Lesson 1: Introduction to

Taxation
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 Learning Objectives:
● Enumerate the inherent power of the State
● Discuss the nature and purpose of Taxation
● Discuss the importance of Taxation
● Discuss the limitation of Taxation
● Discuss the Principles of Sound Taxation System
● Discuss the certain doctrine of Taxation
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 Course Outline:
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 A. The Inherent
Powers of the State
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 Introduction to the Inherent Powers of
the State
When a
“sovereign state” “Essential” “powers”
is born. Why “essential”: - For it to survive.

When is a State - 4 elements of a state:

born: a. People What is these - Called the “inherent
b. Territory powers called: power”
c. Sovereignty
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d. Government
- They naturally exists as
Why called
essential force in order that
“inherent”:
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a government can
command, maintain “peace
and order and survive.
 1. Police Power – power of the state to enact laws to
promote public health, public morals, public safety, and the
general welfare of the people.

3 Inherent 2. Power of Eminent Domain – power of the state to take

Powers of the private property for public use upon payment of just
compensation.

State: 3. Power of Taxation – power of the state by which the

sovereign raises revenue to defray the necessary expense
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of the government.
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 B. Definition, Nature
and Importance of
Taxation
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 Taxation defined:
Taxation - the process or means by which the sovereign,
through its lawmaking body, raises income to defray the
necessary expenses of the government. Taxation, as a
power of the state, is inherent in sovereignty.
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 Nature of Taxation
The nature of tax power includes the following:

 Inherent power of sovereignty

 Essentially a legislative function
 For public purpose
 Territorial in operation
 Tax exemption of government
 Strongest among the inherent powers of the government
 Subject to Constitutional and inherent limitations
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 Importance of Taxation:
1. Taxes are the lifeblood of the government. It is indispensable
and inevitable price for civilized society; without taxes, the
government would be paralyzed.
2. A government cannot continue to exist and operate without
financial means.
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C. Objective of
Taxation
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 Objectives of Taxation:
 Taxation serves as the major means by which the national government attempts to
achieve various economic and social objectives.

 These objectives include shifting wealth from the rich to the poor, maintaining price
stability, stimulating economic growth, and encouraging full employment.

Who benefits from Taxation:

- The ultimate beneficiaries in the process are both the
government and the citizens.
- one of the major means by which the national government
attempts to achieve various economic and social objectives.
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 D. Limitation of
the Power to Tax
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 2 Kinds of Limitation:
1. Inherent Limitations 2. Constitutional Limitations

- Those natural restrictions to safeguard - Are provisions of the fundamental law

and ensure that the power of taxation of the land that restrict the supreme,
shall be exercised by the government for plenary, unlimited and comprehensive
the betterment of the people whose power to tax by the State.
interest should be served, enhanced and
protected.
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 2 Kinds of Limitation:
1. Inherent Limitations 2. Constitutional Limitations

1. Taxes may be levied only for the Eg.

public purpose.  Due process of law
2. Being inherently legislative, taxation  No public money shall be
may not be delegated. appropriated for religious purposes.
3. Limited to territorial jurisdiction by  Non imprisonment for non payment of
the State. poll tax
4. Taxation is subject to international
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comity, and
5. Government entities are generally
tax-exempt.
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 E. Aspects of
Taxation (Stages of
Taxation)
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 1. Levy or Imposition – refers to the passage of tax laws or
ordinances, the tax policy of the sovereign state.

Aspects or
Stages of 2. Assessment – act of administration and implementation
of the tax laws by the executive through BIR and BoC.

Taxation: 3. Collection – the act of compliance by the taxpayer in

contributing his share to defray government expenses.
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 F. Principles of
Sound Tax System
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 Principles of Sound Taxation
System
1. Fiscal adequacy - Sources of revenue are sufficient to meet government
expenditures;
2. Equality or theoretical justice - The tax imposed must be proportionate to the
taxpayer’s ability to pay; and
3. Administrative feasibility - The law must be capable of convenient, just, and
effective administration.
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 G. Certain Doctrines
in Taxation
A. Prospectively of Tax Laws
B. Concept of Double taxation
C. Escape from Taxation
D. Situs of Taxation
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 Doctrines in Taxation
1. Prospectively of Tax Laws - “Taxes may be imposed retroactively by law but, unless so
expressed by such law, these taxes must only be imposed prospectively”

2. Double Taxation - Double taxation standing alone and not being forbidden by our
fundamental law is not a valid defences against the legality of a tax measure.
Double Taxation if: DPAJP
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 Doctrines in Taxation
3. Escapes from Taxation:

A. Tax avoidance/Tax Minimization/Tax Planning - happens when the taxpayer

minimizes his tax liability by taking advantage of legally available tax planning
opportunities.
- process of controlling one’s actions to avoid undesirable tax consequences.
 

B. Tax Evasion - occurs when the taxpayer resorts to unlawful means to lessen or to
get away with his tax liability. This is also known as tax dodging
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 Doctrines in Taxation
4. Situs of Taxation - the place taxation.

Rule: The State may rightfully levy and collect the tax where the subject being taxed has a situs under its jurisdiction.

The situs of taxation is determined by several factors:

1. Subject matter- or what is being taxed. He may be a person or it may be a property, an act, or activity;
2. Nature of tax- or which tax impose. It may be an income tax, an import duty, or a real property tax;
3. Citizenship of the taxpayer; and
4. Residency of the taxpayer.
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 Doctrines in Taxation
The following situs of taxation apply:

1.Persons - Residence of the taxpayer;

2. Real property of tangible personal property - location of the property;
3. Intangible personal property - as a rule, the situs is the domicile of the owner unless he has acquired a situs
elsewhere;
4. Income - taxpayer’s residence or citizenship, or place where the income was earned;
5. Business, occupation, and transaction- place where the business is being operated, occupation being practiced, and
the transaction completed; and
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6. Gratuitous transfer of property- taxpayer’s residence or citizenship, or location of the property

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 End of Lesson 1
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― Christine Shaira D. Galvez, CPA

 Thank you for listening!
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