1 - Introduction to Taxation
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taxation may be defined according to these 3 things
taxation as a state power
taxation as a process
taxation as mode of cost distribution
the theory of taxation
the basis of taxation
assumption on receipt of benefits for taxation
3 theories of cost allocation (BAN)
what is the benefit received theory?
what is the ability to pay theory?
2 aspects of the ability to pay theory
what is the vertical equity aspect of the ability to pay theory?
what is the horizontal equity aspect of the ability to pay theory?
Vertical equity vs. Horizontal equity as a concept
what does the Lifeblood doctrine say?
5 implication of the lifeblood doctrine in taxation (or 8)
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1. State power
2. Process
3. Mode of cost distribution
Taxation is an inherent power of the State to enforce a proportional
contribution from its subjects for public purpose.
Taxation is a process of levying taxes by the legislature of the State
to enforce proportional contribution from its subjects for public
purpose.
Taxation is a mode by which the State allocates its costs or burden
to its subjects who are benefited by its spending.
The government's necessity for funding
The mutuality between the people providing funds and the gov-
ernment providing public service to its people
Receipt of benefits by the people is CONCLUSIVELY presumed.
Thus, people cannot avoid payment of taxes under the defense of
absence of benefit received.
1. Benefit received theory
2. Ability to pay theory
3. Necessity protection theory
*this is actually one 2 items in the book, the 3rd one was given by
Sir Sevilla
A theory that presupposes that the more benefit one receives from
the government, the more taxes he should pay.
A theory that presupposes that taxation should also consider the
taxpayer's ability to pay, regardless whether they receive more or
less benefits from the government.
1. Vertical equity
2. Horizontal equity
An aspect of the ability to pay theory proposing that the extent of
one's ability to pay is directly proportional to the level of his tax
base.
An aspect of the ability to pay theory that requires consideration
of the particular circumstance of the taxpayer.
Vertical equity - gross concept
Horizontal equity - net concept
Taxes are the lifeblood of the government. The government's
ability to serve the people for whose benefit taxes are collected,
depend upon taxation.
1. Tax is imposed even in the absence of a Constitutional grant.
2. Claims for tax exemption are construed against taxpayers.
3. The government reserves the right to choose the objects of
taxation.
4. The courts are not allowed to interfere with the collection of
taxes
5. In income taxation:
a. Income received in advance is taxable upon receipt.
b. Deduction for capital expenditures and prepayments is not
allowed as it effectively defers the collection of income tax.
c. A lower amount of deduction is preferred when a claimable
expense is subject to limit.
d. A higher tax base is preferred when the tax object has multiple
tax bases.
 1 - Introduction to Taxation
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1. Taxation power
3 inherent powers of the State 2. Police power
3. Eminent domain
Power to enforce proportional contribution from its subjects to
what is taxation power?
sustain itself.
General power to enact laws to protect the well-being of the
what is police power?
people.
Power to take private property for public use after paying just
what is eminent domain?
compensation.
1. Exercising authority
2. Purpose
3. Persons affected
7 points of difference for the 3 inherent powers of the State 4. Amount of imposition
5. Importance
6. Relationship with the Constitution
7. Limitation
Taxation power - Government
Taxation power vs. Police power vs. Eminent domain AS TO Ex-
Police power - Government
ercising authority
Eminent domain - Government and private utilities
Taxation power - For the support of government
Taxation power vs. Police power vs. Eminent domain AS TO Pur-
Police power - To protect the general welfare of the people
pose
Eminent domain - For public use
Taxation power - Community or class of individuals
Taxation power vs. Police power vs. Eminent domain AS TO Per-
Police power - Community or class of individuals
sons affected
Eminent domain - Owner of the property
Taxation power - Unlimited (based on government needs)

Taxation power vs. Police power vs. Eminent domain AS TO Police power - Limited to cover cost of regulation
Amount of imposition
Eminent domain - No amount imposed (government pays just
compensation)
Taxation power - Most important
Taxation power vs. Police power vs. Eminent domain AS TO Im-
Police power - Most superior
portance
Eminent domain - Important
Taxation power - Inferior to the "non-impairment clause" of the
Constitution

Taxation power vs. Police power vs. Eminent domain AS TO Re- Police power - Superior to the "non-impairment clause" of the
lationship with the Constitution Constitution

Eminent domain - Superior to the "non-impairment clause" of the

Constitution
Taxation power - Constitutional and inherent limitations
Taxation power vs. Police power vs. Eminent domain AS TO Lim-
Police power - Public interest and due process
itation
Eminent domain - Public purpose and just compensation

2/9
 1 - Introduction to Taxation
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7 similarities of the 3 inherent powers of the State
describe the scope of taxation (CUPS)
is taxation absolutely unlimited?
5 inherent limitations of the taxation power (TIPEN)
according to the territoriality principle, where can taxes be im-
posed and why?
according to the territoriality principle, extraterritorial taxation will
amount to?
2 exception to the territoriality principle
what is international comity?
what is stated under the NIRC as to international comity?
which prevails when there is conflict between treaty agreements
with other states and local tax laws?
what does the inherent limitation as public purpose imply?
can the government tax itself?
under the NIRC, which government income is subject to taxation?
under the NIRC, which government income is NOT subject to
taxation?
to whom is the legislative taxing power vested?
under what doctrine is the non-delegation of taxing power based Doctrine of separation of the branches of the government to en-
on?
3 exceptions to the rule of non-delegation of taxation power (LPO)
1. Necessary attributes of sovereignty
2. Inherent to the State
3. Legislative in nature
4. Ways in which the State interferes with private rights and prop-
erties
5. Existence is independent of the Constitution and are exercisable
by the government even without Constitutional grant. However, the
Constitution may impose conditions or limits for their exercise.
6. Presuppose an equivalent form of compensation received by
the persons affected by the exercise of the power.
7. Their exercise by LGUs may be limited by national legislature.
Comprehensive, unlimited, plenary, supreme
No, it has its limitations.
1. Territoriality of taxation
2. International comity
3. Public purpose
4. Exemption of the government
5. Non-delegation of thee taxing power
Within the territories of the State, because public services are
normally provided within the boundaries of the state.
Encroachment (intrusion) of foreign sovereignty.
1. In income taxation, resident citizens and domestic corporation
are taxable on income derived within and outside the Philippines.
2. In transfer taxation, residents or citizens (resident citizens,
non-resident citizens, resident aliens) are taxable on transfers of
properties located within or outside the Philippines.
It pertains to mutual courtesy or reciprocity between states.
It is a basic principle of international law that all states are equally
sovereign, and they observe such equality by not taking the prop-
erties, income, or effects of fellow states.
National Internal Revenue Code
The income of foreign government and foreign government-owned
and controlled corporations are NOT subject to income tax.
Treaty agreements
Taxation is exercise absolutely for public purpose and NEVER for
any private interest.
Yes, but it normally does NOT as it will only incur additional costs
instead of raising additional funds.
Income from GOCCs
Government properties and income from essential public func-
tions
Exclusively to the Congress
sure a system of checks and balances
1. LGUs are allowed to exercise the power to tax to enable them
to exercise their fiscal autonomy. (Constitution)
2. The President is empowered to fix the amount of tariffs to be
flexible to trade conditions. (Tariff and Customs Code)
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 1 - Introduction to Taxation
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8 direct constitutional limitations of the taxation power
10 indirect constitutional limitations of the taxation power
2 aspects of due process
what is the meaning of substantive due process?
what is the meaning of procedural due process?
under NIRC, during what period should assessments be made?
under NIRC, during what period should collections be made?
what is the rule of taxation under equal protection of law?
what is the uniformity (and equity) rule of taxation?
what is a progressive system of taxation?
what is the opposite of a progressive system of taxation? give
example
non-imprisonment for non-payment of debt does not apply to what Debt acquired in bad faith, which constitutes estafa (a criminal
kind of debt?
3. Other cases that require expedient and effective administration
and implementation of assessment and collection of taxes.
1. Uniformity rule in taxation
2. Progressive system of taxation
3. Non-imprisonment for non-payment of debt or poll tax
4. Exemption of (educational), religious or charitable entities,
non-profit cemeteries, churches and mosque from REAL property
taxes
5. Exemption from taxes of the revenues and assets of non-profit
, non-stock educational institutions
6. Concurrence of a majority of all members of Congress for the
passage of law granting tax exemption
7. Non-impairment of the jurisdiction of the Supreme Court to
REVIEW, MODIFY, REVOKE tax cases
8. The requirement that appropriations, revenue, or tariff bills shall
originate exclusively in the HoR
1. Due process of law
2. Equal protection of the law
3. Non-impairment of obligation and contract
4. Free worship rule
5. Non-appropriation of public funds or property for the benefit of
any church, sect or system of religion
6. Non diversification of tax collections
7. Non-delegation of the power of taxation
8. The delegation of taxing power to LGUs
9. Non-infringement of the freedom of press
10. Veto on income tax by president
1. Substantive due process
2. Procedural due process
Tax must be imposed only for public purpose, collected only under
authority of a valid law and only by the taxing power having
jurisdiction.
There should be no arbitrariness in assessment and collection of
taxes, and the government shall observe the taxpayer's right to
notice and hearing.
Within 3 years from the due date of filing of the return or from the
date of actual filing, whichever is LATER.
Exemption: In the case of a false or fraudulent return with intent
to evade tax or of failure to file a return, the tax may be assessed,
or a proceeding in court for the collection of such tax may be filed
without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud or omission.
Within 5 years from date of assessment
Taxpayers under the SAME CIRCUMSTANCES AND CONDI-
TIONS should be treated equally.
Taxpayers under DISSIMILAR CIRCUMSTANCES should not be
taxed the same, and such must be based on substantial distinc-
tion.
Tax rates increase as tax base increases. It is consistent with the
taxpayer's ability to pay, thus taxing the rich more than the poor.
Regressive system. Examples is VAT, which is based upon the
taxpayer's ability to CONSUME
offense punishable by imprisonment)
TAX - arises from law and is a demand of sovereignty, non-pay-
ment of which compromises public interest (thus similar to a crime)
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 1 - Introduction to Taxation
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tax vs. debt
2 components of poll tax
which component of poll tax is constitutionally guaranteed of
non-imprisonment for its non-payment?
can government cancel tax exemptions granted under a contract?
under free worship rule, which are not subject to tax? which are
subject to tax?
what does "primarily" mean? (ADE)
the Constitutional exemption from property tax applies to what
properties?
what does the doctrine of use say?
what does the doctrine of ownership say?
which doctrine is applied in the Philippines: of use or of owner-
ship?
the concept highlighted by the constitutional limitation of non-ap-
propriation of public funds or property for the benefit of any church,
sect, or system of religion
are compensation to priests, imams, or religious ministers working
with the military, penal institutions, orphanages, or leprosarium
considered religious appropriation?
other than revenues and assets of non-stock, non-profit edu-
cational institutions, what 4 other things are these entities tax
exempted from?
exemption of government and private educational institutions
what doctrine is against the tax exemption law?
in the approval of exemption law, what kind of majority is required
of the Congress?
in the withdrawal of exemption law, what kind of majority is re-
quired of the Congress?
what does non-diversification of tax collections mean?
in cases that require expedient and effective administration and
implementation of assessment and collection of taxes, what ad-
ministrative agencies were established?
function of BIR & Department of Finance and their authority
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DEBT - arises from private contracts, non-payment of which com-
promises private interest
1. Basic community tax
2. Additional community tax
Basic community tax
Non-payment of the additional constitutes tax evasion.
No, it should be honored by the government.
EXEMPT - Properties and revenues of religious institutions
NOT EXEMPT - Income from properties or activities of religious
institutions that are proprietary or commercial in nature
"actually, directly, and exclusively"
Those real properties primarily used for charitable , religious and
educational purposes.
Only properties actually devoted for religious, charitable, and ed-
ucational activities are exempt from real property taxes.
The properties of religious, charitable, and educational institutions
whether or not used in their primary operations are exempt from
real property tax
Doctrine of use
Separation of state and church
No, they are not.
1. Grants
2. Endowments
3. Donations
4. Contributions
(all primarily for educational purposes)
Government educational institutions - exempted from income tax
Private educational institutions - subject to 10% minimal income
tax
Lifeblood doctrine, because it deprives the government of funds.
Absolute majority (majority of all members) and NOT relative
majority (quorum majority)
Relative majority (quorum majority)
Tax collections should be used only for public purpose and not to
be diversified or used for private purpose.
BIR & Department of Finance
Mere interpretation and clarification of the application of law, NOT
introduction of new laws
Authority - quasi-legislative
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in which court can all tax cases be raised to and be finally decid-
ed?
2 stages of the exercise of taxation power
what is levy or imposition?
other names for levy or imposition
2 bodies of congress
from which body must a tax bill exclusively originate?
what does Senate do during imposition?
7 matters of legislative discretion in the exercise of taxation
what is the stage of assessment and collection?
other names for the assessment and collection stage
what is a situs?
what is the purpose of situs rules?
5 examples of situs rules
business tax situs
income tax situs on services
income tax situs on sale of goods
property tax situs
personal tax situs
9 other fundamental doctrines in taxation
what does the Marshall doctrine say?
when does the power of tax involve the power to destroy?
what does Holme's doctrine say?
example of Marshall doctrine
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Supreme Court of the Philippines
1. Levy or imposition
2. Assessment and collection
It is the process that involves the enactment of a tax law by the
Congress
Impact of taxation
Legislative act in taxation
1. HoR
2. Senate
HoR
It may (as may HoR) have its own version of a proposed law, which
is approved by both bodies.
1. Object of taxation
2. Tax rate or amount to be collected
3. Purpose for the levy which must be for public use
4. Kind of tax to be imposed
5. Apportionment of the tax between the national and local govt
6. Situs of taxation
7. Method of collection
The stage of implementation by the administrative branch of the
government.
Incidence of taxation
Administrative act of taxation
It is the place or jurisdiction of taxation, which has the power to
levy taxes upon the tax object.
To serve as frames of reference in gauging whether the tax object
is within or outside the tax jurisdiction of the taxing authority.
1. Business tax situs
2. Income tax situs on services
3. Income tax situs on sale of goods
4. Property tax situs
5. Personal tax situs
Where business is conducted
Where they are rendered
In the place of sale (where contract is perfected)
In their location
Place of residence
1. Marshall doctrine
2. Holme's doctrine
3. Prospectivity of tax laws
4. Non-compensation or set-off
5. Non-assignment of taxes
6. Imprescriptibility in taxation
7. Doctrine of estoppel
8. Judicial non-interference
9. Strict construction of tax laws
The power to tax involves the power to destroy.
If it is used to discourage or prohibit undesirable activities or
occupation (i.e., used as an instrument of police power)
Taxation power is not the power to destroy while the court sits.
Imposition of excessive tax on cigarettes
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2 examples of holme's doctrine
operational nature of tax laws
are retroactive laws/ ex post facto laws allowed by the Consti?
can income tax laws operate retrospectively?
3 exceptions to the rule of non-compensation or set-off
can tax obligations be assigned or transferred to another entity by No, and such contracts shall not prejudice the right of the govern-
contract?
what is prescription?
does government's right to collect taxes prescribe?
under NIRC, when does tax prescribe?
what is stated under the doctrine of estoppel?
is the government subject to estoppel?
what is stated under the doctrine of judicial non-interference?
the doctrine of judicial non-interference is anchored in what other
doctrine?
what does the maxim, "Taxation is the rule, exemption is the
exception," mean?
what doctrine is observed when tax laws are vague?
against whom are vague tax laws construed and in whose favor?
against whom are vague tax exemption laws construed and in
whose favor?
what is double taxation?
2 kinds elements of double taxation
what is the primary element of double taxation?
what are the 4 secondary elements of double taxation?
2 types of double taxation
when does direct double taxation occur?
when does indirect double taxation occur?
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1. Omnibus Investment Code of 1987
2. Barangay Micro-Business Enterprise (BMBE) Law
Prospective
No, they are prohibited.
Yes, if so intended by Congress under certain justifiable condi-
tions.
1. Taxpayer's claim has already become due and demandable
2. Cases of obvious overpayment of taxes
3. Local taxes
ment to collect.
It is the lapsing of a right due to the passage of time.
No, unless the law itself provides for such prescription.
If not collected within 5 years from date of assessment.
- IN ABSENCE OF ASSESSMENT - if not collected by judicial
action w/in 3 years from the date the return is required to be filed
- FOR THOSE WHO DID NOT FILE RETURN/ WHO FILED
FRAUDULENT RETURNS - no prescription
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.
No, errors of any government employee does not bind the govern-
ment and erroneous applications of the law by public officers do
not block the subsequent correct application of the same.
Courts are not allowed to issue injunction against the govt's pursuit
to collect tax as this would unnecessarily defer tax collection.
Lifeblood doctrine
Taxation is the general rule unless there is a clear exemption.
When the language of the law is clear and categorical, there is
no room for interpretation, only for application.
Doctrine of strict legal construction
Against the government and in favor of taxpayers
Against taxpayers and in favor of the government
It occurs when the same taxpayer is taxed twice by the same tax
jurisdiction for the same thing.
1. Primary element
2. Secondary elements
Same object
Same:
1. Type of tax
2. Purpose of tax
3. Taxing jurisdiction
4. Tax period
1. Direct/Strict
2. Indirect
When all the elements of double taxation exists for both imposi-
tions.
When at least one of the secondary elements of double taxation
is not common for both impositions.
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which double taxation is discouraged and why?
4 ways to minimize the impact of double taxation
what are escapes from taxation?
2 categories of escapes from taxation
3 escapes from taxation that result to loss of government revenue
what is tax evasion?
how is tax evasion perpetrated?
other term for tax evasion
what is tax avoidance?
other term for tax avoidance
how is tax avoidance perpetrated?
what is tax exemption?
other term for tax exemption
how are tax exemptions granted?
which tax exemptions may be revoked by Congress?
3 escapes from taxation that do not result to loss of government
revenue
what is shifting?
3 forms of shifting
what is forward shifting?
what is backward shifting?
what is onward shifting?
what taxes are commonly escaped by shifting?
what is capitalization?
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Direct double taxation, because it is oppressive and burdensome
to taxpayers, which counters the rule of equal protection and
uniformity in the Consti.
1. Provision of tax exemption
2. Allowing foreign tax credit (deduction for taxes paid abroad)
3. Allowing reciprocal tax treatment between the home country
and a foreign country
4. Entering into treaties or bilateral agreements
These are means available to limit or even avoid the impact of
taxation.
1. Those that result to loss of government revenue
2. Those that do not result to loss of government revenue
1. Tax evasion
2. Tax avoidance
3. Tax exemption
It refers to any act or trick that tends to illegally reduce or avoid the
payment of tax.
1. Undue understatement of income (by 30%)
2. Undue overstatement of expenses (by 30%)
3. Non-declaration of income
Tax dodging
It refers to any act or trick that reduces or totally escapes taxes by
any legally permissible means.
Tax minimization
1. Selecting tax options allowed by law to minimize tax liability
2. Careful tax planning to reduce tax expenses
It refers to the immunity, privilege or freedom from being subject
to a tax which others are subject to.
Tax holiday
By Consti, law, or contract
Those granted by the Consti and by contracts
1. Shifting
2. Capitalization
3. Transformation
The process of transferring tax burden to other taxpayers
1. Forward
2. Backward
3. Onward
It follows the normal flow of distribution
(common with essential commodities and services)
The reverse of forward shifting
(common with non-essential commodities where buyers have
considerable market power AND commodities with numerous
substitute products)
Any tax shifting in the distribution channel that exhibits forward or
backward shifting.
Business taxes where taxes imposed on business revenue can be
shifted or passed-on to customers
The adjustment of the value of an asset caused by changes in tax
rates
 1 - Introduction to Taxation
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what is transformation?
what is amnesty?
how is tax amnesty applied?
what is tax condonation or remission?
against whom are tax amnesty and tax condonation construed
and in whose favor?
3 points of difference between tax amnesty and condonation
tax amnesty vs condonation as to coverage
tax amnesty vs condonation as to application
tax amnesty vs condonation as to condition
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The elimination of wastes of losses by the taxpayer to form savings
to compensate for the tax imposition or increase in taxes
General pardon granted by the government for erring taxpayers to
give them a chance to reform and enable them to have a fresh
start to be part of a society with clean slate
Tax amnesty is an absolute forgiveness or waiver by the govern-
ment on its right to collect.
Retrospectively
It is forgiveness of the tax obligation of a certain taxpayer under
certain justifiable grounds.
Against the taxpayer and in government's favor
1. Coverage
2. Application
3. Condition
Amnesty - Both civil and criminal obligations
Condonation - Only civil liabilities
Amnesty - Retrospectively by forgiving past violations
Condonation - Prospectively to any unpaid balance (plus no refund
on portion already paid)
Amnesty - Conditional upon the taxpayer paying the govt a portion
of the tax
Condonation - No payment required