| LESSON 4.3. _ THE POWER OF TAXATION BRIEF HISTORY OF TAXATION Pre ~ Colonial Period During the pre — colonial era there was no national government only barangays that is headed by a Datu. The Filipino people then pays taxes to the Datu for their protection. This taxes are called “buwis’. Consequently, the non-payment of taxes during this period was already punishable but the chieftain’s family members were enjoying exemption from paying taxes as well Judicial process was influenced by religion and by waiting the intervention of the deities. Wherein Datu served as the chief judge who was assisted by group of elders in the barangay that acted as members of the jury. During this time there were three classes: 1) "tumao” class (includes datu) were the nobility of pure royal descent; 2) "timawa” class, warrior class or the “the third rank of nobility;” and 3) the "free men, neither chiefs nor slaves” required to render military service to the datu in hunts, land wars or sea raids . They could acquire property, acquire any job they want, pick their own wives, and acquire an alipin. They were however expected to pay taxes, and support the Maginoo class. They are the only class to pay taxes, and hence their importance in the community. “Oripun”class (commoners and slaves), renders services to the tumao and timawa for debts or favors. The Alipin did not likely make any money for their services, and hence did not pay taxes. During the 17th and 18th centuries, the Contador de’ Resultas served as the Chief Royal Accountant whose functions were similar to the Commissioner of Internal Revenue. He was the Chief Arbitrator whose decisions on financial matters were final except lwhen revoked by the Council of Indies. During these times, taxes HAPTER FOUR: SOCIAL POLITICAL ECONOMIC AND CRITCALISSUES 157that were collected from the inhabitants varied from tribute or head tax of one gold maiz 3 annually; tax on value of jewelries RAM and gold trinkets; indirect taxes pears on tobacco, wine, cockpits, burlas RAPE meer and powder. From 1521 to 1821, SSierigumpeeny the Spanish treasury had to: : subsidize the Philippines in the: amount of P 250,000.00 per annum due to the poor financial condition of the country, which can be primarily attributed to the poor revenue collection system. American Era In the early American regime from the period 1898 to 1901, the country was ruled by American military governors. In 1902, the first civil government was established under William H. Taft. However, it was only during the term of second civil governor Luke E. Wright that the Bureau of Internal Revenue (BIR) was created through the passage of Reorganization Act No. 1189 dated July 2, 1904. On August 1, 1904, the BIR was formally organized and made operational under the Secretary of Finance, Henry Ide (author of the Internal Revenue Law of 1904), with John S. Hord as the first Collector (Commissioner). The first organization started with 69 employees, which consisted of a Collector, Vice-Collector, one Chief Clerk, one Law Clerk, one Records Clerk and three (3) Division Chiefs. Following the tenure of John S. Hord were three (3) more American collectors, namely: Ellis Cromwell (1909-1912), William T. Holting (1912 -1214) and James J. Rafferty (1914-1918). They were all appointed by the Governor-General with the approval of the Philippine Commission and the US President. During the term of Collector Holting, the Bureau had its first reorganization on January 1, 1913 with the creation of eight (8) divisions, namely: 1) Accounting, 2) Cash, 3) Clerical, 4) Inspection, 5) Law, 6) Real Estate, 7) License and 8) Records. Collections by the Real Estate and License Divisions were confined to revenue accruing to the City of Manila. In line with the Filipinization policy of then US President McKinley, Filipino Collectors were appointed. The first three (3) BIR Collectors were: Wenceslao Trinidad (1918-1922); Juan Posadas, Jr. (1922-1934) and Alfredo Yatao (1934-1938). On May 1921, by virtue of Act No. 299, the Real Estate, License and Cash Divisions were abolished and their functions were transferred 188 READINGS IN PHILIPPINE HISTORYto the City ofManila. As a result of this transfer, the Bureau was left with five (5) divisions, namely: 1) Administrative, 2) Law, 3) Accounting, 4) Income Tax and 5) Inspection. Thereafter, the Bureau established the following: 1) the Examiner's Division, formerly the Income Tax Examiner's Section which was later merged with the Income Tax Division and 2) the Secret Service Section, which handled the detection and surveillance activities but was later abolished on January 1, 1951. Except for minor changes and the creation of the Miscellaneous Tax Division in 1939, the Bureau's organization remained the same from 1921 to 1941. In 1937, the Secretary of Finance promulgated Regulation No. 95, reorganizing the Provincial Inspection Districts and maintaining in each province an Internal Revenue Office supervised by a Provincial Agent. Japanese Era At the outbreak of World War II, under the Japanese regime (1942- 1945), the Bureau was combined with the Customs Office and was headed by a Director of Customs and Internal Revenue. Post-War Era On July 4, 1946, when the Philippines gained its independence from the United States, the Bureau was eventually re-established separately. This led to a reorganization on October 1, 1947, by virtue of Executive Order No. 94, wherein the following were undertaken: 1) the Accounting Unit and the Revenue Accounts and Statistical Division were merged into one; 2) all records in the Records Section under the Administrative Division were consolidated; and 3) all legal work were centralized in the Law Division. Revenue Regulations No. V-2 dated October 23, 1947 divided the country into 31 inspection units, each of which was under a Provincial Revenue Agent (except in certain specia! units which were headed by a City Revenue Agent or supervisors for distilleries and tobacco factories). The second major reorganization of the Bureau took place on January 1, 1951 through the passage of Executive Order No. 392. Three (3) new departments were created, namely: 1) Legal, 2) Assessment and 3) Collection. On the latter part of January of the same year, Memorandum Order No. V-188 created the Withholding Tax Unit, which was placed under the Income Tax Division of the Assessment Department. Simultaneously, the implementation of the withholding tax system was adopted by virtue of Republic Act (RA) 690. This method of collecting income tax upon receipt of the income resulted to the collection of approximately 25% of the total income tax collected during the said period. The third major reorganization of the Bureau took effect on March 1, 1954 through Revenue Memorandum Order (RMO) No. 41. This led to CHAPTER FOUR: SOCIAL POUTICAL ECONOMIC ANDCRTICALISSUES 180the creation of the following offices: 1) Specific Tax Division, 2) Litigation Section, 3) Processing Section and the 4) Office of the City Revenue Examiner. By September 1, 1954, a Training Unit was created through RMO No. V-4-47. As an initial step towards decentralization, the Bureau created its first 2 Regional Offices in Cebu and in Davao on July 20, 1955 per RMO No. V-536. Each Regional Office was headed by a Regional Director, assisted by Chiefs of five (5) Branches, namely: 1) Tax Audit, 2) Collection, 3) Investigation, 4) Legal and 5) Administrative. The creation of the Regional Offices marked the division of the Philippine islands into three (3) revenue regions. The Bureau's organizational set-up expanded beginning 1956 in line with the regionalization scheme of the government. Consequently, the Bureau's Regional Offices increased to (8) eight and later into ten (10) in 1957. The Accounting Machine Branch was also created in each Regional Office. In January 1957, the position title of the head of the Bureau was changed from Collector to Commissioner. The last Collector and the first Commissioner of the BIR was Jose Aranas. A significant step undertaken by the Bureau in 1958 was the establishment of the Tax Census Division and the corresponding Tax Census Unit for each Regional Office. This was done to consolidate all statements of assets, incomes and liabilities of all individual and resident corporations in the Philippines into a National Tax Census. To strictly enforce the payment of taxes and to further discourage tax evasion, RA No. 233 or the Rewards Law was passed on June 19, 1959 whereby informers were rewarded the 25% equivalent of the revenue collected from the tax evader. In 1964, the Philippines was re-divided anew into 15 regions and 72 inspection districts. The Tobacco Inspection Board and Accountable Forms Committee were also created directly under the Office of the Commissioner. Marcos Administration The appointment of Misael Vera as Commissioner in 1965 led the Bureau to a "new direction" in tax administration. The most notable programs implemented were the "Blue Master Program” and the "Voluntary Tax Compliance Program’. The first program was adopted to curb the abuses of both the taxpayers and BIR personnel, while the second program was designed to encourage professionals in the private and government sectors to report their true income and to pay the correct amount of taxes. It was also during Commissioner Vera's administration that the country was further subdivided into 20 Regional Offices and 90 Revenue District Offices, in addition to the creation of various offices 160 READINGS IN PHIUPPINE HSTORYwhich included the Internal Audit Department (replacing the Inspection Department), Administrative Service Department, International Tax Affairs Staff and Specific Tax Department. Providing each taxpayer with a permanent Tax Account Number (TAN) in 1970 not only facilitated the identification of taxpayers but also resulted to faster verification of tax records. Similarly, the payment of taxes through banks (per Executive Order No. 205), as well as the implementation of the package audit investigation by industry are considered to be important measures which contributed significantly to the improved collection performance of the Bureau. The proclamation of Martial Law on September 21, 1972 marked the advent of the New Society and ushered in a new approach in the developmental efforts of the government. Several tax amnesty decrees issued by the President were promulgated to enable erving taxpayers to start anew. Organization-wise, the Bureau had also undergone several changes during the Martial Law period (1972-1980). In 1976, under Commissioner Efren Plana's administration, the Bureau's National Office transferred from the Finance Building in Manila to its own 12-storey building in Quezon City, which was inaugurated on June 3, 1977. It was also in the same year that President Marcos promulgated the National Internal Revenue Code of 1977, which updated the 1934 Tax Code. On August 1, 1980, the Bureau was further reorganized under the administration of Commissioner Ruben Ancheta. New offices were created and some organizational units were relocated for the purpose of making the Bureau more responsive to the needs of the taxpaying public. Aquino Administration After the People's Revolution in February 1986, a renewed thrust towards an effective tax administration was pursued by the Bureau. "Operation: Walang Lagay" was launched to promote the efficient and honest collection of taxes. On January 30, 1987, the Bureau was reorganized under the administration of Commissioner Bienvenido Tan, Jr. pursuant to Executive Order (EQ) No, 127. Under the said EO, two (2) major functional groups headed and supervised by a Deputy Commissioner were created, and these were: 1) the Assessment and Collection Group; ard 2) the Legal and Internal Administration Group. With the advent of the value-added tax (VAT) in 1988, a massive campaign program aimed to promote and encourage compliance with the requirements of the VAT was launched. The adoption of the VAT system was one of the structural reforms provided for in the 1986 Tax Reform Program, which was designed to simplify tax administration and make the tax system more equitable. It was also in 1988 that the CHAPTER FOUR: SOCIAL, POLITICAL, ECONOMIC ANDCRMICAL ISSUES 161Revenue Information Systems Services Inc. (RISSI) was abolished and transferred back to the BIR by virtue of a Memorandum Order from the Office of the President dated May 24, 1988. This transfer had implications on the delivery of the computerization requirements of the Bureau in relation to its functions of tax assessment and collection. The entry of Commissioner Jose Ong in 1989 saw the advent of the "Tax Administration Program" which is the embodiment of the Bureau's mission to improve tax collection and simplify tax administration. The Program contained several tax reform and enhancement measures, which included the use of the Taxpayer Identification Number (TIN) and the adoption of the New Payment Control System and Simplified Net Income Taxation Scheme. Ramos Administration The year 1993 marked the entry into the Bureau of its first lady Commissioner, Livayway Vinzons-Chato. In order to attain the Bureau's vision of transformation, a comprehensive and integrated program known as the ACTS or Action-Centered Transformation Program was undertaken to realign and direct the entire organization towards the fulfillment of its vision and mission. It was during Commissioner Chato’s term that a five-year Tax Computerization Project (TCP) was undertaken in 1994. This involved the establishment of a modern and computerized Integrated Tax System and Internal Administration System. Further streamlining of the BIR was approved on July 1997 through the passage of EO No.430, in order to support the implementation of the computerized Integrated Tax System. Highlights of the said EO included the: 1) creation of a fourth Revenue Group in the BIR, which is the Legal and Enforcement Group (headed by a Deputy Commissioner); and 2) creation of the Internal Affairs Service, Taxpayers Assistance Service, Information Planning and Quality Service and the Revenue Data Centers. With the advent of President Estrada’s administration, a Deputy Commissioner of the BIR, Beethoven Rualo, was appointed as Commissioner of Internal Revenue. Under his leadership, priority reform measures were undertaken to enhance voluntary compliance and improve the Bureau's productivity. One of the most significant reform measures was the implementation of the Economic Recovery Assistance Payment (ERAP) Program, which granted immunity from audit and investigation to taxpayers who have paid 20% more than the tax paid in 1997 for income tax, VAT and/or percentage taxes. In order to encourage and educate consumers/taxpayers to demand sales invoices and receipts, the raffle promo "Huminging 162 READINGS IN PHIUPPINE HSTORYResibo, Manalo ng Libo-Libo” was institutionalized in 1999. The Large Taxpayers Monitoring System was also established under Commissioner Rualo's administration to closely monitor the tax compliance of the country’s large taxpayers. The coming of the new millennium ushered in the changing of the guard in the BIR with the appointment of Dakila Fonacier as the new Commissioner of Internal Revenue. Under his administration, measures that would enhance taxpayer compliance and deter tax violations were prioritized. The most significant of these measures include: full utilization of tax computerization in the Bureau's operations; expansion of the use of electronic Documentary Stamp Tax metering machine and establishment of tie-up with the national government agencies and local government units for the prompt remittance of withhalding taxes; and implementation of Compromise Settlement Program for taxpayers with outstanding accounts receivable and disputed assessments with the BIR. Memoranda of Agreement were also forged with the league of local government units and several private sector and _ professional organizations (ic. MAP, TMAP, PCCI, FFCCCI, etc.) to help the BIR implement tax campaign initiatives. On September 1, 2000, the Large Taxpayers Service (LTS) and the Excise Taxpayers Service (ETS) were established under EO No. 175 to reinforce the tax administration and enforcement capabilities of the BIR. Shortly after the establishment of said revenue services, a new organizational structure was approved on October 31, 2001 under EO No. 306 which resulted in the integration of the functions of the ETS and the LTS. In line with the passage of the Electronic Commerce Act of 2000 on June 14, the Bureau implemented a Full Integrated Tax System (ITS) Rollout Acceleration Program to facilitate the full utilization of tax computerization in the Bureau's operations. Under the Program, seven (7) ITS back-end systems were released in stages in RR 8 - Makati City and the Large Taxpayers Service. Arroyo Administration Following the momentous events of EDSA II in January 2001, newly-installed President Gloria Macapagal-Arroyo appointed a former Deputy Commissioner, Atty. René G. Bafiez, as the new Commissioner of Internal Revenue. Under Commissioner Bafez's administration, the BIR’s thrust was to transform the agency to make it taxpayer-focused. This was undertaken through the implementation of change initiatives that were directed to: 1) reform the tax system to make it simpler and suit the Philippine culture; 2) reengineer the tax processes to make them simpler, more efficient and transparent: 3) restructure the BIR to give it CHAPTER FOUR: SOCAL POUTICAL ECONOMIC AND GRITICALISSUES 163financial and administrative flexibility; and 4) redesign the human resource policies, systems and procedures to transform the workforce to be more responsive to taxpayers’ needs. Measures to enhance the Bureau's revenue-generating capability were also implemented, the most notable of which were the implementation of the Voluntary Assessment Program and Compromise Settlement Program and expansion of coverage of the creditable withholding tax system. A technology-based system that promotes the paperless filing of tax returns and payment of taxes was also adopted through the Electronic Filing and Payment System (eFPS). With the resignation of Commissioner Bafiez on August 19, 2002, Finance Undersecretary Cornelio C. Gison was designated as interim BIR Commissioner. Eight days later (on August 27, 2002), former Customs Commissioner, Guillermo L. Parayno, Jr. was appointed as the new Commissioner of Internal Revenue (CIR). Barely a month since his assumption to duty as the new CIR, Commissioner Parayno offered a Voluntary Assessment and Abatement Program (VAAP) to taxpayers with under-declared sales/receipts/ income. To enhance the collection performance of the BIR, Commissioner Parayno adopted the use of new systems such as the Reconciliation of Listings for Enforcement or RELIEF System to detect under-declarations of taxable income by taxpayers and the electronic broadcasting system to enhance the security of tax payments. It was also under Commissioner Parayno’s administration that the BIR expanded its electronic services to include the web-based TIN application and processing; electronic raffle of invoices/receipts; provision of e-payment gateways; e-substituted filing of tax returns and electronic submission of sales reports. The conduct of special operations on high profile tax evaders, which resulted to the filing of tax cases under the Run After Tax Evaders (RATE) Program marked Commissioner Parayno’s administration as well as the conduct of Tax Compliance Verification Drives and accreditation and registration of cash register machines and point-of-sale machines. To improve taxpayer service, the Bureau also established a BIR Contact Center in the National Office and eLounges in Regional Offices. On October 28, 2006, Deputy Commissioner for Legal and Inspection Group, Jose Mario C. Bufiag was appointed as full-fledged Commissioner of Internal Revenue. Under his administration, the Bureau attained success in a number of key undertakings, which included the expansion of the RATE Program to the Regional Offices; inclusion of new payment gateways, such as the Efficient Service Machines and the G-Cash and SMART Money facilities; implementation of the Benchmarking Method and installation of the Bureau’s e-Complaint System, a new e-Service that allows taxpayers to log their complaints against erring revenuers through the BIR website. The 164 READINGS IN PHILIPPINE HSTORYNationwide Rollout of Computerized Systems (NRCS) was also undertaken to extend the use of the Bureau’s Integrated Tax System across its non-computerized Revenue District Offices. In 2007, the National Program Support for Tax Administration Reform (NPSTAR), a program funded by various international development agencies, was launched to improve the BIR efficiency in various areas of tax administration (i.e. taxpayer compliance, tax enforcement and control, etc.) On June 29, 2007, Commissioner Bufiag relinquished the top post of the BIR and was replaced by Deputy Commissioner for Operations Group, Lilian B. Hefti, making her the second lady Commissioner of the BIR. Commissioner Hefti focused on the strengthening of the use of business intelligence by embarking on data matching of income payments of withholding agents against the reported income of the concerned recipients. Information sharing between the BIR and the Local Government Units (LGUs) was also intensified through the LGU Revenue Assurance System, which aims to uncover fraud and non-payment of taxes. To enhance the Bureau’s audit capabilities, the use of Computer-Assisted Audit Tools and Techniques (CAATTs) was also introduced in the BIR under her term. With the resignation of Commissioner Hefti in October 2008, former BIR Deputy Commissioner for Legal and Enforcement Group, Sixto $. Esquivias IV was appointed as the new Commissioner of Internal Revenue. Commissioner Esquivias’ administration was marked with the conduct of nationwide closure of erring business establishments under the “Oplan Kandado” Program. A Taxpayer Feedback Mechanism (through the eComplaint facility accessible via the BIR Website) was also established under his term where complaints on erring BIR employees and taxpayers who do not pay taxes and do not issue ORs/invoices can be reported. In 2009, the Bureau revived its “Handang Maglingkod” Project where the best frontline offices were recognized for rendering effective taxpayer service. When Commissioner Esquivias resigned in November 2009, Senior Deputy Commissioner, Joel L. Tan-Torres assumed the position of Commissioner of Internal Revenue. Under his administration, Commissioner Tan-Torres pursued a high visibility public awareness campaign on the Bureau’s enforcement and taxpayers’ service programs. He institutionalized several programs/projects to improve revenue collections, and these include Project R.ILP (Rest in Peace); intensified filing of tax evasion cases under the re-invigorated RATE Program; conduct of Taxpayers Lifestyle Check and development of Industry Champions. Linkages with various agencies (i.e. LTO, SEC, BLGF, PHALTRA, etc.) were also established through the signing of several Memoranda of Agreement to improve specific areas of tax administration. CHAPTER FOUR: SOCIAL POLITICAL ECONOMIC AND CRTIGALISSUES 165P-Noy Aquino Administration Following the highly acclaimed inauguration of President Benigno C. Aquino III on June 30, 2010, a former BIR Deputy Commissioner, Atty. Kim S. Jacinto-Henares, was appointed as the new Commissioner of Internal Revenue. During her first few months in the BIR, Commissioner Henares focused on the filing of tax evasion cases under the RATE Program, in compliance with the SONA pronouncements of President Aquino. Duterte Administration Last December 19, 2017, the President signed into law Package 1 of the Comprehensive Tax Reform Program also known as the Tax Reform for Acceleration and Inclusion (TRAIN) as Republic Act (RA) No. 109631. The law provides for the amendments to several provisions of the National Internal Revenue Code of 1997 (NIRC of 1997) on personal income taxation, passive income for both individuals and corporations, estate tax, donor's tax, value-added tax (VAT), excise tax, documentary stamp tax (DST), and tax administration, among others. It likewise introduced new taxes such as the excise tax on cosmetic surgery and sugar-sweetened beverages. The additional revenues that will be generated in the implementation of the Act shall be used to fund the President’s priority infrastructure and social programs that will ultimately benefit the poor. RA 10963 was published in the Philippines’ Official Gazette last December 27, 2017 and took effect last January 1, 2018. TAXATION Taxation refers to the inherent power of the state to demand enforced contributions for public purposes. It is the power by which the sovereign, through its law-making body, raises revenue to defray the necessary expenses of government. It is a way of apportioning the expenses of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens. Taxes are enforced proportional contribution from persons and property, levied by the state by virtue of its sovereignty for the support of the government and for all its public needs. Scope of Taxation It covers persons, property, or occupation to be taxed within the taxing jurisdiction. It is inherent in the power to tax that a State be free to select the subjects of taxations. Generally, the legislature exercises such power however, upon valid delegation, the law-making bodies of LGUs and the President or as an incident of emergency powers that Congress may grant to him may exercise the power of taxation. 186 READINGS IN PHILIPPINE HISTORYTaxes are collected for the following purposes and objectives: 1) Revenue Raising from those collected taxes that are intended primarily to finance the government and its activities; and 2) Non- Revenue/Sumptuary Purposes for: a) Promotion of General Welfare, b) Regulation, c) Reduction of Social Inequality /Compensatory Purpose, d) Encourage Economic Growth and e) Protectionism. The Limitations on the Power of Taxation include: 1) Inherent Limitations (such as Situs or Territoriality of Taxation; Public Purpose; International Comity; Non-delegability of power; and Exemption of government from taxation), and 2) Constitutional Limitation (such as Due Process of Law and Equal Protection of Law). The Basis of Taxation is founded on the Life Blood Theory. Taxation is indispensable and inevitable price for civilized society, without taxes, the government would be paralyzed for lack of the motives power to activate and operate it. Hence, the collection of taxes must be made without hindrance if the State is to maintain its orderly existence. Theories of Taxation 1. Necessity Theory The existence of the government is necessity. It cannot continue without a means to pay its expenses and therefore has a right to compel all citizens and property within its power to contribute. 2. Benefits - Protection/Reciprocity Theory Obligation to pay taxes is involuntary and compulsory, in exchange for the protection and benefits one receives from the government; taxes are paid for the enjoyment of the benefit of organized society. Liabilities Involved A tax creates civil liability on the part of the delinquent taxpayer although the non — payment thereof (due to failure or refusal to pay) creates a criminal liability which could be the subject of criminal prosecution under existing law. To sum, in taxation, it is one’s failure to comply with the civil liability to pay taxes which gives rise to the criminal liability. Nevertheless, taxes to be paid are personal to the taxpayer. Principles of a Sound Tax System 1. Fiscal Adequacy - sources of the government revenue must be sufficient to meet government expenditures and other public needs. 2. Administrative Feasibility - tax laws must be capable of being effectively enforced with the least inconvenience to the taxpayer. 3. Theoretical Justice - a sound tax system must be based on the taxpayers’ ability to pay. Taxation must be uniform and equitable. CHAPTER FOUR: SOCIAL, POLITICAL, ECONOMIC AND CRITICALISSUES 167Nature of Taxing Power Inherent in sovereignty. The power of taxation is inherent in sovereignty as an incident or attribute thereof, being essential to the existence of every government. It can be exercised by the government even if the Constitution is entirely silent on the subject. a. Constitutional provisions relating to the power of taxation do not operate as grants of the power to the government. They merely constitute limitations upon a power which would otherwise be practically without limit. b. While the power to tax is not expressly provided for in our constitutions, its existence is recognized by the provisions relating to taxation. Legislative in character. The power to tax is exclusively legislative and cannot be exercised by the executive or judicial branch of the government except where the Constitution provides otherwise. Scope of Legislative Taxing Power a. Subjects of Taxation - as to the persons, property or occupation etc. to be taxed b, Amount or rate of the tax c. Purposes for which taxes shall be levied provided they are public purpose. d. Apportionment of the tax e. Situs of taxation — place of taxation f. Method of collection DOCTRINES IN TAXATION Prospectivity of Tax Laws Generally, tax laws are prospective in application. Except when the language of the statute clearly demands or expresses that it shall have a retroactive effect. No - Retroactivity of Rulings Generally, any revocation, modification or reversal of any of the rules and regulations, rulings and circular promulgated by the Commissioner shall not be given retroactive application if it will be prejudicial to the taxpayers. Except where the taxpayer deliberately misstates or omits material facts from his return or any document, where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based, or where the taxpayer acted in bad faith. Doctrine of Equitable Recoupment This doctrine provides that a tax claim for refund, which is prevented by prescription, may be allowed to be used as payment for unsettled tax liabilities if both taxes arise from the same transaction in 168 READINGS IN PHIUPPRE HISTORYwhich overpayment is made and underpayment is due. Nevertheless, this doctrine is not applicable in our jurisdiction. Imprescriptibility of Taxes Generally, the right to assess and to collect are imprescriptible, except when the laws provide for statute of limitations. Uniformity and Equitable Uniformity requires that all subjects or objects of taxation similarly situated are to be treated alike or put on equal footing both in privileges and liabilities; means all taxable articles or kinds or property of the same class shall be taxed at the same rate. Thus, a tax is uniform when the same force and effect in every place where the subject of it is found. On the other hand, equitable means fair, just, reasonable and proportionate to one’s ability to pay. Double Taxation It is defined as taxing the same person twice by the same jurisdiction over the same thing. However, there is no double taxation where one tax is imposed by the State and the other by City. Kinds of Double Taxation: a. Obnoxious or Direct Duplicate Taxation b. Permissive or Indirect Duplicate In the strict sense, double taxation means direct double taxation. This means that the same property is taxed twice when it should be taxed only once and that both taxes are imposed on the same subject matter for the same purpose, by the same taxing authority within the same jurisdiction during the same taxing period and covering the same kind of tax. In the broad sense, double taxation means indirect double taxation. Double taxation is indirect where some elements of direct double taxation are absent. It applies to all cases in which there are two or more pecuniary impositions. In other words, double taxation in its strict sense means that the same property is taxed twice when it should be taxed only once. Requisites include: 1) Same property is taxed twice; 2) Same purpose; 3) Same taxing authority; 4) Within the same jurisdiction; 5) During the same taxing period; and 6) Same kind or character of tax. Generally, the absence of one or more of the foregoing requisites of the obnoxious direct tax makes it indirect and allowed. Escape from Taxation The following are some means on which a taxpayer may minimize if not to escape the payment of taxes: Tax Exemptions, Tax Avoidance and Tax Evasion. CHAPTER FOUR: SOCIAL POLITICAL, ECONOMIC AND CRITICAL ISSUES 169Tax Exemption No law granting any tax exemptions shall be passed without the concurrence of a majority of all the members of the Congress. The power to exempt from taxations as well as the power to tax is an essential attribute of sovereignty and may be exercised by virtue of the Constitution, expressly or by implication. The inherent power of the State to impose taxes naturally carries with it the power to grant tax exemptions. Kinds of Tax Exemptions 1.Express — when exemptions are expressly granted by the Constitution, Statutes, Treaties, franchises or similar legislative acts; an example of which is the exemptions from real property. 2.Implied - whenever particular persons, properties or excises are deemed exempt as they fall outside the scope of the taxing provision itself; and 3.Contractual — when in consideration of contractual agreement with the government. Since taxation is the rule and the exemptions are the exception, the exemption may be withdrawn in the pleasure of the taxing authority. However, if the tax exemptions constitute a binding contract and for valuable consideration, the government cannot unilaterally revoke the tax exemptions. Tax Avoidance = It is reducing or totally escaping payment _ of taxes through legally permissible means. This Method should be used by eee the taxpayer in good faith and at arm's 4 length. An example of which is the availing of all deductions allowed by law or refraining from engaging in activities subject to tax. Tax Evasion It is the illegal means of escaping taxation. A vasion n Scheme used outside of those lawful means and face is Hegall when availed of, usually subjects the taxpayer to (further or additional) civil or criminal liabilities. An example of which is the failure to declare for taxa- tions purposes the true and actual income derived from business for two (2) consecutive years. 170 READINGS IN PHILPPINE HSTORYCompensation and set-off A claim for taxes is not such a debt, demand, contract or judgment. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other. A person also cannot refuse to pay taxes on the ground that the government owes him an amount equal or greater than the tax being collected. There can be no off-setting of taxes against the claims that the taxpayer may have against the government. Taxes cannot be the subject of set-off because they are not in the nature of contracts between parties but grow out of a duty to, and, are positive acts, of the Government, to the making and enforcing of which, the personal consent of the taxpayer is not required. Tax Amnesty A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax. It partakes absolute waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. TAX LAWS ‘The following are the sources of tax laws : Constitution; Tariff and Custom Code as amended — RA 8181; Local Government Code; . Local Tax Ordinance /City/Municipal Tax Code; Tax Treaties /International Agreements; Presidential Decree/ Executive Order; Decisions of SC/CTA/CA; Revenue Rules and Regulations, Rulings implemented by the BIR NIRC as amended — R.A. 10963 or TRAIN LAW SION seye Updates of the Tax Law Last December 19, 2017, the President signed into law Package 1 of the Comprehensive Tax Reform Program also known as the Tax Reform for Acceleration and Inclusion (TRAIN) as Republic Act (RA) No. 109631. The law provides for the amendments to several provisions of the National Internal Revenue Code of 1997 (NIRC of 1997) on personal income taxation, passive income for both individuals and corporations, estate tax, donor’s tax, value-added tax (VAT), excise tax, documentary stamp tax (DST), and tax administration CHAPTER FOUR: SOCIAL POLITICAL ECONOMIC ANDCRIICAL ISSUES 171among others. It likewise introduced new taxes such as the excise tax on cosmetic surgery and sugar-sweetened beverages. The additional revenues that will be generated in the implementation of the Act shall be used to fund the President’s priority infrastructure and social programs that will ultimately benefit the poor. RA 10963 was published in the Philippines’ Official Gazette last December 27, 2017 and took effect last January 1, 2018. The Tax Reform for Acceleration and Inclusion (TRAIN) is the first package of the comprehensive tax reform program (CTRP) envisioned by President Duterte’s administration, which seeks to correct a number of deficiencies in the tax system to make it simpler, fairer, and more efficient. It also includes mitigating measures that are designed to redistribute some of the gains to the poor. Through TRAIN, every Filipino contributes in funding more infrastructure and social services to eradicate extreme poverty and reduce inequality towards prosperity for all. TRAIN addresses several weaknesses of the current tax system by lowering and simplifying personal income taxes, simplifying estate and donor’s taxes, expanding the value-added tax (VAT) base, adjusting oil and automobile excise taxes, and introducing excise tax on sugar-sweetened beverages. Impact of the Tax Reform With the tax reform, it can further strengthen the macroeconomic position to create an environment more conducive to high growth and investment, good job creation, and faster poverty reduction. Rating agencies have warned against the stalling of the tax reform and a possible downgrade. Tax reform will allow the government to invest in the people through infrastructure, education, health, housing, and social protection. Fears of spikes in inflation are unfounded. Inflation will still be within the 2-4% target of the Bangko Sentral ng Pilipinas, and monetary policy tools can be used to target inflation. Growth in the Economy Package 1 will help the economy grow by 1.3% by 2022. ‘The GDP will be boosted as a result of higher household consumption due to lower income tax and the cash transfers. The increased economic activity is buoyed by increased household consumption and increased investments. Effect in Inflation Increase in inflation is low and within the BSP’s target range. The increase in excise taxes will raise inflation by .42% in 2018, but will quickly dissipate in succeeding years. 172 READINGS IN PHILIPPINE HISTORYEmployment Generation Package 1 will create about half a million jobs over the next half-decade and could lift up to 250,000 Filipinos out of poverty over the same period. Package 1 can generate PHP 134 billion. If at least half of that is invested in infrastructure, 67,000 jobscan be directly generated in construction, and —- almost 70,000 jobs can be created in the rest of the economy, for a total of 137,000 jobs. Packages 1-5, meanwhile, can generate PHP 309 billion. This implies that a total of 315,000 jobs can be created in the economy. The tax reform will also enable to Build Build Build program to be realized. The program, which is estimated to cost PHP 8.4 trillion, can create around 17 million jobs over the implementation period. Even at only 50 percent implementation, the program can create more than 8 million jobs over its life. Suggested Class Activities: 1. Group yourselves into three (3) and research about the TRAIN LAW, its coverages and packages. What are the salient features of R.A 10963? 2. What is your understanding of the TRAIN LAW? Are you for or against it? Explain your answer by writing a one-page Reflection Paper about your stand on the TRAIN LAW. 3. What is the meaning of the phrase “the power to tax is the power to destroy?” Explain your answer by providing real-life examples. * Distinguish Taxation from the other inherent powers of the State. Cite 5 differences. CHAPTER FOUR: SOCAL POUTICAL ECONOMIC ANDCRTICALISSUES 173