1 & 2 General Principles

Introduction to Taxation

• General Principles of Taxation: Fundamental concepts governing taxation, including laws, systems, and administration.

Definition of Taxation

• Taxation: The power by which the government raises revenue through lawmaking to cover necessary government expenses.

Inherent Nature of Taxation

• Characteristics:

  • Inherent to the state, exercised irrespective of constitutional grants.

  • Constitutes an essential attribute of sovereignty, necessary for government existence (cited case: Pepsi-Cola Bottling Co. v. Municipality of Tanauan).

Scope of Legislative Power to Tax

1. Purpose Determination: Taxes must benefit the public.

2. Subjects of Taxation: Identification of persons, properties, and occupations to be taxed.

3. Tax Amount/Rate: Must adhere to constitutional guidelines.

4. Tax Kind: Identifying types (property tax, income tax).

5. Agencies for Tax Collection: Choosing responsible agencies.

6. Administrative and Judicial Remedies: Establishing legal routes for tax administration.

7. Granting of Exemptions: Authority to provide tax relief measures.

Theories and Basis of Taxation

1. Life Blood Theory: Taxes are vital for government operation and should be collected with minimal interference.

2. Necessity Theory: Government existence demands resources from citizens and properties.

3. Symbiotic Relationship Theory:

   • Taxes enable government operation; in return, the government provides societal benefits.

   • Highlights mutual obligations between taxpayers and the government.

Forms of Escape from Taxation

1. Shifting: Passing the tax burden to another party legally.

2. Capitalization: Reducing the price of a taxed object to reflect future tax expectations.

3. Transformation: Taxpayers adjusting process to minimize operational costs related to tax.

4. Tax Avoidance: Legally exploiting lower tax rates or deductions to reduce tax liability.

5. Tax Exemption: Specific grants of immunity from tax obligations for certain individuals or organizations.

6. Tax Evasion: Illegal means to diminish tax obligations, marked by fraudulent intentions.

7. Compensation/Set-off: Generally, taxes are non-compensable due to their nature.

8. Compromise and Abatement: Authority of tax officials to reduce liabilities or penalties.

9. Tax Amnesty: A government concession allowing taxpayers to settle obligations with reduced penalties.

Tax Exemption Principles

• Exemptions must be clearly justified by law; they're disfavored and strictly construed against the claimant.

• Any exemption claimed must be proven, not presumed, and is personal to the claimant.

• Deductions resemble exemptions and are interpreted restrictively.

Grounds for Tax Exemption

• Contractual Basis: Exemptions often traced to specific legal charters or agreements.

• Public Policy: Aimed at encouraging essential industries.

• Reciprocity: Applied in international treaties to mitigate double taxation.

Revocation of Tax Exemption

• Exemptions granted without contractual basis are revocable by the government.

• Binding contracts for tax exemptions provide concrete protection against revocation.

Doctrine of Equitable Recoupment

• Taxpayers can offset unclaimed refunds against existing liabilities but within the statutory limitation of two years.

Tax Amnesty Act (Republic Act No. 11213)

• Provides a framework for settling estate tax obligations and aims to enhance government revenue collection through reduced compliance burdens. General Tax Amnesty aspect was vetoed for lacking stringent regulations.

Tax Amnesty on Delinquencies

• Covers all national internal revenue taxes; entails compliance with filing and payment requirements within specified timeframes.

Basic Tax Principles

• Complexity governed by statutes, with clear delineation of taxpayer rights and obligations regarding compliance, refunds, and exemptions.

Classification of Taxes

1. By Purposes: General revenue vs. special regulatory taxes.

2. By Incidence: Direct vs. indirect burdens.

3. By Authority: National vs. local taxes.

4. By Nature: Specific (fixed amount) vs. ad valorem (based on value).

Distinction Between Taxes and Fees

• Taxes: Assessments for public expenditure.

• License Fees: Charged for regulated activity permits.

Double Taxation Concepts

• Defined as taxing the same entity for the same period and tax type by the same jurisdiction.

• Legally permissible under broad definitions, particularly in international scenarios.

Constitutional Limitations on Taxation

1. Due Process: Ensures fairness in tax assessments.

2. Equal Protection: Laws must apply uniformly across classifications.

3. Uniformity and Progressivity: Tax rules must be equitable and progressive.

4. Immunity for Poll Tax: Prevention of imprisonment for non-payment of specific taxes.

5. Exemptions for Institutions: Clarifications surrounding religious and charitable organizations' qualifications for tax exemptions.

Bureau of Internal Revenue (BIR)

• The principal agency for administering tax laws, overseeing assessments, collections, and enforcing compliance with tax regulations.