Taxation

Taxation refers to the inherent power of the state to demand

enforced contributions for public purposes. It is the power by which
the sovereign, through its law-making body, raises revenue to defray
the necessary expenses of government. It is a way of apportioning
the expenses of government among those who in some measure are
privileged to enjoy its benefits and must bear its burdens.

Taxes are enforced proportional contribution from persons and

property, levied by the state by virtue of its sovereignty for the
support of the government and for all its public needs.
 
 Scope of Taxation

Taxes are collected for the following purposes and objectives:

1) Revenue Raising from those collected taxes that are intended primarily to
finance the government and its activities; and
2) Non– Revenue/Sumptuary Purposes for:
a) Promotion of General Welfare
b) Regulation
c) Reduction of Social Inequality/Compensatory Purpose,
d) Encourage Economic Growth and
e) Protectionism.
The Limitations on the Power of Taxation include:
1) Inherent Limitations (such as Situs or Territoriality of Taxation;
Public Purpose; International Comity; Non-delegability of power; and
Exemption of government from taxation), and
2) Constitutional Limitation (such as Due Process of Law and Equal
Protection of Law).

The Basis of Taxation is founded on the Life Blood Theory. Taxation is

indispensable and inevitable price for civilized society, without taxes, the
government would be paralyzed for lack of the motives power to activate
and operate it. Hence, the collection of taxes must be made without
hindrance if the State is to maintain its orderly existence.
Theories of Taxation

1. Necessity Theory
The existence of the government is necessity. It cannot continue without a
means to pay its expenses and therefore has a right to compel all citizens and
property within its power to contribute.

2. Benefits – Protection/Reciprocity Theory

Obligation to pay taxes is involuntary and compulsory, in exchange for the
protection and benefits one receives from the government; taxes are paid for
the enjoyment of the benefit of organized society.
 
Liabilities Involved

A tax creates civil liability on the part of the delinquent

taxpayer although the non – payment thereof (due to failure
or refusal to pay) creates a criminal liability which could be
the subject of criminal prosecution under existing law. To
sum, in taxation, it is one’s failure to comply with the civil
liability to pay taxes which gives rise to the criminal
liability. Nevertheless, taxes to be paid are personal to the
taxpayer.
 
Principles of a Sound Tax System

1. Fiscal Adequacy – sources of the government revenue must

be sufficient to meet government expenditures and other
public needs.
2. Administrative Feasibility – tax laws must be capable of
being effectively enforced with the least inconvenience to the
taxpayer.
3. Theoretical Justice – a sound tax system must be based on
the
taxpayers’ ability to pay. Taxation must be uniform and
equitable.
Nature of Taxing Power

Inherent in sovereignty.
The power of taxation is inherent in sovereignty as an incident or
attribute thereof, being essential to the existence of every government. It
can be exercised by the government even if the Constitution is entirely
silent on the subject.

a. Constitutional provisions relating to the power of taxation do not

operate as grants of the power to the government. They merely constitute
limitations upon a power which would otherwise be practically without
limit.
b. While the power to tax is not expressly provided for in our
constitutions, its existence is recognized by the provisions relating to
taxation.
Legislative in character.
The power to tax is exclusively legislative and cannot be exercised
by the executive or judicial branch of the government except where
the Constitution provides otherwise.
 
Scope of Legislative Taxing Power

a. Subjects of Taxation – as to the persons, property or occupation

etc. to be taxed
b. Amount or rate of the tax
c. Purposes for which taxes shall be levied provided they are public
purpose.
d. Apportionment of the tax
e. Situs of taxation – place of taxation
f. Method of collection
 
DOCTRINES IN TAXATION

Prospectivity of Tax Laws

Generally, tax laws are prospective in application. Except when the language of
the statute clearly demands or expresses that it shall have a retroactive effect.

No – Retroactivity of Rulings
Generally, any revocation, modification or reversal of any of the rules and
regulations, rulings and circular promulgated by the Commissioner shall not
be given retroactive application if it will be prejudicial to the taxpayers. Except
where the taxpayer deliberately misstates or omits material facts from his
return or any document, where the facts subsequently gathered by the BIR are
materially different from the facts on which the ruling is based, or where the
taxpayer acted in bad faith.
Doctrine of Equitable Recoupment
This doctrine provides that a tax claim for refund, which is prevented by
prescription, may be allowed to be used as payment for unsettled tax liabilities if
both taxes arise from the same transaction in which overpayment is made and
underpayment is due. Nevertheless, this doctrine is not applicable in our
jurisdiction.

Imprescriptibility of Taxes
Generally, the right to assess and to collect are imprescriptible, except when the
laws provide for statute of limitations.
Uniformity and Equitable

Uniformity requires that all subjects or objects of taxation similarly

situated are to be treated alike or put on equal footing both in privileges
and liabilities; means all taxable articles or kinds or property of the
same class shall be taxed at the same rate. Thus, a tax is uniform
when the same force and effect in every place where the subject of it is
found.

On the other hand, equitable means fair, just, reasonable and

proportionate to one’s ability to pay.
Double Taxation

It is defined as taxing the same person twice by the same

jurisdiction over the same thing. However, there is no
double taxation where one tax is imposed by the State
and the other by City.
 
Kinds of Double Taxation:

Obnoxious or Direct Duplicate Taxation

Permissive or Indirect Duplicate
In the strict sense, double taxation means direct double taxation. This
means that the same property is taxed twice when it should be taxed
only once and that both taxes are imposed on the same subject matter
for the same purpose, by the same taxing authority within the same
jurisdiction during the same taxing period and covering the same kind
of tax.

In the broad sense, double taxation means indirect double taxation.

Double taxation is indirect where some elements of direct double
taxation are absent. It applies to all cases in which there are two or
more pecuniary impositions.

In other words, double taxation in its strict sense means that the same
property is taxed twice when it should be taxed only once.
Requisites include:
1) Same property is taxed twice;
2) Same purpose;
3) Same taxing authority;
4) Within the same jurisdiction;
5) During the same taxing period; and
6) Same kind or character of tax.

Generally, the absence of one or more of the foregoing

requisites of the obnoxious direct tax makes it indirect and
allowed.
 
Escape from Taxation

The following are some means on which a taxpayer may

minimize if not to escape the payment of taxes:
Tax Exemptions, Tax Avoidance and Tax Evasion.

Tax Exemption
No law granting any tax exemptions shall be passed without the
concurrence of a majority of all the members of the Congress. The power to
exempt from taxations as well as the power to tax is an essential attribute
of sovereignty and may be exercised by virtue of the Constitution,
expressly or by implication. The inherent power of the State to impose
taxes naturally carries with it the power to grant tax exemptions.
Kinds of Tax Exemptions

Express – when exemptions are expressly granted by the Constitution, Statutes,

Treaties, franchises or similar legislative acts; an example of which is the
exemptions from real property.
Implied – whenever particular persons, properties or excises are deemed exempt as
they fall outside the scope of the taxing provision itself; and
Contractual – when in consideration of contractual agreement with the government.

Since taxation is the rule and the exemptions are the exception, the exemption may be
withdrawn in the pleasure of the taxing authority. However, if the tax exemptions
constitute a binding contract and for valuable consideration, the government cannot
unilaterally revoke the tax exemptions.
 
Tax Avoidance
It is reducing or totally escaping payment of taxes through legally
permissible means. This Method should be used by the taxpayer in good
faith and at arm’s length. An example of which is the availing of all
deductions allowed by law or refraining from engaging in activities
subject to tax.

Tax Evasion
It is the illegal means of escaping taxation. A Scheme used outside of
those lawful means and when availed of, usually subjects the taxpayer to
(further or additional) civil or criminal liabilities. An example of which is
the failure to declare for taxa- tions purposes the true and actual income
derived from business for two (2) consecutive years.
Compensation and set-off

A claim for taxes is not such a debt, demand, contract or judgment. Taxes
cannot be the subject of compensation because the government and taxpayer are
not mutually creditors and debtors of each other. A person also cannot refuse to
pay taxes on the ground that the government owes him an amount equal or
greater than the tax being collected. There can be no off-setting of taxes against
the claims that the taxpayer may have against the government.

Taxes cannot be the subject of set-off because they are not in the nature of
contracts between parties but grow out of a duty to, and, are positive acts, of the
Government, to the making and enforcing of which, the personal consent of the
taxpayer is not required.
Tax Amnesty
A tax amnesty is a general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation of
a revenue or tax. It partakes absolute waiver by the government of its right to
collect what is due it and to give tax evaders who wish to relent a chance to start
with a clean slate.

TAX LAWS
The following are the sources of tax laws :
Constitution;
Tariff and Custom Code as amended – RA 8181;
Local Government Code;
Local Tax Ordinance/City/Municipal Tax Code;
Tax Treaties/International Agreements;
Presidential Decree/ Executive Order;
Decisions of SC/CTA/CA;
Revenue Rules and Regulations, Rulings implemented by the BIR
NIRC as amended – R.A. 10963 or TRAIN LAW
Updates of the Tax Law

 
Last December 19, 2017, the President signed into law Package 1 of the
Comprehensive Tax Reform Program also known as the Tax Reform for
Acceleration and Inclusion (TRAIN) as Republic Act (RA) No. 109631. The
law provides for the amendments to several provisions of the National
Internal Revenue Code of 1997 (NIRC of 1997) on personal income
taxation, passive income for both individuals and corporations, estate tax,
donor’s tax, value-added tax (VAT), excise tax, documentary stamp tax
(DST), and tax administration among others.
It likewise introduced new taxes such as the excise tax on cosmetic surgery and
sugar-sweetened beverages. The additional revenues that will be generated in the
implementation of the Act shall be used to fund the President’s priority
infrastructure and social programs that will ultimately benefit the poor. RA 10963
was published in the Philippines’ Official Gazette last December 27, 2017 and took
effect last January 1, 2018.

The Tax Reform for Acceleration and Inclusion (TRAIN) is the first package
of the comprehensive tax reform program (CTRP) envisioned by President Duterte’s
administration, which seeks to correct a number of deficiencies in the tax system to
make it simpler, fairer, and more efficient. It also includes mitigating measures that
are designed to redistribute some of the gains to the poor.
Through TRAIN, every Filipino contributes in funding more
infrastructure and social services to eradicate extreme poverty
and reduce inequality towards prosperity for all. TRAIN
addresses several weaknesses of the current tax system by
lowering and simplifying personal income taxes, simplifying
estate and donor’s taxes, expanding the value-added tax (VAT)
base, adjusting oil and automobile excise taxes, and
introducing excise tax on sugar-sweetened beverages.
Impact of the Tax Reform
With the tax reform, it can further strengthen the macroeconomic position to
create an environment more conducive to high growth and investment, good
job creation, and faster poverty reduction.

Rating agencies have warned against the stalling of the tax reform and a
possible downgrade. Tax reform will allow the government to invest in the
people through infrastructure, education, health, housing, and social
protection.

Fears of spikes in inflation are unfounded. Inflation will still be within the 2-
4% target of the Bangko Sentral ng Pilipinas, and monetary policy tools can be
used to target inflation.
 
Growth in the Economy
Package 1 will help the economy grow by 1.3% by 2022. The GDP will
be boosted as a result of higher household consumption due to lower
income tax and the cash transfers. The increased economic activity is
buoyed by increased household consumption and increased
investments.
 
Effect in Inflation
Increase in inflation is low and within the BSP’s target range. The
increase in excise taxes will raise inflation by .42% in 2018, but will
quickly dissipate in succeeding years.
Employment Generation
Package 1 will create about half a million jobs over the next half-decade and
could lift up to 250,000 Filipinos out of poverty over the same period.

Package 1 can generate PHP 134 billion. If at least half of that is invested in
infrastructure, 67,000 jobs can be directly generated in construction, and
almost 70,000 jobs can be created in the rest of the economy, for a total of
137,000 jobs. Packages 1-5, meanwhile, can generate PHP 309 billion. This
implies that a total of 315,000 jobs can be created in the economy. The tax
reform will also enable to Build Build Build program to be realized. The
program, which is estimated to cost PHP 8.4 trillion, can create around 17
million jobs over the implementation period. Even at only 50 percent
implementation, the program can create more than 8 million jobs over its life.