Tax

Principles of taxation
1.1
NATURE OF TAXATION
1. Inherent power of sovereignty
2. Essentially legislative
3. For public purposes
4. Territorial in operation
5. Tax exemption of government
6. Strongest among inherent powers of government
7. Subject to constitutional and inherent limitations

BASIS OF TAXATION
A. Principle of necessity (lifeblood theory)
B. Based on reciprocal duties

SCOPE OF TAXATION POWER

-Unlimited
-Complete
-Comprehensive (wide extent of application)
-Supreme (highest degree)

ESSENTIAL CHARACTERISTICS
A. Enforced contribution
B. Imposed by legislative bodies
C. Proportionate in character (ability to pay principle)
D. Payable in money
E. Imposed for the purpose of raising revenue
F. Used for public purpose
G. Enforced on SOME persons, property, rights
H. Commonly required to be paid at regular intervals
I. Imposed by the sovereign state within its jurisdiction

CLASSIFICATION
Purpose
A. Revenue/Fiscal
B. Regulatory/ Special/ Sumptuary
C. Compensatory

Object/Subject matter
A. Personal/Poll/Capitation - fixed and imposed on persons residing within a
specified territory regardless of amount of their property/ occupation.
B. Property
C. Excise (performance of a right/act, enjoyment of privilege)
Determination of amount
A. Ad valorem (fixed in amounts in proportion to the value of property with respect
to which the tax is assessed - requires intervention of assessors)
B. Specific - fixed and based on some standard of weight

As to who bears the burden

A. Direct
B. Indirect

As to scope or authority collecting tax

A. National (Estate and Donor’s, Income, VAT, Excise, Customs duties, documentary
stamp)
B. Local/ Municipal (community, municipal license, professional tax, real estate)

As to rate or graduation
A. Proportional/Flat rate (based on fixed percentage of the amount)
B. Progressive/ graduated (rate increases as tax base increases)
C. Regressive (none in phils)
D. Digressive (fixed rate imposed on certain amount but diminishes gradually on
sums below it.)
E. Mixed

PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal Adequacy
2. Equality/ Theoretical Justice (Taxpayer’s ability to pay)
3. Administrative Feasibility

LIMITATIONS
Inherent
A. Taxes may be levied only for public purposes
B. Inherently legislative, may not be delegated
C. Tax power is limited to territorial jurisdiction of the state
D. Taxation is subject to international comity
E. Government entities are usually tax exempt

Constitutional
A. Due process of law
B. Equal protection of law
C. Rule of uniformity and equity
D. Non impairment of contracts
E. President’s veto power separates items in revenue or tariff bills
F. Exemption from property taxation of religious, charitable or educational entities,
nonprofit cemeteries, churches and convents appurtenant thereto
G. No public money shall be appropriated for religious purposes
H. Majority of all members of the congress required in granting tax exemption
 I. Congress may not deprive supreme court of its jurisdiction in all cases involving
the legality of any tax, impost or assessment or toll or any penalty imposed in relation to
tax
J. No imprisonment for nonpayment of poll tax
K. Tax collection shall generally be treated as general funds of the government

TAX EVASION
- taxpayer uses unlawful means (non inclusion of sales, deliberate fabrication of
expenses, forming an artificial person to evade taxation or to deliberately reduce taxable
income)

TAX AVOIDANCE
-also tax minimization
Examples :
Tax option (choose to pay lower taxes)
Shifting (transfer burden to another)
Transformation (producer absorbs payment of tax to reduce prices and maintain
market share. He recovers additional expenses by improving process of production
Exemption

DETERMINANTS OF SITUS OF TAXATION

1. Nature, kind or classification of tax being imposed
2. Subject matter of tax
3. Source of income being taxed
4. Place of excise, privilege, business or occupation being taxed
5. Citizenship of taxpayer
6. Residence of taxpayer

DOUBLE TAXATION
Taxing twice for SAME PURPOSE, SAME YEAR, SAME PROPERTY/ ACTIVITY of
SAME PERSON when it should be taxed once fro the same purpose and with the same
kind of CHARACTER TAX.

TAX ADMINISTRATIVE AGENCIES

DOF - principally responsible fro fiscal policies and general management of the
Philippine government’s financial resources. Has executive