Taxation

A.   General Principles

1.    Taxation

a.    Definition

-      It is an inherent power by which the sovereign through its law making body raises income to defray the necessary expenses of government by apportioning the cost among those who, in some measure are privileged to enjoy its benefits and, therefore, must bear its burden.

b.    Basis

c.    Theories

d.    Purpose

1.    Revenue - To raise funds or property to enable the State to promote the general welfare and protection of the people.

2.    Non-Revenue

a.    Promotion of general welfare

b.    Regulation of activities/industries

c.    Reduction of social inequality

d.    Encourage economic growth

e.    Protection

e.    Objects

f.     Nature

-      Two-fold:

1.    Inherent

Its exercise is guaranteed by the mere existence of the state. It could be exercised even in the absence of constitutional grant.

The power to tax proceeds upon the theory that the existence of a government is a necessity and this power is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent state or government.

g.    Stages/Aspects

2.    Principles of Sound Tax System (Canons of Taxation)

a.    Fiscal Adequacy

-      Revenue raised must be sufficient to meet government/public expenditures and other public needs.

b.    Administrative feasibility

-      Tax laws must be clear and concise

-      Capable of effective and efficient enforcement

-      Convenient as to time and manner of payment; must not obstruct business growth and economic development

3.    Taxation distinguished from Police Power and Eminent Domain

	Taxation	Police Power	Eminent Domain
Authority who exercises the power	Government or its political subdivision	Government or its political subdivision	Government or public service companies and public utilities
Purpose	To raise revenue	Promotion of general welfare through regulations	To facilitate the taking of private property for public purpose
Persons affected	Upon the community or class of individuals	Upon the community or class of individuals	On an individual as the owner of a particular property
Amount of monetary imposition	No ceiling except inherent limitations	Limited to the cost of regulation, issuance or surveillance	No imposition, the owner is paid the fair market value of his property
Benefits received	Protection of a secured organized society, benefits received from government/ No direct benefit	Maintenance of healthy economic standard of society/ No direct benefit	The person receives the fair market value of the property taken from him/ Direct benefit results
Non-Impairment of Contracts	Generally do not impair contracts unless the government is party to contract granting exemption for a consideration	Contracts may be impaired	Contracts may be impaired

-      Similarities:

1.    Inherent powers of the State.

2.    All are necessary attributes of the sovereign.

3.    They exist independently of the Constitution.

4.    They constitute the three methods by which the State interferes with private rights and property.

5.    They presuppose equivalent compensation.

6.    The legislature can exercise all the three powers.

4.    Taxes

a.    Definition

b.    Nature

c.    Characteristics

d.    Distinguished from other Impositions/ forms of exactions

e.    Classification

5.    Extent/Scope of the Power of Taxation

6.    Limitations on the power of taxation

a.    Inherent

1.    Taxation should be for public purpose.

2.    Taxation is inherently legislative.

3.    The Government is exempt from tax.

-      RA7160 expressly prohibits the LGUs from levying taxes from the National Government, its agencies and instrumentalities and other LGUs.

-      NIRC provides that the National Government may levy taxes upon government-owned and controlled corporations, agencies and isntrumentalities.

4.    Territoriality

-      Taxing authority cannot impose taxes on subjects beyond its territorial jurisdiction.

b.    Constitutional

1.    Due Process Clause

-      The enforced contribution from the people cannot be made without law authorizing the same.

-      Two aspects:

a.    Substantive due process requires the tax statute must be within the constitutional authority of Congress and that it must be fair, just and reasonable.

b.    Procedural Due Process requires notice and hearing, or at least an opportunity to be heard.

2.    Equal Protection Clause

-      Taxpayers of the same footing should be treated alike, both as to privileges conferred as well as on obligations imposed.

-      Violation in two ways:

a.    When tax payers belonging to the same classification are treated differently from one another

b.    When tax payers belonging to different classifications are treated alike.

-      Requisites for a valid classification:

a.    There must be substantial distinctions that make real differences;

b.    These must be germane and relevant to the purpose of law;

c.    The distinction or classification must not only be applicable to present but also to future conditions;

d.    The distinction must apply to persons, things, and transactions belonging to the same class.

3.    Freedom of religion

-      Two clauses:

a.    The non-establishment clause;

b.    The free-exercise clause.

4.    Non-impairment of contracts

-      It applies to the power of taxation but not to police power and eminent domain. Further, it applies only where one party is the Government and other, a private individual.

5.    Non-Imprisonment for Non-Payment of Tax

-      A poll tax is a tax imposed in persons without any qualification. Example: Community Tax Certificate.

7.    Certain Doctrines in Taxation

a.    Prospectivity of Tax Laws

b.    Imprescriptibility of Taxes

c.    Double Taxation

«  The imposition by the same taxing body of two taxes on what essentially the same thing; the imposition of two taxes on the same property during the same period and for the same taxing purpose.

-      It is allowed because there is no prohibition.

-      It is not allowed if the following elements are present;

1.    The taxes are levied by the same taxing authority;

2.    For the same subject matter;

3.    For the same taxing period; and

4.    For the same purpose.

«  International Judicial Double taxation is the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods.

d.    Escape from taxation

e.    Exemption from taxation

f.     Set off

«  Doctrine of Set-off or compensation in taxation applies when the government and the taxpayer are mutually debtors and creditors of each other.

«  Doctrine of equitable recoupment refers to a case where the taxpayer has a claim for refund but he was not able to file a written claim due to the lapse of the prescription period within which to make refund is allowed. The taxpayer is allowed to credit such refund to his existing tax liability,

g.    Compromise

h.   Tax amnesty

i.     Taxpayer’s suit

8.    Tax Laws/Statutes

a.    Definition

b.    Nature

c.    Construction and interpretation

d.    Sources