INCOME TAXATION

Module 1:
General Principles and
Concepts of Taxation
(Miss) Cheryll Eileen B. Nillo
Reference
Income Taxation Book
Tax Code of the Philippines
www.bir.gov.ph
- BIR Issuances
 General Principles and
Concepts of Taxation
Definition of Taxation Limitations on the Power of Taxation
Nature of Taxation Doctrines in Taxation
Basis of Taxation Situs of Taxation
Importance of Taxation Definition of Taxes
Objectives or Purposes of Taxation Nature of Taxes
Stages or Processes of Taxation Classification of Taxes
Principles of a sound tax system Nature of Tax Laws
Inherent Powers of the State Sources of Philippines Tax laws
Scope of the Powers of Taxation Interpretation and Application of Tax Laws

By: Cheryll Nillo 09.13.2020

 General Principles and Concepts of
Taxation
TAXATION – power of the State thru Congress to raise funds from taxpayers to pay the
necessary expenses of the government
Nature of Taxation
1. Inherent power of sovereignty
2. Essentially a legislative function - may be delegated to local government units (LGU)
3. Territorial in operation
4. Subject to inherent and constitutional limitations
Basis of Taxation
1. Necessity – lifeblood of the government
2. Reciprocal duties of protection and support between the state and inhabitants/taxpayers –
benefit-received principle
By: Cheryll Nillo 09.13.2020
 General Principles and Concepts of
Taxation
Importance of Taxation – indispensable and inevitable price of civilized society
Objectives or purposes of Taxation:
1. Revenue purpose
primary purpose: promote the general welfare and protection of
inhabitants
2. Regulatory purpose
secondary purpose: (a) regulate inflation; (b) achieve economic and social
stability (c) serve as key instrument for social control
3. Compensatory purpose – equitable distribution of wealth and income in
society

By: Cheryll Nillo 09.19.2020

 General Principles and Concepts of
Taxation
Stages or Processes of Taxation:
1. Levy or imposition – passages of tax laws or ordinances thru legislature
2. Assessment and collection – administration and implementation of tax laws by
executive branch thru administrative agencies such as BIR and BOC
3. Payment of taxes
Principles of Sound Tax System:
1. Fiscal Adequacy – sources of government should be sufficient to meet the demands
of public expenditure regardless of business condition
2. Equality or Theoretical Justice – ability to pay of taxpayers
3. Administrative Feasibility – tax laws must be capable of convenient, just and
effective administration – free from confusion and uncertainty
By: Cheryll Nillo 09.19.2020
 General Principles and Concepts of
Taxation
Inherent Powers of the State:
1. Taxation Power – Power of imposing enforced proportional contribution from
persons and properties by the sovereign to accumulate revenue in order to
support its existence and carry out its legitimate objectives
2. Police Power – protection of health, welfare and morals of community
3. Power of Eminent Domain – Expropriation Law; taking of property by
government for public purpose with payment of just compensation and
observance of due process
Scope of Taxation: Power to tax is unlimited, complete, comprehensive and supreme

By: Cheryll Nillo 09.19.2020

 General Principles and Concepts of
Taxation
Limitations on the Power of Taxation:
Inherent Limitations:
• Taxes levied for public purpose
• Power to tax, being inherently legislative, may not be delegated
Exceptions:
• Delegation to the President to fix customs duties and tariff rates
• Delegation to LGUs
• Delegation for administrative implementation – valuation of property and collection of
taxes
• When allowed by constitution
• Territorial in nature – may cover those outside of the territory by reason of nationality principle

By: Cheryll Nillo 09.19.2020

 General Principles and Concepts of
Taxation
Limitations on the Power of Taxation:
Inherent Limitations:
• Subject to international comity – courteous recognition, friendly agreement, interaction and respect
accorded by one nation to the laws and institutions of another
E.g. tax exemption of properties used by diplomats or heads of states in the exercise of sovereign powers
and diplomatic functions
• Subject to exemption from taxation of government entities
Constitutional Limitations:
• Due process of law
• Substantive - basis
• Procedural – 2-notice rule: (a) notice/show cause memo; (b) notice of termination
• Opportunity to be heard

By: Cheryll Nillo 09.19.2020

 General Principles and Concepts of
Taxation
Limitations on the Power of Taxation:
Constitutional Limitations:
•Equal protection the law – all persons shall be treated alike under like circumstance
• Uniformity and equity of taxation – Congress shall evolve a progressive system of taxation
• President’s power to veto separate items in the revenue and tariff bills
• Exemption from property taxation of religious, charitable and educational institutions, non-
profit cemeteries, churches and convents an appurtenant thereto must be actually, directly and
exclusively for such purpose
• Revenue shall be exempt from taxation provided such properties are actually, directly and
exclusively for the said purpose

By: Cheryll Nillo 09.19.2020

 General Principles and Concepts of
Taxation
Limitations on the Power of Taxation:
Constitutional Limitations:
• Tax exemption must be approved by majority of all members of Congress
• Congress may not be deprived the Supreme Court of its jurisdiction in all cases involving the legality
of any tax, impost or assessment or toll or any penalty imposed is relation to tax
• No public money shall be appropriated for religious purposes – principle of separation of church and
State
• Non-imprisonment for non-payment of poll tax
Poll tax – tax imposed on a person as a resident within a territory of the taxing authority without
regard to his property , business or occupation (community tax certificate (CTC))
• Tax collection shall generally be treated as a general fund of the government

By: Cheryll Nillo 09.19.2020

 General Principles and Concepts of
Taxation
Doctrines in Taxation:
• Prospectivity of tax laws
• Imprescriptibility of taxes – taxes are generally not cancelable
• Double taxation – act of the sovereign by taxing twice for the same purpose in the same year upon the same
property or activity of the same person, when it should be taxed once, for the same purpose and with the same kind
of character of tax
• Escape from taxation
• Evasion – intentional non-payment or reduced payment of tax
• Avoidance – tax minimization
• Shifting – transfer of tax burden to another
• Capitalization – tax on the selling price of the property which is supposed to be paid by the buyer shall be
capitalized by the seller at the time of purchase by deducting the same from total selling price
• Transformation – producer absorbs the payment of tax to reduced prices and to maintain the market share
• Exemption – immunity from payment of taxes such as tax amnesty or tax condonation
By: Cheryll Nillo 09.19.2020
 General Principles and Concepts of
Taxation
Object or Subject of Taxation Situs of Taxation – place of taxation
Persons Residence of taxpayer
Income Place where income is earned or residence or citizenship of taxpayer
Occupation or privilege Place where occupation is pursued
Community or residence Residence or domicile of person being taxed
Transaction or activity Place where the act is done or activity took place
Business Place where the business is conducted regardless of the residence of the owner or location of the
property used in business
Gratuitous transfer of property Place of residence or citizenship of taxpayer or location of the property
Franchise State which granted the rights
Real Property Place where the property is located whether the owner is a resident or non-resident alien
Personal Tangible Property Place where the property is located regardless of residence of owner
Personal Intangible Property Residence of the owner unless the property has acquired a business situs in another jurisdiction
Corporations and other juridical entities Depend on the law of incorporation except estate tax

By: Cheryll Nillo 09.19.2020

 General Principles and Concepts of
Taxation
Taxes – compulsory contribution to state revenue levied by government of taxpayer’s
income and business profits or added to the cost of some goods, services and
transactions
Essential characteristics of taxes
Enforced contribution Used for public purpose
Imposed by legislative body Enforced on some persons, properties and
rights
Proportionate in character Commonly required to be paid at regular
intervals
Generally payable in money Laid by some rules of apportionment
Imposed for the purpose of raising revenue Imposed by sovereign state within its
jurisdiction

By: Cheryll Nillo 09.19.2020

 General Principles and Concepts of
Taxation
As to Purpose As to Object or Subject Matter As to Determination of Amount

• Revenue or Fiscal • Personal, Poll or Capitation • Ad Valorem – fixed amounts in

• Regulatory • Residence proportion to value of property
• Excise with respect to which the tax is
assessed
• Specific

As to scope or authority collecting tax As to rate or graduation As to who bears the burden

• National • Proportional or flat rate –e.g. VAT • Direct – non-transferable

• Local • Progressive or gradual rate – e.g. • Indirect
Income tax
• Regressive rate
• Digressive rate
• Mixed tax
 General Principles and Concepts of
Taxation
Nature of Tax Laws:
• Civil in nature
• Not political in nature
• Not penal in nature
Sources of Philippine Taxes
Constitution of the Philippines BIR Revenue Memorandum Circulars and BOC
Memorandum Orders
Statutes BIR Rulings
Executive Orders Judicial Decisions
Tax Treaties and Conventions with foreign Local Tax Ordinance
countries
Revenue Regulations promulgated by DOF
By: Cheryll Nillo 09.19.2020
 General Principles and Concepts of
Taxation
Interpretation and Application of Tax Laws:
• SC has the exclusive power of constructing and interpreting tax laws
• Doubts should be resolved liberally in favor of taxpayer
• Imposition of tax burden is not presumed
• Tax exemptions are strictly construed against the taxpayer
• Tax laws are applied prospectively

By: Cheryll Nillo 09.19.2020