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Income Taxation Reviewer

The document provides an overview of income taxation, detailing types of income such as earned, business, investment, rental, and passive income. It discusses the principles and powers of taxation, including its legislative nature and the processes involved in tax imposition, assessment, collection, and refund. Additionally, it covers the scope, limitations, and principles of a sound tax system, emphasizing the importance of fiscal adequacy, administrative feasibility, and theoretical justice.

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Keith Audry
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20 views6 pages

Income Taxation Reviewer

The document provides an overview of income taxation, detailing types of income such as earned, business, investment, rental, and passive income. It discusses the principles and powers of taxation, including its legislative nature and the processes involved in tax imposition, assessment, collection, and refund. Additionally, it covers the scope, limitations, and principles of a sound tax system, emphasizing the importance of fiscal adequacy, administrative feasibility, and theoretical justice.

Uploaded by

Keith Audry
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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INCOME TAXATION REVIEWER

Income refers to the money or financial benefits an individual, business, or entity


receives, typically in exchange for providing goods, services, labor, or through
investments and other financial activities.
Income serves as a measure of the earning capacity and financial inflow within a
specific period.

TYPE OF INCOME
Earned Income: Money received from active work, such as salaries, wages, tips, or
commissions.
Business Income: Profits earned from operating a business.
Investment Income: Earnings from investments, such as interest, dividends, or capital
gains.
Rental Income: Money received from renting out properties.
Passive Income: Earnings that require minimal effort to maintain, such as royalties or
affiliate commissions.
Compensation income refers to the total monetary and non-monetary benefits that an
individual receives as payment for services rendered as an employee. Compensation
income can either be hourly rate or annual compensation.
If compensation is based on hourly rate, it can be computed as:
Salary = Hourly Rate X Hours Worked

FUNDAMENTALS PRINCIPLE OF TAXATION


Taxation as a power This refers to the inherent power of the state to demand enforced
contribution for public purpose to support the government.
Taxation as a process Taxation is a legislative act of laying tax to raise income for the
government to defray its necessary expenses.
Taxation as a mode of cost allocation Taxation is a means of allocating burden to the
people.

TAXATION AS A POWER OF THE GOVERNMENT


Power of taxation • The power to take property for the support of the government and
for public use.
Police power • The power to enact laws to promote the general welfare of the people. It
is wider in application because it is the general power to make laws.
Power of eminent domain The power to take private property for public use upon
payment of just compensation.
SIMILARITIES OF THE THREE POWERS
• All three powers are necessary attributes of sovereignty, resting upon necessity. • All
are inherent powers of the state.
• All are legislative in nature.
• They are ways in which the State interferes with private rights and property.
• They exist independently with the Constitution although the condition for their exercise
may be prescribed or limited by the Constitution
• They all presuppose an equivalent compensation received by the persons affected by
the exercise of the power, whether directly, indirectly, or remote.
• The exercise of these powers by the local government units may be limited by the
national legislature

TAXATION AS A POWER

Levy or imposition • This process involves passing tax laws or ordinances through the
legislature or a local lawmaking body (e.g. Sanggunian).
Assessment and collection • This process involves the act of administration and
implementation of tax laws by the executive through its administrative agencies such as
the Bureau of Internal Revenue (BIR)or Bureau of Customs (BOC)
Payment • This process involves the act of compliance by the taxpayer in contributing
his share to pay the expenses of the Government.
Refund • This is a process of claiming for tax illegally collected or mistakenly paid. For a
refund request to prosper, it must first be filed with the Commissioner of Internal
Revenue (CIR)
TAXATION AS A MODE OF COST ALLOCATION

The life blood doctrine Taxes are indispensable to the existence of the state. Without
taxation, the state cannot raise revenue to support its operations.
Nature and characteristics of the power of taxation
• For public purpose
• Inherently legislative in nature
• Subject to international comity or treaty
• Not absolute being subject to constitutional and inherent limitations
• Exaction payable in money
• Territorial
Purpose of taxation
1. Primary Purpose- to raise revenue
2. Secondary Purposes:
a. Regulatory b. Compensatory

MODES OF COST ALLOCATION

Benefit received theory


• Tax payment should be based on benefits received.
• Everyone is conclusively presumed to receive benefits from the government.
Ability to pay theory
• Tax payments should be based relative to the ability of taxpayers to pay.
• Assessments of ability to pay:
a. Vertical Equity b. Horizontal Equity

THE THEORY AND BASIS OF TAXATION


• THEORY: “The existence of government is a necessity, and it cannot continue without
means to support itself.”
• BASIS: “The government and the people have the reciprocal and mutual duties if
support and protection.”

THE SCOPE AND LIMITATIONS OF TAXATION


Taxation is comprehensive, supreme, unlimited, and plenary. It includes the power to
destroy.
CURRENT OBJECTS OF TAXATION
1. Business 2. Interests 3. Transactions 4. Rights 5. Acts 6. Persons
7. Properties 8. Privileges

LIMITATIONS OF TAXATION POWER


A. Constitutional Limitations
B. Inherent Limitations (TIP-End)
1. Territoriality of taxation
2. Subject to international comity or treaty
3. Tax exemption of the government
4. Tax is for the public purpose
5. Non-delegation of the power of taxation
SITUS OF TAXATION
This is the place of taxation.

APPLICATIONS OF SITUS
1. Persons– residence of the taxpayer
2. Community development tax– residence or domicile of the taxpayer
3. Business taxes– where the business was conducted or place where the transaction
took place
4. Privilege or occupation tax– where the privilege is exercised
5. Real property tax– where the property is located
6. Personal property taxes
7. Income– place where the income is earned or residence or citizenship of the
taxpayer
8. Transfer taxes– residence or citizenship of the taxpayer or location of the property
9. Franchise taxes– the state that grants the franchise
10. Corporate taxes– depend on the law of incorporation

DOUBLE TAXATION
Taxing the object or subject within the territorial jurisdiction twice, for the same period,
involving the same kind of tax by the same taxing authority.
KINDS OF DOUBLE TAXATION
Direct • This is objectionable and prohibited because it violates the constitutional
provision on uniformity and equality.
Indirect • No constitutional violation involved.
International Double Taxation– a double taxation caused by two different taxing
authorities (one domestic and one foreign)

REMEDIES OF DOUBLE TAXATION


1. Provision for tax exemption
2. Allowance for tax credit
3. Tax for principle of reciprocity
4. Enter into treaties or agreements with foreign government

FORMS OF ESCAPE FROM TAXATION


A. Those that will not result in loss of revenue to the government
B. Those that will result to loss of revenue to the government

WILL NOT RESULT TO LOSS OF REVENUE


1. Shifting– the process of transferring the tax burden from the statutory taxpayer to
another without violating the law
2. Capitalization– the seller is willing to lower the price of the commodity provided the
taxes will be shouldered by the buyers
3. Transformation– the manufacturer absorbs the additional taxes imposed by the
government without passing it to the buyers for fear of loss of his market.

WILL RESULT TO LOSS OF REVENUE


1. Tax Evasion– resorting to acts and devices that illegally reduces or totally escape
the payment of taxes that are due to the taxpayer. They are prohibited and are therefore
subjects to penalties.
2. Tax Avoidance– the reduction or totally escaping payment of taxes through legally
permissible means that are not prohibited and therefore are not subject to penalties.
3. Tax Exemption– an immunity, privilege or freedom from payment of a charge or
burden to which others are obliged to pay.

KINDS OF EXEMPTIONS
1. Express
2. Implied
3. Total
4. Partial

Tax amnesty • A general pardon or intentional overlooking by the state of its authority to
impose penalties on persons otherwise guilty of tax evasion or violation of tax laws.
Tax condonation • This means to remit or to desist or refrain form exacting or imposing
a tax.

PRINCIPLES OF A SOUND TAX SYSTEM


1. Fiscal Adequacy– sources of revenue should be sufficient to meet the demand for
public expenditure.
2. Administrative Feasibility– tax laws must be capable of convenient, just and
effective administration.
3. Theoretical Justice– tax must be imposed with equity and certainty and must
consider the taxpayers ability to pay and benefits received

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