state legislature. The tax laws
to be passed shall determine the subject of taxation, the rates and the administrative
provision and on how it will be implemented.

2. Assessment and Collection

This act is done by the executive branch of the governmental through its collecting arm
the BIR and the Bureau of Custom both under the Department of Finance.

TAXES

Enforced proportional contribution from the persons and property levied by the law
making body of the State by virtue of its sovereignty in support of government and for public
needs.

Essential Characteristic of a Tax

1. It is an enforced contribution
Payment of tax is not voluntary payment or donation, but an enforced contribution,
exacted pursuant to legislative authority.

2. It is levied by the lawmaking body

The power of imposing a tax, being purely legislative, Congress cannot delegate such
power. This limitation arises from the doctrine of separation of powers among the three
branches of the government.

3. It is proportionate in character
Payment of taxes should be based on the ability to pay theory or theoretical justice.
Ability to pay principle is based not on the benefits received but on the notion of equal
sacrifice.
4. It is generally payable in money
It is a pecuniary burden payable in money which must be in legal tender.
5. It is imposed for the purpose of raising revenue
6. It is to be used for public purpose

The power of taxation can only be levied by the Congress of the Philippines through
enactment of tax statutes. But the power is also granted by the Constitution to local government
units subject to such limitations as may be provided by law.

Principle of a Sound Tax System

1. Fiscal Adequacy

This principle states that the sources of revenue should be sufficient to meet government
expenditures and other public needs.

2. Equality or Theoretical Justice

The tax imposed must be proportionate to the taxpayer ability to pay.

3. Administrative Feasibility

The tax law must be conveniently and effectively administered and enforced.

Inherent Powers of the State

1. Taxation power
2. Police power
3. Power of eminent domain

The Nature of Police Power

  Police power refers to the inherent power of the sovereign state to legislate for the
protection of health, welfare and morals of the community. It is exercised usually to
guard against excesses or abuses of individual liberty.

The Nature of Eminent Domain

 Eminent Domain refers to the power of the sovereign state to take private property for a
public purpose even without the owner’s consent. It is founded upon the idea that
common necessities and interest of the community transcend individual rights in
property.
 The constitution limits the exercise of the power by providing that property may not be
taken without just compensation.

Limitations on the Power of Taxation

1. Inherent Limitations

Not embodied in the constitution, these are limitation based on the very nature of the
power of taxation.

2. Constitutional Limitations

Those expressly found in the Constitution or implied from its provisions.

3. Contractual

Limitations based on contract entered between the State and the taxpayer.

Inherent Limitations
These are restrictions arising from the very nature of the power to tax itself. Inherent
limitations are those limitations which exist despite the absence of an express constitutional
provision.

1. Purpose: Taxes may be levied only for public purpose;

2. Non-delegation: The power to tax, being inherently legislative, may not be delegated;
3. Territoriality: The power to tax is limited by to territorial jurisdiction of the State;
4. International comity: The property of a foreign State may not be taxed by another;
5. Exemption: Governmental entities performing governmental function are exempt from
taxation.

Constitutional Limitations

1. Due process of law

 Any deprivation of life, liberty or property is with due process. It should be done under
the authority of law which is valid and after compliance with fair and reasonable
methods.
2. Equal protection of law
All persons subject to legislation shall be treated alike under the circumstances and
conditions both in the privileges conferred and liabilities imposed.
3. Rule of uniformity and equity in taxation
All taxable articles or kind of property of the same class are taxed at the same progressive
rate on which burden falls to those who are more capable of paying.
4. No imprisonment for non-payment of poll tax.
5. Exemptions from property taxation of religious, charitable or educational entities, non-profit
cemeteries, churches, and convents.
6. No public money shall be appropriated for religious purposes.
7. No collections shall generally be treated as general funds of the government.

Situs of Taxation

Refers to the place of taxation, or the state or political unit which has jurisdiction to
impose tax over its inhabitants

Factors that Determine the Situs of Taxation

1. Kinds or classification of tax being levied.
2. Situs of the thing or property taxed
3. Citizenship of the taxpayer
4. Residence of the taxpayer
5. Source of the income taxed
6. Place of the excise, privilege, business or occupation being taxed.

Application of the Situs of Taxation

Kind of Tax Situs

Personal or community tax Residence or domicile of the taxpayer
Real property tax Location of the property
Personal property tax Tangible- where it is physically located or
permanently kept.
Intangible-
Business tax Place of business
Excise or Privilege tax Where the act is performed or where
occupation is pursued.
Sales tax Where the sale is constituted
Income tax Consider
1. Citizenship
2. Residence
3. Source of Income
Transfer Tax Residence or citizenship of the taxpayer or
location of property.
 Franchise Tax State which granted the franchise
Corporate Tax Law on Incorporation

Tax Rate Structure

1. Regressive- a tax is said to be regressive if the average rate decreases as the tax base
increases.
2. Proportional- the average rate of tax remains constant for all the levels of the tax base.
3. Progressive- is one which the average rate increases as the amount of the tax bases
increases.

Classification of Taxes

1. As to subject matter or object:

a. Personal, poll or capitation- tax of fixed amount imposed on individual. (community tax)
b. Property- tax imposed on property whether real or personal in proportion to their value.
(real property tax)
c. Excise- tax imposed upon the performance of an act, the enjoyment of the privilege or the
engaging in an occupation. (estate tax, donors tax, value added tax)
d. Custom duties- duties charged upon the commodities on their being imported into or
exported from a country.

2. As to who bears the burden:

a. Direct- tax demanded from persons who are intended or bound by law to pay the tax.
(community tax, income tax).
b. Indirect- tax which the taxpayer can shift to another.( value added tax)

3. As to determination of amount
a. Specific- tax imposed based on physical unit of measurement, as by head or number,
weight, or length or volume .(tax on distilled spirit)
b. Ad Valorem- tax of fixed proportion of the value of property. (real estate tax)

4. As to purpose
a. General, fiscal or revenue- tax with no particular purpose or object for which the revenue
is raised. ( income tax, value-added tax)
b. Special or regulatory- tax imposed for a special purpose, intended to achieve social or
economic end. (protective tariff or custom duties)

5. As to taxing Authority
a. National tax- levied by the National government
b. Local tax- levied by the local government.

6. As to rate
a. Progressive tax- the rate or amount of tax increases as the amount of income or earnings
to be taxed increases.
 b. Regressive Tax- the tax rate decreases as the amount of income to be taxed increases.
c. Proportionate tax- based on a fixed proportion of the value of the property assessed.

TAX LAWS

What is a tax law?

It is a set of rules that provide means for the State to raise revenues burden upon its
citizens.

How to make a tax law

Generally, all revenue bills must originate from the House of Representatives. After
passing 3 readings by a majority vote in technical committee, deliberation and journals of
congress. It shall be elevated to Senate, which needs to pass the same 3 readings.
Normally, the President signs a bill into law for its implementation.
Scope of Legislature Taxing Power

1. Kind of Tax
2. Amount or rate of tax
3. Method of Collection
4. Apportionment of the tax
5. Purpose’s of its levy, provided it is for public purpose.
6. Subject to be taxed, provided its within its jurisdiction
7. Situs of taxation

What is a Double Taxation?

Double taxation means an act of the sovereign by taxing twice for the same purpose in
the same year upon the same property or activity of the same person, when it should be taxed
once, for the same purpose and with the same kind of character of tax.

Kinds of Double Taxation

1. Direct Duplicate Taxation

This is double taxation in its objectionable, prohibited and strict sense. It is prohibited
because it imposes the same tax on the same property for the same purpose by the same state
during the same taxable period.
Elements of Double Taxation
 The same property or subject matter is taxed twice when in fact it should be taxed
only once.
 The two taxes are levied for the same purpose.
 It covered the same kind of tax.
 It is imposed by the same taxing authority and within its same jurisdiction.
 It is levied during the same taxing period.

2. Indirect Duplicate Taxation

 This kind of double taxation is legal and permissible. The absence of one or two elements
of double taxation makes it indirect taxation. Indirect duplicate taxation is allowed as long as
there is no violation of the equal protection and uniformity clause of the Constitution.

TAX ENFORCEMENT AND COLLECTIONS

Different Agencies Involved in Tax Administration

A. Bureau of Internal Revenue
B. Bureau of Customs
C. Provincial, city and municipal assessors and treasurers

Bureau of Internal Revenue

The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal
Revenue, hereinafter referred to as the Commissioner and seven (7) assistant chiefs to be known
as Deputy Commissioners.

 The mission of the Bureau of Internal Revenue is to collect taxes efficiently and
effectively, for and at the least cost to the government, through impartial and consistent
enforcement of internal revenue laws, and convenient and honest service to taxpayers.

Powers and Duties of the Bureau of Internal Revenue

The Bureau of Internal Revenue shall be under the supervision and control of the Department of
Finance and its powers and duties shall comprehend the:
A. Assessment and collections of all national internal revenue taxes, fees, and charges.
B. Enforcement of all forfeitures, penalties, and fines connected therewith.
C. Execution and judgments in all cases decided in its favor by the Court of Tax Appeals
and the ordinary courts.
D. Give effect to and administer the supervisory and police power conferred to it by the
Code or other laws.

Powers of the Commissioner

1. Interpret tax laws and decide tax cases;

2. Obtain information, and to summon, examine, and take testimony of persons;
3. Make assessment and prescribe additional requirement for tax administration and
enforcement;

The Commissioner of Internal Revenue is authorized to inquire into bank deposits of:
1. a decedent to determine his gross estate; and
2. any taxpayer who has filed an application for compromise of his tax liability.
 Name Score
Course and Year

Exercise 1-1 Fill in the blank

1. _____________ is exercised trough taking private property for public use.

2. _____________ is to promote public health, safety and general welfare.
3. _____________ is an inherent power which is inferior to the non-impairment clause.
4. _____________ refers to the unlimited, complete, comprehensive and supreme application of
taxation.
5. _____________ refers to the natural restriction to protect people’s interest against taxation.
6. _____________a reason for the state to exercise taxing powers over citizens outside its
territory.
7. _____________refers to the courteous recognition and respect accorded by one nation to
another.
8. _____________ requires opportunity to be heard in the proper court.
9. _____________means all persons shall be treated equally under similar circumstances and
conditions.
10. ____________means an act of the sovereign by taxing twice for the same purpose in the
same year upon the same property or activity of the same person, when it should be taxed once,
for the same purpose and with the same kind of character of tax.
11. ____________ The tax burden is fixed ( in amount or in percentage) on a flat tax base.
12. ____________ Taxes imposed in the exercise by the state of power of taxation as well as the
police power.
13. ____________The existence of the government is a necessity; that without money, the
government cannot pay its expenses and it cannot, therefore exist.
14. ____________All sums coming into the state treasury whether from taxes or other kinds of
impositions, charges, fees like license and permit fee and donations.
15. ____________The act of imposition by the legislature such as by its enactment of the law.

Name Score
Course and Year

Exercise 1-2 True or False

____1. Tax evasion in one year can be offset by paying excessive taxes in the succeeding year.
____2. The power of taxation cannot be exercised without a previous constitutional authority.
____3. Tax laws should be always be aimed at revenue collection.
____4. A tax is a voluntary donation to the government.
____5. The salary of the President of the Philippines is not subject to income tax.
____6. The taxpayer who deliberately omits to declare all his taxable income is guilty of tax
evasion.
____7. The power to tax can reach over into any jurisdiction to seize upon persons or property.
____8. Double taxation is not specifically prohibited by the Constitution.
____9. Taxes must only be imposed prospectively unless the law provides for retroactivity.
____10. Taxes are paid only by those who are directly benefiting from the government.
____11. Tax evasion in one year can be offset by paying excessive taxes in the succeeding year.
____12. The power of taxation cannot be exercised without a previous constitutional authority.
____13. Tax laws should always be aimed at revenue collection.
____14. The salary of the President of the Philippines is not subject to income tax.
____15. A taxpayer who deliberately omits to declare al of his taxable income is guilty of tax
evasion.
____16. The power to tax can reach over into any jurisdiction to seize upon persons or property.
____17. Taxes are paid only by those who are directly benefiting from the government.
____18. Without revenue raised from taxation, the government will not survive, resulting to
detriment to society.
____19. As a general rule, a tax exemption is an act of liberality which can be revoked by the
government.
____20. Taxes must be imposed prospectively unless the law provides for retroactivity.