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    4 views31 pages

    Income Taxation Module I

    Uploaded by

    Jessa Mae Balasta

    Copyright:

    © All Rights Reserved
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    of 31
    XAI oy ae vee REN ee RY, 4 Itis the inherent power by hich the sovereign thro ; law-making body raises revenue to defray the necessary expenses of government. 3 WHAT ARE THE CHARACTERISTICS OF TAXATION? ‘A. Inherent power of the sovereign state B. Exclusively lodged with the legislature C. Subject to inherent, constitutional and contractual _ limitations 3. WHAT ARE THE NATURES OF TAXATION? i . Comprchensic A. Plenary Untied B. Comprehensive Dic0o 4 C. Awesome power that could destroy Sugrene 4, WHAT IS TAX? tributions from the persons and | king body of the State by virtue t and for public needs. Enforced proportional cont property levied by the law-mal of its sovereignty in support of governmen| _ 5, WHAT ARE THE CHARACTERISTICS OF TAXES? A. Forced charged B. Generally payable in money 3 er Scanned with CamScanner ‘A. Raise Revenue ~ basically, the purpose of taxation 1 provide funds or property with which the State p the general welfare and protection of its citizens. _ B. Non-Revenue * Promotion of general welfare Regulation Reduction of social inequality Encourage economic growth Protectionism seege . WHAT ARE THE THEORIES AND 8 TAXATION? A. Lifeblood Theory (Importance of taxation) It is said that taxes are what we pay for civilized societys Without taxes, the government would be paralyzed for lack | of the motive power to activate and operate it. Hemee, despite the natural reluctance to surrender part of one’s hard-_ e to the taxing authorities, every person who earned incom hare in running of he is able to must contribute his s government. Scanned with CamScanner ape /il servants to : are ‘for the enjoyment and those which come within the State’s territory, a facilities and protection which a government is Book provide. / ; C. Benefits-Protection Theory. (Basis of taxation) Taxation is described as a symbiotic relationship whereby in exchange of the benefits and protection that the citizens get from the Government, taxes are paid. . WHAT ARE THE TWO ASPECTS OF TAXATION? A. Levy or imposition of the tax (tax legislation/function of congress). B. Enforcement or tax administration (tax collection/function of executive e.g. BIR). . WHAT ARE THE SCOPES OF LEGISLATIVE TAXING POWER? © ‘A. Amount or rate of tax B. Apportionment of the tax C. Kind of tax D. Method of collection E. Purpose/s of its levy, provided it is for public purpose F. Subject to be taxed, provided it is within its jurisdicti G. Situs of taxation ion Scanned with CamScanner policy of the exaction, the motives behind it, the amount raised or the persons, property or other privileges to be taxed. The court’s power i taxation is limited only to the application and interpretation of the law. f a i. Is THE POWER TO TAX THE POWER TO DESTROY? ‘A. “Power to tax'is the power to destroy” — refers to the unlimitedness and the degree or vigor with which the taxing power may be employed to raise revenue. —the financial needs of the State may outrun any human calculation, so the power to meet those needs by taxation must not be limited even though taxes become burdensome or confiscatory. B. “Power to tax is not the power to destroy while the Supreme Court sits” — the power to tax knows no limit except those expressly stated in the Constitution. Two schools of thought reconciled | Although the power to tax is unlimited, it must not be » i exercised in an arbitrary manner. If the abuse is so great so aS to destroy the natural and fundamental rights of people, it is the _ duty of the judiciary to hold such an act unconstitutional. Scanned with CamScanner __. pay; must be progressive. epee + D. Consistency with Economic Goals — 13. WHAT ARE THE CLASSIFICATIONS OF TAXES? A. As to subject matter: é a. Personal Tax — taxes are of fixed amount upon all persons of a certain class within the jurisdiction without regard to property, occupation or business in which they may be engaged e.g. Community Tax Certificate. b. Property Tax — assessed on property of a certain class e.g. Real Property Tax. Excise Tax — imposed on the exercise of a privilege e.g. Income Tax, Donor’s and Estate Tax. Custom Duties — duties charged upon the commodities on their being imported into or exported from a country e.g. Tariffs. 2. B. As to burden: a. Direct Tax — both the incidence of or liabili payment of the tax as well as the en eo ae the tax falls on the same person e.g. Inco} b. Indirect Tax — the incidence of or |j i payment of the tax falls on one thereof can be shifted or passed burden of 4 Tax. ability for th e ana Dut the burden another e, Vv 4 8. VAT. Scanned with CamScanner a. Specific Tax—imposes a specific sum by the head ~ number or by some standard of weight or suren b. Ad Valorem Tax—tax upon the value of the article or thing subject to taxation. ~ z E. As to taxing theory: a. National Tax—levied by the National Government, b. Local Tax—levied by the local government. F._ As to rate: a. Progressive Tax—rate or amount of tax increases as * the amount of income or earning to be taxed increases. b. Regressive Tax—tax rate decreases as the amount of income to be taxed increases. ¢. Proportionate Tax—based on a fixed proportion of the value of the property assessed. kr 4. WHAT ARE OTHER IMPOSITIONS THAN TAXES? oy A. Toll—amount charged for the cost and maintenance of the Property used, » Penalty—punishment for the commission of a crime. C. Compromise Penalty—amount collected in lieu of eri Prosecution in cases of tax violations. vad Scanned with CamScanner nced | judgment. ne a grant of money in ee are ~ enterprise deemed to promote the public welfare. upon Customs duties and fees—duties charge a commodities on their being transported into or from the country. J. Revenue—a broad term that includes tax other sources as well. : K. Impost—in its general sense, it signifies any tax, ee duty. In its limited sense, itmeans a duty on imported g00CS. and merchandise. L. TITHE- imposes by a church or sect. M. TRIBUTE- imposes by a monarch. and income from 15. WHAT ARE THE DISTINCTIONS AMONG THE THREE INHERENT POWER OF THE STATE? POLICE EMINENT POWER DOMAIN Inherent power | Inherent power of the sovereign | of the sovereign state interferes State to take with private private property rights to upon payment of promote general just welfare compensation for Public use, TAXATION Scanned with CamScanner Limited to the No exaction; but cost of private property is regulation, taken by the State issuance of the for public license or purposes surveillance C. Benefits Received No special or No direct benefit | A direct benefit direct benefit is is received; a results in the form received by the healthy economic | of just taxpayer; merely standard of compensation to general benefit of society is the property protection attained owner D. Non-impairment of Contracts Contracts may’ not Contracts may be be impaired impaired Contracts may be impaired Scanned with CamScanner 16, WHAT ARE THE DISTINCTIONS BETWEEN TAX AND SPECIAL ASSESSMENT AND LICENSE FEE? Tax Special Assessment Imposed 6n persons, property, rights and privileges Personal liability attaches on the person assessed in the case of non-payment Not based on any special or direct benefit Levied and paid annually Exemption granted is applicable (Art. VI, Sec.28(3) 1987 Constitution) | Levied only on land Cannot be made a personal liability of the person assessed. Based wholly on benefit Exceptional both as to time and locality Exemption does not apply.N.B. If property is exempt from Real Property Tax, it is also exempt from Special Assessment Scanned with CamScanner Non-payment does not make the business illegal but maybe a ground for criminal prosecution 17. WHAT ARE THE DISTINCTIONS BETWEEN TAX AND DEBT? Non-payment kes the business illegal Tax Debt 4 An obligation imposed by law Created by contract Due to the government in May be due to the govemment its sovereign capacity but in its corporate capacity Payabie in money Payable in money, property | OF services Does not draw interest Draws interest if.stipulated except in case of delinquency or delayed Not assignable Assignable Not subject to compensation or set-off Subject to compensation or set-off -Non-payment is punished by imprisonment except in Poll tax « No imprisonment in case of non-payment (Art.III, Sec. 20 1987 Constitution) Can be imposed by private individual Scanned with CamScanner No. Taxes cannot be the subject of compensation or off. Taxes are not contractual obligations but arise out of duty to the government, However, set-off may be allowed if itis for the advantage of Government. te 20. WHAT IS THE DIFFERENCE BETWEEN PUBLIC FINANCE AND TAXATION? -Public finance refers to the financial operations of all government levels. Such operations include budgeting, taxing, appropriating, purchasing, borrowing, disbursing funds, and regulating currency. Taxation is a mere level of public finance. -Taxation is a mere level of public finance. Scanned with CamScanner ide Concept of taxation and its necessity for every government jin Lifeblood doctrine and its engin paths a . Theories of government cost allocation Inherent power of the State ih Scope of the taxation power Limitations of the taxation power Stages of taxation Concept of situs in taxation . Fundamental principles surrounding taxation 10. Various escapes from taxation 11. Concept of tax amnesty and condonation ——————— WHAT IS TAXATION? Taxation may be defined as a State power, government cost distribution. yen a’legislative process, and a mode of 1. Asastate power \ Taxation is an inherent power of the State to enforce a proportional contribution from its subjects for public purpose. 2. Asaprocess Taxation is a process of levying taxes by the legislature of the State to enforce proportional contributions from its subjects for public purpose. 3. Asa mode of cost distribution Taxation is a mode by which the State allocates its costs or burden to its subjects who are benefited by its spending, The Theory of Taxation Every government provides a vast array of public services including defense, public order and safety, health, education, and social protection among others. Scanned with CamScanner Jagihts y is ited as: Public services Receipt of benefits is conclusively presumed Every citizen and resident of the State directly or indirectly benefits f public services rendered by the government. These benefits can be in daily free usage of public infrastructures, access to public health or _ services, the protection and security of person and property, or comfort of living in a civilized and peaceful society which is mait government. While most public services are received indirectly, their realization bye citizen and resident is undeniable. In taxation, the receipt of these people is conclusively presumed. Thus, taxpayers cannot avoid payment ‘a under the defense of absence of benefit received. The direct receipt availment of government services is not a precondition to taxation. £ THEORIES OF COST ALLOCATION Taxation is a mode of allocating government costs or burden to the distributing the costs or burden, the government regards the foll Saieeations in the exercise of its taxation power: . Benefit received theo : 2, Ability to pay theory " ir i Scanned with CamScanner ‘The ability to theory presupposes that taxation 5 ability to pay. Taxpayers should be required their relative capacity to sacrifice for the support of the go In short, those who have more should be taxed more even ghee the government. Those who have less shall contribute less even if they receive | more of the benefits from the government. Aspects of the Ability to Pay Theory 4. Vertical equity Vertical equity proposes that the extent of one’s ability to pay is directly \ proportional to the level of his tax base. v For example, A has P200,000 income whil government should tax B more than A because B has grea capacity to contribute. le B has P400,000. In taxing income, the ter income; hence, a greater 2. Horizontal equity Horizontal equity requires consideration of the particular circumstance of the <5 taxpayer. ‘ome. Ais single without a child while Bis For example, both A and B have 300,000 inc married with four children. In taxing income, B because A has a greater capacity to cont support. B has less capacity to contribute consi dependents. the government should tax A more than ribute since he has no dependents to dering the support requirements of his Vertical equity is a gross concept while horizontal equity is a net concept. The Lifeblood Doctrine Taxes are essential and indispensable to the continues government. Without taxes, the government would be paralyzet power to activate or operate it. (CIR vs. Algue) d subsistence of the .d for lack of motive Taxes are the lifeblood of the government, and their prompt and certain Babablity are an imperious need. Upon taxation depends the government's ability to serve the people for whose benefit taxes are collected. (Vera vs. Fernandez) Scanned with CamScanner imposed even in th Claims for, tax exemption are construed 3. The government reserves the right to choose 4. The courts are not allowed to interfere with th _ 5. In income taxation: " oad pb nh a. Income received in advance is taxable uj paper b. Deduction for capital expenditures and prepayments is allowed as it effectively defers the collection of income tax. ‘A lower amount of deduction is preferred when a claimable expense is subject to limit. d. Ahigher tax base is p © referred when the tax object has multiple tax bases, INHERENT POWERS OF THE STATE ‘Agovernment has its basic needs and rights which co-exist with its creation. It has rights to sustenance, protection, and properties. The government sustains itself by the power of taxation, secures itself and the well-being of its people by police power, and secures its own properties to carry out its public services by the power of eminent domain. These rights, dubbed as “powers” are natural, inseparable, and inherent to every government. No government can sustain or effectively operate without these powers. Therefore, the exercise of these powers by the government is presumed understood and acknowledged by the people from the very moment they establish their government. These powers are naturally exercisable by the government even in the absence of an express grant of power in the Constitution. The Inherent Powers of the State 1. Taxation power is the power of the State to enforce proportional contribution from its subjects to sustain itself. 7 2, Police power is the general power of the State to enact laws to protect the 3. Eminent domain is the power of the State to take private property for public Scanned with CamScanner Community or Community or class of class of individuals individuals Amount of Imposition Unlimited Limited (Taxis based on | (Imposition is government limited to cover needs.) cost of regulation.) compensation.) | Importance Most important Most superior Important Relationship Inferior to the Superior to the Superior to the E with the “Non-impairment | “Non-impairment | “Non-impairment i Clause” of the Clause” of the Clause” of the Constitution Constitution Constitution Constitution Limitation Constitutional | Publicinterest | Public purpose and inherent | and due process and just limitations compensation Similarities of the three powers of the State 1. ps x 4. They are all ways in which the State interferes with priv government even-without Constitutional grant. However, ‘They are all necessary attributes of sovereignty. ‘They are all inherent to the State. They are all legislative in nature. ate rights properties. They all exist independently of the Constitution and are exercisable by the the Constitution may impose conditions or limits for their exercise. They all presuppose an equivalent form of compensation persons affected by the exercise of the power. ‘The exercise of these powers by the local government units may be limited by the national legislature. received by the Scanned with CamScanner ‘THE LIMITATIONS OF THE TAXATION power A. Inherent limitations 1?) . Territoriality of taxation International comity Public purpose Exemption of the government Non-delegation of the taxing power nstitutional Limitations Nay PEG | AWO Due process of law peur | NW] F | Equal protection of the law Uniformity rule in taxation Progressive system of taxation Non-imprisonment for non-payment of debt or poll tax Non-impairment of obligation and contract . Free worship rule Exemption of religious or charitable entities, non-profit churches and mosque from property taxes 9. Non-appropriation of public funds or property for the benefit 0 church, sect or system of religion 10. Exemption from taxes of the revenues and assets of non-profit, ne educational institutions 11. Concurrence of a majority of all members of Congress for the law granting tax exemption 12. Non-diversification of tax collections 13. Non-delegation of the power of taxation 14. Non-impairment of the jurisdiction of the Supreme Court to cases 15. The requirement that appropriations, revenue, or tariff bills originate exclusively in the House of Representatives 16. The delegation of taxing power to local government units » ail va eNe Scanned with CamScanner _ Furthermore, extraterritorial taxation will ahoune We un the territoriality principle me taxation, resident citizens and domestic corporations income derived within and outside the Philippines, iad Z “9 2. In transfer taxation, residents or citizens such as resident ‘non- resident citizens and resident aliens are taxable on transfers of properties located within or outside the Philippines. , International comity International comity pertains to mutual courtesy or reciprocity between states. It is a basic principle of international law that all states are equally sovereign. Each state observes co-equal sovereignty by not taxing the properties, income, or effects of fellow states. Consistent with this, embassies or consular offices of foreign governments in the Philippines including international organizations and their non-Filipino staff are not subject to Philippine taxation. Under the National Internal Revenue Code (NIRC), the income of foreign government and foreign government-owned and controlled corporations are not subject to income tax. When a state enters into treaties with other states, it is bound to honor the agreements as a matter of mutual courtesy, and in case its treaty agreements with other states conflict with its local tax law, its treaty agreements are given primacy. Public purpose Tax is intended for the common good. Taxation must be exercised absolutely for public purpose. It cannot be exercised to further any private interest. Exemption of the government ‘The taxation power is broad. The government can exercise the power upon anything including itself, However, the government normally does not tax itself as this will not raise additional funds but will only impute additional costs. i tii i ale Scanned with CamScanner ive taxing power ira the aoe of separation of the branches of the g * ensure a system of ‘checks and balances. ‘The power of Jawmaking, including taxation, ture. So as not to spoil the purpose of delegation, been delegated cannot be further delegated. is delegated by the peo, it is held that ions to the rule of non-delegation 1. Under the Constitution, | are allowed to exercis to tax to enable them to exer e their fiscal autonomy. Customs Code, the President is empowered to fix amount of tariffs to be flexible to trade conditions. 3. Other cases that require expedient and effective administration % implementation of ‘assessment and collection of taxes. 2. Under the Tariff and CONSTITUTIONAL LIMITATIONS OF TAXA TION Observance of due process of law No one should be deprived of his life, liberty, or property without due processs law. Tax laws should neither be harsh nor oppressive. Aspects of Due Process 1. Substantive due process Tax must be imposed only for public purpose, valid law and only by the taxing power having jurisdiction. without a legal basis violates the requirement of due process. collected only under authority An_assessi 2. Procedural due process There should be no arbitrariness in assessment and collection of taxes, government shall observe the taxpayer's right to notice and hearing. The! established procedures which must be adhered to in making assessments enforcing collections, 8 Under the NIRC, assessments shall be made within three years from the due: of filing of the return or from the date of actual filing, whichever is later. and | 8 Scanned with CamScanner ee tial be denied the Sregnes eos a of the law. in terms of ol “This, rule applies where taxpayers are ean the and conditions. This requirement would mean Congress cannot exempt of. “balot” while subjecting sellers of “penoy” to tax aihes they are <

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