Taxation Chapter 1-Fundamental Principles

Scope of the power of taxation

1. Comprehensive (covers everything) 2. Unlimited (almost not subject to any restrictions) 3. Plenary (complete) 4. Supreme (absolute)

Classification of Taxes (as to who bears the burden)

1. Direct Tax 2. Indirect Tax

Limitations on the State's Power to tax

1. Inherent Limitations 2. Constitutional Limitations

Aspects of Taxation

1. Levying or imposition of the tax 2. Assessment 3. Collection of the tax levied

Classification of Taxes (as to scope)

1. National Tax 2. Local Tax

Clasification of Taxes (as to subject matter or object)

1. Personal, poll or capitation 2. Property 3. Excise

3 inherent powers of the state

1. Police Power 2. Power of Taxation 3. Power of eminent domain

Purpose of Taxation

1. Primary (Revenue/Fiscal Purpose) 2. Secondary (Regulatory/Sumptuary/Compensatory Purpose)

Classification of Taxes

1. Primary, Fiscal, or Revenue Purpose 2. Secondary, Regulatory, Special or Sumptuary Purpose

Classificiation of Taxes (as to graduation or rate)

1. Proportional 2. Progressive or graduated 3. Regressive

means of avoiding or minimizing the burden of taxation

1. Shifting 2. Transformation 3. Evasion 4. Tax Avoidance 5. Exemption 6. Capitalization 7. Avoidance

Classification of Taxes (as to determination of amount)

1. Specific Tax 2. Ad Valorem

Sources of Tax Laws

1. constitution 2. national internal revenue code 3. tariff and customs code 4. local government code book 2 5. local tax ordinances or city or municipal tax codes 6. tax treaties and international agreements 7. special laws 8. decisions of the supreme court and at a court of tax appeals 9. revenue rules and regulations and administrative rulings and opinions

Nature/Characteristics of the State's Power to tax

1. it is inherent in sovereignty 2. it is legislative in character 3. exemption of government entities agencies and instrumentalities 4. international comity 5. limitation of territorial jurisdiction 6. strongest among the inherent powers of the state

Basis of Taxation: Benefits Received Theory (Reciprocity Theory)

The state collects taxes from the subjects of taxation in order that it may be able to perform the functions of government. The citizens on the other hand pay taxes in order that they may be secured in the enjoyment of the benefits of an organized society. this theory spawned on the doctrine of symbiotic relationship which means taxes are what we pay for a civilized society

Elements of Sound Tax System

a. Fiscal Adequacy b. Theoretical Justice/Equity c. Administrative Feasibility

Inherent Limitations on the state's power to tax

a. Purpose must be in public in nature b. prohibition agaisnt delegation of the taxing power c. Territorial limitation

Manifestation of the Lifeblood Theory

a. Rule of no estoppel against the government b. collection of taxes cannot be enjoined (stopped) by injunction c. taxes could not be the subject of compensation or set-off d. right to select objects of taxation e. a valid tax may result in the destruction of the taxpayers property

Tariff

a. a book of rates granny shell in alphabetical order containing the names of several kinds of merchandise with a corresponding duties to be paid for b. the same duties payable on goods imported or exported c. the system or principle of imposing duties on importation or exploitation of goods

kinds of exemption (as to basis)

a. constitutional (constitution) b. statutory (legislation)

exceptions to non delegation rule

a. delegation as provided for in the 1987 constitution such as delegation to the president b.delegation to local government units c. delegation to administrative agencies d. it is subject to constitution and inherent limitations.

Constitutional Limitations on the state's power to tax

a. due process of law b. equal protection of laws c. rule of uniformity and equity in taxation d. prohibition against imprisonment for non-payment of "poll tax" e. prohibition against impairment of obligation and contracts f. prohibition against infringement of religious freedom g. prohibition against appropriation of proceeds of taxation for the use, benefit, or support of any church h. prohibition against taxation of religious, charitable and educational entities i. prohibition agaisnt taxation of non-stock, non-profit, educational institutions

Essential Elements of Tax

a. enforced contribution b. generally payable in money c. proportionate in character d. levied on persons, property or the exercisr of right or privilege e. levied by the law-making body of the state f. levied for public purpose

kinds of exemption (as to form)

a. express b. implied

Other Limitations on the state's power to tax

a. grant of tax exemption b. veto of appropriation, revenue, tarriff bills by the President c. delegated authority of president impose tariff rates d. non-impairment of the supreme court jurisdiction e. revenue bills shall originate exclusively from the house of representatives f. infringement of press freedom g. revocation of tax exemptions

characteristics of special assessment

a. levied only on land b. not a personal liability of the person assessed c. beast holy on benefits d. exceptional both as to time and place

factors to consider in determining the situs of taxation

a. subject matter b. nature of the tax c. citizenship d. residence of the taxpayers e. source of the income f. place of excise business or occupation being taxed

kinds of exemption (as to extent)

a. total (absolute) b. partial (part of collection of tax is dispensed)

Transformation

an escape from taxation where the producer or manufacturer pays the tax and endeavour to recoup himself by improving his process of production thereby turning out his units of products at a lower cost

Excise Tax

any tax which does not fall within the classification of a poll tax repartee tax this is a tax on the exercise of certain rights and privileges example income tax estate tax donor's tax

custom duties

are taxes imposed on goods exported from or imported into a country

Theoretical Justice/ Equity

based on the ability to pay principle. the taxpayer's ability to pay must be taken into consideration that tax burden should be proportionate to the taxpayer's ability to pay.

double taxation

direct double taxation means taxing twice by: a. the same taxing authority restriction or taxing district b. for the same purpose c. in the same year of taxing period d. same subject or object e. same kind/character of the tax

Tax

enforced proportional contributions or charges 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.

Local Tax

imposed by local government units such as municipal corporations

National Tax

imposed by the national government example income tax estate tax donor's tax VAT other percentage taxes documentary stamp tax

Permit/License Fee

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

subsidy

is a pecuniary aid directly granted to the government to an individual or private commercial enterprise deemed beneficial to the public

Penalty

is a sanction imposed as a punishment for violation of law or act deem injurious

tax evasion

is a scheme used outside of those lawful means to avoid tax

toll

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

special assessment

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

avoidance

is it tax saving device within the means sanction by law this method should be used with the taxpayer in good faith and at arm's length

tax avoidance

is the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability

Taxation

is the process or means by which the sovereign (independent state) through its law making body (legislature), imposes burdens upon subjects and objects within its jurisdiction for the purposes of raising revenues to carry out the legitimate objects of government.

Shifting

is the transfer of the burden of a tax by original payer or the one on whom the tax was assessed or imposed to someone else

Evasion

is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax

exemption

it is a grant of immunity to particular persons or corporations or two persons or corporations of a particular class from a tax which persons and corporations generally within the same state of taxing district are obliged to pay

taxpayers' suit

it is one of what are filed by a taxpayer arguing the validity of tax statute and its enactment or the constitutionality of its alleged public purpose. it is a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation

Amnesty

it is the general or intentional overlooking by the state if its authority to impose penalties and persons otherwise guilty of evasion or violation of revenue or tax law .it partakes of an absolute forgiveness or waiver of the government of its right to collect.

Power of Taxation

it is the power by which the state raises revenue to defray the necessary expenses of the government

Police Power

it is the power of the state for promoting public welfare by restraining and regulating the use of liberty and property.

Power of eminent domain

it is the power of the state to acquire private property for public purpose of an payment of just compensation

Situs of Taxation

it is the state or political unit which has jurisdiction to impose a particular tax

revenue

refers to all the funds or income derived by the government whether from tax or any other source

Personal Tax

stacks of a fixed amount imposed upon individual why their citizens are not residing within a specified territory without regard to their property or the occupation in which he may be engaged

Proportional Tax

tax based on a fixed percentages of amount of the property receipts or other basis to be taxed

Secondary, Regulatory, Special, or Sumptuary Purpose of Tax

tax imposed for a specific purpose example to achieve some social or economic ends irrespective of whether revenue is actually raised or not

Property Tax

tax imposed on property whether real or personal and proportion either to its value or in accordance with some other reason al method of apportionment

Administrative Feasibility

tax laws must be capable of effective and efficient enforcement

Specific Tax

tax of fixed amount imposed by the head or number or by some standard of weight or measurement

Ad Valorem

tax of fixed proportion of the value of the property with respect to which a tax is assessed

Regressive Tax

tax the rate of which decreases as the tax base or bracket increases

Progressive or Graduated Tax

tax the rate of which increases as the tax base or bracket increases

Indirect Tax

tax which is demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another

Direct Tax

tax which is demanded from the person who also shoulders the burden of tax or tax which the taxpayer can shift to another

Primary, Fiscal or Revenue Purpose of Tax

taxing for solely for the general purpose of the government revenue for government purposes

Fiscal Adequacy

the fundamental purpose of taxation is to raise the revenues necessary to fund public services

Theory of Taxation: Lifeblood/Necessity Theory

the power of taxation procedes upon the theory the existence of government is a necessity. Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. the government cannot continue to perform basic functions of serving and protecting people without the means to pay its expenses

Capitalization

the reduction in the selling price of income producing property by an amount equal to the capitalized value of future taxes that may be paid by the purchaser