GENERAL

PRINCIPLES
AND
CONCEPT OF
TAXATION
  Police Power
INHERENT
 Eminent Domain
POWERS OF
THE STATE
 Taxation
POLICE POWER
- power of the state to enact such laws in
relation to persons and property as may
promote public health, public morals, public
safety, and the general welfare of the people
EMINENT DOMAIN
- power of the state or those
to whom the power has
been delegated to take
private property for public
use upon paying to the
owner a just compensation
TAXATION
- The power by which the sovereign, thru its
legislature, raises revenue to support the
necessary expenditures of the government.
- Taxation is the process or means by which the
sovereign (independent state), through its law
making body (the legislature), imposes burdens
upon subjects and objects within its jurisdiction
for the purpose of raising revenue to carry out
the legitimate objects of government.
Similarities among inherent powers

1. Inherent in sovereignty
2. Necessary attributes of sovereignty
3. Ways by which state interferes with
private rights and properties
4. Legislative in nature and character
5. Presuppose equivalent compensation
6. Constitutional provisions serve as
limitations of these powers
 Distinction among inherent powers

TAXATION POLICE EMINENT

POWER DOMAIN
1. As to Power to enforce Power to make Power to take
concept contribution to and implement private property
raise government laws for the for public use with
funds. general just
welfare. compensation.
2. As to Plenary, Broader in Merely a power to
scope comprehensive application – take private
and supreme general power property for public
to make and use.
implement
laws.
3. As to Exercised only by Exercised only May be granted
authority government or its by government to public service
political or its political or public utility
subdivisions. subdivisions. companies
 TAXATION POLICE EMINENT
POWER DOMAIN

4. As to Money is taken to Property is taken Private property

purpose support the or destroyed to is taken for
government. promote public use.
general welfare.

5. As to The power to Can be Can be

necessity of make tax laws expressly expressly
delegation cannot be delegated to delegated to
delegated. LGUs LGUs

6. As to Community or Community or Particular

persons class of individual class of private property
affected individual of an individual

7. As to Continuous Healthy Market value of

benefits protection and economic the property
organized society. standard of expropriated.
society.
 TAXATION POLICE EMINENT
POWER DOMAIN
8. As to the Generally no limit Cost of No imposition
amount of regulation,
imposition license and
other necessary
expenses
9. As to Inseparable for Protection, Common
importance the existence of safety and necessities and
a nation welfare of the interest of
society community
transcend
individual rights
in property

10. As to Inferior to non- Superior to non- Superior to and

relationship to impairment impairment may override
Constitution clause clause constitutional
impairment
provisions
 TAXATION POLICE EMINENT
POWER DOMAIN
11. As to Constrained Limited by the Bounded by
limitation by demand for public and just
constitutional public interest compensation
and inherent and due
limitations. process.
TAXATION
Taxation is the process or means by
which the sovereign (independent
state), through its law making body
(the legislature), imposes burdens
upon subjects and objects within its
jurisdiction for the purpose of raising
revenue to carry out the legitimate
objects of government.
PURPOSES OF TAXATION
Primary Purpose

To provide funds and property with

which to promote the general welfare
and protection of its citizens and to
enable it to finance its multifarious
activities.
Secondary Purposes

a. To strengthen anemic enterprises by

giving tax exemptions;
b. To protect local industries against
foreign competitions through imposition
of high custom duties on imported
goods;
c. To reduce inequalities in wealth and
income by imposing progressively
higher tax rates; and
d. To prevent inflation by increasing taxes
or ward off depression by decreasing
them.
THE POWER TO TAX IS UNLIMITED,
PLENARY, COMPREHENSIVE, AND
SUPREME

SCOPE OF TAXATION
THEORY OF TAXATION
The power of taxation proceeds
upon the theory that the existence of
the government is a necessity and
that its has a right to compel all its
citizens and property within its limits to
contribute.
BASIS OF TAXATION
The basis of taxation is found on the
reciprocal duties of protection and
support between the State and its
inhabitants. This is otherwise known
as benefit-received principle.
BASIC PRINCIPLE OF A SOUND
TAX SYSTEM

1. Fiscal Adequacy
2. Equality or Theoretical Justice
(Ability-To-Pay Principle)
3. Administrative Feasibility
NATURE AND CHARACTERISTICS OF
THE STATE’S POWER TO TAX

1. It is inherent in sovereignty – the power of

taxation may be exercised by the State
although not expressly granted by the
constitution.
2. Legislative in character – it is only the
legislature that can enact tax laws.
3. Subject to constitutional and inherent
limitations – taxation is not absolute power
that can be exercised by the legislature
anyway it pleases.
Limitations of the Taxation Power

 Constitutional limitations

 Inherent limitations
CONSTITUTIONAL LIMITATIONS

1. Due Process – no person shall be

deprived of life, liberty or property without
due process of law, nor shall any person
be denied the equal protection of the
law.
2. Equal protection of the laws
CONSTITUTIONAL LIMITATIONS

3. Rule of Uniformity and Equity in Taxation – the

Congress shall evolve a progressive system of
taxation.
4. Non-imprisonment for non-payment of poll
tax – no person shall be imprisoned for debt or
non-payment of a poll tax.
CONSTITUTIONAL LIMITATIONS

5. Non-impairment of the obligations of

contracts – no law impairing the obligations of
contracts shall be passed
CONSTITUTIONAL LIMITATIONS

6. Non-infringement of religious freedom – no

law shall be made respecting the establishment
of religion, or prohibiting the free exercise
thereof.
CONSTITUTIONAL LIMITATIONS

7. No appropriations for religious purposes – no

public money or property shall be appropriated,
applied, paid or employed, directly and indirectly,
for the use, benefit, or support of any sect,
denomination, sectarian, institution, or system of
religion, or of any priest, preacher, minister, or other
religious teacher, or dignitary as such, except when
such priest, preacher, minister, or dignitary is
assigned to the armed forces, or to any penal
institution, or government orphanage or leprosarium.
CONSTITUTIONAL LIMITATIONS

8. Exemption of religious, charitable or

educational entities, non-profit cemeteries and
churches from taxation.
9. Exemption of revenues and assets of non-
stock, non-profit educational institutions and
donations for educational purposes from
taxation
CONSTITUTIONAL LIMITATIONS

10. Concurrence by a majority of all

members of the Congress for the passage of
law granting any tax exemption.
11. Power of the President to veto any
particular item or items in a revenue or tariff
bill.
12. Non-impairment of the jurisdiction of the
Supreme Court in tax cases
INHERENT LIMITATIONS
1. Requirement that levy must be for a public
purpose.
2. Non-delegation of the legislative power to tax
(Potestas delegata non delegare potest)
Delegation is permitted in the following
cases
a. Delegation to the President
b. Delegation to local governments
c. Delegation to administrative bodies
INHERENT LIMITATIONS

3. Exemption from taxation of government

entities

“ Agencies performing governmental functions

are exempt from tax unless expressly taxed, while
those performing proprietary functions are
subject to tax unless expressly exempted.”
INHERENT LIMITATIONS
4. International Comity – recognition of respect
accorded by one jurisdiction within its territory
over the law of another because they are
sovereign equals.
5. Territorial jurisdiction
 ASPECTS OF TAXATION
1. Levy – deals with the provision of law which determines
the person or property to be taxed, the sum or sums to
be raised, the rate thereof, and the time and manner of
levying, receiving and collecting the taxes.
2. Collection – constituted of the provisions of law which
prescribe the manner of enforcing the obligation on the
part of those taxed to pay the demand thus created.
TAXES
 The enforced proportional contributions
from persons and 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.
Essential Elements of a Tax
1. Enforced contribution
2. Generally payable in money
3. Proportionate in character
4. Levied on persons, property, or the exercise of
a right of privilege
5. Levied by the state which has jurisdiction over
the subject or object of taxation
6. Levied by the lawmaking body of the state
7. Levied for public purpose or purposes
CLASSIFICATION OF TAXES
1. As to subject matter or object
a. Personal, poll or capitation – tax of fixed
amount imposed on individuals, whether citizens
or not, residing within a specified territory without
regard to their property or the occupation in
which they may be engaged.
b. Property – tax imposed on property,
whether real or personal in proportion either to its
value or in accordance with some other
reasonable method of apportionment.
c. Excise (Privilege Tax) – a tax imposed
upon the performance of an act, the enjoyment
of a privilege, or engaging in occupation.
CLASSIFICATION OF TAXES

2. As to who bears the burden

a. Direct – a tax that is demanded from the

person who also shows the burden of the tax
b. Indirect – a tax demanded from one
person in the expectation and intention that he
shall indemnify himself at the expense of the
another.
CLASSIFICATION OF TAXES

3. As to determination of amount

a. Specific – tax of fixed amount imposed

by the head or number, or by some standard of
weight or measurement; it requires no assessment
other than a listing of classification of the subject
to be taxed
b. Ad valorem – tax of a fixed proportion of
the value of the property with respect to which
the tax is assessed.
CLASSIFICATION OF TAXES
4. As to purpose

a. General, fiscal or revenue – tax that is

imposed solely to raise revenue for government
expenditures
b. Special or regulatory – tax imposed for a
special purpose
CLASSIFICATION OF TAXES

5. As to authority imposing the same

a. National – tax imposed by the national

government
b. Municipal or local – tax imposed by
municipal corporations
CLASSIFICATION FO TAXES
6. As to graduation or rate

a. Proportional – tax based on a fixed

percentage of the amount of the property,
receipts, or other basis to be taxed
b. Progressive – tax the rate of which
increases as the tax base or bracket increases
c. Regressive – tax rate of which decreases
as the tax base increases
 Tax distinguished from license fee
Permit or license fee is a charge imposed under the
police power for purposes of regulation.

1. Taxes are levied by virtue of taxing power, license fees

are imposed by virtue of the police power
2. Taxes are levied for revenue, license fees are imposed
for regulations
3. There is generally no limit on the amount of tax that
may be imposed; license fees may not exceed the
amount necessary to defray the cost of regulation
4. Taxes are imposed on persons, property business,
occupation of the exercise of any privilege, whether
legal or illegal; license fees may be imposed only on
legitimate businesses or occupation
5. Failure to pay a tax does not render the business or
occupation illegal; non-payment of a license fee
renders the business or occupation illegal.
 Tax distinguished from toll
Toll is a sum of money for the use of something,
generally applied to the consideration which is paid for
the use of a road, bridge or a public nature.

1. Toll is a demand of proprietorship; tax is a demand

of sovereignty
2. Toll is a compensation for the use of another’s
property, or the improvements made by him; taxes
are levied for the support of the government, and
their amount is regulated by necessities
3. A toll may be imposed by the government of private
individuals or entities; a tax may be imposed only by
the State.
Tax distinguished from special assessment
Special assessment is an enforced proportional
contribution from owners of lands for special
benefit resulting from public improvements

1. Tax has general application; special assessment

has special application only to a particular time
and place
2. Tax can be levied on land, persons, property,
income, business; special assessment is levied
only on land.
3. Tax is based on necessity and partially on
benefits; special assessment is based wholly on
benefits.
 Tax distinguished from debt

1. Debt generally arises from contract, express or

implied; tax is created by law
2. Debt is assignable; tax cannot generally be
assigned
3. Debt may be paid in kind; tax is generally
payable in money
4. A person cannot be imprisoned for non-
payment of debt; imprisonment is a sanction for
non-payment of tax
 Tax distinguished from customs duties

Customs duties are taxed levied on commodities,

imported or exported across national boundaries. It
follows that taxes include customs duties.
.
DOUBLE TAXATION
Taxing twice for the same purpose, by the
same taxing authority, in the same period,
some of the property in the territory.

In a long line of cases, the Supreme Court

considered double taxation as not
unconstitutional although obnoxious.
However, double taxation may give rise to certain
defenses that would render the tax void, such as:

1. The two taxes which are of the same kind,

nature, and from the same taxing authority
make taxation inequitable, excessive,
oppressive and unreasonable
2. Uniformity in taxation is violated as when the
first measure applies to all members of a
certain class, while the second measure
applies only to limited members of the same
class.
REVENUE
All funds or income derived by the government
whether from tax or any other source derived from the
following sources

1. Grants received from another government

2. Donations from non-government sources
3. Loans from private entities or another government
entity
4. Commercial revenues such as those received by
GOCCs
5. Administrative revenues such as fines, penalties and
forfeitures
6. Taxes such as internal revenues and customs duties
SITUS OF TAXATION
Situs of taxation means a place of taxation. The
rule is that the state which has jurisdiction to tax
the person, property or transactions may
rightfully levy and collect the tax.
Situs of Taxation
1. Business, occupation or transaction – Place where
the business is conducted; the place where the
occupation is practiced; or the place where the
transaction took place.
2. Real and intangible personal property – Location of
property
3. Intangible personal property – domicile of the owner
unless the property has acquired a business situs in
another jurisdiction
4. Income – place where the same is earned, or
citizenship or domicile of the owner
5. Gratuitous transfer of property – residence or
citizenship of the taxpayer, or location of the
property
INTERPRETATION OF TAX LAWS
1n case of doubt as to whether a taxpayer I
covered by the tax or not, the doubt shall be
resolved in favor of the taxpayer and strictly
against the government.

However, doubts as to the validity of tax

exemptions are resolved liberally in favor of the
government and strictly against the taxpayer.
FORMS OF ESCAPE FROM TAXATION
A. Those that do not reduce the revenue collection of
the government
1. Shifting – a transfer of tax burden by one on whom
the tax is assessed to another
2. Capitalization – reduction in the selling price of
income-producing property by an amount equal
to the capitalized value of future taxes that may be
paid by the purchaser
3. Transformation – a method by which the
manufacturer or producer upon whom the tax is
imposed pays the tax and strives to recover such
expenses through lower production cost without
sacrificing the quality of the product
FORMS OF ESCAPE FROM TAXATION
B. Those that result in loss of revenue to the government
1. Tax evasion – also known as tax dodging; refers to
fraudulent or forbidden schemes or devices
designed to lessen or defeat taxes
2. Tax avoidance (tax minimization) – exploitation by
the taxpayer of legally permissible alternative tax
rates or methods of assessing taxable property or
income, in order to reduce taxes.
3. Exemption from taxation – grant of immunity to
particular persons or corporations or to persons or
corporations of a particular class from a tax which
persons and corporations generally within the same
taxing district are obliged to pay.
 TAX AMNESTY
An immunity from all criminal and civil
obligations arising from nonpayment of
taxes. It is a general pardon given to all
taxpayers; it applies only to past periods,
hence retroactive in application.
DOCTRINE OF EQUITABLE RECOUPMENT
This doctrine states that where the refund of a
tax illegally or erroneously collected or overpaid
by the taxpayer is barred by prescription, a tax
presently being assessed against the taxpayer
may be recouped or set-off against the tax
whose refund in now barred by prescription.
RULE ON SET-OFF OR COMPENSATION

A claim for taxes is not such a debt, demand,

contract or judgment as is allowed to be set-off;
neither are they a proper subject of recoupment
since they do not arise out of the contract or
transaction
SOURCES OF TAX LAWS
1. The Constitution
2. Statutory enactments – refers to the tax
laws passed by the Congress
3. Administrative ruling and regulations
4. Judicial decisions – decisions of the
Court of Tax Appeals and the Supreme
Court applying or interpreting tax laws.
Theory & Basis of Taxation
 Lifeblood Theory or Necessity Theory-
taxes are the lifeblood of the government
and their prompt and certain availability is
an imperious need.
 Benefits Received or Reciprocity Theory-
the basis is the reciprocal duties of
protection and support between the state
and its inhabitants.
THE BUREAU OF INTERNAL REVENUE
 The Bureau of Internal Revenue
(BIR) is an administrative agency
which is involved in the
administration and collection of
national taxes. It is under the
supervision and control of the
Department of Finance.
POWERS AND DUTIES
1. Assessment and collection of all national
revenue internal revenue taxes, fees and
charges;
2. Enforcement of all forfeitures, penalties and
fines connected therewith;
3. Execution of judgements in all cases decided
in its favor by the Court of Tax Appeals (CTA)
and the ordinary courts; and
4. Give effect to and administer the supervisory
and police power conferred to it by the
National Internal Revenue Code (NIRC) or
other laws.
POWERS AND DUTIES OF THE
COMMISSIONER
The bureau shall have a chief to be known as
the Commissioner of Internal Revenue and
four (4) assistant chiefs to be known as Deputy
Commissioners

a. Operations Group
b. Information Systems Group
c. Research Management Group
d. Legal and Enforcement Group
POWERS OF THE CIR
1. To interpret tax laws and to decide
tax cases.
2. To obtain information, and to
summon, examine, and take
testimony or persons.
3. To make assessments and prescribe
additional requirements for tax
administration and enforcement.
 POWER TO INTERPRET TAX LAW
AND TO DECIDE TAX CASES
The power to interpret the provisions of the National
Internal Revenue Code (NIRC) and other tax laws shall
be under the exclusive and original jurisdiction of the
Commissioner, subject to the review by the Secretary
of Finance.

The power to decide disputed assessments, refunds of

internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising
under the NIRC or other laws or portions thereof
administered by the bureau is vested in the
Commissioner, subject to the appellate jurisdiction of
the Court of Tax Appeals.
 POWER TO EXAMINE BOOKS AND OTHER
ACCOUNTING RECORDS AND OBTAIN
INFORMATION
1. To examine book, paper, record or other data which may
be relevant or material to such inquiry.
2. To obtain on a regular basis any information from any
person other than the person whose internal revenue tax
liability is subject to audit or investigation, or from any office
or officer of the national and local governments,
government agencies and instrumentalities, including the
BSP and GOCCs.
3. To summon the person liable for tax or required to file a tax
return, or any officer or employee of such person having
possession, custody, or care of the books of accounts and
other accounting records containing entries relating to the
business of the person liable to tax, or any other person, to
appear before the Commissioner or his duly authorized
representative at a time and place specified in the
summons and to produce such books, papers, record or
other data, and to give testimony;
POWER TO EXAMINE BOOKS AND OTHER
ACCOUNTING RECORDS AND OBTAIN
INFORMATION
4. To take testimony of the person concerned,
under oath, as may be relevant or materials
to such inquiry.
5. To cause revenue officers and employees
to make canvass from time to time of any
revenue district or region and inquire after
and concerning all persons therein who may
be liable to pay any internal revenue tax, and
all persons owning of having the care,
management or possession of any object with
respect to which a tax is imposed.
 POWER TO MAKE ASSESSMENT
1. To examine returns and determine tax due;
2. To conduct inventory-taking, surveillance
and to prescribe presumptive gross sales
and receipts;
3. To terminate taxable period;
4. To prescribe real property values;
5. To inquire into bank deposit accounts;
6. To accredit and register tax agents; and
7. To prescribe additional procedural or
documentary requirements.
BUREAU’S AUTHORITY TO
INQUIRE BANK DEPOSITS OF
TAXPAYERS
Despite the prohibition of R.A. 1405 or Bank
Secrecy Law, the Commissioner is authorized to
inquire into bank deposits in the following
instances:

1. To determine the gross estate of the

decedent; and
2. When the taxpayer applies for a
compromise of his tax liability by reason of
financial incapacity.
 AUTHORITY OF THE COMMISSIONER TO
COMPROMISE TAXES
Compromise is a contract whereby parties by
reciprocal concessions avoid litigation or put an
end to one already commenced.

1. Reasonable doubt as to the validity of the

claim against the taxpayer exists; or
2. The financial position of the taxpayer
demonstrates clear inability to pay the
assessed tax.
The compromise settlement of any tax
liability shall be subject to the following
minimum amounts:
a. For cases of financial incapacity, a
minimum compromise rat equivalent to
ten percent (10%) of the basic tax
assessed; and
b. For other cases, a minimum compromise
rat equivalent to forty percent (40%) of
the basic tax assessed.
When the basic assessed tax involved
exceeds P1 million or where the
settlement offered is less than the
prescribed minimum rates, the
approval of the Commissioner, and
the four Deputy Commissioners shall
be required.
All criminal violations may be
compromised except:

1. Those already filed in court;

2. Those involving fraud
 ABATEMENT OR
CANCELLATION OF TAX
LIABILITY
1. The tax or any portion thereof
appears to be unjustly or excessively
assessed.
2. The administration and collection
costs involved do not justify the
collection of the amount due.
 NON-DELEGABLE POWERS OF
THE COMMISSIONER
1. The power to recommend the promulgation
of rules and regulations by the Secretary of
Finance;
2. The power to issue rulings of first impression
or to reverse, revoke or modify any existing
ruling of the Bureau;
3. The power to compromise or abate any tax
liability; and
4. The power to assign or reassign internal
revenue officers to establishments where
articles subject to excise tax are produced
or kept.
THANK
YOU
&
GOD
BLESS