AETAX1 D.

BASIC PRINCIPLES OF SOUND TAX SYSTEM

M1 Fiscal adequacy – The sources of revenues, as a whole, should

provide enough funds to meet the expanding expenditures of
A. TAXATION - is a power inherent in every sovereign state to the government.
impose a charge or burden upon persons, properties or rights, to
raise revenues, for the use and support of the government, and to Theoretical justice – taxes must be based on the taxpayer’s
enable it to discharge its appropriate functions ability to pay.

B. NATURE AND SCOPE OF TAXATION AS - to nature, Administrative feasibility - the tax must be clear to the
taxation is an inherent power of the state, and is essentially a taxpayer, not unduly burdensome and discouraging to
legislative power. As to scope, in the absence of limitations business, convenient as to time and manner of payment, and
prescribed by the fundamental law or constitution, the power of capable of enforcement by competent public officials
taxation is unlimited and comprehensive and if there is any
limitation at all, it is the same of responsibility of the members E. DIFFERENCE BETWEEN THE INHERENT POWER
of the legislature to their constituents OF THE STATE – TAXATION, POLICE POWER, AND
EMINENT DOMAIN
C. LIMITATIONS ON THE POWER OF TAXATION
 Taxation – is the power of the state to enforce
1. Inherent limitations proportional contribution from its subjects to sustain
itself.
 The tax must be levied for a public purpose
 Police power- is the general power of the state to enact
 The power of taxation cannot be delegated laws to protect the well-being of the people.

 The rule on double taxation -Double taxation means  Eminent domain – is the power of the state to take private
taxing a person, property or right twice within the same property for public use after paying just compensation
year by the same taxing authority.
Point of Taxation Police Power Eminent Domain
 Government instrumentalities and agencies through Difference
which the government exercises sovereign powers are
exempt from tax, in the absence of a clear proof of a Exercising Government Government Government and
contrary in tent in the law Authority private utilities

Purpose For the support To protect the For public use

 The power of taxation is limited to the territorial
of the general welfare
jurisdiction of the taxing state
government of the people

 The tax laws cannot apply to the property of foreign Persons Community or Community or Owner of the property
governments (international comity) affected class of class of
individuals individuals
2. Constitutional limitations (examples)
Amount of Unlimited (tax is Limited No amount imposed.
 No law impairing the obligations of contracts shall be imposition based on (Imposition is (The government pays
passed government limited to cover just compensation.)
needs) cost of
 No person shall be imprisoned for debt or non-payment of regulation.)
a poll tax

 The rule on taxation shall be uniform and equitable

F. TAX DEFINED - A tax is a forced burden, charge, exaction,
 Charitable institutions, churches, parsonages or convents imposition or contribution assessed in accordance with some
appurtenant thereto, mosques, and non- reasonable rule of apportionment, by authority of a sovereign
state, upon the person, or property, or rights exercised, within its
 profit cemeteries, and all kinds of lands, buildings and jurisdiction, to provide public revenues for the support of
improvement actually, directly or government, the administration of the law, or the payment of
public expenses.
 exclusively use for religious or charitable purposes, shall
be exempt from taxation G. ESSENTIAL CHARACTERISTICS OF A TAX
 1. It is a forced contribution; (b) as to who bears the burden:

2. It is exacted pursuant to legislative authority in the exercise 1) Direct tax – One which is demanded from the person whom
of the taxing power; the law intends or desires to pay it.

3. It is proportionate in character; 2) Indirect tax – One which is shifted by the taxpayer to

someone else.
4. It is payable in money;
(c) as to determination of the amount
5. It is imposed for the purpose of raising revenue;
1) Specific tax – a tax which imposes a specific sum by the
6. It is to be used for a public purpose. head or number, or some standard of weight or measurement,
and which requires no assessment other than by the listing and
H. TAX VS LICENSE FEE
classification of the subjects to be taxed.
 Tax emanates from taxation power and is imposed upon
2) Ad valorem tax – A tax or duty upon the value of the article
any object such as persons, properties, or privileges to
or subject of taxation. A tax of so much per centum of the
raise revenue
invoice or appraised value of the goods subject to the tax.
 License fee emanates from police power and is imposed
(d) as to purpose:
to regulate the exercise of a privilege such as the
commencement of a business or a profession 1) General tax – At tax levied for general purposes of
government.
 Taxes are imposed after the commencement of a business
or profession (post-activity imposition) whereas license 2) Special tax – a tax levied for a special purpose.
fee is imposed before engagement in those activities
(pre-activity imposition) (e) as to scope:

I. TAX VS SPECIAL ASSESSMENT 1) national tax – a tax levied by the national government.

 Tax is an amount imposed upon persons, properties, or 2) local tax – a tax levied by a local government.
privileges
(f) As to proportionality:
 Special assessment is levied by the government on lands
1) Progressive – A tax in which the increase in the tax rate is
adjacent to a public improvement. It is imposed on land
proportionate to the increase in the tax base.
only and is intended to compensate the government for
a part of the cost of the improvement 2) Regressive – A tax in which the increase in the tax rate is
not proportional to the increase in the tax base.
J. CLASSIFICATION OF TAXES
3) Proportional – A tax of a fixed percentage of amount of the
(a) As to subject matter.
base (value of the property, or amount of gross receipts, etc.)
1) Personal, capitation or poll tax – A fixed amount upon all
ESCAPES FROM TAXATION
persons, or upon all persons of a certain class, residents within
a specified territory, without regard to their property or 1. Tax evasion – (tax dodging) refers to any act or trick that
occupation. tends to illegally reduce or avoid the payment of tax.
2) Property tax – a tax assessed against all properties, or all 2. Tax avoidance – (tax minimization) refers to any act or trick
properties of a certain class, located within the jurisdiction of that reduces or totally escapes taxes by any legally permissible
the taxing authority, in proportion to its value, or on some means.
other method of apportionment.
3. Tax exemption - (tax holiday) refers to the immunity,
3) Excise tax – A charge upon the performance of an act, the privilege or freedom from being subject to a tax which others are
enjoyment of a privilege, or the engaging in an occupation. An subject to. Tax exemption may be granted by the Constitution,
excise tax is a tax which is not a personal tax or a property tax. law, or contract.

4. Shifting – the process of transferring tax burden to other

taxpayers.
5. Capitalization – This pertains to the adjustment of the value of The Philippine income tax law is not the National Internal
an asset caused by changes in tax rates. Revenue Code only. Also included are:

6. Transformation – This pertains to the elimination of wastes or 1) Special laws, as they give preferential income tax treatment
losses by the taxpayer to form savings to compensate for the tax to certain taxpayers, under certain conditions;
imposition or increase in taxes.
2) Revenue regulations;
TAX AMNESTY VS TAX CONDONATION
3) Revenue circulars;
TAX AMNESTY
4) Rulings of the Bureau of Internal Revenue;
 Amnesty is a general pardon granted by the government
for erring taxpayers to give them a chance to reform 5) Opinions of the secretary of Justice;
and enable them to have fresh start to be part of a
6) Decisions of the Supreme Court of the Philippines;
society with a clean slate.
7) Decisions of the Court of Appeals;
 covers both civil and criminal liabilities,
8) Decisions of the Court of Tax Appeals; and
 operates retrospectively by forgiving past violations
9) Decisions of inferior courts.
 also conditional upon the taxpayer paying the government
a portion of the tax

TAX CONDONATION

 Tax condonation is forgiveness of the tax obligation of

a certain taxpayer under certain justifiable grounds.
This is also referred to as tax remission

 covers only civil liabilities of the taxpayer

 applies prospectively to any unpaid balance of the tax;

hence the portion already paid by the taxpayer will not
be refunded

 condonation requires no payment

THE PHILIPPINE INCOME TAX

In the Philippines, the income tax in the National Internal

Revenue Code is:

1) A national tax. It is imposed by the National

Government;

2) An excise tax. It is a burden not laid directly upon

persons and properties. It is neither a capitation or poll
tax, nor a property tax;

3) A direct tax. It is demanded from the person whom

the law intends to impose it, and cannot be shifted by the
taxpayer to some other person;

4) A general tax. It is levied for the general purposes of the

government;

5) An ad valorem tax. It is levied on value or amount of the

income of the taxpayer.