01 INTRODUCTION TO TAXATION

Buslaw III
De La Salle University
NOTHING IN THIS
WORLD IS CERTAIN
EXCEPT DEATH AND
TAXES!!!

Buslaw III
De La Salle University
DEFINITIONS
Taxation is the inherent power of the
state to enforce contributions and raise
revenues to defray the necessary costs
of government.

Taxes are the enforced proportional and

pecuniary contributions from persons
and properties levied by the state
having jurisdiction over the subject of
the burden to support the government
and all public needs
THE PRIMARY PURPOSE OF TAX IS TO RAISE
FUNDS TO DEFRAY COST OF GOVERNMENT

Secondary Purposes of Tax

• Strengthen anemic enterprises or provide incentives for greater
production.
• Protect local industries
• Used as a bargaining chip against other countries with goods
being imported into the Philippines.
• Curb spending power to halt inflation or if it is suspended ward off
depression.
• Reduce inequalities in wealth and income
• Promote science and invention
 Secondary Purposes of Tax
• Improve the efficiency of local police force.
• Implement policies as an exercise of police power.
• Provide incentives or discouragement for certain acts or activities.
• Improving the way of life of people by providing exemptions or non-
taxabilities on certain income brackets.

There are other secondary purposes and so

long as the tax is for public purposes, any
collateral purposes or motives will not affect
the tax.
ESSENTIAL CHARACTERISTICS OF TAX
 It is an enforced contribution

 It is proportionate in character
 It is generally payable in money
 It is levied on persons or property
 It is levied by the state which has jurisdiction
over the person or property
 It is levied by the law-making body of the state
 It is levied for public purposes
NATURE OF THE POWER OF TAXATION
 It is inherent in sovereignty
 It is legislative in character
 It is subject to constitutional and inherent
limitations.
THEORY AND BASIS OF TAXATION
 Existence of government
 Reciprocal duties of state and inhabitants
 Public Purpose requirement for lawful
taxation
 Levying of Tax Collection of Tax
 Legislative in character  Administrative in Character
 Determines:  Implements the tax laws
 the subject and/or objects to be  Through assessments of taxes
taxed
 Collection of the same.
 the purpose of the tax so long as it is
for public purpose
 The amount and rate of the tax
 The manner, means and agencies
of the collection of taxes

ASPECTS OF TAXATION (OR THE TAX SYSTEM)

EXTENT OF THE LEGISLATIVE POWER TO TAX

The legislature, subject to constitutional

limitations, can determine the following
matters in tax laws:
 The subjects or objects to be taxed
 The purpose or objective of the tax so
long as it is a public purpose
 The amount or rate of tax
 The manner, means and agencies of
collection of the tax.
BASIC PRINCIPLES OF A SOUND TAX SYSTEM

 Fiscal Adequacy – Sufficiency of the tax

 Administrative Feasibility – Viability of the tax
 Equality or Theoretical Justice – Fairness of tax
CLASSIFICATIONS AND DISTINCTIONS
 As to subject matter
 Personal, Poll or capitation
 Property
 Excise

 As to who bears the burden

 Direct
 Indirect
CLASSIFICATIONS AND DISTINCTIONS
 As to determination
 Specific
 Ad Valorem

 As to purpose
 General, fiscal or revenue raising
 Special or regulatory
CLASSIFICATIONS AND DISTINCTIONS
 As to scope
 National
 Municipal or local

 As to graduation or rate
 Proportional
 Progressive or graduated
 Regressive
 Constitutional Limits
 Those expressly found in the
Constitution of implied from its
provisions
 Due Process Clause
 Equal Protection Clause
 No appropriation for religious
purposes
 Exemptions from Tax
 Veto Power of the President
 Non-impairment of the Supreme
Court Jurisdiction
LIMITATIONS ON THE POWER OF
TAXATION
Inherent Limits
 Limits imposed due to the very
essence of Taxation
 Tax must be for Public Purpose
 Non-delegation of legislative power
to tax
 Exemption of Government from Tax
 International Comity
 Territorial Jurisdiction
SITUS OF TAXATION/DOUBLE TAXATION
 Situs of Taxation – “Place of Taxation”
Of concern is Internet Commerce
 Double Taxation means:
 Being Taxed twice
 By the same Taxing authority
 Within the same jurisdiction
 For the same purpose
 In the same taxable year/period
ESCAPE FROM TAXATION
 Without Government Revenue Loss
 Shifting
 Capitalization
 Transformation
 Resulting in Loss of Revenue for Government
 Avoidance
 Evasion
 Exemption
ESCAPE FROM TAXATION - SHIFTING

Taxpayer

Shifts Shifts

Charges Charges

Seller Taxpayer Buyer

who incurs
the tax
ESCAPE FROM TAXATION - CAPITALIZATION

Taxpayer Buyer

Sells

Makes the
tax as part
of the cost

Taxpayer Company
ESCAPE FROM TAXATION - TRANSFORMATION

Taxpayer Buyer

Sells

Includes Freebies that does not increase the price

Effectively the seller had transformed the tax
into freebies for the Buyer
ESCAPE FROM TAXATION – AVOIDANCE VS. EVASION

Avoidance means anticipating the tax Evasion does nothing to avoid the tax exposure
exposure and making plans to avoid the tax from occurring but instead misrepresent the
exposure from occuring transaction to avoid paying the tax
ESCAPE FROM TAXATION - EXEMPTION
Taxpayer

Exemption is the grant of immunity to a particular persons or corporations or

to persons or corporations of a particular class from a tax which persons or
corporations within the same state to taxing district are obliged to pay
NATURE OF TAX LAWS

 Tax Laws are not political in nature. Thus,

these laws are not affected by changes
in the political circumstances of the
country.
 Tax Laws are civil and not penal in nature.
The laws are obligations to be followed and
not intended to punish
CONSTRUCTION OF TAX LAWS
 Legislative Intent is considered
 In case of doubt, resolve strictly against the
government and liberally in favor of the
taxpayer.
 In case of exemptions, the rule is reversed
 Where language is plain then literal meaning is
used.
 In case of conflicts with other laws, if conflict is
a matter of tax, the tax law prevails.
APPLICATION OF TAX LAWS
 Generally, tax laws prospective unless
provided for specifically by the law and is
not harsh and oppressive.
 Tax treaties are applied as a tax law
provided it is confirmed in accordance
with law.
Note that any error made by the
government in applying tax laws are not
prejudicial to the government.
SOURCES OF TAX LAWS
 Legal Rules on Taxation
 Legislation or statutes
 Administrative Rules and Regulations
 Judicial Decisions

 Treaties with other countries

 Tax Treaties
 Other Treaties
KINDS OF NATIONAL TAXES UNDER THE NIRC
 Income Taxes

 Transfer Taxes (Estate and Donor’s)

 Value-Added Taxes
 Other Percentage Taxes
 Excise Taxes
 Documentary Stamp Taxes
 Such other taxes may be promulgated
KINDS OF NATIONAL TAXES UNDER SPECIAL LAWS
 Customs Duties (P.D. No. 1464)

 Sugar Adjustment Taxes (C.A. No. 567)

 Taxes on Narcotic Drugs (R.A. No. 953)
 Travel Taxes (P.D. No. 1183)
 Motor Vehicle Users Tax (R.A. No. 8794)
 Energy Taxes (P.D. No. 844 and 845, B.P. Blg 36)
 Special Education Fun Tax (R.A. No. 7160)
TAX REFORMS IN THE PHILIPPINES

Republic Act 10963 otherwise known as the Tax

Reform for Accelaration and INclusion Law is a Tax
Reform measure introduced by the current
administration in order to fund the government’s
efforts to accelerate economic development of
the country in a more sustainable and inclusive
manner.
This is the first of the series of tax reform laws that
was envisioned to be enacted in order to finance
the “Build, Build, Build” policy of the current
administration.
TAX REFORMS IN THE PHILIPPINES

An brief review of the TRAIN Law would show that

it sought to make the following changes in the
individual tax regime:
 Make the tax system simpler, fairer and more
efficient that will lessen the overall tax burden of
the poor and middle class
 Estate and Donor’s tax rates had been reduced
 Increased taxes on miscellaneous, non-essential
items and fuel.
 VAT system and exemptions were rationalized.
TAX REFORMS IN THE PHILIPPINES
The next stage of tax reforms being proposed to
be enacted pertains to the taxes of corporate
taxpayers that seeks to rationalize the system in
order to:
 Make the corporate tax system more uniform
and less burdensome to encourage investors
 Codify and harmonize the various exemptions
 Generate more employment opportunities

Hence the nickname of the proposed law as the

“TRABAHO” Law
FUTURE TAX REFORM LAWS
The first two laws that have been enacted is the
forerunner of possibly 4 to 5 tax reform laws that has
been envisioned by the economic managers and
advisers of the current administration in order to raise
more funds for the government and finance its projects
over the term of the presidency.
END OF SECTION 1
Buslaw III
De La Salle University