CHAPTER 1: FUNDAMENTALS OF TAXATION  President – he/she is only allowed to

make/change laws about tariffs or import

Taxation – inherent state power, legislative process, quotas.
and cost-allocation process
 DOF or BIR – issuances
INHERENT STATE POWER
4. Exemption of Government - government
 Inherent means “in-born/automatic,” meaning that officials are exempted from paying taxes,
once there is a state it already comes with taxation including SSS, GSIS, PhilHealth, PAG-IBIG, and
(kambal). Local Water District, as long as their function is
 Taxation does not need a constitution (most governmental. Once they profit from non-
powerful law) to have power, it is only for the governmental functions, they are required to
limitations. pay taxes.
5. Territoriality/Situs (place of taxation) – a
Three (3) Inherent Powers state can only collect taxes from its jurisdiction.
1. Taxation – to raise revenue CONSTITUTIONAL LIMITATIONS
2. Police power – they regulate the society to have
welfare and peace 1. Due Process - The government can't take
3. Eminent Domain – the government can get a away your life, freedom, or property without
person’s private property for public use as long as fair legal procedures. Taxes must be fair
they pay just compensation (FMV of property) and lawful (Substantive). Taxpayers
should be notified and given a chance to
argue their case (Procedural).
LEGISLATIVE IN NATURE 2. Equal Protection - Everyone must be
treated equally under the law. However,
It is called legislative because the law is needed to
laws can treat people differently if there are
implement taxation.
valid reasons.
 Legislative – the one who makes the law 3. Uniformity in Taxation - Taxes should be
(Senates and the House of Representatives) consistent across similar situations and
 Executive – the ones who execute/take action on places.
the law (President, DOF, BIR) 4. Progressive Taxation - Taxes should be
 Judiciary – the people who decide whether the law based on your ability to pay. Higher earners
is right or wrong and can be implemented (Court of should pay more.
Tax Appeals and Supreme Court) 5. No Jail for Debt - You can't be jailed for
not paying debts or poll taxes, but other
unpaid taxes can lead to imprisonment
COST – ALLOCATION PROCESS (fraud/estafa).
6. Non-impairment of the obligations of
 This is where the government's cost is allocated to contract The government can't break or
and for the people. change contracts without agreement from
 The primary purpose of taxation is to raise revenue. all parties.
How is the cost allocated? 7. Free-worship clause - The government
can't make laws favoring or discriminating
 Benefit Received Theory against any religion. Churches shouldn’t be
- The people receive protection or service from the taxed for their religious activities.
government so they must pay through taxes. 8. Property Tax Exemptions - Properties
 Ability to Pay Theory used for religious, charitable, or educational
purposes are exempt from property taxes.
- The tax that a person must pay depends on their
ability to pay. 9. Tax Exemption for Educational
Institutions - profit educational institutions
- Low income: low tax/exempted from tax
don’t pay taxes on their income or property
- High income: high tax
if used for educational purposes.
10. No Public Funds for Religion - Public
LIMITATIONS OF TAXATION money can’t be used to support any
religion, except in specific cases like for
1. Inherent – it is an automatic rule and no need to military or government institutions.
be written 11. Spending Government Money -
2. Constitutional – it is in the law Government money can only be spent if a
law allows it.
INHERENT LIMITATIONS (PINET)
12. Tax Exemption Laws - A majority of
1. Public Purpose – the government should use the Congress members must agree to pass any
tax for the public purpose only. law that grants tax exemptions.
2. International Comity – the countries have an 13. Special Tax Funds - Taxes collected for a
agreement that all countries are equal. So as a specific purpose must be used only for that
“respect,” they must not collect taxes from other purpose. If the purpose is done, leftover
countries. money goes to the general government
funds.
3. Non-delegation of the LEGIS to tax – as a
general rule, the legislative are not allowed to give 14. President’s Veto Power - The President
their rights to other branches in making laws about can reject specific parts of a bill related to
tax except: money, but it won’t affect the rest of the
bill.
 Local Government Unit – they are allowed to 15. Supreme Court Review - The Supreme
create law within their local government as long Court can review tax cases and other legal
as it does not contradict the law. issues.
 16. Tax Bills - Bills related to taxes must start in 2. As to Who Bears the Burden (Incidence)
the House of Representatives, but the Senate  Direct Tax (Statutory Taxpayer)– the
can suggest changes. person who is obliged to pay by the law
17. Local Government Taxation - Local (Ex: Seller)
governments can create their taxes, but they  Indirect Tax (Economic Taxpayer) – the
must follow the rules set by Congress. one who shoulders the amount (Ex:
Customer – VAT)

3. According to the Determination of Amount

 Specific Tax – sin tax/fixed tax
(ex: 50 per stick of cig)
 Ad Valorem Tax – percentage of a
CHAPTER 2: FUNDAMENTALS OF TAXATION PT. 2 value (ex: income tax, donor tax, and
estate tax)
STAGES OF TAXATION

1. Levying (Imposition) 4. As to Purpose

- The legislative branch makes the law.  Fiscal/Revenue Tax – main purpose of tax
- Impose or enact tax laws.  Regulatory Tax – to regulate or to achieve
economic goals
2. Assessment and Collection  Sumptuary – other purposes
- Administer the tax system in the country (BIR)
- Assessment: Proper Tax (How is the tax being 5. According to Jurisdiction
computed?)  National Tax – imposed by the National
- Collection: Receipt of the amount of taxes Government (Congress and VIR)
(Collection) National Taxes – VOIDEED
PRINCIPLE OF A SOUND TAX SYSTEM (FAT)  Value Added Tax – businesses
1. Fiscal Adequacy (sapat na pera) – taxes should  Other Percentage Tac – businesses
be enough/sufficient to meet the needs of the  Income Tax – tax from your income
government (Life Blood Doctrine).  Donor’s Tax – tax when you donated
2. Administrative Feasibility – the tax system  Excise Tax – a tax on alcohol, tobacco, and
process must be easy and convenient for the cigarettes (harmful to the environment)
government and taxpayers (Online payment)  Estate Tax - mana
3. Theoretical Justice – the tax system must be  Documentary Stamp Tax – legal documents
based on the taxpayer's ability to pay
(Progressive – Ability to Pay Theory).  Local Tax – imposed by the local
government units
Note: If the principle of theoretical justice is violated by - Sanggunian: legislative body of the
the government, then they also violate the LGU
Constitution. - Treasurer: executive body of the LGU

TAX LAWS 6. According to Rate

 Proportional/Flat Rate – fixed
 CIVIL in nature – its purpose is to raise revenue
rate
and not to punish crime.
 Progressive Rate – as the tax
 NOT penal (punishable) NOR political (it’s for
based grows the tax rate increases (Income
civilians, not politicians)
Tax)
 Prospective – its effectivity is from the present
 Regressive Rate – tax rate
(date of effectivity) to the future unless the law
increases as the tax base decreases (and
provides retrospectively.
vice versa)
 If there is a conflict between PFRS and the Tax
Code, the latter will prevail because it is the law.

HOW TO INTERPRET TAX LAWS?

1. The law is clear – interpret it in its literal

meaning.
2. The law is unclear
 Tax Laws: interpret it against the government
(burden) and in favor of the taxpayer (Due Process
– they must be notified).
 Tax Exemption Law: interpret it against the
taxpayer (burden) and in favor of the government.
In general, we are all required to pay taxes, so the
taxpayer must prove they are exempted from it
(Life Blood Doctrine).

Note: Double Taxation is NOT CONSTITUTIONAL but

disfavored by law (Except if it’s Direct DT, but if it’s
INDIRECT DT then it is legal).

TAXES

1. According to Subject Matter

 Personal – person or individual
 Property Tax – real or personal property
 Excise/Privilege – activities