INCOME TAXATION

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 GENERAL PRINCIPLES
• Imposition of taxes is borne out of necessity.
These are the life-blood of the government.

The power to tax is an inherent power of the

State.

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 General Tax Principles cont’d
• INHERENT POWERS OF THE STATE:

- Police Power

- Eminent Domain

- Power of Taxation

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 General Tax Principles , cont’d

• The primary purpose of taxation is to

generate funds for the State to finance the
needs of the citizenry and to advance the
common wealth. The government chiefly
relies on taxation to obtain the means to carry
on its operation.

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 General Principles, cont’d
• The Power of taxation is sometimes called the power to destroy.

• "The power of taxation is sometimes called also the power to

destroy. Therefore it should be exercised with caution to minimize
injury to proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the "hen that lays
the golden egg." And in order to maintain the general public's trust
and confidence in the Government, this power must be used justly
and not treacherously. It does not conform with Our sense of
justice in the instant case for the Government to persuade the
taxpayer to lend a helping hand and later on to penalize him for
duly answering the urgent call.“ (BIR Ruling 006-07, March 7, 2007,
citing Roxas vs. Court of Appeals, 23 SCRA 276)

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 General Principles, cont’d
SOURCES OF FUNDS FOR GOV’T
EXPENDITURES:

1) Revenues from both tax and non-tax

sources;
2) Borrowings from both domestic and
foreign sources; and,
3) Withdrawals from available cash balances
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 General Tax Principles cont’d
• Revenues refer to all cash inflows of the
national government treasury which
are collected to support government
expenditures .

• Revenues consist of tax and non-tax

collections.

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 General Tax Principles, cont’d
• Major Classes of Tax Revenues:
a) taxes on income and profits;
b) taxes on property
c) taxes on domestic goods and services
d) taxes on international trade and
transactions; and
e) other sources

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 BASIC CONCEPTS AND DEFINITIONS
• Taxation:
In its broadest sense, taxation is defined as the
power of the sovereign to impose every kind of
charge or burden upon persons, property, or
property rights for the use and support of
government in order to enable it to discharge its
appropriate functions. (Des Moines Union
Railways Co. V. Chicago , Great Western Railway
Co,. 177N.W. 90,91, 188 Iowa 1091.9 A.L.R. 1557)

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Basic Concepts and Definitions, cont’d
• Essential Elements of the Taxing Power:

1. Inherent power of the sovereignty

2. Essentially a legislative function
3. Public purposes
4. Territorial in operations
5. Tax exemption of government

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Basic Concepts and Definitions, cont’d
• Inherent power of sovereignty

The State can impose and collect taxes from its

inhabitants even without a specific provision in
the Constituion conferring the power on it or
authorizing it to impose taxes.

The Constitutional provisions on taxation

merely constitute limitations on the supremacy
of the taxing power.

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Basic Concepts and Definitions, cont’d
• Essentially a legislative finction

The power to enact laws and ordinances, and to

impose and collect taxes are given to the
Congress.

The power to make tax laws cannot be delegated

to other branches of the government or exercised
by the executive or judicial branch of government
since it is peculiarly and exclusively legislative in
nature. (Non-delegation of the taxing powers)
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Basic Concepts and Definitions, cont’d
• Congress cannot delegate the following powers:

• Power to select the coverage, object or property

to be taxed.
• Determining the nature and purposes for which
taxes shall be collected
• Determining the place or situs of tax imposition
• Fixing the amount to be imposed and tax rates
• Granting tax exemptions or condonation
• Setting down the rules of taxation in general
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Basic Concepts and Definitions, cont’d
• Taxation powers that can be delegated:

• The power to impose tariff rates, import and

export quotas, custom duties, subject to the
limitations and guidelines as the congress
may impose, consistent with the national
development program of the government.
(Article VI, Section 28 of the Constitution)

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Basic Concepts and Definitions, cont’d
• Public Purposes:

The primary purpose of taxation is for the

support of the government .

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Basic Concepts and Definitions, cont’d
• Territorial in Operation:

The taxing power cannot go beyond the

Philippine taxing jurisdiction.

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Basic Concepts and Definitions, cont’d
• Tax Exemption of the Government

• As a rule, agencies performing governmental

functions are tax exempt unless expressly
taxed. On the other hand, agencies
performing proprietary functions are subject
to tax unless expressly exempted.

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Basic Concepts and Definitions, cont’d
• TAXES

• The term “tax” has been defined as a forced and

involuntary burden assessed in accordance with
some reasonable rule of apportionment by the
authority of a sovereign government upon
persons or property within its jurisdiction, to
provide public revenue for the support of
government, the administration of the law , or
payment of public expenses. ( Cooley, The Law
on Taxation)

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Basic Concepts and Definitions, cont’d
• A tax is an enforced contribution levied by
the State by virtue of its sovereignty on
persons and property within its jurisdiction
for the support of the government and all
public needs.

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 SHORT HISTORY OF OUR
INCOME TAX LAWS

The first law imposing income taxes in the

Philippines was drafted by Congress of the
United States, and was approved on October 3,
1913. This became known as the Revenue Act of
1913.

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 SHORT HISTORY OF OUR
INCOME TAX LAWS cont’d
• The effectivity of the Revenue Act was fixed as
of March 1, 2013, the date of the adoption of
the Sixteenth Amendment to the United
States Federal Constitution.

• The 16th Amendment grants the US Congress

the power “to lay and collect taxes on income,
from whatever source derived without
apportionment among the several states… “

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 SHORT HISTORY OF OUR
INCOME TAX LAWS cont’d

The Revenue Act was given retroactive effect,

since it was made effective on March 1, 1913.

Since the Philippines was under the sovereignty

of the US in 1913, the Revenue Act was by
express provision extended to the country.

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 SHORT HISTORY OF OUR
INCOME TAX LAWS cont’d
• Section 11 of the Revenue Act provides that
the administration of the Act and the
collection of revenues in the Philippines shall
be undertaken by internal revenue officers of
the Philippine government and that all
revenue taxes collected in the Philippines
under the law shall accrue intact to the
Philippine government.

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 SHORT HISTORY OF OUR
INCOME TAX LAWS cont’d

Revenue Act of 1913 was amended by the 1916

Act, which was in turn amended by the “War
Revenue Act of 1917”.

Section 5 of the said Act empowered the

Philippine Legislature to enact, amend, alter ,
modify or repeal, the Federal Income Tax Law
then enforced.
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 SHORT HISTORY OF OUR
INCOME TAX LAWS cont’d
• The first Philippine Income Tax Law passed by the
Philippine legislature was enacted on March 9,
1919, Act no. 2833. This was amended by
subsequent acts.

• Commonwealth Act No. 466 was known as the

National Internal Revenue Code . This was
passed by the National Assembly on June 15,
1939 and took effect on July 1, 1939. It was a
codification of all internal revenue laws.
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