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RECAP OF GENERAL PRINCIPLES
OF TAXATION

6
Recall of Chapter 1
1. Concept of taxation and its necessity for every government
2. Lifeblood doctrine and its implication to taxation
3. Theories of government cost allocation
4. Inherent power of the State
5. Scope of the taxation power
6. Limitations of the taxation power
7. Stages of taxation
8. Concept of situs in taxation
9. Fundamental principles surrounding taxation
10. Various escapes from taxation
11. Concept of tax amnesty and condonation
True or False 1
1. The reciprocal duty of support between the government and the people
Underscores the basis of taxation.
2. There should be direct receipt of benefit before one could be compelled
to pay taxes.
3. Taxes are the lifeblood of the government.
4. Taxation is a mode of apportionment of government costs to the people.
5. Horizontal equity requires consideration of the circumstance of the
taxpayer.
6. The exercise of taxation power requires Constitutional grant.
7. Taxation is inherent in sovereignty.
8. Police power is the most superior power of the government. Its exercise
needs to be sanctioned by the Constitution.
9. All inherent powers presuppose an equivalent form of compensation.
10. Eminent domain involves confiscation of prohibited commodities to
protect the well-being of the people.
True or False 2
1. The government should tax itself.
2. The scope of taxation is regarded as comprehensive, plenary, unlimited,
and supreme.
3. Taxation is subject to inherent and Constitutional limitations.
4. International comity connotes courtesy between nations.
5. Collection of taxes in the absence of a law is violative of the
Constitutional requirement for due process.
6, Taxpayers under the same circumstance should be taxed differently.
7. No one shall be imprisoned for non-payment of tax.
8. The lifeblood doctrine requires the government to override its obligations
and contracts when necessary.
9. 2/3 of all members of Congress is required to pass a tax exemption law.
10. The Constitutional exemption of religious, charitable, and non-profit
cemeteries, churches and mosques refers to income tax and real
property tax.
Multiple Choice - Theory: Part 1
1. What is the basis of taxation?
a. Reciprocal duties of support and protection
b. Constitutionality
c. Public purpose
d. Necessity

2. What is the theory of taxation?

a. Reciprocal duties of support and protection
b. Necessity
c. Constitutionality
d. Public purpose
Multiple Choice - Theory: Part 1
3. What is the primary purpose of taxation?
a. To enforce contribution from its subjects for public purpose
b. To raise revenue
c. To achieve economic and social stability
d. To regulate the conduct of business or profession

4. A. The power to tax includes the power to exempt.

B. The power to license includes the power to tax.
Which is true?
a. A only
b. B only
c. A and B
d. Neither A nor B
Multiple Choice - Theory: Part 1
5. The point at which tax is levied is also called
a. Impact of taxation
b. Situs of taxation
c. Incidence of taxation
d. Assessment

6. Which is not an object of taxation?

a. Persons
b. Business
c. Transactions
d. Public properties
Multiple Choice - Theory: Part 1
7. That courts cannot issue injunction against the government's
effort to collect taxes is justified by
a. the lifeblood doctrine.
b. imprescriptibility of taxes.
c. the ability to pay theory.
d. the doctrine of estoppel.

8. The power to enforce proportional contribution from the people

for the Support of the government is
a. Taxation
b. Police power
c. Eminent domain
d. Exploitation
Multiple Choice - Theory: Part 1
9. This theory underscores that taxes are indispensable to the
existence of the state.
a. Doctrine of equitable recoupment
b. The Lifeblood Doctrine
c. The benefit received theory
d. The Holmes Doctrine

10. Which of the following inappropriately describes the nature of

taxation?
a. Inherent in sovereignty
b. Essentially a legislative function
c. Subject to inherent and constitutional limitation
d. Generally for public purpose
Multiple Choice - Theory: Part 1
11. Select the incorrect statement.
a. The power to tax includes the power to exempt.
b. Exemption is construed against the taxpayer and in favor of the
government.
c. Tax statutes are construed against the government in case of
doubt.
d. Taxes should be collected only for public improvements.

12. Which is not a public purpose?

a. Public education
b. National defense
c. Transportation
d. None of these
Multiple Choice - Theory: Part 1
13. Which does not properly describe the scope of taxation?
a. Comprehensive
b. Supreme
c. Discretionary
d. Unlimited

14. All of these are secondary purposes of taxation except

a. To reduce social inequality
b. To protect local industries
c. To raise revenue for the support of the government
d. To encourage growth of local industries
Multiple Choice - Theory: Part 1
15. A, Taxation is the rule, exception is the exemption.
B. Vague taxation laws are interpreted liberally in favor of the government.
Which is false?
a. A only c. Both A and B
b. B only d. Neither A nor B

16. A. Taxes should not operate retrospectively.

B. Tax is generally for public purpose.
Which is true?
a. A only
b, B only
c. A and B
d. Neither A nor B
Multiple Choice - Theory: Part 1
17. Which provision of the Constitution is double taxation believed
to violate?
a. Equal protection guarantee
b. Progressive scheme of taxation
c. Uniformity rule
d. Either A or C

18. Which limitation of taxation is the concept of "situs of taxation"

based?
a. Territoriality
b. Public purpose
c. International comity
d. Exemption of the government
Multiple Choice - Theory: Part 1
19. Which is the most incorrect statement regarding taxes?
a. Taxes are necessary for the continued existence of the government.
b. The obligation to pay tax does not rest upon the privilege enjoyed by or
the protection afforded to the citizen of the government but upon the
necessity of money for the support of the State.
c. There should be personal benefit enjoyed from the government before
one is required to pay tax.
20. Which statement is incorrect?
a. Every person must contribute his share in government costs.
b. The existence of a government is expected to improve the lives of the
people.
c. The government provides protection and other benefits while the people
provide support
d. Only those who are able to pay tax can enjoy the privileges and
protection of the government.
 CHAPTER 2: TAXES, TAX LAWS, AND
TAX ADMINISTRATION

20
TAXATION LAW

Taxation law refers to any law that arises from the

exercise of the taxation power the State.
Types of taxation laws
Tax laws — these are laws that provide for the
assessment and collection of taxes.
Examples:
a. The National Internal Revenue Code (NIRC)
b. The Tariff and Customs Code
c. The Local Tax Code
d. The Real Property Tax Code
TAXATION LAW

Tax exemption laws — these are laws that grant

immunity from taxation.
Examples:
a. The Minimum Wage Law
b. The Omnibus Investment Code of 1987 (E.O 226)
c. Barangay Micro-Business Enterprise (BMBE) Law
d. Cooperative Development Act
Sources of Taxation Laws

1. Constitution
2. Statutes and Presidential Decrees
3. Judicial Decisions or case laws
4. Executive orders and Batas Pambansa
5. Administrative Issuances
6. Local Ordinances
7. Tax Treaties and convention of Foreign Countries
8. Revenue Regulations
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) VS. TAX LAWS

 Generally accepted accounting principles or GAAP are

not laws, but are mere conventions of financial reporting.

 They are benchmarks for the fair and relevant valuation

and recognition of income, expense, assets, liabilities, and
equity of a reporting entity for general purpose financial
reporting.

 Tax laws including rules, regulations, and rulings prescribe

the criteria for tax reporting, a special form of financial
reporting which is intended to meet specific needs of tax
authorities.
NATURE OF PHILIPPINE TAX LAWS

 Philippine tax laws are civil and not political in nature. They
are effective even during periods of enemy occupation. They
are laws of the occupied territory and not by the occupying
enemy. Tax payments made during Occupations of foreign
enemies are valid. Our internal revenue laws are not penal in
nature because they do not define crime. Their penalty
provisions are merely intended to secure taxpayers’
compliance.
TAX

 Tax is an enforced proportional contribution levied by the

lawmaking body of the State to raise revenue for public
purpose.
Elements of a Valid Tax
1. Tax must be levied by the taxing power having jurisdiction
over the object of taxation.
2. Tax must not violate constitutional and inherent limitations.
3. Tax must be uniform and equitable.
4. Tax must be for public purpose.
5. Tax must be proportional in character
6. Tax is generally payable in money.
CLASSIFICATION OF TAXES

 A. As to purpose
 Fiscal or revenue- a tax imposed for general purpose
 Regulatory-A tax imposed to regulate business,
 Sumptuary — a tax levied to achieve some social or
economic objectives

B. As to subject matter
 Personal, poll or capitation- a tax on person who are
residents of a particular territory
 Property tax - a tax on properties
 Excise or privilege tax- a tax imposed upon the performance
of an act, or engagement in an occupation
CLASSIFICATION OF TAXES

 C. As to incidence
 1. Direct tax - When both the, the tax is s impact and
incidence of taxation rest upon the same taxpayer aid to be
direct. The tax is collected from the person who is intended
to pay the same. The statutory taxpayer is the economic
taxpayer.
 2. Indirect tax When the tax is paid by any person other than
the one who is intended to pay the same, the case of
business taxes the tax is said to be indirect. This where the
statutory taxpayer is not the economic taxpayer. The
statutory taxpayer is the person named by law to pay the tax
CLASSIFICATION OF TAXES

 D. As to amount
 1. Specific tax -a tax of a fixed amount imposed on a per
unit basis such as per kilo, liter or meter, etc.
 2. Ad valorem- a tax of a fixed proportion imposed upon
the value of the object
CLASSIFICATION OF TAXES

 E. As to rate
 a. Proportional tax - This is a flat or fixed rate tax. The use
of proportional tax emphasizes equality as it subjects all
taxpayers with the same rate
 b. Progressive or graduated tax -This is a tax which
imposes increasing rates as the tax base increase. c. It aids
in lessening the gap between the rich and the poor.
 d. Regressive tax — this tax imposes decreasing tax rates
as the tax base increase. This is the total reverse of
progressive tax. Regressive tax is regarded as anti-poor.e
 e. Mixed tax — This tax manifest tax rates which is a
combination of any of the above types of tax.
CLASSIFICATION OF TAXES

 F. As to imposing authority
 1. National tax - tax imposed by the national government
 Examples:
 a. Income tax— tax on annual income, gains or profits
 b. Estate tax — tax on gratuitous transfer of properties by
a decedent upon death
 c. Donor’s tax — tax on gratuitous transfer of properties
by a living donor
 d. Value Added Tax - consumption tax collected by
 E. Other percentage tax — consumption tax collected by
non-VAT business taxpayers
CLASSIFICATION OF TAXES

 F. As to imposing authority
 1. National tax - tax imposed by the national government
 Examples:
 a. Income tax— tax on annual income, gains or profits
 b. Estate tax — tax on gratuitous transfer of properties by
a decedent upon death
 c. Donor’s tax — tax on gratuitous transfer of properties
by a living donor
 d. Value Added Tax - consumption tax collected by
 E. Other percentage tax — consumption tax collected by
non-VAT business taxpayers
CLASSIFICATION OF TAXES

 F. Excise tax — tax on sin products and non-essential as

alcohol, cigarettes and metallic minerals. differentiated with
the privilege tax which is also called excise tax.

 G. Documentary stamp tax - a tax on documents,

instruments, loan agreements and papers evidencing the
acceptance, assignment, sale or transfer of an obligation,
right or property incident thereto.
CLASSIFICATION OF TAXES

 2. Local tax - tax imposed by the municipal or local

government
Examples:
 a. Real property tax
 b. Professional tax
 c. Business taxes, fees, and charges
 d. Community Tax
 e. Tax on business and other financial institution
TAXES WITH SIMILAR ITEMS

 Tax refers to the amount imposed by the government for

public purpose.Revenue refers to all income collections of
the government which includes taxes, tariff, licenses, toll,
penalties and others. The amount imposed is tax but the
amount collected is revenue.
TAX VS License fee

 Tax has a broader subject than license. Tax emanates from

taxation power and is Imposed upon any object such as
persons, properties, or privileges to raise revenue.

 License fee emanates from police power and is imposed to

regulate the exercise of a privilege such as the
commencement of a business or a profession.

 Taxes are imposed after the commencement of a business

or profession whereas license fee is imposed before
engagement in those activities. In other words, tax is a post-
activity imposition whereas license is a pre-activity
imposition.
Tax vs. Toll

 Tax is a levy of government; hence, it is a demand of

sovereignty. Toll is a charge for the use of other’s property;
hence, it is a demand of ownership.

 The amount of tax depends upon the needs of the

government, but the amount of toll is dependent upon the
value of the property leased. Both the government and
private entities impose toll, but private entities cannot
 impose taxes.
Tax vs. Debt

 Tax arises from law while debt arises from private Contracts.
 Non-payment of tax leads to imprisonment, but non-payment
of debt does not lead to imprisonment
 Debt can be subject to set-off but tax is not. Debt can be
paid in kind (dacion en pago) but tax is generally payable in
money.
 Tax draws interest only when the taxpayer is delinquent Debt
draws interest when it is so stipulated by the contracting
parties or when the debtor incurs a legal delay.
Tax vs. Special Assessment

 Tax is an amount imposed upon persons, properties,or

privileges.

 Special assessment is levied by the government on lands

adjacent to a public improvement. It is imposed on land only
and is intended to compensate the government for a part of
the cost of the improvement.
Tax vs. Tariff
 Tax is broader than tariff. Tax is an amount imposed upon
persons, privilege, transactions, or properties.

 Tariff is the amount imposed on imported or exported

commodities.
Tax vs. Penalty
 Tax is an amount imposed for the support of the government.
Penalty is an amount imposed to discourage an act.

 Penalty may be imposed by both the government and private

individuals. It may arise both from law or contract whereas
tax arises from law.
TAX SYSTEM
 The tax system refers to the methods or schemes of
imposing, assessing, and collecting taxes. It includes all the
tax laws and regulations, the means of their enforcement,
and the government offices, bureaus and withholding agents
which are part of the machineries of the government in tax
collection.

 The Philippine tax system is divided into two:

 A. the national tax system and
 B. the local tax system.
Types of Tax Systems According to
Imposition
 1. Progressive - employed in the taxation of income of
individuals, and transfers of properties by individuals

 2. Proportional - employed in taxation of corporate income

and business

 3. Regressive - not employed in the Philippines

Types of Tax System According to Impact
 1. Progressive system- A progressive tax system is one
that emphasizes direct taxes. A direct tax cannot be shifted.
Hence, it encourages economic efficiency as it leaves no
other resort to taxpayers than to be efficient. This type of tax
system impacts more upon the rich.

 2. Regressive system- A regressive tax system is one that

emphasizes indirect taxes are shifted by businesses to
consumer; hence the Impact of taxation rest upon the bottom
end of the society. In effect a regressive tax system is anti-
poor. It is widely believed that despite the Constitutional
guarantee of a progressive taxation, the Philippines has a
dominantly regressive due to the prevalence of business
taxes
TAX COLLECTION SYSTEMS
 1. Withholding system - Under this collection system, the
payor of the income withholds or deducts the tax on the
income before releasing the same to the payee and remits
the same to the government. The following are the
withholding taxes collected under this system a.
 a. Withholding tax on compensation -a tax withheld by the
employer from payments of compensation income to
employees
 b. Expanded withholding tax- a withholding tax prescribed
on certain income payments and is creditable against the
income tax due of the payee for the taxable quarter or year
in which the particular income was earned.
TAX COLLECTION SYSTEMS
 c. Final withholding tax – a kind of withholding tax which is
prescribed on certain income payments and is not creditable
against any income tax due of the payee for the taxable year
 d. Withholding tax on government payments –the tax
withheld by the national government agencies and
instrumentalities including government –owned and
controlled corporations on their payments to taxpayers,
suppliers, or payees.
TAX COLLECTION SYSTEMS
 2. Voluntary compliance system - Under this collection
system, the taxpayer himself determines his income, reports the
same through income tax returns and pays the tax to the
government. This system is also referred to as the
 "Self-assessment method." A portion of the tax due payable
herein may have been withheld under the withholding system,
such as:
 a. Withholding tax on compensation by compensation earners
 b. Expanded withholding tax by taxpayer engaged in business or
exercise of profession
 The taxes withheld are treated as tax credit (deduction) against
the taxpayer in the income tax return. The taxpayer
 excess the tax due of it for due after such credit or claim refund
or tax credit any balance still tax withheld.
TAX COLLECTION SYSTEMS
 3. Assessment or enforcement system - Under this
collection system, the government identifies non -compliant
taxpayers, assesses their tax dues and penalties, and
enforces collections by coercive means such as summary
proceeding or judicial proceedings when necessary.
PRINCIPLES OF A SOUND TAX SYSTEM
 According to Adam Smith, governments should adhere to
certain principles or canons to evolve a sound tax system:
 1. Fiscal adequacy
 2. Theoretical justice
 3. Administrative feasibility
PRINCIPLES OF A SOUND TAX SYSTEM

Fiscal adequacy
requires that the sources of government funds must be
sufficient to cover government costs. The government must not
incur a deficit. A budget deficit paralyzes the government's
ability to deliver the essential public services to the people.
Hence, taxes should increase in response to increase in
government spending.
PRINCIPLES OF A SOUND TAX SYSTEM

Theoretical justice
Theoretical justice or suggests that taxation should consider the
taxpayer's ability to pay. It also suggests that the exercise of
taxation should not be oppressive, unjust, or confiscatory.
PRINCIPLES OF A SOUND TAX SYSTEM

Administrative feasibility
Administrative feasibility suggests that tax laws should be capable of
efficient and effective administration to encourage compliance.
Government should make it easy for the taxpayer to comply by
avoiding administrative bottlenecks and educing compliance costs.
The following are applications of the principle of administrative
feasibility:
1. E -filing and e -payment of taxes
2. Substituted filing system for employees
3. Final withholding tax on non-resident aliens or corporations
4. Accreditation of authorized agent banks in the filing and payment of
taxes
TAXPAYER CLASSIFICATION FOR PURPOSES
OF TAX ADMINISTRATION

For purposes of effective and efficient tax administration,

taxpayers are classified into large and non -large. Large
taxpayers are under the supervision of the Large Taxpayer
Service (LTS) of the BIR. Non -large taxpayers are under the
supervision of the respective Revenue District Offices (RD0s)
where the business, trade or profession of the taxpayer is
situated.
The following are the criteria for determining
large taxpayers:

A. As to payment
1. Value Added Tax - At least P200,000 per quarter for the
preceding year
2. Excise Tax - At least P1, 000,000 tax paid for the preceding
year
3. Income Tax - At least P1, 000,000 annual income tax paid for
the preceding year
4. Withholding Tax - At least P1,000,000 annual withholding tax
payments or remittances from all types of withholding taxes
5. Percentage tax - At least P200,000 percentage tax paid or
payable per quarter for the preceding year
6. Documentary stamp tax - At least P1,000,000 aggregate
amount per year
The following are the criteria for determining
large taxpayers:

B. As to financial conditions and results of operations

1. Gross receipts or sales - P1,000,000,000 total annual gross
sales or receipts
2. Net worth - P300,000,000 total net worth at the close of each
calendar or fiscal year
3. Gross purchases - P800,000,000 total annual purchases for
the preceding year
4. Top corporate taxpayer listed and published by the Securities
and Exchange Commission
Automatic classification of taxpayers as large
taxpayers
1. All branches of taxpayers under the Large Taxpayer's Service
2. Subsidiaries, affiliates, and entities of conglomerates or group of companies of
a large taxpayer
3. Surviving company in case of merger or consolidation of a large taxpayer
4. A corporation that absorbs the operation or business in case of spin-off of any
large taxpayer S. Corporation with an authorized capitalization of at least
P300,000,000 registered with the SEC
6. Multinational enterprises with an authorized capitalization or assigned capital of
at least P300,000,000
7. Publicly listed corporations
8. Universal, commercial, and foreign banks (the regular business unit and
foreign currency deposit unit shall be considered one taxpayer for purposes of
classifying them as large taxpayer)
9. Corporate taxpayers with at least P100,000,000 authorized capital in banking,
insurance, telecommunication, utilities, petroleum, tobacco, and alcohol industries
10. Corporate taxpayers engaged in the production of metallic minerals