Introduction to Taxation

Study Notes

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

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.

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: 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.

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.

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

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.

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.

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.