BINTAXA READINGS

JANUARY 21, 2022

Chapter 1; General Principles

Concept, Nature, And Characteristics of Taxation and Taxes

Meaning of Taxation:
- It is the power of the government to implement/enforce taxes that shall be used to
benefit the people. Furthermore, these taxes shall pay for all the expenses incurred by
the government.
- The people who are enjoying these benefits are the ones who will be charged with taxes,
higher use of the benefits = higher taxes.

Additional notes:

- considered to be the strongest power of the state and is considered to be unlimited

Investopedia definition of taxation:

- Taxation is a fee that is being paid by the citizens and corporations to the government or
other authority.
- The fee is involuntary and does not have a specific service that has been or will be
provided.
- Taxes can be implemented on physical assets, property and transactions, sale of stock,
or real estate.
- Types of taxes: income, corporate, capital gains, property, inheritance, and sales

Purpose and scope of Taxation:

- Taxes are issued so that the government has sufficient funds or property to better the
lives of its citizens and insure their protection. Furthermore, fulfill the needs of the
government.

- Taxes may also be used to attain non-revenue objectives.

- Taxes will be implemented upon persons, property, and property rights for the use and
support of the government to deliver their duties and responsibilities.

Additional notes

- Taxation is the social contract between the citizens and the economy
- How taxes are raised and used can determine the legitimacy of the government

Tax rates
 - higher tax rates, fewer formal businesses and lower private investment; reasonable tax
rates can help in the development of the private sector and the formalization of
businesses.

Tax Administration

- Efficient tax administration can help encourage businesses to become formally

registered, thereby expanding the tax base and increasing tax revenues. Tax
administration that is unfair and capricious is likely to bring the tax system into disrepute
and reduce the government’s legitimacy.

Meaning of Taxes:

- Taxes are the contributions that are taken from persons, property, and property rights,
enforced by the government, to ensure the support of the government and all public
needs.

Essential Characteristics of Tax:

Enforced Contribution:
- Tax is not a voluntary payment or donation.

- Taxes being charged without the consent of the payor is considered contrary to the
fundamentals of good government.
● only applies to political communities and not to individuals.

Proportionate to Character:
- Based on the person’s ability to pay taxes. Some pay higher taxes and some pay lower
taxes. But taxes are considered a public burden.

Generally Payable in Money:

- Unless qualified by law (e.g. backpay certificates). Taxes shall be paid in the form of
money and must be in legal tender.

Additional notes:
Paying taxes in checks, promissory notes, or in kind is not allowed

Levied on Persons or Property:

- Taxes may also be imposed on acts, transactions, rights or privileges.
- Hindi ko gets*
- But not all who pay a tax shoulder the burden of the tax.

Levied by the state which has jurisdiction over the person or property:
 - The power of the state shall only cover the people and properties within its territorial
jurisdiction and cannot go beyond just to implement taxes towards the person or
property.

- Properties left by the person are still subject to taxes.

Levied by the law-making body of the state:

- Tax implementation is a legislative power and the obligation of tax is a permitted liability.

- local governments can implement their own taxes

- Presidential Decree was established during the Martial Law era; September 21, 1972 -
January 17, 1981.

- By the virtue of Amendment No.6 to the 1973 Constitution; the president under certain
conditions was given concurrent legislative power.

- Executive orders were given by the president until the establishment of congress on July
27, 1987.

Levied for public purpose or purposes:

- Taxes were issued to support the government, the administration of the law, payment of
public expenses, and for bettering the lives of the people.

- It shall not be used in any private purposes and/or for the benefit of any private
individuals.

- Taxes are commonly to be paid at regular periods or intervals every year.

Theory and basis of taxation:

- The government cannot continue if it cannot pay for its expenses.

- Taxes are used to preserve the sovereignty of the nation, protect the country from
invaders, and fulfill the enjoyment of the people and build infrastructures all within the
territory.

- In return for the contributions of the people, the state shall protect its inhabitants and all
general advantages. This is called benefits-received-principle.

Additional notes:

- Benefits-received-principle is a theory under income tax fairness

 - Those who receive the greatest benefit from the government, either directly or indirectly,
should pay the most taxes, in principle of fairness

- Both taxpayers and non taxpayers shall both be protected by the state. Because those
who do not pay tax are still bound by their rights as citizens and their protection and
protection of their enjoyment is owed to them by the state.

- Tax is a compulsory payment to the government in return for which the payer gets no
definite, specific commodity or service.

- The only benefit of the taxpayers is derived from his enjoyment of the privileges. Of living
in an organized society and safe-guarded by the devotion of taxes to public purposes.

- A person cannot resist the payment of tax because it does not have any benefit for him
or he has benefited less than others. Tax imposition is for a public purpose.

Nature of the power of taxation:

Inherent in sovereignty:
- Integral part towards the existence of every government and exists apart from the
constitution and without expressly conferred by the people.
● meaning, it can be exercised by the government even if the constitution is entirely silent
on the subject.

- Taxes are limitations towards actions that may be abused.

Legislative in character:
- Power to tax is exclusively for the legislative and cannot be exercised by the executive
and judicial branch.

Subject to constitutional and inherent limitations:

- Power to tax has limitations and are specifically stated in the constitution or implied
therefrom.

- Individual equities or inequalities shall not be invalid if it is unjust or oppressive to a

taxpayer, where no constitutional provision has been violated.

Aspects of taxation

- There are two aspects towards the exercise of taxation;

1. Levying or imposition of the tax which is a legislative act (Taxation)

 2. Collection of the tax levied which is essentially administrative in character (Tax
Administration)

- The two aspects constitute the Taxation System

Extent of the legislative power to tax:

- All the incidents are naturally within the control of the legislature. The legislature has
discretion to determine the matters mentioned subsequently.

Subjects or objects to be taxed:

- Persons; either natural or juridical
- Property; real or personal, tangible or intangible, businesses, transactions, rights, or
privileges.

- The state can choose under what grounds to tax a person or property.

- The power to tax has the power to exempt.

Purpose or object of the tax so long as it is a public purpose:

- The legislative body can exempt a person or property from tax if it is for a public
purpose. But a due process must be followed to deem that it is truly for public purpose.

*page 8

Juridical action is limited only to a review where it involves:

- Tax may be considered invalid if it violates the constitutional requirement of uniformity

and equity in taxation.

- The court may decide that a tax has been illegally collected where the taxpayer is
entitled to tax exemptions or his liabilities have already been extinguished by reason of
prescription.

Amount or rate of the tax:

- Legislature may levy a tax of any amount or rate it sees fit.

- If taxes implemented are unjust or oppressive, the ballot box method can be used and
new representatives would be elected.
“The power to tax is the power to destroy” ; means that taxing power may be used but to an
extent to which it may be employed in order to raise funds, invalidating the purpose on why the
taxing power is being used.

For as long as the power is exercised within the bounds of constitutional limitations, a tax
cannot be held invalid, just because its imposition may involve the power to destroy.

*page 9

“Manner, Means, and Agencies of Collection of the Tax”;

- Refers to the administration of the tax or the implementation of tax laws.
- The legislator should also prescribe the mode or method by which the has been
collected.

Non-Revenue Objectives of Taxation:

- Taxation can strengthen anemic enterprises or provide incentive to greater production

through the grant of tax exemption or the creation of conditions conducive to their
growth.

- Taxes on imports may be increased to boost production and sales of local industries and
products.

*page 10

- Can be used as a bargaining tool. Implementation of tariff rates at a relatively high level
before trade negotiations are entered into with another country.

- Can be used to curb spending power and halt inflation or lowered in periods of slump to
expand business and ward off depression.

- Taxes may be levied to reduce inequalities in wealth and incomes.

- Taxes may be levied to promote science and invention or to finance educational activities
or to improve the efficiency of local police forces in maintaining peace and order.

- Taxation may be made as an implement of the police power to promote the general
welfare.

*page 11

Basic principles of a sound tax system

Fiscal Adequacy
 - The sources of revenue, that is, receipts therefrom, taken as a whole, should be
sufficient to meet the demands of public expenditures and should also be elastic or
capable of expanding or contracting annually in response to variations in public
expenditures.

Basically
The revenues being collected by the government from the people should be sufficient to fulfill all
the expenditures and deliver all the other public needs of the administration.

Elasticity may be obtained without creating annually any new taxes or any new machinery but
merely by changes in the rate applicable to existing taxes.

Equality or Theoretical justice

- The tax burden shall be proportional to the ability of the taxpayer to pay.

- Called the ability-to-pay principle.

Additional notes on ability to pay principle

This principle states that taxes should be inline with a person’s income to ability to pay their
taxes. Those who have more money/revenues should be taxed at a higher rate and those who
have less should be taxed at a lower rate.

- with this principle, the person will not feel more nor less than other taxpayers.

Administrative Feasibility:
- Tax laws should be capable of convenient, just and effective administration. And shall be
free from loopholes for tax evasion and deter the unscrupulous officials from committing
frauds.

Classification and Distinctions

Classifications of Taxes:
1. As to subject matter or object:
- Personal, poll or capitation- tax of a fixed amount imposed on persons residing within a
specified territory, whether citizens or not, without regard to their property or the
occupation or business in which they may be engaged.
- Property- tax imposed on property, whether real or personal, in proportion either to its
value, or in accordance with some other reasonable method of apportionment.
- Excise- any tax which does not fall within the classification of a poll tax or a property tax.

I. General principles
B. Classification and Distinctions
Excise tax- is synonymous with “privilege tax” and two are often used interchangeably.
 - Is not confused with excise tax imposed on certain specified articles
manufactured or produced in or imported into, the Philippines, “for domestic sale
or consumption or for any other disposition”
(2) As to who bears the burden:
a. Direct- tax which is demanded from the person who also shoulders the burden of the tax;
or tax for which the taxpayer is directly or primarily liable or which he cannot shift to
another
b. Indirect- Tax which is demanded from one person in the expectation and intention that
he shall indemnify himself at the expense of another. The person who absorbs or bears
the burden of the tax is other than the one on whom it is imposed and required by law to
pay the tax. Practically all business taxes are indirect.
(3) As to determination of amount:
a. Specific- tax of a fixed amount imposed by the head or number, or by some standard of
weight or measurement; it requires no assessment (valuation) other than a listing or
classification of the objects to be taxed.
b. Ad Valorem- Tax of a fixed proportion of the value of the property with respect to which
the tax is assessed; it requires the intervention of assessors or appraisers to estimate
the value of such property before the amount due from each taxpayer can be
determined. The phrase ad valorem means literally according to value.
(4) As to purpose:
a. General, Fiscal or revenue- tax imposed for the general purposes of the government, to
raise revenue for governmental needs.
b. Special or regulatory- tax imposed for a special purpose, to achieve some social or
economic ends irrespective of whether revenue is actually raised or not.
(5) As to scope (or authority imposing the tax)
a. National- tax imposed by the national government
b. Municipal or local- tax imposed by municipal corporation or local government units
(6) As to graduation or rate:
a. Proportional- tax based on a fixed percentage of the amount of the property, receipts, or
other basis to be taxed.
b. Progressive or graduated- tax the rate of which increases as the tax base or bracket
increases
c. Regressive- tax the rate of which decreases as the tax base or bracket increases, the
tax rate and the tax base move in opposite directions. We have no regressive taxes.

regressive/ progressive system of taxation

(1) A regressive tax must not be confused with a regressive system of taxation.
a. In a society where the majority of the people have low incomes, it exists when there are
more indirect taxes imposed than direct taxes.
b. Studies reveal that the progressive elements of the income and other direct taxes have
sufficiently offset the regressive effects of the indirect taxes as a whole
c. A progressive tax is, therefore, also different from progressive system of taxation.