Chapter 1
Introduction to Taxation
TAXATION
State power
Process
Mode of cost distribution
Theory of Taxation
- govt’s necessity for funding
Basis of Taxation
- mutuality between the people and the govt
* Receipt of benefits is conclusively presumed.
Theories of Cost Allocation
1. Benefit Received Theory
2. Ability to Pay Theory
Aspects of the Ability to Pay Theory
A. Vertical Equity
B. Horizontal Equity
The Lifeblood Doctrine
- taxes are lifeblood of govt: taxes should be
prompt and certain
1. Tax is imposed even in the absence of a
Constitutional grant
2. Claims for tax exemption re construed against
the taxpayer
3. The govt reserves the right to choose the
objects of taxation.
4. The courts are not allowed to interfere with
the collection of taxes.
5. (Income Taxation):
A. Income received in advance is taxable upon
receipt.
B. Deduction for capital expenditures and
prepayments is not allowed for it effectively
defers the collection of income tax.
C. A lower limit of deduction is preferred when
a claimable expense is subject to limit.
D. A higher tax base is preferred when the tax
object has multiple tax bases.
Inherent Powers of the State
1. Taxation Power
2. Police Power
3. Eminent domain
Scope of Taxation Power
Comprehensive
Plenary
Unlimited
Supreme
Limitation of Taxation Power
A. INHERENT LIMILATIONS
1. Territoriality of Taxation
GR:
Tax can be imposed only within the territories
of the state.
EXN:
Income Taxation: RC and DC
Transfer Taxation: RC, NRC, RA
2. International Comity
All states are equally sovereign.
Not taxing the properties, income, or effects of
fellow states
Treaty agreements > Local tax law
3. Public Purpose
4. Exemption of the Government
Taxing the government will not raise additional
funds but will only impute additional costs
5. Non-delegation of the Taxing Power
GR:
Congress (Legislature)
EXN:
1. Local government units are allowed to
exercise the power to tax
2. President is empowered to fix the amount of
tariffs
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Introduction to Taxation
3. Other cases that require expedient and
effective administration of assessment and
collection of taxes
B. CONSTITUTIONAL LIMITS OF LIMITATION
1. Observance of Due Process of Law
Aspects of Due Process
1. Substantive Due Process
2. Procedural Due Process
* Assessments
WITHIN
From due date of filing of return
3 YEARS
From date of actual filing
* Collections
WITHIN 5 YEARS from date of assessment
2. Equal Protection of Law
Taxpayers should be treated equally
Under the same circumstances
3. Uniformity Rule in Taxation
Rule of taxation must be uniform and equitable
Under dissimilar circumstances
Taxpayers should not be taxed the same
Uniformity is relative equality.
4. Progressive System of Taxation
Congress
Tax rates increase as tax base increases
5. Non-imprisonment for Non-payment of Debt
or Poll Tax
Estafa
- debt acquired in bad faith
- criminal offense punishable by imprisonment
TAX
Arises from law;
Demand of
sovereignty
Compromises:
Public interest, Crime
DEBT
Arises from private
contracts
Compromises:
Private interest
Poll Tax:
a. Basic Community Tax
b. Additional Community Tax
GR:
Non-payment of tax: Imprisonment
EXN:
Non-payment of Basic Community Tax
6. Non-impairment of Obligation and Contract
It should not set aside its obligations from
contracts by the exercise of taxation power.
Tax exemptions granted under contract should
be honoured and should not be cancelled by a
unilateral government action.
7. Free Worship Rule
Tithes or offerings - not subject to tax
Properties or activities that are proprietary or
commercial in nature - subject to tax
8. Exemption of Religious, Charitable or
Educational Entities, Non-profit Cemeteries,
Churches and Mosques, Lands, Buildings, and
Improvements from PROPERTY TAX
(Doctrine of Use)
Exemption applies for properties actually,
directly, and exclusively used for charitable,
religious and educational purposes
Doctrine of Ownership
- regardless of whether used in primary
operations or not, properties should be exempt
- not applied in the Philippines
9. Non-appropriation of Public Funds or
Property for the Benefit of any Church, Sect or
System of Religion
GR:
No appropriation of govt funds to any particular
system of religion
EXN:
Priests, imams, religious ministers working with
the military, penal institutions, orphanages, or
leprosarium
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10. Exemption from Taxes of the Revenues and
Assets of Non-profit, Non-stock Educational
Institutions Including Grants, Endowments,
Donations, or Contributions for EDUCATIONAL
PURPOSES
Exemption on revenues and assets actually,
directly and exclusively devoted for educational
purposes
16. Each Local Government Unit shall Exercise
the Power to Create its Own Sources of
Revenue and shall have a Just Share in the
National Taxes
* Govt educ. institutions - EXEMPT
* Private educ. institutions - minimal 10% tax
Levy or Imposition
Impact of Taxation
Enactment of tax law
Legislative Act
11. Concurrence of a Majority of All Members
of Congress for the Passage of a Law Granting
Tax Exemption
Vote of majority of all members of Congress
Approval of tax exemption - Absolute Majority
Withdrawal of tax exemption - Relative Majority
12. Non-diversification of Tax Collections
Never diversified or used for private purpose
13. Non-delegation of the Power of Taxation
GR:
Exclusively in Congress
EXN:
On matters involving expedient and effective
administration and implementation of
assessment and collection of taxes
(Interpret and clarify the application of law);
Taxing process that are non-legislative in nature
14. Non-impairment of the Jurisdiction of the
Supreme Court to Review Tax Cases
Court of Appeals
Supreme Court
15. Appropriations, Revenues, or Tariff Bills
shall Originate Exclusively in the House of
Representatives, but the Senate may Propose
or Concur with Amendments
Origination of bill: House of Representatives
Senate may amend
Stages of the Exercise of Taxation Power
1. Levy or Imposition
2. Assessment and Collection
* Tax bills must originate from House of
Representatives.
Matters of Legislative Discretion in the Exercise
of Taxation
1. Determining the object of taxation
2. Setting the tax rate or amount to be collected
3. Determining the purpose for the levy which
must be public in use
4. Kind of tax to be imposed
5. Apportionment of the tax between national
and local government
6. Situs of taxation
7. Method of collection
Assessment and Collection
Implemented by Administrative Branch
Incidence of Taxation
Administrative Act of Taxation
Situs of Taxation (Place of Taxation)
Tax jurisdiction
1. Business tax situs: where the business is
conducted
2. Services: where the service is rendered
3. Sale of goods: place of sale
4. Property tax situs: location of properties
5. Personal tax situs: place of residence
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Chapter 1
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Other Fundamental Doctrines in Taxation
1. Marshall Doctrine
The power to tax involves the power to destroy.
Taxation, an instrument of Police Power.
- Excessive tax on cigarettes
2. Holme’s Doctrine
Taxation power is not the power to destroy
while the court sits.
- Ecozones, BMBE
3. Prospectivity of Tax Laws
GR:
Prospective in nature
Ex post facto law is prohibited
EXN:
Income tax may operate retrospectively if so
intended by Congress
4. Non-compensation or Set-off
GR:
Taxes are not subject to automatic set-off or
compensation.
EXN:
Taxpayer’s claim is due and demandable
Cases of obvious overpayment of taxes
Local taxes
5. Non-assignment of Taxes
Tax obligations cannot be assigned or
transferred to another entity by contract.
6. Imprescriptibility in Taxation
Prescription - lapsing of right due to passage of
time
Govt’s right to collect taxes does not prescribe
unless the law itself provides so.
Assessment
5 YEARS
(No Assessment)
3 YEARS
Date of return
X Collection
X Collection
by Judicial Action
* Taxpayers who did not file a return or filed
fraudulent returns – do not prescribe
7. Doctrine of Estoppel
The govt is not subject to estoppel.
Error of EE = X Binding to the govt
8. Judicial Non-interference
Lifeblood Doctrine
Courts not allowed to issue injunction against
govt pursuit to collect tax
9. Strict Construction of Tax Laws
Taxation is rule, exemption is the exception.
Vague Tax Laws
- construed against govt; in favour of taxpayers
Vague Exemption Laws
- construed against taxpayer; in favour of govt
Double Taxation
- Same taxpayer is taxed twice by the same tax
jurisdiction for the same thing
Elements of Double Taxation
1. Primary: Same object
2. Secondary: Same type of tax
Same purpose of tax
Same taxing jurisdiction
Same tax period
Types of Double Taxation
1. Direct Double Taxation
- All elements exist
2. Indirect Double Taxation
- At least one of the secondary elements is not
common for both impositions
Escapes from Taxation
A. RESULT TO LOSS OF GOVT REVENUE
1. Tax Evasion
- Tax Dodging
- Illegal
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2. Tax Avoidance
- Tax Minimization
- Legal
3. Tax Exemption
- Tax Holiday
- Immunity, privilege, or freedom
- Granted by Constitution, Law, or Contract
B. DO NOT RESULT TO LOSS OF GOVT REVENUE
1. Shifting
A. Forward Shifting
B. Backward Shifting
C. Onward Shifting
2. Capitalization
3. Transformation
TAX AMNESTY
General pardon;
Absolute forgiveness;
Fresh start;
Civil and criminal liab
Retrospective
TP pay govt
TAX CONDONATION
“Tax Remission”
Forgiveness of tax
obligation;
Civil liab
Prospetive
No payment
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