What is Taxation
1. As a state power: Taxation refers to the inherent
power of a sovereign state acting through its
legislature to impose a proportionate burden
upon persons, property rights or transaction to
raise revenue to support government
expenditure and as a tool for general and
economic welfare.
2. As a process: Taxation refers to the act of
imposing a tax by a sovereign state to raise
revenue for the use and support of the
government.
Purpose of taxation
1.
Primary purposes: to raise funds for the
expenses of the government: (also called
Revenue purpose)
2. Secondary purpose: as a tool for general, social
and economic welfare (also called
Regulatory/Sumptuary/compensatory purpose)
3. Other purpose: promotion of general welfare,
reduction of social inequality, encourages
economic growth and protectionism.
Importance of taxes
Taxes are important because they are the
lifeblood of the Government and so should be
calculated without unnecessary hindrance.
Nature or characteristics of the taxing power.
1. It is inherent power of a sovereign state-being
inherent in sovereignty, the state has the power
to tax even if not expressly granted by the
constitution.
2. It is legislative in character-taxation is generally
exercised by the law-making body of a state.
3. It is subject to inherent and constitutional
limitations.
Scope of the power of taxation
In the absence of inherent and constitutional
limitations, the power to tax is comprehensive
and unlimited. It is so comprehensive that in the
words of justice Marshall of US Supreme Court,
the power to tax includes the power to destroy.
It is an awesome power.
Scope of the legislative taxing power:
1. Subject of Taxation – The person, property,
or occupation to be taxed.
2. The amount or rate of tax.
3. The purpose for which taxes shall be levied
provided they are public purpose.
4. The kind of tax to be collected.
5. The apportionment of the tax.
6. The situs of taxation.
7. The method of collection.
Where does the power of taxation proceed from
It proceeds from the necessity of the existence
of the government, and since it exist for the
people, it can compel them to pay taxes.
Basis of taxation
The reciprocal obligation of protection and
support between the state and its citizens. In
return for the protection provided by the state,
the people pay taxes. Benefit-Protection Theory.
Power of judicial REVIEW
Courts cannot inquire into the wisdom of a
taxing act. As long as the legislature, in
imposing a tax, does not violate applicable
constitutional limitations or restrictions, the
courts have no concern with the wisdom or
policy of the exaction, the political or other
collateral motives behind it, the amount to be
raised, or the persons, property or other
privileges to be taxed.
Canons of tax
1.
2.
3.
4.
Proportional to one’s ability to pay
Certain and not arbitrary
Convenient to pay
Economical to collect
Construction of tax laws
1. Tax laws are prospective, generally.
2. Tax exemptions to be constructed strictly.
Three inherent powers of the state
1. Taxation
2. Police power
3. Power of Eminent Domain
Similarities and distinctions of Taxation, Police
Power and Power of Eminent Domain.
Three inherent powers of a state:
1. Power of taxation – the inherent power of a
sovereign state acting through its legislature
to impose a proportionate burden upon
persons, property rights or transaction to
raise revenue to support government
expenditure and as a tool for general and
economic welfare.
2. Power of Eminent Domain – it refers to the
inherent power of a sovereign state to take
private property for public use upon
payment of a just compensation.
3. Police Power – it refers to the inherent
power of a sovereign state to enact laws to
promote public health, public safety, public
morals and the common good.
SIMILARITIES
1. They are indispensable to government
existence.
2. They can exist independent of the
constitution.
3. They are means by which the state interferes
with private rights and properties.
4. They are generally exercised by the
legislature.
5. They contemplate an equivalent
compensation or benefit.
DISTINCTIONS:
Taxation
Eminent
Domain
Police
Power
As to
subject
persons
Imposed
upon
persons,
property,
rights or
transactio
ns
Imposed
upon
private real
properties
Imposed
upon
property,
rights or
transaction
s
As to
purpose
To raise
revenue
for
governme
nt
expenses
To acquire
private
property for
public use
For
regulation
and control
As to
limitation
Generally
unlimited
Limited to
the fair
value of the
expenses of
regulations
Limited to
the cost of
license fee
and other
property
control
As to act
involved
Taxpayer
pays taxes
Private
property is
taken for
public use
Enforceme
nt of laws
for public
welfare
and
common
good
As to
benefits
received
by the
people
Protection
and other
benefits
from the
governme
nt
Person
receives a
just
compensati
on
Protection
and other
benefits
from the
governmen
t
As to
relationshi
p to nonimpairme
nt clause
of the
constitutio
n
Inferior
Superior
Superior
Principles/characteristics of a SOUND TAX SYSTEM.
1. Fiscal adequacy – The source of revenue as a
whole should provide enough funds to meet the
various expenditures of the government.
2. Administrative feasibility and compliance – Tax
laws should be easy to understand, capable of
enforcement by the administrative personnel
and convenient to the taxpayers as to the modes
and methods and time of payment.
3. Theoretical justice and equality – Taxes should
be imposed equitably based on the taxpayer’s
ability to pay and benefits received.
4. Consistency or compatibility with economic
goals – Tax laws should be consistent with the
economic goals of the state.
Limitations on the power of taxation
1. Inherent limitations – those that restrict the
power of taxation even though not provided in
the constitution.
a. Taxes must be for public purpose.
b. Exemption of government agencies and
instrumentalities from taxation.
c. Power to tax cannot be delegated to
private persons or entities.
d. Tax laws do not apply to properties of
foreign government.
e. Tax laws should be applied within the
territorial jurisdiction of the state.
f. Double taxation should be avoided.
2. Constitutional Limitations – Those that limit
power of taxation as embodied in the
constitution.
a. Due process of law in taxation and
equal protection of the laws.
b. Rule on uniformity and equity in
taxation.
c. No imprisonment for non-payment of
poll tax.
d. Non-impairment of the obligation of
contracts.
e. No appropriation of public money for
religious purposes.
f. Exemption of religious, charitable,
educational entities, non-profit
cemeteries and churches from
property taxation.
g. Exemption from taxation of nonstock, non-profit educational
institutions and donations for
educational purposes.
h. Concurrence by a majority of the
members of Congress for passage of
a law granting tax exemption.
i. The power of the President to veto a
revenue or tariff bill.
j. Non-impairment of the jurisdiction
of Supreme Court in tax cases.
3. Contractual limitations – these are restrictions
on the taxing power imposed by previously
existing contracts entered into by the
government with another party who may be
another state or its own citizens.
a. Franchise granted to its citizen.
b. Service contracts on petroleum and
other energy operations.
c. Agreement with the Asian
Development Bank.
Steps / stages involved under taxation system.
Taxation involves two phases:
1st: Levying or imposition of taxes – which is
a legislative act
2nd: Collection of taxes – an administrative
act
a. Assessment
b. Actual tax collection
c. Enforcement of tax laws/criminal
prosecution for willful violation of tax
laws.
Definition of tax
Taxes are enforced proportional contributions
levied by the state for the support of the
government.
Essential characteristics, requisites or elements of a
tax?
a. A tax is an enforced contribution.
b. It is proportionate in character.
c. It is imposed pursuant to a legislative
authority.
d. It is imposed for public purpose.
e. It is generally payable in money.
f. It is levied within the territorial and legal
jurisdiction of a state.
Classification of taxes
1. As to subject matter
a. Personal, poll or capitation tax – tax imposed
on persons residing within a specified
territory.
Example: Basic Community tax
b. Property Tax – tax imposed on property,
whether real or personal.
Example: Real state tax
c. Excise tax – tax imposed on the exercise of a
right or privilege. Also called “Privilege tax”.
Example: Income tax, estate tax, donor’s tax,
etc.,
2. As to who bears the burden
a. Direct tax – tax imposed upon a person who
is directly bound to pay it; tax which the
taxpayer cannot shift to another.
b. Indirect tax – tax which forms part of the
purchase price; tax which the taxpayer can
shift to another.
Example: Exercise tax on certain goods,
other percentage taxes, value added tax.
3. As to determination of amount
a. Specific tax – tax based on weight, number
or some other standards of weight or
measurement.
Example: Excise tax on distilled spirits,
wines, cinematographic films.
b. Advalorem tax – tax imposed based on the
value of the taxable item.
Example: Real estate tax
4. As to purpose
a. General Tax – tax imposed for general
purposes of the government.
Example: Income tax, value-added tax
b. Special tax – tax imposed for a special
purpose or purposes.
Example: Protective tariff and customs
duties, Special Educational Fund (SEF) Tax,
Special assessments.
5. As to jurisdiction/scope or authority imposing
tax
a. National tax – tax imposed on a national and
for the national/government.
Example: National Internal Revenue taxes
b. Local tax – tax imposed on a local level for
the support of local governments.
6. As to graduation or rate
a. Proportional tax – the tax rate of which is
fixed or constant.
Example: Corporate Income Tax, valueadded tax
b. Progressive tax – the tax rate increases as
the taxable amount or tax bracket increases.
Example: Individual income tax, estate tax,
donor’s tax
c. Regressive tax – the tax rate decreases as the
taxable amount or tax bracket increases.
Tax distinguished from other charges and fees
1. Difference of tax from toll
TAX
TOLL
a. Demand of sovereignty
Demand of proprietorship
b. Generally amount is unlimited
Amount is limited to the cost and
maintenance
of public improvement.
c. For the support of the government
For the use of another’s property
d. May be imposed by the State only
May be imposed by private individuals
or entities.
2. Difference of tax from special assessment
TAX
SPECIAL ASSESSMENT
a. Imposed on persons, property rights
Levied only on Lands
or transactions
b. For the support of the government
Contribution to the cost of public
improvement
c. Regular exaction
Exceptional as to time and place
e. Non-payment may result to imprisonment
No imprisonment (except when debt arises
from crime)
f. Bears interest only if delinquent
Interest depend upon the stipulation of the
parties
3. Difference of tax from license fee
TAX
LICENSE FEE
7. Difference of tax from tithe
TAX
TITHE
a. Imposed to raise revenue
For regulation and control
b. Collected under the power of government
Collected under the police power
c. Generally amount is unlimited
a. Based on law
Based on religious obligation
b. Rates vary
Generally fixed at 10% of one’s earnings
L
imited
to the
necessar
y
expense
s of
r
egulatio
n and
control
d. Imposed on persons, property, rights
Imposed on the exercise of a right or
privilege
or transactions
e. Non-payment does not make the business
Non-payment makes the business
illegal
Illegal
4. Difference of tax from penalty
TAX
PENALTY
a. Imposed to raise revenue
Imposed to regulate conduct
b. May be imposed by the State only
May be imposed by the private entity
5. Difference of tax from custom’s duty
TAX
CUSTOM’S DUTY
a. Imposed upon persons, property, rights or
Imposed on imported or exported goods
transactions
It is also a tax
b. It comprehends more than the term custom’s
duty
6. Difference of tax from debt
a.
b.
c.
d.
TAX
DEBT
Based on law
Based on contract
Not assignable
Assignable
Payable in money
Payable in kind or in money
Not subject to set-off
Subject to set-off
Double Taxation
Direct double taxation – means taxing twice, on the
same purpose, in the same year. To constitute
double taxation – the two or more taxes must be:
1. Imposed on the same property
2. By the same state or government
3. During the same taxing period, and
4. For the same purpose
Tax Administration
It is a system involving assessment, collection and
enforcement of taxes, including the execution of
judgement in all taxes cases decided in favor of the
BIR by the courts.
Powers and duties of the BIR
1. Assessment and collection of all national
internal revenues taxes, fees and charges
2. Enforcement of all forfeitures, penalties and
fines connected therewith
3. Execution of judgement in all cases decided in
its favor by CTA and ordinary courts
4. Give effects to and administer the supervisory
and police power conferred to it by the NIRC or
other laws.
5. Chief official of the BIR.