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Larissa Jamero

Assignment in Income Taxation

1. Define Taxation:
A means by which governments finance their expenditure by
imposing charges on citizens and corporate entities.
2. Describe the nature/theory, basis, objectives/purpose, scope of
taxation.
-Nature:
1. It is inherent in sovereignty.
2. Legislative in character.
3. Subject to constitutional and inherent limitations.
Basis:
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 this means it has a right to compel all its citizens and
property within its limits to contribute.
The basis is the reciprocal duties of protection and support between the
State and its inhabitants. The State collects taxes from the subjects of
taxation in order that it may be able to perform the functions of government.
The citizens, on the other hand, pay taxes in order that they may be
secured in the enjoyment of the benefits of organized society (benefits
received theory).
Lifeblood theory:
1. Taxes are the lifeblood of the Government and their prompt and
certain availability are imperious (expecting obedience) need.
2. Upon taxation depends the government’s ability to serve the people
for whose benefit taxes are collected.
Manifestation of lifeblood theory:
1. Imposition of tax even in the absence of Constitutional grant.
2. Right to select objects of taxation.
3. No injunction to enjoin (or stop) tax collection.

Purposes of taxation:
1. The principal (primary) purpose is to raise revenue for governmental
needs. This is also called revenue or fiscal purpose.
2. The secondary purposes of taxation are:
Compensatory purposes
1. To reduce excessive inequalities of wealth.
2. To maintain high level of employment.
3. To control inflation.
Sumptuary or regulatory purpose
1. To implement the police power of the State to promote the general
welfare.

What are the three inherent powers of the state.


1. Police Power;
2. Power of Eminent Domain or Power of Expropriation; and
3. Power of Taxation
 
Purpose:
1. for public good or welfare - Police Power 
2. for public use - Power of Eminent Domain
3. for revenue - Power of Taxation

4. Differentiate the three inherent powers of state.

1. POLICE POWER is the power of promoting the public welfare by


restraining and regulating the use of both liberty and property of all the
people. It is considered to be the most all-encompassing of the three
powers. It may be exercised only by the government. The property taken in
the exercise of this power is destroyed because it is noxious or intended for
a noxious purpose.
It lies primarily in the discretion of the legislature. Hence, the President, and
administrative boards as well as the lawmaking bodies on all municipal
levels, including the barangay may not exercise it without a valid delegation
of legislative power. Municipal governments exercise this power by virtue of
the general welfare clause of the Local Government Code of 1991.  Even
the courts cannot compel the exercise of this power through mandamus or
any judicial process.

Requisites of a valid police measure:


 
(a.) Lawful Subject – the activity or property sought to be regulated affects
the public welfare. It requires the primacy of the welfare of the many over
the interests of the few.
 
(b.)  Lawful Means  – the means employed must be reasonable and must
conform to the safeguards guaranteed by the Bill of Rights.
 
2. POWER OF EMINENT DOMAIN affects only property RIGHTS. It may
be exercised by some private entities. The property forcibly taken under
this power, upon payment of just compensation, is needed for conversion to
public use or purpose.
 
The taking of property in law may include:

- trespass without actual eviction of the owner;


- material impairment of the value of the property; or 
- prevention of the ordinary uses for which the property was intended. The
property that may be subject for appropriation shall not be limited to private
property. Public property may be expropriated provided there is a
SPECIFIC grant of authority to the delegate. Money and a chose in action
are the only things exempt from expropriation.
Although it is also lodged primarily in the national legislature, the courts
have the power to inquire the legality of the right of eminent domain and to
determine whether or not there is a genuine necessity therefore.
 
3. POWER OF TAXATION affects only property rights and may be
exercised only by the government. The property taken under this power
shall likewise be intended for a public use or purpose. It is used solely for
the purpose of raising revenues, to protect the people and extend them
benefits in the form of public projects and services (I hope so). Hence, it
cannot be allowed to be confiscatory, except if it is intended for destruction
as an instrument of the police power.
 
5. What are the basic principles of a sound taxation system?

1. Fiscal Adequacy- The sources (proceeds) of tax revenue should


coincide with and approximate needs of government expenditures. The
sources of revenue should be sufficient and elastic to meet the
demands of public expenditures
2. Theoretical Justice- The tax system should be fair to the average
taxpayer and based upon his ability to pay.
3. Administrative Feasibility- The tax system should be capable of being
properly and efficiently administered by the government and enforced
with the least inconvenience to the taxpayer.

6. What are the nature and characteristics of the states’ power to tax?
-It is inherent in sovereignty, hence, it may be exercised although not
expressly granted by the Constitution.
-It is legislative in character, hence, only the legislature can impose taxes
(high prerogative of sovereignty).
-It is subject to constitutional and inherent limitations, hence, it is not an
absolute power that can be exercised by the legislature anyway it pleases

7. Limitations on the power of taxation.


Scope of the power of taxation: CPUS
The power of taxation is comprehensive, plenary, unlimited and supreme.
This power is, however, subject to inherent and constitutional limitations.
Matters within the competence of the legislature to determine:
1. The subject matter or object to be taxed.
2. The purpose of the tax so long as it is a public purpose.
3. The amount or rate of the tax.
4. The manner, means and agencies of collection of the tax.
5. The exemptions from the imposition.

Processes included or embodied in the term taxation:


1. Levying or imposition of tax which is a legislative act.
2. Collection of the tax levied which is essentially administrative in
characterS

8. ASPECTS OF TAXATION
The three stages or aspects of taxation are:
1. Levy
– This refers to the enactment of a law by
Congress imposing a tax
2.Assessment and collection
– This is the act of
administration and implementation of the tax law by the executive
department through the
administrative agencies
3.Payment
– This is the act of compliance by the
taxpayer including whatever remedies are available to him under the law

9. VARIOUS DOCTRINES OF TAXATION LAW


I. PRINCIPLE OF NECESSITY

The existence of the government is a necessity; the main source of


revenue of the government is taxes. These are the life-blood of the
government. The primary purpose of taxation is to generate funds for the
State to finance the needs of the citizenry and to advance the common
wealth. The government chiefly relies on taxation to obtain the means to
carry on its operation.
Cases:

Commissioner vs. Pineda, 21 SCRA 105- Taxes are the lifeblood of the
government and their prompt and certain availability are an imperious
need.
CIR vs. Algue, 158 SCRA 8- The government will not be able to survive and
continue to perform its functions without taxes.

II. TAXATION IS INHERENTLY LEGISLATIVE

Along with police power ( for public good and welfare ) and eminent domain
( for public use ), taxation ( for revenue ) is an inherent power of the
sovereignty.
Cases:

National Power Corporation vs. Albay, 186 SCRA 198- Power of taxation is
legislative in character and is a legislative prerogative.
Petro vs. Petilla, 198 SCRA 82- The legislative taxing power includes the
authority: a. to determine the nature, object, extent, coverage, and situs of
the tax imposition, b. to grant tax exemptions or condonations, and c. to
specify or provide for the administrative, as well as judicial remedies that
either the government or the taxpayers may avail themselves of in the
proper implementation of the tax measure.

III. TAXATION INCLUDES THE POWER TO DESTROY


The power of taxation is sometime also called the power to destroy.
Therefore, it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kills the ‘hen that lays the golden egg.’ And,
in order to maintain the general public’s trust and confidence in the
government, this power must be used justly and not treacherously.
Cases:

Roxas vs. CTA, 23 SCRA 276- The power of taxation includes the power to
destroy if it is used validly as an implement of the police power of the state.
If it is used solely for the purpose of raising revenue, it does not include the
power to destroy.
Standard Oil Co. vs. Posadas, 55 Phil 715- While ordinarily the government
does not tax its own political subdivisions or its other entities, it may,
however, do so by providing for it explicitly.

IV. TAXATION IS FOR A PUBLIC PURPOSE

The proceeds of the tax must be used a. for the support of the State or b.
for some recognized objects of government or directly to promote the
welfare of the community.
Cases:

Pascual vs. Sec. of Public Works, 110 Phil 331- The legislature is without
power to appropriate public revenues for anything but a public purpose.
Valentin Tio vs. Videogram Regulatory Board, 151 SCRA 208- The public
purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another.

V. TAXPAYER SUIT

It is the remedy available to a taxpayer when taxes are used for illegal
activities or when the public funs are used by the government for projects
which are not intended for a public purpose.
Cases:
Pascual vs. Sec. of Public Works, 110 Phil 331- It is only when an act
complained of, which may include a legislative enactment, directly involves
illegal disbursement of public funds derived from taxation.

Maceda vs. Macaraig, 197 SCRA 771- When the issue involve the legality
of expenditure of tax money, a taxpayer suit could be filed.

10. SITUS OF TAXATION


Situs of taxation literally means place of taxation.  The general rule is that
the taxing power cannot go beyond the territorial limits of the taxing
authority.  The basic rule is that the state where the subject to be taxed has
a situs may rightfully levy and collect the tax; and the situs is necessarily in
the state which has jurisdiction or which exercises dominion over the
subject in question.  

11. TAX AND ITS ESSENTIAL CHARACTERS


TAX- Taxes are involuntary fees levied on individuals or  corporations and
enforced by a government entity — whether local, regional or national — in
order to finance government activities. In economics, taxes fall on
whomever pays the burden of the tax, whether this is the entity being
taxed, like a business, or the end consumers of the business's goods.

Essential characters:
(1) It is an enforced contribution. – A tax is not a voluntary payment or
donation (84 C.J.S. 32.) and its imposition is in no way dependent upon the
will or assent, open or implied, of the person taxed. (71 Am. Jur. 2d 344.)
To be sure, taxation without representation, or without the consent in some
form of those who are to be taxed, is contrary to the fundamental principles
of good government. The principle of representation, however, applies only
to political communities, as such, and not to individuals. It is satisfied by
their adequate representation in the legislative body which votes the tax.
(83 C.J.S. 48.)

(2) It is generally payable in money. – Unless qualified by law (e.g.,


backpay certificates under Sec. 2, R.A No. 304, as amended.), the term
“taxes” or “tax” is usually understood to be a pecuniary burden – an
exaction to be discharged alone in the form of money which must be in
legal tender.
(3) It is proportionate in character. – A tax is laid by some rule of
apportionment according which persons share the public burden. It is
ordinarily based on ability to pay. Thus, in practice, some people pay very
high taxes; others, very small amounts or none at all.

(4) It is levied on persons or property. – A tax may also be imposed on acts,


transactions, rights or privileges. In each case, however, it is only a person
who pays the tax. The property is resorted to for the purpose of
ascertaining the amount of tax that must be paid and of enforcing payment
in case default of the taxpayer. (84 C.J.S. 36.) But not all who pay a tax
shoulder the burden of the tax.

(5) It is levied by the state which has jurisdiction over the person or
property. – The object to be taxed must be subject to the jurisdiction of the
taxing state. (infra.) This is necessary in order that the tax can be enforced.
Although a state can tax all persons subject to its jurisdiction for all their
property left by them within its jurisdiction to seize upon person or property
for purposes of taxation.

(6) It is levied by the law-making body of the state. – The power to tax is a
legislative power which under the Constitution only Congress can exercise
through the enactment of tax statutes. Accordingly, the obligation of a tax is
statutory liability.

(a) The power to tax is granted by the Constitution to local government


subject to such guidelines and limitations as may be provided by law.

(b) During the period of martial law, (Sept. 21, 1972 to Jan. 17, 1981), the
then incumbent President exercised the executive powers vested under the
1973 Constitution in the Prime Minister (who was the Chief Executive
before its amendment in   1981) as well legislative powers through the
issuance of “presidential decrees”.

(c) By virtue of Amendment No. 6 to the 1973 Constitution, the President


was given concurrent legislative authority under certain conditions, which
he exercised even after the lifting of martial law.
(d) Pending the ratification of a new Constitution and in the absence of a
legislative body in the Provisional Government installed on February
25,1986, the President exercised legislative power through the issuance of
executive orders under the convening of Congress on July 27, 1987.

(7) It is levied for public purpose or purposes. – Taxation involves, and a tax
constitutes, s charge or burden imposed to government, the administration
of the law, or the payment of public expenses. Revenues derived from
taxes cannot be used for purely private purposes or for the exclusive
benefit of private persons. (Gaston vs. Republic Planters Bank, 158 SCRA
626, Mar. 15 1988.) The “public purpose or purposes” of the imposition is
implied in the levy of tax.

It is also an important characteristic of most taxes that they are commonly


required to be paid at regular periods or intervals every year.

12. CLASSIFICATION OF TAXES


The Personal, Poll or Capitation tax is the fixed amount that is imposed to a
person that is residing within a specific territory. This is regardless to their
property, occupation or business.

-The Property tax is the tax that is imposed on ones property; whether with
is a real property or personal property in proportion with the property’s
value.

-The Excise Tax is a tax that is imposed upon the performance of an act as
well as the enjoyment of a privilege or the engaging in a particular
occupation.

According to who bears the burden, taxes are either direct or indirect.

-The direct tax is the tax that is directly demanded from and paid by the
taxpayers.

-The Indirect tax is the tax that is demanded from a certain person in the
intention as well as expectation that the particular person shall indemnify
himself at the expense of another.
According to the determination of the amount, taxes are further classified to
specific and Ad valorem.

-The Specific Tax is the tax that is of fixed amount that is imposed by the
head or number, or by some of the standard of the weight and
measurement

-The Ad valorem Tax is the Tax that is of fixed proportion in relation with the
value of the property in respect to which the tax is assed.
According to the purpose, taxes are further classified as General, Fiscal or
revenue and Special of regulatory.

-The General, Fiscal or revenue tax is the tax that is intended for the
general purposes or expenses of the government.

-The Special or regulatory tax is the tax that is intended for a specific
purpose.

According to the Scope, the taxes are classified to either National or


municipal or Local.

In the National scope, the taxes are imposed by the National Government
itself while in the municipal or local, the taxes are imposed by the local
government.

According to the graduation or rate, taxes are further classified into


Proportional, Progressive or Graduated and Regressive.

-The Proportional tax is the tax that is based upon the fixed percentage vis-
à-vis the amount of the property or other bases on which to be taxed.

-The Progressive or Graduated tax is the tax rate increase upon the
increase of the base rate.

-The Regressive tax is the tax rate decrease upon the increase of the base
rate.

13. SOURCES OF TAX AUTHORITY AND SOURCES OF TAX LAWS


After the constitution, the primary source of specific tax law in the
Philippines is the National Internal Revenue Code (NIRC), the most recent
version of which was enacted via the The Tax Reform Act of 1997. The
NIRC establishes basic taxes the government may levy such as personal
income taxes, corporate taxes, sales taxes, excise taxes and estate taxes.
It also codifies the tax collection process and procedures for appeals.
Additionally, Philippine tax law empowers local governments to establish
and assess some types of taxes, but which may not include taxes
specifically limited to the national government such as personal income
taxes, estate taxes, and some sales taxes.

14. Powers of the Commissioner on Internal Revenue


1. To interpret tax laws and decide tax cases;
2. To obtain information, and to summon, examine and take testimony of
persons;
3. To make assessments and prescribe additional requirements for tax
administration and enforcement;
4. To conduct inventory - taking, surveillance and to prescribe presumptive
gross sales and receipts;
5. To terminate taxable period;
6. To prescribe real property values;
7. To inquire into bank deposit accounts;
8. To accredit and register tax agents;
9. To prescribe additional procedural or documentary requirements; and
10. To delegate power to subordinates. (Sec. 4 to 8, NIRC)