General-Principles - Summary Taxation PDF

Preview

Summary

GOOD
...

Description

General Principles A. Taxation Definition Taxation is the process or means by which the sovereign, through its lawmaking body, raises income to defray the necessary expenses of the government. Purposes of taxation The purposes of taxation may be classified into primary and secondary: 1. Primary Purpose To provide funds or property with which to promote the general welfare and protection of its citizens and to enable it to finance its multifarious activities. In other words, to raise revenue for governmental needs. 2. Secondary a. To encourage the growth of home industries and strengthen anemic enterprises by giving tax exemptions and tax incentives; b. To protect local industries against foreign competition through imposition of high customs duties on imported goods; c. To reduce inequalities in wealth and income by imposing progressively higher tax rates; d. To prevent inflation by increasing taxes or ward off depression by decreasing them; and e. To implement the police power of the state and to promote the general welfare. Scope of taxation In the absence of constitutional restrictions and subject to the will of the legislative bodies with whom it is entrusted and the discretion of the authorities which exercise it, the power of taxation is unlimited, comprehensive, plenary and supreme. However, it is subject to inherent and constitutional limitations. Theory and basis of taxation Theory – The power of taxation proceeds upon the theory that the existence of the government is a necessity; that it can not continue without means to pay its expenses; and that it has a right to compel all its citizens and property within its limits to contribute. Basis – The basis of taxation is found on the reciprocal duties of protection and support between the State and its inhabitants. The state receives taxes that it may be enabled to carry out its mandates into effect, and perform functions of government and the citizen pays the portion of taxes demanded in order that he may, by means thereof, be secured in the enjoyment of benefits of an organized society. Basic Principles of a Sound Tax System 1. Fiscal Adequacy – the source of revenue should be sufficient to meet the demands of public expenditures. 2. Equality or Theoretical Justice. The tax burden should be proportionate to the taxpayer’s ability to pay. The principle of ability to pay states that the subject of the state must contribute to the support of the government as nearly as possible, in proportion to the revenue or income which they respectively enjoy under the protection of the state. 3. Administrative Feasibility – The tax should be plain and clear to the taxpayer, capable of uniform enforcement by government officials, convenient as to time, place and manner of payment and not unduly burdensome upon, or discouraging to business activity. Nature or Characteristics of the State’s Power to Tax 1. It is inherent in sovereignty. The power of taxation may be exercises by the State although not expressly granted by the constitution. 2. Legislative in character. It is only the legislature that can enact tax laws. 3. Subject to constitutional and inherent limitations. Taxation is not an absolute power that can be exercised by the legislature anyway it pleases. Limitations on the Power of Taxation 1. Constitutional Limitations – those restrictions found in the constitution or implied from its provisions. 2. Inherent limitations – those which restrict the power although they are not embodied in the constitution.

1

Constitutional Limitations 1. Observance of due process of law and equal protection of the laws. No person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied the equal protection of the law. The exercise of the taxing power involves deprivation of property (income) of the taxpayer, and if this is done according to the regular methods and procedures prescribed by a valid law, then deprivation is done with due process. If such methods and procedures are not followed, then taxpayer is deprived of his property without due process. 2. The rule of taxation must be uniform and equitable. – The Congress shall evolve a progressive system of taxation. a) Rule of uniformity - all properties belonging to the same class shall be taxed at the same rate. If a tax violates this rule, it is discriminatory and therefore unconstitutional. b) Rule of equity – The apportionment of tax burden among taxpayers must be just or equitable taking into consideration the taxpayer’s ability to pay. 3. Non-imprisonment for non-payment of poll tax. No person shall be imprisoned for failure to pay community tax but he may be imprisoned for non-payment of other taxes like income tax. 4. Non-impairment of the obligations of contracts. No law impairing the obligation of contracts shall be passed. 5. Non-infringement of religious freedom. No law shall be made respecting the establishment of religion, or prohibiting the free exercise thereof. The free exercise of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights. 6. No apportionment for religious purposes. No public money or property shall be appropriated, applied, paid or employed, directly or indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian institution or system of religion, or of any priest, preacher, minister, or other religious teacher, or dignitary as such, except when such priest, preacher, minister or dignitary is assigned to the armed forces or to any penal institution or government orphanage or leprosarium. 7. Exemption of religious, charitable or educational entities, non-profit cemeteries, and churches from taxation. Charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques, nonprofit cemeteries and all lands, buildings and improvements, actually, directly and exclusively used for religious, charitable, or educational purposes shall be exempted from taxation. Land, buildings and improvements shall be exempt from taxation but should there be incidental income arising from their use, such income shall not he exempt from income tax. 8. Exemptions for revenues and assets of non-stock, non-profit educational institutions and donations for educational purposes from taxation. All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. 9. Concurrence by a majority of all the members of the Congress for the passage of law granting any tax exemption. No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the Congress. 10. Power of the President to veto any particular item or items in a revenue or tariff bill. The President shall have the power to veto any particular item or items in an appropriation, revenue or tariff bill, but the veto shall not affect the item or items to which he does not object. 11. Non-impairment of the jurisdiction of the Supreme Court in tax cases. The Supreme Court shall have the power to review, revise, reverse, modify, or affirm on appeal as the Rules of Court may provide, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto. 12. All appropriation, revenue or tariff bills shall originate exclusively from the House of Representatives, but the Senate may propose or concur with amendments. 13. All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general fund of the government.

2

14. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government. 15. Subject to conditions prescribed by law, all grants, endowments, donations or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax. 16. The Congress may provide for incentives, including tax deductions to encourage private participation in programs of basic and applied scientific research. Inherent Limitations on the Power of Taxation 1. Requirement that a levy must be for a public purpose. Public purpose is a purpose affecting the inhabitants of the state as a community and not merely as individuals. Examples: public works, public education, public health 2. Non-delegation of the legislative power to tax. The power to tax is inherently legislative and must not be delegated by the legislature to some other departments of the government. 3. Exemption from taxation of government entities. Government agencies and instrumentalities through which the government exercises sovereign powers are exempt from tax, in the absence of clear proof of a contrary intent in the tax law. 4. The tax laws can not apply to the property of foreign governments (International Comity). The property of a foreign government may not be taxed by another. By virtue of the sovereign equality of states, one state has no jurisdiction over another or over the latter’s property located within the territory of the former. 5. The power to tax is limited to the territorial jurisdiction of the taxing state. The tax laws of a state are enforceable only within its territorial limits, hence, it can not tax properties located beyond its boarders, nor impose an excise tax upon the exercise of a right or privilege in another state. 6. The rule of double taxation. There is no constitutional prohibition against double taxation in the Philippines. Double taxation means an 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. Aspects of Taxation 1. Levy – deals with the provisions of law which determines the person or property to be taxed, the sum or sums to be raised, the rate thereof, and the time and manner of levying, receiving and collecting the taxes. 2. Collections – constituted of the provisions of law which prescribe the manner of enforcing the obligation on the part of those taxed to pay the demand thus created. Place (Situs) of Taxation- the country which has jurisdiction to impose a particular tax upon persons, property or business transactions. Situs of Persons and Income 1) For purposes of personal tax, such as community tax, situs is the residence of the person. 2) For purposes of income tax, the situs is determined by: a) the citizenship of the recipient b) the residence of the recipient c) the place where the income is derived Situs of Property 1) For real property, the place where it is located 2) For tangible personal property, the place where it is located 3) For intangible personal property, domicile or residence of the owner. Situs of Business and Occupations – the place where the act is performed or the occupation is engaged in. B. Taxes Definition 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. Essential elements of a tax 1. 2. 3. 4. 5. 6. 7.

Enforced contribution Generally payable in money Proportionate in character Levied on persons, property, or the exercise of a right or privilege. Levied by the state which has jurisdiction over the subject or object of taxation. Levied by the lawmaking body of the state. Levied for public purpose or purposes. 3

The power of taxation can only be levied by the Congress of the Philippines through enactment of tax statutes. But this power is also granted by the Constitution to local government units, subject to such limitations as may be provided by law. Classification of taxes 1. As to subject matter or object a. Personal, poll or capitation – Tax of a fixed amount imposed on individuals, whether citizens or not, residing within a specified territory without regard to their property or the occupation in which they may be engaged. Ex. Community tax b. 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. Ex. Real Property Tax c. Excise (Privilege Tax) – A tax imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. Any tax which does not fall within the classification of a poll tax or a property tax. Ex. Income tax, donor’s tax, estate tax, specific tax on wines and liquors 2. As to who bears the burden a. Direct – a tax that is demanded from the person who also shoulders the burden of the tax. It can not be shifted. Ex. Income tax, estate tax, donor’s tax b. Indirect – a tax demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another. It can be shifted. Ex. Value-added tax and percentage tax 3. As to determination of amount a. Specific – Tax of fixed amount imposed by the head or number, or by some standard of weight or measurement; it requires no assessment other than a listing of classification of the subjects to be taxed. Ex. Excise tax on distilled spirits, cigars, cigarettes b. Ad valorem – Tax of a fixed proportion of the value of the property with respect to which the tax is assessed; it requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined. Ex. real estate tax 4. As to purpose a. General, fiscal or revenue – Tax that is imposed solely to raise revenue for governmental expenditures. Ex. Income tax, value added-tax b. Special or regulatory – Tax imposed for a special purpose; such as to achieve some social or economic ends irrespective of whether revenue is actually raised or not. Ex. sugar adjustment taxes; customs duties on importation, protective tariffs. 5. As to authority imposing the same a. National – Tax imposed by the national government Ex. Internal revenue taxes, customs duties b. Municipal or local – Tax imposed by municipal governments Ex. Sand and gravel tax, occupation tax, real property tax, municipal license tax. 6. As to graduation or rate a. Proportional – Tax based on a fixed percentage of the amount of the property, receipts, or other basis to be taxed. Ex. Value-added tax, other percentage tax b. Progressive – Tax, the rate of which increases as the tax base or bracket increases. Ex. Income tax, estate tax, donor’s tax c. Regressive – Tax rate which decreases as the tax base increases. Three Inherent Powers of the government The three inherent powers of the government are the following: 1. Eminent Domain – The power of the state or those to whom the power has been delegated to take private property for public use upon paying to the owner a just compensation. 2. Police Power – The power of the State to enact such laws in relation to persons and property as may promote public health, public morals, public safety, and the general welfare of the people. 3. Taxation – The power by which the sovereign, thru its legislature, raises revenue to support the necessary expenditures of the government. Similarities among taxation, eminent domain and police power. a) They are inherent in the state; b) They exist independently in the constitution; 4...