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MSJG TAX 1 Chap 1

Mar Sean Jan Gabiosa


Chapter Notes
Income Taxation 7th edition Valencia and Roxas
Chapter 1 General Principles and Concepts of Taxation
Inherent powers of the state are police power, eminent domain, taxation power.
Taxation is a: Power to accumulate revenue from its inhabitants
Process or act - imposing a charge by governmental authority
Means in order to support its existence and carry out its legitimate
objectives
Similarities of all inherent powers are: inherent; necessary attributes; interference with
private rights and property; legislative in nature; presupposes equivalent compensation;
and provisions in the Constitution are just limitations on the exercise of these powers.
Nature of tax:
a. Inherent power of sovereignty as an element of state under
sovereignty.
b. Essentially a legislative function- Congress power comprises the
following: Subjects of taxation; apportionment of tax; situs of taxation;
and method of collection.
Non-delegation of legislative power to tax - the power to make tax laws
cannot be delegated to other branches of the government.
c. For public purpose
d. Territorial in Operation enforceable only within its territorial limits,
unless there is Privity of Relationships. International Comity is the
courteous recognition by one nation to the laws and institutions of
another.
e. Tax Exemption of the Government
f. Strongest among the Inherent Powers
Without taxation, the other inherent powers would be paralyzed.
Basis of taxation: Principle of Necessity; Principle of Benefits-Received or BenefitsProtection Theory.
Benefit-received principle does not mean that those who are only able to pay taxes can
enjoy the privileges; and the government renders no special benefit to particular person or
property.
Purpose of Taxation
a. Revenue Purpose
b. Regulatory
c. Compensatory
Objects of taxation
a. Persons, whether natural or juridical
b. Properties
c. Excise Objects, such as transaction rights, privilege, and interest
(advantage).
Without constitutional limitations, tax is unlimited in its range.
power to tax is not the power to destroy while the Supreme Court sits.
Constitutional Limitation the tax law is of no legal force when it violates the Constitution.
Due process of the law should be substantive and procedural.
There is denial of equal protection of laws if there is discrimination in the implementation
of tax laws.

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MSJG TAX 1 Chap 1

Progressive system of taxation shall give emphasis on the ability-to-pay principle of


taxation.
The state cannot impair contractual obligation which it has assumed.
Other branches have no power to promulgate bills enacted to revenue laws.
Veto powers refers to the Executives power to refuse to sign into law a bill that has been
passed by a legislature.
No law granting any tax exemption shall be passed without the concurrence of a majority
of all members of the congress.
Charitable, religious and educational purposes shall be exempt from taxation. But only to
real property taxes and not to transfer taxes.
The principle of the separation of the church and state further stress that no public money
shall ever be appropriate for religious purposes.
Supreme Court shall have the power to review, (Power of Judicial Review) the
interpretation and application of tax laws in all tax cases.
No imprisonment for non-payment of poll tax. Poll tax means imposed on a person as a
resident of a territory. Nonpayment of other taxes would not be contrary to the
Constitution.
Special funds are taxes levied from a special purpose, and should be used for its intended
purpose. Any balance shall be transferred to general funds.
Levy refers to the tax policy of the State. Tax law shall determine the kind, subjects,
objective, rate and base of tax, and the manner of imposing the taxation.
Generally, taxes are self-assessing (the taxpayer can compute his taxes), but technically,
assessment, means appraisal and valuation of the subjects of taxation.
Payment of tax is a process. Tax collection is the process of obtaining payment of tax.
Impact of taxation (levy and assesment) and Incidence of taxation (tax payment or
collection)
Tax administration } Tax assessment and Collection
Tax Policy } Passage of Tax law
Principles of Sound Tax System
Nature of Tax policy }
a. Fiscal Adequacy Balance budget where revenue
equals expenditures
}
b. Equality or Theoretical Justice he who receives more
should give more
Nature of Tax Administration} c. Administrative Feasibility tax laws must be
convenient.
Tax law commences prospectively However, for civil penalties, tax laws may be applied
retrospectively.
Taxes in general are not cancelable.
The doctrine of escape from taxation permits the taxpayer to minimize payment by
lawful means.
Failure to declare true income derived from business for 2 years is an indication of tax
evasion.
Tax avoidance is tax minimization. And it is valid if used in good faith.
Taxpayers have the option to pay lower tax rate in some transactions permitted by Tax
laws.
Shifting is the transfer off tax burden to another.

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MSJG TAX 1 Chap 1

Capitalization is the reduction of price in the part of seller while the buyer pays for the
tax.
Taxes are not subject (so with exceptions) to set-off or legal compensation because the
taxpayer and the government are not creditor/debtor of each other.
Tax is power to build not power to destroy

Nature of Tax

Citizenship

Within the
Phil

Outside the
Phil

Income Tax

Filipino - Resident
Filipino Non
Resident
Alien Resident
Alien Non
Resident
Filipino - Resident
Filipino Non
Resident
Alien Resident
Alien Non
Resident

Yes
Yes

Yes
No

Yes
Yes

No
No

Yes
Yes

Yes
Yes

Yes
Yes

Yes
No

Yes

No

Transfer Tax

Business Tax

Taxes are obligations created by law


Taxes are generally personal
Essential characteristics
Enforced contribution
Imposed by the legislative body
Payable in form of money
Imposed for the purpose of raising revenue
Used for a public purpose
Enforced on some persons, properties or rights
Commonly required to be paid at regular intervals
Imposed by the sovereign state within its jurisdiction
Classifications of taxes
As to Purpose
Revenue or Fiscal
Regulatory, Special or Sumptuary
Compensatory
As to Object or Subject Matter
Personal, Poll or Capitation

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As to
As to
As to
As to

MSJG TAX 1 Chap 1


Property
Excise
Determination of amount
Ad Valorem
- fixed rate in proportion to the value
Specific
who bears the burden
Direct
- non-transferable
Indirect
- transferable
Scope of Authority Collecting the Tax
National
Local or Municipal
Rate or Graduation
Proportional/Flat rate
- fixed percentage
Progressive/Graduated Rate
- tax rate increases as tax base

increases
Regressive Rate

- rate of tax decreases as the tax base

increases
Digessive Rate
increase in tax base
Mixed Tax

- increase in tax rate is not proportionate to


- combination of tax rates

Other Charges/Fees
Penalty
-violation of law or acts
Revenue
-all funds or income derived by government.
Debt
-is an obligation to pay
Toll
-compensation for the use of somebody else property
License Fee
-contribution enforced primarily to restrain and regulate
Special Assessment
-for the purpose of reimbursing itself
Customs duties
-all custom duties are taxes but not the opposite
Subsidy
-a subsidy is not a tax
Tariff
-imposed on imported goods
Margin fee
-tax on foreign exchange
Tax Law Republic Act 8424
The Comprehensive Tax Reform of the Philippines
National Internal Revenue Code of 1997
Tax Code
Tax Code is a special law which means it prevails over general law like Civil Code.
Tax law is civil in nature (neither political nor penal)
Interpretation and Application of Tax Laws
Principle of Pari Materia tax law should be with reference to other tax legislations.
Tax burden is not presumed or not to be extended by implication.
Doubts should be resolved liberally in favor of the taxpayer
Tax exemptions must be clearly expressed by the law, not mere implications.
Prospective application
Tax laws prevail over civil laws
Overrule hierarchy

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MSJG TAX 1 Chap 1

New BIR commissioner over Old BIR commissioner


Dept. of Finance regulations over particular section of the Tax Code
Court over Revenue Regulations
Sources of Tax Law
Constitution
Statutes
Present Tax Statute R.A. 8424/ NIRC effective Jan 1, 1998 amended per R.A.
9337(The Vat Reform Law)
Judicial Decisions
Executive Order
Tax treaties
Revenue Regulations by the DOF
BIR Memorandum Circulars and Bureau of Customs Memorandum Orders
BIR Rulings
Local Tax Ordinance