MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

DEPARTMENT OF ACCOUNTANCY

ACT184: INCOME TAXATION

GENERAL PRINCIPLES AND CONCEPTS OF TAXATION: LIMITATIONS and Other Matters
PART 3

LESSON OBJECTIVES
At the end of this module, you will be able to:
1. Know taxation limitations
2. Know other matters about general principles of taxation.

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 limitations and other matters.

ABSTRACTION
POWER OF TAXATION LIMITATIONS

I. CONSTITUTIONAL LIMITATIONS:
1. Due Process of Law
There must be a valid law and the measure should not be unconscionable and unjust as
to amount to confiscation of property. The power to tax should not be harsh, oppressive or
confiscatory.

2. Equal Protection of the Law

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

3. Rule of Uniformity and Equality in Taxation

The rule of taxation shall be uniform and equitable. It requires the uniform application and
operation, without discrimination of the tax in every place where the subject of the tax is found.

4. No Imprisonment for non-payment of Poll Tax

No person shall be imprisoned for debt or non-payment of poll tax.

5. Prohibition Against Impairment of Obligations of Contracts

No law impairing the obligation of contracts shall be passed. The obligation of contract is
impaired when its terms and condition are changed by law or by a party without the consent of
the other, thereby weakening the position or rights of the latter.

6. Prohibition Against Infringement of Religious Freedom

No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof. The free exercise and enjoyment of religious profession and worship, without
discrimination preference, shall forever be allowed.

7. No Money Shall be Appropriated for Religious or Private Purpose

No public money or property shall be appropriated, applied, paid, or employed directly or
indirectly, for the use or benefit, or support of any church, denomination, sectarian institution or

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

system of religion, or of any priest, preacher, minister or other religious teacher, or dignitary as
such except when such priest, preacher, minister or dignitary is assigned to AFP, or to any penal
institution, or government orphanage or leprosarium.

8. Exemptions form Property Taxation of Charitable institutions, Churches, Educational

Entities, Convents, Non-profit Cemeteries
Charitable institutions, churches and parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.

9. Prohibition against Taxation of Non-Stock, non-profit educational institutions

All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties.

10. No Law granting tax exemption shall be passed without the concurrence of a majority
of all Members of Congress

11. Power of the President to Veto any Particular Item or items om a revenue or tariff bill

12. Non-impairment of the jurisdiction of the Supreme Court In tax cases

Congress cannot take away from the Supreme Court the power given to it by the
constitution as the final arbiter of tax cases.

13. Revenue Bills shall originate exclusively from the House of Representatives
All appropriation, revenue or tariff bills, bills authorizing an increase of public debt, bills
of local application, and private bills shall originate exclusively in the House of Representatives,
but the Senate may propose or concur with amendments.

II. INHERENT LIMITATIONS:

1. The tax must be for public purpose
The power of taxation flows forth from the legitimate objective of supporting services of
the government. Public taxes are public money. They must be used to finance recognized public
needs. It has been held that tax has been utilized for public purpose of the welfare of the nation
or the greater portion of its population has benefited with its use.

2. The levy must apply within its territorial limits for the exercise of the effective tax
jurisdiction
The taxis authority must observe “tax situs” because the country’s tax laws are effective
and enforceable only within its territorial limits.

3. Exemption from taxation of the Government Agencies performing Governmental

Functions
Exemption from taxation is a grant of tax immunity to a particular class of persons or
corporations. The State’s immunity from taxation is inherent in its power to impose tax.

4. Non-Delegation of Power to Tax

In its strict sense, the power to make tax laws cannot be delegated to other branches of
the government. Since peculiarity and exclusively legislative in nature, the power to make tax
laws cannot be exercised by the executive or judicial branch of the Government.

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

5. International Comity
Taxing system of a sovereign state may honor International Comity with other foreign
sovereign state.

OTHER MATTERS
III, STAGES, ASPECTS OR PROCESSES OF TAXATION
Taxation involves three stages, namely:
1. LEVY
Levy or imposition of taxes involves the passage if tax laws or ordinances through the
legislature. Strictly speaking, it refers to taxation or the tax policy of the Sovereign State.

2. ASSESSMENT
Assessment involves the act of administration and implementation of the tax laws by the
executive through its administrative agencies such as the BIR and BOC.

3. COLLECTION
Collection of Tax is a process involving the act of compliance by the taxpayer in
contributing his share to defray the expenses of the government. It is the process of obtaining
payment

IV. PRINCIPLE OF A SOUND TAX SYSTEM

The fundamental principles of a sound taxation system based on Adam Smith’s Canons of
Taxation are:
1. FISCAL ADEQUACY
The principle of Fiscal Adequacy states that the sources of revenue of the government
should be sufficient to meet the demand of public expenditures regardless of business conditions.
The revenue of the government should be capable of expanding or contracting annually in
response to variations in public expenditures.

2. EQUALITY OR THEORITICAL JUSTICE

The principle states that the tax burden must be proportionate to the taxpayer’s ability to
pay. It is based on the philosophy that “he who received more should give more”. The contribution
of each individual to the government should be fair enough according to his earnings and wealth.

3. ADMINISTRATIVE FEASIBILTY
Tax laws must be convenient, just, uniform and effective in their administration – free from
confusion and uncertainty. Their exercise should be convenient as to the place, time and mode
of payment, and not burdensome or discouraging to business. Competent public officials must
enforce them uniformly.

V. DOUBLE TAXATION
1. DIRECT DOUBLE TAXATION
It means taxing twice
1. By the same taxing authority, jurisdiction or taxing district;
2. For the same purpose;
3. In the same year or taxing period;
4. Same subject or object;
5. Same kind/character of the tax

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

2. INDIRECT DOUBLE TAXATION

There is indirect double/duplicate taxation if any of the elements above is not present.

NOTE: Our constitution does not expressly prohibit direct double taxation. However, it is
something not favored.

VI. TAX EVASION vs TAX AVOIDANCE

1. TAX EVASION
Tax evasion is the use of the taxpayer of illegal or fraudulent means to defeat or lessen
the payment of tax. It is also known as “tax dodging”.

2. TAX AVOIDANCE
Tax avoidance is the exploitation by the taxpayer of legally permissible alternative tax
rates or methods of assessing taxable property or income in order to avoid or reduce tax liability.
It is also known as “tax minimization” and is not punishable by law.

In simpler sense, both are used to minimize tax but it is only a matter of legality, since tax
avoidance is legal and tax evasion is not and punishable by law.

VII. SITUS OR PLACE OF TAXATION

It means place of taxation. It is the state or political unit which has jurisdiction to impose a
particular tax. The state where the subject to be taxed has a situs may rightfully levy and collect
the tax.

FACTORS TO CONSIDER in DETERMINING SITUS:

1. Subject matter
2. Nature of Tax
3. Citizenship
4. Residence of the Taxpayer
5. Source of Income
6. Place of Exercise, business or occupation to be taxed

ASSESSMENT
(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.