Study Guide: Module 1 Taxation PDF

**Module 1: INTRODUCTION TO TAXATION** **Taxation** not only pays for public goods and services; it is also a key ingredient in the social contract between citizens and the economy. [https://www.doingbusiness.org/ en/data/ exploretopics/paying-taxes/why-matters](https://www.doingbusiness.org/%20en/...

**Module 1: INTRODUCTION TO TAXATION** **Taxation** not only pays for public goods and services; it is also a key ingredient in the social contract between citizens and the economy. [https://www.doingbusiness.org/ en/data/ exploretopics/paying-taxes/why-matters](https://www.doingbusiness.org/%20en/data/%20exploretopics/paying-taxes/why-matters). Thus, a need to study Taxation in order to know its theories and concepts that could be properly applied in the fair computation of taxes so that we can contribute in the government mandate to produce income that will sustain its projects and services. At the end of this module, you should be able to demonstrate mastery of the following: 1\. Concept of taxation and its necessity for every government 2\. Lifeblood doctrine and its implication to taxation 3\. Theories of government cost allocation 4\. Inherent power of the State 5\. Scope of the taxation power 6\. Limitations of the taxation power 7. Stages of taxation 8. Concept of situs in taxation 9. Fundamental principles surrounding taxation 10. Various escapes from taxation 11. Concept of tax amnesty and condonation - **1 Introduction to Taxation Nature and Concept** - **Definition of taxation** To learn more, read Banggawan (2017) on pages 1-2. **REFLECTION ON LEARNING** - **In your own understanding how do you define taxation. Illustrate.** - Deadline of submission - **The lifeblood Doctrine** - **Theories of cost allocation** - **Benefit received theory** - **Ability to pay theory** - The Ability to pay theory presupposes that taxation should also consider the taxpayer\'s ability to pay. Taxpayers should be required to contribute based on their relative capacity to sacrifice for the support of the government. 1. **Vertical equity** 2. **Horizontal equity** - **The inherent powers of the State** 1. ***Taxation Power*** is the power of the State to enforce proportional contributions from its subjects to sustain itself. 2. ***Police Power*** is the general power of the State to enact laws to protect the well-being of the people. 3. ***Eminent Domain*** is the power of the State to take privately for public use after paying just compensation. - **The scope of taxation.** - **Limitations of the taxation power** - **Inherent limitations** 1. Territoriality of taxation - 2. International comity 3. Public purpose 4. Exemption of the government 5. Non-delegation of the taxing power - **Constitutional limitation** 1. Due process of law (aspects of due process: 1. Substantive due process, 2. Procedural due process) 2. Equal protection of the law 3. Uniformity rule in taxation 4. Progressive system of taxation 5. non-imprisonment for non-payment of debt or poll tax 6. Non-impairment of obligation and contract 7. Free worship rule 8. Exemption of religious or charitable entities, non-profit cemeteries, churches and mosque from property taxes. 9. Non-appropriation of public funds or property for the benefit of any church,sect or system of religion. 10. Exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions 11. Concurrence of a majority of all members of Congress for the passage of a law granting tax exemption 12. Non-diversification of tax collections 13. Non-delegation of the power of taxation 14. Non-impairment of the jurisdiction of the Supreme Court to review tax cases 15. The retirement that appropriate revenue, or tariff bills shall originate exclusively in the House of Representatives 16. The delegation of taxing power to local government units. **Illustrate in your simplest but concise form of understanding each limitations of taxation power.** **To learn more, read Banggawan (2017) on pages 6-12.** - **STAGES OF THE EXERCISE OF TAXING POWER** 1. **Levy or imposition** 2. **Assessment and collection** **The tax law is implemented by the administrative branch of the government. Implementation involves assessment or the determination of the tax liabilities of taxpayers and collection. This stage is referred to as incidence of taxation or the administrative act of taxation.\ ** - **Concept of Situs in taxation** - **Other fundamental doctrines** 1. **Marshall Doctrine -- *"****The power to tax involves the power to destroy".* Taxation power can be used as an instrument of police power. 2. **Holme\'s Doctrine-** Taxation power may be used to build or encourage beneficial activities or industries by the grant of tax incentives. 3. **Prospectivity of tax laws** **Tax laws are generally prospective in operation. An ex post facto law or a law that retroacts is prohibited by the Constitution.** 4. **Non-compensation or set-off** **Taxes are not subject to automatic set-off or compensation. The taxpayer cannot delay payment of tax to wait for the resolution of a lawsuit involving his pending claim against the government** 5. **Non-assignment of taxes** **Tax obligations cannot be assigned or transferred to another entity by contract.** 6. **Imprescriptibility in taxation** **Prescription is the lapsing of a right due to the passage of time. When one sleep on his right over an unreasonable period of time, he is presumed to be waiving his right. The government\'s right to collect taxes does not prescribe unless the law itself provides for such prescription.** 7. **Doctrine of estoppel** **The error of any government employee does not bind the government.** 8. **Judicial Non-interference** **Generally, court are not allowed to issue injunction against the government\'s pursuit to collect tax as this would unnecessarily defer tax collection. This rules is anchored on the Lifeblood Doctrine.** 9. **Strict Construction of Tax Law** **When taxation laws are vague, the doctrine of strict legal construction is observed.** **VAGUE tax law (taxpayer)** **VAGUE exemption law (government)** - **DOUBLE TAXATION** - **ESCAPES FROM TAXATION** **Categories of Escape from Taxation** A. ***Those that result to loss of government revenue :*** 1. ***Tax evasion,*** also known as *tax dodging,*refers to any act or trick that tends to illegally reduce or avoid the payment of tax. In income taxation, this can be perpetrated by undue understatement of income overstatement of expense or non-declaration of income. 2. ***Tax avoidance,*** also known *as tax minimization,*refers to any act or trick that reduces or totally escapes taxes by any legally permissible means. This may be done by selecting tax options allowed by the law which minimizes tax liability or by careful tax planning to reduce tax expenses. 3. ***Tax exemption,*** also known as *tax holiday*,refer to the immunity privilege or freedom from being subject to tax which others are subject to. Tax exemptions may he granted by the Constitution,law or contract. B. ***Those that do not result to loss of government revenue :*** 4. ***Shifting-*** This is the process of transferring tax burden to another taxpayers. a. ***Forward shifting --*** this is the shifting of tax which follows the normal flow of distribution (i.e. from manufacturer to wholesalers,retailers to consumers). Forward shifting is common with essential commodities and services such as food and fuel. b. ***Backward shifting --*** This is the reverse of forward shifting. Backward shifting is common with the non-essential commodities where buyers have considerable market power and commodities with numerous substitute products. c. ***Onward shifting --*** this refers to any tax shifting in the distribution channel that exhibits forward shifting or backward shifting. 5. ***Capitalization --*** this pertains to the adjustment of the value of an asset caused by changes in tax rates. 6. ***Transformation --*** this pertains to the elimination of wastes or losses by the taxpayer to form savings to compensate for the tax imposition or increase in taxes. - **TAX AMNESTY AND TAX CONDONATION** **Tax amnesty vs Tax Condonation** Amnesty covers both civil and criminal liabilities, but condonation covers only civil liabilities of the tax payer. Amnesty operates retrospectively by forgiving past violations. Condonation applies prospectively to any unpaid balance of the tax; hence, the portion already paid by the taxpayer will not be refunded. Amnesty is also conditional upon the taxpayer paying the government a portion of the tax whereas condonation requires no payment. To learn more about this topic, read Banggawan (2017) on pages 17-20 **Reflection on Learning:** - *Apply a scenario of a double taxation. May learn on Banggawan (2017) pp 17-18* - **Tabulate the difference between tax amnesty and condonation,** **LEARNING ACTIVITY:** 1\. Provide the following: Write your answers in your notebook, take a picture and submit in MS Teams in your respective file folder: - Definition of taxation - Theories of cost allocation - The Lifeblood Doctrine. - The inherent powers of the State - The scope of taxation. - Limitations of the taxation power - Stages of taxation - Situs of taxation - Other fundamental doctrines - Double taxation - Escape from taxation - Differentiate Tax amnesty and tax condonation - - Deadline of submission Feb 17, 2021 - - Taxes are the lifeblood of the government, and their prompt and certain availability are an imperious need. Upon taxation depends the government's ability to serve the people for whose benefit taxes are collected. (Vera vs. Fernandez) - We need to learn the theories and principles of taxation and its application to appreciate and understand bettter why the need for good citizenry to pay the correct Knowledge of the don'ts of double taxation, remedies of taxpayer such as tax amnesty and condonation is a good help and hope to our taxpayers. **REFERENCES** *1.Rex Banggawan , Income Taxation, Real Excellence Publishing 2017 pp 1-34.*