Income taxation- CHAP 1 Basic Principles

Special assessment

an enforced proportional contribution from the owners of lands for special benefits resulting from public improvements.

Taxes

are enforced proportional contributions from persons and property levied by the lawmaking body of the State by virtue of its sovereignty for the support of the government and all public needs.

Revenue regulations

are issuances signed by the secretary of finance, upon recommendation of the comissioner of Internal Revenue that prescribe or define rules and regulations

Inherent limitations

are restrictions to the power to tax attached to its nature

Custom duties

are taxes imposed on goods exported from or imported to a country. Customs duties are actually taxes but the latter is broader in scope.

Taxes

are the lifeblood of the government and their prompt and certain availability are an imperious need. A government cannot continue to exist and operate without financial means.

Constitutional limitations

are those provided for in the constitution or implied from its provisions.

Payemnt Payment/Exercise Remedies

compliance and/or resistance the taxpayer

Toll

demand for proprietorship, is paid for the use another's property and maybe imposed by the government or private individuals or entities; while a tax is a demand for sovereignty, is paid for the support of the government and maybe imposed only by the State.

Tax avoidance

happens when taxpayer minimizes his tax liability by taking advantage of legally available tax planning opportunities or called tax minimization. This is avoiding the charging of tax and this is legal.

License fee

imposed for regulation and involves the exercise of police power while tax is levied for revenue and involves the exercise of the taxing power. Failure to pay a license fee makes an act or business illegal while failure to pay a tax does not necessarily make an act or business illegal.

Permit or license fee

is a charge imposed under the police power for purposes of regulation.

Penalty

is any sanction imposed as a punishment for violation of law or acts deemed injurious. Violation of tax laws may give rise to the imposition of penalty.

Revenue

is broader than tax since it refers to all funds or income derived by the government taxes included. Other sources of revenues are government services, income from public enterprises and foreign loans.

Debt

is generally based on contract, is assignable and may be paid in kind while a tax is based on law, cannot generally be assigned and is generally payable in money. A person cannot be imprisoned for non-payment of debt while he can be for non-payment of tax (except poll tax).

Special assesment

is levied on property owners to pay for specific local infrastructure projects such as the construction or maintenance of roads or sewer lines. The tax is charged only to the owners of property in the neighborhood that will benefit from the project. That neighborhood is called the special assessment district.

Special assessment

is levied only on land, is not a personal liability of the person assessed, is based wholly on benefits and is exceptional both as to time and place. Tax levied on persons, or exercise of privilege, which may be made a personal liability of the person assessed, is based on necessity and is of general application.

Situs of taxation

is the place of taxation. The rule is that the State may rightfully levy and collect taxes where the subject being taxed has a situs under its jurisdiction.

Taxation

is the process or means by which the sovereign, through its lawmaking body, raises income to defray the necessary expenses of the government. Taxation, as a power of the State, is inherent in sovereignty.

Toll

is the sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge, or the like, of a public nature.

Tax planning

it is the process of controlling one's actions so as to avoid undesirable tax consequences. Taxes can be avoided by not engaging in those activities that are taxed.

Proportional

tax based on a fixed percentage of the amount of property income or other basis to be taxed. ∙ Examples: percentage taxes, real estate taxes, estate and donor's tax

Direct

tax demanded from persons who are intended or bound by law to pay the tax. ∙ Examples: community tax, income tax, estate tax, donor's tax.

Specific

tax imposed based on a physical measurement, as by head or number, weight, or length or volume. ∙ Examples: tax on distilled spirits, fermented liquors, cigars, wines, fuel products, fireworks etc

National

tax imposed by the national government. ∙ Examples: internal revenue taxes, tariff and customs duties.

Special or regulatory

tax imposed for a special purpose regardless of whether revenue is raised or not, and is intended to achieve some social or economic end. ∙ Example: protective tariff or customs duties on certain imported goods to protect local industries against foreign competition.

Property

tax imposed on property, whether real or personal, in proportion either to its value or in accordance with some other reasonable method of apportionment. ∙ Example: real estate tax.

Excise

tax imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. ∙ Examples: fuel producers, importers.

True

tax laws are civil in nature

Personal, poll or capitation

tax of a fixed amount imposed on individual whether citizens or not, residing within a specified territory without regard to their property or the occupation in which they may be engaged. Example: community tax.

Regressive

tax rate decreases as the tax base increases. Not true in the Philippines. ∙ Example: value-added tax.

Progressive or graduated

tax rate increases as the tax base increases. ∙ Example: income tax.

Indirect

tax which the taxpayer can shift to another. ∙ Examples: customs duties, value-added tax, some percentage taxes.

General, fiscal or revenue

tax with no particular or object for which the revenue is raised for whatever need may arise. ∙ Examples: income tax, value-added tax.

True

In an effort to achieve these objectives, Congress tends to use tax provisions in two different ways. 1. First, some of the tax rules are enacted for the purposes of mitigating certain undesirable economic and social conditions already existing. 2. Second, other tax rules provide incentives for certain desirable activities.

True

In case there is conflict between the GAAP and GAAS on the other side and the Tax Code on the other side, the provisions of the Tax Code and rules and regulations issued implementing the said Tax Code shall prevail. (Revenue Memorandum Circular 22-04, April 12, 2004)

Revenue law

Is a law passed for the purpose of authorizing the levy and collection of taxes in some sorm to raise revenue. It is said to be a national revenue law when it is applicable all over the country

Republic act 8424, the National Internal Revenue Code

Is a statutory law

Penalty

Is designed to regulate conduct and may be imposed by the government or private individuals or entities. Tax, on the other hand, is primarily aimed at raising revenue and may be imposed only by the government.

Purpose of taxation

Primary- to raise revenue Secondary - to regulate

Revenue Memorandum Orders

Provide directives or instructions, methods and procedures necessary in the implementation of stated policies

Attrition Act of 2005

Reblic act 9335, enacted to improve the revenue collection performance of the Bir and the Bureau of Customs through the creation of a revenue performance evaluation board and or rewards incentives fund

VAT Reform Act Constitutional

Republic Act 9337

Collection of the tax levied

This is essentially an administrative function.

Indirect double taxation

This typo may not prove unconstitutional, it is being avoided so as not to bring injustice to the taxpayer

Mission of BIR

To collect taxes efficiently and effectively, for at the least cost to the government, through impartial and consistent enforcement of internal revenue laws, and convenient and honest service to taxpayers

True

When an item of income is taxed in PH and teh same income is taxed in another country, there is only a case of indirect duplicate taxation which is not legally prohibited because taxes are imposed by different taxing authorities

Direct double taxation

Where, the same subject is taxed twice; 1. By the same taxing authority; 2. For the same purpose; 3. Within the same jurisdiction; 4. During the same taxing period; and 5. Covering the same kind or character of tax

Bureau of Internal Revenue

-Functions under the supervision and control of the Department of Finance - was created by Commonwealth Act 466, approved by the National Assembly on June 15, 1939, effective July 1, 1939

Inherent Limitations:

1. Purpose. Taxes may be levied only for public purposes; 2. Territoriality. The state may tax persons and properties under its jurisdiction; 3. International comity. The property of a foreign state may not be taxed by another; 4. Exemption. Governmental agencies performing governmental functions are exempt from taxation; 5. Non-delegation. The power to tax being legislative in nature may not be delegated.

Types of rates structures

1. Regressive - average rate decreases as the tax base increases. 2. Proportional or uniform taxes - the average rate remains constant for all levels of the tax base. 3. Progressive - the average rate of tax increases as the tax bases increases

True

All returns required to be filed by the Tax Code shall be prepared always in conformity with the provisions of the Tax Code, and the rules and regulations issued implementing sais Tax Code.

Collection by enforcement

Conducted through the identification of sectors of business or industries where the degree of compliace is low

True

Congress creates statutory law

Tax Reform Act of 1997

Declares the policy of teh State to promote sustainable economic growth through the rationalization of the Philippine internal revenue tax system

Tariff and Customs Code of 1978 (P.D. 1464 as amended)

1. import duties; and 2. export duties

Indirect double taxation

-example: 1. When a business tax is imposed by the municipality government prior to the issuance of a business license to a taxpayer for engaging in an advertising business. His income from his advertising business shall later be imposed income tax by the national government. 2. When an item of income is taxed in the Philippines and the same income is taxed in another country, there is a case of indirect duplicate taxation which is not legally prohibited because the taxes are imposed by different taxing authority.

Classification of taxes

1. As to subject matter or object 2. As to who bears the burden 3. As to determination of amount 4. As to purpose 5. As to authority imposing the tx or scope 6. As to graduation or rate

Methods of collection utilized by the BIR

1. Collection through voluntary compliance 2. Collection by enforcement

Sources of tax laws

1. Constitution 2. Statutes and presidential decrees 3. Revenue regulations by the Department of Finance 4. Ruling issued by the Commissioner on Internal Revenue and opinions by the Secretary of Justice 5. Decisions of the Supreme Court of Tax Appeals 6. Provincial, city, municipality, and barangay ordinances subject to limitations 7. Treaties or international agreements

Constitutional Limitations:

1. Due process of law; 2. Equal protection of law; 3. Rule of uniformity and equity; 4. President's power to veto separate items in revenue or tariff bills; 5. Exemption from property taxation of religious, charitable or educational entities, non profit cemeteries, churches and convents appurtenant thereto; 6. No public money shall be appropriated for religious purposes; 7. Majority of all the members of the Congress granting tax exemptions; 8. The Congress may not deprive the Supreme Court of its jurisdiction in all cases involving the legality of any tax, impost or assessment or toll or any penalty imposed in relation to tax; 9. No imprisonment for nonpayment of poll tax; and 10. Tax collections shall generally be treated as general funds of the government.

Basic principles of a sound tax system

1. Fiscal Adequacy 2. Equality or theoretical justice 3. Administrative feasibility

National Internal Revenue Code of 1997 (P.D. 1158 as amended)

1. Income taxes (individual and corporate); 2. Estate and donor's taxes; 3. value-added tax; 4. other percentage taxes; 5. excise tax; and 6. documentary stamp tax

Essential Characteristics of a Tax

1. It is an enforced contribution; 2. It is levied by the lawmaking body; 3. It is proportionate in character; 4. It is generally payable in money; 5. It is imposed for the purpose of raising revenues; and 6. It is to be used for public purpose.

Aspects of taxation

1. Levying of the tax 2. Collection of the tax levied 3. Payment/exercise remedies

Application of Situs of taxation:

1. Person - residence of the taxpayer. 2. Real Property or tangible personal property - location of the property. 3. Intangible personal property - As a rule, situs is the domicile of the owner unless he has acquired a situs elsewhere. 4. Income - Taxpayer's residence or citizenship, or place where the income was earned. 5. Business, occupation and transaction - place where business is being operated, occupation being practiced and transaction being completed. 6. Gratuitous transfer of property - taxpayer's residence or citizenship, or location of the property.

The situs of taxation is determined by a number of factors:

1. Subject matter or what is being taxed. He may be a person or it may be a property, an act or activity. 2. Nature of tax - or which tax to impose. It may be an income tax, an import duty or a real property tax. 3. Citizenship of the taxpayers; and 4. Residence of the taxpayer.

Escape from taxation

1. Tax avoidance 2. Tax planning 3. Tax evasion

State powers

1. Taxation 2. Eminent Domain 3. Police power

Objectives of taxation

1. Taxation is much more than a means of raising revenue for the government. 2. It is also a means by which the national government attempts to achieve various economic and social objectives. 3. These objectives include shifting wealth from rich to the poor, maintaining price stability, stimulating economic growth, and encouraging full employment.

Three branches of the national government

1. The President and his administration (executive) 2. The Congress (legislative) 3. Courts (judicial)

The usual method of avoiding the occurrence of double taxation are:

1. allowing reciprocal exemptions either by law or by treaty; 2. allowance of tax credit for foreign taxes paid; 3. allowance of deduction for foreign taxes paid; 4. reduction of the Philippine tax rate.

Revenue Memorandum Circulars

Are issuances that publish pertinent and applicable portions as well as amplifications of laws, rules, regulations by the BIR

Intrenal revenue laws

Are neither political nor penal in nature although there are penalties in case of violations.

True

BIR collection accounts for more than 60% of the national government total revenues

True

Double taxation standing alone and not being forbidden by our fundamental law is not a valid defense against the legality of a tax measure.

Republic Act 9282

Expanded the jurisdiction of the Court of Appeals

Administrative feasibility

The law must be capable of convenient, just and effective administration.

Special Laws

Motor Vehicle Law (R.A. 4136) Private Motor Vehicle Tax Law Philippine Immigration Act of 1940 (C.A. 613 as amended) - immigration tax and Travel Tax Law (P.D. 1183, as amended) - travel tax

Fiscal Adequacy

Sources of Revenue are sufficient to meet government expenditures.

Republic act 10963

Tax Reform for Acceleration and Inclusion - TRAIN Law (effective 2018)

Municipal or local

Tax imposed by municipal governments for specific needs. ∙ Examples: real estate taxes, municipal licenses.

Ad valorem

Tax of fixed proportion of the property; needs an independent appraiser to determine its value. ∙ Examples: real estate tax, certain customs duties, income tax, transfer taxes, etc.

True

Tax, in its essential characteristics is not a debt.

True

Taxability of income and deductibility of expenses shall be determined strictly in accordance with the provisions of the Tax Code and the rules implementing the said Tax code.

True

Taxation is indispensible and inevitable price for civilized society, without taxes, the government would be paralyzed

True

Taxes may be imposed retroactively by law but, unless so expressed by such law, these taxes must only be imposed prospectively - a law applicable to cases arising after its enactment."

Voluntary compliance

The act of tendering the payment of the self-assessed tax

True

The administrative branch of the National Government includes the Department of Finance (DOF) of which the Bureau of Internal (BIR) is a bureau.

Levying of the tax

The imposition of tax requires legislative intervention, it is the Congress that levies taxes

Taxation

The power of the state by which teh sovereign raises revenue to defray the necessary expenses of the government

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

Eminent Domain

The power of the state to take private property for public use upod payment to just compensation

Bureau of Internal Revenue

The premier tax agency in PH

Self-assessment method

The process by which the tax is computed and determined

Equality or theoretical justice

The tax imposed must be proportionate to taxpayer's ability to pay

Self-assessment system

The taxpayer calculates teh tax by himself or through an accountant, fills up his tax return, files it with the proper tax office, and pays the tax due thereon upon filing

Local Government Code of 1991 (R.A. 7160)

real property tax; business taxes, fees and charges; professional tax; community tax; and tax on banks and other financial institutions.

Tax Evasion

occurs when the taxpayer resorts to unlawful means to lessen or get away with hiss tax liability. This is also called tax dodging. Ex. Under declaration of sales, overstatement of expenses, and backdating important document. Tax Evasion avoiding the payment of tax and is illegal.