Fundamental Principles of Taxation PDF

Fundamental Principles of Taxation  Taxes Defined Taxes are enforced proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the support of the government and for all its public needs. Aspect of Taxation 3. Collection...

Fundamental Principles of Taxation  Taxes Defined Taxes are enforced proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the support of the government and for all its public needs. Aspect of Taxation 3. Collection 1. Levying 2. Assesstment Purposes of Taxation 1. Primary Purpose - To raise revenues/funds to defray the necessary expenses of the government (also called Revenue or Fiscal Purpose) Purposes of Taxation Secondary Purpose 1. Regulatory Purpose Taxation is employed as a devise for regulation or control (to implement the police power of the State for the promotion of the general welfare) by means of which certain effects or conditions envisioned by the government may be achieved. Purposes of Taxation 2. Compensatory Purposes Reduction of Social Inequality Economic Growth Protect local industries against unfair competition  THE 3 INHERENT POWERS OF THE STATE 1. POWER TO TAX The act of levying or imposing a tax.  THE 3 INHERENT POWERS OF THE STATE 2. POLICE POWER It is the power of the state to promote public welfare by restraining and regulating the use of liberty and property.  THE 3 INHERENT POWERS OF THE STATE 3. EMINENT DOMAIN it is the power to take private property for public purpose upon payment of just compensation.  SIMILARITIES among Taxation, Eminent Domain and Police Power 1. They are inherent in the State. 2. They exist independently of the constitution although the conditions for their exercise may be prescribed by the constitution.  SIMILARITIES among Taxation, Eminent Domain and Police Power 3. Ways by which the State Interfere with private rights and property. 4. Legislative in nature and character. 5. Presuppose an equivalent compensation received, directly or indirectly, by the persons affected.  DISTINCTIONS AMONG THE THREE (3) INHERENT POWERS OF THE STATE Taxation Police Power Eminent Domain Nature Power to Power to Power to take enforce make and private contributions implement property for to raise gov't laws for the public use funds. general with just welfare. compensation. Authority Government Government May be only only granted to public service/utility companies Purpose For the Promotion of The taking of support of the general private government welfare property for through public use. regulation  DISTINCTIONS AMONG THE THREE (3) INHERENT POWERS OF THE STATE Taxation Police Power Eminent Domain Persons Affected Community or a Community or a On an individual class of individuals as the owner of individuals personal Applies to all property. Applies to all persons, property persons, property and excises that Only particular and excises that may be subject property is may be subject thereto. comprehended. thereto Scope Plenary, Broader in Merely a power comprehensive, application. to take private supreme General power to property for make and public use. implement law. Effect Contribution No transfer or There is a becomes part of title. There may transfer of title to public fund just be a restraint property. on the injurious use of property.  DISTINCTIONS AMONG THE THREE (3) INHERENT POWERS OF THE STATE Taxation Police Power Eminent Domain Benefits In form of No direct and Market value of protection and immediate property taken. Received benefits received benefit but only from such as may government arise from the maintenance of a healthy economic standard of society. Amount of No limit Sufficient to No imposition. cover cost of The owner is imposition license and the paid equivalent necessary to the fair value expenses of of his property. police surveillance and regulation.  Theory of Taxation Lifeblood Doctrine Necessity Theory  Lifeblood Doctrine Taxes are the lifeblood of the government without which it can neither exist nor endure. Upon taxation depends the State's ability to serve the people for whose benefits taxes are collected.  Necessity Theory The power of taxation proceeds upon the theory that the existence of government is a necessity. It is a power predicated upon necessity [Phil Guarantee Co., Inc. v. Commissioner (13 SCRA 775)]. The government cannot continue to perform of serving and protecting its people without means to pay its expenses.  The Benefits- Protection Theory The basis of taxation 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, pay taxes in order that they may be secured in the enjoyment of the benefits of organized society.  ELEMENTS OF SOUND TAX SYSTEM 1. Fiscal Adequacy 2. Theoretical Justice 3. Administrative Feasibility  Fiscal Adequacy The sources of government revenue must be sufficient to meet government expenditures and other public needs.  Theoretical Justice A good tax system must be based on the taxpayer's ability to pay. This suggests that taxation must be progressive conformably with the constitutional mandate that congress shall evolve a progressive system of taxation.  Administrative Feasibility Tax laws must be capable of convenient, just and effective administration free from confusion and uncertainty. Thus, the tax system should have the merits of simplicity, flexibility and diversity.  Situs of taxation or territoriality the taxing power of a country is limited to person and property within and subject to its jurisdiction. PLACE OF TAXATION a. The state where the subject to be taxed has a situs may rightfully levy and collect the tax. b. The situs is necessarily in the State which has jurisdiction or which exercises dominion over the subject in question.  FACTORS TO CONSIDER IN DETERMINING SITUS OF TAXATION a. Subject matter (person, property, or activity) b. Nature of the tax c. Citizenship d. Residence of the taxpayer  APPLICATION OF SITUS OF TAXATION Subject Matter Situs Person Residence of the taxpayer Real Property Location Tangible Personal Property Location Intangible Personal Property Domicile of the owner Income Residence, citizenship, source of income Business Place of business Gratuitous Transfer of Property Residence or citizenship of the transferor or location of property International comity or treaty a State cannot tax another State based on the principle of Sovereign Equality among States. i.e. tax law passed imposing taxes on foreign ambassadors is not a valid law.  Non-delegability of the Taxing power Power of taxation is purely legislative, hence the power cannot be delegated either to the executive or judicial departments.  Tax Exemptions of the government a. Agencies performing governmental functions are tax-exempt unless expressly taxed. b. Agencies performing proprietary functions are subject to tax unless expressly exempted.  Tax Exemptions of the government c. GOCCS performing proprietary functions are subject to tax, however, the following are granted exemptions: Government Service Insurance System (GSIS) Social Security System (SSS) Philippine Health Insurance Corporation (PHIC) Local Water Districts (RA 10026)  KINDS OF DOUBLE TAXATION: Direct Duplicate Taxation This is objectionable and prohibited because it violates the constitutional provision on uniformity and equality.  KINDS OF DOUBLE TAXATION: Indirect Duplicate Taxation It is not legally objectionable. It extends to all cases in which there is a burden of two or more pecuniary imposition but imposed by different taxing authorities.  ORDER OF PRIORITY: Constitution Tax treaties Tax Laws/statues and judicial decisions Revenue issuances (revenue regulations, revenue memorandum circulars, revenue memorandum orders, revenue rulings, etc.) CLASSIFICATION OF TAXES According to Subject Matter Personal, Poll or Capitation Tax Tax of a fixed amount imposed on individuals. Example: Community Tax CLASSIFICATION OF TAXES According to Subject Matter Property Tax Tax imposed on property Example: Real Estate Tax CLASSIFICATION OF TAXES According to Subject Matter Excise Tax Tax imposed upon the performance of an act the enjoyment privilege or the engaging in an occupation. Examples: Estate tax, Donor’s Tax, Income tax, value added Tax  According to Who Bears the Burden: DIRECT TAX Tax demanded from persons who are intended or bound by law to pay the tax. Examples: Community Tax, Income Tax, Estate Tax, Donor Tax  According to Who Bears the Burden: INDIRECT TAX Tax which the tax payer can shift to another. Examples: Customs Duties and Value added tax  According to Determination of Amount: Specific Tax Tax imposed based on physical unit of measurement, as by head or number, weight, or length or volume. Examples: Tax on Liquors, cigars, wines, fireworks  According to Determination of Amount: Ad Valorem Tax Tax of a fixed proportion of the value of the property, needs an independent appraiser to determine its value. Examples: Real Estate Tax, Certain Custom Duties, Excise Tax on Cigarettes and gasoline.  According to Purpose Fiscal/General/Revenue Tax Tax with no particular purpose or object which the revenue is raised or not, but is simply raised for whatever need may arise. Examples: Income tax and value added tax.  According to Purpose Regulatory/Special/Sumptuary Tax Tax imposed for a special purpose regardless of whether revenue is raised or not, and is intended to achieve some social or economic end. Examples: Protective Tariffs or custom duties on certain imported goods.  According to Jurisdiction National Tax Tax imposed by the national government. Examples: Internal Revenue Tax, Tariffs and custom duties  According to Jurisdiction Local Tax Tax imposed by municipal governments for specific needs. Examples: Real Estate Taxes and Municipal Licenses  According to Graduation or Rate Proportional/Flat rate Tax Tax based on a fixed percentage of the amount of property income or other basis to be taxed. Examples: Percentage Taxes, Real Estate Taxes and Donor Tax  According to Graduation or Rate Progressive or graduated Tax rate increases as the tax base increases. Examples: Income tax and Estate Tax According to Graduation or Rate Regressive Tax rate decreases as the tax base increases. Example: Value added Tax  TOLL Is a sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge or the like, of a public nature  PENALTY Is any sanction imposed as a punishment for violation of law or acts deemed injurious.  SPECIAL ASSESSMENT Is an enforced proportional contribution from owners of lands for special benefits resulting from public improvements. PERMIT or LICENSE FEE Is a charge imposed under the police power for purposes of regulation  CUSTOMS DUTIES TAX Taxes imposed on goods exported from or imported to a country.  DEBT Generally based on contract, is assignable and may be paid in kind.  SUBSIDY Refers to a pecuniary aid directly granted by the government to an individual or private commercial enterprise deemed beneficial to the public.  REVENUE Refers to all the funds or income derived by the government, whether from tax or any other source.  ESCAPE FROM TAXATION Evasion or Dodging Occurs when the taxpayer resorts to unlawful means to lessen or to away with his tax liability.  ESCAPE FROM TAXATION Tax Avoidance Happens when the taxpayer minimize his tax liability by taking advantage of legally available tax planning opportunities.