NOTES IN INCOME TAXATION
Taxation is a means or process by which the sovereign
thru its lawmaking body raises income to defray the
necessary expenses of the government.
Theory of Taxation The power of taxation proceeds
upon the theory that the existence of government is a
necessity and that it cannot continue without the means
to pay its expenses. The government needs funds in
order to provide public services.
Basis of Taxation The mutuality of support between
the people and the government is referred to as the
basis of taxation. The people pay taxes and the
government provides public services.
Ability to pay theory Taxation should consider the
ability of the taxpayer to pay. The greater the income,
the better capacity to contribute.
Lifeblood doctrine Taxes are essential and
indispensable to the continued subsistence of the
government. Just like in the human body, if there is no
blood, there is no life.
Inherent powers of the state Because the state exists,
these powers exist.
INHERENT POWERS OF THE STATE The
following are the inherent powers of the state:
Taxation power – enforce proportional contribution
Police power -to protect the people Eminent domain –
take private properties for public use
Public purpose Taxes should not be used for the
furtherance of private interest.
Exemption of the government The government is
exempt from taxes with exception. Income from
governmental functions is not subject to tax.
Non-delegation of the power of taxation The power to
make tax laws is delegated by the people to congress
and what has been delegated cannot be further
delegated with exceptions.
Constitutional limitations of the power of taxation
Those limitations embodied in the Philippine
constitution is called constitutional limitations.
Progressive system of taxation Under the progressive
system, tax rates increase as the tax base increases.
Exemption of religious, charitable or educational
entities, non-profit cemeteries, churches and mosques.
Those land, buildings and improvements actually,
directly and exclusively use for charitable, religious
and educational purposes are exempt from property
taxes.
Exemption from taxes of the revenue and assets of
non-profit, non-stock educational institutions All
revenues and assets actually, directly and exclusively
devoted for educational purpose are not subject to
income tax, property tax and customs duties.
LIMITATIONS OF TAXATION POWER A. Inherent
limitations B. Constitutional Limitations
Appropriations, revenue or tariff bills shall originate
from the House of Representatives. Laws which allow
spending and adds income to the national treasury
must originate from the Lower House while Senate of
the Philippines may make amendments.
Inherent limitations 1. Territoriality 2. International
comity 3. Public Purpose 4. Exemption of the
government 5. Non-delegation of the taxing power
Situs of taxation Situs is the place of taxation. For
example, businesses are subject to tax in the place
where the business is conducted.
Territoriality of taxation Taxes are imposed within the
territory. The Philippine government cannot impose
taxes outside its territorial jurisdiction. For example,
The Philippine government cannot impose real
property tax on land in Malaysia.
Prospectivity of tax laws Tax laws applies from the
date of effectivity onwards.
International comity There is supposed to be a mutual
courtesy and reciprocity among countries. As an
example, the embassy in the United States of America
in Manila is not subject to property taxes in our
country.
Construction of tax law When the tax law is clear,
implement the tax measure. If there is no room for
interpretation, the only room is implementation. If
there is a doubt, the tax law should be construed
against the government and in favor of the taxpayer.
Let the government prove that the taxpayer is covered
Non-compensation Taxes are not subject to automatic
set-off
by the tax law. Failure to prove on the part of the
government, the taxpayer is not subject to the tax law.
Interpretation of tax exemptions When the tax law
exemption is clear, then the taxpayer will be exempted.
If there is a doubt, the tax exemption is construed
against the taxpayer and in favor of the government.
Let the taxpayer prove that exemption applies to him.
Failure to prove on the part of the taxpayer, the
taxpayer is not covered with the exemption.
Double taxation This occurs when the same taxpayer
is taxed twice by the same tax jurisdiction for the same
thing. There is no law that prohibits double taxation
however discouraged if it becomes oppressive and
burdensome.
Tax evasion Refers to illegal acts that reduce or avoid
the payment of tax illegally. Tax avoidance Reducing
or avoiding payment of taxes using legally permissible
means.
Tax amnesty Tax amnesty is the forgiveness by the
government its right to collect which includes both
civil and criminal liabilities. Tax condonation This is
forgiveness of the tax obligation on its civil liabilities
under certain justifiable grounds.