RPH - FINAL TERM: TAXATION

TAXATION

It refers to the inherent power of the state to demand enforced contributions for public purpose.

TAX

are the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of the government and all public needs

Lifeblood Theory

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it

 Necessity Theory

the existence of the government is a necessity; that it cannot continue without means to pay its expenses; and that for those means it has the right to compel all citizens and property within its limits to contribute.

Benefits-Protection Theory

This principle serves as the basis of taxation and is founded on the reciprocal duties of protection and support between the State and its inhabitants.

Fiscal Adequacy

The sources of tax revenue should coincide with, and approximate the needs of, government expenditures. The revenue should be elastic or capable of expanding or contracting annually in response to variations in public expenditures.

Administrative Feasibility

Tax laws should be capable of convenient, just and effective administration

 Theoretical Justice or Equality

The tax burden should be in proportion to the taxpayer’s ability to pay. This is the so-called ability to pay principle. Taxation should be uniform as well as equitable [Section 28(1), Art. VI, 1987 Constitution]

As to burden or incidence - Direct Taxes

taxes which are demanded from persons who also shoulder them; taxes for which the taxpayer is directly or primarily liable, or which he cannot shift to another.

(e.g., income tax, estate tax, donor’s tax, community tax)

As to burden or incidence - Indirect Taxes

taxes levied upon transactions or activities before the articles subject matter thereof, reach the consumers who ultimately pay for them not as taxes but as part of the purchase price. (VAT)

As to scope (or authority imposing the tax) - National taxes

taxes imposed by the national government, through Congress and administered by the Bureau of Internal Revenue (BIR) or the Bureau of Customs (BOC)

(e.g., national internal revenue taxes, customs duties, and national taxes imposed by laws).

As to scope (or authority imposing the tax) - Municipal or Local

taxes imposed by local governments, through their respective Sanggunians, and administered by the local executive through the local treasurer

(e.g., business taxes that may be imposed under the Local Government Code, professional tax).

As to object - Personal, Poll or Capitation Tax

tax of a fixed amount imposed on persons residing within a specified territory, whether citizens or not, without regard to their property or the occupation or business in which they may be engaged (e.g. community tax).

As to object - Property Tax

tax imposed on property, real or personal, in proportion to its value or in accordance with some other reasonable method of apportionment (e.g., real estate tax).

As to object - Privilege/Excise Tax

it is said that an excise tax is a charge imposed upon:

i. the performance of an act,

ii. the enjoyment of a privilege, or

iii. the engagement in an occupation, profession, or business.

Situs of taxation

literally means the place of taxation.

Situs

The __ is necessarily in the state which has jurisdiction or which exercises dominion over the subject in question.

territorial jurisdiction

Within the __ __, the taxing authority may determine the situs.

Factors that Determine Situs:

a. Nature of the tax;

b. Subject matter of the tax (person, property, act or activity)

c. Possible protection and benefit that may accrue both to the government and the taxpayer;

d. Citizenship of the taxpayer;

e. Residence of the taxpayer;

f. Source of income

Tax Exemption

It is an immunity or privilege; it is freedom from a financial charge or burden to which others are subjected. It is strictly construed against the taxpayer. There is a law providing the tax exemption.

religious, charitable, or educational purposes

 Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for ___, ___, or ___ ___ shall be exempt from taxation.

(Art. VI, Sec. 28 (3), 1987 Constitution)

Tax avoidance

refers to the use of legal methods to minimize the amount of income tax owed by an individual or a business. It's generally accomplished by claiming as many deductions and credits as are allowable.

Tax evasion

relies on illegal methods such as underreporting income and falsifying deductions.