Aspects of Taxation/ Basic Principles of a Sound Tax System

ASPECTS OF TAXATION

1. Levying of the tax- The imposition of tax requires legislative intervention. In the Philippines, it is
Congress that levies the tax;

2. Collection of the tax levied. This is essentially an administrative function.

The two processes together constitute the taxation system.

BASIC PRINCIPLES OF A SOUND TAX SYSTEM. (IMPT!)

1. Fiscal Adequacy- The sources (proceeds) of tax revenue should coincide with and approximate needs
of government expenditures. The sources of revenue should be sufficient and elastic to meet the
demands of public expenditures;

2. Theoretical Justice- The tax system should be fair to the average taxpayer and based upon his ability
to pay.

3. Administrative Feasibility- The tax system should be capable of being properly and efficiently
administered by the government and enforced with the least inconvenience to the taxpayer.

BASIC PRINCIPLES OF INCOME TAXATION

What you need to know:

Taxation is the power by which the sovereign raises revenue to defray the necessary expenses of the
government from among those who in some measure are privileged to enjoy its benefits and must bear
its burden.

Tax is the enforced proportional contribution from persons and the properties levied by the State by
virtue of its sovereignty for the support of government and for public needs.

NATURE:

It is inherent in sovereignty - it is essential to the existence of every government.

It is legislative in character - the power to tax is pecuniary and exclusively vested to the Congress.

It is subject to limitations - inherent and constitutional.

It is awesome - I don't know why. Baka dahil maganda lang pakinggan Hahaha

SCOPE:

The levy of tax is essentially for public purpose.

The subjects or objects to be taxed may be persons (natural or juridical) or property (real or personal,
tangible or intangible. The following may be included as subject/object: business, transaction, rights or
privileges.

The amount and rate of tax, which shall be uniform and equitable.

The manner and mode of enforcement and collection

The situs of taxation - may be exercised only within the territorial jurisdiction of the taxing authority

CHARACTERISTICS:

It is an enforced contribution - tax is not voluntary and its imposition is in no way dependent upon the
will or assent of the person being taxed.
It is proportionate in character - the share of the taxpayer on the public burden is essentially based on
one's ability to pay.

It is levied by the law-making body of the state - the power to tax is vested unto the Congress i.e. the
House of Representatives (from which the tax bill is introduced) and the Senate. The Congress
determines who to tax, what to tax and how the tax shall be collected. Take note that they are NOT
involved in the collection thereof.

It is levied for public purpose or purposes - taxes are spent to support government i.e. they are not
supposed to be used for private purpose.

It is generally payable in money - the government, in the exercise of its civil remedy in collecting the tax
due may, by distraint of personal property or by levy of real property, take the same to satisfy the tax
liability if the taxpayer has no money

It is levied on persons and property by the State which has jurisdiction.

PRINCIPLES OF SOUND TAX SYSTEM

Fiscal Adequacy - the source of revenue should be sufficient to meet the demands of public
expenditure. (In a perfect environment, yung nakolekta yun lang dapat ang panggagastos. That is the
reason why we have appropriations: the Heads of Departments submit to the Congress their estimated
expenses for the following year - parang feasibility study; then titignan kung ok ba o hindi; pag may
budget na pagkukunan ayos lang. Paano kung kulang ang budget pero kailangan talaga? Magbebenta
and gobyerno o kaya mangungutang)

Theoretical Justice - the burden should be in proportion of the taxpayer's ability to pay. (Base ang buwis
sa kakayahan na mgbayad. Hindi porke pogi maliit na ang tax na babayaran tapos ung pangit naman
malaki!!! ano bale? wala na matitira sa sweldo ko?)

Administrative Feasibility - it should be capable of being enforced; not burdensome; convenient as to

time and manner of payment. (Sa madaling salita, hindi dapat pahirap sa pagbabayad. Halimbawa: (1)
kaya madami ang opisina o Districts para hindi mahirapan ang madlang people, (2) kaya in-accredit and
mga banko (hindi ibig sabihin nito na walang tiwala ang BIR sa mga collection agent) para mapadali ang
pangongolekta at pagbabayad, (3) yung Electronic Filing and Payment System o EFPS ginawa nila para
hindi hassle)

LIMITATIONS

Inherent Limitations - (by its nature)

Public purpose - for general welfare. (Para sa madlang people lang gagastusin ang perang nakulimbat
este nakolekta)

Non-delegability of legislative taxing power - the Congress cannot delegate the "power to tax"to others.
(Inutos na nga sa kanila ng Constitution tapos iuutos pa nila sa iba)

Exemption of Government Agencies/Instrumentalities exercising essential governmental function.

(Bawal singilin ang kakampi)

International comity - the property of a foreign state or government may not be taxed by another.
(Kasama na jan ung mga ambassador at iba pang diplomatik).

Situs or territoriality - As a rule, the taxing power cannot go beyond the territorial limit of the taxing
authority. Situs of taxation is the State or country which has jurisdiction to tax a person, property or
interest.

Constitutional Limitations - (Naaayon sa ating saligang batas)

Due process and equal protection clause

Freedom of religious profession and worship

Non-impairment of contracts

No imprisonment for non-payment of tax

Revenue, appropriation and tariff bills to originate from the House of Representatives (ung iba sabi nila
Lower House - parang hindi naman tayo parliamentary form of government)

Uniformity and equality

Exemption of property actually, directly and exclusively used for religious, charitable and educational
purpose (Section 30 of the Tax Code)
STAGES, ASPECTS OR PROCESSES OF TAXATION

Levy - it is the legislative act that determines that a tax of a certain amount or of a certain percentage
shall be imposed on the persons, properties, or acts subject thereto. (Basically, ito yung pag gawa ng
batas)

Assessment - it is the official action of an officer authorized by law in ascertaining the amount of tax due
under the law from a taxpayer. (Sa BIR eto yung mga Examiner or Revenue Officer (Assessment); mga
Special Investigators sa Special Investigation Division)

Collection - It is the getting by the concerned government agencies of the taxes imposed. (Sa BIR sila
ung Revenue Officer - Collection)

BASIS OF TAXATION

Principle of Necessity - without money, the government cannot pay its expenses and therefore cannot
exist.

Reciprocal Duties - (Benefits-Received or Compensation Theory) In return for the contribution of the
taxpayer, he receives the general advantages and protection which the government affords the taxpayer
and his property.

PURPOSES OF TAXATION

Primary Purpose (Revenue/Fiscal) - to raise revenues for the support of the government.

Secondary Purpose (Non-revenue) - to regulate

TAX AVOIDANCE VS. TAX EVASION

Double taxation means (1) taxing twice (2) by the same taxing authority (3) with the same jurisdiction
(4)for the same purpose (5) in the same year. In its strict sense, it is also referred to as obnoxious or
direct duplicate taxation or direct double taxation. In its broad sense, it is referred to as permissive,
indirect duplicate or indirect double taxation.

As a rule, double taxation is not prohibited.

Forms of escape from taxation:

Shifting - the transfer of the burden by the original payer to another. (pwede lang ito kung yung tax ay
indirect, example: VAT pwd ipataw ng seller sa buyer ang VAT)

Capitalization - the reduction in the price of the taxed object equal to the capitalized value of future
taxes which the purchaser expects to be called to pay.

Transformation - the manufacturer or producer pays the tax and endeavors to recoup himself by
improving his process of production thereby turning out his units of products at a lower cost

Tax Evasion - the use of illegal or fraudulent means to defeat or lessen the payment of a tax. This is
punishable by law. CODAL REFERENCE: Section 254 of the National Internal Revenue Code

Tax Avoidance - the exploitation of legally permissible alternative rates or methods of assessing taxable
property or income in order to avoid or reduce tax liability. (Tax minimization - legal)

SOURCES OF TAX LAWS

Constitution

Statutes - Tax Code included

Presidential decrees
Executive orders

Court decisions

Implementing rules and regulations

Administrative issuances

Local tax ordinance

Tax treaties and conventions with foreign countries

INTERPRETATION OF TAX LAWS

General Rule:

The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the
government; and that a tax cannot be imposed without clear and express words for that
purpose.Exemption - strictly construed against the taxpayer. It is incumbent upon the taxpayer to
prove that he is really exempt from tax.

Exemption:

In establishing tax exemptions, it should be borne in mind that taxation is the rule, exemption is the
exception. Accordingly, statutes granting tax exemptions must be construed in strictissimi juris against
the taxpayer and liberally in favor of the taxing authority. One who claims an exemption from tax
payments rests the burden of justifying the exemption by words too plain to be mistaken and too
categorical to be misinterpreted.

INHERENT POWERS OF THE STATE

1. Police Power

2. Eminent Domain

3. Taxation

SOURCES OF REVENUE (Section 21 of the Tax Code)

Income Tax

Estate and donor's tax (transfer taxes)

Value-added tax

Other percentage taxes

Excise taxes

Documentary stamp tax

Such other taxes