Tax 101 - History, definition, importance and objectives of taxation in the Philippines PDF

Preview

Summary

History, definition, importance and objectives of taxation in the Philippines ...

Description

Activity #1

History of Taxation in the Philippines  







Pre-colonial period- during this time, Filipinos were communitarians so there was NO form of tax. Spanish period- Spaniards introduced new income-generating means to the Filipinos namely: Manila-Acapulco Galleon Trade (the main source of income during its early year where silk from China and silver from Nueva Castilla were brought by way of Manila); Polo Y Servicio (forced labor for 40 days of men ranging 16 to 60 years of age were obligated to give service. One can be exempted by paying falla); Bandala (one of the taxes collected from the Filipinos; came from the Tagalog word mandala which means round stock of rice stalks to be threshed); Encomienda System (the system goes where a large tract of lands was given to a person called encomienderos as reward. They were given the full authority of the land by collecting the tribute from the inhabitants and govern people living on it); And Tribute (the residence tax during Spanish times, may be paid in cash or kind, partly or wholly).  1884- Cedula personal emerged and replaced the tribute. Cedula serves as a personal identity paper which is equivalent to a community tax certificate.  Additional info: During Spanish era, Cedula must be carried all the time. A person who could not present his/her cedula to guardia civil could lead to detainment in prison for being ‘indocumentado’. American period  January 1, 1940- American imposed cedula when Commonwealth Act No. 465 (imposing of a base residence tax of fifty centavos and an additional tax of one peso based on factors such as income and real estate holdings) went into effect. The payment of tax during this period would merit the issue of a residence certificate. Corporations were also subject to the said tax.  Land tax- replaced the Urbana. This tax is also known as tax on real estate. The problem with land tax was that land titling in the rural area was very disorderly.  The internal Revenue Law of 1904- this was passed as a reaction to the problem of collecting tax from land tax. Japanese period- during this period there is no innovation of taxation.  Additional info: economic activities had to stop when World War II arrived. The expenditures of Japanese military government grew greatly and they issued notes to cover the cost of the war. Policies from 1946 up to Present

o Manuel Roxas (1946-1948)- rejected the advised of the United States in tax collection. o Elpidio Quirino (1948-1953)- the drive for economic growth came through in implementation of imports and exports that led to import substitution development.  1953- tax revenue increased twofold compared to year 1948. o Ramon Magsaysay, Carlos P. Garcia and Diosdado Macapagal (1953-1965) May 15, 1959- Republic Act (RA) 2211 where Joint Legislative Executive Tax Commission (JLETC) was created to institutionalize the tax research in the country.  The period of post-war republic also saw a rise in corruption.  Indirect taxation still contributed to three quarters of tax revenues and the Omnibus Tax Law of 1969 did not increase the ratio of income tax to general tax. o Ferdinand Marcos (1965-1985)- the tax system was still heavily dependent on the indirect taxes (made up of 70% of the total tax collection). Moreover, during his regime, taxes grew at an average annual rate of 15% and generated a low tax yield. o Corazon Aquino (1986-1992)- a major reform was established in the tax system under her term where she introduced the Value Added Tax (VAT).  1986 Tax Reform Program- lowering the highest tax rates, simplifying procedure; and rationalize the grant of tax incentives (estimated to be worth 531.7 billion pesos in 1994).  Republic Act (RA) 7716- an act restructuring the Value Added Tax (VAT) system, widening its tax based and enhancing its administration and for these purposes amending and repealing the relevant provisions of the national internal revenue code, as amended, and for other purpose. o Joseph Estrada (1998-2000)- his term was too short to establish any change in the tax system. o Gloria Macapagal Arroyo (2000-2010)- she undertook increased government spending without adjusting the tax collections. 

2005- Gloria signed the Republic Act 9337 or the Expanded ValueAdded Tax (E-VAT).



February 2006- VAT rate increased from 10% to 12%.

o Benigno Aquino III (2010-2016)

Republic Act 1035- also known as Sin Tax Reform, which adjusted the excise tax on liquor and cigarette.

o Additional info.: the collected enabled to increase the budget of the Department of Health (DOH) and PhilHealth (from 55.2 million pesos in 2012 to 515.4 million pesos in 2015). o Rodrigo Duterte (2016-Present)- he supported the implementation of TRAIN (Tax Reform for Acceleration and Inclusion) Law. o Additional info.: TRAIN Law aims to limit VAT exceptions and increase tax on petroleum products and automobiles. - Duterte vowed to lower the income tax rates shouldered by the Filipino people. Definition of Taxation 

Taxation- the power by which the sovereign, through its law-making body, raises revenue to defray the necessary expenses of the government. -merely a way of apportioning the cost of the government among those who in some measure are privileged to enjoy its benefits and must bear its burdens. -the Supreme Court described that the taxes are what we pay for civilized society. Without taxes, government will be paralyzed for lack of motive power to activate and operate it. 

Additional info.: the resulting revenue or the income is called taxes.

Nature of Taxation



Inherent in sovereignty- exists apart from constitutions and without being expressly conferred by the people. It can perform by the government even if the Constitution is entirely silent on the subject.

 Additional info.: (a) Constitutional provisions relating to the power of taxation do not operate as grants of the power to the government. They merely constitute limitations upon a power which would otherwise be practically without limit. (b) While the power to tax is not expressly provided for in our Constitution, its existence is recognized by the provisions relating taxation.



Legislative in character- peculiarly and exclusively legislative and cannot be exercised by the executive or judicial branch of the government. Hence, only Congress, our

national legislative body can impose taxes. The levy of a tax, however, may also be made by a local legislative body subject to such limitations as may be provided by law. 

Subject to constitutional and inherit limitations- power of taxation is subject to certain limitations. Most of these limitations are specifically provided in the Constitution or implied therefrom, while the rest are inherent and they are those which spring from the nature of the taxing power itself although they may or may not be provided in the Constitution. - Individual equities or inequities, however, are not considered in the exercise of the power; and, therefore, the mere fact that the taxation is unjust or oppressive with respect to a particular taxpayer does not of itself render a tax law invalid, where no constitutional provision has been violated.

Basis of Taxation 

The basis of taxation is the reciprocal duties of protection and support between the State and its inhabitants. 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 organized society (benefits received theory). 

Additional info.: No obligation on the part of the state that one who pays more taxes should be given more protection.

Objectives of Taxation 

Revenue- the purpose of taxation is to provide funds or property with which the State promotes the General Welfare and Protection of citizens.



Regulation- taxation also has a regulatory purpose as in the case of taxes levied on exercises or privileges like those imposed on tobacco and alcoholic products, or amusement places (night clubs, cabarets, cockpits, etc.). -regulatory purpose in the rehabilitation and stabilization of a threatened industry which is affected with public interest (like oil industry).



Promotion of General Welfare- Supreme Court ruled that taxation may be used as in implement of the police power in order to promote the general welfare of the people. While the funds collected under the Oil Price Stabilization Fund (OSPF) may be referred to as taxes, they are exacted in the exercise of the police power of the State. From such fund, amounts are drawn to reimburse oil companies when appropriate situations arise for increase in the cost of crude oil importation.



Reduction of Social Inequality- this is made possible through the progressive system of taxation where the objective is to prevent the undue concentration of wealth in the hands of a few individuals. Progressivity is key stoned on the principle that those who are able to pay should shoulder the bigger portion of the tax burden.



Encourage Economic Growth- to grant incentives or exemptions in order to encourage investments and thereby promote the country’s economic growth. It is also worthwhile to note that the power to exempt from tax is inherent in the State. However, it is significant to note that with respect to real property taxes, no such power exists, save in the case of condonation of taxes which can be granted only for certain justifiable reasons which are expressly stated in law.

Principles of Sound Taxation System 

Fiscal adequacy- sufficient to provide government expenditures and other public needs.



Theoretical justice- power of taxation should be based on one’s ability to pay.



Administrative feasibility- tax laws must be capable of convenient.

Limitation on the Power of Taxation 

Constitutional limitations- provided for in the constitution or implied from its provision. o Observance of due process of law and equal protection of the laws. (sec 1, Art. 3)- any deprivation of life, liberty or property is with due process if it is done under the authority of a valid law and after compliance with fair and reasonable methods or procedure prescribed. The power to tax, can be exercised only for a constitutionally valid public purpose and the subject of taxation must be within the taxing jurisdiction of the state. The government may not utilize any form of assessment or review which is arbitrary, unjust and which denies the taxpayer a fair opportunity to assert his rights before a competent tribunal. o Rule of uniformity and equity in taxation (sec 28(1), Art. VI)- all taxable articles or properties of the same class shall be taxed at the same rate. Uniformity implies equality in burden not in amount. Equity requires that the apportionment of the tax burden be more or less just in the light of the taxpayer’s ability to bear the tax burden. o No imprisonment for non-payment of poll tax (sec 20, Art. III)- a person cannot be imprisoned for non-payment of community tax, but may be imprisoned for other violations of the community tax law, such as falsification of the community tax certificate, or for failure to pay other taxes.

o Non-impairment of obligations and contracts (sec 10, Art. III)- the obligation of a contract is impaired when its terms and conditions are changed by law or by a party without the consent of the other, thereby weakening the position or the rights of the latter. IF a tax exemption granted by law and of the nature of a contract between the taxpayer and the government is revoked by a later taxing law, the said law shall not be valid, because it will impair the obligation of contract. o Prohibition against infringement of religious freedom (sec 5, Art. III)- the constitutional guarantee of the free exercise and enjoyment of religious profession and worship, which carries the right to disseminate religious belief and information, is violated by the imposition of a license fee on the distribution and sale of bibles and other religious literatures not for profit by a non-stock, nonprofit religious corporation. o Prohibition against appropriations for religious purposes (sec 29 (2), Art. VI)Congress cannot appropriate funds for a private purpose, or for the benefit of any priest, preacher or minister or for the support of any sect, church except when such priest, preacher, is assigned to the armed forces or to any penal institutions, orphanage or leprosarium. o Income, property and donor’s taxes and custom duties (sec 4 (3 and 4), Art. XIV)- exemption of all revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes. o Concurrence by a majority of all members of Congress in the passage of a law granting tax exemptions (sec. 28 (4), Art. VI) o Congress may not deprive the Supreme Court of its jurisdiction to review, revise, reverse, modify or affirm on appeal or certiorari, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment or any penalty imposed in the relation thereto 

Inherent limitations- restrictions to the power to tax attached to its nature. o Purpose- taxes may be levied only for public purpose; o Territoriality- the State may tax persons and properties under its jurisdiction; o International Comity- property of a foreign State may not be taxed by another; o Exemption- government agencies performing governmental functions are exempt from taxation.

o Non-delegation- the power to tax being legislative in nature may not be delegated (subject to exceptions). Various Source of Taxation Laws



Constitution- the power of taxation is merely regulated by the Constitution. - taxation can be exercised even without the Constitution,



Statutory (Legislative branch)- tax laws passed by the Congress. - under the National Internal Revenue Code (NIRC).



Administrative (Executive branch)- refers to les general interpretation of tax laws issued on a timely basis by the Commissioner of the Bureau of Internal Revenue (BIR). -issued by request of the taxpayer to clarify certain provisions of tax law. - under BIR rulings. These are intended to clarify or explain the law and carry into effect its general provisions by providing details of administration of the Commissioner of the BIR.



Judicial (Judicial branch)- the decisions of the court of tax appeals and the Supreme Court applying or interpreting tax laws. - part of the jurisprudence on taxation and the legal system of the Philippines. -appealable to the Supreme Court.

REFERENCES: https://www.slideshare.net/JRLopezGonzales/taxation-101-basic-rules-and-principles-inphilippine-taxation-by-jr-lopez-gonzales-for-msu-iit-political-science-seminar?next_slideshow=1 https://www.slideshare.net/fimportado/tax-law-in-the-philippines http://tax71.blogspot.com/2009/06/limitations-on-power-of-taxation.html#:~:text=The%20power %20of%20taxation%2C%20is,tax%20attached%20to%20its%20nature. https://www.grantthornton.com.ph/insights/articles-and-updates1/lets-talk-tax/taxation-ofpassed-on-grt/#:~:text=The%20principles%20of%20a%20sound,expenditures%20and%20other %20public%20needs.

http://taxation-tax.blogspot.com/2017/04/theory-and-basis-of-taxation.html http://taxation-tax.blogspot.com/2017/04/nature-of-power-of-taxation.html https://laws.chanrobles.com/republicacts/78_republicacts.php?id=7720#:~:text=REPUBLIC %20ACT%20NO.-,7716,AMENDED%2C%20AND%20FOR%20OTHER%20PURPOSES https://www.studocu.com/ph/document/tarlac-state-university/philippine-history/other/evolutionof-philippine-taxation/5523598/view https://www.jstor.org/stable/2140422?seq=1#metadata_info_tab_contents...