TAXATION NOTES

A. What are the stages or aspects of taxation?

The three aspects of taxation, are: (1) levy, and (2) assessment and collection and (3) payment.

Levy means the imposition of taxes which is essentially legislative in nature. On the other hand,
assessment and collection deal with the processes and remedies available to the government in
collecting taxes which are basically administrative in nature. Payment, on the other hand,
means the time when the taxes are due and paid. (Gruba, 2016, page 116)

B. What are the requisites of a valid tax?

The requisites of a valid tax are as follows:

(1) Must be for public purpose;

(2) Should be uniform and equitable;

(3) Either the person or the property being taxed is within the jurisdiction of the taxing
authority;

(4) Complies with the requirements of due process; and

(5) Does not infringe any constitutional limitations

C. What are the kinds of taxes?

As to object

(1) Personal/Poll or capital tax - A fixed amount imposed upon all persons, or upon all
person of a certain class, residents within a specified territory , without regard to their property
or occupation e.g. Community tax

(2) Property tax - Tax imposed on property, whether real or personal, in proportion either
to its value, or in accordance with some other reasonable method of apportionment.

(3) Privilege/Excise tax - a charge upon the performance of an act, the enjoyment of a
privilege, or the engaging in an occupation. An excise tax is a tax that does not fall as property

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tax. E.g. Income tax, Estate tax, Donor’s Tax, VAT(Value added tax).

As to burden or incidence

(1) Direct tax - Which are demanded from the very person who, as intended, should pay the
tax which cannot shift to another.

(2) Indirect tax - Which are demanded in the first instance from one person with the
expectation that he can shift the burden to someone else, not as a tax but as a part of the
purchase price.

As to tax rates

(1) Specific - tax of a fixed amount imposed by the head or number, or by some standard of
weight or measurement e.g. Excise tax on Cigarettes and liquor.

(2) Ad Valorem - tax based on the value of the property with respect to which the tax is
assessed. It requires the intervention of assessors or appraisers to estimate the value of such
property before the amount due can be determined e.g. Income tax, Donor’s tax and Estate tax

(3) Mixed - a choice between ad valorem and/or specific depending on the condition
attached.

As to Purpose

(1) General/Fiscal or Revenue - tax imposed solely for the general purpose of the
government e.g. Income tax and Donor’s tax

(2) Special/Regulatory or Sumptuary - tax levied for specific purpose, i.e. to achieve some
social or economic ends e.g. tariff and Certain duties on imports

As to scope or authority to impose

(1) National tax - tax levied by the National Government e.g. Income tax, Estate tax, Donor’s
tax, Value added tax, Other percentage taxes and Documentary Stamp taxes

(2) Local or Municipal - a tax levied by a local government e.g. Real Estate tax and
Community tax

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As to graduation

(1) Progressive - a tax rate which increases as the tax base or bracket increases e.g. Income
tax, Estate tax and Donor’s tax

(2) Regressive - The tax rate decreases as the tax base or bracket increases.

(3) Proportionate - A tax of a fixed percentage of amounts of the base(value of the

property, or amount of gross receipts etc.) e.g. Value added tax and other Percentage taxes

D. What are the general concepts in taxation?

1. What is the Doctrine of Prospectively of tax law?

Taxes must only be imposed prospectively. However, if the law expressly provides for
retroactive imposition. Retroactive application of revenue laws may be allowed if it will not
amount to denial of due process.

2. What is the Doctrine of Imprescriptibility ?

Taxes are imprescriptible as they are the lifeblood of the government. However, tax statutes
may provide for statute of limitation.

3. What is Situs of Taxation?

Situs of Taxation literally means place of taxation. The General rule is that the taxing power
cannot go beyond the territorial limits of the taxing authority, the basic rule is that the state
where the subject to be taxed has a situs may rightfully levy and collect tax; and the situs is
necessarily in the state which has jurisdiction or which exercises dominion over the subject in
question.

4. What is double Taxation?

Double taxation means taxing the same property twice when it should be taxed only once; that
is, “taxing the same person twice by the same jurisdiction for the same thing.

a. What is Double Taxation in its strict sense?

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Otherwise described as “direct duplicate taxation”. The two taxes must be imposed on
the same subject matter, for the same purpose, by the same taxing authority, within the
same jurisdiction, during the same taxing period; and the taxes must be of the same
kind or character.

b. What is double taxation in its broad sense?

Double taxation it broad sense pertains to indirect taxation. This extends to all cases in which
there is a burden of two or more impositions. It is the double taxation other than those covered
by direct double taxation.

c. What are the methods to ease the burden of double taxation?

Local Legislation and tax treaties may provide for:

(1) Tax Credit - an amount subtracted from taxpayer’s tax liability in order to arrive at
the net tax due.
(2) Tax deduction - an amount subtracted from the gross amount on which a tax is
calculated.
(3) Tax exemption - a grant of immunity to particular persons or entities from the obligation
to pay taxes.
(4) Imposition of a rate lower than the normal domestic rate.

5. What are the basic forms of escape from taxation?

The basic forms of escape from taxation are:

(1) Shifting
(2) Capitalization
(3) Avoidance
(4) Transformation
(5) Exemption
(6) Evasion

a. What is Shifting of tax burden?

It is the transfer of the burden of tax by the original payer or the one whom tax was assessed or
imposed to another or someone else without violating the law.

b. What is the distinction between tax avoidance and tax evasion?

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Tax avoidance is the scheme where the taxpayer uses legally permissible alternative method of
assessing taxable property or income, in order to avoid or reduce tax liability.

On the other hand, is the scheme where the taxpayer uses illegal or fraudulent means to defeat
or lessen payment of a tax.

6. What is the meaning of exemption from taxation?

It is the grant of immunity, express or implied, to particular persons or corporations, from a tax
upon property or an excise tax which persons or corporations generally within the same taxing
districts are obliged to pay.

7. What is the Doctrine of Equitable Recoupment?

It is a principle which allows a taxpayer, whose claim for refund has been barred due to
prescription ,to recover said tax by setting off the prescribed refund against a tax that may be
due and collectible from him. Under this doctrine, the taxpayer is allowed to credit such refund
to his existing tax liability.

8. When does compensation or set-off take place?

Compensation or set-off take place when two persons, in their own right, are creditors and
debtors of each other. (Article 1278,Civil Code)

*What are the rules governing compensation or set-off as applied in taxation?

No set-off is admissible against the demands for taxes levied for general or local governmental
purposes. However, where both the claims of the government and the taxpayer against each
other have already become due, demandable, and fully liquidated, compensation takes place
by operation of law and both obligations are extinguished to their concurrent amounts. In case
of the taxpayer’s claim against the government, the government must have appropriated the
amount thereto(Domingo v. Garlitos, G.R No.L-18994,June 29,1963)

9. What is meant by Compromise?

It means a contract whereby the parties, by reciprocal concessions avoid litigation or put an end
to one already commenced. It implies the mutual agreement by the parties in regard to the
thing or subject matter which is to be compromised.

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10. What is meant by tax amnesty?

A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law,
partakes of an absolute forgiveness or waiver by the government of its right to collect what
otherwise would be due to it, and this sense, prejudicial thereto, particularly to give tax
evaders, who wish to relent or are willing to reform a chance to do so and become a part of the
new society with a clean slate. (Sec.2316,TCC)

E. What are the construction and interpretation of Tax Laws, Rules and Regulations?

1. Tax Laws (MCIAA v. Marcos, G.R No. 120082 September 11,1996).

Tax statutes must be construed strictly against the government and liberally in favor of the
taxpayer. The imposition of a tax cannot be presumed.

Exception (CIR v. The Philippine American Accident Insurance, Inc., 453 SCRA 668, G.R. No.
141658 March 18,2005).

Unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally
well-settled rule that the imposition of a tax cannot be presumed. Where there is doubt, tax
laws must be construed strictly against the government and in favor of the taxpayer, and
should not be burdens on the taxpayer, and should not be unduly imposed or presumed
beyond what the statutes expressly and clearly import.

2. Tax Rules and Regulation (Fort Bonifacio Development Corporation v. CIR, G.R. No. 175707,
November 19, 2014).

The construction place by the office charged with implementing and enforcing the provisions of
a Code should be given controlling weight unless such interpretation is clearly erroneous.

It is of course axiomatic that a rule or regulation must bear upon, and be consistent with, the
provisions of the enabling statute if such rule or regulation is to be valid. In case of conflict
between a statute and an administrative order, the former must prevail. To be valid, an
administrative rule or regulation must conform, not contradict, the provisions of the enabling
law. An implementing rule or regulation cannot modify, expand, or subtract from the law it is
intended to implement. Any rule that is not consistent with the statute itself is null and void.

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