MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

DEPARTMENT OF ACCOUNTANCY

ACT184: INCOME TAXATION

GENERAL PRINCIPLES AND CONCEPTS OF TAXATION: Power of Taxation
PART 2

LESSON OBJECTIVES
At the end of this module, you will be able to:
a. Know and understand more about taxation;
b. Know its purpose;
c. Know the Theories and basis behind taxation;
d. Know its scope, essential elements, nature and characteristics;
e. Know the different classification of taxes.

OVERVIEW
Before entering Income Taxation, you need to finish this chapter. This will serve as your general
knowledge about taxation. It’s a sort of mind conditioning wherein you will be able to know what
taxation is all about. It’s more on answering the why’s and what’s of taxation. All learnings you’ll
get with this module will be beneficial for you as you go along with the subject. This module
focuses on the power of taxation.

ABSTRACTION

Power of Taxation
I. Taxation Defined:
Taxation is the process or means by which a sovereign state, through its lawmaking body,
imposes burdens upon subject and objects within its jurisdiction for the purpose of raising revenue
to carry-out the legitimate objects of the government.

1. It is a POWER, it refers to the inherent power of a state, co-extensive with sovereignty to

demand contributions for public purposes to support the government;

2. It is a PROCESS; it passes a legislative undertaking through the enactment of tax laws by the
Congress which will be implemented by the Executive Branch of the government through its
Bureau of Internal Revenue (BIR) to raise revenue in order to pay the necessary expenses of the
government. (Enactment or Imposition: Legislative via Congress. Implementation: Executive via
BIR)

3. It is a MEANS; it is a way of collecting and apportioning the cost of government among those
who are privileged to its benefits.

II. PURPOSES OF TAXATION

1. Primary Purpose: Revenue or Fiscal Purpose - The primary purpose of taxation is to raise
fund for the government to defray its legitimate expenses. A government will be paralyzed without
funding, it will be unable to perform its duty which is to promote general welfare and protection to
its citizens. A government can run its administrative set up only through funding which is collected
in the form of tax.

2. Secondary Purpose: Regulatory Purpose – taxation is often use to for regulation or control
by means of which certain effects or conditions envisioned by the government may be achieved
such as: promotion of general welfare, reduction of social inequality, and economic growth.

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

Example: Cigarettes or sin products are seemed to be harmful to individuals, the government may
use taxation to minimize sin product consumption by imposing higher taxes on these commodities
(sin tax);

III. THEORY and BASIS of TAXATION

1. Theory: Lifeblood Theory or Necessity Theory
It says that the power of taxation proceeds upon the theory that the existence of government is a
necessity. The government cannot continue to perform its basic functions of serving and
protecting its people without means to pay its expenses. Consequently, the State has the right to
compel all its citizens and property within its limit to contribute.

2. Basis of Taxation: Benefits Received or Reciprocity Theory

It says that the government provides benefits to the people in the form of public services and the
people to provide the funds that finance the government. The concept is illustrated below:

TAXES
GOVERNMENT PEOPLE

PUBLIC SERVICES

IV. SCOPE OF TAXATION

Taxation is:
1. Supreme – in so far as the selection of the subject of taxation;
2. Unlimited – in the absence of limitations prescribed by law or the constitution, the power to tax
is unlimited and comprehensive;
3. Comprehensive – as it covers persons, businesses, activities, professions, rights and
privileges;
4. Plenary – as it is complete; BIR may avail certain remedies to ensure collection of taxes.

V. ESSENTIAL ELEMENTS OF TAXATION

A. It is an ENFORCED CONTRIBTION. Payment of tax is not voluntary payment or donation,
but an enforced contribution, exacted pursuant to legislative authority;
B. It is generally PAYABLE IN MONEY. It is pecuniary burden payable in money which must be
a legal tender;
C. It is PROPORTIONATE IN CHARACTER. Payment of taxes should be based on the ability to
pay theory or theoretical justice.
D. It is levied on persons, property, or the exercise of a right or privilege; (subjects/objects of
taxation)
E. It is levied by the LAW-MAKING Body of the State;
F. It is levied for PUBLIC PURPOSE.

VI. NATURE & CHARACTERISTICS OF TAXATION

A. Inherent power of the state;
B. Essentially legislative in character, except:
• Delegations to the President

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

• Delegation to Local Government Units

• Delegation to Administrative Agencies
C. Subject to constitutional and inherent limitations;
D. Exception of Government Entities, Agencies and Instrumentalities;
E. International Comity;
F. Territorial jurisdiction.

VII. CLASSIFICATION OF TAXES:

A. As to Scope:
• National – these are taxes collected by the National Government as imposed by the
National Internal Revenue Code and other National Tax Laws;
• Local – these are taxes collected by the Local Government Units as imposed by an
Ordinance.

B. As to Subject Matter:
• Personal – imposed on individuals residing within a specified territory without regard to
their property or the occupation in which they may be engaged;
• Property – imposed on property, real or personal, in proportion, either to its value or in
accordance with some other reasonable methods of apportionment.
• Excise – imposed upon the performance of an act, the enjoyment of a privilege or the
engaging in an occupation.

C. As to Burden:
• Direct – tax demanded from the person who is intended to pay it;
• Indirect – tax which is demanded from one person in the expectation and intention that
shall indemnify himself at the expense of another or tax which the taxpayer can shift to
another.

D. As to Determination of Amount:
• Specific – tax of fixed amount by the head or member, or by some standard of weight or
measurement;
• Ad Valorem – fixed proportion of the amount or value of the property which the tax is
assessed.

E. As to Purpose:
• General (Fiscal or Revenue) – tax is imposed for the general purpose of the government
or to raise revenue for government needs;
• Special or Regulatory – tax is imposed for a special purpose or to achieve some social or
economic needs.

F. As to Rate:
• Progressive – the rate increases as the tax base increases;
• Regressive – the tax rate decreases as the tax base increases;
• Proportionate – based on fixed percentage of the amount of property income or other
basis to be fixed.

ASSESSMENT

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 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

(AFTER FINISHING PARTS 1 to 3, ANSWER THE CHAPTER 1 EXERCISES.)

REFERENCES
Tabag, E. D. (2019). INCOME TAXATION. Manila: Info Page.
Valencia, E. G. (2017). Income Taxation. Baguio City: Valencia Educational Supply.