general principles otes taxation
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November 19, 2015TAXATION
Legend: in boxes with red pen text based on the lectures (Added)Black pen text- based on the bookTOPICS:I. General Principles of Taxation
A. Definition and Concept of TaxationTaxation- is a mode of raising revenue for public purpose- the government cannot exist nor endure without taxation.TAXES- enforced proportional contributions from persons and property, levied by the state by virtue of its sovereignty for the support of the government and for all its public needs.-PERSONAL TO THE TAXPAYERTAXES ARE:a. ENFORCED CONTRIBUTIONS- obligations created by lawb. PROPORTIONAL IN CHARACTER- based on ones ability to payc. LEVIED BY AUTHORITY OF THE LAW- power to impose taxes is only a legislative power.d. Support of the Government and all its public needs
B. Characteristics of Taxation(CUPS)COMPREHENSIVE as it covers persons, businesses, activities, professions, rights and privilegesUNLIMITED- ( case of Tio vs Videogram Regulatory Board) where the Supreme Court upheld the constitutionality of a law, tuling that a tax does not cease to be valid merely because it regulates, discouraged, or even definitely deters the activites taxed. The power to impose taxes is one so unlimited in force and so searching in extent that the courts scarcely venture to declare that it is subject to any restrictions whatever, except PLENARY as it is complete.SUPREME- Taxation although referred to as the strongest of all the powers of the government, cannot be interpreted to mean that it is the superior to the inherent powers of the government. It is supreme insofar as the selection of the subject of taxation is concerned.
C. Power of Taxation Compared with Police Power and Eminent DomainA. Taxation distinguished from Police PowerPURPOSEAMOUNT OF EXACTIONBENEFITS RECEIVED BY THE TAXPAYERSUPERIORITY OF CONTRACTS (NON-IMPAIRMENT CLAUSE)TRANSFER OF PROPERTY RIGHTS
Taxation Levied for raising revenuesAmount gathered contemplated of no limits (UNLIMITED)No special or direct benefit other than the fact that the government secures to the citizen that general benefit resulting from the protection of his person and property and the welfare of all.Recognizes obligations imposed by contracts
(Inferior to non-impairment clause) The taxes paid form part of the public funds
Police Power Exercised to promote public welfare through regulationExaction is limited to the cost of regulation, issuance of the license, or surveillanceNo direct benefits received yet a healthy economic standard of society is maintained.No limitation does not apply (UNLIMITED)
(Contracts may be impaired Superior)Allows merely the restraint on the exercise of property rights.
2. TAXATION AND THE POWER OF EMINENT DOMAINPURPOSECOMPENSATIONPERSONS AFFECTED
TAXATIONRaise public revenueAccrue to the general benefit of the citizens of the taxing stateApplies to all persons, property and excises that may be subject theretoInferior to non-impairment clause
EMINENT DOMAINTaking of property for public useJust compensation is given the owner of the expropriated propertyOnly particular property is comprehended.Inferior to non-impairment clause
D. Theory and Basis of Taxation
THEORY OF TAXATION:NECESSITY THEORY- Taxation is a power predicated upon necessity. A necessary burden to preserve the States sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements for the enjoyment of the citizenry, and those which come within the States territory and facilities and protection which a government is supposed to provide.BENEFITS-PROTECTION THEORY- bases the power of the State to demand and receive taxes on the reciprocal duties of support and protection. The citizen supports the State by paying the portion from his property that is demanded in order that he may, by means thereof, be secured in the enjoyment of the benefits of an organized society.- this theory spawned the DOCTRINE OF SYMBIOTIC RELATIONSHIP.E. Nature of the Taxing Power1. Taxation as an Inherent Attribute of Sovereignty - Taxation is a necessary attribute of sovereignty. Without this power, no sovereign State can exist nor endure. -belonging as a matter of right to every independent State or government.2. Taxation as Legislative in Character-The power to tax is inherent in the State, and the State is free to select the object of taxation, such power being exclusively vested in the legislature, EXCEPT where the Constitution provides otherwise. POWER OF TAXATION (government can impose taxes)- No specific provision in the Constitution granting the legislative authority power of taxation because of its nature being an inherent power of the State.- The provisions stated in the Constitution serves as a limitations only on the powers of the State.
F. Purposes of TaxationPRIMARY PURPOSE is to raise revenues.- to enable the State to promote the general welfare and protection of its citizens.-(Bagatsing vs Ramirez case) where the tax ordinance enacted by the Municipal Board of Manila was assailed as not being a tax ordinance, because the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue raising function. The Supreme Court observed that the pretense bore its own marks of fallacy. Precisely, the raising of revenues is the principal object of taxation.
SECONDARY OR NON-REVENUE PURPOSE/ SUMPTUARY PURPOSES1. reduction of social inequality- the present tax system adopted the PROGRESSIVE SYSTEM OF TAXATION. This system aims to reducing the inequality in the distribution of wealth by preventing its undue concentration in the hands of a few individuals.
2. ENCOURAGE THE GROWTH OF LOCAL INDUSTRIES- the power to tax carries with it the power to grant tax exemptions. Tax exemption and Tax reliefs serve as incentives to encourage investment in our local industry and thereby promote economic growth.
3. PROTECT OUR LOCAL INDUSTRY AGAINST UNFAIR COMPETITION- the Tariff and Customs code allows the imposition of certain taxes upon imported goods or articles to further protect our local industry.
4. AS AN IMPLEMENT OF THE POLICE POWER OF THE STATE (Regulatory measure)-imposition of taxes with the end in view of regulating a particular activity.
MAY THE POWER OF TAXATION BE USED AS AN IMPLEMENT OF THE POWER OF EMINENT DOMAIN?
YES. The Supreme Court held in the case of CIR vs Central Luzon Drug Corporation, Taxes measures are but enforced contributions exacted on pain o penal sanctions and clearly imposed for a public purpose. In recent years, the power to tax indeed become a most effective tool to realize social justice, public welfare, and the equitable distribution of wealth.
G. Principles of a Sound Tax System(FAT)1. FISCAL ADEQUACY Sources of revenues must be adequate to meet government expenditures, and other public needs. (but not too high)2. THEORETICAL JUSTICE- a sound tax system must take into consideration the taxpayers ability to pay. (proportional contribution)3. ADMINISTRATIVE FEASIBILTY- tax laws must be capable of effective and efficient enforcement. They must not obstruct business growth and economic development.
QUESTION:Will a violation of these principles invalidate a tax law?IT DEPENDS. A tax law will retain its validity even if it is not in consonance with the principles of fiscal adequacy and administrative feasibility because the Constitution does not expressly require so. These principles are designed to make our tax system sound. (Mere Guidelines) However, is a tax law runs contrary to the principle of theoretical justice, such violation will render the law unconstitutional considering that under the Constitution, the rule of taxation should be uniform and equitable. (a taxpayers ability to pay). Can use the ground to attest the validity of such a tax law if theoretical justice is violated.
THE TWO STATEMENTS CAN BE HARMONIZED:
A. POWER OF TAXATION INVOLVES THE POWER TO DESTROY-VALID TAX IMPOSITION (to the point that the businesses can be closed since it involves noxious activities)
B. POWER TO TAX WILL NOT INVOLVE THE POWER TO DESTROY AS LONG AS THIS SUPREME COURT SITS-INALID IMPOSITION OF TAX (question the constitutionality of the tax law)
H. Inherent Limitations of the Power of Taxation (NVIPT)
1. PUBLIC PURPOSE the power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose.WHO MAY DETERMINE PUBLIC PURPOSE?- this is a legislative prerogative. The power to determine whether the purpose of taxation is public or private resides in Congress.GOMEZ VS PALOMAR- the eradication of a dreaded disease (TB) is a public purpose.LUTZ VS ARANETA- the protection and promotion of the sugar industry is a matter of a public concern the Legislature may determine within reasonable bounds.TIO VS VIDEOGRAM-the levy of 30% tax under PD 1987 is for public purpose, and therefore a valid imposition. It is imposed for answering the need for regulating video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights and the proliferation of pornographic video tapes.RAMON VS BAGATSING- The entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is dispensed is public or private.2. INTERNATIONAL COMITY Section 2 Article 2 of the 1987 Constitution (we cannot impose taxes on foreign embassies because it would violate the international law because Foreign embassies are extension of the territoriality of the foreign states).- the rules of par in pparem non habet imperium, where even the stron