Taxation

SUMMARY

CHAPTER 1 (INTRODUCTION)

TAXATION

Definition, Nature, and Basis of Taxation

• Taxation – the process of collecting taxes
•  “A government cannot continue to exist and operate without financial means. This inherent power [taxation] gives the government the right to tax citizens and properties within its jurisdiction.”

Objectives of Taxation

• Shifting wealth from the rich to the poor
• Maintaining price stability
• Stimulating economic growth
• Encouraging full employment

2 ways TAX PROVISIONS are used:

1. Some tax rules are enacted for the purpose of mitigating certain undesirable economic and social conditions already existing.
2. Other tax rules provide incentives for certain desirable activities.

State Powers

1. Taxation – the power of the state by which the sovereignty raises revenue to defray the necessary expenses of the government
2. Eminent Domain – the power of the state to take private property for public use upon payment of just compensation
3. Police Power – the power of the state to enact laws to promote public health, public morals, public safety, and the general welfare of the people

Aspects of Taxation

• Levying of the tax – the imposition of tax by the Congress
• Collection of the tax levied – an administrative function

Basic Principle of a Sound Tax System

• Fiscal Adequacy – sufficient sources of revenue
• Equality or Theoretical Justice – tax imposed must be proportionate to taxpayer’s ability to pay
• Administrative Feasibility – law must be capable of convenient, just, and effective  administration

Limitations on the Power of Taxation

• Constitutional Limitations – provided by the Constitution
• Inherent Limitations – nature

• Purpose (for public purpose only)
• Territoriality (persons and properties)
• International Comity (property of a foreign State may not be taxed by another)
• Exemption (for governmental agencies performing governmental functions)
• Non-delegation (being legislative)

Some Doctrines in Taxation

• Prospectivity of Tax Laws – may be retroactive but must be stated explicitly and clearly
• Double Taxation

• Direct Duplicate Taxation (when the same subject is taxed twice instead of once)
• Indirect Duplicate Taxation (e.g. when an item of income is taxed in the PH and also taxed in another country)

• Set-off of Taxes – taxes are not subject to set-off or legal compensation
• Escape from Taxation

• Tax avoidance (legal; tax minimization or tax planning)
• Tax evasion (illegal; tax dodging)

• Situs of Taxation (the place of taxation)

FACTORS:

• Subject Matter (WHAT; a person, a property, or an act or activity)
• Nature of Tax (WHICH; income tax, import duty, or real property tax)
• Citizenship of the taxpayer
• Residence of the taxpayer

APPLIES TO:

• Persons (residence)
• Real property or tangible personal property (location of the property)
• Intangible personal property
• Income (source of income: residence or citizenship or place)
• Business, occupation, and transaction (place of [b] operation, [o] practice, and [t] completed)
• Gratuitous transfer of property (residence or citizenship or location of the property)

TAXES (lifeblood of the government)

Essential Characteristics of a Tax

• An enforced contribution
• Levied by the lawmaking body
• Proportionate in character
• Generally payable in money
• Imposed for the purpose of raising revenue; and
• To be used for public purpose

Types of Tax Rate Structures

• Regressive (if the average tax rate decreases as the tax base increases)
• Proportional (the average tax rate remains constant for all levels of the tax base)
• Progressive (if the average tax rate increases as the amount of the tax base increases)

• Constitutional Provision (RA 9337 or VAT Reform Act)

Classification of Taxes

• As to subject matter or object

• Personal, Poll,  or Capitalization
• Property
• Excise

• As to who bears the burden

• Direct
• Indirect

• As to determination of amount

• Specific
• Ad Valorem

• As to purpose

• General, fiscal, or revenue
• Special or regulatory

• As to authority imposing the tax or scope

• National
• Municipal or local

• As to graduation or rate

• Proportional
• Progressive or graduated
• Regressive

Tax distinguished from other fees

• From toll
• From penalty
• From special assessment
• From permit or license fee
• From debt
• From revenue
• From customs duties

TAX LAWS

Sources of Tax Authority

• The President and his administration (executive)
• The Congress (legislative)
• The Courts (judicial)

Sources of Tax Laws

• Constitution
• Statutes and Presidential Decrees
• Revenue Regulations by the Department of Finance
• Rulings issued by the Commissioner of Internal Revenue and Opinions by the Secretary of Justice
• Decisions by the Supreme Court and the Court of Tax Appeals
• Provincial, city, municipal, and barangay ordinances subject to limitations set forth in the Local Government Code; and
• Treaties and international agreements to avoid or minimize double taxation

Republic Act 9282