TAXATION MACMOD
Basic Principles of Taxation MAY 2014
LECTURE NOTES
BASIC PRINCIPLES OF MODERN TAXATION Courts cannot inquire into the wisdom of a taxing act.
A. Define Taxation Courts can only review the legality of the tax based on
1. As a state power: Taxation refers to the inherent the constitutional as well as inherent limitations and
power of a sovereign state acting through its other applicable laws.
legislature to impose a proportionate burden upon
persons, property rights or transaction to raise
revenue to support government expenditure and H. Sources of tax laws:
as a tool for general and economic welfare. 1.
2. As a process: Taxation refers to the act of 2.
imposing a tax by a sovereign state to raise 3.
revenue for government expenses. 4.
5.
B. What are the PURPOSES of taxation?
1. Primary purposes to raise funds for the expenses I. Construction and application of tax laws
of the government: (also called Revenue 1.
Purpose)
2. Secondary purpose: as a tool for general social
and economic welfare (also called 2.
Regulatory/sumptuary/Compensatory purpose)
C. Give the NATURE or CHARACTERISTICS of the J. What are the three inherent powers of the state?
taxing power 1.
1. It is inherent power of a sovereign state – being 2.
inherent in sovereignty, the state has the power to 3.
tax even if not expressly granted by the
constitution. J-1. Give the similarities and distinctions of Taxation,
2. It is legislative in character – taxation in generally Police Power and Power of Eminent Domain.
exercised by the lawmaking body of a state. Three inherent powers of a state:
3. It is subject to inherent and constitutional 1. Power of Taxation – refer to letter A
limitations. 2. Power of Eminent Domain – it refers to the
inherent power of a sovereign state to take private
D. What is SCOPE of the power of taxation? property for public use upon payment of a just
In the absence of inherent and constitutional compensation.
limitations, the power to tax is comprehensive & 3. Police Power – it refers to the inherent power of a
unlimited. As a rule, the state thru the congress can sovereign state to enact laws to promote public
tax any thing at any time and at any amount. health, public safety, public morals and the
1. Subject matter of the tax. common good.
2. Situs of taxation.
3. Purpose of the tax. SIMILARITIES:
4. Amount or rate of tax 1. They are indispensable to government existence.
5. Method of collection / Importance of Taxation 2. They can exist independent of the constitution.
3. They are the means by which the state interferes
E. Where does the power of taxation proceed from? with private rights and properties.
It proceeds from the necessity of the existence of the 4. They are generally exercised by the legislature.
government, and since it exists for the People, it can 5. They contemplate an equivalent compensation or
compel them to pay taxes. benefit.
F. What is the basis of taxation?
The reciprocal obligation of protection and support K. What are the forms of avoiding a tax (tax escape)?
between the state and its citizens. In Return for the 1.
protection provided by the state, the people pay taxes. 2.
Benefit-Protection Theory. 3.
4.
G. Power of judicial REVIEW/ROLE OF COURTS IN 5.
TAX CASES (CTA & SC)
The only thing that stands between a man and what he wants from life is often merely the Will to try it and the FAITH
to believe that it is possible. R. Devos
DISTINCTIONS:
f. Exemption of religious, charitable, educational
Eminent entities, non-profit cemeteries and churches
Taxation Domain Police from property taxation.
Power g. Exemption from taxation of non-stock, non-
1. As to Imposed Imposed upon Imposed profit educational institutions and donations for
subject upon private upon educational purposes.
persons, real persons, h. Concurrence by a majority of the members of
property, properties property, Congress for passage of a law granting tax
rights or rights or exemption.
transaction transaction i. The power of the President to veto a revenue
2. As to To raise To acquire For or tariff bill.
purpose revenue for private regulation j. Non-impairment of the jurisdiction of Supreme
government property for and Court in tax cases.
expenses public control 3. Contractual limitations – these are restrictions
use on the taxing power imposed by previously
3. As to Generally Limited to the Limited to existing contracts entered into by the
limitation unlimited fair the cost of government with another party who may be
value of the license fee another state or its own citizens.
expenses and other
of regulation property N. Give the steps/stages involved under taxation
control system.
4. As to act Taxpayers Private Enforcemen 1st : Imposition of taxes
involved pays taxes property is t of laws for 2nd : Collection of taxes
taken for public a. Assessment
public use welfare and b. Actual tax collection
common c. Enforcement of tax laws/criminal prosecution for
good wilful violation of tax laws
5. As to Protection & Person Protection & 3rd: Payment of taxes
benefits other receives a other
benefits from just benefits O. Define TAXES
received by the compensation from the Taxes are enforced proportional contributions levied by
the government government the state for the support of the government
people
6. As to Inferior Superior Superior
relationship P. What are the essential characteristics, requisites
to non– or elements of a tax?
impairment a.
clause of Q. CLASSIFICATION of taxes
the 1. What are the kinds of taxes as to subject matter?
a. Personal, poll or capitation tax – tax imposed on
constitution persons residing within a specific territory.
Example: Basic Community Tax
L. Enumerate and briefly define the b. Property tax – tax imposed on property, whether
principles/characteristics of a SOUND TAX real or personal.
SYSTEM Example: Real estate tax
1. c. Excise tax – tax imposed on the exercise of a right
2. or privilege. Also called “Privilege tax”
3. Example: Income tax, estate tax, donor’s tax, etc.,
4.
2. What are the kinds of taxes as to who bears the
M. What are the limitations on the power of burden?
taxation? a. Direct tax – tax imposed upon a person who is
1. Inherent limitations – those that restrict the power directly bound to pay it; tax which the taxpayer
of taxation even though not provided in the cannot shift to another.
constitution. Example: Income tax, estate tax, donor’s tax
a. Taxes must be for public purpose. b. Indirect tax – tax which forms part of the purchase
b. Exemption of government agencies and price; tax which the taxpayer can shift to another.
instrumentalities from taxation. Example: Excise tax on certain goods, other
c. Power to tax cannot be delegated to private percentage taxes, value added tax
persons or entities. 3. What are the kinds of taxes as to determination of
d. Tax laws do not apply to properties of foreign amount?
government. a. Specific tax – tax based on weight, number or
e. Tax laws should be applied within the territorial some other standards of weight or
jurisdiction of the state. measurement.
f. Double taxation should be avoided. Example: Excise tax on distilled spirits, wines,
2. Constitutional limitations – those that limit the cinematographic films
power of taxation as embodied in the constitution. b. Advalorem tax – tax imposed based on the value
a. Due process of law in taxation and equal of the taxable item.
protection of the laws. Example: Real estate tax
b. Rule on uniformity and equity in taxation. 4. What are the kinds of taxes as to purpose?
c. No imprisonment for non-payment of poll tax. a. General tax – tax imposed for general
d. Non-impairment of the obligation of contracts. purposes of the government.
e. No appropriation of public money for religious Example: Income tax, value added tax
purposes. b. Specific tax – tax imposed for a special
purpose or purposes.
Example: Protective tariff and customs duties, a. Proportional tax – the tax rate of which is fixed
Special Educational Fund (SEF) Tax, or constant.
Special Assessments Example: Corporate Income Tax, value added
5. What are the kinds of taxes as to jurisdiction/scope tax
or authority imposing tax? b. Progressive tax – the tax rate increases as the
a. National tax –tax imposed on a national and taxable amount or tax bracket increases.
for the national government. Example: Individual income tax, estate tax,
Example: National Internal Revenue taxes donor’s tax
b. Local tax – tax imposed on a local level for the c. Regressive tax – the tax rate decreases as the
support of local governments. taxable amount or tax bracket increases.
6. What are the kinds of taxes as to graduation or We have no regressive tax in the Philippines.
rate?
R. Tax distinguished from OTHER CHARGES and FEES
1. Differentiate tax from toll
TAX TOLL
a. Demand of sovereignty Demand of proprietorship
b. Generally amount is unlimited Amount is limited to the cost and
maintenance of public improvement.
c. For the support of the government For the use of another’s property
d. May be imposed by the State only May be imposed by private individuals or entities
2. Differentiate tax from special assessment
TAX SPECIAL ASSESSMENT
a. Imposed on persons, property rights Levied only on lands
or transactions
b. For the support of the government Contribution to the cost of public improvement
c. Regular exaction Exceptional as to time and place
3. Differentiate tax from license fee
TAX LICENSE FEE
a. Imposed to raise revenue For regulation and control
b. Collected under the power Collected under the police power
of government
c. Generally amount is unlimited Limited to the necessary expenses of
regulation and control
d. Imposed on persons, property, Imposed on the exercise of a right or
rights or transaction privilege
e. Non-payment does not make the Non –payment makes the business illegal business illegal
4. Differentiate tax from penalty
TAX PENALTY
a. Imposed to raise revenue Imposed to regulate conduct
b. May be imposed by the May be imposed by the private entity
State only
5. Differentiate tax from custom’s duty
TAX CUSTOM’S DUTY
a. Imposed upon persons, property, Imposed on imported or
rights or transactions exported goods
b. It comprehends more than the It is also a tax
term custom’s duty
6. Differentiate tax from debt
TAX DEBT
a. Based on law Based on Contract
b. Not assignable Assignable
c. Payable in money Payable in kind or in money
d. Not subject to set-off Subject to set-off
e. Non-payment may result to No imprisonment (except when
imprisonment debt arises from crime)
f. Bears interest only if Interest depend upon the
delinquent stipulation of the parties.
7. Differentiate tax from tithe
TAX TITHE
a. Based on law Based on religious obligation
b. Rates vary fixed at 10% of one’s earning
z
S. Tax Administration B. If only the second statement is correct.
It is a system involving assessment, collection and C. If both statements are correct.
enforcement of taxes, including the execution of judgment D. If both statements are incorrect.
in all tax cases decided in favor of the BIR by the courts.
21. a. A person may refuse to pay a tax on the ground
T. Powers and duties of the BIR that he receives no personal benefit from it.
1. Assessment and collection of all national internal b. Any citizen has a legal right to question illegal
revenue taxes, fees and chargers expenditures of public funds.
2. Enforcement of all forfeitures, penalties and fines 22. a. One of the essential characteristics of a tax is it is
connected therewith unlimited in amount..
3. Execution of judgement in all cases decided in its b. A tax is generally unlimited because it is based on
favor by CTA and ordinary courts the needs of the state.
4. Give effect to and administer the supervisory and 23. a. A License Fee is a charge imposed under the power
police power conferred to it by the NIRC or other of the taxation.
laws. b. Special assessment is regular exaction.
24. a. Imposition of taxes is the first step in stages of
U. Official of the BIR taxation.
The BIR shall have a chief to be known as Commissioner of b. Collection of taxes is a legislative act.
internal revenue and four assistant chiefs to be known as 25. a. A state has the power to tax even if not granted by
Deputy Commissioners. the Constitution.
b. A state cannot exercise police power if not granted
I. GENERAL PRINCIPLES / EXERCISES by the Constitution.
A. Identification 26. a. There can only be a tax if there is a law imposing
_________1. The overall administrative and judicial the tax.
machinery in the determination and b. Non delegation rule is absolute.
collection of taxes. 27. a. A tax is based on law while debt is based on
_________2. The laws which enumerate the national contract.
taxes and its collection or enforcement. b. A tax is also a custom’s duty.
_________3. A system where the tax increases as the 28. a. A person cannot be imprisoned for non-payment of
income of the taxpayer increases. a tax.
_________4. Any income derived by the government b. A tax may be passed violating uniformity of
whether from tax or other sources. taxation.
_________5. Limitations on the power of taxation not 29. a. The RDO is known as the alter ego of the BIR
found in the constitution. Commissioner.
_________6. Under this specific limitation, properties of b. The BIR Commissioner is directly under the
foreign government are exempted from President’s Office.
taxation. 30. a. Provisions in the Philippine Constitution on
_________7. The theory that justifies the necessity of Taxation are grants of power.
taxation. b. Due process of law in taxation in the Constitution
_________8. The theory that emphasizes the is a grant of power.
relationship between state and its 31. a. An excise tax is also called privilege tax.
inhabitants. b. A tax which is neither personal or property is an
_________9. The theory under the canons of taxation excise tax.
which emphasizes on the economic 32. a. The power or jurisdiction of court of tax appeals
aspect of taxation. over tax cases cannot be impaired.
_________10. It also means characteristics of a sound b. Equal protection clause is a direct limitation on the
taxation system. power of taxation.
_________11. It means taxes should be based on the 33. a. Taxation without representation is tyranny.
taxpayer’s ability to pay and benefits b. In the exercise of taxation, the state can tax
received. anything at anytime and at any amount.
_________12. It means taxable items of the same class 34. a. Taxation and power of Eminent Domain may be
should be taxed at the same rate. exercised simultaneously.
_________13. Refers to the taxes imposed by the b. Taxation and Police Power may be exercised
legislature other than duties on imports simultaneously.
and exports. 35. a. All of our tax laws are statutory laws.
_________14. It refers to the National Internal Revenue b. The non-impairment clause is a statutory law on
Code. taxation.
_________15. A taxation system wherein a taxpayer is 36. a. Non-payment of tax makes the business illegal.
not entitled to claim any deduction. b. The non-payment of license fee makes the business
_________16. A principle which prohibits the delegation illegal.
of a taxing power which has already been 37. a. Margin fee is a tax.
delegated. b. Custom’s duty is a tax.
_________ 17. A form of tax escape by transferring the 38. a. Territoriality is one of the constitutional limitations
burden of taxation to another. on the power of taxation.
_________ 18. A form of tax escape through illegal b. International comity is an inherent limitation in
means. taxation.
_________ 19. A form of tax escape through permissible 39. a. Taxes may be used for sectarian purposes also if
or legal means. allowed by an ordinance.
_________ 20. A taxation system wherein all income of a b. The President can refuse to implement a tax law if
taxpayer are added together less related it appears to be unconstitutional.
deductions and subject to only one or
single rate. 40. a. There can be double taxation in the Philippines.
b. Inherent limitations prevail over constitutional ones.
True or False: In each of the following, write:
A. If only the first statement is correct.
41. a. A progressive system of taxation means a tax d. It is subject to inherent and constitutional
structure where the tax base decreases as the tax rate limitations.
increases.
b. Tax exemption is a grant of immunity to a particular 47. Our tax laws are:
taxpayer from tax where others are obliged to pay. a. Political in nature c. Penal in nature.
42. a. Tax avoidance is a form of tax escape that is b. Civil in nature d. Social in nature.
illegal. 48. Also known as tax administration
b. Tax evasion is not punishable. a. Collection of taxes c. Payment of taxes
43. a. Taxation includes the power to destroy always. b. Levying of taxes. d. Incidence of taxation
b. Taxation can modify an existing contract.
44. a. A tax may be subjected to set-off or compensation. 49. Taxation is an inherent power because:
b. A tax ordinarily includes interest. a. It is the life blood of the government.
45. a. A tax bill normally embraces more than one b. Protection and benefit theory.
subject. c. It co-exists with the existence of the state.
b. Tax bills may come from either Senate or Lower d. It is exercised for the general welfare of the
House if certified by the President. people.
C. Multiple Choice: In each of the following, choose 50. All are essential characteristics of a tax, EXCEPT:
the best answer. a. It is an enforced contribution.
46. All are characteristics of the power of taxation, b. It is generally unlimited in amount.
EXCEPT: c. It is generally payable in money.
a. It is an inherent power. d. It is a proportionate burden.
b. It is a legislative in character.
c. It is civil in character.
“ Our destiny is not mapped out for us by some exterior power; we
map it out for ourselves. What we think and do in the present determine
what shall happen to us in the future.
There is nothing in your life that you cannot modify, change, or
improve when you learn to regulate your thoughts.”
- Christian D. Larson (1874-1954)
Your Forces and How to Use Them
