- Taxation is a legislative power used by sovereign governments to raise revenue for public purposes. It is considered the lifeblood of governments and their ability to function.
- Theories of taxation include the necessity theory, that taxes are a necessary burden to fund government services, and the benefits theory, that taxes are paid in exchange for the protections of civilized society.
- The legislature has broad discretion in determining what to tax, how much to tax, and what methods of taxation to employ, subject to constitutional restrictions. The power to tax is very broad and far-reaching.
- Taxation is a legislative power used by sovereign governments to raise revenue for public purposes. It is considered the lifeblood of governments and their ability to function.
- Theories of taxation include the necessity theory, that taxes are a necessary burden to fund government services, and the benefits theory, that taxes are paid in exchange for the protections of civilized society.
- The legislature has broad discretion in determining what to tax, how much to tax, and what methods of taxation to employ, subject to constitutional restrictions. The power to tax is very broad and far-reaching.
- Taxation is a legislative power used by sovereign governments to raise revenue for public purposes. It is considered the lifeblood of governments and their ability to function.
- Theories of taxation include the necessity theory, that taxes are a necessary burden to fund government services, and the benefits theory, that taxes are paid in exchange for the protections of civilized society.
- The legislature has broad discretion in determining what to tax, how much to tax, and what methods of taxation to employ, subject to constitutional restrictions. The power to tax is very broad and far-reaching.
07/01/2018 - In taxation, it is one's failure to comply with the civil liability to pay taxes which gives
rise to the criminal liability.
TAXATION LAW I - Nature of the Taxing Power Taxation as an Inherent Attribute of Sovereignty - Taxation is a mode of raising revenue for public purposes. The power of taxation is an incident of sovereignty as it is - The power to impose taxes is a legislative power; it cannot be imposed by the inherent in the State, belonging as a matter of right to every executive department nor by the courts. independent government. - Taxation has been defined as the power by which the sovereign raises revenue Taxation as Legislative in Character to defray the necessary expenses of government. The power to tax is inherent in the State, and the State is - Lifeblood Doctrine - Taxes are the lifeblood of the government and their prompt and free to select the object of taxation, such power being certain availability is an imperious need. exclusively vested in the legislature, EXCEPT where the - Because taxes are the lifeblood of the nation, statutes that allow exemptions Constitution provides otherwise. are construed strictly against the grantee and liberally in favor of the - The term "levy" or "imposition" refers to the enactment of tax laws or statutes. government. - Scope of the Legislative Power to Tax - Theories on Taxation: The sole arbiter of the purposes for which taxes shall be levied Necessity Theory is the legislature, provided the purposes are public. The courts It is a necessary burden to preserve the State's sovereignty may review the levy of the tax to determine whether the purpose is and a means to give the citizenry an army to resist a public one but once that is determined, the courts can make no aggression, a navy to defend its shores from invasion, a other inquiry as to the purpose of the tax, as it affects the power corps of civil servants to serve, public improvements for the to impose it. enjoyment of the citizenry, and those which come within the The legislature has unlimited scope as to the persons, property State's territory and facilities and protection which a or occupation to be taxed, where there are no constitutional government is supposed to provide. restrictions, provided the property is within the territorial Benefits Protection Theory jurisdiction of the taxing state. Bases the power of the State to demand and receive taxes - The Legislature may, in its discretion, select what occupations shall be taxed, and in on the reciprocal duties of support and protection. The the exercise of that discretion it may tax all. Or it may select for taxation certain citizen supports the State by paying the portion from his classes and leave the others untaxed. property that is demanded in order that he may, by means - The legislature has the right to finally determine the amount or rate of a tax, in thereof, be secured in the enjoyment of the benefits of an the absence of constitutional prohibitions. organized society. - The discretion of the legislature in imposing taxes extends to the mode, Doctrine of Symbiotic Relationship method or kind of tax. As to the kind of taxes which may be imposed, the 'Taxes are what we pay for civilized society. Without taxes, legislature has power to levy one or more of the following: the government would be paralyzed for lack of the motive Property tax, power to activate and operate it. Hence, despite the natural excise, reluctance to surrender part of one's hard-earned income to license or occupation tax, the taxing authorities, every person who is able to must a poll or capitation tax, contribute his share in the burden of running the franchise tax, government. The government, for its part, is expected to income tax, respond in the form of tangible and intangible benefits inheritance tax, intended to improve the lives of the people and enhance stock transfer tax, etc. their material and moral values." - "The power to tax involves the power to destroy." This might well be construed to - Taxes are personal to the taxpayer. mean that the power to tax includes the power to regulate even to the extent of - Doctrine of Piercing the Corporate Veil - stockholders may be held liable for the prohibition or destruction, unpaid taxes of a dissolved corporation if it appears that the corporate assets have - "The power to tax is not the power to destroy while the Supreme Court sits." passed into their hands. - The act of assessing and collecting taxes is administrative in character, and therefore can be delegated. First, the tax law must designate which agency will collect the taxes. - Extent of the Power of Taxation Second, the circulars or regulations issued by the Secretary of Comprehensive Finance or the Commissioner of the Internal Revenue must be in It covers persons, businesses, activities, professions, rights accordance with the tax measures imposed by Congress. and privileges. - Payment signifies an act of compliance by the tax payer. Congress knows what and who to tax - Purposes of Taxation Unlimited The primary purpose of taxation is to raise revenues. A tax does not cease to be valid merely because it regulates, Secondary or non-revenue purposes discourages, or even definitely deters the activities taxed. (1) reduce social inequality The power to impose taxes is one so unlimited in force and Our present tax system has adopted the so searching in extent that the courts scarcely venture to progressive system of taxation, i.e., the declare that it is subject to any restrictions whatever, except tax rate increases as the tax base such as rest in the discretion of the authority which exercises increases. This system aims at reducing the it. inequality in the distribution of wealth by Plenary preventing its undue concentration in the As it is complete. Under the NIRC, the BIR may avail of hands of a few individuals. certain remedies to ensure the collection of taxes. The law passed is considered as complete including the (2) encourage the growth of local industries remedies The power to tax carries with it the power to Supreme grant tax exemptions. Tax exemptions and tax reliefs serve as incentives to Taxation, although referred to as the strongest of all the encourage investment in our local powers of the government, cannot be interpreted to mean industry and thereby promote economic that it is superior to the other inherent powers of the growth. government. It is supreme insofar as the selection of the subject of taxation is concerned. (3) protect our local industries against unfair competition The two others powers are useless without the power of The Tariff and Customs Code allows the taxation because of the funds. imposition of certain taxes (countervailing and dumping duties) - Taxation is not absolute. upon imported goods or articles to - Limitations of the Power to Tax: further protect our local industry. R.A. Inherent 8752 (Anti-Dumping Act) imposes stricter Public Purpose conditions. Taxes are enacted only for a public purpose (4) implement the police power of the state (regulatory purpose) Taxation must be primarily for public The power of taxation may be used as an purpose implement of the police power of the Non-Delegability State through the imposition of taxes Inherently legislative in nature with the end in view of regulating a Vested upon the Congress and cannot be particular activity. delegated The President cannot impose taxes 07/08/2018 The President cannot grant tax amnesty as it partakes the nature of a tax exemption TAXATION LAW I Only the Congress can grant a tax exemption Exceptions from delegation of power to - Due process clause is important in taxation because money is considered as a tax: property o Power granted under the - Equal protection clause Constitution granted to the - Art. III, Sec. 20 Local Government Units to No person shall be imprisoned for debt or non-payment of a poll tax. create its own sources of - Art. VI, Sec. 27 & 28 revenues but subject to Sec. 27 – standards and limitations (1) Every bill passed by the Congress shall, before it becomes a that the Congress may law, be presented to the President. If he approves the same he prescribe. The Congress shall sign it; otherwise, he shall veto it and return the same with cannot prohibit the LGUs as his objections to the House where it originated, which shall enter the grant is conferred by the the objections at large in its Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all the Members of Constitution. such House shall agree to pass the bill, it shall be sent, together o LGUs do not have the with the objections, to the other House by which it shall likewise inherent power to tax but be reconsidered, and if approved by two-thirds of all the delegated directly under the Members of that House, it shall become a law. In all such cases, Constitution. the votes of each House shall be determined by yeas or nays, o Flexible tariff clause – Art. and the names of the Members voting for or against shall be entered in its Journal. The President shall communicate his veto 6, Sec. 28, Par. 2, 1987 of any bill to the House where it originated within thirty days after Constitution the date of receipt thereof, otherwise, it shall become a law as if The grant of power to administrative bodies he had signed it. to make Exemption of the Government from Taxes (2) The President shall have the power to veto any particular item or Generally, the government is exempted from items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object. paying taxes. Since the State is a sovereign, it cannot tax Sec. 28 – itself. (1) The rule of taxation shall be uniform and equitable. The This applies only when the government Congress shall evolve a progressive system of taxation. performs governmental functions. (2) The Congress may, by law, authorize the President to fix If the government performs proprietary within specified limits, and subject to such limitations and functions, they are not exempt from tax. restrictions as it may impose, tariff rates, import and export International Comity quotas, tonnage and wharfage dues, and other duties or Generally accepted principles of imposts within the framework of the national development international laws as part of the law of the program of the Government. land (3) Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all Territoriality lands, buildings, and improvements, actually, directly, and Jurisdiction or status of Taxation exclusively used for religious, charitable, or educational Constitutional purposes shall be exempt from taxation. - Double taxation is not prohibited unless (4) No law granting any tax exemption shall be passed without the (4) Subject to conditions prescribed by law, all grants, endowments, concurrence of a majority of all the Members of the donations, or contributions used actually, directly, and Congress. exclusively for educational purposes shall be exempt from tax.
- Progressive taxation is not prohibited in the Philippines
- Art. XIV - Art. Section 4. - A property of a person cannot be taxed without due process of law. (1) The State recognizes the complementary roles of public - Due process: and private institutions in the educational system and shall Substantive – the law exercise reasonable supervision and regulation of all Procedural educational institutions. Notice (ex. Assessment in taxation) (2) Educational institutions, other than those established by Hearing (ex. Tax payer is given the right to files his protest) religious groups and mission boards, shall be owned solely - Principles of a Sound Tax System by citizens of the Philippines or corporations or These principles are not considered as limitations associations at least sixty per centum of the capital of Non-adherence of these principles does not constitute a violation which is owned by such citizens. The Congress may, however, require increased Filipino equity participation in 1. Fiscal Adequacy all educational institutions. o Sources of revenues must be adequate to meet government expenditures (Chavez v. Ongpin, 186 SCRA 331), and other public needs. The control and administration of educational institutions shall be o Sufficient, adequate or enough to cover what is vested in citizens of the Philippines. needed (governmental expenses) o Fiscal policy No educational institution shall be established exclusively for 2. Theoretical Justice aliens and no group of aliens shall comprise more than one-third o A sound tax system must take into consideration the of the enrollment in any school. The provisions of this subsection taxpayers' ability to pay. Our laws mandate that shall not apply to schools established for foreign diplomatic taxes must be reasonable, just, fair, conscionable. personnel and their dependents and, unless otherwise provided Under Art. VI, Section 28(1) of the Constitution, the by law, for other foreign temporary residents. rule of taxation must be uniform and equitable. The State must evolve a progressive system of taxation. (3) All revenues and assets of non-stock, non-profit o Horizontal Equity educational institutions used actually, directly, and General Rule: Requires that persons, exclusively for educational purposes shall be exempt objects or subjects belonging to the same from taxes and duties. Upon the dissolution or cessation of class or are similarly situated alike must be the corporate existence of such institutions, their assets shall treated the same or alike in terms of be disposed of in the manner provided by law. benefits, exemptions, etc. Proprietary educational institutions, including those Exception: Valid classification cooperatively owned, may likewise be entitled to such When is there valid classification? exemptions, subject to the limitations provided by law, The equal protection of the laws including restrictions on dividends and provisions for clause allows for valid classification. reinvestment. This means: (1) that the classification should be that the government secures to the citizen based on substantial distinctions that general benefit resulting from the which make for real differences; protection of his person and property and (2) that it must be germane to the the welfare of all. purpose of the law; (3) that it must not be limited to Similarly, no direct benefits are received existing conditions only; and through the exercise of Police Power, yet a (4) that it must apply equally to healthy economic standard society is each member of the class. maintained. Section 23 states the situs of taxation As to Superiority of Contracts – o Vertical Equity Taxation recognizes the obligations Progressive - higher income, higher tax imposed by contracts. This limitation does Tax must be based on the capacity to pay not apply to Police Power. 3. Administrative Feasibility As to Transfer of Property Rights – o Tax laws must be capable of effective and efficient In Taxation, the taxes paid form part of the enforcement. They must not obstruct business growth and economic development. public funds, whereas Police power allows o Convenience on the part of the tax payer and of the merely the restraint on the exercise of officers property rights. o Competence on both to comply with the Taxation distinguished from Eminent Domain requirements As to Purpose – 4. Economic efficiency (not yet observed in the Philippine Taxation is exercised in order to raise public jurisdiction) revenue; Eminent domain or expropriation is - Art. VI, Sec. 28, par. 8 – Tax system must be uniform and equitable the taking of property for public purpose. - TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS AND As to Compensation – IMPOSITIONS Payment of taxes accrues to the general Taxation distinguished from Police Power benefit of the citizens of the taxing state; in As to Purpose – Eminent Domain, just compensation is given Taxation is levied for the purpose of raising the owner of the expropriated property. revenues; Police Power is exercised to As to Persons Affected – promote public welfare through regulation. Taxation applies to all persons, property and As to Amount of Exaction – excises that may be subject thereto; in The amount gathered in the exercise of Eminent Domain, only particular property is Taxation contemplates of no limits; in Police comprehended. Power, the exaction is limited to the cost of - Double Taxation – when the same taxable item is taxed more than once by either regulation, issuance of the license, or the same or by different government agencies. It can either be in a “juridical” or an surveillance. “economic” form. As to the Benefits Received by the Taxpayer – - In Philippine jurisprudence, double taxation has been described as “direct duplicate In Taxation, no special or direct benefit is taxation.” received by the taxpayer other than the fact - Tax is superior compared to other inherent powers however, with respect to non- impairment clause, it is inferior. - Non-impairment clause applies when the government is a party to the contract. 4. True – Aspects or Phases of Taxation - Government may revoke franchises granted as franchises are generally granted by Imposition: Levying/Making of the Law – Legislative the Congress. Enforcement: Assessment & Collection – Administrative - Classification of Taxes: 5. True 1. Personal, capitation or poll tax 6. True – Generally, government is exempt from taxation 2. Property tax 7. True – Tax credits or? burdens (tax assumption clause) can be transferred but not 3. Excise tax tax exemptions - Constitutional Limitations as to Taxation 8. True Art. 3, Sec. 1 and Sec. 4, 10 9. False – Tax imposition is legislative in character, it is the making of the law. Tax Art. 6, Sec. 28 par. 3 administration is executive. Fiscal policy includes tax imposition. *religious organizations are exempted only from real estate 10. False – Unlimited but in police power it is limited tax 11. True Art. 6, Sec. 27 par. 2 12. True – Unless there is a violation of the law or the Constitution as power to tax is Art. 6, Sec. 28 supreme Art. 14, Sec, 4, par. 3 13. False – De La Salle University case, two provisions granted to schools: Sec. 23 NIRC Sec. 27 (b) NIRC Art. 6, Sec. 28, Par. 3 – real property tax – real property is actually, exclusively and Sec. 30 (h) NIRC directly used for educational purposes (applies to churches and charitable - No condition imposed as to the source of income of the non-stock and non-profit institutions) educational institution Art. 14, Sec. 4, Par. 3 – revenue, assets and income – imposed specific conditions - Tax exemption to schools that revenues and assets must be actually, exclusively and directly used - Tax amnesty for education purposes (applies to schools only) - Taxes are generally payable in money for convenience and administrative feasibility - Art 14 cannot be used in real property tax - Direct Taxation – if both burden and incidence stays with the same person - Utilization is imposed o Burden/Impact o Incidence 14. True - Tax is an enforced contribution and it does not depend on voluntariness - Indirect Taxation such as donation 15. True – Distinguish amnesty (liability or violation is created but taxpayer is forgiven or violation is overlooked) from exemption (taxpayer is exempted from payment due to governmental policy) 16. False 17. True 18. True – Purpose is primarily public not exclusively for public purpose 08/05/2018 19. True 20. False – They are protected. Contractual obligations of the government is unitary, PRELIMS government revoking stipulations violates the non-impairment clause. Tax exemptions cannot be revoked by the government without violating the non- 1. False – It cannot be delegated EXCEPT: impairment clause. For non-impairment clause to apply, the government must be a Delegation to the LGUs party to the contract. Flexible Tariff Clause 21. False – Power to Promulgate IRRs by Administrative Bodies 22. False 2. True – Tax exemptions must be expressed due to the Lifeblood Doctrine 3. True – Power to tax is Comprehensive, Unlimited, Plenary and Supreme 23. True – Compensation is not allowed in the Philippines due to the lifeblood doctrine. 57. ER is similar to compensation but not the same. All types of offsetting are not allowed 58. in the Philippines as claims of the government are different from the claims of the 59. taxpayer. 60. 24. True – Injunction is allowed only in appealed cases in exercise of CTA’s appellate 61. jurisdiction. Generally it is not applied due to the lifeblood doctrine. The Supreme 62. Court can issue injunction in the exercise of their incidental power. 63. 25. False – It is inherent but not due to legislative 64. 26. True 65. T 27. True – Provided that primary purpose is to raise revenue if regulatory it is police 66. F power 67. 28. False – Territoriality as an inherent limitation 68. 29. True 69. 30. True 70. 31. True - 71. 32. True 72. 33. True – Direct duplicate taxation is prohibited 73. 34. False 74. 35. False – Exception: Garlitos case, when both obligations are due and demandable 75. and fully liquidated 76. 36. False 77. 37. True 78. 38. True – Flexible Tariff clause 79. 39. True 80. 40. True 81. 41. True – Art 6 of Constitution 82. 42. True 83. 43. True 84. 44. True 85. 45. True 86. 46. False – uniform or singular rate 87. 47. True 88. 48. False 89. 49. False 90. 50. 91. 51. 92. 52. 93. 53. True – Taxation is subject to non-impairment clause while police power is not 94. 54. 95. 55. 96. 56. 97. 98. - The person who issues the LOA is the one who is authorized to issue the 99. assessment. 100. - Whoever issues the assessment when the taxpayer contests the assessment, it must be filed with the person who issued the assessment. 08/12/2018 - Sec. 228 – Protesting of the Assessment - National Internal Revenue Code of 1997 - Sec. 232 – Keeping of Books of Accounts - TRAIN Law – Tax Reform for Acceleration and Inclusion Law - Sec. 235 – Preservation of Books of Accounts and Other Accounting Records - Internal Revenue – revenues coming from taxes collected including transactions and - Sec. 4 – Power of the Commissioner to Interpret Tax Laws and to Decide Tax exchanges performed in the Philippine Cases - If not one of those enumerated in Sec. 21, it is not a national revenue tax. Deemed To decide on: national revenue tax: (for each tax there is a corresponding return) Disputed Assessments and Tax Credit Income tax Claims of Tax Refund and Estate and donor’s tax Other Matters Value-added tax - The Secretary of Finance has the power to promulgate implementing rules and Other percentage taxes regulations and it cannot be delegated. (see Sec. 7) Excise tax - Sec. 244 Documentary stamp taxes - The Commissioner can only interpret the IRRs to the exclusion of regular courts. It Such other taxes as are of hereafter may be imposed and collected cannot promulgate or implement IRRs. by the Bureau of Internal Revenue - In case on inaction of the Commissioner, the remedy of the taxpayer is to go to the - Sec. 2 – Powers and Duties of the Bureau of Internal Revenue Court of Tax Appeals, and to the Supreme Court. Primary function is assessment and collection - The Commissioner shall interpret by issuing rulings or the Revenue Memorandum All others are incidental such as enforcement and execution Circulars. - Tax Return – under the mutual support and collection doctrine, whenever we earn - The ruling is not required to be published unlike the IRRs, must be published before it something we return to the government its due share takes effect as the IRRs has the effect of a law in compliance with Art. 2 of the Civil - Self-Assessment Scheme – the taxpayer does not have to wait for the Code. government’s assessment before the payment of tax. The taxpayers are required to - Sec. 246 – Non-Retroactivity of Rulings pay taxes though voluntary payment through self-assessment. There is only a post- Rulings of the Commissioner cannot be given retroactive application audit, subject to examination or review by the government. Rationale: So the government can immediately collect. - Relate Sec. 246 with Sec. 4 - Post-Audit – Tax audit or examination done after the taxpayer pays taxes. - Disputed Assessment – it occurs when the assessment is duly protested under - Sec. 3 – Chief Officials of the Bureau of Internal Revenue Sec.228 in relation to Sec. 4 Structure of the Bureau of Internal Revenue - Sec. 32 (B), Item 7 (b) - The BIR is not a commission or a collegiate body - Sec. 27 (C) - Examination is the tool to determine the tax deficiency of the taxpayer - Assessments should be issued within three (3) years - Letter Of Authority – issued by the BIR to conduct a tax audit without such you - It must contain the legal and factual basis otherwise; it is a mere scrap of paper. cannot allow the BIR to look into your records to prevent the taxpayer from undue - Once the assessment is contested, it is now a disputed assessment. The harassment. It is issued by the Regional Director and the other higher officials and Commissioner is given the chance to review and decide on the protest. He has the not the RDO. chance to rectify the errors of the BIR. - In case of assessment’s: Decision – Final Decision on Disputed Assessment (FDDA) and if it is denied, the taxpayer brings it to the Court of Tax Appeals. If no FDDA, it must be dismissed since it is considered as premature. Inaction – After lapse of 180 days, within 30 days it must be brought to the Court of Tax Appeals - Decision – CTA Function - Interpretation – Secretary of Finance Function - Claims for Refund or Tax Credit Sec. 112 – Value Added Tax (VAT) Sec. 204 – Refund, Compromise, Abatement Sec. 229 – Illegally or Erroneously Paid or Collected Tax In line with the principle of solutio indebiti - Refunds must be claimed within two (2) years - Revenue Regulations 12-9 and 8-28 in relation to Sec. 228 - Commissioner can decide on other matters in relation to internal revenue - Sec. 5 – Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement - Sec. 266 – Failure to Obey Summons - Commissioner has the power to obtain or access information except bank deposits due to Bank Secrecy Law except those provided under Sec. 6 (F) - For compromise, application or availment of such, approval for the application and the amount exceeds P 500,000power to approve cannot be delegated by the Commissioner. (Sec. 6, (F), Sec. 7, and Sec. 204) - Sec. 204 - Sec. 6 (A, B, C, D, E) - Sec. 6 C and D - Sec. 7 Powers that cannot be delegated - Nature of Excise Tax - Sec. 12 - Sec. 15 – issue on excise tax -