TAXATION
- the process or means by which the sovereign,
through its law- the process by which the
sovereign, through its law-making body,
imposes burdens for the purpose of making
body, imposes burdens for the purpose of
raising revenues to carry out legitimate objects
of the raising revenues to carry out legitimate
objects of the government.
TAXES
- the enforced contributions levied by the law-
making body of the enforced contributions levied
by the law-making body of the state for the
support of the government and all the state for
the support of the government and all the public
needs.
3 INHERENT POWERS OF THE STATE
1. Police Power- the power of promoting public
welfare and regulating the use of liberty and
property.
2. Power of Taxation - the power which raises
revenue for the expenses of the government.
3. Power of Eminent Domain - the power to
acquire private property for public purpose upon
payment of just compensation.
PURPOSES OF TAXATION
1. Primary: Revenue or Fiscal Purpose
- to provide funds or property with which to
promote general welfare and protection of its
citizens.
2. Secondary: Regulatory Purpose
- employed as a device for regulation or control
Effects:
> Promotion of General Welfare
> Reduction of Social Inequality
> Economic Growth
THEORIES OF TAXATION
1. Necessity Theory
- to preserve the state’s sovereignty
- a means to give for protection and facilities.
2. Lifeblood Theory
- used to continue to perform the government’s
basic function of serving and protecting its
people.
- give tangible and intangible benefits.
Basis of Taxation - The government may be able
to perform its functions while the citizens may be
secured in the enjoyment of the benefits.
MANIFESTATION OF THE LIFEBLOOD THEORY
1. Rule of “No Estoppel against the government”
2. Collection of taxes cannot be stopped by
injunction
Court of Tax Appeals - have the authority to
grant injunction to restrain collection of internal
revenue tax, fee or charge.
3. Taxes could not be the subject of compensation
or set-off.
Tax is compulsory not bargain.
4. Right to select objects (subjects) of taxation.
> Subject or object to be taxed
> Purpose of the tax (as long as it is a public
purpose)
> Amount or rate of the taxAmount or rate of the
tax.
> Kind of tax
> Apportionment of the tax
> Situs (place) of taxation
>Manner, means, and agencies of collection of
the tax.
5. A valid tax may result in the destruction of the
taxpayer’s property.
- Lawful tax cannot be defeated.
- Bring out the insolvency of the taxpayer
- Forfeiture of property through police power
SCOPE OF TAXATION
The power of taxation is the most absolute of all the
powers of the government.
a) Comprehensive - covers all (persons,
businesses, professions)
b) Unlimited –absence of limitations
c) Plenary –it is complete
d) Supreme
ESSENTIAL ELEMENTS OF TAX
a) It is an enforced contribution.
b) It is generally payable in money.
c) It is proportionate in character.
d) It is levied on persons, property or rights.
e) It is levied by the law-making body of the state.
f) It is levied for public purposes.
ASPECTS OF TAXATION
a) Levying or imposition of tax
b) Assessment or determination of the correct
amount
c) Collection of tax
NATURE/ CHARACTERISTICS OF THE STATE’S
POWER OF TAX
a) It is inherent in sovereignty.It is inherent in
sovereignty.
- can enforce contribution in the absence
of law.
b) It is legislative in character.
- cannot be exercised by executive and
juridical
c) Exemption of government entities, agencies and
instrumentalities.
d) International Comity
e) Limitation of territorial jurisdiction
f) Strongest among all the inherent powers of the
state
> Agencies performing governmental functions are tax
exempt unless expressly taxed.
> Agencies performing proprietary functions are subject
to tax unless expressly exempted.
> GOCCs performing proprietary functions are subject to
tax,however the following are granted tax exemptions:
- Government Service Insurance System (GSIS)
- Social Security System (SSS)
- Philippine Health Insurance Corporation (PHIC)
- Philippine Charity Sweepstakes Office (PCSO)
- Local Water Districts (RA 10026)
CLASSIFICATION OF TAXES
1. As to scope:
● National - imposed by the national
government.
● Local - imposed by the local
government
2. .As to subject matter or object:
 ● Personal, poll, or capitation - tax of a
fixed amount imposed upon individuals
residing within a specified territory.
● Property––tax imposed on property in
proportion to its value
● Excise––tax on certain rights and
privileges (sin products or imported
goods)
3. As to who bears the burden:
● Direct - taxpayer cannot shift to another
● Indirect - indemnify himself at the
expense of another
4. As to determination of fixed amount:
● Specific - tax of fixed amount by
number, standard of weight,or
measurement
● Ad valorem - tax of fixed proportion of
the value of the property
5. As to purpose:
● Primary, Fiscal, or Revenue Purpose
● Secondary, Regulatory, Special, or
Sumptuary Purpose
6. As to graduation or rate:
● Proportional – tax based on fixed
percentages of amount
● Progressive – tax the rate of which
increases as the tax base or bracket
increases
● Regressive - tax the rate of which tax
the rate of which decreases as the tax
base or bracket increase
7. As to taxing authority:
● National - imposed under National
Internal Revenue Code collected by
Bureau of Internal Revenue
● Local - imposed by LGUs
ELEMENTS OF SOUND TAX SYSTEM
a. Fiscal Adequacy - sources must be adequate.
b. Theoretical Justice or Equity - tax should be
proportionate
c. Administrative Feasibility - law must be
capable of effective and efficient enforcement
LIMITATIONS ON THE STATE’S POWER TO TAX
1. Inherent Limitations
2. Constitutional Limitations
● Progressive System - emphasis on direct taxes
● Regressive System - more indirect taxes
imposed
● Regressive Tax Rates - tax rates which
decreases as tax base or bracket increases
FACTORS IN DETERMINING THE SITUS OF
TAXATION
a. Subject matter ( person, property, or activity)
b. Nature of tax
c. Citizenship
d. Residence of the taxpayer
e. Source of Income
f. Place of excise, business or occupation being
taxed
TAX DISTINGUISHED FROM OTHER TERMS AND
IMPOSTS
● TOLL is a sum of money for the use of
something which is paid for the use of a road,
bridge or public nature.
● PENALTY is a sanction imposed as a
punishment for violation of law or acts deemed
injurious.
● SPECIAL ASSESSMENT is an enforced
proportional contribution from owners of the
lands for special benefits resulting from public
improvements.
Characteristics:
a. Levied only on land
b. Not a personal liability of the person assessed
c. Based wholly on benefits (not necessary)
d. Exceptional both as to time and place
● REVENUE refers to all funds or income derived
by the government.
● SUBSIDY is a pecuniary aid directly granted by
the government to an individual or enterprise
deemed beneficial to the public.
● PERMIT or LICENSE is a charge imposed
under the police power for purposes of
regulation.
● CUSTOMS DUTIES are taxes imposed on
goods exported from imported into a country.
● TARIFF is the system of imposing duties on
the importation or exportation of goods.
DIRECT DOUBLE TAXATION
- means taxing twice (duplicate taxation):
1. By the same taxing authority, jurisdiction
or taxing district
2. For the same purpose
3. In the same year or taxing period
4. Same subject or object
5. Same kind or character of the tax
INDIRECT DOUBLE TAXATION
- W/c is not prohibited by the constitution if any of
the elements described above is not present.
MEANS OF AVOIDING THE BURDEN OF TAXATION
1. Shifting - the transfer of the burden of tax by the
original payer to someone else
2. Transformation - the producer pays the tax and
endeavor torecoup himself by improving his
process of production
3. Evasion - the use of illegal means to defeat or
lessen tax
4. Tax Avoidance - the exploitation of legally
permissible alternative tax rates of assessing
taxable income to reduce tax liability
5. Exemption - the grant of immunity to particular
persons of a particular class
6. Capitalization - the reduction in the selling price
of income producing property by an amount
equal to the capitalized value
7. Avoidance–the tax saving device within the
means sanctioned by law.
SOURCES OF TAX LAWS
1.Constitution
2.National Internal Revenue Code
3.Tariff and Customs Code
4.Local Government Code (Book II)
5.Local tax ordinances/ City or municipal tax codes
6.Tax treaties and international agreements
7.Special Laws
8.Decision of the Supreme Court and the Court of Tax
Appeals
9.Revenue rules and regulations and administrative
ruling and opinion
CHAPTER 2
INDIVIDUAL TAXPAYERS
- are natural persons with income derived from
within the territorial jurisdiction of the taxing 3.Type of Income
authority. a) Ordinary or regular income (GRADUATED
CITIZENS OF THE PHILIPPINES RATE) - refers to income such as
1. Adaptation of the 1987 Philippine Constitution compensation income, business income, and
2. Born with father and/or mother as Filipino
income from practice of profession
citizens b) Passive income (FINAL WITHHOLDING TAX)
3. Born before Jan. 17,1973 of Filipino mother who > Interest income
elects Philippine Citizenship upon reaching the >Dividend Income
age of maturity >Royalties
4. Acquired Philippine citizenship after birth >Prizes
(naturalized) in accordance with Philippine > Other winnings
Laws c) Capital gains subject to gains tax (CAPITAL
NONRESIDENT CITIZEN GAIN TAX)
1. the fact of his physical presence abroad with a > Capital gains from sale of shares of stocks
definite intention to reside therein of a domestic corporation
2. Leaves the Philippines during the taxable year to > Capital gains from sale of real property in
reside abroad: thePhilippines
● As an immigrant
● For employment on a permanent basis
● For work and derives income that
requires him to be physically abroad
most of the time during the taxable year
3. A citizen of the Philippines who shall have
stayed outside thePhilippines for one
hundred eighty-three days (183) or more by
the end of the year.
OFW classified as non resident citizens
Resident of the Philippines 1. Compensation Earner
- A Filipino citizen taxpayer not classified as - Regular Income Tax
non resident citizen is considered a RESIDENT - Kumikita lang sa sahod (employee and
CITIZEN for tax purposes. employer relationship)
Alien 2. Self-Employed and Professionals
- is a foreign-born person who is not qualified to Earn 3M and below
acquirePhilippine citizenship by birth or after - Regular Income Tax or
birth. - 8% preferred tax rate in excess of 250k
● RESIDENT ALIEN More than 3M
- as an individual whose residence is - Regular Income Tax
within the Philippines and who is not a 3. Mixed Earner (C & SE/P)
citizen thereof. ● Compensation
- Madedetermine mo if transient base sa - RIT
length nya sa PH. ● SE/P
- Alien + indefinite stay =RA - 3M & below
- Alien + definite stay + extended stay = > RIT or 8% preferred tax rate
RA - More than 3M
● NONRESIDENT ALIEN > RIT
A. NRA-ETB - Isang beses lang pedeng gamitin ang exempted
> Alien + not resident of the PH + 250k
engaged in business
> Alien + definite stay + promptly
accomplished
> Alien + stays in the Ph for more than
180 days or most of the time
> kailangan ang business sa PH ay
normal operation
B. NRA-NETB
- Hindi nakatira sa PH at walang
business sa PH.
- Alien + investment
- 25% in Final Tax
- Not more than 180 days and
walang bss sa PH