CONCEPT, NATURE AND CHARACTERISTICS OF TAXATION AND

TAXES

DEFINITION OF TAXATION

the act of laying a tax, i.e., the process by which the sovereign, through its law – making body, raises revenue to

defray the necessary expenses of the government

PURPOSE AND IMPORTANCE

To provide funds with which to promote the general welfare and protection of its citizens, and to enable it to finance its multifarious activities.

DEFINITION OF TAXES

The enforced proportional contributions from persons and property levied by the law-making body of the state for the support of the government and all public needs

ESSENTIAL CHARACTERISTICS OF TAXIt is an enforced contribution

Tax is not a voluntary payment or donationIts imposition is no way dependent upon the

will or assent of the persons tax

It is generally payable in moneyIt is an exaction to be discharged alone in

money which must be in legal tender

It is proportionate in characterIt is ordinarily based on the ability to pay

It is levied on persons or propertyTax may be imposed on acts or transactions or

contracts

It is levied by the state which has jurisdiction over the person or propertyThe persons or property must be subject to the

jurisdiction of the taxing state

It is levied by the law – making body of the stateThe power to tax is a legislative power which

only the legislative body can exercise through the enactment of statutes or ordinances

It is levied for public purposesTaxation and tax involves a charge or burden

imposed to provide income for public purposes

THEORY AND BASIS OF TAXATIONThe power of taxation proceeds upon thetheory that the existence of government is anecessity

It cannot continue without means to pay its expenses

It has a right to compel all its citizens and property within its limits to contribute

The basis of taxation is found in thereciprocal duties of protection and supportbetween the state and its inhabitants

The taxpayer receives benefits and protection from the government

NATURE OF TAXATIONIt is inherent in sovereignty

The power of taxation is inherent to sovereignty by being essential to the existence of every government

It is legislative in characterUnder the Constitution only legislative body

can impose taxesPower to tax is also granted to local

government subject to limitations

It is subject to constitutional and inherentlimitations

The limitations are specifically provided in the fundamental law or implied therefrom while the rest spring from the nature of taxing power

ASPECTS OF TAXATION1. Levying or imposition of the tax which is a

legislative act

2. Collection of the tax levied which is essentially administrative in character

BASIC PRINCIPLES OF SOUND TAX SYSTEMFiscal adequacy

The sources of revenue should be sufficient to meet the demands of public expenditure

Equality or theoretical justiceThe tax burden should be proportionate to the

taxpayer’s ability to payAdministrative feasibility

Tax laws should be capable of convenient , just, and effective administration

CALSSIFICATION OF TAXESAS TO SUBJECT MATTER Personal, poll or capitation

Tax of a fixed amount imposed on individuals, residing within specified territory, whether citizens or not, without regard to their property or the occupation in which they may be engaged.

Example: community tax

PropertyTax imposed on property, whether real or

personal, in proportion either to its value or in accordance with some other reasonable method of apportionment

Example: real estate tax

ExciseAny tax which does not fall within the

classification of a poll tax or property tax.Example: value-added tax, income tax

AS TO PURPOSEGeneral, fiscal or revenue

Tax imposed for the general purposes of the government to raise revenue

Example: income tax, almost all taxes

Special or regulatoryTax imposed for a special purposeExample: protective tariffs or custom duties on

imports, to protect local industries against foreign competition

AS TO SCOPENational

Tax imposed by national governmentExample: national internal revenue taxes

Municipal or localTax imposed by municipal or public

corporationsExample: real estate taxes

AS TO DETERMINATION OF ACCOUNTSpecific

Tax of a fixed amount imposed by the head or number, or by some standard of weight or measurement

Example: excise taxes on wines, cigars, gasoline

Ad valoremTax of a fixed proportion of the value of the

property with respect to which the tax is assesed

Example: real estate tax, value-added tax

AS TO WHO BEARS THE BURDENDirect

Tax which is demanded from the person who also shoulders the burden of the tax; or tax which the taxpayer cannot shift to another

Example: community tax, income tax

IndirectTax which is demanded from one person in the

expectation and intention that he should indemnify himself at the expense of another

Example: all business taxes, VAT

AS TO GRADUATION OR RATEProportional

Tax based on fixed percentage of the amount of property, income or other basis to be taxed

Example: real property tax

Progressive or graduatedTax based on the rate of which increases as the

tax base or bracket increasesExample: income tax, estate tax, donor’s tax

RegressiveTax base on the rate of which decreases as the

tax base or bracket increases

TAX DISTINGUISHED FROM OTHER TERMSRevenue

Refers to all the funds or income derived by the government whether from tax or any other source

Refers to the amount collected

Internal revenueRefers to taxes imposed by the legislature or

other than duties on imports and exports

Custom dutiesTaxes imposed on goods exported from or

imported into a country

DebtA generally based contract that is assignable,

maybe paid in any kind and is not punishable (by imprisonment) if not paid

PenaltyAny sanction imposed as a punishment by

violation of law or acts deemed injurous

CLASSIFICATIONS OF LIMITATIONSConstitutionalLimitations that are expressly found in the

Constitution or implied by its own provisions which are enumerated:

Due process of lawEqual protection of the lawsRule of uniformity and equity in taxationNo imprisonment of non-payment of poll taxNon-impairment of the obligation of contractsNon-infringement of religious freedom

No appropriation for religious purposeExemption of religious, charitable and

educational entities, non-profit cemeteries and churches from taxation

Exemption of non-stock, non-profit educational institutions from taxation

Concurrence by majority of all members of Congress for the passage of a law granting tax exemption

Authority of the President to veto the particular items in a revenue or tariff bill

Non-impairment of the jurisdiction of the Supreme Court intaxes

InherentLimitations which restrict the power although

they are not embodied in the Constitution which are enumerated:

Requirement that levy must be for public purpose

Non-delegation of the legislative power to taxExemption from taxation of government

entitiesInternational comityTerritorial jurisdiction

REQUIREMENT OF EQUAL PROTECTIONEqual protection of the laws signifies that all persons subject to legislation shall be treated alike under like circumstances and conditions both in the privileges conferred and liabilities imposed

There is no violation of the protection: where those with different incomes are made to pay

different rates for taxes Where foreign corporations are made to pay higher

amount of taxes than that paid by domestic corporations