01 Fundamental Principles of Taxation Flashcards
Taxation as a ___________ refers to the inherent power of the state to demand enforced contribution for public purpose to support the government.
power
Taxation as a _____________ refers to the legislative act of laying a tax to raise income for the government to defray its necessary expenses.
process
Taxation as a ____________ is a means of allocating government burden to the people.
mode of cost allocation
What are the 3 inherent powers of the State? Give descriptions.
Taxation - power to take property for the support of the government and for public purpose
Police Power - power to enact laws to promote general welfare of the people
Eminent Domain - power to take private property for public use upon payment of just compensation
Whict power of the state is most important and which is most superior?
Taxation - most important
Police Power - most superior
What is the amount of imposition for each power of the State?
Taxation - unlimited (no ceiling, no floor, variable)
Police Power - sufficient to cover costs of regulation
Eminent Domain - no imposition, owner is paid fair market value of property
What is the nature of the powers of the State?
a. executive
b. leglislative
c. judicial
B. Legislative
The only power of the State that does not raise money for the government.
Eminent Domain
Taxation is infererior to what clause?
Non-Impairment Clause of the Constitution
What are the limitations of the powers of the State?
Taxation - constitutionally and inherently restricted
Police Power - public interest and requirement of due process
Eminent Domain - public purpose and just compensation
What are the stages of taxation?
- Levy or imposition - legislative act, impact of taxation
- Assessment of tax - administrative act, incidence of taxation
Taxes are indispensable to the existence of the state. Without taxation, the state cannot raise revenue to support its operations.
The Life Blood Doctrine
Mode of cost allocation where tax payment is based on benefits received (conclusively presumed that everyone receives benefits from the government).
Benefit Received Theory
Example: indirect tax, business tax, consumption tax
(if you are richer, you have more security from the government in terms of your properties)
Mode of cost allocation where tax payment is based relative to the ability of taxpayers to pay.
Ability to Pay Theory
Example: income tax
Types of assessments of ability to pay
a. vertical equity - consistent with tax object (example: higher tax on higher income)
b. horizontal equity - checks circumstance of taxpayer (example: deductions)
Nature or Characteristics of the Power of Taxation
- for public purpose
- inherently legislative
- subject to international comity or treaty
- not absolute being subject to constitutional and inherent limitations
- exaction payable in money
- territorial
What is the primary purpose of taxation?
To raise revenue
What are the secondary purposes of taxation?
a) regulatory - to regulate
b) compensatory - to compensate
Scope of taxation
Plenary
Unlimited
Comprehensive
Supreme
Categories of Limitations of Taxation
Constitutional
Inherent
Types of tax obligations
- You file
- You withhold
Why is it okay for corporations to have a flat tax rate instead of following the progressive scheme of taxation?
Corporates can split itself into subsidiaries to qualify for lower brackets, thus promoting tax evasion
What are the constitutional limitations of taxation?
- observance of due process of law - (1) substantive due process - legal basis of assessment, (2) procedural due process
- equal protection of the law - same object, same tax rule
- uniformity in taxation - for dissimilar taxpayers (classification)
- progressive scheme of taxation - higher tax rate on higher income
- non-imprisonment for non-payment debt or poll tax - does not apply to fraud or additional community tax
- non-impairment of obligation and contract - does not apply to privileges (can be revoked)
- free worship rule
- non-appropriation of public funds or property for the benefit of any church, sect or system of religion - appropriation implies there is no return so salary for priests hired for government service does not violate this
- exemption of religious, charitable or educational entities, non-profit cemetaries, churches and mosque from property taxes
- exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions including grants, endowments, donations, or contributions for educational purposes
- concurrence of a majority of all members of the Congress for the passage of a law granting tax exemption
- non-diversification of tax collections - use for private purpose
- non-delegation of the power of taxation - except (a) delegated to President under flexibility clause, (b) delegated to the LGUs, (c) involving expedient and effective administration
- non-impairment of the jurisdiction of the Supreme Court to review tax cases
- appropriations, revenue or tariff bills shall originate exclusively in the House of Reps but the Senate may propose or concur with the amendments
- each LGU shall exercise the power to create its own sources of revenue and shall have a just share in the national taxes
What are the inherent limitations of taxation?
- Territoriality - in line with the benefit received theory
- subject to International comity or treaty - contingent on reciprocity: property and income of foreign governments, observance of treaties
- tax is for Public purpose
- tax Exemption of the government - not an absolute rule
- Non-Delegation of the power of taxation
- Rule against Double Taxation (?) - allowable but a big consideration
Are Philippine GOCC’s taxable?
Yes, with exemptions
Are foreign GOCC’s taxable?
No
What are the types of exemptions and which types of exemption can be revoked by Congress?
Constitutional
Contractual
Legal - can be revoked as it is Congress that granted it in the first place
If there is a conflict between BIR and taxpayer, what is the taxpayer’s last resort?
Supreme Court
Place of taxation
Situs
Taxing the same object twice
Double taxation
Application of situs for:
1. persons
2. community development tax
3. business taxes
4. privilege or obligation tax
5. real property tax
6. personal property taxes
a. tangible
b. intangible
7. income
8. transfer taxes
9. franchise taxes
10 corporate taxes
- persons - residence of taxpayer
- community development tax - residence or domicile of taxpayer
- business taxes - where business was conducted or where transaction took place
- privilege or obligation tax - where privilege is exercised
- real property tax - where property is located
- personal property taxes
a. tangible - physical location
b. intangible - domicile of owner unless property acquired situs elsewhere - income - where income is earned or residence/citizenship of taxpayer
- transfer taxes - residence/citizenship of taxpayer or location of property
- franchise taxes - state that grants the franchise
10 corporate taxes - depende on law of incorporation
Primary and secondary elements of double taxation
Primary:
same object
Secondary:
same taxing authority
same tax period
same tax type
Primary and secondary elements of double taxation are satisfied
Direct duplicate
Which type of double taxation is discouraged and which one is allowed?
Direct duplicate - discouraged
Indirect duplicate - allowed
Only primary element of double taxation are satisfied
Indirect duplicate
Remedies of double taxation
- provision for tax exemption
- allowance for tax credit
- allowance for principle of reciprocity
- enter into treaties or agreements with foreign government
Explain the forms of escape from taxation that will not result in loss of revenue to the government.
- Shifting - process of transferring tax burden from statutory taxpayer to another without violating the law
- Capitalization - seller is willing to lower the price of commodity provided that taxes will be shouldered by the buyers
- Transformation - the manufacturer absorbs the additional taxes imposed by the government without passing it to the buyers for fear of loss of his market, instead it increases quantity of production, thereby turning their units of production at a lower cost resulting to the transformation of the tax into a gain through the medium of productions
Explain the forms of escape from taxation that will result in loss of revenue to the government.
- Tax Evasion (tax dodging) - resorting to acts and devices that illegally reduces or totally escape the payment of taxes that are due to the taxpayer
- Tax Avoidance (tax minimization scheme) - reduction or totally escaping payment of taxes through legally permissible means that are not prohibited and therefore are not subject to penalties
- Tax Exemption - an immunity, privilege or freedom from payment of a charge or buden to which others are obliged to pay
Kinds of exemptions
- Express - granted by the consitution, statute, treaties, ordinance, contracts or franchise
a. constitutional
b. statutory
c. contractual - Implied - exempted by accidental or intentional omission
- Total - exemption from all taxes (OFWs)
- Partial - exemption from certain taxes, partially or totally
A general pardon or intentional overlooking by the state of its authority to impose penalties on persons otherwise guilty of tax evasion or violation of tax laws, purpose is to give the erring taxpayer a chance to reform and become part of the society with a clean slate
Tax Amnesty
Means to remit or desist or refrain from exacting or imposting a tax, cannot extend to refund of taxes already paid when obtai n condonation
Tax Condonation
Principles of a Sound Tax System
a. Fiscal Adequacy - sources of revenue should be sufficient to meet the demand for public expenditure
b. Administrative Feasibility - tax laws must be capable of convenient, just and effective administration
c. Theoretical Justice - tax must be imposed with equity and certainty and must consider taxpayer’s ability to pay and benefits received
If principles of a sound tax system are not observed, is the tax levy unconstitutional?
Only if it violates theoretical justice
Effect of taxation that makes people economically efficient.
Income effect
Effect of taxation that makes people economically inefficient.
Substitution effect
Taxation effect of indirect taxes
Substitution
Taxation effect of transformation
Income effect
Can the President suggest tax laws?
No, they can only originate from the House of Representatives.
