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Fundamentals in Taxationunder Prof CC Laforteza, 1st semester AY 2011-2012


1 Taxation I Midterms reviewer Prof. C. C. Laforteza 1 Semester A.Y. 2011-2012st

Janz Hanna Ria N. SerranoFundamentals of Taxation A. Meaning and Nature of Tax(es) 1. Taxation and tax defined Taxation is the act of laying a tax, I,.e, the process by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government. It is merely a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits, and therefore, must bear its burden. || As a power, taxation refers to the inherent power of the state to demand enforced contributions for public purposes. Taxes are assessed for the purpose of generating revenue to be used for public needs || It is that we pay for civilization. They are the enforced proportional contributions from persons and property levied by the legislature by virtue of its sovereignty for the suppor of govt and for all public needs. CIR v. Algue. [promotional fees as deductions = allowed] Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. || It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. 2. Essential characteristics of taxes 1. It is a forced charge, imposition or contribution it is not contractual, but positive acts of government. 2. It is proportionate in character 3. It is assessed in accordance with some reasonable rule of apportionment conformably with the constitutional mandate for congress to evolve a progressive tax system taxes must be based on taxpayers ability to pay. 4. It is a pecuniary burden payable in money. 5. It is imposed by the State on persons, property, or excises within it jurisdiction, in accordance with the principle of territoriality. 6. It is levied by the legislative body of the State 7. It is levied for a public purpose 8. It is personal to the taxpayer 3. Tax as distinguished from other forms of imposition a. Tax v. license and regulatory fee Tax License fee Purpose Revenue Regulation Basis Power of taxation Police power Amount No limit Limited to the cost of the license and the expenses of police surveillance and regulation Time of payment After start of business Before start of business Effect of non-payment Failure to pay taxes does NOT render Makes the business illegal business illegal Surrender Cannot be surrendered except for lawful May be with or without consideration consideration Osmea v. Orbos. Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the practice is not without precedent. PAL v. Edu. [vehicle registration fees] It is quite apparent that vehicle registration fees were originally simple exceptional, intended only for rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy of registration payments as "fees," their nature has become that of "taxes." In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. Progressive Development Corp. v. QC. [supervision fee for market stall owners] The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although license fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. Thus, if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. || To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. When an activity, occupation or profession is of such a character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. Cia. General de Tabacos de Filipinas v. City of Manila. [license fees for liquor dealers] Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally manufactured. (Section 18 [p], Republic Act 409, as amended). The license fees imposed by it are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and must be subject to supervision or regulation by the state and by cities and municipalities authorized to act in the premises. b. Tax v. special assessment Tax Special assessment Definition Enforced proportional contributions from Enforced proportional contribution from persons and property owners of land especially or peculiarly benefited by public improvements Basis Necessity Benefits Subject Levied on persons, property, acts Only on land Scope General application Exceptional both as to the time and place

2 Taxation I Midterms reviewer Prof. C. C. Laforteza 1 Semester A.Y. 2011-2012st

Janz Hanna Ria N. SerranoPerson liable Personal liability of TP Not a personal liability of the person assessed; his liability is limited only to the land involved


Sec. 240, LGC. Special Levy by Local Government Units. - A province, city or municipality may impose a special levy on the lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements funded by the local government unit concerned: Provided, however, That the special levy shall not exceed sixty percent (60%) of the actual cost of such projects and improvements, including the costs of acquiring land and such other real property in connection therewith: Provided, further, That the special levy shall not apply to lands exempt from basic real property tax and the remainder of the land portions of which have been donated to the local government unit concerned for the construction of such projects or improvements. Republic v. Bacolod-Murcia. [petitioners: purchase of the Insular Sugar Refinery with money from the Philsugin Fund; fund is for our benefit] The appellants' refusal to continue paying the assessment under Republic Act 632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely becau