general principles of taxation 2014

8/10/2019 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

general principles of taxation 2014

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