Chapter 2 - Taxes, TAX LAWS AND TAX Administration PDF

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INCOME TAXATIONChapter 2TAXES, TAX LAWSAND TAX ADMINISTRATIONTax An enforced proportionate contribution imposed upon persons, properties, businesses, rights, interests, privileges, transactions and acts within the territorial jurisdiction of the taxing authority exercise by the legislature for a pub...

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INCOME TAXATION Chapter 2 TAXES, TAX LAWS AND TAX ADMINISTRATION

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Tax An enforced proportionate contribution imposed upon persons, properties, businesses, rights, interests, privileges, transactions and acts within the territorial jurisdiction of the taxing authority exercise by the legislature for a public purpose and generally payable in money. Elements of a Valid Tax: 1. must not violate the constitutional, inherent and or contractual limitation of the power of taxation 2. must be uniform and equitable, not unjust, excessive, oppressive, confiscatory or discriminatory 3. must be for a public purpose 4. must be levied by the taxing power (legislature) having jurisdiction over the object of taxation 5. must be proportionate in character 6. generally payable in money, at regular interval (not regular in payment) Classification of Taxes A. As to purpose 1. Fiscal – general, fiscal or revenue- tax imposed for the general purpose of the government or to raise revenue for government needs ex: income tax 2. Regulatory – special or sumptuary – tax imposed for a special purpose or to achieve some social or economic ends ex: tariff or custom duties B. As to subject matter 1. Personal, poll or capitation – tax of a fixed amount imposed on individuals residing within a specified territory without regard to their property or the occupation in which they be engaged in. ex: community tax certificate 2. Property tax – tax imposed on property, whether real or personal, in proportion, either to its value or in accordance with some other reasonable method of apportionment. Ex: real estate tax 3. Excise tax or privilege tax – tax imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. Ex: income tax, value- added tax, privilege tax on business or occupation. C. As to incidence 1. Direct – the tax is demanded from one person in who is intended to pay it. Example: income tax and personal tax 2. Indirect – the tax is demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another by shifting the tax to another taxpayer. Example: ValueAdded Tax, customs duties and some percentage taxes D. As to amount 1. Specific tax – a tax of a fixed amount imposed by the head or number. Example: tax on distilled spirits, cigars and wines (PX/piece) 2. Ad valorem – tax is imposed for a fixed proportion of the amount or value of the property to which the tax is assessed. Examples: excise taxes on cigarettes and gasoline, real property taxes and certain customs duties (X% of selling price) E. As to rate 1. Proportional or flat rate – the tax is based on a fixed percentage of the amount of the property, income or other basis to be taxed. Ex: real estate tax, VAT and percentage taxes

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2. Progressive or graduated tax – the tax rate increases as the tax base increases. Progressive rate is preferred in achieving vertical equity. Ex: income tax, estate tax and donor’s tax 3. Regressive tax – the tax the rate of which decreases as the tax base increases. The Philippines has no regressive tax, but some indirect taxes manifest a regressive effect. 4. Mixed tax F. As to imposing authority 1. National tax – imposed by the National Government. Examples: a. income taxes d. excise tax b. estate and donors tax e. other percentage taxes c. value-added tax f. documentary stamp tax 2. Local tax – tax imposed municipal or local governments. Examples: a. real property tax d. community tax; and b. professional tax e. tax on banks and other financial institutions c. business taxes, fees and charges DISTINCTION OF TAX WITH SIMILAR ITEMS TAX VS. REVENUE Tax Revenue Refers to the amount imposed Refers to the amount collected Only one of the sources of government The product of taxation. It refers to all the revenues funds derived by the government whether from tax or from other sources

Point of distinction Purpose Amount Subject of Imposition

Effect of non- compliance

Revocability Scope

TAX VS. LICENSE* Tax For revenue No limit Person, properties, business rights, interests, privilege, acts and transactions Does not necessarily make the act, business or profession illegal Has a nature of permanence The power to tax includes the power to license Post-activity Current data

When imposed Basis of imposition

Sources of Power

Taxing power of the government

License For regulation Limited Required for the commencement of a business profession Makes the business illegal

Always revocable Power to license does not include the power to tax Pre-activity Preceding year or quarter date. If new business, based on capitalization Police power of the government

TAX VS. TOLL* Tax Demand of sovereignty One’s support for the government

Toll Demand of ownership Compensation for the use of somebody else’s property May be imposed by the government or by private individuals Determined by the cost of the property or improvements thereon

Imposed only by the government Based on government needs

TAX VS. DEBT* Tax

Debt

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Basis Effect of noncompliance Assignable? Mode of settlement Set-off? Interest

Subject of the imposition Effect on the person owning the subject

Basis of Imposition

Coverage of application

Law May involved imprisonment, except for poll tax No Generally money Generally not subject to setoff Does not earn interest except when delinquent

TAX VS. SPECIAL ASSESSMENT* Tax business, interests, transactions, rights, persons, properties or privileges May be made a personal liability of the person assessed

Necessity with no hope of direct or immediate benefit to the taxpayer General application

Contract No imprisonment Yes Cash or In kind Subject to set-off Draws interest when stipulated or when in default

Special Assessment Land

Cannot be made the personal liability of the person assessed, because it is the land that answers for the liability Entirely on benefits received

Exceptional in application

TAX VS. TARIFF Tariff refers to a book of rates containing names of merchandises with corresponding duties to be paid for the same. Tariff refers to the duties payable on goods imported or exported. It is a system or principle of imposing duties on the importation or exportation of goods. *Customs duties and tariffs are used interchangeably TAX VS. PENALTY Tax to raise revenue Purpose

Penalty to regulate conduct through punishment and suppression of injurious act the government or by private individuals Law or contract in money or in kind

Exercising the government authority Law Source in money Mode of settlement Note:  Payment of tax is compulsory to those who are covered by imposition  Taxes are important because they are the lifeblood of the government.  Taxes are personal. The burden of taxation cannot be transferred from one person to the other by private agreement as this is determined by law  While the power of taxation includes the power to destroy, it is not absolute. It is subject to limitation or restrictions. TAX LAW Any law that provides for the assessment and collection of taxes for the support of the government and other public purposes Sources of Tax Laws: 1. Constitution 2. Statutes and Presidential Decrees 3. Executive Orders and Batas Pambansa 4. Tax Treaties and conventions with foreign countries

5. Administrative Issuances or BIR Rulings 6. Judicial Decisions 7. Local Ordinances 8. Revenue Regulation of by the DoF

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