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2. Power of Eminent Domain – it refers to the inherent power of a sovereign state to take
private property for public use upon payment of a just compensation.
3. Power of Taxation – inherent power of a sovereign state acting through its legislature to
impose a proportionate burden upon persons, property, rights or transaction to raise
revenue to support government expenditure and as a tool for general and economic
welfare (PUBLIC PURPOSE)
SIMILARITIES:
1. They are indispensable to government existence.
2. They can exist independent of the constitution.
3. They are means by which the state interferes with private rights and properties.
4. They are generally exercised by the legislature.
5. They contemplate an equivalent compensation or benefit.
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GENERAL PRINCIPLES OF TAXATION JLM
Theory of Taxation
- government’s necessity for funding
The Lifeblood Doctrine
– Taxes are indispensable to the continued subsistence of the government. Without
taxes, the government would be paralyzed for lack of motive power to activate or
operate it. (CIR vs. Algue)
– Implication of the Lifeblood Doctrine in taxation:
– Tax is imposed even in the absence of a Constitutional grant
– Claims for tax exemption are construed against taxpayers.
– The government reserves the right to choose the objects of taxation.
– The courts are not allowed to interfere with the collection of taxes.
– In income taxation:
– Income received in advance is taxable upon receipt.
– Deduction for capital expenditures and prepayments is not allowed as it
effectively defers the collection of income tax.
– A lower amount of deduction is preferred when a claimable expense is
subject to limit.
– A higher tax base is preferred when the tax object has multiple tax bases.
Basis of Taxation
– The mutuality of support between the people and the government
– Receipt of benefits is conclusively presumed
Theories of Cost Allocation
1. Benefit Received Theory
Presupposes that the more benefit ones receive from the government, the more
taxes he should pay.
2. Ability to pay Theory
Presupposes that taxation should also consider the taxpayers’ ability to pay.
Vertical Equity – proposes that the extent of one's ability to pay is directly
proportional to the level of his tax base
GROSS Concept
Horizontal Equity - requires consideration of the particular circumstance
of the taxpayer.
NET Concept
PURPOSES OF TAXATION
1. Primary purpose is to raise revenue
2. Secondary purposes:
a) Regulation
b) Promotion of General Welfare
c) Reduction of Social Inequality
d) Encourages Economic Growth
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GENERAL PRINCIPLES OF TAXATION JLM
CONSTITUTIONAL LIMITATIONS
1. Observance of due process of law
2. Equal protection of law
3. Uniformity in taxation
4. Progressive scheme of taxation
5. Non-imprisonment for non-payment of poll tax
6. Non-impairment of the obligations and contracts
7. Free-worship clause
8. Exemption of charitable institutions, churches, parsonages, or convents appurtenant
thereto, mosques, and non-profit cemeteries, and all lands, buildings and improvements
actually, directly and exclusively used for religious, charitable or educational purposes.
9. Exemption from taxes of the revenues and assets of non-profit, non-stock educational
institutions including grants, endowments, donations or contributions for educational
purposes.
10. Non-appropriation of public funds or property for the benefit of any church, sect or
system of religion, etc.
11. No money shall be paid out of the Treasury except in pursuance of an appropriation
made by law.
12. Concurrence of a majority of ALL members of Congress for the passage of a law
granting tax exemption
13. Non-diversification of tax collections
14. The President shall have the power to veto any particular item (s) in an appropriation,
revenue or tariff, but the veto shall not affect the item (s) to which no objection has been
made.
15. Non-impairment of the jurisdiction of the Supreme Court to review tax cases
16. Appropriations, revenue or tariff bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
17. Each local government unit shall exercise the power to create its own sources of
revenue and shall have a just share in the national taxes
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GENERAL PRINCIPLES OF TAXATION JLM
SITUS OF TAXATION
Situs is a Latin term which means “situation”, “location”, or “place.” In short, its literal
meaning refers to a place taxation.
2. Holme’s Doctrine – “taxation power is not the power to destroy while the court
sits.” It may be used to build or encourage beneficial activities or industries by the
grant of tax incentives.
4. Non- compensation or set – off – Taxes are not subject to automatic set – off or
compensation.
Exceptions:
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GENERAL PRINCIPLES OF TAXATION JLM
a. where the taxpayer’s claim has already become due and demandable such as
when the government already recognized the same and an appropriation for
refund was made
b. Cases of obvious overpayment of taxes
c. Local taxes
5. Non – assignment of taxes – tax obligations cannot be assigned or transferred to
another entity by contract.
6. Imprescriptibility in taxation – as a rule, taxes do not prescribe unless the law itself
provides for prescription
- under NIRC, tax prescribes if not collected within 5 years from the date of its
assessment. In the absence of an assessment, tax prescribes if not collected by judicial
action within 3 years from the date the return is required to be filed. However, taxes due
from taxpayers who did not file a return or those who filed fraudulent returns do not
prescribe.
7. Doctrine of Estoppel – any misrepresentation made by one party toward another who
relied therein in good faith will be held true and binding against that person who made
the misrepresentation.
- The GOVERNMENT is not subject to estoppel
8. Judicial Non-interference – generally, courts are not allowed to issue injunction against
the government’s pursuit to collect tax exemption. This is anchored on the Lifeblood
Doctrine.
9. Strict Construction of Tax Laws - “Taxation is the rule, exemption is the exception.”
in case of VAGUE laws –
Vague tax laws are construed against the government and in favor of the taxpayers.
in case of VAGUE exemption laws –
Vague exemption laws are construed against the taxpayer and in favor of the
government.
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GENERAL PRINCIPLES OF TAXATION JLM
5. Tax AVOIDANCE – taxpayer minimizes his tax liability by taking advantage of legally
available tax planning opportunities
- known as “TAX PLANNING”
6. Tax TRANSFORMATION – escape from tax burden wherein the producer of goods
absorbs the tax.
- Improving the process of production to reduce cost of sales.
Tax Amnesty – a general pardon granted by the government for erring taxpayers to give them
chance to reform and to enable them a fresh start to be part of a society with a clean slate. It is
an absolute forgiveness or waiver by the government on its right to collect and is retrospective
in application
Tax Condonation – is forgiveness of the tax obligation of a certain taxpayer under certain
justifiable grounds. Also known as “tax remission”
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GENERAL PRINCIPLES OF TAXATION JLM
and regulations for the effective enforcement of the provisions of the National
Internal Revenue Code (NIRC) and related statutes.
Revenue regulations are formal pronouncements intended to clarify or explain
the tax law and carry into effect its general provisions by providing details of
administration and procedure.
Revenue regulation has the force and effect of a law, but is not intended to
expand or limit the application of the law; otherwise, it is void.
5. Revenue Bulletin
refer to periodic issuances, notices, and official announcements of the
Commissioner of Internal Revenue that consolidate the Bureau of Internal
Revenue's position on certain specific issues of law or administration in relation
to the provisions of the Tax Code, relevant tax laws, and other issuances for the
guidance of the public.
6. BIR Rulings
BIR Rulings are official positions of the Bureau to queries raised by taxpayers
and other stakeholders relative to clarification and interpretation of tax laws.
Rulings are merely advisory or a sort of information service to the taxpayer such
that none of them is binding except to the addressee and may be reversed by the
BIR at anytime.
Types of rulings
1. Value Added Tax (VAT) rulings
2. International Tax Affairs Division (ITAD) rulings
3. BIR rulings
4. Delegated Authority (DA) rulings
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GENERAL PRINCIPLES OF TAXATION JLM
Taxes defined:
Enforced proportional contribution from persons and property levied by the lawmaking body of
the State by virtue of its sovereignty for the support of the government, all public needs and
generally payable in money.
Classification of Taxes
As to subject matter or object
a. Personal, Poll or Capitation - a tax on a persons who are residents of a particular
territory.
“No person shall be imprison of non-payment of POLL, PERSONAL or CAPITATION
tax”
“CEDULA”
b. Property – tax imposed on property whether REAL or PERSONAL in proportion to its
value or in accordance with some other reasonable apportionment
e.g. Real Estate Tax/Property Tax
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GENERAL PRINCIPLES OF TAXATION JLM
As to DETERMINATION of AMOUNT
c. Specific – tax imposed based on the PHYSICAL unit of measurement as by head,
numbers, weight or length or volume.
e. g. cigars, wines
fireworks
d. Ad Valorem – tax of a FIXED PROPORTION of the value of property; needs an
independent appraiser to determine the value
e.g. real estate tax, customs duties, excise taxes on cigarettes and gasoline
As to PURPOSE
a. General, Fiscal or revenue – tax with no particular purpose or object for which the
revenue is raised, but is simply raised for whatever need may arise.
e.g. Income tax, VAT
As to GRADUATION OR RATE
a. Proportional – tax based on a fixed percentage of the amount of property income or
another basis to be taxed.
e.g. Percentage taxes, Real Estate Taxes
b. Progressive or Graduated – tax rate increases as the tax base increases.
e.g. Income Taxes, Estate Tax, Donor’s Tax
c. Regressive – tax rate decreases as the tax base increases.
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GENERAL PRINCIPLES OF TAXATION JLM
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GENERAL PRINCIPLES OF TAXATION JLM
Scope The power to tax includes the Power to license does not
power to license include the power to tax
When imposed Post-activity Pre-activity
Basis of imposition Current data Preceding year or quarter
date. If new business, based
on capitalization
Sources of Power Taxing power of the Police power of the
government government
TAX SYSTEM
• Global - All items of gross income is subject to a single progressive rate
• Schedular - Different types of income are subject to different sets of graduated or flat rates
Types of Tax System according to Imposition
1. Progressive employed in the taxation of income of individuals, and transfers of properties
by individuals
2. Proportional - employed in taxation of corporate income and business
3. Regressive - not employed in the Philippines
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GENERAL PRINCIPLES OF TAXATION JLM
2. A regressive tax system is one that emphasizes indirect taxes. Indirect tax are shifted by
businesses to consumers; hence, the impact of taxation rests upon the bottom end of the
society. In effect, a regressive tax system is anti-poor.
1. It is widely believed that despite the Constitutional guarantee of a progressive
taxation, the Philippines has a dominantly regressive tax system due to the
prevalence of business taxes.
• Administrative Feasibility
Convenient, just and effective tax laws
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GENERAL PRINCIPLES OF TAXATION JLM
• Theoretical Justice
Progressive tax system
Tax Administration
It is a system involving assessment, collection and enforcement of taxes, including the execution
of judgement in all taxes cases decided in favor of the BIR by the courts.
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GENERAL PRINCIPLES OF TAXATION JLM
1. The power to recommend the promulgation of rules and regulations by the Secretary of
Finance
2. The power to issue rulings of first impression or to reverse, revoke or modify any existing
ruling of the Bureau
3. The power to compromise or abate any tax liability
4. The power to assign or reassign internal revenue officers to establishments where articles
subject to excise tax are produced or kept
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