Comprehensive Reviewer on Fundamental Principles of Taxation, Tax Laws, and Income Taxation

A comprehensive vocabulary flashcard set covering foundational principles of taxation, constitutional and inherent limitations, tax administration rules, and income tax concepts from Modules H01, H02, and H03.

Inherent Powers of the State

The three sovereign powers of the State, consisting of taxation, police power, and eminent domain.

Primary Purpose of Taxation

To raise revenue for government expenses and operations.

Life Blood Doctrine

The legal doctrine holding that taxes are indispensable to the existence and operation of government.

Benefit Received Theory

The theory that tax burden is related to the benefits received from the government, presuming conclusively that everyone receives benefits from the government.

Ability to Pay Theory

The principle stating that the tax burden must be based on the taxpayer's capacity to contribute.

Tax Evasion

An illegal means or scheme used to reduce or avoid tax liability, such as deliberately understating a property's selling price.

Tax Avoidance

The act of reducing tax liability through lawful arrangements.

Eminent Domain

The inherent power of the State to take private property for public use upon payment of just compensation.

Police Power

The inherent power of the State to promote the general welfare, which may restrict injurious property uses without transferring ownership title.

Uniformity Rule

The rule requiring that persons or things within the same class must be taxed alike under the same conditions.

Double Taxation

The imposition of two or more taxes on the same property or subject matter, which is not automatically unconstitutional.

Taxation as a Process

The legislative act of imposing taxes to raise government revenue and defray necessary expenses.

Taxation as Cost Allocation

A means of allocating the government's financial burden among the people.

Stages of Taxation

The two identified stages of taxation: levy or imposition, and assessment of tax.

Taxing Discretion

The sphere of legislative judgment determining the tax rate, tax type, apportionment, taxable persons, property, acts, situs, collection method, and public purpose.

Essential Characteristics of Taxation

Characteristics including public purpose, legislative nature, monetary payment, territoriality, treaty considerations, constitutional limits, and inherent limits.

Regulatory Purposes of Taxation

Non-revenue objectives including regulating businesses and professions, protecting local industries, and promoting social and economic stability.

Compensatory Purposes of Taxation

Purposes aimed at social control, reducing wealth inequality, checking inflation, supporting enterprises, and offering incentives.

Vertical Equity

The equity concept that differentiates tax burdens according to taxpayers' varying ability to pay.

Horizontal Equity

The equity concept that treats similarly situated taxpayers alike.

Theory of Taxation

The rationale that government is necessary and cannot continue without means of financial support.

Basis of Taxation

The reciprocal duties of support and protection between the government and the people.

Scope of Taxation

The comprehensive authority of the State to tax, characterized as supreme, comprehensive, unlimited, and plenary, though subject to limitations.

Progressive Taxation Principle

The constitutional mandate directing Congress to evolve a progressive system of taxation.

Non-Imprisonment Rule (Debt and Poll Tax)

The constitutional guarantee providing that no person may be imprisoned for debt or non-payment of a poll tax.

Constitutional Property-Tax Exemption

The exemption from property tax applicable to religious, charitable, and educational entities for properties actually, directly, and exclusively used for exempt purposes.

Voting Requirement for Tax Exemption

The concurrence of a majority of all members of Congress, as required by the Constitution to enact a law granting tax exemption.

Origination Clause for Revenue Bills

The constitutional rule requiring that tax, revenue, and tariff bills must originate exclusively in the House of Representatives, with the Senate retaining authority to propose or concur with amendments.

Inherent Limitations on Taxation

Limitations restricting taxing power by nature of the State: territoriality, international comity or treaties, government tax exemption, public purpose, and non-delegation.

Situs of Taxation

The place or jurisdiction where a tax may properly be imposed.

Tax

An enforced contribution imposed by the State for public purposes.

Direct Tax

A tax whose burden is borne by the intended taxpayer.

Indirect Tax

A tax whose burden may be shifted to another person.

Specific Tax

A fixed amount of tax imposed per unit, weight, or measurement.

Ad Valorem Tax

A tax computed as a percentage of value.

Progressive Tax

A tax whose rate increases as the tax base increases.

Proportional Tax

A tax applying a fixed rate to the tax base.

Strictissimi Juris

The doctrine providing that tax exemptions are construed strictly against the claimant and in favor of taxation.

Fiscal Tax

A tax imposed primarily to raise general government revenue, such as income tax.

Regulatory or Sumptuary Tax

A tax intended to achieve special social or economic objectives, such as certain customs duties.

Personal, Poll, or Capitation Tax

A fixed tax imposed on individuals in a territory without regard to property or occupation, such as the community tax.

Excise or Privilege Tax

A tax imposed on performing an act, exercising a privilege, or engaging in an occupation.

Toll

A payment that compensates for the use of property, distinguished from a tax which arises from sovereign authority.

Special Assessment

A levy imposed on land based on special benefits received from public improvements, distinguished from a tax which serves general public needs.

Tariff

A schedule of duties or a system of duties imposed on imported or exported goods.

Revenue Regulation

A formal issuance clarifying or explaining tax law and providing administrative and procedural details, having the force and effect of law.

BIR Ruling

An administrative interpretation clarifying tax-law provisions that is generally advisory and binding only on the addressee.

Rule Against Shifting Tax Liability

The legal principle providing that private contractual arrangements cannot change who is legally liable for a tax and do not bind the taxing authority.

Letter of Authority

An authorization issued by the BIR empowering an officer to examine a taxpayer's books and records.

Subpoena Duces Tecum

A legal order requiring a person to produce specified documents or records.

Compromise of Tax Liability

A legal settlement of tax liability allowed on grounds of reasonable doubt about the validity of the claim or demonstrated clear inability to pay.

Abatement of Tax Liability

The cancellation of a tax liability permitted when the tax is unjustly or excessively assessed or when collection costs do not justify collecting the amount due.

Jeopardy Assessment

A tax assessment made under statutory authority when delay threatens collection.

Gross Income

Income or economic gain representing a return on capital with increased net worth that is realized and not legally exempt.

Taxable Income

Gross income less allowable deductions and adjustments under applicable tax law.

Constructive Receipt of Income

The doctrine under which income is treated as received when credited or made available to the taxpayer.

Cash-Basis Method

An accounting method where income is recognized when received and expenses are deducted when paid.

Accrual Method

An accounting method where income is recognized when earned and expenses are deducted when incurred.

Return of Capital

The recovery of the taxpayer's invested capital rather than a new economic gain, excluded from gross income.

Passive Income Subject to Final Tax

Specified income taxed under final-tax rules, including certain capital gains, interest, dividends, prizes, winnings, and royalties.

Regular or Active Income Tax

Tax imposed on ordinary business, professional, compensation, and other income not covered by final-tax rules.

Income-Dominance Test (Foreign Dividends)

A test sourcing dividends from a foreign corporation based on gross income over a $3\text{-year}$ period; if Philippine gross income is less than $50\%$, all dividends are foreign-sourced, but if at least $50\%$, the Philippine-sourced portion is calculated proportionally.

Arm's-Length Principle

The standard governing related-party transfer pricing requiring transactions between affiliated enterprises to be measured as if conducted between independent parties.

Calendar Tax Year

A $12\text{-month}$ accounting period ending on December 31.

Fiscal Accounting Period

A $12\text{-month}$ period ending on the last day of a month other than December.

Installment Method

An accounting method applicable to eligible dealer sales, casual personal property sales, and real property sales where initial payments do not exceed $25\%$ of the selling price.

Initial Payment (Installment Sales)

Payments received in the taxable year of sale under the terms of the transaction, excluding the buyer's notes or evidences of indebtedness.

Deferred-Payment Basis

A method for eligible deferred sales utilizing the market value of notes when received, treating subsequent discounts as interest income.

Percentage-of-Completion Method

An accounting method required for reporting qualifying long-term construction contracts extending beyond one year.

Self-Assessment

The procedure whereby the taxpayer computes, reports, and pays the tax due, subject to verification by the tax authority.