Tax-1-General-Principles

Introduction to Income Taxation

  • By: Neil Patrick G. Seares, CPA

Basic Principles of Taxation

Taxation Defined

  • Taxation is a process by which a sovereign state demands revenue through its legislative body to support its existence and objectives.

Purposes of Taxation

  1. Revenue Purpose: To raise funds for government activities and public welfare.

  2. Regulatory Purpose: To regulate inflation and achieve economic and social stability.

  3. Compensatory Purpose: To provide compensation for benefits received.

Nature of Taxation

  • State Power: Inherent to sovereignty; can be exercised without constitutional mention.

  • Legislative Function: Power exercised by law-making bodies.

  • Cost Distribution: Taxes are for public purpose and must benefit the common good.

  • Territorial Scope: Tax laws generally operate within a country’s jurisdiction.

Inherent Powers of the State (PET)

  • Police Power: Enforce laws for public health and welfare.

  • Eminent Domain: Take private property for public use with compensation.

  • Power of Taxation: Demand contributions for public purposes.

Distinctions of Inherent Powers (PET)

  • Police Power: Implements laws for general welfare.

  • Eminent Domain: Related to taking property.

  • Taxation: Encompassing revenue collection authority.

Limitations on the Power of Taxation

  • Constitutional Limitations: Due process and equal protection under the law.

  • Non-Impairment of Contracts: No law impairing contractual obligations.

  • Non-Imprisonment for Non-Payment of Poll Tax.

Basis of Taxation

  1. Necessity: Government needs means to pay expenses.

  2. Reciprocal Duties: Taxes are collected to perform governmental functions.

Objects of Taxation

  • Persons: Natural (individuals) and juridical (corporations).

  • Properties: Real (land, buildings) and personal properties (movable items).

Forms of Tax Avoidance

  • Tax Evasion: Unlawful means to avoid taxes.

  • Tax Avoidance: Legal means to minimize tax liabilities.

  • Exemptions: Grants of immunity from certain taxes.

General Rules of Tax Situs

  • Determining Factors: Nature of tax, subject matter, source of income, taxpayer's residence, etc.

Summary of Taxes

  • Classification: By purpose, type (e.g. property, transfer), and authority collecting (national vs local).

Tax Law Defined

  • Tax Law: Governs all forms of national taxation, including income and excise taxes.

  • Internal Revenue Taxes: Imposed by legislative bodies excluding customs duties.

Nature of Tax Laws

  • Tax laws are civil, not political or penal in nature.

Interpretation & Application of Tax Laws

  • Must be enforced as written; interpret doubts in favor of taxpayers; prospective application only.