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What is taxation?
What is taxation?
The process by which the sovereign imposes burdens on subjects and objects within its jurisdiction to raise revenues for government.
The power to tax is considered a constitutional grant.
The power to tax is considered a constitutional grant.
False
What are the three inherent powers of the State?
What are the three inherent powers of the State?
Police power, power of taxation, and power of eminent domain.
Which of the following is NOT a purpose of taxation?
Which of the following is NOT a purpose of taxation?
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The primary purpose of taxation is to provide ________ for government operations.
The primary purpose of taxation is to provide ________ for government operations.
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What does the Lifeblood Theory state regarding taxation?
What does the Lifeblood Theory state regarding taxation?
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What does the Reciprocity Theory state?
What does the Reciprocity Theory state?
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The government can continue to operate without the collection of taxes.
The government can continue to operate without the collection of taxes.
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Match the following inherent powers of the State with their descriptions:
Match the following inherent powers of the State with their descriptions:
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Why is taxation considered the lifeblood of the government?
Why is taxation considered the lifeblood of the government?
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Taxes can be the subject of compensation or set-off.
Taxes can be the subject of compensation or set-off.
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What distinguishes a tax from ordinary debts or contracts?
What distinguishes a tax from ordinary debts or contracts?
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In the case of Republic vs. Mambulao Lumber Co., why are taxes not subject to set-off?
In the case of Republic vs. Mambulao Lumber Co., why are taxes not subject to set-off?
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What is required for a set-off to be applicable?
What is required for a set-off to be applicable?
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The power to tax is essentially __________ in nature.
The power to tax is essentially __________ in nature.
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Which of the following is a valid reason for the power to tax?
Which of the following is a valid reason for the power to tax?
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A valid tax can lead to the destruction of a taxpayer's property.
A valid tax can lead to the destruction of a taxpayer's property.
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What are the essential characteristics of a tax?
What are the essential characteristics of a tax?
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What must Congress provide regarding local government units' power to tax?
What must Congress provide regarding local government units' power to tax?
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Can Congress abolish the power of local government units to tax?
Can Congress abolish the power of local government units to tax?
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A valid tax must be levied for a __________ purpose.
A valid tax must be levied for a __________ purpose.
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What does the term 'situs of taxation' refer to?
What does the term 'situs of taxation' refer to?
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Which of the following are exempt under the CREATE Law?
Which of the following are exempt under the CREATE Law?
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What is a valid exercise of the sovereign prerogative in taxation?
What is a valid exercise of the sovereign prerogative in taxation?
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Tax exemptions can be revoked by Congress at any time.
Tax exemptions can be revoked by Congress at any time.
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International law allows the property of a foreign state to be taxed by another state.
International law allows the property of a foreign state to be taxed by another state.
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What is the classification of taxes imposed by the national government?
What is the classification of taxes imposed by the national government?
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Were the tax exemption revocations in the case of 'X' Corporation constitutional?
Were the tax exemption revocations in the case of 'X' Corporation constitutional?
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What is the primary characteristic of indirect taxes?
What is the primary characteristic of indirect taxes?
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Which of the following are factors to consider in determining the situs of taxation? (Select all that apply)
Which of the following are factors to consider in determining the situs of taxation? (Select all that apply)
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A __________ tax is imposed on property in proportion to its value.
A __________ tax is imposed on property in proportion to its value.
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A tax is distinct from a _____ because it is primarily aimed at raising revenue.
A tax is distinct from a _____ because it is primarily aimed at raising revenue.
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Match the types of taxes with their descriptions:
Match the types of taxes with their descriptions:
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How does a toll differ from a tax?
How does a toll differ from a tax?
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Taxation must always be public in nature.
Taxation must always be public in nature.
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What are the limitations on the state's power to tax?
What are the limitations on the state's power to tax?
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What is the purpose of tax according to fiscal adequacy?
What is the purpose of tax according to fiscal adequacy?
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The __________ principle suggests that a taxpayer's ability to pay should be considered in taxation.
The __________ principle suggests that a taxpayer's ability to pay should be considered in taxation.
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What is an example of a secondary, regulatory tax?
What is an example of a secondary, regulatory tax?
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Is Mr. Ramos exempt from the payment of real property taxes?
Is Mr. Ramos exempt from the payment of real property taxes?
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Is the religious congregation exempt from the payment of real property taxes?
Is the religious congregation exempt from the payment of real property taxes?
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Is the religious congregation exempt from the payment of income taxes on the rental receipts?
Is the religious congregation exempt from the payment of income taxes on the rental receipts?
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What does the prohibition against the appropriation of proceeds of taxation for the use of any church entail?
What does the prohibition against the appropriation of proceeds of taxation for the use of any church entail?
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A progressive system of taxation means that tax laws shall place emphasis on indirect taxes rather than direct taxes.
A progressive system of taxation means that tax laws shall place emphasis on indirect taxes rather than direct taxes.
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What is the term for tax rates that decrease as the tax base increases?
What is the term for tax rates that decrease as the tax base increases?
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Charitable institutions are exempt from taxation when used for educational purposes.
Charitable institutions are exempt from taxation when used for educational purposes.
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Which entities are typically exempt from taxation?
Which entities are typically exempt from taxation?
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What must be true for revenues and assets of non-stock, non-profit educational institutions to be exempt from taxes?
What must be true for revenues and assets of non-stock, non-profit educational institutions to be exempt from taxes?
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The President can veto particular items in revenue bills without affecting other items.
The President can veto particular items in revenue bills without affecting other items.
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Where must all appropriation, revenue, or tariff bills originate?
Where must all appropriation, revenue, or tariff bills originate?
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Study Notes
Fundamental Principles of Taxation
- Taxation is the process by which a sovereign state, through its legislature, imposes financial burdens on individuals and property to generate revenue for government functions.
- The power of taxation is inherent and essential to sovereign states; it exists independently of constitutional provisions and is vital for government survival.
- Taxes are compulsory contributions from all citizens and properties within the jurisdiction, enabling the state to furnish public services and needs.
Legislative Authority and Taxation
- Legislative bodies can enact laws to raise revenue even without explicit constitutional provisions granting taxation power because this power is a fundamental attribute of sovereignty.
- Taxation is recognized as an intrinsic right of independent governments rather than just a formal grant by a constitution.
The Three Inherent Powers of the State
- Police Power: The state's authority to regulate behavior for public welfare; invoked for property deemed harmful or noxious.
- Power of Taxation: Enables the state to generate revenue necessary for governmental expenses and public services.
- Power of Eminent Domain: Authorizes the state to acquire private property for public use with just compensation to the owner.
Distinctions Among Inherent Powers
- Each power is independent of constitutional text but may require constitutional conditions for exercise.
- All involve governmental interference with private rights and properties and are legislative in nature.
- They assume some form of compensation or benefit to the affected individuals.
Purposes of Taxation
- Primary Purpose: Generate revenue for government operations and public welfare; taxes like income and business taxes exemplify fiscal purposes.
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Secondary Purpose: Serve as regulatory tools for social control and economic objectives, including:
- Promoting general welfare
- Minimizing social inequality
- Encouraging economic growth through tax incentives or modifications in tax rates during economic fluctuations.
Theory and Basis of Taxation
- Necessity Theory: Suggests taxation arises from the need for government existence and continuity. Taxes are viewed as the lifeblood of government, essential for fulfilling its roles.
- Benefits Received Theory: Taxation is based on the reciprocal obligation of citizens to support the government in exchange for protection and public services.
Key Legal Principles
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Manifestations of the Lifeblood Theory:
- The government cannot be hindered in its functions due to administrative neglect or erroneous enforcement.
- Tax collection should occur without unnecessary delay, emphasizing the government's need for funds to operate effectively.
- Taxes cannot be the subject of compensation or set-off, as they are obligatory contributions, not debts or contracts.
Implications for Taxpayers
- All individuals must contribute to government funding through taxes, which provide public benefits and protections.
- The government is expected to deliver tangible and intangible benefits in return for tax contributions, improving citizens' overall quality of life.### Expropriation and Tax Liabilities
- Expropriation of 100 square meters of land owned by X occurred on June 1, 1994, for P300,000 for the widening of Quirino Avenue.
- X has unpaid income taxes totaling P150,000 from 1991 to 1995.
- Claim for tax liability compensation with expropriation amount rejected due to distinct natures of taxes and debts.
Tax Refund Claims
- Taxpayers cannot set off claims for VAT input credit or refund against other tax liabilities.
- Set-off requires obligations to be liquidated and demandable; pending claims cannot be offset.
Power of Taxation
- Legislative authority has the power to determine taxation subjects, purposes, amounts, types, and collection methods.
- Power to tax includes potential destruction of taxpayer's property, recognized as lawful when within constitutional and inherent limitations.
Nature of Taxation
- Taxation is an enforced contribution, generally payable in money, and levied based on ability to pay.
- Legislative body alone can impose taxes, which must serve a public purpose.
Aspects of Taxation
- Taxation includes levying (legislative function), assessment (determination of amounts), and collection (administrative function).
Characteristics of the State's Tax Power
- Tax power is inherent in sovereignty, legislative in nature, and cannot be exercised by executive or judicial branches.
Non-Delegation Rule Exceptions
- Certain delegated powers to the President and local government units under the 1987 Constitution for tax-related activities permitted.
Local Government Taxation Authority
- Local government units have delegated powers to impose taxes, subject to congressional guidelines.
- Congress cannot abolish the inherent taxing power of local governments as per constitutional provisions.
Tax Immunity for Government Entities
- Government agencies performing public functions are generally tax-exempt unless expressly taxed.
- Agencies engaged in proprietary functions may be subject to taxes, with specific exemptions provided.
International Comity and Taxation
- Foreign state property is immune from taxation by another state due to principles of sovereign equality and territorial jurisdiction.
Classification of Taxes
- Taxes can be classified based on imposition authority (national vs. local), subject matter (personal, property, excise), and burden incidence (direct vs. indirect).
Types of Taxes
- National Taxes: Include income tax, estate tax, donor's tax, and VAT.
- Local Taxes: Imposed by local government units, like real estate tax and professional tax.
Tax Types Based on Subject Matter
- Personal Taxes: Fixed amount taxes on individuals, regardless of property (e.g., community tax).
- Property Taxes: Based on property value.
- Excise Taxes: Levied on specific goods or privileges (e.g., income, estate taxes, and sin taxes).
Tax Burden
- Direct Tax: Incidence falls on taxpayer (e.g., income tax).
- Indirect Tax: Paid by one party but transferred to another (e.g., sales tax).### Tax Types
- Indirect Tax: Paid by one entity but transferred to another, ultimately burdening the last payer.
- Specific Tax: Fixed amount on products based on quantity or weight, such as excise tax on tobacco and alcohol.
- Ad Valorem Tax: A percentage of the property's value, seen in VAT, income tax, and estate tax.
Tax Computation Examples
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Distilled Spirits Tax Rates:
- 2013-2014: 15%, 2015-2017: 20%;
- Specific tax increased from P20 to P21.63 over the years.
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Cigarettes Tax Rates:
- Pack prices based on Net Retail Price (NRP).
- Higher tax for packs exceeding P21.50.
Purpose of Taxes
- Fiscal Purpose: Designed to raise government revenue (e.g., income tax).
- Regulatory Purpose: Aimed at achieving specific economic or social goals (e.g., tariffs on imports).
Tax Structure
- Proportional Tax: Fixed percentage across varying tax bases, maintaining a consistent rate (e.g., VAT).
- Progressive Tax: Rate increases with a higher income bracket (e.g., income tax).
- Regressive Tax: Rate decreases as the tax base increases, impacting lower-income individuals more.
Taxing Authority
- National Taxes: Governed by the National Internal Revenue Code, collected by the Bureau of Internal Revenue (BIR).
- Local Taxes: Imposed by local government units for local expenditures.
Elements of a Sound Tax System
- Fiscal Adequacy: Sufficient revenue generation to meet public service demands.
- Theoretical Justice: Taxation should reflect the taxpayer's ability to pay.
- Administrative Feasibility: Tax laws must be enforceable and comprehendible for effective compliance.
Limitations on Taxing Power
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Inherent Limitations:
- Public Purpose Requirement: Taxes must aim for collective community welfare, not individual benefit.
- Legislative Prerogative: Only Congress can define tax purposes; courts can review the public nature of taxes.
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Constitutional Limitations:
- Due Process: Taxes must not be arbitrary or overly burdensome.
- Equal Protection: Similar conditions must be treated alike, prohibiting discrimination in taxation.
Additional Constitutional Provisions
- Prohibition Against Imprisonment for Non-Payment of Poll Tax: No imprisonment for failing to pay poll tax, only surcharges apply.
- Contract Obligation Impairment: Tax laws cannot alter existing contracts without consent unless provided by law.
- Religious Freedom Protection: Taxes cannot impede the free exercise of religion or promote one religious entity over another.
- Exemption for Charitable and Educational Entities: Properties used primarily for religious, charitable, or educational purposes are exempt from real property taxes.
Illustrative Case
- Religious Institution Property Use: A religious group developed a property for spiritual purposes; however, income-generating activities on the same land might affect tax exemption based on actual use versus ownership.
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Test your knowledge on the principles and purposes of taxation with this quiz. Explore the inherent powers of the state related to taxation and understand essential concepts like the Lifeblood Theory. Perfect for students and anyone interested in governmental finance.
