0S, VICTORIA UEDNIUA Mie Pe 5 1 Bley legit hh Am — yo Stel “g october 219 bis) 2 nl == CHOK, - ek | oro Centt be Ged fry 7 etuotre whi - une] GENERAL PRINCIPLES OF TAXATION i ie oe LO Co Atty. C. Llamado . | i | ph 7b Hkation Bofthed Fy -V adi ste quer ae Si exercise of thelsove versa power 1 fae ever the expenses of the government. nde He Prima pages? Atte Aa Stages or Coverage of Taxation pat wen ‘Taxation covers three (3) separate areas or aspects of government activity, namely: e.ar'adf 1 Levying or imposition of the tax. This involves the passage of tax laws which is ‘een (aed generally a legislative act. n the Philippines, the taxing power is exercised by Congress. ] _ racy aft wan ‘! of > ‘Assessment. The process of determining the c Correct amount of tax a 3. Collection and payment — the act of compliance with the tax law by the taxpayer. Executive or administrative in nature. Done by the Bureau of Internal Reyenue (“BIR”) 4 . | oe leas of faut reagaced Crome) 3 Inherent Powers of a State: 1) Power to Tax 0 A\ > omy Pominguree aap of FE Tard fant tnt G7 ram Ora | 4/ Ola Hensel ‘The Power to Tax oe the power of timation is regarded as raw, © ‘As long as the legislature, in imposi ‘OF other collateral motives OF other privileges to be taxed (5. roperty, OF other priviteges to De tence and/morals(ot fof the public. It involves the power to » regulate Polit a ele ee is the inherent ofa te state tollegislatelfor the protection of the evar ty and pr ae for the promotion of the/public good. police power of the State may be exercised through taxation because taxes may be ied for the promotion of the welfare of the public (Lutz v. Araneta, 98 PHIL. 148). Power of Eminent Domain ‘The power of eminent domain is the inherent power of a sovereign state to take Proper for 2 public purpose, The Constitution limits the exercise of this poi “Private property shall not be taken for public use witho ‘compensatic . III, Sec. 9, 1987 Philippine Constitution) p Asc 1October 2019 y ty d [Eminent Dornain | Obligatio Distinctions Among the Three Inherent Powers A) Purpose: ion ff |i ses of the State. Police Power Tq promot ral [thru regulations. B) Amount of Exaction Eminent Domain | To facilitate the State's need of property forfpublic use. 7 ‘Taxation (ee?) | No limit, _ and/or surveillance. Police Power Limited to the cost of regulation, issuance of the license, C) Benefits Received Eminent Domain | No exaction but private property is taken for public use._—> ub of the general welfare, Police Power Taxation ‘No special or direct benefit is received by an individual The public receives the jgeneral benefit/of protection of person, property received by an individual. —A_ Taxation tf] Obligations of contracts nye be impaired, Tax > Obitaterag exemptions bilaterally agree: ‘between_t EO usitavral> Cea | Severmment end the taxpayer cannaDse withdrawn. Police Power _ Obligatic ine off just _ society Ys attai “Eminent Domain A. direct benefit results in the form Crecet beste _¥2 n 10 We property ow of contracts may be impaired. Foes (ores | poe ents) E) Transfer of Property Rights part of public func ily estraint in the exercise of property rights. con 7 Tt 0S tne prtection of pnivak people wha D) Non-Impairment of Contracts 7 in cnvauh wl tae $e? favour of the StateOctober 2019 G) Authority which exercises the power ‘Taxation Exercised by the government or its political subdivisions Police Power Exercised by the government or its political subdivisions | Eminent Domain May be exercised by public service corporations or | private entities operating public utilities if granted by law MERALO Limitations on the Power to Tax (2) Constitutional limitations. (a) No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the{equal protection of the laws (Art. Il, Sec. 1). (b) The rule of taxation shall beJuniform and equitable] The Congress shall evolve a progressive system of taxation (Art. VI, Sec. 28(1)). peieeaaed Uniformity — ies falling under the/Same class] should be taxed the {same kind and rate of tax. Equality — te seni eps an mete applied impartially to all the members jof each class Equal protection of the law ~ means equality before the law. However, such equality does not deny to the state the power to recognize factual differences between individuals and classes. It differences, one class may be trea differently from another (iu v. CA, G.R.No. 127410). —_— (©) No person shall be imprisoned for debt or non-payment of a ot tax (he. IML, See. 20). jae &"" @ Charitable institutions, churches, and 8. of convents a thereto, Tosques, non-profitfeemeteries| and al lands) buildings).afid imy ovement actually, dizealy, and exclusively used for eigious charitab jucational| purposes shall be exempt from taxation’ (Art. VI, Sec. 10). Gat Prpty On) (©) No law granting any [tax exemption Shall be passed without the concurrence of a A CAaimtity ofall the members of Congress (Art. VI, See 28(4) " empt om rel property tionOctober 2019 (f) No law impairing the obligation of contracts shall be passed (Art. Ill, Sec. 10) i) When the tax exemptio is ilateally agreed upon between the government and the taxpayer, the exemption cannot be withdrawn without violating the impairment clause. ——_——- ii) When the tax exemption Ys\unilaterally ranted by law, the same_may be oe ae go oe Ex. When the tax exemption is granted under a franchise, the same may be aj Withdrawn at any time. (g) No law shall be cence ospecting an establishment of religion or prohibiting the free exercise thereof (Art, Il, Sec. 5). fi church, “denomination, sectarian institution,-or system of religion, or of any. Pst, aces, ininister, or, ther religious teacher or or dignitary as such~except"when such priest, nal (h) All appropriation, revenue or tariff bills x00000xx shall te exclusive e House of Representatives, but the Senate may propose or concur jents (Art. VI, Sec. 24). ee Tape (i) The Congress may, the President to fix within specified limits, and subject to such linia a fétions as it may impose, tariff rates.import and Sand wharfage dues, and other duties or imposts within the d export, quotas, tonnage . 1h ptanewek of the national development program of the Government (Art. VI, Sec. 28 vat, HE @). “ ‘yt (k) All revenues and assets ofjhon-stock, non-profit educational institutiong used actually, Sirectly, and exclus sely fi for educational purposes rom taxes and™ duties., c00c— (@) 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 nich he does not object (Art. (Art. VI, Sec. 27 (2), ———— joney collected or any tax levied for «(speciaj purpose shall be treated as a ‘out for such only—Tt 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 @f the Government (Art. VI, Sec. 29 (3). —_ 4October 2019 (2) Inherent ns. These are restrictions arising from the very nature of the power to tax itself. They are: (a) The levy must apply within territoria} limits for the exercise of effective tax jurisdiction. (b) The tax must be fora public purpose. (©) Exemption from taxation of the government, any political subdivision thereof, or agencies performing purely governmental functions, Ex. City government of Makati. However, when a local government unit (LGU), government agency, or government ‘owned and controlled corporation engages in activities which are proprietary in character (ie. engaging in businesses and activities similar to those performed by other taxable corporations), such LGU, government agency, or GOCC shall be subject to both income and business taxes as other private corporations. Exs. Land Bank of the Philippines; PAGCOR. EXC: The Government’ Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC or Philhealth), and local water districts (LWDs); are exempt from the income tax imposed under Section 27 of the National Internal Revenue Code CNIRC”). (@) Asa gengsal rule, the taxing power of shel iegitatarel may pot be delegated. [ Exceptions (o this non-delegability rule are: ey eat ‘authority of the President to fix tariff rates, import and export quotas, tonnage fand wharfage dues, and other duties and imposts (Art. VI, Sec. 28 (2), 1987 Constitution). ii) Each local goverment unit shall have the power to create ie vn sourods of revenues and to levy tax charges subject to such limit consistent with the basic policy o| futonomy.| Such taxes, fees, and charges shall accrue exclusively to the local governments (Art. X, Sec. 5, 1987 Constitution), Ex. Real property taxes. ii) Delegation to\eciministative agencies For iuplementation of the tax laws, and collection of the tax to the BIR. ent to effectively impose taxes on a This principle limits the authority of the gs fxs sts and is instrumenaitis, 8 ‘undertaken in fat capacity. A i anbassadon nO Tnpesdreal I propesty taxes) © D taxation, ion. Two types of dauble taxation are direct double and indirect double Direct double taxation — Where: (A) the same subject is taxed twice, (2) by the sume taxing authority; (3) within the sam& jurisdiction; =e| i ble note 2019 gy ISA tag ha Kulang di na yan free Dou ae (4) during the same taxit i; and pe (5) covering he same kind oy character of tax (Villanueva. City of Holo, 1-26521), guy a} purpose, ~ “OKC of “THs. Hewon, Tay 2 UAT -P Ire bey” ‘There is no constituti inst double taxation in the Philippines Cillanueva v. City of Hoilo, L-26521, December 28, 1968), though it is not Juried oi favoured. eurprs © Indirect double taxation, which lacks one or more of the elements of direct double taxation, is also permissible Basic Principles of a Sound Tax System 1. Fiscal Adequacy — which means thatthe squrees of revenue should le Sufficient Yo meet the demands of pu en 3, ‘Administrative Fei which means that the tax laws should be » capable « of copivenient, just, and effective administration = _- ceat Theory or Basis of Taxation 1) Life-blood Theory. ase - Taxes are the lifeblood of the government. Without taxes, no government a function. 2) Benefits Protection Theory (Sj Hic Relationship) —-u)rocal Cont ny qn & mae - “Taxes are what we pay fora civilized or organized society. Without taxes, the foe government would be paralyzed for lack of the motive power to activate and operate it (Commissioner v. Algue, 158 SCRA 9). camembrin We Essential Elements or Characteristics of a Tax Onetnbatton pin 1. Enforced contribution 2. Exacted pursuant to legislative authority enayed pucsuast fo lepers? needs % 3. For raising revenue for. public needs Fo mie recurs hr % 4 Bropoionatedn charger canis wet yn gw 6, posed within the site's jurisdiction sania) Wn errehy 7. Personal to the texpayer gotta 06 the sIniecs JuritrciAle E petal te te Frypnuyes Classification of Taxes a) According to scope or exercising authority _____|_______ Municipal or local tax [= “Imposed by the ft mposed by local government units ixs, Income tax, Estate tax, Donor’s tax, | Exs_ Occupation tax, Real property tax L___VAT, ¢ 1 PT)October 2019 b) According to subject matter or object Personal, capitation, or poll tax Property tax = Fixed amount imposed upon persons |- Imposed on | of a(Gertain Glass without regard to} property Property, trade, business, or brisiness or profession ‘occupation a Vx. Community tax TEx RPT Exs. VAT, Donor’s tax, Estate tax, Income tax, = _ | tp “Bocifston ax Excise ux” ©) According to who bears the burden of the tax — Direct tax , Hung vIn tral Tadirect tax ~ The liability for the tax (impact), and the burden |- ‘The liability or impact for the tax falls on the thereof (incidence) fall on the same taxpayer original taxpayer, but the burden or incidence Lee Ping fie Hn thereof is shifted to another. Ex. Income tax tat VAT, excise tax, custom duties 4) According to purpose _ ((eneratot Revenue az [ Levied without specific or pre-determined purpose Ex. Income tax, VAT, ete. _ Special tax Levied for a special purpose Ex. Protective tariffs, special assessments ©) According to the rate applied Proportional [Based on a fixed percentag (the tax base cs. Income tax on | Exs. None individuals under the __ waduatedretes a According to measurement of the amount due L Specitic _ = ‘Aa Valorem > RF Measured by number, or based o8 weight | Based on the (value oF th may require the or physical measurement. intervention oféssessors and appraisers Exs. Excise tax on Jubricating offs, waxes, | Evs. RPT ewise tax on liquors, cigarettes packed by | petroleum, Gc. _ “machine, and automobi S Nature or Construction of Tax Laws 1, Tax taws are prospective, generally, but can have retrospective application. Tax laws, like other statutes, are to be consul. as having only(S prospetive tion unless the purpose and intention of the legislatore to give retroOctober 2019 Ceslared Jt is necessarily implied from the language used (Lorenzo v. Posadas, 64 Phil. . Tax laws ard in_ch B si in-matare| tbe conti Sard * & prohibition against the passage oflex post facto] legislation does not apply to one “OK Fucto ‘(Law of Basic Taxation in the Philippines, Benjamin Aban; citing Republic v. Oasan ui Vda. de Fernandez, et al,, 99 Phil. 934; Bx Parte Garland, 18 Law Ed. 366). 4 They can therefore be given retrospective application if expressly declared by the tax law. ization 6r liability ob sea of the taxpayers ibe non: ity, [v e i i prosecution under existing laws. In short, in taxation, it is one’s civil liability to pay taxes that gives rise to criminal liability (Republic v. Patanao, L-22356, July 21, 1967). 2. A statute will not be construed as imposing a tax unless it does-so_clearly, and unambiguously. _ Se A tax cannot be imposed without clear and express words for that purpose. Accordingly, the provisions of a taxing act are not to be extended by implication (Marinduque Mines Agents v. Municipal Council of Hinabangan, L-18924; Commissioner v. CA, GR 115349, April 18, 1997). Za In case of doubt, statutes imposing a tax are constru stropgly against the A Government, and liberally in favor of the citizen ina ros eee ‘be imposed, the statutes expressly can clearly import (ai tilroad v. Collector of Customs; GR 10214; CIR v. La Tondeha, Inc. et. al., L-10431). . ‘Tax exemptions are to be construc ‘ctly/against the taxpayer. eer Legal provisions providing for tax exemptions are to be construed(strictl) against the ‘grant and liberally in favor of the taxing power (Phil. Int'l Fair, Inc. v. Collecfor, GR. [=~ 12928 and L-12932, 1962). _ 4. Eemption from taxation is co Hence, exemption must be ancho claims éxemption must be able to justi | statute Tawl(Collector v. Manila Jockey Club, Inc., 53 O.G. 3762). 4. Revenue laws are political in nature. ur internal revenue laws are not political in nature and as such were cogtinued in force 2 during the period of enemy occupation and in effect were actually enforced by the ogcupation government (milo ¥. ado v. Collector, GR No. I-9408, October 31, 1950. any ANN, 5. Legislative intention must be considgred. Tax statutes are to Geccivea reasonable construction with a view to carrying out their purpose and intent (51 Am. Jur. 361). — Thy poll ©6. Tax laws are-speMiaNaws, and prevuil over general laws (see Republic v. Gancayco, £-18307, June 30, 1964). £. strictly against exemption. jsion of law. He whoOctober 2019 | | Sources of Tax Laws | | — | a ae gy TaxGatutes-puch as the National _Interhal Revenue Code CAIRO”, the Tariff and ty Customs Code, the VAT Law, the ea ‘Law, the Amended . Excise Tax Law, and f 5 EDS, Ms, by al decisions. - if Eee po promulgated Pr bie eb Deptt of Fes, ons Bureau of Internal Regulations (“BIR”), Bureau of Customs, étc. Oia and opitions of tax officials particularly those of the opinions of tax officials particularly those of, Seatory op Pane ang guinayania ng tte GIR Lerenue Leylahiny Gyo Mgagy) Forms of Escape from Taxation “hy revonended ng CAR 1. Shifting the burden of the tax/ ok ain» walang 2. Gsieaation Gattlgte 14 paliatd f inva se is merely stall sw = in Gebincnial, ng aakd 3 nam rd na Imamufaaitver of oder upon whom the he ‘been imposed, Toss of his market ithe should add the tax tothe price, pay the tx en recoup the ak paid by making his production more efficient and lowering his cost of pi —— 4, Tax exemption. Exemption from taxation is the freedom from the burden of paying tax. 5. Tax avoidance, Tax avoidance occurs when the means used to minimize taxes are legal and not prohibited by law. 6. Tax evasion, Tax evasion connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes (Yutivo Sons Hardware v. CTA, L-13203, January 28, 1961, 1 SCRA 160). Tax and Licence Distinguished Tax License Purpose To raise revenue “ To regulate action, businesses, —— industries, professions Limitations on taxation ‘Subject to constitutional and inherent | Not subject to the limitations on limitations on the power totax___—~_| taxation“ ‘Amount Unlimited Limited to the cost of regulation / | Givensing, ing Effect of non-payment | DoeS not make the business legal | Makes the business illegal S “October 2019 “Special Assessment" Defined pate! ay ‘A special assessment isin the ature bf a tax upon property levied according to-henefits — mnferred on the property. The whole theory of a special assessment is based on the doctrine fae map) en which it is levied derives some special benefit from the ahaa im xXx increased inv: rout at Teast equal to the sum they are required to pay (1 Cooley on Taxation, 105). Yung Ue Met ga Oa BY ptm Maeve "9 Id L qnly on land: AA special assessment ean be levied gal 2. A special assessmenf canof (at least in most states) be made a personal lability of the person assessed; 3. A special assessment is be 4. A special assessment isfexceptionalfboth as t Tax Assessment Imposed on all property (real or personal) in a | Imposed only on property which benefit fom prescribed area mes [the improvement Cand gnu) Tax and Debt Distinguished C nn Tax Debt Source of obligations —~—}Taw Contract Obligee TDve to the government in| Due to obligee under a contract, May be due its sovereign capacity __| to the government in its corporate capacity Form of payment [Money ‘Money, property, or services Interest } it except in cases | If stipulated or if the payment is in delay [ __ legate |" oS eee | Assignability Not assignable ___| Generally assignable _ Compensation/Sct-off | No Yes — Incarceration for non- | Yes, except for non- | No person can be imprisoned for non-payment ent wyment of poll tax of debts (Constitution), Tax and Toll Distinguished Tax ‘Demand for sovereignty Imposed by the government ‘May be based on income or i e | Largely based on the-gosDof the property used, or on ofthe property | the cost of the improvement uge Forced contribution 7Com: fom charged by the owner for the | _ ‘use of the property/improvements et Tax Administration ———— It is a@tem Mnvolvinglassessment,] follection] and Eiaxes, including the (ERSCUTIONAT judgment mn all tax cases decided in favor of the Bureau of Internal Revenue by the courts, — 10 be imposed byfprivate persond or entities» ALIEX—r MVPce rate! dtr lag di ede lac) fof BIR) 4, The Bui efoto gn giving effe to itby the Tax C .¢ administering of of other laws. Powers of the Commissioner of Internal Revenue ("CIR")? Oper, 1. Power to interpret tax laws subject to review by the Secretary o Cited 2. Power to decide disputed assessments, refunds of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, other matters arising under the National Deranrnea Internal Revenue Code (“NIRC”) or other laws or portions thereof administered by the Ofte Bureau of Internal Revenue oe ‘subject to thy appellate jurisdiction of the Court of Tax-Appeats(CTA”) FI Stan ae 3. Power to examine any book, paper, record, or other data which may be relevant or material to a tax inquiry; ee Power to [obtain informatior/ from any person other than the person whose intemal nea revenue tax liability is subject to audit or investigation or TrOm any office or officer of the ‘wae national or local governments, government agencies and instrumentalities, OBR fiawod Sams emren recent! Sf accounts and other accounting person liable fr tax or required to file a retum, or any officer or ssion, custody, Or care of the books atts ~~ @ 1p 6. sa take : i testimony bf the ‘person concerne concemed, | under oath, as may be relevant or Pricer RE \otunt material to such inquiry; —--- GAR cuetnendy, a e assessments) Ly Wagar a vanedegmip 8. Power {6 preserib by_dividing the country into different zones and at Sey of ops ltd neck 20; — Kod 1) devermuve OF Orypoyer Py ‘The ‘Commissioner is authorized to inquire into the} ank | deposits /and other related fete on 4 information | by financial institutions of: — Se Sat Nabiy @A "0 determine his gross estate; ~~ ‘foie’ tlnoi? (©) A. téxpayer who has-file for compromis of his tax, liability by fF etgwesrtor tee financial incapaci tax liability; and on a tS Moyer ota st for the supply of tax information from a eS a i x aubory psu! 03 tema ston fom * al : f utho DA 10. The Commissioner has the authority zk indivic and general (ete 5x45 [Mbtofessional partnerships (GPPs) and their representatives who prepare and file tax a statements, reports and other papers, or who appear before the BIR, for us pape Pret Pe mate tm etionby a ingonnetion adda roe submission or ffi ‘statements accompanying the tax Be dregs ° The BIR shall have a chief to be known as the Commissioner of Internal Revenue (CIR), and four (4) assistant chiefs to be known as Deputy Commissioners (Sec. 4, NIRC). WSeavch! fir or FID —# Invame, HM feta 2890 -» VET teturn [stay ley, sagpte eninea daawie peng Net oD waft Ts heerengt no} he pers PIN PO REALM CRA can _ r a #09 it prnable yg PA Fer el ang aie 2 pin? 4 een wratie CerecoR) M clas allore a : wd © Ween + public Purpose eyeipt SS, gs PHC, PEL ratte onde agi Herren, NI cnn), dea bul aN canyon fl a (al SAIC REREA, hace, purpage, Tryin that Oh May Ctr out 7 inet bec yrs at rt He xt} ND. ) e a | fete ) vets» fublizabbn (is Adys-v per ports 1) Due PI i ee sarod) 6) oque tenaton = ©) Prgreayre + Feast Fink Migr avai - Oy a gt) Const uay Tengen) o"?") eh. (ier) 6