Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 14:
Principles and Purposes of Taxation

LU_ FABM2_Module 14
AIRs - LM
ABM – FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
Module 14: Principles and Purposes of Taxation
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.

Development Team of the Module

Author: Oliver N. Ancheta

Editor: SDO La Union, Learning Resource Quality Assurance Team
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 Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 14:
Principles and Purposes of Taxation
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear learners,
can continue your studies and learn while at home. Activities, questions, directions,
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Please use this module with care. Do not put unnecessary marks on any part
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If you have any questions in using this SLM or any difficulty in answering the
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Thank you.
 Target

TAX SYSTEM
The tax system refers to the methods or schemes of imposing, assessing, and
collecting taxes. It includes all the tax laws and regulations. The means of their
enforcement, and the government offices. Bureaus and withholding agents are part
of the machinery of the government in tax collection. The Philippine tax system is
divided into two: the national tax and the local tax system (Banggawan 2019).

ASPECTS OF TAXATION (The process of Taxation and Tax Administration.)

Source: “Tax: Train Law Amended, General Principles,” General Principles of Taxation October
17, 2021, https://youtu.be/EmyN7z4H3Wo

In your previous lesson, you have learned about taxable income and tax due
of individual taxpayers, both citizen and resident alien, only.

In this module, you will be provided with information and activities that will
help you explain the principles and purposes of taxation. After going through this
module, you are expected to:

Learning Competency:
Explain the principles and purposes of taxation (ABM_FABM12-IIh-j-19).
Subtask:
1. Define the two (2) purposes of taxation.
2. Identify the different principles of taxation.

1 LU_ FABM2_Module 14
 Jumpstart

Pretest
Directions: Answer the questions below by writing the letter of the best answer on a
separate sheet of paper. Use CAPITAL LETTERS only.
_____1. What is refers as a proportional contribution from persons and property
levied by the law-making body of the State by virtue of its sovereignty for the
support of the government and all public needs?
A. Eminent Domain B. Police Power C. Tax D. Taxation

_____2. What do you call the act of levying a tax to apportion the cost of government
among those who, in some measure, are privileged to enjoy its benefits and
must therefore share its burdens?
A. Eminent Domain B. Police Power C. Tax D. Taxation

_____3. Which of the following acts is administrative by nature?

A. Passage of tax laws by the legislature
B. Determination of the amount to be imposed
C. Determining the purpose of the tax to impose
D. Distraint or levy of taxpayers’ property for tax delinquency

_____4. What is the essential element or characteristics of tax which COULD NOT be
paid in property or in-kind?
A. It is an enforced contribution.
B. It is proportionate in character.
C. It is generally payable in money.
D. It is levied by the law-making body.

_____5. Which of the following is NOT included in the canons of tax?

A. Double taxation
B. Convenient to pay
C. Economical to collect
D. Certain and not arbitrary

_____6. Which of the following is the nature of the state’s power to tax?
A. Grant of tax exemption
B. It is inherent in sovereignty
C. The decision of the court is final
D. Non- impairment of the Supreme court

_____7. What theory underscores that without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it?
A. Benefit received theory B. Lifeblood Doctrine
C. Marshall Doctrine D. Necessity Theory

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_____8. What is the basis of taxation?
A. Benefit received theory B. Lifeblood Doctrine
C. Marshall Doctrine D. Necessity Theory
_____9. What is the meaning of “Situs of Taxation”?
A. Jurisdiction B. Place of Taxation
C. Taxing Authority D. Taxing Period

_____10. Constitutional limitations are restrictions, explicitly or impliedly stated in

the constitution. Which of the following choices IS NOT a constitutional
limitation?
A. Due process of law B. Equal protection of laws
C. Purpose must be public in nature. D. Uniformity of taxation

Discover

TAX

“The enforced proportional contributions from persons and property levied by

the lawmaking body of the State by virtue of its sovereignty for the support of the
government and all public needs”

TAXATION

Taxation is the process or means by which the sovereign (independent state),

through its law-making body (the legislature), imposes burdens upon subjects and
objects within its jurisdiction to raise revenue to carry the legitimate objects of
government. Strongest power of the Government. It has the power to create and
preserve. Consequently, it also has the power to destroy.

Meaning of Taxation explained

1. The process
-The term “process” in the definition means the levying or imposition of
tax by the law-making body of the state which is Congress. It is a bicameral
legislature composed of the senate and the house of representatives. They
prepare and approve a bill, then, transmit it to the President for signing. If the
President signs, the bill becomes a law. But if the President refuses to Sign
(Veto), the bill goes back to Congress along with the reasons.

2. Subjects - Subjects are the persons, both natural and juridical (e.g. corporation)
whom tax is imposed.

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3. Objects - Objects means properties of taxpayers that can be levied.

4. Jurisdiction - Jurisdiction is the territory of the government.

5. For the purpose of raising revenue. It is the primary purpose of the government
to defray its necessary expenses.

6. Legitimate Objects - Are the necessary expenses of the government.

In simple terms, it is the act of levying a tax to apportion the cost of

government among those who, in some measure, are privileged to enjoy its benefits
and must therefore share its burden.

I. PURPOSES OF TAXATION

A. Primary: Revenue of fiscal

The primary purpose of taxation on the part of the government is to provide

funds or property with which to promote the general welfare and the protection of
its citizens and to enable it to finance its multifarious activities.

B. Secondary: Non-revenue or Regulatory (Sumptuary/Compensatory)

While the primary purpose of taxation is to raise revenue for the support of
the government, taxation is often employed as a device for regulation or control
(implementation of State’s police power) by means of which certain effects or
conditions envisioned by the government may be achieved such as:

a.) Promotion of General Welfare

The promotion of the General Welfare clause appeared in Article 2 Section 5

of the 1987 Constitution and RA 7160, otherwise known as the Local Government
Code of 1991. In Article 2 Section 5, the government has 5 aspects to maintain for
the citizenry to enjoy the blessings of democracy (our freedom). These are peace and
order, protection of life, liberty, property, and promotion of general welfare. This is
further exemplified in RA 7160 (The local government code of 1991) which states that
“…local government units shall ensure and support, among other things, …, enhance
economic prosperity and social justice, promote full employment among their
residents, maintain peace and order and preserve the comfort and convenience of
their inhabitants.” Since police power is the plenary power vested in the legislature
to make, ordain, and establish wholesome and reasonable laws, statutes, and
ordinances, not repugnant to the Constitution, for the good and welfare of the people.
This power to prescribe regulations to promote health, morals, education, good order
or safety, and general welfare of the people flows from the recognition that the welfare
of the people is the supreme law. The President, through the delegation of the
legislature, can impose customs duties (tariff) to foreign companies to protect the
local industries. High tariff rates mean higher costs for foreign companies. Through
customs duties, foreign companies are forced to offset this additional cost by
increasing the price of their products. In this way, our local industries can compete
by having a lower price for their product.

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b.) Reduction of Social Inequality –

Reduce inequalities in wealth and income by adopting progressively higher tax

rates. The TRAIN law amended the old income tax rate, creating a floor of 250,000 in
taxable income taxpayers, this is equivalent to 20,833 monthly incomes, which
means taxpayers who earn taxable income of 250,000 and below are exempted.
Beyond this amount is already taxable at a progressive rate which means the higher
your income the higher the tax due, thereby, reducing the social inequality between
the less privileged and the blessed few earning a higher income. Through this new
tax system, the taxpayers who belong to the low-income group enjoy a higher income
margin allowing them to sustain their basic needs but resulting in a heavier burden
to the high-income group.
c. Economic Growth

The Gross National Product (GDP) is the indicator of our country’s economic
growth. The formula of GDP using the income approach is Total National Income +
Sales Taxes (VAT) + Depreciation + Net Foreign Factor Income. The GDP
increased from 328.48million in 2017 to 346.84 million in 2018 and increased as
high as 376.82 million in 2019 but dropped to 361.46 million by 2020 resulting in
an average increase of 32.89 million from 2018-2020.

The TRAIN law (RA 10963) took effect on January 1, 2018. The old tax rate
schedule begins from 5% to 32%. It includes the poor (income below Php 10,957
according to Philippine Institute of Development Studies, PIDS) and low-income
group (Php 10,957-Php 21,914, PIDS) to pay income tax. The new tax rate exempts
taxable income of 250,000 (20,833 a month) and below. It means that the poor and
low-income groups (receiving Php 20,833 below) are already exempted from paying
income tax. This is an enormous tax cut-off providing them a higher marginal income
allowing them to buy products beyond their basic needs, alleviating the effect of
inflation, and decreasing unemployment. In addition to the income tax cut-off, The
Train Law repeals 54 provisions on VAT exemption and zero-rating under special
laws. It includes electric cooperatives in the definition of sale or exchange of services
subject to VAT and subjects’ foreign-currency-denominated sales, zero-rate sale
before, to VAT including indirect exporters and agents.

The tax cut-off in income tax (decrease in income tax) with simultaneous
increase of income tax in higher income group alone, considering all variables of the
GDP formula constant, will increase GDP that results in economic growth. The tax
cut-off will increase the consumption of goods and services and the increase in the
tax rate of the higher-income group provides the government more revenue to spend.
Note: I only include the effect of income tax and VAT of the TRAIN law to explain the
effect of TAX on economic growth. Other variables affect economic growth.

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II. SCOPE OF TAXATION

“The power of taxation is unlimited, comprehensive, plenary and supreme”

(Subject to inherent and constitutional limitations)

It may be imposed to:

a.) Persons
b.) Property
c.) Business
d.) Transactions
e.) Rights
f.) Privileges

III. THE THREE (3) INHERENT POWERS OF THE STATE

1. Power of Taxation.
It is the power by which the State raises revenue to defray the necessary
expenses of the government.
2. Police Power.
It is the power of the state for promoting public welfare by restraining and
regulating the use of liberty and property.
Police power is the plenary power vested in the legislature to make, ordain,
and establish wholesome and reasonable laws, statutes, and ordinances, not
repugnant to the Constitution, for the good and welfare of the people. This power to
prescribe regulations to promote the health, morals, education, good order or safety,
and general welfare of the people flows from the recognition that salus populi est
suprema lex – the welfare of the people is the supreme law.
3. Power of Eminent Domain.
It is the power of the State to acquire private property for a public purpose
upon payment of just compensation.

A. SIMILARITIES OF THE THREE (3) INHERENT POWERS OF THE STATE

1. They are inherent in the state.

2. They exist independently of the constitution although the conditions for

their exercise may be prescribed by the constitution.

3. Ways by which the State Interferes with private rights and property.

4. Legislative in nature and character.

5. Presuppose an equivalent compensation received, directly or indirectly, by

the persons affected.

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B. B. Distinctions or differences among the three inherent powers.

Point of Taxation Police Power Eminent Domain

Difference
1. Nature Power to enforce Power to make and Power to take private
contributions to implement laws for the property for public use
raise government general welfare with just compensation
funds

2. Authority Government only Government only It may be granted to

public service/utility
companies

3. Purpose For the support of Promotion of general Taking of private

the government welfare through property for public use.
regulation

4. Persons Community or Community of Class of On an individual.

affected class of individuals individuals.
As the owner of
Applies to all Applies to all persons, personal property. Only
persons, property, property, and excises particular property is
and excised that that may be subject comprehended.
may be subject thereto
thereto.

5. Scope Plenary, Broader in the Merely a power to take

comprehensive, application. General private property for
supreme power to make and public use.
implement the law.

6. Effect Contribution No transfer of title. There is a transfer of

becomes part of There may just be a title to the property.
public funds restraint on the
injurious use of the
property.

7. Benefits In form of No direct and The market value of

Received protection and immediate benefit but property
benefits received only such as may arise
from the from the maintenance
government of a healthy economic
standard of society

8. The There is no limit Sufficient to cover the No imposition. The

amount of cost of the license and owner is paid equivalent
imposition the necessary to the fair value of his
expenses of police property.
surveillance and
regulation

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IV. THEORY OF TAXATION

A. Lifeblood Doctrine
Without taxes, the government would be paralyzed for lack of the motive power
to activate and operate it.

The government, for its part, is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their
moral and material values.

The power of taxation is essential because the government can neither exist
nor endure without taxation. “Taxes are the lifeblood of the government and their
prompt and certain availability is an imperious need” Lifeblood Doctrine). The
government cannot continue to perform its basic functions of serving and protecting
its people without the means to pay its expenses. Consequently, the state has the
right to compel all its citizens and property within its limits to contribute.

B. Necessity Theory

It is a power emanating from necessity. It is a necessary burden to preserve

the state’s sovereignty and a means to give the citizenry an army to resist aggression,
a navy to defend its shores from invasion, a corps of civil servants to serve, public
improvements designed for the enjoyment of the citizenry and those which come
within the state’s territory, and facilities and protection which a government is
supposed to provide.

V. BASIS OF TAXATION

Benefit Received theory or Reciprocity Theory

The basis is the reciprocal duties of protection and support between the state
and its inhabitants. The state collects taxes from the subjects of taxation so that it
may be able to perform the functions of government. The citizens, on the other hand,
pay taxes so that they may be secured in the enjoyment of the benefits of organized
society. This theory spawned the Doctrine of Symbiotic Relationship which means,
taxes are what we pay for a civilized society (Commissioner v. Algue)

VI. ESSENTIAL ELEMENTS OR CHARACTERISTICS OF TAX.

1. It is an enforced contribution. Paying tax is mandatory. Failure to pay will lead
to civil and criminal liability. (eg. 25% or 50% Surcharge of basic tax, 12%/20%
annual interest of the basic tax or compromise penalty)
2. It is generally payable in money. It could not be paid in property or kind.

3. It is proportionate in character. Tax is based on the person's ability to pay.

4. It is levied on persons, property, or exercise of a right or privilege.

5. It is levied by the law-making body of the State. Tax is levied by Congress for
National tax and Sangunian for Local tax

6. It is levied for public purposes.

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VI. CANONS OF A TAX
1. Proportionate to one’s ability to pay.
2. Certain and not arbitrary.
3. Convenient to pay.
4. Economical to collect.

VII. DOUBLE TAXATION

1. Direct Double Taxation (In a strict sense) – Although not prohibited by the
Constitution, it is not favored and may be a violation of equal protection of laws.
a. Same subject or object
b. Same taxing Authority
c. Same jurisdiction
d. Same purpose
e. Same Taxing period
2. Indirect Double Taxation (In general)
e.g. double taxation of corporation

VIII. SITUS OF TAXATION (place of taxation)

• The State has the jurisdiction to impose the tax.

a. Tax on person (poll tax) residence, whether citizen or not
b. Real and tangible personal property – location of property
c. Intangible personal property – Domicile of the owner.
d. Income
d.1 Source law – where the income is derived;
d.2 National theory – citizenship; or
d.3 Domicile theory – Domicile of the owner.

IX. NATURE OF THE STATE’S POWER TO TAX

1. It is inherent in sovereignty. It may be exercised although it is not expressly
granted by the Constitution
2. It is legislative in character. Only the legislature can impose taxes.
3. Subject to Constitutional and Inherent limitations. Without constitutional and
inherent limitations, taxation would become unlimited plenary and supreme but
because of these limitations, taxation is not an absolute power that can be exercised
by the legislature.

4. Exemption of government entities, agencies, and instrumentalities.

❖ Exemption of government entities.

The Government, through which sovereign powers are directly and
immediately exercised, is exempt from taxation unless the law provides otherwise,
However, as to government-owned-or controlled corporations performing
proprietary (not governmental) functions, they are generally subject to tax in the
absence of tax exemption provisions in their charters or the law creating them.

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Reasons for the exemption:

[a] To levy a tax upon public property would render necessary new taxes on other
public property for the payment of the tax so laid and thus, the government would
be taxing itself to raise money to pay over for itself. It is like pulling out money from
one pocket and putting it in the other.
[b] This immunity also rests upon fundamental principles of government, being
necessary so that the functions of government shall not be unduly impeded. (1 Cooley
263)

[c] The practical effect of an exemption running to the benefit of the government is
merely to reduce the amount of money that has to be handled by the government in
the course of its operations: For these reasons, provisions granting exemptions to
government agencies may be construed liberally in favor of non-tax liability of such
agencies. (G.R. No. 88291)

When the Government chooses to tax itself, it is taxable. Nothing can prevent
Congress from decreeing that even instrumentalities or agencies of the government
performing governmental functions may be subject to tax. (G.R. No. 120082) There
is no constitutional prohibition against the government taxing itself. If the taxing
authority is the local government unit (LGU), the Local Government Code (Republic
Act No. 7160) expressly prohibits LGUs from levying taxes on the National
Government, its agencies, and instrumentalities, and other LGUs.

5. International Comity
This is what we call the reciprocity rule or mutual courtesy. It means that
there is sovereign equality of states (nations or countries).
a. Governments do not tax the income and properties of other governments.
b. Governments give primacy to their treaty obligations over their
domestic tax laws (Banggawan 2019).

6. Limitation on territorial jurisdiction

The taxing authority can not impose a tax beyond its identified territorial
boundary.

X. LIMITATIONS ON THE POWER OF TAXATION.

A. Inherent Limitations –
1. Restricts the power of taxation although they are not in the constitution.
2. Purpose must be public in nature. The public should be benefited and the
benefit to private interest should only be incidental and not intentional.
B. Constitutional limitations – Restrictions, explicitly or impliedly stated, in the
constitution.
1. Non-delegation of the legislative power to tax. It is legislative and it could
not be delegated to other branches of the government.

• Exception to the non-delegation rule

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 ➢ Delegation to the President. - Congress may authorize, by law, the President
to fix tariff rate, import and export quotas, tonnage and wharfage dues, and
others within the national development program.
➢ Delegation to local government units – Congress may grant to a municipal
corporation the power to tax certain matters; it can also provide for
exemptions or even take back the power to tax.

➢ Delegation to administrative agencies – Delegation, by law, to Fiscal

Incentives Review Board (FIRB) the review and restoration of tax exemption
privileges and granting of tax incentives to GOCCs.

2. Due process of law

There must be a valid law and the measure should not be unconscionable and
unjust as to amount to confiscation of property. Tax stature must not be arbitrary
as to find no support in the Constitution. The power to tax should not be harsh,
oppressive, or confiscatory. This limitation is also known as the right to notice and
hear.

3. Equal protection of the law.

All persons subject to legislation shall be treated alike under similar

circumstances and conditions both in the privileges conferred and liabilities imposed.
The doctrine does not require that persons or properties different be treated in law
as though they were the same. What it prohibits is class legislation that discriminates
against some and favors others. As long as there are rational or reasonable grounds
for so doing, Congress may group persons or properties to be taxed sufficiently if all
members of the same class are to the same rate and the tax is administered
impartially upon them.

4. Uniformity and Equity in Taxation

The rule of taxation shall be uniform and equitable.” It requires the uniform
application and operation, without discrimination, of the tax in every place where the
subject of the tax is found. It does not, however, require absolute identity or equality
under all circumstances, but is subject to reasonable classification.

❖ For classification to be valid; the following must concur:

a. It must be based, on substantial distinction

b. It must apply both to present and future conditions
c. It must be germane to the purpose of the law

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5. Prohibition for non-payment of the poll tax

No person shall be imprisoned for the debt of non-payment of poll tax. The
non-imprisonment rule applies to non-payment of poll tax which is punishable only
by a surcharge, but not to other violations like falsification of community tax
certificate and non-payment of personal tax. A poll tax is a tax of a fixed amount
imposed on residents within a specific territory regardless of citizenship, business,
or profession.

6. Prohibition against impairment of the obligation of contracts.

No law impairing the obligation of contracts shall be passed. The obligation of

the contract is impaired when its terms or conditions are changed by law or by a
party without the consent of the other thereby weakening the position or rights of
the latter. An example of impairment by law is when a later taxing stature revokes a
tax exemption based on a contract. But this only applies when the tax exemption
has been granted for a valid consideration. If the tax exemption pertains, for instance,
to a franchise tax, a later stature may revoke such exemption because the
constitution provides that a franchise tax is subject to amendment, alteration, or
repeal.

Examples:

a) If the exemption was granted for valuable consideration and it is

granted based on a contract, the contract cannot be revoked.
b) If the exemption is granted by virtue of a contract, wherein the
government enters a contract with a private corporation, the contract
cannot be revoked unilaterally by the government.

7. Revenue bills shall originate exclusively from the house of Representatives

All appropriation, revenue or tariff bills, bills authorizing an increase of the
public debt, bills of local application, and private bills shall originate or concur with
amendments, The Constitution simply means that the initiative for the filing of bills
of local application, and private bills shall originate exclusively in the House of
Representatives. But the Senate may propose or concur with amendments. The
constitution simply means that the initiative for the filing of bills must come from
the House of Representatives, on the theory that, elected as they are from the district,
the members of the House are expected to be more sensitive to the local needs and
problems. Given the power of the Senate to propose amendments, it can propose its
version even with respect to bills which are required by the Constitution to originate
in the House nor does the Constitution prohibit the filing in the Senate of a substitute
bill in anticipation of its receipt of the bill from the House so long as action by the
Senate as a body is withheld pending receipt of the House bill. (Tolentino v. Secretary
of Finance, 235 SCRA 630)

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OTHER CONSTITUTIONAL LIMITATIONS

✓ Prohibition against infringement of religious freedom

✓ Prohibition against the appropriation of proceeds of taxation for the users
benefit, or support of any church
✓ Prohibition against taxation of religious, charitable, and educational entities
✓ Prohibition against taxation of non-stock non-profit educational institutions.
✓ Grant of tax exemption
✓ Power of the President to veto any appropriation, revenue, or tariff bill
✓ Non-impairment of the Supreme Court.
✓ The decision of the Supreme court is final.
XI. FORMS OF ESCAPE FROM TAXATION

❖ Shifting – Transfer of a burden of tax by the statutory taxpayer to another

a) Impact of taxation – point of imposition
b) Incidence of taxation – the point on which the burden falls
❖ Capitalization – Reduction in the selling price an amount equal to future taxes
to be paid by the future buyer.
❖ Transformation – not increasing the selling price but striving to recover the
tax through more efficient production.
❖ Tax Evasion (Tax Dodging) - Fraudulent or illegal means of reducing tax dues;
❖ Tax Avoidance (Tax minimization) – legally permissible means of reducing tax
dues.
❖ Tax Exemption – grant of immunity from a tax
a) It may be based on contract
b) It may be based on some ground of public policy
c) It may be based on grounds of reciprocity

XII. TAX AMNESTY AND CONDONATION

A. Tax Amnesty – General pardon to impose penalties on tax evasion or violation
of tax law. Immunity from tax and Criminal liability.
B. Tax Condonation (Tax Remission) – State desists of refraining from exaction
as well as restoring what has already been taken.
C. Exemption – Specifically stated by the tax code. Immunity from tax
XIII. CONSTRUCTION OF TAX LAWS.
A. Revenue is not political in nature
B. Civil, not penal in nature
C. Legislative intent must be considered
D. Doubt in tax statutes is to be construed strictly against the government.
E. Tax exemptions are to be construed as strictly against the taxpayer.
F. Tax laws generally prospective in operation Tax laws are special laws.
❖ Taxpayer’s Suit

Taxpayers have the right to question the validity of tax measures or illegal
expenditures of public money in the proper court. But a taxpayer is not relieved
from the obligation of paying tax because of his belief. A collection of taxes would
be hampered and may result in the paralysis of important government functions.

13 LU_ FABM2_Module 14
 Explore

Here are some enrichment activities for you to work on to master and
strengthen the basic concepts you have learned from this lesson.

Enrichment Activity 1: True or False

I. Directions: Write “T” if the statement is true and write “F” if the statement is false.
Use a separate sheet of paper for your answer.

_____1. Tax is the process of means by which the sovereign through its law-making
body, imposes burdens upon subjects and objects within its jurisdiction to
raise revenues to carry out the legitimate objects of government.

_____2. Taxation is the enforced proportional contributions from persons and

property levied by the law-making body of the State by virtue of its sovereignty
for the purpose of the government and all public needs.

_____3. Taxation is often employed as a device for regulation or control by means of

which certain effects or conditions envisioned by the government may be
achieved.

_____4. The inherent powers of the state exist independently of the constitution
although the conditions for their exercise may be prescribed by the
constitution.

_____5. The power of taxation is NOT essential because the government can exist
without taxation.

_____6. Benefits received theory states that taxation is a necessary burden to preserve
the state’s sovereignty and a means to give the citizenry an army to resist
aggression, a navy to defend its shores from invasion, a corps of civil servants
to serve, public improvements designed for the enjoyment of the citizenry and
those which come within the state’s territory, and facilities and protection
which a government is supposed to provide.

_____7. The state’s power to tax is the strongest among the inherent power of the
state.

_____8. There must be a valid law and the measure should not be unconscionable
and unjust as to amount to confiscation of property.

_____9. Revenue bills shall originate exclusively from the Senate.

_____10. One of the inherent limitations is the prohibition against infringement of

religious freedom.

14 LU_ FABM2_Module 14
Enrichment Activity 2: Distinctions or differences among the three inherent powers.

II. Directions: The following rights below came from the distinctions of the three
inherent powers of the state. Write “T” if the difference belongs to Taxation, “P” if
the difference belongs to Police Power, and “E” for Eminent Domain. Write your
answer on a separate sheet of paper. Write capital letters only.

_____1. For the support of the government

_____2. To protect the general welfare of the people

_____3. For public use

_____4. Owner of the property

_____5. Imposition is sufficient to cover the cost of the license and the necessary
expenses of police surveillance and regulation

_____6. Contribution becomes part of public funds

_____7. Supreme, Plenary, and Comprehensive

_____8. The owner is paid equivalent to the fair value of his property

_____9. In form of protection and benefits received

_____10. No direct and immediate benefit but only such as may arise from the
maintenance of health economic standard of society

15 LU_ FABM2_Module 14
 Deepen

Activity I. Essay. Answer the Three (3) questions below. Use a separate sheet of
paper for your answer.

1. Explain each of the forms of escape from taxation

A. Shifting
B. Capitalization
C. Transformation
D. Tax Evasion
E. Tax Avoidance
F. Tax Exemption
2. Distinguish tax amnesty from condonation

A. Tax Amnesty

B. Tax Condonation

3. Interpret the Construction of Tax Laws.

16 LU_ FABM2_Module 14
Rubric for Individual Work

2 3 4 5

CRITERIA Emergent Developing Capable Strong

No Limited Basic Complete

understanding understanding understanding of understand-ding
of the problem of the the problem- of the problem –
Understanding
problem- Identifies all Identifies all
Response does
Identifies a few elements of the elements of the
not fit the given
elements of the problem and problem and
problem/task
problem and gives the correct gives the correct
may give an answer answer
incorrect
answer

Incorrect Disorganized Organized Organized

attempt to thinking with thinking using at thinking using
represent unclear or least one multiple
Organization thinking non-existent representation representations
representation

Incorrect Unclear or Understandable Thorough and

written/verbal incomplete written/verbal concise
explanation written/verbal explanation written/verbal
Explanation explanation explanation

No evidence of Inappropriate At least one At least one

strategies shown strategy is appropriate appropriate
shown or strategy is shown strategy is
Strategies explained or explained with completely
possible minor shown or
flaws explained.

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LU_ FABM 2_Module 14

 Gauge

Congratulations! You’ve gone this far. Now let us try your progress. Good luck!!!

Directions: Read carefully each item. Use a separate sheet for your answers. Write
the capital letter of your best answer on each test item.
_____1. Which of the following is NOT included in the construction of tax laws?
A. Taxpayer’s suit
B. Civil and not penal in nature
C. Revenue is not political in nature
D. Legislative intent must be considered

_____2. Which of the following is a form of escape from taxation? Tax_________.

A. Amnesty B. Condonation C. Evasion D. Exemption
_____3. What is the essential element or characteristics of tax which COULD NOT
be paid in property or in-kind?
A. It is an enforced contribution
B. It is proportionate in character
D. It is generally payable in money
D. It is levied by the law-making body
_____4. What is the form of escape from taxation when the taxpayer transfers the
burden of tax by the statutory taxpayer to another?
A. Capitalization B. Condonation
C. Shifting D. Tax Exemption
_____5. What is the constitutional limitation which states that all persons subject to
legislation shall be treated alike under similar circumstances and
conditions both in the privileges conferred and liabilities imposed?
A. Due process of Law
B. Equal protection of laws.
C. Uniformity and Equity in taxation
D. Non-delegation of the legislative power to tax

_____6. What theory underscores that without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it?
A. Benefit received theory B. Lifeblood Doctrine
C. Marshall Doctrine D. Necessity Theory

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LU_ FABM 2_Module 14

_____7. Infer from the prohibition against impairment of the obligation of contracts.
Statement 1: If the exemption was granted for valuable consideration and it
is granted based on a contract, the contract can be revoked.
Statement 2: If the exemption is granted by virtue of a contract, wherein the
government enters a contract with a private corporation the
contract cannot be revoked unilaterally by the government.
A. Only Statement 1 is true B. Only statement 2 is true
C. Both are true D. Both are false

_____8. What is the meaning of the line under the constitutional limitations, “Equal
protection of the laws”?
A. It allows class legislation that discriminates against some and favors
others.
B. The doctrine requires that persons or properties different be treated in law
as though they were the same.
C. It is sufficient if all of the members of the same class are to be taxed at the
same rate and the tax is administered partially upon them.
D. All persons subject to legislation shall be treated alike under similar
circumstances and conditions both in the privileges conferred and
liabilities imposed.

_____9. Which of the following is not an element of double taxation? Same ________
A. Legislative B. Purpose
C. Subject or Object D. Taxing Authority

_____10. What is the meaning of “Situs of Taxation”.

A. Jurisdiction B. Place of Taxation
C. Taxing Authority D. Taxing Period

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LU_ FABM 2_Module 14

LU_ FABM 2_Module 14
20
Jumpstart
Gauge
Pre-Test
1. C
1. C
2. C
2. D
3. A
3. A
4. C
4. A
5. B
5. A
6. A
6. B
7. A
7. B
8. B
8. A
9. A
9. B
10. B
10. C
Answer Key
References
Printed Materials:

Printed Materials:

Commission on Higher Education. (2016). Teaching Guide for Senior High School
in Fundamentals of Accountancy, Business, and Management (pp. 171-185).
Diliman, Quezon City.

Books

Banggawan, Rex B. (2019). Income Taxation Laws, Principles, and Applications.

Pasay City: Real Excellence Publishing.

Website

1. Youtube. Retrieved October 17, 2021, https://youtu.be/EmyN7z4H3Wo

2. Youtube. Retrieved October 17, 2021, https://youtu.be/wZ8A81tI3XQ

3. Youtube. Retrieved October 17, 2021, https://youtu.be/3BWl72Lu_YI.

4. Youtube. Retrieved October 17, 2021, https://youtu.be/ueaBDeA_Ips.

5. Project Jurisprudence. Retrieved October 16, 2021, The Government is exempt

from tax (projectjurisprudence.com).
6. Youtube Retrieved October 17, 2021, https://youtu.be/Kzj1YKYV7yo.

7. Youtube. Retrieved October 17, 2021, https://youtu.be/X_wOXR-ftOE

8. BATASnatin.com. Retrieved October 21 https://batasnatin.com/law-
library/political-and-public-international-law/constitutional-law/719-police-
power.html Police Power (batasnatin.com)

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 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriculum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
launion@deped.gov.ph
lrm.launion@deped.gov.ph

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LU_ FABM 2_Module 14