Income Tax - Chapter 1

  • INCOME AND TAXATION

  • Overview of taxation concepts related to income.

CHAPTER 1: FUNDAMENTAL PRINCIPLES OF TAXATION

  • Introduction to key principles of taxation.

1.1 BASIC PRINCIPLES OF TAXATION

What is Taxation?

Definition of Taxation

  • Societal process to impose financial burdens for raising government revenue.

  1. As a State Power

    • Taxation is an inherent power of the State.

    • It requires proportional contribution from subjects for public benefit.

  2. As a Process

    • Involves the legislature enacting tax laws to enforce contributions.

  3. As a Mode of Cost Distribution

    • Allocates government costs to subjects benefiting from state spending.

1.2 STAGES OF THE EXERCISE OF TAXATION POWER

  1. Levy or Imposition

    • Process starts with the enactment of tax laws.

  2. Assessment and Collection

    • Administrative implementation involving tax liability determination and collection.

    • Known as the incidence of taxation.

BASIS OF TAXATION

  • Mutual support between government and people for financing public services.

THE LIFEBLOOD DOCTRINE

  • Significance of Taxes

    • Taxes are essential for government operation.

    • Prompt availability is crucial for public service delivery.

THEORIES OF COST ALLOCATION

  • Key Theories:

    1. Benefit Received Theory

      • Suggests those benefiting more should pay more taxes.

    2. Ability to Pay Theory

      • Taxation should align with taxpayers' capacity to contribute.

ASPECTS OF THE ABILITY TO PAY THEORY

  • Vertical Equity

    • Tax burden proportional to the tax base level.

  • Horizontal Equity

    • Consideration of individual taxpayer circumstances.

THE INHERENT POWERS OF THE STATE

  • Taxation Power

    • Capacity to enforce contributions.

  • Police Power

    • Enacts laws to protect public welfare.

  • Eminent Domain

    • Right to take private property for public use with fair compensation.

SCOPE OF THE TAXATION POWER

  • Generally comprehensive, but bound by constitutional limitations.

A. INHERENT LIMITATIONS

  • Examples:

    • Territoriality, public purpose, non-delegation of power.

B. CONSTITUTIONAL LIMITATIONS

  • Includes:

    • Due process, equal protection, uniformity in taxation, exemptions.

1.3 TAXATION LAWS AND TAX EXEMPTED LAWS

TAXATION LAWS

  • Encompass legislative frameworks for tax assessment and collection (e.g., National Internal Revenue Code).

TAX EXEMPTED LAWS

  • Laws providing certain immunities from taxation (e.g., Minimum Wage Law).

1.4 PHILIPPINE TAX LAWS

  • Characterized as civil laws effective even in enemy occupation.

  • Tax payments remain valid during foreign occupation.

1.5 ELEMENTS AND CLASSIFICATIONS OF TAX

TAX

  • Defined as enforced proportional contribution for public revenue.

ELEMENTS OF A VALID TAX

  1. Levied by proper authority.

  2. Complies with constitutional limits.

  3. Must be uniform and equitable.

  4. For public purpose.

  5. Proportional.

  6. Generally payable in money.

CLASSIFICATION OF TAXES

  • A. AS TO PURPOSE

    • Fiscal, Regulatory, Sumptuary, Personal, Property, Excise.

  • B. AS TO INCIDENCE

    • Direct and Indirect taxes.

  • C. AS TO AMOUNT

    • Specific and Ad Valorem taxes.

  • D. AS TO RATE

    • Proportional, Progressive, Regressive, Mixed taxes.

  • E. AS TO IMPOSING AUTHORITY

    • National and Local taxes.

1.6 PRINCIPLES OF SOUND TAX SYSTEM

TAX SYSTEM

  • Two-fold: National and Local.

PRINCIPLES OF SOUND TAX SYSTEM

  1. Fiscal Adequacy

    • Sufficient sources for government funding.

  2. Theoretical Justice

    • Taxation must be fair and consider ability to pay.

  3. Administrative Feasibility

    • Tax laws should facilitate compliance and be efficiently administered.

TAX ADMINISTRATION

  • Managed by the Bureau of Internal Revenue under the Department of Finance.

1.7 CLASSIFICATIONS OF TAXPAYERS FOR TAX ADMINISTRATION PURPOSES

CLASSIFICATIONS

  • Large and Non-Large Taxpayers managed by different offices.

CRITERIA FOR LARGE TAXPAYERS

  • Based on tax payments, financial conditions, and sales.

THANK YOU!

  • Acknowledgment for attention.

RESOURCE PAGE

  • Additional resources and design templates.