FUNDAMENTAL PRINCIPLES IN

TAXATION

TAXATION DEFINED

Taxation
-process or means by which the sovereign, through its law
making body, imposes burdens upon subjects and
objects within its jurisdiction for the purpose of raising
revenues to carry out the legitimate objects of the
government

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Slide 2

TAX

enforced proportional contributions or charges

from persons and property levied by the lawmaking body of the State by virtue of its sovereignty
for the support of the governmental and all public
needs

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Slide 3

PURPOSES OF TAXATION
1.

Primary : Revenue or Fiscal

2.

Secondary : Non Revenue

a)
b)

Regulatory
Compensatory

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Slide 4

THEORY AND BASIS OF TAXATION

Lifeblood Theory
The government cannot continue to perform its basic
functions of serving and protecting its people without
means to pay its expenses.

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Slide 5

THEORY AND BASIS OF TAXATION (CONTD)

Rule of No Estoppel against the Government

The State cannot be estopped by the neglect of its agents
and officers.
The State is not estopped by the mistakes or errors of its
agents.
Erroneous application and enforcement of law by public
officers do not block the subsequent correct application
of statutes.

Collection of taxes cannot be enjoined (stopped) by

injunction
Taxes could not be subject of compensation or set
off

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THEORY AND BASIS OF TAXATION (CONTD)

Legislative in nature

Right to select objects (subjects) of taxation

Characteristics of the Scope of the Power of Taxation
1.
Comprehensive persons, businesses, activities, professions,
right and privileges.
2.
Unlimited
3.
Plenary
4.
Supreme

Public purpose
Amount or rate of tax
Kind
Apportionment
Situs
Manner, means, and agencies of collection of the tax
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THEORY AND BASIS OF TAXATION (CONTD)

A valid tax may result in the destruction of the

taxpayers property.

Basis of Taxation

Reciprocal duties of protection and support between the

State and its inhabitants

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ESSENTIAL ELEMENTS OF A TAX

Enforced contribution
Generally payable in money
Proportionate in character (theoritical justice)
Levied on persons, property, or the exercise of a
right or privilege (subjects or objects of taxation)
Levied by the State which has jurisdiction over the
subject or object of taxation
Levied by the law-making body of the State
Levied for public purpose

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PROCESS/STAGES OF TAXATION

Levying

Collection

Assessment

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NATURE/CHARACTERISTICS OF THE STATES

POWER TO TAX
1.

2.

Inherent in sovereignty
Legislative in character
Exceptions:

a)
b)
c)

3.
4.

5.
6.

Delegation to the President

Delegation to the local government units
Delegation to administrative agencies

Subject to Constitutional and inherent limitations

Exemption of government entities, agencies and
instrumentalities
International comity
Limitation of territorial jurisdiction
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CLASSIFICATION OF TAXES
1.

As to scope:
a.
b.

2.

b.
c.

3.

National
Local

As to subject matter or
object:
a.

Personal, poll or
capitation
Property
Excise

As to who bears the

burden:
a.
b.

4.

Direct
Indirect

As to determination of
amount:
a.
b.

5.

As to purpose:
a.
b.

6.

Specific
Ad valorem

General, Fiscal or
Revenue
Special or Regulatory

As to graduation or rate:
a.
b.
c.

Proportional
Progressive or graduated
Regressive
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PRINCIPLES OF SOUND TAX SYSTEM

Fiscal Adequacy

Theoretical Justice or Equity

To meet government expenditures and sustain the level

of public services

Ability to pay

Administrative Feasibility

Capable of effective and efficient enforcement

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LIMITATIONS

Inherent Limitations
1.
2.

Purpose must be public in nature

Prohibition against delegation

Constitutional Limitations
1.
2.
3.
4.
5.
6.
7.
8.
9.

Due process of law

Equal protection of laws
Rule of uniformity and equity in taxation
No imprisonment for non-payment of poll tax
No impairment of obligation of contracts
No infringement of religious freedom
No public money shall be appropriated for the use, benefit or
support of any church
Exemption from property taxation of religious, charitable and
educational entities
Prohibition against taxation of non-stock, non-profit
educational institutions
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LIMITATIONS (CONTD)

Constitutional Limitations (contd)

10.

Others:
a. Grant of tax exemption
b. Presidents power to veto separate items in revenue
or tariff bils
c. Delegated authority of the President to impose
tariff rates, import and export quotas, tonnage and
wharfage dues as delegated by Congress through a
law within the framework of national development
program
d. Non-impairment of the Supreme Court jurisdiction
e. Revenue bills
f.
Infringement of press freedom
g. Grant of franchise
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SITUS OF TAXATION

Generally refers to the place of taxation, or the

state or political unit which has jurisdiction to
impose tax over its inhabitants.

The following factors must be considered in

determining the situs of taxation:
1.
2.
3.
4.
5.
6.

Subject matter (person, property or activity)

Nature of the tax
Citizenship
Residence of the taxpayer
Source of income
Place of exercise, business or occupation being taxed
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SOURCE RULES

The source rules determine whether income shall be

treated as income from within or without the
Philippines.

Three general rules in determining source of

income:
1.

2.

3.

Income from the sale of goods has a Philippine source if the

goods are sold in the Philippines.
Income from services is sourced in the Philippines if the services
are physically performed in the Philippines.
Income from property (interest, rentals, royalties) has a
Philippine source if the property is used in the Philippines.

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MAJOR TYPES OF TAXPAYERS

Individual Taxpayers
Citizen:

Corporate Taxpayers
Domestic Corporation

Resident Citizen

Taxable Partnership

Non-resident Citizen

Resident Foreign Corporation

Alien

Non-resident Foreign
Corporation

Resident Alien
Non-resident Alien engaged
in trade or business
Non-resident Alien not
engaged in trade or business

Estates and Trusts

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INDIVIDUAL TAXPAYERS

Taxable
income

Resident
Citizen
(RC)

NonResident
Citizen
(NRC)

Resident
Alien
(RA)

NonResident
Alien
engaged in
trade or
business
(NRAETB)

Within and
outside the
Philippines

Within the
Philippines

Within the
Philippines

Within the
Philippines

Nonresident
alien not
engaged in
trade or
business
(NRANET
B)
Within the
Philippines

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INDIVIDUAL TAXPAYERS (CONTD)

Non-Resident Aliens
1. Engaged in Trade or Business- if the
aggregate period of his stay is more than one
hundred eighty (180) days during any calendar
year.
- Taxed as resident alien

2. Not engaged in Trade or Business- if the

aggregate period of his stay in the Philippines
does not exceed 180 days during any calendar year.
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CORPORATE TAXPAYERS

Taxable Income

Domestic /
Taxable
Partnership

Resident
Foreign
Corporation

Non-Resident
Foreign
Corporation

Within and
Without the
Philippines

Within the
Philippines

Within the
Philippines

Major Types of Resident Foreign Corporations

Not Engaged in Business / Not
Subject to Income Tax

Engaged in Business / Subject to

Income Tax

RHQ

Philippines Branch

Representative Office

Regional Operating Headquarters

Regional warehouses of multinational

corporation
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MEANS OF AVOIDING OR MINIMIZING THE

BURDEN OF TAXATION
Shifting

1.

transfer of the burden of a tax by the original payer or

the one whom the tax was assessed or imposed to
someone else

2.

Capitalization/Transformation

3.

Evasion

4.

producer or manufacturer pays the tax to improve the

process of production thus reducing prices
use of illegal or fraudulent means to defeat or lessen
the payment of a tax

Avoidance

use of legally permissible alternative tax rates or

methods in order to avoid or reduce tax liability.
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MEANS OF AVOIDING OR MINIMIZING THE

BURDEN OF TAXATION (CONTD)
5.

Exemption

grant of immunity to particular persons or

corporations or to persons or corporations of a
particular class from a tax which persons and
corporations generally within the same state or taxing
district are obliged to pay

Grounds:
1.
2.
3.

Based on contract
Based on ground of public policy
Based on grounds of reciprocity

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MEANS OF AVOIDING OR MINIMIZING THE

BURDEN OF TAXATION (CONTD)
5.

Exemption

Nature of power to grant tax exemption

a.
National government
b.
Local government (subject to delegation)

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MEANS OF AVOIDING OR MINIMIZING THE

BURDEN OF TAXATION (CONTD)
5.

Exemption

Kinds of Exemption

As to basis:

Contitutional
Statutory

As to extent

Total
Partial

As to form:

Express
Implied
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SOURCES OF TAXATION
1.

2.
3.
4.
5.
6.
7.
8.

9.

Constitution
National Internal Revenue Code
Tariff and Customs Code
Local Government Code
Local tax ordinances / City or municipal tax codes
Tax treaties and international agreements
Special laws
Decisions of the Supreme Court and the Court of
Tax Appeals
Revenue rules and regulations and administrative
rulings and opinions
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HIERARCHY OF TAX LAWS

1.

2.
3.
4.

5.
6.
7.

8.

Constitution
Treaty
International agreements
Domestic laws/statutes (e.g. Tax Code); Supreme Court
decisions (Art. 8, Civil Code)
Implementing rules and regulations (e.g. Revenue
regulations)
RMC, RMO and similar issuances
Revenue Rulings
Other issuances

22 January 2013

THANK YOU!