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Module 2 - CAT Level 3 (Material #1)

This document provides an overview of taxation principles for a Certified Accounting Technician certification. It defines taxation as a sovereign power to impose burdens on citizens and property to raise revenue. Taxes are enforced proportional contributions levied by the state for public purposes. The key theories of taxation discussed are the lifeblood doctrine of taxation as a necessity, the benefits received principle of reciprocal duties between citizens and the state, and the symbiotic relationship doctrine stating taxes fund civilized society. Types of taxes, tax systems, and concepts like tax avoidance, evasion and burden shifting are also covered at a high level.

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94 views4 pages

Module 2 - CAT Level 3 (Material #1)

This document provides an overview of taxation principles for a Certified Accounting Technician certification. It defines taxation as a sovereign power to impose burdens on citizens and property to raise revenue. Taxes are enforced proportional contributions levied by the state for public purposes. The key theories of taxation discussed are the lifeblood doctrine of taxation as a necessity, the benefits received principle of reciprocal duties between citizens and the state, and the symbiotic relationship doctrine stating taxes fund civilized society. Types of taxes, tax systems, and concepts like tax avoidance, evasion and burden shifting are also covered at a high level.

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Integrated Review for BSMA/BSAIS Learning Material #1

Module 2: Level 3
CERTIFIED ACCOUNTING TECHNICIAN LEVEL 3
MODULE 2: BUSINESS INCOME TAXATION

Module 2 Learning Objectives:


● Study General principles of Taxation
● Explain Income Tax Rules for business and practice of profession
● List Sources of Income, allowable business expenses and personal exemptions
● Expound Minimum Corporate Income Tax, Improperly Accumulated Earnings and Gross
Income Tax for Corporations
● Prepare Quarterly Income Tax return (BIR Form 1702Q) and Annual Income Tax Return
(BIR Form 1702)
● Discuss Compliance requirements such as keeping Books of Accounts and its
preservation
● Explain BIR registration requirements and issuance and printing of receipts, sales or
commercial invoice

This material shall only cover learning objective 1. The other Learning Objectives shall be covered in
separate learning materials.

Learning Objective 1: Study General principles of Taxation

TAXATION
Taxation is the inherent power of the sovereign, exercised through the legislature, to impose
burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to
carry out the legitimate objects of government.

TAXES
Taxes are the enforced proportional contributions from persons and property levied by the law-
making body of the State by virtue of its sovereignty for the support of the government and all
public needs.

ESSENTIAL ELEMENTS OF A TAX


1. It is an enforced contribution.
2. It is generally payable in money.
3. It is proportionate in character.
4. It is levied on persons, property, or the exercise of a right or privilege (Excise tax).
5. It is levied by the State which has jurisdiction over the subject or object of taxation.
6. It is levied by the law-making body of the State.
7. It is levied for public purposes.

THEORY AND BASIS OF TAXATION


The power of taxation proceeds upon the theory that the existence of government is a
necessity; that it cannot continue without means to pay its expenses; and that for these means,
it has a right to compel all its citizens’ property within its limits to contribute.

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Integrated Review for BSMA/BSAIS Learning Material #1
Module 2: Level 3
The basis of taxation is found in the reciprocal duties of protection and support between the
State and its inhabitants. In return for his contribution, the taxpayer received benefits and
protection from the government. This is the so-called “Benefits received principle”.

LIFEBLOOD DOCTRINE
The lifeblood theory constitutes the theory of taxation, which provides that the existence of
government is a necessity; that government cannot continue without means to pay its expenses;
and that for these means it has a right to compel its citizens and property within its limits to
contribute.

NECESSITY THEORY
Taxation as stated in the case of Phil. Guaranty Co., Inc. v. Commissioner [13 SCRA 775], is a
power predicated upon necessity.

BENEFITS RECEIVED PRINCIPLE


This theory bases the power of the State to demand and receive taxes on the reciprocal duties
of support and protection. The citizen supports the State by paying the portion from his property

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Integrated Review for BSMA/BSAIS Learning Material #1
Module 2: Level 3
that is demanded in order that he may, by means thereof, be secured in the enjoyment of the
benefits of an organized society.

DOCTRINE OF SYMBIOTIC RELATIONSHIP


This doctrine is enunciated in CIR v. Algue, Inc. [158 SCRA 9], which states 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.

Inherent Limitations
● Requirement that levy must be for a public purpose
● Non-delegation of the legislative power to tax ∙ Exemption from taxation of government
entities
● International comity
● Territorial jurisdiction

Situs of taxation - Tax jurisdiction that has the power to levy taxes upon the tax object

Double taxation
● Refers to income tax being paid twice on the same source of income.
● Occurs when income is taxed at both the corporate level and personal level, as in the
case of stock dividends.
● Also refers to the same income being taxed by two different countries. ∙ While critics
argue that dividend double taxation is unfair, advocates say that without it, wealthy
stockholders could virtually avoid paying any income tax.

ESCAPES FROM TAXATION

Shifting of Tax Burden - Process by which tax burden is transferred from statutory taxpayer to
another without violating the law.

Kinds of Shifting
● Forward shifting- when burden of tax is transferred from a factor of production through
the factors of distribution until it finally settles on the ultimate purchaser or consumer
● Backward shifting – when the burden is transferred from consumer through factors of
distribution to the factors of production;
● Onward shifting- when the tax is shifted 2 or more times either forward or backward.

Tax Avoidance - Use of legal methods to modify an individual's financial situation to lower the
amount of income tax owed.

Tax evasion - An illegal activity in which a person or entity deliberately avoids paying a true tax
liability.

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Integrated Review for BSMA/BSAIS Learning Material #1
Module 2: Level 3

Tax System
● Progressive tax – as the tax base increases the tax due also increases such as tax on
individuals earning pure compensation income.
● Proportionate tax – based on a rate of the tax base such as corporate income tax. Tax
systems and collection system is thoroughly discussed in this site:

SOUND TAX SYSTEM


● Fiscal Adequacy - That the sources of revenue should be sufficient to meet the
demands of public expenditure.
● Administrative Feasibility - means that tax laws, rules and regulations must be
capable of being administered and complied with by citizens by easy understanding
● Theoretical Justice - The tax system should be fair to the average taxpayer and based
upon his ability to pay.

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