MODULE 1-INCOME TAXATION

LESSON 1 UNIT 1 CONCEPT, NATURE AND CHARACTERISTICS OF TAXATION AND TAXES

Taxation
-it is the act of laying a tax or the process or means by which the sovereign, through its law-making body, raises
income to defray the necessary expenses of the government.
-as a power, taxation refers to the inherent power of the state to demand enforced contributions for public purpose or
purposes.
Purpose, Scope, and Rationale of Taxation
The primary purpose of taxation on the part of the government is to provide funds or property with which to promote the
general welfare and protection of its citizens.
In its broadest and most general sense, taxation includes every imposition of charge or burden by the sovereign power
upon persons, property, or property rights for the use and support of the government and to enable it discharge its appropriate
functions.
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of
the motive power to activate and operate it.
Meaning of Taxes
-are the enforced proportional and pecuniary contributions from persons and property levied by the law-making body of
the state having jurisdiction over the subject of the burden for the support of the government and all public needs.
Essential Characteristics of Tax
1. It is an enforced contribution-a tax is not a voluntary payment of donation and its imposition is in no way
dependent upon the will or assents, open or implied, of the person taxed.
2. It is proportionate in character- A tax is laid by some rule of apportionment according to which persons share the
public burden
3. It is generally payable in money-Unless qualified by law, the term taxes or tax is usually understood to be a
pecuniary burden-an exaction to be discharged alone in the form of money which must be in legal tender.
4. It is levied on persons or property-A tax may also be imposed on acts, transactions, rights or privileges.
5. It is levied by the state which has jurisdiction over the person or property-The object to be taxed must be subject
to the jurisdiction of the taxing state.
6. It is levied by the law-making body of the state-The power to tax is a legislative power which under the
Constitution only Congress can exercise through the enactment of tax statutes. Accordingly, the obligation of a tax
is a statutory liability.
a. The power to tax is no longer vested exclusively on Congress.
b. During the period of martial law, the then incumbent President exercised the executive powers vested
under the 1973 Constitution in the Prime Minister as well as legislative powers through the issuance of
presidential decrees.
c. By virtue of amendment No. 6 to the 1973 Constitution, the President was given concurrent legislative
authority under certain conditions, which he exercised even after the lifting of martial law.
d. Pending the ratification of a new Constitution and in the absence of a legislative body in the Provisional
Government installed on February 25, 1986, the President exercised legislative power through the
issuance of executive’s orders until the convening of Congress on July 27, 1987.
7. It is levied for public purpose or purposes-Taxation involves, and a tax constitutes, a charge or burden imposed to
provide income for public purposes-the support of the government, the administration of the law, or the payment
of public expenses.
Theory and basis of Taxation
1. Existence of government- The power of taxation proceeds upon the theory that the existence of government is a
necessity; that it cannot continue without means to pay its expenses; and that for these means it has right to compel all
its citizens and property within its limits to contribute.
2. Reciprocal duties of state and inhabitants- The basis of taxation is found is found in the reciprocal duties of protection
and support between the state and its inhabitants.
3. Public purpose requirement for lawful taxation
Nature of the Power of Taxation
1. It is inherent in sovereignty- The power of taxation is inherent in sovereignty as an accident or attribute thereof, being
essential to the existence of every government.
2. It is legislative in character- The power to tax is peculiarly and exclusively legislative and cannot be exercised by the
executive or judicial branch of the government.
3. It is subject to constitutional and inherent limitations- The power of taxation is not absolute. It is subject to certain
limitations or restrictions.
Aspects of Taxation
The exercise of the power of taxation involves two (2) aspects and, they are:
1. Levying or imposition of the tax which is a legislative act; and
2. Collection of the tax levied which is essentially administrative in character.
Extent of the Legislative Power to Tax
1. The subjects or objects to be taxed- These refer to the coverage and the kind or nature of the tax.
2. The purpose or object of the tax so long as it is a public purpose- The legislative body can levy a tax or make an
appropriation provided it is for a public purpose.
3. The amount or rate of the tax- As a general rule, the legislature may levy a tax amount or rate it sees fit.
 4. The manner, means, and agencies of collection of the tax- These refer to the administration of the tax or the
implementation of tax laws.
Non-revenue objectives of taxation
The primary purpose of taxation is, of course, to raise revenue for the support of the government. However, taxation is
often employed as a device for regulation by means of which certain effects or conditions envisioned by governments
may be achieved. Thus:
1. Taxation can strengthen anemic enterprises or provide incentive to greater production through grant of
tax exemptions or the creation of conditions conducive to their growth.
2. Taxes on imports may be increased to protect local industries against foreign competition or decreased
to encourage foreign trade.
3. Taxes on imported goods may also be used as a bargaining tool by a country by setting tariff rates first
at a relatively high level before trade negotiations are entered into with another country to enhance its
bargaining power.
4. Taxes may be increased in periods of prosperity to curb spending power and halt inflation or lowered in
periods of slump to expand business and ward off depression.
5. Taxes may be levied to reduce inequalities in wealth and income , as for instance, the estate, donor’s
and income taxes, their payers being the recipients of unearned wealth or mostly in the higher income
brackets.
6. Taxes may be levied to promote science and invention or to finance educational activities or to improve
the efficiency of local police forces in the maintenance of peace and order through grant of subsidy.
7. Taxation may be made as an implement of the police power to promote the general welfare.
8. Tax provisions may be enacted so that low income individuals pay little or no income taxes through a
system of exclusions, exemptions, deductions, and tax credits.
9. Tax provisions may provide incentives for certain desirable activities to encourage investments in
productive assets or facilities that will lead to increased employment.
Basic Principles of a Sound Tax System
The desirable characteristics of an ideal or sound tax system are:
1. Fiscal adequacy- It means that the sources of revenue, that is, receipts therefrom, taken as a whole, should be
sufficient to meet the demands of public expenditures.
2. Equality or theoretical justice- It means that the tax burden should be distributed in proportion to the tax payer’s
ability to pay.
- This is also called ability-to-pay principle.
3. Administrative feasibility- It means that tax laws should be capable of convenient, just and effective administration
or enforcement at a reasonable cost.