BMGT 27 Chapter 1: Taxation - Taxation May be defined as: 1. State Power - inherent power of the government to collect tax directly from its subjects 2. As a process - legislations – enforce going gown yung pangongolekta ng subjects 3. As a mode of cost distribution - pinapataw ng government yung burden na meron sila sa citizens “Ex. Utang “ Legislator - congress, senators, Congress men + Senators The Basis of Taxation Government - Providing benefits to the people by means of public service People - The ones providing funds to the government by means of taxes Theories of Cost Allocation 1. Benefit Received Theory - Kung ikaw ay mamamayan at malaki yung narreceive mong benefit sa government malaki rin ang tax na babayaran mo 2. Ability to Pay Theory - We are basing yung pagbabayad ng tax when it comes to ability of payers - Kung malaki yung sinasahod mo malaki rin yung tax na babayaran mo kahit - maliit yung benefit na natatanggap mo sa government Kung maliit naman yung sahod mo maliit rin yung tax na babayaran mo kahit malaki yung benefit na natatanggap mo sa government “malaki sahod -malaki tax kahit maliit benefits” “maliit sahod – maliit tax, kahit malaki benefits” This is based on the ability of payers Aspects of the Ability to Pay Theory: 1. Vertical Equity - Dito sa ability to pay ng isang tao bumabase sila sa laki ng sahod o kita - Employee A kumikita ng 100, 000 at si Employee B kumikita ng 200,000. Si Employee ay mas maliit ang tax nya while si Employee B naman ay malaki ang tax niya dahil mas mataas ang sweldo niya 2. - Horizontal Equity Bumabase sa expenses Malaki expenses – mas maliit tax Maliit expenses – mas malaki tax Businessman A at B parehas ang kita sa Negosyo 500,000 pero pagdating sa business expenses which is 250 000 kay Business Man A at 100 000 naman kay Business Man B. Kung sino yung mas maliit na expenses siya yung may malaking babayaran na tax, while yung mas malaki ang expenses mas maliit ang babayaran na tax Yung mga local government unit (municipalities & cities) they must collect taxes from their constituents Income tax – malimit napupunta sa national government Pag babayad ng property tax – napupunta sa local government, ginagamit narin ng local government para iayos ang city nila 0% tax exemption – public 10% private, minimal fee Gross- kabuuan Net- nakaltasan na Inherent Power of the State BMGT 28 Government has its basic needs and rights which co-exist with its creation Chapter 2: Scope of the Taxation Power 1. Taxation Power - It is the power of the government to impose tax to the people - Collect and sustain itself 2. Police Power - Power of the government to protect the general welfare of the people - Military and Policeman 3. Eminent Domain - Government has the power to get private property for public use - Road Widening as an example Inherent = May power Comparison of Inherent Power of the State A. Inherent Limitation of Taxation 1. Territoriality of Taxation - Only the residents residing here in the Philippines could be tax or subject to tax - Kung ang isang Pilipino ay nakatira sa ibang bansa, hindi sila pwedeng buwisan ng Pilipinas dahil yung bans ana kung saan na nakatira yung isang Pilipino have their own law and own sovereignty. Hindi pwede panghimasukan yon ng ng gobyerno ng Pilipinas - Public service are normally provided within the boundaries of the state. Thus, the government can only demand tax obligations upon its subjects or residents within its territorial jurisdiction. There is no basis in taxing foreign subjects since they do not derive benefits from our government. Furthermore, extraterritorial taxation will amount to encroachment of foreign sovereignty Two-Fold Obligations of Taxpayers Similarities of the three powers of the state 1. They are all necessary attributes of sovereignty 2. They are inherent to the state 3. They are all legislative in nature 4. They are all ways in which the state interferes with private rights and properties 5. They all exist independently of the constitution and are exercisable by the government even without Constitutional grant. However, the Constitution may impose conditions of limits for their exercises 6. They all presuppose an equivalent form of compensation received by the persons affected by the exercise of the power 7. The exercise of these powers by the local government units may be limited by the national legislature a. Filing of Returns and Payment of Taxes - rebate to your tax (private) b. Withholding of Taxes on Expenses and its Remittance to the Government - they should be paying the tax - community tax (depends on the amount of your salary) - vat (less 20k salary) Filing of Income Tax Return (ITR) Benefits: Income Tax Refund Pagkatapos mo magbayad ng tas makakatanggap ng prepaid All of the Business Establishments should pay for taxes - Real Estate Property, anything they use sa business Train Law: Below 20k – walang tax na kaltas sa sahod VAT: Value Added Tax – kapag bumibili ng mga bagay na kailangan mo Cummunity Tax: Sedula 2. International Comity - No country is powerful than the other. It is by this principle that each country observes international comity or mutual courtesy or reciprocity between them - May sariling batas at soberanya ang bawat bansa - The government of the Philippines could not subject those other Filipino citizens na nakatira sa ibang bans ana magbayad ng tax - Ang mga foreigners na dito na nakatira at nagttrabaho rekta, tayo na ang nag tatax sa kanila (Philippines Government) - Exemption: USA have their own embassy in the PH, non-Filipino workers does not pay tax for PH because they are working for US. US Embassy sa Pilipinas – Non-Filipino Workers in US Embassy (Americans) (Income Tax and Property Tax) Embassies and Consular Offices of foreign governments in the Philippine including international organizations and their nonFilipino workers/staff are not subject to Income Taxes/Property Taxes Embassies are being owned by the other country Ex. US Embassy is owned by the government of the USA Foreign Companies in Philippines 60% - PH 40% - Foreigners a. The government do not tax the income and properties of other governments b. Governments give primacy to their treaty obligations over their own domestic tax laws US Embassy – extension of US here in the Philippines 3. Public Purpose - Tax is intended for the common good. Taxation must be exercised - absolutely for public purpose. It cannot be exercised to further any private interest The reason is why we have tax it is for the government to use it for public welfare. If a government official tax for private interest – that is corruption 4. Exemption of the Government - Under the NIRC, government properties and income from essential public functions are not subject to taxation. However, income of the government from its properties and activities conducted for profit uncluding income government owned and controlled corporation is subject to tax - National Internal Revenue Code (NIRC) - Income generated – Government owned, may tax - Ex. PEZA – corporation of the government - they are the ones who handles the factories - they pay rent 5. Non – Delegation of the Taxing Power - The legislative taxing power is vested exclusively in congress and is nondelegated pursuant to the doctrine of separation of the branches of the government to ensure a system of checks and balances. The power of lawmaking, including taxation, is delegated by the people to the legislature. So as not to spoil the purpose of delegation, it is held that what has been delegated cannot be further delegated Congress – Senate and House of Representatives – only congress have the power to impose, revise, or create bills about tax B. Constitutional Limitations of Taxations 1. Observance of Due Process of Law - Life, Liberty, Property - If basta kinuha nalang yung property niyo need na dumaan ito sa tamang proseso - Illegal once kinuha nalang basta - Due Process: PH Constitution 1987 Right process, Notice and Hearing No one should be deprived of life, liberty, or property without due process of law, nor shall any person be armed the equal protection of the laws Aspect of Due Process a. Substantive Due Process - Tax must be imposed only for Public Purpose - The tax collected only under only authority of a Valid Law and with the taxing power, having jurisdiction - Legal Basis Assessment: if ang assessment is walang legal basis, that is violating the requirement of due process b. Procedural Due Process - No arbitrariness in collecting - There should be no arbitrary in an assessment and collection 2. Equal Protection of the Law - Poor or rich should pay tax - No person shall be denied equal protection of the law. Taxpayers should be treated equally. Mayaman at mahirap, magbabayad ng tax 3. Uniformity Rule in Taxation - Should not be taxed the same - Taxpayers should be classified to commonality and attributes - Tax classification should be the basis of tax diction - The rule of taxation should be uniform and equitable 4. Progressive System of Taxation - Tax raised increase as tax-based increase - Tataas ang tax once tumaas ang sweldo - Ability to pay - Tax base – ito yung kung saan manggaling yung ipangbabayad natin ng tax or kung saan pagbabasehan ang pagkuha ng tax ^ Tax Base = ^ Tax Rate ^ Sahod = ^ Tax The constitution favors progressive tax as it is consistent with the tax payers ability to pay 5. Non-Imprisonment for Non-Payment of Debt or Poll Tax - There are people whose being imprisoned because of their debt, there are some that don’t - Kapag good faith and honest and tao na walang pagmabayad hindi makukulong - In bad faith - Staffa Poll Tax a. Community Tax - Pagkuha ng sedula - Tax Evasion: Hindi ka nagfile ng ITR (tax return) - SALN: Statement of Assets, Liabilities, and Net Worth May nakukulong sa hindi pagbabayad ng tax, tax evasion - Kapag hindi nagfile ng ITR, Tax Evasion, Criminal Case b. Upgraded Community Tax 6. Non-Impairment of Obligation and Contract - - The state should show in good faith Good role model for citizen and government officials A state should set a good example to its constituents, it should not set aside its obligation from contract by the exercise of its taxation power Tax exemption granted under contract should unheard and should be cancelled by bilateral government action 7. Free Worship Rule - Philippine government accept free exercise from religion - Ang simbahan ay hindi pwedeng buwisan ng gobyerno - Separation of church to the state - Ang Negosyo ng simbahan lamang ang bubuwisan - - Taxable kung ang simbahan nagtayo ng Negosyo, Negosyo hindi mismong simbahan Separation between church and the state – hindi pwedeng mangeelam ang simbahan sa estado at hindi pwedeng mangeelam ang estado sa simbahan 8. Exemption of religious, charitable, or educational entities, non-profit cemeteries, churches and mosques, lands, building, and improvements from property tax - Basta regarding sa charitable and/or educational activities automatic exempted na sa tax, basta walang other income na involve - the Constitutional exemption from property tax applies for properties actually directly and exclusively used for charitable, religions, and education purposes - lalo na kapag public pag private if there is education purpose, 10% pay 9. Non-appropriation of public funds or property for the benefit of any church, sect, or system of religion - Government cannot give any funds to churches - Separation of the state by the church - We cannot allocate public funds for the property or any benefit of church 10. Exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions including grants, endowments, donations, or contributions for education purposes - 0% tax is for public - 10% tax for private - The constitution recognizes the necessities of education in state building by granting tax exemption in revenues and assets there are actually directly and exclusively devoted for educational purpose 11. Concurrence of a majority of all members of congress for the passage of a law granting tax exemption - Kung lagi nalang may tax exemption saan makukuha ang funds ng government - Granting tax exemption should have a right process, acceptable reason, valid basis - By voting - Tax exemption law counters against lifeblood doctrine as it deprives the government of revenue - The grant of tax exemption must proceed only upon a valid basis as a safety net - The constitution requires the vote of the majority of all members of congress in the grant of tax exemption 12. Non-diversification of tax collection - Tax collections should only be use for public purposes and it should be diversified it should never be used for private purpose - Kapag ginawa sa private purpose, that is corruption - Never for private purposes 13. Non-delegation of the power of taxation - Requires the taxation power as part of lawmaking - Senate and House of Representatives – gumagawa at may kapangyarihan na magpasa ng law about tax - The principle objects and balances in a republican state requires the taxation power as part of law making be vested exclusively in congress Senate and House of Representatives - Sila yung gumagawa at may kapangyarihan para magpasa ng Bill, gumawa ng Batas about Tax 14. Non-impairment of the jurisdiction of the supreme court to review tax cases - Bago mapunta kay Supreme court yung mga kaso about Tax, dumadaan muna kay Court of Tax Appeals Tax Appeals – special court, all cases involving taxes dito dumadaan bago desisyunan ng Supreme Court same taxing period. This, double taxation must be of the same kind of character to be a valid issue Elements of Double Taxation 15. Appropriations, revenue, or tariff bills shall originate exclusively in the House of Representatives, not the senate may propose or concur with amendments - Laws that add income to the national treasury and those allow suspending therein must originate from the House of Representatives, while Senate may concern with amendments - Origination of a Bill by Congress, not necessarily mean that the House of Representatives must become the final law, it was held constitutional by the Supreme Court when senate change the entire House revision of a tax bill 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 - They must collect taxes to their constituents - Property Tax to Local Government para sa ikakaayos ng municipalities and hindi na nakikihati sa national - Yung mga local government unitys (municipalities) they must collect taxes from their constituents - Income tax – malimit napupunta sa National Government - Pagbabayad ng property tax – napupunta sa local government, ginagamit natin ng local government para iayos city nila a. Primary Element – same object (ex. Income, person) b. Secondary Element Same type of tax (capital gains tax, documentary stamp tax, donor tax, estate tax, income tax, value added tax, exercise tax, binabayaran pag bumibili ng commodities) Same purpose of tax (parehas yung purpose kung bakit ka nadouble tax) Same taxing jurisdiction (for the government to earn) Same tax period (sa loob ba ng isang taon or isang buwan ka na tax ng dalawang beses) Types of Double Taxation 1. Direct Double Taxation - This occurs when all the elements of double taxation exist for both impositions Examples: a. An income tax of 10% on monthly sales and 2% income tax on the annual sales (total of monthly sales) b. A 5% tax on bank reserve deficiency and another 1% penalthy per day as a consequences of such reserve deficiency - Double Taxation - - Occurs when the same taxpayer is taxed twice by the same tax jurisdiction for the same thing You are being taxed twice for your income tax The law prohibits is actually the imposition of two taxes on the same subject matter for the same purpose with the same taxing authority within the same jurisdiction and during the Negosyo, 10% bayad monthly then at the end of the year 2% income tax ulit It has the same object and has the same type of tax 2. Indirect Double Taxation - This occurs at least one of the secondary elements of double taxation is not common for both impositions Example: a. The national government collects income tax from a taxpayer on his income while the local government collects community tax upon the same income National Government – income local government - community Hindi parehas na income tax Escapes from Taxation Escapes from taxation are the means available to the taxpayer to limit or even avoid the impact of taxation Categories of escapes from taxation A. Those that result to loss of government revenue - Escapes from taxation na yung government, walang nakukuha or nababawasan ang revenue ng government - Walang nakukuha ang government 01. Tax Evasion - Tax Dodging – it refers to any act of trick that defends to illegally reduce or avoid the payment of tax Ex. Hindi nagdeclare/file ng Income mo, Hindi nagbayad ng income tax 02. Tax Avoidance – not declaring the real and the full amount of your expenses - Tax Minimization – it refers to any act or trick that reduces or totally escapes taxes by any legally permissible means: Minimizing tax Minimizing net income Pinapataas expense ^ expense (-) net income (dito nagbbase ng tax na babayaran) You are not declaring the real and full amount of your expenses 03. Tax Exemption (Tax Holiday) – immunity privilege or freedom of paying tax - May be granted by the constitution, law, contracts - Institutions that are educational, church, charities - All forms of tax exemptions can be revoked by congress except those granted by the constitution and those granted under contracts - Ex. Pinagbotohan ng Congress ang GMA for tax evasion, if walang - contract and not written on constitution, they can revoke it Church and religions Can be revoke by congress, except those who are granted by contracts and constitutions B. Those that do not result to loss of government revenue - Hindi nag ccause ng loss sa kita or fund ng government 1. Shifting - Process of shifting tax burden to another taxpayer Forward Shifting - Follows the normal flow of distribution Ex. Manufacturer to Wholesaler VAT – Retailers to Consumer Common with essential commodities (Food, Fuel) Backward Shifting - Non-essential commodities The reverse of forward shifting This is where buyers have considerable market power and commodities with numerous substitute product Onward Shifting - Any tax shifting both forward and backward is being exercises Business taxes Shifting is common with business taxes where taxes imposed on business revenue can be shifted or passed on the customers 2. Capitalization - Talks about to the adjustment of the value of an asset caused by changes in tax rate Ex. The value of mining property will correspondingly decrease when mining output is subjected to higher taxes 3. Transformation - Elimination of ways or losses by the taxpayers to form savings to compensate for the tax imposition or increase in taxes Tax Amnesty - - - General pardon granted by the government for taxpayers to give them a chance to reform and able them to have a fresh start to be part of the society with a clean slate Absolute forgiveness or waver by the government on its right to collect and is retrospective in application General pardon ng government Covers both civil and criminal liabilities Amnesties operates retrospectively by forgiving past violations Amnesties are conditional upon the taxpayer paying the government a portion of the tax Tax Condonation - - - Forgiveness of the tax obligation of a certain taxpayer under certain justifiable grounds Tax remission Covers only civil liabilities of taxpayers Condonations applies prospectively to any unpaid balances of the tax; hence the portion already paid by the taxpayer will not be refunded Di ka na makakuha ng refund pag late Condonations requires no payment Tax Amnesty and Tax Condonation deprive the government of revenue (Tax Exemption, Tax Refund, Tax Amnesty, and Condonation) are construct against the taxpayer and in favor of the government
