TAXATION

ATTY. GERRY SEBASTIAN, CPA

ALL RIGHTS RESERVED 2017

AGS COPYRIGHT 2017

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Philippine Copyright 2017. Atty. Gerry Sebastian, CPA. All rights reserved. No part of this may be

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reproduced in any form or any means, electronic or mechanical, including photocopying or
xeroxing without written permission from the author. Any copy of this without the express written
consent of the author or his duly authorized representative, either proceeds from an illegitimate
source or is in the possession of one who has no authority to dispose of the same. Unauthorized
users, in addition to the penalties provided by law, shall be punished by the law of karma and
they will not pass the examinations they shall take or be unsuccessful and unhappy in life.

ATTY. GERRY SEBASTIAN, CPA

TAX PRINCIPLES
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REASONS TO STUDY TAX LAW

Our new Constitution is now established, and has an
appearance that promises permanency; but in this world
nothing can be said to be certain, except death and taxes.
Benjamin Franklin 1789
The hardest thing in the world to understand is the income
tax. attributed to Albert Einstein
The avoidance of taxes is the only intellectual pursuit that
carries any reward. John Maynard Keynes

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REASONS TO STUDY TAX LAW
Indoors or out, no one relaxes
In March, that month of wind and taxes,
The wind will presently disappear,
The taxes last us all year.
- Ogden Nash

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ATTY. GERRY SEBASTIAN, CPA

TAX DEFINED
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NATURE OF TAXATION
It is the inherent power of the Sovereign, exercised through
the Legislature.
Elements:
Inherent Power
Legislative in Nature

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SCOPE OF TAXATION
It is an imposed burdens upon the subjects and objects
within its jurisdiction.
Elements:
Subjects and Objects
Within Jurisdiction

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PURPOSE OF TAXATION
It is for the purpose of raising revenues to carry out the
legitimate objects of the governments.
Elements:
Raising revenues.
Legitimate objects of government.

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Nature of Taxation
It is the inherent power of
the Sovereign, exercised
through the Legislature.

The Power of Taxation

The Power of Taxation is the inherent power of the sovereign exercised
through the Legislature to impose burdens upon the subject and objects
TAX
within its jurisdiction for the purpose of raising revenues to carry out the
legitimate objects of the government.
Scope of Taxation Purpose of Taxation
It is an imposed burdens It is for the purpose of
upon the subjects and raising revenues to carry
objects within its out the legitimate objects
jurisdiction. of the governments.

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PURPOSE OF TAXATION
Revenue purpose. The government is not in the business of
making profit. It is there to serve the people. If the
government is burdened with the thought of making money
for its objectives, then service to the people will be set aside
until there are sufficient funds created by the government.

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PURPOSE OF TAXATION
Sumptuary purpose. Taxation is used as an incentive or a
discouraging factor for the improvement of the social and
economic conditions affecting the community at large for the
greatest good to the greatest number.
Examples:
The state increases taxes on harmful substances,
limiting their consumption.
Protection from unfair competition.
Implement the police power of the state.
Encourage growth of local industries.
Reduce social inequalities.

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PURPOSE OF TAXATION
Compensatory purpose. Taxation is used in such way that
would bridge the gap between social standings and equalize
certain differences.
Examples:
To achieve social justice through the redistribution of
income using the progressive system of taxation.
Maintain high level of employment.
Control inflation.

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THEORY OF TAXATION
The theory over enforced contribution for expenditures is
acceptance that governmental existence is a necessity and
that performance of governmental functions redounds to the
benefit of the populace in general.
Elements:
Governmental Necessity.
Benefit to Populace.

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LIFEBLOOD THEORY
Taxes are the lifeblood of the nation. Without revenue raised
from taxation, the government will not survive, resulting in
detriment to society. Without taxes, the government would
be paralyzed for lack of motive power to activate and operate
it. (CIR vs. Algue, Inc. et al 158 SCRA 8)
It is also settled that taxes are the lifeblood of the
government and their prompt and certain availability is an
imperious need. (Province of Tarlac v. Fernando S.
Alcantara, G.R. No. 65230, 23 December 1992, 216
SCRA 790, 798)

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BASIS OF TAXATION
The justification of exercise the reciprocal duties of protection
and support between the State and its citizens within its
jurisdiction.
Elements:
Symbiotic relationship
Jurisdiction

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SITUS OF TAXATION
Situs means place of taxation. In tax, it means the state or
political unit which has jurisdiction to impose a particular tax.
Situs of taxation is borne of the symbiotic relationship, as the
state or political unit that gives protection has the right to
demand support.

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Theory of Taxation Basis of Taxation

Governmental Necessity
Symbiotic Relationship

Benefit to Populace Jurisdiction

Lifeblood Theory Situs of Taxation

Lifeblood of Nation
Power of Taxation State Protection

Imperious needs Right to Taxes

Nature
Inherent
Scope
Purpose
Legislative Subjects/Objects
Raising Revenue

Jurisdiction Legitimate Objects

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ATTY. GERRY SEBASTIAN, CPA

SOUND TAX SYSTEM

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FISCAL ADEQUACY
The sources of tax revenue should coincide with, and
approximate the needs of, government expenditures.
Neither an excess nor a deficiency of revenue vis-a-vis the
needs of government would be in keeping with the principle.
SUFFICIENCY.

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ADMINISTRATIVE FEASIBILITY
The tax system should be capable of being properly and
efficiently administrative by the government and enforced
with the least inconvenience to the taxpayer.
EFFICIENCY.

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THEORETICAL JUSTICE
The tax system should be fair to the average taxpayer and
based upon his ability to pay. The 1987 Constitution requires
taxation to be equitable.
EQUALITY.

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IDEAL TAX SYSTEM

Question: If the principles are not followed, will the Tax
Law be considered null and void?
No. It is merely a guideline and not mandatory. It does not
render the Tax Law void.

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 ATTY. GERRY SEBASTIAN, CPA

TAX LIMITATIONS
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INHERENT LIMITATIONS
Taxation is for a public purpose.
No improper delegation of the Taxing power.
Taxation is territorial in nature.
Exemptions of Government entities recognized.
Taxation is subject to international comity.

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INHERENT LIMITATIONS
Question: If the inherent limitations to Tax Laws are
violated, what will you do?
A violation of these inherent limitations is considered taking of
property without due process of law.
Section 1, Article III of the 1987 Constitution. 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 the laws.

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CONSTITUTIONAL LIMITATIONS
No person shall be imprisoned for non-payment of a poll tax.
(Art. III, Sec.20)
The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation. (Art.
VI, Sec.28, par. 1)
The Congress may, by law, authorize the President, to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfages dues, and other duties or
imposts within the framework of the national development
program of the Government. (Art. VI, Sec.28, par. 2)

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CONSTITUTIONAL LIMITATIONS
The Congress may, by law, authorize the President, to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfages dues, and other duties or
imposts within the framework of the national development
program of the Government. (Art. VI, Sec.28, par.2)
Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, and non-profit cemetery and
lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational
purposes shall be exempt from taxation. (Art. VI, Sec.28, par.
3)

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CONSTITUTIONAL LIMITATIONS
No law granting any tax exemption shall be passed without
the concurrence of a majority of all the members of the
Congress. (Art. VI, Sec.28, par. 4)
All money collected on any tax levied for a special purpose
shall be treated as a special fund and paid out for such
purpose only. If the purpose for which a special fund was
created has been fulfilled or abandoned the balance, if any,
shall be transferred to the general fund of the Government.
(Art. VI, Sec.29, par. 3)

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CONSTITUTIONAL LIMITATIONS
The President shall have the power to veto any particular
item or items in an appropriation, revenue, or tariff bill, but the
veto shall not affect the item or items to which he does not
object. (Art. VI, Sec.27, second par.)
The Supreme Court shall have the power to review and
revise, reverse, modify or affirm on appeal or certiorari, as the
law or the Rules of Court may provide, find judgements or
decrees of lower courts in xxx all cases involving the legality
of any tax, impost, assessment, or toll or any penalty
imposed in relation thereto. (Art. VIII, Sec.5, par. 2)

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CONSTITUTIONAL LIMITATIONS
Each local government unit shall have the power to create its
own sources of revenue and to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue
exclusively to the local governments. (Art. X, Sec.5)
Local government units shall have a just share, as
determined by law, in the national taxes which shall be
automatically released to them. (Art. X, Sec. 6)

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CONSTITUTIONAL LIMITATIONS
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.
Upon the dissolution or cessation of the corporate existence
of such institutions, their assets shall be disposed of in the
manner provided by law.
Proprietary educational institutions, including those
cooperatively-owned, may likewise be entitled to such
exemptions subject to the limitations provided by law
including restrictions on dividends and provisions for
reinvestments. (Art. XIV, Sec. 4[3])

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ATTY. GERRY SEBASTIAN, CPA

TAX DOCTRINES
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PROSPECTIVITY OF TAX LAWS

Taxes may be imposed retroactively by law but, unless so
expressed by such law, these taxes must only be imposed
prospectively.

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IMPRESCRIPTIBILITY OF TAX LAWS

Unless otherwise provided by the tax law itself, taxes are
imprescriptible.

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DOUBLE TAXATION
It means taxing for the same tax period the same thing or
activity twice, when it should be taxed but once, for the same
purpose and with the same kind of character of tax.
Standing alone, it is not a valid defense against the validity of
a tax measure.

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TAX INVINCIBILITY
The power to tax must be exercised with caution to minimize
injury to the proprietary rights of taxpayer.

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ESCAPE FROM TAXATION

Tax avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion is a
scheme used outside of those lawful means and, when
availed of, it usually subjects the taxpayer to further or
additional civil or criminal liability.

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EQUITABLE RECOUPMENT
A claim for refund barred by prescription may be allowed to
offset unsettled tax liabilities should be pertinent only to taxes
arising from the same transaction on which an overpayment
is made and underpayment is due.

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SET-OFF TAXES
Taxes are not subject to set-off or legal compensation unless
the obligation to return the excess arose from the time of
payment such as a tax credit to be offset for a deficiency in
income tax.

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TAXPAYERS SUIT
Where a legislative enactment involving disbursement of
public funds derived from taxation, a taxpayers suit may be
allowed.

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TAXATION
ATTY. GERRY SEBASTIAN, CPA

ALL RIGHTS RESERVED 2017