general principles of taxation 2014
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GENERALPRINCIPLESOFTAXATION
FUNDAMENTALPRINCIPLESINTAXATION
Taxation
Taxation is the inherent power of the sovereign, exercised through
the legislature, to impose burdens upon subjects and objects within
its jurisdiction for the purpose of raising revenues to carry out the
legitimate objects of government.
It is also dened as the act of levying a tax, i.e. the process or
means by which the sovereign, through its law-making body, raises
income to defray the necessary expenses of government. It is amethod of apportioning the cost of government among those who,
in some measure, are privileged to enjoy its benets and must
therefore bear its burdens.
Taxes
Taxes are the enforced proportional contributions from persons and
property levied by the law-making body of the tate by virtue of its
sovereignty for the support of the government and all public needs.
Essential elements of a tax
!. It is an enforced contribution.
". It is generally payable in money.
#. It is proportionate in character.
$. It is levied on persons, property, or the exercise of a right or
privilege.
%. It is levied by the tate which has jurisdiction over the subject or
object of taxation.
&. It is levied by the law-making body of the tate.
'. It is levied for public purpose or purposes.
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Purposes of taxation
!. Revenue or fscal: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 citi(ens and toenable it to nance its multifarious activities.
". Non-revenue or reula!or":Taxation may also be employed for
purposes of regulation or control.
a) Imposition of tari*s on imported goods to protect local
industries.
b) The adoption of progressively higher tax rates to reduce
ine+ualities in wealth and income.
c) The increase or decrease of taxes to prevent ination or ward
o* depression.
PAL v. Edu, 164 SCRA 3!
The legislative intent and purpose behind the law re+uiring owners
of vehicles to pay for their registration is mainly to raise funds for
the construction and maintenance of highways and, to a much
lesser degree, pay for the operating expenses of the administering
agency. It is possible for an exaction to be both a tax and aregulation. icense fees are charges, looked to as a source of
revenue as well as a means of regulation. The fees may properly be
regarded as taxes even though they also serve as an instrument of
regulation. If the purpose is primarily revenue, or if revenue is at
least one of the real and substantial purposes, then the exaction is
properly called a tax.
Tio v. "ideo#ram, 1$1 SCRA !%
/ !01' which created the 2ideogram 3egulatory 4oard also
imposed a #56 tax on the gross receipts payable to the localgovernment. 7 upheld the validity of the law ruling that the tax
imposed is not only a regulatory, but also a revenue, measure
prompted by the reali(ation that earnings of videogram
establishments of around &55 million annually have not been
subjected to tax, thereby depriving the government of an additional
source of revenue. It is a user tax imposed on retailers for every
video they make available for public viewing. The #56 tax also
served a regulatory purpose8 to answer the need for regulating the
video industry, particularly the rampant lm piracy, the agrant
violation of intellectual property rights, and the proliferation ofpornographic video tapes.
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Caltex v. Commissioner, !% SCRA &$$
Taxation is no longer a measure merely to raise revenue to support
the existence of government. Taxes may be levied with a regulatory
purpose to provide means for the rehabilitation and stabili(ation ofa threatened industry which is a*ected with public interest as to be
within the police power of the tate. The oil industry is greatly
imbued with public interest as it vitally a*ects the general welfare.
Sumptuar' purpose of taxation
9ore popularly known as the non-revenue or regulatory purpose of
taxation. :hile the primary purpose of taxation is to raise revenue
for the support of the government, taxation is often employed as a
devise for regulation by means of which certain e*ects or conditions
envisioned by the government may be achieved.
;or example, government may provide tax incentives to protect
and promote new and pioneer industries. The imposition of special
duties, like dumping duty, marking duty, retaliatory duty, and
countervailing duty, promote the non-revenue or sumptuary
purpose of taxation.
T(eor' and )asis of taxation
The power of taxation proceeds upon the theory that the existence
of government is a necessity< that it cannot continue without means
to pay its expenses< and that for these means, it has a right to
compel all its citi(ens and property within its limits to contribute.
The basis of taxation is found in the reciprocal duties of protection
and support between the tate and its inhabitants. In return for his
contribution, the taxpayer received benets and protection from the
government. This is the so-called benefts received principle.
Life )lood or ne*essit' t(eor'
The life blood theory constitutes the theory of taxation, which
provides that the existence of government is a necessity< that
government cannot continue without means to pay its expensess Tax
#. ercentage taxes
a. 2alue =dded Tax
b. ?ther ercentage Taxes
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$. Excise taxes
%. /ocumentary stamp tax
4. ocalF9unicipal Taxes
7. Tari* and 7ustoms /uties
/. TaxesFTax incentives under special laws
CLASSIFICATIONOFTAXES
ASTOSU*+ECTMATTERORO*+ECT
!. ersonal, poll or capitation tax
Tax of a xed amount imposed on persons residing within a
specied territory, whether citi(ens or not, without regard to their
property or the occupation or business in which they may be
engaged, i.e. community tax.
". roperty tax
Tax imposed on property, real or personal, in proportion to its
value or in accordance with some other reasonable method ofapportionment.
#. Excise tax
= charge imposed upon the performance of an act, the
enjoyment of a privilege, or the engaging in an occupation.
ASTOPURPOSE
!. GeneralFscalFrevenue tax
= generalFscalFrevenue tax is that imposed for the purpose
of raising public funds for the service of the government.
". pecialFregulatory tax
= special or regulatory tax is imposed primarily for the
regulation of useful or non-useful occupation or enterprises and
secondarily only for the purpose of raising public funds.
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ASTO,#O*EARST#E*URDEN
!. /irect tax
= direct tax is demanded from the person who also shoulders
the burden of the tax. It is a tax which the taxpayer is directly orprimarily liable and which he or she cannot shift to another.
". Indirect tax
=n indirect tax is demanded from a person in the expectation
and intention that he or she shall indemnify himself or herself at the
expense of another, falling nally upon the ultimate purchaser or
consumer. = tax which the taxpayer can shift to another.
ASTOSCOPEOFT#ETAX
!. Cational tax
= national tax is imposed by the national government.
". ocal tax
= local tax is imposed by municipal corporations or local
government units HGs).
ASTOT#EDETERMINATIONOFAMOUNT
!. pecic tax
= specic tax is a tax of a xed amount imposed by the head
or number or by some other standard of weight or measurement. It
re+uires no assessment other than the listing or classication of the
objects to be taxed.
". Ad valoremtax
=n ad valoremtax is a tax of a xed proportion of the valueof the property with respect to which the tax is assessed. It
re+uires the intervention of assessors or appraisers to estimate the
value of such property before the amount due from each taxpayer
can be determined.
ASTOGRADATIONORRATE
!. roportional tax
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Tax based on a xed percentage of the amount of the
property receipts or other basis to be taxed. Example8 real estate
tax.
". rogressive or graduated tax
Tax the rate of which increases as the tax base or bracket
increases. Example8 income tax.
/igressive tax rate8 progressive rate stops at a certain point.
rogression halts at a particular stage.
#. 3egressive tax
Tax the rate of which decreases as the tax base or bracket
increases. There is no such tax in the hilippines.
ASPECTSOFTAXATION
Pro*esses t(at are in*luded or em)odied in t(e term =taxation>
!. evying or imposition of the tax which is a legislative act.
". 7ollection of the tax levied which is essentially administrative in
character.
The rst is taxation, strictly speaking, while the second may
be referred to as tax administration. The two processes together
constitute the taxation system.
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TAXS)STEMS
Constitutional mandate
The rule of taxation shall be uniform and e+uitable. The 7ongress
shall evolve a progressive system of taxation. Aection "1H!), =rticle
2I, 7onstitutionB
Tolentino v. Se*retar' of 8inan*e8 3egressivity is not a negative
standard for courts to enforce. :hat 7ongress is re+uired by the
7onstitution to do is to evolve a progressive system o
taxation.This is a directive to 7ongress, just like the directive to it
to give priority to the enactment of laws for the enhancement of
human dignity. The provisions are put in the 7onstitution as moralincentives to legislation, not as judicially enforceable rights.
Pro#ressive s'stem of taxation v. re#ressive s'stem of taxation
= progressive system of taxation means that tax laws shall place
emphasis on direct taxes rather than on indirect taxes, with ability
to pay as the principal criterion.
= regressive system of taxation exists when there are more
indirect taxes imposed than direct taxes.
Re#ressive tax rates
Tax the rate of which decreases as the tax base or bracket
increases. There are no regressive taxes in the hilippine
jurisdiction.
3egressive tax rates should be di*erentiated from a regressive
system of taxation which exists when there are more indirect taxes
imposed than direct taxes.
T(ree )asi* prin*iples of a sound tax s'stem
!. ;iscal ade+uacy
It means that the sources of revenue should be suDcient to
meet the demands of public expenditures. AC(ave/ v. 5n#pin, !1&
73= ##!B
". E+uality or theoretical justice
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It means that the tax burden should be proportionate to the
taxpayer>s ability to pay. This is the so-called ability to pay
principle.
#. =dministrative feasibility
It means that tax laws should be capable of convenient, just
and e*ective administration.
NATUREANDLIMITATIONSOFT#EPO,EROFTAXATION
NATUREOFT#EPO,EROFTAXATION
?ature or *(ara*teristi*s of t(e State@s poer to tax
!. It is inherent in sovereignty< hence, it may be exercised although it
is not expressly granted by the 7onstitution.
". It is legislative in character< hence, only the legislature can impose
taxes Halthough the power may be delegated).
#. It is subject to 7onstitutional and inherent limitations< hence, it is
not an absolute power that can be exercised by the legislature
anyway it pleases.
Poer to tax v. Poli*e poer v. Poer of eminent domain
T=J=TI?C ?I7E ?:E3 E9ICECT /?9=IC
/E;ICITI?C
ower of the tate to
demand enforced
contributions for
public purposes
ower of the tate to
enact such laws in
relation to persons
and property as may
promote public
health, safety,
morals, and the
general welfare of
the public
ower of the tate to
take private property
for public use upon
paying to the owner
a just compensation
to be ascertained
according to law
=uthority
Exercising
the ower
?nly the
government or its
political subdivisions
?nly the
government or its
political subdivisions
9ay be granted to
public service
companies of public
utilities
3?E
Enforced
contribution is
demanded for the
support of the
government
se of property is
regulated for the
purpose of
promoting the
general welfare
roperty is taken for
public use
ersons ?perates upon a?perates upon a?perates on an
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=*ectedcommunity or class
of individuals
community or class
of individuals
Husually)
individual as the
owner of a particular
property
E;;E7T
9oney contributed
in the concept of
taxes becomes partof public funds
Co transfer of title,
at most, there is
restraint on injurioususe of the property
Transfer of the right
to property whether
it be ownership or alesser right
4ECE;IT
3E7EI2E/
=ssumed that the
individual receives
the e+uivalent of the
tax in the form of
protection, and
benets received
from the
government as such
erson a*ected
receives no direct
and immediate
benet but only
such as may arise
from the
maintenance of a
healthy economic
standard of society
erson a*ected
receives the market
value of the property
taken from him
=9?CT
?;
I9?ITI?C
Generally no limit on
the amount of tax
that may be
imposed
=mount imposed
should not be more
than that suDcient
to cover the cost of
the license and the
necessary expenses
of regulation
Co amount imposed
but rather the owner
is paid the market
value of the property
taken
3elationshi
p to the
7onstitution
ubject to certain
7onstitutionallimitations
3elatively free from
7onstitutional
limitations and is
superior to theimpairment
provisions
ubject to certain
7onstitutional
limitations He.g.
inferior toimpairment of
contracts clause)
Poer to tax involves t(e poer to destro' so it must )e
exer*ised it( *aution
7hief Kustice 9arshall declared that the power to tax is also called
the power to destroy. Therefore, it should be exercised with caution
to minimi(e injury to the proprietary rights of the taxpayer. It must
be exercised fairly, e+ually and uniformly, less the tax collector killsthe hen that lays the golden egg.L =nd in order to maintain the
general public>s trust and condence in the government, this power
must be used justly and not treacherously. A7hief Kustice 9arshall
in *Cullo*( v. ar'land, reiterated in Roxas v. CTA, "# 73=
"'&B
Kustice @olmes seemingly contradicted the 9arshallian view by
declaring in Pan(andle 5il Compan' v. ississippithat the
power to tax is not the power to destroy while this court sits.
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2omondon@s re*on*iliation of ars(all and olmes
The imposition of a valid tax could not be judicially restrained
merely because it would prejudice taxpayer>s property.
=n illegal tax could be judicially declared invalid and should not
work to prejudice a taxpayer>s property.
9arshall>s view refers to a valid tax while @olmes> view refers to an
invalid tax.
Poer to tax is ex*lusivel' le#islative in nature
The power to tax is peculiarly and exclusively legislative and
cannot be exercised by the executive or judicial branches of the
government. @ence, only 7ongress can impose taxes.
atters it(in t(e *ompeten*e of t(e le#islature
!. The subject or object to be taxed.
". The purpose of the tax so long as it is a public purpose.
#. The amount or rate of the tax.
$. The manner, means, and agencies of collection of the tax.
Commissioner v. Santos, && SCRA 61& ;1::&s cases, the sale of
tickets in the hilippines is the activity that produces the income.
The tickets exchanged hands here and payments for fares were also
made in the hilippines. The ow of wealth proceeded from and
occurred in the hilippine territory, enjoying the protection accorded
by the hilippine government< in consideration of such protection,
the ow of wealth should share the burden of supporting the
government.
The absence of ight operations to and from the hilippines is
not determinative of the source of income or the situsof income
taxation. The test of taxability is the source of the income and the
source is that activity which produced the income. Even if the
tickets sold covered the transport of passengers and cargo to and
from foreign cities, it cannot alter the fact that income from the sale
of the tickets was derived from the hilippines. The
word sourceconveys one essential idea, that of origin, and the
origin of the income is here in the hilippines. ACommissioner v.
5AC, !$0 73= #0%B
(itusof tax on interest income is the residence of the borrower
who pays the interest, irrespective of the place where the obligation
was contracted. If the borrower is a resident of the hilippines, the
interest payment paid by him can have no other source than within
the hilippines.
ultipli*it' of situs
9ultiplicity of situs, or the taxation of the same income or
intangible subject in several taxing jurisdictions, arises from various
factors8
!. The variance in the concept of domicile for tax purposess general provisions by providing details
of administration and procedure
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Reuisites for validit' of rules and re#ulations
!. They must not be contrary to law and the 7onstitution.
". They must be published in the ?Dcial Ga(ette or a newspaper ofgeneral circulation.
Commissioner v. Court of Appeals, 4! SCRA 36%
The authority of the 9inister of ;inance, in conjunction with the
7ommissioner of Internal 3evenue, to promulgate rules and
regulations for the e*ective enforcement of internal revenue rules
cannot be controverted. Ceither can it be disputed that such rules
and regulations, as well as administrative opinions and rulings,
ordinarily should deserve weight and respect by the courts. 9uch
more fundamental than either of the above, however, is that all
such issuances must not override, but must remain consistent with,
the law they seek to apply and implement. =dministrative rules and
regulations are intended to carry out, neither to supplant nor to
modify, the law.
La Suerte v. Court of Tax Appeals, 134 SCRA :
:hen an administrative agency renders an opinion by means of a
circular or memorandum, it merely interprets existing law and no
publication is therefore necessary for its validity. 7onstruction by anexecutive branch of the government of a particular law, although
not binding upon courts, must be given weight as the construction
came from the branch of the government which is called upon to
implement the law.
E0e*tivit' of revenue rules and re#ulations
3evenue 9emorandum 7ircular "5-1& was issued to govern the
drafting, issuance, and implementation of revenue tax issuances,
including8
!. 3evenue 3egulations
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