Fundamental Principles Of Taxation PDF

FUNDAMENTAL PRINCIPLES OF TAXATION MARJ JULES LORAIN V. JUNTILLA, CPA DEFINITION OF TAXATION DEFINITION OF 3 TAXATION TAXATION AS A POWER This refers to the inherent power of the state to demand enforced contribution for public purpose to support the government. DEFINI...

FUNDAMENTAL PRINCIPLES OF TAXATION MARJ JULES LORAIN V. JUNTILLA, CPA DEFINITION OF TAXATION DEFINITION OF 3 TAXATION TAXATION AS A POWER This refers to the inherent power of the state to demand enforced contribution for public purpose to support the government. DEFINITION OF 4 TAXATION TAXATION AS A PROCESS Taxation is a legislative act of laying tax to raise income for the government to defray its necessary expenses. DEFINITION OF 5 TAXATION TAXATION AS A MODE OF COST ALLOCATION Taxation is a means of allocating burden to the people. TAXATION AS A POWER OF THE GOVERNMENT  TAXATION AS A 7 POWER OF THE GOVERNMENT POWER OF POWER OF POLICE EMINENT TAXATION POWER DOMAIN The power The power to The power to to take enact laws to take private property for promote the property for the support general welfare public use upon of the of the people. It payment of just government is wider in compensation. and for application public use. because it is the general power to make laws. SIMILARITIES OF 8 THE THREE POWERS All three powers are necessary attributes of sovereignty, resting upon necessity. All are inherent powers of the state. All are legislative in nature. They are ways in which the State interferes with private rights and property. They exist independently with the Constitution although the condition for their exercise may be prescribed or limited by the Constitution. SIMILARITIES OF 9 THE THREE POWERS They all presuppose an equivalent compensation received by the persons affected by the exercise of the power, whether directly, indirectly, or remote. The exercise of these powers by the local government units may be limited by the national legislature. Note: Police power can be used to raise revenue for the government (ex. License fee) DIFFERENCES AND SIMILARITIES 10 Point of Difference Taxation Police Power Eminent Domain Exercising authority Government Government Government and private entities Necessity of Delegation is not There must be There must be due Delegation necessary since it is delegation before local delegation before local inherent. governments could government or private exercise it. party may exercise it. Purpose Revenue and support of Protection of well-being Property is taken for the government of the people public use Persons affected Community or class of Community or class of Operates on the owner individuals individuals of the property Effect of transfer of Money paid as taxes There is no transfer of There is transfer of right property rights becomes part of the title, at most there is to property whether it be public fund restraint on the injurious of ownership or lesser use of property right Amount of Imposition Unlimited Sufficient to cover the No imposition, the costs of regulation owner is paid the fair market value of his property DIFFERENCES AND SIMILARITIES 11 Point of Difference Taxation Police Power Eminent Domain Importance Most important of the Most superior three Relationship with the Inferior to the “Non- Superior to the “Non- Superior and may Constitution Impairment Clause” of Impairment Clause” of override the “Non- the Constitution the Constitution Impairment Clause” because the welfare of the state is superior to private contracts Limitation Constitutionally and Public interest and the Public purpose and just inherently restricted requirement of due compensation process TAXATION AS A PROCESS  13 THE STAGES OF TAXATION LEVY OR ASSESSMENT PAYMENT IMPOSITION AND COLLECTION  LEVY OR 14 IMPOSITION This process involves passing tax laws or ordinances through the legislature or a local lawmaking body (e.g. Sanggunian). The tax laws to be passed shall determine those to be taxed (person, property or rights), how much is to be collected (the rate and the base of tax), and how taxes are to be implemented (the manner of imposing and collecting tax; i.e. tax remedies). It may also include the grant of tax exemptions, tax amnesties, or tax condonation.,  ASSESSMENT AND 15 COLLECTION This process involves the act of administration and implementation of tax laws by the executive through its administrative agencies such as the Bureau of Internal Revenue (BIR)or Bureau of Customs (BOC).  16 PAYMENT This process involves the act of compliance by the taxpayer in contributing his share to pay the expenses of the Government. Payment of tax also includes the options, schemes or remedies as may be legally open or available to the taxpayer.  17 REFUND This is a process of claiming for tax illegally collected or mistakenly paid. For a refund request to prosper, it must first be filed with the Commissioner of Internal Revenue (CIR). A suit or proceeding may be filed within the period provided by law from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment. The Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return, such payment appears clearly to have been erroneously paid. TAXATION AS A MODE OF COST ALLOCATION THE LIFE BLOOD DOCTRINE Taxes are indispensable to the existence of the state. Without taxation, the state cannot raise revenue to support its operations.  NATURE AND CHARACTERISTICS OF THE POWER OF TAXATION For public purpose Inherently legislative in nature Subject to international comity or treaty Not absolute being subject to constitutional and inherent limitations Exaction payable in money Territorial  PURPOSE OF TAXATION 1. Primary Purpose - to raise revenue 2. Secondary Purposes: a. Regulatory b. Compensatory  22 MODES OF COST ALLOCATION BENEFIT RECEIVED ABILITY TO PAY THEORY THEORY Tax payment should be Tax payments should based on benefits be based relative to received. the ability of Everyone is taxpayers to pay. conclusively presumed Assessments of to receive benefits from ability to pay: the government. a. Vertical Equity b. Horizontal Equity  23 THE THEORY AND BASIS OF TAXATION THEORY: “The existence of government is a necessity, and it cannot continue without means to support itself.” BASIS: “The government and the people have the reciprocal and mutual duties if support and protection.” THE SCOPE AND LIMITATIONS OF TAXATION  25 THE SCOPE OF TAXATION Taxation is supreme, comprehensive, unlimited, and plenary. It includes the power to destroy.  CURRENT OBJECTS 26 OF TAXATION 1. Business 2. Interests 3. Transactions 4. Rights 5. Acts 6. Persons 7. Properties 8. Privileges  LIMITATIONS OF 27 TAXATION POWER A. Constitutional Limitations B. Inherent Limitations (TIP-End) 1. Territoriality of taxation 2. Subject to international comity or treaty 3. Tax exemption of the government 4. Tax is for the public purpose 5. Non-delegation of the power of taxation Note: Items 4 and 5 are also Constitutional Limitations SITUS OF TAXATION  29 SITUS OF TAXATION This is the place of taxation.  APPLICATIONS OF 30 SITUS 1. Persons – residence of the taxpayer 2. Community development tax – residence or domicile of the taxpayer 3. Business taxes – where the business was conducted or place where the transaction took place 4. Privilege or occupation tax – where the privilege is exercised 5. Real property tax – where the property is located 6. Personal property taxes – 7. Income – place where the income is earned or residence or citizenship of the taxpayer 8. Transfer taxes – residence or citizenship of the taxpayer or location of the property 9. Franchise taxes – the state that grants the franchise 10. Corporate taxes – depend on the law of incorporation DOUBLE TAXATION  32 Taxing the object or subject within the territorial jurisdiction twice, for the same period, involving the same kind of tax by the same taxing authority.  33 KINDS OF DOUBLE TAXATION DIRECT INDIRECT This is objectionable No constitutional and prohibited because violation involved. it violates the constitutional provision on uniformity and equality. International Double Taxation – a double taxation caused by two different taxing authorities (one domestic and one foreign)  REMEDIES OF 34 DOUBLE TAXATION 1. Provision for tax exemption 2. Allowance for tax credit 3. Tax for principle of reciprocity 4. Enter into treaties or agreements with foreign government FORMS OF ESCAPE FROM TAXATION  36 FORMS OF ESCAPE FROM TAXATION A. Those that will not result in loss of revenue to the government B. Those that will result to loss of revenue to the government  37 WILL NOT RESULT TO LOSS OF REVENUE 1. Shifting – the process of transferring the tax burden from the statutory taxpayer to another without violating the law 2. Capitalization – the seller is willing to lower the price of the commodity provided the taxes will be shouldered by the buyers 3. Transformation – the manufacturer absorbs the additional taxes imposed by the government without passing it to the buyers for fear of loss of his market. Instead, it increases quantity of production, thereby turning their units of production at a lower cost resulting to the transformation of the tax into a gain through the medium of productions.  38 WILL RESULT TO LOSS OF REVENUE 1. Tax Evasion – resorting to acts and devices that illegally reduces or totally escape the payment of taxes that are due to the taxpayer. They are prohibited and are therefore subjects to penalties. 2. Tax Avoidance – the reduction or totally escaping payment of taxes through legally permissible means that are not prohibited and therefore are not subject to penalties. 3. Tax Exemption – an immunity, privilege or freedom from payment of a charge or burden to which others are obliged to pay.  39 KINDS OF EXEMPTIONS 1. Express 2. Implied 3. Total 4. Partial  40 TAX TAX AMNESTY CONDONATION A general pardon or This means to remit intentional overlooking or to desist or refrain by the state of its form exacting or authority to impose penalties on persons imposing a tax. It otherwise guilty of tax cannot extend to evasion or violation of refund of taxes tax laws. The purpose it already paid when to give the erring obtaining taxpayer a chance to condonation. reform and become part of the society with a clean slate.  41 PRINCIPLES OF A SOUND TAX SYSTEM 1. Fiscal Adequacy – sources of revenue should be sufficient to meet the demand for public expenditure. 2. Administrative Feasibility – tax laws must be capable of convenient, just and effective administration. 3. Theoretical Justice – tax must be imposed with equity and certainty and must consider the taxpayers ability to pay and benefits received.  THANK YOU!!! SOURCE: PRINCIPLES OF TAXATION – REX B. BANGGAWAN, CPA, MBA