Taxation in the

Philippines
General Principles
 Taxation
 Is the process or means by which the sovereign
(independent state), through its law making body (the
legislature), imposes burdens upon subjects and
objects within its jurisdiction for the purpose of raising
revenues to carry out the legitimate objects of
government.
 It is the exercise of the sovereign power to raise
revenues for the expenses of the government
 3 Inherent Powers of a State
 Power of Taxation – power of the State to raise
revenues to defray the necessary expenses of the
government
 Police Power – general power of the State to enact
laws for the protection of the health, general
welfare, safety and morals of the public
 Power of Eminent Domain – inherent power of the
State to acquire private property for public use
after paying just compensation
 3 Inherent Powers of a State
Point of Difference Taxation Police Power Eminent Domain

Nature Power to enforce Power to make and Power to take private

contributions to raise gov’t implements laws for the property for public use with
funds general welfare just compensation
Exercising Government only Government only May be granted to public
authority service companies or public
utilities
Purpose For the support of the Promotion of general welfare Taking of private property
government through regulation for public use

Persons affected Community or class of Community or class of On an individual as the

individuals individuals owner of personal property
Scope Plenary, comprehensive, Broader in application. Merely a power to take
supreme General power to make and private property for public
implement law use.
 3 Inherent Powers of a State
Point of Difference Taxation Police Power Eminent Domain
Effect Contribution becomes No transfer or title. There There is a transfer of title to
part of public fund may just be a restraint on the property
injurious use of property
Benefits In form of protection and No direct and immediate A direct benefit results in the
Received benefits received from benefit but only such may form of just compensation to
government arise from the maintenance the property owner / market
of healthy economic value of property taken
standard of society
Amount of Unlimited Sufficient to cover cost of the No amount imposed. The
imposition license and the necessary owner is paid equivalent to the
expenses of police FMW of his property.
surveillance and regulation
 Purposes of Taxation
 Primary: Revenue or Fiscal Purpose
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 various activities. A
government can run its administrative set up only
through public funding which is collected in the form of tax.

Examples of taxes imposed for raising revenues are

income and business taxes.
 Purposes of Taxation
 Secondary: Non-revenue Purpose
A. Regulatory purpose – taxation is often
employed as a devise or control by means of which
certain effects or conditions envisioned by the
government may be achieved.
It aims to implement the police power of the state
to promote general welfare.
 Purposes of Taxation
 Secondary: Non-revenue Purpose
A. Compensatory – imposition or levying taxes have
become a powerful instrument for policy makers to use
in attaining some social or economic ends, irrespective
of whether revenue is actually raised or not.
Examples:
1. Granting tax incentives to promote new/pioneer
industries and encourage growth of local industries
2. Protecting local industries through imposition of
tariffs on imported goods.
 Theory and Basis of Taxation
 Theory (Authority): LIFEBLOOD THEORY OR NECESSITY
THEORY
The power of taxation proceeds upon the theory that the
existence of government is a necessity (“necessity
theory”). Taxes are the lifeblood of the government
(Lifeblood Doctrine). The government cannot continue to
perform its function of serving and protecting its people
without means to pay its expenses. The state has the
right to compel all its citizens and property within its limit to
contribute.
 Theory and Basis of Taxation
 Basis of Taxation: BENEFITS RECEIVED or
RECIPROCITY THEORY
The reciprocal duties of protection and support
between the State and its inhabitants. The state collects
taxes from the subjects of taxation in order to perform the
functions of the government. The citizens pay taxes in
order that they may be secured in the enjoyment of the
benefits of organized society.
 Essential Elements of Taxation
a.It is an enforced contribution
b.It is generally payable in money
c.It is proportionate in character
d.It is levied on persons, property or the exercise of a right or
privilege (subjects or objects of taxation)
e.It is levied by the State which has jurisdiction over the
subject or object of taxation
f.It is levied by the law-making body of the State (essentially
legislative in character, the Congress cannot delegate such
power)
g. It is levied for public purpose or purposes
 Aspects of Taxation
 Levying or imposition of the tax – involves the passage
of tax laws which is generally a legislative act.
 Assessment – the process of determining the correct
amount of tax due ***
 Collection and payment – the act of compliance with the
tax law by the taxpayer ***
*** executive or administrative in nature and done by the Bureau of
Internal Revenue
 Scope of the Power of Taxation
A. Comprehensive
It covers persons, businesses, activities, professions, rights and
privileges
B. Unlimited
In the absence of limitations prescribed by law or the constitution,
the power to tax is unlimited and comprehensive.
C. Plenary
As it is complete; BIR may avail of certain remedies ensure
collection of taxes
D. Supreme
 Nature/Characteristics of the State’s
Power to Tax
 It is inherent in sovereignty
 It is legislative in character
only the legislature can impose taxes. It cannot be exercised by
the executive or judicial branches of the government.
 It is subject to Constitutional and Inherent limitations
 Exemptions of government entities, agencies and
instrumentalities
 International Comity
 Limitation of territorial jurisdiction
 Classification of Taxes
1. As to Scope
a. National – imposed by National Government (income
tax, estate tax, donor’s tax, VAT, OPT, DST)
b. Local – imposed by local government units such as
municipal and cities (real estate tax and PTR)
2. As to Subject Matter or Object
a. Personal, poll or capitation – tax of a fixed amount
imposed upon individual whether citizens or not, residing
within a specified territory without regard to their
property or the occupation in which he may be engaged
(ex. Community tax)
 Classification of Taxes
b. Property – tax imposed on property, whether real
or personal
c. Excise – tax imposed upon the performance of an
act, the enjoyment of a privilege or the engaging in
an occupation
3. As to who bears the burden
a. Direct – tax which the taxpayer cannot shift the
burden to another.
b. Indirect tax – the tax burden can be shifted or
passed on to another person
4. As to graduation or rate
a. Proportional – tax based on a fixed percentages of
 Classification of Taxes
b. Progressive or graduated – tax rate increases
as the tax base or bracket increases
c. Regressive – tax rate decreases as the tax
base or bracket increases
5. As to determination of amount
a. Specific – tax of fixed amount imposed by the
head or number, or by standard of weight or
measurement.
b. Ad valorem– tax of fixed proportion of the
value of the property with respect to which the tax
is assessed.
 Principles of Sound Tax System
A. Fiscal Adequacy
It is necessary that sources of revenues must be adequate to
meet government expenditures and sustain the level of public services
demanded by citizens and policymakers
B. Theoretical Justice or Equity
The tax burden should be proportionate to the taxpayer’s ability to
pay
C. Administrative Feasibility
A good tax system requires informed stakeholders understand
how taxes are assessed, collected and complied with
 Situs of Taxation
Situs – means the place of taxation. The state may
rightfully levy or collect the tax where the subject being
taxed has a situs under its jurisdiction.
Factors to consider in determining the Situs
 Subject matter – what is being taxed. Person, property, an act or activity
 Nature of tax – or which tax to impose. It may be an income tax, import duty or
real property tax
 Citizenship of taxpayer
 Residence of taxpayer
 Source of income
 Place of excise, business or occupation being taxed
 Examples of Situs of Taxation
 Persons – residence of the taxpayer
 Real property – location of property
 Personal property – location; place of sale or transaction
 Intangible personal property – domicile of the owner
 Income – taxpayer’s residence or citizenship or place where income
was earned
 Business, occupation and transaction – place where the business is
being operated, occupation being practiced and transaction completed
 Gratuitous transfer of property – taxpayer’s residence or citizenship or
location of property
 Tax vs. Toll

Tax Toll

Kind of Demand Demand of sovereignty Demand of ownership

Paid for the support of Paid for the use of

Purpose
government another’s property
Fair return of the cost
No limit – depends on the
Amount of the property or
need of the government
improvement
 Tax vs. Penalty

Tax Penalty

Primarily aimed at raising revenue Designed to regulate conduct

May be imposed by the

May be imposed only by the government or private
individuals or entities
 Tax vs. Special Assessment
Tax Special Assessment

Imposed on Persons, properties, etc Only on Land

Regardless of Public improvement that
Why imposed
improvement benefits the land
Contribution to cost of public
Purpose Support of government
improvement
Exceptional as to time and
When imposed Regular exaction
locality
Basis Necessity Benefits obtained
 Tax vs. License Fee
Tax License Fee

For revenue For regulation

Exercise of Taxing power Exercise of police power
Amount is limited to the necessary
Generally no limit
expenses of regulation
Persons, property and privilege Right to exercise a privilege

An enforced contribution assesses by

Failure to pay license fee makes
sovereign authority to defray public
the act or business illegal
expenses
 Tax vs. Debt
Tax Debt
Based on law Based on contract

Payable in money May be paid in kind

Generally not subject to May be the subject of

compensation / set-off compensation / set-off
Imprisonment is sanction for non-
No imprisonment for non-payment
payment
Does not draw interest except Draw interest when stipulated or
only when delinquent when of prescription default
 Tax vs. Customs Duty

Tax Customs Duty

More comprehensive
Coverage Kind of tax
than customs duty

Goods exported from or

Object Persons, property, etc
imported into a country