Income Taxation

Chapter 1
 Taxation
• The process or means by which the sovereign,
through its lawmaking body, raises income to
defray the necessary expenses of the
government
 Purposes of Taxation
• Primary
– To provide funds or property with which to promote the
general welfare and protection of its citizens and to enable it
to finance its multifarious activities
• Secondary
– To strengthen anemic enterprises by giving tax exemptions
– To protect local industries against foreign competition
through imposition of high customs duties on imported
goods
– To reduce inequalities in wealth and income by imposing
progressively higher tax rates
– To prevent inflation by increasing taxes or ward off
depression by decreasing them
 Scope of Taxation
• Unlimited
• Comprehensive
• Plenary
• Supreme
 Theory and Basis
Theory Basis
• Existence of the • Is found on the duties of
government is a necessity protection and support
between the State and its
inhabitanas
Basic Principles of A sound Tax System
• Fiscal Adequacy- the sources of revenue
should be sufficient to meet the demands of
public expenditures
• Equality or Theoretical Justice- tax burden
should be proportionate to the taxpayer’s
ability to pay
• Administrative Feasibility – tax laws should be
capable of convenient, just and effective
administration
Nature or Characteristics of the State’s
power to Tax
• Inherent in sovereignty
• Legislative in Character
• Subject to constitutional and inherent
limitations
 Constitutional Limitations
• Due Process
• Equal protection of the laws
• Rule of Uniformity and equity in taxation
• Non imprisonment for non payment of poll tax
• Non-impairment of the obligations of the contract
• Non-infringement of religious freedom
• No appropriation for religious purposes
• Exemption of religious, charitable or educational
entities, non profit cemeteries and churches from
taxation
• Exemption of revenues and assets of the non stock,
non profit educational institutions and donations for
educational purposes from Taxation
 Inherent Limitations on the power of
Taxation
• Requirement that Levy must be for a public
purpose
• Non delegation of the legislative power to tax
– Delegation to the President
– Delegation to local governments
• Exemption from Taxation of government
entities
• International Comity
• Territorial Jurisdiction
B. Taxes
 Taxes
• The enforced proportional contributions from
persons and property levied by the lawmaking
body of the State by virtue of its sovereignty
for the support of the government and all
public needs
 Essential Elements of a Tax
• Enforced contribution
• Generally payable in money
• Proportionate in character
• Levied on persons, property or the exercise of
right or privilege
• Levied by the state which has jurisdiction over
the subject or object of taxation
• Levied by the lawmaking body of the state
• Levied four public purpose
 Classification Of Taxes
• As To subject matter or object
– Personal, poll or capitation
– Property
– Excise
• As to bears the burden
– Direct
– Indirect
• As to determination of amount
– Specific – tax of fixed amount imposed by the head or
number
– Ad Valorem – tax of a fixed proportion of the value of
the property with respect to which the tax is assessed
• As to purpose
– General , Fiscal or Revenue
– Special or Regulatory
• As to authority imposing the same
• As to graduation or rate
– Proportional
– Progressive]regressive
 Three Inherent powers of the
government
• Eminent Domain – the power of the state or
those to whom the power has been delegated
to take private property for public use upon
paying to the owner a just compensation
• Police Power- to enact such laws in relation to
persons and property as may promote public
health, public morals, public safety
• Taxation
 Situs of Taxation
• Business
• Real and tangible personal property
• Intangible personal property
• Income
• Gratuitous transfer or property
 Forms of Escape from Taxation
• Those that do not reduce the revenue collection
of the government
– Shifting
– Capitalization
– Transformation
• Those that result in loss of revenue to the
government
– Tax Avoidance
– Tax evasion
– Exemption from Taxation
• Tax Amnesty
– Immunity from all criminal and civil obligations
from rising from nonpayment of taxes
• Taxpayer’s Suit
– a taxpayer has sufficient personally and interest
to seek judicial assistance with a view of
restraining what he believes to be an attempt to
unlawfully disburse public funds