PHILIPPINE LAWS ON INCOME TAXATION

Distinctions between Power of Taxation and

GENERAL PRINCIPLES Power of Eminent Domain
OF TAXATION POWER OF POWER OF
TAXATION EMINENT DOMAIN
Inherent Powers of the State Directed against Directed against real
1. Power of Taxation persons, properties, or property
- Power of the state to exact an enforced rights
contribution upon persons, property or Purpose is to raise Purpose is to have real
rights for the purpose of generating revenues to support the property for public
revenues for the use and support of the government purpose
government. (Taxpayer) gives money (Taxpayer) gives away
- Exercised only by the government or its representing his taxes in his real property in
political subdivision. consideration for consideration for a just
- Generally no limit to the amount of tax services and protections or reasonable monetary
that may be imposed. presumed furnished by consideration.
2. Power of Eminent Domain the government.
- Power of the state to expropriate private
property for public purpose in return for a Distinctions between Power of Taxation and
just or reasonable compensation. Police Power
- May be granted by the government to
public service companies or public utilities.
3. Police Power POWER OF
POLICE POWER
- Power of the state to promote the general TAXATION
welfare of the people by limiting or To raise revenues to To regulate or limit the
regulating the rights or properties of any support the government rights of persons for
person. public welfare
- Relatively free from the constitutional Directed against Directed against a
limitations and is superior to the non- persons, properties, or taxpayer‟s rights or
impairment clause provisions on obligations rights property
of contracts. The amount of tax The amount of
imposition may be regulation fee must be
Similarities among the Inherent Powers of unlimited limited what is needed
the Government to carry out the
1. They all underlie and exist independently regulation
with the constitution although the
conditions for their exercise maybe Limitations on the Power of Taxation
prescribed by the constitution and by law 1. Constitutional Limitations
2. They are ways or means by which the a. Due process of the law
government interferes with private rights b. Equal protection of the law
and properties c. Non-imprisonment for non-payment
3. They all rest upon necessity because there of a debt or poll tax
can be no effective government without d. Non-impairment of the provisions
them on Obligations of Contracts
4. They all presuppose an equivalent e. The rule of taxation shall be uniform
compensation received, directly or and equitable
indirectly, by the persons affected by the - Progressive system of
exercise of any of these governmental Taxation
powers f. No public money shall be
appropriated for a religious or
private purpose
 PHILIPPINE LAWS ON INCOME TAXATION
g. Exemption from Taxation of
Educational, Religious and
Charitable Organizations
- Basis is the use of
property, not ownership.
h. No law granting any tax exemption
shall be passed without the
concurrence of a majority of all the
members of congress.
i. Non-impairment of the Jurisdiction
of the Supreme Court on Tax Cases
j. The Philippine President has the
Power to approve or veto a Tax Bill
approved and passed by the
Congress.
- Veto may be overridden by
a 213 vote by Congress
2. Inherent Limitations
a. Taxes may be levied only for public
purpose
b. Non-delegation of the power to tax
except to local government
c. Exemptions from taxation of
government entities
d. Tax laws must be within the state‟s
territorial jurisdiction
e. Tax laws must be subject to
international comity, convention, pr
agreements
f. Prohibition of double taxation
Definitions of “Taxation”
 Taxation refers to the inherent power of the
state to exact an enforced contribution upon
persons, properties or rights for the
purpose of generating revenues for the use
of the government.
 Taxation is a way or means of apportioning
the operational cost of the government and
all its public needs among those who, in
some measures, are privileged to enjoy its
benefits and therefore must bear the
burden.
 Taxation is the act of levying a tax or the
process by which the government, through
its law-making body, raises revenues to
defray its necessary expenses.
Nature of Taxation
1. Authority
- Theory of Taxation / Lifeblood Theory
- Taxation rests upon necessity and is
inherent in every government or sovereignty
- Power is legislative in nature and essential
to the existence of any independent
government
- “Government cannot exist without
taxation, thus taxation is an important
necessity.”
2. Basis
- Benefits Received Principle
- Taxes are imposed upon persons,
properties or rights for the support of the
government in return for the general
advantages and protections which the
government affords the taxpayers, their
protections and rights.
- “Where there is no benefit, there is no
power to tax.”
- Reciprocal duties of protection and
support between the state and those that are
subject to its authority (symbiotic
relationship between the state and its
citizen).
Purposes of Taxation
1. To raise revenues for the use and support of
the government to enable it to carry out its
appropriate functions
2. It is a means to contend or promote the
general welfare, social and economic
development of a country and its people
Scope of Taxation (CUPS)
1. Comprehensive
2. Unlimited – without restrictions, except
constitutional
3. Plenary – whole power
4. Supreme – strongest inherent power
Nature of Tax Laws/Internal Revenue Laws
 Civil in nature
 Not political or penal (although there are
penalties for violations)
 Tax laws remain even if the government
changes.
 National Internal Revenue Code (a
special law) prevails over a general law.
Construction of Tax Laws
 PHILIPPINE LAWS ON INCOME TAXATION
 Construed strictly against the government
and liberally in favor of the taxpayer
 „Tax Exemptions & Deductions‟ – construed
strictly against the taxpayer asserting the
claims for exemptions/deductions (there is
loss of revenue against the government)
 Construed as to include the power to
destroy (imposing higher taxes on sin
products and on imported goods)
Applications of Tax Laws
 Prospective in operation
 May operate retroactively, if expressly
declared or it is the legislative intent.
Basic Principles of a Sound Tax System
(FAT)
1. Fiscal Adequacy
- Sources of revenues must be adequate to
meet the expenditures of the government
regardless of business or economic
conditions.
2. Administrative Feasibility
- Capable of reasonable and convenient
enforcement, just and effective
administration.
3. Theoretical Justice / Equality
- Tax burden shall be shouldered by those
who have the ability to pay.
- There must be an equitable or
proportionate distribution of tax burden
Tax
 Enforced burden or mandatory
contribution imposed by the government
based on its power of taxation, upon
persons, properties, or rights.
 Tax is the bread and butter or the lifeblood
of the government hence, no court shall be
empowered to interfere with or restrain the
collections of taxes.
Essential Characteristics of Tax
1. Enforced contribution
2. Legislative in nature
3. In accordance with/based on law
4. For public purpose
5. Proportionate in character
6. Pecuniary in character/payment in kind
7. Paid at regular intervals
8. Imposed upon persons, properties, or rights
9. To raise government revenues
Classifications of Taxes
1. As to Subject Matter
a. Personal ax / Capitation Tax /
Poll Tax
- Fixed amount of taxes, regardless
of property, professions, or
occupations.
- e.g., Community Tax
b. Property Tax
- Imposed on taxpayer‟s property
(real or personal), situated within
the territorial jurisdiction of the
state
- e.g., Real Property/Estate Tax
c. Excise Tax / Privilege Tax
- Imposed on taxpayer‟s exercising
of rights and privileges of
performing an act or engaging in an
occupation
- e.g., Donor‟s Tax, Income Tax
2. As to Scope or Authority
a. National Tax
- Imposed by the national
government, enforced by the BIR, or
Bureau of Customs, under the Dept.
of Finance
- e.g., Corporate Income Tax,
Customs duties, Tariffs
b. Local Tax
- Imposed by the local government
(barangays, cities, municipalities, or
provinces)
- e.g., Real Estate Tax, Community
Tax
3. As to Purpose
a. General Tax
- For general purposes, which go to
the national/general funds
- e.g., Estate Tax
b. Special Tax
- Imposed for a special purpose,
which go to certain special funds
- e.g., Gasoline Tax, Flood Tax
4. As to Liabilities
a. Direct Tax
- Cannot be passed on or shifted to
other persons for payment
- e.g., Income Taxes
 PHILIPPINE LAWS ON INCOME TAXATION
b. Indirect Tax
- Permitted by law to be shifted or
passed on to other persons for
payment
- e.g., Value Added Tax
5. As to Determination of Amounts
a. Specific Tax
- Determined based on weight or
volume capacity or any physical unit
of measurements
- e.g., Excise Tax on liquors and
cigarettes
b. Ad Valorem Tax
- “According to Value”
- Amounts are determined based on
the sales price or other specified
values of the property
- e.g., Value Added Tax (12%)
6. As to Graduation or Rates
a. Progressive/Graduated Tax
- Amount of taxes increase as the
bracket/layer increases
- e.g., Gift Tax, Estate Tax
b. Regressive Tax
- Amount of tax decreases as the
bracket/layer increases
- NO REGRESSIVE TAX in the
Philippines
c. Proportionate Tax / Flat Tax
- Amount of tax may be higher or
lower depending upon the bracket
Distinctions between Tax and License Fee
 License - payment require to exercise a
certain right, e.g., Driver‟s License
TAX LICENSE
For the purpose of For the purpose of
raising revenues regulation
Based on the Power of Based on the Police
Taxation Power
Direct authority from License fee is imposed
Congress levies a tax under a delegated power
to the local government
Generally no limit to the Enough only to cover
amount collectible the cost of services or
regulation
Failure to pay does not Failure to pay renders
render the business / the business /
occupation illegal (Taxes occupation illegal
cannot be collected
unless business is legally
registered)
Distinction between Tax and Toll
 Toll - the compensation charged by the
owner for the use of his property and
improvements, e.g., Toll Fee
TAX TOLL
Demand of sovereignty Demand of
(pursuant to political proprietorship
authority) (pursuant to right of
ownership)
Government-imposed Imposed by the
government or private
persons
To raise revenues for the To recover the cost of
support and use of the property and its
government improvements
Distinction between Tax and Special
Assessment
 Special Assessment (BELL) - local
imposition upon property in the immediate
vicinity of municipal improvements,
predicated upon the theory of benefits from
such improvements, e.g., drainage system
- Benefits
- Exceptional as to time &
place
- Levied on Land only
- Liability of a person
assessed (not)
SPECIAL
TAX
ASSESSMENT
Imposed upon persons, Imposed only on land
properties, or rights and its improvements
Imposed by national or Imposed only by local
local government government
Enforced contribution Enforced contribution to
for the use and support recover the cost of the
of the government public improvements
Ordinary and general Extra-ordinary and
situational as to time
and locality
Distinction between Tax and Customs
Duties
 PHILIPPINE LAWS ON INCOME TAXATION
TAX CUSTOMS DUTIES - determining the purpose of said tax (as
Not all taxes are All customs duties are long as for public purpose)
customs duties taxes - sum to be raise
Imposed upon persons, Imposed only upon - Tax rate to be implied
properties, or rights articles imported to or 2. Assessment and Collections of Tax
exported from the - Administrative process
country - vested in Department of Finance, thru
BIR, Bureau of Customs, and LGUs
Distinction between Tax and Debt
International Comity
TAX DEBT  Fundamental rule of taxation that no law
Based on law Based on contract shall be passed to impose taxation on the
Non-assignable Assignable property owned by a foreign government
Generally payable in Payment is in terms of or sovereignty.
terms of money money or property
(Dacion en Pago - Categories of Double Taxation
payment of movable or  Double Taxation - act of taxing the same
immovable property) taxpayer twice by the same kind and
In case of non-payment, In case of non-payment, character of tax, by the same taxing
there is a possibility of there is no possibility of authority, for the same purpose and during
imprisonment imprisonment (unless the same taxable period
criminal or fraudulent) 1. Direct Double Taxation
May not be subject to May be subject to offset - direct act of taxing the same taxpayer twice
the right of offset (Compensatio Morae) during the same period
- NOT ALLOWED
Tax Situs / Place of Taxation 2. Indirect Double Taxation
1. Persons - A burden of two or more pecuniary
- Inhabitants or residents of the state, impositions
whether citizens or not
2. Real Property There is no constitutional limitation on
- State in which it is located, whether owner double taxation. It is merely subject to the
is a resident or non-resident inherent limitation, hence it is not
3. Tangible Personal Property prohibited legally speaking
- Wherever property is located (?)
4. Intangible Personal Property Classification of Tax Escapes
- Domicile of the owner 1. Tax Credit
5. Income - payments made directly by the taxpayer
- From persons who are residents or citizens through withholding agents
in the taxing jurisdiction 2. Tax Exemption
6. Business, Occupation, and - grant of immunity (express or implied)
Transaction 3. Tax Evasion / Tax Dodging
- Place where business was conducted - fraudulent act of using pretenses or
7. Gratuitous Transfer of Property forbidden devices to lessen the tax liability
- based on citizenship, residency, location - understate income, overstate expenses
4. Tax Avoidance
Phases or Aspects of Taxation - Legitimate means [permitted by laws to
1. Levying / Imposition of Tax minimize / avoid one‟s tax liability
- Legislative process 5. Tax Shifting
- determining the persons, properties, - Legitimately passing one‟s tax liability for
transactions, or rights to be taxed payment to other persons in accordance
with provisions on tax laws