INCOME TAXATION

Taxation
the inherent power of the sovereign, exercised through the legislature to impose
burdens upon subjects and objects within its jurisdiction.
It is also the act of levying a tax (the process or means by which the sovereign, through
its law-making body, raises income to defray the necessary expenses of the
government.
Taxes
Enforced proportional contributions from persons and property levied by the law-making
body of the state by virtue of its sovereignty for the support of the government and all
public needs.
Nature of the Power of Taxation
It is inherent in the sovereign hence it may be exercised although it is not expressly
granted by the !onstitution
It is legislative in nature meaning, only the legislature can impose taxes.
It is subject to constitutional and inherent limitations it is not an absolute power that can
be exercised by the legislative anyway it please.
Elements of Tax
It is an enforced contribution " every person, natural or judicial, is compelled to pay taxes,
unless exempted to pay
#enerally payable in money " payment in the form of bonds, or checks is not allowed, unless
otherwise provided.
$roportionate in character " the higher the income, the higher the amount of tax to be paid.
%evied or imposed on persons, property, or exercise of a right or privilege
%evied by the state which has jurisdiction over the subject taxpayer or object of taxation
%evied by the law-making body of the state is the congress.
%evied public purposes " the taxes are used for public purposes (construction of bridges,
roads, etc.&
Purposes of Tax
'evenue or fiscal( the primary purpose of taxation is to provide funds or property with which to
promote the general welfare and the protection of the citi)ens of the government and to enable
it to finance other various activities.
*on-revenue or regulatory " taxation may also be employed for purposes of regulation or
control(
o Imposition on tariffs on imported goods to protect local industries
Entrance of imported goods would not be very easy since it is imposed with
higher tax rates.
o +he adoption of progressively higher tax rates to reduce ine,ualities in wealth and
income- as taxable income increase, the amount of tax to be paid also increases
o +he increase or decrease of taxes to prevent inflations or ward off depressions.
Basic principles of a Sound Tax Sstem
-iscal ade,uacy
o +he source of revenue should be sufficient to meet the demands of public expenditures.
o +he revenues should be capable of expanding or containing annually in response to the
variations of public expenditures.
E,uality or theoretical justice
o +he tax burden should be proportionate to the taxpayer.s ability to pay. +his is called
pay-principle.
/dministrative feasibility
o +ax laws should be reparable of convenient, just and effective administration.
o +he tax should be clear and plain to the taxpayers, capable of enforcement by ade,uate
and well-learned government officials, convenient as to time and manner of payment
and not fully burdensome or discouraging to business activity.
%ife blood or necessity theory
+he life blood theory constitutes the theory of taxation, which proceeds that the
existence of the government is a necessity that the government cannot continue
without the means to pay its expenses this is means that it has the right to compel its
citi)ens and property within its limits to contribute.
0enefit-received principle
/lso called as symbolic relation between state and government.
!imitations on the power of taxation
1. !onstitutional- those expressly found in the constitution or implied from its provisions
!onstitutional %imitations
o 2ue process of law
o E,ual protection of laws
o 'ule of uniformity and e,uity in taxation
o *o imprisonment for non-payment of a poll tax
o *on-impairment of the obligation of contracts
o *on-infringement of religious freedom
o *o appropriation for religious purposes
o Exemption of religious , charitable and educational entities, non-profit cemeteries
and churches from taxes
o Exemption of non-stock, non-profit educational institutions from taxation
o !oncurrence by a majority of all members of congress for the passage of a law
granting tax exemption
o /uthority of the president to veto the particular item or items in a revenue or
tariffs bill
o *on-impairment of the jurisdiction of the 3upreme !ourt in tax cases.
4. Inherent " restricts the power although they are not embodied in the constitution.
Inherent limitations
o $urpose must be public in nature
o $rohibition against delegation of the taxing power (only the congress&
o Exemption of the government entities, agencies and instrumentalities
o International comity
o %imitation of territorial jurisdiction
Extent of the Power to Tax
$ower to 2estroy " should be exercised with caution. i.e clubs, bars etc.
2ouble +axation " taxing twice by the same taxing authority, same district or
jurisdiction, same purpose, same taxing period. It is allowed as long as there is no
violation of the e,ual protection and uniformity clauses of the constitution or any other
constitutional provisions for that matter.
Classification of Taxes
/s to subject matter or object(
$ersonal, poll, capitation " tax are fixed (community tax&
$roperty " tax imposed on property, whether real or personal (real estate tax&
Excise tax- tax imposed upon the performance of an act, enjoyment of privilege, or engaging
in an occupation. /lso called privilege tax (5/+, percentage taxes&
/s to purpose
#eneral, fiscal or revenue " imposed for the general purposes of the government, i.e to raise
revenue for the governmental needs. (income taxes, taxes in business&
3pecial or regulatory " tax imposed for a special purpose, i.e to achieve some social or
economic ends irrespective of whether revenue is actually raised or not. ((tariffs on imported
goods&
/s to scope and authority
*ational " imposed by national government. (national internal revenue taxes, national taxes
imposed by special laws&
6unicipal or local " tax imposed by municipal or public corporations or local government (real
estate tax, taxes on occupations&
/s to determination of account
3pecific " tax of a fixed amount imposed by the head or number or by some standard of weight
or measurement, it re,uires no assessment other than listing or classification of the objects to
be taxed. (cigars, li,uors, etc&
/d valorem " tax fixed proportion of the amount or value of the property with the respect to
which the tax is assessed. (on automobiles and non-essential goods such as jewelry, etc&
/s to who bear the burden
2irect
Indirect
/s to graduation or rate
$roportional
$rogressive
'egressive
Taxes "istin#uished from other Terms
$e%enue " all the funds or income derived by the government, whether from tax or any other source.
In other sense, it refers to the amount collected, while tax refers to the amount imposed.
Internal re%enue " refers to taxes imposed by the legislature
Custom duties