Income taxation: General Principles and Concept of Taxation

Taxation as a state power

Taxation is an inherent power of the State to enforce a proportional contribution from its subject for public purpose

Taxation as a process

Taxation is a process of levying taxes by the legislature of the state to enforce proportional contribution from its subjects

Taxation as a mode of cost distribution

Taxation is a mode by which the state allocates its costs or burden to its subjects who are benefited by its spending

What are the Theories of Taxation?

Necessity theory and Lifeblood doctrine

Necessity theory

Without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people

Lifeblood doctrine

Taxes are the lifeblood of the government, and their prompt and certain availability are an imperious need

Implications of the Lifeblood Doctrine

- No Injunction rule

- No constitutional grant needed

- Strictly construction of refunds

- Non-compensation of taxes

- State's right to select objects and subjects of taxation

Implications of Lifeblood doctrine

- In income taxation:

- Income received in advance is taxable upon receipt

- Deduction of capital expenditures and prepayments is not allowed

- A lower amount of deduction and a higher tax base is preferred

What is the Basis of Taxation?

Benefit Received Theory

- Doctrine of symbiotic relationship

- Conclusively presumed

Ability to Pay Theory

1. Vertical equity - gross concept

2. Horizontal equity - ne concept

What are the Inherent powers?

1. Power to tax

2. Police power

3. Eminent domain

Police power

The power of promoting the public welfare by restraining and regulating the use of liberty and property

Eminent Domain

Is is the taking off private property for public use with payment of just compensation

Taxation

It is the inherent power of the State to enforce proportional contribution from its subjects for public purpose

Why Inherent?

The government chiefly relies on taxation to obtain the means to carry on its operations. Taxes are essential to its very existence

What are the similarities of the inherent powers?

1. Restriction on rights

2. Equivalent compensation

3. Legislative in nature

4. Inherent

5. Crucial and indispensible

What are the distinctions of the inherent powers?

1. As to purpose

2. As to authority which exercises the power

3. As to persons affected

4. As to benefit received

5. As to effect

6. As to amount imposition

7. As to relationship to the non-impairment of obligations clause of the Constitution

8. As to importance

How is taxation an enforced monetary contribution?

Enforced

- Taxation is mandatory

- Non-compliance is punished with civil and criminal penalties

Are taxes payable in money?

Yes

Can congress enact a law that taxes will be payable in any other form than money?

Yes, but may violate administrative feasibility

What are the escapes from taxation that result to loss of governmental revenue

Tax Evasion

Tax Avoidance

Tax Exemption

What are the escapes from taxation that do not result to loss of governmental revenue

Shifting

Capitalization

Transformation

Can taxes be compensated?

No compensation

Taxes cannot be subject to compensation because the government and the taxpayer are not debtors and creditors of each other

What are the principles of sound tax system

Fiscal Adequacy

Administration Feasibility

Theoretical justice

What are the branches of the government

Legislative

Executive

Judiciary

What is the legislation process in general? How is tax legislation different?

Tax legislation

- All appropriations, revenue or tariff bills,...shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments

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

- No law granting an tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress

Scope of the Taxation Power

Supreme

Comprehensive

Unlimited

Plenary

What are the inherent limitations of taxation?

Public purpose

Inherently legislative

Territoriality

International comity

Exemption of the government entities, agencies and instrumentalities

Public Purpose

- Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons.

Public Purpose

- The term "public purpose" is not defined

- It does not pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice

Public Purpose

Primary - general

Secondary - Wealth redistribution

Encouraging measure

Economic potectionism

Specific - special fund

Purposes of Taxation

Primary purpose: Revenue/Fiscal

Secondary purpose: Regulatory/Sumptuary/Compensatory

Primary purpose: Revenue/Fiscal

Taxes are imposed and collected by the national government to raise revenues

Marshall Doctrine

"The power to tax is the power to destroy"

Justice Marshall

"An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institutions and no property can bear taxation"

Holmes Doctrine

"The power to tax is not the power to destroy while the court sits"

Justice Holmes

"If the states had any power it was assumed that they had all power, and that the necessary alternative was to deny it altogether.

But this court which so often has defeated the attempt to discriminate or otherwise go too far without wholly abolishing the power to tax."

Power of taxation

Sometimes called Power to destroy.

Other secondary purposes

Wealth redistribution

Encouraging measure

Economic potectionism

Specific purpose

All money collected on 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 had been fulfilled or abandoned, the balance, if any shall be transferred to the general funds of the government

Inherently Legislative

The power to tax is exclusively exercised by the Congress

Inherently legislative

The power to tax is exclusively exercised by the Congress.

General rule: ?

Exemptions: ?

General rule: It may not be delegated

XPNs:

1. President - tariffs

2. LGU - Local taxes

3. Administrative agencies

Territoriality Principle

- Also known as situs of taxation

Territoriality Principle

- Taxes is an act of sovereignty

Territoriality Principle

- Benefits of taxation are confined within the territorial boundaries of the taxing state.

Territoriality Principle

General rule: ?

Exemptions: ?

General rule: Taxable within PH only

XPNs:

1. Intraterritoriality Exception - nasa PH, no tax

2. Etraterriotoriality Exception - wala sa PH pero taxable

International Comity

A tax treaty is an agreement entered into between sovereign states

"for purposes of eliminating double taxation on income and capital, preventing fiscal evasion, promoting mutual trade and investment and according fair and equitable tax treatment to foreign residents or nationals"

International Comity

International treaties overrule domestic laws

Pacta sunt servanda

latin phrase - "agreements must be kept"

Pacta sunt servanda

Is a fundamental international law principle that requires agreeing parties to comply with their treaty obligations in good faith

Doctrine of Sovereign Equality

All nations are Equal

Doctrine of Sovereign Equality

Foreign governments are exempt from Philippines taxes

Exemption of Government entities, agencies and instrumentalities

Immunity of the government, taxing itself to raise money for itself

Exemption of Government entities, agencies and instrumentalities

General rule: ?

Exemptions: ?

Exemptions to exemption: ?

General rule: Exemption of Government entities, agencies and instrumentalities

XPN: Government Owned and Controlled Corporations (GOCC's) are subject to tax

XPNs to XPN:

- GSIS

- SSS

- PHIC (PhilHealth)

- LWD (Local water district)

- HDMF (Pag-ibig)

Constitutional Limitations

No person shall be deprived of life, liberty, or property without due process of law nor shall any person be denied the equal protection of the laws

Constitutional Limitations

1. Due process

2. Equal protection

3. Double taxation

4. Religious freedom: Non establishment Clause

5. Charitable institutions; Churches, Mosques, Non-profit cemeteries and All lands, buildings and improvement Actually, Directly and Exclusively (ADE) used for religious, charitable or educational purposes shall be exempt from taxation (Real property tax)

6. All revenues and assets of non-stock, non-profit educational institutions used ADE for educational purposes shall exempt from taxes and duties

7. Taxation shall be uniform, equitably and progressive avail tax system in PH

8. Non-Imprisonment for debt or non-payment of a poll tax

Due process

Procedural Due Process - Notice and opportunity to be heard

Substantive Due Process

- Valid law pursuant to a valid purpose

Equal Protection

requisites for valid classification: ?

Requisites: PEGS

1. Apply to both PRESENT and future conditions

2. Apply EQUALLY to all members of the same class

3. Must be GERMANE to the purposes of the law

4. Must be based on SUBSTANTIAL distinction

Double Taxation

Taxing the SAME PERSON TWICE by the SAME JURISDICTION for the SAME THING

It is obnoxious when the taxpayer is taxed twice, when it should be but once

What are the types of Double Taxation

- Direct Double Taxation

- Indirect Double Taxation

Direct Double Taxation

Also: Double taxation in the strict sense: Dapat ma meet lahat para direct double taxation

SUPPERPACK

a. On the same SUbject matter

b. Within the same Place or jurisdiction

c. During the same taxable PERiod

d. For the same Purpose

e. By the same taxing Authority

f. The taxes must be of the same Character or Kind

Indirect Double Taxation

- At least one is not present

SUPPERPACK

a. On the same SUbject matter

b. Within the same Place or jurisdiction

c. During the same taxable PERiod

d. For the same Purpose

e. By the same taxing Authority

f. The taxes must be of the same Character or Kind

Religious Freedom: Non establishment clause:

No appropriation or use of public money for religious purposes

Lemon Test

A test to know the government's action must:

1. Have a secular legislative purpose

2. Not have the primary effect of advancing or inhibiting religion

3. Not result in excessive government entanglement in religion

Taxation shall be uniform, equitably and progressive avail tax system in PH

The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

Are uniformity and equitability synonymous?

No; not synonymous or same

Non-Imprisonment

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

*dapat in good faith, no fraud

Poll tax

is one levied in persons who are residents within the territory of the taxing authority without regard to their property, business, or occupation

Debt vs Tax

1. As to source: Yes - Yes

2. As to assignability: Yes - No

3. As to mode of payment: Yes - No

3. As to compensation or setoff: Yes - No

4. As to effect of non-payment: No -Yes

5. As to interest (rate and stipulation): 6% - meron automatic

6. As to prescription

Debt vs Tax

1. As to source: ?

2. As to assignability: ?

3. As to mode of payment:?

3. As to compensation or setoff: ?

4. As to effect of non-payment: ?

5. As to interest (rate and stipulation):?

6. As to prescription