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PART ONE: BASIC CONCEPTS OF TAXATION 1. Definition; 5 Elements Taxation may refer to either the power to tax or the act or process by which the taxing power is exercised. It is the inherent power of the sovereign exercised through the legislative to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of the government. Taxes are enforced proportional contributions from properties and persons levied by the State by virtue its sovereignty for the support of the government and for public needs. Elements of Taxation (S-L-I-P-R)
• Every person who is able to pay must contribute his share in the running of the government. The Government, for his part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary method of exaction by those in the seat of power. (Algue v. CIR, GR L-28896, 17 February 1988)
Nature of the Power of Taxation Attribute of sovereignty and emanates from necessity, relinquishment of which is never presumed Legislative in character
a. b. c. d. e.
It is an Inherent power of the State. It is essentially Legislative in character It should be for a Public purpose
Either the person or property taxed be within the jurisdiction of the taxing authority. (Situs of taxation) The purpose is to Raise revenues or the promotion of general welfare, regulation, reduction of social inequality and to encourage economic growth. (public purpose) 2. State Policy on Taxation a. RA 8424 (Tax Reform Act of 1997) Section 2. State Policy. - It is hereby declared the policy of the State to promote sustainable economic growth through the rationalization of the Philippine internal revenue tax system, including tax administration; to provide, as much as possible, an equitable relief to a greater number of taxpayers in order to improve levels of disposable income and increase economic activity; and to create a robust environment for business to enable firms to compete better in the regional as well as the global market, at the same time that the State ensures that Government is able to provide for the needs of those under its jurisdiction and care. The state policy looks into 3 entities: 1) The Government 2) The person or individual 3) Businesses – taxes are important considerations in entering a business.
Scope of Legislative Taxing Power (P-A-P-M-A-S-K) a. The persons, property and excises to be taxed, provided it is within its jurisdiction b. Amount or rate of tax c. Purposes for its levy, provided it be for a public purpose d. Kind of tax to be collected e. Apportionment of the tax f. Situs of taxation g. Method of collection Is the power to tax the power to destroy?
"The power to tax is the power to destroy." A state cannot have authority under the Constitution to destroy or tax any agency that has been properly set up by the government – Chief Justice Marshall (McCulloch v. Maryland 17 US 318)
“…(The Court), so often has defeated the attempt to tax in certain ways, can defeat an attempt to discriminate or otherwise go too far without wholly abolishing the power to tax. The power to tax is not the power to destroy while this Court sits. The power to fix rates is the power to destroy if unlimited, but this Court while it endeavors to prevent confiscation does not prevent the fixing of rates. A tax is not an unconstitutional regulation in every case where an absolute prohibition of sales would be one.” - Justice Holmes (Panhandle Oil v. Mississippi 277 US 218)
To say that “the power to tax is the power to destroy” is to describe not the purpose for which the taxing power may be used but the degree of vigor with which the taxing power may be employed in order to raise revenue. (1 Cooley 179-181)
Theories and Basis of Taxation a. Necessity Theory • Existence of a government is a necessity and cannot continue without any means to pay for expenses • For those means, the government has the right to compel all citizens and property within its limits to contribute. Benefits-Protection Theory (Symbiotic) • Reciprocal duties of protection and support between State and inhabitants. Inhabitants pay taxes and in return receive benefits and protection from the State
The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations thereon may be imposed by the people through their Constitutions. Our Constitution provides that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation. So potent indeed is the power that it was once opined that “the power to tax involves the power to destroy.” Verily, taxation is a destructive power which interferes with the personal and property rights of the people and
the purpose is to grant tax incentives or exemptions in order to promote the country’s economic growth. (PBCom v. the government would be paralyzed for lack of motive power to activate and operate it. etc. and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. (MCIAA v. Regulation d. Without taxes. Defined Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable. and if the amount assessed is not paid when due. or amusement places. 15 August 1988) SECONDARY 1) Regulation .takes from them a portion of their property for the support of the government. MS NOTES |2 . in imposing a tax. the courts have no concern with the wisdom or policy of the exaction. the statutes. If it appears that the corporate assets have passed into their hands. Characteristics or Attributes of Taxes 2) 3) Illustrations of the Lifeblood Theory Basic is the principle that "taxes are the lifeblood of the nation. and not the name. and their prompt and certain availability an imperious need. Reduction of Social Inequality e. whereas fees are exactions for purposes of regulation and inspection. then the latter is subsidiary liable for the payment of such portion of the estate tax as his distributive share bears to the total value of the ent estate. Importance of Taxes Lifeblood Doctrine • Taxes are the lifeblood of the nation • Without revenue raised from taxation. • 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 • Taxes are the lifeblood of government. GR L-41383. the political or other collateral motives behind it. It is the object of the charge. A corporation’s tax delinquency cannot be enforced against its stockholder. Encourage Economic Growth – in the realm of tax exemptions and tax reliefs. the properties of the deceased are distributed to the heirs." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. does not violate applicable constitutional limitation restrictions. Purpose and Objective of Taxation PRIMARY • • Revenue – the purpose of taxation is to provide funds or property with which the state promotes the general welfare and protection of its citizens Taxes are for revenue. US. In recognition of the fact that erroneous determinations and assessments will inevitably occur. Protectionism Taxes are Personal to the Taxpayer TAX1 1. 295 US 247) Manifestations of the Lifeblood Doctrine a. Due process of law under the Constitution does not require judicial proceedings in tax cases. Purpose and Objective of Taxation b. Judicial Review. resulting in detriment to society. 28 January 1999) 4) 5) 7. the government will not survive. property or other privileges to be taxed. Revenue c. invariably afford the taxpayer an opportunity at some stage to have mistakes rectified (Bull v. therefore. The court’s power in taxation is limited only to the application and interpretation of law. the sovereign has resorted to more drastic means of collection. 6. • Taxes are the lifeblood of the government and there prompt and certain availability is an imperious need. Protectionism – in some sectors of the economy. Estate taxes are obligations that must be paid by the executor or administrator out of the net assets and cannot be assessed against the heirs. Marcos GR 120082. the amount to be raised. Sotelo. Time out of mind. or b. Promotion of General Welfare Reduction of Social Inequality – made possible through the progressive system of taxation where the objective is to prevent undue concentration of wealth in the hands of a few individuals. taxes sometimes provide protection to local industries like protective tariffs and customs duties. (Corporate Entity Doctrine). EXCEPT: If prior to the payment of the estate tax due.it has a regulatory purpose as in the case of taxes levied on excises or privileges like those imposed on tobacco and alcoholic products. Encourage Economic Growth f. 2. 11 September 1996) Power of Judicial Review in Taxation As long as the legislature. and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government. that determines whether a charge is a tax or a fee. EDU. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. as in the case of foreign importations. The assessment is given the force of a judgment. administrative officials may seize the debtor's property to satisfy the debt. When the stockholders have unpaid subscriptions to the capital of the corporation. 5. or the persons. in a spirit of fairness. (PAL v. EXCEPT: a. CIR GR 112024.
not necessity. then the exaction is a tax. it is the owner of the property taken who is just paid compensation. b. license or fee – regulatory imposition in the exercise of the police power of the State. and public safety. Distinctions a. As to the relationship to the Constitution: 1) 2) 3) 4) toll – amount charged for the cost and maintenance of property used. Eminent Domain – may be exercised by public services corporation or public utilities if granted by law. special assessment – levied only on land based wholly on the benefit accruing thereon as a result of improvements of public works undertaken by government within the vicinity. or the exercise of a right or privilege e. If the purpose is regulatory in nature. including the prohibition against impairment of the obligation of contracts. MS NOTES |3 . Tax If the purpose is primarily revenue. Toll A special assessment tax is an enforced proportional contribution from owners of lands especially benefited by public improvements A special assessment is levied only on land. It is proportionate in character – the tax burden should be allocated on some reasonable basis of apportionment. It is levied by the State which has jurisdiction over the subject or object of taxation f. 5. It is levied by the law-making body of the State g. d. EMINENT DOMAIN As to purpose: Taxation – for the support of the government Eminent Domain_. – in its general sense. As to compensation: Taxation – Protection and benefits received from the government. of a public nature. Taxation From Other Inherent Powers of the State TAXATION vs. 2. Taxes. Police Power – The maintenance of a healthy economic standard of society. at least. A special assessment is exceptional both as to time and place. A special assessment is based wholly on benefits. 4) 5) 1. are enforced proportional contributions from persons and property levied by the State by Sotelo. It is the consideration which is paid for the use of a road. or the like. 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. public health. or if revenue is. It is generally payable in money – some exceptions: (1) when law provides that backpay certificates or government bonds are acceptable for payment of taxes. (2) when property being sold at public auction because of delinquent taxes is declared forfeited and applied to the payment of the tax.a. bridge. tribute or duty. 6) Toll is a sum of money for the use of something. on the other hand. debt – a tax is not a debt but is an obligation imposed by law. As to authority which exercises the power: Taxation and Police Power – Exercised only by the government or its political subdivisions. b. a tax has general application. it is a license. Special assessment v. Subsidy – a legislative grant of money in aid of a private enterprise deemed to promote public welfare. tax 1. It is an enforced contribution – payment is mandatory not discretionary. it is limited to the land. property. It is levied on persons. Taxation and Eminent Domain – Subject to certain constitutional limitations. public morals. 4. whichever is lower. penalty – punishment for the commission of a crime. POLICE POWER vs. 3. 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. Eminent Domain – just compensation. primarily on the basis of ability to pay and secondarily on benefits received. margin fee – exaction designed to stabilize the currency custom duties and fees – duties charged upon commodities on their being imported into or exported from a country. it means a duty on imported goods and merchandise. it signifies any tax. Taxation impositions From Other TAX1 Monetary c. 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. Police Power – Relatively free from constitutional limitations and superior to the non-impairment provisions thereof.for public use Police Power – to promote general welfare. In its limited sense. A special assessment is not a personal liability of the person assessed. Tax vs. rather. – a broad term that includes taxes and income from other sources as well. It is levied for publics purpose or purposes 8. compromise penalty – amount collected in lieu of criminal prosecution in cases of tax violations. 5) 6) 7) 8) 9) 1) 2) 10) Revenue 11) Impost 3) License Fee v. one of the real and substantial purposes.
tax is paid for the support of government. contract or judgment as is allowed to be set-off. demand. A debt is assignable. Toll is paid for the used of another’s property. (FRANCIA VS. taxes only by the government. 3. while a tax does not draw interest except only when delinquent. Penalty is any sanction imposed as a punishment for violation of law or for acts deemed injurious. 9. 4. they be of the same kind and also of the same quality if the latter has been stated. That they be liquidated and demandable. including options and remedies available to them. 2. Obligation to Pay Tax 1. 4. (GASCON v. 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 all public needs. TAX1 • The amount of the fee or charge is properly considered in determining whether it is a tax or an exercise of the police power. Penalty is designed to regulate conduct. Penalty 1. 3. 3. but in regard to this matter there is a marked distinction between license fees imposed upon useful and beneficial occupations which the sovereign wishes to regulate but not restrict. express or implied. A debt may be the subject of set off or compensation. MUNICIPAL BOARD. ARROYO. 5. (PHILEX MINING v. That over neither of them there be any retention or controversy. 3. except poll tax. GR 125704 August 28 1998) Claim for payment of unpaid services of a government employee vis-à-vis the estate taxes due from his estate. Penalty may be imposed by the government or by private individuals or entities. Assessment and Collection through the administrative agencies. while taxes are due to the Government in its sovereign capacity.virtue of its sovereignty for the support of the government and all public needs. cost of public on the is not 5. Garlitos 8 SCRA 443) 2. MS NOTES |4 . morals or safety. A debt draws interest when it is so stipulated or where there is default. Levy (or imposition) of the tax by a legislative act (passage of tax laws and ordinances) b. 4. INTERMEDIATE APPELLATE COURT. A debt is governed by the ordinary periods of prescription. 7. In the latter case the fee may be very large without necessarily being a tax. 5. commenced by third persons and communicated in due time to the debtors. Aspects of Taxation (L-A-P) a. The amount may be so large as to itself show that the purpose was to raise revenue and not to regulate. Taxation Classification and Limitations of Requisites of compensation 1. That the two (2) debts be due. Aspects. or confiscatory. 6. There is a material distinction between a tax and debt. Toll may be imposed by the government or by private individuals or entities. “Assessment” is the fixing the amount of tax due and demanding payment. (Domingo v. Compensation therefore takes place by operation of law. while a tax is governed by the special prescriptive periods provided for in the NIRC. That both debts consist in a sum of money. a tax cannot. B. while there is no limit amount collected as tax as long as it excessive. 101 PHIL 114) The Government and the taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim of taxes is not such a debt. The amount paid as toll depends upon the construction or maintenance of the improvements used. 2. ILLUSTRATIONS: A. • 2. Classification of Taxation Sotelo. 28 June 1988) Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. taxes are generally intended to generate revenue. tax may be imposed only by the government. or if the things due are consumable. GR 125704 August 28 1998) 10. (PHYSICAL THERAPY ORGANIZATION v. A debt is generally based on contract. c. while a tax is generally paid in money. tax is a demand of sovereignty. on the theory that the expenditure of public funds by an officer of the government for the purpose of administering or implementing an unconstitutional or invalid law. Toll is a demand of proprietorship. and those which are inimical and dangerous to public health. Payment – compliance by the taxpayers. Taxpayer’s Suit There have been several cases wherein the Court recognized the right of a taxpayer to file an action questioning the validity or constitutionality of a statute or law. A debt may be paid in kind. • Tax vs. • Obligation to Pay Debt vs. while a tax cannot generally be assigned. not the “assessment” which refers to the valuation of real properties to fix the bases of real property taxes under the RPTC. A person cannot be imprisoned for non-payment of tax. GR L-67649. Debts are due to the Government in its corporate capacity. while a tax is based on laws. constitutes a misapplication of such funds. unreasonable. That each one of the obligor be bound principally. and that he be at the same time a principal creditor of the other. CIR. 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.
Apportionment of tax f. Such taxes. MS NOTES |5 . the law must be complete in itself and must set forth sufficient standards. What is shifted is merely the burden of paying but not the consequences when it is not paid. poll or capitation tax . Certain aspects of the taxing process that are not really legislative in nature are vested in administrative agencies. 2. Digressive tax rate: progressive rate stops at a certain point. Method of collection. there really is no delegation. power to perform details of computation. 1987 Constitution. Object to be taxed b. the enjoyment of privilege. A special or regulatory tax is imposed primarily for the regulation of useful or non-useful occupation or enterprises and secondarily only for the purpose of raising public funds. Kind of tax to be collected e. It is a tax which the taxpayer is directly or primarily liable and which he or she cannot shift to another. VI. tariff rates. fees. import and export quotas. Art. Regressive tax . Progression halts at a particular stage. to the PRESIDENT – “The Congress may. AS TO PURPOSE General/fiscal revenue tax is that imposed for the purpose of raising public funds for the service of the government. and subject to such limitations and restrictions as it may impose.the rate of which increases as the tax base or bracket increases. For the delegation to be constitutionally valid. National tax . general welfare and/or national security. This is the right to levy taxes (scope of the legislative power) which includes: a. Proportional tax . Example: real estate tax.A local tax is imposed by the municipal corporations or local government units (LGUs). 3. to wit: a. Situs of taxation g. in contingency or suspending the law when certain circumstances are present. consistent with the basic policy of local autonomy. It refers to the interpretation or filling up the law.based on a fixed percentage of the amount of the property receipts or other basis to be taxed. 401 Tariff and Customs Code) • 1) AS TO THE SCOPE OF THE TAX 1. falling finally upon the ultimate purchaser or consumer. in proportion to its value or in accordance with some other reasonable method of apportionment. power to value property b. Amount of rate to be taxed c. Personal. 1987 Constitution) In the interest of national economy. Progressive or graduated tax . Also.imposed by the national government. tonnage and wharfage dues. provided that the increase should not be higher than 100% ad valorem 2) To establish import quota or to ban imports of any commodity To impose additional duty on all imports not exceeding 10% ad valorem (Flexible Tariff Clause. AS TO GRADUATION OR RATE to the LGC’s – “Each local government unit shall have the power to create its own sources of revenues and to levy taxes. There is no such tax in the Philippines.5. SEC. whether citizens or not. i. fees and charges subject to such guidelines and limitations as the Congress may provide. AS TO WHO BEARS THE BURDEN 1. It requires the intervention of assessors or appraisers to estimate the value of such property before due from each taxpayer can be determined. authorize the President to fix within specified limits. to the ADMIN AGENCIES – refers merely to the implementation and execution of the tax law. EXCEPT: 1. or the engaging in an occupation. Sotelo. real or personal. Inherent Limitations Legislative in Nature. X. 2. 3.Tax imposed on property. 2. Specific tax is a tax of a fixed amount imposed by the head or number or by some other standard of weight or measurement. Purposes for which the tax is levied provided that it is for a public purpose d. without regard to their property or the occupation or business in which they may be engaged. by law.” (Sec. appraisement or adjustments. Transferring some or all of a tax burden of an entity (such as an employee) to another (such as the employer). taxing power may not be delegated. community tax.) 1. Art. power to assess and collect taxes c. Limitations of Taxation 1. reduce or remove existing protective rates of import duty.the rate of which decreases as the tax base or bracket increases. Direct tax . Non-Delegability of Taxing Power As a general rule. 2. AS TO THE DETERMINATION OF AMOUNT 1.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. Excise tax . A tax which the taxpayer can shift to another. Local tax .e. Property tax . and other duties or imposts within the framework of the national development program of the Government. and charges shall accrue exclusively to the local governments.A charge impose upon the performance of an act.A direct tax is demanded from the person who also shoulders the burden of the tax. 2. 28. It requires no assessment other than the listing or classification of the objects to be taxed.” (Sec. In these cases. Indirect tax .AS TO SUBJECT MATTER OR OBJECT TAX1 C.Tax of a fixed amount imposed on persons residing within a specified territory. An ad valorem tax is a fixed proportion of the value of the property with respect to which the tax is assessed. the President upon the recommendation of the National Economic and Development Authority is empowered: To increase.
Factors that Determine Situs a. NIRC of 1997) Residence or citizenship of the taxpayer or location of the property Location of the property and the citizenship of the donor (Sec 98. property of the state and of its municipal subdivisions devoted to government uses and purposes is deemed to be exempt from taxation although no express provisions in the law are made therefore. ** the following intangible properties are considered as properties with a situs in the Philippines: a. EXCEPT: A) Where the tax laws operate outside territorial jurisdiction 1) TAXATION of resident citizens on their incomes derived from abroad 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 TAX1 d. (Waples v. 3.2. e. Sec of Public Works 110 Phil 331) Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government. There is no power to tax an object which not within the purposes of which the governments are established. Source of the income taxed f. MS NOTES |6 . then it is sufficient answer to say that the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society. Method of collection. (3) source of income (Sec 42. c. obligations. It must be imposed for a public purpose. This is fiction of law intended for convenience and controlling where justice does not demand it. Residence of the taxpayer e. g. According to this maxim. no appropriation of state funds can be made for other than a public purpose. (Caltex Philippines v. 108 Texas 5) Promotion of General Welfare Test – whether the proceeds of the tax will directly promote the welfare of the community in equal measure. Shares. 23. or bonds issued by any foreign corporation if such shares. obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws. Sotelo. Citizenship of the tax payer d. the situs property is the domicile of the owner. obligations or bonds issued by any foreign corporation 85% of business which is located in the Philippines 4. under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose. Business Tax Excise or Privilege Tax Sales Tax Income Tax ILLUSTRATIONS: • Transfer Tax Donor’s Tax • Estate Tax Franchise Tax The right of the legislature to appropriate funds is correlative with its right to tax. to provide. NIRC) state which granted the franchise follow the of personal a merely a not to be being taxed. Shares. 8 May 1992) The eradication of a dreaded disease is a public purpose. Situs of the thing or property taxed c. Duty Test – whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State.(Sec 85. property or businesses within the jurisdiction or territory of the taxing power.(Gomez v. established and safeguarded by the devotion of taxes to public purposes. purpose and object for which the funds is raised. NIRC 1997) Location and citizenship of the decedent. as a government. Government entities are exempted As a matter of public policy. Kind or classification of the tax being levied b. taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. (2) residence. The right to tax depends upon the ultimate use. Situs of the excise. Palomar. obligations or bonds have acquired a business situs in the Philippines. privilege. and Shares or rights in any partnership business or industry established in the Philippines. Franchise which must be exercised in the Philippines b. Marrast. COA GR 92585. business or occupation KIND OF TAX Personal or Community Tax Real Property Tax Personal Property Tax SITUS Residence or domicile of the taxpayer Location of the property TANGIBLE: where it is physically located or permanently kept (Lex Rei Sitae) INTANGIBLE: Subject to Sec 104 of the NIRC * and the principle of Mobilia Sequuntur Personam ** Place of Business Where the act is performed or where occupation is pursued Where the sale is consummated Consider: (1) citizenship. but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays.(Pascual v. Shares. 25 SCRA 827) • * Mobilia Sequuntur Personam – “movables person”. Territorial/Situs The power to tax is limited only to persons.
b. it would not serve. it would tend to defeat it. NIRC) thereby submit itself to jurisdiction of the other. PHIC. industry or activity. A tax is reasonable when the purpose is public purpose and the means to achieve such purpose is reasonable. the main purpose of taxation. Agencies performing proprietary functions >> TAXABLE. at the rate imposed upon corporations or associations engaged in a similar business.. c. Almazor GRS 49839-46. As the Reyeses are burdened by the Rent Freeze Laws (RA 6359 and PD 20). Sec. city. (Board of Assessment Appeals of Laguna v. expenses it would entail. or property without due process of law. and was only exempted from the payment of real property taxes. INSTANCES WHEN THE TAX LAW MAYBE DECLARED AS UNCONSTITUTIONAL FOR VIOLATING DUE PROCESS [C-O-N-U] 1) 2) 3) 4) If it amounts to confiscation of property without due process If the subject of taxation is outside of the jurisdiction of the taxing state The law maybe declared as unconstitutional if it is imposed not for a public purpose If a tax law which is applied retroactively. such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. the noun "property" and the verb "owned" used in said section 3(a) strongly suggest that the object of exemption is considered more from the view point of dominion. as well as on its property held and activities undertaken in that capacity. Section 1) “No person shall be deprived of life. time and consequently. Requisites of a valid classification(S-A-G-E): 5. there is an implied understanding that the former does not a. This requires notice and opportunity to be heard before judgment is rendered. 470 makes no distinction between property held in a sovereign. It should not be oppressive. PCSO. even if it be conceded to be an “agency” or “instrumentality” of the Government. April 1991) 2. or property without due process of law. PAGCOR (Sec 27[C]. And where the law does not distinguish neither may we. than from that of domain. . would merely have the effect of taking money from one pocket to put it in another pocket (Cooley on Taxation. CTA 8 Phil 227) MCIAA is a “taxable person” under its Charter. they should not be penalized by the same government by the imposition of excessive taxes they can ill afford and would eventually result in the forfeiture of their properties. ILLUSTRATION: a. imposes unjust and oppressive taxes. unless there are facts and circumstances clearly showing that the lawmaker intended the contrary. Indeed. governmental or political capacity and those possessed in a private. 4th Edition. and a tax on property of the Government. whether national or local. liberty. any province. EXCEPT: GSIS. on account of the paper work. Even where one enters the territory of another. Equality and uniformity in taxation requires that taxable articles or kinds of property of the same class shall be taxed at the same rate. Due Process of Law DUE PROCESS CLAUSE (Art III Sec 1. What is more. Marcos 261 SCRA 667) Substantive due process requires that laws in substance and content must be reasonable. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes. ILLUSTRATION: Although taxes are the lifeblood of the government and should be collected without unnecessary hindrance.) Hence. unless when the law expressly provides for tax. taxes are financial burdens imposed for the purpose of raising revenues with which to defray the cost of the operation of the Government.” All persons similarly situated must be similarly treated both as to rights conferred and responsibility imposed. unless exempted by law. GOCCs >> TAXABLE. (MCIAA v. without an increase in total revenues. it had already become. but no such facts and circumstances have been brought to our attention. proprietary or patrimonial character. 1987 Constitution) “No person shall be deprived of life. Finally. SSS. (Reyes v. except real property tax. Constitutional Limitations the authority and TAX1 1. in the final analysis. MS NOTES |7 . International comity These principles limit the authority of the authority of the government to effectively impose taxes on a sovereign state and its instrumentalities. b. 621. Equal Protection of the Law EQUAL PROTECTION CLAUSE (Article III. nor shall any person be denied the equal protection of the laws. The means is reasonable when taxes are assessed on subjects affected by the purpose. a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes applies to the MCIAA. • • In exempting from taxation "property owned by the Republic of the Philippines.1) 2) 3) Agencies performing governmental functions >> TAX EXEMPT.” Two Aspects of Due Process: REASON FOR THE EXEMPTION: Taxing itself would require administration unnecessarily increasing its expenditures with administrative expenses in the collection of payment of such taxes. Moreover. fair and just. Procedural due process requires that the manner of enforcing the law is likewise reasonable fair and just. Based upon a Substantial distinction Germane to the purposes of law Not limited to Existing conditions only Sotelo." said section 3(a) of Republic Act No. under the principle of social justice. . even if the petitioner was originally not a taxable person for purposes of real property tax. liberty. nor shall any person be denied the equal protection of the laws. municipality or municipal district .
” What constitutes impairment of an obligation arising from contract? Any change in the terms or conditions of the contract. The free exercise and enjoyment of religious profession and worship. MS NOTES |8 . It is imposed on the sale. According to Sec 11. any deviation from its terms which diminishes the rights of any party to the agreement. inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as “installation manager”. barter. It is in no way apportioned. (Shell Co. different. A tax on the income of one who engages in religious activities is different from a tax on property used or employed in connection with those activities. alteration or repeal by the Congress when the common good so requires. without the consent of the party affected. 1987 Constitution) “No law shall be passed abridging the freedom of speech. It is not a license tax.” There is curtailment of press freedom and freedom of thought and expression if a tax is levied in order to suppress this basic right of the people under the constitution. 30 October 1995) him for the privilege of delivering a sermon. no public utility franchise or right shall be granted except under the condition that it shall be granted except under the condition that it is subject to amendment. de Ocampo GR 115931. Art XI of the constitution. (PPI v. It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. Sec 10. Manila GR L-9637. The power to impose a license tax on the exercise of these freedoms is indeed as potent as the power of censorship which this Court has repeatedly struck down. v. right or available remedies. or the right of the people peaceably to assemble and petition the government for redress of grievances. April 1957) 5. The reason for this is when tax laws are passed. It is quite another thing to exact a tax from • The rule does not apply to public utility franchises. The exemption was Sotelo. No religious test shall be required for the exercise of civil or political rights.d. It is not a tax on the exercise of a privilege. > cannot be revoked 2) If the exemption is granted by virtue of a contract. When substantial distinctions exist but no corresponding classification is made on the basis thereof • The fact that there is no other person in the locality who exercises such a “designation” or calling does not make the ordinance discriminatory and hostile. Freedom of the Press FREEDOM OF SPEECH AND OF THE PRESS (Art III. • The VAT is. Non-Impairment of Contracts NON IMPAIRMENT CLAUSE (Art III. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution. it imposes a new tax exemption or withdraws one. etc. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. by Congress. What essentially is being changed is the relationship between the government and the private individual and not between the two private individuals. TAX1 Some believe that the non-impairment clause will only be violated if and when the taxing authority was a party to the contract in person. or prohibiting the free exercise thereof. Sec 5. Section 4. lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. (American Bible Society v. alteration or repeal by the Congress when the public interest so requires. 1987 Constitution) “No law impairing the obligation of contracts shall be passed. shall forever be allowed. of expression. RULES ON THE NON-IMPAIRMENT: 1) If the exemption was granted for valuable consideration and it is granted on the basis of a contract. without discrimination or preference. however. 94 Phil 387) 3. RA 3247 itself provides that the franchise is subject to amendment. Any restraint of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent. much less a constitutional right. Non-Infringement of Religious Freedom and Worship (Art III. • Congress could impair the company’s legislative franchise by making it liable for income tax. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Apply equally to all members of the class TWO WAYS EQUAL PROTECTION CLAUSE CAN BE VIOLATED 1) When classification is made where there should be none ex. The enactment of RA 5431 had the effect of withdrawing the company’s exemption from income tax. which weakens his position. 1987 Constitution) “No law shall be made respecting an establishment of religion. 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 4. It is one thing to impose a tax on the income or property of a preacher.” The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. or of the press. The Constitution provides that a franchise is subject to amendment. Such is the inherent vice and evil of a flat license tax. When the classification does not rest upon substantial distinctions that make for real difference 2) When no classification is made where a classification is called for ex. Vano.
MS NOTES |9 . and printed copies thereof in its final form have been distributed to its Members three days before its passage. its corporate purposes. It cannot be taxed according to its former use. 16 June 1965) • WHAT MUST BE PROVEN?: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property from taxes as they should not only be “exclusively” but also “actually” and “directly” used for religious purposes. and improvements for religious (or charitable) purposes to be exempted from taxation. charitable. whether out-patient. and exclusively used for religious. 15 June 1988) • The exemption in favor of the convent in the payment of land tax refers to the home of the priest who presides over the church and who has to take care of himself in order to discharge his duties. non-profit cemeteries. and all lands. mosques. likewise comes within the exemption. a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients. CIR. where its use is limited to the necessity of the priest. Section 25): “A special appropriations bill shall specify the purpose for which it is intended.” (Art. (Roman Catholic Bishop of Nueva Segovia v. v. The test of exemption from taxation is the use of the property for purposes mentioned in the Constititution. Aquino L-3906. Exemption from taxation is not favored and is never presumed. which belongs to a convent. 25 September 1985) 6. but the veto shall not affect the item or items to which he does not object. 51 Phil 352) • To determine whether an enterprise is a charitable institution/entity or not. VI. charitable and educational purposes (Art. it must be strictly construed against the taxpayer. GR L-19201. actually. Commissioner GR L60126. DIRECTLY and EXCLUSIVELY used for religious. and improvements. Veto Power of the President (Art. the nature of the actual work performed. Sec 20): “No person shall be imprisoned for debt or non-payment of a poll tax. Section 27): “The President shall have the power to veto any particular item or items in an appropriation. i. and the vote thereon shall be taken immediately thereafter. Uniformity and Progressiveness (Art. Provincial Board of Ilocos Norte. Section 39 ): “All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. shall be transferred to the general funds of the Government. the methods of administration. Hernando GR L-29336. Section 24): “(1) Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof. Non-Imprisonment for Non-Payment of Poll Tax (Art. (Cagayan Electric Power & Light Co. The exemption is only from the payment of taxes assessed on such properties as property taxes as contradistinguished from excise taxes. Section 28): “Charitable institutions. If the purpose for which a special fund was created has been fulfilled or abandoned.” 8. churches and personages or convents appurtenant thereto. the character of the services rendered. Further.” 9. or educational purposes shall be exempt from taxation. VI.e. Exemption of Properties ACTUALLY. so that if granted. land used as a lodging house by the people who participate in religious festivities. Upon the last reading of a bill. if any. a cemetery. Revenue. buildings. its constitution and by-laws. revenue. There must be proof of the actual and direct use of the lands. VI.restored by the enactment of RA 6020.” 10. 31 August 1981) • TEST OF EXEMPTION: While the Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively ised for educational purposes. Tariff Bills (Art. and the use and occupation of the properties. 7. VI. the balance. A vegetable garden.” WHAT IS A POLL TAX? It is a nominal capitation tax imposed on inhabitants residing within a territory. VI. HISTORICAL ORIGIN: the predecessor of the poll tax is the cedula of the Spanish regime which was deemed a symbol of oppression of the Filipinos then. or to be raised by a corresponding revenue proposal therein. as residence of the director. Section 28): “The rule of taxation shall be uniform and equitable. or Sotelo.” TAX1 • WHAT TAXES ARE COVERED?: The phrase “exempt from taxation” should not be interpreted to mean exemption from all kinds of taxes. the lease of the first floor cannot by any stretch of imagination be considered incidental to the purposes of education. thus. The exemption includes not only the land actually occupied by the Church but also the adjacent ground destined to the ordinary incidental uses of man. (Abra Valley College v. (Abra v. is incidental to education. without regard to their property or occupation. comes under the exemption. The Congress shall evolve a progressive system of taxation. no amendment thereto shall be allowed. (Lladoc v.” reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Origin of Appropriation. III. and the yeas and nays entered in the Journal. VI. or tariff bill. the indefiniteness of the beneficiaries. the elements which should be considered include the statute creating the enterprise. except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency.” (Art. buildings. (2) No bill passed by either House shall become a law unless it has passed three readings on separate days. directly. A donee’s gift tax is not a property tax but an excise tax imposed on the transfer of property by way of gift inter vivos. which constitutes an incidental use in religious functions. While the second floor’s use. and shall be supported by funds actually available as certified by the National Treasurer.
QC. Definition: Taxing the same person. • 1. under certain limitations. and other duties or imposts within the framework of the national development program of the Government. v. TAX1 a. Lednicky (GR L-18169. be claimed as a credit against the Philippine tax on the same income. GR 144104. Kinds of Double Taxation X PHILIPPINE TAX ON = THE TOTAL INCOME (Total Taxable Income x 30%) LIMIT on FOREIGN TAX CREDIT EXAMPLE: Income Income Income Income from A: from B : From C: from Phil: 2000 3000 1000 4000 at at at at 20% 10% 30% 30% Sotelo. Direct Double or Duplicate Taxation – this is objectionable or prohibited because this constitutes a violation of substantive due process. Flexible Tariff Clause (Sec. tariff rates.” 12. International – refers to the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter for identical periods 3. VI. the President upon the recommendation of the National Economic and Development Authority is empowered: 1) To increase.” Double Taxation 13. ELEMENTS: • Taxing twice • The same subject or object • By the same public authority • Within the same jurisdiction • For the same purpose • In the same taxing period b. there is no Constitutional prohibition against double taxation. Section 4): “All revenues and assets of non-stock. so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve. (Lung Center of the Philippines v. general welfare and/or national security. directly. GR L-22814. their assets shall be disposed of in the manner provided by law. It is given to a taxpayer in order to provide a relief from too onerous a burden of taxation in case where the same income is subject to a foreign income tax and the Philippine Income tax. Indirect Duplicate Taxation – not legally objectionable. L-18286. object twice when it should only be taxed once. Grant of Tax Exemptions (Art. the tax to be paid to such foreign country may. (Commissioner vs. Domestic – this arises when the taxes are imposed by the local or national government (within the same state) d. 28 August 1968) Double taxation becomes obnoxious only when the taxpayer is taxed twice for the benefit of the same government entity. How is the credit for foreign taxed paid arrived at? Step 1: Get the maximum allowable foreign tax credit under the Philippine law TAXABLE INCOME (Foreign Source) TOTAL TAXABLE INCOME (Foreign + Phil Source) No. (Pepsi Cola Bottling Co. City of Butuan. and exclusively for educational purposes shall be exempt from taxes and duties. the tax on inputs or items that go into the manufacture of finished products (which are eventually sold) may be credited against or deducted from the output tax on the finished products. L-21434. Upon the dissolution or cessation of the corporate existence of such institutions. tonnage and wharfage dues. Tax TAX CREDIT EXAMPLES: • For VAT purposes. provided that the increase should not be higher than 100% ad valorem 2) To establish import quota or to ban imports of any commodity To impose additional duty on all imports not exceeding 10% ad valorem. Section 28): “No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress. c. NonProfit Educational Institutions (Art XIV. SEC. business. reduce or remove existing protective rates of import duty. The absence of one or more of the above-mentioned elements makes the double taxation indirect.An amount allowed as a deduction of the Philippine Income tax on account of income taxes paid or incurred to foreign countries. authorize the President to fix within specified limits. and subject to such limitations and restrictions as it may impose. IS DOUBLE TAXATION PROHIBITED IN THE PHILS? Foreign Tax Credit Method . and no money inures to the private benefit of the persons managing or operating the institution. 1) 2) 3) 4) 5) Means Employed to Avoid Double Taxation Tax deductions Tax credits Provide for exemption Enter into treatise with other states Allowance on the principle of reciprocity Exemptions Granted to Non-Stock.” (Flexible Tariff Clause. 1987 Constitution) “The Congress may. It is not favored but permissible. 401 Tariff and Customs Code) In the interest of national economy. by law. 31 July 1964) 2. property. 28. MS NOTES |10 . VI.confined in the hospital. import and export quotas. Art. non-profit educational institutions used actually. or receives subsidies from the government. • In the case of a resident citizen or domestic corporation whose income sources within a foreign country is also taxable under Philippine law. 29 June 2004) 11.
GR L-31092. deduct the total foreign tax actually paid (per formula) from Philippine tax. although not imposed upon or paid by the Organization directly. calling or activity by both the state and a political subdivision thereof. nevertheless. 1987) The Host Agreement.” Section 12. The same tax may be imposed by the National Government as well as the local government. expressly or impliedly from all taxes 2) PARTIAL When certain persons.Vanishing deductions in order to mitigate the burdensome effect of double taxation on the same property that is the subject of two or more transfers pertaining to two or more transfers pertaining to two or more decedents. 2) Implied exemption or exemption by omission When a tax is levied on certain classes of persons. - Foreign Tax Deduction Method . (i. it will be within the power of the legislature to ignore or practically nullify the directions of the fundamental law. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation. exempted from all certain taxes. deduct the foreign tax credit (per formula) from Philippine tax.(Villanueva v. According to Source 1) 2) According to Object Consitutional Statutory Sotelo. claim exemption from excise duties. either entirely or in part. Philippine Tax: Foreign Tax paid: P1600 Tax due after credit: TAX EXEMPTION P3000 P1400 1. a license tax may be levied upon a business or occupation although the land used in connection therewith is subject to property tax.foreign tax as an itemized deduction. MS NOTES |11 . EXAMPLE: Income Income Income Income from A: from B : From C: from Phil: 2000 3000 1000 4000 at at at at 20% 40% 30% 30% Step 1: Determine the actual foreign tax paid and what is supposedly due the Philippines. This is in consonance with the presumption that provisions of the Constitution are generally selfexecuting. by express provision. The reason for this is that a constitutional provision declaring certain properties are tax exempt does not need legislative enactment to put it into effect. and from taxes on the sale of movable and immovable property which form part of the price to be paid. Iloilo. when the Organization is making important purchases for official use of property on which such duties and taxes have been charged or are chargeable the Government of the Republic of the Philippines shall make appropriate administrative arrangements for the remission or return of the amount of duty or tax. 27 February 1987) TAX1 Step 2: To credit foreign tax against Philippine tax. in specifically exempting the WHO from “indirect taxes. expressly or impliedly from certain taxes. The Supreme Court held that there was no double taxation. 3) Contractual Agreed to by the taxing authority in contracts lawfully entered into them under enabling laws. or transactions without mentioning the other classes.(CIR v. otherwise.P1800 P1200 TAX DEDUCTIONS EXAMPLES: . KINDS According to Manner of Creation 1) Express or affirmative exemption When certain persons. 2. privilege. 28 December 1968) Constitutional grants of tax exemptions are selfexecuting. from financial charge of burden to which others are subjected.P6000 P10000 X P3000 = 1800 Further. in the case of minor purchases. (DOJ Opinion No. Philippine Tax: Foreign Tax: Tax due after credit: P3000 .e. Gotamco. as a general rule. Definition: is the immunity. elucidates the clear intention of the Agreement to exempt the WHO from “indirect” taxation. although referring only to purchases made by the WHO. It is where you deduct the summation of foreign tax actually paid and/or what is due the Philippine tax. whichever is lower. GR L-265621. 130. licensing ordinance) According to Scope or Extent 1) TOTAL When certain persons. An ordinance imposing a municipal tax on tenement houses was challenged because the owners already pay real estate taxes and also income taxes under the NIRC. property or transactions are. This is made clear in Section 12 of the Host Agreement which provides “While the Organization will not. Countries A B C PH tax due 600 900 300 Foreign Tax Paid 400 1200 300 TOTAL FOREIGN TAX ACTUALLY PAID: P1600 Step 2: To credit foreign tax against Philippine tax. property or transactions are exempted. either entirely or in part.: treaty. form part of the price paid or to be paid by it.” contemplates taxes which. properties. property or transactions are exempted.
Commissioner of Internal Revenue. a tax amnesty has limited applicability as to cover a particular taxing period or transaction only. 28 (4) ART VI) PROV. is the grant of immunity to particular persons or corporations of a particular class from a tax of which persons and corporations generally within the same state or taxing district are obliged to pay. MS NOTES |12 . [Juan Luna Subd. Conversely. 9 SCRA 728] CONSTITUTIONAL RESTRICTION: “No law granting any tax exemption shall be passed without the concurrence of a majority of all members of Congress. It is granted by statute. Other Forms of Tax Exemption a. Thus. to a taxable person. The terms of the amnesty must be strictly construed against the taxpayer and literally in favor of the government. Sarmiento. prejudicial thereto. 3. OF NUEVA ECIJA vs. There is a tax condonation or remission when the State desists or refrains from exacting. as long as it is being used for religious. Amnesty c. exemptions are not favored and are construed strictissimi juris against the taxpayer. [Republic v. IMPERIAL MINING • > Basis or test for real property taxation is use and not ownership. [Surigao Consolidated Mining v. • and. 196 SCRA 335] Like tax exemption. tax exemption • A tax amnesty. it should be sustained only when expressed in the law. It is granted particularly to tax evaders who wish to relent and are willing to reform. 91 Phil 370] The condition of a tax liability is equivalent to and is in the nature of a tax exemption. Like a tax exemption. Condonation b. The terms of the amnesty must also be construed against the taxpayer and liberally in favor of the government. in this sense. Such a set of taxes is a class by itself and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. in this sense. particularly to tax evaders who wish to relent and are willing to reform are given a chance to do so and therefore become a part of the society with a clean slate. Tax exemptions are not favored and are construed strictissimi juris against the taxpayer. however. Thus. Tax amnesty v. Taxation is the rule and exemption is the exemption Exemption is not presumed Constitutional grants of tax exemption are self executing Tax exemption are personal and cannot be delegated. a tax amnesty is never favored nor presumed in law. inflicting or enforcing something as well as to restore what has already been taken. charitable or educational purposes. then it is tax exempt. TAX1 • Tax remission or tax condonation • The word “remit” means to desist or refrain from exacting. on the other hand. The condonation of a tax liability is equivalent to and is in the nature of a tax exemption. tax amnesty is never favored nor presumed in law. SHIFTING 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 Process by which such tax burden is transferred from statutory taxpayer to another without violating the law • > It should be borne in mind that what is transferred is not the payment of the tax. Thus. tax condonation v. and is granted by statute. V. inflicting or enforcing something as well as to reduce what has already been taken. then the property is subject to tax. it should be sustained only when expressly provided in the law. being a general pardon or intentional overlooking by the Statute of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. direct taxes cannot be shifted WAYS OF SHIFTING THE TAX BURDEN Sotelo. Unlike a tax exemption.” (Sec. prejudicial thereto. 2. Personal – granted directly in favor of certain persons Impersonal – granted directly in favor of certain class of property Principle Governing Exemptions In the construction of tax statutes. Incentives • • • • • • • • 4. The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. being 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 to collect what otherwise would be due it and. BASIC FORMS OF ESCAPE FROM TAXATION 1) 2) 3) 4) 5) 6) SHIFTING CAPITALIZATION TRANSFORMATION AVOIDANCE EXEMPTION EVASION • Tax amnesty • • Tax amnesty. but the burden of the tax • > Only indirect taxes may be shifted.1. partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it I. for consideration or otherwise. it does not matter who the owner of the property is even if it is not tax exempt entity. Intermediate Appellate Court. thus giving them a chance to do so and thereby become a part of the new society with a clean slate. he who claims exemption should prove by convincing proof that he is exempted. Tax exemption. Exemption generally covers direct tax. unless otherwise provided. even if the property taxation is owned by the government if the beneficial use has been granted.
TAX AVOIDANCE Also known as “tax minimization” not punished by law Tax avoidance is the exploitation of the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability IV. not by shifting the tax burden to his customers. ELEMENTS OF TAX EVASION Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. shifting. Impact and Incidence of Taxation • 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. we have three shifts in all. the statutory taxpayer is the one who shoulders the burden of the tax while in indirect taxes. By virtue of the deed of exchange. • II. the statutory taxpayer is the one who pay the tax to the government but the burden can be passed to another person or entity. Tax evasion. This method should be used by the taxpayer in good faith and at arms length. and incidence of a tax DELPHERS TRADERS CORP vs. is a scheme used outside of those lawful means and when availed of. or finally to the manufacturer or producer 1) ONWARD SHIFTING When the tax is shifted two or more times either forward or backward Example: Thus. he or she is the subject of the tax. who also shifts it to the final purchaser or consumer 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: Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced. In so far as the law is concerned. and if the tax is transferred again to the purchaser by the retailer. 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. but by improving his method of production and cutting down or other production cost. He is the subject of the tax Incidence of taxation is that point on which the tax burden finally rests or settle down.e. VAT) is on the seller (manufacturer) who shifts the burden to the customer who finally bears the incidence of the tax. • 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 direct taxes. 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 TAX1 III. Example: Following the “holding period rule” in capital gains transaction. the payment of less than that known by the taxpayer to be legally due. Tax evasion connotes the integration of three factors: (1) the end to be achieved. Impact is the imposition of the tax. it usually subjects the taxpayer to further or additional civil or criminal liabilities. the Pacheco co-owners saved on inheritance taxes. - TRANSFORMATION The manufacturer in an effort to avoid losing his customers. 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. - • Impact of taxation is the point on which a tax is originally imposed. He is also termed as the statutory taxpayer-the one on whom the tax is formally assessed. Tax avoidance is the tax saving device within the means sanctioned by law. while incidence is the setting or coming to rest of the tax. and from the latter to the wholesaler. then to retailer. and the incidence is the result. Thus. In short. Example: Manufacturer or producer may shift tax assessed to wholesaler. It takes place when shifting has been effected from the statutory taxpayer to another. from the producer to the wholesaler.. or the non-payment of tax when it is shown that • The impact is the initial phenomenon. Relationship between impact. we have two shifts. shifting is the transfer of the tax. on the other hand. CAPITALIZATION Sotelo. i. a transfer from the seller to the purchaser involves one shift.1) FORWARD SHIFTING 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.e. who in turn shifts it to the retailer. the taxpayer is the person who must pay the tax to the government. thereby transforming the tax into or earn through the medium of production. the shifting is the intermediate process. TAX EVASION - It is also known as “tax dodging” 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. the impact in a sales tax (i. TAX EXEMPTION – see supra VI. maintains the same selling price and margin of profit. The Supreme Court said the records do not point anything wrong and objectionable about this estate planning scheme resorted to. IAC (157 SCRA 349) • > 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. MS NOTES |13 .
The payee then no longer needs to file an income tax return for this income. Source of Tax Laws 1) Statutes 2) Presidential decrees 3) Executive orders 4) Constitution 5) Court decisions Construction of tax laws 1) Rule when legislative intent is clear Sotelo. ESTATE OF BENIGNO TODA. 288): It is well known that our internal revenue laws are not political in nature and. a statute may nevertheless operate retroactively provided it is expressly declared or is clearly the legislative intent. (2) an accompanying state of mind which is described as being "evil. Nature of Tax Laws Civil not penal in nature Tax laws are civil and not penal in nature. The payee is still required to file an income tax return on that particular income. However." in "bad faith." or "deliberate and not accidental". Not political in nature Internal revenue laws are not political in nature. MS NOTES |14 . [Roxas v. or 2) Substantial underdeclaration of income tax returns of the taxpayer for four (4) consecutive years coupled with unintentional overstatement of deductions EVIDENCE TO PROVE TAX EVASION • > Since fraud is a state of mind. INTERPRETATION OF TAX LAWS Application of tax laws CREDITABLE WITHHOLDING TAX The creditable withholding tax is an amount that is withheld from income payments. But a tax law should not be given retroactive application when it would be harsh and oppressive. 100 Phil. FINAL WITHOLDING TAX The FWT is a tax wherein the payer withholds an amount from the payee’s income. Thus." "willfull. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. The purpose of tax laws in imposing penalties for delinquencies is to compel the timely payment of taxes or to punish evasion or neglect of duty in respect thereof. • 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 Exception: While it is not favored. They are deemed to be laws of the occupied territory and not of the occupying enemy. If there is an excess on what was withheld. he need only pay the difference between the estimated amount withheld and the real amount of tax due. as such. then the taxpayer may apply for refund or tax credit certificate. Rafferty. 37 Phil 958] • A. The omission to follow mandatory provisions renders invalid the act or proceeding to which it relates while the omission to follow directory provisions does not involve such consequence.a tax is due. and pays this amount to the government instead on behalf of the payee. 14 September 2004) INDICIA of FRAUD IN TAX EVASION 1) Failure to declare for taxation purposes true and actual income derived from business for two (2) consecutive years. Income tax returns that were filed during that period and income tax payments made were considered valid and legal. GR 147188. Hilado v. and (3) a course of action or failure of action which is unlawful. although there are penalties provided for their violation. this amount is only an estimate of the income tax that should be paid. it need not be proved by direct evidence but may be proved from the circumstances of the case. Oasan. our tax laws continued in force during the Japanese occupation. continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. however. Republic v. 99 Phil 934: The war profits tax is not subject to the prohibition on ex post facto laws as the latter applies only to criminal or penal matters. (CIR v. 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 person’s tax. • Directory and mandatory provisions of tax laws • • Directory provisions are those designed merely for the information or direction of office or to secure methodical and systematic modes of proceedings. That is why the tax is creditable – one no longer needs to pay the amount that has already been withheld. Collector. 6) Tax code 7) Revenue regulations 8) Administrative issuances 9) BIR rulings 10) Local tax ordinances TAX1 B. Tax laws are civil in nature.
3. As held in the case of People vs. not to enhance tax avoidance. whose duty is to enforce it. the law they seek to apply and implement. TAX RULINGS They are the best guess of the moment and incidentally often contain such well-considered and sound law. 3) Provisions granting tax exemptions Such provisions are construed strictly against the taxpayer claiming tax exemption. January 28 1999) REQUISITES OF TAX REGULATIONS 1. Nevertheless. where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the BIR where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based where the taxpayer acted in bad faith Principle of Legislative Approval of an Admin Interpretation it is a situation where the legislature may have approved the interpretation of tax statutes by administrative agencies through re enactment. 4. being burdens. CIR. In every case of doubt. must be published in the OG or in a newspaper of general circulation. are not to be presumed beyond what the statute expressly and clearly declares. is entitled to great respect by the courts. not contrary to law 4. D. within the authority conferred 3. modification of revenue of any rules and regulations promulgated by the Sec. Taxes. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. . subject to review by the Secretary of Finance. Sotelo. reasonable 2. (NIRC) C. They should not be construed as to permit the taxpayer easily to evade the payment of taxes. MS NOTES |15 . instead of remaining consistent and in harmony with.The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner. but the courts have held that they do not prevent an entire change of front at any time and are merely advisory – sort of an information service to the taxpayer (Quiazon and Lucban) EXCEPTIONS TO NON-RETROACTIVITY OF RULINGS Revocation. tax statutes are construed strictly against the government and liberally in favor of the taxpayer. TAX REGULATIONS These are regulations promulgated by the Secretary of Finance in order to implement the provisions of the Tax Code. 2. Thus. TAX1 “It is widely accepted that the interpretation placed upon a statute by the executive officers.” (Philippine Bank of Communications v. Lim. courts will not countenance administrative issuances that override. such interpretation is not conclusive and will be ignored if judicially found to be erroneous. of Finance or CIR shall not have retroactive effect if it will be prejudicial to the taxpayer. Power of the Commisioner SEC. the rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter. except: 1. 2) Rule when there is doubt No person or property is subject to taxation unless within the terms or plain import of a taxing statute. 4) Not to encourage avoidance or evasion The purpose of tax is to impose taxes.Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent. Doctrine of Implications what is plainly implied in the language of a statute is as much a part of it as that which is expressed.
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