Introduction to Income Taxation in the Philippine context

This file is very essential in understanding the basic concepts, principles and ideas on the Philippine tax system.

1. TAXATION bY : FREDDY C. NAVARRO, CMITAP, mba

2. After studying, you should be able to: Define taxation Describe the nature, basis and objectives of taxation Differentiate the three inherent powers of the of the state Explain the principles of a sound taxation system Identify and explain constitutional and inherent limitations Describe various sources of taxation laws Name and describe the situs of taxation and its application Define tax and describe its essential characteristics Identify and distinguish classification of taxes Have a fair knowledge of the sources of tax authority and the sources of tax laws Describe the power of the commissioner of Internal Revenue Distinguish between income and capital

3. TAXATION -is the process or means by which the sovereign, through its law making body, raises income to defray the necessary expenses of the government. 10

4. What are Objectives of taxation?

5. Shifting wealth from rich to the poor32 Maintaining price stability33 Stimulating economic growth 34 Encouraging full employment35.

6. State powers Taxation- power to raise revenue to defray necessary expenses of the government 29 Eminent domain- power of the state to take private private property for public use upon payment of just compensation 30 Policy power- power of the state to enact laws to promote public health, public morals, public safety and the general welfare of the people 31

7. Aspect of taxation Levying of tax- the imposition of tax requires legislative intervention. In the Philippines, it is the congress that levies taxes; and 27 Collection of taxes being levied- this is essentially an administrative function. 28

8. Basic principles of a sound tax system Fiscal adequacy- sources of revenue are sufficient to meet the government expenditures. 24. Equality or theoretical justice- the tax imposed must be proportionate to the tax payer’s ability to pay; and 25. Administrative feasibility- the law must be capable of convenient, just and effective administration. 26.

9. Limitations on the power of taxation Purpose- taxes may be levied only for public purpose 19 Territoriality- the state may tax a persons and properties under its jurisdiction 20 International comity- the property of a foreign state may not be taxed by another 21 Exemption- governmental agencies performing governmental functions are exempt from taxation 22 Non-delegation- the power to tax being legislative in nature may not be delegated 23.

10. Situs of taxation Situs of taxation is the place of taxation 18.

11. The situs of taxation is determined by number of factors: Subject matter- or what is being taxed. He may be a person or it may be a property, or an act or activity 14. Nature of tax- or which tax to impose. It may be an income tax, an import duty or a real property tax 15. Citizenship of taxpayer 16. Residence of taxpayer17.

12. The following situs of taxation apply Persons- residence of taxpayers Real property of tangible personal property- location of the property Intangible personal property- as a rule, situs domicile of the owner unless he has acquired a situs elsewhere Income- taxpayer’s residence or citizenship, or place where the income was earned Business, occupation and transaction- place where business is being operated, occupation being practiced and transaction completed. Gratuitous transfer of property- taxpayer’s residence or citizenship, or location of the property

13. Essential characteristics of a tax It is an enforced contribution 1 It is levied by lawmaking body2 It is proportionate in character3 It is generally payable in money4 It is imposed for the purpose of raising revenues 5 it is to be used for public purpose6

14. TYPES OF TAX RATE STRUCTURE Regressive- the average rate decreases as the tax base increases7 Proportional- rate of tax remains constant for all levels of tax base8 Progressive- is one for which average rate increases as the amount of tax base increases 9

15. Classification of taxes As to subject matter or object a. personal, poll or capitation- tax of a fixed amount imposed on individuals whether citizens or not, residing within specified territory without regard to their property or the occupation in which they may be engaged. 11. 12. b. 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. c. excise- tax imposed made on a specific goods. 13.