General Principles

• Taxation


  The exercise of the sovereign power to raise revenues for the expenses of the government
• Stages or Coverage of Taxation


  • Levying or Imposition of Tax
  • Assessment
  • Collection and Payment
• Three Inherent Powers of a State


  • Power to Tax
  • Police Power
  • Eminent Domain
• Purpose


  Taxation: To raise revenues for the expenses of the State

  Police Power: To promote the general welfare through regulations

  Eminent Domain: To facilitate the State's need of property for public use
• Amount of Exaction


  Taxation: No limit

  Police Power: Limited to the cost of regulation, issuance of the license and/or surveillance

  Eminent Domain: No exaction but private property is taken for public use
• Benefits Received


  Taxation: No special or direct benefit is received by an individual taxpayer. The public receives the general benefit of protection of person, property and the promotion of the general welfare

  Police Power: No direct benefit is received by an individual. A healthy economic standard of society is attained

  Eminent Domain: A direct benefit results in the form of just compensation to the property owner
• Non-Impairment of Contracts


  Taxation: Obligations in contracts may not be impaired by the state where tax exemptions are bilaterally agreed upon by the state and by the taxpayer. Tax exemptions bilaterally agreed upon between the government and the taxpayer cannot be withdrawn.

  Police Power and Eminent Domain: Obligations in contracts may be impaired by the government
• Transfer of Property Rights


  Taxation: Taxes paid become part of public funds.

  Police Power: No transfer, but only restraint in the exercise of property rights

  Eminent Domain: Transfer is effect in favor of the State
• Scope


  Taxation: All persons, property, rights and privileges

  Police Power: All persons, property, right, privileges and liberty

  Eminent Domain: Only upon specific property
• Authority which exercises the power


  Taxation: Exercised by the government or its political subdivision

  Police Power: Exercised by the government or its political subdivision

  Eminent Domain: May be exercised by public service corporations or private entities operating public utilities if granted by law
• Inherent Limitations


  • Territoriality
  • International Comity
  • Public Purpose
  • Exemption of the Government
  • Non-Delegation of taxing power
• Double Taxation


  Two types of double taxation are direct double and indirect double taxation. There is not constitutional prohibition against double taxation in the Philippines, though it is not favored.
• Indirect double taxation


  Lacks one or more of the elements:

  a. The same subject is taxed twice;

  b. By the same taxing authority;

  c. Within the same jurisdiction;

  d. During the same taxing period; and

  e. Covering the same kind or character of tax
• Basic Principles of a Sound Tax System


  • Fiscal Adequacy
  • Administrative Feasibility
  • Theoretical Justice or Equality
• Theory or Basis of Taxation


  • Lifeblood Theory
  • Benefits Protection Theory (Symbiotic Relationship)
• Essential Elements or Characteristics of a Tax

  • Enforced contribution
  • Exacted pursuant to legislative authority
  • For raising revenue for public needs
  • Proportionate in character or uniform
  • Payable in money
  • Imposed within the state's jurisdiction
  • Personal to the taxpayer
• Classification of Taxes

  • According to scope or exercising authority: National tax, Municipal or Local Tax
  • According to subject matter or object: Personal, capitation, or poll tax, Property tax, Excise tax
  • According to who bears the burden of the tax: Direct tax, Indirect tax
  • According to purpose: General or Revenue tax, Special tax
  • According to the rate applied: Proportional, Progressive, Regressive
  • According to measurement of the amount due: Specific, Ad Valorem
• Nature or Construction of Tax Laws

  • Tax laws are generally prospective, but can have retrospective application
  • A tax cannot be imposed without clear and express words for the purpose
  • Tax exemptions are to be construed strictly against the taxpayer
  • Revenue laws are not political in nature
  • Legislative intention must be considered
  • Tax laws are special laws, and prevail over general laws
• Sources of Tax Laws

  • 1987 Constitution
  • Tax Statutes such as NIRC, Tariff and Customs codes, Amended Excise Tax Code
  • Executive orders on taxation and other local tax ordinances
  • Tax treaties and conventions with foreign countries
  • Judicial decisions
  • Rules and regulations promulgated by the DoF, BIR, BoC, etc.
  • Administrative interpretations and opinions of tax officials particularly those of the Commission of Internal Revenue
• Forms of Escape from Taxation

  • Shifting the burden of the tax
  • Capitalization
  • Transformation
  • Tax exemption
  • Tax avoidance
  • Tax evasion
• Special Assessment


  It is in the nature of a tax upon property levied according to benefits conferred on the property.
• Characteristics of Special Assessment

  • Can be levied only on land
  • Cannot be made a personal liability of the person assessed
  • Based wholly on benefits
  • Exceptional both as to time and locality
• An income tax is one levied on the income from property or an occupation. It is a direct tax upon the thing called income.
• Purpose of Income Tax

  • To raise revenue to defray the expenses of the government
  • To mitigate the evils arising from the inequalities of wealth by a progressive scheme of taxation which places the burden on those best able to pay
• Characteristics of Philippine Income Tax

  • National tax- imposed and collected by the National Government
  • General Tax- levied without a specific or predetermined purpose
  • Excise Tax- it is imposed on the right or privilege of a person to receive or earn income
  • Direct Tax- it is payable by the person upon whom it is directly imposed by law. It cannot be shifted or passed on to others
  • In general, a progressive tax for individual taxpayers- it is based upon one's ability to pay. The higher the taxable net income of the individual, the higher the marginal tax rate
  • The income tax system is a comprehensive system- it adopts the citizen principle, residence principle and the source principle
• Income


  All wealth which flows into the taxpayer other than a mere return of capital. Income is a gain derived from the use or employment of labor or capital, or both labor and capital; or from the sale or disposition of assets or property.
• Elements of Gross Income

  • It is a return on capital that increases net worth
  • It is a realized benefit. Requisites: There must be an exchange transaction, involves another entity, increases the net worth of the recipient
  • It is not exempted by law, contract or treaty
• Separability or Severance Test of Income


  In order that income may exist, it is necessary that there be a separation from capital of something of exchangeable value.
• Situs of Income


  • The place where the taxpayer is a citizen
  • The place where the taxpayer is a resident
  • The place where the income is earned or derived
• Income Tax System of the Philippines

  • Gross income taxation, whereby a final tax is imposed on the gross amount of specified types of income
  • Net income taxation, whereby certain deductions are allowed and subtracted from the aggregate of incomes not subject to final tax, and the tax computed is based on the resulting net income therefrom
• General Categories of Individual Taxpayers

  • Resident Citizen
  • Non-resident Citizen
  • OCW/OFW
  • Resident Alien
  • Non-resident alien
  • Special individual taxpayer
  • MWEs
• General rules in Individual Income Taxation

  • Resident Citizen- Taxable on income within and without the Philippines
  • Non-resident citizen- Taxable on income within the Philippines
  • OCWs/OFWs- Taxable on income within the Philippines
  • Resident Alien- Taxable on income within the Philippines
  • Non-resident alien ETB- Taxable on income within the Philippines
  • Non-resident alien NETB- Taxable on income within the Philippines
• The Residency and Citizenship Rule: Taxpayers who are resident and citizens of the Philippines such as resident citizen and domestic corporations are taxable on all income from sources within and without the Philippines.
• Police Power


  General power of the state to enact laws to protect the well-being of

  the people.
• Power to Tax


  Power of the state to enforce proportional contribution from its

  subject to sustain itself.
• Eminent Domain


  Power of the state to take private property for public use after

  paying just compensation.
• Territoriality


  The levy must apply within territorial limits for the exercise of

  effective tax jurisdiction.
• International Comity


  The principle limits the authority of the government to effectively impose taxes on a sovereign state and its instrumentalities, as well as on its property held and activities undertaken in that capacity.
• Public Purpose


  Tax intended for the common good. Taxation must be exercised absolutely for public purpose.
• Exemption of the Government


  Exemption from taxation of the government, any political subdivision thereof, or agencies performing purely governmental functions.