Chapter 7 - Taxation

Chapter
TAXATION
DEFINITION OF TAXATION
the act of laying a tax, i.e., the process by which the
sovereign, through its law making body, raises

revenue to defray the necessary expenses of the
government
PURPOSE AND IMPORTANCE

To provide funds with which to promote the general
welfare and protection of its citizens, and to enable

it to finance its multifarious activities.
DEFINITION OF TAXES
The enforced proportional contributions from
persons and property levied by the law-making body

of the state for the support of the government and
all public needs
ESSENTIAL CHARACTERISTICS OF TAX

It is an enforced contribution
Tax is not a voluntary payment or donation
Its imposition is no way dependent upon the will or
assent of the persons tax
It is generally payable in money

It is an exaction to be discharged alone in money which
must be in legal tender
It is proportionate in character
It is ordinarily based on the ability to pay
It is levied on persons or property

Tax may be imposed on acts or transactions or
contracts
It is levied by the state which has jurisdiction over the

person or property
The persons or property must be subject to the
jurisdiction of the taxing state
It is levied by the law making body of the state

The power to tax is a legislative power which only the
legislative body can exercise through the enactment of

statutes or ordinances
It is levied for public purposes

Taxation and tax involves a charge or burden imposed
to provide income for public purposes
THEORY AND BASIS OF TAXATION

The power of taxation proceeds upon the
theory that the existence of government is a
necessity
It cannot continue without means to pay its expenses
It has a right to compel all its citizens and property
within its limits to contribute
The basis of taxation is found in the

reciprocal duties of protection and support
between the state and its inhabitants
The taxpayer receives benefits and protection from the
government
NATURE OF TAXATION
It is inherent in sovereignty
The power of taxation is inherent to sovereignty by
being essential to the existence of every government
It is legislative in character
Under the Constitution only legislative body can impose
taxes
Power to tax is also granted to local government subject
to limitations
It is subject to constitutional and inherent

limitations
The limitations are specifically provided in the
fundamental law or implied therefrom while the rest

spring from the nature of taxing power
ASPECTS OF TAXATION
1.Levying or imposition of the tax which is a
legislative act
2.Collection of the tax levied which is essentially
administrative in character
BASIC PRINCIPLES OF
SOUND TAX SYSTEM
Fiscal adequacy
The sources of revenue should be sufficient to meet the
demands of public expenditure
Equality or theoretical justice

The tax burden should be proportionate to the
taxpayers ability to pay
Administrative feasibility
Tax laws should be capable of convenient , just, and
effective administration
CLASSIFICATION OF TAXES
AS TO SUBJECT MATTER
Personal, poll or capitation
Tax of a fixed amount imposed on individuals, residing
within specified territory, whether citizens or not, without

regard to their property or the occupation in which they
may be engaged.
Example: community tax
Property
Tax imposed on property, whether real or personal,
in proportion either to its value or in accordance with

some other reasonable method of apportionment
Example: real estate tax
Excise
Any tax which does not fall within the classification
of a poll tax or property tax.

Example: value-added tax, income tax
AS TO PURPOSE
General, fiscal or revenue
Tax imposed for the general purposes of the
government to raise revenue

Example: income tax, almost all taxes
Special or regulatory
Tax imposed for a special purpose
Example: protective tariffs or custom duties on imports,
to protect local industries against foreign competition
AS TO DETERMINATION OF ACCOUNT
Specific
Tax of a fixed amount imposed by the head or number,
or by some standard of weight or measurement

Example: excise taxes on wines, cigars, gasoline
Ad valorem
Tax of a fixed proportion of the value of the property with
respect to which the tax is assesed

Example: real estate tax, value-added tax
AS TO WHO BEARS THE BURDEN

Direct
Tax which is demanded from the person who also
shoulders the burden of the tax; or tax which the

taxpayer cannot shift to another
Example: community tax, income tax
Indirect
Tax which is demanded from one person in the
expectation and intention that he should indemnify

himself at the expense of another
Example: all business taxes, VAT
AS TO SCOPE
National
Tax imposed by national government
Example: national internal revenue taxes
Municipal or local
Tax imposed by municipal or public corporations
Example: real estate taxes
AS TO GRADUATION OR RATE
Proportional
Tax based on fixed percentage of the amount of
property, income or other basis to be taxed

Example: real property tax
Progressive or graduated
Tax based on the rate of which increases as the tax
base or bracket increases

Example: income tax, estate tax, donors tax
Regressive
Tax base on the rate of which decreases as the tax
base or bracket increases
TAX DISTINGUISHED FROM OTHER

TERMS
Revenue
Refers to all the funds or income derived by the
government whether from tax or any other source

Refers to the amount collected
Internal revenue
Refers to taxes imposed by the legislature or other than
duties on imports and exports
Custom duties
Taxes imposed on goods exported from or imported into
a country
Debt
A generally based contract that is assignable, maybe
paid in any kind and is not punishable (by

imprisonment) if not paid
Penalty
Any sanction imposed as a punishment by violation of
law or acts deemed injurous
CLASSIFICATIONS OF LIMITATIONS
Constitutional
Limitations that are expressly found in the Constitution
or implied by its own provisions which are enumerated:

Due process of law
Equal protection of the laws
Rule of uniformity and equity in taxation
No imprisonment of non-payment of poll tax
Non-impairment of the obligation of contracts
Non-infringement of religious freedom
No appropriation for religious purpose

Exemption of religious, charitable and educational
entities, non-profit cemeteries and churches from

taxation
Exemption of non-stock, non-profit educational
institutions from taxation

Concurrence by majority of all members of Congress for
the passage of a law granting tax exemption

Authority of the President to veto the particular items in
a revenue or tariff bill

Non-impairment of the jurisdiction of the Supreme Court
intaxes
Inherent
Limitations which restrict the power although they are
not embodied in the Constitution which are enumerated:

Requirement that levy must be for public purpose
Non-delegation of the legislative power to tax
Exemption from taxation of government entities
International comity
Territorial jurisdiction
REQUIREMENT OF EQUAL PROTECTION

Equal protection of the laws signifies that all
persons subject to legislation shall be treated alike

under like circumstances and conditions both in the
privileges conferred and liabilities imposed
There is no violation of the protection:
where those with different incomes are made to pay
different rates for taxes
Where foreign corporations are made to pay higher amount

of taxes than that paid by domestic corporations
TAX EVASION AND TAX AVOIDANCE
DEFINITION OF TAX EVASION
Tax evasion is the use of by the taxpayer of

illegal or fraudulent means of defeat or
reduce the payment of a tax. It is punishable
by law.
Example: deliberate failure to report taxable

income or property; deliberate reduction of
income that has been received.
DEFINITION OF TAX AVOIDANCE
Tax avoidance is the use by the taxpayer of legally

permissible means or methods in order to avoid or
reduce tax liability. It is not punishable by law.
Example: The term may be extended to include

situations where a person refrains from engaging in
some activity or enjoying some privilege in order to
avoid the incidental taxation, or to lower his tax
bracket for a taxable year to avoid the higher rate of
tax. A man may change the form of his property by
putting his money into non-taxable securities.
DISTINCTION BETWEEN TAX EVASION AND TAX

AVOIDANCE
Tax evasion should be applied to the escape from

taxation accomplish by breaking the letter of the
tax law deliberate omission to report a taxable
item for example. Tax avoidance, on the other
hand, covers escape accomplished by legal
means which may be contrary to the intent of the
sponsors of the tax law but nevertheless do not
violate the letter of the law.
Tindoy, Carlo M.
Esteban, Camille Bianca A.
Santiago, Jen jen
Natividad, Samuel
III - ALPHA

Chapter 7 - Taxation

Uploaded by

Copyright:

Available Formats

Chapter 7 - Taxation

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 7 - Taxation

Uploaded by

Copyright:

Available Formats

Chapter

sovereign, through its law making body, raises

PURPOSE AND IMPORTANCE

welfare and protection of its citizens, and to enable

persons and property levied by the law-making body

ESSENTIAL CHARACTERISTICS OF TAX

assent of the persons tax

It is generally payable in money

must be in legal tender

It is levied on persons or property

It is levied by the state which has jurisdiction over the

jurisdiction of the taxing state

It is levied by the law making body of the state

legislative body can exercise through the enactment of

It is levied for public purposes

to provide income for public purposes

THEORY AND BASIS OF TAXATION

within its limits to contribute

The basis of taxation is found in the

It is subject to constitutional and inherent

fundamental law or implied therefrom while the rest

Equality or theoretical justice

within specified territory, whether citizens or not, without

in proportion either to its value or in accordance with

of a poll tax or property tax.

government to raise revenue

to protect local industries against foreign competition

or by some standard of weight or measurement

respect to which the tax is assesed

AS TO WHO BEARS THE BURDEN

shoulders the burden of the tax; or tax which the

expectation and intention that he should indemnify

property, income or other basis to be taxed

base or bracket increases

base or bracket increases

TAX DISTINGUISHED FROM OTHER

government whether from tax or any other source

duties on imports and exports

paid in any kind and is not punishable (by

law or acts deemed injurous

or implied by its own provisions which are enumerated:

No appropriation for religious purpose

entities, non-profit cemeteries and churches from

institutions from taxation

the passage of a law granting tax exemption

a revenue or tariff bill

not embodied in the Constitution which are enumerated:

REQUIREMENT OF EQUAL PROTECTION

persons subject to legislation shall be treated alike

Where foreign corporations are made to pay higher amount

TAX EVASION AND TAX AVOIDANCE

DEFINITION OF TAX EVASION

Tax evasion is the use of by the taxpayer of

Example: deliberate failure to report taxable

DEFINITION OF TAX AVOIDANCE

Tax avoidance is the use by the taxpayer of legally

Example: The term may be extended to include

DISTINCTION BETWEEN TAX EVASION AND TAX