TAX ATION San Beda College of LAW – ALABANG GENERAL PRINCIPLES I.

Concepts, Nature and Characteristics of Taxation and Taxes. Taxation Defined: As a process, it is a means by which the sovereign, through its law-making body, raisesrevenue to defray the necessary expenses of thegovernment. It is merely a way of apportioningthe costs of government among those who insome measures are privileged to enjoy itsbenefits and must bear its burdens. As a power, taxation refers to the inherent power of the state to demand enforced contributions for public purpose or purposes. Rationale of Taxation - The Supreme Court held: “It is said that taxes are what we pay forcivilized society. Without taxes, the governmentwould be paralyzed for lack of the motive powerto activate and operate it. Hence, despite thenatural reluctance to surrender part of one‟shard-earned income to the taxing authorities,every person who is able must contribute hisshare in the running of the government. Thegovernment for its part is expected to respond inthe form of tangible and intangible benefitsintended to improve the lives of the people andenhance their moral and material values. The symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. Taxation is a symbiotic relationship,whereby in exchange for the protection that thecitizens get from the government, taxes arepaid.” (Commissioner of Internal Revenue vsAllegre, Inc.,et al., L-28896, Feb. 17, 1988) Purposes and Objectives of Taxation 1.Revenue – to provide funds or property with which the State promotes the general welfare and protection of its citizens. 2.Non-Revenue[PR2EP] a.Promotion of General Welfare –Taxation may be used as an implement of police power inorder to promote the general welfare of thepeople. [see Lutz vs Araneta (98 Phil 148) andOsmeňa vs Orbos (G.R. No. 99886, Mar. 31, 1993)] b.Regulation – As in the case of taxes levied on excises and privileges like those imposed intobacco or alcoholic products or amusementplaces like night clubs, cabarets, cockpits, etc. In the case of Caltex Phils. Inc. vs COA(G.R. No. 92585, May 8, 1992), it was held thattaxes may also be imposed for a regulatorypurpose as, for instance, in the rehabilitation andstabilization of a threatened industry which isaffected with public industry like the oil industry. c.Reduction of Social Inequality – this is made possible through the progressive system oftaxation where the objective is to prevent theunder-concentration of wealth in the hands of fewindividuals. d.Encourage Economic Growth – in the realm of tax exemptions and tax reliefs, for instance,the purpose is to grant incentives or exemptionsin order to encourage investments and therebypromote the country‟s economic growth. e.Protectionism – in some important sectors of the economy, as in the case of foreignimportations, taxes sometimes provide protectionto local industries like protective tariffs andcustoms. Taxes Defined Taxes are the enforced

3.The Benefits-Protection Theory The basis of taxation is the reciprocal dutyof protection between the state and itsinhabitants. and that for those means. rights or privileges. a corps of civilservants to serve. Qualifications of the Benefit-Protection Theory: a.such as RA 304 which allows backpay certificatesas payment of taxes.The only benefit to which the taxpayer is renders no special or . express or implied. thatit cannot continue without the means to pay itsexpenses.It is levied on persons or property . 5. transactions.It does not mean that only those who are ableto pay and do pay taxes can enjoy the privilegesand protection given to a citizen by thegovernment. Inc. and protection which a government issupposed to provide. the Supreme Court held that: Taxation is a power emanating fromnecessity.Necessity Theory Taxes proceed upon the theory that theexistence of the government is a necessity. Essential Characteristic of Taxes [ LEMP3 S ] 1.It is generally payable inmoney TAX ATION San Beda College of LAW – ALABANG Tax is a pecuniary burden – an exaction tobe discharged alone in the form of money whichmust be in legal tender. Theory and Basis of Taxation 1.proportionalcontributions from persons and property levied bythe law-making body of the State by virtue of itssovereignty for the support of government andfor public needs. 6. a navy todefend its shores from invasion.property or service to be taxed must be subjectto the jurisdiction of the taxing state.A tax may also be imposed on acts. 4. 2. c.It is levied by the law-making body of the State The power to tax is a legislative powerwhich under the Constitution only Congress canexercise through the enactment of laws. the obligation to pay taxes is astatutory liability. . public improvements designedfor the enjoyment of the citizenry and thosewhich come with the State‟s territory andfacilities. In a case.Accordingly. it has theright to compel all citizens and properties withinits limits to contribute. It is not dependent on the will orcontractual assent. unless qualified by law. b. (Phil.. a burden to provide income for public purposes. and a tax constitutes. 13 SCRA 775). thetaxpayer receives the general advantages andprotection which the government affords thetaxpayer and his property.It isproportionate in character . of theperson taxed.It is anenforced contribution A tax is not a voluntary payment ordonation.It is levied by theState which has jurisdiction over the persons or property. Guaranty Co.It is levied for public purpose or purposes Taxation involves. In return for the contributions.From the contributions received. It is a necessary burden to preserve theState‟s sovereignty and a means to give thecitizenry an army to resist aggression.It is ordinarily based on the taxpayer‟s ability to pay. 2. vs Commissioner of Internal Revenue. 7. thegovernment commensuratebenefit to any particular property or person.The persons. Taxes are not contracts but positiveacts of the government.

Nature of Taxing Power 1. 1965) Without taxes. (Gomez vs Palomar. Scope of Legislative Taxing Power [S2 A P K A M] 1.Lifeblood Theory Taxes are the lifeblood of the government. (Collector of Internal Revenue vs. TAX ATION San Beda College of LAW – ALABANG 3.situs of taxation 6. (Lorenzo vs Posadas.A taxpayer cannot object to or resist the payment of taxes solely because no personalbenefit to him can be pointed out as arising fromthe tax. Goodrich International Rubber Co.Most of these limitations are specifically providedin the Constitution or implied therefrom while therest are inherent and they are those which springfrom the nature of the taxing power itselfalthough.purposes for which taxes shall be levied provided they are public purposes 4. so thatsecurity against its abuse is to be found only inthe responsibility of the legislative which imposesthe tax on the constituency who are to pay it.subjects of Taxation (the persons. In the case of Mactan Cebu International Airport Authority vs Marcos.Constitutional provisions relating to the powerof taxation do not operate as grants of the powerto the government.Inherent in sovereignty – The power of taxation is inherent in sovereignty as an incidentor attribute thereof.method of collection Is the Power to Tax the Power to Destroy? In the case of Churchill. It can beexercised by the government even if theConstitution is entirely silent on the subject. being essential to theexistence of every government.entitled is that derived from his enjoyment of theprivileges of living in an organized societyestablished and safeguarded by the devotion oftaxes to public purposes. 11.Subject to constitutional and inherent limitations – Although in one decided case the Supreme Court called it an awesome power. as an incident of sovereignty. its existence isrecognized by the provisions relating to taxation. to be taxed) 2.amount or rate of the tax 3.. b. 1996. exceptsuch as rest in the discretion of the authoritywhich exercise it. 6. property or occupation etc.While the power to tax is not expresslyprovided for in our constitutions.apportionment of the tax 5.” 2. They merely constitutelimitations upon a power which would otherwisebe practically without limit. the government would be paralyzed for lack of motive power to activate and operate it. vs Concepcion (34 Phil 969) it has been ruled that: The power to impose taxes is one sounlimited in force and so searching in extent sothat the courts scarcely venture to declare that itis subject to any restriction whatever. 25 SCRA 829) d. the power to tax hasbeen described as “unlimited in its range.acknowledging in its very nature no limits. Sept.being such.Legislative in character – The power to tax is exclusively legislative and cannot be exercised bythe executive or judicial branch of the government. 64 Phil 353) 3. they may or may not be provided in theConstitution. No . their prompt and certain availabilityis an imperious need. a. Sept. thepower of taxation is subject to certain limitations. et al.

If the tax is lawful and not violative of any ofthe inherent and constitutional limitations. property .” because of the constitutional restraints placed on a taxing power that violated fundamental rights. et al vs CTA (April 26. And. of the application of the law. And in the notable case of McCulloch vs Maryland. exercise of a constitutional right) Power of Judicial Review in Taxation The courts cannot review the wisdom oradvisability or expediency of a tax. Judicial action is limited only to review where involves: 1.g. to wit: a. in anextreme. This opt-quoted maxim instead of being regarded as ablanket authorization of the unrestrained use ofthe taxing power for any and all purposes. TAX ATION San Beda College of LAW – ALABANG Aspects of Taxation 1.The power to tax must be exercised withcaution to minimize injury to proprietary rights ofa taxpayer. In the case of Roxas. the consequential nature of taxationand its resulting implications.lest the tax collector kill the „hen that lays the golden egg‟. the aboveprinciple is pertinent only when there is no powerto tax a particular subject and has no relation to acase where such right to tax exists.” The doctrine seeks to describe. thefact alone that it may destroy an activity or objectof taxation will not entirely permit the courts toafford any relief. Chief Justice Marshall laid down the rule that the power to tax involves the power to destroy. in order to maintain the general public‟ trust and confidence in the Governmentthis power must be used justly and nottreacherously. the SC reminds us that although the power of taxation is sometimes called the powerto destroy. so the power to meetthose needs by taxation must not be limited eventhough the taxes become burdensome orconfiscatory. it is by no means unlimited. Itmust be exercised fairly. equally and uniformly. Therefore itshould be exercised with caution to minimizeinjury to the proprietary rights of a taxpayer. b. in order to maintain the generalpublic‟s trust and confidence in the Government.A subject or object that may not be destroyedby the taxing authority may not likewise betaxed. According to an authority. To say that “the power to tax is thepower to destroy” is to describe not the purposes for which the taxing power may be used but thedegree of vigor with which the taxing power maybe employed in order to raise revenue (I Cooley179-181) •Constitutional Restraints Re: Taxation is the Power to Destroy While taxation is said to be the power todestroy.The determination of validity on the tax in relation to constitutional precepts or provisions.this power must be used justly and nottreacherously. The Supreme Court held: “The power of taxation is sometimescalled also the power to destroy.attribute of sovereignty ismore pervading. and c. It is equallycorrect to postulate that the“power to tax is not the power to destroy while the Supreme Court sits.Levy – determination of the persons. 1968). in an appropriate case. The court‟spower is limited only to the application andinterpretation of the law.irrespective of revenue. (e.The determination. and at no point does the powerof government affect more constantly andintimately all the relations of life than through theexaction made under it. 2. is more reasonablyconstrued as an epigrammatic statement of thepolitical and economic axiom that since thefinancial needs of a state or nation may outrunany human calculation.

Direct Taxes – taxes wherein both the “incidence” as well as the “impact” or burden of the tax faces on one person. case.or excises to be taxed. (Phil. inc.Personal. Hence. example: real estate tax 3.Fiscal Adequacy – the sources of tax revenue should coincide with.17. L-19707. and approximate the needsof government expenditure. vs Commissioner of Internal Revenue et. examples: VAT.As to Subject matter 1.Indirect Taxes – taxes wherein the incidence of or the liability for the payment of the tax fallson one person. Classifications and Distinction Classification of Taxes A. April . estate tax or donor‟s tax B. suchexemption covers only those taxes for which suchconsumer or end-user is directly liable. value-added tax. the enjoyment of a privilege. customs duties excise taxes on certain specific goods Important Points to Consider regarding Indirect Taxes: 1. the sellergets the refund. Indirecttaxes are not included. neither can the consumer or buyer ofthe product demand the refund of the tax thatthe manufacturer might have passed on to him. estate tax 2. Aug. (American Rubber Co. Neither an excessnor a deficiency of revenue vis-àvis the needs ofgovernment would be in keeping with the principle. example: community tax 2. but must hold it in trust forbuyer.As to Burden 1. Acetylene Co. capitation or poll taxes – taxes of fixed amount upon all persons of a certain classwithin the jurisdiction of the taxing power withoutregard to the amount of their property oroccupations or businesses in which they may beengaged in.Collection – consists of the manner of enforcement of the obligation on the part of thosewho are taxed.Theoretical Justice – the tax burden should be in proportion to the taxpayer‟s ability to pay (ability-to-pay principle).When the consumer or end-user of a manufacturer product is tax-exempt.Administrative Feasibility – tax laws should be capable of convenient. community tax. the manufacturercannot claim exemption from the payment ofsales tax. Basic Principles of a Sound Tax System[ FAT ] 1.Excise Taxes – charges imposed upon the performance of an act. II. but the burden thereof can beshifted or passed to another person. or the engaging in an occupation..When the transaction itself is the one that is tax-exempt but through error the seller pays thetax and shifts the same to the buyer. The 1987 Constitution requires taxation to be equitable and uniform. 2. L-10963. 3. the due date thereof and the time andmanner of levying and collecting taxes (strictlyspeaking. such refers to taxation) 2. 1987) 2. examples: income tax. the sum or sums to beraised. just and effective administration. (this includes payment by thetaxpayer and is referred to as tax administration) The two processes together constitute the “taxation system”. al.Property Taxes – taxes on things or property of a certain class within the jurisdiction of the taxing power. examples: income tax. percentage taxes. donor‟s tax.

Where the exemption from indirect tax is given to the contractee.. (Maceda vs Macaraig. 1987) 4. but the evident intention is toexempt the contractor so that such contractormay no longer shift or pass on any tax to thecontractee. 1963) 3. L-31092. Inc..al.When the law granting tax exemption specifically includes indirect taxes or when it isclearly manifest therein that legislative intentionto exempt embraces indirect taxes.supra) . the contractor may claim taxexemption on the transaction (Commissioner of Internal Revenue vs John Gotamco and Sons. et. Feb. 27. then thebuyer of the product or service sold has a right tobe reimbursed the amount of the taxes that thesellers passed on to him.30.

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As to Purpose 1. examples: income tax. customs duties E. to achieve some social or economic needs. Examples: taxes on distilled spirits. donor‟s tax 2.General/Fiscal/Revenue – tax imposed for the general purposes of the government. or by some standard of weight ormeasurement and which requires no assessmentbeyond a listing and classification of the subjectsto be taxed..Ad Valorem Tax – tax based on the value of the article or thing subject to tax.Proportionate Tax – tax rates are fixed on a .Progressive Tax – the rate or the amount of the tax increases as the amount of the income or earning (tax base) to be taxed increases.As to Measure of Application 1.As to Date 1. Note: We have no regressive taxes (this is according to De Leon) 3. to raise revenues for governmental needs. VAT.Specific Tax – tax imposed per head. estate tax.e. unit or number.. example: real property taxes. and fermented liquors 2.TAX ATION San Beda College of LAW – ALABANG C. Examples: educational fund tax under Real Property Taxation D. 4.Mixed Tax – tax rates are partly progressive and partly regressive.Special/Regulatory – tax imposed for special purposes. Examples: income taxes.e.Regressive Tax – the tax rate decreases as the amount of income or earning (tax base) to be taxed increases. i. and almost all taxes 2. i. wines.

Penalty vs Tax Penalty – any sanctions imposed as a punishment for violations of law or acts deemed injurious.demand of sovereignty 1. examples: national internal revenue taxes. Regressive System of Taxation: focuses on indirect taxes. VAT. must not be confused with regressive system of taxation.paid for the support of the government 2.flat tax base.generally. it exists when there are more indirect taxes imposed than direct taxes.National Tax – tax imposed by the National Government. Tax vs Toll 1.demand of proprietorship 2. Regressive Tax: tax the rate of which decreases as the tax base increases.amount depends onthe cost of constructionor maintenance of thepublic improvement used 4. bridge of thelike.Municipal/Local Tax – tax imposed by Local Government units. professional tax •Regressive System of Taxation vis-à-vis Regressive Tax A regressive tax.imposed by thegovernment or privateindividuals or entities b. of a public nature. examples: real estate tax. examples: real estate tax. no limit as to amount imposed 3.generally intended to raise revenue 1. customs duties 2.designed to regulate . generally applied to the considerationwhich is paid for the use of a road. and other percentage taxes F. Taxes distinguished from other Impositions a.paid for the use of another‟s property 3.imposed only by the government 4.Toll vs Tax Toll – sum of money for the use of something. Tax vs Penalty 1.As to Scope or authority imposing the tax 1.

imposed only by the government 2. p. 2.Special Assessment vs Tax Special Assessment – an enforced proportional contribution from owners of landsespecially or peculiarly benefited by publicimprovements. p. .imposed by thegovernment or privateindividuals or entities c. Tax 1 Reviewer Download this Document for FreePrintMobileCollectionsReport Document Info and Rating taxation tax reviewer midterms tax reviewer taxation 1 tax 1 ms_k_a_y_e Share & Embed Related Documents PreviousNext 1. p.conduct 2.

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