MODULE 1

Taxation is the act of laying a tax, i.e., the process or means by which the sovereign, through its lawmaking
body, raises income to defray the necessary expenses of the government. It is merely a way of apportioning the
costs of government among those who in some measure are privileged to enjoy its benefits and, therefore, must
bear its burden.

As a power, taxation refers to the inherent power of the state to demand enforced contributions for public
purpose or purposes. It is inherent to the existence of the state.

As a process, it is the legislative act of laying a tax to raise income for the government to defray its
necessary expenses.

The primary purpose of taxation is to provide funds or property with which to promote the general welfare and
protection of its citizens. Aside from raising revenues for governmental needs, taxation may also be
exercised various social and economic (non- revenue) objectives. Among these various objectives are the
following;

1. To serve as a key instrument of social control.

2. To check inflation by increasing taxes or ward off depression by decreasing them.
3. To achieve economic and social stability.

Importance of Taxation: Taxation is of primary importance to the state because it is not only necessary but also
indispensable to the state existence. Without taxation, the state cannot raise revenues to pay the government
expenses: neither can the inherent powers of police power and eminent domain be effectively and permanently
exercised. (The Lifeblood Doctrine)

Taxation commences existence from the moment a state is born with the concurrence of its four
elements. (People, territory, sovereignty and government)

MODULE 2

Strength of the power of taxation:

It is the strongest (most important) of all the powers of the government because without money, the
government cannot exist nor can exercise any of its other powers and/or functions for its people. The power
of taxation is exercised by the congress and the political subdivisions of the state whereupon such powers
has been expressly conferred by the constitution simple by making laws and ordinances in order to levy and
collect taxes.

The power of taxation is comprehensive, plenary, unlimited and supreme subject to constitutional, inherent
and contractual limitations.

Nature of the power of taxation:

1. It is for public purpose- When a tax is designated to support the services of the government and for some
recognized objects or public needs. Examples; to build farm
to market roads, bridges and schools.
2. It is inherently legislative- It is a power that can only be exercised by the lawmaking body (Congress). Taxation is
exercised by the legislative body through the enactment of
laws or statutes. This power may exercise by the state although not expressly granted
by the constitution.
3. It is subject to international comity or treaty- Property of foreign state and government may not be taxed by another
state based on the principle of sovereign equality among
states and on the principle of immunity among states and on the principle of immunity
from suit of foreign government without its consent
4. It is an exaction normally payable in the form of money.
5. It is territorial- As a rule, tax laws do not operate beyond a country’s jurisdictional
limits unless there exist a privity of relationship between the taxing state and the
object of the tax.

The power of taxation is inherent in sovereignty, legislative in character, subject to the

constitutional, inherent and contractual limitations emanating from necessity, a necessary burden to
preserve the State’s sovereignty.

MODULE 3 Approaches of taxation:

1. Benefit approach -Tax payment should be based on the benefits received by a taxpayer
from public services. Which means that those who received more benefits should pay
more taxes, those who have received less benefits should pay less taxes and those who
received no benefits should pay no taxes to the government. Problems encountered:
(a) measurement or determination of benefits that accrue to different taxpayers,
(b) identification of benificiaries of public service.

2. Ability to pay approach –Tax payments are made on the basis of relative ability to bear
the tax burden. Problems encountered: (a) the determination of the proper indicator of
ability to pay, (b) wheter to tax income at the gross or net level.

Objects of Taxation

1. Persons whether natural or juridical

2. Property whether real, personal, tangible or intangible
3. Transactions, rights, business, privileges, acts or interest.

Phases of Taxation
1. Levy (or imposition) of the tax by the legislature through the passage of a law or ordinances by
the proper Sanggunians.
2. Assessment and collection- The act of administration and implementation of tax laws by the executive
through its administrative agencies. E.eg., BIR, Bureau of Customs
3. Payment of taxes- the act of compliance by the taxpayer.

MODULE 4

Tax system is a set of taxes enforce in a country at a given time. The word system implies harmony between
taxes and between the fiscal and extra-fiscal objectives of the state.

Categories of tax system:

A regressive tax system levies the same percentage on products or goods purchased regardless of the
buyer's income and is thought to be disproportionately difficult on low earners.

A proportional tax applies the same tax rate to all individuals regardless of income

A progressive tax imposes a greater percentage of taxation on higher income levels, operating on the theory
that high income earners can afford to pay more.

Elements of the Tax System:

A good tax system has some basic requirements that relates to the effects of taxation. On efficiency and
equity and to the administrative aspects of a tax. The following are the elements of a Tax System;

1. Tax structure- This refers to tax rate, tax base, tax subjects and other table events as they relate
to revenue productivity, tax progressivity and equity, and the political, social and economic goals of
the government.

2. Tax administration- It is a system involving assessment, collection and enforcement of taxes which includes
the organizational structure, personnel, set up, operational procedures and financing the tax implementing
agency as well as the execution of judgment in all tax cases decided in favor of the BIR by our courts.

3. Public tax consciousness- This relates to the level of voluntary and honest compliance of the people on
their tax obligations.

Characteristics of a sound tax system:

1. Fiscal adequacy- The sources of revenue must be adequate to meet government expenditures and their
variations regardless of business conditions, export taxes, trade balances and problems of economic
adjustments. The revenue should be capable of expanding or contracting annually in response to the changes
on public expenditures. This can be obtained by creating new taxes or new tax machinery, or by merely
changing the rates of applicable taxes so that the revenue would substantially respond to the expanding
needs of public expenditure.

2. Equality of theoretical justice- Taxes levied must be based on the ability of the citizens to pay. It must not
unduly burdensome, confiscatory or discouraging to business. This is a constitutional requirement.

3. Administrative feasibility- The tax laws should be capable of convenient, just effective
administration.
Power of Judicial Review in Taxation:
Courts cannot inquire into the wisdom of taxing act or the advisability or expediency of a tax. The judiciary
have no concern with the policy of legislation neither can it legitimately question or refuse to sanction the
provision of any law inconsistent with the fundamental law of the State.
The courts power of taxation is limited only to the application and interpretation of law. Thus, the impracticability
and absurd consequences of tax laws should be address the legislature and administrative agencies and not to
the court.
MODULE 6 INHERENT POWERS OF THE
STATE
-An authority possessed by the state without its being derived from another. It is a right, ability or faculty of
doing a thing, without receiving that right, ability or faculty from another.
Three inherent powers of a state:
1. Police Power – it refers to the inherent power of a sovereign state to enact laws to promote public
health, public safety, public morals and the common good.
2. Power of Eminent Domain – it refers to the inherent power of a sovereign state to take private property for
public use upon payment of a just compensation.
3. Power of Taxation – inherent power of a sovereign state acting through its legislature to impose a
proportionate burden upon persons, property, rights or transaction to raise revenue to support government
expenditure and as a tool for general and economic welfare (PUBLIC PURPOSE)

SIMILARITIES:
1. They are indispensable to government existence.
2. They can exist independent of the constitution.
3. They are means by which the state interferes with private rights and properties.
4. They are generally exercised by the legislature.
5. They contemplate an equivalent compensation or benefit.

DIFFERENCES:
1. As to scope:
Police Power is broader and wider in application than both the inherent powers of eminent domain and
taxation because it is a general power to make laws. Eminent domain is merely the power to take
private property for public use upon payment of just compensation. Whereas taxation is the power to
raise money for the use and support the government and to enable it to discharge its functions.

2. As to authority which exercises the power:

As to taxation and police power, the power may only be exercised by the government. Whereas, in
eminent domain, the power may be granted by law to public service companies or public utility
companies.

3. As to necessity of delegation of power to local government units:

There is no provision expressly conferring police power and eminent domain to local government
units, such power must be expressly delegated by the legislature to tem before the later may be
exercised by them.
No delegation of such power is however necessary insofar as taxation is concern.
4. As to purpose:
In taxation, (generally in the form of money) is taken for the support of the government because it is
levied for the purpose of raising revenue. In eminent domain, the property taken is for public use. In
police power, property taken is for the purpose of making wholesome and reasonable laws for public
welfare. Sometimes, property taken is destroyed in order to promote and protect the general welfare.
5. As to person affected:
In taxation and usually in police power, the same operates upon the community or a class of
individuals while in eminent domain, it operates upon an individual who happens to be the owner of a
particular property.
6. As to effect of transfer of property rights:
In taxation, the money contributed will become part of public funds. In eminent domain, there is a
transfer of the right of the property whether it be ownership or s lesser right. In Police power there is
no transfer of title, at most there is restraint on the injurious use of property.
7. As to benefit:
In taxation, it is assumed that the individual receives the equivalent of the tax he paid in the form of
protection, benefits and public improvements he receives from the government.
In eminent domain, the individual receives the equivalent value of his property being taken.
In police power, the person affected receives no direct and immediate benefits but only such as may
arise from the maintenance of a healthy economic standard of society. Thus, the compensation of the
person subjected to police power is the intangible altruistic feeling that he has contributed to the society.
8. As to amount of imposition:
In taxation there is generally no limit on the amount of tax that may be imposed.
In police power, the amount should only be sufficient to cover the cost of the regulation, issuance of
the license and the necessary expenses of police surveillance. In eminent domain, there is no
imposition, rather the owner of the property taken is being paid the value of his/her property.
9. As to importance: Taxation is of primary importance to the State because without taxation, the government
cannot exercise police power and eminent domain.
10. As to limitation: Taxation is limited by inherent, constitutional restrictions. Police power is limited by the
demand of public interest and requirement of due process, whereas eminent domain is limited by public
purpose and just

MODULE 7
FUNDAMENTAL DOCTRINES and PRINCIPLES IN TAXATION - This refers to the rules or system of beliefs
that serves as a foundation or system in applying Taxation laws.

1. Marshall Doctrine – “the power to tax involves the power to destroy”. Taxation power can be used as an
instrument of police power. It can be used to discourage or prohibit undesirable activities or occupation.
2. Holme’s Doctrine – “taxation power is not the power to destroy while the court sits.” It may be used to build or
encourage beneficial activities or industries by the grant of tax incentives.
3. Prospectivity of tax laws – Tax laws are generally prospective in operation.
4. Non- compensation or set – off – Taxes are not subject to automatic set – off or compensation.
Exceptions: a. where the taxpayer’s claim has already become due and demandable such as when the
government already recognized the same and an appropriation for refund was made
b. Cases of obvious overpayment of taxes
c. Local taxes.
5. Non – assignment of taxes – tax obligations cannot be assigned or transferred to another entity by
contract.

6. Imprescriptibility in taxation – as a rule, taxes do not prescribe unless the law itself provides for prescription-
under NIRC, tax prescribes if not collected within 5 years from the date of its assessment. In the absence of an
assessment, tax prescribes if not collected by judicial action within 3 years from the date the return is required to
be filed. However, taxes due from taxpayers who did not file a return or those who filed fraudulent returns do not
prescribe.

7. Doctrine of Estoppel – any misrepresentation made by one party toward another who relied therein in
good faith will be held true and binding against that person who made the misrepresentation. - The
GOVERNMENT is not subject to estoppel

8. Judicial Non-interference – generally, courts are not allowed to issue injunction against the
government’s pursuit to collect tax exemption. This is anchored on the Lifeblood Doctrine.

9. Strict Construction of Tax Laws - “Taxation is the rule, exemption is the exception.” in case of VAGUE laws –
Vague tax laws are construed against the government and in favor of the taxpayers.in case of VAGUE
exemption laws – Vague exemption laws are construed against the taxpayer and in favor of the government.

ESCAPES FROM TAXATION

1. Tax EVASION – taxpayer resorts to unlawful means to lessen or to get away with his tax liability.-
known as “TAX DODGING”
2. Tax CAPITALIZATION – same with tax transformation except that mark-up is reduced in order that
the tax paid can be added to the selling price.

3. Tax SHIFTING – process of transferring tax liabilities from one taxpayer to another without violating any
provisions of the tax laws. e.g. Forward shifting – E-Vat Backward shifting – Onward shifting – transfer tax
burden twice or more.

4. Tax EXEMPTION – privilege of not being levied with a particular tax wherein other individuals are
obliged to pay.

5. Tax AVOIDANCE – taxpayer minimizes his tax liability by taking advantage of legally available tax
planning opportunities - known as “TAX PLANNING”

6. Tax TRANSFORMATION – escape from tax burden wherein the producer of goods absorbs the tax. -
Improving the process of production to reduce cost of sales.

MODULE 8
Taxes defined:
Enforced proportional contribution from persons and property levied by the lawmaking body of the State by virtue of
its sovereignty for the support of the government, all public needs and generally payable in money.

Essential Characteristics of Tax 1.

It is an enforced contribution
2. It is levied by the law-making body of the state
3. It is generally payable in money
4. It is proportionate in character
5. It is imposed for the purpose of raising revenue
6. It is levied for public purpose

Classification of Taxes

1. As to subject matter or object

a. Personal, Poll or Capitation – It refers to taxes on a persons who are residents of a particular territory b.
Property – Taxes imposed on property whether REAL or PERSONAL in proportion to its value or in accordance
with some other reasonable apportionment.
c. Excise (Privilege) tax- It is imposed upon the performance of a right or act, the enjoyment of a privilege
or in an engagement of an occupation, profession or business.

2. As to purpose
a. Fiscal –Taxes collected which are designed solely to raise revenue for government expenditures or levied for
specific or pre-determined purposes.
b. Regulatory- Those intended to achieve some social economic goals irrespective of whether revenue is
actually raised or not. It is levied for specific purpose.

3. As to who bears the burden of taxes

a. Direct Tax- When the person to whom the tax is imposed absorbs the tax or bears it. It is
nontransferable.
b. Indirect tax- It is charged upon the person other than the one to whom it is legally imposed. It is a tax where
the liability for its payment falls on one person but the burden can be shifted to another.

4. As to the determination of amount

a. Specific Tax – A fixed amount imposed by the head or number, or by some standard of weight or
measurement. E.g., taxes on distilled spirits, wines, fireworks, liquors, cigars, gasoline and other petroleum
products.
b. Ad Valorem Tax- Tax of a fix proportion to the value of the property with respect to which the tax is
assessed. E.g., Realty taxes, tax on custom, duties

5. As to the authority imposing the tax

a. National Tax –It is imposed by the National Legislature and are imposed throughout the country. E.g.,
Income tax, transfer taxes, excise taxes, VAT, and Documentary stamp tax
b. Local Tax- Those imposed by the local government. E.g. Community tax, sand and gravel tax,
privilege tax on professionals and real property taxes.
6. As to rate or graduation
a. Proportional or flat rate –Tax based on a fixed percentage of the amount of the
property, receipt or other basis to be taxed. E.g. Real estate tax
b. Progressive or graduated –Tax rate increases as the tax base increased. E.g. Income tax c
Regressive tax- Tax rate decreases as the tax base increases.
d. Degressive tax –The increase of rate is not proportionate to the increase of tax base. e. Mixes tax- a
system that uses all or a combination of the different taxes based on rates.