INTRODUCTION TO

TAXATION
WHAT IS TAXATION?

AS A STATE AS A PROCESS AS A MODE OF

POWER COST
DISTRIBUTION
Purpose of Taxation
1.       Primary – to raise revenue
2.       Secondary
To reduce in equalities in wealth and income
by imposing progressively higher taxes
To encourage growth of local industries
To protect local industries
To prevent inflation by increasing taxes
BASIS OF TAXATION
PUBLIC
SERVICES

GOVERNMEN
PEOPLE
T
TAXE
S
THEORIES OF COST
ALLOCATION
Benefit received theory
The benefit received theory presupposes that the
more benefit one receives from the government ,
the more taxes he should pay

Ability to pay theory

The ability to pay theory presupposes that the
taxation should also consider the taxpayer’s
ability to pay.
ASPECTS 1. Vertical equity
OF THE Vertical equity proposes that the extent of
one’s ability to pay is directly proportional to the
ABILITY level of his tax base

TO PAY 2. Horizontal Equity

THEORY Horizontal equity requires consideration of
the particular circumstance of the taxpayer
Taxes are essential and
indispensable to the continued
THE
subsistence of the government LIFEBLOO
D
Taxes are lifeblood of the
government, and their prompt DOCTRIN
and certain availability are an
imperious need. E
 1) Tax is imposed even in the absence of a Constitutional
grant.

IMPLICATI 2) Claims for tax exemption are construed against taxpayers.

ON OF 3) The government reserves the right to choose the objects of

taxation.
THE 4) The courts are not allowed to interfere with the collection
of taxes.
LIFEBLOO 5) In income taxation:
D a) Income received in advance is taxable upon receipt
DOCTRINE b) Deduction for capital expenditures and prepayments is
not allowed effectively defers the collection of income
IN tax
c) A lower amount of deduction is preferred when a
TAXATION claimable expense is subject to limit
d) A higher tax base is preferred when the tax object has
multiple tax bases
 Point of Taxation Police Power Eminent Domain
Difference
Exercising Authority Government Government Government and
private utilities
Purpose For the support of the To protect the general For public use
government welfare of the people
Persons affected Community or class Community or class Owner of the property
of individuals of individuals
Amount of imposition Unlimited (Tax is Limited (Imposition No amount imposed
based on government is limited to cover ( the government pays
needs) cost of regulation) just compensation)
Importance Most important Most superior Important
Relationship with the Inferior to the “Non- Superior to the “Non- Superior to the “Non-
constitution impairment clause” of impairment clause” of impairment clause” of
the constitution the Constitution the Constitution
Limitation Constitutional and Public interest and Public purpose and
inherent limitation due process just compensation
INHERENT LIMITATION OF
TAXATION
Territoriality of Taxation
Two-fold obligation of taxpayers
1. Filing of returns and payment of taxes
2. Withholding of taxes on expenses and its remittance to the government

International comity
Public purpose
Exemption of the government
Non-delegation of the taxing power
CONSTITUTIONAL
LIMITATION OF TAXATION
Due process of law
Aspects of Due Process
1. Substantive due process
2. Procedural due process
Equal protection of the law
Uniformity rule in taxation
Progressive system of taxation
Non imprisonment for non-payment of debt or tax poll
a) Basic community tax
b) Additional community tax
Non impairment of obligation and contract
Free worship rule
Exemption of religious entities or charitable entities,
non-profit cemeteries, churches and mosque from
property taxes
Non-appropriation of public funds or property for the
benefit of any church, sect or system of religion
Exemption from taxes of the revenues and assets of
non-profit, non-stock educational institutions
Only applies on revenues and assets that are actually, directly,
and exclusively devoted for educational purposes.
Concurrence of a majority of all members of Congress
for the passage of a law granting tax exemption
Non-diversification of tax collections
Non-delegation of the power of taxation
Non-impairment of the jurisdiction of the Supreme
Court to review tax cases
The requirement that appropriations, revenue, or tariff
bills shall originate exclusively in the House of
Representatives
The delegation of taxing power to local government
units
 Levy or imposition
 Assessment and Collection
SITUS OF TAXATION
Business Tax Situs
 Businesses are subject to tax in the place where the business is conducted

Income tax situs on services

 Service fees are subject to tax where they are rendered

Income tax situs on sale of goods

 The gain on sale is subject to tax in the place of sale

Property tax situs

 Properties are taxable in their location

Personal tax situs

 Persons are taxable in their place of residence
OTHER FUNDAMENTAL
DOCTRINES IN TAXATION
Marshall Doctrine
“The power to tax involves the power to destroy”

Holme’s Doctrine
“Taxation power is not the power to destroy while the court
sits
Prospectivity of tax laws
“ Tax laws are generally prospective in operation
Non-compensation or set-off
Taxes are not subject to automatics set-off or
compensation
Non-assignment of taxes
Tax obligations cannot be assigned or transferred to
another entity by contract.
Imprescriptibility in taxation
Doctrine of estoppel
Judicial Non-interference
Strict construction of tax laws
“Taxation is the rule, exemption is the exception”
Vague tax laws
Vague exemption laws
 Double taxation occurs when the same
taxpayer is taxed twice by the same tax
jurisdiction for the same thing

DOUBLE Elements of double taxation

TAXATIO 1. Primary element
N 2. Secondary elements:
a) Same type of tax
b) Same purpose of tax
c) Same taxing jurisdiction
d) Same tax period
TYPES OF
DOUBLE
TAXATION
1. Direct double taxation
This occurs when all element
of double taxation exists for
both impositions.
2. Indirect double taxation
This occurs when at least one
of the secondary elements of
double taxation is not
common for both impositions
HOW CAN DOUBLE TAXATION
BE MINIMIZED?
A. Provision of tax exemption
B. Allowing foreign tax credit
C. Allowing reciprocal tax treatment
D. Entering into treaties or bilateral agreements
ESCAPES FROM TAXATION
Categories of Escapes from Taxation
A. Those that result to loss of government revenue
Tax Evasion
- also known as tax dodging, refers to any act or trick that tends to
illegally reduce or avoid payment of tax
Tax avoidance
- also known as tax minimization, refers to any act or trick that reduces
or totally escapes taxes by any legally permissible means
Tax exemption
- Also known as tax holiday, refers to the immunity, privilege or
freedom being subject to a tax which others are subject to.
Distinction between tax evasion and
tax avoidance
Tax Evasion Tax Avoidance
It is a scheme used outside of It is a tax saving device within the
those lawful means and when means sanctioned by law
availed of, it usually subjects the
taxpayer to penalties
It is accomplished by breaking Accomplished by legal procedures
the law and do not violate the law
It connotes fraud, deceit and No fraud is involved
malice
B. Those that do not result to loss of government revenue
Shifting – this is the process of transferring tax burden to other
taxpayers
a) Forward – shifting of tax which follows the normal flow of
distribution
b) Backward -
c) Onward
Capitalization – pertains to the adjustment of the value of an
asset caused by changes in tax rates.
Transformation – this pertains to the elimination of wastes or
losses by the taxpayer to form savings to compensate for the tax
imposition or increase in taxes
TAX AMNESTY VS. TAX
CONDONATION
Amnesty is a general pardon granted by the government for erring
taxpayers to give them a chance to reform and enable them to have
a fresh start to be part of a society with a clean slate.
Tax condonation is forgiveness of the tax obligation of a certain
taxpayer under certain justifiable grounds.
Amnesty covers both civil and criminal liabilities, but condonation
covers only civil liabilities of taxpayer.
Amnesty operates retrospectively by forgiving past violations.
Condonation applies prospectively to any unpaid balance of the
tax.
Tax Exemption Tax Amnesty
There is no tax liability at all Connotes condonation from payment
of existing tax liability
The grantee need not pay The grantee pays a portion
anything
Can be availed of by any Not always available
qualified taxpayer