Introduction-to-Taxation.pdf

TAXATION Taxation may be defined as a STATE POWER, a LEGISLATIVE PROCESS and a MODE OF GOVERNMENT COST DISTRIBUTION. AS A STATE POWER The power of taxation is the inherent power of the state to demand contribution for public purpose. This power, being an essential and inherent a...

TAXATION Taxation may be defined as a STATE POWER, a LEGISLATIVE PROCESS and a MODE OF GOVERNMENT COST DISTRIBUTION. AS A STATE POWER The power of taxation is the inherent power of the state to demand contribution for public purpose. This power, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to every independent government, and needs no express conferment by the people before it can be exercised. (Film Development Council of the Philippines v. Colon Heritage Realty Corporation, G.R. No. 203754, 16 June 2015) AS A LEGISLATIVE PROCESS Taxation is a process of levying taxes by the law-making body of the State to enforce proportional contribution from its subjects for public purpose. Legislature means the Philippine Congress, Sangguniang Panlalawigan, Sangguniang Panlungsod, Sangguniang Bayan and Sangguniang Barangay. AS A MODE OF GOVERNMENT COST DISTRIBUTION Taxation is a mode by which the State allocates its costs or burden to its subjects who are benefited by its spending. Theories of cost allocation: 1. Benefit received theory 2. Ability to pay theory a. Vertical equity – gross concept. b. Horizontal equity – net concept. AS A FISCAL POLICY Taxation as a fiscal policy is used by the government to influence the economy. To promote strong and sustainable growth and reduce poverty.  Theory is necessity for funding. Basis THEORY and is the mutuality of support. BASIS of the Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor POWER of endure. This principle has been immortalized as the Lifeblood TAXATION Doctrine, the underlying foundation of the exercise of the power to tax. The government provides benefits to the people in the form of public service. This benefit is conclusively presumed. Implication of the Lifeblood Doctrine in taxation 1. Tax is imposed even in the absence if a Constitutional grant. 2. Claims for tax exemption and deduction are construed against taxpayers. 3. The government reserves the right to choose the objects of taxation. 4. The courts are not allowed to interfere with the collection of taxes. 5. In income taxation: a. Income received in advance is taxable upon receipt. b. Deduction for capital expenditures and prepayments is nor allowed as it effectively defers the collection of income tax. c. A lower amount of deduction is preferred when a claimable expense is subject to limit. d. A higher tax base is preferred when the tax object has multiple tax base. INHERENT POWERS OF THE STATE Point of Difference Taxation Police Power Eminent Domain Exercising Authority Government Government Government and private utilities Purpose For the support of the To protect the general welfare of For public use government the people Persons affected Community or class of Community or class of individual Owner of the property individual Amount of imposition Unlimited (Tax is based on Limited (Imposition is limited to No amount imposed. (the government needs.) cover cost of regulation.) government pays just compensation) Importance Most important Most superior Important Relationship with the Inferior to the “Non- Superior to the “Non-impairment Superior to the “Non- Constitution impairment Clause” Clause” impairment Clause” Limitation Constitutional and inherent Public interest and due process Public purpose and just limitation compensation. INHERENT POWERS OF THE STATE Similarities of the three inherent powers of the state: 1. They are all necessary attributes of sovereignty. 2. They are all inherent to the State. 3. They are all legislative in nature. 4. They are all ways in which the State interferes with private rights and properties. 5. They all exist independently of the Constitution and are exercisable by the government even without a Constitutional grant. However, the Constitution may impose conditions or limits for their exercise. 6. They all presuppose an equivalent form of compensation received by the person affected by the exercise of the power. 7. The exercise of these power by the local government units may be limited by the national legislature.  The power of taxation is Supreme, SCOPE OF Plenary, Unlimited, and Comprehensive. TAXATION The power to impose taxes is one so unlimited in force and so searching POWER in extent, it is subject only to restrictions which rest on the discretion of the authority exercising it. It is of course, to be admitted that for all its plenitude, the power to tax is not unconfined. There are restrictions. INHERENT LIMITATION OF TAXATION 1. Territoriality of taxation ✓ Exceptions: a. Worldwide income for resident citizens and domestic corporation; b. In transfer taxation, worldwide properties for residents or citizens. 2. International comity 3. Public Purpose 4. Exemption of the government 5. Non-delegation of the taxing power ✓ Exceptions: a. LGU are allowed to exercise the power to tax; b. The President under the Tariff and Custom Code; c. Other cases for expedient and effective administration of taxes. CONSTITUTIONAL LIMITATION OF TAXATION 1. Observance of due process of law – Substantive and 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 if 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 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 cases. 15. The requirement that appropriations, revenue, or tariff bills shall originate exclusively in the House of Representatives 16. The delegation of taxing power to LGU. STAGES OF 1. LEVY OR IMPOSITION Enactment of a law for the imposition of THE tax. This stage can be performed only by the law-making body of the State. EXERCISE OF 2. ASSESSMENT It is the act of computing the ax liability, or TAXATION the process of determining the value of a property, or proportion thereof, subject to tax. It can be performed by the executive POWER are of the State. 3. COLLECTION It is the act of satisfying the tax liability by collecting money from those who are liable. It can be implemented by the executive branch of the State. SITUS OF 1. Business tax situs; 2. Income tax situs on services; TAXATION 3. Income tax situs on sale of goods; 4. Property tax situs; 5. Personal tax situs.  1. Marshall Doctrine – The power to tax OTHER 2. involves the power to destroy. Holme’s Doctrine – Taxation power is not FUNDAMENTAL 3. the power to destroy while the court sits. Prospectivity of tax laws DOCTRINES IN 4.5. Non-compensation or set-off Non-assignment of taxes TAXATION 6. 7. Imprescriptibly of taxation Doctrine of estoppel 8. Judicial Non-interference 9. Strict Construction of Tax Laws – Taxation is the rule, exemption is the exception DOUBLE 1. Direct Double Taxation All elements of the double taxation exists for both imposition. TAXATION i. Same object; ii. Same type of tax; iii. Same purpose of tax; iv. Same taxing jurisdiction; v. Same tax period. 2. Indirect Double Taxation At least one of the secondary elements of double taxation is not common for both imposition MINIMIZING THE IMPACT OF DOUBLE TAXATION 1. Provision of tax exemption; 2. Allowing foreign tax credit; 3. Allowing reciprocal tax treatment; and 4. Entering into treaties or bilateral agreements. ESCAPES 1. Those that result to government revenue: loss of FROM a. b. Tax evasion - illegal; Tax avoidance – legal; TAXATION c. Tax exemption – legal. 2. Those that do not result to loss of government revenue a. Shifting; b. Capitalization; c. Transformation TAX AMNESTY 1. TAX AMNESTY – General pardon vs. 2. TAX CONDONATION – Specific TAX to a certain taxpayer CONDONATION  TAX A tax refers to a financial obligation imposed by a state on persons, whether natural or juridical, within its jurisdiction, for property owned, Is an enforced proportional income earned, business or profession contribution levied by the engaged in, or any such activity lawmaking body of the State to raise revenue for public analogous in character for raising the purpose. necessary revenues to take care of the responsibilities of government (Cf. Manila Electric Co. v. Auditor General, 73 Phil 128 (1941)) ELEMENTS OF A VALID TAX 1. Tax must be levied by the taxing power having jurisdiction over the object of taxation. 2. Tax must not violate Constitutional and inherent limitations. 3. Tax must be uniform and equitable. 4. Tax must be for public purpose. 5. Tax must be proportional in character. 6. Tax is generally payable in money. TAX SYSTEM 1. Progressive – based on the ability to pay 2. Proportional – employed to corporate income 3. Regressive – tax is applied uniformly regardless of income  TAX 1. Withholding system a. Creditable withholding tax COLLECTION b. Final withholding tax SYTEMS 2. Voluntary compliance system 3. Assessment or enforcement system SOUND TAX 1. Fiscal Adequacy 2. Theoretical Justice SYSTEM 3. Administrative Feasibility FISCAL ADEQUACY It requires the sources of revenue must be adequate to meet government expenditures and their variations. (Chavez v. Ongpin, G.R. No. 76778, 06 June 1990) ADMINISTRATIVE FEASIBILTY It means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. (Diaz v. Secretary of Finance G.R. No. 193007, 19 July 2011) THEORETICAL JUSTICE this is kindred concept of progressive system of taxation. It is likewise founded on the principle that the imposition of taxes should be based on one’s ability to pay tax. That is, the higher burden to pay tax falls on those better able to pay.  TAX The Bureau of Internal Revenue under the Department of Finance, ADMINISTRATION handles the management of national taxes. The Powers of the BIR is prescribed by the National Internal Revenue Code of the Philippines as amended. ADMINISTRATIVE 1. Revenue Regulations; 2. Revenue Memorandum Orders ISSUANCES 3. Revenue Memorandum Rulings; 4. Revenue Memorandum Circulars; 5. Revenue Bulletins; 6. BIR Ruligs. OTHER AGENCIES 1. Bureau of Customs; 2. Board of Investments; TASKED WITH TAX 3. Philippine Economic Zone Authority; COLLECTION OR 4. Local Government Tax Collecting TAX INCENTIVES Unit; RELATED 5. Fiscal Incentives Review Board. FUNCTIONS