Prayer for the start of the semester

Heavenly Father and merciful God, we thank You for

giving us another life. We thank you for another
beautiful day to start our endeavors. We thank You for
this semester and for the blessing of learning.
As we go through the challenges and difficulties of this
new normal and this new semester, may You make us
instruments to do good things all for the glory of You.
Please enlighten our hearts and minds. Give us the
strength to actively participate in this learning process
in preparation for the careers You’ve prepared for us
and we dream of having in the future. Amen.
 Mermar R. Manalo, CPA
 UB, BS Commerce Accounting
(Far East Bank Academic Scholar)
 30 years of industry experience
(local and abroad)
 6 years of teaching experience
(between 1995 to 2023)
 Banking and forex operations
(BPI, 1993)
 Audit and business assurance
services (Carlos J Valdes –
Coopers and Lybrand, 1995)
 Surfactants manufacturing and
FMCG (Stepan, Nestle, 1999 )
 Dealership (Caterpillar Heavy
Machinery and Equipment – KSA,
retired in 2019)
 Part time Instructor (UB, 2020 to
present)
 MBA Candidate at DLSU Manila
 Father to a daughter and son /
cycling enthusiast / recreational
scuba diver
Professional membership & affiliations
 Philippine Institute of CPA’s (PICPA)
 Association of CPA’s in Public Practice
(ACPAPP)
 National Association of CPA’s in
Education (NACPAE)
 ASEAN Chartered Professional
Accountant (ACPA)
 Professional Association of Diving
Instructors (PADI) - Divemaster
 Batangas Lions Club – Melvin Jones
Fellow
Accreditations
 Board of Accountancy (BOA)
 Bureau of Internal Revenue (BIR)
 Cooperative Development Authority (CDA)
Prayer before start of class

Dear Lord and Father of all, thank You for today.

Thank You for ways in which you provide for us all.
For Your protection and love we thank You.
Help us to focus our hearts and minds now on what we
are about to learn.
Inspire us with Your Holy Spirit as we listen and
discuss.
Guide us by Your eternal light as we discover more
about our topic for today and the world around us.
We ask all this in the name of Jesus. Amen.
Week 1 – Day 2
Principles of Taxation
Principles of Taxation – Week 1

What are the inherent powers of the state?

 Police power
 Eminent domain
 Taxation
Principles of Taxation – Week 1

What is police power?

The power of promoting public welfare by restraining

and regulating the use of liberty and property. It
enables it to prohibit all that is hurtful to the comfort,
safety, and welfare of society.
Principles of Taxation – Week 1

Give an example of circumstance where the

state exercised its police power.

A perfect example of this is the community quarantine

imposed by the national government to prevent the
spread of COVID-19. The liberty regulated and limited
is the freedom of movement while the purpose is to
protect public health.
Principles of Taxation – Week 1

What Is the basis of police power?

The Police Power of the State is based on the law of

overruling necessity, which means that the State has
the power to restrain and regulate the use of liberty
and property for the promotion of public welfare. It is
only logical that the State has the power to do what is
necessary in each scenario. Absent such powers,
public welfare will suffer.
Principles of Taxation – Week 1

What are the limitations on the exercise of

the police power?

1. Due Process Clause – Provides that no person

shall be deprived of life, liberty, or property without
due process of law.
2. Equal Protection Clause – Provides that no
person shall be denied the equal protection of the
laws.
Principles of Taxation – Week 1

What are the requisites for a valid exercise

of police power?

1. Lawful subject - The subject of the measure is within the

scope of the police power, i.e., that the activity or property
sought to be regulated affects the public welfare. The
interest of the public, generally, as compared to a particular
class requires interference by the State; and
2. Lawful means - The means employed are reasonably
necessary for the accomplishment of the purpose, and not
unduly oppressive upon individuals. Both the end and the
means must be legitimate
Principles of Taxation – Week 1

What is eminent domain?

The power to forcibly take private property for public

purpose upon payment of just compensation.
Principles of Taxation – Week 1

Give an example of the exercise of the

eminent domain power

The road widening project currently in development

throughout the country. Said project consist of the
taking of private property, the land near every major
highway, and using it to expand said highways.
Principles of Taxation – Week 1

What is the power of taxation?

The power by which the sovereign, through its law-

making body, raises revenue to defray the necessary
expenses of government. It is a way of apportioning
the costs of government amount those who in some
measure are privileged to enjoy its benefits and must
bear its burdens.
Principles of Taxation – Week 1

What is the scope of taxation?

Taxation covers persons, property, or occupation to

be taxed within the taxing jurisdiction. It is inherent in
the power to tax that a State be free to select the
subjects of taxation.
Principles of Taxation – Week 1

Distinguish the three inherent powers

Principles of Taxation – Week 1

Distinguish the three inherent powers

Principles of Taxation – Week 1

Distinguish the three inherent powers

Principles of Taxation – Week 1

Distinguish the three inherent powers

Principles of Taxation – Week 1

Distinguish the three inherent powers

Principles of Taxation – Week 1

What is the nature of taxation?

1. Inherent in sovereignty
2. Essentially a legislative function
3. Subject to constitutional and inherent limitations
Principles of Taxation – Week 1

What does ‘inherent in sovereignty’ imply?

The power to tax is an attribute of sovereignty. It is a

power emanating from necessity. It is a necessary
burden to preserve the State's sovereignty and a
means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion,
a corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those
which come within the State's territory, and facilities
and protection which a government is supposed to
provide
Principles of Taxation – Week 1

What does ‘Essentially a legislative function’

imply?

The power to tax is peculiarly and exclusively

legislative and cannot be exercised by the executive or
judicial branch of the government. Hence, only
Congress, our national legislative body, can impose
taxes
Principles of Taxation – Week 1

What does ‘Subject to constitutional and

inherent limitations’ imply?
The power to tax is said to be the strongest of all the powers of
government. It is unlimited, plenary, comprehensive and
supreme, in the absence of constitutional restrictions, the
principal check on its abuse resting in the responsibility of
members of Congress to their constituents. However, the power
of taxation is subject to constitutional and inherent limitations.
These limitations are those provided in the fundamental law or
implied therefrom, while the rest spring from the nature of the
taxing power itself although they may or may not be provided in
the Constitution.
Principles of Taxation – Week 1

What are the characteristics of taxes?

1. It is an enforced contribution for its imposition is in no way
dependent upon the will or assent of the person taxed. It is
not contractual, either express or implied, but positive acts of
government.
2. It is generally payable in the form of money, although the
law may provide payment in kind
3. It is proportionate in character or is laid by some rule of
apportionment which is usually based on ability to pay. ―The
rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
4. It is levied on persons, property, rights, acts, privileges,
or transactions.
Principles of Taxation – Week 1

What are the characteristics of taxes?

5. It is levied by the State which has jurisdiction or control over the subject to be
taxed.
6. It is personal to the taxpayer.
7. It is levied by the law-making body of the State. The power to tax is a
legislative power but is also granted to local governments, subject to such
guidelines and limitations as law may be provided by law. ―Each local
government unit shall have the power to create its own sources of revenues and
to levy taxes, fees, and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the local governments.
8. It is levied for public purpose. Revenues derived from taxes cannot be used for
purely private purposes or for the exclusive benefit of private persons. A tax levied
for a private purpose constitutes a taking of property without due process of law;
and
9. It is also an important characteristic of most taxes that they are commonly
required to be paid at regular periods or intervals every year.
Principles of Taxation – Week 1

What is the primary purpose of taxation?

Primary purpose of taxation is to provide funds or

property with which to promote the general welfare
and protection of its citizens.
Principles of Taxation – Week 1

Are there secondary purposes?

Yes. Taxation is often employed as a device for

regulation by means of which certain effects or
conditions envisioned by governments may be
achieved. Taxes may be levied with a regulatory
purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is affected
with public interest as to be within the police power of
the state. These regulatory purposes are also known
as Sumptuary.
Principles of Taxation – Week 1

Are there secondary purposes?

Thus, Taxation can:
a. Strengthen anemic enterprises or provide incentive to
greater production through grant of tax exemptions or the
creation of conditions conducive to their growth.
b. Protect local industries against foreign competition by
imposing additional taxes on imported goods, or encourage
foreign trade by providing tax incentives on imported goods.
c. Be a bargaining tool by setting tariff rates first at a relatively
high level before trade negotiations are entered into with
another country.
d. Halt inflation in periods of prosperity to curb spending power;
ward off depression in periods of slump to expand business.
Principles of Taxation – Week 1
Thus, taxation can:
e. Reduce inequalities in wealth and incomes, as for instance, the estate,
donor's and income taxes, their payers being the recipients of unearned
wealth or mostly in the higher income brackets. Progressive system of
taxation prevents the undue concentration of wealth in the hands of a
few individuals. Progressivity is key stoned on the principle that those
who are able to pay shoulder the bigger portion of the tax burden.
f. Taxes may be levied to promote science and invention (see RA. No.
5448) or to finance educational activities (see RA. No. 5447) or to
improve the efficiency of local police forces in the maintenance of peace
and order through grant of subsidy (see RA.No. 6141).
g. Be an implement of the police power to promote the general welfare. h.
Protect local industries from foreign competition. Taxation is no longer
envisioned as a measure merely to raise revenue to support the
existence of the government; taxes may be levied with a regulatory
purpose to provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be within
the police power of the state
Principles of Taxation – Week 1

What are theories and bases of taxation?

1. Lifeblood Theory
2. Necessity theory.
3. Benefits-protection Theory (Symbiotic Relationship).
Principles of Taxation – Week 1

What is the ‘lifeblood theory’?

Taxes are the lifeblood of the government and so

should be collected without unnecessary hindrance. It
is said that taxes are what we pay for civilized society.
Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it.
Principles of Taxation – Week 1

What is the ‘Necessity theory’?

The power of taxation proceeds upon theory that the

existence of government is a necessity; that is cannot
continue without means to pay its expenses; and that
for those means it has the right to compel all citizens
and property within its limits to contribute.
Principles of Taxation – Week 1

What is the ‘Benefits-protection Theory’?

This principle serves as the basis of taxation and is founded on
the reciprocal duties of protection and support between the
State and its inhabitants.
Despite the natural reluctance to surrender part of one's hard
earned income to the taxing authorities, every person who is
able to must contribute his share in the running of the
government. The government for its part is expected to respond
in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and
material values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.
Principles of Taxation – Week 1

What are the principles of a sound tax

system?

1. Fiscal adequacy
2. Administrative feasibility.
3. Theoretical justice or equality
Principles of Taxation – Week 1

What is fiscal adequacy?

The sources of tax revenue should coincide with, and

approximate the needs of, government expenditures.
The revenue should be elastic or capable of
expanding or contracting annually in response to
variations in public expenditures.
Principles of Taxation – Week 1

What is administrative feasibility?

Tax laws should be capable of convenient, just, and

effective administration. Each tax should be capable of
uniform enforcement by government officials,
convenient as to the time, place, and manner of
payment, and not unduly burdensome upon, or
discouraging to business activity
Principles of Taxation – Week 1

What is theoretical justice or equity?

The tax burden should be in proportion to the

taxpayer‘s ability to pay. This is the so-called ability to
pay principle. Taxation should be uniform as well as
equitable
Questions / Clarifications?

FIN. Thank you!