Introduction to Taxation

Concept of Taxation

• Taxation is defined as a state power, legislative process, and a method for distributing government costs.
• Necessary for government funding and services.

Lifeblood Doctrine

• Highlights the essential nature of taxation for government functioning.

Theories of Cost Allocation

• Benefit Received Theory: Taxes should be proportional to the benefits received from government services.
• Ability to Pay Theory: Tax burden should align with the taxpayer's financial capability.
• Vertical Equity: Taxpayers with higher income should pay more taxes.
• Horizontal Equity: Taxpayers with similar income should pay similar taxes.

Inherent Powers of the State

• Taxation Power: Authority to levy taxes.
• Police Power: Authority to regulate for the promotion of the public good.
• Eminent Domain: Authority to take private property for public use with compensation.

Scope and Limitations of Taxation Power

• Scope: Generally considered comprehensive, plenary, and supreme in government authority.

• Inherent Limitations:

  • Territoriality of Taxation: Taxes apply typically within the state's borders.
  • International Comity: Respect for other nations' tax laws and agreements.
  • Public Purpose: Taxes should serve public interests.
  • Government Exemption: Government entities may be exempt from certain taxes.
  • Non-delegation of Taxing Power: Taxation cannot be entrusted to private entities.

• Constitutional Limitations:

  • Due Process of Law: Fair legal processes must be followed in taxation.
  • Equal Protection of Law: Tax laws must apply equally to all.
  • Uniformity Rule: Taxes must be uniform within a jurisdiction.
  • Progressive Tax System: Higher income earners pay higher tax rates.
  • Exemptions: Certain individuals or entities may be exempt from taxes.

Situs of Taxation

• Refers to the location or basis for taxation, including:
  • Business Tax Situs: Location of business operations.
  • Income Tax Situs: Location where income is earned.
  • Property Tax Situs: Location of property.
  • Personal Tax Situs: Based on the residence of the taxpayer.

Stages of Taxation Power

• Levy or Imposition: Legislative act that establishes taxes.
• Assessment and Collection: Administrative processes for determining tax liabilities and collecting taxes.

Other Fundamental Doctrines in Taxation

• Marshall Doctrine: Principles on tax imposition.
• Holme’s Doctrine: Addresses the implications of tax law changes.
• Prospectivity of Tax Laws: Tax laws apply to future transactions, not retroactively.
• Non-compensation: Taxes cannot be used to offset debts.
• Imprescriptibility: Tax liabilities do not expire.
• Doctrine of Estoppel: Prevents denying facts that have been legally accepted.
• Judicial Non-interference: Courts typically do not interfere in tax matters.
• Strict Construction: Tax laws are interpreted narrowly.

Double Taxation

• Occurs when a taxpayer is taxed twice on the same object by the same jurisdiction.
• Elements of Double Taxation:
  • Same object of tax.
  • Same type, purpose, jurisdiction, and period of tax.
• Types:
  • Direct Double Taxation: All elements are present.
  • Indirect Double Taxation: At least one secondary element differs.
• No law outright prohibits double taxation, but direct double taxation is discouraged.

Escapes from Taxation

• Tax Evasion: Illegal act of avoiding taxes.
• Tax Avoidance: Legal methods to minimize taxes.
• Tax Exemption: Legal provisions that eliminate tax obligations.
• Strategies to minimize double taxation:
  • Provision for tax exemptions.
  • Allowing foreign tax credits.
  • Reciprocal treatment of taxes between jurisdictions.
  • Treaties or bilateral agreements to prevent double taxation.