1 - Introduction to Taxation

1. State power
2. Process
3. Mode of cost distribution

taxation may be defined according to these 3 things

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

taxation as a state power

Taxation is a process of levying taxes by the legislature of the State to enforce proportional contribution from its subjects for public purpose.

taxation as a process

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

taxation as mode of cost distribution

The government's necessity for funding

the theory of taxation

The mutuality between the people providing funds and the government providing public service to its people

the basis of taxation

Receipt of benefits by the people is CONCLUSIVELY presumed. Thus, people cannot avoid payment of taxes under the defense of absence of benefit received.

assumption on receipt of benefits for taxation

1. Benefit received theory
2. Ability to pay theory
3. Necessity protection theory

*this is actually one 2 items in the book, the 3rd one was given by Sir Sevilla

3 theories of cost allocation (BAN)

A theory that presupposes that the more benefit one receives from the government, the more taxes he should pay.

what is the benefit received theory?

A theory that presupposes that taxation should also consider the taxpayer's ability to pay, regardless whether they receive more or less benefits from the government.

what is the ability to pay theory?

1. Vertical equity
2. Horizontal equity

2 aspects of the ability to pay theory

An aspect of the ability to pay theory proposing that the extent of one's ability to pay is directly proportional to the level of his tax base.

what is the vertical equity aspect of the ability to pay theory?

An aspect of the ability to pay theory that requires consideration of the particular circumstance of the taxpayer.

what is the horizontal equity aspect of the ability to pay theory?

Vertical equity - gross concept

Horizontal equity - net concept

Vertical equity vs. Horizontal equity as a concept

Taxes are the lifeblood of the government. The government's ability to serve the people for whose benefit taxes are collected, depend upon taxation.

what does the Lifeblood doctrine say?

1. Tax is imposed even in the absence of a Constitutional grant.
2. Claims for tax exemption are construed against taxpayers.
3. The government reserves the right to choose the objects of taxation.
4. The courts are not allowed to interfere with the collection of taxes
5. In income taxation:

a. Income received in advance is taxable upon receipt.
b. Deduction for capital expenditures and prepayments is not allowed as it effectively defers the collection of income tax.
c. A lower amount of deduction is preferred when a claimable expense is subject to limit.
d. A higher tax base is preferred when the tax object has multiple tax bases.

5 implication of the lifeblood doctrine in taxation (or 8)

1. Taxation power
2. Police power
3. Eminent domain

3 inherent powers of the State

Power to enforce proportional contribution from its subjects to sustain itself.

what is taxation power?

General power to enact laws to protect the well-being of the people.

what is police power?

Power to take private property for public use after paying just compensation.

what is eminent domain?

1. Exercising authority
2. Purpose
3. Persons affected
4. Amount of imposition
5. Importance
6. Relationship with the Constitution
7. Limitation

7 points of difference for the 3 inherent powers of the State

Taxation power - Government

Police power - Government

Eminent domain - Government and private utilities

Taxation power vs. Police power vs. Eminent domain AS TO Exercising authority

Taxation power - For the support of government

Police power - To protect the general welfare of the people

Eminent domain - For public use

Taxation power vs. Police power vs. Eminent domain AS TO Purpose

Taxation power - Community or class of individuals

Police power - Community or class of individuals

Eminent domain - Owner of the property

Taxation power vs. Police power vs. Eminent domain AS TO Persons affected

Taxation power - Unlimited (based on government needs)

Police power - Limited to cover cost of regulation

Eminent domain - No amount imposed (government pays just compensation)

Taxation power vs. Police power vs. Eminent domain AS TO Amount of imposition

Taxation power - Most important

Police power - Most superior

Eminent domain - Important

Taxation power vs. Police power vs. Eminent domain AS TO Importance

Taxation power - Inferior to the "non-impairment clause" of the Constitution

Police power - Superior to the "non-impairment clause" of the Constitution

Eminent domain - Superior to the "non-impairment clause" of the Constitution

Taxation power vs. Police power vs. Eminent domain AS TO Relationship with the Constitution

Taxation power - Constitutional and inherent limitations

Police power - Public interest and due process

Eminent domain - Public purpose and just compensation

Taxation power vs. Police power vs. Eminent domain AS TO Limitation

1. Necessary attributes of sovereignty
2. Inherent to the State
3. Legislative in nature
4. Ways in which the State interferes with private rights and properties
5. Existence is independent of the Constitution and are exercisable by the government even without Constitutional grant. However, the Constitution may impose conditions or limits for their exercise.
6. Presuppose an equivalent form of compensation received by the persons affected by the exercise of the power.
7. Their exercise by LGUs may be limited by national legislature.

7 similarities of the 3 inherent powers of the State

Comprehensive, unlimited, plenary, supreme

describe the scope of taxation (CUPS)

No, it has its limitations.

is taxation absolutely unlimited?

1. Territoriality of taxation
2. International comity
3. Public purpose
4. Exemption of the government
5. Non-delegation of thee taxing power

5 inherent limitations of the taxation power (TIPEN)

Within the territories of the State, because public services are normally provided within the boundaries of the state.

according to the territoriality principle, where can taxes be imposed and why?

Encroachment (intrusion) of foreign sovereignty.

according to the territoriality principle, extraterritorial taxation will amount to?

1. In income taxation, resident citizens and domestic corporation are taxable on income derived within and outside the Philippines.

2. In transfer taxation, residents or citizens (resident citizens, non-resident citizens, resident aliens) are taxable on transfers of properties located within or outside the Philippines.

2 exception to the territoriality principle

It pertains to mutual courtesy or reciprocity between states.

It is a basic principle of international law that all states are equally sovereign, and they observe such equality by not taking the properties, income, or effects of fellow states.

what is international comity?

National Internal Revenue Code

The income of foreign government and foreign government-owned and controlled corporations are NOT subject to income tax.

what is stated under the NIRC as to international comity?

Treaty agreements

which prevails when there is conflict between treaty agreements with other states and local tax laws?

Taxation is exercise absolutely for public purpose and NEVER for any private interest.

what does the inherent limitation as public purpose imply?

Yes, but it normally does NOT as it will only incur additional costs instead of raising additional funds.

can the government tax itself?

Income from GOCCs

under the NIRC, which government income is subject to taxation?

Government properties and income from essential public functions

under the NIRC, which government income is NOT subject to taxation?

Exclusively to the Congress

to whom is the legislative taxing power vested?

Doctrine of separation of the branches of the government to ensure a system of checks and balances

under what doctrine is the non-delegation of taxing power based on?

1. LGUs are allowed to exercise the power to tax to enable them to exercise their fiscal autonomy. (Constitution)

2. The President is empowered to fix the amount of tariffs to be flexible to trade conditions. (Tariff and Customs Code)

3. Other cases that require expedient and effective administration and implementation of assessment and collection of taxes.

3 exceptions to the rule of non-delegation of taxation power (LPO)

1. Uniformity rule in taxation
2. Progressive system of taxation
3. Non-imprisonment for non-payment of debt or poll tax
4. Exemption of (educational), religious or charitable entities, non-profit cemeteries, churches and mosque from REAL property taxes
5. Exemption from taxes of the revenues and assets of non-profit , non-stock educational institutions
6. Concurrence of a majority of all members of Congress for the passage of law granting tax exemption
7. Non-impairment of the jurisdiction of the Supreme Court to REVIEW, MODIFY, REVOKE tax cases
8. The requirement that appropriations, revenue, or tariff bills shall originate exclusively in the HoR

8 direct constitutional limitations of the taxation power

1. Due process of law
2. Equal protection of the law
3. Non-impairment of obligation and contract
4. Free worship rule
5. Non-appropriation of public funds or property for the benefit of any church, sect or system of religion
6. Non diversification of tax collections
7. Non-delegation of the power of taxation
8. The delegation of taxing power to LGUs
9. Non-infringement of the freedom of press
10. Veto on income tax by president

10 indirect constitutional limitations of the taxation power

1. Substantive due process
2. Procedural due process

2 aspects of due process

Tax must be imposed only for public purpose, collected only under authority of a valid law and only by the taxing power having jurisdiction.

what is the meaning of substantive due process?

There should be no arbitrariness in assessment and collection of taxes, and the government shall observe the taxpayer's right to notice and hearing.

what is the meaning of procedural due process?

Within 3 years from the due date of filing of the return or from the date of actual filing, whichever is LATER.

Exemption: In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission.

under NIRC, during what period should assessments be made?

Within 5 years from date of assessment

under NIRC, during what period should collections be made?

Taxpayers under the SAME CIRCUMSTANCES AND CONDITIONS should be treated equally.

what is the rule of taxation under equal protection of law?

Taxpayers under DISSIMILAR CIRCUMSTANCES should not be taxed the same, and such must be based on substantial distinction.

what is the uniformity (and equity) rule of taxation?

Tax rates increase as tax base increases. It is consistent with the taxpayer's ability to pay, thus taxing the rich more than the poor.

what is a progressive system of taxation?

Regressive system. Examples is VAT, which is based upon the taxpayer's ability to CONSUME

what is the opposite of a progressive system of taxation? give example

Debt acquired in bad faith, which constitutes estafa (a criminal offense punishable by imprisonment)

non-imprisonment for non-payment of debt does not apply to what kind of debt?

TAX - arises from law and is a demand of sovereignty, non-payment of which compromises public interest (thus similar to a crime)

DEBT - arises from private contracts, non-payment of which compromises private interest

tax vs. debt

1. Basic community tax
2. Additional community tax

2 components of poll tax

Basic community tax

Non-payment of the additional constitutes tax evasion.

which component of poll tax is constitutionally guaranteed of non-imprisonment for its non-payment?

No, it should be honored by the government.

can government cancel tax exemptions granted under a contract?

EXEMPT - Properties and revenues of religious institutions

NOT EXEMPT - Income from properties or activities of religious institutions that are proprietary or commercial in nature

under free worship rule, which are not subject to tax? which are subject to tax?

"actually, directly, and exclusively"

what does "primarily" mean? (ADE)

Those real properties primarily used for charitable , religious and educational purposes.

the Constitutional exemption from property tax applies to what properties?

Only properties actually devoted for religious, charitable, and educational activities are exempt from real property taxes.

what does the doctrine of use say?

The properties of religious, charitable, and educational institutions whether or not used in their primary operations are exempt from real property tax

what does the doctrine of ownership say?

Doctrine of use

which doctrine is applied in the Philippines: of use or of ownership?

Separation of state and church

the concept highlighted by the constitutional limitation of non-appropriation of public funds or property for the benefit of any church, sect, or system of religion

No, they are not.

are compensation to priests, imams, or religious ministers working with the military, penal institutions, orphanages, or leprosarium considered religious appropriation?

1. Grants
2. Endowments
3. Donations
4. Contributions

(all primarily for educational purposes)

other than revenues and assets of non-stock, non-profit educational institutions, what 4 other things are these entities tax exempted from?

Government educational institutions - exempted from income tax

Private educational institutions - subject to 10% minimal income tax

exemption of government and private educational institutions

Lifeblood doctrine, because it deprives the government of funds.

what doctrine is against the tax exemption law?

Absolute majority (majority of all members) and NOT relative majority (quorum majority)

in the approval of exemption law, what kind of majority is required of the Congress?

Relative majority (quorum majority)

in the withdrawal of exemption law, what kind of majority is required of the Congress?

Tax collections should be used only for public purpose and not to be diversified or used for private purpose.

what does non-diversification of tax collections mean?

BIR & Department of Finance

in cases that require expedient and effective administration and implementation of assessment and collection of taxes, what administrative agencies were established?

Mere interpretation and clarification of the application of law, NOT introduction of new laws

Authority - quasi-legislative

function of BIR & Department of Finance and their authority

Supreme Court of the Philippines

in which court can all tax cases be raised to and be finally decided?

1. Levy or imposition
2. Assessment and collection

2 stages of the exercise of taxation power

It is the process that involves the enactment of a tax law by the Congress

what is levy or imposition?

Impact of taxation
Legislative act in taxation

other names for levy or imposition

1. HoR
2. Senate

2 bodies of congress

HoR

from which body must a tax bill exclusively originate?

It may (as may HoR) have its own version of a proposed law, which is approved by both bodies.

what does Senate do during imposition?

1. Object of taxation
2. Tax rate or amount to be collected
3. Purpose for the levy which must be for public use
4. Kind of tax to be imposed
5. Apportionment of the tax between the national and local govt
6. Situs of taxation
7. Method of collection

7 matters of legislative discretion in the exercise of taxation

The stage of implementation by the administrative branch of the government.

what is the stage of assessment and collection?

Incidence of taxation
Administrative act of taxation

other names for the assessment and collection stage

It is the place or jurisdiction of taxation, which has the power to levy taxes upon the tax object.

what is a situs?

To serve as frames of reference in gauging whether the tax object is within or outside the tax jurisdiction of the taxing authority.

what is the purpose of situs rules?

1. Business tax situs
2. Income tax situs on services
3. Income tax situs on sale of goods
4. Property tax situs
5. Personal tax situs

5 examples of situs rules

Where business is conducted

business tax situs

Where they are rendered

income tax situs on services

In the place of sale (where contract is perfected)

income tax situs on sale of goods

In their location

property tax situs

Place of residence

personal tax situs

1. Marshall doctrine
2. Holme's doctrine
3. Prospectivity of tax laws
4. Non-compensation or set-off
5. Non-assignment of taxes
6. Imprescriptibility in taxation
7. Doctrine of estoppel
8. Judicial non-interference
9. Strict construction of tax laws

9 other fundamental doctrines in taxation

The power to tax involves the power to destroy.

what does the Marshall doctrine say?

If it is used to discourage or prohibit undesirable activities or occupation (i.e., used as an instrument of police power)

when does the power of tax involve the power to destroy?

Taxation power is not the power to destroy while the court sits.

what does Holme's doctrine say?

Imposition of excessive tax on cigarettes

example of Marshall doctrine