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BA223: TAXATION (INCOME TAXATION) Eminent Domain Power

 It is the inherent power of the sovereign state to take

MODULE 1: GENERAL PRINCIPLES AND CONCEPTS OF private property for a public purpose with just
TAXATION – PART 1 compensation.
 Paying the owner of the private property the
Principles of Taxation full monetary equivalent of the property taken
for public use
Learning Objectives
Taxation Power
At the end of this module you are expected to:
 It is the inherent power of the sovereign state to
1. Explain and discuss the introduction, overview, history and enact and enforced contribution upon persons,
origin of Philippine taxes; properties, or rights for the purpose of generating
2. Describe the nature of taxation power; and revenues for the use of government.
3. Differentiate the three inherent powers of the state, their  The act of levying taxes by which the government
scope and inherent limitations. through its law-making body, raises revenues to
Inherent Powers of Sovereign State defray its necessary expenses.
 Taxes – enforced proportional contribution
These are essential powers necessary for the survival of the imposed by the government.
sovereign state.
Similarities among Taxation, Eminent Domain and Police Powers
This also serves as the central force in order that a government
can command, maintain peace and order, and survive, irrespective of 1. They are inherent powers of the State
any constitutional provision. 2. They constitute the three ways by which the State interferes
with the private rights and property
3. They are legislative in nature and character
4. They presuppose an equivalent compensation
Police Power
5. They all underlie and exist independently of the Constitution
 It is the inherent power of the sovereign state to 6. They are all necessary attributes of the Sovereignty
legislate for the protection of health, welfare and 7. The provisions in the Constitution are just limitations on the
morals of the community. exercise of these powers
 It is exercised usually to guard against abuses of
individual liberty.

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6. As to Operates on a Operates in a Operates on
persons community or a community or the particular
affected class of a class of private
individual individual property of an
Distinction between Taxation, Eminent Domain and Police Powers individual
7. As to Continuous Maintenance Market value
Taxation Police Power Eminent benefits protection and of healthy of the property
Domain organized economic expropriated
1. As to Power to Power to Power to take society standard of
concept enforce make and private society
contribution to implement property for 8. As to Inseparable for Protection, Common
raise laws for the public use with importance existence of a safety and necessities
government general just nation – it welfare and interest of
funds welfare compensation supports police society the community
2. As to scope Plenary, Broader in Merely a power and transcend
comprehensive application of power to take eminent domain (exceeds)
and supreme general power private individual
to make and property for rights in
implement public use property
laws 9. As to Generally, no Sufficient to No imposition.
3. As to Exercised only Exercised only May be amount of limit cover cost of The owner is
authority by government by granted to imposition the license paid the fair
(both national government public service and the market value
and local (both national or public utility necessary of his property
government and local companies expenses of
government police
4. As to Money is taken Money or Private surveillance
purpose to support the Property is property is and regulation
government taken or talem for 10. As to Constraints by Limited by the Bounded by
destroyed to public use limitation Constitutional demand for public purpose
promote and Inherent public interest and just
general limitations compensation
welfare 11. As to Subject to Relatively free Superior to
5. As to The power to Can be Can be relationship Constitutional from and may
necessity of make tax laws expressly expressly to and Inherent Constitutional override
delegation cannot be delegated to delegated to Constitution limitations limitations Constitutional
delegated the local the local impairment
government government Subject to Superior to provision
units (LGU) by units (LGU) by constitutional impairment because the
the law- the law-making prohibition provision of welfare of the
making body body against the the State is
impairment of Constitution superior to any

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the obligations private Scope of Taxation
and contract contract
The scope of the power of taxation is
Inferior to
impairment  Unlimited,
provision of the  Complete (plenary),
Constitution  Wide extent of application (comprehensive)
 With highest degree (supreme)
Nature of Taxation Power  Subject to the constitutional and inherent limitations.
Constitutional Limitations
 The power of tax is an attribute of sovereign that is exercised
by the government for the betterment of the people within its These are provisions of the fundamental law that restrict the unlimited,
jurisdiction whose interest should be served, enhanced and plenary, comprehensive and supreme exercise by the State of its
protected inherent power to tax.
 Taxes are imposed upon persons, properties or rights for the
support of the government in return for the benefit and It should be noted further that a tax law is of no legal force when it
protection which the government provides the taxpayers. violates the Constitution

Basis of Taxation 1. Due process of law

1. Based on the Principle of Necessity (Lifeblood Theory) Observation of due process of law and equal protection of the
 This principle states that no government can exist without laws (Section 1. Article 3)
taxation, thus, taxation is an important necessity. Any deprivation of life, liberty or property is with due process if
2. Based on Reciprocal Duties it is done under the authority of a valid law and after compliance
with fair and reasonable methods or procedure prescribed. The
 The basis of the power to tax is the reciprocal duties of
power to tax, can be exercised only for a constitutionally valid
protection and support between the state and those that are
public purpose and the subject of taxation must be within the
subjects to its authority.
taxing jurisdiction of the state. The government may not utilize
Purpose of Taxation any form of assessment or review which is arbitrary, unjust and
which denies the taxpayer a fair opportunity to assert his rights
Principal Purpose (Revenue Purpose)
before a competent tribunal. All persons subject to legislation
 To raise revenues for the use and support of the shall be treated alike under like circumstances and conditions,
government to enable it to carry out its functions. both in the privileges conferred in liabilities imposed. Persons
and properties to be taxed shall be group, and all the same class
Secondary Purpose (Regulatory Purpose) shall be subject to the same rate and the tax shall be
administered impartially upon them.
 To serve as means to contend social, general welfare
and economic development.
2. Equal protection of law
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Rule of uniformity and equity in taxation (Section 28(1), Article except when such priest, preacher is assigned to the armed
VI) force or to any penal institutions, orphanage or leprosarium.
All taxable articles of properties of the same class shall be taxed
at the same rate. Uniformity implies equality in burden not in 7. The majority of all members of the National Congress shall pass
amount. Equity requires that the appointment of the tax burden the granting of tax exemptions
be more or less just in the light of taxpayer’ ability to bear the
tax burden. 8. The Congress may not be deprived the Supreme Court of its
jurisdiction in all tax cases.
3. No imprisonment for non-payment of a poll tax (example:
community tax) Congress may not deprive the Supreme Court of its jurisdiction
to review, revise, reverse, modify or affirm on appeal or
No imprisonment for non-payment of poll tax (Section 20, Article certiorari, final f\judgements and orders of lower courts in all
III). A person cannot be imprisoned for non-payment of cases involving the legality of any tax, impost, assessment or
community tax, but may be imprisoned for other violations of the any penalty imposed in the relation thereto.
community tax law, such as falsification of the community tax
certificate, or for failure to pay other taxes. 9. The Philippine President has the power to veto any item in a tax
bill approved by the Congress.
4. Rule of taxation shall be uniform and equitable.
10. Tax collection shall generally be treated as general funds of the
5. Exemption from property taxation (lands and buildings used) of government
religious, charitable or educational institutions, non-profit
cemeteries, churches and convents appurtenant thereto
Inherent Limitations
Exemption of all revenues and assets of non-stock, non-profit These are restrictions to the power to tax that are attached to its nature
educational institutions used actually, directly, and exclusively
for educational purposes from income, property, and donor’s 1. Taxes may be levied only for public purpose
taxes and custom duties (Section 4 (3&4) Article XIV).
The sole purpose must be for the benefit of the citizens of the
6. No public money and/or property shall be used for any religious state and not merely as for the benefit of a particular individual.
and/or private purposes
2. Non-delegation of the power to tax except to local government
Prohibition against appropriations for religious
purposes,(Section 29 (2), Article VI), Congress cannot The power to tax is purely legislative and it cannot be delegated
appropriate funds for a private purpose, or for the benefit of any by the legislative branch of government to the executive or
priest, preacher or minister or for the support of any sect, church judicial department.

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3. Tax laws are only confined within the territorial jurisdiction of the function. The tax system should be capable of being
State properly and efficiently administered by the
government.
The tax laws are enforceable only within the territorial
jurisdiction of the State. Tax laws are not enforceable beyond 3. Collection
the country’s territorial limits.  This process involves the collection of tax payments
from the tax payers as well as the collection of tax-
4. Tax laws must be subject to international comity, convention deficiencies as assessed by the BIR Officials and
and agreements BIR examiners.

The property of a foreign state may not be taxed by another

foreign state. There should be agreement between nations
before taxes are to be imposed.

5. Government entities are generally tax-exempt.

1. LEVYING 2. ASSESSMENT
Government agencies performing essential government
functions are generally exempt from tax. Those government (Legislative) (Executive)
agencies performing proprietary functions are subject to tax
unless expressly exempted. It should be noted further that the
government cannot tax itself.

6. Prohibition of double taxation

3. COLLECTION
Aspects of Taxation (Executive)
- Refers to processes or stages of enforcement of power of
taxation

1. Levying
Objects of Taxation
 This process involves the imposition of the tax which
is a legislative act or function. In the Philippines, it is - Refers to the subject to which taxes are imposed
Congress that levies the tax
1. Persons, whether natural or juridical persons
2. Assessment a. Natural person – refers to individual taxpayers
 This involves the determination of the correct b. Juridical person – includes corporations,
amount of applicable tax which is administrative partnerships, and any association
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2. Properties, whether realm personal, tangible or intangible 5. Citizenship of the taxpayer
properties 6. Residence of the taxpayer
a. Real properties – immovable properties such as
Summary of General Rules of Tax Situs
land, building or house and lot SUBJECT NATURE CITIZENSHIP RESIDENCY SOURCE OF LOCATION OF
b. Personal properties – movable properties such as MATTER OF TAX OBJECT (Taxable?)
car Within the Outside
c. Tangible properties – properties that may be felt or Philippines the
Philippines
touched and are necessarily corporeal, either realtor Persons Income Filipino Resident Yes Yes
personal properties Tax Filipino Non- Yes No
d. Intangible properties – properties that are “rights” resident
rather than physical objects. Aliens Resident Yes No
- Example: Patents, stocks, Aliens Non- Yes No
bonds, goodwill, trademarks, resident
franchise and copy right
Transfer Tax Filipino Resident Yes Yes
3. Excise objects, such as Filipino Non- Yes Yes
a. Transaction – the act of conducting activities related resident
to any business or profession that involves selling, Aliens Resident Yes Yes
servicing, leasing, borrowing, mortgaging or lending Aliens Non- Yes No
b. Privilege – a benefit derived through gratuitous resident
transfer by circumstance of death donation
Business Tax Yes No
c. Right – a power inherent in one person and
incidental to another Real Property n/a n/a Yes No
d. Interest – an advantage accruing from anything
Personal Property n/a n/a Yes No
Situs of Taxation
- Refers to the place of taxation
Principles of Sound Tax System
- it is the application of the “principle of territorial jurisdiction”
which limits the exercise of taxation power in defining the object 1. Fiscal Adequacy
of taxation through setting boundaries of the taxing power - Sources of revenues must be sufficient to meet the
whether or not it shall be subjected to tax expenditures of government regardless of the business or
- Factors to consider in determining situs of taxation economic conditions
1. Subject matter of the tax (person, property, or activity) 2. Equality or Theoretical Justice
2. Nature, kind or classification of the tax being imposed - There must be an equitable (reasonable) and proportionate
3. Source of income being taxed distribution of the tax burden, which means that the tax
4. Place of the excise, privilege, business or occupation being burden shall be shouldered by those who have the ability to
taxed pay
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- Concedes with the “ability-to-pay principle” which states that Other Percentage Taxes, and Documentary
tax burden should be in proportion to the taxpayer’s ability Stamp Tax)
to pay b. Local
3. Administrative Feasibility  Imposed by local government units
- Tax laws must be capable of reasonable and convenient
enforcement, just and effective administration, meaning, 2. As to subject matter or object
must be capable of being administered and complied with. a. Personal, poll or capitation
 Tax of a fixed amount imposed upon individual,
Nature of Taxes
whether citizens or not, residing within a
Taxes specified territory without regard to their property
or the occupation in which he may be engaged
 By authority of a sovereign state, these are forced (ex. Community Tax).
burdens and compulsory financial contribution upon the b. Property
person, property, or rights exercised, within its  Tax imposed property, whether real or personal,
jurisdiction imposed by the government, the in proportion either to its value, or in accordance
administration of the law, or the payment of public with some other reasonable method of
expenses. apportionment (e.g. Real Estate Tax).
 Nature of taxes: c. Excise
1. Taxes are obligations created by law  Any tax which does not fall within the
2. Taxes are generally personal to the taxpayer classification of a poll tax or a property tax. This
Essential Elements of Tax is a tax on the exercise of certain rights or
privilege (e.g. Income Tax, Estate Tax, Donor’s
1. Enforced contribution Tax, Value added Tax and Other Percentage
2. Imposed by the legislative body Taxes).
3. Proportionate in character
4. Payable in the form of money 3. As to bears the burden
5. Imposed for the purpose of raising revenue a. Direct
6. Used for a public purpose  Tax which is demanded from the person who
7. Commonly required to be paid at regular intervals also shoulders the burden of tax or which the
8. Imposed by the sovereign state within its jurisdiction taxpayer cannot shift to another (ex. Income Tax,
Classification of Taxes Estate Tax and Donor’s Tax)
b. Indirect
1. As to scope  Tax which is demanded from one in the
a. National expectation and intention that he shall indemnify
 imposed by National government (e.g. Income at the expense of another
Tax, Estate Tax, Donor’s tax, Value Added Tax,
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 Tax wherein the incidence of or liability for the b. Progressive or graduated
payment if the tax falls on one person but the  Tax the rate of which increases as the tax base
burden thereof can be shifted to another person or bracket increases (ex. Income Tax)
(ex. Value Added Tax and Other Percentage c. Regressive
Taxes)  Tax the rate of which decreases as the tax base
or bracket increases. This is not practiced in the
4. As to determination of amount Philippines
a. Specific
Overview of the Philippine Taxes
 Tax of fixed amount imposed by the head or
number, or by some standard of weight or  TAX LAW
measurement (ex. Excise Tax on cigarettes and - Body of laws which codifies all national tax laws
liquors) including:
b. Ad valorem  Income
 Tax of fixed proportion of the value of the  Estate
property with respect to which the tax is  Gift (Donation)
assessed (ex. Value Added Tax, Income Tax,  Excise
Donor’s Tax and Estate Tax  Stamp
 Other taxes
5. As to purpose - Comprises of the Republic Act 8424 (RA 8424)
a. General, fiscal, or revenue entitled:
 Tax imposed solely for the general purpose of “The Comprehensive Tax
the government, i.e., to raise revenue for Reform of the Philippines”
government expenditures (ex. Income Tax,  also known as
Donor’s Tax and Estate Tax)  National Internal Revenue
b. Special or regulatory Code of 1997 (NIRC)
 Tax imposed for a specific purpose, i.e., to  Tax Code
achieve some social economic ends irrespective  Also includes RA 9337 –
of whether revenue is actually raised or not (e. “The VAT Reform Law”
Tariff and Certain duties on Imports) - Internal Revenue Law
- Includes all laws legislated pertaining to the
6. As to graduation or rate national government taxes embodied in the
a. Proportional NIRC
 Tax based on a fixed percentage of amounts of - Such legislation is commonly known as
the property, receipts, or other basis to ne taxed revenue measures
(ex. Value Added Tax and Other Percentage
Taxes) - Internal Revenue Taxes
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- Taxes imposed by the legislative body other  neither political nor penal in nature
than custom duties on imports o Note: Although, there are penalties
- The following national taxes are classified as provided for their violation, the
Internal Revenue Taxes under the purpose of tax laws in imposing
administration of the BIR penalties for delinquencies is to:
1. Income Tax  compel the timely payment of
 Tax imposed on the income taxes
earned of a tax payer  punish evasion or neglect of
2. Transfer Tax duty in respect thereof
 Tax imposed on any mode of
transferring the ownership of  SOURCES OF TAX LAWS
a real property, either through 1. Constitution of the Philippines
sale, donation, barter, or any 2. National Internal Revenue Code
other mode 3. Tariff and Customs Code
3. Business Tax 4. Local Government Code
 Tax imposed and collected 5. Local tax ordinances (e.g. city or municipal tax codes)
from the seller in the course of 6. Tax Treaties and International Agreements
trade or business on every  Tax treaty
sale of properties (real or - the Philippine government usually enters
personal) leases of goods or into tax treaties in order to avoid or minimize
properties (real or personal) the effects of double taxation. It has the
or vendors of services. force and effect of law
4. Documentary Stamps Tax (DST) 7. Judicial decisions (i.e. decision of the Supreme of Court
 An excise tax levied on and the Court of Tax Appeals)
documents, instruments, loan 8. Special laws (e.g. Statutes, Executive Orders)
agreements and papers 9. Revenue rules and regulations and administrative rulings
evidencing the acceptance, and opinions
assignment, sale or transfer a. Revenue Regulations promulgated by the
of an obligation, rights, or Department of Finance
property incident thereto b. BIR Revenue Memorandum Circulars
5. Such other taxes as may be c. Bureau of Customs Memorandum Orders
imposed and collected by the BIR d. BIR Rulings
 Purpose of rules and regulations
 NATURE OF TAX LAWS i. To properly enforce and execute the tax
- The Philippine Internal Revenue laws are generally laws
 civil in nature ii. To clarify and explain the law
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iii. To carry into effect the laws’ general May be imposed by the May be imposed only by the
provisions by providing details of government or private government
administration and procedure individuals or entities

 Requisites for validity of rules and regulations 3. TAX vs ASSESSMENT

i. They must not be contrary to law and the
Special assessment is an enforce proportional contribution from
Constitution
owners of lands for special benefits resulting from public
ii. They must be published in the Official
improvements.
Gazette or a newspaper of general
circulation Characteristics of Special Assessment
 Effectivity of revenue rules and regulations
Except when the law otherwise expressly a. Levied only on land
provides, the aforesaid revenue tax issuance b. Not a person liability of the person assessed
shall not begin to be operative until after due c. Based wholly on benefits (not necessary)
notice thereof may be fairly assumed d. Exceptional both as to time and place

Tax Distinguished from Other Terms 4. TAX vs REVENUE

1. TAX vs TOLL
REVENUE TAX
Amount imposed
Amount collected
TOLL TAX
Demand of sovereignty 5. TAX vs PERMIT or LICENSE FEE
Demand of proprietorship
Paid for the use of another’s Paid for the support of
PERMIT or LICENSE FEE TAX
property government
For revenue
Amount is based on cost of Amount is based om the For regulation
construction or maintenance of necessities of the state Exercise of taxation power
the public improvement Exercise of police power
May be imposed by the Imposed only by the state Amount is limited to the Generally no limit
government or private necessary expenses of
individuals or entities regulation
Imposed on the right of reward Imposed also on persons
2. TAX vs PENALTY of an officer for specific services property
An enforced contribution
Legal compensation or reward assesses by sovereign authority
PENALTY TAX
of an officer for specific services to defray public expenses
Primarily aimed at raising
Designed to regulate conduct revenue
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An enforced contribution a. A book of rates drawn usually in alphabetical order
Failure to pay license fee makes assesses by sovereign authority containing the names if several kinds of merchandise with
the act or business illegal to defray public expenses the corresponding duties to be paid for the same; or
b. The duties payable on goods imported or exported; or
6. TAX vs DEBT c. The systems or principle of imposing duties on the important
(or exportation) of goods
DEBT TAX
Based on law It should be noted further that the term tariff and customs duties
Based on contract are used interchangeably in the tariff and custom code.
Generally payable in money
May be paid in kind • End of Module 1 •
Cannot generally assignable
Assignable Cannot generally be the subject Links to Supplemental Readings
of the set-off or compensation
Imprisonment is a sanction for
May be the subject if set-off or 1. http://www.chanrobles.com/legal6nircmain.htm#.WW14qR
non-payment of tax (except poll
compensation UrLIU
tax
A person cannot be imprisoned Governed by the special 2. http://www.bir.gov.ph/index.php/tax-code.html#title1
for non-payment of debt (except prescriptive periods provided for 3. http://www.bir.gov.ph/index.php/tax-code.html#title2
when it arise from a crime) in the Tax Code
Draw interest when stipulated or Does Not draw interest except
when prescription default only when delinquent links to Other Video Lectures

7. TAX vs SUBSIDY
Subsidy is a monetary aid directly granted by the government to 1. https://www.youtube.com/watch?v=761YpyZh1C8
an individual or private commercial enterprise deemed beneficial 2. https://www.youtube.com/watch?v=8nMHLRSZKqw
to the public. Subsidy is not a tax although tax may have to be 3. https://www.youtube.com/watch?v=6FV_GQ58G1g
imposed to pay it.
8. TAX vs CUSTOM DUTIES References
Custom duties are taxes imposed on goods exported into a National Internal Revenue Code of 1997 . (n.d.). Retrieved from
country. http://www.bir.gov.ph/index.php/tax-code.html.
9. TAX vs TARIFF Aduana, N. L. (2012). Simplified and procedural handbook on income
Tariff may be used in one of the following: taxation (2nd Edition ed.). Quezon City: C & E Publishing Inc.
Garcia, E. R., & Tabag, E. D. (2014). Income Taxation (3rd Edition ed.).
Quezon City: Good Dreams Publishing
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Valencia, E. G. (2016). Income Taxation (7th Edition ed.). Baguio City:
Valencia Educational Supply.
Banggawan, Rex B. (2019). Income Taxation: Laws, Principles, and
Applications. Real Excellence Publishing. ISBN:978-971-95940-0-0.
pp. 1-34

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