TAXATION

General Principles Click to edit Master subtitle style

What is Taxation?

As a power, it is the power of the State to impose charge or burden upon persons, or property rights, for the use and support of the government and to enable it to discharge its appropriate functions.

Taxes

Are the 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. Are the financial burdens or charges imposed by the government upon persons or property to raise revenue for public purpose(s).

Theories of Taxation
A.

Necessity Theory
- Existence of a government is a necessity and cannot continue without any means to pay for expenses.

B. Benefits- Protection Theory (Symbiotic) - Reciprocal duties of protection and support between

State and inhabitants. Inhabitants pay taxes and in return receive benefits and protection from the State. - Every person who is able to pay must contribute his share in the running of the government. The Government on its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. The symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power (Algue vs. CIR, G.R. L-28896, Feb. 7, 1988).

Elements of Taxation
1. 2. 3. 4.

5.

It is an INHERENT power of the State. It is essentially LEGISLATIVE in character. It should be for PUBLIC PURPOSE. Either the person or property taxed be within the JURISDICTION of the taxing authority. The purpose is to RAISE REVENUES or the promotion of general welfare, regulation, reduction of social inequality, and to encourage economic growth.

Importance of Taxes

Lifeblood Doctrine - Taxes are the lifeblood of the nation.

- Without the revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. - Taxes are the lifeblood of the nation through which the agencies of the government continue to operate and with which the state effects its functions for the benefit of its constituents.

Basic is the principle that taxes are the lifeblood of the nation. The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with little as possible. (PBCOM vs. CIR GR # 112024, 28 January 1999)

Purpose and Objective of Taxation

Primary
-REVENUE- the purpose of taxation is to provide funds or property with which the state promotes the general welfare and protection of its citizens.

Secondary
of taxes levied on excises or privileges like those imposed on tobacco and alcoholic products, or amusement places, etc. - 2. Promotion of General Welfare.

- 1.Regulation- it has regulatory purpose as in the case

system of taxation where the objective is to prevent undue concentration of wealth in the hands of a few individuals. reliefs, the purpose is to grant tax incentives or exemptions in order to promote the countrys economic growth. (to encourage investments)

3. Reduction of Social Inequality - made possible through the progressive 4. Encourage Economic Growth - In the realm of tax exemptions and tax

5. Protectionism (protection of local industry)

- In some sectors of the economy, as in the case of foreign importations, taxes sometimes provide protection to local industries like protective tariffs and customs duties.

Principles of a Sound Tax System

Fiscal Adequacy
- must be adequate to meet government expenditures.

Theoretical Justice - take into consideration the taxpayers ability to pay.

-rule of taxation must be uniform and equitable. -evolve a progressive system of taxation. Equitable- when its burden falls on those better able to pay. Progressive- when the rate goes up depending on the resources of the person affected.

Administrative Feasibility - Tax laws must be capable

enforcement.

of effective and efficient

Limitations of Taxation
Inherent Limitations 1. Legislative in Nature; Non-Delegability of taxing power.
- As a general rule, taxing power may not be delegated. This is the right to levy taxes (scope of the legislative power) which includes: object to be taxed amount of rate to be taxed purposes for which the tax is levied provided that it is for public purpose. kinds of tax to be collected apportionment of tax

situs of taxation method of collection

2. Territorial/ Situs
- The power to tax is limited only to persons, property or businesses within the jurisdiction or territory of the taxing power. EXCEPT: 1. Where the tax laws operate outside territorial jurisdiction. - taxation of resident citizens on their incomes derived from abroad. 2. Where tax laws do not operate within the territorial jurisdiction of the State. - when exempted by treaty obligations. - when exempted by international comity.

3. It must be imposed for public purpose.

- The right of the legislature to appropriate fund is correlative with its right to tax, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a public purpose (Pascual vs. Sec. Of Public Works, 110 Phil 331).

4. Government entities are exempted.

As a matter of public policy property of the State and its municipal subdivisions devoted to government uses and purposes is deemed to be exempt from taxation although no express provisions in the law are made therefore.

5. International comity
- These principles limit the authority of the government to effectively impose taxes on a sovereign state and its instrumentalities, as well as on its property held and activities undertaken in that capacity. Even where one enters the territory of another, there is an implied understanding that the former does not thereby submit itself to the authority and jurisdiction of the other.

Constitutional Limitations
1.

Due Process of Law. a. Substantive due process b. procedural due process (Art. III)
Instances when the tax law maybe declared as Unconstitutional for violating due process: - If it amounts to confiscation of property without due process. - If it is imposed not for a public purpose -- if a tax law which is applied retroactively imposes unjust and oppressive taxes.

2.Equal protection of the law -All persons similarly situated must be similary treated both as to rights conferred and responsibility imposed. -Equality and uniformity in taxation requires the taxable articles or kinds of property of the same class shall be taxed at the same rate. Requisites of valid classification: a. Based upon a SUBSTANTIAL distinction

b. germane to the purposes of law c. not limited to existing conditions only d. Apply equally to all members of the class. 3. Freedom of the Press - There is curtailment of press freedom and freedom of thought and expression if a tax is levied in order to suppress this basic right of the people under the constitution.

4. Non- infringement of Religious Freedom and worship.(Art. III, section 5) 5. Non- impairment of Contracts (Art. III Sec 10)
What constitutes impairment of an obligation arising from contract? - Any change in terms or conditions of the contract without the consent of the party affected, which weakens his position, right or available remedies; any deviation from its terms which dimishes the rights of any party to the agreement.

6. Non- Imprisonment for Non- Payment of poll tax (Art. III sec. 20)
Poll Tax- is a nominal capitation tax imposed on inhabitants residing within a territory, without regard to their property or occupation (CEDULA).

7. Exemptions of properties ACTUALLY, DIRECTLY, and EXCLUSIVELY used for religious, charitable and educational purposes. A. Art. VI, Sec. 28 (3) real property tax exemption

B.

Art. XIV, Sec. 4 (3) income tax exemption. requisites: 1. The educational institution must be non- stock and non- profit; 2. The income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes; and 3. There is substantial evidence to support the foregoing.

Double Taxationmeans taxing the same subject twice for the same taxable year, for the same tax under the same taxing authority and within the same taxable territory. Requisites to constitute double taxation in the objectionable or prohibited sense: - same property must be taxed twice when it should be taxed but once; - both taxes must be imposed on the same property or subject matter; -for the same purpose; - by the same State, Government, or taxing authority;

- within the same jurisdiction or taxing district; - during the same taxing period; They must be the same kind or character of tax. (CIR vs Solidbank Corp. 2003)