Taxation in the philippines

TAXATION IN THE PHILIPPINES

LAW OF BASIC

TAXATION

TAXATION

The power by which the sovereign, through its law-making body, raises revenue to defray the necessary expenses of the government.

TAXATION

It is merely a way of apportioning the cost of the government among those who in some measure are privileged to enjoy its benefits and must bear its burdens.

TAXATION

The Supreme Court of the Philippines described it as a symbiotic relationship whereby in exchange for the protection that the citizens get from the government, taxes are paid.

TAXATIONas described by the Supreme Court

TAXATION as described by the Supreme Court

It is said that taxes are what we pay for civilized society. Without taxes, the government will be paralyzed for lack of motive power to activate and operate it.


Hence, despite the natural reluctance to surrender part of one's hard-earned income to the taxing authorities, every person who is able must contribute his share in the running of the government.


The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values.


The symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power


“Taxpayers owe honesty to government just as the government owes fairness to taxpayer”


"If the state expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the

same standard against itself... No one, not even the State, should enrich itself at

the expense of another..."

Defintion

Levy A legislative power The determination of the ff:▪ Persons▪ Property or exercises to be taxed▪ The sum or sums to be raised▪ The due date thereof▪ The time and manner of levying and collecting taxes

Defintion

Collection Consists of manner of enforcement of obligation on the part of those who are taxed

Includes assessment

TAXATIONPurpose and Objectives

Purposes and Objective

Revenue Basically, the purpose of taxation is to provide funds or property with which the State promotes the General Welfare and Protection of citizens


Regulation Taxation also has a regulatory

purpose as in the case of taxes levied on exercises or privileges like those imposed on tobacco and alcoholic products, or amusement places like night clubs, cabarets, cockpits, etc.


Regulation A regulatory purpose in the rehabilitation and stabilization of a threatened industry which is affected with public interest, like oil industry..


Promotion of General welfare The Supreme Court ruled that taxation may be used as in implement of the police power in order to promote the general welfare of the people.


Promotion of General welfare While the funds collected under

the Oil Price Stabilization Fund (OSPF) may be referred to as taxes, they are exacted in the exercise of the police power of the State.


Promotion of General welfare From such fund, amounts are

drawn to reimburse oil companies when appropriate situations arise for increases in the cost of crude oil importation.


Reduction of Social Inequality This is made possible through the

progressive system of taxation where the objective is to prevent the undue concentration of wealth in the hands of a few individuals.


Reduction of Social Inequality Progressivity is key stoned on the principle that those who are able to pay should shoulder the bigger portion of the tax burden.


Reduction of Social Inequality Incidentally, The present rates of income, estate and gift taxes present a good example of progressivity.


Encourage Economic Growth In the realm of tax exemptions

and tax reliefs, for instance, the purpose is to grant incentives or exemptions in order to encourage investments and thereby promote the country's economic growth


Encourage Economic Growth It is also worthwhile to note that the power to exempt from tax is inherent in the State.


Encourage Economic Growth However, It is significant to note

that with respect to real property taxes, no such power exists, save in the case of condonation of taxes which can be granted only for certain justifiable reasons which are expressly stated in law


Protectionism In some important sectors of the economy, as in the case of foreign importations, taxes sometimes provides protection to local industries like protective tariffs customs duties.

TAXES

Taxes

The enforced proportional contributions from people and property levied by the law-making body of the State by virtue of its sovereignty for the support of government and for public needs.

TAXESAttributes and Characteristics

Attributes and Characteristics

A. Tax is a forced charge, imposition or contribution and as such it operates in invitum

It is no way to dependent on the will or contractual assent, express or implied, of the person taxed.


A. Tax is a forced charge, imposition or contribution and as such it operates in invitum

They are not contracts, either expressed or implied, but positive acts of government.


B. It is a pecuniary burden payable in money

A tax is not necessarilly confined to those payable in money, as in the case for instance, of backpay of certificates which under R.A. 304 could be used as payment of taxes.


B. It is a pecuniary burden payable in money

In one case, the Supreme Court held that back pay certificates which under R.A. 304 may be used to pay real estate taxes.


C. It is levied by the legislative body of the State

taxing power is peculiarly and exclusively legislative in character. Taxes are obligations created by the law


D.It is assessed in accordance with some reasonable rule of apportionment

Conformably with the constitutional mandate on progressivity of taxing system, taxes must be based on ability to pay


D.It is assessed in accordance with some reasonable rule of apportionment

Do regressive taxes go against the constitutional mandate in Sec. 28(1), Art. VI of the constitution?

Attributes and Characteristics "The constitution does not really prohibit

the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall 'evolve a progressive system of taxation.'... Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not possible, to avoid them by imposing such taxes according to taxpayers' ability to pay..."


E. It is imposed by the State on persons, property or services with in jurisdiction


F. It is assessed in accordance with some reasonable rule of apportionment

A tax creates a civil liability on the part of a delinquent taxpayer, although the non-payment thereof creates a criminal liability, which could be subject of criminal prosecution under existing laws.


F. It is assessed in accordance with some reasonable rule of apportionment

In short, in taxation, it is one's civil liability to pay taxes that give rise to criminal liability, not the other way around as in criminal cases where criminal liability gives rise to a civil liability.

TAXESImportance

Importance

Taxes are important because they are the lifeblood of the government and so should be calculated without necessary hindrance.

Importance

The legislature, in adopting measures to implement our tax laws, wants to be assured that taxes are paid and collected without delay

Importance

Being the lifeblood of the Government, their prompt and certain availability is an imperious need.

Importance

"The primary purpose is to generate funds for the State to finance the need of the citizenry and to advance the common weal. Due process of the law under the Constitution does not require judicial proceedings in tax cases.

Importance

This must necessarily be so because it is upon taxation that the Government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to interfered with as little as possible".

TAXESPersonal to Taxpayer

Personal to Taxpayer A corporation's tax delinquency cannot, for

instance, be enforced against its stockholders because not only would this run counter to the principle that taxes are personal, but it would also not be in accord with the rule that a corporation is vested by law with a personality that is separate and distinct from those of the persons composing it, as well as from that of any other legal entity to which it may be related.

Personal to Taxpayer

But, stockholders may be held liable for the unpaid taxes of a dissolved corporation if it appears that the corporate assets have passed into their hands, or when stockholders have unpaid subscriptions to the capital of the corporation


Similarly, estate taxes accruing upon the transmission of the decedent's state to his heirs are not liabilities which can be enforced against his heirs, for estate taxes are supposed to be obligations that must be paid by the executor/administrator out of the net estate, before delivery to any beneficiary of his distributive share.


However, if prior to the payment of the estate tax due on the transfer of decedent's estate, the properties of the deceased are distributed to any beneficiary, then such beneficiary shall be subsidiary liable for the payment of such proportion of the estate tax as his distributive share bears to the total value of the net estate.

NATURE OF TAXING POWER

Nature of Taxing Power

It is inherent in the StateIt is an attribute of

sovereignty "unlimited in range, acknowledging in

its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it"


It is an awesome power (Supreme Court) However, no matter how awesome it may be, it must not be exercised arbitrarily.


It is a power emanating from necessity A necessary burden to preserve the State's sovereignty

A means to give the citizenry an army to resist an aggression


It is a power emanating from necessity A navy to defend its shores from invasion

A corps of civil servants to serve


It is a power emanating from necessity Public improvement designed for

the enjoyment of the citizenry and those which come within the State's territory and facilities, protection which a government is supposed to provide.


It is a high prerogative of sovereignty the relinquishment of which is never presumed Any reduction or diminution thereof

with respect to its mode or rate must be strictly construed and the same must be couched in clear terms


It is a high prerogative of sovereignty the relinquishment of which is never presumed The general rule is that any claim

for exemption from tax statutes should be construed strictly against the taxpayer


It is a high prerogative of sovereignty the relinquishment of which is never presumed Incidentally, Its power is not granted in the Constitution.


It is a high prerogative of sovereignty the relinquishment of which is never presumed Remains undiminished in the

legislature in the absence of an express surrender thereof, clear and explicit in terms.


It is a high prerogative of sovereignty the relinquishment of which is never presumed The power to tax is subject to inherent and constitutional limitations.

TAXATIONTheory and Basis

Theory and Basis

There are two reasons why the exercise by the

State of its taxing power is justified.

Theory and Basis

Necessity Theory Government cannot continue

without the means to pay its expense

Government has the right to compel all citizens and property within its limits to contribute (eminent domain)

Theory and Basis

Benefits-Protection Theory The State demands and receive taxes

from subjects of taxation within its jurisdiction so that it may be enabled to carry its mandate into effect and perform the functions of government, and the citizen pays from his property the portion demanded that he may be secured in the enjoyment of the benefits of organized society)

Theory and Basis

Benefits-Protection Theory It should be noted that while taxes are

intended for general benefits, special benefits to taxpayers are not required. Moreover, according to the Supreme Court, a person cannot object to or resist the payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax.

TAXING POWERLegislative’s scope

Legislative Taxing Power

Scope:The person, property, occupation to be taxed. Exercises or privileges within the jurisdiction are also included

The amount or rate of tax

Legislative Taxing Power

Scope:The purpose for which taxes

shall be levied provided are public purposes

The kind of tax to be collectedThe situs of taxationThe method of collection

TAXATIONAspects

Aspects of Taxation

The Levy or imposition of tax on persons, property, or exercises

Collection of levied taxes

SOUND TAX SYSTEM

Basic Principles

Sound Tax System

Fiscal Adequacy The sources of government revenue must be sufficient to meet government expenditures and other public needs (this is essential to avoid budgetary deficits and to minimize local and foreign borrowings)

Sound Tax System

Theoretical Justice A good tax system must be based

on the taxpayers' ability to pay

Administrative Feasibility Taxes should be capable of being

effectively enforced

TAXING POWERInherent Limitation

Inherent Limitation

Taxation is bound in its exercise by its

own nature, essential characteristics and

purpose

Inherent Limitation Public Purpose of tax It is important in taxation because of all

the powers of government, that taxation is said to be the strongest as it can be readily employed against one class of individuals in favour of another so as to ruin one class and give unlimited wealth and property to another ,if there is no implied limitation on the uses for which such taxing power may be exercised.

Inherent Limitation

Non-delegability of the Taxing Power The power of taxation is exclusively legislative, but there are exceptions.

Inherent Limitation

Non-delegability of the Taxing PowerExceptions: The power granted to the congress

to authorize the President to fix limitations and restrictions as may impose, tariff rates, even for revenue purposes only, and other imposts duties

Inherent Limitation

Non-delegability of the Taxing PowerExceptions:

Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the congress may provide, consistent with the basic policy of local autonomy.

Inherent Limitation

Situs of Taxation Defined as the place of taxation, is a limitation on the taxing power.

Inherent Limitation

Situs of Taxation The principle is well-recognized that, however broad the power of taxation may be as to its character, such power is necessarily limited only to persons, property or business within its jurisdiction.

Situs of Taxation

Basic Considerations:Protection

One authority opines that a legal situs cannot be given to property for the purpose of taxation where neither the property nor the person is within the protection of the taxing state.

Situs of Taxation

Basic Considerations:Double Taxation and the Situs Limitation Double taxation is never invalid where it is imposed by different states.

Situs of Taxation

Basic Considerations:Double Taxation and the Situs Limitation In determining situs, it is of no importance that the property has already been taxed or is subject to tax in another state.

Situs of Taxation

Basic Considerations: The Maxim of Mobilia Sequuntur Personam The situs of personal property is the domicile of the owner.

Situs of TaxationBasic Considerations: The Maxim of Mobilia

Sequuntur Personam The doctrine of Mobilia Sequuntur

personam is not allowed to stand in the way of taxation of personalty in the place where it has its actual situs and the requisite legislative jurisdiction exists.

Situs of Taxation

Basic Considerations: Legislative Power to Fix Situs If no constitutional provisions are violated, the power of legislature to fix is undoubted.

Intangible properties considered with a situs in the Philippines. (a) franchise which must be exercised in

the Philippines; (b) shares, obligations or bonds issued

by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws;

(c) shares, obligations or bonds issued by any foreign corporation eighty-five percentum (85%) of the business of which is located in the Philippines

(d) shares, obligations, or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines;and

(e) shares or rights in any partnership, business or industry established in the Philippines.

Situs of Taxation

Factors affecting the principle: Kind or classification of tax being

levied Situs of the thing or property taxed Domicile of the person taxed Citizenship of the person taxed Source of the income Situs of excercise, privilege, business

or occupation being taxed

Situs of Taxation

To define the Factors:Property Tax

In considering the place at which property is taxable and the governmental unit which may rightfully levy and collect the property tax

Situs of Taxation

To define the Factors:Property Tax

The taxing power reaches everything in the State which can be denominated as property

Situs of Taxation

To define the Factors:Tax on Persons

A state may levy a personal tax upon persons subject to the jurisdiction of its sovereignty.

Situs of Taxation

To define the Factors:Income Tax

The crucial factors that involves income tax:▪Citizenship of the taxpayer▪Domicile of the taxpayer▪ Source of income

Inherent Limitation

Exemption of Local Government The property of the state and municipal subdivisions devoted to government uses is generally deemed to be exempt from taxation.

Inherent Limitation

International Comity "International obligations

concomitant with our acceptance of the principles of international law as part of our law demand that certain representatives of foreign states station and property of such foreign states found within our territory be exempted from taxation..."

TAXING POWERConstitutional Limitation

Constitutional Limitation

Provisions that are said to be the

limitations on the Taxing Power are

as follows:


Due Process of Law "No person shall be deprived of life, liberty, or property without due process"


Equal Protection of Law "...nor shall any person be denied the equal protection of laws"


Freedom of Speech and of the Press "No law shall be passed abridging

the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for the redress of grievance


Non-infringement of Religious Freedom "No law shall be made respecting an

establishment of religion or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship without discrimination or preference shall forever be allowed.


Non-impairment of Contracts "No law impairing the obligations of contracts shall be passed"

Constitutional Limitation:

Non-imprisonment for debt "No person shall be imprisoned for debt or non-payment of poll tax"


Origin of Appropriations, Revenue and Tariff Bills "All appropriations, revenue or tariff

bills, bills authorizing the increase of the public debt, bills of local application and private bills shall originate exclusively from the House of the Representatives but the senate may propose or concur with amendments"


Uniformity, Equitability, and Progressivity of taxation "The rule of taxation shall be uniform and equitable. The congress shall evolve a progressive system of taxation"


Delegation of Legislative Authority to Fix Tariff Rates, Import, Export Quotas, etc.

"The congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose tariff rates, import and export quotas and other imposts, within the framework of the national development program of the Government."


Tax exemption of properties "Charitable institutions, Churches, Parsonages or Convents, Mosques, non-profit cemetery and all lands, public schools shall be exempted to taxations."


Voting requirement "No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the congress."


Non-impairment of jurisdiction of the Supreme Court "The Congress shall have the power

to define, prescribe, and apportion the jurisdiction of the various courts but may not deprive the Supreme Court of its jurisdiction..."


Provisions that are NOT

limitations on the Taxing Power


Provisions that are NOT limitations on the Taxing Power: Constitutional requirement on the

subject and title of bills Power of the President to veto

any particular item/s in an appropriation


Provisions that are NOT limitations on the Taxing Power: No money shall be paid out of the

Treasury except of an appropriation made by the law

Appropriation of public money for the benefit of religious systems


Provisions that are NOT limitations on the Taxing Power: Allotment to Local Governments