TAXATION

tax law

body of rules passed by the legislature by virtue of which the government acquires a claim or property as a matter of legal duty or obligation by operation of law

Taxation

the power of the sovereign to impose burden or charges upon persons, property or property rights for the use and support of government in order to enable it to discharge its function

power of taxation

both inherent and legislative in character because it has been reserved by the State for it to exercise

power of taxation

legislative in character because only the legislature can make tax laws. It is an exercise of the high act of sovereignty to be performed only by the legislature upon consideration of the policy, necessity and public welfare.

primary purpose of taxation

to raise revenues for public needs so that the people may be enabled to live in a civilized society

variety purpose of taxation

Increased in order to stabilize prices and stimulate greater production; taxes on imports may be increased to favor domestic production; or decrease to encourage foreign trade; it can also mobilize capital to be poured into capital deficient fields of business.

taxation

instrument of fiscal policy, and fiscal policy influences the direction and structure of money supply, prices and of the national economy.

Inherent Limitations of the Power of Taxation

1. Limitation of public purpose

2. Limitation of territorial jurisdiction

3. Limitation of double taxation

4. Limitation of non-delegation of taxing power

5. Limitation of exemption of government agency or instrumentality

1. Limitation of public purpose

A tax is for public purposes where it is for the support of the government, or any of the recognized objects of the government, or where it will directly promote the welfare of the community in equal measure.

2. Limitation of territorial jurisdiction

The general rule is that sovereignty of a state extends only as far as its territorial jurisdiction. It follows that its taxing power does not extend beyond its territorial limits, but within its limit, it may tax persons, property, income or business.

3. Limitation of double taxation

Double taxation may be understood as direct duplicate taxation which means taxing twice by the same public authority for the same purpose during the taxing period of some of the property in the territory in which the tax is paid without taking all of them a second time.

4. Limitation of non-delegation of taxing power

The constitution provides that sovereignty resides in the people and all government authority emanates from them. Under a republican form of government, the people created a legislative department for the exercise of their legislative power in the manner in which those rules shall be given effect. The power cannot be delegated to the President and to local government. However, it may be delegated to the municipal corporations which are the instrumentalities of the state for the better administration of the government in matters of local concerns.

5. Limitation of exemption of government agency or instrumentality

The general rule is that agencies and instrumentalities of the government are exempted from taxation. So, properties owned by the Philippine government, any province, city, municipality, or municipal districts are exempted from taxation. However, government entities performing profit-making activities are not exempted from taxation.

Basic Principles of Taxation

1. Fiscal adequacy

2. Equality or theoretical justice

3. Administrative feasibility

1. Fiscal adequacy

emphasizes the source of revenue as a whole must be sufficient to meet the expanding governmental expenses regardless of business conditions, export taxes, trade balances, and problems of economic adjustments

2. Equality or theoretical justice

refers to the use of revenues which must be believed based on the taxpayer’s ability to pay.

3. Administrative feasibility

means that the tax system must be clear to the taxpayers, can be enforced and is convenient and not burdensome or discouraging to a business activity

Inherent Powers of the Government

1. Police Power

2. Taxation

3. Eminent Domain

1. Police Power

authority of the government to regulate the activities of an individual even in the absence of law for the benefit and protection of public welfare.

2. Taxation

authority of the government to improve taxes, charges and fees from its taxpayers under its sovereignty and/or territorial jurisdiction, to support its necessary expenses.

3. Eminent Domain

authority of the government to expropriate private property for public use upon payment of a just compensation.

tax

a forced and involuntary burden assessed in accordance with some reasonable rule of appointment by the authority of a sovereign government upon the persons or properties within its jurisdiction, to provide public revenues for the support of the government.

Essential Characteristics of Taxes

1. It is an enforced contribution

2. It is exacted pursuant to legislative authority

3. It is contribution in money

4. It is levied upon person, property and property rights 5. It is for the purpose of raising revenue

6. It must be for public purpose

7. It must be proportionate in character

Classification of Taxes

1. According to Purpose

2. According to Object

3. According to Subject

4. According to determination of amount

5. According to authority imposing the tax

6. According to rate

1. According to Purpose

a. Fiscal Taxes – designed to raise revenues for governmental needs.

Ex. Percentage tax on locally manufactured commodities

b. Regulatory Taxes – designed to achieve some social and economic goals irrespective of whether revenue is actually raised or not.

Ex. protective tariff or custom duties

2. According to Object

a. Personal, Captivation or Poll Tax – imposed on individuals within the jurisdiction of the taxing power, without regard to the amount of their property or occupation in which they are engaged.

Ex. residence tax

b. Property Taxes – computed upon the valuation of property and assessed at the owner’s domicile, although privileges may be included in the valuations

Ex. real estate tax

c. Excise Tax – imposed directly by the legislature and the sum is measured by the amount of business done or the extent to which the privilege has been enjoyed or exercised.

3. According to Subject

a. Direct Tax – when the person on whom the tax is imposed absorbs the tax or bears it.

Ex. income tax

b. Indirect Tax – charge paid by a person other than the one on whom it is legally imposed.

Ex. value-added tax

4. According to determination of amount

a. Specific Tax – of fixed amount by the hear or member, or by some standards of weight and measurement, and requires no assessment other than a listing or classification of the subjects to be taxed

Ex. excise taxes on wines and liquors

b. Ad Valorem Tax – of fixed proportion, of the value of the property with respect to which the taxes are assessed, and require the intervention of assessors to appraise the value of such property before the amount due from each taxpayer can be determined.

Ex. real state tax, excise tax on cigars and cigarettes

5. According to authority imposing the tax

a. National Taxes –levied and collected by the national government

Ex. income tax

b. Municipal Tax – levied and collected by the municipal government

Ex. real state tax

6. According to rate

a. Proportional Tax – based on a fixed percentage regardless of the amount of income, property or other bases to be taxed, a single rate being applied to different objects with different values.

b. Progressive Tax –the tax rate increases as the tax base increases.

Ex. income tax

c. Regressive Tax –the effective rate decreases as the base increases.

Ex. value-added tax

Forms of Escape from Taxation

1. Shifting

2. Capitalization

3. Transformation

4. Evasion

5. Avoidance

6. Exemption

1. Shifting

transfer of the burden of a tax by the original payer on the one on whom the tax was assessed or imposed to another or someone else

2. Capitalization

special form of backward shifting. It occurs when the good is durable good, the whole series of future taxes is to be shifted backward at the time of purchase, and the future taxes must be capitalized and deducted in a lump sum from the price offered.

3. Transformation

this is effected through the process of production. When the producer pays the taxes himself and recovers the additional expenses by improving his production thereby turning out units of his production at lower cost.

4. Evasion

illegal effort to avoid payment of tax

5. Avoidance

use of legally permissible means to reduce tax liability

6. Exemption

grant of immunity to a particular person or corporation from a tax upon properties or exercise which they are obligated to pay

Local tax

may be valid only for the public purpose and yet invalid for private purposes. Except when allowed by law, local funds shall be devoted exclusively to local purposes.

Constitution: Article VI, Section 28 of the Constitution

states that "the rule of taxation shall be uniform and equitable" and that "Congress shall evolve a progressive system of taxation."

National laws: National Internal Revenue Code

enacted as Republic Act No. 8424 or the Tax Reform Act of 1997, and subsequently amended by Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act of 2017;

Local laws

major sources of revenue for the local government units (LGUs) are the taxes collected by virtue of Republic Act No. 7160 or the Local Government Code of 1991, [4] and those sourced from the proceeds collected by virtue of a local ordinance.

Bureau of Internal Revenue (BIR)

Taxes imposed at the national level are collected by the _____________, while those imposed at the local government level, which are the provincial, city,municipal and barangay, are collected by the local treasurer's office.

December 19, 2017

the President signed into law Package I of the Tax Reform for Acceleration and Inclusion (“TRAIN”) bill otherwise known as Republic Act No. 10963.

Republic Act No. 10963.

Tax Reform for Acceleration and Inclusion (“TRAIN”)

Republic Act No. 10963.

The law contains amendments to several provisions of the National Internal Revenue Code of 1997. It shall take effect on January 1, 2018, following its complete publication in the Official Gazette or in at least one newspaper of general circulation. The law was published in the Official Gazette on December 27, 2017.

1. Tax Schedule Effective

January 1, 2018 until December 31, 2022

2. Minimum Wage Earner

• Statutory minimum wage rates are EXEMPTED from income tax.

• Also exempted are the holiday pay, overtime pay, night shift differential pay and hazard pay earned by MWE’s.

3. 13th Month Pay and Other Benefits

Maximum of P90,000

4. Personal and Additional Exemptions

• NONE – already included in the P250,000 exempt from income tax

• repeals Sec. 33(A) of the Magna Carta for Persons with Disability, Sec.22(B) of the Foster Care Act of 2012

5. VAT Threshold

• Three Million Pesos (P3,000,000)

• Any person whose sales or receipts are exempt under Section 109(B) of the Code from the payment of VAT and who is not a VAT-registered person shall pay a tax equivalent to 3% of his gross quarterly sales or receipts.