FINALS: INTRO TO LAW

(9TH WEEK)
TAXATION

a. What is taxation?
➢ Taxation is the power by which the sovereign raises revenue to defray the necessary
expenses of the government.

b. Define taxes.
➢ Taxes are the enforced proportional contribution from persons and property levied by
the State by virtue of its sovereign power for public purposes.

c. What is the lifeblood theory?

➢ The Lifeblood theory posits that taxes are the lifeblood of the nation.

d. Discuss ​Commissioner of Internal Revenue v. Algue, Inc., 158 SCRA 8.

e. Discuss the principles of a sound tax system.

1. Fiscal Adequacy
➢ Maintains that the sources of government revenue must be sufficient to meet
governmental expenditures and other public needs.
2. Theoretical Justice
➢ Emphasizes that the system of taxation must be based on the taxpayer’s
ability to pay.
3. Administrative Feasibility
➢ Refers to the maintenance of an administrative agency capable of enforcing
tax laws and its collection.

f. Discuss the inherent limitations on the power of taxation.

1. Taxation is for a public purpose.
➢ Taxes may be levied only for public purpose
➢ A tax is for the public purpose where it is for the support of government, or
any of the recognized object of the government, or where it will directly
promote the welfare of the community in equal measure.
1.1 Discuss ​Pascual v. Secretary of Public Works, 110 Phil. 331
2. Taxation in inherently legislative.
 ➢ The power to tax being legislative in nature may not be delegated
2.1 Discuss exceptions to this limitation
3. Taxation is territorial.
➢ The State may tax persons and properties under its jurisdiction.
4. Taxation is subject to international comity.
➢ the property of a foreign State may not be taxed by another.

g. What are the sources of revenue under the Tax Code?

➢ Republic Act No. 8424, also known as the Tax Reform Act of 1997
Section 21​. ​Sources of Revenue.​ - The following taxes, fees and charges are
deemed to be national internal revenue taxes:
(a) Income tax;
(b) Estate and donor's taxes;
(c) Value-added tax;
(d) Other percentage taxes;
(e) Excise taxes;
(f) Documentary stamp taxes; and
(g) Such other taxes as are or hereafter may be imposed and collected by the
Bureau of Internal Revenue.

h. Define income.
➢ Income means all wealth that flows into the taxpayer other than as a mere return of
capital. It includes the forms of income specifically described as gains and profits,
including gains derived from the sale or other disposition of capital assets.
➢ Judicial definitions: (1) gain derived from capital, or from labor, or from both capital
and labor, including the gain derived from the sale or exchange of capital assets; (2)
amount of money coming to a person or corporation within a specified time, whether
as payment for services, interest or profit from investment.
➢ Economist’s definition: (1) money value of the net accretion to one's economic power
between two points of time; (2) it cannot be determined by reckoning cash receipts;
other income determining factors: inventories, accounts receivable, property
acquisition and accounts payable for expenses incurred.

i. Define source of income.

➢ Source of income is any property, activity or service that produced the income. It
may also be in the form of proceeds from sales of transport documents.
 ➢ The following are the sources of income:
● Property (capital)
● Labor (service)
● Sale/Exchange of capital asset and activity

j. What is income tax?

➢ It is a tax on all yearly profits arising from property, profession, trades or offices or
as a tax on a person's income, emoluments, profits and the like.

k. What are the functions of income tax?

➢ The functions of income tax are:
a.) to provide large amounts of revenues;
b.) to offset regressive sales and consumption taxes;
c.) to mitigate the evils arising from the inequalities in the distribution of income and
wealth which are considered deterrents to social progress, by a progressive scheme
of taxation

l. What is schedular tax treatment?

➢ It classifies income.
➢ It provides different tax rules.
➢ It imposes different tax rates.

m. What is global tax treatment?

➢ It generally provides for uniform rules.
➢ It generally imposes uniform tax rate.
➢ It does not generally classify income.

n. What is Gross Income?

➢ General statutory definition: gross income means all income derived from whatever
source.
➢ Broad definition: gross income means income less income which by statutory
definition or otherwise, is exempt from the tax imposed by law. Stated otherwise,
gross income means all items of income less exclusions.

o. What is included in Gross Income?

➢ Republic Act No. 8424, also known as the Tax Reform Act of 1997
Section 32.​ ​Gross Income.​ -
(A) ​General Definition.​ - Except when otherwise provided in this Title, gross income
means all income derived from whatever source, including (but not limited to) the
following items:
(1) Compensation for services in whatever form paid, including, but not limited to
fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a
profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general professional
partnership.