General Principles

of Taxation
Tax 111 – Income
Taxation Ferdinand C.
Importado CPA, MBA
Objectives

At the end of this lecture, the students shall

be able to:
• Define taxation.
• Discuss the purposes of taxation.
• Identify the theory and basis of taxation.
• Describe the principles of a sound tax
system.
• List the nature of taxation.
Objectives

At the end of this lecture, the students shall

be able to:
• Explain the limitations of taxation
(constitutional and inherent).
• Identify the aspects of taxation.
What is taxation?

Taxation is the process or means by which

the sovereign, through its lawmaking
body, raises income to defray the
necessary expenses of the government.
Purpose of taxation

Primary purpose
• To provide funds or property with which
to promote the general welfare of its
citizens and to enable it to finance its
multifarious activities.
Purpose of taxation

Secondary purposes
• To strengthen anemic enterprises by
giving tax exemptions.
• To protect local industries against
foreign competition through imposition of
high customs duties on imported
goods.
Purpose of taxation

Secondary purposes
• To reduce inequalities in wealth and
income by imposing progressively
higher taxes.
• To prevent inflation by increasing taxes
or ward off depression by decreasing
taxes.
Theory and basis of taxation

• Theory
– The existence of the government is a
necessity.
– The government cannot continue without a
means to pay its expenses.
– The government has the rights to compel its
citizens and property within its limits to
contribute.
Theory and basis of taxation

• Basis
– Taxation is based on the reciprocal duties of
protection and support between the
government and its people.
– Government receives taxes from the people
which is used to perform functions of
government and other benefits.
– Benefit-received theory.
Basic principles of sound tax
system

• Fiscal adequacy
• Equality or theoretical justice
• Administrative feasibility
Fiscal adequacy

• The source of government revenue should

be efficient to demand the needs of public
expenditure.
• Creating new taxes or new tax machinery
or by merely changing the rates applicable
to existing taxes.
Equality or theoretical justice

• The tax burden should be proportionate to

the taxpayer’s ability to pay.
• Ability-to-pay principle
Administrative feasibility

• The tax laws should be capable of

convenient, just and effective administration.
• Each tax should be:
– Clear and plain to the taxpayer.
– Capable of uniform enforcement
– Convenient as to time, place and manner of
payment.
– Not unduly burdensome upon or discouraging
to business activity
Nature of taxation

• It is inherent in sovereignty.
• Legislative in character.
• Subject to constitutional and inherent
limitations.
Limitations of taxation

• Inherent limitations – restrictions on the

power exists from the very nature of the
power of taxation itself.

• Constitutional limitations – restrictions

in the exercise of the power of taxation as
expressly provided in the Philippine
Constitution.
Constitutional limitations
• Due process.
• Equal protection of the laws.
• Rule of uniformity and equity in taxation.
• Non-imprisonment for non-payment of poll
tax.
• Non-impairment of the obligations and
contracts.
• Non-infringement of religious
freedom.
Constitutional limitations

• No appropriation for religious purposes.

• Exemption of religious, charitable or
educational entities, non-profit cemeteries,
and churches from taxation.
• Exemption of revenues and assets of non-
stock, non-profit educational institutions
and donations for educational purposes
from taxation.
Constitutional limitations

• Concurrence by a majority of all members

of the Congress for the passage of a law
granting any tax exemption.
• Power of the President to veto any
particular item or items in a revenue or
tariff bill.
• Non-impairment of the jurisdiction of the
Supreme Court in tax cases.
Inherent limitations

• Requirement that levy must be for a public

purpose.
• Non-delegation of the legislative power to
tax, except:
– Delegation to the President
– Delegation to local governments
– Delegation to administrative bodies
Inherent limitations

• Exemption from taxation of government

entities.
• International comity
• Territorial jurisdiction
Aspects of taxation

• Levy – deals with the provisions of law

which determines:
– The person or property to be taxed
– The sum or sums to be raised
– The rate of the tax
– The time and manner of levying, receiving
and collection the tax.
Aspects of taxation

• Collections – constituted of the provisions

of law which prescribe the manner of
enforcing the obligation on the part of
those taxes to pay the demand thus
created.