CHAPTER II: LIMITATIONS ON THE TAXING POWER
1. Public purpose of the taxes
2. Non-delegability of the taxing power
3. Territotiality or situs of taxation
4. Tax exemption of the government
5. International comity
PUBLIC PURPOSE OF THE TAXES
- the test for determining whether tax is for public purpose is whether
the thing furthered by the appropriation of revenue is something which
is the duty of the state as a government to provide
- whether the proceeds of the tax will directly promote the welfare of
the community in equal measures
- used for general expenditures such as :
1. Government infrastructure
2. Public works, projects - maintenance of roads, bridges, and
highways
3. social welfare
4. Self-help projects for the infirm, handicapped persons
5. Protection, security, and deffense
- in the imposition of taxes, public purpose is presumed
- the collection of taxes, fees, charges, and other impositions cannot
be entrusted to private persons.
NON-DELEGABILITY OF THE TAXING POWERS
- -the power of taxation is exclusively legislative and may not be
delegated
-EXCEPTIONS:
1. Congress may expressly authorized the president to fix within
specified limits, tariff rates, import and export quotas, tonnage, and
wharfage dues, and other duties or imposts within the framework of
the national government.
2. Each LGU shll have the power to create its own sources of
revenues and to levy taxes, fess, and charges subject to such
guidelines and limitations as the congress may provide, consistent
with public policy of local autonomy.
- such taxes, fees, and charges shall accrue exclusively to the LGU.
- the tax levied must be for public purpose
TAX LEGISLATION VS TAX ADMINISTRATION
- if what is delegated is tax legislation, the delegation is invalid. If what
is involved is only tax administration, the delegation is valid.
TAXATION CONSISTS OF TWO PARTS:
1. The elements that enter into the imposition of the tax - legislation
2. Steps taken for its assessment and collection - administration
NON-DELEGABLE LEGISATIVE POWERS:
1. Selection of property to be taxed
2. Determination of the purposes for which tax shall be levied
3. Fixing of the rate of taxation
4. Rules of taxation in general
DELEGABLE POWERS WHICH ARE NOT LEGISLATIVE
1. The power to value property for taxation
2. The equalization of assessment by central body
3. Collection taxes
- legislation is the making of the law while administration is the giving
effect to the law.
TERRITORIALITY OR THE SITUS OF TAXATION
- place of taxation
- limited only to persons, property or businesses within its jurisdiction
BASIC CONSIDERATION AFFECTING SITUS OF TAXATION
1. PROTECTION
- legal situs cannot be given to property for the purpose of taxation if
neither the property nor the person is within the protection of the taxing
state
Ex. Property wherever situated of decedents who are filipino citizens,
whether resident or non-resident as of time of death as well as
resident aliens are subject to estate tax.
2. DOUBLE TAXATION
- not invalid if imposed by different states
- ex. Non-resident filipino receives income in the US, such filipino is
subject to tax by both US and Philippines on the same income. There
are 2 situses in this situation.
- non-resident citizens and non-resident aliens are subject to tax on
income derived from Philippine sources
3. MAXIM OF MOBILIA SEQUUNTOR PERSONAM AND SITUS OF
TAXATION
- the situs of personal property is the domicile of the owner
- shares of stocks may have situs for purposes of taxation in a state
which they are permanently kept regardless of the domicile of the
owner or the state in which the corporation was organized.
- properties left behind by a non-resident alien are taxable only if the
properties are situated in the philippines.
4. LEGISLATIVE POWER TO FIX SITUS
- if no constitutional provisions are violated, the power to fix situs is
undoubted
- properties within the situs of the Philippines:
1. Franchise which must be exercised in the philippines
2. Shares, obligations or bond issued by any corporation constituted in
the philippines
3. Share, obligations or bonds issued by any foreign corporation 85%
of the business of which is located in the philippines
4. Share, obligations, or bonds issued by any foreign corporation if
such shares, obligations, or bonds have acquired a business situs in
the philippines
5. Shares or rights in any partnership, business or industry established
in the philippines
- in cases where the situs of certain intangibles are not categorically
spelled out there is room for applying the mobilia rule
FACTORS TO DETERMINE SITUS
1. Kind of the classification of the tax being levied
2. Situs of the thing or property taxed
3. Domicile or residence of the person taxed
4. Citizenship or nationality of the person taxed
5. Source of the income taxed
6. Situs of the excise, privilege, busines or occupation being taxed
SITUATIONAL INCIDENTS:
1. Property tax
- the situs of the property must be considered to determine which
goverment unit has the right to collect tax on the subject property
- the principle applies to both real and personal property
- a state has no power to tax real property located outside its limits
2. Tax on persons
- state may levy personal tax upon persons subject to the jurisdiction
of its sovereignty. Ex. Community tax
3. Income Tax
- factors to be considered:
A. Nationality or citizenship of the taxpayer
B. His residence or domicile
C. Source of the income
PRINCIPLES OF INCOME TAXATION
1. A citizen of the philippines residing therein is taxable on all income
derived from the sources within or without of the philippines
2. A non resident citizen is taxable only on income derived from
sources within the Philippine
3. An individual citizen of the philippines who is working and deriving
income from abroad taxable only on income derived from sources
within the Philippine
4. An alien whether resident or not of the philippines is taxable only on
income derived from sources within the Philippine
5. A domestic corporation is is taxable on all income derived from the
sources within or without of the philippines
6. A foreign corporation whether engaged or not in trade or business in
the philippines is taxable only on income derived from sources within
the Philippine
4. Excise or privilege taxes
- the situs of taxation is the place in which the act is performed or
where the occupation is engaged in
- it is the place where the sale is perfected and consummated that
determines the situs of taxation. In other cases its the perfection that
determines situs, not consummation.
Situs of the sale is not a limitation on the taxing power of the LGU
where the tax payer establishes its principal office and factory.
EXEMPTION OF THE GOVERNMENT FROM TAXES
- those devoted to government uses and purposes
- income derived from any public utility
- real property owned by the government or its political subdivision is
exempt from real property tax unless the beneficial use is granted for
consideration to a taxable person
- government’s exemption from taxes is an inherent limitation on the
state’s taxing power
INTERNATIONAL COMITY
- self-imposed restraint on its taxing powers especially to the
properties of foreign governments within their territorial domain
- reciprocity lies at the roots of this limitation
CONSTITUTIONAL LIMITATIONS ON THE TAXING POWER
1. DUE PROCESS OF LAW
- when tax turns out to be of a confiscatory nature, such imposition
could be considered as violative of due process principle
- where a tax statute is so arbitrary that it finds no support in the
constitution of property.
- no court hearing is conducted - violative
2. EQUAL PROTECTION OF THE LAW
- the classification must be based upon real and substantial
differences between the persons, property, or privileges and those not
taxed must bear some reasonable relation to the object or purpose of
legislation or to some permissible governmental policy or legitimate
end of the governmental action.
- the equality of taxation rule is not violated if classifications or
distinctions are made as long the same are based on reasonable and
substantial differences
- ex. There is reasonable imposing lower rates on foreign-sourced
income of non-resident citizens because these are the people who
earn foreign currency abroad which are remitted here.
- the legislature has the inherent power not only to select the subjects
of taxation but also to grant tax exemptions
3. FREEDOM OF SPEECH AND OF THE PRESS
- tax is said to be violative of press freedom or freedom of thought and
expression if a tax is levied in order to suppress this basic right of the
people under the constitution.
- imposition of license tax is unconstitutional because it lays a prior
restraint on said right.
4. NON-INFRINGEMENT OF RELIGIOUS FREEDOM
- no law shall be made respecting an establishment of religion or
prohibiting the free exercise.
- ex. A municipal license tax on the sale of bibles and religious articles
by a non-stock, non-profit missionary organization at a little profit
constitutes a curtailment of religious freedom.
- no part of the income of which inures to the benefit of any member,
organizer, or any specific person.
- the income of such organizations from any activity conducted for
profit or from any of their property, real or personal, regardless of the
disposition made out of that income is subject to tax.
- tax exemption shall not apply to income realized from businesses not
necessarily connected with their religious, charitable, or educational
purposes.
5. NON-IMPAIRMENT OF CONTRACTS
- it applies to public utility franchises because franchises are subject to
amendment, alteration, and repeal by the congress.