Income Taxation
Tax laws must be convenient, just, uniform and effective in their administration - free from confusion and uncertainty. Their exercise should be convenient as to the place, time and mode of payment, and not burdensome or discouraging to business.
Administrative Feasibility
These taxes are non-transferable. They are demanded from persons who are bound by law to pay the tax. The liability for the payment of tax as well as the burden of the tax falls on the same person (e.g. Community Tax, Income Tax, Transfer taxes Traveler's Tax and Corporate Income Tax).
As to who Bears the Burden Direct
These taxes are transferable. The liability for the payment of tax falls on one person, but the burden thereof can be shifted or passed to another.
As to who Bears the Burden Indirect
involves the act of administration and implementation of the tax laws by the executive through its administrative agencies as the BIR or Bureau of Customs.
Assessment
The dates for paying of taxes are fixed by the law to comply with the principle of administrative feasibility.
Commonly required to be paid at regular intervals
A tax may be used to make up for the benefits received. The tax is compensatory for the use of road
Compensatory Purpose
act of the sovereign by taxing twice for the same purpose in the same year upon the same property or activity of the same person, when it should be taxed once for the same purpose and with the same kind of character of tax.
Double Taxation
When a Sovereign State is born, it exists with indispensable powers necessary for its survival. These powers are called "inherent powers." They naturally exist as essential force in order that a government can command, maintain peace and order, and survive, irrespective of any constitutional provision.
INHERENT POWERS OF THE STATE
involves the passage of tax laws or ordinances through the legislature. Strictly speaking, it refers to taxation of the tax policy of the Sovereign State.
Levy or imposition of taxes
a contribution enforced by the government primarily to restrain and regulate business or occupation.
License Fee
tax on foreign exchange designed to curb the excessive demands upon our international reserves.
Margin Fee
is a compensation for the use of somebody else's property determined by the cost of improvement.
Toll
act of conducting activities related to any business or profession. It may involve selling, servicing, leasing, borrowing, mortgaging, lending
Transaction
In the absence of limitations provided by the law or the constitution, the power to tax is unlimited and comprehensive. Its force is so searching to the extent that the courts scarcely venture to declare that it is subject to any restrictions.
Unlimited
•Money is taken from the public so it can be returned to them in the form of public benefits;
Used for a public purpose
The "ability to pay principle" is the basic rule in collecting taxes. Those who earn more
Proportionate in character
refers to all funds or income derived by the government whether from tax or from other sources.
Revenue
The primary purpose of the taxation is to raise revenue by collection funds or property for the support of the government in promoting the general welfare and protecting its inhabitants.
Revenue Purpose
a power, faculty or demand inherent in one person and incidental to another.
Right
The power of taxation is the most absolute of all the powers of the government. A. Comprehensive B. Unlimited C. Plenary D. Supreme
SCOPE OF TAXATION POWER
is an amount collected by the government for the purpose of reimbursing itself for certain extended benefits regarding construction of public works
Special Assessment
is a monetary aid directly granted or given by the government to an individual or private commercial enterprise deemed beneficial to the public.
Subsidy
A process or act of imposing a charge by governmental authority on property, individuals or transactions to raise money for public purposes. I passes a legislative undertaking through the enactment of tax laws by the congress which will be implemented by the executive branch of the government through its Bureau of internal Revenue (BIR).
Taxation as a process
The power to enforce contributions to support the government, and other inherent powers of the State.
Taxation power
Their payment should be borne specifically by the person with tax liability.
Taxes are generally personal to taxpayer
•Taxes arise from law and could only be imposed even without previous agreement between the government and the taxpayers.
Taxes are obligations created by law
It includes all laws legislated pertaining to the national government taxes, which is embodied in the NIRC.
Internal Revenue Law -
taxes imposed by the legislative body other than custom duties on imports. The following national taxes are classified as Internal Revenue Taxes under the administration of BIR
Internal Revenue Taxes
includes corporations, partnership and any association.
Juridical person
paying the owner the full monetary equivalent the property taken for public use.
Just compensation
Although taxation power is supreme, its exercise is not absolute because it is subject to inherent and constitutional restrictions. Any tax law that contradicts the limitation of taxation is also unconstitutional.
LIMITATIONS TO THE POWER OF THE TAXATION
These taxes are imposed solely for the purpose of raising revenue for the government (e.g. Income tax, value added tax, and transfer tax).
As to purpose Revenue or Fiscal
sanction imposed as a punishment for violations of law or acts deemed injurious. It arises from law and / or contracts.
Penalty
NATURE OF TAXES
-Taxes are obligations created by law -Taxes are generally personal to taxpayer
Inherent limitations
1. Taxes may be lot levied only for public purpose; 2. Being inherently legislative, taxation may not be delegated; 3. Tax power is limited to territorial jurisdiction of the state; 4. Taxation is subject to international comity; and 5. Government entities are generally tax-exempt
Taxes may be imposed for the equitable distribution of wealth and income in the society.
As to purpose Compensatory
These taxes are imposed for the purpose of achieving some social or economic goals having no relation to the raising revenue (e.g. customs duties, Protective tariff on imports to control foreign trade and excise tax).
As to purpose Regulatory, Special or Sumptuary
These taxes are fixed amounts in proportion to the value of the property with respect to which the tax is assessed. It requires the intervention of Assessors to estimate the value of such property before the amount due from each taxpayer can be determined (e.g. Real Estate Tax, Custom Duties and Excise Tax on fermented liquors, cigars, cigarettes gasoline and automobiles).
As to Determination of Amount Ad Valorem
These taxes are fixed amounts imposed and based on some standard of weight or measurement, head or number length or volume. It requires independent assessment other than listing a classification of the subject taxed like excise taxes on distilled spirits, wines, fireworks, and cinematographic films.
As to Determination of Amount Specific
These taxes are imposed upon the performance of a right or act, the enjoyment of a privilege or the engagement in an occupation (e.g. Professional tax, Income Tax, Estate Tax, Donor's tax and Value-Added Tax)
As to Object or Subject Matter Excise
These taxes are fixed in amount and imposed on persons residing within a specified territory regardless of the amount of their property on their occupation or business (e.g. Community Tax)
As to Object or Subject Matter Personal, Poll or Capitation
These taxes are imposed on personal or real property based on its proportionate value or in accordance with some reasonable method of apportionment. (e.g. Real Estate Tax)
As to Object or Subject Matter Property
A fixed rate is imposed on a certain amount but diminishes gradually on sums below it. In digressive rate, the tax rate is arbitrary because the increase in tax rate is not proportionate to the increase of tax base.
As to Rate or Graduation Digressive rate
It is a tax system that uses a combination of the different tax rates.
As to Rate or Graduation Mixed Tax
The rate of the tax increases as the tax base or bracket increases (e.g. Income Taxes)
As to Rate or Graduation Progressive or Graduated Rate
The rate of the tax is based on a fixed percentage of the amount of the property, receipt or other basis to be taxed (e.g. Real estate tax and VAT).
As to Rate or Graduation Proportional or Flat Rate
The rate of tax decreases as the tax base or bracket increases. There is no regressive tax in the Philippines.
As to Rate or Graduation Regressive Rate
Those taxes collected by the Municipal Governments. Examples of local or municipal taxes are: • Community tax; • Municipal licenses taxes; • Professional tax; and • Real estate tax
As to Scope or Authority Collecting Tax Local or Municipal
Those taxes collected by the National Government. Example of national taxes are: • Estate and Donor's Taxes; • Income Tax; • Value - Added Tax; • Excise Tax; • Customs Duties; and • Documentary stamp Taxes.
As to Scope or Authority Collecting Tax National
•This is double taxation in its broad sense. It extends to all cases in which there is a burden of two or more pecuniary impositions. It is usually allowed as long as there is no violation of the equal protection and uniformity clauses of the Constitution.
Indirect Duplicate Taxation
states that the sources of revenues of the government should be sufficient to meet the demand of public expenditures regardless of business condition.
Fiscal Adequacy
covers all (persons, businesses, professions, right and privileges)
Comprehensive
provisions of the fundamental law of the land that restrict the supreme, plenary, unlimited and comprehensive power to tax by the state. As a rule, the Constitution does not require the power to tax on the state.
Constitutional limitations
are imposition on imported goods brought into the country to protect local industry
Custom duties
a benefit derived through gratuitous transfer by fact of death or donation.
Privilege
an obligation to pay or render service for a definite future period of time based on contract.
Debt
This is double taxation in its strict sense. It is prohibited because it comprises imposition of the same tax on the same property for the same purposes by the same state during the same taxing period.
Direct Duplicate Taxation
"A tax evader breaks the law (tax evasion), the tax avoider sidesteps it (tax avoidance)" (Schultz & Harris, American Public Finance).
ESCAPE FROM TAXATION
Take private property for public. Just Compensation. State may expropriate private property when it is necessary for the interest of national welfare. The Constitution limits the exercise of the power by providing that property may not be taken without just compensation
Eminent domain
The power to take private property (with just compensation) for public use.
Eminent domain power
The imposition shall not be dependent upon the will of a taxpayer
Enforced contribution
Objects of taxation are either tangible or intangible properties, including business transactions
Enforced on some persons, properties or rights
states that the tax burden must be proportionate the tax payer's ability to pay. It is based on the philosophy that "he who received more should give more."
Equality/Theoretical Justice
The congress makes tax laws
Imposed by the legislative body
The enforcement of tax is subject to territorial jurisdiction and international comity
Imposed by the sovereign state within its jurisdiction
Taxes are the primary source of government funds to finance its expenditures and projects;
Imposed for the purpose of raising revenue
natural restrictions to safeguard and ensure that the power of taxation shall be exercised by the government only for the betterment of the people whose interest should be served, enhanced and protected.
Inherent limitations
properties that are "rights" rather than physical objects. Examples are patents, stocks, bonds, goodwill, trademarks, franchises, and copyrights.
Intangible properties
- an advantage accruing from anything.
Interest
refers to individual taxpayers.
Natural person
"The Comprehensive Tax Reform Act of the Philippines," otherwise known as the "National Internal Revenue Code of 1997" or the "Tax Code."
Republic Act 8424
The VAT Reform Law
Republic Act 9337
Persons (natural or juridical persons) Properties (real, personal, tangible or intangible properties) Excise objects (Transaction, Privilege, Right, Interest)
OBJECTS OF TAXATION
refer to the subject to which taxes are imposed
OBJECTS OF TAXATION
based on Adam Smith's Canons of Taxation Tax Policy 1. Fiscal Adequacy 2. Equality/Theoretical Justice Tax Administration 3. Administrative Feasibility
PRINCIPLES OF A SOUND TAX SYSTEM
Money is the preferred payment of taxes. If property is taken to satisfy tax liability, the property is sold through public auction to satisfy the tax obligation;
Payable in form of money
process involving the act of compliance by the taxpayer in contributing his share to defray the expenses of the government. It is also called "tax collection," the process of obtaining payment of tax.
Payment of tax
movable properties such as car and other personal belongings.
Personal properties
it is complete; BIR may avail of certain remedies to ensure collection of taxes.
Plenary
Legislate for protection. Restricted by the "due process clause" of the Constitution which provides that no person may be deprived of "life, liberty, or property, without due process of law. Preservation of natural resources
Police power
The power to protect citizens and provide for safety and welfare of society.
Police power
Inherent Powers of the State
Police power, Eminent domain power and taxation power
the government collects taxes from the subjects of taxation in order that it may be able to perform its function and provide service to them. The citizen pays taxes to support the government in order that he may continuously be sustained with security and benefits of an organized society. Government provides protection, proper business climate, and peace and orders
Principles of Benefits-Received or Benefits-Protection Theory
The government has a right to compel all its citizen, residents and property within its territory to contribute money. It is because the government cannot exist without any means to pay its expense - a necessary burden to preserve the state's sovereignty. Taxation is the "lifeblood" or the "bread and butter" of the government
Principles of Necessity
immovable properties such as land and buildings.
Real properties
sumptuary is a secondary objective of imposing tax. This objective of accomplished to: a. Regulate inflation b. Achieve economic and social stability, and c. Serve as key instrument for social control.
Regulatory Purpose
Refers to the place of taxation, or the state or political unit which has jurisdiction to impose tax over its inhabitants. Application of the principle of territorial jurisdiction, defines boundaries of the taxing power.
SITUS OF TAXATION
Impact of Taxation 1. Levy or imposition of taxes 2. Assessment Incidence of Taxation 3. Payment of tax
STAGES, ASPECTS, OR PROCESSES OF TAXATION
in so far as the selection of the subject of taxation
Supreme
Forced burdens, charges, exactions, impositions or contributions assessed in accordance with some reasonable rule of apportionment, by authority of a sovereign state, upon the person, property, or rights exercised, within its jurisdiction, to provide public revenues for the support of the government, the administration of the law, or the payment of public expenses.
TAXES
may be felt or touched and necessarily corporeal, either real or personal properties.
Tangible properties
a schedule of list of rates, duties or taxes imposed on imported goods
Tariff
body of laws which codifies all national tax laws including income, estate, gift, excise, stamp and other taxes
Tax Law
lawful means; under this method, the tax payer uses legal or unlawful means to defeat, evade or lessen the payment off tax.
Tax avoidance/tax minimization
unlawful means
Tax evasion
A means by which the sovereign state through its law-making body demands for revenue in order to support its existence and carry out its legitimate objectives. A way of collecting and apportioning the cost of government among those who are privileged to enjoy its benefits.
Taxation as a means
A power by which an Independent state, through its lawmaking body, raises and accumulates revenue from its inhabitants to pay the necessary expense of the government. Refers to the inherent power of a state, coextensive with sovereignty to demand contributions for public purposes to support the government.
Taxation as a power
ESSENTIAL CHARACTERISTICS OF TAXES
•Enforced contribution •Imposed by the legislative body •Proportionate in character •Payable in form of money •Imposed for the purpose of raising revenue •Used for a public purpose •Enforced on some persons, properties or rights. •Commonly required to be paid at regular intervals •Imposed by the sovereign state within its jurisdiction
CERTAIN DOCTRINES IN TAXATION
•Prospective application of tax laws •Imprescriptibility of taxes •Double taxation •Escape from taxation •Exemption from taxation •Equitable recoupment •Set-off taxes •Taxpayer suit •Compromises •Power to destroy Situs of taxation
FACTORS IN DETERMINING THE SITUS OF TAXATION
•Subject matter ( person, property, or activity) •Nature of tax •Citizenship •Residence of the taxpayer •Source of Income •Place of excise, business or occupation being taxed