GENERAL PRINCIPLES

OF TAXATION:
PART ONE

Atty. Voltaire Salud, CPA, REB, REA

 TAXATION

• It is the power by which the sovereign, through its law-making body,

raises income to defray the necessary expenses of government.

• It is merely a way or apportioning the cost of government among those

who in some measure are privileged to enjoy its benefits and,
therefore, must bear its burdens.
 TAXATION

Cost of Government
-----------------------------------
People
Share in the form of Taxes
National Taxes
Local Taxes
 NATIONAL INTERNAL REVENUE TAXES
Income Tax – tax on the net income or the entire income received realized in one
taxable year.
Estate Tax – tax on the right of the deceased to transmit his estate to his lawful heirs
or beneficiaries and certain transfer by the decedent during his lifetime which
are made by law the equivalent of testamentary dispositions.
Donor’s Tax – tax imposed on gift or the transfer without consideration of property
between 2 or more persons who are living at the time the transfer is made.
Value-added Tax – tax on consumption levied on the sale, barter, exchange or lease of
goods or properties and services in the Philippines and on importation of
goods into the Philippines.
 NATIONAL INTERNAL REVENUE TAXES
Percentage Tax – tax measured by certain percentage of the gross selling price
or gross value in money of goods sold barter, exchanged, or imported,
or gross receipts or earnings derived by person engaged in sale of
services.
Excise Tax – tax imposed on certain specified goods or articles manufactured
or produced in the Philippines for domestic sale or consumption or for
any other disposition and to things imported into the Philippines.
Documentary Stamp Tax – tax on documents, instruments, papers evidencing
the acceptance, assignment, sale or transfer of an obligation, rights, or
property incident thereto.
 THEORIES ON TAXATION

• Necessity Theory (Existence of government)

The existence of government is a necessity. It cannot continue
without means to pay its expenses and for these means it has the
right to compel all its citizens and property within its limits to
contribute.
 THEORIES ON TAXATION

• Benefits-Received Principle (Reciprocal duties of protection and

support between the state and inhabitants).
In return for his contribution, the taxpayer receives the general
advantages and protection which the government affords the
taxpayer and his property.
 THEORIES ON TAXATION

• Symbiotic Relationship Doctrine.

The Supreme Court described taxation as a symbiotic relationship
whereby in exchange for the protection that the citizens get from
the Government, taxes are paid.
 THEORIES ON TAXATION

• Lifeblood Theory.
Taxes are the lifeblood of the nation through which the government
agencies continue to operate and with which the State effects its
functions for the welfare of its constituents.
Since taxes are the lifeblood of the government, they should be
collected without unnecessary hindrance.
 NATURE OF POWER OF TAXATION

• It is inherent in sovereignty.

No need for any constitutional grant before a State may exercise

power of taxation.

Constitutional provisions relating to taxation do not operate as

constitutional grant, but merely constitute limitations upon a power
which would otherwise be practically without limit.
 NATURE OF POWER OF TAXATION

• It is legislative in character.

Primarily vested in Congress

For local legislative bodies, they can exercise by virtue of

a constitutional grant (Section 5, Article X, Constitution) and
a law (Local Government Code or Rep. Act No. 7610)
 NATURE OF POWER OF TAXATION

• It is subject to inherent and constitutional limitations.

Inherent limitations – those which spring from the nature of the

taxing power itself.

Constitutional limitations – those specifically provided in the

Constitution or implied therefrom.
 ASPECTS OF TAXATION

• Levying or Imposition of Tax (legislative act)

• Assessment and Collection (administrative in character)
• Payment (taxpayer’s compliance with tax laws)
• Refund (taxpayer’s availment of remedy in case of overpayment)
 EXTENT
OF LEGISLATIVE TAXING POWER
• Subjects or objects to be taxed (Persons, properties and privileges)
• Purpose or object of the tax, should be for public purpose
• Amount or rate of the tax
• “ THE POWER TO TAX INVOLVES POWER TO DESTROY.” – CJ MARSHALL
• “THE POWER TO TAX IS NOT THE POWER TO DESTROY WHILE THIS COURT (SUPREME COURT) SITS” –
CJ HOLMES
• Kind of tax to be collected
• Apportionment of the tax
• Situs of taxation
• Manner, means and agencies of collection of the tax
 PURPOSES OF TAXATION

• Revenue

The primary purpose is to generate funds for the State to finance the
needs of the citizens and to advance the common weal.
 PURPOSES OF TAXATION

• Non-Revenue Purposes or Objectives

• Taxes may be imposes for a regulatory purpose. (Regulation)
• Taxes on imports may be increased to protect local industries against foreign
competition (Protectionism)
• Taxes may be levied to reduce inequalities in wealth and incomes (Reduction of
Social Inequality)
• Taxation may be used as an implement of police power (Promotion of General
Welfare)
• Tax provisions may provide incentives to encourage investments in productive assets
or facilities. (Encourage Economic Growth)
 PURPOSES OF TAXATION

• Non-Revenue Purposes or Objectives

• Taxation can strengthen anemic enterprises or provide incentive to
greater production through tax exemption
• Taxes on imported goods may be used as a bargaining tool.
• Taxes may be increased to halt inflation or lowered to ward off
depression.
 BASIC PRINCIPLES OF
A SOUND TAX SYSTEM
• Fiscal Adequacy – sources of revenue should be sufficient to meet the
demands of public expenditure.
• Equality or theoretical Justice – tax burden should be in proportion to
the taxpayer’s ability to pay. (Ability-To-Pay Principle)
• Administrative Feasibility – tax laws should be capable of convenient,
just and effective administration.
 TAXES
Taxes
- 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.
 TAXES
Essential Characteristics of Tax
• It is an enforced contribution.
• It is proportionate in character.
• It is generally payable in money.
• It is levied on persons or property.
• It is levied by the state which has jurisdiction over the person or property.
 TAXES
Essential Characteristics of Tax
• It is levied by the law-making body of the state.
• It is levied for public purpose or purposes.
• It is commonly required to be paid at regular periods or intervals
 TAXES
Classification of Taxes
As to subject matter or object
• Personal, poll or capitation – tax of a fixed amount imposed on persons residing within a
specified territory. E.g. community tax
• Property – Tax imposed on property, whether real or personal, in proportion either to its
value, or in accordance with some other reasonable methods of apportionment. E.g. real
property tax
• Excise – charge imposed upon performance of an act, the enjoyment of a privilege, or the
engaging in an occupation. E,g income tax, estate tax, donor’s tax.VAT
 TAXES
Classification of Taxes
As to who bears the burden
• Direct – Tax which is demanded from the person who also shoulders the burden of the tax. E.g.
Income tax, donor’s tax

• Indirect – Tax which is demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another, falling finally upon the ultimate purchaser or consumer.
E.g.VAT
 TAXES
Classification of Taxes
As to determination of amount
• Specific – tax of a fixed amount imposed by the head or number, or by some standard of weight or
measurement. Eg. Excise tax on cigars, cigarettes

• Ad valorem – tax of a fixed proportion of the value of the property with respect to which the tax is
assessed. E.g. Real property tax, Excise tax on motor vehicles
 TAXES
Classification of Taxes
As to purpose
• General, fiscal or revenue – tax imposed for general purposes of government
• Special or regulatory – tax imposed for special purpose. E.g. Protective tariffs or customs duties

As to scope
• National – tax imposed by the national government. E.g. national internal revenue taxes
• Municipal or local – tax imposed by municipal corporations or local government units. E.g.
community tax, professional tax
 TAXES
Classification of Taxes
As to graduation or rate
• Proportional – tax based on a fixed percentage of the amount of the property, receipts or other basis to be taxed. E.g
VAT, percentage tax
• Progressive or graduated – tax the rate of which increases as the tax base or bracket increases. E.g. income tax
• Regressive – tax the rate of which decreases as the tax base or bracket increases

As to Ability to Pay
• Progressive – according to one’s ability to pay. E.g. income tax
• Regressive – opposite of progressive tax. E.g. VAT
 TAXES
Toll
– a sum of money for the use of something, generally applied to the consideration which is
paid for the use of a road, bridge or the like, of a public nature.

Can the Government Impose VAT on Toll?

 TAXES
Answer:Yes, because toll is not a tax.
Distinctions between Tax and Toll
• A toll is demand of proprietorship, while tax is demand of sovereignty
• A toll is paid for the use of another’s property, while tax is paid for the support of the government
• The amount of toll depends upon the cost of construction or maintenance of the public improvement used,
while their is generally no limit on the amount of tax that may be imposed.
• A toll may be imposed by the government or private individuals or entities, while a tax may be imposed
only by the government. (see Diaz vs. Secretary of Finance, G.R. No. 193007, July 19, 2011)
 TAXES

Special Assessment or Special Levy

– an enforced proportional contribution from owners of lands especially or peculiarly benefited by
public improvements.
- It is allowed to be collected by local government units under the Local Government Code.
 TAXES

Distinctions between Special Assessment and Tax

• Tax is levied upon persons, properties or rights while special assessment is levied only on land.
• Tax is imposed for the use and support of government while special assessment is imposed to recover the
cost of public improvements. (up to 60% of the cost)
• Tax has general application while special assessment is exceptional both as to the time and place.
• Tax is based on necessity while special assessment is based wholly on benefit.
• In tax personal liability attaches to the person assessed in case of non-payment while in special assessment, it
is not.
 TAXES

License Fee – a charge imposed under the police power for purposes of regulation

Distinctions between Tax and License Fee

• License fee is the legal compensation or reward of an officer for specific services while tax is an enforced
contribution assessed to defray public expenses.
• It is imposed for regulation, while tax is levied for revenue
• It involves an exercise of police power while tax involves the exercise of the taxing power
 TAXES

Distinctions between Tax and License Fee

• Its amount is limited to the necessary expenses of inspection and regulation while there is no limit on the
amount of tax may be imposed.
• It is imposed on the right to exercise a privilege while a tax is imposed also on person and property
• Failure to pay a license fee makes the act or business illegal while failure to pay a tax does not necessarily
make the act or business illegal.
 TAXES
Distinctions between Tax and Debt
• A debt is generally based on contract while tax is based on law
• Debt is assignable while tax is not.
• Debt may be paid in kind while tax is payable in money.
• Debt may be the subject of set-off or compensation while tax is not
Taxes cannot be the subject of compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt, demand or contract or judgment
as is allowed to be set-off (Caltex Philippines, Inc. vs. Commission on Audit, G.R. No. 92858, May 8, 1992)
 TAXES
Distinctions between Tax and Debt
• A person cannot be imprisoned for non-payment of debt while imprisonment is the penalty for non-
payment of tax except poll tax.
• Debt is governed by ordinary periods of prescription while tax is governed by special prescriptive period.
• A debt draws interest when stipulated or when there is default while tax does not draw interest unless
when delinquent.
 OTHER FUNDAMENTAL OR INHERENT
POWERS OF THE STATE
• Power of Eminent Domain – the power of the state or those to whom
the power has been delegated to take private property for public use
upon payment of just compensation.

• Police Power – power of the state to enact such laws in relation to

persons and property as may promote public health, public morals,
public safety and the general prosperity and welfare of its inhabitants.
 SIMILARITIES AMONG
THE THREE POWERS OF THE STATE
1. They all rest upon necessity because there can be no effective
government without them.

2. They all underlie and exist independently of the Constitution.

3. They are ways by which the state interferes with private rights and
property.
 SIMILARITIES AMONG
THE THREE POWERS OF THE STATE

4. They are legislative in nature and character.

5. They all presuppose an equivalent compensation received, directly or

indirectly, by the person affected by the exercise of these powers by
the government.
 DISTINCTIONS
AMONG THE THREE POWERS
• As to the Exercising Authority

Taxation and police power may be exercised only by the government

or its political subdivision

Exercise of power of eminent domain may be granted to public

service companies or public utilities.
 DISTINCTIONS
AMONG THE THREE POWERS
• As to Purpose
In taxation, the property is taken for the support of government.

In eminent domain, the property is taken for public use or benefit.

In police power, the use of property is regulated for the purpose of

promoting the general welfare.
 DISTINCTIONS
AMONG THE THREE POWERS
• As to Persons Affected

Taxation and police power operate upon a community or class of

entities or individuals.

Eminent domain operates on an entity or individual as the owner of a

particular property.
 DISTINCTIONS
AMONG THE THREE POWERS
• As to Effect
In taxation, the money contributed in the concept of taxes becomes
part of the public funds.

In eminent domain, there is a transfer of the right whether ownership

or a lesser right.

In police power, there is no transfer of title.

 DISTINCTIONS
AMONG THE THREE POWERS
• As to Benefits Received

In taxation, it is assumed the person affected receives the equivalent

of the tax in the form of protection and benefits received from
the government.

In eminent domain, the person affected receives the market value of

the property taken.
 DISTINCTIONS
AMONG THE THREE POWERS
• As to Benefits Received

In police power, the person receives no direct and immediate benefit

but only such as may arise from maintenance of a healthy
economic standard of society (damnum absque injuria or damage
without injury).
 DISTINCTIONS
AMONG THE THREE POWERS
• As to Amount of Imposition
In taxation, there is generally no limit on the tax that may be
imposed.

In eminent domain, there is no amount imposed.

In police power, the amount imposed should not be more than

sufficient to cover the cost of the license and necessary expenses
of police surveillance and inspection, examination or regulation.
 DISTINCTIONS
AMONG THE THREE POWERS
• As to relationship to the Constitution
The taxing power is subject to certain constitutional limitations
including the prohibition against the impairment of the obligation
of contracts.
Eminent domain is also inferior to the impairment prohibition.
Police power is relatively free from constitutional limitations and is
superior to the impairment provisions.
•
THE END