Basic Tax Flashcards
What are taxes?
It is the enforced proportional contributions exacted by the State from persons and properties pursuant to its sovereignty in order to support the government and to defray all the public needs.
What is Taxation
➢ It is the process or means by which the sovereign, through the law-making body, raises income to defray the necessary expenses of government. It is a method apportioning the cost of government among those who in some measures are privileged to enjoy its benefits and bear its burden.
Inherent Power of the state that may be exercised without need of any constitutional or legislative grant
Lifeblood Theory
Taxes are the lifeblood of the government, without taxes, government may cease to exist.
The government chiefly relies on taxation to obtain the means to carry on its operations. Taxes are essential to its very existence .
Tax exemptions are construed strictly against the taxpayer and liberally in favor of government. Therefore, taxes must be collected without unnecessary hindrance.
Characteristics of Taxation
Comprehensive - covers persons, businesses, activities, professions, rights, and privileges.
Unlimited - very powerful tool in raising revenue. A tax does not cease to be valid merely because it regulates. 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 restriction.
Plenary - remedies are available and such tools for remedies are used
Supreme – the state can choose anything or anyone in exercising taxation.
Necessity Theory
Without taxes, the government cannot fulfill its mandate of promoting the general welfare and wellbeing of the people.
The power of taxation proceeds upon the theory that the existence of the government is a necessity, that it cannot continue without means to pay its expenses and that for those means it has the right to compel all citizens and property within its limits to contribute.
It is a necessary burden to preserve the State’s sovereignty to give its
CITIZENRY AN ARMY to RESIST AGGRESSION
A NAVY TO DEFEND ITS SHORES
A CORPS OF CIVIL SERVANTS to SERVE
PUBLIC IMPROVEMENTS for the enjoyment of its CITIZENRY
Benefits-protection theory
It involves the power of the State to demand and receive taxes based on the reciprocal duties of support and protection between the State and its citizens
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.
Symbiotic relationship theory
Taxes are what we pay for a civilized society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of one’s earned income to the taxing authorities, every person who is able must contribute his share in the running of the government.
The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their material and moral values.
Is a law authorizing the President to increase the VAT to 12% a valid delegation of the power to tax?
A delegation is valid if the law is complete and it must fix a standard. Complete in a sense that it sets forth therein the policy to be executed, carried out or implemented by the delegate. The delegation fixes a standard when the limits of which are sufficiently determinate and determinable to which the delegate must confirm in the performance of his function
May an LGU exercise the power to tax?
A municipal corporation, unlike a sovereign state, is clothed with no inherent power of taxation. The charter or statute must plainly show an intent to confer that power or the municipality cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against the municipality. Inferences, implications, deductions—all these—have no place in the interpretation of the taxing power of a municipal corporation*
Can a debt from the government be used to offset a tax?
Taxes can not be the subject of set-off or compensation. The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes.
The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required.
May taxes be abrogated by virtue of a change in sovereignty?
No. Internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government.
Public Purpose as an inherent limitation on taxation.
Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. The reason for this is simple. 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. It would be a robbery for the State to tax its citizens and use the funds generated for a private purpose.
To lay with one hand, the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery because it is done under the forms of law and is called taxation
What is public purpose
Public purpose is an elastic concept that can be hammered to fit modern standards—it does not only pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice; While the categories of what may constitute a public purpose are continually expanding in light of the expansion of government functions, the inherent requirement that taxes can only be exacted for a public purpose still stands.
Requisites for a taxpayer’s suit
(1) public funds derived from taxation are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed; and
(2) the petitioner is directly affected by the alleged act.
When is a corporation a GOCC and when is it taxable?
It is a stock corporation when: (1) it has capital stocks divided into shares; and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. On the other hand, an instrumentality is vested by law with corporate powers and remains part of the national government machinery.
The Supreme Court held that GOCCs are no longer exempt from real property tax pursuant to Section 193 of the Local Government Code of 1991.
International Comity as an inherent limitation on taxation
The international agreements should be followed even if we have municipal laws for taxation. Provided that such international agreement is not repugnant or violate the constitution.
Apply Art. II Sec. 2
Extent of territorial sea - Are things situated therein taxable?
United Nations Convention on the Law of the Sea (UN CLOS) would define as the country’s territorial sea (to the extent of 12 nautical miles outward from the nearest baseline, under Part II, Sections 1 and 2) over which the country has sovereignty
Yes, they are taxable. Jurisdiction or authority over such part of the subject submarine cable system lying within Philippine jurisdiction includes the authority to tax the same, for taxation is one of the three basic and necessary attributes of sovereignty, and such authority has been delegated by the national legislature to the local governments with respect to real property taxation.
Due Process as a constitutional limitation on taxation
There must be notice and hearing of the tax laws.
They must be informed of the tax rate being imposed
It not necessary that there be a judicial hearing, only an opportunity to be heard.
When is there a substantial distinction?
(1) it rests on substantial distinctions;
(2) it is germane to the purpose of the law;
(3) it is not limited to existing conditions only; and
(4) it applies equally to all members of the same class.
Equal Protection Clause
no person or class of persons shall be deprived of the same protection of laws enjoyed by other persons or other classes in the same place in like circumstances
Explain ADE to REC Purposes
What is meant by actual, direct, and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.
Exclusive” is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and “exclusively” is defined, “in a manner to exclude; as enjoying a privilege exclusively.” If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitution and the law. Solely is synonymous with exclusively.
When may Senate propose amendments to a revenue, appropriation and tariff bills?
The main purpose of the bills emanating from the House of Representatives is to bring in sizeable revenues for the government to supplement our country’s serious financial problems, and improve tax administration and control of the leakages in revenues from income taxes and value-added taxes, and the Senate, approaching the measures from the point of national perspective, can introduce amendments within the purposes of those bills, like providing ways that would soften the impact of the VAT measure on the consumer
Does the President have the power to grant tax exemptions?
No. It is the legislature, unless limited by a provision of the Constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax.
Tax exemption cannot be implied as it must be categorically and unmistakably expressed—if it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it would have so expressly provided in R.A. No. 7227. John Hay Peoples Alternative Coalition vs. Lim, 414 SCRA 356, G.R. No. 119775 October 24, 2003
Veto Power of President on tax laws
The president shall have the power to veto any particular item or items in an appropriation, revenue or tariff bill, but the veto shall not affect the item or items to which he does not object
Tax exemption when nonstock nonprofit educational institutions are ADE used for educational purposes
When a non-stock, nonprofit educational institution proves that it uses its revenues actually, directly, and exclusively for educational purposes, it shall be exempted from income tax, value-added tax (VAT), and local business tax. On the other hand, when it also shows that it uses its assets in the form of real property for educational purposes, it shall be exempted from real property tax. Commissioner of Internal Revenue vs. De La Salle University, Inc., 808 SCRA 156, G.R. No. 196596, G.R. No. 198841, G.R. No. 198941 November 9, 2016
Tax exemption when nonstock nonprofit educational institutions ARE NOT ADE used for educational purposes
Income and revenues of non-stock, nonprofit educational institution not used actually, directly and exclusively for educational purposes are not exempt from duties and taxes. Commissioner of Internal Revenue vs. De La Salle University, Inc., 808 SCRA 156, G.R. No. 196596, G.R. No. 198841, G.R. No. 198941 November 9, 2016
Supremacy of National Government over Local Government
Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and instrumentalities Manila International Airport Authority vs. Court of Appeals, 495 SCRA 591, G.R. No. 155650 July 20, 2006
Taxation as a regulatory purpose
Taxes may be made for a regulatory purpose, such as imposing a tax on a certain industry for its rehabilitation and stabilization imbued with national interest provided that:
- The tax is imposed for a public purpose
- The tax shall be used for the industry concerned
Taxation for the reduction of social inequality
taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. National Power Corporation vs. City of Cabanatuan, 401 SCRA 259, G.R. No. 149110 April 9, 2003
Stages of Taxation
- Levy
- Enactment of a tax law to impose a tax
- Courts have no power to inquire into or interfere in the wisdom, objective, motive or expediency in the passage of a tax law. This is purely because taxation is legislative in character. - Assessment and Collection
- Payment
- Disposition of Tax liablity
- No partial payments. Payment must be in full for payment to be disposed of.
Basic principles of a sound tax system
- Fiscal adequacy
- The sources of tax revenues should coincide with, and approximate the needs of government expenditures. The revenue should be elastic or capable of expanding or contracting annually in response to variations in public expenditures.
- If there is a tax law made by congress without considering the financial needs of the Philippines, if this is a law passed by congress it cannot be automatically be considered as invalid.
- Administrative Feasibility
Tax laws should be capable of convenient, just, and effective administration. Each tax should be:
▪ Capable of uniform enforcement by government officials.
▪ Convenient as to the time, place, and manner of payment.
▪ Enforced with the least inconvenience to the taxpayer.
▪ Not unduly burdensome upon or disco
Double Taxaction - Reqs
➢ Requisites:
o Both taxes must be imposed by the
same taxing authority;
o Under the same jurisdiction;
o Within the same taxable period;
o Same kind or character of tax;
o Imposed on the same property,
person, or activity; and
o For the same purpose.
Tax Exemption Method
Under the exemption principle, the income that may be taxed in the state of source is not taxed in the state of residence
Cargill Philippines, Inc. vs. Commissioner of Internal Revenue, 951 SCRA 494, G.R. No. 203346 September 9, 2020
Tax Credit Method
Under the credit principle, the state of residence retains the right to tax the taxpayer’s total income, but allows a deduction for the tax paid in the state of source
Cargill Philippines, Inc. vs. Commissioner of Internal Revenue, 951 SCRA 494, G.R. No. 203346 September 9, 2020
Distinguish indirect and direct tax
A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in. (Ex. Ad Valorem and custom duties paid by oil companies to BoC)
Indirect tax is primarily paid by persons who can shift the burden onto someone else. (Ex. Excise and Ad Valorem taxes that oil companies pay to BoC that are shifted to buyers like NPC)
Define Double Taxation
There is DT when the same taxpayer is taxed twice when he should be taxed only once for the same purpose by the same taxing authority within the same jurisdiction the same taxing period, and the taxes are of the same kind or character
There is double taxation where one tax is imposed by the State and the other is imposed by the city; it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be enacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof.
Can the legislative body enact tax law without a constitutional provision granting it
Yes.Taxes are comprehensive, unlimited, plenary and supreme. The power to tax is an inherent power of the state that may be exercised without the need of any constitutional or statutory grant. The constitutional provisions found in the constitutions are limitations on the power to tax rather than enabling ones.
Eminent domain vs. Taxation
As to purpose: Taxation is exercised in order to raise public revenue; Eminent Domain is the taking of private property for public use.
As to Compensation: Payment of taxes accrue to the benefit of the citizens of the taxing state. In ED, just compensation is given to the owner of the expropriated property.
As to Persons Affected: Taxation applies to all persons, property and excises that may be subject thereto; in ED only particular property is comprehended
May congress abolish the taxing power of the LGUs
Yes. The power to tax is an inherent power of the state. LGU’s, unlike the State, do not exercise any inherent power to exercise taxation.
Art X Section 5 of the Consti provides that “ Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy.” This is not a self-executing law.
Hence, LGU’s require a statutory grant from the legislature in order to exercise taxation. Should the LGC or an LGU’s charter revoke the right to exercise taxation, such LGU is no longer allowed to exercise the same.
Can the local government impose taxes on government instrumentalities?
No. A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which provision recognizes the basic principle that local governments cannot tax the national government.
When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments, and when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality.
There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments, the only exception being when the legislature clearly intended to tax government instrumentalities for the delivery of essential services for sound and compelling policy considerations. Manila International Airport Authority vs. Court of Appeals, 495 SCRA 591, G.R. No. 155650 July 20, 2006
Distinguish Tax from Toll
Tax
- Paid for support of the government
Toll
- Paid for the use of another’s property
Tax
- Generally, no limit on the amount collected as long as it is not excessive, unreasonable, or confiscatory.
Toll
- Amount paid depends upon the cost of construction or maintenance of the public improvement used.
Tax
-Imposed only by the government
Toll
- Imposed by the government or by private individuals or entities.
A toll is a sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge or the like of a public nature
May taxpayers with pending cases avail of tax amnesty (Not sure can someone check pls)
Yes. In 2019, the Tax Amnesty Act was passed. Under this law, taxpayers with pending criminal cases with the DOJ/Prosec’s office may avail of a tax amnesty equal to 60% of the basic tax liabilities as shown in the criminal complaint.
The IRR of Tax Amnesty on Delinquencies covers taxpayers with Delinquent Accounts, meaning those arising from Assessment Notices that have become Final and Executory due to (1) failure to pay the tax due on the prescribed due date in the Final Assessment Notice/Formal Letter of Demand and for which no valid Protest has been timely filed from receipt; (2) failure to timely file an appeal before the Court of Tax Appeals or an administrative appeal before the Commissioner of Internal Revenue (CIR); or (3) failure to timely file an appeal from receipt of the Decision of the CIR denying the administrative appeal to the Final Decision on Disputed Assessment.
Tax vs Debt (BAPO IPIW
Tax
- Based on laws
Debt
- Generally based on contracts
Tax
-Generally cannot be assigned
Debt
-Assignable
Tax
-Paid in money
Debt
-May be paid in kind
Tax
-Cannot be subject to set off or compensation
Debt
- Can be subject to offset or compensation
Tax
-Imprisonment is a sanction for non-payment of poll tax
Debt
- Consti prohibits imprisonment for non-payment of debt
Tax
-Governed by special prescriptive periods provided for by th e NIRC
Deby
-governed by ordinary periods of prescription
Tax
-Does not draw interest only when delinquent
Debt
-Draws interested when stipulated or where there is default
Tax
-imposed by public authority
Debt
-Can be imposed by individuals
How are tax exemptions construed?
Tax exemptions are construed strictly against the taxpayer.
One who claims to be exempt from a tax must do so under CLEAR EXPRESS PLAIN AND UNMISTAKEABLE TERMS found in the statute
Sources of Tax Exemptions
- Consti
- NIRC
- Congress
Tax evasion requisites
- The end to be achieved, that is paying less than what is known to be legally due or the non-payment of tax when a tax is due
- An aaccompanying state of mind which is described as evil, in bad faith, willful or deliberate and non-accidental
- Act or omission is unlawful.
Tax vs License Fee
The imposition is a tax, if its primary purpose is to generate revenue, and regulation is merely incidental; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. Progressive Development Corporation vs. Quezon City, 172 SCRA 629, G.R. No. 36081 April 24, 1989
To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest;
the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the cost of direct regulation but also its incidental consequences as well. Progressive Development Corporation vs. Quezon City, 172 SCRA 629, G.R. No. 36081 April 24, 1989
Principle of Territoriality
Taxation is an act of sovereignty which could be only exercised within a country’s territorial limits. This is based on the theory that taxes are paid for the protection and services granted by the taxing authority which could not otherwise be provided outside the territorial boundary of the Taxing State.
Requisites for a charitable institution to be exempt from tax
- It is a non-stock corporation/association
- It is organized and operated purely for a charitable purpose
- No part of its income or assets shall go to the benefit of any of its members
Requisites for an educational institution to be exempt from Tax
- School must be non-stock and non-profit
- Income is ADE used for educational purposes
Requisites for a religious institution to be exempt from tax
- It must be a non-stock non-profit
- Operated exclusively for religious purposes.
Last paragraph Section 30 NIRC
Income of whatever kind and character from any of the properties, real or personal, or from any of its activities conducted for profit regardless of the disposition of such income, shall be subject to tax
Test of exemption from real property taxation
Whether the use of property for purposes is for the purposes mentioned in the constitution
Test WON an institution is charitable
WON it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit or private advatnage
