Atty. Joan Kathleene E.

Sison
 Module 1:
Introduction to
Taxation
Meaning of taxation
Taxation is an inherent power of the State to enforce a
1. As a state power proportional contribution from its subjects for public
purpose.

Taxation is a process of levying taxes by the legislature of

2. As a process the State to enforce proportional contributions from its
subjects for public purpose.

3. As a mode of cost Taxation is a mode by which the State allocates its costs
or burden to its subjects who are benefited by its
distribution spending.
Meaning of taxes

• are the enforced proportional and pecuniary contributions

from persons and property levied by the law-making body of
the state having jurisdiction over the subject of the burden
for the support of the government and all public needs.
Purpose and scope of taxation
1. To provide funds or property with which to promote
the general welfare and protection of its citizens;
2. In its broadest and most general sense, taxation
includes every imposition of charge or burden by the
sovereign power upon persons, property, or
property rights for the use and support of the
government and to enable it to discharge its
appropriate functions.
Meaning of INCOME
• Income (for tax purposes) means the gain derived from
capital, from labor, or from both combined, including profits
gained from dealings in property or as well as any asset
clearly realized (e.g. bonuses, prizes, awards) whether
earned or not.

• All wealth which flows into the taxpayer other than as a

mere return on capital.
Meaning of INCOME TAX
• is a tax on the net income or the entire income
received or realized in one taxable year.
Basis of taxation
The government provides benefits to the people in the form of public
services, and the people provide the funds that finance the
government.
Public services

GOVERNMENT PEOPLE

Taxes
THE LIFEBLOOD DOCTRINE
• Taxes are the essential and indispensable to the
continued subsistence of the government. Without
taxes, the government would be paralyzed for lack of
motive power to activate or operate it. [CIR v. Algue]

• Upon taxation depends the government’s ability to

serve the people for whose benefit taxes are
collected. [Vera v. Fernandez]
Theories of Cost Allocation
1. Benefit received theory: it presupposes that the more benefit one
receives from the government, the more taxes he should pay.
2. Ability to pay theory: taxpayers should be required to contribute
based on their relative capacity to sacrifice for the support of the
government.
Limitations of the Taxation Power
A. Inherent Limitations
• Territoriality of taxation
• International comity
• Public purpose
• Exemption of the government
• Non-delegation of the taxing
power
B. Constitutional Limitations
• Due process of law
• Equal protection of the law
• Uniformity rule in taxation
• Non-imprisonment for non-payment of
poll tax
• Exemption of religious, charitable
entities, non-profit cemeteries, churches,
and mosques from property taxes
• Exemption from taxes of the revenues
and assets of non-profit, non-stock
educational institutions
• Delegation of taxing power to LGUs
Stages of the exercise of taxation power
1st stage: Levy or imposition
-enactment of a tax law by Congress; referred to as the legislative
act in taxation

2nd stage: Assessment and collection

-the tax law is implemented by the administrative branch of the
government.
SITUS of taxation
• Situs is the place of taxation.

Examples of Situs Rules:

a. Business tax situs: businesses are subject to tax in the place where
the business is conducted.
b. Property tax situs: properties are taxable in their location
c. Personal tax situs: persons are taxable in their place of residence.
B. Other Fundamental Doctrines
In Taxation
 Marshall Doctrine
“The power to tax is the power to destroy”
 Holme’s Doctrine
“Taxation power is not the power to destroy while the
court sits.”
Double Taxation
• Double taxation occurs when the same taxpayer is taxed
twice by the same tax jurisdiction for the same thing.

• Elements of double taxation

1. Primary element: same object
2. Secondary elements: a. same type of tax
b. same purpose of tax
c. same taxing jurisdiction
d. same tax period
 Types of Double Taxation
A. Direct Double Taxation
• This occurs when all the
elements of double taxation
exists for both impositions
Example:
An income tax of 10% on monthly
sales and a 2% income tax on the
annual sales (total of monthly
sales)
B. Indirect Double Taxation
• This occurs when at least one of
the secondary elements of double
taxation is not common for both
impositions.
Example:
The national government collect
income tax from a taxpayer on his
income while the local government
collects community tax upon the
same income.
Escapes from taxation
• Means available to the taxpayer to limit or even avoid the impact of
taxation.
C. Classification of taxpayers
I. INDIVIDUALS
a. Citizens who are divided into:
1. Resident citizens
2. Non-resident citizens

b. Aliens who are divided into:

1. resident aliens
2. non-resident aliens
2.1. those engaged in trade or business within the Philippines;
2.2. those who are not so engaged.
II. CORPORATIONS
1. Domestic
2. Foreign
a. Resident
b. Non-resident
III. GENERAL PARTNERSHIPS
1. General professional partnership
2. General co-partnership
IV. ESTATES AND TRUSTS