Taxation is the process by which the state, through its lawmaking body, raises income to fund the necessary

expenses of the government. a) Basis of Taxation (Where did the idea to tax come from) a. Principle of necessity- it is needed b. Principle of Reciprocal duties- you benefit from government services, thus you should pay your taxes. Purposes of Taxation a. Primary- Raise revenue for governmental needs b. Secondary a. Compensatory (to alleviate poverty, decrease inflation rates) b. Regulatory Purpose (sin taxes) b) States power to tax Nature of the States Power to tax a. Inherent though not expressly granted by the Constitution b. Legislative- Only legislature can impose taxes c. Subject to Constitutional and inherent limitations Limitations to the power of taxation: Distinction between Inherent and Constitutional Limitations a. Inherent- which restrict the power, though not embodied in the constitution b. Constitutional- expressly found in the Constitution or implied from its constitution Inherent Limitations 1. Public purpose (tax levied for private, not public purpose constitutes taking property without due process of law a. Must be used for the Support of the government b. Must be used for any of the Recognized objects of government c. Must be used to Promote welfare of the community 2. Territorial jurisdiction- Tax laws do not operate beyond territorial limits 3. International Comity- courteous and friendly agreement and interaction between nations 4. Non delegation of the power to tax- purely legislative, congress cannot delegate the power to others. 5. exemption from taxation of government entities6. double taxation Constitutional limitations 1. Due process of law 2. Equal protection of law 3. Rule of Reciprocity and equity in taxation 4. Non-impairment of the obligation of contract 5. power of the president to veto any particular item or items in a revenue or tariff bill 6. exemption of revenues and assets of non-stock, non-profit educational institutions and donations for educational purposes from taxes and duties 7. no appropriation for religious purposes 8. Concurrence by majority of all members of the congress for the passage of a law granting exemptions 9. The congress may not deprive the supreme court of its jurisdiction in all cases involving the legality of any tax, impost or assessment or toll or any penalty imposed in relation to tax 10. Non-imprisonment for non-payment of poll tax 11. Tax collection shall generally be treated as general funds of the government Objects of Taxation 1. Persons a. Natural b. Juridical 2. Properties a. Real properties b. Personal properties c. Tangible properties d. Intangible properties

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Excise objects a. Transaction b. Privilege c. Right d. Interest

Stages, aspect or processes of taxation 1. Levy 2. Assessment 3. Tax payment/ collection Basic Principles of a Sound Tax system a. Fiscal adequacy b. Theoretical Justice c. Administrative feasibility Escape from Taxation a. Tax evasion b. Tax avoidance- tax minimization schemes a. Tax option- choosing to pay the lower tax rate b. Shifting- transferring from the statutory taxpayer to another without violating the law. c. Transformation- the producer absorbs payment of tax to reduce prices and maintain market share d. Exemption- granted in the basis of i. Reciprocity ii. Public policy iii. Contracts Situs of Taxation- Refers to the place of taxation, or the state or political unit which has jurisdiction to impose tax over its inhabitants General Rules of Tax Situs Source or location of Object (Taxable)? Residency Resident Nonresident Resident Nonresident Resident Nonresident Resident Nonresident Within the Philippines YES YES YES YES YES YES YES YES YES Outside the Philippines YES NO NO NO YES YES YES NO NO

Income tax

Filipino Filipino Aliens Aliens Filipino Filipino Aliens Aliens

Transfer Tax

Business Tax

Nature of Taxes 1. Obligations created by law 2. Generally personal to the taxpayer

Essential Characteristics of Taxes 1. Enforced contribution 2. imposed by the legislative body 3. proportionate in character

4. 5. 6. 7. 8. 9.

Payable in the form of money Imposed for the purpose of raising revenue. Used for Public Purpose Enforced on some persons, properties or rights Required to be paid at regular intervals Imposed by the sovereign state within its jurisdiction

SUMMARY OF TAXES Object 1. Person 2. Property 3. Rights Major Classification Personal tax Property Tax Business Tax (normal course of Business) Description Community Tax Real Property tax Value Added Tax Income Classification

Other Percentage Tax Excise Tax Transfer tax Estate tax Donor's Tax a. Final withholding tax Passive income Sale of real property (capital asset) Capital Gain on sale of share outside the stock exchange b. Creditable withholding tax Compensation income Professional Fee Rent, brokers, agent fee

Income Taxes

c. Annual Income tax

Compensation income Business income gain sale of ther capital assets Passive income earned outside

Classification of Taxes

As to scope As to who bears the burden As to the determination of amount As to purpose As to subject matter

National Local Direct- cannot be shifted (income tax) Indirect- can be shifted (VAT) Specific- based on unit of measure (per metric ton, ie. Customs duties) Ad Valorem- based on peso value (ie. VAT) General- revenue generating (income tax) Regulatory- for regulatory (sin taxes) Poll- ie. Community Tax Certificate Property- ie. Real Property Taxes Excise- ie. Income, Estate taxes Proportional Progressive Regressive

As to gradation

For the following topics, please refer to link http://www.chanrobles.com/legal6nircsections.htm a. Powers and Authority of the Commissioner of Internal Revenue (refer to Sec 4 to 7 of the NIRC) b. Remedies of the Government