TAX

When both the claim of the government for taxes and the claim of the taxpayer has become due and demandable and has been fully liquidated.

(Tax Credits are not set-off).

BASIC PRINCIPLES OF A SOUND TAX SYSTEM

1. FISCAL ADEQUACY 2. ADMINISTRATIVE FEASIBILITY 3. THEORETICAL JUSTICE

Essentially legislative in character Scope: The legislative is tasked to determine?

1. Purpose 2. Subject and objects of taxation 3. Amount and rate of tax 4. Kind of tax to be collected 5. Apportionment of the tax 6. Manner and mode of enforcement and collection 7. Situs of Taxation 8. Grant of tax exemption or condonation 9. Provision of administrative and judicial remedies that may be availed by the taxpayers and government.

PURPOSES OF TAXATION • 4 R's of Taxation

1. Revenue 2. Redistribution 3. Repricing 4. Representation

Which is false? A. While taxation is plenary and unlimited, it no longer has restrictions. Both the due process of law and equal protection clauses of the Constitution may be invoked to invalidate revenue measures. It is the Court's role to see to it that the exercise of the power does not transgress these limitations. B. The power to tax can be used to destroy only if it used as an implement of police power, as when you try to regulate a particular act, to the extent that industries can really close down. Hence, the power to tax is a power to destroy only if you are looking at the power to tax as an implement of police power

A While taxation is plenary and unlimited, it HAS restrictions. Both the due process of law and equal protection clauses of the Constitution may be invoked to invalidate revenue measures. It is the Court's role to see to it that the exercise of the power does not transgress these limitations.

Which principle? capability of being effectively and efficiently enforced • If a law is not administratively feasible it would still be valid but defective and unsound.

ADMINISTRATIVE FEASIBILITY

Which aspect? • Applying the law passed by Congress to the specific person, property or activity covered by it. Involves the determination of how much tax is due. • In the Philippines, we follow self-assessment. If ever it is not enough, there is involuntary assessment (deficiency assessment) by the BIR.

ASSESSMENT

As a general rule, the legislature may levy a tax of any amount or rate it sees fit. If the taxes are oppressive or unjust, the only remedy is the ballot box and the election of new representatives. However, the tax must be reasonable, one that would not go against the deprivation of property without due process of law.

Amount and rate of tax

Refers to the determination of which portion of the society gets to be benefited by the tax. It could either of general or limited application.

Apportionment of the tax

Which is false? A. The citizen pays taxes to support the government in order that he may continuously be sustained with security and benefits of an organized society. B. It does not mean that only those who are able to pay tax can enjoy the privileges and protection given to a citizen. He can still object or resist payment of taxes. C. The government renders no special or commensurate benefit to any particular property or person. The only benefit the taxpayer is entitled is that derived from his enjoyment of the privileges of living in an organized society.

B. It does not mean that only those who are able to pay tax can enjoy the privileges and protection given to a citizen. He CANNOT object or resist payment of taxes.

This theory is the basis of taxation and is founded on the reciprocal duties of protection and support between the State and its inhabitants.

Benefits-Protection Theory / Benefits-Received Theory / Compensation Theory / Reciprocity Theory / Symbiotic Theory

It is the Incidence of Taxation

COLLECTION

Which aspect? • Process or method implementing the tax laws for the purpose of satisfying the tax obligations, as when money is actually taken from the taxpayers. • Agencies involved: BIR, BOC, Provincial, City or Municipal Assessors and Treasurers.

COLLECTION (Incidence of Taxation)

Who are the persons affected - Police Power

Community or a class of individuals

Who are the persons affected - Power of Taxation

Community or a class of individuals

Limitation of Power of Taxation

Constitutional and inherent limitations

Effect of Power of Taxation

Contributions becomes part of public fund

Benefits Received - Power of Eminent Domain

DIRECT

Which manifestation has this GR and EXC? GENERAL RULE: The power to tax is essentially a legislative function and which the central legislative body cannot delegate to other branches. EXCEPTIONS: Permissive delegation • Local government with respect to matters of local concern • When allowed by the Constitution (i.e. to the president with respect to tariff rates, import and export quotas- flexible tariff clause) • Administrative regulations (assessment and collection)

Essentially legislative in character

Which manifestation has this basis? It is only the legislature that can enact tax laws

Essentially legislative in character

What is the function of ASSESSMENT

Executive Function

What is the function of COLLECTION (Incidence of Taxation)

Executive Function

The inherent powers are supernatural, inseparable and inherent to every State exercisable by the government. No State and government can sustain or effectively operate without these powers. (T or F)

FALSE The inherent powers are NATURAL, inseparable and inherent to every State exercisable by the government. No State and government can sustain or effectively operate without these powers.

The legislature does not possess the power to prescribe the mode or method by which the tax shall be collected, and to designate the officers through whom its will shall be enforced. (T or F)

FALSE The legislature POSSESSES the SOLE power to prescribe the mode or method by which the tax shall be collected, and to designate the officers through whom its will shall be enforced.

If a law is not fiscally adequate it is no longer valid but defective and unsound(T or F)

FALSE If a law is not fiscally adequate it WOULD STILL BE VALID but defective and unsound.

In the absence of constitutional restrictions, the principal check on its abuse resting in the responsibility of members of Congress to their constituents. However, the power to tax is no longer subject to constitutional and inherent limitations.(T or F)

FALSE In the absence of constitutional restrictions, the principal check on its abuse resting in the responsibility of members of Congress to their constituents. However, the power to tax IS SUBJECT to constitutional and inherent limitations.

The legislative body's determination, however, on the question of what is a public purpose is not conclusive. The courts cannot inquire into whether the purpose is really public or private. (T or F)

FALSE The legislative body's determination, however, on the question of what is a public purpose is not conclusive. The courts CAN inquire into whether the purpose is really public or private.

The power of taxation may be exercised by the State because it is expressly granted by the Constitution. (T or F)

FALSE The power of taxation may be exercised by the State although NOT expressly granted by the Constitution.

The state can select the object and subject of taxation. Thus, it is a limited power. (T or F)

FALSE The state can select the object and subject of taxation. Thus, it is an UNLIMITED power.

Which principle? sufficiency to meet government expenditures and other public needs

FISCAL ADEQUACY

What is the purpose of Power of Eminent Domain

For public use

What is the purpose of Power of Taxation

For the support of the government

Authority of Police Power

Government only

Authority of Power of Taxation

Government only

Which scope is this? The power to tax carries with it the power to grant exemption therefrom. Exemptions are interpreted strictly against the taxpayer and liberally in favor of the government.

Grant of tax exemption or condonation

Which doctrine? The Court, so often has defeated the attempt to tax in certain ways, can defeat an attempt to discriminate or otherwise go too far without wholly abolishing the power to tax. The power to tax is not the power to destroy while this Court sits. The power to fix rates is the power to destroy if unlimited, but this Court while it endeavors to prevent confiscation does not prevent the fixing of rates. A tax is not an unconstitutional regulation in every case where an absolute prohibition of sales would be one.

Holmes Doctrine (Holmes Dictum)

Benefits Received - Power of Taxation

INDIRECT. In form of protection and benefits received from government.

Benefits Received - Police power

INDIRECT. No direct and immediate benefit but only such as may arise from the maintenance of a healthy economic standard of society.

RELATIONSHIP WITH THE CONSTITUTION - Power of Taxation

Inferior to the non-impairment clause

It is the Impact of Taxation

LEVYING OR IMPOSITION

What is the function of LEVYING OR IMPOSITION (Impact of Taxation)

Legislative Function

Which theory? Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it.

Lifeblood Theory

Basis of Taxation

Lifeblood Theory (Theory of Taxation)

Refers to the administration of the tax or the implementation of tax laws

Manner and mode of enforcement and collection

Which doctrine? Congress may enact laws that are necessary and proper to carry out their enumerated powers. The United States Constitution (Constitution) is the supreme law of the land and state laws cannot interfere with federal laws enacted within the scope of the Constitution.

Marshall Doctrine (Marshall Dictum)

Authority of Power of Eminent Domain

May be granted to private service companies or private utilities

Importance of Power of Taxation

Most important power.

Importance of Police Power

Most superior power

Which theory? The power to tax proceeds upon the theory that the existence of a government is a necessity. No sovereign State can continue to exist without the means to pay its expenses, and for those means, it has the right to compel all citizens and property within its limit to contribute.

Necessity Theory

Effect of Police power

No transfer or title; there may just be a restraint on the injurious use of property

What is the secondary purpose of taxation?

Non-Revenue Purpose

Who are the persons affected - Power of Eminent Domain

On an individual as the owner of personal property

Enact laws in relation to persons and property to promote public health, public morals, public safety and general welfare of the people

Police Power

Which inherent power is this? Right to protection

Police Power

it is the power of the State to enact Laws in relation to persons and property to promote public health, public morals, public safety and general welfare of the people

Police Power

Acquire private property for public purpose upon payment of just compensation

Power of Eminent Domain

It is the power of the state to acquire private property for public purpose upon payment of just compensation.

Power of Eminent Domain

Which inherent power is this? Right to properties

Power of Eminent Domain

Raise revenue, through the enactment of laws that impose charges upon persons, property and activity under its jurisdiction to defray expenses of the government

Power of Taxation

Which inherent power is this? Right to sustenance

Power of Taxation

What is the purpose of Police Power

Promotion of general welfare

Limitation of Police Power

Public interest and due process

Limitation of Power of Eminent Domain

Public purpose and just compensation

Which doctrine? The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously.

Reconciliation of the Marshall and Holmes Dicta

Which of the 4 R's is this? People who earn more, pay more taxes, so their wealth is used for the benefit of everyone, including the less wealthy individuals

Redistribution

Which of the 4 R's is this? Our representatives are the ones imposing the tax, but since the people are the ones putting them in power, the people can demand something from them - efficient and effective government service.

Representation

Which of the 4 R's is this? Higher taxes are imposed on articles which are considered dangerous to the health of the people

Repricing

What is the primary purpose of taxation?

Revenue or Fiscal Purpose (REVENUE)

Which manifestation? The error of a government employee does not bind the government. Any neglect or omission of government officials on the computation and collection of taxes shall not allowed to harm the interest of the people. Erroneous applications, however, does not block subsequent correction.

Rule of No Estoppel of the government

The power to tax is said to be the strongest of all the powers of the government. It is unlimited, plenary, comprehensive and supreme.

Scope of Taxation

Refers to the place of taxation

Situs of Taxation

Refers to the coverage and the kind or nature of the tax. They may be persons, property, businesses, transactions, or the exercise of rights or privileges.

Subject and objects of taxation

RELATIONSHIP WITH THE CONSTITUTION - Police power

Superior to the non-impairment clause

RELATIONSHIP WITH THE CONSTITUTION - Power of Eminent Domain

Superior to the non-impairment clause

A government has basic needs and rights that co-exist with the creation of the State. It has the right to sustenance, protection and properties. These rights are manifested in the inherent powers. (T or F)

TRUE

Inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation so long as such exemption is reasonable and not arbitrary. (T or F)

TRUE

Taxes are essential and indispensable to the continued subsistence of the government. Without taxes, the government would be paralyzed for lack of motive to activate or operate it. (T or F)

TRUE

The kind of tax to be collected may be based on income, sales, import, export, etc (T or F)

TRUE

The power to tax involves the power to destroy. Because the Constitution is supreme over state laws, the states cannot apply taxes, which would in effect destroy federal legislative law. (T or F)

TRUE

The power to tax proceeds upon the theory that the existence of a government is a necessity and that no sovereign State can continue to exist without the means to pay its expenses, and for those means, it has the right to compel all citizens and property within its limit to contribute. (T or F)

TRUE

The purpose of taxation is to raise revenue in order to defray the expenses of the government. (T or F)

TRUE

is a destructive power which interferes with the personal and property rights of the people and takes from them a proportion their property for the support of the government (Paseo Realty vs. CA)

Taxation

is the inherent power of the State exercised by the legislature to demand enforced contributions from the people to raise revenue in order to defray the necessary expenses of the Government

Taxation

is the process or means by which the sovereign, through its lawmaking body, imposes burdens upon subjects and objects within its jurisdiction or purposes of raising revenues to carry out the legitimate objects of government.

Taxation

When the government and the taxpayer are not principal debtors and creditors of each other. And that taxes and debts are of distinct kind, essence, and nature.

Taxes are not subject to set-off

Where claim for refund by prescription may be allowed to offset against unsettled tax liabilities does not apply in the Philippines.

The doctrine of equitable recoupment

Which manifestation has this GR and EXC? • GENERAL RULE: No court shall be given the authority to injunct the collection of taxes. • EXCEPTION: Court of Tax Appeals and Supreme Court

There can be no injunction in the collection of taxes or judicial interference.

Effect of Power of Eminent Domain

There is a transfer of title to property

In the absence of constitutional restrictions and subject to the will of the legislative bodies with whom it is entrusted and the discretion of the authorities which exercises it, the power of taxation is ? SCOPE | CUPS

• Comprehensive • Unlimited • Plenary • Supreme

One nature and characteristic of taxation is that it's legislative in nature except:

• Delegations to the President • Delegation to Local Government Units • Delegation to Administrative Agencies

NATURE AND CHARACTERISTICS OF TAXATION

• Inherent power of the sovereign state • Essentially legislative in character • Subject to inherent and constitutional limitations • Territorial jurisdiction • Exemption of government agencies and instrumentalities • International comity • Generally imprescriptible • Generally applied prospectively • Subservient to the non-impairment clause of the Constitution • May be exercised jointly with the police power

Which aspect? • Refers to the enactment of law by Congress. • The power to levy taxes which involves tax policy is essentially legislative in character, although it may be delegated to executive agencies with respect to administrative matters, provided that adequate guidelines or safeguards prescribed are followed in the administration of tax laws. (Delegation through subordinate legislation.) • Involves determining person, property, or activity to be taxed, sum/s to be raised, rate, time and manner of levying, receiving and collecting taxes.

• LEVYING OR IMPOSITION (Impact of Taxation)

What are the ASPECTS OF TAXATION

• LEVYING OR IMPOSITION (Impact of Taxation) • ASSESSMENT • COLLECTION (Incidence of Taxation)

What are the manifestations?

• Rule of No Estoppel of the government • There can be no injunction in the collection of taxes or judicial interference. • Taxes are not subject to set-off • Essentially legislative in character

What are the requisites for injunction?

• Taxpayer is able to show that the collection of tax may jeopardize the government or the taxpayer; • The taxpayer is willing to put up bond which should be at least equal to double the tax assessed.

What is the regulatory purpose of taxation?

• To implement the police power of the State to promote general welfare. (REPRESENTATION) • To regulate conduct of businesses or professions (REPRICING)

What is the compensatory purpose of taxation?

• To reduce excessive inequalities of wealth (REDISTRIBUTION) • To maintain high level of employment • To control inflation

The following are the similarities of the inherent powers except: •Inherent power of the state •Legislative in nature •Interfered private rights and property •Dependent of the Constitution

•Inherent power of the state •Legislative in nature •Interfered private rights and property •INDEPENDENT of the Constitution

What are the inherent powers of the state?

•Police Power • Power of Eminent Domain • Power of Taxation