CHAPTER I - DEFINITION OF SOME TERMINOLOGIES

Taxation is an act of imposing tax.

Tax - is a power inherent in a sovereign state to enforce a charge or a
burden upon persons, properties or rights or privileges, to defray the
expenses of the government, and to enable it to discharge its appropriate
functions.
Nature of taxation an inherent legislative power of any independent state.
Scope of taxation
It is unlimited and comprehensive
but subject to inherent and constitutional limitations or
limitations depending on the sense of responsibility of the state to its
people.
Inherent limitations:
for public purpose.
power to tax cannot be delegated
double taxation should be avoided or prevented.
government agencies and instrumentalities are exempted from tax.
imposed only within the territorial jurisdiction of the state.
Double taxation is taxing twice, by the same public authority, within the same
jurisdiction or taxing district, for the same purpose in the same year or taxing
period.
Constitutional limitations:
Existing contracts shall not be
No person shall be imprisoned
Taxation must be uniform and
All kinds of land, buildings
exclusively used for religious
taxation.

impaired.
for non- payment of debt or poll tax.
equitable.
and improvements actually, directly or
or charitable purposes are exempt from

Basic principles of a sound tax system

Fiscal adequacy revenue enough to sustain the finances of the
government
Theoretical justice based on taxpayers ability to pay.
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 Administrative feasibility collected efficiently and effectively.

Taxes distinguished from eminent domain
Concept of eminent domain it is the power of the state to take or control
private property for public use
after paying the owner a just compensation to
be determined according to
law.

Taxation
- on persons, properties or rights (national coverage).
Eminent domain - particular owner of property.

Taxation - payment to the government

Eminent domain - taking of private property by the government.

Taxation - presumed to receive benefits from the government directly or

indirectly.
Eminent domain, - owner of the property receives a fair and just
compensation from the government.

Taxation distinguished from police power:

Concept of police power it is the right of the state to enact laws in relation to
properties or persons as
may promote public health, public morals, public safety and the general welfare
of the people.

Taxation
- raise revenues.
Police power - regulation (i.e. license fee)

Taxation
- no limit on the amount of tax
Police power - just enough to implement the regulation.

Classification of taxes:
a. As to subject matter:
1. Personal or capitation or poll tax or cedula fixed amount on all
persons who are residents within a specific territory.
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2. Property tax tax assessed on all properties located within the

jurisdiction of the taxing authority, in proportion to its value or in
some method of apportionment.
3. Excise tax a tax which is not covered under personal or property.
b. As to who bears the burden
1. Direct tax The one who pays shoulders the tax.
2. Indirect tax The one who pays shifted the burden of the tax to
someone else.
c. As to determination of amount:
1. Specific tax a tax which imposes a specific amount per head or
number, or some standard of weight or measurement.
2. Ad valorem tax a tax based on the value of the article subject to tax.
It is a certain percentage of the invoices or appraised value of the
article or product subject to tax.
d. As to purpose:
1. General tax tax levied to raise revenues for the government.
2. Special tax tax levied for special purpose.
e. As to scope
1. National tax tax levied by the national government.
2. Local tax tax levied by the local government.
f. As to proportionality
1. Progressive or graduated increase in the tax rate is proportional to
the increase in tax base. Ex. Income tax, estate tax, and gift tax.
2. Regressive increase in the tax rate is not proportional to the increase
in tax base. We do not use this kind of taxation.
3. Proportional fixed percentage of amount of the base (e.g. value of the
property, or gross receipts) Ex. Value added tax (VAT), real property
taxes.

Some doctrines in Taxation

1. Prospectively of tax laws tax laws must be imposed not retroactively but
forwardly.
2. Indirect double taxation recognized Ex. When business tax is imposed
by the municipal government prior to the issuance of business license to
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a taxpayer for engaging in an advertising business. His income from his

advertising business shall later be imposed income tax by the national
government
3. Taxes cannot be offset with whatever claims of taxpayer against the
government.
4. Escape from taxation avoiding or evading tax.
a. Shifting is the transfer of the burden of the tax to someone
else. Ex. Indirect tax
b. Capitalization the reduction in the price of taxed object equal
to the future value of the taxes to be paid, which the purchaser
expects to pay.
c. Transformation is the method of improving the process of
production, turning out his units of product at a lower cost.
d. Evasion use of illegal or fraudulent means to avoid or lessen
the payment of tax.
e. Avoidance use of legal means to prevent or reduce tax liability.
f. Exemption is the granting of immunity to a certain taxpayer
so that it will not pay tax.
Situs
1.
2.
3.

of taxation it is the place of taxation, relates to jurisdiction.

Persons residence of the taxpayer
Real property or tangible property location of the property
Intangible personal property domicile or the taxpayer unless he

acquired a place elsewhere

4. Income taxpayers residence or citizenship, or place the income was
earned.
5. Business, occupation and transaction place where business is operated
or located, occupation is practiced and transaction is completed.
6. Gratuitous transfer of property taxpayers residence or citizenship, or
location of the property.
Tax differentiated from toll.
Toll amount paid for the use of a road, bridge, or the like of a public
nature.

Toll paid for the use of anothers property, imposed by individual private
or government entities

Tax is an exaction of the state for the support of government.

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Tax differentiated from penalty

Penalty - any sanction or punishment for violation of law.
Tax - raising of revenues and imposed only by the government.

Tax differentiated from special assessment

Special assessment - enforced contribution from owners of land for
special benefits resulting from public improvements.

Special assessment - levied only on land, is not a personal liability of

the person assessed, based wholly on benefits.

Tax - levied on persons, properties or rights, a personal liability of the

person assessed, is based on necessity and is of general application.

From permit or license fee

Permit or license fee - a charge imposed under the police power;
purposes of regulation
Tax - for revenue ; exercise of the taxing power.

Failure to pay a license fee makes an act illegal.

Failure to pay a tax does not necessarily make an act illegal.

From debt
A debt is based on contract, is assignable and maybe paid in kind.
Tax is based on law, cannot be assigned and is paid in money. A person
cannot be imprisoned for non-payment of debt while he can be
imprisoned for non-payment of tax.
From Revenue
It is broader than tax since it includes all funds or income derived by the
government aside from taxes.
Other sources of funds by the government are services income from
public enterprises and foreign loans.
From custom duties

Custom duties are taxes imposed on goods exported from or imported to

a country. Custom duties are also taxes but the latter is broader in
scope.

CHAPTER 2 INCOME TAXATION

History of the Philippine Income Tax
At first, our inhabitants were living in our country as a free people.
The Spaniards came into our country, they required every citizen to pay the
poll tax or the cedula as a symbol of Filipinos vassalage to Spain.
But when the USA took over the Philippines from Spain, they introduced the
first income tax law in the Philippines and subsequently it undertook several
revisions from different generations of government until it becomes what is
now.
Bureau of Internal Revenue (BIR)
One form of taxation is tax on income.
Income tax is defined as a tax on income, whether gross or net (27 Am. Jur.,
308).
Income taxation in the Philippines is mostly covered under a law known as the
National Internal Revenue Code.
Aside from that, it also includes special laws, revenue regulations and
circulars, rulings of the BIR, opinions of the Secretary of Justice, decisions of
the Supreme Court and the lower courts.
The implementing agency is the Bureau of Internal Revenue under the
Department of Finance.