BCP eLearning

BA223: TAXATION (INCOME TAXATION) Eminent Domain Power

 It is the inherent power of the sovereign state to take

MODULE 1: GENERAL PRINCIPLES AND CONCEPTS OF private property for a public purpose with just
TAXATION – PART 1 compensation.
 Paying the owner of the private property the full
Principles of Taxation monetary equivalent of the property taken for
public use
Learning Objectives
Taxation Power
At the end of this module you are expected to:
 It is the inherent power of the sovereign state to enact
1. Explain and discuss the introduction, overview, history and and enforced contribution upon persons, properties, or
origin of Philippine taxes; rights for the purpose of generating revenues for the use
2. Describe the nature of taxation power; and of government.
3. Differentiate the three inherent powers of the state, their  The act of levying taxes by which the government
scope and inherent limitations. through its law-making body, raises revenues to defray
Inherent Powers of Sovereign State its necessary expenses.
 Taxes – enforced proportional contribution
These are essential powers necessary for the survival of the imposed by the government.
sovereign state.
Similarities among Taxation, Eminent Domain and Police Powers
This also serves as the central force in order that a government can
command, maintain peace and order, and survive, irrespective of any 1. They are inherent powers of the State
constitutional provision. 2. They constitute the three ways by which the State interferes with
the private rights and property
3. They are legislative in nature and character
4. They presuppose an equivalent compensation
Police Power
5. They all underlie and exist independently of the Constitution
 It is the inherent power of the sovereign state to legislate 6. They are all necessary attributes of the Sovereignty
for the protection of health, welfare and morals of the 7. The provisions in the Constitution are just limitations on the exercise
community. of these powers
 It is exercised usually to guard against abuses of
individual liberty.

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6. As to Operates on a Operates in a Operates on
persons community or a community or the particular
affected class of a class of private
Distinction between Taxation, Eminent Domain and Police Powers individual individual property of an
individual
Taxation Police Power Eminent 7. As to Continuous Maintenance Market value of
Domain benefits protection and of healthy the property
1. As to Power to Power to Power to take organized economic expropriated
concept enforce make and private property society standard of
contribution to implement for public use society
raise laws for the with just 8. As to Inseparable for Protection, Common
government general compensation importance existence of a safety and necessities and
funds welfare nation – it welfare interest of the
2. As to scope Plenary, Broader in Merely a supports police society community
comprehensive application of power to take power and transcend
and supreme general power private eminent domain (exceeds)
to make and property for individual rights
implement public use in
laws property
3. As to Exercised only Exercised only May be granted 9. As to Generally, no Sufficient to No imposition.
authority by government by government to public amount of limit cover cost of The owner is
(both national (both national service or imposition the license paid the fair
and local and local public utility and the market value of
government government companies necessary his property
expenses of
4. As to Money is taken Money or Private police
purpose to support the Property is property is surveillance
government taken or talem for and regulation
destroyed to public use 10. As to Constraints by Limited by the Bounded by
promote limitation Constitutional demand for public purpose
general and Inherent public interest and just
welfare limitations compensation
5. As to The power to Can be Can be 11. As to Subject to Relatively free Superior to
necessity of make tax laws expressly expressly relationship Constitutional from and may
delegation cannot be delegated to the delegated to the to and Inherent Constitutional override
delegated local local Constitution limitations limitations Constitutional
government government impairment
units (LGU) by units (LGU) by Subject to Superior to provision
the law- the law-making constitutional impairment because the
making body body prohibition provision of welfare of the
against the the State is
impairment of Constitution superior to any

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the obligations private Scope of Taxation
and contract contract
The scope of the power of taxation is
Inferior to
impairment  Unlimited,
provision of the  Complete (plenary),
Constitution  Wide extent of application (comprehensive)
 With highest degree (supreme)
Nature of Taxation Power  Subject to the constitutional and inherent limitations.

 The power of tax is an attribute of sovereign that is exercised by the
government for the betterment of the people within its jurisdiction
whose interest should be served, enhanced and protected
 Taxes are imposed upon persons, properties or rights for the support
of the government in return for the benefit and protection which the
government provides the taxpayers.
Basis of Taxation
1. Based on the Principle of Necessity (Lifeblood Theory)
 This principle states that no government can exist without
taxation, thus, taxation is an important necessity.
2. Based on Reciprocal Duties
 The basis of the power to tax is the reciprocal duties of
protection and support between the state and those that are
subjects to its authority.
Purpose of Taxation
Principal Purpose (Revenue Purpose)
 To raise revenues for the use and support of the
government to enable it to carry out its functions.
Secondary Purpose (Regulatory Purpose)
 To serve as means to contend social, general welfare and
economic development.
Constitutional Limitations
These are provisions of the fundamental law that restrict the unlimited,
plenary, comprehensive and supreme exercise by the State of its inherent
power to tax.
It should be noted further that a tax law is of no legal force when it violates
the Constitution
1. Due process of law
Observation of due process of law and equal protection of the laws
(Section 1. Article 3)
Any deprivation of life, liberty or property is with due process if it is
done under the authority of a valid law and after compliance with fair
and reasonable methods or procedure prescribed. The power to tax,
can be exercised only for a constitutionally valid public purpose and
the subject of taxation must be within the taxing jurisdiction of the
state. The government may not utilize any form of assessment or
review which is arbitrary, unjust and which denies the taxpayer a fair
opportunity to assert his rights before a competent tribunal. All
persons subject to legislation shall be treated alike under like
circumstances and conditions, both in the privileges conferred in
liabilities imposed. Persons and properties to be taxed shall be group,
and all the same class shall be subject to the same rate and the tax
shall be administered impartially upon them.
2. Equal protection of law

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Rule of uniformity and equity in taxation (Section 28(1), Article VI)
All taxable articles of properties of the same class shall be taxed at
the same rate. Uniformity implies equality in burden not in amount.
Equity requires that the appointment of the tax burden be more or
less just in the light of taxpayer’ ability to bear the tax burden.
3. No imprisonment for non-payment of a poll tax (example:
community tax)
No imprisonment for non-payment of poll tax (Section 20, Article
III). A person cannot be imprisoned for non-payment of community
tax, but may be imprisoned for other violations of the community tax
law, such as falsification of the community tax certificate, or for
failure to pay other taxes.
4. Rule of taxation shall be uniform and equitable.
5. Exemption from property taxation (lands and buildings used) of
religious, charitable or educational institutions, non-profit
cemeteries, churches and convents appurtenant thereto
Exemption of all revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for
educational purposes from income, property, and donor’s taxes and
custom duties (Section 4 (3&4) Article XIV).
6. No public money and/or property shall be used for any religious
and/or private purposes
Prohibition against appropriations for religious purposes,(Section 29
(2), Article VI), Congress cannot appropriate funds for a private
purpose, or for the benefit of any priest, preacher or minister or for
the support of any sect, church
except when such priest, preacher is assigned to the armed force or to
any penal institutions, orphanage or leprosarium.
7. The majority of all members of the National Congress shall pass the
granting of tax exemptions
8. The Congress may not be deprived the Supreme Court of its
jurisdiction in all tax cases.
Congress may not deprive the Supreme Court of its jurisdiction to
review, revise, reverse, modify or affirm on appeal or certiorari, final
f\judgements and orders of lower courts in all cases involving the
legality of any tax, impost, assessment or any penalty imposed in the
relation thereto.
9. The Philippine President has the power to veto any item in a tax bill
approved by the Congress.
10. Tax collection shall generally be treated as general funds of the
government
Inherent Limitations
These are restrictions to the power to tax that are attached to its nature
1. Taxes may be levied only for public purpose
The sole purpose must be for the benefit of the citizens of the state
and not merely as for the benefit of a particular individual.
2. Non-delegation of the power to tax except to local government
The power to tax is purely legislative and it cannot be delegated by
the legislative branch of government to the executive or judicial
department.
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3. Tax laws are only confined within the territorial jurisdiction of the function. The tax system should be capable of being
State properly and efficiently administered by the government.

The tax laws are enforceable only within the territorial jurisdiction of
the State. Tax laws are not enforceable beyond the country’s
territorial limits.
4. Tax laws must be subject to international comity, convention and
agreements
3. Collection
 This process involves the collection of tax payments
from the tax payers as well as the collection of tax-
deficiencies as assessed by the BIR Officials and BIR
examiners.

The property of a foreign state may not be taxed by another foreign

state. There should be agreement between nations before taxes are to
be imposed.

5. Government entities are generally tax-exempt.

Government agencies performing essential government functions are 1.LEVYING 2.ASSESSMENT

generally exempt from tax. Those government agencies performing (Legislative) (Executive)
proprietary functions are subject to tax unless expressly exempted. It
should be noted further that the government cannot tax itself.

6. Prohibition of double taxation

3.COLLECTION
Aspects of Taxation (Executive)
- Refers to processes or stages of enforcement of power of
taxation

1. Levying
 This process involves the imposition of the tax which Objects of Taxation
is a legislative act or function. In the Philippines, it is - Refers to the subject to which taxes are imposed
Congress that levies the tax
1. Persons, whether natural or juridical persons
2. Assessment a. Natural person – refers to individual taxpayers
 This involves the determination of the correct amount b. Juridical person – includes corporations,
of applicable tax which is administrative partnerships, and any association

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2. Properties, whether realm personal, tangible or intangible 5. Citizenship of the taxpayer
properties 6. Residence of the taxpayer
a. Real properties – immovable properties such as land,
building or house and lot Summary of General Rules of Tax Situs
SUBJECT NATURE CITIZENSHIP RESIDENCY SOURCE OF LOCATION OF
b. Personal properties – movable properties such as car MATTER OF TAX OBJECT (Taxable?)
c. Tangible properties – properties that may be felt or Within the Outside
touched and are necessarily corporeal, either realtor Philippines the
personal properties Philippines
Persons Income Filipino Resident Yes Yes
d. Intangible properties – properties that are “rights” rather
Tax Filipino Non- Yes No
than physical objects. resident
- Example: Patents, stocks, bonds, Aliens Resident Yes No
goodwill, trademarks, franchise Aliens Non- Yes No
and copy right resident
3. Excise objects, such as
Transfer Tax Filipino Resident Yes Yes
a. Transaction – the act of conducting activities related to
Filipino Non- Yes Yes
any business or profession that involves selling, resident
servicing, leasing, borrowing, mortgaging or lending Aliens Resident Yes Yes
b. Privilege – a benefit derived through gratuitous transfer Aliens Non- Yes No
by circumstance of death donation resident
c. Right – a power inherent in one person and incidental to
Business Tax Yes No
another
d. Interest – an advantage accruing from anything Real Property n/a n/a Yes No
Situs of Taxation Personal Property n/a n/a Yes No
- Refers to the place of taxation
Principles of Sound Tax System
- it is the application of the “principle of territorial jurisdiction”
which limits the exercise of taxation power in defining the object 1. Fiscal Adequacy
of taxation through setting boundaries of the taxing power whether or - Sources of revenues must be sufficient to meet the expenditures of
not it shall be subjected to tax government regardless of the business or economic conditions
- Factors to consider in determining situs of taxation 2. Equality or Theoretical Justice
1. Subject matter of the tax (person, property, or activity) - There must be an equitable (reasonable) and proportionate
2. Nature, kind or classification of the tax being imposed distribution of the tax burden, which means that the tax burden
3. Source of income being taxed shall be shouldered by those who have the ability to pay
4. Place of the excise, privilege, business or occupation being taxed

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- Concedes with the “ability-to-pay principle” which states that tax Other Percentage Taxes, and Documentary Stamp
burden should be in proportion to the taxpayer’s ability to pay Tax)
3. Administrative Feasibility b. Local
- Tax laws must be capable of reasonable and convenient  Imposed by local government units
enforcement, just and effective administration, meaning, must be
capable of being administered and complied with. 2. As to subject matter or object
a. Personal, poll or capitation
Nature of Taxes
 Tax of a fixed amount imposed upon individual,
Taxes whether citizens or not, residing within a specified
territory without regard to their property or the
 By authority of a sovereign state, these are forced burdens occupation in which he may be engaged (ex.
and compulsory financial contribution upon the person, Community Tax).
property, or rights exercised, within its jurisdiction imposed b. Property
by the government, the administration of the law, or the  Tax imposed property, whether real or personal, in
payment of public expenses. proportion either to its value, or in accordance with
 Nature of taxes: some other reasonable method of apportionment
1. Taxes are obligations created by law (e.g. Real Estate Tax).
2. Taxes are generally personal to the taxpayer c. Excise
Essential Elements of Tax  Any tax which does not fall within the classification
of a poll tax or a property tax. This is a tax on the
1. Enforced contribution exercise of certain rights or privilege (e.g. Income
2. Imposed by the legislative body Tax, Estate Tax, Donor’s Tax, Value added Tax and
3. Proportionate in character Other Percentage Taxes).
4. Payable in the form of money
5. Imposed for the purpose of raising revenue 3. As to bears the burden
6. Used for a public purpose a. Direct
7. Commonly required to be paid at regular intervals  Tax which is demanded from the person who also
8. Imposed by the sovereign state within its jurisdiction shoulders the burden of tax or which the taxpayer
Classification of Taxes cannot shift to another (ex. Income Tax, Estate Tax
and Donor’s Tax)
1. As to scope b. Indirect
a. National  Tax which is demanded from one in the expectation
 imposed by National government (e.g. Income Tax, and intention that he shall indemnify at the expense
Estate Tax, Donor’s tax, Value Added Tax, of another

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 Tax wherein the incidence of or liability for the b. Progressive or graduated
payment if the tax falls on one person but the burden  Tax the rate of which increases as the tax base or
thereof can be shifted to another person (ex. Value bracket increases (ex. Income Tax)
Added Tax and Other Percentage Taxes) c. Regressive
 Tax the rate of which decreases as the tax base or
4. As to determination of amount bracket increases. This is not practiced in the
a. Specific Philippines
 Tax of fixed amount imposed by the head or
Overview of the Philippine Taxes
number, or by some standard of weight or
measurement (ex. Excise Tax on cigarettes and  TAX LAW
liquors) - Body of laws which codifies all national tax laws
b. Ad valorem including:
 Tax of fixed proportion of the value of the property  Income
with respect to which the tax is assessed (ex. Value  Estate
Added Tax, Income Tax, Donor’s Tax and Estate  Gift (Donation)
Tax  Excise
 Stamp
5. As to purpose  Other taxes
a. General, fiscal, or revenue - Comprises of the Republic Act 8424 (RA 8424) entitled:
 Tax imposed solely for the general purpose of the “The Comprehensive Tax
government, i.e., to raise revenue for government Reform of the Philippines”
expenditures (ex. Income Tax, Donor’s Tax and  also known as
Estate Tax)  National Internal Revenue
b. Special or regulatory Code of 1997 (NIRC)
 Tax imposed for a specific purpose, i.e., to achieve  Tax Code
some social economic ends irrespective of whether  Also includes RA 9337 –
revenue is actually raised or not (e. Tariff and “The VAT Reform Law”
Certain duties on Imports) - Internal Revenue Law
- Includes all laws legislated pertaining to the
6. As to graduation or rate national government taxes embodied in the NIRC
a. Proportional - Such legislation is commonly known as revenue
 Tax based on a fixed percentage of amounts of the measures
property, receipts, or other basis to ne taxed (ex.
Value Added Tax and Other Percentage Taxes) - Internal Revenue Taxes

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- Taxes imposed by the legislative body other than
custom duties on imports
- The following national taxes are classified as
Internal Revenue Taxes under the administration
of the BIR
1. Income Tax
 Tax imposed on the income
earned of a tax payer
2. Transfer Tax
 Tax imposed on any mode of
transferring the ownership of a
real property, either through
sale, donation, barter, or any
other mode
3. Business Tax
 Tax imposed and collected from
the seller in the course of trade
or business on every sale of
properties (real or personal)
leases of goods or properties
(real or personal) or vendors of
services.
4. Documentary Stamps Tax (DST)
 An excise tax levied on
documents, instruments, loan
agreements and papers
evidencing the acceptance,
assignment, sale or transfer of
an obligation, rights, or property
incident thereto
5. Such other taxes as may be imposed
and collected by the BIR
 NATURE OF TAX LAWS
- The Philippine Internal Revenue laws are generally
 civil in nature
 neither political nor penal in nature
o Note: Although, there are penalties
provided for their violation, the purpose
of tax laws in imposing penalties for
delinquencies is to:
 compel the timely payment of
taxes
 punish evasion or neglect of duty
in respect thereof
 SOURCES OF TAX LAWS
1. Constitution of the Philippines
2. National Internal Revenue Code
3. Tariff and Customs Code
4. Local Government Code
5. Local tax ordinances (e.g. city or municipal tax codes)
6. Tax Treaties and International Agreements
 Tax treaty
- the Philippine government usually enters into
tax treaties in order to avoid or minimize the
effects of double taxation. It has the force and
effect of law
7. Judicial decisions (i.e. decision of the Supreme of Court and
the Court of Tax Appeals)
8. Special laws (e.g. Statutes, Executive Orders)
9. Revenue rules and regulations and administrative rulings and
opinions
a. Revenue Regulations promulgated by the
Department of Finance
b. BIR Revenue Memorandum Circulars
c. Bureau of Customs Memorandum Orders
d. BIR Rulings
 Purpose of rules and regulations
i. To properly enforce and execute the tax
laws
ii. To clarify and explain the law
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iii. To carry into effect the laws’ general
provisions by providing details of 3. TAX vs ASSESSMENT
administration and procedure
Special assessment is an enforce proportional contribution from
owners of lands for special benefits resulting from public
 Requisites for validity of rules and regulations
improvements.
i. They must not be contrary to law and the
Constitution Characteristics of Special Assessment
ii. They must be published in the Official
Gazette or a newspaper of general a. Levied only on land
circulation b. Not a person liability of the person assessed
 Effectivity of revenue rules and regulations c. Based wholly on benefits (not necessary)
Except when the law otherwise expressly d. Exceptional both as to time and place
provides, the aforesaid revenue tax issuance shall
not begin to be operative until after due notice 4. TAX vs REVENUE
thereof may be fairly assumed
REVENUE TAX
Tax Distinguished from Other Terms Amount imposed
Amount collected
1. TAX vs TOLL
5. TAX vs PERMIT or LICENSE FEE

TOLL TAX PERMIT or LICENSE FEE TAX

Demand of proprietorship
Paid for the use of another’s
property
Amount is based on cost of
construction or maintenance of the
public improvement
May be imposed by the
government or private
individuals or entities
2. TAX vs PENALTY
May be imposed by the
government or private
individuals or entities
Demand of sovereignty For revenue
For regulation
Paid for the support of Exercise of taxation power
government Exercise of police power
Amount is based om the Amount is limited to the Generally no limit
necessities of the state necessary expenses of
regulation
Imposed only by the state Imposed on the right of reward of Imposed also on persons
an officer for specific services property
An enforced contribution
Legal compensation or reward of assesses by sovereign authority
an officer for specific services to defray public expenses
May be imposed only by the
government

PENALTY TAX
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Primarily aimed at raising
Designed to regulate conduct revenue

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Failure to pay license fee makes the
act or business illegal
6. TAX vs DEBT
DEBT
Based on contract
May be paid in kind
Assignable
May be the subject if set-off or
compensation
A person cannot be imprisoned
for non-payment of debt (except
when it arise from a crime)
Draw interest when stipulated or
when prescription default
An enforced contribution
assesses by sovereign authority
to defray public expenses
TAX
Based on law
Generally payable in money
Cannot generally assignable
Cannot generally be the subject of
the set-off or compensation
Imprisonment is a sanction for
non-payment of tax (except poll
tax
Governed by the special
prescriptive periods provided for in
the Tax Code
Does Not draw interest except
only when delinquent
a. A book of rates drawn usually in alphabetical order containing the
names if several kinds of merchandise with the corresponding
duties to be paid for the same; or
b. The duties payable on goods imported or exported; or
c. The systems or principle of imposing duties on the important (or
exportation) of goods
It should be noted further that the term tariff and customs duties are
used interchangeably in the tariff and custom code.
• End of Module 1 •
Links to Supplemental Readings
1. http://www.chanrobles.com/legal6nircmain.htm#.WW14qR
UrLIU
2. http://www.bir.gov.ph/index.php/tax-code.html#title1
3. http://www.bir.gov.ph/index.php/tax-code.html#title2
links to Other Video Lectures

7. TAX vs SUBSIDY
Subsidy is a monetary aid directly granted by the government to an
individual or private commercial enterprise deemed beneficial to the
public. Subsidy is not a tax although tax may have to be imposed to
pay it.
8. TAX vs CUSTOM DUTIES
Custom duties are taxes imposed on goods exported into a country.
9. TAX vs TARIFF
1. https://www.youtube.com/watch?v=761YpyZh1C8
2. https://www.youtube.com/watch?v=8nMHLRSZKqw
3. https://www.youtube.com/watch?v=6FV_GQ58G1g
References
National Internal Revenue Code of 1997 . (n.d.). Retrieved from
http://www.bir.gov.ph/index.php/tax-code.html.

Tariff may be used in one of the following: Aduana, N. L. (2012). Simplified and procedural handbook on income
taxation (2nd Edition ed.). Quezon City: C & E Publishing Inc.
Garcia, E. R., & Tabag, E. D. (2014). Income Taxation (3rd Edition ed.).
Quezon City: Good Dreams Publishing

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Valencia, E. G. (2016). Income Taxation (7th Edition ed.). Baguio City:
Valencia Educational Supply.
Banggawan, Rex B. (2019). Income Taxation: Laws, Principles, and
Applications. Real Excellence Publishing. ISBN:978-971-95940-0-0. pp. 1-
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