Week 1 & 2 :

Fundamental of
Taxation Concepts
TAXATION:
Definition, Nature and Basis

l MEANS by which sovereign raises income

l taxes are LIFEBLOOD of the government
l indispensable and inevitable
l ultimate beneficiaries: both the government
and the citizens
l incentive and mitigating aspects
– mitigating certain undesirable economic and social
conditions already existing
– providing incentives for certain desirable activities
BASIS / THEORY OF TAXATION

l Lifeblood Theory
Taxation is a necessity to the government to
exist.
l Benefits-Received Theory
The state collects taxes in order that it may be
able to perform the functions of the
government
INHERENT POWERS OF THE
STATE

l Taxation
The power of the state by which the sovereign
raises revenue to defray the necessary
expenses of the government
l Eminent Domain
The power of the state to take private
property for public purpose upon payment of
just compensation
INHERENT POWERS OF THE
STATE

l Police Power
The power of the state to enact laws to
promote public health, public morals, public
safety and the general welfare of the people
Aspects of Taxation

l Levying of the tax (IMPACT)

- Legislative (Congress)

l Collection of the tax levied (INCIDENCE)

- Administrative (DOF – BIR)
Basic Principles of a
SOUND TAX SYSTEM

l Fiscal Adequacy
Sources of revenue are sufficient to meet
government expenditures (R>E)
l Administrative Feasibility
The law must be capable of convenient, just
and effective administration
l Theoretical justice or equality
The tax imposed must be proportionate to
taxpayer’s ability to pay
SCOPE OF TAXATION

In the absence of limitations, the power of

taxation is comprehensive, plenary, unlimited
and supreme. Taxation is subject to the
following limitations
l Inherent Limitations
l Constitutional Limitations
INHERENT LIMITATIONS

l Territorial Jurisdiction
l International Comity
l Public Purpose
l Exemption from taxation of government
entities performing governmental functions
l Non-delegation of the power to tax
-legislative in nature
EXCEPTION TO THE RULE OF
NON-DELEGATION

l Under the Constitution, local government

units are allowed to exercise the power to tax
to enable them to exercise their fiscal
autonomy.
l Under the Tariff and Customs Code, the
President is empowered to fix the amount of
tariffs to be flexible to trade conditions.
l Other cases that requires expedient and
effective administration and implementation of
assessment and collection of taxes.
CONSTITUTIONAL LIMITATIONS

l Due process of law

l Equal protection of laws
- same circumstances and conditions
l Uniformity rule in taxation (relative equality)
- dissimilar circumstances
l No imprisonment for non-payment of poll tax
l Non-impairment of the obligation of contracts
l Non-infringement of religious freedom
l No appropriation of religious purposes
l Exemption from property tax
CONSTITUTIONAL LIMITATIONS

l Exemption from taxes and duties

l Congress granting tax exemption (majority)
l Power of the President to veto revenue or
tariff bill
l Non-impairment of the jurisdiction of Supreme
Court in tax cases
l All revenue or tariff bills shall originate from
the House of Representatives
CONSTITUTIONAL LIMITATIONS

l Power of the President to fix tariff rates

l All money collected from special taxes shall
be treated as special fund
l Power of LGU’s to create its own sources of
revenue
l Share of LGU’s from national taxes
l All grants, endowments, donations and
contributions used for educational purposes
shall be exempted from tax
CONSTITUTIONAL LIMITATIONS

l Congress may provide tax incentives to

encourage private participation in programs of
basic and applied scientific research
TAXES DEFINED

l Is an enforced contribution
l Levied pursuant to legislative authority
l Proportionate in character
l Generally payable in money
l Levied on the person or property within the
jurisdiction of the State
l Imposed for the purpose of raising revenue
l Used for public purpose
l Commonly paid in regular intervals
CLASSIFICATION OF TAXES

l As to subject matter or object (PPE)

l As who bears the burden (D/I)
l As to determination of amount (S/A)
l As to purpose (G/S)
l As to scope / as to imposing authority
l As to graduation or rate (P,P,R)
TAXES DISTINGUISHED FROM
OTHER FEES

l Toll
l Special Assessment
l License Fee or Permit
l Debt
l Penalty
l Revenue
l Customs Duties
SOURCES OF TAX LAWS

l Philippine Constitution
l Statutes and Presidential Decrees
l Revenue Regulations issued by the DOF
l Rulings issued by the Commissioner of
Internal Revenue and Opinions by Secretary
of Justice
l Decisions of the Supreme Court and Court of
Tax Appeals
l Local Ordinances and International Treaties
PHILIPPINE TAX LAWS

l National Internal Revenue Code of 1997

l Tariff and Customs Code of 1978
l Local Government Code of 1991
l Other Special Laws
v Motor Vehicle Law (RA 4136)
v Private Motor Vehicle Tax Law (PD1958)
v Philippine Immigration Act of 1940
v Travel Tax Law (PD 1183)
INTERPRETATIONS OF TAX LAWS

l Tax statute must be enforced as written

l Imposition of tax burden is not presumed
l Doubts should be resolved liberally in favor of
the taxpayer
l Tax exemptions are strictly construed against
the taxpayer
l Tax laws are applied prospectively
l Tax Code shall prevail over Civil Laws
l Tax Laws shall prevail over GAAP (IAS)
POWERS OF THE BUREAU OF
INTERNAL REVENUE

l Assessment and collection of all national

internal revenue taxes
l Enforcement of all forfeitures, penalties and
fines on internal revenue taxes
l Execution of judgments in all cases decided
in its favor by the CTA and the ordinary courts
l Give effect and administer the supervisory
and police powers conferred to it by the Tax
Code