TAXATION
Prepared by:
Gellie Mare E. Flores
Overview:
This module will guide you in the introduction of Taxation in the Philippines
Module Objectives:
After completing the module, you are expected to comprehend and demonstrate mastery of the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Concept of taxation and its necessity for every government.
Lifeblood doctrine and its complication to taxation
Theories of government cost allocation
Inherent power of the State.
Scope of the taxation power.
Limitations of the taxation power
Stages of taxation
Concept of situs in taxation
Fundamental principles surrounding taxation
Concept of tax amnesty and taxation.
Course Materials:
Watch
1. Be able to watch this video clip on the brief history of taxation in the Philippines
https://www.youtube.com/watch?v=g9SMUffH0_g.
2. What are your significant learning from the video?
3. What are your reflections about the video?
Read
INTRODUCTION AND OVERVIEW
1. Taxation Defined
Taxation is the act of laying a tax, i.e. the process or means by which the sovereign, through its
lawmaking body, raises income to defray the necessary expenses of the government.
2. Inherent Powers of the State
2.1. Inherent Powers
a. Police Power. The power of the state for promoting public welfare by restraining and
regulating the use of liberty and property.
b. Power of Taxation. It is the power by which the State raises revenue to defray the necessary
expenses of the government.
c. Power of Eminent Domain. It is the power of the State to acquire private property for public
purpose upon payment of just compensation.
2.2. Similarities among the three (3) Inherent powers of the State
a. They are inherent in the State.
b. They exist independently of the Constitution.
c. Ways by which the State interfere with private rights and property.
d. Legislative in nature and character.
e. Each presupposes an equivalent compensation received, directly or indirectly, by the persons
affected.
2.3. Distinctions among the three (3) Inherent powers
Taxation
Power to enforce
contributions to raise
gov’t funds.
Government only.
Police Power
Power to make and
implement laws for the
general welfare.
Government only.
c. Purpose
d. Persons
affected
e. Scope
Support of government.
Community or class of
individuals.
Plenary, comprehensive,
supreme.
f. Effect
Taxes become part of
public funds.
g. Benefits
received
In form of protection
and benefits received
from government.
h. Amount of
imposition
No limit
i. Relationship
to the Nonimpairment of
Obligations
Clause of the
Constitution
Inferior to the clause
Promote general welfare.
Community or class of
individuals.
Broader in application,
general power to make
and implement law.
No transfer of title, there
is restraint on the
injurious use of property.
No direct and immediate
benefit but only such as
may arise from the
maintenance of a healthy
economic standard of
society.
Limited to the cost of the
license and the necessary
expenses of police
surveillance and
regulation.
Superior to the clause
a. Nature
b. Authority
Eminent Domain
Power to take private
property for public use with
just compensation.
Government, public service
companies and public
utilities.
Public purpose.
Individual as owner of a
particular property.
Merely a power to take
private property for public
use.
There is a transfer of title to
property, either ownership or
a lesser right.
Market value of property
taken.
No imposition. The owner is
paid equivalent to the fair
value of his property.
Inferior to the clause
3. Purposes of Taxation
3.1. Primary. Revenue or Fiscal Purpose
The primary purpose of taxation on the part of the government is to provide funds or
property with which to promote the general welfare and the protection of its citizens and to enable
it to finance its multifarious activities. A government can run its administrative set up only through
public funding which is collected in the form of tax.
3.2. Secondary.
a. Compensatory purposes
- To reduce excessive inequalities of wealth
- To maintain high level of employment
- To control inflation
b. Sumptuary or regulatory purposes
To implement the police power of the State to promote the general welfare.
4. Theory and Basis of Taxation.
4.1. Theory (Authority):
a. Necessity theory – the power of taxation proceeds upon the theory that the existence of
the government is a necessity.
b. Lifeblood Theory/Lifeblood Doctrine – The power of taxation is essential because the
government can neither exist nor endure without taxation.
– “Taxes are the lifeblood of the government and
their prompt and certain availability is an imperious need”
Manifestation of the lifeblood theory:
1) Rule of “No Estoppel against the Government”
2) Collection of taxes cannot be enjoyed (stopped) by injuction.
3) Taxes could not be the subject of compensation or set-off.
Taxes cannot be subject to set-off or compensation since claim for taxes is not a
debt or contract.
4) Right to select objects (subjects) of taxation
The power to tax is essentially legislative in nature. Hence, the right to select the
objects/subjects of taxation rests with the Congress.
5) A valid tax may result in the destruction of the taxpayer’s property
The power to tax includes the “power to destroy”, where the tax is a valid tax.
4.2. Basis of Taxation
a. Benefits received or Reciprocity Theory – The basis is the reciprocal duties of protection
and support between the state and its inhabitants
5. Scope of the Power of Taxation
The power of taxation is comprehensive, plenary, unlimited and supreme.
6. Essential Elements of a Tax.
a. It is an enforced contribution. Payment of tax is not voluntary payment or donation, but an
enforced contribution, exacted pursuant to legislative authority.
b. It is generally payable in money. It is a pecuniary burden payable in money which must be in
legal tender.
c. It is proportionate in character. Payment of taxes should be based on the ability to pay theory or
theoretical justice.
d. It is levied on persons, property or the exercise of a right or privilege.
e. It is levied by the law-making body of the state.
f. It is levied for public purpose.
7. Aspects of Taxation
Aspects refer to “stages, phases or process” that are included or embodied in the term “taxation”
such as:
1) Levying or imposition of the tax which is a legislative act or function. (Legislative function)
2) Assessment or determination of the correct amount of applicable tax. (Executive function)
3) Collection of the tax levied which is essentially administrative in character. The Bureau of
Internal Revenue (BIR) is in charge with the function of collecting internal revenue taxes.
(Executive function)
8. Classification of Taxes
8.1. As to scope
a. National – imposed by the National Government
b. Local – imposed by local government units such as municipal corporations.
8.2. As to subject matter or object
a. Personal, poll or capitation – imposed on person
b. Property – imposed on properties
c. Excise – imposed on rights
8.3. As to who bears the burden
a. Direct b. Indirect –
8.4. As to determination of amount
a. Specific b. Ad valorem –
8.5. As to purpose
a. Primary, Fiscal or Revenue Purpose
b. Secondary, Regulatory, Special or Sumptuary Purpose
8.6. As to graduation or rate
a. Proportional
b. Progressive or graduated
c. Regressive
9. Elements of Tax Sound System
a. Fiscal adequacy – the fundamental purpose of taxation is to raise the revenue necessary to fund
public services.
b. Theoretical Justice or Equity (ability to pay principle) – the tax burden should be proportionate
to the taxpayer’s ability to pay.
c. Administrative Feasibility
10. Limitations of the State’s Power to Tax
10.1. Inherent Limitations – those limitations which exist despite the absence of an express
constitutional provision.
a. Purpose must be public in nature
b. Prohibition against delegation of the taxing power
c. Territorial limitation
10.2. Constitutional Limitations
a. Due process of law.
b. Equal protection of laws.
c. Rule of uniformity and equity in taxation.
d. Prohibition against imprisonment for non-payment of “poll tax”.
e. Prohibition against impairment of obligation of contracts.
f. Prohibition against infringement of religious freedom
g. Prohibition against appropriation of proceeds of taxation for the use, benefit, or support
of any church
h. Prohibition against taxation of religious, charitable and educational entities.
i. Prohibition against taxation of non-stock, non-profit educational institutions
11. Situs of Taxation
It means “place” of taxation. It is the state or political unit which has jurisdiction to impose a
particular tax
Factors to consider in determining the situs of taxation
a. Subject matter (person, property, activity)
b. Nature of the tax
c. Citizenship
d. Residence of the taxpayer
e. Source of income
f. Place of excise, business or occupation being taxed
EXAMPLES OF SITUS OF TAXATION
Residence of the taxpayer
Persons
Location
Real Property
Location, Place of sale or transaction
Personal Property
Intangible Personal Property Domicile of the owner except when the intangible has a situs elsewhere
such as:
a. Franchise, patents, copyrights, trademarks: Situs is the place or
country where such intangibles are exercised.
b. Receivables: Domicile or residence of the debtor
c. Bank deposits: Location of the depository bank.
*** Source of income
Income
a. Occupation – where the occupation is engaged in
b. Transaction – where the transaction took place
Place of the business
Business
Residence or citizenship of the taxpayer; or location of the property.
Gratuitous Transfer
12. Tax Distinguished from Other Terms or Imposts
12.1. TAX versus TOLL
Toll is a sum of money for the use of something, generally applied to the consideration, which is
paid of the use of a road, bridge or the like of a public nature.
TOLL
TAX
12.2. TAX versus PENALTY
Penalty is a sanction imposed as a punishment for violation of law or acts deem injurious. The
violation of tax may give right to imposition of penalty.
PENALTY
TAX
12.3. TAX versus SPECIAL ASSESSMENT
Special assessment is an enforced proportional contribution from owners of lands for special
benefits resulting from public improvements. It is not a tax measure intended to raise revenues for the
government because the proceeds thereof may be devoted to the specific purpose for which the assessment
was authorized.
12.4. TAX versus REVENUE
Revenue refers to all the funds or income derived by the government, whether from tax or any other
source.
REVENUE
TAX
12.5 TAX versus SUBSIDY
Subsidy is a pecuniary aid directly granted the government to an individual or private commercial
enterprise deemed beneficial to the public.
12.6. TAX versus PERMIT or LICENSE FEE
Permit or license is a charge imposed under the police power for purposes of regulation.
PERMIT OR LICENSE FEE
TAX
12.7. TAX versus DEBT
DEBT
TAX
12.8. TAX versus CUSTOMS DUTIES
Customs duties are taxes imposed on goods exported from or imported into a country
12.9 TAX versus TARIFF
Review:
1. Related Cases on the manifestation of lifeblood theory; Taxes could not be the subject of compensation
or set-off.
(FRANCIA VS. IAC. G.R 7649, June 28, 1988)
X is the owner of a residential lot situated at Quirino Avenue, Pasay City. The lot has an area of 300 square
meters. On June 1, 1994, 100 square meters of said lot owned by X was expropriated by the government to
be used in the widening of Quirino Avenue, for P 300,000 representing the estimated assessed value of said
portion. From 1991 to 1995, X, who is a businessman, has not been paying his income taxes. X is now
being assessed for the unpaid income taxes in the total amount of P 150,000. X claims his income tax
liability has already been compensated by the amount of P 300,000 which the government owes him for the
expropriation of his property. Decide.
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