lesson 2 taxation

8/4/2019 Lesson 2 Taxation

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TAXATION

Ms. Bernadette Lloret-Poquiz


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Purpose of Taxation

Characteristics of Tax

Basic Principle of a Sound Tax System

Classification of Taxes

Entities Exempted from Taxation

Limitations on Taxation

Situs of Taxation

Escape from Taxation

Outline:


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PURPOSES OF TAXATION:

The purposes of taxation are the following:

To raise revenue

To equitably distribute the wealth of the

nation

To pick new industries (by providing taxexemption new or pioneering industry)

To protect local procedures (by imposinghigher custom on cheap imported goods


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ASPECTS OF TAXATION

Levy refers to the legislative function and thedeclaration of the subject and the rate or amount oftaxation. (People vs. Monohey)

Assessment - a written notice that the amount stated

therein is due as a tax and contains a demand forpayment thereof. (Alhambra Cigar vs. Collector)

Collection does the law-making body of the state byvirtue of its sovereignty for the support of the

government and all public needs levy the enforcedproportional contributions from persons andproperties.


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ESSENTIAL CHARACTERISTICS OF TAX

ARE:

It is an enforced contribution. Its paymentnot voluntary in nature, and the imposition isnot dependent upon the will of the person

taxed. It is generally payable in money. This means

that payment by checks, promissory notes orin kind is not acceptable.

It is proportionate in character. Payment oftaxes must be based on the ability-to-payprinciple; thus, the higher the income of the

taxpayer, the bigger the amount of the taxaid.


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It is levied on persons or property. Although there aretaxes that are imposed or levied on acts,transactions, rights or privileges.

Example. Documentary tax

It is levied by the State which has jurisdiction overthe person or the property. As a general rule, onlypersons, properties, acts, rights, transactions withinthe jurisdiction of the taxing States are subject to tax.

It is levied by the law-making body of the State. Thismeans that the prior law must be enacted first by theCongress before assessment and collection maybeimplemented. (Art. 6, Sec. 29, par (1) of the 1999

Constitution)


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BASIC PRINCIPLES OF A SOUND TAX

SYSTEM

1. Fiscal adequacy which means that sourcesof revenue be sufficient to meet the demandsof public expenditures.

2. Equality or Theoretical justice

which meansthat the burden should be in proportion to thetaxpayers ability to pay.

3. Administrative Feasibility which means thatthe tax laws should be capable of convenient,

just effective and effective administration.


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Objects of Taxation:

1. Individuals

a. Who earn a considerable amount of incomeas a worker;

b. Businessman in partnerships or corporations

c. Those who inherited a property or weregiven a gift or donation of considerable vale


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2. Properties

a. Real/Intangible(immovable properties)

Real estates land, buildings, and houses

b. Personal/Tangible(moveable properties)

Vehicles, furnitures, patents, and ownershiptitles,

3. Transactions, consumptions interests,imports and exports; and privileges


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Inherent limitation of the power of

Taxation

The tax revenue must only be used for publicpurpose.

There should be proper delegation of

legislative power to tax. Government entities are exempted.

There are territorial jurisdiction.

There is an observance of international law.


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ENTITIES EXEMTED FROM

TAXATION

Religious institutions (church, mosques,parsonages)

Charitable institutions

Non-profit, non-stock educational institutions

Non-profit cemeteries

Government institutions

Foreign diplomats (by virtue of treaty)(Art 14 Secs 4 & 3 1987 Constitution Art 8 Sec

28 (1) 1987 Constitution

SITUS OF TAXATION


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SITUS OF TAXATIONConcept: Situs is a Latin term which meanssituation; location; place. Situs of taxationliterally means the place of taxation. It refersto the place where taxes are to be paid.

Tax

Income Tax

Place

in the place whereincome is earned or the

place of residence of thetaxpayer.

= Ms. L. resides in QC andworks in Makati. She may

choose to pay her incometax in either of these twoplaces.


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Real Property Tax

Personal Property tax

a. tangible properties

b. intangibleproperties

= are paid in the place

where the property islocated

= in the place where theproperty is located

= owners domicile-place ofpermanent residence of theowner


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Business and OccupationTaxes

= in the place where thebusiness or occupation is

located.


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Double taxation

Concept

There are two (2) concepts of double taxation

namely:

1. Direct duplicate

2. Indirect duplicate


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Elements of direct taxation

The elements of direct duplicate taxation arethe following:

Taxing twice.

by the same taxing authority

within the same taxing jurisdiction

for the same purpose

in the same taxable period involving the same property


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This kind of double taxation is not allowed bylaw. (Villanueva vs. City of Iloilo, L-26521).

Indirect taxation, on the other hand

occurs when taxes on the same property arenot imposed by the same taxing authority.

Example:

Local government and nationalgovernment impose taxes on the sameproperty during one taxable period. This kindof imposition is legal.


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Forms of Escape from Taxation

1. Shifting 4. Evasion (illegal form)2. Capitalization 5. Avoidance

3. Exemption


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ShiftingConcept: Shifting is passing the burden of tax

from one person to another person (BlackLaw Dictionary supra). Thus, what is

transferred is not the payment of the tax butthe burden of the tax.

Example:

Taxes paid by the manufacturer may beshifted to the consumer by adding the amountthe tax paid to the price of the product.


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Kinds of Shifting

There are three (3) kinds of shifting namely:

Forward shifting

Backward shifting

Onward shifting


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There is forward shiftingwhen the burden of thetax is transferred from a factor of productionto the factor of distribution;

Backward shiftingoccurs when the burden oftax is transferred from the consumer to theproducer of manufacturer; and

onward shiftingoccurs when the tax is shifted totwo or more times either forward orbackward.


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Tax Evasion

Concept: Tax evasion is the use by thetaxpayer of illegal or fraudulent means to

defeat or lessen the amount of tax. This isalso known as Tax dodging.

Example Deliberate and / or malicious failureto report income to defeat tax liability.


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Tax evasion presupposes malice, fraud, badfaith, or willful intent on the part of thetaxpayer. (Rep. vs. Gonzales, 13 SCRA 633).

As in the case of substantial undeclaration ofincome for four consecutive year. (Perez vs.CTA L 10507).


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Tax Avoidance

Concept: Tax avoidance is the exploitationby the taxpayer of legally permissible

methods on order to avoid or reduce taxliability. This is also known as tax

minimization.

Example:

Exhausting and / or utilizing all allowabledeductions or exemption in law or reduce thetax burden.


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Grounds for Tax Exemption

Tax exemption may be based on the following

grounds namely: Contract In this instance, the government is one of

the contracting parties. In which case, thegovernment must receive a full equivalent for the

exemption. Generally, the previous of a contractexemption are contained in the charter of anexempted corporation.

Public Policy Government need not receive any

consideration return for the tax exemption.Ex. Policy of encouraging new and necessaryindustries e.g. step manufacturing

Reciprocity Exemption many be created in a treatyon grounds reciprocity or to lessen the rigors ofinternational double or multiple taxation

lesson 2 taxation

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