Prelims Flashcards
Basic Principles of a Sound Tax System (3)
The sources of revenue should be efficient to meet the demands of public expenditures.
Fiscal adequacy
Basic Principles of a Sound Tax System (3)
Basic Principles of a Sound Tax System (3)
The tax burden should be proportionate to the taxpayer’s ability to pay (Ability-To-Pay Principle)
Equality or Theoretical Justice
Basic Principles of a Sound Tax System (3)
Basic Principles of a Sound Tax System (3)
The tax laws should be capable of convenient, just, and effective administration
Administrative Feasibility
Basic Principles of a Sound Tax System (3)
Nature or characteristics of a state’s power to tax (3)
The power of taxation may be exercised by the State although not expressly granted by the constitution.
It is inherent in sovereignty
Nature or characteristics of a state’s power to tax (3)
Nature or characteristics of a state’s power to tax (3)
It is only the legislature that can enact tax laws
Legislative in character
Nature or characteristics of a state’s power to tax (3)
Nature or characteristics of a state’s power to tax (3)
Taxation is not an absolute power that can be exercised by the legislature anyway it pleases.
Subject to constitutional and inherent limitations
Nature or characteristics of a state’s power to tax (3)
Limitations on the power of taxation (2)
Those restrictions found in the constitution or implied from its provisions
Constitutional Limitations
Limitations on the power of taxation (2)
Limitations on the power of taxation (2)
Those which restrict the power although they are not embodied in the constitution.
Inherent Limitations
Limitations on the power of taxation (2)
Constitutional Limitations (12)
No person shall be deprived of life, liberty, or property without (?) of law, nor shall any person be denied the equal protection of the law (Sec. I. Art. III. NC)
Due process
Constitutional Limitations (12)
Constitutional Limitations (12)
No person or class of persons shall be deprived of the same protection of laws enjoyed by other persons or classes in the same place and in like circumstances. (Phil Rural Electric Cooperatives Ass., Inc. vs.DILG 403 SCRA 558)
Equal protection of the laws
Constitutional Limitations (12)
Constitutional Limitations (12)
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. (Sec. 28(1), Art. VI, 1987 Philippine Constitution)
Rule of uniformity and equity in taxation
Constitutional Limitations (12)
Constitutional Limitations (12)
No person shall be imprisoned for non-payment of a poll tax. (Sec. 20, Art. III, 1987 Philippine Constitution)
Non-imprisonment for non-payment of a poll tax
Constitutional Limitations (12)
Constitutional Limitations (12)
No law impairing the obligation of contracts shall be passed. (Sec. 10, Art. III, 1987 Philippine Constitution)
Non-impairment of the obligations of contracts
Constitutional Limitations (12)
Constitutional Limitations (12)
No law shall be made respecting the establishment of religion, or prohibiting the free exercise thereof. The free exercise of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights (Sec. 5, Art. III, id.).
Non-infringement of religious freedom
Constitutional Limitations (12)
Constitutional Limitations (12)
No public money or property shall be appropriated, applied, paid, or employed, directly or indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian institution, or system of religion, or of any priest, preacher, minister, or other religious teacher, or dignitary as such, except when such priest, preacher, minister, or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage, or leprosarium. (Sec. 29(2), Art. VI, 1987 Philippine Constitution)
No appropriation for religious purposes
Constitutional Limitations (12)
Constitutional Limitations (12)
Charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. (Sec. 28(3), Art. VI, 1987 Philippine Constitution)
Excemption of religious, charitable, or educational entities, non-profit cemeteries, and churches from taxation
Constitutional Limitations (12)
Constitutional Limitations (12)
All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. (Sec. 4(3), Art. XIV, 1987 Philippine Constitution)
Excemption of revenues and assets of non-stock, non-profit educational institutions and donations for educational purposes from taxation
Constitutional Limitations (12)
Constitutional Limitations (12)
No law granting any tax exemption shall be passed without the concurrence of a majority of the members of Congress. (Sec. 28(4), Art. VI, 1987 Philippine Constitution)
Concurrence of a majority of the members of congress for the passage of law granting any tax exemption
Constitutional Limitations (12)
Constitutional Limitations (12)
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. (Sec. 27(2), Art. VI, 1987 Philippine Constitution)
Power of the President to veto any particular item or Items in a revenue or tariff bill
Constitutional Limitations (12)
Inherent Limitations (5)
A tax imposed to raise funds for loans to earthquake victims, even if they must provide collateral and pay interest, is valid as long as it serves a public purpose. The true test of a public purpose is whether the tax revenue is used for the general good of the community, even if the benefit is not equally distributed among all inhabitants.
Requirement that levy must be for a public purpose
Inherent Limitations (5)
Inherent Limitations (5)
The rule is “potestas delegata non delegari potest”—what has been delegated cannot be delegated. The people created a legislative department for the exercise of legislative power. Thus, this power should not be delegated to any other person or body.
Non-delegation of the legislative power to tax
Inherent Limitations (5)
Inherent Limitations (5)
Government entities are generally exempt from taxation, as taxing public property would require new taxes to cover the imposed levy, benefiting no one except officials receiving increased compensation. However, Congress may impose taxes on government agencies if explicitly mandated. Agencies performing governmental functions are exempt unless expressly taxed, while those engaged in proprietary functions are taxable unless expressly exempted.
Exemption from taxation of government entities
Inherent Limitations (5)
Inherent Limitations (5)
The term comity means recognition or respect accorded by one sovereign to the law of another within its territory because they are equals.
As a consequence of international comity, no state can claim jurisdiction over another (par in parem non habet imperium).
International comity
Inherent Limitations (5)
Inherent Limitations (5)
A state cannot tax property outside its borders or impose taxes on activities conducted in another country, as tax laws do not extend beyond jurisdictional limits. However, an exception exists when there is a direct relationship between the taxing state and the taxpayer, such as in cases of income tax based on citizenship, allowing taxation beyond territorial boundaries.
Territorial Jurisdiction
Inherent Limitations (5)
Aspects of Taxation (2)
Deals with the provisions of law that determine the person or property to be taxed, the sum or sums to be raised, the rate thereof, and the time and manner of levying, receiving, and collecting the taxes.
Levy
Aspects of Taxation (2)
Aspects of Taxation (2)
Consists of the provisions of law that prescribe the manner of enforcing the obligation on the part of those taxed to pay the amount due.
Collection
Aspects of Taxation (2)
Classification of Taxes As to Subject Matter or Object (3)
A tax of a fixed amount imposed on individuals, whether citizens or not, residing within a specified territory, without regard to their property or occupation.
Example: Community tax
Personal, Poll, or Capitation Tax
Classification of Taxes As to Subject Matter or Object (3)
Classification of Taxes As to Subject Matter or Object (3)
A tax imposed on property, whether real or personal, in proportion either to its value or in accordance with some other reasonable method of apportionment.
Example: Real property tax
Property Tax
Classification of Taxes As to Subject Matter or Object (3)
Classification of Taxes As to Subject Matter or Object (3)
A tax imposed upon the performance of an act, the enjoyment of a privilege, or engagement in an occupation; any tax that does not fall within the classification of a poll tax or a property tax.
Example: Income tax, donor’s tax, estate tax
Excise (Privilege Tax)
Classification of Taxes As to Subject Matter or Object (3)
Classification of Taxes As to Who Bears the Burden (2)
A tax that is demanded from the person who also shoulders the burden of the tax.
Examples: Income tax, estate tax, donor’s tax
Direct Tax
Classification of Taxes As to Who Bears the Burden (2)
Classification of Taxes As to Who Bears the Burden (2)
A tax demanded from one person with the expectation that they will pass the burden to another.
Example: Value-added tax (VAT)
Indirect Tax
Classification of Taxes As to Who Bears the Burden (2)
Classification of Taxes As to Determination of Amount (2)
A tax of a fixed amount imposed per unit of measure (e.g., per head, weight, or volume); it requires no assessment other than listing or classification of the subjects to be taxed.
Examples: Excise tax on distilled spirits, cigars, cigarettes
Specific Tax
Classification of Taxes As to Determination of Amount (2)
Classification of Taxes As to Determination of Amount (2)
A tax based on a fixed proportion of the value of the property being taxed; it requires assessors or appraisers to estimate the value before determining the amount due.
Example: Real property tax
Ad Valorem Tax
Classification of Taxes As to Determination of Amount (2)
Classification of Taxes As to Purpose (2)
A tax imposed solely to raise revenue for government expenditures.
Examples: Income tax, value-added tax
General, Fiscal, or Revenue Tax
Classification of Taxes As to Purpose (2)
Classification of Taxes As to Purpose (2)
A tax imposed for a specific purpose, such as achieving social or economic goals, regardless of whether revenue is actually raised.
Examples: Sugar adjustment taxes, Oil Price Stabilization Fund (OPSF)
Special or Regulatory Tax
Classification of Taxes As to Purpose (2)
Classification of Taxes As to Authority Imposing the Tax (2)
A tax imposed by the national government.
Examples: Internal revenue taxes, customs duties
National Tax
Classification of Taxes As to Authority Imposing the Tax (2)
Classification of Taxes As to Authority Imposing the Tax (2)
A tax imposed by municipal or local government units.
Examples: Sand and gravel tax, occupation tax
Municipal or Local Tax
Classification of Taxes As to Authority Imposing the Tax (2)
Classification of Taxes As to Graduation or Rate (3)
A tax based on a fixed percentage of the amount of property, receipts, or other taxable basis.
Examples: Value-added tax, estate tax, donor’s tax
Proportional Tax
Classification of Taxes As to Graduation or Rate (3)
Classification of Taxes As to Graduation or Rate (3)
A tax where the rate increases as the tax base or income bracket increases.
Example: Income tax
Progressive Tax
Classification of Taxes As to Graduation or Rate (3)
Classification of Taxes As to Graduation or Rate (3)
A tax where the rate decreases as the tax base increases.
Regressive Tax
Classification of Taxes As to Graduation or Rate (3)
Three Inherent Powers of the Government
The power of the state or its authorized entities to take private property for public use, provided that just compensation is paid to the owner.
Eminent Domain
Three Inherent Powers of the Government
Three Inherent Powers of the Government
The power of the state to enact laws regulating persons and property to promote public health, morals, safety, and general welfare.
Police Power
Three Inherent Powers of the Government
Three Inherent Powers of the Government
The power of the state, through its legislature, to raise revenue to support the necessary expenditures of the government.
Taxation
Three Inherent Powers of the Government
Situs of Taxation
Business, Occupation, or Transaction
The place where the business is conducted, the occupation is practiced, or the transaction takes place.
Situs of Taxation
Situs of Taxation
Real and Tangible Personal Property
The location of the property.
Situs of Taxation
Situs of Taxation
Intangible Personal Property
The domicile of the owner unless the property has acquired a business situs in another jurisdiction.
Situs of Taxation
Situs of Taxation
Income
The place where the income is earned or the citizenship/domicile of the owner.
Situs of Taxation
Situs of Taxation
Gratuitous Transfer of Property
The residence or citizenship of the taxpayer or the location of the property.
Situs of Taxation
Basic Forms of Escape from Taxation
The transfer of the tax burden from the person on whom the tax is assessed to another. This is common in business taxes, where the seller shifts the tax burden to consumers.
Those That Do Not Reduce Government Revenue Collection (3)
Shifting
Basic Forms of Escape from Taxation
The reduction in the selling price of income-producing property by an amount equal to the capitalized value of future taxes that may be paid by the purchaser.
Those That Do Not Reduce Government Revenue Collection (3)
Capitalization
Basic Forms of Escape from Taxation
A method where the manufacturer, upon whom the tax is imposed, pays the tax but offsets the expense by reducing production costs without sacrificing product quality. This is done to avoid losing market competitiveness instead of adding the tax to the selling price.
Those That Do Not Reduce Government Revenue Collection (3)
Transformation
Basic Forms of Escape from Taxation
The use of fraudulent or illegal schemes designed to lessen or defeat taxes (Yutivo Sons Hardware Co. v. CTA, G.R. No. L-13203, January 28, 1965). This is also known as tax dodging.
Those That Result in Loss of Government Revenue (3)
Tax Evasion
Basic Forms of Escape from Taxation
The exploitation of legally permissible tax rates or methods of assessing taxable property or income to minimize tax liability. This is also referred to as tax minimization.
Those That Result in Loss of Government Revenue (3)
Tax Avoidance
Basic Forms of Escape from Taxation
The grant of immunity to specific persons, corporations, or classes of persons or corporations from a tax that others in the same taxing jurisdiction are required to pay (51 Am. Jur. 503).
Those That Result in Loss of Government Revenue (3)
Exemption from Taxation
Sources of Tax Laws
The provisions of the Constitution dealing with taxation regulate the exercise of the power but do not grant it. Taxation is an inherent power of the government and exists independently of the Constitution.
The Constitution
Sources of Tax Laws
Tax laws passed by Congress, which establish the legal basis for taxation.
Statutory Enactments
Sources of Tax Laws
Issued by the Commissioner of Internal Revenue to interpret tax laws and clarify specific provisions upon taxpayers’ requests. These are commonly known as “BIR Rulings.”
Administrative Rulings
Sources of Tax Laws
Issued by the Secretary of Finance upon the recommendation of the Commissioner of Internal Revenue. They clarify tax laws and provide details on administration and procedures. However, in case of conflict, the statute prevails over the regulation.
Revenue Regulations
Sources of Tax Laws
Decisions of the Court of Tax Appeals and the Supreme Court that interpret and apply tax laws. These decisions form a major part of Philippine jurisprudence on taxation. The rulings of the Court of Tax Appeals can still be appealed to the Supreme Court.
Judicial Decisions
