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Tax Reviewer: General Principles: BY: Rene Callanta
Tax Reviewer: General Principles: BY: Rene Callanta
GENERAL PRINCIPLES:
BY: Rene Callanta
DEFINITION OF TAXATION
Taxation is the inherent power of the sovereign, exercised through the
legislature, to impose burdens upon the subjects and objects within its jurisdiction,
for the purpose of raising revenues to carry out the legitimate objects of the
government.
TAXES
5) It is levied by the State which has jurisdiction over the subject or object of
taxation
6) It is levied by the law-making body of the State
7) It is levied for publics purpose or purposes
REQUISITES of a VALID TAX
code: [P, U, J, A, N]
1) It should be for a public purpose
2) The rule of taxation should be uniform
3) That either the person or property taxed be within the jurisdiction of the
taxing authority
4) That the assessment and collection be in consonance with the due process
clause
5) The tax must not infringe on the inherent and constitutional limitations of the
power of taxation
*> Taxes are the lifeblood of the government and should be collected without
unnecessary hindrance. But their collection should not be tainted with
arbitrariness
NATURE OF TAXATION
1) Inherent in sovereignty
2) Legislative in character
SCOPE OF TAXATION
1) Comprehensive
2) Unlimited
3) Plenary
4) Supreme
TOLENTINO vs. SEC. Of FINANCE
> In the selection of the object or subject of taxation the courts have no
power to inquire into the wisdom, objectivity, motive, expediency or necessity
of such tax law. (WOMEN)
PURPOSES OF TAXATION
PRIMARY
- To raise revenue in order to support the government
SECONDARY
1) Used to reduce social inequality
2) Utilized to implement the police power of the State
3) Used to protect our local industries against unfair competition
4) Utilized by the government to encourage the growth of local industries
PAL vs. EDU
> It is possible for an exaction to be both a tax and a regulation. License fees
and charges, looked to as a source of revenue as well as a means regulation.
The fees may properly regarded as taxes even though they also serve as an
instrument of regulation. If the purpose is primarily revenue, or if revenue is at
least one of the real and substantial purposes, then the exaction is properly
called a tax.
CALTEX vs.. CIR
> Taxation is no longer a measure merely to raise revenue to support the
existence of the government. Taxes may be levied with a regulatory purpose
to provide means for rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the
State.
LIFEBLOOD DOCTRINE
> Taxes are the lifeblood of the nation
> Without revenue raised from taxation, the government will not survive,
resulting in detriment to society. Without taxes, the government would be
paralyzed for lack of motive power to activate and operate it. (CIR vs. ALGUE)
> Taxes are the lifeblood of the government and there prompt and certain
availability is an imperious need.
> Taxes are the lifeblood of the nation through which the agencies of the
government continue to operate and with which the state effects its functions
for the benefit of its constituents
> The
1)
2)
3)
> The rule that the power of taxation cannot be delegated does not apply to
the administrative implementation of a tax law
> There is no violation because what is delegated or entrusted is the
collection and not the enactment of such laws
> Even if a tax law violates the principle of Fiscal Adequacy , in other words,
the proceeds may not be sufficient to satisfy the needs of the government,
still the tax law is valid
ADMINISTRATIVE FEASIBILITY
- VIOLATION VALID
> The tax law must be capable of effective or efficient enforcement
> Tax laws should be capable of convenient, just and effective administration
> Tax laws should close-up the loopholes for tax evasion and deter
unscrupulous officials from committing fraud
> There is no law that requires compliance with this principle, so even if the
tax law violates this principle; such tax law is valid.
THEORETICAL JUSTICE
VIOLATION INVALID
> This principle mandates that taxes must be just, reasonable and fair
Taxation shall be uniform and equitable
> Equitable taxation has been mandated by our constitution, as if taxes are
unjust and unreasonable then they are not equitable, thus invalid.
> The tax burden should be in proportion to the taxpayers ability to pay
(ABILITY TO PAY PRINCIPLE)
DISTINCTIONS:
TAXATION vs. POLICE POWER vs. EMINENT DOMAIN
1) As to purpose:
Taxation for the support of the government
Eminent Domain_- for public use
Police Power to promote general welfare, public health, public morals, and
public safety.
2) As to compensation:
Taxation Protection and benefits received from the government.
Eminent Domain just compensation, not to exceed the market value
declared by the owner or administrator or anyone having legal interest in the
property, or as determined by the assessor, whichever is lower.
Police Power The maintenance of a healthy economic standard of society.
3) As to persons affected:
Taxation and Police Power operate upon a community or a class of
individuals
Eminent Domain operates on the individual property owner.
5) As to amount of imposition:
Taxation Generally no limit to the amount of tax that may be imposed.
Police Power Limited to the cost of regulation
Eminent Domain There is no imposition; rather, it is the owner of the
property taken who is just paid compensation.
b)
BASIS: Tax imposed under power of taxation WHILE license fee under police
power.
c)
d)
e)
f)
EFFECT OF PAYMENT: Failure to pay a tax does not make the business illegal
WHILE failure to pay license fee makes business illegal.
SURRENDER: Taxes, being lifeblood of the state, cannot be surrendered
except for lawful consideration WHILE a license fee may be surrendered with
or without consideration.
4) license fee regulatory imposition in the exercise of the police power of the
State;
Some Rules:
Toll v. tax
1. Toll is a sum of money for the use of something. It is the consideration which
is paid for the use of a road, bridge, or the like, of a public nature. Taxes, on
the other hand, are enforced proportional contributions from persons and
property levied by the State by virtue of its sovereignty for the support of the
government and all public needs.
1.
2.
3.
1.
2.
3.
4.
5.
6.
7.
Requisites of compensation
1.
That each one of the obligor be bound principally, and that he be at the same
time a principal creditor of the other.
2.
That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind and also of the same quality if the
latter has been stated.
3.
4.
5.
Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443]
re: claim for payment of unpaid services of a government employee vis--vis
the estate taxes due from his estate. The fact that the court having
jurisdiction of the estate had found that the claim of the estate against the
government has been appropriated for the purpose by a corresponding law
shows that both the claim of the government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and
demandable as well as fully liquidated. Compensation therefore takes place by
operation of law.
Direct tax
A direct tax is demanded from the person who also shoul,ders the burden of the
tax. It is a tax which the taxpayer is directly or primarily liable and which he or she
cannot shift to another.
2.
Indirect tax
An indirect tax is demanded from a person in the expectation and intention that
he or she shall indemnify himself or herself at the expense of another, falling
finally upon the ultimate purchaser or consumer. A tax which the taxpayer can
shift to another.
AS TO THE SCOPE OF THE TAX
1. National tax
A national tax is imposed by the national government.
2. Local tax
A local tax is imposed by the municipal corporations or local government units
(LGUs).
AS TO THE DETERMINATION OF AMOUNT
1. Specific tax
A specific tax is a tax of a fixed amount imposed by the head or number or by
some other standard of weight or measurement. It requires no assessment other than
the listing or classification of the objects to be taxed.
2. Ad valorem tax
An ad valorem tax is 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 due from each taxpayer can be
determined.
AS TO GRADUATION OR RATE
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1.
Proportional tax
Tax based on a fixed percentage of the amount of the property receipts or other
basis to be taxed. Example: real estate tax.
2.
Tax the rate of which increases as the tax base or bracket increases.
Digressive tax rate: progressive rate stops at a certain point. Progression halts at
a particular stage.
3.
Regressive tax
Tax the rate of which decreases as the tax base or bracket increases. There is no
such tax in the Philippines.
TAX SYSTEMS
Constitutional mandate
The rule of taxation shall be uniform and equitable. The Congress shall evolve
a progressive system of taxation. [Section 28 (1), Article VI, Constitution]
A progressive system of taxation means that tax laws shall place emphasis on
direct taxes rather than on indirect taxes, with ability to pay as the principal
criterion.
A regressive system of taxation exists when there are more indirect taxes
imposed than direct taxes.
CLASSIFICATION OF TAXES:
1.
2.
3.
direct tax incidence and impact of taxation falls on one person and cannot
be shifted to another;
4.
indirect tax incidence and liability for the tax falls on one person but the
burden thereof can be passed on to another;
5.
6.
11
7.
8.
9.
10. local taxes taxes levied by local government units pursuant to validly
delegated power to tax;
11. progressive taxes rate increases as the tax base increases; and
12. regressive taxes rate increases as tax base decreases.
GENERAL RULE:
- Taxes are personal to the taxpayer. Corporations tax delinquency cannot be
enforced on the stockholder or transfer taxes on the estate be assessed on
the heirs.
EXCEPTIONS
1.
stockholders may be held liable for unpaid taxes of a dissolved corporation
if the corporate assets have passed into their hands; and
2.
heirs may be held liable for the transfer taxes on the estate, if prior to the
payment of the same, the properties of the decedent have been
distributed to the heirs.
separate
days
Rule
except
when
there
is
12
INHERENT LIMITATIONS
NOTES: PUBLIC PURPOSE
GOVERNMENTAL PURPOSE
RULE:
The Legislature is without the power to appropriate revenues for anything but
for public purposes.
RULE:
13
> It is not the immediate result but the ultimate result that determines,
whether the purpose is public or not
> It is not the number of persons benefited but it is the character of the
purpose that determines the public character of such tax law
> Public purpose is determined by the use to which the tax money is devoted
> If it benefits the community in general then it is for a public purpose no
matter who collects it
TEST
1.
2.
> A tax levied for a private, not public purpose constitutes taking of property
without due process of law as it is beyond the powers of the government to
impose it.
> Although private individuals are directly benefited, the tax would still be
valid, provided such benefit is only incidental
> The test is not as to who receives the money, but the character of the
purpose for which it is expended
> Not the immediate result of the expenditure, but rather the ultimate
> The test that must be applied in determining whether the purpose is public
or private
LEGISLATIVE PREROGATIVE
RULE: It is Congress which has the power to determine whether the purpose is
public or private
14
> You can always question the validity of such tax measure on the ground that
it is not for a public purpose before the courts. But once it is settled that it is
for a public purpose, you can no longer inquire on such tax measure
TAXPAYERS SUIT
-
a case where the act complained of directly involves the illegal disbursement
of public funds derived from taxation
> courts discretion to allow
> A taxpayer is not relieved from the obligation of paying a tax because of his
belief that it is being misappropriated by certain officials
> A taxpayer has no legal standing to question executive acts that do not
involve the use of public funds. (GONZALES vs. MARCOS)
> Taxpayers may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with
the public interest as to be within the police power of the State.
> A law imposing burdens may be both a tax measure and an exercise of the
police power in which case the license fee may exceed the necessary
expenses of police surveillance and regulation.
2)
3)
That the petitioner seeks to restrain respondents from wasting public funds
through the enforcement of an invalid or unconstitutional law.
> The Supreme Court has discretion whether or not to entertain taxpayers suit
and could brush aside lack of locus standi
It is inherent in the power to tax that the legislature is free to select the
subject of taxation
15
2) An individual taxpayer need not derive direct benefits from the tax
DOCTRINE OF INCORPORATION
> The Philippines adopts the generally accepted principles of international law
as part of the law of the land
> If a tax law violates certain principles of international law, then it is not only
invalid but also unconstitutional
EXCEPTIONS:
1) Delegation to the President
2) Delegation to local government units
3) Delegation to administrative units
16
> Congress may authorize, by law, the President to fix, within specified limits
and subject to such limitations and restrictions as it may impose
1) Tariff rates
2) Import and export quotas
3) Tonnage and wharfage dues
4) Other duties and import within the national development program of the
government
> There must be a law authorizing the President to fix tariff rates
> The delegation of power must impose limitations and restrictions and
specify the minimum as well as the maximum tariff rates.
3)
> Each local government unit has the power to create its own revenue and to
levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide (ART X Sec 5)
> The power of local government units to impose taxes and fees is always
subject to the limitations which Congress may provide, the former having no
inherent power to tax.
> Municipal corporations are mere creatures of Congress which has the power
to create and abolish municipal corporations. Congress therefore has the
power to control over local government units. If Congress can grant to a
17
municipal corporation the power to tax certain matters, it can also provide for
exemptions or even take back the power
> For the delegation to be constitutionally valid, the law must be complete in
itself and must set forth sufficient standards
> Certain aspects of the taxing process that are not really legislative in nature
are vested in administrative agencies. In these cases, there really is no
delegation, to wit:
> Tax exemption of property owned by the Republic of the Philippines refers to
the property owned by the government and its agencies which do not have
separate and distinct personality.
> Those with ORIGINAL CHARTERS (incorporated agencies)
18
> The government cannot tax a particular object of taxation which is not
within its territorial jurisdiction.
> Property outside ones jurisdiction does not receive any protection of the
State
> If a law is passed by Congress, Congress must always see to it that the
object or subject of taxation is within the territorial jurisdiction of the taxing
authority
SITUS OF TAXATION
Place of taxation
RULE:
-
The State where the subject to be taxed has a situs may rightfully levy and
collect the tax
> In determining the situs of taxation, you have to consider the nature of the
taxes
Example:
1) POLL TAX, CAPITATION TAX, COMMUNITY TAX
> Residence of the taxpayer
> We can only impose property tax on the properties of a person whose
residence is in the Philippines.
B) Where tax laws do not operate within the territorial jurisdiction of the State
1) When exempted by treaty obligations
2) When exempted by international comity
19
The place where the real property is located gives protection to the
real property, hence the property or its owner should support the
government of that place
20
- The location where the income earner resides in the situs of taxation
B) NATIONALITY THEORY
- The country where the income earner is a citizen is the situs of taxation
C) SOURCE RULE
- The country which is the source of the income or where the activity that
produced the income took place is the situs of taxation.
> The residence of the borrower who pays the interest irrespective of the
place where the obligation was contracted
> Revenue derived by an of-line international carrier without any flight from
the Philippines, from ticket sales through its local agent are subject to tax on
gross Philippine billings
> The power to levy an excise upon the performance of an act or the
engaging in an occupation does not depend upon the domicile of the person
subject to the exercise, nor upon the physical location of the property or in
connection with the act or occupation taxed, but depends upon the place on
which the act is performed or occupation engaged in.
Thus, the gauge of taxability does not depend on the location of the office, but
attaches upon the place where the respective transaction is perfected and
consummated
CONSTITUTIONAL LIMITATIONS
I.
DUE PROCESS
> Due process mandates that no person shall be deprived of life, liberty, or
property without due process of law.
21
1)
2)
> If properties are taxed on the basis of an invalid law, such deprivation is a
violation of due process
> To justify the nullification of a tax law, there must be a clear and
unequivocal breach of the constitution
THE
TAX
[C, O, N, U]
LAW
MAYBE
DECLARED
AS
22
> A tax law which denies a taxpayer a fair opportunity to assert his substantial
rights before a competent tribunal is invalid
> A taxpayer must not be deprived of his property for non-payment of taxes
without
1) notice of liability
2) sale of property at public auction
II.
> The validity of statute maybe contested only by one who will sustain a direct
injury in consequence of its enforcement
> The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of tax
power. (Tan vs. del Rosario)
> SUBSTATNTIVE DUE PROCESS requires that a tax statute must be within the
constitutional authority of Congress to pass and that it be reasonable, fair and
just
> All persons, all properties, all businesses should be taxed at the same rate
> prohibits class legislation
> prohibits undue discrimination
EQUALITY IN TAXATION (UNIFORMITY)
> Equality in taxation requires that all subjects or objects of taxation similarly
situated should be treated alike or put on equal footing both on the privilege
conferred and liabilities imposed
> All taxable articles of the same class shall be taxed at the same rate
23
> The Doctrine does not require that persons or properties different in fact be
treated in law as though there were the same. What it prohibits is class
legislation which discriminates against some and favors others
> As long as there are rational or reasonable grounds for doing so, Congress
may group persons or properties to be taxed and it is sufficient if all members
of the same class are subject to the same rate and the tax is administered
impartially upon them.
SUBSTANTIAL DISTINCTION
> It must be real, material and not superficial distinction
> What is not allowed is inequality resulting from singling out of a particular
class which violates the requisites of a valid classification
> There maybe inequality but as long as it does not violate the requisites of a
valid classification that such mere inequality is not enough to justify the
nullification of a tax law or tax ordinance
> Taxation is equitable when its burden falls on those better able to pay
> Taxes are uniform and equal when imposed upon all property of the same
class or character within the taxing authority
> Tax exemptions are not violative of the equal protection clause, as long as
there is valid classification.
TIU vs. CA
The Constitutional right to equal protection of the law is not violated by an
executive order, issued pursuant to law, granting tax and duty incentives only to
business within the secured area of the Subic Special Economic Zone and
denying them to those who live within the zone but outside such fenced in
territory. The Constitution does not require the absolute equality among residents.
It is enough that all persons under like circumstances or conditions are given the
same privileges and required to follow the same obligations. In short,
a
classification based on valid and reasonable standards does not violate the equal
protection clause.
We find real and substantial distinctions between the circumstances obtaining
inside and those outside the Subic Naval Base, thereby justifying a valid and
reasonable classification.
24
UNIFORMITY IN TAXATION
> The concept of uniformity in taxation implies that all taxable articles or
properties of the same class shall be taxed at the same rate.
It requires the uniform application and operation, without discrimination, of
the tax in every place where the subject of the tax is found. It does not,
however, require absolute identity or equality under all circumstances, but
subject to reasonable classification.
EQUITY IN TAXATION
> The concept of equity in taxation requires that the apportionment of the tax
burden be more or less, just in the light of the taxpayers ability to shoulder to
tax burden and if warranted, on the basis of the benefits received from the
government. Its cornerstone is the taxpayers ability to pay.
25
> Taxation is equitable when its burden falls on those better able to pay
III.
> It is inherent in the power to tax that the state be free to select the subjects
of taxation and it has been repeatedly held that inequalities which result from
a singling out of one particular class of taxation or exemption infringe no
constitutional limitation
> What is not allowed is to impose tax on the exercise of an activity which has
a connection with freedom of the press (license fee)
> If we impose tax on persons before they can deliver or broadcast a particular
news or information, that is the one which cannot be taxed.
TOLENTINO vs. SEC. OF FINANCE
IV.
> What is prohibited by the constitutional guarantee of free press are laws
which single out the press or target a group belonging to the press for special
treatment or which in any way discriminates against the press on the basis of
the content of the publication.
FREEDOM OF RELIGION
> The payment of license fees for the distribution and sale of bibles
suppresses the constitutional right of free exercise of religion.
> The Free Exercise of Religion Clause does not prohibit imposing a generally
applicable sales and use tax on the sale of religious materials by a religious
organization.
> The Sale of religious articles can be the subject of the VAT
> The income of the priest derived from the exercise of religious activity can
be taxed.
26
V.
NON-IMPAIRMENT CLAUSE
> The parties to the contract cannot exercise the power of taxation.
> They cannot agree or stipulate that this particular transaction may be
exempt from tax- not allowed (except if government)
> A lawful tax on a new subject or an increased tax on an old one, does not
interfere with a contract or impairs its obligation.
RULES:
1) If the exemption was granted for valuable consideration and it is granted on the
basis of a contract.
> cannot be revoked
2) If the exemption is granted by virtue of a contract, wherein the government enters
into a contract with a private corporation
> cannot be revoked unilaterally by the government
3) If the basis of the tax exemption is a franchise granted by Congress and under the
franchise or the tax exemption is given to a particular holder or person
> can be unilaterally revoked by the government (Congress)
> The non-impairment clause applies only to contracts and not to a franchise.
> The non-impairment clause applies to taxation but not to police power and
eminent domain. Furthermore, it applies only where one party is the
government and the other, a private individual.
> As a rule, the obligation to pay tax is based on law. But when, for instance, a
taxpayer enters into a compromise with the BIR, the obligation of the taxpayer
becomes one based on contract
> Franchises with magic words, shall be in lieu of all taxes descriptive of the
payment of a franchise tax on their gross earnings are exempt from:
1) all taxes
2) the franchise tax under the NIRC
3) the franchise tax under the local tax code
JUAREZ vs. CA
27
> As long as the contract affects the public welfare one way or another so as
to require the interference of the state, then must the police power be
asserted and prevail over the impairment clause
> Tax amnesty, like tax exemption, is never favored nor presumed in law and if
granted by statute must be construed strictly against the taxpayer, who must
show compliance with the law.
>The government is not estopped from questioning the tax liability even if
amnesty tax payments were already received
REASON: Erroneous application and enforcement of the law by public officers
do not block subsequent correct application of the statute. The government is
never estopped by mistakes or errors by its agents.
PP vs. CASTAEDA
REASON: Taxes are not construed, for taxes being burdens are not to be
presumed beyond what the tax amnesty expressly and clearly declares
VI.
28
Senate Bill, so long as such amendment is germane to the subject of the bills
before the committee. After all its report was not final but needed the
approval of both houses of Congress to become valid as an act of the
legislative department.
C) ENROLLED BILL DOCTRINE
G.R. An enrolled copy of a bill is conclusive not only of its provisions but also of
its due enactment
EXCEPTION: In ASTORGA vs. VILLEGAS, the Supreme Court went behind the
enrolled bill and consulted the journal to determine whether certain provisions of
a state had been approved by the Senate Presidents admission of a mistake and
withdrawal of his signature.
VII.
> The President has the power to grant reprieves, commutations and pardons and
remit fines and forfeitures after conviction by final judgment. (Sec. 19, ART VII)
NATURE OF TAX AMNESTY
A general pardon or intentional overlooking by the state of its authority to
impose penalties on persons otherwise guilty of evasion or violation of a revenue
or tax law
-
VIII.
POLL TAX tax of fixed amount imposed upon residents within a specific territory
regardless of citizenship, business or profession
Ex. Community tax
The rule of taxation shall be uniform and equitable. The Congress shall evolve
a progressive system of taxation. (Sec. 28 (1) ART VI)
UNIFORMITY
-
means that all taxable articles kinds of property of the same class shall be
taxed at the same rate
> A tax is uniform when it operates with the same force and effect in every
place where the subject of it is found
EQUITABILITY
29
X.
> Taxation is said to be equitable when its burden falls on those better able to
pay
PROGRESSIVITY
> Taxation is progressive when its rate goes up depending on the sources of
the person affected
SYTEMS OF TAXATION
1) PROPORTIONAL TAXATION
-
where the tax increases as the income of the taxpayer goes higher
3) REGRESSIVE SYSTEM
-
> RA 7716 (EVAT), does not violate the constitutional mandate that Congress
shall evolve a progressive system of taxation
> The Constitution does not really prohibit the imposition of indirect taxes, which
like the VAT, are regressive. The constitutional provision means simply that
indirect taxes shall be minimized.
> Resort to indirect taxes should be minimized but not to be avoided entirely
because it is difficult, if not impossible to avoid them by imposing such taxes
according to the taxpayers ability to pay.
30
RULE:
-
It is not the revenue statute but the revenue bill which is required by the
constitution to originate exclusively in the House of Representatives
REASON:
To insist that a revenue statute and not only the bill which initiated the
legislative process culminating in the enactment of the law must substantially
be the same as the House bill would be to deny the Senates power not only
to concur with amendments but also to propose amendments. It would be
to violate the co-equality of legislative power of the two houses of Congress
and in fact make the House superior to the Senate. (Tolentino vs. Sec. of
Finance)
> The Constitution simply requires that there must be that initiative coming
from the House of Representatives relative to appropriation, revenue and tariff
bills.
>The Constitution does not also prohibit the filing in the Senate of a substitute
bill in anticipation of its receipt of the bill from the House, as long as action by
the Senate is withheld until receipt of said bill (Tolentino vs. Sec. of Finance)
> 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 (Sec. 27 (2), ART VI)
The Congress may, by law, authorizing the President to fix within specific
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, the other duties
or imports within the framework of the national development program of the
Government (Sec. 28 (2), ART VI)
REQUISITES:
1) There must be a law passed by Congress authorizing the President to impose
tariff rates and other fees.
2) Under the law, there must be limitations and restrictions on the exercise of
such power
3) The taxes that may be imposed by the President are limited to:
A) Tariff rates
B) Import and export quotas
C) Tonnage and wharfage dues
D) Other duties (customs duties)
4) The imposition of these tariff and duties must be within the framework of the
National Development program of the government
> Congress may not pass a law authorizing the President to impose income
tax, donors tax, and other taxes which are not in the nature of customs duties.
31
> The Constitution allows only the imposition by the President of these custom
duties
XIV.
APPLICATION:
> The exemption only covers property taxes and not other taxes
TEST OF EXEMPTION:
> It is the USE of the property and not ownership of the property
ABRA VALLEY COLLEGE vs. AQUINO (162 SCRA 106)
> The exemption does not only extend to indispensable facilities but also
covers incidental facilities which are reasonably necessary to the
accomplishment of said purpose
> A property leased by the owner to another who uses it exclusively for
religious purposes is exempt from property tax, but the owner is subject to
income tax or rents received.
> Real property purchased by any religious sect to be used exclusively for
religious purposes are subject to the tax on the transfer of ownership or of
title to real property (also if donated- donors tax)
XV.
> Tax exemption, amnesties, refunds are considered in the nature of tax
exemptions
> A law granting such needs approval of the absolute majority of the Congress
32
XVI.
> Public property may be leased to a religious group provided that the lease
will be totally under the same conditions as that to private persons (amount of
rent)
XVII.
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. (Sec. 29 (3) ART VI)
XVIII.
> If a President of the Philippines spent a special fund for a general purpose,
he can be charged with culpable violation of the Constitution.
The Supreme Court shall have the power to review, revise, reverse, modify or affirm
on appeal or certiorari, all cases involving the legality of any tax imposed,
assessment, or toll, or any penalty imposed in relation thereto. (Sec. 5 (2B) ART VIII)
XIX.
> Congress cannot take away from the Supreme Court the power given to it
by the Constitution as the final arbiter of the tax cases.
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, charges shall have exclusivity to the local government.
(Sec. 5, ART X)
LIMITATIONS ON POWER TO TAX (L.G.U.)
1) It is subject to such guidelines and limitations provided by Congress.
2) It must be consistent with the basic policy of local autonomy.
3) Such taxes, fees, and charges shall accrue exclusively to the local government.
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IMPOSITION OF TAXES
1) The National Government may impose local taxes on articles or subjects which are
within the territorial jurisdiction of the local government unit.
2) The Local Government unit cannot impose tax on the national government.
> You can only tax those articles, which are within your jurisdiction
SEC. 6, ART X
local government units shall have a just share, as determined by law, in the
national taxes which shall be automatically released to them.
> Under the present tax code, for a private educational institution to be
exempt from the payment of income tax, all it has to be is non-stock and nonprofit. However, a governmental educational institution is exempt from
income tax without any condition
> Proceeds of the sale of real property by the Roman Catholic church is
exempt from income tax because the transaction was an isolated one
34
> Income derived from the hospital pharmacy, dormitory and canteen was
exempt from income tax because the operation of those entities was merely
incidental to the primary purpose of the exempt corporation
> Income derived by YMCA from leasing out a portion of its premises to small
shop owners, like restaurant and canteen operators, and from parking fees
collected from non-members are taxable income
XXI.
XXII.
> The prohibition against ex post facto laws applies only to criminal laws
and not to those that concern civil matters
> The collection of interest on taxes is not penal in nature and the ex post
facto law prohibition does not apply to it.
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DOUBLE TAXATION
> Taxing same property twice when it should be taxed but once. Taxing the
same person twice by the same jurisdiction over the same thing.
REQUISITES:
A) The same property is taxed twice when it should only be taxed once;
B) Both taxes are imposed on the same property or subject matter for the same
purpose;
C) Imposed by the same taxing authority;
D) Within the same jurisdiction;
E) During the same period; and
F) Covering the same kind or character of tax
If taxes are not of the same kind, or the imposition are imposed for different
taxing authority and this may involve the same subject matter
EXAMPLES:
A) The taxpayers warehousing business although carried on in relation to the
operation of its sugar central is a distinct and separate taxable business
B) A license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax
C) Both a license fee and a tax may be imposed on the same business or occupation
for selling the same article and this is not in violation of the rules against double
taxation
D) When every bottle or container of intoxicating beverages is subject to local tax
and at the same time the business of selling such product is also subject to liquors
license
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E) A tax imposed on both on the occupation of fishing and of the fishpond itself
F) A local ordinance imposes a tax on the storage of copra where it appears that the
finished products manufactured out of the copra are subject to VAT
> The argument against double taxation may not be invoked where one tax is
imposed by the state and the other imposed by the city, it being widely
recognized that there is nothing inherently obnoxious in the requirement that
license fees or taxes be exacted with respect to the same occupation, calling
or activity by both the state and a political subdivision thereof. And where the
statute or ordinance in question applies equally to all persons, firms and
corporations placed in a similar situation, there is no infringement of the rule
on equality.
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3) All doubts as to whether double taxation has been imposed should be resolved in
favor of the taxpayer
Shifting is the transfer of the burden of a tax by the original payer or the one
on whom the tax was assessed or imposed to someone else
> It should be borne in mind that what is transferred is not the payment of the
tax, but the burden of the tax
> Only indirect taxes may be shifted; direct taxes cannot be shifted
When the burden of the tax is transferred from a factor of production through
the factors of distribution until it finally settles on the ultimate purchaser or
consumer.
Example:
-
2) BACKWARD SHIFTING
-
When the burden of the tax is transferred from the consumer or purchaser
through the factors of distribution to the factors of production
Example:
-
3) ONWARD SHIFTING
-
When the tax is shifted two or more times either forward or backward
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Example:
-
Thus, a transfer from the seller to the purchaser involves one shift; from the
producer to the wholesaler, then to retailer, we have two shifts; and if the tax
is transferred again to the purchaser by the retailer, we have three shifts in
all.
Incidence of taxation is that point on which the tax burden finally rests or
settle down. It takes place when shifting has been effected from the statutory
taxpayer to another.
Statutory Taxpayer
The Statutory taxpayer is the person required by law to pay the tax or the one
on whom the tax is formally assessed. In short, he or she is the subject of the
tax.
In direct taxes, the statutory taxpayer is the one who shoulders the burden of
the tax while in indirect taxes, the statutory taxpayer is the one who pay the
tax to the government but the burden can be passed to another person or
entity.
The impact is the initial phenomenon, the shifting is the intermediate process,
and the incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on
the seller (manufacturer) who shifts the burden to the customer who finally
bears the incidence of the tax.
Impact is the imposition of the tax; shifting is the transfer of the tax; while
incidence is the setting or coming to rest of the tax.
II.
CAPITALIZATION
-
Reduction is the price of the taxed object equal to the capitalized value of
future taxes on the property sold
> This is a special form of backward shifting, where the burden of future taxes
which the buyer may have to pay is shifted back to the seller in the form of
reduction in the selling price
III.
TRANSFORMATION
-
IV.
TAX AVOIDANCE
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> The Supreme Court upheld the estate planning scheme resorted to by the
Pacheco family in converting their property to shares of stock in a corporation
which they themselves owned and controlled. By virtue of the deed of
exchange, the Pacheco co-owners saved on inheritance taxes. The Supreme
Court said the records do not point anything wrong and objectionable about
this estate planning scheme resorted to. The legal right of the taxpayer to
decrease the amount of what otherwise could be his taxes or altogether avoid
them by means which the law permits cannot be doubted.
Example:
Following the holding period rule in capital gains transaction, by postponing the
sale of the capital asset until after twelve months from date of acquisition you can
reduce the tax on the capital gains by 50%
V.
TAX EXEMPTION
Tax Exemption
Its avowed purpose is some public benefit or interests which the lawmaking
body considers sufficient to offset the monetary loss entailed in the grant of
the exemption.
The theory behind the grant of tax exemptions is that such act will benefit the
body of the people. It is not based on the idea of lessening the burden of the
individual owners of property.
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> In claiming tax exemption, the burden of proof lies upon the claimant
RULE:
-
TEST:
- OWNERSHIP
> Once established that it belongs to the government, the nature of the use of
the property whether proprietary or sovereign becomes immaterial.
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2) PARTIAL
-
3) There can be no simultaneous exemptions under two laws, when one grants partial
exemption while other grants total exemption.
Does provision in a statute granting exemption from all taxes include indirect
taxes?
NO. As a general rule, indirect taxes are not included in the grant of such
exemption unless it is expressly stated.
42
In fact, the Supreme Court even stated that Congress itself cannot grant tax
exemptions in the case at bar because it will violate the equal protection
clause of the Constitution.
General rule
In the construction of tax statutes, exemptions are not favored and are construed
strictissimi juris against the taxpayer. The fundamental theory is that all taxable
property should bear its share in the cost and expense of the government.
Taxation is the rule and exemption is the exemption.
He who claims exemption must be able to justify his claim or right thereto by a
grant express in terms too plain to be mistaken and too categorical to be
misinterpreted. If not expressly mentioned in the law, it must be at least within its
purview by clear legislative intent.
Exceptions
1) When the law itself expressly provides for a liberal construction thereof.
2) In cases of exemptions granted to religious, charitable and educational institutions
or to the government or its agencies or to public property because the general rule is
that they are exempt from tax.
Strict interpretation does not apply to the government and its agencies
Petitioner cannot invoke the rule on stritissimi juris with respect to the
interpretation of statutes granting tax exemptions to the NPC. The rule on
strict interpretation does not apply in the case of exemptions in favor of a
political subdivision or instrumentality of the government. [Maceda v.
Macaraig]
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> Tax refunds, condonations and amnesties, they being in the nature of tax
exemptions must be strictly construed against the taxpayer and liberally in
favor of the government.
Tax amnesty
Like tax exemption, tax amnesty is never favored nor presumed in law. It is
granted by statute. The terms of the amnesty must also be construed against
the taxpayer and liberally in favor of the government.
Like a tax exemption, a tax amnesty is never favored nor presumed in law,
and is granted by statute. The terms of the amnesty must be strictly
construed against the taxpayer and literally in favor of the government. Unlike
a tax exemption, however, a tax amnesty has limited applicability as to cover
a particular taxing period or transaction only.
44
pay. Tax exemptions are not favored and are construed strictissimi juris
against the taxpayer.
> Law granting partial refund partakes the nature of a tax exemption and
therefore must be strictly construed against the taxpayer
> Gross receipts subject to tax under the tax code do not include monies or
receipts entrusted to the taxpayer which do not belong to it and does not
redound to the taxpayers benefit, and it is not necessary that there must be a
law or regulation which would exempt such monies and receipts within the
meaning of gross receipts.
CONSTITUTIONAL RESTRICTION:
No law granting any tax exemption shall be passed without the concurrence of a
majority of all members of Congress. (Sec. 28 (4) ART VI)
PROV. OF NUEVA ECIJA vs. IMPERIAL MINING
> Basis or test for real property taxation is use and not ownership. Thus, it
does not matter who the owner of the property is even if it is not tax exempt
entity, as long as it is being used for religious, charitable or educational
purposes, then it is tax exempt.
It is punishable by law
Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat
or lessen the payment of tax.
> Tax evasion is a term that connotes fraud through the use of pretenses or
forbidden devices to lessen or defeat taxes
1) The end to be achieved, i.e. payment of less than that known by the taxpayer to
be legally due, or paying no tax when it is shown that tax is due
2) An accompanying state of mind which is described as being evil, in bad faith,
willful, or deliberate and not accidental
45
> Since fraud is a state of mind, it need not be proved by direct evidence but
may be proved from the circumstances of the case.
> Failure of the taxpayer to declare for taxation purposes his true and actual
income derived from his business for two (2) consecutive years is an
indication of his fraudulent intent to cheat the government of its due taxes.
EXCEPTION:
-
It may be applied retroactively when the law expressly provides for such
retroactive application
It may not be given retroactive application even if the tax law expressly so
provides if it imposes unjust and oppressive taxes.
IMPRESCRIPTIBILITY OF TAXES
GENERAL RULE:
-
46
EXCEPTION:
-
They are prescriptible if the tax laws provide for statute of limitations
PRESCRIPTIVE PERIODS:
1) Prescriptive periods for the assessment and collection of taxes
47
General rule: Tax laws are prospective in operation because the nature and
amount to the tax could not be foreseen and understood by the taxpayer at
the time the transactions which the law seeks to tax was completed
Mandatory provisions are those intended for the security of the citizens or
which are designed to ensure equality of taxation or certainty as to the nature
and amount of each persons tax.
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CLASSIFFICATION OF ASSESSMENTS
3. Deficiency assessment one made by the tax assessor himself whereby the
correct amount of the tax is determined by the examination or investigation is
conducted. The liability is determined and is thereafter assessed for the
following reasons:
a. the amount ascertained exceeds that which is shown as the tax by the
taxpayer in his return
b. no amount of tax is shown in the return
c. the taxpayer did not file any return at all
4. Erroneous assessment one wherein the assessor has the power to assess
but errs in the exercise of the power.
PRINCIPLES GOVERNING TAX ASSESSMENTS
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1. assessments are prima facie presumed correct and made in good faith
2. assessment should be based on actual facts
3. assessment is discretionary on the part of the Commissioner to assess taxes
may be delegated
4. assessments must be directed to the right party.
MEANS EMPLOYED IN THE ASSESSMENT OF TAXES
1. Examination of tax returns
2. Use of the best evidence obtainable
3. Inventory taking, surveillance and use of presumptive gross sales and receipts
4. Termination of taxable period
5. Prescription of real property values
GENERAL RULE:
Income tax returns are confidential
EXCEPTIONS:
1. when the inspection of the return is authorized upon written order of the
President of the Philippines
2. when inspection is authorized under Finance Regulations no. 33 of the
Secretary of Finance
3. when the production of the tax return is material evidence in a criminal case
wherein the Government is interested in the result
4. when the production or inspection thereof is authorized by the taxpayer
himself
CASES WHEN COMMISSIONER MAY ASSESS TAXES ON THE BASIS OF THE
BEST EVIDENCE OBTAINABLE:
1. in case a person fails to file a return or other document at the time prescribed
by law
2. he willfully or otherwise files a false or fraudulent return or other document
GROUNDS FOR TERMINATION OF TAXABLE PERIOD:
1. the taxpayer is retiring from business subject to tax
2. he intends to leave the Philippines or remove his property therefrom
3. he hides or conceals his property
4. he performs any act tending to obstruct the proceedings for the collection of
the tax for the past or current quarter or year or renders the same totally or
partly ineffective unless such proceedings are began immediately.
INSTANCES WHEN THE COMMISSIONER MAY INQUIRE INTO BANK DEPOSITS:
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4. failure to pay the full amount of tax shown on any return required to be filed
under the provisions of the Tax Code or regulations or the full amount of tax
due for which no return is required to be filed, on or before the date
prescribed for its payment
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1. Revenue Regulations;
2. Revenue and Memorandum Orders; and
3. Revenue Memorandum Circulars and Revenue Memorandum Orders.
Except when the law otherwise expressly provides, the aforesaid revenue tax
issuances shall not begin to be operative until after due notice thereof may be
fairly assumed.
Due notice of said issuances may be fairly presumed only after the following
procedures have been taken:
1. Copies of tax issuance have been sent through registered mail to the following
business and professional organizations:
a. Philippine Institute of Certified Public Accountants;;
b. Integrated Bar of the Philippines;
c. Philippine Chamber of Commerce and Industry;
d. American Chamber of Commerce;
e. Federation of Filipino-Chinese Chamber of Commerce; and
52
f.
2. The Bureau of Internal Revenue shall issue a press release covering the
highlights and features of the new tax issuance in any newspaper of general
circulation.
3. Effectivity date for enforcement of the new issuance shall take place thirty
(30) days from the date the issuance has been sent to the above-enumerated
organizations.
BIR rulings
The Commissioner may revoke, repeal or abrogate the acts or previous rulings
of his predecessors in office because the construction of the statute by those
administering it is not binding on their successors if, thereafter, such
successors are satisfied that a different construction of the law should be
given.
Rulings in the forms of opinion are also given by the Secretary of Justice who
is the chief legal officer of the Government.
53
3. Assessment and collection of internal revenue taxes, fees and other taxes.
4. Police power, to administer or to give effect to the police power conferred upon it
by law.