Chapter 1 Introduction to Taxation
TAXATION
Inherent Powers of the State 1. Taxation Power
State power
2. Police Power
Process
3. Eminent domain
Mode of cost distribution Scope of Taxation Power Theory of Taxation
Comprehensive
- govt’s necessity for funding
Plenary Unlimited
Basis of Taxation
Supreme
- mutuality between the people and the t he govt Limitation of Taxation Power * Receipt of benefits is conclusively presumed.
A. INHERENT LIMILATIONS
Theories of Cost Allocation
1. Territoriality of Taxation
1. Benefit Received Theory
GR:
2. Ability to Pay Theory
Tax can be imposed only within the territories of the state.
Aspects of the Ability to Pay Theory
EXN:
A. Vertical Equity
Income Taxation: RC and DC
B. Horizontal Equity
Transfer Taxation: RC, NRC, RA
The Lifeblood Doctrine
2. International Comity
- taxes are lifeblood of govt: taxes should be
All states are equally sovereign.
prompt and certain
Not taxing the properties, income, or effects of
1. Tax is imposed even in the absence of a
fellow states
Constitutional grant
Treaty agreements > Local tax law
2. Claims for tax exemption re construed against the taxpayer
3. Public Purpose
3. The govt reserves the right to choose the objects of taxation.
4. Exemption of the Government
4. The courts are not allowed to interfere with
Taxing the government will not raise additional
the collection of taxes.
funds but will only impute additional costs
5. (Income Taxation): A. Income received in advance is taxable upon
5. Non-delegation of the Taxing Power
receipt.
GR:
B. Deduction for capital expenditures and
Congress (Legislature)
prepayments is not allowed for it effectively
EXN:
defers the collection of income t ax.
1. Local government units are allowed to
C. A lower limit of deduction is preferred when
exercise the power to tax
a claimable expense is subject to limit.
2. President is empowered to fix the amount of
D. A higher tax base is preferred when the tax
tariffs
object has multiple tax bases.
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Chapter 1 Introduction to Taxation
3. Other cases that require expedient and
Poll Tax:
effective administration of assessment and
a. Basic Community Tax
collection of taxes
b. Additional Community Tax GR:
B. CONSTITUTIONAL LIMITS OF LIMITATION
Non-payment of tax: Imprisonment EXN:
1. Observance of Due Process of Law
Non-payment of Basic Community Tax
Aspects of Due Process 1. Substantive Due Process
6. Non-impairment of Obligation and Contract
2. Procedural Due Process
It should not set aside its obligations from
* Assessments
contracts by the exercise of taxation power.
WITHIN
From due date of filing of return
Tax exemptions granted under contract should
3 YEARS
From date of actual filing
be honoured and should not be cancelled by a unilateral government action.
* Collections WITHIN 5 YEARS from date of assessment
7. Free Worship Rule Tithes or offerings - not subject to tax
2. Equal Protection of Law
Properties or activities that are proprietary or
Taxpayers should be treated equally
commercial in nature - subject to tax
Under the same circumstances 8. Exemption of Religious, Charitable or 3. Uniformity Rule in Taxation
Educational Entities, Non-profit Cemeteries,
Rule of taxation must be uniform and equitable
Churches and Mosques, Lands, Buildings, and
Under dissimilar circumstances
Improvements from PROPERTY TAX
Taxpayers should not be taxed the same
(Doctrine of Use)
Uniformity is relative equality.
Exemption applies for properties actually, directly, and exclusively used for charitable,
4. Progressive System of Taxation
religious and educational purposes
Congress
Doctrine of Ownership
Tax rates increase as tax base increases
- regardless of whether used in primary operations or not, properties should be exempt
5. Non-imprisonment for Non-payment of Debt
- not applied in the Philippines
or Poll Tax Estafa
9. Non-appropriation of Public Funds or
- debt acquired in bad faith
Property for the Benefit of any Church, Sect or
- criminal offense punishable by imprisonment
System of Religion GR:
TAX
DEBT
No appropriation of govt funds to any particular
Arises from law;
Arises from private
system of religion
Demand of
contracts
EXN: Priests, imams, religious ministers working with
sovereignty Compromises:
Compromises:
the military, penal institutions, orphanages, or
Public interest, Crime
Private interest
leprosarium
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Chapter 1 Introduction to Taxation
10. Exemption from Taxes of the Revenues and
16. Each Local Government Unit shall Exercise
Assets of Non-profit, Non-stock Educational
the Power to Create its Own Sources of
Institutions Including Grants, Endowments,
Revenue and shall have a Just Share in the
Donations, or Contributions for EDUCATIONAL
National Taxes
PURPOSES Exemption on revenues and assets actually,
Stages of the Exercise of Taxation Power
directly and exclusively devoted for educational
1. Levy or Imposition
purposes
2. Assessment and Collection
* Govt educ. institutions - EXEMPT
Levy or Imposition
* Private educ. institutions - minimal 10% tax
Impact of Taxation Enactment of tax law
11. Concurrence of a Majority of All Members
Legislative Act
of Congress for the Passage of a Law Granting Tax Exemption
* Tax bills must originate from House of
Vote of majority of all members o f Congress
Representatives.
Approval of tax exemption - Absolute Majority Withdrawal of tax exemption - Relative Majority
Matters of Legislative Discretion in the Exercise of Taxation
12. Non-diversification of Tax Collections
1. Determining the object of taxation
Never diversified or used for private purpose
2. Setting the tax rate or amount to be collected 3. Determining the purpose for the levy which
13. Non-delegation of the Power of Taxation
must be public in use
GR:
4. Kind of tax to be imposed
Exclusively in Congress
5. Apportionment of the tax between national
EXN:
and local government
On matters involving expedient and effective
6. Situs of taxation
administration and implementation of
7. Method of collection
assessment and collection of taxes (Interpret and clarify the application of law);
Assessment and Collection
Taxing process that are non-legislative in nature
Implemented by Administrative Branch
14. Non-impairment of the Jurisdiction of the
Incidence of Taxation
Supreme Court to Review Tax Cases
Administrative Act of Taxation
Court of Appeals Supreme Court
Situs of Taxation (Place of Taxation) Tax jurisdiction
15. Appropriations, Revenues, or Tariff Bills
1. Business tax situs: where the business is
shall Originate Exclusively in the House of
conducted
Representatives, but the Senate may Propose
2. Services: where the service is rendered
or Concur with Amendments
3. Sale of goods: place of sale
Origination of bill: House of Representatives
4. Property tax situs: location of properties
Senate may amend
5. Personal tax situs: place of residence
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Chapter 1 Introduction to Taxation
Other Fundamental Doctrines in Taxation
* Taxpayers who did not file a return or filed
1. Marshall Doctrine
fraudulent returns – do not prescribe
The power to tax involves the power to destroy. Taxation, an instrument of Police Power.
7. Doctrine of Estoppel
- Excessive tax on cigarettes
The govt is not subject to estoppel.
2. Holme’s Doctrine
Error of EE = X Binding to the govt
Taxation power is not the power to destroy while the court sits.
8. Judicial Non-interference
- Ecozones, BMBE
Lifeblood Doctrine Courts not allowed to issue injunction against
3. Prospectivity of Tax Laws
govt pursuit to collect tax
GR: Prospective in nature
9. Strict Construction of Tax Laws
Ex post facto law is prohibited
Taxation is rule, exemption is the exception.
EXN:
Vague Tax Laws
Income tax may operate retrospectively if so
- construed against govt; in favour of taxpayers
intended by Congress
Vague Exemption Laws - construed against taxpayer; in favour of govt
4. Non-compensation or Set-off GR:
Double Taxation
Taxes are not subject to automatic set-off or
- Same taxpayer is taxed twice by the same tax
compensation.
jurisdiction for the same thing
EXN: Taxpayer’s claim is due and demandable
Elements of Double Taxation
Cases of obvious overpayment of taxes
1. Primary: Same object
Local taxes
2. Secondary:
Same type of tax Same purpose of tax
5. Non-assignment of Taxes
Same taxing jurisdiction
Tax obligations cannot be assigned or
Same tax period
transferred to another entity by contract. Types of Double Taxation 6. Imprescriptibility in Taxation
1. Direct Double Taxation
Prescription - lapsing of right due to passage of
- All elements exist
time
2. Indirect Double Taxation
Govt’s right to collect taxes does not prescribe
- At least one of the secondary elements is not
unless the law itself provides so.
common for both impositions
Assessment
5 YEARS
X Collection
Escapes from Taxation A. RESULT TO LOSS OF GOVT REVENUE
(No Assessment) Date of return
3 YEARS
1. Tax Evasion X Collection by Judicial Action
- Tax Dodging - Illegal
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Chapter 1 Introduction to Taxation
2. Tax Avoidance - Tax Minimization - Legal 3. Tax Exemption - Tax Holiday - Immunity, privilege, or freedom - Granted by Constitution, Law, or Contract B. DO NOT RESULT TO LOSS OF GOVT REVENUE 1. Shifting A. Forward Shifting B. Backward Shifting C. Onward Shifting 2. Capitalization 3. Transformation TAX AMNESTY
TAX CONDONATION
General pardon;
“Tax Remission”
Absolute forgiveness;
Forgiveness of tax
Fresh start;
obligation;
Civil and criminal liab
Civil liab
Retrospective
Prospetive
TP pay govt
No payment
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