Fundamental Principles of Taxation

Flashcards covering the fundamental principles of taxation, including its definition, inherent powers, purposes, theories, elements of a sound tax system, and various classifications and limitations.

Taxation

The process or means by which the sovereign (independent State), through its law-making body (the legislature), imposes burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government.

Taxes

Enforced proportional contributions or charges 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.

Police Power

The power of the State for promoting public welfare by restraining and regulating the use of liberty and property; the property taken is destroyed because it is noxious or intended for a noxious purpose.

Power of Taxation

The power by which the State raises revenue to defray the necessary expenses of the government.

Power of Eminent Domain

The power of the State to acquire private property for public purpose upon payment of just compensation.

Inherent Power

Features that are built-in, inborn, ingrained, or existing in something as a permanent, essential, or characteristic attribute; vested in the State or government as a right or privilege.

Primary Purpose of Taxation

The revenue or fiscal purpose to provide funds or property with which to promote the general welfare and provide protection to citizens and finance government activities.

Secondary Purpose of Taxation

The regulatory, sumptuary, or compensatory purpose where taxation is used as a device for regulation or control to achieve certain social or economic objectives.

Lifeblood Theory

The theory that the power of taxation is essential because the government can neither exist nor endure without it; taxes are the lifeblood of the government and their prompt and certain availability is an imperious need.

Necessity Theory

The theory that the existence of government is a necessity and the power to tax is a necessary burden to preserve the State's sovereignty and provide services like an army, navy, and civil servants.

Benefits Received or Reciprocity Theory

The basis of taxation involving the reciprocal duties of protection and support between the State and its inhabitants; citizens pay taxes to be secured in the enjoyment of the benefits of organized society.

Doctrine of Symbiotic Relationship

A doctrine which means taxes are what we pay for a civilized society; every person who is able must contribute to allow the government to provide general advantages and protection.

Rule of "No Estoppel against the Government"

The principle that the State cannot be estopped by the neglect of its agents or officers, and erroneous application of law by public officers does not block subsequent correct application.

Prohibition of Injunction

Under Section $218$ of the Tax Code, no court (except the CTA under specific remedies) shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax.

Rule of "No Set-off"

The principle that taxes are not subject to set-off or legal compensation because the government and the taxpayer are not mutual creditor and debtor of each other, as a tax is not a debt or contract.

Comprehensive (Scope)

An attribute of the power to tax meaning it covers persons, businesses, activities, professions, rights, and privileges.

Unlimited (Scope)

An attribute of the power to tax meaning that in the absence of constitutional or legal limitations, its force is so searching that courts rarely declare it subject to restrictions.

Plenary (Scope)

An attribute of the power to tax meaning it is complete, allowing the BIR to avail of certain remedies to ensure collection.

Supreme (Scope)

An attribute of the power to tax regarding the selection of the subject of taxation.

Levying

The aspect of taxation referring to the imposition of the tax, which is a legislative act or function.

Assessment

The aspect of taxation referring to the determination of the correct amount of applicable tax, which is an executive function.

Collection

The aspect of taxation referring to the actual gathering of the tax levied, which is an administrative or executive function handled by agencies like the Bureau of Internal Revenue.

International Comity

A polite and friendly agreement among nations where the property of a foreign State may not be taxed by another State due to sovereign equality and immunity from suit.

National Tax

Taxes imposed by the National Government, such as income tax, estate tax, donor's tax, VAT, and documentary stamp tax.

Local Tax

Taxes imposed by local government units such as municipal corporations, based on a constitutional grant rather than inherent power (e.g., real estate tax).

Personal, Poll, or Capitation Tax

A tax of a fixed amount imposed upon individuals residing within a specified territory without regard to their property or occupation, such as the community tax.

Property Tax

A tax imposed on property, whether real or personal, in proportion to its value or some other reasonable method of apportionment.

Excise Tax (Subject Matter)

A tax on the exercise of certain rights and privileges, such as income tax; also refers to taxes on specific articles like sin products manufactured for domestic sale.

Direct Tax

A tax demanded from the person who shoulders the burden; the incidence and impact of the tax fall on the same person (e.g., income tax).

Indirect Tax

A tax demanded from one person in the expectation that they shall indemnify themselves at the expense of another; the burden can be shifted (e.g., VAT).

Specific Tax

A tax of a fixed amount imposed by the head, number, or standard of weight or measurement, such as excise taxes on cigars and liquors.

Ad Valorem Tax

A tax of a fixed proportion of the value of the property with respect to which the tax is assessed, such as VAT or income tax.

Fiscal Adequacy

An element of a sound tax system requiring that sources of revenue must be adequate to meet government expenditures and sustain public services.

Theoretical Justice

An element of a sound tax system based on the ability to pay principle, where the tax burden should be proportionate to the taxpayer's ability to pay.

Administrative Feasibility

An element of a sound tax system requiring that tax laws are capable of effective and efficient enforcement and are as simple as possible.

Due Process of Law

A constitutional limitation requiring a valid law that is not arbitrary, harsh, or confiscatory, and ensuring the right to notice and hearing.

Equal Protection of Laws

A constitutional limitation requiring that all persons subject to legislation be treated alike under similar circumstances, prohibiting class legislation that discriminates.