NOTRE DAME – SIENA COLLEGE OF POLOMOLOK

Brgy. Poblacion, Polomolok, South Cotabato

Tel No. (083) 500-8414
SERVICE EDUCATION DEPARTMENT
Passion for Truth and Compassion for Humanity

LEARNING MODULE IN INCOME TAXATION

First Semester, AY 2024-2025

LEARNING MODULE IN BAC 3: INCOME TAXATION

Module No. 1 Inclusive Dates August 10-17, 2024
Reference:
Tabag, E.D., Garcia, E.J. (2019) Income Taxation with Special Topics in Taxation based on NIRC as amended under RA10963 – Tax Reform for Acceleration and Inclusion Act (TRAIN Law)
Adopted from: Amor A. Ilagan, Eunize E. Magsino, Daniel John F. Falo (Batangas State University)
MODULE 1
Fundamental Principles of Taxation

Introduction
This module introduces the fundamentals principles of income taxation and theories that underlie our system of taxation in the Philippines. The main topics that will be
covered include: general principles of taxation, inherent power of the state, purposes of taxation, theory and basis of taxation, scope of the power of taxation, essential
elements of a tax, aspects of taxation, nature and characteristics of the state’s power to tax, classification of taxes, elements of sound tax
system, limitation on the State’s power to tax, situs of taxation, tax distinguished from other terms or imposts, double taxation, means of avoiding or minimizing the
burden taxation, principles governing tax exemptions, sources of tax laws and application of tax laws. This will provide students a clear perspective of the tax domain in
our country using TRAIN Law.

Taxation Defined
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 the government. In simple terms, it is an act of levying a tax to apportion
the cost of government among those who, in some measure, are privileged to enjoy its benefits and must therefore bear its burdens. It is a power inherent in every sovereign
state being essential to the existence of every government. Hence, even if not mentioned in the constitution, the state can still exercise the power. Therefore, any
constitutional provision regarding the state’s power to tax should not be interpreted as a grant of power, but merely a limitation on the state’s power to tax. Taxes, on the
other hand, are the enforced proportional contributions or charges 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.

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The Three (3) Inherent Powers of the State
1. Police Power. It is the power of the state promoting public welfare by restraining and regulating the use of liberty and property. It may be exercised only by the
government. The property taken in the exercise of this power is destroyed because it is noxious or intended for noxious purposes.
2. Power of taxation. It is the power by which the State raises revenue to defray the necessary expenses of the government.
3. Power of Eminent Domain. It is the power of the state to acquire private property for the public purpose upon payment of just compensation.

Similarities among the three (3) inherent powers

1. They are inherent in the state.
2. They exist independently of the constitution although the conditions for their exercise may be prescribed by the constitution.
3. Ways by which the State interferes with private rights and property.
4. Legislative in nature and character.
5. Presuppose an equivalent compensation received, directly or indirectly, by the persons affected.

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PURPOSES OF TAXATION

1. Primary: Revenue or Fiscal Purpose

- to provide funds or property with which to promote general welfare and protection of its citizens

2. Secondary: Regulatory Purpose

- employed as a device for regulation or control
Effects:
● Promotion of General Welfare
● Reduction of Social Inequality
● Economic Growth

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THEORY and BASIS of TAXATION

1. Theory (Authority)
a. Necessity Theory
● to preserve the state’s sovereignty
● a means to give for protection and facilities
b. Lifeblood Theory
● used to continue to perform the government’s basic function of serving and protecting its people
● give tangible and intangible benefits

2. Basis of Taxation: BENEFITS RECEIVED OR RECIPROCITY THEORY

The basis is the reciprocal duties of protection and support between the state and its inhabitants. The state collects taxes from the subjects of taxation in order that it
may be able to perform the functions of government. The citizens, on the other hand, pay taxes in order that they may be secured in the enjoyment of the benefits of
organized society. This theory spawned the Doctrine of Symbiotic Relationship which means taxes are what we pay for a civilized society. (Commissioner v. Algue)

MANIFESTATION OF LIFEBLOOD THEORY

1. Rule of “No Estoppel against the government”
2. Collection of taxes cannot be stopped by injunction
● Court of Tax Appeals – have the authority to grant injunction to restrain collection of internal revenue tax, fee or charge
3. Taxes could not be the subject of compensation or set-off
● Tax is compulsory not bargain.
4. Right to select objects (subjects) of taxation
a. Subject or object to be taxed
b. Purpose of the tax (as long as it is a public purpose)
c. Amount or rate of the tax
d. Kind of tax
e. Apportionment of the tax
f. Situs (place) of taxation
g. Manner, means, and agencies of collection of the tax

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5. A valid tax may result in the destruction of the taxpayer’s property.
● Lawful tax cannot be defeated.
● Bring out the insolvency of the taxpayer
● Forfeiture of property through police power

SCOPE OF THE POWER OF TAXATION

The power of taxation is the most absolute of all the powers of the government.
a) Comprehensive – covers all (persons, businesses, professions, right and privileges)
b) Unlimited – In the absence of limitations provided by the law or the constitution, the power to tax is unlimited and comprehensive.
Its force is so searching to the extent that the courts scarcely venture to declare that it is subject to any restrictions.
c) Plenary – it is complete; BIR may avail of certain remedies to ensure collection of taxes.
d) Supreme – in so far as the selection of the subject of taxation

ESSENTIAL ELEMENTS OF TAX

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 rights.
e) It is levied by the law-making body of the state.
f) It is levied for public purpose.

ASPECTS OF TAXATION
a) Levying or imposition of tax
b) Assessment or determination of the correct amount
c) Collection of tax

NATURE/CHARACTERISTICS of the State’s Power to Tax

1. It is inherent in sovereignty.
The state, having sovereignty can enforce contribution (tax) even in the absence of a constitutional provision because the state has the supreme power to command
and enforce obedience to its will from the people within its jurisdiction.
2. It is legislative in character.
The power to tax (levying or imposition) is peculiarly and exclusively legislative in nature. It cannot be exercised by the executive or judicial branches of the
government.

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EXCEPTIONS TO NON-DELEGATION RULE
a. Delegations as provided for in the 1987 Constitution such as “Delegation to the President” under Section 28 Article VI stating that the Congress may authorize, by law,
the President to fix, within specified limits and subject to such limitations and restrictions as it may impose:
● Tariff rates
● Import and export quotas
● Tonnage and wharfage dues
● Other duties or imposts within the framework of the national development program of the government

b. Delegation to local government units as provided under Section 5, Article X of the Constitution. The power of local government units to impose taxes and fees is
always subject to the limitations which Congress may provide, the former having no inherent power to tax.

c. Delegation to administrative agencies

Certain aspects of the taxing process that are not really legislative in nature are vested in administrative agencies such as:
● Power to value property
● Power to assess and collect taxes
● Power to perform details of computation, appraisement or adjustment

d. It is subject to Constitutional and inherent limitations

3. Exemptions of government entities, agencies and instrumentalities.

Immunity is necessary in order that governmental functions will not be impeded. Otherwise, the government will be taxing itself to raise money for itself. The
following rules shall apply in determining whether or not government entities or agencies are subject to tax:
a. Agencies performing governmental function are tax exempt unless expressly taxed
b. Agencies performing proprietary functions are subject to tax unless expressly exempted
c. GOCCs performing proprietary functions are subject to tax, however the following are granted tax exemptions:
● Government Service Insurance System (GSIS)
● Social Security System (SSS)
● Philippine Health Insurance Corporation (PHIC)
● Philippine Charity Sweepstakes Office (PCSO)
● Local Water Districts (RA 10026)
4. International Comity (Polite arrangements among nations)
5. Limitation of territorial jurisdiction
6. Strongest among the inherent powers of the state

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CLASSIFICATION OF TAXES
1. As to scope:
● National- imposed by the national government
● Local – imposed by the local government

2. As to subject matter or object:

● Personal, poll, or capitation – tax of a fixed amount imposed upon individuals residing within a specified territory.
● Property – tax imposed on property in proportion to its value
● Excise – tax on certain rights and privileges (sin products or imported goods)

3. As to who bears the burden:

● Direct – taxpayer cannot shift to another
● Indirect – indemnify himself at the expense of another

4. As to determination of fixed amount:

● Specific- tax of fixed amount by number, standard of weight, or measurement
● Ad valorem – tax of fixed proportion of the value of the property
5. As to purpose:
● Primary, Fiscal, or Revenue Purpose
● Secondary, Regulatory, Special, or Sumptuary Purpose

6. As to graduation or rate:
● Proportional – tax based on fixed percentages of amount
● Progressive – tax the rate of which increases as the tax base or bracket increases
● Regressive - tax the rate of which decreases as the tax base or bracket increases

7. As to taxing authority:
● National – imposed under National Internal Revenue Code, collected by Bureau of Internal Revenue
● Local – imposed by LGU’s

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ELEMENTS OF SOUND TAX SYSTEM
a. Fiscal Adequacy – sources must be adequate
b. Theoretical Justice or Equity – tax should be proportionate
c. Administrative Feasibility – law must be capable of effective and efficient enforcement

LIMITATIONS ON THE STATE’S POWER TO TAX

1. Inherent Limitations
2. Constitutional Limitations
● Due process of law
● Equal protection of laws
● Rule of uniformity and equity in taxation
A progressive system of taxation means that tax laws shall place emphasis on direct taxes rather than indirect taxes with the ability to pay as the principal criterion.
Regressive tax rates refer to tax rates which decreases as the tax base or bracket decreases. Regressive tax rates should be differentiated from a regressive tax
system of taxation which exists when there are more indirect taxes imposed than direct taxes.
● Prohibition against imprisonment for non-payment of poll tax
● Prohibition against impairment of obligation and contracts
● Prohibition against infringement of religious freedom
● Prohibition against appropriation of proceeds of taxation for the use, benefit or support of any church
● Prohibition against taxation of religious, charitable and educational entities
● Prohibition against taxation of non-stock, non-profit educational institutions
● others:
a. Grant of tax exemption
b. Veto of appropriation, revenue and tariff bills by the President
c. Delegated authority of the President to impose tariff rates, import and export quotas, tonnage and wharfage dues
d. Non-impairment of the Supreme Court jurisdiction
e. Revenue bills shall originate exclusively from the House of Representatives
f. Infringement of press freedom
g. Revocation of tax exemptions

SITUS OF TAXATION
Literally, the situs of taxation means “place of taxation”. It is the state or political unit which has jurisdiction to impose a particular tax. The state where
the subject to be taxed has a situs may rightfully levy and collect the tax. The situs is necessarily in the state which has jurisdiction or which exercises
dominion over the subject in question.

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FACTORS IN DETERMINING THE SITUS OF TAXATION

a. Subject matter ( person, property, or activity)

b. Nature of tax
c. Citizenship
d. Residence of the taxpayer
e. Source of Income
f. Place of excise, business or occupation being taxed

TAX DISTINGUISHED FROM OTHER TERMS OR IMPOSTS

1. Tax versus TOLL

A toll is a sum of money for the use of something, generally applied to consideration which is paid for the use of a road, bridge or the like of a
public nature.

2. Tax versus PENALTY

Penalty is a sanction imposed as a punishment for a violation of law or acts deemed injurious. The violation of tax may give right to imposition of
penalty.

3. Tax versus SPECIAL ASSESSMENT

Special assessment is an enforced proportional contribution from owners of lands for special benefits resulting from public improvements. In
Republic v. Bacolod, a special assessment is a levy on property which derives some special benefits from improvement. Its purpose is to finance
such improvements thus accruing only to the owners thereof, who, after all pay the assessment.
It is not a tax measure intended to raise revenues for the government because the proceeds thereof may be devoted to the specific purpose for which
the assessment was authorized.
Characteristics of Special Assessment
● Levied only on land
● Not a personal liability of the person assessed
● Based wholly on benefits (not necessary)
● Exceptional both as to time and place

4. Tax versus REVENUE

Revenue refers to all funds or income derived by the government, whether from tax or any other source.

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 5. Tax versus SUBSIDY
Subsidy is a pecuniary aid directly granted the government to an individual or private commercial enterprise deemed beneficial to the public.
Subsidy is not a tax although tax may have to be imposed to pay it.

6. Tax versus PERMIT OR LICENSE FEE

Permit or a license fee is a charge imposed under the police power for purposes of regulation.

7. Tax versus DEBT

8. Tax versus CUSTOM DUTIES

Custom duties are taxes imposed exported from or imported into a country.

9. Tax versus TARIFF

Tariff may be used in one of three (3) senses:
● A book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be
paid for the same; or
● The duties payable on goods imported or exported; or
● The system or principle of imposing duties on the importation or exportation of goods.
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 DOUBLE TAXATION
In its strict sense, double taxation referred to is direct duplicate taxation. In its broad sense, double taxation is referred to as indirect double taxation. It extends to
all cases in which there is a burden of two or more impositions.

DIRECT DOUBLE TAXATION means taxing twice:

1. By the same taxing authority, jurisdiction or taxing district
2. For the same purpose
3. In the same year or taxing period
4. Same subject or object
5. Same kind or character of the tax

MEANS OF AVOIDING OR MINIMIZING THE BURDEN OF TAXATION

1. Shifting – the transfer of the burden of tax by the original payer to someone else
2. Transformation – the producer pays the tax and endeavor to recoup himself by improving his process of production
3. Evasion – the use of illegal means to defeat or lessen tax
4. Tax Avoidance – the exploitation of legally permissible alternative tax rates of assessing taxable income to reduce tax liability
5. Exemption – the grant of immunity to particular persons of a particular class
GROUNDS FOR GRANTING TAX EXEMPTION
● May be based on contract
● May be based on some public policy
● May be on grounds of reciprocity or to lessen the rigors of international or multiple taxation

Nature of power to grant tax exemption

● National government. The power to grant tax exemptions is an attribute of sovereignty for the power to prescribe who or what persons or property shall
be
tax implies the power to prescribe who or what persons or property shall not be taxed.

●Local governments. Municipal corporations are clothed with no inherent power to tax or to grants exemptions. But the moment the power to impose a
particular tax is granted, they also have the power to grant exemption therefrom unless forbidden by some provision of the Constitution or law.

KINDS OF EXEMPTION
As to basis :
● Constitutional. Immunities from taxation which originate from the Constitution
● Statutory. Immunities from taxation which emanates from legislation
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 As to form:
● Express. Exemptions expressly granted by statute.
● Implied. When particular persons, property or rights are deemed exempt as they fall outside the scope of the taxing provision itself.
As to extent:
● Total. Connotes absolute immunity.
● Partial. One where a collection of a part of the tax is dispensed with.

Amnesty
It is the general or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of
revenue or tax law. It partakes of an absolute forgiveness or waiver of the government of its right to collect. It is a way to give tax evaders, who
wish to relent or willing to reform a chance to do so. Amnesty involves immunity from all criminal, civil and administrative liabilities from non-
payment of taxes.

6. Capitalization – the reduction in the selling price of income producing property by an amount equal to the capitalized value
7. Avoidance – the tax saving device within the means sanctioned by the law.

SOURCES OF TAX LAWS

1. Constitution
2. National Internal Revenue Code
3. Tariff and Customs Code
4. Local Government Code (Book II)
5. Local tax ordinances/ City or municipal tax codes
6. Tax treaties and international agreements
7. Special Laws
8. Decision of the Supreme Court and the Court of Tax Appeals
9. Revenue rules and regulations and administrative ruling and opinion
Learning Outcomes
At the end of the course, the student could:
1. Demonstrate an extensive knowledge of the nature and concepts of income taxation using TRAIN Law.
2. Explain the government’s inherent power to impose taxes and enforce collection thereof.
3. Correctly demonstrates resolution of tax problems of individuals and corporate taxpayers.
4. Execute skills in resolving income tax problems of individuals and corporations.
Graduate Attributes
o God-centered – manifest self-direction and maturity in one’s relationship with God as one goes through the process of learning
o Truth seeker – value independent and self-directed learning

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 TEACHING-LEARNING ACTIVITY QUIZ:
Part I. True or False. Write only your answer.
TLA No. 1: Concept Mapping.
A concept map is a diagram or graphical tool that visually represents 1. The three fundamental powers of the state may be exercised only by the
relationships between concepts and ideas. government.
2. Taxation is a process or means by which the sovereign, through its law
1.Make a concept map identifying the essential element of tax. making body raises income to defray the expenses of the government.
3. Eminent domain may be exercised even by public service corporations and
public entities.
TLA No. 2: Brainwriting 4. Police power regulates both liberty and property.
Students are given time to come up with their own ideas individually before 5. Taxes are raised to cover the cost of governance.
sharing them out loud or posting them to an online whiteboard or other shared 6. Toll is one of the taxes collected by the government.
platform. Building in space for individual reflection leads to better ideas and less 7. License fees are imposed in the exercise of police power.
groupthink. 8. License fee is imposed to raise revenue.
9. Tax is generally unlimited because it is based on the needs of the State.
1.What is double taxation? 10. The amount imposed in the exercise of police power depends whether the
activity is useful or not.
11. The distinction of a tax from permit or license fee is that a tax is one in
which there is generally no limit on the amount that may be imposed.
2.What is the meaning of public purpose for purposes of taxation? 12. debt , as distinguished from tax may be paid in kind.
13. Special assessment is a tax.
14. Special assessment is imposed on persons, property and property rights.
15. In the exercise of the power of taxation, the State can tax anything at any
time.

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 TEACHING-LEARNING ACTIVITY ANSWER SHEET

NAME: ______________________________________________________ COURSE & YEAR: _______________________

COURSE CODE: ______________________________________________ COURSE TITLE: _________________________
MODULE NUMBER: __________________________________________ DATE OF SUBMISSION: __________________

TLA No. 1: Concept Mapping.

A concept map is a diagram or graphical tool that visually represents relationships between concepts and ideas.

1.Make a concept map identifying the essential element of tax

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TLA No. 2: Brainwriting
Students are given time to come up with their own ideas individually before sharing them out loud or posting them to an online whiteboard or other shared platform.
Building in space for individual reflection leads to better ideas and less groupthink.

1.What is double taxation?

2.What is the meaning of public purpose for purposes of taxation?

QUIZ:

Part I. TRUE OR FALSE

11. ______________________________
1. ________________________________
12. ______________________________
2. ________________________________
13. ______________________________
3. ________________________________
14. ______________________________
4. ________________________________
15. ______________________________
5. ________________________________
6. ________________________________
7. ________________________________
8. ________________________________
9. ________________________________
10. _______________________________

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