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General Principles For Dummies
General Principles For Dummies
1. Police Power (Salus Populi Est Suprema Lex) 2 power of the state to enact rules
and regulations for the general welfare of the people;
2. Eminent Domain 2 power of the state to take private property for public use,
upon payment of just compensation
3. Taxation - is the process or means by which the sovereign, through its lawmaking
body, raises income to defray the necessary expenses of the government.
B. Two-fold Nature of
Taxation
1. Lifeblood Theory
- Taxes are the lifeblood of the government and their prompt and certain availability are
an imperious need. A government cannot continue to exist and operate without financial
means. This inherent power gives the government the right to tax citizens and properties
within its jurisdiction.
Taxation is likened to a human body·s blood. With out blood, we cannot survive. In the
same way, the state, the country cannot survive without taxes
2. Necessity Theory
- Taxation is a power predicated upon necessity. It is a necessary burden to preserve
the State·s Sovereignty. Ex.
a. Navy to defend the state·s shores from invasion; b. Public improvement for the
enjoyment of its citizens and those who are
within its territory; c. Army to
resist aggression.
3. Benefits-protection Theory
- Taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the lack of the motivation to activate and operate it. Hence, despite of the
natural reluctance of a person to surrender part of their hard-earned income to the
government, every person who is able to 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 moral
and material value.
This theory should dispel or eradicate the notion that taxes are nothing but arbitrary
methods of exacting money from the people. Taxation is viewed as a give and take system
between the people and the government. We give taxes, the govt takes them. In turn, the
govt gives us protection thru its projects and services
D. Objectives of Taxation
1. Revenue Objectives
You are all familiar with the term revenue right? Revenue means raising money, profit or
income. So, one objective of taxation is of course raising money to defray the expenses of
the government. 2. Non Revenue Objectives (PIER)
Aside from raising money for govt expenses, taxation is also used for purposes other
than money. How? a. Protection of Local Industries;
How can taxes protect local industries from foreign competition? - high
tariff rates on imported products - our local industries and products are
protected b. Implementation of the Police Power of the State;
- rmember Police Power? The power to enact laws that regulate private rights? -clue,
night clubs, gambling businesses c. Encourage local industry for economic progress; By
granting tax exemptions to local industries d. Reduce Social Inequality by the equitable
distribution of property.
Inequality is ever present..taxes aim to reduce this. Higher income
tax base, higher income tax rate. Lower, lower.
E. Aspects of
Taxation
1. Levying of the Tax 2 Legislative; By Congress 2. Collection of
the Tax levied 2 Administrative; Through BIR
We discussed the three branches earlier. Making of tax laws, by the congress,
collection, by administrative dept.
The most dramatic sounding principle of taxation. It sounds like a title of a john grisham
novel or a movie...
3. Theoretical Justice 2 tax imposed must be based on the taxpayer·s ability to pay.
H. Classification of
Taxes
So what are the kinds of taxes? How are they classified? It is important for us to be
familiar with the classification because it affects the rates of taxes, their manner of
collection and as to who has the authority to collect these taxes.
1. As to subject matter
a. Personal, poll or capitation 2 tax of a fixed amount imposed on individuals
Ex. Community tax b. Property tax 2 tax imposed on property whether real or
personal
Ex. Real Estate Tax c. Excise tax 2 tax imposed on the performance of an act, the
enjoyment of a
privilege or engaging in an occupation. Ex.
Income tax, donor·s tax, value added tax.
Why is VAT called an Indirect tax? - because in VAT, the person to be taxed is
actually the seller. The tax is imposed on the activity of SELLING. But, the seller in
turn pushes this burden to
the buyers by making it a part of the cost of the goods or services purchased by the
consumer or customers.
3. As to determination of amount
a. Specific 2 Tax imposed based on a physical unit of measurement, as by head
or number, weight, or length or volume. Ex.
Tax on wines, cigars, fireworks, etc.
4. As to Purpose
a. General, fiscal or revenue 2 tax with no particular purpose or object for which
revenue is raised, but is simply raised for whatever need may arise. Ex.
Income tax, value added tax.
6. As to graduation or rate
a. Proportional 2 tax based on a fixed percentage of the amount of property
income or other basis to be taxed. Ex.
Percentage taxes, real estate taxes
I. Essential Characteristics of a
Tax
1. It is an enforced contribution;
Why are taxes an enforced contribution? Its because there is law which mandates or tells
us that we must pay taxes, other wise, there are corresponding penalties for its non
payment.
As we have discussed last meeting, it is the legislative department or the congress who
enacts tax laws. Why is this? It is because taxation is grant by the people who allow
themselves to be taxed. It is only fitting that it should be enacted by the very people who
we elected to represent us in the government...namely the congressmen.
3. It is proportionate in character;
Meaning it depends on the tax payer·s ability to pay. Rmember theoretical justice? 4. It is
generally payable in money;
Question. Why is it that taxes are payable in money? Why not in kind? Like, when its
time to file ur income tax returns but u don·t have cash to pay the BIR, why cant u insist
that ull use ur chickens, or ur cellphones or laptops to pay ur taxes? - the answer is
Administrative feasibility. Who can rmember what that means? - it means that, our tax
system must be one that is practicable and easy to administer. Imagine if taxes could be
paid in kind? It would be utter chaos.
J. Situs of taxation
this refers to the place of taxation. The rule is that the State may rightfully levy
and collect the tax where the subject being taxed has a situs under its jurisdiction.
The situs of taxation is determined by a number of factors:
The recognized rules in interpretations of other laws also apply to tax laws. As in other
laws, the intention of the law makers is the primary concern. However, if there is a doubt
as to in determining the law makers· intentions, the doubt must be resolved in favour of
the tax payers and against the taxing authority (government).
Taxation is a very intrusive power of the state. From the day a person is born, till
the day he dies and even beyond that, taxation is ever present. From cradle to the grave. Because
of the comprehensiveness of this power, interpretation of tax laws is in favour of the taxpayer so
as to avoid any abuses on the part of the government.
The exeption to the general rule stated above is with regards to tax exemptions. Tax
exemptions are highly disfavored by law and are not to be presumed nor implied but must
be clearly expressed. A tax exemption must be
strictly interpreted against the tax payer and in favor of the government and a grantee
claiming exemption must clearly prove his right to such exemption in pursuance to law.
Revenue law is a law passed for the purpose of authorizing the levy and collection of taxes
in some form to raise revenue. A revenue law is said to be national revenue law when it is
applicable all over the country.
The Bureau of Internal Revenue
Duties of Commissioner:
1. Interpret tax laws and decide tax cases; 2. Obtain information and to
summon, examine, take testimony of
persons; 3. Make assessments and prescribe additional requirement for tax
administration and enforcement.
Taxes must be imposed prospectively and not retroactively. But if the intent of the law
makers is to apply it retroactively, such law must clearly state that the intention is such.
Prospectivity simply means, if a tax law is enacted to day, it has to effect tomorrow and
in the years to come...and not to affect the past.
Double Taxation
Double taxation per se is not forbidden if it is only indirect double taxation. However, if it
is direct double taxation, it invalidates the law. There is direct double taxation when the
following occurs:
Taxes are not subject to set off or legal compensation. A person cannot refuse to pay a
tax because the government owes him an amount equal to or greater than the tax being
collected.
In law, u have this thing called ś et offμ or to put in more simpler terms..μquitsμ
Example, u owe her a dept of say 100, and she owes u the same amount. Now, u both
can say that since u owe each other the same amount, u can set off ur debts and it will have the
effect of releasing you from ur contractual obligation towards each other.
Now, taxes dus not work in the same way. U cannot say that because last year u over paid ur
taxes, this year, u can set off ur overpayments against the taxes u owe. This is not allowed. Why?
Because taxes are not ordinary contractual obligations unlike a simple debt. Taxes are obligations
that are provided for by law it self. Remember lifeblood theory?it tells that there is a need for the
prompt and early collection of taxes.
If taxation is that important, and it is the obligation of every Filipino citizen to pay taxes. U get to
ask, is there a way out of it? Is there any escape from taxation? There is. There·s the legal way
out, and there is the illegal way out.
Tax avoidance 2 this is legal and allowed. This happens when a tax payer minimizes his
tax liabilities by taking advantage of legally available tax planning opportunities. Otherwise
known as tax minimization.
Tax Evasion 2 illegal and prohibited. Occurs when the taxpayer resorts to unlawful
means to lessen or to get away from his tax liability.
One example of this..which is a sad reality prevailing today is the under valuation of
properties sold. How does this happen?