0% found this document useful (0 votes)
29 views31 pagesIncome Taxation Module I
Uploaded by
Jessa Mae BalastaCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
0% found this document useful (0 votes)
29 views31 pagesIncome Taxation Module I
Uploaded by
Jessa Mae BalastaCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
XAI
oy ae
vee REN ee RY,
4 Itis the inherent power by hich the sovereign thro ;
law-making body raises revenue to defray the necessary
expenses of government. 3
WHAT ARE THE CHARACTERISTICS OF TAXATION?
‘A. Inherent power of the sovereign state
B. Exclusively lodged with the legislature
C. Subject to inherent, constitutional and contractual
_ limitations
3. WHAT ARE THE NATURES OF TAXATION?
i .
Comprchensic
A. Plenary Untied
B. Comprehensive Dic0o 4
C. Awesome power that could destroy
Sugrene
4, WHAT IS TAX?
tributions from the persons and |
king body of the State by virtue
t and for public needs.
Enforced proportional cont
property levied by the law-mal
of its sovereignty in support of governmen|
_ 5, WHAT ARE THE CHARACTERISTICS OF TAXES?
A. Forced charged
B. Generally payable in money
3
er
Scanned with CamScanner ‘A. Raise Revenue ~ basically, the purpose of taxation 1
provide funds or property with which the State p
the general welfare and protection of its citizens.
_ B. Non-Revenue
*
Promotion of general welfare
Regulation
Reduction of social inequality
Encourage economic growth
Protectionism
seege
. WHAT ARE THE THEORIES AND 8
TAXATION?
A. Lifeblood Theory (Importance of taxation)
It is said that taxes are what we pay for civilized societys
Without taxes, the government would be paralyzed for lack |
of the motive power to activate and operate it. Hemee,
despite the natural reluctance to surrender part of one’s hard-_
e to the taxing authorities, every person who
earned incom
hare in running of he
is able to must contribute his s
government.
Scanned with CamScanner ape /il servants to
: are ‘for the enjoyment
and those which come within the State’s territory,
a facilities and protection which a government is
Book provide. / ;
C. Benefits-Protection Theory. (Basis of taxation)
Taxation is described as a symbiotic relationship
whereby in exchange of the benefits and protection that the
citizens get from the Government, taxes are paid.
. WHAT ARE THE TWO ASPECTS OF TAXATION?
A. Levy or imposition of the tax (tax legislation/function of
congress).
B. Enforcement or tax administration (tax collection/function
of executive e.g. BIR).
. WHAT ARE THE SCOPES OF LEGISLATIVE TAXING
POWER? ©
‘A. Amount or rate of tax
B. Apportionment of the tax
C. Kind of tax
D. Method of collection
E. Purpose/s of its levy, provided it is for public purpose
F. Subject to be taxed, provided it is within its jurisdicti
G. Situs of taxation ion
Scanned with CamScanner policy of the exaction, the motives behind it, the amount
raised or the persons, property or other privileges to be taxed.
The court’s power i taxation is limited only to the
application and interpretation of the law. f a
i. Is THE POWER TO TAX THE POWER TO DESTROY?
‘A. “Power to tax'is the power to destroy” — refers to the
unlimitedness and the degree or vigor with which the taxing
power may be employed to raise revenue.
—the financial needs of the State may outrun any human
calculation, so the power to meet those needs by taxation
must not be limited even though taxes become burdensome
or confiscatory.
B. “Power to tax is not the power to destroy while the
Supreme Court sits” — the power to tax knows no limit
except those expressly stated in the Constitution.
Two schools of thought reconciled |
Although the power to tax is unlimited, it must not be » i
exercised in an arbitrary manner. If the abuse is so great so aS
to destroy the natural and fundamental rights of people, it is the _
duty of the judiciary to hold such an act unconstitutional.
Scanned with CamScanner __. pay; must be progressive. epee
+ D. Consistency with Economic Goals —
13. WHAT ARE THE CLASSIFICATIONS OF TAXES?
A. As to subject matter: é
a. Personal Tax — taxes are of fixed amount upon all
persons of a certain class within the jurisdiction without
regard to property, occupation or business in which they
may be engaged e.g. Community Tax Certificate.
b. Property Tax — assessed on property of a certain class
e.g. Real Property Tax.
Excise Tax — imposed on the exercise of a privilege
e.g. Income Tax, Donor’s and Estate Tax.
Custom Duties — duties charged upon the commodities
on their being imported into or exported from a country
e.g. Tariffs.
2.
B. As to burden:
a. Direct Tax — both the incidence of or liabili
payment of the tax as well as the en eo ae
the tax falls on the same person e.g. Inco}
b. Indirect Tax — the incidence of or |j i
payment of the tax falls on one
thereof can be shifted or passed
burden of
4 Tax.
ability for th
e
ana Dut the burden
another e, Vv
4 8. VAT.
Scanned with CamScanner a. Specific Tax—imposes a specific sum by the head
~ number or by some standard of weight or suren
b. Ad Valorem Tax—tax upon the value of the article or
thing subject to taxation. ~ z
E. As to taxing theory:
a. National Tax—levied by the National Government,
b. Local Tax—levied by the local government.
F._ As to rate:
a. Progressive Tax—rate or amount of tax increases as
* the amount of income or earning to be taxed increases.
b. Regressive Tax—tax rate decreases as the amount of
income to be taxed increases.
¢. Proportionate Tax—based on a fixed proportion of the
value of the property assessed.
kr 4. WHAT ARE OTHER IMPOSITIONS THAN TAXES?
oy A. Toll—amount charged for the cost and maintenance of the
Property used,
» Penalty—punishment for the commission of a crime.
C. Compromise Penalty—amount collected in lieu of eri
Prosecution in cases of tax violations.
vad
Scanned with CamScanner nced | judgment. ne
a grant of money in ee are
~ enterprise deemed to promote the public welfare. upon
Customs duties and fees—duties charge a
commodities on their being transported into or
from the country.
J. Revenue—a broad term that includes tax
other sources as well. :
K. Impost—in its general sense, it signifies any tax, ee
duty. In its limited sense, itmeans a duty on imported g00CS.
and merchandise.
L. TITHE- imposes by a church or sect.
M. TRIBUTE- imposes by a monarch.
and income from
15. WHAT ARE THE DISTINCTIONS AMONG THE THREE
INHERENT POWER OF THE STATE?
POLICE EMINENT
POWER DOMAIN
Inherent power | Inherent power
of the sovereign | of the sovereign
state interferes State to take
with private private property
rights to upon payment of
promote general just
welfare compensation for
Public use,
TAXATION
Scanned with CamScanner Limited to the No exaction; but
cost of private property is
regulation, taken by the State
issuance of the for public
license or
purposes
surveillance
C. Benefits Received
No special or No direct benefit | A direct benefit
direct benefit is is received; a results in the form
received by the healthy economic | of just
taxpayer; merely standard of compensation to
general benefit of society is the property
protection attained owner
D. Non-impairment of Contracts
Contracts may’ not
Contracts may be
be impaired
impaired
Contracts may be
impaired
Scanned with CamScanner 16, WHAT ARE THE DISTINCTIONS BETWEEN TAX AND
SPECIAL ASSESSMENT AND LICENSE FEE?
Tax Special Assessment
Imposed 6n persons, property,
rights and privileges
Personal liability attaches on
the person assessed in the
case of non-payment
Not based on any special or
direct benefit
Levied and paid annually
Exemption granted is
applicable (Art. VI,
Sec.28(3) 1987 Constitution)
|
Levied only on land
Cannot be made a personal
liability of the person
assessed.
Based wholly on benefit
Exceptional both as to time
and locality
Exemption does not
apply.N.B. If property is
exempt from Real Property
Tax, it is also exempt from
Special Assessment
Scanned with CamScanner Non-payment does not
make the business illegal
but maybe a ground for
criminal prosecution
17. WHAT ARE THE DISTINCTIONS BETWEEN TAX AND
DEBT?
Non-payment kes the
business illegal
Tax Debt 4
An obligation imposed by law Created by contract
Due to the government in
May be due to the govemment
its sovereign capacity
but in its corporate capacity
Payabie in money Payable in money, property
| OF services
Does not draw interest Draws interest if.stipulated
except in case of delinquency or delayed
Not assignable Assignable
Not subject to
compensation or set-off
Subject to compensation or
set-off
-Non-payment is punished
by imprisonment except in
Poll tax «
No imprisonment in case of
non-payment (Art.III, Sec.
20 1987 Constitution)
Can be imposed by private
individual
Scanned with CamScanner No. Taxes cannot be the subject of compensation or
off. Taxes are not contractual obligations but arise out of duty
to the government, However, set-off may be allowed if itis for
the advantage of Government. te
20. WHAT IS THE DIFFERENCE BETWEEN PUBLIC
FINANCE AND TAXATION?
-Public finance refers to the financial operations of all
government levels. Such operations include budgeting, taxing,
appropriating, purchasing, borrowing, disbursing funds, and
regulating currency. Taxation is a mere level of public finance.
-Taxation is a mere level of public finance.
Scanned with CamScanner ide
Concept of taxation and its necessity for every government jin
Lifeblood doctrine and its engin paths a
. Theories of government cost allocation
Inherent power of the State ih
Scope of the taxation power
Limitations of the taxation power
Stages of taxation
Concept of situs in taxation
. Fundamental principles surrounding taxation
10. Various escapes from taxation
11. Concept of tax amnesty and condonation ———————
WHAT IS TAXATION?
Taxation may be defined as a State power,
government cost distribution.
yen
a’legislative process, and a mode of
1. Asastate power \
Taxation is an inherent power of the State to enforce a proportional
contribution from its subjects for public purpose.
2. Asaprocess
Taxation is a process of levying taxes by the legislature of the State to enforce
proportional contributions from its subjects for public purpose.
3. Asa mode of cost distribution
Taxation is a mode by which the State allocates its costs or burden to its
subjects who are benefited by its spending,
The Theory of Taxation
Every government provides a vast array of public services including defense,
public order and safety, health, education, and social protection among others.
Scanned with CamScanner Jagihts
y is ited as:
Public services
Receipt of benefits is conclusively presumed
Every citizen and resident of the State directly or indirectly benefits f
public services rendered by the government. These benefits can be in
daily free usage of public infrastructures, access to public health or
_ services, the protection and security of person and property, or
comfort of living in a civilized and peaceful society which is mait
government.
While most public services are received indirectly, their realization bye
citizen and resident is undeniable. In taxation, the receipt of these
people is conclusively presumed. Thus, taxpayers cannot avoid payment ‘a
under the defense of absence of benefit received. The direct receipt
availment of government services is not a precondition to taxation. £
THEORIES OF COST ALLOCATION
Taxation is a mode of allocating government costs or burden to the
distributing the costs or burden, the government regards the foll
Saieeations in the exercise of its taxation power:
. Benefit received theo :
2, Ability to pay theory "
ir
i
Scanned with CamScanner ‘The ability to theory presupposes that taxation
5 ability to pay. Taxpayers should be required
their relative capacity to sacrifice for the support of the go
In short, those who have more should be taxed more even ghee
the government. Those who have less shall contribute less even if they receive |
more of the benefits from the government.
Aspects of the Ability to Pay Theory
4. Vertical equity
Vertical equity proposes that the extent of one’s ability to pay is directly
\ proportional to the level of his tax base.
v For example, A has P200,000 income whil
government should tax B more than A because B has grea
capacity to contribute.
le B has P400,000. In taxing income, the
ter income; hence, a greater
2. Horizontal equity
Horizontal equity requires consideration of the particular circumstance of the
<5 taxpayer.
‘ome. Ais single without a child while Bis
For example, both A and B have 300,000 inc
married with four children. In taxing income,
B because A has a greater capacity to cont
support. B has less capacity to contribute consi
dependents.
the government should tax A more than
ribute since he has no dependents to
dering the support requirements of his
Vertical equity is a gross concept while horizontal equity is a net concept.
The Lifeblood Doctrine
Taxes are essential and indispensable to the continues
government. Without taxes, the government would be paralyzet
power to activate or operate it. (CIR vs. Algue)
d subsistence of the
.d for lack of motive
Taxes are the lifeblood of the government, and their prompt and certain
Babablity are an imperious need. Upon taxation depends the government's
ability to serve the people for whose benefit taxes are collected. (Vera vs.
Fernandez)
Scanned with CamScanner imposed even in th
Claims for, tax exemption are construed
3. The government reserves the right to choose
4. The courts are not allowed to interfere with th
_ 5. In income taxation: " oad pb nh
a. Income received in advance is taxable uj paper
b. Deduction for capital expenditures and prepayments is allowed as it
effectively defers the collection of income tax.
‘A lower amount of deduction is preferred when a claimable expense is
subject to limit.
d. Ahigher tax base is p
©
referred when the tax object has multiple tax bases,
INHERENT POWERS OF THE STATE
‘Agovernment has its basic needs and rights which co-exist with its creation. It has
rights to sustenance, protection, and properties. The government sustains itself by
the power of taxation, secures itself and the well-being of its people by police
power, and secures its own properties to carry out its public services by the
power of eminent domain.
These rights, dubbed as “powers” are natural, inseparable, and inherent to every
government. No government can sustain or effectively operate without these
powers. Therefore, the exercise of these powers by the government is presumed
understood and acknowledged by the people from the very moment they establish
their government. These powers are naturally exercisable by the government
even in the absence of an express grant of power in the Constitution.
The Inherent Powers of the State
1. Taxation power is the power of the State to enforce proportional contribution
from its subjects to sustain itself. 7
2, Police power is the general power of the State to enact laws to protect the
3. Eminent domain is the power of the State to take private property for public
Scanned with CamScanner Community or Community or
class of class of
individuals individuals
Amount of
Imposition
Unlimited Limited
(Taxis based on | (Imposition is
government limited to cover
needs.) cost of regulation.)
compensation.)
| Importance Most important Most superior Important
Relationship Inferior to the Superior to the Superior to the E
with the “Non-impairment | “Non-impairment | “Non-impairment i
Clause” of the Clause” of the
Clause” of the
Constitution
Constitution Constitution Constitution
Limitation Constitutional | Publicinterest | Public purpose
and inherent | and due process and just
limitations compensation
Similarities of the three powers of the State
1.
ps
x
4. They are all ways in which the State interferes with priv
government even-without Constitutional grant. However,
‘They are all necessary attributes of sovereignty.
‘They are all inherent to the State.
They are all legislative in nature.
ate rights
properties.
They all exist independently of the Constitution and are exercisable by the
the Constitution
may impose conditions or limits for their exercise.
They all presuppose an equivalent form of compensation
persons affected by the exercise of the power.
‘The exercise of these powers by the local government units may be limited by
the national legislature.
received by the
Scanned with CamScanner ‘THE LIMITATIONS OF THE TAXATION power
A. Inherent limitations 1?)
. Territoriality of taxation
International comity
Public purpose
Exemption of the government
Non-delegation of the taxing power
nstitutional Limitations Nay PEG | AWO
Due process of law peur | NW] F |
Equal protection of the law
Uniformity rule in taxation
Progressive system of taxation
Non-imprisonment for non-payment of debt or poll tax
Non-impairment of obligation and contract
. Free worship rule
Exemption of religious or charitable entities, non-profit
churches and mosque from property taxes
9. Non-appropriation of public funds or property for the benefit 0
church, sect or system of religion
10. Exemption from taxes of the revenues and assets of non-profit, ne
educational institutions
11. Concurrence of a majority of all members of Congress for the
law granting tax exemption
12. Non-diversification of tax collections
13. Non-delegation of the power of taxation
14. Non-impairment of the jurisdiction of the Supreme Court to
cases
15. The requirement that appropriations, revenue, or tariff bills
originate exclusively in the House of Representatives
16. The delegation of taxing power to local government units
» ail va eNe
Scanned with CamScanner _ Furthermore, extraterritorial taxation will ahoune
We un
the territoriality principle
me taxation, resident citizens and domestic corporations
income derived within and outside the Philippines, iad
Z “9
2. In transfer taxation, residents or citizens such as resident ‘non-
resident citizens and resident aliens are taxable on transfers of properties
located within or outside the Philippines. ,
International comity
International comity pertains to mutual courtesy or reciprocity between states. It
is a basic principle of international law that all states are equally sovereign. Each
state observes co-equal sovereignty by not taxing the properties, income, or
effects of fellow states.
Consistent with this, embassies or consular offices of foreign governments in the
Philippines including international organizations and their non-Filipino staff are
not subject to Philippine taxation. Under the National Internal Revenue Code
(NIRC), the income of foreign government and foreign government-owned and
controlled corporations are not subject to income tax.
When a state enters into treaties with other states, it is bound to honor the
agreements as a matter of mutual courtesy, and in case its treaty agreements with
other states conflict with its local tax law, its treaty agreements are given primacy.
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.
Exemption of the government
‘The taxation power is broad. The government can exercise the power upon
anything including itself, However, the government normally does not tax itself as
this will not raise additional funds but will only impute additional costs.
i tii
i ale
Scanned with CamScanner ive taxing power
ira the aoe of separation of the branches of the g
* ensure a system of ‘checks and balances.
‘The power of Jawmaking, including taxation,
ture. So as not to spoil the purpose of delegation,
been delegated cannot be further delegated.
is delegated by the peo,
it is held that
ions to the rule of non-delegation
1. Under the Constitution, | are allowed to exercis
to tax to enable them to exer e their fiscal autonomy.
Customs Code, the President is empowered to fix
amount of tariffs to be flexible to trade conditions.
3. Other cases that require expedient and effective administration %
implementation of ‘assessment and collection of taxes.
2. Under the Tariff and
CONSTITUTIONAL LIMITATIONS OF TAXA TION
Observance of due process of law
No one should be deprived of his life, liberty, or property without due processs
law. Tax laws should neither be harsh nor oppressive.
Aspects of Due Process
1. Substantive due process
Tax must be imposed only for public purpose,
valid law and only by the taxing power having jurisdiction.
without a legal basis violates the requirement of due process.
collected only under authority
An_assessi
2. Procedural due process
There should be no arbitrariness in assessment and collection of taxes,
government shall observe the taxpayer's right to notice and hearing. The!
established procedures which must be adhered to in making assessments
enforcing collections, 8
Under the NIRC, assessments shall be made within three years from the due:
of filing of the return or from the date of actual filing, whichever is later.
and |
8
Scanned with CamScanner ee tial be denied the Sregnes eos a of the law.
in terms of ol
“This, rule applies where taxpayers are ean the and
conditions. This requirement would mean Congress cannot exempt of.
“balot” while subjecting sellers of “penoy” to tax aihes they are <
