notes for tax

8/10/2019 Notes for Tax

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Notes for tax

A. GENERAL PRINCIPLES OF TAXATION

1. concept, nature, characterstcs of taxaton an! taxes

a. !efnton an! concept of taxaton

"EFINITION OF TAXATION

Taxation is the inherent power of the sovereign, exercised through the legislature,

to impose burdens upon the subjects and objects within its jurisdiction, for the purpose of

raising revenues to carry out the legitimate objects of the government.

TAXES

Enforced proportional contributions properties and persons levied by the State by

virtue its sovereignty for the support of the government and for public needs.

#. nature of taxaton

NAT$RE OF TAXATION (I, , S!

"! Inherent in sovereignty # $ttribute of sovereignty and emanates from necessity,

and can be exercised even if %onstitution is silent on the subject.&! Legislative in character # relin'uishment of which is never presumed. (Example

ocal )ov*t. %ode!

+! Subject to constitutional limitations

c. characterstcs of taxaton

ESSENTIAL C%ARACTERISTICS OF TAXES

"! It is an enforced contribution

&! It is generally payable in money

+! It is proportionate in character

! It is levied by the State on persons, property or exercises within its jurisdiction

-! It is imposed by the law#maing body of the State

/! It is levied for public purpose or purposes

!. purpose of taxaton

P$RPOSES OF TAXATION

". Revenue of fiscal: The primary purpose of taxation on the part of thegovernment is to provide funds or property with which to promote the general

welfare and the protection of its citi0ens and to enable it to finance its

multifarious activities.


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&. Non-revenue or regulatory: Taxation may also be employed for purposes of

regulation or control. e.g.

a! Imposition of tariffs on imported goods to protect local industries.

b! The adoption of progressively higher tax rates to reduce ine'ualities in

wealth and income.

c! The increase or decrease of taxes to prevent inflation or ward off

depression.

P$RPOSES OF TAXATION

12I3$24-

To raise revenue in order to support the government

SE%567$24 (656#2E8E69E!

"! To strengthen anemic enterprises or provide incentive to greater production.&! 9sed as a bargaining tool by setting higher tariff rates before trade negotiations

are entered.

+! :alt inflation or ward off depressions.! 9sed to reduce social ine'uality

-! 1romote science and invention or to improve the efficiency of local police forces.

/! 9tili0ed as an implement of the police power of the State;! 9sed to protect our local industries against unfair competition

e. prncp&es of soun! tax s'ste(

PRINCIPLE OF A SO$N" TAX S)STE* code +Fa, T , A f-"! Fiscal ade'uacy

&! E'uality or Theoretical ustice+! Administrative Feasibility

65TES

FISCAL A"E/$AC)

Sources of revenue should be sufficient to meet the demands of public expenditure

2evenues should be elastic or capable of expanding or contracting annually in

response to variations in public expenditure

Elasticity may be obtained without creating annually any new taxes or any new

tax machinery but merely by changes in the rates applicable to existing taxes


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Even if a tax law violates the principle of


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GO0ERN*ENTAL NECESSIT)2 PRINCIPLE OF NECESSIT)

The existence of the government depends upon its capacity to perform its two (&! basic

functions

$. to serve the people

>. to protect the people

2eciprocal duties of support and protection

"! Support on the part of the taxpayers

&! 1rotection and benefits on the part of the government

ENEFITS RECEI0E" PRINCIPLE

The government is expected to respond in the form of tangible or intangible benefitsintended 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

protection which the government affords the taxpayer and his property. 5ne is

compensation or consideration for the other. 1rotection for support and support forprotection.

:owever, it does not mean that only those who are able to pay taxes can enjoy the

privileges and protection given to a citi0en by the government.

3. c&assfcatons an! !stnctons

a. c&assfcatons of taxes

CLASSIFICATION OF TAXES

AS TO SB!ECT "ATTER OR OB!ECT

". 1ersonal, poll or capitation tax # Tax of a fixed amount imposed on personsresiding within a specified territory, whether citi0ens or not, without regard to

their property or the occupation or business in which they may be engaged, i.e.

community tax.

&. 1roperty tax # Tax imposed on property, real or personal, in proportion to its valueor in accordance with some other reasonable method of apportionment.

+. Excise tax # $ charge impose upon the performance of an act, the enjoyment ofprivilege, or the engaging in an occupation.


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. %ustom duties @ duties charged upon commodities being imported into or

exported from a country.

-. ocal taxes @ taxes levied by local government units pursuant to validly delegated

power to tax.

AS TO #$O BEARS T$E BR%EN

". 7irect tax

$ direct tax is demanded from the person who also shoulders the burden of the tax. It

is a tax which the taxpayer is directly or primarily liable and which he or she cannot shiftto another.

&. Indirect tax

$n indirect tax is demanded from a person in the expectation and intention that he or

she shall indemnify himself or herself at the expense of another, falling finally uponthe ultimate purchaser or consumer. $ tax which the taxpayer can shift to another.

AS TO T$E %ETER"INATION O& A"ONT

". Specific tax

$ specific tax is a tax of a fixed amount imposed by the head or number or by someother standard of weight or measurement. It re'uires no assessment other than the listing

or classification of the objects to be taxed.

&. $d valorem tax

$n ad valorem tax is a fixed proportion of the value of the property with respect to

which the tax is assessed. It re'uires the intervention of assessors or appraisers to

estimate the value of such property before due from each taxpayer can be determined.

AS TO PRPOSE

'eneral(fiscal revenue ta)is that imposed for the purpose of raising public funds forthe service of the government.

$s*ecial or regulatory ta)is imposed primarily for the regulation of useful or non#

useful occupation or enterprises and secondarily only for the purpose of raising publicfunds.

AS TO T$E SCOPE O& T$E TA+

6ational tax $ national tax is imposed by the national government.

ocal tax


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$ local tax is imposed by the municipal corporations or local government units ()9s!.

AS TO 'RA%ATION OR RATE

1roportional tax

Tax based on a fixed percentage of the amount of the property receipts or other basis

to be taxed. Example real estate tax.

". 1rogressive or graduated tax # Tax the rate of which increases as the tax base or bracet

increases.

&. 7igressive tax rate # 1rogressive rate stops at a certain point. 1rogression halts at a

particular stage.

+. 2egressive tax # Tax the rate of which decreases as the tax base or bracet increases.

There is no such tax in the 1hilippines. (This is not the same as 2egressive System of

Tax!

Re4ress5e S'ste( of taxaton

This exist where there are more indirect taxes imposed than direct taxes. The low#incomesector of the population buys more consumption goods on which the indirect taxes are

collected, the burden of indirect taxes rests more on them than on the more affluent

groups.

#. !stnctons fro( other ter(s

"ISTINCTIONS

TOLL 5s. TAX

". Tollis a sum of money for the use of something. It is the consideration which is

paid for the use of a road, bridge, or the lie, of a public nature. Ta)es,on the other

hand, 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.

&. Tollis a demand of proprietorship= ta) is a demand of sovereignty.

+. Toll is paid for the used of another*s property= ta) is paid for the support ofgovernment.

. The amount paid as toll depends upon the cost of construction or maintenance of

the public improvements used= while there is no limit on the amount collected as taxas long as it is not excessive, unreasonable, or confiscatory.

-. Tollmay be imposed by the government or by private individuals or entities= ta)

may be imposed only by the government.


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SPECIAL ASSESS*ENT 5s. TAX

". $ special assessment tax is an enforced proportional contribution from owners

of lands especially benefited by public improvements

&. $ special assessment is levied only on land.+. $ special assessment is not a personal liability of the person assessed= it is

limited to the land.

. $ special assessment is based wholly on benefits, not necessity.-. $ special assessment is exceptional both as to t ime and place= a tax has

general application.

Some 2ules

$n 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.

TAX "ISTING$IS%E" FRO* LICENSE FEE6

a! PRPOSE:Tax imposed for revenue ?:IE license fee for regulation. Tax forgeneral purposes ?:IE license fee for regulatory purposes only.

b! BASIS Tax imposed under power of taxation ?:IE license fee under police

power.

c! A"ONT In taxation, no limit as to amount ?:IE license fee limited to cost

of the license and expenses of police surveillance and regulation.

d! TI"E O& PAY"ENT: Taxes normally paid after commencement of business

?:IE license fee before.

e! E&&ECT O& PAY"ENT ET?EE6 T$AES $67 I%E6SE


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TAX 5s. PENALT)

". Penalty is any sanction imposed as a punishment for violation of law or foracts deemed injurious= ta)esare enforced proportional contributions from persons and

property levied by the State by virtue of its sovereignty for the support of the

government and all public needs.

&. Penalty is designed to regulate conduct= ta)es are generally intended to

generate revenue.

+. Penaltymay be imposed by the government or by private individuals or

entities ta)esonly by the government.

OLIGATION TO PA) "ET 5s. OLIGATION TO PA) TAX

"! $ debt is generally based on contract, express or implied, while a tax is based on

laws.

&! $ debt is assignable, while a tax cannot generally be assigned.

+! $ debt may be paid in ind, while a tax is generally paid in money.

! $ debt may be the subject of set off or compensation, a tax cannot.

-! $ person cannot be imprisoned for non#payment of tax, except poll tax.

/! $ debt is governed by the ordinary periods of prescription, while a tax is governed

by the special prescriptive periods provided for in the 6I2%.

;! $ debt draws interest when it is so stipulated or where there is default, while a tax

does not draw interest except only when delin'uent.

PROGRESSI0E S)STE* OF TAXATION 5s. REGRESSI0E S)STE* OF

TAXATION

$*rogressive syste. of ta)ationmeans that tax laws shall place emphasis on direct

taxes rather than on indirect taxes, with ability to pay as the principal criterion.

$ regressive syste. of ta)ationexists when there are more indirect taxes imposedthan direct taxes.

6o regressive taxes in the 1hilippine jurisdiction

7. three nherent po8ers of the state

a. taxaton


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#. po&ce po8er

c. po8er of e(nent !o(an

!. s(&artes of the three po8ers

e. !stnctons a(on4 the three po8ers

PO9ER TO TAX, POLICE PO9ER, PO9ER OF E*INENT "O*AIN

TAXATION POLICE PO9ER E*INENT

"O*AIN

7E


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the e'uivalent of

what he contributedin the form of

protection from the

government, and the

enjoyment of livingin a civili0ed

society.

benefit but only as

such as may arisefrom the

maintenance of the

healthy economic

standard of society.

compensation for

the property taenfrom him.

Amount of

imposition

)enerally no limit

as to the amount of

tax to be imposed.

$mount imposed

should not be more

that that sufficient tocover the cost of the

license and the

necessary expensesof regulation.

6o amount imposed,

since it is property

which is taen.

Relationship to the

Constitution

Subject to certain

%onstitutionallimitations

2elatively free from

%onstitutionallimitations and is

superior to the non#impairment

provisions.

Subject to certain

%onstitutionallimitations (e.g.

inferior to the non#impairment of

contracts clause!.

TAXATION 5s. POLICE PO9ER 5s. E*INENT "O*AIN

/0 $s to authority which exercises the powerTa)ation an1 Police Po2er@ Exercised only by the government or its political

subdivisions.

E.inent %o.ain@ may be exercised by 1ublic Services %orporation or publicutilities if granted by law.

30 $s to purpose

Ta)ation@ for the support of the government

E.inent %o.ain# for public use

Police Po2er @ to promote general welfare, public health, public morals, and

public safety.

40 $s to persons affected

Ta)ation an1 Police Po2er@ operate upon a community or a class of individuals

E.inent %o.ain@ operates on the individual property owner.

50 $s to effect

Ta)ation# the money contributed in the concept of taxes becomes part of the

public funds.

E.inent %o.ain# there is transfer of the right to property whether it be of

ownership or a lesser right (e.g. possession!


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Police Po2er@ no transfer of title, at most there is restraint on the injurious use of

property.

60 $s to benefits received

Ta)ation@ 1rotection and benefits received from the government.

E.inent %o.ain@ just compensation, not to exceed the maret value declared bythe owner or administrator or anyone having legal interest in the property, or as

determined by the assessor, whichever is lower.

Police Po2er@ The maintenance of a healthy economic standard of society.

70 $s to amount of imposition

Ta)ation@ )enerally no limit to the amount of tax that may be imposed.

Police Po2er@ imited to the cost of regulationE.inent %o.ain@ There is no imposition= rather, it is the owner of the property

taen who is just paid compensation.

80 $s to the relationship to the %onstitutionTa)ation an1 E.inent %o.ain @ Subject to certain constitutional limitations,

including the prohibition against impairment of the obligation of contracts.Police Po2er @ 2elatively free from constitutional limitations and superior to the

non#impairment provisions thereof.

E.inent %o.ain@ is also inferior to the non#impairment provision, hence thegovernment cannot expropriate property which under a contract it had previously

bound itself to purchase from the other contracting party.

:. &(tatons of the po8er of taxaton

a. consttutona&

CONSTIT$TIONAL LI*ITATIONS

1. "$E PROCESS($2T III Sec. " "BC; %onstitution!

7ue process mandates that no *erson s9all e 1e*rive1 of life, lierty, or *ro*erty

2it9out 1ue *rocess of la2.

2ED9I2E3E6TS 5< 79E 125%ESS I6 T$A$TI56"! Tax must be for a 1ublic purpose

&! Imposed within the Territorial jurisdiction+! 6o arbitrariness or oppression in

$! assessment, and >! collection

79E 125%ESS I6 T$A$TI56 "OES NOT 2ED9I2E

". 7etermination through judicial in'uiry of property subject to tax

&. $mount of tax to be imposed


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+. 6otice of hearing as to

$mount of the tax

3anner of apportionment

2ED9ISITES 5< 79E 125%ESS 5< $?

"! There must be a valid law

&! Tax measure should not be unconscionable and unjust as to amount to

confiscation of property

+! Tax statute must not be arbitrary as to find no support in the constitution

Duestion

?hen is deprivation of life, liberty or property done in accordance with due process of

law

"! If done under authority of a law that is valid or of the constitution itself

&! $fter 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 process

2E"E%Y@ as for refund.

FI67S 5< 79E 125%ESS

SBSTATNTI;E %E PROCESS re'uires that a tax statute must be within the

constitutional authority of %ongress to pass and that it be reasonable, fair and just.

PROCE%RAL %E PROCESS re'uires notice and hearing or at least an

opportunity to be heard.

3. E/$AL PROTECTION CLA$SE ($2T III Sec. " "BC; %onstitution!

$ll persons, all properties, all businesses should be taxed at the same rate

1rohibits class legislation

1rohibits undue discrimination

7. E/$ALIT) IN TAXATION +$NIFOR*IT)-

E'uality in taxation re'uires that all subjects or objects of taxation similarly situated

should be treated alie or put on e'ual footing both on the privilege conferred andliabilities imposed


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$ll taxable articles of the same class shall be taxed at the same rate.

The 7octrine does not re'uire that persons or properties different in fact be treated in

law as though there were the same. ?hat it prohibits is class legislation which

discriminates against some and favors others

$s long as there are rational or reasonable grounds for doing so, %ongress may group

persons or properties to be taxed and it is sufficient if all members of the same class

are subject to the same rate and the tax is administered impartially upon them.

RE/$ISITES OF A 0ALI" CLASSIFICATION code +S A G E -

"! It must be based onSustantial 1istinction

&! It mustA**ly not only to t9e *resent con1ition, but also to future conditions

+! It must be Ger.ane to t9e *ur*ose of t9e la2

! It must a**lyE


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Example ?hen the classification does not rest upon substantial distinctions that

mae for real difference

&! #9en no classification is .a1e 29ere a classification is calle1 for

Example ?hen substantial distinctions exist but no corresponding classification

is made on the basis thereof

:. $NIFOR*IT) IN TAXATION

The concept of uniformity in taxation implies that all taxable articles or properties of

the same class shall be taxed at the same rate.

It re'uires the uniform application and operation, without discrimination, of thetax in every place where the subject of the tax is found. It does not, however,

re'uire absolute identity or e'uality under all circumstances, but subject to

reasonable classification.

E/$IT) IN TAXATION

The concept of e'uity in taxation re'uires that the apportionment of the tax burden be

more or less, just in the light of the taxpayer*s ability to shoulder to tax burden and if

warranted, on the basis of the benefits received from the government. Its cornerstoneis the taxpayers ability to pay.

CRITERIA OF E/$AL PROTECTION

"! ?hen the laws operate uniformly

a. 5n all persons

b. 9nder similar circumstances&! $ll persons are treated in the same manner

a. The conditions not being different

b. >oth in privileges conferred and liabilities imposedc.


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3. E/$AL PROTECTION CLA$SE ($2T III Sec. " "BC; %onstitution!

$ll persons, all properties, all businesses should be taxed at the same rate

1rohibits class legislation

1rohibits undue discrimination

E/$AL PROTECTION OF LA9S

$ll persons subject to legislation shall be treated alie under similar

circumstances and conditions both in privilege conferred and liabilities imposed.

The doctrine does not re'uire that persons or properties different in fact be treatedin law as though they were the same. ?hat it prohibits is class legislation which

discriminates against some and favors others.

$s long as there are rational or reasonable grounds for so doing, %ongress may

group persons or properties to be taxed and it is sufficient if all members of the

same class are subject to the same rate and the tax is administered impartially

upon them.

)s classification allowed?

The taxing power has the authority to mae reasonable and natural classificationfor purposes of taxation, but the government*s act must not be prompted by spirit of

hostility, or at the very least discrimination that finds no support in reason. It suffices thenthat the laws operate e'ually and uniformly on all persons under similar circumstances or

that all persons must be treated in the same manner, the conditions not being different

both in privileges conferred and liabilities imposed,[Sison v Ancheta" #&* SCRA %+,(.

Re-uisites of a valid classification

". It must be based on substantial distinctions which mae real differences.

&. The classification must be germane to the purpose of the law.

+. The classification must not be limited to existing conditions only but must alsoapply to future conditions substantially identical to those of the present.

. The classification must apply e'ually to all members of the same class. GTiu v=CA, 4>/ SCRA 38? @/0

.iu v CA"


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The %onstitutional right to e'ual protection of the law is not violated by an

executive order, issued pursuant to law, granting tax and duty incentives only tobusinesses within the Hsecure1 area of the Subic Special Economic Jone and

denying them to those who live within the Jone but outside such Hfence1 in

territory. The %onstitution does not re'uire absolute e'uality among residents. It isenough that all persons under lie circumstances or conditions are given the same

privileges and re'uired to follow the same obligations. In short, a classification

based on valid and reasonable standards does not violate the e'ual protectionclause.

?e find real and substantial distinctions between the circumstances obtaining

inside and those outside the Subic 6aval >ase, thereby justifying a valid andreasonable classification.

/rmoc Sugar Company v .reasurer of /rmoc City" '' SCRA %*&

In the case of 5rmoc Sugar %ompany v. The treasurer of 5rmoc %ity, the S% held

the ordinance unconstitutional for taxing only sugar produced and exported by the

5rmoc Sugar %o., Inc. The classification to be reasonable should be in termsapplicable to future conditions as well. The taxing ordinance should not be

singular and exclusive as to exclude any substantially established sugar central of

the same class as plaintiff, from the coverage of the tax.

A law withdrawing the exemption granted to the press was challenged as

discriminatory for giving 0roadcast media favored treatment

The S% held that it is not discriminatory. If the press is now re'uired to pay 8$T,it is not because it is being singled out, but only because of the removal of the exemption

previously granted by law.

$NIFOR*IT) AN" E/$IT) IN TAXATION

Sec. &C c, $rt. 8I of the %onstitution provides that Ht9e rule of ta)ation s9all e

unifor. an1 e


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notes for tax

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