Supplemental Note #1 - General Principles of Taxation, Intro To Income Taxation
Supplemental Note #1 - General Principles of Taxation, Intro To Income Taxation
TAXATION
WHAT IS TAXATION? – inherent power by which the sovereign through its law-making body
raises revenue to defray the necessary government expenditures.
CHARACTERISTICS DERIVED FROM ABOVE:
a. Inherent power of the state
b. Exclusively lodged with the legislature
c. Purposes: (1) To raise revenue to defray expenses of gov’t & (2) to mitigate evils arising
from the inequalities of wealth by a progressive scheme of taxation which places the
burden on those best able to pay
THE LIFEBLOOD DOCTRINE IN TAXATION – taxes are indispensable to the subsistence of the
government. Without taxes, gov’t would be paralyzed for lack of motivation to operate. IT
CAN BE INFERRED FROM ABOVE THE FFG.:
A. THEORY OF TAXATION – gov’t necessity from funding
B. BASIS OF TAXATION – mutuality of support between the people (via services received) and
the gov’t (via taxes paid by the people)
- SYMBIOTIC RELATIONSHIP in tax
PHILOSOPHIES IN TAXATION
A. BENEFIT RECEIVED THEORY – the more benefit one received, the more taxes he should pay B.
ABILITY TO PAY THEORY – taxpayers should be required to contribute based on their capacity to
sacrifice for the support of the government (i.e., those who have more should be taxed more
even if they receive less, those who have less should be taxed less even if they benefit more)
INHERENT POWERS OF THE STATE
a. Taxation – power of the State to enforce proportional contributions from its subjects to
sustain itself.
b. Police Power – power of the State to enact laws to protect the well-being of the people
c. Eminent Domain – power of the State to take private property for public use
MATTERS OF TAXATION POLICE POWER EMINENT DOMAIN
DIFFERENCES
Sources:
Income Taxation – Banggawan Quicknotes Taxation – De Vera Income Taxation Made Easy – Ballada CPAR Handouts on Taxation –
Llamado
DISCLAIMER: THIS MATERIAL SHOULD NOT BE REPRODUCED FOR SALE | CREDITS TO THE RIGHTFUL OWNER | ALL NOTES MENTIONED WERE TAKEN
FROM VARIOUS RESOURCE MATERIALS FROM TAXATION AUTHORS AND REVIEWERS AND WERE COMPILED FOR EDUCATIONAL/LECTURE PURPOSES
ONLY. CREDITS TO THE AUTHORS. NO COPYRIGHT INFRINGEMENT INTENDED.
GENERAL PRINCIPLES OF TAXATION & ICSD, CTT, CPA INTRODUCTION TO INCOME
TAXATION
Benefit Received
(In general) ✓ ✓ ✓
DISCLAIMER: THIS MATERIAL SHOULD NOT BE REPRODUCED FOR SALE | CREDITS TO THE RIGHTFUL OWNER | ALL NOTES MENTIONED WERE TAKEN
FROM VARIOUS RESOURCE MATERIALS FROM TAXATION AUTHORS AND REVIEWERS AND WERE COMPILED FOR EDUCATIONAL/LECTURE PURPOSES
ONLY. CREDITS TO THE AUTHORS. NO COPYRIGHT INFRINGEMENT INTENDED.
GENERAL PRINCIPLES OF TAXATION & ICSD, CTT, CPA INTRODUCTION TO INCOME
TAXATION
a. For properties actually, directly, and exclusively used for charitable, religious,
educational purposes.
I. NON-APPROPRIATION OF PUBLIC FUNDS OR PROPERTY FOR THE BENEFIT OF ANY CHURCH
OR SECT – separation of the church and the State
J. EXEMPTION FROM TAXES OF THE REVENUES AND ASSETS OF NON-STOCK, NON-PROFIT
EDUCATIONAL INSTITUTIONS – as long as for educational purposes, it is exempt. K.
CONCURRENCE OF A MAJORITY OF ALL MEMBERS OF CONGRESS FOR THE PASSAGE OF A
LAW GRANTING TAX EXEMPTION
a. Approval of tax exemption law – ABSOLUTE MAJORITY (all whether present or not)
b. Withdrawal of tax exemption law – RELATIVE MAJORITY (Majority of present + 1) c.
Construction of Tax Laws:
i. Vague tax laws – construed against gov’t, in favor of taxpayers
ii. Vague tax exemption laws – construed against taxpayers, in favor of gov’t
L. NON-DIVERSIFICATION OF TAX COLLECTIONS – tax collections should only be for public
purposes
M. NON-DELEGATION OF THE TAXATION POWER
N. NON-IMPAIRMENT OF THE JURISDICTION OF THE SUPREME COURT TO REVIEW TAX CASES –
all tax cases can only be finally decided by the Supreme Court of the Philippines O. REVENUE,
APPROPRIATIONS, TARIFF BILLS SHOULD ORIGINATE EXCLUSIVELY IN THE HOUSE OF
REPRESENTATIVES, BUT SENATE MAY PROPOSE OR CONCUR IN AMENDMENTS a. How to make
a tax law?
i. All bills must originate exclusively from HOR
ii. Passing of three (3) readings by a majority vote in the technical committee
iii. President signs the bill into a law for implementation (but may veto it)
P. POWER OF LOCAL GOV’T TO EXERCISE THE POWER TO CREATE ITS OWN SOURCES OF
REVENUEAND HAVE JUST SHARE IN NATIONAL TAXES
THE CONCEPT OF DOUBLE TAXATION – occurs when the same taxpayer is taxed twice by the
same tax jurisdiction for the same thing.
TYPES:
A. Direct Double Taxation – ex. 5% income tax on annual sales and 1% income tax on monthly
sales; HIGHLY DISCOURAGED, INVALID
B. Indirect Double Taxation – ex. National government imposes taxes on cigarettes via excise
taxes, Local gov’t imposes also local taxes on the same thing; PREVALENT IN PRACTICE,
VALID
Sources:
Income Taxation – Banggawan Quicknotes Taxation – De Vera Income Taxation Made Easy – Ballada CPAR Handouts on Taxation –
Llamado
DISCLAIMER: THIS MATERIAL SHOULD NOT BE REPRODUCED FOR SALE | CREDITS TO THE RIGHTFUL OWNER | ALL NOTES MENTIONED WERE TAKEN
FROM VARIOUS RESOURCE MATERIALS FROM TAXATION AUTHORS AND REVIEWERS AND WERE COMPILED FOR EDUCATIONAL/LECTURE PURPOSES
ONLY. CREDITS TO THE AUTHORS. NO COPYRIGHT INFRINGEMENT INTENDED.
GENERAL PRINCIPLES OF TAXATION & ICSD, CTT, CPA INTRODUCTION TO INCOME
TAXATION
CLASSIFICATIONS OF TAXES
A. As to subject matter
a. Personal Tax – ex. Cedula (Community Tax)
b. Property Tax – ex. Real Property Tax
c. Excise Tax – ex. Donor’s Tax
B. As to burden
a. Direct Tax – impact and incidence of taxation rests on the same taxpayer; statutory
taxpayer = economic taxpayer
b. Indirect Tax – incidence of taxation falls on one taxpayer but burden of paying can be
shifted to another; statutory taxpayer ≠ economic taxpayer
C. As to purpose
a. General tax – levied for general purposes
b. Special Tax – levied for special purposes
D. As to amount imposed
a. Ad Valorem Tax – tax of a fixed proportion upon the value of the article or thing
subject to taxation Ex. Final Taxes on Prizes, on Winnings, on Dividends
b. Specific – tax of a fixed amount imposed on a per unit basis, eg. Per kilo, per liter Ex.
Taxes on Fuel, Taxes on Liquors and Distilled Spirits
E. As to taxing theory
a. National Tax – imposed by the National Govt
b. Local Tax - imposed by the local government
F. As to rate
a. Progressive – tax rate increases as tax base increases & vice-versa
b. Regressive – tax rate increases as tax base decreases & vice-versa
c. Proportionate – based on fixed proportion of the value of the property assessed
Sources:
Income Taxation – Banggawan Quicknotes Taxation – De Vera Income Taxation Made Easy – Ballada CPAR Handouts on Taxation –
Llamado
DISCLAIMER: THIS MATERIAL SHOULD NOT BE REPRODUCED FOR SALE | CREDITS TO THE RIGHTFUL OWNER | ALL NOTES MENTIONED WERE TAKEN
FROM VARIOUS RESOURCE MATERIALS FROM TAXATION AUTHORS AND REVIEWERS AND WERE COMPILED FOR EDUCATIONAL/LECTURE PURPOSES
ONLY. CREDITS TO THE AUTHORS. NO COPYRIGHT INFRINGEMENT INTENDED.
GENERAL PRINCIPLES OF TAXATION & ICSD, CTT, CPA INTRODUCTION TO INCOME
TAXATION
➢ Execution of judgment in all cases decided in its favor by the Court of Tax Appeals and the
ordinary courts
➢ Give effect to and administer the supervisory and police powers conferred to it by the Code
or other laws
➢ Assignment of internal revenue officers and other employees
Sources:
Income Taxation – Banggawan Quicknotes Taxation – De Vera Income Taxation Made Easy – Ballada CPAR Handouts on Taxation –
Llamado
DISCLAIMER: THIS MATERIAL SHOULD NOT BE REPRODUCED FOR SALE | CREDITS TO THE RIGHTFUL OWNER | ALL NOTES MENTIONED WERE TAKEN
FROM VARIOUS RESOURCE MATERIALS FROM TAXATION AUTHORS AND REVIEWERS AND WERE COMPILED FOR EDUCATIONAL/LECTURE PURPOSES
ONLY. CREDITS TO THE AUTHORS. NO COPYRIGHT INFRINGEMENT INTENDED.
GENERAL PRINCIPLES OF TAXATION & ICSD, CTT, CPA INTRODUCTION TO INCOME
TAXATION
WHAT IS INCOME AND THE ELEMENTS OF GROSS INCOME? – Income is fruit. It is the Return on
Capital that increases wealth. It is a realized benefit. It is not exempted by law. EXAMPLE: Selling
Price P 1,000.00 - Total Return
Cost 700.00 - Return of Capital
Gross Income P 300.00 - Return on Capital
Sources:
Income Taxation – Banggawan Quicknotes Taxation – De Vera Income Taxation Made Easy – Ballada CPAR Handouts on Taxation –
Llamado
DISCLAIMER: THIS MATERIAL SHOULD NOT BE REPRODUCED FOR SALE | CREDITS TO THE RIGHTFUL OWNER | ALL NOTES MENTIONED WERE TAKEN
FROM VARIOUS RESOURCE MATERIALS FROM TAXATION AUTHORS AND REVIEWERS AND WERE COMPILED FOR EDUCATIONAL/LECTURE PURPOSES
ONLY. CREDITS TO THE AUTHORS. NO COPYRIGHT INFRINGEMENT INTENDED.
GENERAL PRINCIPLES OF TAXATION & ICSD, CTT, CPA INTRODUCTION TO INCOME
TAXATION
c. Partnerships
d. Joint Ventures e. Co-Ownerships
TAXPAYER WITHIN WITHOUT
Resident Citizen
✓ ✓
Non-Resident Citizen
✓
Resident Alien
✓
Non-Resident Alien
✓
Domestic Corporation
✓ ✓
Non-Resident Foreign
✓
Corporation
SITUS OF PHILIPPINE INCOME TAXATION
➢ Situs means location, how and where do we tax certain income?
Income Situs
Predominance Test:
a. WITHIN – if 50% or more of the
gross income of the foreign
corporation (for the preceding
3 years prior to dividend
declaration) was derived
WITHIN the Philippines
FORMULA: (Phil. GI / Total GI) x
Dividend = Income Within
b. WITHOUT - if less than 50% of
the gross income of the foreign
corporation (for the preceding
3 years prior to dividend
declaration) was derived
WITHIN the Philippines
Sources:
Income Taxation – Banggawan Quicknotes Taxation – De Vera Income Taxation Made Easy – Ballada CPAR Handouts on Taxation –
Llamado
DISCLAIMER: THIS MATERIAL SHOULD NOT BE REPRODUCED FOR SALE | CREDITS TO THE RIGHTFUL OWNER | ALL NOTES MENTIONED WERE TAKEN
FROM VARIOUS RESOURCE MATERIALS FROM TAXATION AUTHORS AND REVIEWERS AND WERE COMPILED FOR EDUCATIONAL/LECTURE PURPOSES
ONLY. CREDITS TO THE AUTHORS. NO COPYRIGHT INFRINGEMENT INTENDED.
GENERAL PRINCIPLES OF TAXATION & ICSD, CTT, CPA INTRODUCTION TO INCOME
TAXATION
Sources:
Income Taxation – Banggawan Quicknotes Taxation – De Vera Income Taxation Made Easy – Ballada CPAR Handouts on Taxation –
Llamado
DISCLAIMER: THIS MATERIAL SHOULD NOT BE REPRODUCED FOR SALE | CREDITS TO THE RIGHTFUL OWNER | ALL NOTES MENTIONED WERE TAKEN
FROM VARIOUS RESOURCE MATERIALS FROM TAXATION AUTHORS AND REVIEWERS AND WERE COMPILED FOR EDUCATIONAL/LECTURE PURPOSES
ONLY. CREDITS TO THE AUTHORS. NO COPYRIGHT INFRINGEMENT INTENDED.