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INTRODUCTION TO TAXATION
TAXATION
 State power – inherent power to
enforce a proportional contribution
from its subjects for public purpose.
 Process – process of levying taxes by
the legislature of the state to enforce
proportional contributions from its
subjects for public purpose.
 Mode of government cost distribution
– the state allocates its costs or burden
to its subjects who are benefited by its
spending.
THE THEORY OF TAXATION
 A government cannot exist without a
system of funding. The government’s
necessity for funding is the theory of
taxation.
THE BASIS OF TAXATION
 The government provides benefits to
the people in the form of public
services, and the people provide the
funds that finance the government.
 Taxpayers cannot avoid payment of
taxes under the defense of absence of
benefit received.
 The direct receipt or actual availment of
government services is not a
precondition to taxation.
THEORIES OF COST ALLOCATION
1. Benefit received theory – the more
benefit he receives; the more taxes he
should pay.
2. Ability to pay theory – based on their
capacity to sacrifice for the support of
the government.
ASPECTS OF ABILITY TO PAY THEORY
1. Vertical equity – directly proportional
to the level of his tax base.
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 Gross concept
2. Horizontal equity – requires
consideration for the particular
circumstance of the taxpayer.
 Net concept
THE LIFEBLOOD DOCTRINE
 Without taxes the government would
be paralyzed for lack of motive power
to activate or operate it.
 Taxes are the lifeblood of the
government, and their prompt and
certain availability are an imperious
need.
IMPLICATION OF THE LIFEBLOOD DOCTRINE OF
TAXATION
1. Tax is imposed even if the absence of
Constitutional grant.
2. Claims for tax exemption are construed
against taxpayers.
3. The government reserves the right to
choose objects of taxation.
4. The courts are not allowed to interfere
with the collection of taxes.
5. In income taxation:
a. Income received in advance is
taxable upon receipt.
b. Deduction for capital expenditures
and prepayments is not allowed as
it effectively defers the collection of
income tax.
c. A lower amount of deduction is
preferred when a claimable
expense is subject to limit.
d. A higher tax base is preferred when
the tax objects has multiple tax
bases.
INHERENT POWERS OF THE STATE
1. Taxation power – to enforce
proportional contribution from its
subjects to sustain itself.
2. Police power – to enact laws to protect
the well-being of the people.
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INTRODUCTION TO TAXATION

3. Eminent domain – to take private

property for public use after paying just 1. Governments do not tax the income
compensation. and properties of other
governments.
 These rights, dubbed as “powers” are 2. Governments give primacy to their
natural, inseparable and inherent to treaty obligations over their own
every government. domestic tax laws.

SIMILARITIES OF THE THREE POWERS OF THE 3. Public purpose

STATE
1. Necessary attributes of sovereignty.
2. Inherent to the State.
3. Legislative in nature.
4. Ways in which the State interferes with
private rights and properties.
5. Exist independently of the Constitution/
and are exercisable by the government
even without Constitutional grant.
6. Presuppose an equivalent form of
compensation received by the persons
affected by the exercise of the power.
7. The exercise of these powers by the
local government units may be limited
by the national legislature.
SCOPE OF THE TAXATION POWER
 Comprehensive
 Plenary
 Unlimited
 Supreme
THE LIMITATIONS OF THE TAXATION POWER
A. INHERENT LIMITATIONS
1. Territoriality of taxation – it cannot
enforce upon subjects outside its
territorial jurisdiction.
Two-fold obligations of taxpayers
1. Filing of returns and payments of
taxes
2. Withholding of taxes on expenses
and its remittance to the
government.
2. International comity – mutual courtesy
or reciprocity between countries (no
country is powerful than the other).
4. Exemption of the government – this
will not raise additional funds but will
only impute additional costs.
 Income of the government from its
properties and activities conducted for
profit including income from
government owned and controlled
corporations is subject to tax.
5. Non-delegation of the taxing power –
legislative taxing power is vested
exclusively in Congress.
 What has been delegated cannot
further be delegated.
EXCEPTIONS TO THE RULE OF NON-
DELEGATION
1. Under the Constitution, local
government units are allowed to
exercise the power to tax to enable
them to exercise their fiscal autonomy.
2. Under the Tariff and Customs Code, the
President is empowered to fix the
amount of tariffs to be flexible to trade
conditions.
3. Other cases that require expedient and
effective administration and
implementation of assessment and
collection of taxes.
B. CONSTITUTIONAL LIMITATIONS
1. Due process of law
Aspects of Due Process

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INTRODUCTION TO TAXATION
1. Substantive due process – tax must
be imposed only for public purpose,
collected only under authority of a
valid law and only by the taxing
power having jurisdiction.
2. Procedural due process – there
should be no arbitrariness in
assessment and collection of taxes,
and the government shall observe
the taxpayer’s right to notice and
hearing.
 Under the NIRC, assessments shall be
made within three years from the due
date of filing of the return or from the
date of actual filing, whichever is later.
 Collection shall be made within five
years from the date of assessment.
2. Equal protection of the law – taxpayers
should be treated equally both in terms
of rights conferred and obligations
imposed (same circumstances).
 Congress cannot exempt sellers of
“balot” while subjecting sellers of
“penoy” to tax since they are essentially
the same goods.
3. Uniformity rule in taxation – the rule of
taxation shall be uniform and equitable.
 Taxpayers under dissimilar
circumstances should not be taxed the
same.
 Uniformity is relative equality.
4. Progressive system of taxation – tax
rates increase as the tax base increases.
 Aids in an equitable distribution of
wealth t society by taxing the rich more
than the poor.
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5. Non-imprisonment for non-payment of
debt or poll tax
 Applies only when the debt is acquired
by the debtor in good faith.
 Debt is acquired by the debtor in bad
faith constitutes a estafa, a criminal
offense punishable by imprisonment.
 Applies only to the basis community
tax.
 Non-payment of the additional
community tax is an act of tax evasion
punishable by imprisonment.
6. Non-impairment of obligation and
contract – it should no set aside its
obligations from contracts by the
exercise of its taxation power.
7. Free worship rule – does not extend to
income from properties or activities of
religious institutions that are
proprietary or commercial in nature.
8. Exemption of religious or charitable
entities, non-profit cemeteries,
churches and mosques, lands,
buildings and improvements from
property taxes – actually, directly and
exclusively used for charitable,
religious, and educational purposes.
 Doctrine of use – properties actually
devoted for religious, charitable, or
educational activities are exempt from
real property tax.
 Doctrine of ownership – properties of
religious, charitable, or educational
entities whether or not used un their
primary operations are exempt from
real property tax (not applied in PH).
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INTRODUCTION TO TAXATION
9. Non-appropriation of public funds or
property for the benefit of any church,
sect or system of religion – intended to
highlight the separation of religion and
the State.
 Compensation to priests, imams, or
religious ministers working with the
military, penal institutions, orphanages
or leprosarium is not considered
religious appropriation.
10. Exemption from taxes of the revenues
and assets of non-profit, non-stock
educational institutions including
grants, endowments, donations, or
contributions for educational purposes
– applies only on revenues and assets
that are actually, directly and
exclusively devoted for educational
purposes.
 Exempts government educational
institutions from income tax and
subjects’ private educational
institutions to a minimal 10% income
tax.
11. Concurrence of a majority of all
members of Congress for the passage
of a law granting tax exemption –
requires the vote of the majority of all
members of Congress.
 In the approval of an exemption law, an
absolute majority or the majority of all
members of Congress is required.
 In the withdrawal of tax exemption,
only a relative majority or quorum
majority is required.
12. Non-diversification of tax collections –
it should never be diversified for private
purposes.
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13. Non-delegation of the power of
taxation – requires that taxation power
as part of lawmaking be vested
exclusively in Congress.
14. 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
raise to and be finally decided by the
Supreme Court of the Philippines.
15. The requirement that appropriations,
revenue, or tariff bills shall originate
exclusively in the House of
Representatives, but the Senate may
propose or concur with amendments
16. The delegation of taxing power to local
government units shall exercise the
power to create its own sources of
revenue and shall have a just share in
the national taxes – this is a
constitutional recognition of the local
autonomy of local government and an
express delegation of the taxing power.
STAGES OF HE EXERCISE OF TAXATION POWER
1. Levy or imposition – enactment of a tax
law by Congress and is called impact of
taxation or legislative act in taxation.
Congress is composed of two bodies:
1. The House of Representatives
2. The Senate
 Tax bills cannot originate exclusively
from the Senate.
2. Assessment and collection – referred to
as incidence of taxation or the
administrative act of taxation.
SITUS OF TAXATION – the place of the taxation.
 Situs rules serve as frames of reference
in gauging whether the tax object is
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INTRODUCTION TO TAXATION
within or outside the tax jurisdiction of
the taxing authority.
Examples:
1. Business tax situs – where the business
is conducted.
2. Income tax situs on services – where
they are rendered.
3. Income tax situs on sale of goods –
place of sale.
4. Property tax situs – location.
5. Personal tax situs – place of residence.
OTHER FUNDAMENTAL DOCTRINES IN
TAXATION
1. Marshall Doctrine – “the power to tax
involves the power to destroy”.
 Does not include the power to
destroy if it is used solely for the
purpose of raising revenue.
 Imposition of excessive tax on
cigarettes.
2. Holme’s Doctrine – “taxation power is
not the power to destroy while the
court sits”.
 Include the creation of Ecozones
with tax holidays and provision of
incentives.
3. 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.
4. Non-compensation or set-off – tax is
not a debt; hence, it is not subject to
set-off.
 Exceptions:
a. Taxpayer’s claim has already
become due and demandable.
b. Cases of obvious overpayment
of taxes.
c. Local taxes
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5. Non-assignment of taxes – tax
obligations cannot be transferred to
another entity by contract.
6. Imprescriptibility in taxation –
prescription is the lapsing of a right due
to the passage of time.
 Tax prescribes if not collected
within 5 years from the date of its
assessment.
 In the absence of assessment, tax
prescribes if not collected by
judicial action within 3 years from
the date the return is required to be
filed.
 Taxes due from taxpayers who did
not file a return or those who filed
fraudulent returns do not prescribe.
7. 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
misrepresentation.
 The error of any government
employee does not bind the
government.
8. Judicial Non-interference – courts are
not allowed to issue injunction against
the government’s pursuit to collect tax
as this would unnecessarily defer tax
collection (Lifeblood Doctrine).
9. Strict Construction of Tax Laws –
“taxation is the rule; exemption is the
exemption”
 There is no room for interpretation,
there is only room for application.
 When taxation laws are vague, the
doctrine of strict legal construction
is observed.
 Vague tax laws – construed against
the government and in favor of the
taxpayers.
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INTRODUCTION TO TAXATION
o It means no tax law.
o Obligation arising from law is
not presumed.
 Vague exemption laws – construed
against the taxpayer and in favor of
the government.
o It means no exemption law.
o Construed strictly against the
taxpayer in accordance with the
lifeblood doctrine.
 Tax exemption cannot arise from vague
inference.
DOUBLE TAXATION – occurs when the same
taxpayer is taxed twice by the same tax
jurisdiction for the same thing.
ELEMENTS OF DOUBLE TAXATION
1. Primary elements:
a. same object
2. Secondary elements:
a. Same type of tax
b. Same purpose of tax
c. Same taxing jurisdiction
d. Same tax period
TYPES OF DOUBLE TAXATION
1. Direct double taxation – all element of
double taxation exists for both
impositions.
 Discouraged because it is
oppressive and burdensome to
taxpayers.
2. Indirect double taxation – at least one
of the secondary elements of double
taxation is not common for both
impositions.
 Prevalent in practice.
How can double taxation be minimized?
a. Provision of tax exemption – only one
tax law is allowed to apply to the tax
object while other tax law exempts the
same tax object.
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b. Allowing foreign tax credit – tax
payments in the foreign tax law is
deductible against the tax due of the
domestic tax law.
c. Allowing reciprocal tax treatment –
provisions in tax laws imposing a
reduced tax rates or even exemption if
the country of the foreign taxpayer also
give the same treatment to Filipino
non-residents therein.
d. Entering into treaties or bilateral
agreements – countries may stipulate
for a lower tax rates for their residents
if they engage in transactions that are
taxable by both of them.
ESCAPES FROM TAXATION – available to the
taxpayer to limit or even avoid the impact of
taxation.
Categories of Escapes from Taxation
A. Those that result to loss of government
revenue
1. Tax evasion – also known as tax
dodging, refers to any act or trick that
tends to illegally reduce or avoid the
payment of tax.
2. Tax avoidance – also known as tax
minimization, refers to any act or trick
that reduces or totally escapes taxes by
any legally permissible means.
3. Tax exemption – also known as tax
holiday, refers to the immunity,
privilege or freedom from being subject
to a tax which others are subject to.
 All forms of tax exemptions can be
revoked by Congress except those
granted by the Constitution and
those granted under contracts.
B. Those that do not result to loss of
government revenue
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1. Shifting – transferring tax burden to  Conditional upon the taxpayer paying

other taxpayers. the government of a portion of the tax.
 Common with business taxes where
taxes imposed on business revenue TAX CONDONATION – forgiveness of the tax
can be shifted or passed-on to obligation of a certain taxpayer under certain
customers. justifiable grounds.
 Also referred to as tax remission.
a. Forward – normal flow of  Construed against the taxpayer and in
distribution (manufacturer to favor of the government.
customers).  Covers civil liabilities of the taxpayer.
 common with essential  Applies prospectively to any unpaid
commodities and services such balance of the tax; hence, the porting
as foods and fuel. already paid by the taxpayer will not be
refunded.
b. Backward – reverse of forward  Requires no payment.
shifting.
 Common with non-essential
commodities where buyers
have considerable market
power and commodities with
numerous substitute products.

c. Onward – any tax shifting in the

distribution channel that exhibits
forward or backward shifting.

2. Capitalization – adjustment of the value

of an asset cause by changes in tax
rates.
 This is a form of backward shifting
of tax.

3. Transformation – elimination of wastes

or losses by the taxpayer to form
savings to compensate for the tax
imposition or increase in taxes.

TAX AMNESTY – general pardon granted by the

government for erring taxpayer 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.
 Absolute forgiveness or waiver by the
government on its right to collect and is
retrospective in application.
 Covers both civil and criminal liabilities.