GENERAL PRINCIPLES OF TAXATION

STATE is an organized political community living under a single system of government.

**Elements of State: [SPTG] Sovereignty, People, Territory and Government

INHERENT POWER OF THE STATE:

(P) a. POLICE POWER- The power of the State to enact laws in relation to persons and property so as to
promote public health, public moral, public safety and general welfare of the
people
(E) b. POWER OF EMINENT DOMAIN- The power of the State or those to whom the power has been
delegated to take private property for public use upon paying the owner a just
compensation to be ascertained according to law.
(T) c. POWER OF TAXATION- The power of the State by which the sovereign raises revenue to defray the
necessary expense of the government

SIMILARITIES among the three inherent power of the state [CIIIL-CJL]

They are inherent in the State
They exist independently of the Constitution
They constitute the three methods by which the States interferes with private right and property
They are legislative in nature and character
Each presupposes an equivalent compensation
The provision in the Constitution are just limitations on the exercises of these powers.

DIFFERENCE among the inherent power of the state

POLICE POWER EMINENT DOMAIN TAXATION
1. Benefits Indirect (situational),
Market value of property Protection and organized
healthy economic
expropriated society
standard of society
2.Importance Common necessities and Inseparable for the
Protection, safety and
interest transcend existence of a nation-
welfare of society
individual rights support EM and PP
3. Concept To enforce contribution
To implement laws for To take property for
for raising government
general welfare public use
fund
4. Effect No transfer of title, only Transfer the right to
Part of public fund
restraint on the injuries property, (ownership or a
use of the property lesser right)
5. Persons affected Individual as owner
Community or individual Community or Individual
(particular property)
6. Amount of imposition Limited to the cost
No imposition No limit
needed
7. Scope Broader in application, Merely a power to take
Plenary, comprehensive
General power to make private property for
and supreme
and implement laws public use
8. Non-impairment of
Superior Superior Inferior
contracts
9. Relationship to Superior to and may
Constitution Relatively free form cons. override constitutional Subject to Constitutional
Limitation impairment provision and Inherent limitations.
Superior to non- because the welfare of Inferior to no-impairment
impairment clause the State is superior to clause
any private contract
10. Limitation Constraint by
Limited by demand for Bounded by public
Constitutional and
public interest and due purpose and just
Inherent
process compensation
11. Necessity of Can be expressly Can be expressly
delegation delegated to local delegated to local
Cannot be delegated
government by law government by law
making body making body
TAXATION - is the power of laying tax; the process or means by which sovereign , through its lawmaking body,
raises revenue to defray the necessary expenses of government.

I. CHARACTERISTICS of taxation Power:

Inherent Power of sovereignty Subject to Constitutional and inherent
Essentially a legislative in function (obligation limitation
created by law) Taxes are generally personal to the taxpayer
For public purposes Forced charged
Territorial in operation Generally payable in money
Tax exemption of government Assessed in accordance with some reasonable
The strongest among the inherent powers rule of apportionment

II. THEORY AND BASIS of taxation

A. Lifeblood theory (Importance of Taxation) it is said that taxes are what we pay for civilized society,
without taxes, the government would be paralyzed for lack of the motive power to activate
and operate it. Hence, despite the natural reluctance to surrender part of ones hard-earned
income to the government, every person who is able to must contribute his share in running
of the government.
B. Necessity Theory (Theory of Taxation)- The power to tax is an attribute of sovereignty emanating from
necessity. It is a necessary burden to preserve the States sovereignty and a means to give
the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a
corps of civil servants to serve, public improvements designed for the enjoyment of the
citizenry and those which come within the States territory, and facilities and protection
which a government is supposed to provide.
C. Benefits-Protection Theory (Basis of Taxation) Taxation is described as a symbiotic relationship
whereby in exchange of the benefits and protection that the citizens get from the
Government, taxes are paid.

***Is the power to tax the power to destroy?

Power to tax is the power to destroy- refers to the unlimitedness and the degree with which
the taxing power may be employed to raise revenue The financial needs of the state may
outrun any human calculation, so the power to meet those needs by taxation must not be
limited even though taxes become burdensome or confiscatory

Power to tax is not the power to destroy while the Supreme Court sits the power to tax
know no limit except those expressly stated in the Constitution Although the power to tax is
unlimited, it must not be exercised n an arbitrary manner. If the abuse is so great so as t
destroy the natural and fundamental rights of people, it is the duty of the judiciary to hold
such an act unconstitutional.

III. PURPOSE of taxation

A. Primary to raise revenue
B. Secondary promotion of general welfare, regulation, reduction of social inequality, encourage
economic growth, protectionism

IV. Basic PRINCIPLE of a SOUND TAX SYSTEM (Canons of taxation)

(F) Fiscal adequacy- this means that the sources of revenue should be sufficient to meet
demands of exp.
(A) Administrative feasibility- laws should be capable of convenient, just and effective
administration
(T) Theoretical justice- this means that the tax burden should be proportionate to the taxpayers
ability to pay
V. Process of Taxation
1. Legislative function (enactment of law)
The subject matter or object to be taxed
The purpose of tax so long as it is public purpose
The amount or rate of the tax
The manner, means and agencies of collection of the tax
The exemptions from the imposition
Situs of Taxation
2. Assessment of tax
3. Collection of the tax which is administrative in character

VI. CLASSIFICATION of taxes

A. As to Subject Matter:
1. Personal Tax taxes are fixed amount upon all persons of certain class within the
jurisdiction without regard to property, occupation or business in which they may engaged
2. Property Tax assessed on property of a certain class (ex. Real Property Tax)
3. Excise Tax Imposed on the exercise of a privilege (ex. Income, Estate and Donors tax)
4. Custom Tax Duties charged upon commodities on their being imported or exported

B. As to Burden:
1. Direct Tax Both the incidence of or liability for the payment of the tax as well as the
impact or burden of the tax fails on the same person (ex. Income tax)
2. Indirect Tax the incidence of or liability for the payment of the tax falls on one person
but the burden thereof can be shifted or passed on to another (ex. VAT)

C. As to Purpose:
1. General Tax Levied for the general or ordinary purposes of the Government
2. Special Tax Levied for special purposes

D. As to Measure of Application:
1. Specific Tax imposes a specific sum by the head or number or by some standard of
weight or measurement
2. Ad Valorem Tax tax upon the value of the article or thing subject to taxation.

E. As to Taxing theory:
1. National Tax levied by the National Government
2. Local Tax levied by the Local Government

F. As to Rate:
1. Progressive Tax Rate or amount of tax increases as the amount of income increases
2. Regressive Tax Tax rate decreases as the amount of income to be taxed increases.
3. Proportional Tax Based on a fixed proportion of the value of the property assessed.

VI. OTHER IMPOSITIONS THAN TAXES

A. Toll- amount charged for the cost and maintenance of the property used
B. Penalty punishment for the commission of a crime
C. Compromise Penalty amount collected in lieu of criminal prosecution in cases of tax
violations
D. Specific Assessment levied only on land based wholly on benefit accruing thereon as a result
of improvements or public works undertaken by government within the vicinity
E. License or Fee regulatory imposition in the exercise of the police power
F. Margin Fee Exaction designed to stabilized the currency
G. Debt a sum of money due upon contract or one which is evidenced by judgement
H. Subsidy a legislative grant of money in aid of a private enterprise deemed to promote the
public welfare
I. Customs duties and fees duties charged upon commodities on their being transported into or
exported from the country
J. Revenue a broad term that includes taxes and income from other sources as well
 K. Impost in its general sense, it signifies any tax, tribute or duty. In its sense, it means a duty on
imported goods and merchandise
L. Tithe imposes by church or sect
M. Tribute imposes by monarch

VII. DIFFERENT FORMS OF ESCAPING TAXATION

A. Shifting the process by which the tax burden is transferred from the statutory taxpayer
(impact of taxation) to another (incident of taxation) without violating the law
B. Capitalization a mere increase in the value of the property is not income but merely an
unrealized increase in capital. NO income until after the actual sale or other disposition of the
property in excess of its original cost
C. Tax Avoidance the exploitation by the taxpayer or legally permissible alternative tax rates or
methods of assessing taxable property or income, in order to avoid or reduce tax liability.
D. Transformation the manufacturer or producer upon whom the tax has been imposed, fearing
the loss of his market if he should add the tax to the price, pays the tax and endeavours to
recoup himself by improving his process of production, thereby turning out his units at a lower
cost
E. Tax Evasion the use by the taxpayer of illegal or fraudulent means to defeat or lessen the
payment of the tax
F. Tax Exemption a grant of immunity to particular person or corporations from the obligation
to pay taxes

VIII. DISTINCTION BETWEEN TAX AND SPECIAL ASSESSMENT AND LICENSE FEE AND DEBT
TAX SPECIAL ASSESSMENT
Imposed on persons, property and rights Levied only on land
Personal Liability attaches on the person Cannot be made a personal liability of the
assessed in the case of non-payment person assessed
Not based on any special or direct benefit Based wholly on benefit
Levied and paid annually Exceptional both as to time and locality
Exemption granted is applicable Exemption does not apply (If property is
exempt from Real Property tax, it is also
exempt from special assessment)

TAX LICENSED FEE

Non-payment does not make the business Non-payment makes the business illegal
illegal but maybe a ground for criminal
prosecution
Amount is UNLIMITED Amount is limited to the cost of issuing the
license, and the inspection and surveillance
For generation of revenue For regulatory purposes
Based on POWER OF TAXATOIN Based on POLICE POWER

TAX DEBT
Imposed only by public authority Can be imposed by private individual
Non-payment is punished by imprisonment No imprisonment in case of non-payment
except in poll tax
Not subject to compensation or set-off Subject to compensation or set-off
Not assignable Assignable
Does not draw interest except in case of Draws interest if stipulated or delayed
delinquency
Payable in money Payable in money, property or service
Due to the government in its sovereign May be due to the government but it its
capacity corporate capacity
An obligation imposed by law Created by contract

LIMITATIONS OF TAXING POWER

I. INHERENT limitation- caused by the nature of the power itself (N E P T I) or (P E N T I)
*** N (non-delegation) E (Exemption of the government) P (Public Purpose) T (Territorial Jurisdiction) I (International Comity)

A. Non-delegation of the power of tax- the power of tax is purely legislative, and Congress cannot delegate
the legislature to the executive or judicial department of the government.
Exceptions:
1. Delegation to the President to fix, within specified limits, tariff rates, import or export quotas,
tonnage and wharfage dues and other duties or imposts.
2. Delegation to local governments the power to create its own sources of revenues and to levy
taxes, subject to such limitations as may be provided by law.
3. Delegation to administrative agencies certain aspects of the taxing process that are not
legislative, such as:
The power to fix value of property for purpose of taxation pursuant to fixed rules
The power to asses and collect taxes
The power to perform any of the innumerable details of computation, appraisement, and
adjustments, and the delegation of such duties.

B. Exemption from taxation of government units government agencies performing essential governmental
function are exempt from tax unless expressly taxed, while those performing proprietary
functions are subject to tax unless expressly exempted.

C. Public Purpose - purpose affecting the inhabitants of the State as a community and not merely as
individuals.
1. The best test of rightful taxation:
For the support of the government or
For any of the recognized object of government, or
To promote the welfare of the community
2. A tax levied for a private (not public) purpose constitutes taking of property without due process
of law as it is beyond the power of the government to impose

D. Territorial Jurisdiction the tax laws of a State are enforceable only within its territorial limits
1. The tax laws do not operate beyond a countrys territorial limits
2. Property which is wholly or exclusively within the jurisdiction of another State receive none of the
protection for which a tax is supposed to be compensated.
3. A person may be taxed where there is between him and the taxing State a privity of relationship
justifying the levy.
4. Multiplicity of situs- income or intangible personal properties may be subject to taxation in
several taxing jurisdiction.
5. Remedies against multiplicity of situs:
Provision of exemptions
Allowance of deduction or tax credit for foreign taxes
Treaties with other States
6. Sites or situs of taxation- place of taxation
-Basic rule: situs is the State which has jurisdiction or which exercises dominion over the
subject in question
- situs of taxation
Source or Location of Object
Nature of Tax Citizenship Residency Within Phil. Outside Phil
F R Yes Yes
F N Yes No
INCOME TAX
A R Yes No
A N Yes No
F R Yes Yes
F N Yes Yes
TRANSFER TAX
A R Yes Yes
A N Yes No
BUSINESS TAX Yes No
 E. International Comity - the property of a foreign State or government may not be taxed by another.
These principles limit the authority of the government to effectively impose taxes on sovereign
state and its instrumentalities, as well as on its property held and activities undertaken in that
capacity. International laws dictates peace and harmony among states, hence, no state shall assert
superiority over the other by imposing taxation.

II. CONSTITUTIONAL Limitation - are those which are expressly found in the Constitution or implied from its
provision

A. Due Process of Law No person shall be deprived of life, liberty or property without due process of law
nor shall any person be denied the equal protection of law. Any deprivation of life, liberty
or property is with due process if it is done under the authority of a law (substance) that is
valid (not contrary to the Constitution) and after compliance with fair and reasonable
methods of procedure prescribed.

B. Power of the president to veto to any particular item or items in a Revenue or Tariff bill. As a general
rule, under the constitution, the President may not veto a bill in part and approve it in part.
The exception is with respect to revenue or tariff bill.

C. Non-impairment of the obligation of contracts No law impairing the obligations of contract shall be
passed. The obligation of contract is impaired when its terms or conditions are changed by
law or by a party without the consent of the other, thereby weakening the position of the
latter.

D. Non-imprisonment for non-payment of poll tax - No person shall be imprisoned for debt or non-
payment of poll tax. The prohibition is against imprisonment for non-payment. Hence,
an imposition of a fine (but not subsidiary imprisonment), or even imprisonment for any
other violation that non-payment would not be unconstitutional. Only non-payment of poll
tax (or community tax) is covered by the limitation. Non-payment of other (additional) taxes
can validly be subjected by law to imprisonment

E. Rule of uniformity and equity in taxation.

1. All taxable articles or properties of the same class shall be taxed at the same rate.
2. A tax is considered uniform when it operates with the same force and effect n every place where the
subject may be found
3. The concept of equity in taxation requires that apportionment of the tax burden be, more or less,
just in the light of the taxpayers ability to shoulder the tax burden and, if warranted, on the basis of
the benefits he receives from the government
4. To ensure and enhance the equity objective, the Constitution enjoins Congress to evolve a
progressive system of taxation (tax shall be place emphasis on direct rather that indirect taxation,
with the ability to pay as the principal criterion)
5. Equal protection refers more to like treatment of persons in like circumstances; uniformity and
equity refer to the proper relative treatment for tax purposes of persons in unlike circumstance.

***DOUBLE TAXATION (taxing a person, property or right twice during the same taxable period)
Direct double taxation or direct duplicate taxation which violates equal protection and
uniformity clause means: ( violation of due substantive due process)
a. Taxing twice
b. By the same taxing authority
c. Within the same jurisdiction of taxing district
d. For the same purpose
e. In the same year ( taxing period)
f. Some of the property in the territory
There is no direct double taxation (indirect duplicate taxation). The absence of one or more of
the above-mentioned elements makes the double taxation indirect.
Remedies against double taxation: tax deduction (vanishing deduction), tax credits, exemptions,
treaties with other states, principles of reciprocity
 F. No appropriation for religious purposes Exemption of religious, charitable or educational entities, non-
profit cemeteries, and churches from property taxation

G. Non-impairment of the jurisdiction of Supreme Court in tax cases

H. Congress granting exemptions No law granting any tax exemption shall be passed without the
concurrence of majority of all the members of the Congress
Kinds of tax exemption:
a. As to basis:
1. Constitutional immunities from the taxation which originate from the constitution
2. Statutory those which emanate from legislation
b. As to Form:
1. Express - clearly provided for in the constitution, statutes, or tax treaty with other countries
2. Exemption by omission or implied exemption- when particular persons, property or excises are
deemed exempt as they fall outside the scope of the taxing provision itself.
c. As to Extent:
1. Total absolute immunity
2. Partial one where a collection of a part of the tax is dispensed with
d. As to object
1. Personal granted directly in favour of certain persons
2. Impersonal granted directly in favour of a certain class of property

Tax exemption vs tax amnesty

a. Tax exemption immunity from civil liability. Prospective in application
b. Tax amnesty immunity from all criminal and civil obligation arising from non-payment of taxes. It
is a general pardon given to all taxpayers. It applies only to past tax periods, hence
of retroactive application.

I. Equal Protection of Law All persons subject to legislation shall be treated alike under similar
circumstances and conditions both in the privileges conferred and liabilities imposed

J. Non-infringement of religious freedom and worship

K. Freedom of speech and of the press

L. Rule requiring that appropriations, revenue and tariff bills shall originate exclusively from the House of
Representatives

M. Limitation on the congressional power to delegate to the president the authority to impose tariff rates,
import exports quotas, etc.

N. Exemption from taxes of the revenues and assets of educational institutions, including grants,
endowments, donations and contributions.

I. Necessity of an appropriation before money may be paid out of the public treasury

J. Taxes levied for a special purpose

K. Internal Revenue allotments to local government units

TAX LAWS sets of rules that provide means for the State to raise revenues
*** How to make a tax Law? Generally, all revenue bills (proposal) must originate from the House of
Representatives. After passing 3 readings by a majority vote in technical committee, deliberation and
journals of congress. It shall be elevated to Senate, which needs to pass the same 3 readings. Normally,
the President signs a bill into law for its implementation.
 I. Sources of Tax Laws
A. Republic Act/Statutes/Tax Code
B. Presidential Decrees
C. Executive Orders
D. Court Decisions
E. Revenue Regulations (least source of tax laws)

II. Nature of Internal Revenue Laws Internal revenue laws are not political in nature. In times of war, they
are deemed to be the laws of the occupied territory and not of the occupying enemy. Tax
laws are civil and not penal in nature although there are penalties for their violation.

III. Rules in Constructing tax imposing laws

A. Public Purpose is always presumed
B. Legislative intention must be considered (spirit of the law)
C. Where the language is plain and there is no doubt tax laws must be given their ordinary meaning
D. A statute will not be construed as imposing a tax unless it does so clearly, expressly and unambiguously
E. In case of doubt, it is construed most strongly against the Government, and liberally in favor of the
taxpayer
F. Provisions of a taxing act are not to be extended by implementation
G. Tax laws operate prospectively unless the purpose of the legislature to give retrospective effect is
expressly declare or may be implied from the language used
H. Tax laws are special laws and prevail over a general law
I. Tax laws are civil in nature, not political
J. Neither are tax laws penal in nature. Hence, the rule of retroactive effect of penal laws finds no
application in tax cases.
K. Neither can the Constitutional prohibition against the passage of ex post facto laws be invoked in
taxation

IV. PRINCIPLES GOVERNING TAX EXEMPTIONS

A. Exemptions from taxation are highly disfavoured in law and are not presumed
B. He who claims as exemption must be able to justify his claim by the clearest grants of organic or statute
law by words too plain to be mistaken. If ambiguous, there are no exemptions.
C. He who claims exemption should prove by convincing proof that he is exempted
D. Taxation is the rule, tax exemption is the exception
E. Tax exemption must b strictly construed against the taxpayer
F. Tax exemptions are not presumed
G. Constitutional grants of tax exemption are self-executing
H. Tax exemption are personal

V. TAX/REVENUE REGULATIONS are interpretations of an administrative body (BIR) intended to clarify or

explain the tax laws and carry into effect its general provisions by providing the details of
administration and procedure. They are deemed necessary to the proper enforcement and
execution of tax laws.

**Who has the authority to promulgate tax regulations? It is provided that the Secretary of
Finance, upon the recommendation of the Commissioner of Internal Revenue, shall
promulgate all needful and regulations of the tax code (Quasi-legislative function)

VI. REQUISITES OF TAX REGULATIONS

A. It must be reasonable-germane to the purpose of the law
B. Within the authority conferred
C. Not contrary to law
D. Must be published
E. Prospective, unless it is beneficial to the taxpayer, which may be given retroactive application

VII. BIR RULINGS BIR issues a general interpretations of tax laws usually upon request of a taxpayer to clarify
a provision of law (Quasi-judicial function)
 VIII. DISTINCTION BETWEEN ADMINISTRATIVE AND JUDICIAL INTERPRETATION Interpretations and
administrative level are given great weight but are not laws, unlike courts decision which are
considered part of the law of the land

TAX ENFORCEMENT AND COLLECTION

I. DIFFERENT AGENCIES INVOLVED IN TAX ADMINISTRATION?

A. Bureau of Internal Revenue (BIR) internal revenue taxes (national taxes)
***Agents of the BIR:
1. Commissioner of Customs for taxes on imported goods
2. Head of appropriate government office with respect with energy taxes
3. Banks duly accredited by Commissioner of Internal Revenue

***Composition of the BIR

1. One commissioner
2. Four deputy commissioner
3. Regional revenue director
4. Revenue district office
5. Revenue officer

***Powers and duties of BIR

1. Assessment and collection of all national internal revenue taxes
2. Enforcement of all forfeitures, penalties, and fines connected therewith
3. Execution of judgements in all cases decided in its favour by the Court of Tax Appeals (CTA0 and
the ordinary courts
4. Give effect to and administer the supervisory and police powers conferred to it by the Code or
other laws

B. Bureau of Customs customs law enforcement (International Taxes)

C. Provincial, city and municipal assessors and treasurers local and real property taxes

*** BIR shall be under the supervision and control of the Department of Finance under the office of the
president.

II. POWERS AND DUTIES OF THE BIR COMMISSIONER

A. Power to interpret tax law and decide tax cases (Quasi-judicial function)
1. Interpret provision of this Code and other tax law subject to review of the Secretary of Finance
2. Decide Cases:
a. Disputed assessment
b. Refunds of internal revenue taxes, fees and charges
c. Penalties impose in relation thereto
d. Other matters arising from this Code or other laws or portions thereof administered by
the BIR subject to the exclusive appellate jurisdiction of the CTA

B. Power to obtain information, summon, examine and take testimony of persons

1. To examine any relevant books, paper, record or other data
2. To obtain any information (costs, volume of production, receipts, sales, gross income) on
regular basis form
3. To summon (subpoena duces decum and ad testificandum)
4. To take the testimony of the person concerned, under oath as may be relevant to the inquiry
5. To cause revenue officers and employees to make a canvass of any revenue district or region

C. Power to make assessments, prescribe additional requirements for tax administration and
enforcement
1. Examination of returns and determination of tax due
2. Terminate taxable period
a. When the taxpayer is retiring from business subject to tax
b. When the taxpayer absconded
 c. When the taxpayer removes his property from Philippines
d. When the taxpayer hides or conceals his property
3. Prescribe Real Property Value
4. Authority to Inquire Into Bank Deposit
Notwithstanding R.A. 1405 (Bank Secrecy Law) the commissioner is authorized to inquire the
Bank deposits of:
a. a decedent to determine his gross estate
b. a taxpayer who has filed an application to compromise payment of tax liability by reason of
financial incapacity
5. Authority to register tax agents
6. Authority to prescribe additional requirements

D. Authority to Delegate Power the commissioner may delegate the powers vested in him to
subordinate officials with rank equivalent to Division Chief or higher, subject to limitations/restrictions
imposed under the rules and regulations.
EXCEPT the following powers:
1. To recommend the promulgation of rules and regulations by the Sec. Of Finance
2. To issue rulings of first impression or to reverse, revoke modify any existing rule of the BIR
3. To compromise or abate any tax liability
4. To assign or reassign internal revenue officers to establishments where articles subjects to
excise tax are kept

E. Other Powers
1. Duty to ensure the provision and distribution of forms, receipts, certificates, and appliances,
and the acknowledgement of payment of taxes
2. Authority to administer oaths and to take testimony
3. Authority to make arrests and seizures
4. Authority to employ, assign or reassign internal revenue officers involved in excise tax functions
to establishments where articles subject to excise tax are produced or kept
5. Authority to assign or reassign internal revenue officers and employees of the BIR to other or
special duties connected with the enforcement or administration of the revenue laws

III. SOURCES OF INTERNAL REVENUE

A. Income Tax C. Value-Added tax F. Documentary stamp tax
B. Estate and Donors D. Other percentage tax
taxes E. Excise taxes