Taxation - it can help to find your answer here. PDF

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Course Code and Title : BACR 5 - Income TaxationLesson Number : 1PRE-ASSESSMENT Taxation Revenue Situs Shifting APPLICATION: Illustrate the three (3) inherent powers of the State by way of an example. a. Taxation power b. Police power c. Power of Eminent Domain Inherent Power of the StateTaxation Po...

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Course Code and Title : BACR 5 - Income Taxation Lesson Number

: 1

PRE-ASSESSMENT Identify the words which are described by the following statements by filling out the boxes on the left. This is the power of the State enforce proportional contribution from its subjects to sustain itself. Taxes are the main form of government . This is the place of taxation. This is the process of transferring the tax burden to other taxpayers.

1. 2. 3. 4.

Taxation Revenue Situs Shifting

APPLICATION: 1. Illustrate the three (3) inherent powers of the State by way of an example. a. Taxation power b. Police power c. Power of Eminent Domain Inherent Power of the State Taxation Power ●

Examples include general and selective sales taxes, valueadded taxes (VAT), taxes on any aspect of manufacturing or production, taxes on legal transactions, and

Police Power ●

Examples of the federal use of the police power are food and drug regulations, environmental preservation laws, and workplace safety laws.

Eminent Domain ●

Examples of the power of eminent domain include such things as schools, roads, libraries, police stations, fire stations and similar public uses.

customs or import duties. General sales taxes are levies that are applied to a substantial portion of consumer expenditures. 2. Situational: The Congress, after much public hearing and consultations with various sectors of society, came to the conclusion that it will be good for the country to have only one system of taxation by centralizing the imposition and collection of all taxes in the national government. Accordingly, it is thinking of passing a law that would abolish the taxing power of all local government units. Would such law be valid under the present Constitution? Answer: A State of authority can enforce responsibilities or expenditures on its citizens, except without a clear clause in the Constitution authorizing it to do so. It is on the grounds that the State has the preeminent right to command and to approve the possession of its will by persons inside its headquarters. In addition, any clause of the Constitution on the valuation of taxes does not grant the right of being able to bear burdens, but rather limits the incomparability of the ability to bear burdens. 3. Explain the difference between Tax Avoidance and Tax Evasion by citing an illustration. Answer: Tax avoidance is defined as legal measures to use the tax regime to find ways to pay the lowest rate of tax while the Tax evasion is taking illegal steps to avoid paying tax, e.g. not declaring income to the taxman.

4. What is Double Taxation?

Answer: It means that the double taxation refers to income taxes charged twice at the same source of income. It can occur when income is taxed at both corporate and personal levels. -

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Does it exist in the Philippine Tax System? Answer: No, double taxation does not exist in the Philippines To this end, without any amendment to the pertinent provisions of the Tax Code or regulations clarifying the tax treatment of the particular income source, there is effectively no exemption on the same source of income. It should additionally be noted that while double taxation is generally frowned upon in the Philippines by the State and taxpayers alike, the same is not entirely illegal and prohibited except if under a particular circumstance, such double taxation is violative of any Constitutional limitations of the power to tax. In your answer provides proof of its existence.

ACTIVITY/EVALUATION TRUE OR FALSE Determine whether the following statements are true or false. Write your answers on the space provided for. TRUE 1. Though the Senate is part of the Philippine Congress, tax bills cannot originate from it. FALSE 2. The primary purpose of taxation is to raise revenues of the government in order to defray its expenses on its performance of public goods. FALSE 3. The basis of taxation is the government’s necessity for funding. FALSE 4. Tax laws are generally retrospective in application, meaning, application of which starts when the statute is enacted. FALSE 5. The Marshall Doctrine states that the power to tax is not the power to destroy while the court sits. FALSE 6. The administrative act of taxation is primarily the duty of the Bureau of Internal Revenue. TRUE 7. The police power of the State may be exercised through taxation because taxes may be levied for the promotion of the welfare of the public TRUE 8. A person cannot be imprisoned for non-payment of tax.

IDENTIFICATION

Identify the terminologies best described by the following statements. TAXES 1. The enforced proportional contributions from persons and property levied by the lawmaking body of the State. EMINENT DOMAIN 2. The power of the State to take private property for public use after paying just compensation. TAX EVASION 3. This refers to any act or trick that tends to illegally reduce or avoid the payment of tax. TRANSFORMATION 4. This pertains to the elimination of wastes and losses by the taxpayer to form savings to compensate for the tax imposition or increase in taxes. MULTIPLE CHOICE Choose the best answer from the choices provided. 1. A tax must be imposed for public purposes. Which of the following is not a public purpose? a. Procurement of army weapons b. Construction of rehabilitation centers for drug addicts c. Construction of a satellite for a telco company d. Expenses on the President’s state visits to other countries 2. Persons or things belonging to the same class shall be taxed at the same rate a. Simplicity in taxation b. Equality in taxation c. Reciprocity in taxation d. Uniformity in taxation 3. For double taxation to be considered direct, it should meet the following criteria, except a. Taxing the same object twice b. Same period c. Same amount of tax d. Same jurisdiction 4. This is an inherent limitation on the power of taxation a. Rule on uniformity and equity in taxation b. Due process of law and equal protection of time laws c. Non-impairment of the jurisdiction of the Supreme Court in tax cases d. Exemption of the government 5. Taxation as distinguished from police power and power of eminent domain a. Property is taken to promote the general welfare b. May be exercised only by the government c. Operates upon the whole citizenry

d. There is generally no limit as to the amount that may be imposed REINFORCEMENT: Case Study 1.1 THE SWEET TAX To provide means for the rehabilitation and stabilization of the sugar industry so as to prepare it for the eventuality of the loss of the quota allocated to the Philippines resulting from the lifting of U.S. sanctions against African countries, Congress passes a law increasing the existing tax on the manufacture of sugar on a graduated basis. All collections made under the law are to accrue to a special fund to be spent only for the purposes enumerated herein, among which are to place the sugar industry a living wage and to improve their working conditions. Sweet, a sugar planter, files a suit questioning the constitutionality of the law alleging that the tax is not for a public purpose as the same is being levied exclusively for the aid and support of the sugar industry. Is the contention of Sweet tenable? No, in the light of the fact that public justification does not really extend to all people. Given the fact that it only includes a particular gathering of companies, as long as they assume basic parts that affect the general community, it is still seen as a public cause. Sugar industry is important for society and the economy, and any benefits gained from public finances would also benefit citizens in general. In addition, the tax collection no longer advances the purpose of raising income through the operation of the public authority to offer government assistance to the sugar sector. It is the real objective of the public authority to secure an enterprise in the area where our economy depends. Case Study 1.2 WHO IS TO BLAME? Many consider that it was untimely that the internal revenue office of Wakanda issued a memorandum circular during the pandemic reminding guidelines on the registration of online businesses for tax filing. As enacted under Wakanda’s revenue code, online businesses are liable to income tax on the gains from their sales. One of Wakanda’s officials, Senator Jack A. Moon questioned the internal revenue office on its issuance indicating that it was not moral for it to run after online businesses and impose taxes on their income, more so that they are normally conducting such endeavors for mere subsistence. Is the senator’s contention tenable? Yes, considering that Senator Jack A. Moon is likely to be legitimate and appropriate because the present condition was simply not correct. The Internal Revenue Office of Wakanda does not release a memorandum warning online companies of tax filings, particularly if the company is a small business and has just a minimum profit or there are often no revenues for the day. It should have more consideration for the small businesses or enterprises to exempt from tax if the profil will range around 250,000-300,000 a

year. In this time of pandemic, many of the companies closed their operation so probably the employees, staff or even the on the job training are also affected. Case Study 1.3 IS IT EXEMPT? A congregation owns a parcel of land. Most of it is directly used for its religious and educational endeavors. A small commercial space was built beside the school it operates to rent out to businesses which would cater the needs of its students. The proceeds from rentals are being used for charitable purposes. Should the rental income and property be subjected to tax? No, the rental income should not be subjected to tax because the purpose of rental is to support and help the charity aside from catering the needs and wants of its students. It gives benefits and advantages for everyone in their society. SITUS RULES APPLICATION: ● Dina B. Nalican, Spanish by citizenship, obtained the income from the following during the year. ● Having posted in Shoppy, a customer browsing the online shopping application in General Santos City asked if she could inspect the car personally. It was after the inspection in Zamboanga City that the customer agreed to buy the car. It is to be delivered to and paid by the customer in Davao City. ● Dina has a hardware store located in Mactan, Cebu. She decided to close the main branch in Leyte five years ago. ● She also lends through the 5-6 system of lending in her residence in Quiapo. A debtor residing in Quezon City owes her P60,000, inclusive of interests. They are to meet in Sampaloc for the payment of said debt. ● Dina owns a condo unit in Laoag City. A student from Cagayan rents said property and pays Dina's son (residing in Vigan City) the rent when they meet up in Batac City. Determine the situs of: DAVAO CITY 1. Tax on the gain on sale of her car MACTAN, CEBU 2. Tax on her hardware store QUEZON CITY 3. Tax on interest income earned LAOAG 4. Tax on rental income earned QUIAPO 5. Personal Tax LIMITATIONS

Identify the source of the limitation on the power of taxation. Write C if it is constitutional, I if it is inherent, B if it is both constitutional and inherent and N if it is not a limitation. B 1. Taxes collected must be used for public purposes I 2. Taxes can only be imposed within the territory of the State N 3. Taxes cannot be assigned I 4. Tax treaties entered into with other contracting States must be honored N 5. Imprisonment for non-payment of income tax B 6. Non-delegation of the taxing power C 7. Exemption from taxes of the revenues and assets of religious, charitable or educational entities, nonprofit cemeteries, churches and mosques C 8. No arbitrariness in assessment and collection of taxes

Other Fundamental Doctrines Marshall Doctrine - “The power to tax is the power to destroy.” Taxation power can be used as an instrument of police power. It can be used to discourage or prohibit undesirable activities or occupation. ● It is used to discourage the certain acts of the people. Whenever the income of an employee increases, it should pay taxes and if not, they will be forced and give them a burden of obligation. Also, taxation allows to destroy the possessions and properties of someone. (e.g. 2000 years ago, if a family or a someone was not able to pay their taxes, taxation has the authority to confiscate their belongings and even to destroy their properties as their payment) Holme’s Doctrine - “Taxation power is not the power to destroy while the court sits.” Taxation power may be used to build or encourage beneficial activities or industries by the grant of tax incentives. ● If there's a law, taxation doesn't have the authority to destroy as they have to follow the law. Besides, it can help the people regarding the exemptions and deductions in their taxes payment. (Tax incentives) Prospectivity of Tax Laws - Tax laws are generally prospective in operation. However, tax laws may operate retrospectively if so intended by Congress under certain justifiable conditions. ● From the word prospective, the expected outcome in the future or let's say an expected circumstances. And, since expected, it should be "looking forward" not backward considering that law is always law, and it will not change. Non-Compensation or Set-Off - Taxes are not subject to automatic set-off or compensation. The taxpayer cannot delay payment of tax to wait for the resolution of a lawsuit involving the pending claim against the government. Tax is not a debt; hence, it is not subject to set-off. ● The taxpayer should pay their taxes. In paying their tax, they have no choice and they

cannot also refuse. It is not a debt but it is required to be deducted from the revenue of an employee. Non-Assignment of Taxes - Tax obligations cannot be transferred to another entity by contract. Contracts executed by the taxpayer to such effect shall not hinder the government to collect taxes. ● It means that you are not allowed to transfer the tax payment to another entity. And you still need to pay the taxes in the government. For example, Option A earns then decides to transfer the tax payment to Option B, which is wrong. Imprescriptibility in Taxation - The government’s right to collect taxes does not prescribe unless the law itself provides. ● It means that the right of the government to collect the taxes are imprescriptible or unable to be taken away unless the law itself provides for such prescription. Although the National Internal Revenue Codes provide for the limitation in the assessment and collection of taxes imposed, such a prescriptive period will only be applicable to those taxes that were returnable. The prescriptive period shall start from the time the taxpayer files the tax return and declares his tax liability.The court held that there is no time on the right of the BIR Commissioner to assess taxes on unreasonable accumulated earnings of the corporation. Doctrine of Estoppel - The error of any government employee does not bind the government. It is held that the neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the interest of the people. ● The doctrine of estoppel is founded on the basis of public policy, fair dealing, good faith and justice, and is intended to prevent one from speaking out against one's own action, representation or obligation to harm the person to whom it was applied and who fairly relied on it. This doctrine is based on the equitable principles and the equity of the situation. It is intended to assist the law in the administration of justice where discrimination could result without its assistance. Judicial Non-Interference - Generally, courts are not allowed to issue injunction against the government’s pursuit to collect tax as this would unnecessarily defer tax collection. ● This doctrine means that courts are not able to impose injunctions or orders against the government's objective of collecting taxes, since this would result in undue postponement of the collection of taxes. In short, courts with equal and coordinated authority cannot conflict with each other's orders.

REACTION PAPER: Taxation 101: Basic Rules and Principles in Philippine Taxation

According to JR Lopez Gonzales who did a research about the basic rule and principles in Philippine taxation that it is a mode by which the government makes exactions for revenue in order to support their activities. The taxation was first known in ancient Egypt around 3000 BC - 2800 BC in the first dynasty and in the 19th century the cedula served as an identification card that needed to be carried all the time. It is also a legal identity document in the Philippines. For the exact purpose of taxation is to accumulate funds for the functioning of the government machineries. Taxation refers to the practice of a government collecting money from its citizens to pay for public services. It is the strongest power of the government where the taxes are the lifeblood of the government to do the public activities that all of the citizens benefit from it. Without the taxation the government will be paralyzed and they can’t do anything for the public considering that those taxes that they collect are for the citizens and economy safety. That’s why every product that we buy in the market has value added taxes such as soft drinks, cigarettes, sugar etc, that can be helpful for the healthy of the citizens. Each individual pays taxes to support the objectives of the government that can help to improve our economy but, some are those exempted such as charitable institutions, churches, nonprofit cemeteries and all lands and charitable or educational purposes that are used for the people who can’t afford to pay. To sum up everything that has been stated so far that if all revenue earners will pay the right amount of tax, the government can collect more money to support its objectives such as building roads, schools, better government salaries and improving government services. These factors can help attract more investors and jobs in the Philippines.

MODULE 2

PRE-ASSESSMENT Match Column A with Column B. Column A D 1. Toll C 2. CIR B 3. Fiscal Adequacy

Column B A – most likely similar with proportional tax B – sources of funds must be sufficient to cover costs C – the highest official of the Bureau of Internal Revenue

F 4. Progressive

D – a charge for the use of others’ property

A 5. Ad valorem

E – an agency tasked for collection of tariffs

E 6. BOC

F – tax rates increase as the tax base increase

G 7. Revenue Issuances

G – a source of tax law from the BIR

APPLICATION: Case Study 2.1 GOING LOCO ON LOCAL The Municipality of Santo Cristo, claiming that it can impose taxes under the Local Government Code, imposed a tax on common carriers in addition to the 3% common carrier’s tax imposed in the National Internal Revenue Code. The common carriers in the municipality objected on this ordinance stating that the power of taxation cannot be delegated and that this constitutes double taxation. Is their contention tenable? No, Case Study 2.2 IS THE COMPROMISE COMPROMISED? Due to the government budget crunch due to the pandemic, the economic manager of the country looked into tax compromises and abatements done during the year. Upon evaluation, it discovered a tax liability of P400,000 which was compromised by the Regional Evaluation Board. The economic manager stated that the tax compromise is not valid since it is the CIR’s power for the tax compromise to take effect. He also adds that this power cannot be delegated. Is his contention tenable? Yes

EVALUATION: TRUE OR FALSE: Write True on the blank provided if the statement is correct and False if the statement is incorrect: TRUE 1. Tax laws must originate exclusively from the House of Representatives. FALSE 2. The presence of penalties for late filing and payment of taxes suggests that tax laws a...