CARD-MRI Development Institute, Inc.

Purok Lemonsito, Barangay Mankilam, Tagum City, Davao del Norte

Income Taxation

Principles of Taxation

1.0. Inherent Powers of the State ➢ Equal protection of law.

• Taxation- the power by which the ➢ Rule of uniformity and equity
sovereign raises revenue to defray the ➢ President’s power to veto separate items
necessary expenses of the government. in revenue or tariff bills
• Police power- the power of the State to ➢ Exemption from property
enact such laws in relation to persons taxation of religious, charitable or
and property as may promote public educational entities, nonprofit
health, public morals, public safety and cemeteries, churches and convents
general welfare of the people. appurtenant thereto.
• Eminent domain power- refers to the ➢ No public money shall be appropriated
inherent power of the state to take for religious purposes.
private property (with just ➢ Majority of all the members of the
compensation) for public purpose. Congress granting tax exemption.
1.1. Definition of Taxation ➢ No imprisonment for nonpayment of poll
• it is a power by which an Independent tax
State, through its law-making body, ➢ Tax collection shall generally be treated
raises and accumulates revenue from its as general funds of the government
inhabitants to pay the necessary 1.1.b. Scope of Taxation (CUPS)
expenses of the government. • Comprehensive- It has a wide scope of
• it is a process of imposing a charge by coverage. It covers all persons,
governmental authority on property, properties, rights and transactions
individuals or transactions to raise subject to taxation, unless expressly
money for public purposes exempted by laws within the sovereign.
• it is a means by which the Sovereign • Unlimited- In the absence of
State through its law-making body limitations prescribed by Law or
demands for revenue in order to support the constitution, the Power of tax is
its existence and carry out its legitimate unlimited and comprehensive
objectives. • Plenary or Complete- Taxation has an
1.1.a. Nature of taxation unlimited area of application and only
• Inherent Power restricted by the inherent and
• Legislative Function constitutional limitation.
• Public Purposes • Supreme- It has the highest degree of
• Operating within Territorial Jurisdiction application and it considered as the
• The strongest among the inherent strongest among the inherent power of
powers of the government state.
• Taxation is the subject to limitations 1.1.c. Classification of Taxation
❖ Inherent limitations- are those which • As to purpose
restrict the power although they are not ➢ Revenue or Fiscal
embodied in the Constitution ✓ These taxes are imposed solely for the
➢ Levy for public purpose; purpose of raising revenue for the
➢ Non-delegation of legislative power to government (e.g. Income tax, value
tax. added tax and transfer taxes)
➢ Exemption of government entities. ➢ Regulatory, Special or Sumptuary
➢ Tax power is limited to territorial ✓ These taxes are imposed for the purpose
jurisdiction of the State; of achieving some social or economic
➢ Taxation is subject to international goals having no relation to the raising of
comity. revenue (e.g. Customs duties, protective
❖ Constitutional limitations- are those tariff on imports)
which are expressly found in the ➢ Compensatory
Constitution or implied from its ✓ Taxes may be imposed for the equitable
provisions distribution of wealth and income in the
➢ Due process of law society.

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 CARD-MRI Development Institute, Inc.
Purok Lemonsito, Barangay Mankilam, Tagum City, Davao del Norte
Income Taxation

• As to object or subject matter demanded from persons who are bound by

➢ Personal, Poll or Capitation law to pay the tax. (e.g. income tax, transfer
✓ These taxes are fixed in amount and imposed taxes)
on persons residing within a specified ➢ Indirect
territory regardless of the amount of their ✓ These taxes are transferable. The liability for
property or their occupation or business (e.g. the payment of tax falls on one person but
community tax) the burden thereof can be shifted or passed
Note: Persons to another (e.g VAT)
o Natural person- refers to individual taxpayers • As to scope or authority collecting the tax
o Juridical person- includes corporations, ➢ National
partnerships and any association ✓ These taxes are collected by the National
➢ Property Government. (e.g. Estate and Donor’s tax,
✓ These taxes are imposed on personal or real income tax, VAT, Excise tax)
property based on its proportionate value in ➢ Local or Municipal
accordance with some other ✓ These taxes are collected by the Municipal
Note: Properties Government (e.g. Community tax)
o Real properties- immovable properties such • As to rate or graduation
as land and buildings ➢ Proportional or Flat rate
o Personal properties- movable properties ✓ The rate of the tax is based on a fixed
such as car and other personal belongings percentage of the amount of the property,
o Tangible properties- that which may be felt receipt or other basis to be taxed (e.g. VAT,
or touched and are necessarily corporeal, real estate tax)
either real or personal properties ➢ Progressive or Graduated rate
o Intangible properties- properties that are ✓ The rate of the tax increases as the tax base
“rights” rather than physical objects. or bracket increases (e.g. income tax)
➢ Excise ➢ Regressive rate
✓ These taxes are imposed upon the ✓ The rate of tax decreases as the tax base or
performance of a right or act, the enjoyment bracket increases. There is no regressive tax
of a privilege or the engagement in an in the Philippines
occupation (e.g. professional tax, income tax, ➢ Digressive Rate
estate tax, donor’s tax and VAT) ✓ A fixed rate is imposed on a certain amount
Note: Excise Objects but diminishes gradually on sums below it
o Transactions – the act of conducting activities ➢ Mixed Tax
related to any business or profession ✓ It is a tax system that uses a combination of
o Privilege – a benefit derived through the different tax rates.
gratuitous transfer by fact of death or 1.1.d. Essential characteristics of Taxation
donation • Enforced Contribution – Taxes are not
o Right – a power, faculty or demand inherent voluntary. It is a mandatory burden that
in one person and incidental to another should be paid by the taxpayer.
o Interest – an advantage accruing from • Imposed by the legislative body – The
anything Congress makes tax laws.
• As to determination of amount • Proportionate in character – The “ability
➢ Ad Valorem to pay principle” is the basic rule in
✓ These taxes are fixed amounts in proportion collecting taxes. Those who earn more
to the value of the property with respect to contribute more than those with lesser
which the tax is assessed. (e.g. real estate tax, earnings.
custom duties and excise taxes on liquors, • Payable in the form of money – Money is
cigars, etc.) the preferred payment of taxes. If
➢ Specific property is taken to satisfy tax liability,
✓ These taxes are fixed amounts imposed and the property is sold through public
based on some standard of weight or auction to satisfy the tax obligation.
measurement. • Imposed for the purpose of raising
• As to who bears the burden revenue – Taxes are the primary source
➢ Direct of government funds to finance its
✓ These taxes are nontransferable. They are expenses and projects.

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 CARD-MRI Development Institute, Inc.
Purok Lemonsito, Barangay Mankilam, Tagum City, Davao del Norte
Income Taxation

• Used for a public purpose – Money is not they shall be subject to tax.
taken from the public so it can be
returned to them in the form of public
benefits.
• Enforced on some persons, properties or
rights- Objects of taxation are either
tangible or intangible properties,
including business transactions.
• Commonly required to be paid at regular
intervals- The dates for paying of taxes
are fixed by the law to comply with the
principle of administrative feasibility.
• Imposed by the sovereign state within its
jurisdiction- The enforcement of tax is
subject to territorial jurisdiction and
international comity.
1.2. Tax evasion vs. tax avoidance
• Tax Evasion
➢ Under this method, the taxpayer uses
UNLAWFUL MEANS to evade or lessen 1.4. Double taxation
the payment of taxes. This form of tax • It means taxing the same person for the
dodging is PROHIBITED, and therefore, same tax period and the same activity
subject to civil and/or criminal penalties. twice, by the same jurisdiction.
➢ Examples of this method are by not • Double taxation in strict sense is when:
understating sales in your income ✓ Both taxes are imposed on the same
statement, fabricating of expenses and property or subject matter;
etc. ✓ For the same purpose;
• Tax Avoidance ✓ Imposed by the same taxing authority;
➢ Also called as Tax Minimization. It is ✓ Within the same jurisdiction;
reducing or totally escaping payment of ✓ During the same taxing period;
taxes through LEGALLY permissible ✓ Covering the same kind or character of
means. Tax avoidance is valid if used by tax.
the taxpayer in good faith. The law does • Modes of eliminating double taxation
not forbid it and it does not constitute ➢ Tax Deduction – an amount subtracted
tax fraud. from the gross income to arrive at taxable
➢ Examples include tax option, shifting, income.
transformation, and exemption. ➢ Tax Credit - an amount subtracted from
an individual’s or entity’s tax liability (tax
due) to arrive at the tax liability still due.
➢ Enter into treaties with foreign
government
Note: A deduction differs from a tax
credit, in that a deduction reduces taxable
Income while a credit reduces tax
Liability.
1.5. Stages of Taxation
• Levy or imposition of taxes- involves the
passage of tax laws or ordinances through
1.3. Situs/place of taxation legislation. This is the first step of the
• It refers to the place of taxation or the Taxation process. Without levy there can
state or political unit which has be no Taxation.
jurisdiction to impose tax over its • Assessment- involves the act of
inhabitants. this defines boundaries of administration and implementation of the
the taxing power over the objects of tax laws by the executive through its
taxation in terms of location whether or administrative agencies such as the BIR or

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 CARD-MRI Development Institute, Inc.
Purok Lemonsito, Barangay Mankilam, Tagum City, Davao del Norte
Income Taxation

Bureau of Customs. The word • Regulatory Purpose- secondary objective

“assessment” as used here, means the of imposing tax is to regulate inflation,
appraisal and valuation of the subject of achieve economic and social stability and
taxation. After levy (which is again the serve as key instrument for social control
process of making Taxation laws), purpose.
assessment follows. To be specific this is • Compensatory Purpose- a tax may be
when the taxing authority computes for used to make up for the benefit
your tax dues. Thus, the term, received. Taxation is a way of giving back
assessment. the expected economic and social
• Payment of Tax- The last stage of taxation benefits due to the inhabitants, thus, it
is the payment/collection of tax. Payment serves a compensatory.
of tax is a process involving the act of 1.8. Principles of a Sound Tax System
compliance by the taxpayer in • Fiscal Adequacy- This principle states
contributing his share to defray the that the sources of revenue (income) of
expenses of the government. It is also the government should be enough to
called “tax collection”. meet the demand of public expenditures
regardless of business condition. To
achieve fiscal adequacy, there should be
a balance between government income
and expenses. A balanced budget is
achieved when revenue equals the
expenditures.
• Equality Or Theoretical Justice- This
principle on the other hand, states that
the tax burden must be according to the
taxpayer’s ability to pay. It is based on
the philosophy that “he who received
more should give more.” The
contribution of each individual to the
government should be fair enough
according to his earnings and wealth.
1.6. Legislation of tax laws • Administrative Feasibility- This principle
states that tax laws should be
convenient, just, uniform and effective in
their administration. Their exercise
should be convenient as to the place,
time and mode of payment and not
burdensome or discouraging to business.

1.7. Purpose of Taxation

• Revenue Purpose- primary purpose of 1.9. Importance of Taxation
taxation is to raise revenue by collecting • Taxation is very important for the
fund for the support of the government continuous existence of a nation. It is the
in promoting the general welfare of its primary source of government revenue
inhabitant. that is used to effectively and

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 CARD-MRI Development Institute, Inc.
Purok Lemonsito, Barangay Mankilam, Tagum City, Davao del Norte
Income Taxation

permanently perform government ✓ To decide tax cases (subject to the

functions. exclusive appellate jurisdiction of the
• Taxation power exists inseparably with Court of Tax Appeals)
the state. It is essential for the existence ✓ To obtain information and to summon,
of the government. Taxation is exercised examine and take testimony of persons
to raise revenue for the very existence of to effect tax collection
the government to serve the people for ✓ To make assessment and prescribe
whose benefit taxes are collected. additional requirement for tax
• Without taxation, the other inherent administration and enforcement
powers (police and eminent domain ✓ To make or amend a return for and in
powers) would be paralyzed. Without behalf of a taxpayer; or to disregard
revenue, there can be no continuing one filed by the taxpayer
government. Without government, there ✓ To change a tax period
can be no civilization. ✓ To compromise a tax liabilities of
1.10. Organization and functions of the taxpayers
Bureau of Internal Revenue, Local
✓ To conduct inventory surveillance
Government Tax Collecting Units, Board
✓ To prescribe presumptive gross sales or
of Investments, Philippine Economic
receipts
Zone Authority and the Bases
✓ To prescribe real estate values. The CIR
Conversion and Development Authority
is authorized to divide the Philippines
• Bureau of Internal Revenue (BIR)
into zones or areas and determine the
➢ It is tasked with tax administration of the
fair market value of the real properties
government. Together with the Bureau
of Customs, they are under the located in each zone or area.
supervision and control of the ✓ To accredit tax agents. Individuals or
Department of Finance (DOF). general professional partnerships who
➢ Chief Officials of the BIR: have been denied their accreditation
✓ 1 Commissioner may appeal to the Secretary of Finance
✓ 4 Deputy Commissioner (Operations who shall act on the appeal within 60
group, Legal Enforcement group, days from the receipt of such appeal.
Information Systems group, and Failure by him to rule on the appeal
Resource Management Group) within the prescribed period shall be
➢ Powers of the Bureau deemed approval of the application for
✓ Assessment and collection of taxes accreditation.
✓ Enforcement of all forfeitures, penalties, ✓ To inquire into bank deposits under
and fines and judgments in all cases decided certain cases
in its favor by the courts ✓ To prescribe additional procedures or
✓ Giving effects to and administering the documentary requirements
supervisory and police powers conferred to • Bureau of Customs (COC)
it by the NIRC and or other laws ➢ It is tasked to administer collection of
✓ Assignment of internal revenue officers tariffs on imported articles and
and other employees to other duties collection of the Value Added Tax on
✓ Provisions and distribution to proper importation.
officials of forms, receipts, certificates, • Department of Finance (DOF) is
stamps; etc. to proper officials principally
✓ Issuances of receipts and clearances ➢ It is responsible for the fiscal policies
✓ Submit annual report, pertinent and general management of the
information to Congress and reports to the Philippine Government’s financial
Congressional Oversight Committee in recourses.
matters of taxation • Local Government Tax Collecting
➢ Powers of the Commissioner of Internal Units
Revenue ➢ Provinces, municipalities, cities and
✓ To interpret the provisions of the NIRC barangays also imposed and collect
(subject to review by the Secretary of various local taxes, fees and charges to
Finance) rationalize their fiscal autonomy.

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 CARD-MRI Development Institute, Inc.
Purok Lemonsito, Barangay Mankilam, Tagum City, Davao del Norte
Income Taxation

• Board of Investments (BOI)

➢ It is tasked to lead the promotion of
investments in the Philippines by
assisting Filipinos and foreign investors
to venture and prosper in desirable
areas of economic activities. It
supervises the grant of tax incentives
under the Omnibus Investment Code.
The BOI is an attached agency of the
Department of Trade and Industry
(DTI).
• Philippine Economic Zone Authority
(PEZA)
➢ It is created to promote investments
in export-oriented manufacturing
industries in the Philippines and,
among other myriads of functions,
supervise the grant of both fiscal and
non-fiscal incentives.

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