INTRODUCTION TO TAXATION

JBCG
WHAT IS TAXATION?
 As a state power
 As a process
 As a mode of cost distribution
THEORY OF TAXATION
 The Government’s necessity for funding.
 Every Government provides a vast array of
public services:
 Defense
 Public Order
 Safety, Health and Education
 Social Protection
THEORY OF TAXATION
A system of Government is
indispensable to every society and
without it, the people will not relish the
benefits of a civilized and orderly
society.
A government cannot exist without a
system of funding.
BASIS OF TAXATION
 The Government provides benefits to the people in the
form of public services.
 On the other hand, the people provide the funds that
finance the Government.
 The mutuality of support is the basis of taxation.
 Receipt of benefits in conclusively presumed.
BASIS OF TAXATION
Public Services
Government People

Taxes
THEORIES OF COST ALLOCATION
 Benefit Received Theory
 The more benefit one receives from the
Government, the more taxes he should pay.
 Ability to Pay Theory
 Taxpayers should be required to contribute
based on their relative capacity to sacrifice for
the support of the Government.
ASPECTS OF THE ABILITY TO PAY THEORY

 Vertical Equity (Gross Concept)

 The extent of one’s ability to pay is directly
proportional to the level of his tax base.
 Horizontal Equity (Net Concept)
THE LIFEBLOOD DOCTRINE
 Taxes are essential and indispensable to the
continued subsistence of the Government.
 Without taxes, the Government would be
paralyzed for lack of motive power to
activate or operate it.
IMPLICATION OF THE
LIFEBLOOD DOCTRINE
 Tax is imposed even in the absence of a
Constitutional grant.
 Claims for tax exemption are construed
against taxpayers.
 The Government reserves the right to choose
the objects of taxation.
 The courts are not allowed to interfere with
the collection of taxes.
IMPLICATION OF THE
LIFEBLOOD DOCTRINE
In Income Taxation:
 Income received in advance is taxable
upon receipt.
 Deduction for CapEx and Prepayments is
not allowed.
 A lower amount of deduction is preferred.
 A higher tax base is preferred.
INHERENT POWERS OF THE STATE
 Taxation Power
 Power to enforce proportional contribution from its
subjects to sustain itself.
 Police Power
 General power to enact laws to protect the well-being
of the people.
 Eminent Domain
 Power to take private property for public use after
paying its compensation.
 COMPARISON OF THE THREE POWERS
Point of Different Taxation Police Power Eminent Domain
Exercising Power Government Government Government and
Private Utilities
Purpose For the support of the To protect the For public use
Government General Welfare of
the People
Persons Affected Community Community Owner of property
Amount of Unlimited Limited No Amount Imposed
Imposition
Importance Most Important Most Superior Important
Relationship with Inferior Superior Superior
the Constitution
Limitation Constitutional and Public Interest and Public Purpose and
Inherent Limitations Due Process Just Compensation
SIMILARITIES OF THE THREE POWERS

 They are all necessary attributes of sovereignty.

 They are all inherent to the State.
 They are all legislative in nature.
 They are all ways in which the State interferes
with private rights and properties.
SIMILARITIES OF THE THREE POWERS

 They all exist independently of the Constitution

and are exercisable even without Constitutional
grant.
 They all presuppose an equivalent form of
compensation received by the persons affected
by the exercise of the Power.
 The exercise of these powers by the local
government units may be limited by the national
legislature.
SCOPE OF THE TAXATION POWER

 Regarded as Comprehensive, Plenary,

Unlimited and Supreme.
 Despite the seemingly unlimited nature of
taxation, it has inherent and constitutional
limitations.
INHERENT LIMITATIONS
 Territoriality of Taxation
 International Comity
 Public Purpose
 Exemption of the Government
 Non-delegation of the taxing power
CONSTITUTIONAL
LIMITATIONS
 Due process of law
 Equal protection of the law
 Uniformity rule in taxation
 Progressive system of taxation
 Non-imprisonment for non-payment of debt or poll tax
 Non-impairment of obligation and contract
 Free worship rule
CONSTITUTIONAL
LIMITATIONS
 Exemption of religious or charitable entities, non-profit
cemeteries, churches and mosque from property taxes.
 Non-appropriation of public funds or property for the
benefit of any church, sect or system of religion.
 Exemption from taxes of the revenues and assets of
non-profit, non-stock educational institutions.
 Concurrence of a majority of all members of Congress
for the passage of a law granting tax exemption.
CONSTITUTIONAL
LIMITATIONS
 Non-diversification of tax collections.
 Non-delegation of the power of taxation.
 Non-impairment of the jurisdiction of the Supreme
Court to review tax cases.
 The requirement that appropriations, revenues, or tariff
bills shall originate exclusively in the House of Reps.
 The delegation of taxing power to LGUs.
TERRITORIALITY OF TAXATION
 Public services are normally provided within the
boundaries of the State.
 Tax can only be imposed within the territories of the State.
 Exceptions:
 Resident Citizens and Domestic Corporations are taxable
on income derived within and outside the Philippines.
 Residents or Citizens are taxable on transfers of
properties located within or outside the Philippines.
INTERNATIONAL COMITY
 Pertains to mutual courtesy or reciprocity between states.
 Each state observes co-equal sovereignty by not taxing the
properties, income, or effects of fellow states.
 When a state enters into treaties with other states, it is
bound to honor the agreements as a matter of mutual
courtesy.
PUBLIC PURPOSE
 Tax is intended for the common good.
 Taxation must be exercised absolutely for
public purpose.
EXEMPTION OF THE
GOVERNMENT
 Taxing the Government is like paying to
yourself.
 Under the NIRC, government properties and
income from essential public functions are
not subject to taxation.
NON-DELEGATION OF THE TAXING POWER
 Legislative taxing power is vested exclusively in Congress.
 The power of lawmaking, including taxation, is delegated by the
people to the legislature.
 Exceptions:
 LGUs are allowed to exercise the power to tax for fiscal autonomy.
 Under the Tariff and Customs Code, the President is empowered
to fic the amount of tariffs.
 Other cases that require expedient and effective administration
and implementation of assessment and collection of taxes.
OBSERVANCE OF THE DUE PROCESS OF LAW

 No one should be deprived of his life, liberty or

property without due process of law.
 Tax laws should neither be harsh nor oppressive.
 Aspects of due process:
 Substantive due process.
 Procedural due process.
EQUAL PROTECTION OF THE LAW
 No person shall be denied the equal protection of
the law.
 Taxpayers should be treated equally both in terms
of rights conferred and obligations imposed.
UNIFORMITY RULE IN TAXATION
 Taxation rule shall be uniform and equitable.
 Taxpayers should be classified according to
commonality in attributes.
 Each class of taxpayer is taxed differently, but
taxpayers falling under the same class are taxed
the same.
PROGRESSIVE SYSTEM OF TAXATION
 Tax rates increase as the tax base increases.
 The constitution favors progressive tax as it is
consistent with the taxpayers’ ability to pay.
 Progressive system aids in an equitable
distribution of wealth to society by taxing the rich
more than the poor.
NON-IMPRISONMENT FOR NON-
PAYMENT OF DEBT OR POLL TAX
 Non one shall be imprisoned because of his poverty, and no
one shall be imprisoned for mere inability to pay debt.
 Constitutional guarantee applies only when the debt is
acquired by the debtor in good faith.
 Debt acquired in bad faith constitutes estafa.
 Tax is a demand of the public interest while debt is for the
private interest.
NON-IMPRISONMENT FOR NON-
PAYMENT OF DEBT OR POLL TAX
 The constitutional guarantee on non-imprisonment for
non-payment of debt does not extend to non-payment of
tax, except poll tax.
 Components of Poll/Personal/Community/Residency Tax:
 Basic Community Tax
 Additional Community Tax
 Non-payment of additional community tax is an act of tax
evasion punishable by imprisonment.
NON-IMPAIRMENT OF
OBLIGATION OR CONTRACT
 The State should set an example of good faith
among its constituents.
 Tax exemptions granted under contract should be
honored and not cancelled by a unilateral
government action.
FREE WORSHIP RULE
 The Government adopts free exercise of religion and
does not subject its exercise to taxation.
 This exemption, however, does not extend to income
from properties or activities of religious institutions that
are proprietary or commercial in nature.
 Doctrine of Use vs. Doctrine of Ownership
EXEMPTION FROM TAXES OF THE REVENUES, AND
ASSETS OF NON-PROFIT, NON-STOCK
EDUCATIONAL INSTITUTIONS
 The constitution recognized the necessity of
education in state building by granting tax
exemption on revenues and assets of non-profit
educational institutions.
 This exemption, however, applies only on
revenues and assets that are actually, directly and
exclusively devoted for educational purposes.
CONCURRENCE OF A MAJORITY OF ALL MEMBERS
OF CONGRESS FOR THE PASSAGE OF A LAW
GRANTING TAX EXEMPTION
 Tax exemption counters against the lifeblood doctrine
as it deprives the Government of revenues.
 The constitution requires the vote of the majority of all
members of Congress in the grant of tax exemption.
 Absolute Majority vs Relative Majority
NON-DIVERSIFICATION OF TAX
COLLECTIONS
Tax collections should be used only for
public purposes.
It should never be diversified or used for
private purpose.
NON-DELEGATION OF THE POWER
OF TAXATION
 The principle of checks and balances in a republican
state requires that taxation power as part of
lawmaking be vested exclusively in Congress.
 DoF and BIR issues Revenue Regulations, Rulings,
Orders or Circulars to interpret and clarify the
application of the law. However, they are not
allowed to introduce new legislations within their
quasi-legislative authority.
NON-IMPAIRMENT OF THE JURISDICTION OF
THE SUPREME COURT TO REVIEW TAX CASES
 Notwithstanding the existence of the Court of Tax
Appeals, which is a special court, all cases
involving taxes can be raised to and be finally
decided by the Supreme Court of the Philippines.
APPROPRIATIONS, REVENUE OR TARIFF BILLS
SHALL ORIGINATE EXCLUSIVELY IN THE HR, BUT
THE SENATE MAY PROPOSE AMENDMENTS
 Laws that add income to the national treasury and
those that allows spending therein must originate from
the HR while senate may concur with amendments.
EACH LGU SHALL EXERCISE THE POWER TO
CREATE ITS OWN SOURCES OF REVENUE
 This is the constitutional recognition of the local
autonomy of local governments and the express
delegation of the taxing power.
STAGES OF THE EXERCISE OF
TAXATION POWER
1. Levy or Imposition
2. Assessment and Collection
LEVY OR IMPOSITION
 This process involves the enactment of a tax law by
Congress and is called impact of taxation or the
legislative act in taxation.
 Congress in composed of two bodies:
 House of representatives
 The Senate
MATTERS OF LEGISLATIVE DISCRETION IN
THE EXERCISE OF TAXATION
 Determining the object of taxation.
 Setting the tax rate or amount to be collected.
 Determining the purpose for the levy which must be public use.
 Kind of tax to be imposed.
 Apportionment of the tax between the national and local
government.
 Situs of taxation.
 Method of collection.
ASSESSMENT AND COLLECTION
 Tax law is implemented by the administrative
branch of the Government.
 It involves assessment or the determination of the
tax liabilities of taxpayers and collection.
 This stage is referred to as incidence of taxation
or the administrative act of taxation.
SITUS OF TAXATION
 Situs is the place of taxation. It is the tax jurisdiction
that has the power to levy taxes upon the tax object.
 Situs rules serve as frames of reference in gauging
whether the tax object is within or outside the tax
jurisdiction of the taxing authority.
EXAMPLES FOR SITUS RULES
 Business tax situs: Businesses are subject to tax in the place
where the business is conducted.
 Income tax situs on services: Service fees are subject to tax
where they are rendered.
 Income tax situs on sale of goods: The gain on sale is subject to
tax in the place of sale.
 Property tax situs: Properties are taxable in their location.
 Personal tax situs: Persons are taxable in their place of
residence.
OTHER FUNDAMENTAL
DOCTRINES IN TAXATION
 Marshall Doctrine – “The power to tax involves the power to destroy.”
 Holme’s Doctrine – “Taxation power is not the power to destroy while
the court sits.”
 While the two may seem to contradict each other, both are actually
employed in practice. (Omnibus Investment Code EO 226 and BMBE
Law)
 Prospectivity of tax laws
 Tax laws are generally prospective in operation.
 An ex post facto law or a law that retroacts is prohibited by the
constitution.
OTHER FUNDAMENTAL
DOCTRINES IN TAXATION
 Non-Compensation or Set-Off
 Taxes are not subject to automatic set-off or compensation.
 The taxpayer cannot delay payment of tax to wait for the resolution
of a lawsuit involving his pending claim against the government.
 Exceptions:
 Where the taxpayer’s claim has already become due and
demandable
 Cases of obvious overpayment of taxes
 Local taxes
OTHER FUNDAMENTAL
DOCTRINES IN TAXATION
 Non-assignment of taxes
 Tax obligations cannot be assigned or transferred to another entity by
contract.
 Imprescriptibility in Taxation
 Prescription is the lapsing of a right due to the passage of time.
 The Government’s right to collect taxes does not prescribe unless the
law itself provides for such prescription.
 Under NIRC, tax prescribes if not collected within 5 years from the date
of assessment, if no assessment, within 3 years.
OTHER FUNDAMENTAL
DOCTRINES IN TAXATION
 Doctrine of Estoppel
 Any misrepresentation made by one party toward another who relied therein
in good faith will be held true and binding against that person who made the
representation.
 The government is not subject to estoppel. The error of any government
employee does not bind the government.
 Judicial Non-interference
 Courts are not allowed to issue injunction against the Government’s pursuit
to collect taxes.
 This rule is anchored on the Lifeblood Doctrine.
OTHER FUNDAMENTAL
DOCTRINES IN TAXATION
Strict Construction of Tax Laws
 Taxation is the rule, unless there is a clear exemption.
 “Taxation is the rule, exemption is the exception.
 When the language of the law is clear and categorical,
there is no room for interpretation. There is only room for
application.
 Vague tax laws.
 Vague exemption laws.
DOUBLE TAXATION
 Occurs when the same taxpayer is taxed twice by the same tax
jurisdiction for the same thing.
 Elements of Double Taxation
 Primary Element: Same object
 Secondary Elements
 Same type of tax
 Same purpose of tax
 Same taxing jurisdiction
 Same tax period
 TYPES OF DOUBLE TAXATION
 Direct Double Taxation
 This occurs when all the element of double taxation exists
for both impositions.
 Examples:
 An income tax of 10% on monthly sales and a 2% income tax on
the annual sales.
 A 5% tax on bank reserve deficiency and another 1% penalty
per day as a consequence of such reserve deficiency.
 TYPES OF DOUBLE TAXATION
 Indirect Double Taxation
 Occurs when at least one of the secondary elements of
double taxation is not common for both impositions
 Examples
 The national Gov’t levies business tax on the sales or gross receipts
of business while the local gov’t levies business tax upon the same
sales or receipts.

*indirect double taxation is prevalent and direct double taxation is greatly discouraged as it
counter the rule of equal protection and uniformity
HOW CAN DOUBLE TAXATION BE
MINIMIZED?
 Provision of tax exemption
 Allowing foreign tax credit
 Allowing reciprocal tax treatment between the home
country and a foreign country
 Entering into treaties and bilateral agreements
ESCAPES FROM TAXATION
 Those that result to loss of government revenue
 Tax Evasion or tax dodging – any act or trick that tends
to illegally reduce or avoid the payment of tax.
 Tax avoidance or tax minimization – any act or trick that
reduces or totally escapes taxes by any legally
permissible means.
 Tax exemption or tax holiday – immunity, privilege or
freedom from being subject to a tax which others are
subject to.
ESCAPES FROM TAXATION
 Those that do not result to loss of government revenue
 Shifting – the process of transferring tax burden to
other taxpayers.
 Capitalization – This pertains to the adjustment of the
value of an asset caused by changes in tax rates.
 Transformation – This pertains to the elimination of
wastes or losses by the taxpayer to form savings to
compensate for the tax imposition or increase in taxes.
 TAX AMNESTY VS TAX CONDONATION
 Amnesty is a general pardon granted by the gov’t for erring taxpayers to
give them a chance to reform and enable them to have a fresh start to be
part of a society with a clean slate.
 Condonation is forgiveness of the tax obligation of a certain taxpayer
under certain justifiable grounds. Also known as tax remission.
 Amnesty covers both civil and criminal liabilities, but condonation covers
only civil liabilities of the taxpayer. Amnesty operates retrospectively
while condonation applies prospectively. Amnesty is also conditional
upon the taxpayer while condonation requires no payment.
TOP 3 INDIVIDUAL TAXPAYERS

 Jacinto L. Ng – 280,107,497.00
 Emmanuel Pacquiao – 210,305,927.00
 Vivian Azcona – 153,551,323.16
JACINTO L. NG
JACINTO L. NG
EMMANUEL PACQUIAO
EMMANUEL PACQUIAO
VIVIAN AZCONA
VIVIAN AZCONA
TOP 3 NON-INDIVIDUAL TAXPAYERS

 Smart Communications Incorporated

 10,891,060,270.00
 Manila Electric Company
 9,690,010,751.00
 San Miguel Brewery Incorporated
 4,879,126,836.00
SMART
MERALCO
SMB
THE END…

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