Module 01 General Principles of Taxation
Module 01 General Principles of Taxation
Module 01 General Principles of Taxation
Income Taxation
1TAY2022
Fundamental Principles
General
Principles
INHERENT POWERS OF THE STATE
A government has its basic needs and rights which co-exist with its creation. It has rights to sustenance, protection and
properties. The government sustains itself by the power of taxation, secures itself and the well-being of its people by police
power and secures its own properties to carry out its public services by the power of eminent domain.
These rights dubbed as “powers” are natural, inseparable and inherent to every government. No government can sustain or
effectively operate without these powers. Therefore, the exercise of these powers by the government is presumed understood
and acknowledged by the people from the very moment they establish their government.
Similarities
The three inherent powers of the State are similar in the following senses.
Comparison
Point of Difference Taxation Police Power Eminent Domain
Government and private
Exercising Authority Government Government
utilities
For the support of the To protect the general welfare
Purpose For public use
government of the people
TAXATION
Taxation is the inherent power of the state1, exercised through the legislature2, to impose burdens3 upon subjects and objects4
within its jurisdiction5 for the purpose of raising revenues6 to carry out the functions7 of government.
Purposes of Taxation
The exercise of the power of taxation may be classified as to its purpose.
The primary purpose of taxation on the part of the government is to provide funds or property
Revenue or Fiscal with which to promote the general welfare and the protection of its citizens and to enable it to
finance its multifarious activities.
Taxation may also be employed for purposes of regulation or control, e.g., imposition of tariffs on
Non-Revenue or imported goods to protect local industries, the adoption of progressively higher tax rates to reduce
Regulatory inequalities in wealth and income and the increase or decrease of taxes to prevent inflation or ward
off depression.
However, the power of taxation should be exercised with caution to minimize injury to the proprietary rights of the taxpayer.
It must be exercised fairly, equally, and uniformly, lest the tax collector kill “the hen that lays the golden egg”.
Despite the unseemingly unlimited nature of taxation, it is not absolutely unlimited. Taxation has its own inherent limitations
and limitations imposed by the Constitution.
No one should be deprived of his life, liberty or property without due process of law. Tax laws
should neither be harsh nor oppressive.
Aspects of Due Process:
Substantive Due Process – Tax must be imposed only for public purpose, collected only under
Due Process of Law
authority of valid law and only by the taxing power having jurisdiction. An assessment without
legal basis violates the requirement of due process.
Procedural Due Process – There should be no arbitrariness in assessment and collection of taxes
and the government shall observe the taxpayer’s right to notice and hearing.
No person shall be denied the equal protection of the law. Taxpayers should be treated equally
both in terms of rights conferred and obligations imposed. This rule applies where taxpayers are
Equal Protection of the
under the same circumstances and conditions.
Law
A common example of this would be the Congress cannot exempt sellers of “balot” while
subjecting sellers of “penoy” to tax since they are essentially the same goods.
Non-Diversification of Tax collections should be used only for public purposes. It should never be diversified or used in
Tax Collections private purpose.
Non-Delegation of Taxing The impact of taxation cannot be delegated. The incidence, however, may be delegated on matters
Power involving expedient and effective administration.
Business Tax It is subject to tax in the place where the business is conducted
Income Tax on Services Service fees are subject to tax where they are rendered
Income Tax on Sale of Goods The gain on sale is subject to tax on the place of sale
Property Tax Properties are taxable in their location
Personal Tax Persons are taxable in their place of residence
Income Tax on Interests It is subject to tax on the debtor’s place of residence.
Other situs rules may be followed depending on the kind of tax being imposed.
DOUBLE TAXATION
Double Taxation can be either direct or indirect. For a double taxation to be considered direct, all of the following characteristics
should concur:
To further illustrate the difference between tax evasion and tax avoidance, refer to the table below.
Shifting This is the process of transferring the tax burden to other taxpayers.
Capitalization This pertains to the adjustment of the value of an asset caused by changes in tax rates.
This pertains to the elimination of wastes and losses by the taxpayer to form savings to compensate
Transformation
for the tax imposition or increase in taxes.
References:
Banggawan, R. (2019). Income Taxation. Pasay City: Real Excellence Publishing.
Valencia, G. & Roxas, E. (2016). Income Taxation. Baguio City: Valencia Educational Supply.
Reyes, V. (2019). Income Tax Law and Accounting under the TRAIN Law. Manila: GIC Enterprises & Co., Inc.
Ampongan O. (2018). Income Taxation. Mandaluyong City: Millennium Books, Inc.
Sweet, a sugar planter, files a suit questioning the constitutionality of the law alleging that the tax is not for a public purpose
as the same is being levied exclusively for the aid and support of the sugar industry.
Is the contention of Sweet tenable?
One of Wakanda’s officials, Senator Jack A. Moon, questioned the internal revenue office on its issuance indicating that it was
not moral for it to run after online businesses and impose taxes on their income, more so that they are normally conducting
such endeavors for mere subsistence.
Is the senator’s contention tenable?