Principles of Taxation

Taxation, definition
The inherent power of the state

to exact an enforced contribution

upon persons, properties, or rights for the purpose of generating revenues for the use of government.

Taxation, other definitions

A way or means of apportioning the operational cost of the government and all its public needs among those who, in some measures are privileged to enjoy its benefits and therefore must bear the burden. The act of levying taxes or the process by which government though its law-making body, raises revenues to defray its necessary expenses.

Taxation, nature
The power of taxation is based on the theory that no government can exist without taxation, thus taxation is an important necessity. The theory is that taxes are imposed upon persons, properties or rights for the support of the government in return for the general advantages and protection which the government provides the taxpayers.

Taxation, basis

The basis of the power to tax is the reciprocal duties of protection and support between the state and those that are subject to its authority.

Taxation, purposes
The principal purpose of taxation is to raise revenues for the use and support of the government to enable it to carry out its functions.

The secondary purpose of taxation is to serve a s means to contend social, general welfare and economic development.

Taxation, Scope
The scope of the power of taxation is plenary or unlimited comprehensive and supreme restricted only by the constitutional and inherent limitations

Principles of Sound Tax System

Fiscal adequacy
Equality or Theoretical Justice

Administrative Feasiblity

Fiscal adequacy
This means that the sources of revenues as a whole must be adequate to meet the expenditure of government regardless of the business economic conditions.
or

Equality or Theoretical Justice

This means that there must be an equitable or proportionate distribution of the tax burden, which means that the tax burden shall be shouldered by those who have the ability to pay.

Administrative Feasibility

This means that the tax laws must be capable of reasonable and convenience enforcement, just and effective administration.

Constitutional limitations
1. Due process of law. 2. Equal protection of the law. 3. No imprisonment for non-payment of a poll tax. 4. Rule of taxation shall be uniform and equitable. 5. Exemption from taxation of charitable institutions, churches, parsonages, or convents, appurtenant thereto, mosques, non-profit cemeteries, and all lands and buildings used exclusively for religious, educational or charitable purposes.

Constitutional limitations
6. No public money/property shall be used for any religious/private purposes. 7. The majority of all members of the national assembly or congress shall pass granting of tax exemptions. 8. Non-impairment of the jurisdiction of the Supreme Court on tax cases. 9. The Philippine President has the power to veto any item in a tax bill approved by Congress.

Inherent limitations
1. Taxes may be levied only for public purpose. 2. Non-delegation of the power to tax except to local government and in matters of collection and enforcement. 3. Exemption from taxation of government entities. 4. Tax laws must be within the states territorial jurisdiction. 5. Tax laws must be subject to international comity, convention and agreements. 6. Prohibition of double taxation.

Inherent Powers of the State

1. Power of Taxation the inherent power of the state to exact an enforced contribution upon persons, property or rights for the purpose of raising revenues for the use and support of government. 2. Power of Eminent Domain the inherent power of the state to expropriate private property for public purpose in return for a just/reasonable compensation.

3. Police Power the inherent power of the state to promote the general welfare of the people by limiting or regulating the rights or properties of any person.

Taxation v. Police Power

1. The power of taxation is to raise revenues to support the government whereas, that of PP is to regulate or limit the rights of a person for public welfare. 2. Taxation is directed against persons, property or rights whereas PP against the taxpayers rights and property. 3. In taxation, the amount of tax imposition may be unlimited whereas in PP, the amount of regulation fee must be limited to what is necessary to carry out the regulation.

Taxation vs. Eminent Domain

1. Taxation is directed against persons, property or rights whereas ED is directed against real property. 2. The purpose of taxation is to raise revenue to support government whereas ED is to have real property for public purpose. 3. In taxation, the taxpayer gives money in consideration for service and protection by government while in ED gives property in consideration for reasonable monetary compensation.

Tax Evasion vs. Tax Avoidance

Tax evasion is the fraudulent act of using pretenses or forbidden devices by a person in order to lessen his tax liability or payment. Also referred to as tax dodging, it is illegal, hence, prohibited and punishable by law. Tax avoidance is the act of using legitimate or useful means permitted or allowed by tax laws in order to minimize or totally avoid ones tax liability or tax payment.

Tax Shifting

is the act of legitimately passing on ones liability to another person in accordance with the provisions of the tax laws.

Situs of Taxation
Refers to .the territorial jurisdiction of government where it has the authority to impose its taxation power which is to levy and collect taxes on persons, properties or rights. It literally means the place of taxation

It depends of the ff factors:

1. domicile or residence of the person 2. citizenship of the person 3. location or source of income, property or right

Situs of Subjects of Taxation

1. Persons Poll tax may be properly levied upon persons who are residents or inhabitants of the state , whether citizens or not. 2. Real Property for real property taxes, real estate is subject to taxation in the state where it is located 3. Tangible personal property the state where it is physically located or actual situs 4. Intangible personal property the domicile of the owner

Situs of Subjects of Taxation

5. Income may properly be exacted from persons who are residents or citizens in the taxing state and even from those who are neither residents nor citizens provided that income is derived from within the taxing state. 6. Business/occupation/transaction the general rule is the place where the business is done, the occupation is engaged in or the transaction took place. 7. Gratuitous transfer of property in the state where transferor is a citizen or resident or where the property is located.

Tax Situs of Individuals for Income Tax

(Sec 23A to D)

1. Resident Filipino is taxable on all income derived from sources within and without the Phil. 2. A non-resident Filipino is taxable only on income derived within the Phil. 3. An overseas Contract worker* is taxable only on income from within the Phil. 4. An alien individual, whether a resident or not of the Phil, is taxable only on income from within the Phil.

* a Filipino seaman who receives compensation for services abroad as a member of the complement of a vessel exclusively in international trade is an OCW.

Tax Situs:Corporations for Income Tax

(Sec 23E and F)

1. A domestic corporation is taxable on all income derived from sources within and without the Phil 2. A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable on income derived from sources within the Phil.

Double Taxation
Means the act of taxing the same taxpayer, his person, property or right, twice for the same kind and character of tax by the same taxing authority within the same jurisdiction for the same purposes during the same taxable period

Direct Double Taxation

In its strict sense, it means the direct act of taxing the same taxpayer, his person, property or right, twice for the same kind and character of tax by the same taxing authority within the same jurisdiction for the same purposes during the same taxable period

Indirect Double Taxation

In its broad sense, it means double taxation other than direct double taxation. It extends to all cases in which there is a burden of two or more pecuniary impositions. It means the the indirect act of taxing the same taxpayer, his person, property or right, twice for the same kind and character of tax by the same taxing authority within the same jurisdiction for the same purposes during the same taxable period

Double Taxation
There is no constitutional limitation on double taxation. It is merely subject to the inherent limitation, hence it is not prohibited, legally speaking. If double taxation occurs, the taxpayer may seek relief under the uniformity rule of taxation or under the equal protection of the law guaranty under the Constitution.

Tax, definition

Tax is defined as a burden or enforced contribution imposed by government based on its inherent power of taxation upon persons, property or rights.

Essential Characteristics of Tax

1. 2. 3. 4. 5. 6. 7. 8. 9. An enforced contribution Legislative in nature Imposed in accordance with law Imposed for public purpose Proportionate in character Generally paid in money Paid at regular intervals Imposed upon persons, property or rights Imposed to raise revenues for government

Taxes as to subject matter

1. Personal or Capitation or Poll tax tax of imposed fixed amounts imposed upon persons within a territory without regard to their property or business). Ex. Community tax 2. Property Tax imposed upon real or personal property. Ex. Real Property tax 3. Excise Tax imposed on the performance of an act, enjoyment of a privilege, engaging in business or occupation. Ex. Income Tax

Taxes as to Scope or Authority

1. National Tax imposed by the national government Ex. Income Tax 2. Local Tax imposed by the local government, i.e cities, municipalities, provinces, barangays Ex. Real Property tax

Taxes as to Purpose
1. General Tax imposed for general purposes, the proceeds of which goes to the national/general funds. Ex. Donors tax 2. Special Tax imposed for special purposes, the proceeds of which go to certain special funds. Ex. Road Users tax

Taxes as to Liabilities
1. Direct Tax imposed upon persons who are primarily burdened to pay them. Ex. Estate tax 2. Indirect Tax imposed upon persons liable to pay said taxes but are permitted by law to shift the burden to others. Ex. Value Added tax

Taxes as to Determination of Amounts

1. Specific Tax* imposed upon property which amounts are determined based on weight or volume capacity or any physical unit of measurements. Ex. Tax on alcohol 2. Ad Valorem Tax* imposed upon property which amounts are determined based on the sales price or other specified values of the property. Ex. Tax on automobiles *Known as Excise Tax in the NIRC, Title VI.

Taxes as to Graduation or Rate

1. Progressive /Graduated tax imposed upon persons, which amount of tax increases as the bracket increases. Ex. Estate Tax 2. Regressive Tax imposed upon persons, which amount of tax decreases as the bracket increase. Ex. In the Phil, none 3. Proportionate Tax imposed upon persons, which amount of tax may be higher or lower depending upon the bracket or classification Ex. Real Property Tax

National Internal Revenue taxes

1. Income taxes 2. Transfer taxes: Estate tax; Donors Tax 3. Value Added tax 4. Other Percentage taxes 5. Excise taxes 6. Documentary Stamp taxes

Tax v. License fee

Tax to raise revenues basis:taxation power License fee to regulate basis:police power

congress levies tax

usually big in amount

LGUs/Agencies levies fees

Usually small

failure to pay does not render business/ occupation illegal

Failure to pay renders business/occupation illegal

Tax v. Toll
Tax Toll

represents a demand of sovereignty

Only the government imposes a tax

represents a demand of proprietorship

Government or private person imposes a toll imposed mainly to recover the cost of property and its improvements

imposed for use and support of the government

Tax v. Special Assessment

Tax Special Assessment

imposed upon persons property or rights

national or local government imposes a tax imposed for use and support of government Ordinary and of general application

imposed on land and its improvements

only local government imposes special assessment Imposed to recover cost of public improvement Extraordinary and situational as to time and locality

Tax v. Customs Duties

Tax License fee all customs duties are taxes but not all taxes are customs duties

broader in meaning

imposed on persons, property or rights

imposed upon articles imported to or exported from the country

Tax v. Debt
Tax based on law non-assignable generally payable in terms of money cannot be subject to the right of offset no interest except when delinquent Debt based on contract assignable payable in money or property

subject to right of offset

interest when stipulated

Manner of Income Tax Collection in the Philippines

-Pay as you earn (withholding)

-Pay as you file (self-assessment)

Withholding Tax system -Withholding tax on compensation

( may either be final or creditable)
-Expanded withholding tax (creditable) -Final withholding tax (final)

Self-Assessment
-Compute you own tax -File your own return

-Pay tax as you file return (the balance after deducting taxes withheld for the same taxable period)

End of presentation