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
