Course Code and Title : BACR 5 - Income Taxation

Lesson Number : 1
Topic : Fundamental Principles of Taxation
_______________________________________________________

LEARNING OBJECTIVES

At the end of this lesson, the student should be able to:

1. Identify and differentiate the three inherent powers of the state;

2. Explain the definition of taxation and its necessity for every government;

3. Discuss the different fundamental theories and doctrines in taxation;

4. Define the scope of taxation and classify the sources of its limitations;

5. Explain the stages on the exercise of the power of taxation;

6. Identify the situs of taxable events;

7. Explain the characteristics of double taxation;

8. Identify the different methods of escaping from taxation and explain the effects

on government revenue collections; and

9. Differentiate tax amnesty from tax condonation.

PRE-ASSESSMENT
Identify the words which are described by the following statements by filling out the boxes on the left.
This is the power of the State enforce proportional contribution from its subjects to sustain itself.
Taxes are the main form of government .
This is the place of taxation.
This is the process of transferring the tax burden to other taxpayers.

LESSON PRESENTATION

INHERENT POWERS OF THE STATE

A government has its basic needs and rights which co-exist with its
creation. It has rights to sustenance, protection and properties. The
government sustains itself by the power of taxation, secures itself and the
well-being of its people by police power and secures its own properties to
carry out its public services by the power of eminent domain.

These rights dubbed as “powers” are natural, inseparable and

inherent to every government. No government can sustain or effectively
operate without these powers. Therefore, the exercise of these powers by
the government is presumed understood and acknowledged by the people
from the very moment they establish their government.

Taxation
This is the power of the State to enforce proportional contribution
from its subjects to sustain itself.

Police Power
This is the inherent power of a sovereign state to legislate for the
protection of the health, general welfare, safety and morals of the public. It
involves the power to regulate both liberty and property for the
promotion of the public good.
 The police power of the State may be exercised through taxation because taxes may
be levied for the promotion of the welfare of the public.

Eminent Domain
This is the power of the State to take private property for public use
after paying just compensation. This is synonymous to expropriation.

S imilarities of the Inherent Powers

The three inherent powers of the State are similar in the following
senses.
1. They are all necessary attributes of the sovereignty.
2. They are all inherent to the State.
3. They all presuppose an equivalent form of compensation
received by the persons affected by the exercise of the
power.

C omparison of the Inherent Powers

Point of
Taxation Police Power Eminent Domain
Difference
Exercising Government and
Government Government
Authority private utilities
For the support of To protect the
Purpose the general For public use
government welfare of the
people
Persons Community or Community or
Owner of the property
Affected class of class of
individuals individuals
Amount of Limited to cover
Unlimited No amount imposed
Imposition cost of
regulation
Importance Most Important Most Superior Important
All persons,
All persons, property, Only upon specific
Scope
property, rights rights, privileges property
 and
and privileges
liberties
No transfer, but
Transfer of
Taxes collected only restraint on Transfer is effected
Property
become part of the exercise of in favor of the State
Rights
public funds property
rights
No special or A direct benefit results
No direct benefit
Benefits direct benefit but in the form of just
but a healthy
Received the general compensation to the
economic
benefit of general property owner
standard of
welfare
society

TAXATION DEFINED:
Taxation is the i nherent power of the state1, e xercised through the
legislature2, to ii mpose b urdens3 upon s ubjects and objects4 within
its jurisdiction5 for the purpose of raising revenues6 to c arry out the
functions7 of government.

NATURE / CHARACTERISTICS OF TAXATION:

1. Inherent Power of the State

Taxation is one of the three inherent powers of the state, with police
power and eminent domain. Inherence means that even with the
absence of an express grant of the Constitution, the State can still
exercise the power to levy and collect taxes.
2. Exercised through the Legislature

Only the legislative branch of the government can levy taxes, meaning,
tax laws can only originate, specifically, from the House of
Representatives. The Senate, however, may propose tax laws to the
House of Representatives.
 The executive branch is tasked in the enforcement of said tax laws
through the assessment and collection of taxes, whilst, the judiciary
branch is concerned with any tax-related cases that may emanate
from the administration of taxes.
3. Impose Burdens

The imposition of taxes to individuals, objects or privileges

normally would cause a financial burden to the taxpayer.
4. Subjects and Objects

Different subjects may be considered in the levying of taxes. Common

are those taxes on individuals, properties and privileges. Taxation
serves as a mode by which the state allocate its costs to its subjects
who are benefited by its spending.
5. Within its Jurisdiction

The state can only tax a subject that is within its territoriality. This is
true since it is one of the inherent limitations of taxation. Taxing outside
its jurisdiction would constitute impossibility of collection and immorality
of taxing subjects which do not receive benefit from the government’s
services.
6. Purpose of Raising Revenues

Taxes are the main source of funds which the state needs to conduct
its public services. Though the government also receives inflows from
other sources, taxes generate the most to fund said services.
7. Carry Out the Functions

The government is the one responsible for the various public services like
education and health. In the conduct of said services, the government
needs taxation to defray the costs associated to said services.
Purposes of Taxation
The exercise of the power of taxation may be classified as to its purpose.\

R evenue or 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.

N on-Revenue or Regulatory
Taxation may also be employed for purposes of regulation or control, e.g.,
imposition of tariffs on imported goods to protect local industries, the adoption
of progressively higher tax rates to reduce inequalities in wealth and income and
the increase or decrease of taxes to prevent inflation or ward off depression.

FUNDAMENTAL THEORIES AND DOCTRINES

Theory of Taxation
A system of government is indispensable to every society. Without it, the people
will not relish the benefits of a civilized and orderly society. The power of taxation
proceeds upon the theory that the government has the necessity for funding; that
it cannot continue without means to pay its expenses; and that for these means, it
has a right to compel all its citizens and properties within its limits to contribute.

Basis of Taxation
The basis of taxation is found in the reciprocal duties of protection and support
between the State and its inhabitants. In return for his contribution, the taxpayer
receives benefits and protection from the government. In short, both the
government and the people receive mutuality of benefits.
 Benefit Received Theory
This theory bases the power of the State to demand and receive taxes on the
reciprocal duties of support and protection. The citizen supports the State by
paying the portion from his property that is demanded in order that he may, by
means thereof, be secured in the enjoyment of the benefits of an organized
society. Thus, the taxpayer cannot question the validity of the tax law on the
ground that payment of such tax will render him impoverished, or lessen his
financial or social standing, because the obligation to pay taxes is involuntary
and compulsory, in exchange for the protection and benefits one receives from
the government.

In return for his contribution, the taxpayer receives the general advantages and
protection which the government affords the taxpayer and his property. One is
compensation or consideration for the other; protection for support and support
for protection.

However, it does not mean that only those who are able to and do pay taxes can
enjoy the privileges and protection given to a citizen by the government.

In fact, from the contribution received, the government renders no special or

commensurate benefit to any particular property or person. The only benefit to
which the taxpayer is entitled is that derived from the enjoyment of the privilege
of living in an organized society established and safeguarded by the devotion of
taxes to public purpose. The government promises nothing to the person taxed
beyond what may be anticipated from an administration of the laws for the
general good.

R eceipt of benefits conclusively presumed

Every citizen and resident of the state directly or indirectly benefits from the
public services rendered by the government. These benefits can be in form of
daily free usage of public infrastructures, access to public health or educational
services, the protection and security of person and property, or simply the
comfort of living in a civilized and peaceful society which is maintained by the
government.
While most public services are received indirectly, their realization by every
citizen and resident is undeniable. In taxation, the receipt of these benefits by
the people is conclusively presumed, thus, taxpayers cannot avoid payment
of taxes under the defense of absence of benefit received. The direct receipt
or actual availment of government services is not a precondition to taxation.
Ability to Pay Theory:
The ability to pay theory presupposes that taxation should also consider the
taxpayer’s ability to pay. Taxpayers should be required to contribute based on
their relative capacity to sacrifice for the support of the government. In short,
those who have more should be taxed more even if they benefit less from the
government. Those who have less shall contribute less even if they received more
of the benefits from the government.

Lifeblood Doctrine:
Taxes are the lifeblood of the government and should be collected without
necessary hindrance. They are what we pay for a civilized society. Without taxes,
the government would be paralyzed for lack of 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. Taxes are the lifeblood of the
government and their prompt and certain availability is an imperious need. Put
simply, taxes are needed by the government to carry out its functions.

Other Fundamental Doctrines

M arshall Doctrine
“The power to tax is 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.

H olme’s 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.

P rospectivity of Tax Laws

Tax laws are generally prospective in operation. However, tax laws may operate
retrospectively if so intended by Congress under certain justifiable conditions.

N on-Compensation or Set-Off
Taxes are not subject to automatic set-off or compensation. The taxpayer cannot
delay payment of tax to wait for the resolution of a lawsuit involving the pending
claim against the government. Tax is not a debt; hence, it is not subject to set-
off.
 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

N on-Assignment of Taxes
Tax obligations cannot be transferred to another entity by contract. Contracts executed by
the taxpayer to such effect shall not hinder the government to collect taxes.
I mprescriptibility in Taxation
The government’s right to collect taxes does not prescribe unless the law itself provides.

In the Philippines, tax prescribes if not collected within 5 years from the date of its
a ssessment. In the absence of an assessment, tax prescribes if not collected within 3
years f rom the date the return is required to be filed. However, taxes due from
taxpayers who did not file a return or those who filed a fraudulent returns do not
prescribe.

D octrine of Estoppel
The error of any government employee does not bind the government. It is held
that the neglect or omission of government officials entrusted with the collection
of taxes should not be allowed to bring harm or detriment to the interest of the
people.

J udicial Non-Interference
Generally, courts are not allowed to issue injunction against the government’s
pursuit to collect tax as this would unnecessarily defer tax collection.

SCOPE OF TAXATION
The power of taxation is the most absolute of all powers of the government. It
has the broadest scope of all the powers of government because in the absence
of limitations, it is considered as comprehensive, unlimited, plenary and
supreme.

However, the power of taxation should be exercised with caution to minimize

injury to the proprietary rights of the taxpayer. It must be exercised fairly,
equally, and uniformly, lest the tax collector kill “the hen that lays the golden
egg”.
LIMITATIONS OF TAXATION
Despite the un-seemingly unlimited nature of taxation, it is not absolutely
unlimited. Taxation has its own inherent limitations and limitations imposed by
the Constitution.

Inherent Limitations

T erritoriality
Public services are normally provided within the boundaries of the State, thus, tax
can be imposed only within its territories. It cannot tax outside because
foreigners do not derive benefits from our government. The Philippines would not
tax objects from foreign States as this would amount to encroachment of foreign
sovereignty.
I nternational Comity
This pertains to mutual courtesy or reciprocity between states. When a state
enters into treaties with other states, it is bound to honor the agreements as a
matter of mutual courtesy and in case such treaties are in conflict with local laws,
the treaties are given primacy.

P ublic Purpose
Proceeds from the collection of tax is intended for the common good, thus, tax
must be exercised absolutely for public purpose and cannot be exercised to
further any private interest.

E xemption of the Government

Taxation, being broad, the government can exercise the power to tax
including upon itself. However, taxing itself would not raise additional funds
rather will only impute additional costs.

N on-Delegation of the Taxing Power

The legislative taxing power is vested exclusively in Congress and is non-
delegable pursuant to the doctrine of separation of the branches of the
government.

Constitutional Limitations
As the power of taxation is inherent to every state, there is no need for an
express stipulation of law for the State to exercise it. In fact, the Constitution
only tackles the power of taxation by imposing limitations on its exercise.

D ue Process of Law
No one should be deprived of his life, liberty or property without due process of law.
Tax laws should neither be harsh nor oppressive.

Aspects of Due Process:

Substantive Due Process – Tax must be imposed only for public purpose,
E qual Protection of the Law
No person shall be denied the equal protection of the law. Taxpayers should be
treated equally both in terms of rights conferred and obligations imposed. This
rule applies where taxpayers are under the s ame circumstances and conditions.

A common example of this would be the Congress cannot exempt sellers of “balot”
while subjecting sellers of “penoy” to tax since they are essentially the same goods.

Uniformity Rule
Taxpayers under dissimilar circumstances should not be taxed the same.
Taxpayers should be classified according to commonality in attributes. Each
class is taxed differently but taxpayers falling under the same class are taxed
the same.

P rogressive System
In a progressive system, t ax rates increase as the tax base increases . This is
consistent with the ability to pay theory. Moreover, the progressive system aids
in an equitable distribution of wealth to society by taxing the rich more than the
poor.

N on-Imprisonment for Non-Payment of Debt or Poll Tax

As a policy, no one shall be imprisoned because of his poverty and no one shall
be imprisoned for mere inability to pay debt. It should be noted, however, that
only the non-payment of Basic
P oll Tax (cedula) is within the scope of this limitation. Non-payment of other taxes
may result to imprisonment.

N on-Impairment of Obligation and Contract

The state should not set aside its obligations from contracts by the exercise of its
taxation power. Tax exemptions granted under contract should be honored and
should not be cancelled.

F ree Worship Rule

The Philippine government adopts free exercise of religion and does not subject
its exercise of taxation. The properties and revenues (not commercial in nature)
of religious institutions are not subject to tax.

E xemption of religious, charitable or educational entities, nonprofit cemeteries,

churches and m osques, lands, building, and improvements from property taxes
The constitutional exemption from property tax applies for properties
actually, directly and e xclusively used for charitable, religious and
educational purposes.

N on-appropriation of public funds or property for the benefit of any church, sect,
or system o f religion
This constitutional limitation is intended to highlight the separation of the church
and the state. To support freedom of religion, the government should not favor
any particular system of religion by appropriating public funds or property in
support thereof.

E xemption from taxes of the revenues and assets of non-profit, non-

stock, educational i nstitutions
The Constitution recognizes the necessity of education in state building by
granting tax exemption on revenues and assets of non-profit educational
institutions. This exemption, however, applies only on assets and revenues
actually, directly and exclusively devoted for educational purposes.
C oncurrence of a majority of all members of Congress for the passage of a law
granting tax e xemption
The Constitution requires the vote of majority of all members of Congress in the
grant of tax exemptions. A q uorum majority, however, is only required for the
withdrawal of tax exemption.

N on-diversification of tax collections

Tax collections should be used only for public purposes. It should never be
diversified or used in private purpose.

N on-delegation of Taxing Power

The impact of taxation cannot be delegated. The incidence, however, may be
delegated on matters involving expedient and effective administration.

N on-impairment of the jurisdiction of the Supreme Court to review tax cases

All cases involving taxes can be raised to and be finally decided by the Supreme
Court of the Philippines.

A ppropriations, revenue and tariff bills shall originate exclusively from

the House of Representatives
Tax Laws should emanate from the House of Representatives, however,
the Senate may propose tax laws and may concur amendment.

E ach LGU shall exercise the power to create its own sources of revenue and
shall have a just s hare in the national taxes
This is a constitutional recognition of the local autonomy of LGUs and an express
delegation of taxing power.

STAGES OF EXERCISE OF TAXATION POWER

Levy or Imposition
This process involves the enactment of a tax law by Congress. It is also
referred to as the l egislative act in taxation.

Assessment and Collection

The tax law is implemented by the administrative branch of the government.
Implementation includes the assessment or determination of the tax liabilities of
taxpayers and subsequent collection. This stage is referred to as the administrative
act of taxation.

SITUS OF TAXATION
Situs is the place of taxation. It is the tax jurisdiction that has the power to levy
taxes upon the tax object. Situs rules serves as frames of reference in gauging
whether the tax object is within or outside the tax jurisdiction of the taxing
authority.

Tax Imposed Situs Rule

Business Tax It is subject to tax in the place where the business is
conducted
Income Tax on Services Service fees are subject to tax where they are
rendered
Income Tax on Sale of The gain on sale is subject to tax on the place of sale
Goods
Property Tax Properties are taxable in their location
Personal Tax Persons are taxable in their place of residence
Income Tax on Interests It is subject to tax on the debtor’s place of residence.

Other situs rules may be followed depending on the kind of tax being imposed.

Nash E. Mulan, a Chinese national, resides in Sampaloc, Manila. He has the

following endeavors:
 He has a car dealership business in Macau and a restaurant operation in
Quezon City.
 He renders consultancy services in the main office of a domestic company.
 He casually sells jewelry stored in Pasay City. During his trip to Palawan, he
agreed to Kim Bong-Un to sell a piece of necklace. They stipulated that it
DOUBLE TAXATION
Double Taxation can be either direct or indirect. For a double taxation to be
considered direct, a ll of the following characteristics should concur:

a. Taxing the same object twice;

b. By the same taxing authority;
c. Within the same jurisdiction;
d. For the same purpose;
e. In the same period.

An example of a direct double taxation is as follows:

The state taxes the income of self-employed individuals at 10% of its monthly gross
receipts. In addition, it also imposes a 2% annual income tax on the annual gross
receipts.

In this case, self-employed individuals are burdened by paying the monthly and
annual income tax based on their gross receipts (the annual totaling all monthly
gross receipts). It was imposed by the same taxing authority within the same
jurisdiction, with the same purpose of taxing the income for the same period.

The absence of one or more of the given circumstances does not constitute direct
double taxation, thus, classifying it as an indirect double taxation.

Constitutionality of Double Taxation:

The Philippine Constitution does not prohibit double taxation. However, while it is
not forbidden, it is something not favored. Such taxation should, whenever possible,
be avoided and prevented. In addition , where there is direct double taxation, there
may be a violation of the constitutional precepts of equal protection and uniformity in
taxation.

ESCAPES FROM TAXATION

Escapes from taxation are the means available to the taxpayer to limit or completely
avoid the impact of taxation.

With Loss of Government Revenue

The following are the escapes from taxation that would result to loss of government
revenue.
T ax Evasion
Also known as tax dodging, it refers to any act or trick that tends to illegally reduce
or avoid the payment of tax.

T ax Avoidance
Also known as tax minimization, refers to any act or trick that reduces or totally
escapes taxes by any l egally permissible means.

To further illustrate the difference between tax evasion and tax avoidance, refer
to the table below.

BASIS TAX AVOIDANCE TAX EVASION

What is it? Hedging of tax Concealment of tax

Immoral in nature, which
Attributes involves bending the law
without breaking it.
Taking unfair advantage of the
Concept
shortcomings in the tax laws.
Use of Justified means
Legal implication
Before the occurrence of tax
Happened when
liability.
Type of act Legal
Consequences Deferment of tax liability
To reduce tax liability by
Objective
applying the script of law.
Illegal and objectionable, both in
script and moral.
Deliberate manipulations in
accounts resulting in fraud.
Use of such means that are
forbidden by law
After tax liability arises.
Criminal
Penalty or imprisonment
To reduce tax liability by
exercising unfair means.

T ax Exemption
Also known as tax holiday, refers to immunity, privilege or freedom from being
subject to a tax which, others are subject to.

Without Loss of Government Revenue

Escaping from taxation, however, may not result into loss of government revenue.
Common examples of which are as follows.
S hifting
This is the process of transferring the tax burden to other taxpayers.

C apitalization
This pertains to the adjustment of the value of an asset caused by changes in tax
rates.

T ransformation
 This pertains to the elimination of wastes and losses by the taxpayer to form
savings to compensate for the tax imposition or increase in taxes.

Tax Amnesty vs. Tax Condonation

Tax amnesty is a general pardon given by the government to erring taxpayers.
It generally operates retrospectively by forgiving past violations. It is
conditional upon the taxpayer paying a portion of the tax. On the other hand,
tax condonation or tax remission prospectively applies to forgiving any unpaid
balance of tax. The portion already paid is not refunded and no further
payment is necessary.

GENERALIZATION:
This module discusses the general principles in Taxation that comprises its
definition, the inherent power of the State, the purposes of taxation, its theory and
basis. It includes essential elements of tax, the different theory of taxation, situs of
taxation, its nature and characteristics as well as its limitations.

ACTIVITY/EVALUATION

TRUE OR FALSE
Determine whether the following statements are true or false. Write your answers on the
space provided for.
IDENTIFICATION
1. Though the Senate is part of the Philippine Congress, tax bills
Identify the terminologies best described by the following statements.
cannot originate from it.
1. The enforced proportional contributions from persons and property
2. The primary purpose of taxation is to raise revenues of the
levied by the lawmaking body of the State
government in order to defray its expenses on its performance of
2. The power of the State to take private property for public use after
public goods.
paying just compensation
3. The basis of taxation is the government’s necessity for funding.
3. This refers to any act or trick that tends to illegally reduce or
4. Tax laws are generally retrospective in application, meaning,
avoid the payment of tax
application of which starts when the statute is enacted.
4. This pertains to the elimination of wastes and losses by the taxpayer to
5. The Marshall Doctrine states that the power to tax is not the power to
Form savings to compensate for the tax imposition or increase in taxes
destroy while the court sits.
6. The administrative act of taxation is primarily the duty of the
Bureau of Internal Revenue.
7. The police power of the State may be exercised through taxation
because taxes may be levied for the promotion of the welfare of the
public
8. A person cannot be imprisoned for non-payment of tax.
MULTIPLE CHOICE
Choose the best answer from the choices provided.
1. A tax must be imposed for public purposes. Which of the following is not
a public purpose?
a. Procurement of army weapons
b. Construction of rehabilitation centers for drug addicts
c. Construction of a satellite for a telco company
d. Expenses on the President’s state visits to other countries

2. Persons or things belonging to the same class shall be taxed at the same rate
a. Simplicity in taxation
b. Equality in taxation
c. Reciprocity in taxation
d. Uniformity in taxation

3. For double taxation to be considered direct, it should meet the following

criteria, except
a. Taxing the same object twice
b. Same period
c. Same amount of tax
d. Same jurisdiction

4. This is an inherent limitation on the power of taxation

a. Rule on uniformity and equity in taxation
b. Due process of law and equal protection of tine laws
c. Non-impairment of the jurisdiction of the Supreme Court in tax cases
d. Exemption of the government

5. Taxation as distinguished from police power and power of eminent domain

a. Property is taken to promote the general welfare
b. May be exercised only by the government
c. Operates upon the whole citizenry
d. There is generally no limit as to the amount that may be imposed

REINFORCEMENT:

Case Study THE SWEET TAX

1.1
To provide means for the rehabilitation and stabilization of the sugar industry so as
to prepare it for the eventuality of the loss of the quota allocated to the Philippines
resulting from the lifting of U.S. sanctions against African countries, Congress
passes a law increasing the existing tax on the manufacture of sugar on a graduated
basis. All collections made under the law are to accrue to a special fund to be spent
only for the purposes enumerated herein, among which are to place the sugar
industry a living wage and to improve their working conditions.

Sweet, a sugar planter, files a suit questioning the constitutionality of the law
alleging that the tax is not for a public purpose as the same is being levied
exclusively for the aid and support of the sugar industry.

Is the contention of Sweet tenable?

Case Study WHO IS TO BLAME?

1.2
Many consider that it was untimely that the internal revenue office of Wakanda
issued a memorandum circular during the pandemic reminding guidelines on the
registration of online businesses for tax filing. As enacted under Wakanda’s
revenue code, online businesses are liable to income tax on the gains from their
sales.

One of Wakanda’s officials, Senator Jack A. Moon, questioned the internal revenue
office on its issuance indicating that it was not moral for it to run after online
businesses and impose taxes on their income, more so that they are normally
conducting such endeavors for mere subsistence.
Is the senator’s contention tenable?

Case Study IS IT EXEMPT?

1.3
A congregation owns a parcel of land. Most of it is directly used for its religious and
educational endeavors. A small commercial space was built beside the school it operates to
rent out to businesses which would cater the needs of its students. The proceeds from
rentals are being used for charitable purposes.

Should the rental income and property be subjected to tax?

SITUS RULES APPLICATION:
Dina B. Nalican, Spanish by citizenship, obtained the income from the following
during the year.
 Having posted in Shoppy, a customer browsing the online shopping
application in General Santos City asked if she could inspect the car
personally. It was after the inspection in Zamboanga City that the
customer agreed to buy the car. It is to be delivered to and paid by the
customer in Davao City.
 Dina has a hardware store located in Mactan, Cebu. She decided to close
the main branch in Leyte five years ago.
 She also lends thru the 5-6 system of lending in her residence in Quiapo. A
debtor residing in Quezon City owes her P60,000, inclusive of interests.
They are to meet in Sampaloc for the payment of said debt.
 Dina owns a condo unit in Laoag City. A student from Cagayan rents said
property and pays to Dina’s son (residing in Vigan City) the rent when
they meet up in Batac City.

Determine the situs of:

1. Tax on the gain on sale of her car
2. Tax on her hardware store
3. Tax on interest income earned
4. Tax on rental income earned
5. Personal Tax

LIMITATIONS
Identify the source of the limitation on the power of taxation. Write C if it is constitutional, I
if it is inherent, B if it is both constitutional and inherent and N if it is not a limitation.
1. Taxes collected must be used for public purposes
2. Taxes can only be imposed within the territory of the State
3. Taxes cannot be assigned
4. Tax treaties entered into with other contracting States must be honored
5. Imprisonment for non-payment of income tax
6. Non-delegation of the taxing power
7. Exemption from taxes of the revenues and assets of religious,
charitable or educational entities, nonprofit cemeteries, churches
and mosques
8. No arbitrariness in assessment and collection of taxes
REFERENCES:
 Income Taxation with Special Topics and Properly Filled BIR
Forms, 2020 Edition - Enrico D. Tabag, CPA, MBA & Earl Jimson
R. Garcia, CPA, MBA

 Reviewer in Taxation Updated TRAIN-Book 1 2018 Edition-

Asser S. Tamayo, CPA, MBA

 Income Taxation-Laws, Principles and Applications- Rex B.

Banggawan, CPA, MBA

 National Internal Revenue Code of 1997

 Bureau of Internal Revenue Regulations

 Bureau of Internal Revenue Memorandum Circulars

 Supreme Court Decisions on Tax Cases