GENERAL PRINCIPLES OF TAXATION

 Taxation is the process or means by which the sovereign, through its lawmaking body,
raises income to defray the necessary expenses of the government.
PURPOSE OF TAXATION PRIMARY PURPOSE
 To provide funds or property with which to promote the general welfare of its citizens and to
enable it to finance its multifarious activities.
PURPOSE OF TAXATION SECONDARY PURPOSES
 To strengthen anemic enterprises by giving tax exemptions.
 To protect local industries against foreign competition through imposition of high customs
duties on imported goods.
 To reduce inequalities in wealth and income by imposing progressively higher taxes.
 To prevent inflation by increasing taxes or ward off depression by decreasing taxes.
THEORY AND BASIS OF TAXATION
1. Theory - The existence of the government is a necessity.
- The government cannot continue without a means to pay its expenses.
- The government has the rights to compel its citizens and property within its limits to
contribute.
2. Basis - Taxation is based on the reciprocal duties of protection and support between the
government and its people.
- Government receives taxes from the people which is used to perform functions of
government and other benefits.
- Benefit-received theory.
BASIC PRINCIPLES OF SOUND TAX SYSTEM
 Fiscal adequacy
- The source of government revenue should be efficient to demand the needs of public
expenditure.
- Creating new taxes or new tax machinery or by merely changing the rates applicable
to existing taxes.
 Equality or theoretical justice
- The tax burden should be proportionate to the taxpayer’s ability to pay.
- Ability-to-pay principle
 Administrative feasibility
- The tax laws should be capable of convenient, just and effective administration.
- Each tax should be:
a) Clear and plain to the taxpayer.
b) Capable of uniform enforcement
c) Convenient as to time, place and manner of payment.
d) Not unduly burdensome upon or discouraging to business activity
NATURE OF TAXATION
1. It is inherent in sovereignty.
2. Legislative in character.
3. Subject to constitutional and inherent limitations.

LIMITATIONS OF TAXATION
 Inherent limitations – restrictions on the power exists from the very nature of the power of
taxation itself.
- Requirement that levy must be for a public purpose.
- Non-delegation of the legislative power to tax, except:
a) Delegation to the President
b) Delegation to local governments
c) Delegation to administrative bodies
- Exemption from taxation of government entities.
- International comity
- Territorial jurisdiction
 Constitutional limitations – restrictions in the exercise of the power of taxation as expressly
provided in the Philippine Constitution.
- Due process.
- Equal protection of the laws.
- Rule of uniformity and equity in taxation.
- Non-imprisonment for non-payment of poll tax.
- Non-impairment of the obligations and contracts.
- Non-infringement of religious freedom.
- No appropriation for religious purposes.
- Exemption of religious, charitable or educational entities, non-profit cemeteries, and
churches from taxation.
- Exemption of revenues and assets of non-stock, non-profit educational institutions and
donations for educational purposes from taxation.
- Concurrence by a majority of all members of the Congress for the passage of a law
granting any tax exemption.
- Power of the President to veto any particular item or items in a revenue or tariff bill.
- Non-impairment of the jurisdiction of the Supreme Court in tax cases.
ASPECTS OF TAXATION
 Levy - deals with the provisions of law which determines:
a) The person or property to be taxed
b) The sum or sums to be raised
c) The rate of the tax
d) The time and manner of levying, receiving and collection the tax.
 Collections – constituted of the provisions of law which prescribe the manner of enforcing
the obligation on the part of those taxes to pay the demand thus created.
TAXES
Taxes are enforced proportional contributions from persons and properties levied by the
lawmaking body of the government by virtue of its sovereignty for the support of the government
and public need.
ELEMENTS OF A TAX
 Enforced contribution
 Generally payable in money
 Proportionate in character
 Levied on persons, properties, or the exercise of a right or privilege
 Levied by the state which has jurisdiction over the subject or object of taxation
  Levied by the lawmaking body of the state
 Levied for public purpose
Examples;
- Construction of roads and bridges.
- Pensions to retired government employees and their widow and children.
- Assistance to victims of calamities
- Social welfare and healthcare projects.
AS TO SUBJECT MATTER OR OBJECT
1. Personal, poll or capitation tax – tax of a fixed amount imposed on individuals (citizens
or aliens), residing within a specified territory without regard to their property or
occupation in which they may be engaged. Example: Community tax
2. Property tax – tax imposed on property (real or personal), in proportion either to its value
or in accordance with some other reasonable method of apportionment. Example: Real
property tax
3. Excise of privilege tax – tax imposed upon the: – Performance of an act – Enjoyment of
a privilege – Engaging in an occupation. Example: Income tax
4. Direct tax – tax that is demanded from the person who also shoulders the burden of the
tax. (e.g. Income tax, estate tax, donor’s tax)
5. Indirect tax – tax demanded from one person in the expectation and intention that he
shall indemnify himself at the expense of the others. (e.g. VAT, percentage tax)
AS TO DETERMINATION OF AMOUNT
1. Specific tax – tax of a fixed amount imposed by the head or number, or by some
standard of weight or measurement; it requires no assessment other than a listing of
classification of the subjects to be taxed. (e.g. Excise tax on distilled spirits, cigars and
cigarettes)
2. Ad valorem tax – tax of a fixed proportion of the value of the property with respect to
which the tax is assessed; it requires the intervention of assessors or appraisers to
estimate the value of such property before the amount due from each taxpayer can be
determined. (e.g. Real estate tax)
AS TO PURPOSE
1. General, fiscal or revenue tax – tax that is imposed solely to raise revenue for
government expenditures. (e.g. Income tax, VAT)
2. Special or regulatory tax – tax imposed for a special purpose. (e.g. Sugar adjustment
taxes, Oil price stabilization fund)
AS TO AUTHORITY IMPOSING
1. National – tax imposed by the national government. (e.g. Internal revenue taxes,
customs duties)
2. Municipal or local – tax imposed by municipal agencies. (e.g. Sand and gravel tax,
occupation tax)
AS TO GRADUATION OR RATE
1. Proportional – tax based on a fixed percentage of the amount of the property, receipts or
other basis to be taxed. (e.g. VAT)
2. Progressive – tax the rate of which increases as the tax base or bracket increases. (e.g.
Income tax, estate tax, donor’s tax)
 3. Regressive – tax the rate of which decreases as the tax base or bracket increases.
INHERENT POWERS
 Eminent domain – the power of the state to take private property for public use upon
paying to the owner a just compensation.
 Police power – the power of the state to enact such laws in relation to persons and
properties as may promote public health, public morals, public safety, and the general
welfare of the people.
 Taxation

TERMINOLOGIES
 Permit or license fee – charge imposed under the police power for purposes of regulation.
 Toll – a sum of money for the use of something, generally applied to the consideration which
is paid for the use of a road, bridge of a public nature.
 Special assessment - an enforced proportional contribution from owners of lands for special
benefits resulting from public improvements.
DOUBLE TAXATION
Direct duplicate or direct double taxation
 Taxing twice for the:
- Same purpose
- Same taxing authority
 - Same jurisdiction
- Same period
- Some of the property in the same territory
 Revenue
Refers to all funds or income derived by the government, whether from tax or any other source.
- Grants received from other government
- Donations from non-government sources
- Loans from other entities (private and gov’t entity)
- Administrative revenues (fines, penalties, forfeitures)
- Commercial revenues (GOCC)
- Tax (internal revenue and customs duties)
SITUS OF TAXATION
 This shall mean the place of taxation.
 The state which has jurisdiction to tax the person, property or transactions may rightfully levy
and collect the tax.

ESCAPE FROM TAXATION

 Means or methods by which the taxpayer saves the tax or escapes the burden of tax
payment.
 It may or not result to a loss of revenue to the government.
 Legal or illegal mean
FORMS OF ESCAPE FROM TAXATION
 Do not reduce revenue collection of the government
- Shifting
- Capitalization
- Transformation
 Result in loss of revenue of the government
- Tax evasion
- Tax avoidance
- Exemption from taxation
DO NOT REDUCE GOVERNMENT REVENUE
 Shifting – transfer of tax burden by one on whom the tax is assessed to another.
 Capitalization – Reduction in the selling price of income producing property by an amount
equal to the capitalized value of future taxes that may be paid by the purchaser.
 Transformation – a method by which the manufacturer or producer upon whom the tax is
imposed pays the tax and strives to recover such expenses through lower production costs
without sacrificing quality of the product.
RESULT IN LOSS TO GOVERNMENT REVENUE
 Tax evasion – fraudulent or forbidden schemes or devices designed to lessen or defeat
taxes.
 Tax avoidance – exploitation by the taxpayer of the legally permissible alternative tax rates
or methods of assessing taxable property or income in order to reduce tax liability.
 Exemption from taxation – 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 taxing district are obliged to pay.
TAX AMNESTY
 Immunity from all criminal and civil obligations arising from non-payment of taxes.
 General pardon given to all taxpayers.
 It applies only to past periods (retroactive application).

SET-OFF OR COMPENSATION
 Taxes are not subject to set-off or compensation.
 A person cannot refuse to pay tax on the ground that the government owes him an amount
equal to or greater than the tax being collected.
TAXPAYER’S SUIT
 A taxpayer has a sufficient personality and interest to seek judicial assistance with a view of
restraining what he believes to be an attempt to unlawfully disburse public funds.
1. 1. PRINCIPLES OF TAXATION
2. 2. TAXATION- Is the inherent power of the sovereign, exercised through the legislature, to
impose burdens upon subjects and objects within its jurisdiction for the purpose of raising
revenues to carry out the legitimate objects of government. the action, process, or system of
taxing people or things TAXES- are the enforced proportional contributions from persons and
property levied by the law-making body of the state by virtue of its sovereignty for the support
of the government and all public needs.
3. 3. Essential elements of a tax 1. It is enforced contributions which signifies that it is
compulsory on the part of the government and an obligations of the citizen. 2. is generally
payable in money. 3. It is proportionate in character which means it is largely based on the
ability to pay principle. 4. It is levied on persons, property, or the exercise of a right or
privilege.
4. 4. 5. It is levied by the state which has jurisdiction over the subjects or objects of taxation. 6.
It is levied by the law-making body of the state which is deemed to be the direct
representatives of the taxpayers themselves, the people. 7. It is levied for public purpose or
purposes which takes the form of benefit for the greater majority.
5. 5. Purposes of taxation 1. Revenue or fiscal: the primary purpose of the taxation on the part
of the government is to provide funds or property with which to promote the general welfare
and the protection of its citizens and to enable it to finance its multifarious activities without
 which the government cannot function. 2. Non-revenue or regulatory: taxation may also be
employed for purposes of regulation or control. This takes the form of the following
measures, to wit; a.) imposition or tariffs on imported goods to protect local industries b.) the
adoption of progressively higher tax rates to reduce inequalities in wealth and income c.) the
increase or decrease of taxes prevent inflation or ward off depression.
6. 6. PUBLIC PURPOSE IN TAXATION This is one of the inherent limitations of the power to
tax and is synonymous to “governmental purpose”, a tax must always be imposed for a
public purpose otherwise, it will be declared as invalid. The term “public purpose” has no
fixed connotation.
7. 7. It has been said that the best test of rightful taxation is the proceeds tax must be used:
a)For the support of the government; or b)Some of the recognized objects of government; or
c) To promote the welfare of the community.
8. 8. Effects of incidental benefit to private interest The purpose to be accomplished by taxation
need not to be exclusively public although private individuals are directly benefited, the tax
would still be valid provided such benefit is only incidental. The test is not as to who receives
the money, but the character of the purpose for which it is expended; not the immediate
result of the expenditure, but rather the ultimate results. Inherent limitations 1. Purpose must
be public in nature 2. Prohibition against delegation of the taxing power 3. Exemption of
government entities, agencies and instrumentalities 4. International comity 5. Limitation of
territorial jurisdiction
9. 9. Nature of the power of taxation 1. It is inherent in sovereignty; hence, it may be exercised
although it is not expressly granted by the constitution. 2. It is legislative in character; hence,
only the legislature can impose taxes. 3. It is subject to constitutional and inherent limitations;
hence, it is not an absolute power that can be exercised by the legislature anyway it pleases.
10. 10. Theory and basis of taxation It should be very well emphasized that 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 a right to
compel all its citizens and property within its limit to contribute. The basis of taxation is found
in the reciprocal duties of protection and support between the state and inhabitants. In return
for his contribution, the taxpayer receive benefits and protection from the government. This is
so-called “benefit received principle”
11. 11. Life-blood necessity theory The life blood theory of taxation provides that the existence of
government is a necessity; that the government cannot continue without means to pay its
expenses and that for these means it has a right to compel its citizens and property within its
limits to contribute Benefit receive principle This principle serves as the basis of taxation and
is founded on the reciprocal duties of protection and support between the state and its
inhabitants. Also called “symbiotic relation” between the state and its citizens. In return for
his contribution, the taxpayer receives the general advantages and protection which the
government affords the taxpayer and his property. One is compensation or consideration for
the other; protection or support and support for protection. However, it does not means that
only those who are able to and do pay taxes can enjoy the privileges and protection given to
a citizen by the government
12. 12. Tariff/duties Customs duties or simply duties, are taxes imposed on goods exported from
or imported into a country. Customs duties are really taxes but the latter term is broader in
scope License fee License fee is legal compensation or reward of an officer for specific
service while a tax is an enforced contribution from person or property by the law-making
body by virtue of its sovereignty and for the support of the government and all public needs.
License fee is imposed for regulation, while tax is levied for revenue
13. 13. Toll vs. tax • Toll is a sum of money for the use of something, it is the consideration
which is paid for the use of a road, bridge, or the like, of a public nature. Taxes, on the other
hand, are enforced proportional contributions from persons and property levied by the state
by virtue of its sovereignty for the support of the government and all public needs. • Toll is a
demand of proprietorship; tax is a demand of sovereignty. • Toll is paid for the use of
 another’s property; tax is paid for the support of government. • Toll may be imposed by the
government or by private individuals or entities; tax may be imposed only by the government
14. 14. Tax vs. penalty Penalty is an any sanction imposed as a punishment for violation of law
or for acts deemed injurious; taxes are enforced proportional contributions from persons and
property levied by the state by virtue of its sovereignty for the support of the government and
all public needs. Penalty is a designed to regulate conduct; taxes are generally intended to
regulate revenue.
15. 15. Obligations to pay debt vs. obligations to pay tax • A debt is generally based on contract,
express or implied, while a tax is based on laws. • A debt is assignable, while tax cannot
generally be assigned. • A debt may be paid in kind, while tax is generally paid in money. • A
debt may be the subject of set off or compensation, a tax cannot. • A person cannot be
imprisoned for non-payment of tax. Except poll tax
16. 16. General rule A tax delinquency cannot e extinguished by legal compensation. This is
because the government and the delinquent are not mutually creditors and debtors. Neither
is a tax obligation an ordinary debt. Moreover, the collection of a tax cannot await the result
of a lawsuit against the government. Taxes are not in the nature of contracts but grow out of
a duty to, and are the positive acts of the government to the making and enforcing of which
the personal consent of the taxpayer is not required. [francia v. IAC, 162 SCRA 754 and
republic v. Mambulao lumber 4 SCRA 622]
17. 17. Three basic principle of a sound system A good taxation is grounded on the following; 1.
Fiscal adequacy it means that the sources of revenue should be sufficient to meet the
demands of public expenditure. (Chavez V. Ongpin, 186 SCRA 331) 2. Equality or
theoretical justice It means that the tax burden should be proportionate to the taxpayer’s
ability to pay. This is the so-called “ability to pay principle” 3. Administrative feasibility It
means that the laws should be capable of convenient, just and effective administration
https://www.slideshare.net/ChristineAubreyBrendia/principles-of-taxation

https://www.britannica.com/topic/taxation/Principles-of-taxation

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