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I.

Principles of Taxation
A. Nature, Scope, Classification, and Essential Characteristics
i.

ii.

Nature
1.

Legislative

2.

Inherent in Sovereignty

Scope
Taxation is unlimited, plenary, comprehensive, and supreme

iii.

Classification
1.

According to Subject Matter or Object:

Personal, capitation or poll taxes

Property taxes

Excise or license taxes

2.

According to Burden or Incidence:

Direct taxes

Indirect taxes

3.

According to Determination of Amount:

Specific Taxes

Ad valorem taxes

4.

According to Purpose:

General or Fiscal

Special, Regulatory or Sumptuary

5.

According to Scope or Authority Imposing the Tax:

National

Municipal or Local

6.

According to Graduation:

Progressive

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iv.

Regressive

Mixed

Proportionate

Essential Characteristics
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B. Principles of Sound Tax System

i.

Fiscal Adequacy
There must be a balance between government revenue and
government expenses.

ii.

Theoretical Justice
The tax system must be equitable and fair to each taxpayers
ability to pay.

iii.

Administrative Feasibility
The tax laws must be enforced on taxpayers with the least
inconvenience.

C. Limitations on the Power of Taxation

i.

Inherent Limitations
1.

Taxation is for a public purpose

2.

The proceeds of tax must be used for the support of the State or for
some recognized objects of government or directly promote the
welfare of the community.
Taxation is inherently legislative

3.

It is an inherent power of sovereignty, legislative in character and a

legislative prerogative.
Taxation is territorial.

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4.

Taxation is subject to international comity.

ii.

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Constitutional Limitations
1.

Provisions Directly Affecting Taxation

No person shall be imprisoned for non-payment of a poll tax.

The rule of taxation shall be uniform and equitable. The Congress

shall evolve a progressive system of taxation.

The Congress may, by law, authorize the President to fix within

specified limits, and subject to such limitations and restrictions as it
may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of
the national development program of the Government.

Charitable institutions, churches, parsonages or convents

appurtenant hereto, mosques, and non-profit cemeteries and all
lands, buildings, and improvements actually, directly and
exclusively used for religious, charitable or educational purposes
shall be exempt from taxation.

No law granting any tax exemption shall be passed without the

concurrence of a majority of all the members of the Congress.

All money collected on any tax levied for a special purpose shall be
treated as a special fund and paid out for such purpose only. If the
purpose for which a special fund was created has been fulfilled r
abandoned, the balance, if any, shall be transferred to the general
funds of the Government.

The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall
not affect the item or items to which he does not object.

The Supreme Court shall have the power to review, revise, reverse,
modify or affirm on appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of lower courts in all
cases involving the legality of any tax, impost, assessment, or toll
or any penalty imposed in relation thereto.

Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees and charges subject to
such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees,

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and charges shall accrue exclusively to the local governments.
Local government units shall have a just share, as determined by
law, in the national taxes which shall be automatically released to
them.

2.

All revenues and assets of non-stock, non-profit educational

institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such
institutions, their assets shall be disposed of in the manner
provided by law. Proprietary educational institutions, including
those cooperatively owned, may likewise be entitled to such
exemptions, subject to the limitations provided by law, including
restrictions on dividends and provisions for reinvestment.

Provisions Indirectly Affecting Taxation

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D. Tax Evasion and Tax Avoidance

i.

Tax Evasion

ii.

Tax Avoidance

E. Situs of Taxation
i.

Income from Sources within Philippines

1.

Interest

2.

Dividends

3.

Service

4.

Rentals and Royalties

5.
Technical advice, assistance or services in connection with
technical management or administration of any scientific, industrial or
commercial undertaking, venue, project or scheme
6.
The use or right to use motion picture films, films or videotapes,
and tapes for use in radio broadcasting
7.

Sale of real property

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8.
ii.

Sale of personal property

Income from Sources without Philippines

1.

Interest not derived from Philippines

2.

Dividends not derived from Philippines

3.
Compensation for labor or personal services performed not within
Philippines
4.

Rentals and Royalties from property not within Philippines

5.
Gains, profits, and income from sale of real or personal property
not located within Philippines.
iii.

Income from Sources partly within and partly without Philippines

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F. Double Taxation
-

Taxing for the same tax period the same thing or activity twice, when it
should be taxed but once, for the same purpose and with the same
kind of character of tax.

i.

Direct Duplicate Taxation

ii.

Indirect Duplicate taxation

G. Legislation of Tax Laws

H. Impact of Taxes in Nation Building

-

It is the source of the bulk of public funds.

It is what we pay for civilized society

Government is expected to respond in form of tangible and

intangible benefits intended to improve the lives of the people and
enhance their moral and material values.

I. Ethical Tax Compliance and Administration

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J. Organizations
i.

Bureau of Internal Revenue

ii.

Bureau of Customs

iii.

Local Government Tax Collecting Units

iv.

Board of Investments

v.

PEZA

II.
A. Principle of Necessity
B. Explanation:
The Principle of Necessity states that the government has the power
and right to compel all within its territory to pay taxes or contribute
money. Government will not continue to exist and preserve its
sovereignty if it cannot pay its expenses. Every citizen must pay taxes
because tax is the lifeblood of the government. This is why this
principle is also called the lifeblood theory.
C. Example: Air Canada vs. Commission on Internal Revenue
(January 11, 2016)

D. Application:
As a resident citizen of the Philippines, I must abide by the laws,
especially in the statutes regarding taxation. In order for me to avail the
benefits from the government, I must take part in ensuring that the
government will continue to exist.
E. Organizational Chart: