Chapter 1

Introduction to Taxation

TAXATION Inherent Powers of the State

1. Taxation Power
State power 2. Police Power
Process 3. Eminent domain
Mode of cost distribution
Scope of Taxation Power
Theory of Taxation Comprehensive
- govt’s necessity for funding Plenary
Unlimited
Basis of Taxation Supreme
- mutuality between the people and the govt
Limitation of Taxation Power
* Receipt of benefits is conclusively presumed. A. INHERENT LIMILATIONS

Theories of Cost Allocation 1. Territoriality of Taxation

1. Benefit Received Theory GR:
2. Ability to Pay Theory Tax can be imposed only within the territories
of the state.
Aspects of the Ability to Pay Theory EXN:
A. Vertical Equity Income Taxation: RC and DC
B. Horizontal Equity Transfer Taxation: RC, NRC, RA

The Lifeblood Doctrine 2. International Comity

- taxes are lifeblood of govt: taxes should be
prompt and certain
1. Tax is imposed even in the absence of a
Constitutional grant
2. Claims for tax exemption re construed against
the taxpayer
3. The govt reserves the right to choose the
objects of taxation.
4. The courts are not allowed to interfere with
the collection of taxes.
5. (Income Taxation):
A. Income received in advance is taxable upon
receipt.
B. Deduction for capital expenditures and
prepayments is not allowed for it effectively
defers the collection of income tax.
C. A lower limit of deduction is preferred when
a claimable expense is subject to limit.
D. A higher tax base is preferred when the tax
object has multiple tax bases.
All states are equally sovereign.
Not taxing the properties, income, or effects of
fellow states
Treaty agreements > Local tax law
3. Public Purpose
4. Exemption of the Government
Taxing the government will not raise additional
funds but will only impute additional costs
5. Non-delegation of the Taxing Power
GR:
Congress (Legislature)
EXN:
1. Local government units are allowed to
exercise the power to tax
2. President is empowered to fix the amount of
tariffs

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Introduction to Taxation

3. Other cases that require expedient and Poll Tax:

effective administration of assessment and a. Basic Community Tax
collection of taxes b. Additional Community Tax
GR:
B. CONSTITUTIONAL LIMITS OF LIMITATION Non-payment of tax: Imprisonment
EXN:
1. Observance of Due Process of Law Non-payment of Basic Community Tax
Aspects of Due Process
1. Substantive Due Process 6. Non-impairment of Obligation and Contract
2. Procedural Due Process It should not set aside its obligations from
* Assessments contracts by the exercise of taxation power.
WITHIN From due date of filing of return Tax exemptions granted under contract should
3 YEARS From date of actual filing be honoured and should not be cancelled by a
unilateral government action.
* Collections
WITHIN 5 YEARS from date of assessment 7. Free Worship Rule
Tithes or offerings - not subject to tax
2. Equal Protection of Law Properties or activities that are proprietary or
Taxpayers should be treated equally commercial in nature - subject to tax
Under the same circumstances
8. Exemption of Religious, Charitable or
3. Uniformity Rule in Taxation Educational Entities, Non-profit Cemeteries,
Rule of taxation must be uniform and equitable Churches and Mosques, Lands, Buildings, and
Under dissimilar circumstances Improvements from PROPERTY TAX
Taxpayers should not be taxed the same (Doctrine of Use)
Uniformity is relative equality. Exemption applies for properties actually,
directly, and exclusively used for charitable,
4. Progressive System of Taxation religious and educational purposes
Congress Doctrine of Ownership
Tax rates increase as tax base increases - regardless of whether used in primary
operations or not, properties should be exempt
5. Non-imprisonment for Non-payment of Debt - not applied in the Philippines
or Poll Tax
Estafa 9. Non-appropriation of Public Funds or
- debt acquired in bad faith Property for the Benefit of any Church, Sect or
- criminal offense punishable by imprisonment System of Religion
GR:
TAX DEBT No appropriation of govt funds to any particular
Arises from law; Arises from private system of religion
Demand of contracts EXN:
sovereignty Priests, imams, religious ministers working with
Compromises: Compromises: the military, penal institutions, orphanages, or
Public interest, Crime Private interest leprosarium

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10. Exemption from Taxes of the Revenues and
Assets of Non-profit, Non-stock Educational
Institutions Including Grants, Endowments,
Donations, or Contributions for EDUCATIONAL
PURPOSES
Exemption on revenues and assets actually,
directly and exclusively devoted for educational
purposes
* Govt educ. institutions - EXEMPT
* Private educ. institutions - minimal 10% tax
11. Concurrence of a Majority of All Members
of Congress for the Passage of a Law Granting
Tax Exemption
Vote of majority of all members of Congress
Approval of tax exemption - Absolute Majority
Withdrawal of tax exemption - Relative Majority
12. Non-diversification of Tax Collections
Never diversified or used for private purpose
13. Non-delegation of the Power of Taxation
GR:
Exclusively in Congress
EXN:
On matters involving expedient and effective
administration and implementation of
assessment and collection of taxes
(Interpret and clarify the application of law);
Taxing process that are non-legislative in nature
14. Non-impairment of the Jurisdiction of the
Supreme Court to Review Tax Cases
Court of Appeals
Supreme Court
15. Appropriations, Revenues, or Tariff Bills
shall Originate Exclusively in the House of
Representatives, but the Senate may Propose
or Concur with Amendments
Origination of bill: House of Representatives
Senate may amend
Chapter 1
Introduction to Taxation
16. 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
Stages of the Exercise of Taxation Power
1. Levy or Imposition
2. Assessment and Collection
Levy or Imposition
Impact of Taxation
Enactment of tax law
Legislative Act
* Tax bills must originate from House of
Representatives.
Matters of Legislative Discretion in the Exercise
of Taxation
1. Determining the object of taxation
2. Setting the tax rate or amount to be collected
3. Determining the purpose for the levy which
must be public in use
4. Kind of tax to be imposed
5. Apportionment of the tax between national
and local government
6. Situs of taxation
7. Method of collection
Assessment and Collection
Implemented by Administrative Branch
Incidence of Taxation
Administrative Act of Taxation
Situs of Taxation (Place of Taxation)
Tax jurisdiction
1. Business tax situs: where the business is
conducted
2. Services: where the service is rendered
3. Sale of goods: place of sale
4. Property tax situs: location of properties
5. Personal tax situs: place of residence
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Introduction to Taxation

Other Fundamental Doctrines in Taxation
1. Marshall Doctrine
The power to tax involves the power to destroy.
Taxation, an instrument of Police Power.
- Excessive tax on cigarettes
2. Holme’s Doctrine
Taxation power is not the power to destroy
while the court sits.
- Ecozones, BMBE
3. Prospectivity of Tax Laws
GR:
Prospective in nature
Ex post facto law is prohibited
EXN:
Income tax may operate retrospectively if so
intended by Congress
4. Non-compensation or Set-off
GR:
Taxes are not subject to automatic set-off or
compensation.
EXN:
Taxpayer’s claim is due and demandable
Cases of obvious overpayment of taxes
Local taxes
5. Non-assignment of Taxes
Tax obligations cannot be assigned or
transferred to another entity by contract.
6. Imprescriptibility in Taxation
Prescription - lapsing of right due to passage of
time
Govt’s right to collect taxes does not prescribe
unless the law itself provides so.
* Taxpayers who did not file a return or filed
fraudulent returns – do not prescribe
7. Doctrine of Estoppel
The govt is not subject to estoppel.
Error of EE = X Binding to the govt
8. Judicial Non-interference
Lifeblood Doctrine
Courts not allowed to issue injunction against
govt pursuit to collect tax
9. Strict Construction of Tax Laws
Taxation is rule, exemption is the exception.
Vague Tax Laws
- construed against govt; in favour of taxpayers
Vague Exemption Laws
- construed against taxpayer; in favour of govt
Double Taxation
- Same taxpayer is taxed twice by the same tax
jurisdiction for the same thing
Elements of Double Taxation
1. Primary: Same object
2. Secondary: Same type of tax
Same purpose of tax
Same taxing jurisdiction
Same tax period
Types of Double Taxation
1. Direct Double Taxation
- All elements exist
2. Indirect Double Taxation
- At least one of the secondary elements is not
common for both impositions

Assessment 5 YEARS X Collection Escapes from Taxation

A. RESULT TO LOSS OF GOVT REVENUE
(No Assessment) 1. Tax Evasion
Date of return 3 YEARS X Collection - Tax Dodging
by Judicial Action - Illegal

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2. Tax Avoidance
- Tax Minimization
- Legal

3. Tax Exemption
- Tax Holiday
- Immunity, privilege, or freedom
- Granted by Constitution, Law, or Contract

B. DO NOT RESULT TO LOSS OF GOVT REVENUE

1. Shifting
A. Forward Shifting
B. Backward Shifting
C. Onward Shifting
2. Capitalization
3. Transformation

TAX AMNESTY TAX CONDONATION

General pardon; “Tax Remission”
Absolute forgiveness; Forgiveness of tax
Fresh start; obligation;
Civil and criminal liab Civil liab
Retrospective Prospetive
TP pay govt No payment