Module 1. Topic 1

MODULE 1:
FUNDAMENTAL PRINCIPLES OF TAXATION
TOPIC 1: NATURE, SCOPE, CLASSIFICATION AND ESSENTIAL CHARACTERISTICS
TAXATION
ü is the process or means by which the sovereign, through its law-making body, raises
income to defray the necessary expenses of government; a method of apportioning
the cost of government among those who in some measure are privileged to enjoy its
benefits and must, therefore, bear its burdens (see 51 Am. Jur. 341; 1 Cooley 72-93.)
Characteristics of Taxation
1. Inherent
2. Exercised by legislature
3. Subject to limitations
Purposes of Taxation
1. Primary purpose of taxation is to raise revenues.
2. Secondary purposes:
a. Reduce social inequality, e.g. estate taxes.
b. Encourage the growth of local industries, e.g. coco-levy funds.
c. Protect local industries against unfair competition
d. Used as an implement of the police power of the State, e.g. Carlos
Superdrug case
Extent of Taxation
1. Comprehensive
ü Covers persons, businesses, rights and privileges.
2. Unlimited
3. Plenary
4. Supreme
ü Strongest of all the powers of the government in so far as the selection of
the subject of taxation is concerned.
Taxes
ü A tax has three elements, namely:
a. it is an enforced proportional contribution from persons and properties;
b. it is imposed by the State by virtue of its sovereignty; and
Atty. Yasmeen L. Junaid, CPA

BSA/BSAIS Program Chair
SBM, Universidad De Zamboanga
c. it is levied for the support of the government (Republic vs Cocofed, 372
SCRA 462)
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;
2. It is generally payable in the form of money, although the law may provide payment
in kind (e.g. backpay certificates under Sec. 2, R.A. No. 304, as amended);
3. It is proportionate in character or is laid by some rule of apportionment which is usually
based on ability to pay;
4. It is levied on persons, property, rights, acts, privileges, or transactions;
5. It is levied by the State which has jurisdiction or control over the subject to be taxed;
6. 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 provide (Sec. 5, Art. X, Constitution); and
7. 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. (Gaston v. Republic
Planters Bank, 158 SCRA 626, March 15, 1988). The "public purpose or purposes"
of the imposition is implied in the levy of tax. (see Mendoza v. Municipality, 94
Phil. 1047[1954]), A tax levied for a private purpose constitutes a taking of property
without due process of law. It is also an important characteristic of most taxes that
they are commonly required to be paid at regular periods or intervals (see 1 Cooley
64) every year.
BASES OF TAXATION
o Lifeblood Doctrine
ü Taxes are the lifeblood of the government and their prompt and certain
availability is an imperious need. [CIR v. Pineda]
o Necessity Theory
ü Necessary burden upon the citizens to preserve the State’s sovereignty.
ü This is also to support an army, navy, civil servants, public improvements,
facilities, and protection which the government is supposed to provide., etc.
o Benefits-Protection Theory
ü Reciprocal duties of support and protection, wherein, the citizens support the
State through the payment of taxes with the expectation of receiving protection
from the State. Thus, the taxpayer cannot question the validity of the tax laws.
ü Noblesse oblige in exchange of the payment of taxes
o Doctrine of Symbiotic Relationship
ü Similar to the Benefits-Protection Theory

ü Taxes are paid for civilized society. Without such the government will be
immobilized…
PHASES OR ASPECTS OF TAXATION

1. Levy – enactment of tax laws by the legislative body
2. Assessment and collection – implementation of tax laws by the executive
department, DOF through BIR and BOC, etc.
3. Payment - compliance by the taxpayer
PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal Adequacy
ü Sources of revenues must be adequate to meet government expenditures.
2. Administrative Feasibility
ü Capability of effective and efficient enforcement, which does not obstruct
growth and economic development.
3. Theoretical Justice
ü Consideration of the taxpayers’ ability to pay.
ü Rule is uniform and equitable. (See ABAKADA vs. Ermita)
THREE (3) INHERENT POWERS OF THE STATE:

1. Taxation
2. Police Power
3. Eminent Domain
Taxation Police Power Eminent Domain
Purpose Generate revenues General welfare Taking private property
for public use
Exercising body Legislative Legislative Legislative
Basis Lifeblood & Necessity Regulation and safety Common interest
Enforced contribution Implementation of laws Public use
Strongest as it is
comprehensive,
unlimited, plenary and
supreme. It is the
power to destroy.
DOUBLE TAXATION
ü Means taxing twice for the same tax period the same thing or activity, when it should
be taxed but once, for the same purpose and with the same kind of character of tax.
ü Strict Sense:
1. the same property must be taxed twice when it should be taxed once;
2. both taxes must be imposed on the same property or subject matter;
3. for the same purpose;
4. by the same State, Government, or taxing authority;
5. within the same territory, jurisdiction or taxing district;
6. during the same taxing period; and
7. of the same kind or character of tax.
Modes of eliminating double taxation

1. Allowing reciprocal exemption either by law or by treaty;
2. Allowance of tax credit for foreign taxes paid
3. Allowance of deduction for foreign taxes paid
4. Reduction of Philippine tax rate.
ESCAPE FROM TAXATION
SHIFTING
ü the transfer of the burden of a tax by the original payer or the one on whom the tax
was assessed or imposed to someone else. What is transferred is not the payment
of the tax but the burden of the tax.
ü All indirect taxes may be shifted; direct taxes cannot be shifted.
Ways of shifting the tax burden

1. Forward shifting - When the burden of the tax is transferred from a factor of
production through the factors of distribution until it finally settles on the ultimate
purchaser or consumer. Example: VAT, percentage tax
2. Backward shifting - When the burden of the tax is transferred from the consumer
or purchaser through the factors of distribution to the factor of production.
Example: Consumer or purchaser may shift tax imposed on him to retailer by
purchasing only after the price is reduced, and from the latter to the wholesaler,
and finally to the manufacturer or producer.
3. Onward shifting - When the tax is shifted two or more times either forward or
backward.
Meaning of impact and incidence of taxation

ü Impact of taxation is the point on which a tax is originally imposed. In so far as
the law is concerned, the taxpayer, the subject of tax, is the person who must pay
the tax to the government.

ü Incidence of taxation is that point on which the tax burden finally rests or settles
down. It takes place when shifting has been affected from the statutory taxpayer
to another.
TRANSFORMATION
ü method of escape in taxation whereby the manufacturer or producer upon whom
the tax has been imposed pays the tax and endeavors to recoup himself by
improving his process of production thereby turning out his units of products at a
lower cost. The taxpayer escapes by a transformation of the tax into a gain
through the medium of production.
TAX EVASION
ü It is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the
payment of a tax. It is also known as “tax dodging.” It is punishable by law.
Elements of Tax Evasion

1. The end to be achieved. Example: the payment of less than that known by the
taxpayer to be legally due, or in paying no tax when such is due.
2. An accompanying state of mind described as being “evil,” “in bad faith,”
“willful” or “deliberate and not accidental.”
3. A course of action (or failure of action) which is unlawful.
References and further readings:

• National Internal Revenue Code
• BIR Rulings
• Tabag, Enrico D. and Garcia, Earl Jimson R., Income Taxation with Special
Topics in Taxation, 2019 edition.


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MODULE 1:

FUNDAMENTAL PRINCIPLES OF TAXATION

TOPIC 1: NATURE, SCOPE, CLASSIFICATION AND ESSENTIAL CHARACTERISTICS

Atty. Yasmeen L. Junaid, CPA

Atty. Yasmeen L. Junaid, CPA

PHASES OR ASPECTS OF TAXATION

PRINCIPLES OF A SOUND TAX SYSTEM

THREE (3) INHERENT POWERS OF THE STATE:

Modes of eliminating double taxation

ESCAPE FROM TAXATION

Ways of shifting the tax burden

Meaning of impact and incidence of taxation

Atty. Yasmeen L. Junaid, CPA

Elements of Tax Evasion

References and further readings:

Atty. Yasmeen L. Junaid, CPA

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