definition of taxation for eco101

8/3/2019 Definition of Taxation for Eco101

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DEFINITION OF TAXATIONTaxation is the inherent power of the sovereign, exercised through the legislature, to imposeburdens upon the subjects and objects within its jurisdiction, for the purpose of raising revenuesto carry out the legitimate objects of the government.

TAXESEnforced proportional contributions from properties and persons levied by the State by virtue itssovereignty for the support of the government and for public needs.

BASIS OF TAXATION> GOVERNMENTAL NECESSITY* The existence of the government depends upon its capacity to perform its two (2) basicfunctions:A.. to serve the peopleB.. to protect the people

THEORY OF TAXATION>RECIPROCAL DUTIES OF SUPPORT AND PROTECTION1) Support on the part of the taxpayers2) Protection and benefits on the part of the government

BENEFITS RECEIVED PRINCIPLE(CIR vs. ALGUE) Despite the natural reluctance to surrender part of ones hard earned income to the taxing

authority, every person who is able to must contribute his share in the running of thegovernment. The government is expected to respond in the form of tangible or intangible benefits intended

to improve the lives of the people and enhanced their material and moral values. In return for his contribution, the taxpayer receives the general advantages and protectionwhich the government affords the taxpayer and his property. One is compensation orconsideration for the other. Protection for support and support for protection.However, it does not mean that only those who are able topay taxes can enjoy the privileges and protectiongiven to a citizen by the government.

LORENZO vs. POSADAS > The only benefit to which the taxpayer is entitled is that derived form the enjoyment of the

privileges of living in an organized society established and safeguarded by the devotion of taxesto public purpose. The government promises nothing to the person taxed beyond what maybeanticipated from an administration of the laws for the general good. > Taxes are essential to the existence of the government. Theobligation to pay taxes rests not upon the privileges enjoyed by or the protection afforded to thecitizen by the government, but upon the necessity of money for the support of the State. For thisreason, no one is allowed to object to or resist payment of taxes solely because no personalbenefit to him can be pointed out as arising from the tax.


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ESSENTIAL ELEMENTS OF A TAX1) It is an enforced contribution2) It is generally payable in money3) It is proportionate in character4) It is levied on persons, property, or the exercise of a right or privilege

5) It is levied by the State which has jurisdiction over the subject or object of taxation6) It is levied by the law-making body of the State7) It is levied for publics purpose or purposes

REQUISITES of a VALID TAX code: [P, U, J, A, N]1) It should be for a public purpose2) The rule of taxation should be uniform3) That either the person or property taxed be within the jurisdiction of the taxing authority4) That the assessment and collection be in consonance with the due process clause5) The tax must not infringe on the inherent and constitutional limitations of the power oftaxation

*> Taxes are the lifeblood of the government and should be collected without unnecessaryhindrance. But their collection should not be tainted with arbitrariness

NATURE OF TAXATION1) Inherent in sovereignty2) Legislative in character

SCOPE OF TAXATION1) Comprehensive2) Unlimited3) Plenary4) Supreme

TOLENTINO vs. SEC. Of FINANCE > In the selection ofthe object or subject of taxation the courts have no power to inquire intothe wisdom, objectivity, motive, expediency or necessity of such tax law. (WOMEN)

PURPOSES OF TAXATION

PRIMARY- To raise revenue in order to support the government

SECONDARY1) Used to reduce social inequality2) Utilized to implement the police power of the State3) Used to protect our local industries against unfair competition4) Utilized by the government to encourage the growth of local industries


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LIFEBLOOD DOCTRINE > Taxes are the lifeblood of the nation

> Without revenue raised from taxation, the government will not survive, resulting in detrimentto society. Without taxes, the government would be paralyzed for lack of motive power toactivate and operate it. (CIR vs. ALGUE)

> Taxes are the lifeblood of the government and there prompt and certain availability is an

imperious need.

> Taxes are the lifeblood of the nation through which the agencies of the government continue

to operate and with which the state effects its functions for the benefit of its constituents

ILLUSTRATIONS OF THE LIFEBLOOD THEORY

1) Collection of the taxes may not be enjoined by injunction2) Taxes could not be the subject of compensation or set off3) A valid tax may result in destruction of the taxpayers property4) Taxation is an unlimited and plenary power

POWER TO TAX AND POWER TO DESTROY

* > The power to tax includes the power to destroy if it is used as an implement of the policepower (regulatory) of the State. However, it does not include the power to destroy if it is usedsolely for the purpose of raising revenue. (ROXAS vs. CTA)

NOTES: > If the purpose of taxation is regulatory in character, taxation is used to implement the police

power of the state

> If the power oftaxation is used to destroy things, businesses, or enterprises and the purpose isto raise revenue, the court will come in because there will be violation of the inherent andconstitutional limitations and it will be declared invalid.

NATURE OF THE TAXING POWER1) Attribute of sovereignty and emanates from necessity, relinquishment of which is neverpresumed2) Legislative in character, and3) Subject to inherent and constitutional limitations

NECESSITY THEORY > Existence of a government is a necessity and cannot continue without any means to pay for


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expenses

BENEFITSPROTECTION THEORY > Reciprocal duties of protection and support between State and inhabitants. Inhabitants pay

taxes and in return receive benefits and protection from the State

SCOPE OF LEGISLATIVE TAXING POWER1) The persons, property and excises to be taxed, provided it is within its jurisdiction2) Amount or rate of tax3) Purposes for its levy, provided it be for a public purpose4) Kind of tax to be collected5) Apportionment of the tax6) Situs of taxation7) Method of collection

ASPECTS OF TAXATION1) LEVY or IMPOSITIONenactment of tax lawslegislative in character2) ASSESSMENTcollectionadministrative in character

NOTES: > It is inherent in the power to tax that the State is free to select the object of taxation

> The power of the legislature to impose tax includes the power1) what to tax2) whom to tax3) how much to tax

BAGATSING vs. RAMIREZ > What cannot be delegated is the legislative enactment ofa tax measure but as regards to theadministrative implementation of a tax law that can be delegated.

> The collection may be entrusted to a private corporation.

> The rule that the power of taxation cannot be delegated does not apply to the administrativeimplementation of a tax law

> There is no violation because what is delegated or entrusted is the collection and not theenactment of such laws

> The issuance of regulations or circulars by the BIR or the Secretary of Finance should not go

beyond the scope of the tax measure


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BASIC PRINCIPLES OF A SOUND TAX SYSTEM1) THEORETICAL JUSTICE2) FISCAL ADEQUACY3) ADMINISTRATIVE FEASIBILITY

NOTES:FISCAL ADEQUACY- VIOLATIONVALID > Sources of revenue should be sufficient to meet the demands of public expenditure

> Revenues should be elastic or capable of expanding or contracting annually in response tovariations in public expenditure

>Elasticity may be obtained without creating annually any new taxes or any new tax machinerybut merely by changes in the rates applicable to existing taxes

> Even if a tax law violates the principle of Fiscal Adequacy , in other words, the proceeds may

not be sufficient to satisfy the needs of the government, still the tax law is valid

ADMINISTRATIVE FEASIBILITY- VIOLATIONVALID > The tax law must be capable of effective or efficient enforcement> Tax laws should be capable of convenient, just and effective administration

> Tax laws should close-up the loopholes for tax evasion and deter unscrupulous officials fromcommitting fraud > There is no law that requires compliance with this principle, so even if the tax law violates

this principle; such tax law is valid.

THEORETICAL JUSTICE- VIOLATIONINVALID > This principle mandates that taxes must be just, reasonable and fairTaxation shall be uniform and equitable

> Equitable taxation has been mandated by our constitution, as if taxes are unjust and

unreasonable then they are not equitable, thus invalid.

> The tax burden should be in proportion to the taxpayers ability to pay (ABILITY TO PAYPRINCIPLE)

DISTINCTIONS:

TAXATION vs. POLICE POWER vs. EMINENT DOMAIN


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1) As to purpose:Taxationfor the support of the governmentEminent Domain_- for public usePolice Powerto promote general welfare, public health, public morals, and public safety.

2) As to compensation:TaxationProtection and benefits received from the government.Eminent Domainjust compensation, not to exceed the market value declared by the owner oradministrator or anyone having legal interest in the property, or as determined by the assessor,whichever is lower.Police PowerThe maintenance of a healthy economic standard of society.

3) As to persons affected:Taxation and Police Poweroperate upon a community or a class of individualsEminent Domainoperates on the individual property owner.

4) As to authority which exercises the power:Taxation and Police PowerExercised only by the government or its political subdivisions.Eminent Domainmay be exercised by public services corporation or public utilities if grantedby law.

5) As to amount of imposition:TaxationGenerally no limit to the amount of tax that may be imposed.Police PowerLimited to the cost of regulationEminent DomainThere is no imposition; rather, it is the owner of the property taken who isjust paid compensation.

6) As to the relationship to the Constitution:Taxation and Eminent DomainSubject to certain constitutional limitations, including theprohibition against impairment of the obligation of contracts.Police PowerRelatively free from constitutional limitations and superior to the non-impairment provisions thereof.

TAX DISTINGUISHED FROM LICENSE FEE:a) PURPOSE: Tax imposed for revenue WHILE license fee for regulation. Tax for generalpurposes WHILE license fee for regulatory purposes only.

b) BASIS: Tax imposed under power of taxation WHILE license fee under police power.

c) AMOUNT: In taxation, no limit as to amount WHILE license fee limited to cost of the licenseand expenses of police surveillance and regulation.

d) TIME OF PAYMENT: Taxes normally paid after commencement of business WHILE licensefee before.

e) EFFECT OF PAYMENT: Failure to pay a tax does not make the business illegal WHILE


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failure to pay license fee makes business illegal.f) SURRENDER: Taxes, being lifeblood of the state, cannot be surrendered except for lawfulconsideration WHILE a license fee may be surrendered with or without consideration.

IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES.

It is necessary to determine whether a particular imposition is a tax or a license fee, becausesome limitations apply only to one and not to the other.Furthermore, exemption from taxes does not include exemption from license fees

TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:1) tollamount charged for the cost and maintenance of property used;

2) compromise penaltyamount collected in lieu of criminal prosecution in cases of taxviolations;

3) special assessmentlevied only on land based wholly on the benefit accruing thereon as aresult of improvements of public works undertaken by government within the vicinity.

4) license feeregulatory imposition in the exercise of the police power of the State;

5) margin feeexaction designed to stabilize the currency

6) custom duties and feesduties charged upon commodities on their being imported into orexported from a country;

7) debta tax is not a debt but is an obligation imposed by law.

Special assessment v. tax

1. A special assessment tax is an enforced proportional contribution from owners of landsespecially benefited by public improvements2. A special assessment is levied only on land.3. A special assessment is not a personal liability of the person assessed; it is limited to the land.4. A special assessment is based wholly on benefits, not necessity.5. A special assessment is exceptional both as to time and place; a tax has general application.

Some Rules:

An exemption from taxation does not include exemption from a special treatment.

The power to tax carries with it a power to levy a special assessment.


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Toll v. tax

1. Toll is a sum of money for the use of something. It is the consideration which is paid for theuse of a road, bridge, or the like, of a public nature. Taxes, on the other hand, are enforced

proportional contributions from persons and property levied by the State by virtue of itssovereignty for the support of the government and all public needs.

2. Toll is a demand of proprietorship; tax is a demand of sovereignty.

3. Toll is paid for the used of anothers property; tax is paid for the support of government.

4. The amount paid as toll depends upon the cost of construction or maintenance of the publicimprovements used; while there is no limit on the amount collected as tax as long as it is notexcessive, unreasonable, or confiscatory.

5. Toll may be imposed by the government or by private individuals or entities; tax may beimposed only by the government.

Tax v. penalty

1. Penalty is any sanction imposed as a punishment for violation of law or for acts deemedinjurious; taxes are enforced proportional contributions from persons and property levied by theState by virtue of its sovereignty for the support of the government and all public needs.

2. Penalty is designed to regulate conduct; taxes are generally intended to generate revenue.

3. Penalty may be imposed by the government or by private individuals or entities; taxes only bythe government.

Obligation to pay debt v. obligation to pay tax

1. A debt is generally based on contract, express or implied, while a tax is based on laws.

2. A debt is assignable, while a tax cannot generally be assigned.

3. A debt may be paid in kind, while a tax is generally paid in money.

4. A debt may be the subject of set off or compensation, a tax cannot.

5. A person cannot be imprisoned for non-payment of tax, except poll tax.

6. A debt is governed by the ordinary periods of prescription, while a tax is governed by thespecial prescriptive periods provided for in the NIRC.

7. A debt draws interest when it is so stipulated or where there is default, while a tax does not


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draw interest except only when delinquent.

Requisites of compensation

1. That each one of the obligor be bound principally, and that he be at the same time a principalcreditor of the other.

2. That both debts consist in a sum of money, or if the things due are consumable, they be of thesame kind and also of the same quality if the latter has been stated.

3. That the two (2) debts be due.

4. That they be liquidated and demandable.

5. That over neither of them there be any retention or controversy, commenced by third persons

and communicated in due time to the debtors.

Rules re: set off or compensation of debts

General rule: A tax delinquency cannot be extinguished by legal compensation. This is sobecause the government and the tax delinquent are not mutually creditors and debtors. Neither isa tax obligation an ordinary act. Moreover, the collection of a tax cannot await the results of alawsuit against the government. Finally, taxes are not in the nature of contracts but grow out ofthe duty to, and are the positive acts of the government to the making and enforcing of which thepersonal consent of the taxpayer is not required. (Francia v. IAC, 162 SCRA 754 and Republic v.Mambulao Lumber, 4 SCRA 622)

Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443] re: claim for

payment of unpaid services of a government employee vis--vis the estate taxes due from hisestate. The fact that the court having jurisdiction of the estate had found that the claim of theestate against the government has been appropriated for the purpose by a corresponding lawshows that both the claim of the government for inheritance taxes and the claim of the intestatefor services rendered have already become overdue and demandable as well as fully liquidated.Compensation therefore takes place by operation of law.

Survey of Philippine TaxesA. Internal Revenue taxes imposed under the NIRC.1. Income tax2. Transfer taxesa) Estate taxb) Donors tax


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3. Percentage taxesa) Value Added Taxb) Other Percentage Taxes4. Excise taxes5. Documentary stamp tax

B. Local/ Municipal TaxesC. Tariff and Customs DutiesD. Taxes / Tax Incentives under special lawsCLASSIFICATION OF TAXESAS TO SUBJECT MATTER OR OBJECT1. Personal, poll or capitation taxTax of a fixed amount imposed on persons residing within a specified territory, whether citizensor not, without regard to their property or the occupation or business in which they may beengaged, i.e. community tax.2. Property taxTax imposed on property, real or personal, in proportion to its value or in accordance with some

other reasonable method of apportionment.3. Excise taxA charge impose upon the performance of an act, the enjoyment of privilege, or the engaging inan occupation.AS TO PURPOSEGeneral/fiscal revenue tax is that imposed for the purpose of raising public funds for the serviceof the government.A special or regulatory tax is imposed primarily for the regulation of useful or non-usefuloccupation or enterprises and secondarily only for the purpose of raising public funds.AS TO WHO BEARS THE BURDEN1. Direct taxA direct tax is demanded from the person who also shoul,ders the burden of the tax. It is a taxwhich the taxpayer is directly or primarily liable and which he or she cannot shift to another.2. Indirect taxAn indirect tax is demanded from a person in the expectation and intention that he or she shallindemnify himself or herself at the expense of another, falling finally upon the ultimatepurchaser or consumer. A tax which the taxpayer can shift to another.AS TO THE SCOPE OF THE TAX1. National taxA national tax is imposed by the national government.2. Local taxA local tax is imposed by the municipal corporations or local government units (LGUs).AS TO THE DETERMINATION OF AMOUNT1. Specific taxA specific tax is a tax of a fixed amount imposed by the head or number or by some otherstandard of weight or measurement. It requires no assessment other than the listing orclassification of the objects to be taxed.2. Ad valorem taxAn ad valorem tax is a fixed proportion of the value of the property with respect to which the taxis assessed. It requires the intervention of assessors or appraisers to estimate the value of such


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GENERAL RULE:- Taxes are personal to the taxpayer. Corporations tax delinquency cannot be enforced on thestockholder or transfer taxes on the estate be assessed on the heirs.EXCEPTIONS

1. stockholders may be held liable for unpaid taxes of a dissolved corporation if the corporateassets have passed into their hands; and2. heirs may be held liable for the transfer taxes on the estate, if prior to the payment of the same,the properties of the decedent have been distributed to the heirs.

LIMITATIONS ON THE POWER OF TAXATIONInherent Limitations1. It must be imposed for a public purpose.2. If delegated either to the President or to a L.G.U., it should be validly delegated.3. It is limited to the territorial jurisdiction of the taxing authority.4. Government entities are exempted.

5. International comity is recognized i.e. property of foreign sovereigns are not subject to tax.Constitutional limitationsIndirecta) Due process clauseb) Equal protection clausec) Freedom of the pressd) Religious freedome) Non-impairment clausef) Law-making process1. One-subjectOne-title Rule2. 3 readings on 3 separate days Rule except when there is a Certificate of Emergency3. Distribution of copies 3 days before the 3rd reading.g) Presidential power to grant reprieves, commutations and pardons, and remit fines andforfeitures after conviction by final judgment.Directa) Revenue bill must originate exclusively in H.R. but the Senate may propose with amendments.b) Non-imprisonment for non-payment of poll tax.c) Taxation shall be uniform and equitable.d) Congress shall evolve a progressive system of taxation.e) Tax exemption of charitable institutions, churches and personages or convents appurtenantthereto, mosques, non-profit cemeteries, and all lands, buildings and improvements ADE(actually, directly , exclusively) used for charitable, religious, and educational purposes.f) Tax exemption of all revenues and assets used ADE for educational purposes of1. Non-profit non-stock educational institutions.2. Proprietary or cooperative educational institutions subject to limitations provided by lawincludinga) restriction on dividendsb) provisions for re-investments.g) Tax exemption of grants, endowments, donations or contributions ADE for educationalpurposes, subject to conditions prescribed by law.


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h) No tax exemption without the concurrence of a majority of all members of Congress.i) SC power to review judgments or orders of lower courts in all cases involvingLegality ofany tax. Impost or toll, Legality of any penalty imposed in relation thereto.

INHERENT LIMITATIONS

NOTES: PUBLIC PURPOSEGOVERNMENTAL PURPOSERULE: The Legislature is without the power to appropriate revenues for anything but for publicpurposes.RULE: Public money can only be spent for a public purpose.PUBLIC PURPOSEA purpose affecting the inhabitants of the State or taxing district as acommunity and not merely as individuals> Public purpose includes not only direct benefits or advantage, it also includes indirect benefitsor advantage

TIO vs. VIDEOGRAM > It is not the immediate result but the ultimate result that determines, whether the purpose ispublic or not > It is not the number of persons benefited but it is the character of the purpose that determinesthe public character of such tax law > What is not allowed is that if it has no link to public welfare > Public purpose is determined by the use to which the tax money is devoted> If it benefits the community in general then it is for a public purpose no matter who collects itTEST1. If the public advantage or benefit is merely incidental in the promotion of a particularenterprise, that will render the law INVALID2. If what is incidental is the promotion of a private enterprise, the tax law is still for a publicpurpose(VALID) > A tax levied for a private, not public purpose constitutes taking of property without due

process of law as it is beyond the powers of the government to impose it. > Although private individuals are directly benefited, the tax would still be valid, provided such

benefit is only incidental > If what is incidental is the promotion of a private enterprise, as long as there is a link to thepublic welfare, the purpose is still public > The test is not as to who receives the money, but the character of the purpose for which it is

expended> Not the immediate result of the expenditure, but rather the ultimate > The test that must be applied in determining whether the purpose is public or private1) The character of the direct object2) The ultimate result not the immediate result3) The general welfare for public goodTEST OF RIGHTFUL TAXATION- Proceeds of a tax must be used1) for the support of the government2) for any of the recognized objects of the government


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3) to promote the welfare of the community

LEGISLATIVE PREROGATIVERULE: It is Congress which has the power to determine whether the purpose is public or private > You can always question the validity of such tax measure on the ground that it is not for a

public purpose before the courts. But once it is settled that it is for a public purpose, you can nolonger inquire on such tax measureTAXPAYERS SUIT- a case where the act complained of directly involves the illegal disbursement of public fundsderived from taxation> courts discretion to allow > Taxpayers have sufficient interest of preventing the illegal expenditures of money raised by

taxation (NOT DONATIONS AND CONTRIBUTIONS) > A taxpayer is not relieved from the obligation of paying a tax because of his belief that it is

being misappropriated by certain officials > A taxpayer has no legal standing to question executive acts that do not involve the use of

public funds. (GONZALES vs. MARCOS)REQUISITES FOR A TAXPAYERS PETITION1) That money is being extracted and spent in violation of specific constitutional protectionsagainst abuses of legislative power2) That public money is being deflected to any improper purpose3) That the petitioner seeks to restrain respondents from wasting public funds through theenforcement of an invalid or unconstitutional law.KILOS BAYAN vs. GUINGONA > The Supreme Court has discretion whether or not to entertain taxpayers suit and could brushaside lack of locus standiCONCEPTS RELATIVE TO PUBLIC PURPOSE1) Inequalities resulting from the singling out of one particular class for taxation or exemptioninfringe no constitutional limitationIt is inherent in the power to tax that the legislature is free to select the subject of taxation

2) An individual taxpayer need not derive direct benefits from the taxThe paramount consideration is the welfare of the greater portion of the population3) Public purpose is continually expanding. Areas formerly left to private initiative now loosetheir boundaries and may be undertaken by the government, if it is to meet the increasing socialchallenges of the times4) Public purpose is determined at the time of enactment of the tax law and not at the time ofimplementation

NOTES: INTERNATIONAL COMITY- Based on tradition, practice or customDOCTRINE OF INCORPORATION > The Philippines adopts the generally accepted principles of international law as part of the

law of the land > If a tax law violates certain principles of international law, then it is not only invalid but also


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unconstitutional

GROUNDS FOR TAX EXEMPTION OF FOREIGN GOVERNMENT PROPERTY1) Sovereign equality of States2) Usage among States

3) Immunity from suit of a State

NOTES: NON-DELEGATION OF THE POWER TO TAXGENERAL RULE:- The power of taxation is peculiarly and exclusively legislative, therefore, it may not bedelegatedEXCEPTIONS:1) Delegation to the President2) Delegation to local government units3) Delegation to administrative units

POWERS WHICH CANNOT BE DELEGATED1) Determination of the subjects to be taxed2) Purpose of the tax3) Amount or rate of the tax4) Manner, means and agencies of collection5) Prescription of the necessary rules with respect thereto

DELEGATION TO THE PRESIDENT > Congress may authorize, by law, the President to fix, within specified limits and subject to

such limitations and restrictions as it may impose1) Tariff rates2) Import and export quotas3) Tonnage and wharfage dues4) Other duties and import within the national development program of the government > There must be a law authorizing the President to fix tariff rates > The delegation of power must impose limitations and restrictions and specify the minimum as

well as the maximum tariff rates.

FLEXIBLE TARIFF CLAUSE (SEC. 401 TCC)- In the interest of national economy, general welfare and/or national security, the President uponthe recommendation of the National Economic and Development Authority is empowered:1) To increase, reduce or remove existing protective rates of import duty, provided that theincrease should not be higher than 100% ad valorem2) To establish import quota or to ban imports of any commodity3) To impose additional duty on all imports not exceeding 10% ad valorem

DELEGATION TO LOCAL GOVERNMENT UNITS > Each local government unit has the power to create its own revenue and to levy taxes, fees

and charges subject to such guidelines and limitations as the Congress may provide (ART X Sec


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5) > Local government units have no power to further delegate said constitutional grant to raiserevenue, because what is delegated is not the enactment or the imposition of a tax, it is theadministrative implementationBASCO vs. PAGCOR

> The power of local government units to impose taxes and fees is always subject to thelimitations which Congress may provide, the former having no inherent power to tax. > Municipal corporations are mere creatures of Congress which has the power to create and

abolish municipal corporations. Congress therefore has the power to control over localgovernment units. If Congress can grant to a municipal corporation the power to tax certainmatters, it can also provide for exemptions or even take back the power

DELEGATION TO ADMINISTRATIVE AGENCIES > For the delegation to be constitutionally valid, the law must be complete in itself and must set

forth sufficient standards > Certain aspects of the taxing process that are not really legislative in nature are vested in

administrative agencies. In these cases, there really is no delegation, to wit:A) power to value propertyB) power to assess and collect taxesC) power to perform details of computation, appraisement or adjustments.

NOTES: EXEMPTION OF GOVERNMENT AGENCIES1) Agencies performing governmental functions> TAX EXEMPT2) Agencies performing proprietary functions> SUBJECT TO TAX* > The exemption applies only to governmental entities through which the governmentimmediately and directly exercises its sovereign powers.NDC vs. CEBU CITY > Tax exemption of property owned by the Republic of the Philippines refers to the property

owned by the government and its agencies which do not have separate and distinct personality.> Those with ORIGINAL CHARTERS (incorporated agencies) > Those created by SPECIAL CHARTER (incorporated agencies) are not covered by the

exemption

GOVERNMENT ENTITIES EXEMPT FROM INCOMING TAX1) GSIS2) SSS3) PHIC4) PCSO5) PAGCORREASON FOR EXEMPTIONS1) Government will be taxing itself to raise money for itself.2) Immunity is necessary in order that governmental functions will not be impeded.

NOTES: TERRITORIAL JURISDICTION


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RULES: > Tax laws cannot operate beyond a States territorial limits > The government cannot tax a particular object of taxation which is not within its territorialjurisdiction. > Property outside ones jurisdiction does not receive any protection of the State

> If a law is passed by Congress, Congress must always see to it that the object or subject oftaxation is within the territorial jurisdiction of the taxing authority

SITUS OF TAXATIONPlace of taxationRULE:- The State where the subject to be taxed has a situs may rightfully levy and collect the tax > In determining the situs of taxation, you have to consider the nature of the taxesExample:1) POLL TAX, CAPITATION TAX, COMMUNITY TAX> Residence of the taxpayer

2) REAL PROPERTY TAX OR PROPERTY TAX> Location of the property > We can only impose property tax on the properties of a person whose residence is in thePhilippines.

EXCEPTIONS TO THE TERRITORIALITY RULEA) Where the tax laws operate outside territorial jurisdiction1) TAXATION of resident citizens on their incomes derived from abroadB) Where tax laws do not operate within the territorial jurisdiction of the State1) When exempted by treaty obligations

2) When exempted by international comitySITUS OF TAX ON REAL PROPERTY- LEX REI SITUS or where the property is locatedREASON: The place where the real property is located gives protection to the real property, hence theproperty or its owner should support the government of that place

SITUS OF PROPERTY TAX ON PERSONAL PROPERTY- MOBILIA SEQUNTUR PERSONAM= movables follow the owner

= movables follow the domicile of the ownerRULES:1) TANGIBLE PERSONAL PROPERTY- Where located, usually the owners domicile2) INTANGIBLLE PERSONAL PROPERTYG. R.Domicile of the ownerEXCEPTION: The situs location not domicile> Where the intangible personal property has acquired a business situs in another jurisdiction


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* > The principle of Mobilia Sequntur Personam is only for purposes of convenience. It must

yield to the actual situs of such property.* > Personal intangible properties which acquires business situs here in the Philippines1) Franchise which is exercised within the Philippines2) Shares, obligations, bonds issued by a domestic corporation

3) Shares, obligations, bonds issued by a foreign corporation, 85% of its business is conducted inthe Philippines4) Shares, obligations, bonds issued by a foreign corporation which shares of stock or bondsacquire situs here5) Rights, interest in a partnership, business or industry established in the Philippines> These intangible properties acquire business situs here in the Philippines, you cannot apply theprinciple of Mobilia Sequntur Personam because the properties have acquired situs here.

SITUS OF INCOME TAXA) DOMICILLARY THEORY- The location where the income earner resides in the situs of taxation

B) NATIONALITY THEORY- The country where the income earner is a citizen is the situs of taxationC) SOURCE RULE- The country which is the source of the income or where the activity that produced the incometook place is the situs of taxation.

SITUS OF SALE OF PERSONAL PROPERTY > The place where the sale is consummated and perfected

SITUS OF TAX ON INTEREST INCOME > The residence of the borrower who pays the interest irrespective of the place where the

obligation was contractedCIR vs. BOAC > Revenue derived by an of-line international carrier without any flight from the Philippines,from ticket sales through its local agent are subject to tax on gross Philippine billings

SITUS OF EXCISE TAX> Where the transaction performedHOPEWELL vs. COM. OF CUSTOMS > The power to levy an excise upon the performance of an act or the engaging in an occupationdoes not depend upon the domicile of the person subject to the exercise, nor upon the physicallocation of the property or in connection with the act or occupation taxed, but depends upon theplace on which the act is performed or occupation engaged in.Thus, the gauge of taxability does not depend on the location of the office, but attaches upon theplace where the respective transaction is perfected and consummated

CONSTITUTIONAL LIMITATIONSI. DUE PROCESS > Due process mandates that no person shall be deprived of life, liberty, or property without


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due process of law.PEPSI COLA vs. MUN. OF TANAUAN- REQUIREMENTS OF DUE PROCESS IN TAXATION1) Tax must be for a Public purpose2) Imposed within the Territorial jurisdiction

3) No arbitrariness or oppression inA) assessment, andB) collection

DUE PROCESS IN TAXATION DOES NOT REQUIRE1) Determination through judicial inquiry ofA) property subject to taxB) amount of tax to be imposed2) Notice of hearing as to:A) amount of the taxB) manner of apportionment

REQUISITES OF DUE PROCESS OF LAW1) There must be a valid law2) Tax measure should not be unconscionable and unjust as to amount to confiscation of property3) Tax statute must not be arbitrary as to find no support in the constitution

> When is deprivation of life, liberty or property done in accordance with due process of law?1) If done under authority of a law that is valid or of the constitution itself2) After compliance with fair and reasonable methods of procedure prescribed by law. > If properties are taxed on the basis of an invalid law, such deprivation is a violation of due

processREMEDYask for refund > To justify the nullification of a tax law, there must be a clear and unequivocal breach of theconstitution> There must be proof of arbitrarinessINSTANCES WHEN THE TAX LAW MAYBE DECLARED AS UNCONSTITUTIONAL [C,O, N, U]1) If it amounts to confiscation of property without due process2) If the subject of taxation is outside of the jurisdiction of the taxing state3) The law maybe declared as unconstitutional if it is imposed not for a public purpose4) If a tax law which is applied retroactively, imposes unjust and oppressive taxes.A tax law which denies a taxpayer a fair opportunity to assert his substantial rights before acompetent tribunal is invalidA taxpayer must not be deprived of his property for non-payment of taxes without1) notice of liability2) sale of property at public auctionThe validity of statute maybe contested only by one who will sustain a direct injury inconsequence of its enforcement A violation of the inherent limitations on taxation would contravene the constitutionalinjunctions against deprivation of property without due process of law


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There must be proof of arbitrariness, otherwise apply the presumption of constitutionality Due process requires hearing before adoption of legislative rules by administrative bodies ofinterpretative rulings. (Misamis vs. DFA) Compliance with strict procedural requirements must be followed effectively to avoid acollision course between the states power to tax and the individual recognized rights (CIR vs.

Algue)The due process clause may correctly be invoked only when there is a clear contravention ofinherent or constitutional limitations in the exercise of tax power. (Tan vs. del Rosario)SUBSTATNTIVE DUE PROCESS requires that a tax statute must be within theconstitutional authority of Congress to pass and that it be reasonable, fair and justPROCEDURAL DUE PROCESS requires notice and hearing or at least an opportunity to beheard

II. EQUAL PROTECTION CLAUSE> All persons, all properties, all businesses should be taxed at the same rate> prohibits class legislation

> prohibits undue discriminationEQUALITY IN TAXATION (UNIFORMITY)> Equality in taxation requires that all subjects or objects of taxation similarly situated should betreated alike or put on equal footing both on the privilege conferred and liabilities imposed> All taxable articles of the same class shall be taxed at the same rate > The Doctrine does not require that persons or properties different in fact be treated in law as

though there were the same. What it prohibits is class legislation which discriminates againstsome and favors others > As long as there are rational or reasonable grounds for doing so, Congress may group persons

or properties to be taxed and it is sufficient if all members of the same class are subject to thesame rate and the tax is administered impartially upon them.

REQUISITES OF A VALID CLASSIFICATION (S A G E )1) It must be based on substantial distinction2) It must apply not only to the present condition, but also to future conditions3) It must be germane to the purpose of the law4) It must apply equally to all members of the same class

SUBSTANTIAL DISTINCTION> It must be real, material and not superficial distinction > What is not allowed is inequality resulting from singling out of a particular class which

violates the requisites of a valid classification

> There maybe inequality but as long as it does not violate the requisites of a validclassification that such mere inequality is not enough to justify the nullification of a tax law ortax ordinance > Taxation is equitable when its burden falls on those better able to pay >Although the equal protection clause does not forbid classification, it is imperative that the

substantial differences having a reasonable relation to the subject of the particular legislation > Taxes are uniform and equal when imposed upon all property of the same class or characterwithin the taxing authority


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> Tax exemptions are not violative of the equal protection clause, as long as there is valid

classification.TIU vs. CAThe Constitutional right to equal protection of the law is not violated by an executive order,issued pursuant to law, granting tax and duty incentives only to business within the secured

area of the Subic Special Economic Zone and denying them to those who live within the zonebut outside such fenced in territory. The Constitution does not require the absolute equalityamong residents. It is enough that all persons under like circumstances or conditions are giventhe same privileges and required to follow the same obligations. In short, a classification basedon valid and reasonable standards does not violate the equal protection clause.We find real and substantial distinctions between the circumstances obtaining inside and thoseoutside the Subic Naval Base, thereby justifying a valid and reasonable classification.TWO WAYS EQUAL PROTECTION CLAUSE CAN BE VIOLATED1) When classification is made where there should be noneex. When the classification does not rest upon substantial distinctions that make for realdifference

2) When no classification is made where a classification is called forex. When substantial distinctions exist but no corresponding classification is made on the basisthereof

ORMOC SUGAR CENTRAL vs. CIR > If the ordinance is intended to supply to a specific taxpayer and to no one else regardless ofwhether or not other entities belonging to the same class are established in the future, it is aviolation of the equal protection clause, but if it is intended to apply also to similarestablishments which maybe established in the future, then the tax ordinance is valid even if inthe meantime, it applies to only one entity or taxpayer for the simple reason that there is so faronly one member of the class subject of the tax measure

UNIFORMITY IN TAXATION > The concept of uniformity in taxation implies that all taxable articles or properties of thesame class shall be taxed at the same rate.It requires the uniform application and operation, without discrimination, of the tax in everyplace where the subject of the tax is found. It does not, however, require absolute identity orequality under all circumstances, but subject to reasonable classification.EQUITY IN TAXATION > The concept of equity in taxation requires that the apportionment of the tax burden be moreor less, just in the light of the taxpayers ability to shoulder to tax burden and if warranted, on the

basis of the benefits received from the government. Its cornerstone is the taxpayers ability to pay.

CRITERIA OF EQUAL PROTECTION1) When the laws operate uniformlyA) on all personsB) under similar circumstances2) All persons are treated in the same mannerA) The conditions not being different


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B) Both in privileges conferred and liabilities imposedC) Favoritism and preference not allowedREYES vs. ALMAZOR > Taxation is equitable when its burden falls on those better able to pay KAPATIRAN vs. TAN

> It is inherent in the power to tax that the state be free to select the subjects of taxation and ithas been repeatedly held that inequalities which result from a singling out of one particular classof taxation or exemption infringe no constitutional limitation

III. FREEDOM OF THE PRESS > The press is not exempt from taxation > The sale of magazines or newspapers, maybe the subject of taxation > What is not allowed is to impose tax on the exercise of an activity which has a connection

with freedom of the press (license fee)> If we impose tax on persons before they can deliver or broadcast a particular news orinformation, that is the one which cannot be taxed.

TOLENTINO vs. SEC. OF FINANCE > What is prohibited by the constitutional guarantee of free press are laws which single out thepress or target a group belonging to the press for special treatment or which in any waydiscriminates against the press on the basis of the content of the publication.

IV. FREEDOM OF RELIGION > It is the activity which cannot be taxed > activities which have connection with the exercise of religion

AMERICAN BIBLE SOCIETY vs. MANILA > The payment oflicense fees for the distribution and sale of bibles suppresses theconstitutional right of free exercise of religion.

JIMMY SWAGGART vs. BOARD OF EQUALIZATION > The Free Exercise of Religion Clause does not prohibit imposing a generally applicable salesand use tax on the sale of religious materials by a religious organization. > The Sale of religious articles can be the subject of the VAT > What cannot be taxed is the exercise of religious worship or activity > The income of the priest derived from the exercise of religious activity can be taxed.

V. NON-IMPAIRMENT CLAUSE > The parties to the contract cannot exercise the power of taxation. > They cannot agree or stipulate that this particular transaction may be exempt from tax- notallowed (except if government)OPOSA vs. FACTORAN > Police power prevails over the non-impairment clauseLA INSULAR vs. MANCHUCA > A lawful tax on a new subject or an increased tax on an old one, does not interfere with a

contract or impairs its obligation. > The constitutional guarantee of the non-impairment clause can only invoked in the grant of


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tax exemption.RULES:1) If the exemption was granted for valuable consideration and it is granted on the basis of acontract.> cannot be revoked

2) If the exemption is granted by virtue of a contract, wherein the government enters into acontract with a private corporation> cannot be revoked unilaterally by the government3) If the basis of the tax exemption is a franchise granted by Congress and under the franchise orthe tax exemption is given to a particular holder or person> can be unilaterally revoked by the government (Congress) > The non-impairment clause applies only to contracts and not to a franchise. > The non-impairment clause applies to taxation but not to police power and eminent domain.Furthermore, it applies only where one party is the government and the other, a privateindividual. > As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer enters

into a compromise with the BIR, the obligation of the taxpayer becomes one based on contract

PROVINCE OF MISAMIS vs. CAGAYAN ELECTRIC

> Franchises with magic words, shall be in lieu of all taxes descriptive of the payment of a

franchise tax on their gross earnings are exempt from:1) all taxes2) the franchise tax under the NIRC3) the franchise tax under the local tax code

JUAREZ vs. CA > As long as the contract affects the public welfare one way or another so as to require the

interference of the state, then must the police power be asserted and prevail over the impairmentclause

RULES ON TAX AMNESTY > Tax amnesty, like tax exemption, is never favored nor presumed in law and if granted by

statute must be construed strictly against the taxpayer, who must show compliance with the law. >The government is not estopped from questioning the tax liability even if amnesty tax

payments were already receivedREASON: Erroneous application and enforcement of the law by public officers do not blocksubsequent correct application of the statute. The government is never estopped by mistakes orerrors by its agents.PP vs. CASTAEDA > Defense of tax amnesty, like amnesty, is a personal defense REASON: It relates to the circumstances of a particular accused and not the character of the actscharged in the informationREPUBLIC vs. IAC >In case of doubt, tax amnesty is to be strictly construed against the government


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REASON: Taxes are not construed, for taxes being burdens are not to be presumed beyond whatthe tax amnesty expressly and clearly declares

VI. LAW MAKING PROCESSA) ONE SUBJECTONE TITLE RULE

> Every bill passed by the Congress shall embrace only one subject which shall be expressed inthe title thereof (Sec. 26 (1) ART II)B) THREE READING RULE> No bill passed by either House shall become a law unless it has passed three readings onseparate days and printed copies thereof in its final form have been distributed to its membersthree days before its passage, EXCEPT when the President certifies to the necessity of itsimmediate enactment to meet a public calamity or emergency. (Sec. 26 (2) ART II)

C) ENROLLED BILL DOCTRINEG.R.An enrolled copy of a bill is conclusive not only of its provisions but also of its due

enactment

VII. PARDONING POWER OF THE PRESIDENT> The President has the power to grant reprieves, commutations and pardons and remit fines andforfeitures after conviction by final judgment. (Sec. 19, ART VII)NATURE OF TAX AMNESTYA general pardon or intentional overlooking by the state of its authority to impose penalties onpersons otherwise guilty of evasion or violation of a revenue or tax law- absolute forgiveness or waiver to collect

VIII. NO IMPRISONMENT FOR NON-PAYMENT OF POLL TAX- No person shall be imprisoned for debt or non-payment of poll tax (Sec. 20 ART III) > The non-imprisonment rule applies to non-payment of poll tax which is punishable only by asurcharge, but not to other violations like falsification of community tax certificate or non-payment of other taxesPOLL TAXtax of fixed amount imposed upon residents within a specific territory regardlessof citizenship, business or professionEx. Community tax

IX. TAXATION SHALL BE UNIFORM AND EQUITABLE- The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressivesystem of taxation. (Sec. 28 (1) ART VI)UNIFORMITY- means that all taxable articles kinds of property of the same class shall be taxed at the same rate > A tax is uniform when it operates with the same force and effect in every place where thesubject of it is foundEQUITABILITY > Taxation is said to be equitable when its burden falls on those better able to pay


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X. CONGRESS SHALL EVOLVE A PROGRESSIVE SYSTEM OF TAXATIONPROGRESSIVITY > Taxation is progressive when its rate goes up depending on the sources of the person affectedSYTEMS OF TAXATION1) PROPORTIONAL TAXATION

- where the tax increases or decreases in relation to the tax bracket2) PROGRESSIVE or GRADUATED SYSTEM- where the tax increases as the income of the taxpayer goes higher3) REGRESSIVE SYSTEM- where the tax decreases as the income of the taxpayer increases

PROGRESSIVITY IS NOT REPUGNANT TO UNIFORMITY and EQUALITYA) Uniformity does not require the things which are not different be treated in the same mannerB) Differentiation, which is not arbitrary and conforms to the dictates of justice and equity isallowed. Progressivity is one way of classification.C) The State has the inherent right to select subjects of taxation

> The Constitution does not really prohibit the imposition of indirect taxes, which like the VAT,are regressive. The constitutional provision means simply that indirect taxes shall be minimized. > The mandate to Congress is not to prescribe, but to evolve, a progressive system of taxation > Resort to indirect taxes should be minimized but not to be avoided entirely because it is

difficult, if not impossible to avoid them by imposing such taxes according to the taxpayersability to pay.

XI. ORIGIN OF REVENUE, TARIFF or TAX BILLSAll appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills oflocal application, and private bills shall originate exclusively in the House of Representatives,but the Senate may propose or concur with amendments. (Section 24, Article VI)RULE:- It is not the revenue statute but the revenue bill which is required by the constitution tooriginate exclusively in the House of RepresentativesREASON:- To insist that a revenue statute and not only the bill which initiated the legislative processculminating in the enactment of the law must substantially be the same as the House bill wouldbe to deny the Senates power not only to concur with amendments but also to propose

amendments. It would be to violate the co-equality of legislative power of the two houses ofCongress and in fact make the House superior to the Senate. (Tolentino vs. Sec. of Finance) > The Constitution simply requires that there must be that initiative coming from the House of

Representatives relative to appropriation, revenue and tariff bills. >The Constitution does not also prohibit the filing in the Senate of a substitute bill in

anticipation of its receipt of the bill from the House, as long as action by the Senate is withhelduntil receipt of said bill (Tolentino vs. Sec. of Finance)

XII. PRESIDENTIAL VETO > The President shall have the power to veto any particular item or items in an appropriation,


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revenue or tariff bill, but the veto shall not affect the item or items to which he does not object(Sec. 27 (2), ART VI)

XIII. TARIFF POWER OF THE PRESIDENT The Congress may, by law, authorizing the President to fix within specific limits, and subject

to such limitations and restrictions as it may impose, tariff rates, import and export quotas,tonnage and wharfage dues, the other duties or imports within the framework of the nationaldevelopment program of the Government (Sec. 28 (2), ART VI)REQUISITES:1) There must be a law passed by Congress authorizing the President to impose tariff rates andother fees.2) Under the law, there must be limitations and restrictions on the exercise of such power3) The taxes that may be imposed by the President are limited to:A) Tariff ratesB) Import and export quotasC) Tonnage and wharfage dues

D) Other duties (customs duties)4) The imposition of these tariff and duties must be within the framework of the NationalDevelopment program of the government > Congress may not pass a law authorizing the President to impose income tax, donors tax,

and other taxes which are not in the nature of customs duties.> The Constitution allows only the imposition by the President of these custom duties

XIV. TAX EXEMPTION OF REAL PROPERTY Charitable institutions, churches and personages or convents appurtenant thereto, morgues,non-profit cemeteries and all lands, buildings and improvements, actually directly andexclusively used for religious, charitable, or educational purposes shall be exempt fromtaxation. (Sec. 28 (3) ART VI)

APPLICATION:> The exemption only covers property taxes and not other taxesTEST OF EXEMPTION:> It is the USE of the property and not ownership of the property

XV. LAW GRANTING TAX EXEMPTIONS No law granting any tax exemptions shall be passed without the concurrence of a majority of

all members of the Congress (Sec. 28 (4) ART VI)RULES ON VOTE REQUIREMENT1) Law granting any tax exemption> absolute majority2) Law withdrawing any tax exemption> Relative majority > Tax exemption, amnesties, refunds are considered in the nature of tax exemptions> A law granting such needs approval of the absolute majority of the Congress


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XVI. NO USE OF PUBLIC MONEY OR PROPERTY FOR PUBLIC PURPOSES > No public money or property shall be appropriated, applied, paid, or employed, directly or

indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian, institutionor system of religion, or of any priest, preacher, minister or other religious teacher or dignitary as

such, EXCEPT when such priest, preacher, minister or dignitary is assigned to the armed forces,or to any penal institution, or government orphanage or leprosarium as such (Sec. 29 (2) ARTVI) > Public property may be leased to a religious group provided that the lease will be totally

under the same conditions as that to private persons (amount of rent) > Congress is without power to appropriate funds for a private purpose.

XVII. TAX LEVIED FOR SPECIAL PURPOSES All money collected or any tax levied for a special purpose shall be treated as a special fundand paid out for such purpose only. If the purpose for which a special fund was created has beenfulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the

Government. (Sec. 29 (3) ART VI) > If a President of the Philippines spent a special fund for a general purpose, he can be chargedwith culpable violation of the Constitution.

XVIII. SUPREME COURTS POWER OF REVIEWThe Supreme Court shall have the power to review, revise, reverse, modify or affirm on appeal

or certiorari, all cases involving the legality of any tax imposed, assessment, or toll, or anypenalty imposed in relation thereto. (Sec. 5 (2B) ART VIII) > Congress cannot take away from the Supreme Court the power given to it by the Constitution

as the final arbiter of the tax cases.

XIX. DELEGATED AUTHORITY TO LOCAL GOVERNMENT UNITS Each local government unit shall have the power to create its own sources of revenues and to

levy taxes, fees, and charges subject to such guidelines and limitations as the Congress mayprovide, consistent with the basic policy of local autonomy. Such taxes, fees, charges shall haveexclusivity to the local government. (Sec. 5, ART X)LIMITATIONS ON POWER TO TAX (L.G.U.)1) It is subject to such guidelines and limitations provided by Congress.2) It must be consistent with the basic policy of local autonomy.3) Such taxes, fees, and charges shall accrue exclusively to the local government.RULES: NATIONAL GOVT vs. LGUIMPOSITION OF TAXES

1) The National Government may impose local taxes on articles or subjects which are within theterritorial jurisdiction of the local government unit.2) The Local Government unit cannot impose tax on the national government.> You can only tax those articles, which are within your jurisdictionSEC. 6, ART X local government units shall have a just share, as determined by law, in the national taxes

which shall be automatically released to them.


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XX. TAX EXEMPTIONS OF EDUCATIONAL INSTITUTIONS All revenues and assets of non-stock, non-profit educational institutions used actually, directly,and exclusively for educational purposes shall be exempt from taxes and duties. (Sec. 4 (3)

ART XIV)REQUISITES FOR EXEMPTION:

1) It must be a private educational institution2) It must be non-stock and non-profit3) Its assets (property) and revenues (income) must be used actually, directly and exclusively

for educational purposesRULES:1) If the first requisite is absent (meaning, its a government educational institution), it is

nonetheless exempt from income tax2) If the second requirement is absent (meaning, it is stock and profit) as long as the thirdrequirement is present, it is nonetheless exempt from real estate tax3) If the third requirement is absent, as long as it is non-stock and non-profit, it is nonethelessexempt from income tax

4) If the third requirement is absent, but it is private and non-profit, it is subject to income tax,but at the preferential rate of ten percent (10%) > Under the present tax code, for a private educational institution to be exempt from thepayment of income tax, all it has to be is non-stock and non-profit. However, a governmentaleducational institution is exempt from income tax without any condition

EXEMPTION DOES NOT EXTEND TO:1) Income derived by these educational institutions from their property, real or personal, and2) From activities conducted by them for profit regardless of the disposition made on suchincome

> Where the educational institution is private and non-profit (but a stock corporation) it issubject to income tax but at the preferential rate of ten percent (10%)

REQUISITES for APPLICATION of 10% PREFERENTIAL RATE1) It is private;2) It has permit to operate from the DECS, or CHED or TESDA;3) It is non-profit;4) Its gross income from unrelated trade or business must not exceed fifty percent (50%) of itstotal gross income from all sources.10% PREFERENTIAL TAX RATE DOES NOT APPLY TO THE FOLLOWING:1) Passive incomes derived by the educational institution (subject to final income tax) and2) Where the educational institution is engaged in unrelated trade, business or other activity, andthe gross income from such unrelated trade, business or other activities exceeds fifty percent(50%) of the total gross income derived by the school from all sources > Where a donation is made in favor of an educational institution pursuant to sports

competition and tournaments, the donor is exempt from the payment of donors taxCIR vs. CA (298 SCRA 83) > Income derived by YMCA from leasing out a portion of its premises to small shop owners,like restaurant and canteen operators, and from parking fees collected from non-members are


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taxable incomeYMCA is not an educational institution

XXI. TAX EXEMPTION OF DONATIONS for EDUCATIONAL PURPOSES> Subject to conditions prescribed by law, all grants endowments, donations, or contributions

used actually, directly and exclusively for educational purposes shall be exempt from tax. (Sec.4 (4) ART XIV)

XXII. NO EXPOST FACTO LAW PROHIBITION IN TAXATIONFERNANDEZ vs. FERNANDEZ > The prohibition against ex post facto laws applies only to criminal laws and not to those

that concern civil mattersOur tax laws are civil in nature > The collection of interest on taxes is not penal in nature and the ex post facto law prohibitiondoes not apply to it.

ESCAPE FROM TAXATIONBASIC FORMS OF ESCAPE FROM TAXATION1) SHIFTING2) CAPITALIZATION3) TRANSFORMATION4) AVOIDANCE5) EXEMPTION6) EVASION

I. SHIFTING- Shifting is the transfer of the burden of a tax by the original payer or the one on whom the taxwas assessed or imposed to someone else- Process by which such tax burden is transferred from statutory taxpayer to another withoutviolating the law > It should be borne in mind that what is transferred is not the payment of the tax, but theburden of the tax > Only indirect taxes may be shifted; direct taxes cannot be shiftedWAYS OF SHIFTING THE TAX BURDEN1) FORWARD SHIFTING

- When the burden of the tax is transferred from a factor of production through the factors ofdistribution until it finally settles on the ultimate purchaser or consumer.Example:- Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to theretailer, who also shifts it to the final purchaser or consumer2) BACKWARD SHIFTING- When the burden of the tax is transferred from the consumer or purchaser through the factors ofdistribution to the factors of production


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Example:- Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after theprice is reduced, and from the latter to the wholesaler, or finally to the manufacturer or producer3) ONWARD SHIFTING- When the tax is shifted two or more times either forward or backward

Example:- Thus, a transfer from the seller to the purchaser involves one shift; from the producer to thewholesaler, then to retailer, we have two shifts; and if the tax is transferred again to the purchaserby the retailer, we have three shifts in all.Impact and Incidence of Taxation Impact of taxation is the point on which a tax is originally imposed. In so far as the law isconcerned, the taxpayer is the person who must pay the tax to the government. He is also termedas the statutory taxpayer-the one on whom the tax is formally assessed. He is the subject of thetax Incidence of taxation is that point on which the tax burden finally rests or settle down. It takes

place when shifting has been effected from the statutory taxpayer to another.

Statutory Taxpayer The Statutory taxpayer is the person required by law to pay the tax or the one on whom the taxis formally assessed. In short, he or she is the subject of the tax. In direct taxes, the statutory taxpayer is the one who shoulders the burden of the tax while in

indirect taxes, the statutory taxpayer is the one who pay the tax to the government but the burdencan be passed to another person or entity.Relationship between impact, shifting, and incidence of a tax The impact is the initial phenomenon, the shifting is the intermediate process, and the incidenceis the result. Thus, the impact in a sales tax (i.e. VAT) is on the seller (manufacturer) who shiftsthe burden to the customer who finally bears the incidence of the tax. Impact is the imposition of the tax; shifting is the transfer of the tax; while incidence is thesetting or coming to rest of the tax.

II. CAPITALIZATION- Reduction is the price of the taxed object equal to the capitalized value of future taxes on theproperty sold > This is a special form of backward shifting, where the burden of future taxes which the buyermay have to pay is shifted back to the seller in the form of reduction in the selling price

III. TRANSFORMATION- The manufacturer in an effort to avoid losing his customers, maintains the same selling priceand margin of profit, not by shifting the tax burden to his customers, but by improving hismethod of production and cutting down or other production cost, thereby transforming the taxinto or earn through the medium of production.

IV. TAX AVOIDANCE- Also known as tax minimization- not punished by law- Tax avoidance is the exploitation of the taxpayer of legally permissible alternative tax rates ormethods of assessing taxable property or income in order to avoid or reduce tax liability


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DELPHERS TRADERS CORP vs. IAC (157 SCRA 349) > The Supreme Court upheld the estate planning scheme resorted to by the Pacheco family in

converting their property to shares of stock in a corporation which they themselves owned andcontrolled. By virtue of the deed of exchange, the Pacheco co-owners saved on inheritance taxes.The Supreme Court said the records do not point anything wrong and objectionable about this

estate planning scheme resorted to. The legal right of the taxpayer to decrease the amount ofwhat otherwise could be his taxes or altogether avoid them by means which the law permitscannot be doubted.Example:Following the holding period rule in capital gains transaction, by postponing the sale of the

capital asset until after twelve months from date of acquisition you can reduce the tax on thecapital gains by 50%

V. TAX EXEMPTIONTax Exemption It is the grant of immunity to particular persons or corporations or to persons or corporations of

a particular class from a tax which persons and corporations generally within the same state ortaxing district are obliged to pay. It is an immunity or privilege; it is freedom from a financialcharge or burden to which others are subjected. Exemption is allowed only if there is a clear provision there for. It is not necessarily discriminatory as long as there is a reasonable foundation or rational basis. Exemptions are not presumed, but when public property is involved, exemption is the rule and

taxation is the exemption.Rationale for granting tax exemptions Its avowed purpose is some public benefit or interests which the lawmaking body considers

sufficient to offset the monetary loss entailed in the grant of the exemption. The theory behind the grant of tax exemptions is that such act will benefit the body of thepeople. It is not based on the idea of lessening the burden of the individual owners of property.Grounds for granting tax exemptions

1) May be based on contract. In such a case, the public, which is represented by the governmentis supposed to receive a full equivalent therefor, i.e. charter of a corporation.

2) May be based on some ground of public policy, i.e., to encourage new industries or to fostercharitable institutions. Here, the government need not receive any consideration in return for thetax exemption.

3) May be based on grounds of reciprocity or to lessen the rigors of international double ormultiple taxation

Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is a clearprovision therefor.

Nature of tax exemption1) It is a mere personal privilege of the grantee.2) It is generally revocable by the government unless the exemption is founded on a contract


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which is contract which is protected from impairment.3) It implies a waiver on the part of the government of its right to collect what otherwise wouldbe due to it, and so is prejudicial thereto.4) It is not necessarily discriminatory so long as the exemption has a reasonable foundation orrational basis.

5) It is not transferable except if the law expressly provides so.Kinds of tax exemption according to manner of creation

1) Express or affirmative exemptionWhen certain persons, property or transactions are, by express provision, exempted from allcertain taxes, either entirely or in part.

2) Implied exemption or exemption by omissionWhen a tax is levied on certain classes of persons, properties, or transactions without mentioningthe other classes.

Every tax statute makes exemptions because of omissions. No tax exemption by implicationIt must be expressed in clear and unmistakable language

CALTEX vs. COA > In claiming tax exemption, the burden of proof lies upon the claimant

It cannot be created by mere implicationIt cannot be presumed that you are entitled to tax exemptionYou must prove itRULE:- Taxation is the rule and exemption is the exceptionPROPERTY TAXGOVERNMENT PROPERTY

> Properties owned by the government whether in their proprietary or governmental capacityare exempt from real estate taxTEST:- OWNERSHIP > Once established that it belongs to the government, the nature of the use of the property

whether proprietary or sovereign becomes immaterial. > Exemption of public property from taxation does not extend to improvements therein made

by occupants or claimants at their own expense.KINDS OF TAX EXEMPTIONS ACCORDING TO SCOPE OR EXTENT1) TOTAL- When certain persons, property or transactions are exempted, expressly or impliedly from all

taxes2) PARTIAL- When certain persons, property or transactions are exempted, expressly or impliedly fromcertain taxes, either entirely or in part.3) There can be no simultaneous exemptions under two laws, when one grants partial exemptionwhile other grants total exemption.

Does provision in a statute granting exemption from all taxes include indirect taxes?


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NO. As a general rule, indirect taxes are not included in the grant of such exemption unless it is

expressly stated.

Nature of power to grant tax exemption

1) National government

The power to grant tax exemptions is an attribute of sovereignty for the power to prescribe whoor what persons or property shall not be taxed.It is inherent in the exercise of the power to tax that the sovereign state be free to select thesubjects of taxation and to grant exemptions therefrom.Unless restricted by the Constitution, the legislative power to exempt is as broad as its power totax.

2) Local governments

Municipal corporations are clothed with no inherent power to tax or grant tax exemptions. Butthe moment the power to impose a particular tax is granted, they also have the power to grantexemption therefrom unless forbidden by some provision of the Constitution or the lawThe legislature may delegate its power to grant tax exemptions to the same extent that it mayexercise the power to exempt.

Basco vs. PAGCOR (196 SCRA 52): The power to tax municipal corporations must always yieldto a legislative act which is superior, having been passed by the State itself. Municipalcorporations are mere creatures of Congress which has the power to create and abolish municipalcorporations due to its general legislative powers. If Congress can grant the power to tax, it canalso provide for exemptions or even take back the power.

Chavez v. PCGG, G.R. No. 130716, 09 December 1998 In a compromise agreement between the Philippine Government, represented by the PCGG,

and the Marcos heirs, the PCGG granted tax exemptions to the assets which will be apportionedto the Marcos heirs. The Supreme Court ruled that the PCGG has absolutely no power to granttax exemptions, even under the cover of its authority to compromise ill gotten wealth cases. Thegrant of tax exemptions is the exclusive prerogative of the Congress. In fact, the Supreme Court even stated that Congress itselfcannot grant tax exemptions in thecase at bar because it will violate the equal protection clause of the Constitution.

Interpretation of the laws granting tax exemptions General ruleIn the construction of tax statutes, exemptions are not favored and are construed strictissimi jurisagainst the taxpayer. The fundamental theory is that all taxable property should bear its share inthe cost and expense of the government.Taxation is the rule and exemption is the exemption.He who claims exemption must be able to justify his claim or right thereto by a grant express interms too plain to be mistaken and too categorical to be misinterpreted. If not expressly

mentioned in the law, it must be at least within its purview by clear legislative intent.


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Exceptions1) When the law itself expressly provides for a liberal construction thereof.2) In cases of exemptions granted to religious, charitable and educational institutions or to thegovernment or its agencies or to public property because the general rule is that they are exempt

from tax.

Strict interpretation does not apply to the government and its agencies Petitioner cannot invoke the rule on stritissimi juris with respect to the interpretation of statutes

granting tax exemptions to the NPC. The rule on strict interpretation does not apply in the case ofexemptions in favor of a political subdivision or instrumentality of the government. [Maceda v.Macaraig]

Davao Gulf v. Commissioner, 293 SCRA 76 (1998) A tax cannot be imposed unless it is supported by the clear and express language of a statute;on the other hand, once the tax is unquestionably imposed, a claim of exemption from tax

payers must be clearly shown and based on language in the law too plain to be mistaken. Sincethe partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, itmust be construed strictissimi juris against the grantee. Hence, petitioners claim of refund on the

basis of the specific taxes it actually paid must expressly be granted in a statute stated in alanguage too clear to be mistaken. > Exemption of the buyer does not extend to the sellerExemption of the principal does not extend to the accessory

Tax remission or tax condonation The word remit means to desist or refrain from exacting, inflicting or enforcing something as

well as to restore what has already been taken. The remission of taxes due and payable to theexclusion of taxes already collected does not constitute unfair discrimination. Such a set of taxesis a class by itself and the law would be open to attack as class legislation only if all taxpayersbelonging to one class were not treated alike. [Juan Luna Subd. V. Sarmiento, 91 Phil 370] The condition of a tax liability is equivalent to and is in the nature of a tax exemption. Thus, itshould be sustained only when expressly provided in the law. [Surigao Consolidated Mining v.Commissioner of Internal Revenue, 9 SCRA 728]Tax amnesty Tax amnesty, being a general pardon or intentional overlooking by the State ofits authority toimpose penalties on persons otherwise guilty of evasion or violation of a revenue to collect whatotherwise would be due it and, in this sense, prejudicial thereto. It is granted particularly to taxevaders who wish to relent and are willing to reform, thus giving them a chance to do so andthereby become a part of the new society with a clean slate. [Republic v. Intermediate AppellateCourt, 196 SCRA 335] Like tax exemption, tax amnesty is never favored nor presumed in law. It is granted by statute.The terms of the amnesty must also be construed against the taxpayer and liberally in favor ofthe government.

Tax amnesty v. tax condonation v. tax exemption


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A tax amnesty, being a general pardon or intentional overlooking by the Statute of its authorityto impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law,partakes of an absolute forgiveness or waiver by the Government of its right to collect whatotherwise would be due it and, in this sense, prejudicial thereto, particularly to tax evaders whowish to relent and are willing to reform are given a chance to do so and therefore become a part

of the society with a clean slate. Like a tax exemption, a tax amnesty is never favored nor presumed in law, and is granted bystatute. The terms of the amnesty must be strictly construed against the taxpayer and literally infavor of the government. Unlike a tax exemption, however, a tax amnesty has limitedapplicability as to cover a particular taxing period or transaction only. There is a tax condonation or remission when the State desists or refrains from exacting,

inflicting or enforcing something as well as to reduce what has already been taken. Thecondonation of a tax liability is equivalent to and is in the nature of a tax exemption. Thus, itshould be sustained only when expressed in the law. Tax exemption, on the other hand, is the grant of immunity to particular persons or

corporations of a particular class from a tax of which persons and corporations generally within

the same state or taxing district are obliged to pay. Tax exemptions are not favored and areconstrued strictissimi juris against the taxpayer.

CONSTITUTIONAL RESTRICTION:No law granting any tax exemption shall be passed without the concurrence of a majority of allmembers of Congress. (Sec. 28 (4) ART VI)

VI. TAX EVASION- It is also known as tax dodging- It is punishable by law- Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen thepayment of tax.YUTIVO vs. CTA > Tax evasion is a term that connotes fraud through the use of pretenses or forbidden devices to

lessen or defeat taxes

ELEMENTS OF TAX EVASION- Tax evasion connotes the integration of three (3) factors:1) The end to be achieved, i.e. payment of less than that known by the taxpayer to be legally due,or paying no tax when it is shown that tax is due2) An accompanying state of mind which is described as being evil, in bad faith, willful,

or deliberate and not accidental3) A course of action (or failure of action) which is unlawful

INDICIA of FRAUD IN TAX EVASION1) Failure to declare for taxation purposes true and actual income derived from business for two(2) consecutive years; or2) Substantial underdeclaration of income tax returns of the taxpayer for four (4) consecutive


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years coupled with unintentional overstatement of deductionsEVIDENCE TO PROVE TAX EVASION > Since fraud is a state of mind, it need not be proved by direct evidence but may be proved

from the circumstances of the case.REPUBLIC vs. GONZALES (13 SCRA 638)

> Failure of the taxpayer to declare for taxation purposes his true and actual income derivedfrom his business for two (2) consecutive years is an indication of his fraudulent intent to cheatthe government of its due taxes.Posted by intro to intl law second term at11:51 PM0 comments

Wednesday, June 24, 2009

course syllabus

Basic Economics, Land Reform & Taxation

CLARENDON COLLEGE

1st Sem, AY 2009-2010

ATTY. S.C. MADRONA, JR.

ATTY. AIREEN DIMAPILIS SISON-MADRONA

COURSE DESCRIPTION

Introduction to economics and economic concepts in theory, policy and practice, with particularreference to Philippine economic experience. It also includes a general background of the laws oftaxation and land reform.

COURSE OBJECTIVES

The course aims to impart to its students: first, appreciate the importance of taxation as means ofsupporting the government in sustaining its programs and projects as opposed to common notionon taxation as a burden; second, realize the necessity for land reform program as means of states

pursuit of social justice, and; lastly, better understand basic economic principles and processesi.e. resources, market, money etc.

COURSE OUTLINE

Introduction

I.TaxationA.General Principles in TaxationB.Limitations on the Power of TaxationC.Double Taxation and Tax ExemptionsD.Income Taxation

II.Land ReformA.Components and Aspects
http://beltmadrona.blogspot.com/2009/07/re-lecture-notes-coverage-prelims.htmlhttp://beltmadrona.blogspot.com/2009/07/re-lecture-notes-coverage-prelims.htmlhttp://beltmadrona.blogspot.com/2009/07/re-lecture-notes-coverage-prelims.html#commentshttp://beltmadrona.blogspot.com/2009/07/re-lecture-notes-coverage-prelims.html#commentshttp://beltmadrona.blogspot.com/2009/07/re-lecture-notes-coverage-prelims.html#commentshttp://beltmadrona.blogspot.com/2009/06/course-syllabus.htmlhttp://beltmadrona.blogspot.com/2009/06/course-syllabus.htmlhttp://beltmadrona.blogspot.com/2009/06/course-syllabus.htmlhttp://beltmadrona.blogspot.com/2009/07/re-lecture-notes-coverage-prelims.html#commentshttp://beltmadrona.blogspot.com/2009/07/re-lecture-notes-coverage-prelims.html


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B.Agrarian Reform

III.EconomicsA.Basic Principles in EconomicsB.Economic Activities

i.Circular Flow of Economic Activitiesii.Supply and Demandiii.Production, Cost and Profitiv.Monopoly and Competitionv.Philippine Financial Systemvi.Money and Monetary PolicyC.International Trade

Conclusion

REQUIRED READINGS

The following books are required for this course:

TAXATION:

De Leon, Hector. 2004. Fundamentals of Taxation. Quezon City: Rex Bookstore

LAND REFORM:

De Leon, Hector. 2005. Textbook on Agrarian Reform and Taxation. Quezon City: Rex BookStore.

ECONOMICS:

Mankiw, N. Gregory. 2007. Principles of Economics, 4th Edition. Thomson South-Western.Case, Karl and Ray C. Fair. 2004. Principles of Economics, 7th edition. Pearson Prentice Hall.

COURSE REQUIREMENTS

PPrelim examination: 15% (July 18, 2009)Midterm examination: 15% (August 29, 2009)Semi-Final examination: 10%Class Participation: 40%Final Exam: 20% (October 10, 2009)Total 100%

A. READ, TAKE NOTES AND ASK QUESTIONS. This course requires much reading andthe student is expected to have read the required materials when coming to class.


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B. EXAM. The exam will consists of problem-solving and short answer questions based on theclass lectures and the assigned reading materials.C. FINAL EXAM. Comprehensive of all lectures and selected required reading materials.D. There will be GRADED RECITATION (50% of final grade) based on the required readingmaterials and assigned cases.

CLASSROOM POLICIES

1. Students must submit a 3x5 index card with their names, courses, contact numbers, 1x1 IDcolor or BW picture by the second-class meeting.2. A student is considered absent from class if s/he is not present within the first third fraction(30 minutes) of the scheduled class time. The students should be responsible for keeping tracksof their absences.3. As a courtesy of the entire class, smoking and eating inside the classroom shall be strictlyprohibited. All electronic devices must be either deactivated or at least silent.

CONSULTATION HOURSIf you wish to consult with me on matters relating to the course, please set an appointment withme.E-mail: [email protected]: http://beltmadrona.blogspot.comPosted by intro to intl law second term at12:28 AM1 commentsHomeSubscribe to:Posts (Atom)
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definition of taxation for eco101

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