INCOME

TAXATION
Fundamental Principles
 • Police Power – power of the state for promoting public welfare by
restraining and regulating the use of liberty and property.
• Power of Eminent Domain – It is the power of the State to acquire
private property for public purpose upon payment of just
compensation.
• Power of Taxation – It is the power of the State to raise revenue to
defray the necessary expenses of the government.

Inherent Powers of the State

 Similarities among the three inherent powers of the
State:
– Inherent in the State
– Independently of the constitution
– Ways by which the State interfere with private rights and
property
– Legislative in nature and character
– Presuppose an equivalent compensation received by the
persons affected.

Inherent Powers of the State

 Primary: Revenue or Fiscal Secondary: Regulatory
• Provide funds or property • Promote general welfare
with which to promote the
• Reduction of social
general welfare and the
inequality
protection of its citizens
and to enable it to finance • Economic growth
its multifarious activities.

Purposes of Taxation

BASIS OF TAXATION
• Lifeblood theory or Necessity
Theory
• Benefit Received Theory or
Reciprocity Theory
ELEMENTS OF SOUND TAX
SYSTEM
• Fiscal Adequacy
• Theoretical Justice or Equity
• Administrative Feasibility

POWER OF TAXATION
 Nature of Power to Tax
• Inherent in sovereignty
• Legislative in character
• Non-delegation of power to tax
• Exemption of government entities, agencies and instrumentalities
• International comity
• Territorial in operation
• Strongest amount the inherent powers of the State
• Subject to inherent and constitutional limitations

POWER OF TAXATION
 Inherent Limitations
• Purpose must be public in nature
• Prohibition against delegation of the taxing power
• Territorial limitation

POWER OF TAXATION
 Constitutional Limitations church

1. Due process of law 8. Prohibition against taxation of religious,

charitable and educational entities.
2. Equal protection of laws
9. Prohibition against taxation of non-stock, non-
3. Rule of uniformity and equity in taxation profit educational institutions

4. Prohibition against imprisonment for non- 10. Majority of all member of the Congress in
payment of poll tax granting tax exemption

5. Prohibition against impairment of obligations of 11. President’s veto power

contracts
12. Non-impairment of Supreme Court’s jurisdiction
6. Prohibition against infringement of religious
freedom 13. Infringement of press freedom

7. Prohibition against appropriation of proceeds of

taxation for the use, benefit, or support of any

POWER OF TAXATION
 LEVY ASSESSMENT COLLECTION

ASPECT OF TAXATION
 • Enforced contribution
• Generally payable in money
• Proportionate in character
• It is levied on persons, property, or the exercise of right or privilege.
• Levied by the law-making body
• Levied for public purpose

ESSENTIAL ELEMENTS OF TAX

 • As to scope • As to determination graduated
– National of amount – Regressive
– Local – Ad Valorem
• As to taxing
– Specific
• As to subject authority
– Personal, poll, capital • As to purpose – National
– Property – Primary – Local
– Excise – Secondary

• As to who bears the • As to graduation or

burden rate
– Direct – Proportional
– Indirect – Progressive or
CLASSIFICATION OF TAXES
 • Shifting
• Transformation
• Evasion
• Tax Avoidance
• Exemption

TAX MINIMIZATION