Principles of Taxation Part 1

Fundamental
Principles of
Taxation Part 1
LEARNING OBJECTIVES
By the end of this session, you will be able to:
➢ Define taxation
➢ Identify and define the three inherent powers of the state
➢ Discuss the similarities and distinction among the three inherent
powers of the state
➢ Explain the two purposes of taxation
➢ Identify the scope of the power of taxation
➢ State the importance of the theory and basis of taxation.
➢ Discuss the stages/aspects of taxation.
➢ Identify and discuss the principles of a sound tax system.
TAXATION
the process or means by which the sovereign,
through its law-making body, imposes burdens
upon subjects and objects within its jurisdiction
for the purpose of raising revenues to carry out
the legitimate objects of government.
TAXATION
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.
WHAT ARE THE
STAGES/ASPECTS OF
TAXATION?
Aspects refer to “stages, phases or process” that are embodied in the term
“taxation”:
1. Levying or Imposition – this process involves the passage of tax laws or

ordinances (in the case of local government units) through the legislature.
(legislative act/function)
2. Assessment and Collection – this process involves the act of administration and
implementation of tax laws by the executive through its administrative agencies
such as the Bureau of Internal Revenue and the Bureau of Customs. (executive
act/function)
Assessment refers to the determination by the executive branch (i.e., BIR, BOC,
LGU) of the correct amount of the tax.
Collection of the tax levied, which is essentially administrative in character.
WHAT ARE THE
PURPOSES OF TAXATION?
1.Primary Purpose (Revenue or Fiscal Purpose) – to
raise revenues; to support the existence of the State
and enable the state to promote the general welfare.
2.Secondary Purpose (Regulatory or
Sumptuary/Compensatory)
a. Promotion of general welfare – where taxes are
levied on excises or privileges for purposes of
rehabilitation and stabilization of threatened industry
which is affected by public interest or discourage
consumption of harmful products (e.g., excise taxes
on cigarettes and alcohol)
b. Reduction of Social Inequity – this is made possible through
the progressive system of taxation where the objective is to
prevent the undue concentration of wealth in the hands of few
individuals. Progressivity is key stoned on the principle that
those who are able to pay should shoulder the bigger portion of
the tax burden. (e.g., Income tax)
c. Encouragement of economic growth – tax incentives and
reliefs may be granted to encourage investment (i.e., Income
Tax Holiday, 5% preferential Gross Income Tax for PEZA
registered entities)
INHERENT POWERS
power existing as a natural or basic
part of every sovereign State, without
being conferred or granted by the
people or the Constitution
1. All of the following are inherent
powers of the government, except:
a. Taxation
b. Eminent domain
c. Police power
d. Anti-terrorism
1. All of the following are inherent
powers of the government, except:
a. Taxation
b. Eminent domain
c. Police power
d. Anti-terrorism
2. Eminent domain:
a. Is the power to take public property for public
purpose after payment of just compensation.
b. Is the power to take private property for private
c. Is the power to take private property for public
d. Is the power to take public property for private
2. Eminent domain:
a. Is the power to take public property for public
b. Is the power to take private property for private
c. Is the power to take private property for public
d. Is the power to take public property for private
3. The power to demand proportionate
contribution from persons and property to
defray the necessary expenses of the
government
a. Power of taxation
b. Police power
c. Power of eminent domain
d. Power of recall
3. The power to demand proportionate
contribution from persons and property to
defray the necessary expenses of the
government
b. Police power
d. Power of recall
4. The power to regulate liberty and
property to promote the general welfare
b. Police power
d. Power of recall
4. The power to regulate liberty and
property to promote the general welfare
b. Police power
d. Power of recall
WHAT ARE THE
SIMILARITIES AMONG
THE THREE INHERENT
POWERS OF THE STATE?
1. They are all inherent to the State.
2. They are all legislative in nature.
3. They are all ways in which the State interferes with private
rights and properties.
4. They all exist independently of the Constitution and are
exercisable by the government even without a
Constitutional grant. However, the Constitution may impose
conditions or limits for their exercise.
5. They all presuppose an equivalent form of compensation
received by the persons affected by the exercise of the
power.
WHAT ARE THE
DISTINCTIONS AMONG
THE THREE INHERENT
POWERS OF THE STATE?
WHAT ARE THE SCOPES
OF THE POWER OF
TAXATION?
1. Comprehensive – it covers persons, businesses,
activities, professions, rights and privileges.
2. Unlimited – it is so unlimited in force and searching
in extent that courts scarcely venture to declare that it
is subject to any restrictions, except those that such
rests in the discretion of the authority which exercises
it.
3. Plenary – it is complete; unqualified; absolute. Under
the Tax Code, the BIR may avail of certain remedies to
ensure collection of taxes.
4. Supreme – insofar as the selection of the subject of
taxation is concerned.
WHAT ARE THEORIES OF
TAXATION?
✓ Life Blood Doctrine – Taxes are the lifeblood of the
government without which it can neither exist nor
endure. In other words, the government cannot
continue to perform its basic functions of serving and
protecting its people without means to pay its
expenses.
✓ Necessity Theory – government is necessary; however,

it cannot continue without the means of paying for its
existence; hence, it has the right to compel all citizens
and property within its power to contribute for the
same purpose.
WHAT IS THE BASIS OF
TAXATION?
WHAT ARE THE
PRINCIPLES OF A SOUND
TAX SYSTEM?
1. Fiscal Adequacy – revenue raised must be sufficient to meet
government/public expenditures and other public needs.
2. Administrative Feasibility – tax laws must be clear and concise; capable of

effective and efficient enforcement; convenient as to time and manner of
payment, must not obstruct business growth and economic development.
3. Theoretical Justice – must take into consideration the taxpayer’s ability to pay.
NOTE: Non-observance of Fiscal Adequacy and Administrative Feasibility will

render the tax measure unsound but not unconstitutional. However, non-
observance of the Principle of Theoretical Justice may render the tax measure
unconstitutional because the Constitution itself requires that taxation must be
equitable.

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Fundamental

1. Levying or Imposition – this process involves the passage of tax laws or

✓ Necessity Theory – government is necessary; however,

2. Administrative Feasibility – tax laws must be clear and concise; capable of

NOTE: Non-observance of Fiscal Adequacy and Administrative Feasibility will

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