Ch.1 Introduction to Taxation

Question 1

3 components that define taxation

Answer 1

Taxation as a state power, as a (legislative) process, and a mode of government cost distribution

Question 2

Taxation as a state power

Answer 2

Taxation is an inherent power of the state to enforce a proportional contribution from its subjects for public purpose

Question 3

Taxation as a process

Answer 3

Taxation is a process of levying taxes by the legislature of the State to enforce proportional contributions from its subjects for public purpose

Question 4

As a mode of cost contribution

Answer 4

Taxation is a mode by which the state allocates its costs or burden to its subjects who are benefited by its spending

Question 5

Explain to me the theory of taxation

Answer 5

Every government provides a vast array of public services. However, a government cannot exist without a system of funding. The government necessity for funding is the theory of taxation

Question 6

Basis of taxation

Answer 6

Government provides benefits to people in the form of public services, and the people provide the funds that finance the government

Question 7

Explain to me the concept of receipt of benefits is conclusively presumed

Answer 7

In taxation, the receipt of benefits by the people is conclusively presumed. The direct receipt or actual availment of government services is not a precondition to taxation

Question 8

What are the theories of Cost Alllocation?

Answer 8

Benefit received theory and Ability to pay theory

Question 9

Explain to me the benefit received theory

Answer 9

The benefit received theory presupposes that the more benefit one receives from the government, the more taxes he should pay

Question 10

Explain to me ability to pay theory

Answer 10

The ability to pay theory presupposes that taxation should also consider the taxpayer’s ability to pay. In short the people who have more should be taxed more even if they receive less benefits from the government.

Question 11

What are the two aspects of the ability to pay theory

Answer 11

Vertical Equity and Horizontal Equity

Question 12

Explain to me Vertical Equity

Answer 12

Vertical equity proposes that the extent of one’s ability to pay is directly proportional to the level of his tax baseE

Question 13

Explain to me Horizontal Equity

Answer 13

Horizontal equity requires consideration of the particular circumstance of the taxpayer

Question 14

Vertical Equity is a ______ concept; Horizontal Equity is a _________ concept

Answer 14

Gross; Net

Question 15

Explain to me the lifeblood doctrine

Answer 15

Taxes are essential and indispensable to the continued subsistence of the government. Taxes are the lifeblood of the government, upon taxation depends the government’s ability to serve the people.

Question 16

Explain to me the inherent powers of state

Answer 16

A government has its basic rights and needs that co-exist with its creation. It has rights to sustenance, protection and properties. These powers are naturally exercisable by the government even in the absence of an express grant of power in the constitution

Question 17

What are the inherent powers of state

Answer 17

Taxation power, Police power, Eminent domain

Question 18

Explain to me what is taxation power

Answer 18

is the power of the state to enforce proportional contributions from its subjects to sustain itself

Question 19

Explain to me what is police power

Answer 19

Is the general power of the state to enact laws to protect the well-being of the people

Question 20

Explain to me what is eminent domain

Answer 20

is the power of the state to take private property for public use after paying just compensation

Question 21

Scope of taxation

Answer 21

The scope of taxation is widely regarded as comprehensive, plenary, unlimited and supreme. However, taxation has its own inherent limitations and limitations imposed by the constitution

Question 22

Explain to me territoriality of taxation

Answer 22

Public services are normally provided within the boundaries of the state. Thus, the government can only demand tax obligations upon subjects or residents within its territorial jurisdiction

Question 23

What are the exception to the territoriality of taxation

Answer 23

In income taxation, resident citizens and domestic corporations are taxable on income derived both within and outside the Philippines. In transfer taxation, residents or citizens are taxable on transfer of properties located within or outside the Philippines

Question 24

Explain to me international comity

Answer 24

Basically, governments do not tax the income and properties of other governments and they give primacy to their treaty obligations over their own domestic tax laws

Question 25

Explain to me public purpose

Answer 25

Tax should be intended for the common good. Taxation must be exercised absolutely for public purpose

Question 26

Explain to me exemption of the government

Answer 26

Taxing the government will not raise additional funds but instead incur additional costs. Under NIRC, government properties and activities are not subject to tax, except those properties and activities conducted for profit.

Question 27

Explain to me non-delegation of power

Answer 27

The legislative taxing power is vested exclusively in Congress and is non-delegable. The power of lawmaking, including taxation, is delegated by the people to the legislature.

Question 28

What are the exceptions to the rule of non-delegation

Answer 28

LGU's are allowed to exercise the power to tax to enable them to exercise their fiscal autonomy; The president is empowered to fix the amount of tariffs to be flexible in trade conditions under the Tariffs and Customs code; Other special cases that require expedient and effective administration and implementation of assessment and collection of taxes

Question 29

Enumerate to me the Inherent Limitations of Taxation

Answer 29

1. Territoriality of Taxation 2. International Comity 3. Public Purpose 4. Exemption of the government 5. Non-delegation of the taxing power

Question 30

Explain to me the observance of due process of law

Answer 30

No one should be deprived of his life, liberty or property without due process of law. Tax laws should neither be harsh nor oppressive

Question 31

Explain to me Substantive Due Process

Answer 31

Tax must be imposed only for public purpose, collected only under authority of a valid law and only by the taxing power having jurisdiction

Question 32

What are the two aspects of due process

Answer 32

1. Substantive Due Process 2. Procedural Due Process

Question 33

Explain to me Procedural Due Process

Answer 33

There should be no arbitrariness in assessment and collection of taxes, and the government shall observe the taxpayer's right to notice and hearing.

Question 34

Explain to me equal protection of law

Answer 34

Tax payer should be treated equally both in terms of rights conferred and obligations imposed. This rule applies when taxpayers are under the same conditions

Question 35

Explain to me uniformity rule in taxation

Answer 35

The rule of taxation shall be uniform and equitable. Each class is taxed differently, but taxpayers falling under the same class are taxed the same. Hence, uniformity is relative equality

Question 36

Explain to me progressive system of taxation

Answer 36

Basically the tax rate increases as the tax base increases. You pay more as you earn more, not because you all have the same percentages, but because you have a higher percentage than those with lower income

Question 37

Explain to me non-imprisonment for non-payment of debt or poll tax

Answer 37

No one shall be imprisoned for mere inability to pay debt. However, the constitutional guarantee on non-imprisonment for non-payment of debt does not extend to non-payment of tax except poll tax. And only the basic community tax, additional community tax can still lead to imprisonment

Question 38

Explain to me non-impairment of obligation and contract

Answer 38

The state should set an example of good faith among its constituents. Tax exemptions granted under contract should be honored and should not be cancelled by a unilateral government action

Question 39

Explain to me the free worship rule

Answer 39

The government adopts free exercise of religion. Consequently, the properties and revenues from tithes and offerings are not subject to tax. However, it does not extend to income from properties or activities of religious institutions that are proprietary or commercial in nature

Question 40

Explain to me the Exemption of religious, charitable or educational entities, non-profit cemetaries, churces and mosques, lands, buildings, and improvements from property taxes

Answer 40

The Philippines follow the doctrine of use wherein only properties ACTUALLY devoted for religious, charitable or educational activities are exempt from real property tax.

Question 41

Explain to me the Non-appropriation of public funds or property for the benefit of any church, sect, or system of religion

Answer 41

To support the freedom of religion, the government should not favor any particular system of religion by appropriating public funds or properties in support thereof. However, compensation to priests, imams, or religious ministers working with the military, penal institutions, orphanages, or leprosarium is not considered religious appropriation

Question 42

Explain to me exemption of taxes of the revenues and assets of non-profit, non-stock educational institutions

Answer 42

The constitution recognizes the necessity of education in state building by granting tax exemption on revenues and assets of non-profits educational institutions. However, it only applies on revenues and assets are actually, directly, and exclusively devoted for educational purposes. NIRC also exempts government educational institutions from income tax and subjects private educational institutions to a minimal income tax

Question 43

Explain to me the concurrence of a majority of all members of congress for the passage of a law granting tax exemption

Answer 43

The constitution requires the vote of the majority of all members of congress in the grant of tax exemption. In the approval of an exemption law, an absolute majority is required. However, in the withdrawal of a tax exemption, only a relative majority is required

Question 44

Explain to me the non-diversification of tax collections

Answer 44

Tax collections should only be used for public purpose. It should never be diversified or used for private purpose

Question 45

Explain to me the non-delegation of the power of taxation

Answer 45

The principle of checks and balances in a republican state requires that taxation power as part of lawmaking be vested exclusively in Congress. However, delegation may be made on matters involving the expedient and effective administration and implementation of assessment and collection of taxes. Certain aspects of the taxing process that are non-legislative in character are delegated

Question 46

Explain to me non-impairment of the jurisdiction of the Supreme Court to review tax cases

Answer 46

Notwithstanding the existence of the court of tax appeals, which is a special court, all cases involving taxes can be raised to and be finally decided by the Supreme Court of the Philippines

Question 47

Explain to me appropriations, revenue, or tariff bills shall originate exclusively in the House of the Representatives

Answer 47

Laws that add income to the national treasury and those that allows spending therein must originate from the House of Representatives while Senate may concur with amendments

Question 48

Explain the concept of LGU's exercising the power to create its own sources of revenue and shall have a just share in the national taxes

Answer 48

This is a constitutional recognition of the local autonomy of local governments and an express delegation of the taxing power

Question 49

What are the stages of the exercise of taxation power

Answer 49

1. Levy or Imprisonment 2. Assessment and Collection

Question 50

Explain to me what is levy or imposition

Answer 50

This process involves the enactment of a tax law by Congress and is called impact of taxation. It is also referred to as the legislative act in taxation

Question 51

Congress is composed of two bodies which are?

Answer 51

1. The House of Representatives 2. The Senate

Question 52

Explain to me Assessment and Collection

Answer 52

The tax law is implemented by the administrative branch of the government. Implementation involves assessment or the determination of the tax liabilities of taxpayers and collection. This stage is referred to as incidence of taxation or the administrative act of taxation

Question 53

Explain to me situs of taxation

Answer 53

Situs is the place of taxation. It is the tax jurisdiction that has the power to levy taxes upon the tax object. Situs rules serve as frames of reference in gauging whether the tax object is within or outside the tax jurisdiction of the taxing authority

Question 54

Explain to me Business tax situs

Answer 54

Businesses are subject to tax in the place where the business is conducted

Question 55

Explain to me Income tax situs on services

Answer 55

Service fees are subject to tax where they are rendered

Question 56

Explain to me Income tax on Situs on sale of goods

Answer 56

The gain on sale is subject to tax in the place of sale

Question 57

Explain to me Property Tax Situes

Answer 57

Properties are taxable in their location

Question 58

Explain to me Personal Tax Situs

Answer 58

Persons are taxable in their place of residence

Question 59

Explain to me the Marshall doctrine

Answer 59

"The power to tax involves the power to destroy". Taxation power can be used as an instrument of police power. However, the taxation power does not include the power to destroy if it is used solely for the purpose of raising revenue

Question 60

Explain to me Holme's Doctrine

Answer 60

"Taxation power is not the power to destroy while the court sits". Taxation power may be used to build or encourage beneficial activities or industries by the grant of tax incentives.

Question 61

Can Marshall Doctrine and Holme's Doctrine co-exist with each other?

Answer 61

Yes, while they may seem contradictory with each other, they are both used in practice.

Question 62

Explain to me prospectivity of tax laws

Answer 62

Tax laws are generally prospective in operation. An ex post facto law or a law that retroacts is prohibited by the Constitution. Exceptionally, income tax laws may operate retrospectively if so intended by Congress under certain justifiable conditions

Question 63

Explain to me non-compensation or set-off

Answer 63

Taxpayer cannot delay payment of tax to wait for the resolution of a lawsuit involving his pending claim against the government. Tax is not a debt; hence, it is not subject to set-off. Exceptions are when the taxpayer's claim has already become due and demandable such as when the government already recognized the same and an appropriation for refund was made; Cases of obvious overpayment of taxes; Local Taxes

Question 64

Explain to me non-assignment of taxes

Answer 64

Tax obligations cannot be assigned or transferred to another entity by contract

Question 65

Explain Imprescriptibility in taxation

Answer 65

Prescription is the lapsing of a right due to the passage of time. The government's right to collect taxes does not prescribe unless the law itself provides for such prescription.

Question 66

Explain to me doctrine of estoppel

Answer 66

Under doctrine of estoppel, any misrepresentation made by one party toward another who relied therein in good faith will be held and true and binding against that person who made the misrepresentation. The government is not subject to estoppel. The error of any government employee does not bind the government.

Question 67

Explain to me Juridical Non-Interference

Answer 67

Generally, courts are not allowed to issue injunction against the government's pursuit to collect tax as this would unnecessarily defer tax collection. This rule is anchored on the Lifeblood Doctrine

Question 68

Explain to me Strict Construction of Laws

Answer 68

The fundamental principle behind this construction is that the text of a provision in a statute should be applied as it is written. When the law clearly provides for taxation, taxation is the general rule unless there is a clear exemption

Question 69

Explain to me Double Taxation

Answer 69

It occurs when the same taxpayer is taxed twice by the same tax jurisdiction for the same thing

Question 70

What are the elements of double taxation

Answer 70

Primary Element: Same Object Secondary Element: Same type of tax; Same purpose of tax; Same taxing jurisdiction; Same tax period

Question 71

What are the types of double taxation

Answer 71

1. Direct Double Taxation 2. Indirect Double Taxation

Question 72

Explain to me Direct Double Taxation

Answer 72

This occurs when ALL the element of double taxation exists for both impositions

Question 73

Explain to me Indirect Double Taxation

Answer 73

This occurs when AT LEAST ONE of the SECONDARY elements of double taxation is NOT COMMON for both impositions

Question 74

Explain to me tax evasion

Answer 74

also known as tax dodging, refers to any act or trick that tends to illegally reduce or avoid the payment of tax

Question 75

Explain to me tax avoidance

Answer 75

also known as tax minimization, refers to any act or trick that reduces or totally escapes taxes by any legally permissible means

Question 76

Explain to me tax exemption

Answer 76

also known as tax holiday, refers to the immunity, privilege, or freedom from being subject to a tax which others are subject to.

Question 77

Explain to me shifting and it's forms

Answer 77

This is the process of transferring tax burden to other taxpayers. The three forms are forward, backward, and onward shifting

Question 78

Explain to me Forward Shifting

Answer 78

This is the shifting of tax which follows the normal flow of distribution

Question 79

Explain to me Backward Shifting

Answer 79

Reverse of forward shifting, common with non-essential commodities where buyers have considerable market power and commodities with numerous substitute products

Question 80

Explain to me onward shifting

Answer 80

This refers to any tax shifting in the distribution channel that exhibits forward shifting or backward shifting; when the tax is shifted 2 or more times either forward or backward.

Question 81

Explain to me capitalization

Answer 81

Pertains to the adjustment of the value of an asset caused by changes in tax rates

Question 82

Explain to me transformation

Answer 82

This pertains to the elimination of wastes or losses by the taxpayer to form savings to compensate for the tax imposition or increase in taxes

Question 83

Explain to me tax amnesty

Answer 83

is a general pardon granted by the government for erring taxpayers to give them a chance to reform and enable them to have a fresh start to be a part of a society with a clean state. It is an absolute forgiveness or waiver by the government on its right to collect and is retrospective in application

Question 84

Explain to me what is Tax Condonation

Answer 84

is forgiveness of the tax obligation of a certain taxpayer under certain justifiable grounds. Also referred to as tax remission

Question 85

Explain to me the difference between Tax Amnesty and Tax Condonation

Answer 85

Amnesty covers both civil and criminal liabilities, condonation only covers civil liabilities of the taxpayer. Amnesty operates retrospectively by forgiving past violations, Condonation applies prospectively to any unpaid balance of the tax; hence the portion already paid will not be refunded. Amnesty is conditional upon the taxpayer paying the government a portion of the tax whereas condonation requires no payment