TAXATION

Taxation-is the process by which the sovereign, through its law making body, raises income to defray the
necessary expenses of the government. It also refers to the inherent power of the state to demand
contributions to finance public expenditures.
Tax-is the enforced proportional contributions from person or 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.
Characteristic of Tax
1. It is an enforced contribution
2. It is generally payable in money
3. It is levied on persons or property
4. It is proportionate in character
5. It is levied by the law making body of the state
6. It is levied by the state upon person or property under its jurisdiction
Theory and basis of taxation
1. 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 and property within its limit to contribute.
2. 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 receives benefits and protection from the
government.
Nature and power of taxation
1. It is inherent in sovereignty.
2. It is legislative in character.
3. It is subject to constitutional and inherent limitations.
Aspects of taxation
1. Levying or imposition of the tax which is a legislative act; and
2. Collection of the tax levied which is essentially administrative in character.
Basic Principles of a sound tax system
1. Fiscal adequacy
2. Equality or theoretical justice,
3. Administrative feasibility
Classification of Taxes
A. According to Subject matter or object1. Personal, Poll or Capitation tax of fixed amount imposed on persons residing within a specified
territory, whether citizens or not without regard to their property or occupation or business.
Ex. Community tax(residence tax)
2. Property tax imposed on property whether real or personal in proportion to its value.
Ex. Real Estate Tax
3. Excise any tax that does not belong to the classification of a poll or property tax. It is a charge
imposed upon a performance of an act, the enjoyment of a privilege or the engaging in an
occupation.
Ex. VAT, business tax, income tax

B. As to who bears the bears the burden1. Direct directly demanded from and paid by the taxpayer.
Ex. Income tax
2. Indirect demanded from one person in the expectation and intention that he shall indemnify
himself at the expense of another.
Ex. VAT, percentage taxes, custom duties
C. As to the determination of amount 1. Specific tax of a fixed amount imposed by the head or number, or by some standard of weight
or measurement.
Ex. Excise tax on cigarettes, wine, gasoline and others.
2. Ad Valorem tax of a fixed proportion of the value of property with respect to which the tax is
assessed.
Ex. Excise taxes on automobiles, non essential goods like jewelries
D. As to purpose 1. General, Fiscal or Revenue - tax imposed for general governmental purposes and expenditures.
Ex. Income tax
2. Special or Regulatory tax imposed for a special purpose
Ex. Protective tariffs or custom duties on imports
E. As to scope1. National- tax imposed by the national government
Ex. National internal revenue taxes, custom duties,
2. Municipal or local tax imposed by local government units
Ex. Real estate taxes
F. As to graduation or rate1. Proportional tax which is based on a fixed percentage vis--vis the amount of the property or
other bases to be taxed.
Ex. Real Property tax; all percentage taxes
2. Progressive the tax rate increases as the tax base increases
Ex. Income tax
3. Regressive the tax rate decreases as the tax base increases. The Philippines has no regressive
tax
Tax Distinguished from other terms
1. Revenue- Refers to all the funds or income derived by the government, whether from tax or other
sources
2. Internal Revenue- taxes imposed by the legislature other than duties on imports and exports
3. Custom Duties- taxes imposed on goods exported from or imported into a country.
4. Debt- based on contract, while tax is based on law; is assignable, while tax cannot be assigned; may be
paid in kind, while tax is generally payable in money; a person cannot be imprisoned for
nonpayment of debt while imprisonment is a sanction for nonpayment of tax.
5. Penalty Sanction imposed as a punishment for violation of law or acts deemed injurious.
TAX EVASION AND TAX AVOIDANCE
Tax Evasion- is the use by the taxpayer of illegal or fraudulent means to defeat or reduce the
payment of a tax.
Tax Avoidance- is the use by the taxpayer of legally permissible means or methods in order to avoid
or reduce tax liability.