Taxation Principles and Limitations
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What is the primary purpose of taxation?

To raise revenue to finance governmental expenditures.

What does "C.U.P.S." stand for in the context of taxation?

Comprehensive, Unlimited, Plenary, and Supreme

Which of these options are NOT canons of a sound tax system?

  • Fiscal Adequacy
  • Theoretical Justice or Equality
  • Administrative Feasibility
  • Political Influence (correct)

    • The state's power to tax is not inherent in its sovereignty.

    <p>False</p> Signup and view all the answers

    Which of the following is NOT a limitation on the power of taxation?

    <p>Political Pressure</p> Signup and view all the answers

    What is the "Life-blood Theory" of taxation?

    <p>Taxes are the lifeblood of the government. Without taxes, no government can function.</p> Signup and view all the answers

    Which of the following is NOT a key feature of a tax?

    <p>Voluntarily Paid</p> Signup and view all the answers

    What are the two main types of taxes based on scope or exercising authority?

    <p>National Tax and Municipal or Local Tax</p> Signup and view all the answers

    What are the three main types of taxes based on subject matter or object?

    <p>Personal, or Poll Tax, Property Tax, and Excise Tax</p> Signup and view all the answers

    Which of the following is NOT a type of tax based on who bears the burden of the tax?

    <p>Transfer Tax</p> Signup and view all the answers

    What is the main difference between a general or revenue tax and a special tax?

    <p>A general or revenue tax is levied without a specific purpose, while a special tax is levied for a specific purpose.</p> Signup and view all the answers

    What are the three main types of taxes based on the rate applied?

    <p>Proportional, Progressive, and Regressive Taxes</p> Signup and view all the answers

    What are the two main types of taxes based on the measurement of the amount due?

    <p>Specific and Ad Valorem Tax</p> Signup and view all the answers

    Which of the following is NOT a distinction between taxation, police power, and eminent domain?

    <p>Form of Payment</p> Signup and view all the answers

    What is the main difference between a tax and a debt?

    <p>A tax is a mandatory obligation imposed by law to the government in its sovereign capacity, while a debt is a voluntary obligation arising from a contract with another party.</p> Signup and view all the answers

    Which of the following is NOT a difference between a tax and a toll?

    <p>Amount of Imposition</p> Signup and view all the answers

    What is the primary difference between a tax and a license?

    <p>A tax is imposed to raise revenue, while a license is used to regulate specific actions, businesses, industries, or professions.</p> Signup and view all the answers

    Special assessments are levied only on land.

    <p>True</p> Signup and view all the answers

    What is the key difference between a tax and a special assessment?

    <p>A tax is imposed on all property within a jurisdiction, while a special assessment is imposed only on property that benefits directly from the improvement project.</p> Signup and view all the answers

    Which of the following is NOT a form of escape from taxation?

    <p>Tax Deduction</p> Signup and view all the answers

    The general rule for interpreting tax laws is to interpret them liberally in favor of the taxpayer and strictly against the government.

    <p>True</p> Signup and view all the answers

    Which of the following is NOT a source of tax laws?

    <p>Local Ordinances</p> Signup and view all the answers

    What is the primary function of tax regulations?

    <p>Tax regulations are interpretations of administrative body (BIR) intended to clarify or explain the tax laws and carry into effect its general provisions.</p> Signup and view all the answers

    Who is authorized to promulgate tax regulations?

    <p>The Secretary of Finance</p> Signup and view all the answers

    What is the main difference between administrative interpretations and judicial interpretations of tax laws?

    <p>Administrative interpretations are given weight but are not laws, unlike court's decisions which are considered part of the law of the land.</p> Signup and view all the answers

    What are the two main components of tax administration?

    <p>Assessment and Collection</p> Signup and view all the answers

    The Bureau of Internal Revenue (BIR) is only responsible for the collection of internal revenue taxes.

    <p>False</p> Signup and view all the answers

    What are the main powers and duties of the BIR Commissioner?

    <p>They include interpreting tax laws and deciding tax cases, obtaining information and examining taxpayers, making assessments and prescribing requirements for tax administration and enforcement, and delegating powers to subordinate officials.</p> Signup and view all the answers

    Which of the following is NOT a power of the BIR Commissioner?

    <p>Power to impose tax rates</p> Signup and view all the answers

    What is the main principle that governs the situation for tax exemption?

    <p>Tax exemptions are highly disfavored in law and are not presumed.</p> Signup and view all the answers

    Tax exemptions are always self-executing.

    <p>False</p> Signup and view all the answers

    What is the main purpose of tax regulations?

    <p>To provide clear interpretation of tax laws and carry into effect its general provisions.</p> Signup and view all the answers

    Tax regulations can only be prospective.

    <p>False</p> Signup and view all the answers

    Who is the primary authority to implement tax regulations?

    <p>The Secretary of Finance, based on the recommendation of the Commissioner of Internal Revenue.</p> Signup and view all the answers

    What is the purpose of a BIR Ruling?

    <p>To provide general interpretation of tax laws, usually upon a request of a taxpayer to clarify a provision of law.</p> Signup and view all the answers

    Administrative interpretations of tax laws are considered binding and have the same weight as judicial interpretations.

    <p>False</p> Signup and view all the answers

    Which of the following agencies is NOT involved in tax administration?

    <p>Department of Labor</p> Signup and view all the answers

    What are the main powers and duties of the BIR with regards to tax enforcement?

    <p>The BIR has the power to conduct tax audits, make assessments, issue tax notices, and enforce the collection of taxes, penalties, and fines.</p> Signup and view all the answers

    The BIR Commissioner has the authority to set tax rates.

    <p>False</p> Signup and view all the answers

    What is the main difference between tax avoidance and tax evasion?

    <p>Tax avoidance involves legitimate and legal strategies to reduce tax liability, while tax evasion involves illegal or fraudulent actions to avoid paying taxes.</p> Signup and view all the answers

    Which of the following is NOT a responsibility of the BIR with regards to tax collection?

    <p>Collecting Local Property Taxes</p> Signup and view all the answers

    What is the primary consideration when determining the situs of taxation?

    <p>The power to tax is limited only to persons, property, or businesses within the jurisdiction or territory of the taxing power.</p> Signup and view all the answers

    The citizenship of the taxpayer is not considered when determining the situs of taxation.

    <p>False</p> Signup and view all the answers

    What is the main difference between the situs of taxation for tangible and intangible property?

    <p>Tangible property is taxed based on its physical location, while intangible property's situs is determined by the place where the right or value attached to the property is controlled.</p> Signup and view all the answers

    Study Notes

    Primary Purpose of Taxation

    • To raise revenue for government expenses.

    Scope of Taxation

    • Comprehensive, unlimited, plenary, and supreme, but limited by the constitution and legislature.

    Principles of a Sound Tax System

    • Fiscal Adequacy: Sufficient revenue to meet public expenditures.
    • Administrative Feasibility: Efficient and effective administration.
    • Theoretical Justice/Equality: Based on ability to pay; progressive.

    Characteristics of the State's Power to Tax

    • Inherent in sovereignty, meaning the state has the power to tax.
    • Legislative in nature, only the legislature can impose taxes.
    • Subject to constitutional and inherent limitations, meaning the power to tax is not absolute.

    Limitations on the Power of Taxation (Inherent)

    • Public Purpose: Taxes must be used for public purposes.
    • Exemption of Government Entities: Government entities are often exempt from some taxes.
    • Non-Delegation: The legislature cannot delegate its power to tax.
    • Territoriality: Taxes apply within a specific geographical area.
    • International Comity: Respect for other nations' tax systems.

    Constitutional Limitations

    • Due process of law: Fair processes must be followed.
    • Equal protection of the laws: Equal treatment for all citizens.
    • Non-imprisonment for non-payment of poll taxes: Prohibits jail time for unpaid poll taxes.
    • Non-impairment of contracts: Protecting existing contracts.
    • Uniform and equitable rule of taxation: Tax rules must be consistent.
    • Exemptions for charitable institutions: Specific exemptions for churches, convents, etc.
    • Exemptions for educational institutions: Specific exemptions for schools and educational facilities.

    Theory or Basis of Taxation

    • Life-blood Theory: Taxes are essential to the ongoing operation of the government.

    Benefits Protection Theory (Symbiotic Relationship)

    • Taxes are what the people pay for a civilized and well-organized society; without taxes, the government cannot function effectively.

    Essential Elements of Tax

    • Enforced contribution
    • Generally payable in money
    • Levied on persons, properties or privileges for public purpose.
    • Proportionate in character

    Classification of Taxes (Scope or Exercising Authority)

    • National Tax: Imposed by the national government (e.g., income tax, estate tax, donor's tax).
    • Municipal or Local Tax: Imposed by local governments (e.g., occupation tax, real property tax).

    Classification of Taxes (Subject Matter or Object)

    • Personal/Capitation/Poll Tax: Fixed amount on people of certain classes.
    • Property Tax: Imposed on property.
    • Excise Tax: Imposed on the performance of an act, exercise of a right, or engaging in business.

    Classification of Taxes (According to Who Bears the Burden)

    • Direct Tax: Burden remains on original taxpayer (e.g. income tax).
    • Indirect Tax: Tax burden is shifted (e.g., VAT).

    Classification of Taxes (According to Purpose)

    • General/Revenue Tax: Not for a specific purpose.
    • Special Tax: For a specific purpose (e.g., protective tariffs).

    Classification of Taxes (According to Rate Applied)

    • Proportional Tax: Based on a fixed percentage.
    • Progressive Tax: Higher rates for increasing income levels.
    • Regressive Tax: Lower rates for increasing income levels

    Classification of Taxes (According to Measurement)

    • Specific Tax: Based on physical units of a product.
    • Ad Valorem Tax: Based on the value of an item.

    Distinctions Between Taxation, Police Power, and Eminent Domain

    • Taxation: Solely a government function, funds government operations.
    • Police Power: Regulated by the government to promote safety, health, morals, and general welfare.
    • Eminent Domain: Government’s right to take property for public use with compensation.

    Tax vs Debt

    • Tax: Obligatory payment due to the government in its sovereign capacity.
    • Debt: Payment due to an individual or entity based on contractual agreement or other legal obligations.

    Tax vs Toll

    • Tax: Governmental demand; paid on necessities for the benefit of all.
    • Toll: Ownership-based demand; paid for specific use of a facility or service.

    Tax vs License

    • Tax: For revenue purposes & is subject to Constitutional limitations.
    • License: To regulate, control business activities that are not prohibited.

    Special Assessments

    • Can only be levied on land
    • Doesn't typically make a business illegal
    • Based on special benefits

    Double Taxation

    • Unconstitutional but discouraged.
    • Legal, provided it is not excessively burdensome
    • Direct/Indirect: Various forms exist, including taxing the same property or income multiple times.

    Forms of Escape from Taxation

    • Tax Evasion: Illegal.
    • Tax Avoidance: Legal.
    • Tax Shifting: The shifting of tax burden.
    • Capitalization: Reducing price of taxed item to reflect future taxes.
    • Transformation: Reducing production costs to compensate for increased tax burden.

    Interpretation of Tax Laws

    • General rule: Favor the taxpayer to the extent possible, if ambiguous, however must follow law.
    • Exceptions: Tax exemptions.

    Sources of Tax Laws

    • Republic Acts (R.A.)
    • Presidential Decrees
    • Executive Orders
    • Court Decisions
    • Revenue Regulations

    How Tax Laws are Made

    • Proposed legislation originates from the House of Representatives and debated in both Houses.
    • Finalized through congressional action and presidential approval.

    Nature of Internal Revenue

    • Not political in nature.

    Major Classification of Tax Law

    • Tax Imposition: Tax burdens
    • Tax Exemption: Freedom from taxes.

    Different Principles Governing Tax Exemptions.

    • Exemptions are disfavored.
    • Clear grant necessary.
    • Strict construction against taxpayer

    Tax Regulations

    • Rules and regulations supporting governing bodies.
    • Needed to support effective execution and administration of tax laws.

    Requisites of Tax Regulations

    • Reasonableness.
    • Authority.
    • Consistency with existing laws.
    • Publication.
    • Prospective application (except in taxpayer benefit cases).

    BIR Rulings and Judicial Interpretations

    • BIR Rulings: Internal Revenue service issued legal interpretations.
    • Judicial Interpretations: Rulings by courts.

    Tax Administration

    • System of assessing, collecting, and enforcing taxes.

    Different Agencies Involved in Tax Administration

    • Bureau of Internal Revenue (BIR), including its different components.
    • Powers and duties of the BIR commissioner.

    Powers and Duties of the BIR Commissioner

    • Interpret tax laws and decide cases.
    • Obtain information, examine records, summon persons.
    • Make assessments and prescribe additional requirements.
    • Decide disputes related to assessments, rulings.

    Authority to Inquire into Bank Deposits

    • Commissioner authorized to inquire into bank deposits in specific cases (e.g., estates, financial incapacity).

    Other Powers

    • Administers oaths, arrests and seizures
    • Assign/reassign tax personnel
    • Employ/manage other internal revenue personnel involved in tax functions associated with excise taxes

    Status of Taxation

    • The power to tax is limited to the territory of the taxing body.

    Factors Determining Situs of Taxation

    • Kind of tax.
    • Location of property/business.
    • Citizenship/residence of taxpayer.

    Application of Situs of Taxation (Different Kinds of Taxes)

    • Personal/community tax location based on citizenship/residency.
    • Income tax on where income generated.
    • Corporate tax on business location.

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    Description

    Explore the primary purposes, scope, and characteristics of taxation. This quiz covers the principles of a sound tax system and the inherent limitations placed on the state's power to impose taxes. Test your knowledge on fiscal adequacy, administrative feasibility, and more.

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