General Principles of Taxation

General Principles of Taxation

• Taxation is the inherent power of a sovereign state
• It imposes a levy or burden on persons, property, and rights
• The purpose is to raise revenue to cover government expenses

Inherent Powers of the Government

• Taxation Power: Authority to impose charges, fees, or burdens on individuals within its jurisdiction to raise revenue for government expenses
• Police Power: Authority to impose charges, fees, or burdens for regulation, to protect public safety, and promote general welfare, even if it means destroying private property
• Eminent Domain: Authority to take private property for public use, provided just compensation is paid

Taxation Power

• Exercised by the Congress of the Philippines
• Its purpose is for raising revenue
• It can be exercised by Local Government Units
• Revenue collected by the government is for public purposes
• Can be delegated to the President of the Philippines
• Amount collected is unlimited
• Subject to constitutional and inherent limitations

Police Power

• Exercised by the Executive Department of the Government
• Implemented by agencies under the Office of the President, such as the NBI and PNP
• The amount collected is limited to maintain the operations of the agency
• It serves regulation and promotion of general welfare
• Can destroy private property to protect and promote public welfare
• Free from constitutional limitations
• Restrained by the demand of public interest and due process
• Can be delegated to Local Government Unit

Power of Eminent Domain

• Exercised by the judicial branch of the Government
• Authority to take private property for public use with just compensation
• Private property taken requires court expropriation proceedings
• Can be delegated to Local Government Unit

Purposes and Objectives of Taxation

• Revenue generation for government funding
• Regulation of activities
• Promotion of general welfare
• Encouragement of economic growth
• Reduction of social inequity
• Protectionism
• Incidental purposes

Basis of Taxation

• Doctrine or Attribute of Sovereignty: Taxation is inherent to the State, belonging to every independent government as a right
• Lifeblood Doctrine: Taxation is essential for the government to operate and function
• General Welfare Doctrine: Taxation is the strongest government power because it can regulate business activities

Theories of Taxation

• Necessity Theory: Taxation is based on necessity
• Benefits Protection Theory: Taxation is grounded on reciprocal duties of support and protection between the state and its citizens
• Personal Liability Theory: Tax is personal to the taxpayer

Nature of Taxation

• Inherent power of the state
• Primarily a legislative function
• Intended to raise revenue
• Collected revenue is for exclusively public purposes
• Cannot be applied to heads of state, ambassadors, or diplomatic staff
• The strongest power of the government is subject to inherent and constitutional limitations

Scope of Legislative Taxing Power

• Persons, property, or occupation to be taxed
• Amount or tax rate
• Taxes levied must be for public purpose
• Kind of tax to be collected
• Apportionment of the tax
• Situs of taxation
• Method of collection
• Taxing powers belong to Congress and are delegated to the BIR
• The Bureau of Internal Revenue (BIR) cannot further delegate such taxing power

Exceptions of Taxing Power

• The President of the Philippines
• Local Government Units (LGU)

Limitations on Power of Taxation

• Must be for raising revenue
• Revenue must be used for public purposes
• Applicable within its territorial jurisdiction
• Legislative in character and cannot be delegated
• Subject to international agreements
• Safeguards against double taxation
• Should not be unjust, oppressive, or confiscatory
• Allows exemption of government agencies

Double Taxation

• Occurs when the sovereign, through its agent, taxes the same property of the same taxpayer for the same purpose during the same taxable year

Kinds of Double Taxation

• Direct
• Indirect
• Domestic
• International

Tax Treaty for Double Taxation

• Tax Exemption Method
• Tax Credit Method
• Tax Deduction Method

Uniformity and Equity in Taxation

• Uniformity: All property, income, or taxable subjects in the same class should be taxed at the same rate
• Equity: Tax burden should be apportioned fairly based on taxpayers' ability to pay

Basic Principles of Taxation

• Fiscal Adequacy: Government revenue sources should meet expenses regardless of economic conditions
• Theoretical Justice: Tax imposition should be based on the taxpayers' ability to pay
• Administrative Feasibility: The tax system should be clear, enforceable, convenient, and not discouraging to business

Other Taxation Theories

• Extent of Taxing Power: Covers all persons, businesses, activities, professions, rights, and privileges
• Situs of Taxation: Defines the boundaries of taxing power based on location
• Doctrine of "Mobilia Sequuntur Personam": Situs applicable to tangible personal property like jewelry, cars, and cash

Domiciliary Theory of Situs

• Movable property follows the taxpayer

Regalian Doctrine

• Any natural resources belong to the State

System of Income Taxation

• Global System: Taxes all income types except passive income and capital gains
• Schedular System: Itemizes income and applies different tax rates

Tax Amnesty

• Immunity from criminal and civil obligations arising from non-payment of taxes
• Applies only to past tax periods

Tax Exemption

• Immunity from civil liability only
• Generally has a prospective application
• A privilege where other taxpayers are subjected

Exemption from Taxation

• Immunity granted to a person or taxpayer from tax in a taxing district
• Classification of Tax Exemptions:
  • Those exempted under the constitution
  • Under the Tax Code
  • Under the Local Government Code
  • Under special laws
  • Under tax treaties and international agreements
  • Under franchises
  • Under contracts with the government
  • Under an ordinance
  • Under charter like GSIS and SSS
  • Grounds of public policy like exemption of a political subdivision
• Tax exemption is a personal privilege
• Income of religious organizations is exempt
• Erroneous remittance is taxable
• Income of government entities is exempt

Tax Evasion

• A form of escape from taxation by breaking the law
• Illegal means to reduce tax payment

Tax Avoidance

• A legal tax-saving device to lessen or minimize taxes

Tax Defined

• Enforced contribution from persons and property levied by the State for government support

Essential Elements of Tax

• An Enforced Contribution
• It is imposed by the legislative body
• A contribution in money
• Involves the exercise of the taxing power
• Imposed for the purpose of raising revenue
• Must be used for public purposes
• Levied upon persons, property, and property rights
• Is proportionate in character
• Collected at regular intervals

Classification of Taxes

• Subject Matter or Object:
  • Personal Tax: A fixed amount to individuals residing within a territory
  • Property Tax: Tax on real or personal property
  • Excise Tax: Tax on performing an act or enjoying a privilege
• Who Bears the Burden:
  • Direct Tax: Demanded from the intended person or bound to pay it
  • Indirect Tax: Imposed on goods before reaching the customer
• Determination of Amount:
  • Specific Tax: A fixed amount based on head, number, or measurement
  • Ad Valorem Tax: A fixed proportion of the property's value
• Purpose:
  • General Tax: tax imposed for general governmental needs and revenue
  • Special Tax: tax imposed for special needs or regulatory reasons
• Authority Imposing the Tax:
  • National Tax: tax imposed by the National Government
  • Municipal Tax: tax imposed for municipal authorities of local government units
• Graduation or Rate:
  • Proportional Tax: Tax based on a fixed percentage of the amount of income
  • Progressive Tax: Tax rate increases as the tax base increases
  • Regressive Tax: Tax rate decreases as the tax base increases

Types of Income Tax

• Presumptive: Tax on actual expenditures and presumed income
• Composite: Tax consisting series of taxes imposed on the income of person
• Unitary: Tax imposed on separate items and the sources

Sources of Tax Laws

• Statutes
• BIR Regulations
• BIR Circulars
• Administrative or BIR Rulings
• Court Decisions
• Legislative Materials
• Presidential Decrees
• Tax Treaties and Conventions

Summary of Philippines Taxes

• Under National Internal Revenue Code (NIRC): income tax, capital gains tax, estate tax, donations tax, value added tax (VAT) & expanded value added tax (EVAT)
• Under Local Tax Code: franchise tax, tax on transfer, occupation tax, sand and gravel tax, amusement tax, percentage tax, ad valorem tax etc
• Property Tax Code:, transaction tax, transaction tax, fringe benefits tax
• Under the Tariff and Customs Code: import duties, export duties etc

Understand the general principles of taxation, its purpose, and the inherent powers of the government. Learn about taxation power, police power, and eminent domain. Explore taxation power exercised by the Congress of the Philippines.