INCOME TAXATION c.

A lower amount of deduction is

preferred when a claimable
Taxation can be defined as: expense is subject to limit.
 State power – inherent power of the State to d. A higher tax base is preferred
enforce proportional contribution from its when the tax object has multiple
subjects for public purpose. tax bases.
 Legislative process – process of levying
taxes by the legislature of the State to The Inherent Power of the State
enforce proportional contribution from its  Taxation power – power of the State to
subjects for public purpose. enforce proportional contribution from its
 Mode of government cost distribution – subjects to sustain itself.
mode by which the State allocates its costs  Police power – general power of the State to
or burden to its subjects who are benefited enact laws to protect the well-being of the
by spending. people.
 Eminent domain – power of the State to
The Theory of Taxation – is the government’s take private property for public use after
necessity for funding. A government cannot exist paying just compensation.
without a system of funding.
Two-fold obligation of Taxpayers:
The Basic of Taxation – mutuality of support  Filing of returns and payment of taxes
between the people and the government.  Withholding of taxes on expenses and its
remittance to the government
Theories of Cost Allocation
 Benefit received theory – presupposes that Comparison of the 3 Powers of the State
the more benefit one receives from the Similarities of the 3 Powers of the State
government, the more taxes he should pay.
 Ability to pay theory – presupposes that Scope of the Taxation Power
taxation should also consider the taxpayer’s - widely regarded as comprehensive,
ability to pay. Taxpayers are required to plenary, unlimited and supreme.
contribute based on their relative capacity to Limitations of the Taxation Power
sacrifice for the support of the government.  Inherent Limitations
1. Territoriality of taxation
Aspects of the Ability to Pay Theory 2. International comity
 Vertical equity (Gross concept) – proposes 3. Public purpose
that the extent of one’s ability to pay is 4. Exemption of the government
directly proportional to the level of his tax 5. Non-delegation of the taxing power
base.  Constitutional Limitations
 Horizontal equity (Net concept) – requires 1. Due process of law
consideration of the particular circumstances 2. Equal protection of the law
of the taxpayer. 3. Uniformity rule in taxation
4. Progressive system of taxation
The Lifeblood Doctrine 5. Non-imprisonment for non-payment of
- Taxes are the lifeblood of the debt or poll tax
government. 6. Non-impairment of obligation and
contract
Implication of the lifeblood doctrine in taxation: 7. Free worship rule
1. Tax is imposed even in the absence of 8. Exemption of religious or charitable
Constitutional grant. entities, non-profit cemeteries, churches
2. Claims for tax exemption are construed and mosques from property taxes
against taxpayers. 9. Non-appropriation of public funds or
3. The government reserves the right to choose property for the benefit of any church,
the objects of taxation. sect or system of religion
4. The courts are not allowed to interfere with 10. Exemption from taxes of the revenues
the collection of taxes. and assets of non-profit, non-stock
5. In income taxation: educational institutions
a. Income received in advance is 11. Concurrence of a majority of all
taxable upon receipt members of Congress for the passage of
b. Deduction for capital a law granting tax exemption
expenditures and prepayments is 12. Non-diversification of tax collections
not allowed as it effectively 13. Non-delegation of the power of the
defers the collection of income taxation
tax.
 14. Non-impairment of the jurisdiction of  Non-assignment of taxes – Tax
the Supreme Court to review tax cases obligations cannot be assigned or
15. The requirement that appropriations, transferred to another entity by contract
revenue, or tariff bills shall originate  Imprescriptibility in taxation – The
exclusively in the House of government’s right to collect taxes
Representatives cannot be prescribed unless the law so
16. The delegation of taxing power to local provides.
government units  Doctrine of estoppel – Government is
not subject to estoppel
Stages of the Exercise of the Taxation Power  Judicial non-interference – Courts are
 Levy or imposition – enactment of a tax law not allowed to issue injunction against
by Congress and is called impact of taxation. the government pursuit to collect tax.
It is also referred as legislative of taxation.  Strict Construction of Tax law –
 Assessment and collection – referred to as “Taxation is the rule, exemption is the
incidence of taxation or the administrative exception”
act of taxation.  Vague tax laws are construed
against the government in favor
Two bodies of Congress of the taxpayers
 The House of Representatives  Vague exemption laws are
 The Senate construed against the taxpayers
in favor of the government
Matters of legislative discretion in the exercise of
taxation Double Taxation
 Determining the object of taxation - occurs when the same taxpayer is taxed
 Setting the tax rate or amount to be collected twice by the same tax jurisdiction for the
 Determining the purpose for the levy which same thing
must be public use
 Kind of tax to be imposed Elements of Double Taxation
 Apportionment of the tax between national  Primary elements: Same object
and local government  Secondary elements
 Situs of taxation  Same type of tax
 Method of collection  Same purpose of tax
 Same taxing jurisdiction
Situs of Taxation  Same tax period
- Situs is the place of taxation
- Serve as frames of reference Types of Double Taxation
 Direct Double Taxation – occurs when all
Examples of Situs Rules the elements of double taxation exist for
 Business tax situs – subject to tax where the both impositions
business is conducted  Indirect Double Taxation – occurs when at
 Income tax situs on services – service fees least one of the secondary elements of
are subject to tax where they are rendered double taxation is not common for both
 Income tax situs on sale of goods – gains impositions
on sale are subject to tax in the place of sale
 Property tax situs – properties are taxable in
their location
 Personal tax situs – persons are taxable in
their place of residence How can double taxation be minimized?
 Provision of tax exemption
Other Fundamental Doctrines in Taxation  Allowing foreign tax credit
 Marshall Doctrine – “the power to tax  Allowing reciprocal tax treatment
involves the power to destroy”  Entering into treaties or bilateral agreements
 Holme’s Doctrine – “taxation power is
not the power to destroy while the court Escapes from Taxation – means available to
sits” taxpayers to limit or even impact of taxation
 Prospectivity of tax law – Tax law are
generally prospective in operation; law Categories of Escapes from Taxation
that retroacts are prohibited by the A. Those that result to loss of government
Constitution revenue
 Non-compensation or set-off – Taxes are  Tax evasion – known as tax dodging;
not subject to automatic set-off or act or trick that tends to illegally
compensation reduce or avoid payment of tax
  Tax avoidance – known as tax
minimization; act or trick that
reduces or totally escapes taxes by
any legally permissible means
 Tax exemption – known as tax
holiday; immunity or privilege or
freedom from being subject to a tax

B. Those that do not result to loss of

government revenue
 Shifting – transferring tax burden to
other taxpayers
 Forward shifting – follows the
normal flow of distribution;
common with essential
commodities
 Backward shifting – common
with non-essential commodities
 Onward shifting – exhibits
forward or backward shifting
 Capitalization – adjustment of the value
of an asset caused by changes in tax
rates
 Transformation – elimination of wastes
or losses of the taxpayer

Tax Amnesty
- General pardon granted by the
government for erring taxpayers
- Absolute forgiveness or waiver by the
government on its right to collect and is
retrospective in application

Tax Condonation
- Forgiveness of the tax obligation of a
certain taxpayer under certain justifiable
grounds
- Referred as tax remission