Principles of Sound Taxation

1.Fiscal Adequacy- The sources (proceeds) of tax revenue should coincide with and
approximate needs of government expenditures. The sources of revenue should be
sufficient and elastic to meet the demands of public expenditures;
2. Theoretical Justice- The tax system should be fair to the average taxpayer and
based upon his ability to pay.
3. Administrative Feasibility- The tax system should be capable of being properly
and efficiently administered by the government and enforced with the least
inconvenience to the taxpayer.

What is 'Double Taxation'

Double taxation is a taxation principle referring to income taxes that are paid twice
on the same source of earned income.
Double taxation occurs because corporations are considered separate legal entities
from their shareholders. As such, corporations pay taxes on their annual earnings,
just as individuals do. When corporations pay out dividends to shareholders, those
dividend payments incur income-tax liabilities for the shareholders who receive
them, even though the earnings that provided the cash to pay the dividends were
already taxed at the corporate level.
What is 'Tax Evasion'
Tax evasion is an illegal practice where a person, organization or corporation
intentionally avoids paying his true tax liability. Those caught evading taxes are
generally subject to criminal charges and substantial penalties. To willfully fail to
pay taxes is a federal offense under the Internal Revenue Service (IRS) tax code.

What is 'Tax Avoidance'

Tax avoidance is the use of legal methods to modify an individual's financial

situation to lower the amount of income tax owed. This is generally accomplished
by claiming the permissible deductions and credits. This practice differs from tax
evasion, which uses illegal methods, such as underreporting income to avoid paying
taxes.

Tax exemption refers to a monetary exemption which reduces taxable income. Tax

exempt status can provide complete relief from taxes, reduced rates, or tax on only
a portion of items. Examples include exemption of charitable
organizations from property taxes and income taxes, veterans, and certain cross-border
or multi-jurisdictional scenarios.
Tax exemption generally refers to a statutory exception to a general rule rather than
the mere absence of taxation in particular circumstances, otherwise known as an
exclusion. Tax exemption also refers to removal from taxation of a particular item
rather than a deduction.
Personal exemptions
If you are not claimed as a dependent on another taxpayer's return, then you can
claim one personal tax exemption. This is a fixed amount that generally increases
each year. The exemption reduces your taxable income just like a deduction does,
but has fewer restrictions to claiming it. If you are married and file a joint tax return,
both you and your spouse each get an exemption.

Dependent exemptions
The IRS allows you to take additional exemptions for each dependent you claim.
Frequently, the source of these exemptions are the children who live with you for
more than half the year, are under 19 years old (or under 24 if a full-time student)
and who don't provide more than half of their own financial support during the tax
year. Some of your relatives can also qualify to be your dependents if they live with
you and even your parents who don't.
Tax-exempt organizations
For an organization to receive tax-exempt status, it must satisfy all IRS
requirements. Generally, these are organizations that don't operate for profit and
provide valuable services to the community such as a charity. If an organization
receives tax-exempt status it's not required to pay federal income tax, but must
maintain accurate records to keep its status. Donations you make to these
organizations usually entitle you to claim a charitable contribution deduction if you
itemize.
State and local exemptions
State, county and municipal governments also provide tax exemptions to
businesses to stimulate the local economy. For example, a business may be exempt
from paying local property taxes if it moves its operations to a particular geographic
area.
SITUS OF TAXATION- literally means the place of taxation, or the country that has
jurisdiction to levy a particular tax on persons, property, rights or business.
Basis: Symbiotic relationship. The jurisdiction, state or political unit that gives
protection has the right to demand support.
The situs of taxation is determined by a number of factors
a. Subject matter- or what is being taxed. He may be a person or it may be a
property, an act or activity;
b. Nature of tax- or which tax to impose. It may be an income tax, an import duty or
a real property tax;
c. Citizenship of the taxpayer
d. Residence of the taxpayer.
SITUS OF PERSONS
1. Residence tax- place where the person resides
2. Income Taxa. citizenship, or the country of which he is a citizen
b. legal residence
c. place where the income is derived.
3. Estate Tax- residence of the decedent at the time of his death
4. Donors Tax- residence of the donor at the time of donation
5. Business/occupation tax- where the business is done or the occupation is
engaged in;
SITUS OF TAXATION OF PROPERTY
1. Real Property- location of the property
2. Tangible personal property- location of the property
3. Intangible personal property- domicile or residence of the owner

Essential characteristics of tax.

1. it is an enforced contribution
2. it is generally payable in money.
3. It is proportionate in character, usually based on the ability to pay
4. it is levied on persons and property within the jurisdiction of the state
5. it is levied pursuant to legislative authority, the power to tax can only be
exercised by the law making body or congress
6. it is levied for public purpose
7. it is commonly required to be paid a regular intervals.

Classification of taxes
1. As to subject matter or object
A. personal, poll or capitation- tax of a fixed amount on individuals residing within a
specified territory, without regard to their property, occupation or business. Ex.
Community tax (basic)
B. property- imposed on property, real or personal, in proportion to its value, or in
accordance with some reasonable method or apportionment. Ex. Real estate Tax
C. Excise- imposed upon the performance of an act, the enjoyment of a privilege, or
the engaging in an occupation, profession or business. Ex. Income tax, VAT, Estate
Tax, Donors Tax
2. As to who bears the burden of the tax
a. Direct- the tax is imposed on the person who also bears the burden thereof
Ex. Income tax, community tax, estate tax
b. Indirect imposed on the taxpayer who shifts the burden of the tax to another,
Ex. VAT, customs duties
3. As to determination of amount
a. specific imposed and based on a physical unit of measurement as by head
number, weight, length or volume. Ex. Tax on distilled spirits, fermented liquors,
cigars
b. Ad Valorem of a fixed proportion of the value of the property with respect to
which the tax is assessed. Ex. Real estate tax, excise tax on cars, non essential
goods.
4. As to purpose
A. general, fiscal, or revenue- imposed for the general purpose of supporting the
government. Ex. Income tax, percentage tax
B. special or regulatory- imposed for a special purpose, to achieve some social or
economic objective. Ex. Protective tariffs or custom duties on imported goods
intended to protect local industries.

5. As to scope or authority imposing the tax

a. national- imposed by the national government ex. NIRC, custom duties
b. municipal or local- imposed by municipal corporations or local governments ex.
Real estate tax,
6. As to graduation of rates.
a. proportional- based on a fixed percentage of the amount of the property, receipts
or on other basis to be taxed ex. Real estate tax, VAT
b. progressive and graduated- the rate of the tax increases as the tax base or
bracket increases ex. Income tax, estate tax, donors tax
c. regressive- the rate of tax decreases as the tax base or bracket increases.
d. degressive- increase of rate is not proportionate to the increase of tax base.

Tax distinguished from other fees. IMPT

1. From TOLL. Toll is a sum of money for the use of something, generally applied to
the consideration which is paid for the use of a road, bridge or the like, of a public
nature.
A toll is a demand of proprietorship, is paid for the use of anothers property and
may be imposed by the government or private individuals or entities; while a tax is
a demand of sovereignty, is paid for the support of the government and may be
imposed only by the State.
2. From PENALTY. Penalty is any sanction imposed as a punishment for violation of
law or acts deemed injurious. Violation of tax laws may give rise to imposition of
penalty.
A penalty is designed to regulate conduct and may be imposed by the government
or private individuals or entities. Tax, on the other hand, is primarily aimed at
raising revenue and may be imposed only by the government.
3. From SPECIAL ASSESSMENT. Special Assessment is an enforced proportional
contribution from owners of lands for special benefits resulting from public
improvements.
Special Assessment is levied only on land, is not a personal liability of the person
assessed, is based wholly on benefits and is exceptional both as to time and place.
Tax is levied on persons, property, or exercise of privilege, which may be made a
personal liability of the person assessed, is based on necessity and is of general
application.
4. From PERMIT or LICENSE FEE. Permit or License Fee is a charge imposed under
the police power for purposes or regulation.
License fee is imposed for regulation and involves the exercise of police power while
tax is levied for revenue and involves the exercise of the taxing power. Failure to
pay a license gee makes an act or a business illegal, while failure to pay a tax does
not necessarily make an act or a business illegal.

5. From DEBT. Debt is generally based on contract, is assignable and may be paid in
kind while a tax is based on law, cannot generally be assigned and is generally
payable in money. A person cannot be imprisoned for non-payment of debt while he
can be for non-payment of tax except poll tax.
A tax is considered a debt for purposes of remedies for its enforcement;
6. From REVENUE. Revenue is broader that tax since it refers to all funds or income
derived by the government taxes included. Other sources of revenues are
government services, income from public enterprises and foreign loans.
7. From CUSTOM DUTIES. Custom duties are taxes imposed on goods exported from
or imported to a country. Custom duties are actually taxes but the latter is broader
in scope.