Taxation

➔ inherent power by which the sovereign, through its law-making body, raises revenue to
defray the necessary expenses of the government
➔ manner of apportioning the costs of the government among those who, in some
measure, are privileged to enjoy its benefits and must bear its burdens.
➔ Taxation may be defined as a State power, a legislative process, and a mode of
government cost distribution.

Aspects of taxation
1. Levying of the tax
- Legislative function
- It is also referred to as the legislative act in taxation.
2. Collection of the tax
- Administrative function (executive branch)
- BIR collects taxes
- stage is referred to as incidence of taxation or the administrative act of taxation.
3. Assessment
- Administrative function

Basic Principles of a sound tax system

1. Fiscal adequacy
- Sources of revenue are sufficient to meet government expenditures
2. Theoretical justice or equity
- Tax imposed must be proportionate to taxpayer's ability to pay.
3. Administrative feasibility
- Law must be capable of convenient, just and effective administration.

Limitations on the Power of Taxation

1. Constitutional Limitations
- Provided for in the constitution or implied from its provisions
- restrictions in the exercise of the power of taxation as expressly provided in the
Philippine Constitution.
2. Inherent Limitations
- Restrictions to the power of tax attached to its nature
- The following are inherent limitations:
1. Territoriality of taxation
- State may tax persons and properties under its jurisdictions
2. International comity
- Property of a foreign state may not be taxed by another
3. Public purpose
- Levide only for public purpose
- tax is intended for the common good
4. Exemption of the government
- Governmental agencies performing governmental function are
exempt from taxation
5. Non-delegation of the taxing power
- Power of tax being legislative in nature may not be delegated

DOCTRINES IN TAXATION
Prospectivity of Tax laws
 ➔ Tax laws are generally prospective in operation.
➔ An ex post facto law or a law that retroacts is prohibited by the Constitution.
➔ Taxes that exist in present do not apply to previous years
➔ Applied perspectively but with exemptions
➔ General rule
➔ Words of Supreme Court: “Taxes may be imposed retroactively by law but, unless so
expressed by such law, these taxes must only be imposed prospectively.”

Double taxation
➔ occurs when the same taxpayer is taxed twice by the same tax jurisdiction for the same
thing.
➔ income being taxed twice
➔ Types of Double Taxation:
1. Direct Double Taxation
- CONSTITUTIONAL (prohibit)
- Same subject matter (object of taxation)
- Same taxing authority
a. National- taxed by BIR (e.g. VAT)
b. Local- taxed by city government
- Same taxable year

2. Indirect Double Taxation (allow)

- Item of income is taxed in the Philippines and the same income is taxed in
another country
- Not legally prohibited

Set-off of taxes
➔ set-off or netting is a legal technique applied between persons or businesses with mutual
rights and liabilities, replacing gross positions with net positions.
➔ Calling the debt “quits”

Tax evasion/ Tax Dodging

➔ Unlawful means to lessen or to get away with tax liability
➔ resorting to acts and devices that illegally reduce or totally escape the payment of taxes
that are due to the taxpayer.
➔ Failure to pay taxes
➔ Understating income/profit

Tax avoidance/ Tax Minimization/ Tax Planning

➔ Taxpayer minimizes tax liability by taking advantage of legally available taxplanning
opportunities
➔ the reduction or totally escaping payment of taxes through legally permissible means,
that are not probihited and therefore are not subject to penalties.

Situs of Taxation
➔ place of taxation
➔ RULE: State may rightfully levy and collect tax where the subject being taxed has a situs
under its jurisdiction
➔ Determined by a number of factors:
1. Subject matter
- What is being taxed
 - May be a person, property, an act or activity
2. Nature of Tax
- Which tax to impose
- May be an income tax, an import duty or a real property tax
3. Citizenship of the taxpayer
4. Residence of the taxpayer
➔ Following situs of taxation apply:
1. Persons
- Residence of the taxpayer.
- Where you currently reside
2. Real property or tangible personal property
- Location of the property.
3. Intangible personal property
- As a rule, 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 business is being operated, occupation being practiced and
transaction completed.
6. Gratuitous transfer of property
- Taxpayer's residence or citizenship, or location of the property.

The Inherent Powers of the State

1. Taxation power
- is the power of the State to enforce proportional contribution from its subjects to
sustain itself.
- Lifeblood of the government
2. Police power
- is the general power of the State to enact laws to protect the well-being of the
people.
- Law & Order
3. Eminent domain
- is the power of the State to take private property for public use after paying just
compensation.

3 branches of government:
1. Legislative Branch
- make the laws.
- Congress is made up of two houses, the Senate and the House of
Representatives.
- Law-making body of the state
- Assigned for taxes/taxation
2. Executive Branch
- enforce the laws
- administers
3. Judicial Branch to interpret the laws
- interpreters

NATURE OF TAXES
Taxes
➔ are obligations created by law.
➔ are generally personal to the taxpayer.
➔ are forced burdens, charges, exactions, impositions or contributions
➔ assessed in accordance with some reasonable rule of appointment, by authority of a
sovereign state, upon the person, property, or rights exercised, within its jurisdiction, to
provide public revenues for the support of the government, the administration of the law,
or the payment of public expenses.

ESSENTIAL CHARACTERISTICS OF TAXATION

1. enforced contribution
- tax is not voluntary and its imposition is in no way dependent upon the will or
consent of the person being taxed.
2. proportionate in character
3. the share of the taxpayer on the public burden is essentially based on one's ability to
pay.
4. levied by the law
- making body of the state - the power to tax is vested unto the Congress i.e. the
House of Representatives and the Senate (UPPER HOUSE). Congress (LOWER
HOUSE) determines who to tax, what to tax and how the tax shall be collected.
Take note that they are NOT involved in the collection thereof.
5. levied for public purpose or purposes
- taxes are spent to support government i.e. they are not supposed to be used for
private purpose.
6. generally payable in money
- the government, in the exercise of its civil remedy in collecting the tax due may,
by distraint of personal property or by levy of real property, take the same to
satisfy the tax liability if the taxpayer has no money
7. levied on persons and property
- by the State which has jurisdiction.

6 CLASSIFICATION OF TAXES
1. AS TO PURPOSE
a. Revenue or Fiscal
- imposed solely for the purpose of raising revenue for the government.
b. Regulatory, Special or Sumptuary
- imposed for the purpose of achieving some social or economic goals
having no relation to the raising of revenue.
- E.g. excise tax, alcohol taxes
2. AS TO OBJECT OR SUBJECT MATTER
a. Personal, Poll or Capitation
- Paying basic
- Additional tax (if do not pay = imprisonment)
- taxes are fixed in amount
- imposed on persons residing within a specilled territory regardless of the
amount of their property or their occupation or business.
b. Property
- imposed on personal or real propery bases on its proportionate value or in
accordance with ot reasonab e method of apportionment.
c. Excise
- Payment of privilege or rights
 - imposed upon the performance of a right or act, the enjoyment of a
privilege or the engagement in occupation
- E.g. income tax (based on income)
3. AS TO DETERMINATION OF AMOUNT
a. Ad Valorem
- taxes are fixed amounts in proportion to the value of the property with
respect to which the tax is assessed.
b. Specific
- taxes are fixed amounts imposed and based on some standard of weight
or measurement, head or number, length or volume.
4. AS TO WHO BEARS THE BURDEN
a. Direct tax
- taxes are non-transferable.
- liability for the payment of tax as well as the tax falls on the same person.
- E.g. income tax
b. Indirect tax
- taxes are transferable
- Seller may pass burden to buyer
- liability for the payment of tax falis on one person but the burden thereof
can be shifted or passed to another.
- E.g. VAT (value added tax)
5. AS TO TAXING AUTHORITY (SCOPE OR AUTHORITY COLLECTING THE TAX)
a. National
- Taxes collected by the national government
- Taxes being paid to BIR
- Taxing authority
- E.g. Estate and donor's taxes
b. Local or Municipal
- Taxes collected by the Municipal government
- Taxes imposed by city
- E.g. Community tax, cedula, real property tax
6. AS TO RATE OR GRADUATION
a. Proportional/ Proportionate or Flat Rate
- Tax rate being used is uniform
- rate of the tax is based on a fixed percentage of the amount of the
property, receipt or other basis to be taxed
- E.g. VAT (12%)
b. Progressive or Graduated Rate
- Tax base
- rate of the tax increases as the tax base or bracket increases (e.g.
Income Tax and Estate Tox)
c. Regressive Tax Rate
- Tax base increases, tax rate decreases

6 Taxes Being Paid to BIR: (National Internal Revenue

D-Donor's Tax
E-Estate tax
V-Value Added Tax
O-Other percentage tax
I-Income Tax
D-Documentary stamp tax