3. Power of Taxation
(please refer to the succeeding sections)
Similarities:
a. Indispensable to government existence;
b. Can exist independent of the constitution;
c. The means by which the state interferes with private rights and properties;
d. Generally exercised by the legislature;
e. Contemplate and equivalent compensation or benefit; and
f. Provisions of the Constitution are just limitations on the exercise of these powers.
Distinctions:
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B. DEFINITION OF TAXATION
1. As a state power
Taxation refers to the inherent power of a sovereign state acting through its
legislature to impose a proportionate burden upon persons, property, rights or
transaction, to raise revenue to support government expenditure and as tool for
general and economic welfare.
2. As a process
Taxation refers to the act of imposing a tax by a sovereign state to raise revenue
for government expenses.
3. As a means
Taxation refers to the way of collecting and apportioning the cost of government
among those who are privileged to enjoy its benefits.
C. PURPOSES OF TAXATION
1. Primary purpose : To raise fund for the expenses of the government
(Revenue or Fiscal purpose)
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Rule: The state thru the congress can tax any thing at any time and at any amount.
Remember S2PAM!!
F. BASIS OF TAXATION
1. Benefits-Received Theory or Symbiotic Relationship Theory
The reciprocal obligation of protection and support between the state and its
citizens. In return for the protection provided by the state, the people pay taxes.
2. Ability-to-Pay Theory
Taxes should be imposed based on the taxpayers ability to pay.
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2. Constitutional Limitations
refer to those that limit the power of taxation as embodied in the Constitution
a. Due process of the law and equal protection of the laws
b. Uniformity and equality rule in taxation
c. Non-imprisonment for non-payment of poll/personal/capitation tax
d. Non-impairment of the obligation of contracts
e. No appropriation of public money for religious purposes
f. Exemption of religious, charitable, education institutions, non-profit cemeteries
and churches from property tax
g. Exemption from taxation of educational institutions, whether for profit or not,
as well as donations for educational purposes
h. Concurrence by a majority of the members of the Congress for passage of a law
granting tax exemption
i. The power of the President to veto a revenue or tariff bill
j. Non-impairment of the jurisdiction of the Supreme Court in tax cases
k. Taxes as general funds of the government
3. Contractual Limitations
refer to those restrictions on the power of taxation imposed by previously existing
contracts entered into by the government with another party (e.g. another state or
its own citizens)
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2. Administrative Feasibility
This means that the tax laws should be easy to understand, implement and follow
free from confusion and uncertainty.
Remember FACT!!
2. Assessment
This 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
(BOC).
Remember LAP!!
Tax Administration
A system involving the assessment, collection and enforcement of taxes, including
the execution of judgment in all tax cases decided in favor of the BIR by the courts.
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C. OBJECTS OF TAXATION
1. Persons
a. Natural person individual taxpayers
b. Juridical person corporations, partnerships and any association
2. Properties
a. Real properties immovable
b. Personal properties movable
c. Tangible properties maybe felt or touched and are necessarily corporeal,
either real or personal properties
d. Intangible properties rights rather than physical
3. Excise objects
a. Transaction the act of conducting activities related to any business
or profession
b. Privilege a benefit derived through gratuitous transfer by fact of
death or donation
c. Right a power, faculty or demand inherent in one person and
incidental to another
d. Interest an advantage accruing from anything
D. DOCTRINES OF TAXATION
1. Prospective application of tax laws
A tax bill must only be applicable and operative after becoming a law.
The effectivity of the tax law commences upon its approval and its scope would
only cover the present and future transactions.
~> Retrospective application of tax laws shall not be applied, UNLESS there is a clear
intent that such law shall also be imposed on past transactions.
2. Imprescriptibility of taxes
Taxes in general are not cancelable.
~> The concept of prescriptive period will only start from the time the taxpayer files the
tax return and declares his tax liability.
3. Double taxation
The act of taxing twice for the same purpose in the same taxable year by the same
taxing authority upon the same property or activity for the same person.
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b2. Shifting
transferring the tax burden to another
b3. Transformation
occurs when the manufacturer or producer upon whom the tax has been
imposed pays the tax and endeavor to recoup (make up for) himself by
improving his process of production
Principles:
a. Not presumed
b. When granted, it is strictly construed against the taxpayer
c. Highly disfavored and may almost be considered as directly contrary to the
intention of tax laws
6. Equitable recoupment
Involves tax claim for refund which may be allowed to be used as payment for
unsettled tax liabilities IF both taxes arise from the same transaction in which
overpayment is made and underpayment is due.
Not applicable where the taxes involved are totally unrelated.
7. Set-off taxes
Taxes are not subject to set-off because the government and the taxpayer are not
mutual creditor and debtor of each other.
Exceptions:
a. When both claims become due, demandable and fully liquidated
b. When there is actual compromise between the taxpayer and the tax officer
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8. Taxpayer suit
A taxpayer may be allowed to sue where there is a claim that public funds are
illegally disbursed or that public money is being deflected to any improper purpose,
or that public funds are wasted through the enforcement of an invalid or
unconstitutional law or ordinance.
9. Compromise
A contract whereby the parties, by reciprocal concession, avoid litigation or put an
end to one already commenced.
Factors:
1. Classification of the tax being imposed
2. Subject matter of tax
3. Source of income being taxed
4. Place of the excise, privilege, business or occupation being taxed
5. Citizenship of the taxpayer
6. Residency of the taxpayer
Remember C2PReSS!!
Application:
Location of Object
Nature of Tax Citizenship Residency (Taxable or Not?)
Within Without
Income Tax Filipino Resident RC Y Y
Filipino Non-resident NRC Y N
Alien Resident RA Y N
Alien Non-resident NRA Y N
Business Tax Y N
Whatever the mind of man can conceive and believe, it can achieve.
-N. Hill
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A. DEFINITION OF TAXES
Taxes are enforced proportional contribution levied by the state for the support of the
government.
Remember E2GP3LTS!!
C. CLASSIFICATION OF TAXES
1. As to Purpose
a. Primary - Revenue/Fiscal
Ex. Income Tax, Value-added Tax
b. Secondary - Regulatory/Sumptuary/Compensatory
Ex. Protective tariff and customs duties, Special Educational Fund (SEF) Tax
2. As to Subject Matter
a. Personal/Poll/Capitation tax imposed on persons residing within a specific
territory
Ex. Basic Community Tax
c. Excise tax imposed on the exercise of a right or privilege (also called privilege
tax)
Ex. Income Tax, Estate Tax, Donors Tax
3. As to Determination of Amount
a. Specific tax imposed based on weight, number or some other standards of weight
or measurement
Ex. Excise tax on distilled spirits, wines or cinematographic films
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b. Indirect tax which forms part of the purchase price; a tax which the taxpayer can
shift to another
Ex. Value-added Tax
b. Local/Municipal tax imposed on a local level for the support of local government
units or LGUs
Ex. Local Business Tax, Basic Community Tax, Real Estate Tax
6. As to Graduation or Rate
a. Proportional or Flat tax rate which is fixed or constant
Ex. Corporate Income Tax, Value-added Tax
c. Regressive tax rate decreases as the taxable amount or tax bracket increases
Ex. We have no regressive tax in the Philippines.
TAX TOLL
Demand of sovereignty Demand of proprietorship
Generally amount is unlimited Amount is limited to the cost of maintenance of
public improvement
For the support of the government For the use of another's property
May be imposed by the State only May be imposed by private individuals or entities
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TAX PENALTY
Imposed to raise revenue Imposed to regulate conduct
May be imposed by the State only May be imposed by private entities
TAX DEBT
Based on law Based on contract
Not assignable Assignable
Payable in money Payable in kind or in money
Not subject to set-off Subject to set-off
Non-payment may result to imprisonment No imprisonment (except when debt arises from
crime)
Bears interest only if delinquent Interest depend upon the stipulation of the parties
TAX TITHE
Based on law Based on religious obligation
Rates vary Generally fixed at 10% of one's earnings
Other Charges:
1. Revenue
This refers to all funds or income derived by the government whether from tax or
from other sources.
2. Subsidy
A monetary aid directly granted or given by the government to individual or private
commercial enterprises deemed beneficial to public.
3. Tariff
A schedule or list of rates, duties or taxes imposed on imported goods.
4. Margin fee
A tax on foreign exchange designated to curb the excessive demands upon our
international reserves.
We are what we think. All that we are arises with our thoughts.
With our thoughts we make our world.
-Buddha
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