3 basic point

1. Do not get lost in the detail of tax rules. It is the ability to apply the rules of tax law to
real-life situation
2. Tax rules are a matter of law; hence, only legal authority can ever be a tax authority (a
statute, a regulation, a court case)
3. Give close attention to the use of language, verbal distinctions are often critical

TAXATION
Process or means by which the sovereign, through its lawmaking body, raises income to
defray the necessary expenses of the government. Taxation, as a power of the state, is inherent
in sovereignty.

OBJECTIVES OF TAXATION
Shifting wealth from the rich to the poor
Low-income individuals pay little or no national income taxes because of the elaborate
system of exclusions and deductions

maintaining price stability, stimulating economic growth and encouraging full employment
It provides incentives in a way that business can claim depreciation of productive assets
much faster. This provides incentive for businesses to invest in these assets leading to increase
of employment.

STATE POWERS
1. Taxation-which the sovereign raises revenue to defray the necessary expenses of
government
2. Eminent Domain- to take private property for public use upon payment of just
compensation
3. Police power- enact laws to promote public health, morals, safety and general welfare of
the people

ASPECTS OF TAXATION
1. Levying of the tax- requires legislative intervention. Congress levies tax
2. Collection of the tac levied. This is essentially an administrative function

BASIC PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal adequacy- sources of revenue are sufficient to meet government expenditures
2. Equality of theoretical justice. Proportionate to taxpayer’s ability to pay
3. Administrative feasibility. Capable of convenient, just and effective administration

LIMITATIONS ON THE POWER OF TAXATION

Constitutional Limitations- are those provided for in the constitution of implied from its
provisions
Inherent limitations- are restrictions to the power to tax attached to its nature
1. Purpose- may be levied only for public purpose
2. Territorial. The state may tac persons and properties under its jurisdiction
3. International comity- (practice among different political entities) property of a foreign
state may not be taxed by another
4. Exemption. Govt agencies are exempt from taxation
5. Non-delegation- government must not authorize another entity to exercise the power
or function which it is constitutionally authorized to exercise itself.