Income Taxation

Aspects of Taxation

1. Levying or Imposition- it is the passage of tax laws or ordinances by the

Congress;
2. Assessment and Collection- it is the act of execution and implementation of tax
laws through its agencies (e.g., BIR).
3. Tax Payment- it is the act of compliance on the part of taxpayers.
Elements of Double Taxation Double Taxation
1. Primary element: Same object
2. Secondary elements:
Double taxation occurs when
a. same type of tax
the same taxpayer is taxed twice
b. same purpose of tax
by the same tax jurisdiction for
c. same taxing of jurisdiction
the same thing
d. same tax period
Types of Double Taxation

1. Direct double taxation

All the elements of double taxation exists for both impositions.
2. Indirect double taxation
This occurs when at least one of the secondary elements of double taxation
is not common for both impositions.
Categories of Escapes from Taxation ESCAPES FROM
TAXATION
A. Those that result to loss government revenue
1. Tax evasion- aka tax dodging, any act or trick that trends to
illegally reduce or avoid the payment of tax. Escapes from taxation are the
2. Tax avoidance, aka Tax minimization, act or trick that means available to the taxpayer to
reduces or totally escapes taxes by any
legally permissible means. limit or avoid the impact of
3. Tax exemption, aka tax holiday, refers to the immunity taxation.
privilege or freedom from being subject to
tax which other are subject to.

B. Those that do not result to loss government revenue

4. Shifting- process of transferring tax burden to other
taxpayers.
Forms of shifting

a. Forward shifting- this is the shifting of tax which follows the normal flow
of distribution.
b. Backward shifting- common with non-essential commodities where
buyers have considerable market power and commodities with numerous
substitute products.
c. Onward shifting- any tax shifting in the distribution channel that exhibits
forward shifting or backward shifting

Shifting is common with business taxes where taxes imposed on business revenue
can be shifted or passed-on to customers.
5. Capitalization- the adjustments of the value of an asset caused by changes in
tax rates.
6. Transformation- elimination of wastes or losses by the taxpayer to form
savings to compensate for the tax imposition or increase in taxes.

Tax Amnesty
Amnesty is a 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 a clean slate.
Tax Condonation
Tax condonation is forgiveness of the tax obligation of a certain taxpayer under
certain justifiable grounds.
 Principle of Sound
Tax System
Fiscal adequacy
The sources of government funds must be sufficient to cover
government costs.
Theoretical justice According to Adam Smith,
Theoretical justice or equity suggests that taxation should
consider the taxpayer’s ability to pay. It is also suggests that the governments should adhere to
exercise of taxation should not be oppressive, unjust, or certain principles or canons to
confiscatory,
evolve a sound tax system.
Administrative feasibility
Suggests that tax laws should be capable of efficient and effective 1. Fiscal adequacy
administration to encourage compliance.
2. Theoretical justice

3. Administrative feasibility
 Inherent Limitations

• Territoriality of taxation
Public services are normally provided within the boundaries of the state. Thus, taxation can be
imposed only within the territories of the state. There is no basis in taxing foreign subjects abroad
since they do not derive benefits from our government.

Exception to the territoriality principle

1. In income taxation, resident citizens and domestic corporation are taxable on income derived
within and outside of the Philippines.
2. In transfer taxation, residents or citizens such as resident citizens, non-resident citizens and
resident aliens are taxable on transfers of properties located within or outside the Philippines.
International comity
International comity pertains to mutual courtesy or reciprocity between states. It
is a basic principle of international law that all states are equally sovereign.

Public purpose
Tax is intended for the common good. Taxation must be exercised absolutely for
public purpose. It cannot be exercised to further any private interest.
Exemption of the government
The government normally does not tax itself as this will not raise additional funds
but will only impute additional costs.
CONSTITUTIONAL
LIMITATIONS OF TAXATION

Observance of due process of law

No one should be deprived of his life, liberty, or poverty without due process of law. Tax
laws should neither be harsh nor oppressive.
Aspects of due process
1. Substantive due process
Tax must be imposed only for public purpose, collected only under authority of valid law
and by the taxing power having jurisdiction. An assessment without a legal basis violates
the requirement of due process.
2. Procedural due process
There should be no arbitrariness in assessment and collection of taxes, and government
shall observe the taxpayer’s.