INCOME TAXATION

Definition

The act of levying a tax. It’s the process or means

by which the sovereign, through its law making
body, raises income to defray the necessary
expenses of the government.
People

Government
Overview of Taxation in the
Philippines
TAXATION

Income Tax Business Tax Transfer Tax Local Taxes Special Taxes

1.Individuals 2. Non-Individuals Ex. Special Economic

Estate Tax Donors Tax 1.Community Tax
2. Real Property Tax Zones Taxes
1. Regular Income Tax 3. Local Business Tax
2. Capital Gains Tax
3. Final Withholding Tax

Value Added Tax Other Percentage Taxes

Principles Of Taxation
3 Inherent powers of the State:

1. Power to Tax- The act of levying a tax. It’s the

process or means by which the sovereign, through its
law making body, raises income to defray the necessary
expenses of the government.

2. Police Power- It is the power of the estate of

promoting public welfare by restraining and
regulating the use of liberty and property

3. Eminent Domain- It is the power to take private

property for public purpose upon payment of just
compensation
Question: True or False

1. The State having sovereignty can enforce contributions (tax) upon its
citizens even without a specific provision in the constitution authorizing it.
Which of the following will justify the foregoing statement?

Statement 1: Is so because the state has the supreme power to command

and enforce obedience to its will from the people within its jurisdiction

Statement 2: Any provision in the Constitution regarding taxation does not

create rights for the sovereignty to have the power to tax but it merely
constitutes limitations upon the supremacy of tax power.

Statement 1: true
Statement 2: true
Question

2. Which of the following statements correctly describes the power of the state to tax,
except?

a. It’s a power inherent to every sovereign state to imposed a charge or burden to tax to raise
revenue for the use and support of the government.

b. The state can exercise the power of taxation only if it is expressly mentioned in the
Constitution.

c. It passes a legislative undertaking through the enactments of laws by the congress which will be
implemented by the Executive Branch of the government through is Bureau of Internal Revenue.

d. It is a way of collecting and apportioning the cost of government among those who are
privileged to enjoy its benefits
True or False

a. The power of taxation may be exercised by the

government, its political subdivisions and public
utilities
b. Generally, there is no limit on the amount of tax
the may be imposed.
c. The money contributed as tax becomes part of
public funds
d. The power to tax is subject to inherent and
constitutional limitations.
True or False

1. The constitution is the source of the States Taxing

Power.
2. The police power of the government may be
exercised through taxation
3. The amount of money raised for the government in the exercise of its power to
tax and police power is based on the needs of the government.

False: Basis is:

1. power to tax – Needs of the Government
2. police power – Cost of regulation

4. The amount of money raised for the government of its power of eminent
domain is based on the cost of processing the transfer of property from
private owners to the government.
False:
No money is raised on the used of power of eminent
domain
Purposes of Taxation

1. Primary Purpose- to raise revenue and funds ( also called Revenue or

Fiscal Purpose)

2. Secondary Purpose:
a. Regulatory- taxation employed as a devise for control

b. Compensatory purposes
•Reduction of Social Inequality
•Economic Growth
•Protect local industries against unfair competition
Question
After having been informed that most of the massage
parlors in the city are being used as fronts for
prostitution, the Sangguniang panlungsod of
Pagadian passed a tax ordinance subjecting massage
parlors within the city to such “onerous taxes” that
leave them no other alternative but to stop
operating. The passage of the ordinance is a valid
exercise of

a. Taxation
b. Police power
c. Eminent domain
d. Both police power and power of taxation
A tax must be imposed for a public
purpose. Which of the following is not a
public purpose?

a. National Defense
b. Public Education
c. Improvement of Sugar Industry
d. None of the above
Essential Characteristics of Tax (CPPLTR)

1. A tax is a forced charge or contribution

2. It is a pecuniary burden payable
in money
3. It is imposed for public purpose
4. It is imposed pursuant to a
legislative authority
5. It is levied within the territorial and legal jurisdiction of a
state.
6. It is assessed in accordance with some reasonable rule
of apportionment
Theory of Taxation

1. Necessity Theory- the existence of the government is a

necessity.

2. Lifeblood Doctrine- taxes are the lifeblood of the

government without which it can neither exist nor
endure
 Basis of Taxation

The Benefits-Protection Theory-

reciprocal duties of protection and support between the
state and its inhabitants.

also known as Doctrine of Symbiotic Relationship

Stages/Aspects of Taxation (LAP)

1. Levying or Imposition- the process of involves the

passage of tax laws or ordinances through the legislature.

2. Assessment and Collection- The process involves the act of

administration and implementation of tax laws by the
executive through its administrative agencies such as the BIR
or Bureau of Customs.

3. Payment of Tax- this process involves the act of

compliance by the taxpayer in contributing his share to
pay the expenses of the government.
Question
Taxation is exercised both by the legislative and
executive branch of the government, Which of the
following is not the function of the Congress?

a. Selecting the kind of tax

b. Fixing the amount of tax
c. Prescribing rules of taxation
d. Assessment of Tax Liability

D.
Question
All of the following are administrative function of taxation,
except:

a. Selection of property to tax

b. Equalization of assessment
c. Valuation of property for taxation
d. Collection of taxes

A.
Principles of Sound Tax System (FAT)
1. Fiscal Adequacy- The sources of government revenue
must be sufficient to meet government expenditures and
other public needs

2. Administrative Feasibility- Tax laws must be

capable of convenient, just and effective
administration. Free from confusion and uncertainty.

3. Theoretical Justice- a good tax system must

be based on the taxpayer’s ability to pay.
Limitations on the Taxing Power

A. Inherent Limitations- comes from the very nature of

taxing power itself. It exist whether declared or not
declared in the constitution. (PSTEL)

1. Public Purpose:
proceeds from tax must be used for:
a. Support of the government
b. Some of the recognized objects of the government
c. To promote the welfare of the community.

2. Situs of taxation or territoriality- the taxing power of a country is

limited to person and property within its power

3. International comity or Treaty- a state cannot tax another state.

4. Exemption of the Government:
except:
a. GSIS
b. SSS
c. PHIL HEALTH
d. Local Water Districts
e. PCSO

5. Non-Delagability of the Taxing Power (Power of taxation is

only Legislative)
- the power to tax cannot be delegated to other branches of
the government.
This limitation arises from the doctrine of separation of
powers among the branches of government.
Constitutional
Limitations on the
Taxing Power
True or False

1. Uniformity in the imposition and collection of taxes means that

all taxable articles or kinds of property of the same class shall be
taxed at the same rate. This requirement is complied with when
the tax operates with the same force and effect in every place
where the subject of it is found.

2. Uniformity rule is not violated when different articles

are taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at
all times.
Double Taxation
Kinds:

1. Direct Duplicate taxation- this is the objectionable

and prohibited because it violates the constitutional
provision on uniformity and equality.

2. Indirect Duplicate Taxation- is not

legally objectionable. It extends to all
cases in which there is a burden of two or
more pecuniary imposition.
Question

1. The following constitute direct double taxation,

except one:
a. Both taxes are imposed in the same
amount
b. Both taxes are levied for the same purpose
c. Both taxes are imposed by the same taxing
authority
d. Both taxes are imposed upon the same
person

A.
Which is not a double Taxation

A. A lessor of property pays a real estate tax and income tax on

the same property

B. Imposition of tax on the finished products and the Raw

materials used in the production of the said finished products

c. Both A and B