CHAPTER 1.

INTRODUCTION TO TAXATION
 3 Inherent Power of the State

1.Taxation Power is the power of the

state to enforce proportional
contribution from its subjects to
sustain itself
2. Police Power is the general power of the state enact
laws to protect the well-being of the people.

Police power is the inherent capacity of state

governments to exercise control over the citizens and
resources within their jurisdiction to better health
services, general security, safety, morality, and social
welfare
3. Eminent Domain is the power of the state
to take private property for public use after
paying just compensation
 Comparison of the Three Power of the State
Point of Difference Taxation Police Power Eminent Domain
Exercising Authority Government Government Government and
private utilities
Purpose For the Support of To protect the For public use
the Govt general welfare of
the people
Persons Affected Community or class Community or class Owner of the property
individual individual
Amount of Imposition Unlimited (Tax is based Limited (Imposition No amount imposed
on Govt needs) is limited to cover (The Govt pays just
cost of regulation compensation)
Importance Most Important Most superior Important

Relationship with Inferior to the “Non- Superior to the Superior to the

Constitution impairment Clause” of “Non-impairment “Non-impairment
the Constitution Clause” of the Clause” of the
Constitution Constitution
Limitation Constitutional and Public interest and Public purpose and
inherent limitations due process just compensation
 Similarities of the Three Powers of the State
1. They are all necessary attributes of sovereignty

2. They are all inherent of the State

3. They are all legislative in nature

4. They are all ways in which the state interferes with private rights and properties

5. the National Legislature.

5. They all exist independently of the Constitution

6. They are all presupposed an equivalent form of

compensation received by the person affected by the
exercise of the power

7. The exercise of these power by the Local Government

units may be limited by
SITUS OF TAXATION

Situs is the place of taxation. It is tax jurisdiction that

has the power to levy taxes upon the tax object.
This helps the government classify actions and
determine whether or not it is taxable in the Philippines.
This also helps separate the taxation powers of foreign
countries from the Philippines’.
Example of Situs Rules:
1. Business Tax situs: Business are subject tax in the place where the
business is conducted.

2. Income Tax Situs on Services: Services fees are subject to tax where
they are rendered.

3. Income Tax Situs on Sale of Goods: The gain on sale is subject to tax
in place of sale.

4. Property Tax Situs: Properties are taxable in their location.

5. Personal Tax Situs: Persons are taxable in there place of residence.

OTHER FUNDAMENTAL DOCTRINES OF TAXATION
1.Marshall Doctrines- “The Power to tax
involves the power to destroy”.
Taxation power can be used as an instruments of
police power. It can be used to discourage or
prohibit undesirable activities or occupation. As
such, taxation power carries with it the power to
destroy.
Holmes Doctrine – “Taxation power is not the power to
destroy while the court sits”.
Taxation power may be used to build or encourage
beneficial activities or industries by the grant of tax
incentives
What is the purpose of tax incentives in the Philippines?
The main purpose of tax incentives in the Philippines is to
attract foreign investors to set up operations in the
Philippines and generate local jobs in key areas of
development.
Perspectivity of Tax Laws – Tax law are
generally prospective in operation. An ex post
facto law or a low that retroacts is prohibited
in the constitution
A prospective operation of any statute essentially means that the
statute as it is formulated is solely focused on the future acts or
offences that might be committed. It doesn't consider any past act
or incident that happened that in the present times would have
constituted a crime.
Non -Compensation or Set-Off – Taxes are not subject to
automatic set-off compensation. The taxpayer cannot delay
payment of tax to wait for the resolution of a lawsuit
involving his pending claim against the government.
Tax is not a debt; hence, it is not subject to set-off. The rule
is important to allow the government sufficient period to
evaluate the validity of the claim.
 Exemptions:
a. Where the taxpayer’s claim 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

a. Local Taxes.
Non-assignment of Taxes - Tax obligation
cannot be assigned or transferred to another
entity by contract.
Contracts executed by the tax payer to such
effect shall not prejudice the right of the
government to collect
Imprescriptibility in Taxation – Prescription of
the lapsing of a right due to passage of time.
When one sleep on his right over an
unreasonable period of time, he is presumed to
be waiving his right.
The Government’s right to collect taxes does
not prescribe unless the law itself provides for
such prescription.
Doctrine of estoppel – Under the doctrine of estoppel, any
mispresentation made by one party toward another who relied
therein in good faith will be held true and binding against that
person who made the mispresentation.
The doctrine of estoppel. The basic concept of an estoppel is
that where a person (A) has caused another (B) to act on the
basis of a particular state of affairs, A is prevented from going
back on the words or conduct which led B to act on that basis, if
certain conditions are satisfied.
- The Government is not subject to estoppel. An
error to any government employee does not
binds the government.
- It is held that the neglect or omission of
government official entrusted with the
collection of taxes should not be allowed to
bring harm or detriment to the interest of
people
Judicial Non-interference- Generally courts are
not allowed to issue injunction against the
Government pursuit to collect tax as this would
unnecessarily defer tax collection.
This rule is anchored on the Lifeblood Doctrine.
Strict Construction of Tax Laws – When the law
clearly provides for taxation, taxation is the
general rule unless there is a clear exemption.
Hence the maxim, “Taxation is the rule,
exemption is the exception”
- When the language of the law is clear and
categorical, there is no room for interpretation.
- There is only room for application. However,
when taxation laws are vague, the doctrine of
strict legal construction is observed.
Vague Tax Laws- vague tax law is construed against
the government and in favor for the taxpayer. A Vague
Tax Law means no tax law. Obligation arising from law
not presumed

Vague Exemption laws – construed against the

taxpayer and in favor of the government. A vague tax
exemption law means no exemption law. The claim for
exemption is construed strictly against the taxpayer in
accordance with the lifeblood doctrine.
DOUBLE TAXATION - occurs when the same
taxpayer is taxed twice by the same tax
jurisdiction for the same thing.
 Elements of Double Taxation

1.Primary Element : Same Object

2.Secondary Element

A.Same Tax Type

B.Same Purpose of Tax
C.Same Taxing jurisdiction
D.Same tax period
 Types of Double Taxation

1.Direct Double Taxation. This occurs when all the

elements of double taxation exist for both
imposition.
Ex. An Income tax of 10% on monthly sales ans a
2% income tax on the annual sales (total of monthly
sales)
1.Indirect Double Taxation. This occurs when at least
one of the secondary elements of double taxation
is not common for both impositions.

Ex. A. The National Govt levies business tax on

the sales or gross receipt of business while the
local government levies business tax upon the
same sales or receipt.
B.The National Govt collect income tax from a
taxpayer on his income while the local
government collects community tax upon
the same income
ESCAPE FROM TAXATION - are the means
available to the tax payer to limit or even
avoid the impact of taxation.
 Categories of Escape from Taxation

A.Those that result to loss of Government

revenue.

1.Tax Evasion, also known as tax dodging, refers

to anay act or trick that tends to illegally
reduce or avoid the payment of tax.
 Example.
A.This can be achieved by gross understatement of
income, non-declaration of income,
overstatement of expenses or tax credit.

B.Misrepresenting the nature or amount of

transaction to take advantage od lower taxes.
2. Tax Avoidance, also known as tax minimization, refers
to any act or trick that reduces or totally escape taxes by
any legally permissible means.

3. Tax Exemption, also known as Tax Holiday, refers to the

immunity priviledge or freedom from being subject to a
tax which others are subject to. Tax exemption may be
granted by the Constitution and those granted under
contracts.
TAX AMNESTY- is a general pardon granted by the
government for erring taxpayers to give them a
chance to reform or enable them to have a fresh start
to be part of the society with a clean slate.
It is a absolute forgiveness or waiver by the
Government on its right to collect and is retrospective
in application.
TAX CONDONATION - is forgiveness of tax
obligation of a certain taxpayer under certain
justifiable grounds, This is also referred to as
tax remission
TAX AMNESTY vs, TAX CONDONATION

Amnesty covers both civil and criminal liabilities, but

condonation covers only civil liabilities of the taxpayers
Amnesty operates retrospectively by forgiving past
violations.
Condonation applies prospectively to any unpaid
balance of the tax; hence the portion already
paid by the taxpayer will not be refunded..

Amnesty also conditional upon the tax payer

paying the government a portion of the tax
whereas condonation requires no payment.