Principles of Taxation PDF

**Unit I -- Fundamental Powers of the State, Principles of Taxation,** **Powers and Authority of Commissioner of Internal Revenue and Tax Laws** **Fundamental or Inherent Powers of the State** 1. [Police Power] - the power of the state to enact such laws in relations to persons and proper...

**Unit I -- Fundamental Powers of the State, Principles of Taxation,** **Powers and Authority of Commissioner of Internal Revenue and Tax Laws** **Fundamental or Inherent Powers of the State** 1. [Police Power] - the power of the state to enact such laws in relations to persons and property as may promote public health, public morals, public safety and general welfare of the people. - It involves the power to regulate both liberty and property for the promotion of public good. - May be exercised through taxation because taxes may be levied for the promotion of the welfare of the people. 2. [Power of Eminent Domain] - the power of the state or those to whom the power has been delegated to take private property for public use upon payment of just compensation to be ascertained according to law. - Property shall not be taken for public use without just compensation. 3. [Power of Taxation] - the power by which the sovereign raises revenue to defray the necessary expenses of the government. Similarities among the 3 inherent or fundamental powers 1. They are inherent in the state. 2. They are exercised by the state without the need of express constitutional grant. 3. They are not only necessary but indispensable, as the state cannot continue or be effective unless it is able to exercise them. 4. They constitute the 3 methods by which the state interferes with private rights and property. 5. They are legislative in nature and character. 6. Each presupposes an equivalent compensation. Difference among the 3 inherent or fundamental powers of the State 1. 2. As to Purpose 3. As to Persons Affected/Scope 4. As to effect/Transfer of property rights Taxation - the money contributed in the concept of taxes becomes part of public funds. Police Power - No transfer of title, but only restraint in the exercise of property rights Eminent Domain - there is transfer of the right to property whether it be ownership or a lesser right. 5. As to benefits received Taxation - it is assumed that the individual receives the equivalent of the tax in the form of protection and benefits he receives from the government. Eminent Domain - the persons receives the market value of the property taken from him. 6. As to amount of imposition - Taxation - no limit to the amount of tax that may be imposed. Police Power - limited to the cost of regulation, issuance of the license and/or surveillance. Eminent Domain - no imposition, the owner is paid the fair market value of his property. 7. As to relationship to the Non-impairment Contracts Taxation - inferior to impairment clause. Obligations of contracts may not be impaired, Police Power - superior to impairment clause. Obligations of contracts may be impaired, Eminent Domain - superior to impairment clause. Obligations of contracts may be impaired, **PRINCIPLES OF TAXATION** **Taxation defined:** *Taxation -- is the power inherent in every sovereign state to impose a charge or burden upon persons, properties or rights, to raise revenue for the use and support of the government and to enable it to discharge its appropriate functions.* ***Purposes of taxation --*** a. *Principal purpose --* - *revenue purpose - to raise revenue for governmental needs.* b. *Secondary purposes -- Regulatory purpose (sumptuary/compensatory)* - *to reduce inequalities of wealth.* - *to promote the general welfare.* - *Economic growth* ***Theory and Basis of Taxation*** a. The power of taxation proceeds upon theory that the existence of the government is a **[NECESSITY]**, that it cannot continue without means to pay its expenses and that for this means it has right to compel all its citizens and property within its limits to contribute. b. *The basis is the **[RECIPROCAL DUTIES]** of protection and support between the State and its inhabitants. The state collects taxes from the subjects of taxation in order that it may be able to perform the functions of government. The citizens, on the other hand, pays taxes in order that they may be secured in the enjoyment of the benefits of organized society (Benefits received theory).* **Lifeblood Theory** ==================== - *Taxes are the **[lifeblood of the government]** and their prompt and certain availability are an imperious (expecting obedience) need.* - *Upon taxation depends the government's ability to serve the people for whose benefit taxes are collected.* - *Manifestation of lifeblood theory* - *The performance of its government functions :* *2. collection of taxes cannot be stopped by injunction.* *4. taxes is not subject to set-off or compensation.* ***Scope of Taxation*** - *the power of taxation is regarded **as [supreme], [plenary], [unlimited] and [comprhensive]**. The principal check on its abuse rests only on the responsibility of the member of the legislature to their constituents. This power is, however, subject to inherent and constitutional limitations.* ***Nature of Taxation*** a. *the power of taxation is **[inherent in sovereignty]**. It may be exercised although not expressly granted by the constitution.* b. *it is essentially a **[legislative power]**. Only the legislature can impose taxes (high prerogative sovereignty).* c. *it is **[subject to constitutional and inherent limitations]**. It is not an absolute power that can be exercised by the legislature anyway it pleases.* ***Aspects/Stages of Taxation*** *1. Levying or imposition of the tax which is the legislative act.* *2. Assessment and Collection of the tax levied which is essentially administrative in character.* *Matters that are within the competence of the legislature to determine:* *1. the subject or object to be taxed.* *2. the purpose of the tax so long as it is a public purpose.* *3. the amount or rate of the tax.* *4. the manner, means and agencies of collection of the tax.* ***Basic Principles of a Sound Tax System*** 1\. Fiscal Adequacy -- the source of revenue, as a whole, should provide enough funds to meet the expanding government expenditures. *2. Theoretical justice -- taxes must be based on the taxpayer's ability to pay. (Ability to pay principle)* 3\. Administrative feasibility -- the tax should be clear to the taxpayer, not unduly burdensome, and discouraging to business and capable of enforcement by competent public officials. **Limitations on the Power to Tax - The power to tax is subject to three limitations, namely:** a\. Inherent limitations b\. Contractual limitations **A. Inherent limitations** -- are those which restrict the power although they are not embodied in the Consitution. ***1.* PUBLIC PURPOSE** - this is the purpose affecting the inhabitants of the State as a community and not merely as individuals. Proceeds of the tax must be used: 2. **TERRITORIAL JURISDICTION** - the tax laws of a State are enforceable only within its territorial limits. 3\. **INTERNATIONAL COMITY** - the property of a foreign state or government may not be taxed by another. **4. NON-DELEGATION OF THE POWER TO TAX** - the power is purely legislative and it cannot be delegated by the legislature to the executive or judicial departments of the government. - following are the exceptions to the rule against the delegation of the taxing power. 1\. Delegation to the President to fix within specified limits, tariff rates, import or export quotas, tonnage and wharfage dues and other duties or imports. 2\. Delegation to local governments the power to create its own sources of revenue and to levy taxes, subject to such limitations as may be provided by law. 3\. Delegation to administrative agencies certain aspects of the taxing process that are not legislative such as: a. the power to fix the value property for purpose of taxation pursuant to fixed rules. b. the power to assess and collect taxes 5\. **EXEMPTION FROM TAXATION OF GOVERNMENT ENTITIES** a\. Government agencies performing governmental functions are exempt from tax unless expressly taxed, b\. Agencies performing proprietary functions are subject to tax unless expressly exempted. 6\. **DOUBLE TAXATION** - this means taxing a person, property or right twice within the same year by the same taxing authority. - Kinds of double taxation: 1. direct double taxation -- objectionable and prohibited because it violates the constitutional provision on uniformity and equality. It means: 2\. Indirect double Taxation -- lacks one or more of the elements of direct double taxation and is not prohibited. E.g. A lessor who derives income from his land may be required to pay income tax on the net rentals, real estate tax on assessed value of the land and the community tax, also on the assessed value of the land. **B. Contractual limitations** - These are restrictions on the taxing power imposed by previously existing contracts entered into the government with another party who may be another state or its own citizens. **C. Constitutional limitations** - are those which are expressly found in the Constitution or implied from its provisions. 1. **DUE PROCESS OF LAW** - No person shall be deprived of life, liberty or property without due process of Law, nor shall any person be denied the equal protection of the law. - also known as the right to notice and hearing. - there must be a valid law and measure should not be unjust as to the amount of confiscation of property. - the power to tax must not be too harsh, oppressive and confiscatory. 2. **EQUAL PROTECTION OF THE LAW** -- - " No person shall be deprived of life, liberty or property nor shall any person be denied the equal - All persons subject to legislation shall be treated alike under similar circumstances and conditions both in the privileges conferred and liabilities imposed. 3. **RULE OF UNIFORMITY AND EQUITY IN TAXATION** - " The rule of taxation shall be uniform and equitable." - Uniformity -- persons or properties falling of the same class should be taxed the same kind and rate of - Equality -- the same means and method be applied impartially to all the members of each class. 4. **NON-IMPRISONMENT FOR NON-PAYMENT OF POLL TAX:** - No person shall be imprisoned for debt or non-payment of poll tax." - Only non-payment of poll tax (or community tax) is covered by the limitation. Non payment of other (additional) taxes may be validly be subjected by law to imprisonment. 5. **NON-IMPAIRMENT OF THE OBLIGATION OF CONTRACTS:** - " No law impairing the obligations of contracts shall be passed." - The obligation of contract is impaired when its terms or conditions are changed by law or by party without the consent of the other, thereby weakening the position or the right of the later 6. **NON-INFRINGEMENT OF RELIGIOUS FREEDOM**: - " No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof" - imposition of license fees (or tax) on the distribution and sale of bibles and other religious literature not for purposes of profit by a non-stock, non-profit religious corporation violates non-infringement on religious freedom. 7. **NO APPROPRIATION FOR RELIGIOUS PURPOSES:** - " No public money or property shall ever be appropriated, applied, paid or employed, directly or indirectly, for the use, benefit or support of any sect, chruch...." 8. **EXEMPTION OF RELIGIOUS, CHARITABLE OR EDUCATIONAL ENTITIES, NON-PROFIT CEMETERIES AND CHURCHES FROM PROPERTY TAXATION.** - Charitable institutions, churches, parsonages, or convents appurtenant thereto, mosques and non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes shall be exempt from taxation." 9. **EXEMPTION of REVENUES and ASSETS of NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS and DONATIONS for EDUCATIONAL PURPOSES from taxes and duties.** - All revenues and assets of non-stock non-profit educational institution used actually, directly and exclusively for educational purposes shall be exempt from taxes. 10. **Concurrence by a MAJORITY of ALL MEMBERS OF THE CONGRESS for the passage of a law** 11. **POWER of the President TO VETO any particular item or items in a revenue or tariff bill.** - As a general rule, under the Constitution, the President may not veto a bill in part and approve it in part. The exception is with respect to revenue or tariff bill. 12. **NON-IMPAIRMENT OF THE JURISDICTION OF SUPREME COURT IN TAX CASES**: - " The Supreme Court shall have the following powers: (2) review, revise reverse, modify, or affirm... final judgemets and orders of lower courts in... all cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto." 13. **ALL APPROPRIATION, REVENUE OR TARIFF BILLS**... shall **ORIGINATE** **EXCLUSIVELY** from the **HOUSE OF REPRESENTATIVES**, but the Senate may propose or concur with amendments. 14. The **CONGRESS** may, by law, **AUTHORIZE** the President **TO FIX** within specified limits, and subject to such limitations and restrictions as it may impose, **TARIFF RATES, IMPORT** **AND EXPORT QUOTAS, TONNAGE** and WHARFAGE DUES and **OTHER DUTIES** or IMPOSTS within the framework of the national development program of the Government 15. **ALL MONEY COLLECTED or ANY TAX LEVIED** for a **SPECIAL PURPOSE** shall be **TREATED AS A SPECIAL FUND** and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government. 16. **EACH LOCAL GOVERNMENT UNIT** shall have the **POWER TO CREATE** its **OWN** **SOURCES OF REVENUES** and to **LEVY TAXES, FEES, AND CHARGES, SUBJECT TO** such **GUIDELINES and LIMITATIONS** as the Congress may provide , consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government. **Tax defined** =============== \- is a forced burden, charge, exaction, imposition or apportionment, by authority of a sovereign state, upon the person, or property or rights exercised within its jurisdiction, to provide public revenues for the support of government, the administration of the law or the payment of public expenses. **Essential Characteristics of Tax** 1. Enforced contribution 2. Exacted pursuant to legislative authority 3. Proportionate in character 4. Payable in money 5. For raising revenue for public purposes 6. Imposed with state's jurisdiction 7. Personal to the taxpayer **Classification of Taxes** a. As to subject matter -- 1. Personal, capitation or poll tax -- tax of a fixed amount upon all persons or upon all persons of a certain class, residents within a specified territory, without regard to their property or occupation. (ex. Community tax) 2. Property tax -- a tax assessed against all properties of a certain class, located within the jurisdiction of the taxing authority in proportionate to its value or on some other method of apportionment. ( ex. Real property tax) 3. Excise tax -- a charge upon the performance of an act, the enjoyment of a privilege of engaging in an occupation. This is a tax which cannot be classified as a personal or property tax. (Ex. Income tax, donor's tax, VAT, other percentage taxes) b. As to who bears the burden 4. Direct tax -- one which is demanded from the person whom the law intended or desires to pay it. 5. Indirect tax -- one which is shifted by the taxpayer to someone else. c. As to determination of amount -- 6. Specific tax -- a tax which imposes a specific sum by the head or number or some standard or weight or measurement and which requires no assessment other than the listing and classification of the subject to be taxed. 7. Ad valorem tax -- a tax of a fixed proportion of the value of the property with respect to which the tax is assessed. It requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined. (E.g. VAT, donor's tax, estate tax). d. As to purpose -- 8. General/Fiscal Revenue -- tax imposed solely for the general purpose of the government. (E.g. VAT, income tax, donor's tax and estate tax) 9. Special/Regulatory -- tax imposed for a specific purpose, i.e. to achieve some social or economic ends irrespective of whether the revenue is actually raised or not. (e.g. tariff and certain duties on imports). e. As to scope or exercising authority 10. National -- imposed by the National Government (e.g. income tax, donor's tax, VAT). 11. Local or municipal -- imposed by the municipal corporations. (e.g. real estate, community tax). f. As to rates -- 12. Proportional -- tax based on a fixed percentage of amount of the property, receipt or other basis to be taxed. (e.g. VAT, other percentage tax). 13. Progressive -- tax the rate of which increases as the tax base or bracket increases (e.g. income tax, estate tax and donor's tax). 14. Regressive -- tax the rate of which decreases as the tax base or bracket decreases. **Tax distinguished from other charges or fees** 1\) Toll vs. tax Toll -- is a sum of money collected for the use of something, generally applied to the consideration which is paid for the use of road, bridge or the like, of a public nature. +-----------------------------------+-----------------------------------+ | **Toll** | ### **Tax** | | -------- | | +-----------------------------------+-----------------------------------+ | 1\) demand of | 1\) demand of sovereignty | | proprietorship/ownership | | +-----------------------------------+-----------------------------------+ | 2\) paid for the use of another | 2\) paid for the support of the | | property | Government | +-----------------------------------+-----------------------------------+ | 3\) amount is based on the cost | 3\) amount is based on the | | of | necessities of the | | | | | construction or maintenance of | State | | the public | | | | | | improvement used | | +-----------------------------------+-----------------------------------+ | 4\) may be imposed by the gov't. | 4\) imposed by the gov't. only | | or private | | | | | | entities | | +-----------------------------------+-----------------------------------+ 2\. Special assessment vs tax Special assessment is an enforced proportional contribution from owners of lands for special benefits resulting from public improvements. +-----------------------------------+-----------------------------------+ | Special Assessment | ### Tax | | ------------------ | | +-----------------------------------+-----------------------------------+ | 1\) levied only on land | 1\) levied on persons, property | | | or the exercise of | | | | | | a privilege | +-----------------------------------+-----------------------------------+ | 2\) not a personal liability of | 2\) personal liability of the | | the person assessed | person taxed | +-----------------------------------+-----------------------------------+ | 3\) based wholly on the special | 3\) based on the necessities of | | benefits to the | the government | | | | | property assessed | without any special directly | | | accruing to the | | | | | | taxpayer | +-----------------------------------+-----------------------------------+ | 4\) exceptional both as time and | 4\) has general application | | place | | +-----------------------------------+-----------------------------------+ 3\. License fee vs tax - License fee or permit -- is a charge imposed under the police power for the purpose of regulations. +-----------------------------------+-----------------------------------+ | License fee | ### Tax | | ----------- | | +-----------------------------------+-----------------------------------+ | 1\) imposed for regulations | 1\) levied for revenue | +-----------------------------------+-----------------------------------+ | 2\) involves an exercise of | 2\) involves exercise of taxing | | police Power | power | +-----------------------------------+-----------------------------------+ | 3\) amount is usually limited to | 3\) amount is not generally | | the | limited | +-----------------------------------+-----------------------------------+ | necessary expenses of | | | regulations. | | +-----------------------------------+-----------------------------------+ | 4\) imposed on the right to | 4\) imposed on the right to | | exercise a | exercise | +-----------------------------------+-----------------------------------+ | privilege | a privilege as well as to persons | | | and property. | +-----------------------------------+-----------------------------------+ | 5\) legal compensation or reward | 5\) enforced contribution | | of an | assessed by sovereign | | | | | officer for specific services | authority to defray public | | | expenses | +-----------------------------------+-----------------------------------+ | 6\) failure to pay makes the act | 6\) failure to pay does not | | or business | necessarily makes the | | | | | illegal | business illegal. | +-----------------------------------+-----------------------------------+ 4\. Debt vs Tax +-----------------------------------+-----------------------------------+ | Debt | ### Tax | | ---- | | +-----------------------------------+-----------------------------------+ | 1\) based on contract | 1\) based on laws | +-----------------------------------+-----------------------------------+ | 2\) assignable | 2\) generally not assignable | +-----------------------------------+-----------------------------------+ | 3\) may be paid in kind | 3\) generally payable in money | +-----------------------------------+-----------------------------------+ | 4\) may be the subject of | 4\) generally not subject to | | set-off or | set-off or | | | | | compensation | compensation | +-----------------------------------+-----------------------------------+ | 5\) no imprisonment for non- | 5\) imprisonment is a sanction | | | for | +-----------------------------------+-----------------------------------+ | payment (except when it arises | non-payment of tax (except poll | | from crime) | tax) | +-----------------------------------+-----------------------------------+ | 6\) governed by the ordinary | 6\) governed by special | | period of prescription | prescriptive | +-----------------------------------+-----------------------------------+ | 7\) draws interest when it is | 7\) does not draw interest | | | except when delinquent | +-----------------------------------+-----------------------------------+ | so stipulated or when there is |. | | default. | | +-----------------------------------+-----------------------------------+ 5\. Penalty vs tax +-----------------------------------+-----------------------------------+ | Penalty | ### Tax | | ------- | | +-----------------------------------+-----------------------------------+ | 1\) designated to regulat | 1\) primarily aim to raise | | conduct | revenue | +-----------------------------------+-----------------------------------+ | 2\) may be imposed by the | 2\) imposed by the government | | government or private entities | only. | +-----------------------------------+-----------------------------------+ 6\. Other Charges/Related Terms a. Subsidy -- is a pecuniary aid directly granted by the government to an individual or private commercial enterprise deemed beneficial to the public. b. Revenue refers to all the funds or income derived by the government, whether from the tax or any other sources. c. Internal revenue -- refers to taxes imposed by the legislature other than duties on imports and exports. d. Customs duties (or simply duties) are taxes imposed on goods exported to or imported from a country. Customs duties are really taxes but the latter is broader. e. Tariff may be used in one of the following senses: 1. a book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be paid for the same. 2. the duties payable on goods imported or exported. 3. the system or principles of imposing duties on the importation or exportation of goods. **Tax Laws** - body of laws which codifies all national tax laws- or any law that arises from the exercise of the taxation power of the state. Major classifications of tax laws: 1. Tax imposition -- one that provides a burden 2. Tax exemption -- one that provides immunity **Nature or Construction of Tax Laws** 1\. Tax laws are prospective, generally, but can have retrospective application. Tax laws are construed as having only a prospective operation unless the purpose and intention of the legislature to give retrospective effect is expressly declared by the tax laws. 2\. A state will not be construed as imposing tax unless it does so clearly and unambiguously. A tax cannot be imposed without clear and express words for that purpose. 3\. Tax exemption are to be construed strictly against the taxpayer. Tax exemptions are to be construed strictly against the taxpayer and liberally in favor of the taxing power. 4\. Revenue laws are not political in nature 5\. Legislative intention must be considered Tax statutes are to receive a reasonable construction with view to carrying out their purpose and intent. 6\. Tax laws are special laws and prevail over general laws 7\. Tax laws are civil and not penal in nature. **Sources of Tax Laws:** 1\. 1987 Constitution 2\. Tax statues such as National Internal Revenue Code (NIRC), the Tariff and Customs Code, VAT Law, etc. 3\. Executive orders on taxation and local tax ordinances; 4\. Tax treaties and conventions with foreign countries\\ 5\. Judicial decisions 6\. Rules and Regulations promulgated by Dept. of Finance, BIR and Bureau of Customs; 7\. Administrative interpretations and opinions of tax officials particularly those of the Commissioner of Internal Interpretation and Application of Tax Laws - the following rules shall be followed for the interpretation and application of various tax laws: - Sequence of the interpretation of Tax Laws: - Revenue Regulations are interpretations of an administrative body (BIR) intended to clarify or explain the tax laws and carry into effect its general provisions by providing the details of administration and procedure. They are deemed necessary to the proper enforcement and execution of tax laws. 1\. It must be reasonable -- relares appropriately to the purpose of the law. 2\. Within the authority conferred 3\. Not contrary to law 4\. Must be published 5\. prospective, unless it is beneficial to the taxpayer, which may be given retroactive application.. Philippine Tax Laws and Taxes 1. National Internal Revenue Code of 1997 (P.D. 1158, as amended)(/R.A. 10963 Train Law 2. Tariff and Customs Code of 1978 (P.D. 1464 as amended) 3. Local Government Code of 1971 ( R.A. 7160): 4. Special Laws Note: Philippine Tax Laws -- generally civil in nature; they are neither political or penal in nature **Means of Avoiding or Minimizing the Burden of Taxation** 1\. Tax exemption-- - it is the privilege of not being imposed a financial burden to which others are subject. - It is the freedom from the burden of paying the tax. 2\. Tax avoidance -- (tax minimization) - is the use by the taxpayer of legally permissible methods in order to reduce tax liability. 3\. Tax evasion -- (tax dodging) - is the use by the taxpayer of illegal methods to defeat or lessen the payment of tax. - It connotes fraud through use of pretenses and forbidden devices to lessen or defeat tax. 4\. Transformation -- an escape from taxation where the producer or manufacturer pays the tax and endeavors to recoup the tax paid by making production more efficient and lowering cost of production. 5\. Capitalization - by not selling property which has increased in value, the owner avoids the income tax to be paid on gain if the asset is sold. The increased in value of the asset is an unrealized gain. 6\. Shifting the burden of tax - the transfer of the burden of a tax by the original payer or the one to whom the tax was assessed or imposed to another or someone else. **Steps in the Legislative Process** 1\. A tax bill is introduced in the House of Representative and is referred to the House Committee on Ways and Means - known as the first reading. It involves only a reading of the number and title of the measure. 2\. The proposal is considered by the Committee on Ways and Means , committee hearings as well as public hearings are held. If there are severe bills of the same nature or purpose, they shall all be consolidated in the conduct of hearings. The committee may introduce amendments or propose substitute bill. 3\. The tax bill is voted on by the Committee and if approved is reported out to the House of Representatives for vote. Deliberations, interpretations and even amendments by the members of the House are held -- known as the second reading. 4\. If passed by the House, the bill is transmitted to the Senate for consideration by the Senate Committee Ways and Means and public hearings are held -- known as second reading in the Senate. The bill undergoes the same legislative process in the Senate. 5\. Upon approval by the Senate , both the Senate and the House versions are sent to the Bicameral Conference Committee consisting of representatives of the House and of the Senate. 6\. If the two versions are dissimilar, the conflict is reconciled in the Bicameral Conference Committee. This process of ironing out the differences generally involves by substantial compromise. 7\. A final bill as approved by the Bicameral Conference Committee is then resubmitted to the House and Senate for approval -- third reading. Generally, it shall only be the reading of title. No deliberations will be allowed. 8\. If the Bicameral Conference Committee is approved by the House and Senate, it is sent to the President for approval or veto -- known as " enrolled bill". 9\. If the President approves the bill, he shall sign it and the bill becomes a law. When the President vetoes it, both Houses may override the veto by two-thirds vote of all the members of each house. If the required measures is met, the bill is converted into law over the President's objections. Moreover, the bill may become a law when the President does not act upon the measure within thirty days after it shall have been presented to him. **Situs of Taxation** ===================== - - - +-----------------------------------+-----------------------------------+ | a\) Persons or individuals | | +-----------------------------------+-----------------------------------+ | 1\. Community tax | \- residence of the person | +-----------------------------------+-----------------------------------+ | 2\. Income tax | \- a) legal residence | +-----------------------------------+-----------------------------------+ | | b\) place where the income is | | | derived | +-----------------------------------+-----------------------------------+ | | c\) office of the Commissioner | +-----------------------------------+-----------------------------------+ | 3\. Estate tax | \- residence of the decedent upon | | | his death | +-----------------------------------+-----------------------------------+ | 4\. Donor's tax | \- residence of the donor at the | | | time of donation | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | b\) Property | | +-----------------------------------+-----------------------------------+ | 1\. real property | \- location of property | +-----------------------------------+-----------------------------------+ | 2\. Tangible personal property | \- location of property | +-----------------------------------+-----------------------------------+ | 3\. Intangible personal | \- residence of the owner | | | | | property (royalties, copyright, | | | etc) | | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | c\) Business and occupation | \- place where the act is | | | performed or where the occupation | | | | | | is engaged in | +-----------------------------------+-----------------------------------+ - Multiplicity of situs -- income or intangible personal properties may be subject to taxation in several taxing jurisdiction. - Remedies against multiplicity of situs -- **Tax Administration** It is a system involving assessment, collection and enforcement of taxes including the execution of judgment in all tax cases decided in favor of the BIR by the courts. **Tax Administrative Agencies** Department of Finance -- is the principal administrative agency of the government for tax administration. It has executive supervision and control over other agencies, such as: 1. Bureau of Internal Revenue - in charge of the primary function regarding the execution of the NIRC and other tax laws and regulations. 2. Bureau of Customs and Tariff Commission - tasked to enforce the Tariff and Customs Code. 3. Land Transportation Office - responsible to collect registration fees and motor vehicle tax. 4. Duly and lawfully authorized collectors -- persons, agencies or duly accredited banks authorized by BIR, BC, TC and LTO to collect taxes. 5. Local Offices in charge to enforce local taxation- a. Provincial, City, Municipal and Barangay Treasurers b. Provincial and City Assessors c. Provincial and City Board of Assessment Appeal d. Central Board of Assessment Appeals. **BUREAU OF INTERNAL REVENUE** - - - 1\. Assessment and collection of all national internal revenue taxes, fees and charges; 2\. Enforcement of all forfeitures, penalties and fines connected therewith; 3\. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals (CTA) and the ordinary courts; 4\. Give effect to and administer the supervisory and police power conferred to it by the National Internal Revenue Code 9NIRC) or other laws; - Chief officials of the bureau Powers of the Commissioner of Internal Revenue 1\. Power to interpret tax laws subject to review by the Secretary of Finance 2\. Power to decided disputed assessments, refund of internal revenue taxes, fees and other charges, **penalties** imposed in relation thereto, other maters arising under the NIRC or other laws or portion thereof administered by the BIR subject to the exclusive appellate jurisdiction of the Court of Tax Appeal (CTA); 3\. Power to examine any book, paper, record or other data which may be relevant or material to tax inquiry; 4\. Power to obtain information from any person other than the person whose internal revenue tax liability is subject to audit or reinvestigation or from any office or officer of the national or local governments, government agencies and instrumentalities 5\. Power to summon the person liable for tax or required to file a return or any officer or employee of such person, or any person having possession, custody or care of the books of accounts and other accounting records; 6\. Power to take testimony of the person concerned, under oath, as may be relevant of material to such inquiry; 7\. Power to make assessment; 8\. Power to prescribe real property values by dividing the country into different zones and determining the FMV of real properties located in each zone; 9\. The Commissioner is authorized to inquire into the bank deposits and other related information held by financial institution of: a\) A decedent to determine his gross estate; b\) A taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability; and c\) A taxpayer who is subject of a request for the supply of tax information from a foreign tax authority 10\. The commissioner has the authority to accredit and register individuals and general professional partnerships (GPPs) and their representatives who prepare and file tax returns , statements, reports and other papers, or who appear before the BIR, for taxpayers. 11\. Power to accredit imports and customs brokers. 12\. Power to prescribe additional procedural or documentary requirements in connections with the submission or preparation of financial statements accompanying the tax returns. Authority of the Commissioner to compromise taxes - Compromise is a contract whereby the parties by reciprocal concessions avoid litigation or put an end to one already commenced. - May compromise the payment of any internal revenue tax on the following grounds: - The compromise settlement of any tax liability shall be subject to the following minimum amounts: - All criminal violations may be compromised, except: - This power cannot be delegated by the Commissioner, except the following cases: - The Commissioner may abate or cancel liability when: **Authority to delegate power to subordinates.** The following powers shall not be delegated: a. The power to recommend the promulgation of rules and regulations by the Secretary of Finance. b. The power to issue ruling of first impression or to reverse, revoke or modify any existing ruling of the BIR c. The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. **UNIT 1 -- Fundamental Powers of the State, Basic Principles of Taxation** =========================================================================== **Powers and Authority of the Commissioner of Internal Revenue** ================================================================ Name: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Score: \_\_\_\_\_\_\_\_\_\_\_\_ Section: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Date:\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Assignment 1 : Theory **Modified True or False: Write "T**" if the statement is correct and if the statement is incorrect, **underline the word or phrase that makes the statement false.** \_\_\_1. Taxation is the act of levying a tax. It is the process by which the sovereign raises revenue to defray the necessary expenses of the government. \_\_\_2. Power of eminent domain is the power of the state or those to whom the power has been delegated to take private property for public use upon paying the owners a just compensation to be ascertained according to law. \_\_\_3. For police power the amount to be imposed depends on whether the activity is useful or not. \_\_\_4. Power of eminent domain **may raise** money for the government. \_\_\_5**. In police power of the state** the person who is parting with his property is presumed to receive a benefit. \_\_\_6. Equality in taxation means, "Taxes must be based on the taxpayer's ability". \_\_\_7. Under fiscal adequacy, a basic principle of a sound tax system, the government should not incur deficit. \_\_\_8. Administrative feasibility is met when Congress evolves a progressive system of taxation as mandated in the constitution. \_\_\_9. Based on the ability to pay is not a characteristic of the State's power to tax. \_\_\_10. The power of taxation is inherent in sovereignty, hence even if not mentioned in the constitution, the State can still exercise the power. \_\_\_11. For the exercise of the power of taxation, the State can tax anything at any time. \_\_\_12. The provisions of taxation in the Philippine Constitution are grants of power and not limitations on the taxing power. \_\_\_13. Taxation is essentially a legislative function, hence even in the absence of any constitutional provisions, taxation power falls on Congress as part of the general poser of law making. \_\_\_14. Taxes may be imposed to raise revenue or to provide incentives for certain activities within the State. \_\_\_15. Power of eminent domain may be exercised by public service companies and public utilities. \_\_\_16. Levying or imposition of tax is essentially administrative in character. \_\_\_17. A tax reform at any given time underscores the fact that taxation is a power that is very broad. \_\_\_18. Taxation are the lifeblood of the government and their prompt and certain availability are imperious (expecting obedience) need. \_\_\_19. The basis of taxation is the reciprocal duties of protection and support between the State and its inhabitants. \_\_\_20. To implement the police power of the State to promote the general welfare is a compensatory purpose of taxation. \_\_\_21. The principal purpose of taxation is to raise revenue for government needs. \_\_\_22. The power of taxation is comprehensive, plenary, unlimited and supreme and therefore, not subject to inherent and constitutional limitations. \_\_\_23. Police power is the power of the state to enact laws in relation to persons and property as may promote public health, public safety, public morals and general welfare of the people. \_\_\_24. To be exercised to promote public welfare, is a basic principle of a sound tax system. \_\_\_25. Theoretical justice means that tax laws must be capable of convenient , just and effective administration. \_\_\_26. Inherent limitations are part and parcel of the power of taxation and originate from the very nature of taxation. \_\_\_27. A tax imposed on the improvement of sugar industry satisfies the public purpose limitation. \_\_\_28. International law is the fundamental rule in taxation stating that the property of one country may not be taxed by another country. \_\_\_29. Our constitution prohibits double taxation. \_\_\_30. No person shall be imprisoned for non-payment of poll tax. \_\_\_31. A revenue bill must originate from the House of Representative and on the same bill the Senate may propose amendments. \_\_\_32. A fixed license fee on the sale of bibles and other religious literature is a violation of non-infringement of religious freedom. \_\_\_33. Taking of property without due process of law is a violation of inherent limitations. \_\_\_34. The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object. \_\_\_35. Sources of taxable income is the place or authority that has the right to impose [and collect] taxes. \_\_\_36. Government agencies performing governmental functions are exempt from tax unless expressly taxed while those performing proprietary functions are subject to tax unless expressly exempted. \_\_\_37. Debt as distinguished from tax is that debt may be paid in kind. \_\_\_38. Income tax and transfer taxes are examples of direct tax. \_\_\_39. Tax on business is a property tax. \_\_\_40. Regular payment is an essential characteristic of tax.