I.

GENERAL PRINCIPLES

A. CONCEPT AND PURPOSE OF TAXATION

1. Definition

- defined as a state of power, legislative process, and a mode of government cost distribution

2. Purpose

- to raise revenue for government expenditures.

3. Distinguish: tax and other forms of exactions

a. Tax and Special Assessment

A special assessment is in the nature of a tax upon property levied according

to benefits conferred on the property. The whole theory of a special assessment

is based on the doctrine that the property against which it is levied derives some

special benefit from the improvement.

The distinctions between a special assessment and a tax are:

i. a special assessment can be levied only on land;

ii. a special assessment cannot, as a rule, be made a personal liability of

the persons assessed;

iii. a special assessment is based wholly on benefits; and

iv. a special assessment is exceptional both as to time and locality. The

imposition of a charge on all property, real and personal, in a prescribed

area, is a tax, not an assessment, although the purpose is to make a local

improvement on a street or highway. A charge imposed only on

property owners benefited is a special assessment rather than a tax.

The power to levy such assessments is undoubtedly an exercise of

the taxing power, but the exercise of the taxing power in imposing an

assessment does not necessarily make the assessment a tax. (1 Cooley,

106-107)
b. Tax and License

i. A Tax is levied in the exercise of the taxing power; License fees emanate

from the police power of the state;

ii. The purpose of the tax is to generate revenues; License fees are imposed

for regulatory purposes. (Victorias Milling Co. v. Municipality of

Victorias, L-21183, September 27,1968)

iii. The amount of the exaction or charge if it is to be a license fee must

only be of sufficient amount to include expenses of issuing a license;

cost of necessary inspection or police surveillance. (Cu Unjeng v.

Patstone, 42 Phil. 818; City oflloilo v. Villanueva, 105 Phil. 337)

iv. The imposition is a tax, if its primary purpose is to generate

revenue, and regulation is merely incidental; but if regulation is the

primary purpose, the fact that incidental revenue is also obtained

does not make the imposition a tax. (PDC v. Quezon City, 172 SCRA

629)

v. In Gerochi v. Department of Energy [527 SCRA 696, 715-717], the

Supreme Court held that in exacting the Universal Charge through

Section 34 of the Electric Power Industry Reform Act of 2001 (EPIRA),

the State's police power, particularly its regulatory dimension is

invoked. Such can be deduced from Section 34 which enumerates the

purposes for which the Universal Charge is imposed and which can be

amply discerned as regulatory in character. From the said purposes, it

can be gleaned that the assailed Universal Charge is not a tax, but an

exaction in the exercise of the State's police power.

c. Tax and Toll

Toll is a demand of proprietorship, an amount charged for the cost and

maintenance of the property used; Tax is a demand of sovereignty for the

purpose of raising public revenues.

Tax is a civil liability. A person is criminally liable in taxation only when

he fails to satisfy his civil obligation to pay taxes. (Republic v. Patanao, L-

22356, July 21, 1967)

B. THEORY AND BASIS OF TAXATION

1. Lifeblood theory

- TAXES are lifeblood of the Government. Without taxes, the government would Be paralyzed for lack of
motive power to activate or Operate it.

2. Necessity theory

- The exercise of the power to tax emanates from necessity, because without taxes, government cannot
fulfill its mandate of promoting the general welfare and well being of the people.

3. Benefits-received theory

- Taxpayers receive benefits from taxes through the protection the State affords to them. For the
protection they get arises their obligation to support the government through payment of taxes.

C. JURISDICTION OVER SUBJECT AND OBJECTS

D. PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal adequacy

- means that the sources of revenue, taken as a whole, should be sufficient to Meet the varying levels of
expenditure, regardless of business condition and problems on economic adjustment. The tax laws
within the state are sufficient enough to expand or contract To the needs and expenditures of the state.

2. Theoretical justice

- means the power of taxation should be based on one’s ability to pay. So, one Who earns more has the
capacity to pay more.

3. Administrative feasibility

- the essence of administrative feasibility is convenience. Taxes, being Burdens, the state should not add
more burden by providing convenience not only to the one Who is imposing or collecting the tax but also
the one who is going to pay the tax. This boils Down to the principle of convenience and efficiency on the
manner of collection and payment of The tax.
E. INHERENT AND CONSTITUTIONAL LIMITATIONS ON TAXATION

 INHERENT LIMITATIONS – limitations or restrictions that spring from the fact that the
power Of taxation is inherent in sovereignty. These are:
1. Public Purpose – It is an essential characteristic of the power of taxation that the
tax is imposed is For a public purpose, and not for a private purpose. It should
be for a governmental purpose – For the public welfare or the common good.
2. Territorial Jurisdiction - The power of taxation is limited only within the
boundary or territory of the state. The state cannot exercise its power of
taxation outside its territory. If the subject of taxation is found abroad, then, the
state could not anymore tax that. By way of exception to territorial jurisdiction,
the state may exercise personal jurisdiction. Even if the subject of taxation is
outside the territory, the state can still impose its power of taxation by invoking
personal jurisdiction. Before the exemption of the non-resident citizens, like the
OFWs, we used to tax the income of non-resident citizens or the OFWs because
we invoked then personal jurisdiction
3. Non-delegation of the legislative power of taxation – As a nature of the power
of taxation, it is legislative In character. Generally, this power cannot be
delegated to others. However, this non-delegation Admits exceptions:
* Article VI, Section 28 (2) -involves the delegation to the President to fix tariff
rates, Import and export quotas, tonnage and wharfage dues and another duties
and imposts
* Article X, Section 5 - This is the power of taxation of LGUs to create their own
sources of revenues, levy taxes, fees and charges. The power of taxation of LGUs
is not inherent. It may be granted either by the Constitution or by legislation. In
our structure, the grant of the taxing power to the LGU is by Constitutional grant
* Delegation to administrative agencies – in the implementation or tax
administration
* Republic Act No. 6735 – Initiative and Referendum Act
4. International comity – the power of taxation is imposed only within the state.
The state could not Tax another sovereign, under the principles of international
law of which we adhere. This is on The basis of Article II, Section 2.
5. Exemption of government agencies – government immunity from tax. This is a
self-imposed practical Limitation that the government does not tax itself. The
government exercising governmental/sovereign functions is not taxed, but when
the government agency exercises Proprietary function it can be.
 CONSTITUTIONAL LIMITATIONS – imposed by the 1987 Constitution of the Philippines.
1. Requirement of Due Process (Article III, Section 1) – When the state exercises
the power of taxation, The taking of the property should be subject to due
process. There must be a basis for the Taking. If the state exercises its power
outside of its territory or when it tax another sovereign, it Is also a violation of
due process.
2. Equal Protection of the Laws (Article III, Section 1)
3. Uniformity and Equity in Taxation (Article VI, Section 21) – There is no more
distinction between Equality and uniformity in taxation. Equitability or Equity in
 Taxation – based on one’s ability to Pay. There may be discrimination or
classification, but in order for it to be valid:
* The classification must be based on substantial distinctions which make real
differences.
* It must be germane to the purpose of the law or of the legislation.
* It must apply not only to present conditions but also to future conditions
substantially Identical to those present.
* It must apply equally to all those who belong to the same class wherever they
may be Found within the jurisdiction of the taxing authority.
4. Rule on Progressive Taxation (Article VI, Section 21) – While it is found in the
Constitution, this is Not a mandatory requirement to be imposed upon
Congress. This just a directive to Congress And not judicially enforceable.
5. Prohibition against impairment of obligation and contracts Article III, Section
10) Taxing power cannot Alter or revoke existing rights and obligations under
valid contracts. When a taxpayer enjoys a Contractual tax exemption, then, it is
protected by the non-impairment clause. If there is a later Law which taxes that
activity and that person has been granted contractual tax exemption, then, That
person affected can invoke the non-impairment clause. He could not be subject
to that new Tax law. But when one enjoys an exemption or a lesser tax rate by
virtue of a franchise, then, the Non-impairment clause cannot be invoked. A
franchise, under Article XII, Section 11 of the Constitution, is subject to
amendment, alteration or repeal by Congress when public interest Requires.
6. Prohibition against imprisonment for non-payment of poll tax (Article III,
Section 20)
7. Non-impairment of the jurisdiction of the Supreme Court to review final
decisions on tax matters. (Article VIII, Section 5(2))
8. The free exercise of religious profession and worship is superior to the power
of taxation (Article III, Section 5)
9. No public money or property shall be appropriated for the use of religious
purposes, exempt in payment for services Rendered as mentioned therein
(Article VI, Section 29 (2))
10. Exemption from real property taxation on properties which are used for
religious, charitable institutions and Educational purposes. (Article VI, Section
28 ()
11. Exemption on the non-stock, non-profit educational institutions (Article XIV,
Section 3-4)
12. Ratification requirement on tax exemptions (Article VI, Section 28 (4)
13. Tax measures, revenue and tariff bills shall originate in the House of
Representatives. (Article VI, Section 24)
14. Tax money collected for a special purpose shall be treated as a special fund
(Article VI, Section 29 (3)
F. STAGES OR ASPECTS OF TAXATION

Levying stage – This is legislative in character. It is Congress which enacts tax laws. As such, it is at Liberty
to determine the subjects or objects to be taxed, purpose, the amount of the rate and the Manner and
means of its collection. Courts cannot question the motive of Congress or the lawmaking body, on the
levy that is introduced by Congress or the law-making body

Tax Administration – This is not legislative, but is executive in nature. The implementation and
Administration of your tax laws are done or implemented by the executive branch of the Government
(BIR, BoC, etc).

1. Assessment/Collection
2. Payment of the Tax
3. Refund of Excess/Erroneous

G. KINDS OF TAXES

II. NATIONAL TAXATION

A. TAXING AUTHORITY/ ORGANIZATION AND FUNCTIONS OF SEVERAL AGENCIES INVOLVED IN

1. Jurisdiction, power, and functions of the Commissioner of Internal Revenue

a. Interpreting tax laws and deciding tax cases

b. Non-retroactivity of ruling

2. Rule-making authority of the Secretary of Finance

3. Bureau of Internal Revenue

4. Local Government Units

5. Board of Investments

6. Philippine Economic Zone Authority

7. Bases Conversion and Development Authority

B. INCOME TAX
1. The taxpayer and tax base

a) Individual

b) Corporation

c) Trusts

2. Gross income