Principles of Taxation

Taxation

Is a Principal attribute of sovereignty. Its exercise of power derives its source from the very existence of STATE whose social contract with its citizens obliges it to to promote Public Interest and the Public Good.

State

Is a community of persons, more or less numerous, permanently occupying a fixed territory, and possessed of an independent government organized for political ends to which the great body of inhabitants render habitual obedience.

Police Power

Is the power of the State to regulate liberty and property for the promotion of general wefare.

Power of Eminent Domain

Is the power of the State to forcibly acquire private property, upon property, upon payment of just compensation, for some intended public use.

Power of Taxation

a. Power to demand > proportion share or contribution the maintenance of government.

b. Inherent in every State > to impose upon persons, properties, or rights to raise revenues in order to defray the NECESSARY AND LEGITIMATE expense of the government; and support the government to discharge its APPROPRIATE FUNCTIONS.

c. Imposing charge > Property, individuals, or transactions to raise money for public purposes.

d. Act of levying tax > The sovereign, through its law making body raises income. Method of apportioning the cost of government among those who are privilege to enjoy its benefits.

e. Its power is NOT EXPRESSLY GRANTED BY THE CONSTITUTION

! Considered the strongest governmental power, but it isn’t without limitation.

Marshall Doctrine

“The power to tax involves the power to destroy.”

Holmes Doctrine

“The power to tax is not the power to destroy while this court sits. So it is in the Philippines.”

Power to destroy

Maxim means that the power to tax includes the power to regulate even to the extent of prohibition or destruction of businesses

Lifeblood Theory

Without taxes, the government can neither exist nor endure. The exercise of taxing power derives its source from the very existence of the State whose social contract with its citizens obliges it to promote public interest and the common good.

a. Taxes should be collected without Unnecessary Hindrance.

b. Collection of taxes cannot be Enjoined by Injunction.

c. Taxes could not be subject of Compensation or Set Off.

d. A valid tax may result in the Destruction of the taxpayer’s property.

e. Taxation is Unlimited and Plenary in Power.

Necessity Theory

Existence of government cannot continue without means to pay its expenses. and that for these means, it has right to compel ALL of its citizens and property within its limits to contribute. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. It is a means to give CITIZENRY.

Benefit-Received Theory

Where the inflow of wealth and/or economic benefits proceeds from, and occurs within the Philippine territory, it enjoys protection of the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government, and thus, is subject to tax. Symbiotic Relationship between the State and its citizens. It is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in seat of power.

Fiscal Adequacy

Sources of revenues must be adequate to meet government expenditures and their variations. The dire need for revenue cannot be ignored.

Administrative Feasibility

Tax laws should be capable of convenient, just, and effective administration free from confusion and uncertainty that even an ordinary taxpayer may comprehend.

Theoretical Justice or Equality

The Congress shall evolve a progressive system of taxation. Non observance of Uniformity and Equitable will not necessarily render the tax imposed invalid except tot the extent those specific constitutional limitations are violated.

Uniformity

Means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times.

Equitable

Means tax imposition must be fair, just, reasonable, and proportionate to the taxpayer’s ability to pay.

Progressive System of Taxation

Means that tax laws should place emphasis on direct taxes rather than on indirect taxes, with ability, to pay as the principal criterion.

“Congress shall evolve this system of taxation.”

Regressive System of Taxation

Exists when there are more indirect taxes imposed than direct taxes.

House of Representatives

All appropriation, revenue, or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills, shall originate exclusively in the ?

“Senate may propose or concur with amendments'.”

2/3

number of agreement required for a bill to be sent (together with the objections) other house and the same number of agreement from all the members of the House shall make it to a law.

30 days

Number of days after the date of receipt thereof the president (bill) to communicate his veto otherwise it shall become a law as if he had signed it.

Assessment and Collection

This process involves the act of administration and implementation of tax laws by the executive through its administrative agencies such as the BIR or Bureau of Customs. (Administrative in character which can be delegated)

Payment

This process involves the act of compliance by the taxpayer in contributing his share to pay the expenses of the government, (Includes options, schemes, or remedies)

No injunction Rule

No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.

Can only be issued by the CTA when:

a. Collection may jeopardize the interest of the government.

b.Taxpayer either to deposit the amount claimed or to file a surety bond for not ore than double the amount with the court.

Refund

The recovery of any alleged to have been erroneously or illegally assed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively, or in any manner wrongfully collected.

Duty Test

“Is the tax in the furtherance of the duty of the State as a government to provide?”

Promotion of General Welfare

“Will the tax directly promote the welfare of the community in equal measure?”

Character of the Direct Object of the Expenditure

“Is the public welfare ultimately benefited by the promotion of the direct object of the expenditure"?

President

The congress, may, by law, authorize the (____) President to fix within specified limits, and subject to such limitations and restrictions as it may impose:

1. Tariff rates

2. Import and export quotas

3. Tonnage and wharfage dues

4. Other duties or imposts within the framework of the national development program of the Government

Local Government Units

Are expressly given the power to create their own sources of revenue and to levy taxes, fees, and charges, subject to such guidelines and limitations as Congress may provide which must be consistent with the basic policy of local autonomy.

Administrative agency

There are certain aspects of the taxing process that are not legislative, and they may, therefore, be vested in an (_____). For delegation to be constitutionally valid, the law must be complete in itself and must set forth sufficient standards.

a. Power to value property

b. Power to assess and collect tax

c. Power to perform innumerable details of computation

Situs of Taxation

It is the State or political unit which has jurisdiction to impose a particular tax.The determination of the situs of taxation depends on:

a. Nature of the tax

b. Subject Matter

c. Possible protection and benefit (government and taxpayer)

d. Residence of taxpayer

e. Source of Income

Poll Tax

May be properly levied upon persons who are inhabitants or residents of the State, whether or not they are citizens.

Lex Rei Sitae

“The property is taxable in the State where it has its actual situs, specifically in the place where it is located, even though the owner resides in another jurisdiction.”

Mobilia Sequuntur Personam

‘The property follows the person. Thus, the place where the owner is found is the situs of taxation under the rule that movable follow the person.”

Privity of Relationship

The exception to the rule of territoriality. A person may be taxed where there is between him and the taxing state, this justify the levy. Thus, the citizen’s income may be taxed even if he resides ABROAD as the personal jurisdiction of his government over him remains.

Doctrine of Sovereign Equality among States

Our state cannot exercise its sovereign powers over another. This limits the authority of a government to effectively impose taxes on a sovereign state and its instrumentalities, as well as on its property held, and activities undertake in that capacity.

Substantive Due Process

Provides that law should not be harsh, oppressive, or confiscatory; must be for public purpose and imposed within territorial jurisdiction.

Procedural Due Process

Provides there should be no ARBITRARINESS in the assessment and collection of taxes and the taxpayers right to notice and hearing.

Poll tax

Is a tax of a fixed amount imposed on residents within a specific territory regardless of citizenship, business or profession.

Supreme Court

Power to review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgements and orders of lower courts in:

All cases involving the legality of any tax, impost, assessment or tall, or any penalty in relation thereto.

Franchise

Grant is always subject to amendment, alteration, or repeal by Congress when the common good requires.

Personal Tax

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.

Property Tax

Is the tax imposed on property, real or personal, in proportion to its value or in accordance with some other reasonable method of apportionment.

Excise Tax

Is a charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation.

General Tax

Is imposed for the purpose of raising public funds for the service of the government.

Special or regulatory tax

Imposed primarily for the regulation of useful or non useful occupation or enterprises and secondarily only for the purpose of raising public funds.

Direct tax

Is demanded from the person who also shoulders the burden of the tax. The taxpayer is directly or primarily liable and which he or she cannot shift to another.

Indirect tax

Is demanded from a person in the expectation and intention that he or she shall indemnify himself or herself at the expense of another, falling finally upon the ultimate purchaser or consumer.

Specific tax

Is a tax fixed amount imposed by the head or number or by some standard of weight or measurement. Requires no assessment other than listing or classification of the objects to be taxed.

Ad valorem tax

Fixed proportion of the value of the property with respect to which the tax is assessed. It requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined.

Proportional Tax

Tax based on a fixed percentage of the amount of the property receipts or other basis to be taxed.

Digressive Tax

Fixed rate is imposed on a certain amount and diminishes gradually on sums below it. The tax rate in this case is arbitrary because the increase in tax rate is not proportionate to the increase of tax base.

Progressive Tax

The tax increases as the tax base or bracket increases.

Custom Duties

Are taxes imposed on goods exported from or imported into a country.

Tariff

May be used:

a. A book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be paid for the same.

b. The duties payable on goods imported or exported

c. The system or principle of imposing duties on the importation or exportation of goods.

License fee

Imposed for regulation, involves exercise of police power, imposed only on the right to exercise a privilege and non payment makes the act or business ILLEGAL.

Special Assessment

Is a levy on property which derives some special benefit from the improvement. Its purpose is to finance such improvement. (imposed on owners of land; limited to the land)

Shifting

Is the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to someone else. It should be borne in mind that what is transferred is not the payment of tax but the burden of the tax.

Forward Shifting

The burden of the tax is transferred from a factor of production through factors of distribution until it finally settles on the ultimate purchaser or consumer.

Backward Shifting

The burden of the tax is transferred from the consumer/purchaser through the factor of distribution to the factor of production.

Onward Shifting

When the tax is shifted two or more times either forward or backward.

Impact of taxation

Is the point on which tax is originally imposed.

Incidence of taxation

Is the point on which the tax burden finally rests or settle down. It takes place when shifting has been enacted from the statutory taxpayer to another.

Statutory Taxpayer

Is the person required by law to pay the tax or the one on whom the tax is formally assessed. In short, he /she is the subject of tax.

Tax Evasion

Is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax. “tax dodging”

Tax Avoidance

Is the exploitation by the taxpayer of legally permissible alternative tax rate or methods of assessing taxable property or income in order to avoid or reduce tax liability. tax minimization”

Tax Exemption

Grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are oblige to paye.

Compromise

Generally allowed and enforceable when the subject matter thereof is not prohibited from being compromised and the person entering such compromise is duly authorized to do so.

Tax amnesty

Is the general or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law.

Double Taxation

Two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period, and the taxes must be of the same kind or character.

Indirect Double Taxation

Extends to all cases in which there are two or more pecuniary impositions and any of the elements for direct duplicate taxation are absent.

Bureau of Internal Revenue

Under the the supervision and control of the Department of Finance and its powers and duties shall comprehend the

a. Assessment and collection

b. Enforcement

c. Execution of judgement

d.Administer the supervisory and police powers

Commissioner; 4

Chief of BIR and number of its assistant chiefs known as Deputy Commissioners

Secretary of Finance

The power to interpret the provisions of Tax Code and other Tax Laws shall be under the exclusive and original jurisdiction of Comissioner; subject to review by the?

Court of Tax Appeals

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereto administered by the BIR vested in the Commissioner; subject to the exclusive appellate jurisdiction of the ?

Notice

Upon receipt and demand of payment, any tax amount or deficiency determined through assessment must be paid when the Commissioner or their representative sends.

3 years

Term allowed within the years of filing, the taxpayer can modify, change, or amend the document. This is permitted as along as no audit or investigation notice has been served to the taxpayer in the meantime.

Best Evidence Obtainable

If report necessary for assessing national internal revenue taxes isn’t submitted on time or if there’s reason to suspect its false, incomplete, or incorrect, the Commissioner can determine the proper tax based on the?