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National taxes under the supervision and control of the Bureau of Internal Revenue (BIR)
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National Internal Revenue Code (NIRC)-
Internal Revenue Taxes1.
Supervised or mandated by the local government units-
Independent from Internal Revenue taxes-
Local Government Code-
Local Government Ordinances-
Local/municipal taxes2.
Imposed on imported goods-
Administrative agency: Bureau of Customs-
Tariff and Customs Code-
Tariff/Duties3.
Prominent administrative entities: Philippine Economic Zone Authority (PEZA); Board of Investments; Bases Conversion and Development Authority (BCDA)
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Incentives like income tax holidays-
Taxes/incentives under special laws4.
Survey of Philippine taxes/Overview of Philippine tax systemA.
The act of laying a tax-
The process or means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government
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A way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and therefore must bear its burden.
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Taxation1.
License and regulatory feea.
License/Permit Fee Tax
A charge imposed under police power for purposes of regulation
- An enforced contribution assessed by sovereign authority to defray public expenses
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The legal compensation or reward of an officer for specific services
- Levied for revenue-
Involves an exercise of police power- Involves the exercise of the taxing power
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Amount should be limited to the necessary expenses of inspection and regulation
- Generally, no limit on the amount of tax is imposed
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Imposed on the right to exercise a privilege
- Imposed also on persons and properties
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Failure to pay a license fee makes the act or business illegal
- Failure to pay a tax does not necessarily make the act/business illegal
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Special Assessmentb.
Tax distinguished from other terms2.
Meaning of TaxationB.
Meaning, Nature, Basis, Characteristics and Purpose of TaxationI.Part I: General Principles of Taxation
LAW 124: Taxation
Special Assessmentb.
Special Assessment Tax
Enforced proportional contribution from owners of lands especially or peculiarly benefited by public improvements
- Enforced contribution to raise revenues
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Levied only on land- Levied on persons, property-
Not a personal liability of the person assessed (liability is limited to the land involved)
- A person "not enjoying government services" cannot not pay taxes
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Based wholly on benefits and not necessity
- Based upon a person's capacity to pay/share in the public burden
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Exceptional both as to the time and place - Has general application-
Tollc.
Toll Tax
A sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge or the like, of a public nature
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A demand of proprietorship- A demand of sovereignty-
Paid for the use of another's property- Paid for the support of the government
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Amount of toll depends upon the cost of construction or maintenance of the public improvement used
- There is generally no limit on the amount of tax that may be imposed
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May be imposed by the government or private individuals or entities
- May be imposed only by the government
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Penaltyd.
Penalty Tax
Any sanction imposed as a punishment for violation of law or acts deemed injurious
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Designed to regulate conduct- Designed to raise revenue-
May be imposed by the government or private individuals or entities
- May be imposed only by the government
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TARIFF A book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be paid for the same
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The duties payable on goods imported or exported-
The system or principle of imposing duties on the importation or exportation of goods
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Custom Duties
Taxes imposed on goods exported from or imported into a country
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Tariff/Customs Dutiese.
Debt Tax
Obligation to pay tax vs. Obligation to pay debt3.
Generally based on contract, express or implied
- Based on law-
Assignable- Cannot generally be assigned-
May be paid in kind- Generally payable in money-
May be the subject of set-off or compensation
- Generally not the subject of set-off or compensation
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A person cannot be imprisoned for non-payment of debt (except when it arises from crime)
- Imprisonment is a sanction for non-payment of tax
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Governed by the ordinary periods or prescription
- Governed by the special prescriptive periods provided for in the Tax Code
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Draws interest when stipulated or when there is default
- Does not draw interest, except only when delinquent
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A tax is not a voluntary payment or donation-
Its imposition is in no way dependent upon the will or assent, open or implied, of the person taxed.
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It is an enforced contribution1.
A tax is laid by some rule of appointment according to which persons share the public burden
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Ordinarily based on the ability to pay-
It is proportionate in character2.
Pecuniary burden -
Exaction to be discharged alone in the form of money which must be in legal tender
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It is generally payable in money3.
May also be imposed on acts, transactions, rights or privileges-
However, it is only a person who pays the tax-
Not all who pay a tax shoulder the burden of the tax-
It is levied on persons or property4.
The object to be taxed must be subject to the jurisdiction of the taxing state. (necessary in order that the tax may be enforced)
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It cannot reach over into another jurisdiction to seize upon person or property for the purposes of taxation
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It is levied by the state which has jurisdiction over the person or property5.
The power to tax is a legislative power which under the constitution only the congress can exercise through the enactment of tax statues.
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The obligation of a tax us a statutory liability.-
Local legislative bodies are now given direct authority to levy taxes, fees, and other charges pursuant to the Constitution subject to such guidelines and limitations provided for by the law.
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It is levied by the law-making body of the state6.
The charge or burden imposed is to provide income for public purposes -- the support of the government, the administration of the law, or the payment of public expenses.
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Revenues for taxes cannot be used for purely private purposes or for the exclusive benefit of private persons
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It is levied for public purpose or purposes7.
Essential Characteristics of taxC.
Existence of government1.Theory and Basis of TaxationD.
The power to tax is an attribute of sovereignty emanating from necessity.-
NECESSITY THEORY (tax is a necessary burden to preserve the state's sovereignty and a means to give citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements and facilities and protection which the government is supposed to provide)
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Existence of government1.
The basis of taxation is found in the reciprocal duties of protection and support between the state and its inhabitants
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Benefits-received principle: In return for their contribution, the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property.
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Reciprocal duties of state and inhabitants2.
It does not mean that only those who are able to pay taxes can enjoy the privileges and protection given to a citizen.
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From the contribution received, the government renders no special or commensurate benefit to any particular property or person.
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The government promises nothing to the person taxed beyond that may be anticipated from an administration of the laws for the general good.
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A person cannot object to or resist the payment of taxes solely because he is benefited less than others.
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Public purpose for requirement for lawful taxation3.
On the part of the government is to provide funds or property with which to promote the general welfare and protection of its citizens, which may include various social and economic (non-revenue) objectives.
1.
Includes every imposition of charge or burden by the sovereign power upon persons, property, property rights for the use and support of the government.
2.
Strengthen anemic enterprises or provide incentive to greater production through the grant of tax exemptions or the creation of conditions conducive to their growth
(1)
Taxes on imports may be increased to protect local industries against foreign competition or decreased to encourage foreign trade. (Example: stimulus package)
(2)
Taxes on imported goods may be used as a bargaining tool by setting tariff rates first at a relatively high level before trade negotiations are entered into with another country to enhance its bargaining power.
(3)
Taxes may be increased in periods of prosperity to curb spending power and halt inflation or lowered in periods of slump to expand business and ward off depression.
(4)
Taxes may be levied to reduce inequalities in wealth and incomes.(5)To promote science and invention or to finance education activities or to improve the efficiency of local police forces through grant of subsidy.
(6)
May be made as an implement of the police power to promote the general welfare.
(7)
May be enacted so that low income individuals pay little or no income taxes through a system of exclusions, exemptions, deductions, and tax credits.
(8)
Tax provision may provide incentives to encourage investments that will lead to increased employment.
(9)
Non-revenue Objectives of Taxation (Incidental purpose since the main purpose is to raise revenue)
3.
Purpose/Objectives of TaxationE.
As to scope1.Classification of TaxesF.
Tax imposed by the natural government-
Examples: National internal revenue taxes; custom duties; and national taxes imposed by special laws
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National a.
Taxes imposed by municipal corporations or local government units-
Examples: Real estate tax; professional tax-
Municipal/Localb.
As to scope1.
Tax which is demanded or exacted from the very person who also shoulders the burden of the tax
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Taxpayer cannot shift/assign liability-
Examples: corporate and individual income taxes; community (residence) tax; estate tax; donor's tax
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Direct taxesa.
Demanded from, or paid by, one person in the expectation and intention that he hall indemnify himself at the expense of another by passing on the burden to the latter.
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Example: business taxes; value-added tax; percentage taxes; custom duties
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Indirect taxesb.
As to who shoulders the burden of tax2.
Tax imposed on property, whether real or personal-
Example: Real estate tax-
Propertya.
Tax of a fixed amount imposed on persons residing within a specified territory, whether citizens or not, without regard to their property or the occupation or business in which they may be engaged.
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Example: Community (residence) tax-
Personal, Poll or Capitationb.
Any tax which does not fall within the classification of a poll tax or a property tax
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A charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation, profession, or business.
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"privilege tax"-
Examples: Income tax; value-added tax; estate tax; donor's tax-
Excisec.
As to object or subject matter of tax3.
Tax of a fixed proportion of the value of the property with respect to which the tax is assessed
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"according to value"-
Examples: Real estate tax; excise taxes on automobiles, non-essential goods (jewellery, perfumes, etc.); custom duties (except cinematographic films)
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Ad valorema.
Tax of a fixed amount imposed by the head or number, or by some standard of weight or measurement
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Requires no assessment-
Examples: taxes on distilled spirits, vines and fermented liquors; cigars and cigarettes
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Specificb.
As to manner of computing the tax4.
Based on a fixed percentage of the amount of the property, receipts or other basis to be taxed
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Proportionala.As to graduation or rate5.
other basis to be taxedAlso called flat/uniform tax-
Examples: Real estate taxes; value-added tax-
The rate of which increases as the tax base or bracket increases-
Examples: Income tax; estate tax; donor's tax-
Progressive/Graduatedb.
The rate of which decreases as the tax base or bracket increases-
We have no regressive taxes-
Regressivec.
Refers to the coverage and the kind or nature of the tax-
May be PERSONS (natural or juridical); PROPERTY (real or personal, tangible or intangible); BUSINESSES, TRANSACTION, RIGHTS or PRIVILEGES
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The power to tax carries with it the power to grant exemption therefrom.-
The subjects or objects to be taxeda.
The purpose or object of the tax so long as it is a public purposeb.
General Rule: any amount or rate the legislature sees fit-
Exceptions: oppressive and unjust rates-
The amount or rate of the taxc.
The manner, means, and agencies of collection of the taxd.
Levying or imposition of the tax which is a legislative act1.
Collection of the tax levied; administrative in character2.
Pay as you earn: Income Taxa.Pay as you are assessed: Real Estate Taxb.Pay as you file: When income statement is filedc.Pay as you transact: Value-added Taxd.
Payment3.
Aspects of Taxation G.
Progressive system: more direct taxes than indirect taxes-
Regressive system: more indirect taxes that direct taxes-
However, it does not mean that having an indirect tax in a progressive system is against the system. Example, in the Philippines, a progressive system of taxation is imposed, but VAT (an indirect tax) is also levied.
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Progressive/regressive system of taxationa.
Progressive rate of tax is when rate increases as the bracket increases-
Progressive system v. progressive rate of taxb.
Classification1.
The sources of revenue (receipts taken as a whole) should be sufficient to meet the demands of public expenditure.
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Revenues should be elastic or capable of expanding or contracting annually in response to variations in public expenditures.
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Incur the risk of a series of deficits or surpluses due to inelastic revenues
(a)
Adjust the amount of public expenditures to fit the flow of funds probably by curtailing certain activities so that the budget may be balanced
(b)
Alternatives:-
Fiscal adequacya.
The tax burden should be distributed in proportion to the taxpayer's ability to pay. (ability-to-pay principle)
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Equality or theoretical justiceb.
Basic principle if a sound tax system2.
Tax SystemsH.
ability to pay. (ability-to-pay principle)The contribution of each person towards the expense of the government should be so apportioned such that he would feel neither more nor less inconvenienced from his share of the payments than every other person experiences from his.
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Taxation should be uniform as well as equitable.-
Tax laws should be capable of convenient, just and effective administration or enforcement at a reasonable cost.
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Administrative feasibilityc.
Essential to the existence of every government-
Exists apart from constitutions and without being expressly conferred by people-
Constitutional provisions merely constitute limitations of the power to tax.
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Although this power is not expressly provided for in the Constitution, its existence is recognized by provisions relating to taxation.
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It can be exercised by the government even if the Constitution is entirely silent on the subject.
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Taxation Eminent Domain Police Power
The process or means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government
- Power of the state or those in power to take private property for public use upon paying to the owner a just compensation to be ascertained according to law
- Power of the state to enact laws in relation to persons and property to promote public health, public morals, public safety, general prosperity and welfare
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Exercised only by the government or its political subdivisions
- Power may be granted to public service companies or public utilities
- Exercised only by the government or its political subdivisions
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Property (money) is taken for the support of the government
- Property is taken for public use or benefit (must be compensated)
- Use of property is regulated for the purpose of promoting the general welfare (not compensable)
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Operate upon a community or class of entities or individuals
- Operates on an entity or individual as the owner of a particular property
- Operate upon a community or class of entities or individuals
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Money contributed becomes part of the public funds
- There is a transfer of the right to property whether it be ownership or a lesser right
- There is no transfer of title; at most there is restraint on the injurious use of property
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It is assumed that the person affected receives the equivalent of the tax in the form of protection and benefits he receives from the government
- The person affected receives the market value of the property taken from him
- The person affected receives no direct and immediate benefit
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Damnum absque injuria(damage without injury)
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No limit on the amount of tax that may be imposed
- No amount imposed rather the owner is paid the market value of the property taken
- The amount imposed should not be more than sufficient to cover the cost of the license and the necessary expenses of police
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It is inherent in sovereignty1.Nature of the power of taxationA.
Nature and Limitations of the Power of Taxation II.
expenses of police surveillance and inspection
Subject to certain constitutional limitations
- Inferior to the impairment prohibition (government cannot take property which is bound by a contract e.g. sale)
- Relatively free from constitutional limitations and is superior to the impairment provisions
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Cannot be exercised by the executive or juridical branch of the government-
Only the congress can impose taxes, but may also be made by a local legislative body subject to limitations provided by law
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Exclusively legislative in nature2.
Power to tax is not absolute.-
Most limitations are specifically provided in the Constitution or implied therefrom, while the rest are inherent and they are those which spring from the nature of the taxing power itself.
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Subject to inherent and constitutional limitations3.
Taxpayer's Suit: An action brought by an individual whose income is subjected to charges imposed by the state or federal government, for the benefit of that individual and others in order to prevent the unlawful diversion of public funds.
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General Rule: not only person's individually affected but also taxpayers who have sufficient interest of preventing the illegal expenditures of public funds
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However, a taxpayer has no legal standing to question executive acts that do not involve the use of public funds.
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Who may question the validity of a tax or expenditure of taxes?4.
Meaning: for the support of the government ("governmental purpose"); or for any of the recognized object of government; or to promote the welfare of the community
a.
Reason: Since the government is established for public purpose and general welfare, public money can only be spent for the same purpose
b.
Financing of educational activities and programsa)Promotion of scienceb)Erection and maintenance of roads, bridges and piersc)Aid for victims of a public calamityd)Relief for the poor and the unemployed and to provide for unemployment benefits
e)
Payment of pensions and bonuses for services rendered by public officer or employees
f)
The construction of experimental stations to seek increase of efficiency in sugar production and the improvement of living and working conditions in sugar mills or plantations
g)
Instances of public purposec.
Effect of incidental benefit to private interest: although private individual are directly benefited, the tax would still be valid provided such benefit is only incidental.
d.
General rule: not only persons individually affected but also taxpayer have sufficient interest of preventing the illegal expenditures of money raised by taxation may question in the proper court the constitutionality of statutes requiring the expenditures of public funds
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However, a taxpayer has no legal standing to question executive act that do not involve the use of public funds
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Taxpayer's right to question purpose of taxe.
Purpose must be public in nature1.
Prohibition against delegation of taxing power/exceptions2.
Inherent LimitationsB.
Each local government unit is expressly given the power to create its own sources of revenue and to levy taxes, subject to such limitations provided by law
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Delegation to local governmentsa.
"to authorize the president to fix within the specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import or export quotas, tonnage and wharfage dues and other duties or imposts"
-
In case of need for speedy action on the matters mentioned-
Congress is prohibited from abdicating its law-making power over the subjects specified.
-
Delegation to the presidentb.
The power to value property for purposes of taxation pursuant to fixed rules
1)
The power to assess and collect taxes2)The power to perform any of the innumerable details of computation, appraisement, and adjustment, and the delegation of such details
3)
Certain powers which are not legislative (may be vested in an administrative body):
-
Delegation to administrative agenciesc.
Prohibition against delegation of taxing power/exceptions2.
To levy a tax upon public property would render necessary new taxes on other public property for the payment of the tax so laid
a)
Being necessary in order that the functions of the government shall not be unduly impeded
b)
Reduce the amount of money that has to be handled by the government of its operation
c)
Reason for the exemption:a.
Entities exempted: government entities through which the government immediately and directly exercises its sovereignty, unless otherwise provided by law
b.
Government corporations: subject to tax or special lawsc.
Exemption of government entities, agencies, and instrumentality3.
Courteous and friendly agreement and interaction among nations-
Sovereign equality among states (one state cannot exercise its sovereign powers over another)
1)
Usage among states (when one enters the territory of another, it is implied that the former does not place itself under the jurisdiction of another)
2)
Foreign government may not be sued without its consent (useless to assess tax since it cannot be collected)
3)
The property of a foreign state of government may not be taxed by another based on any of the following grounds:
-
Impose the obligation on the entity that "does not really care"
Employer will subtract tax from the income and pay for it on behalf of the employee
Withholding tax -
International comity4.
Tax laws (all laws) do not operate beyond a country's territorial limits1)Property which is in the jurisdiction of another state receives none of the protection for which tax is supposed to be a compensation
2)
Reason:a.
Where privity of relationship exists: does not mean that a person outside a state is no longer subject to its taxing powers. (An OFW's income may be taxed) The
b.
Limitation of territorial jurisdiction5.
is no longer subject to its taxing powers. (An OFW's income may be taxed) The basis of the power to tax depends upon one's relation as a citizen to the state, wherever he may be.
Basis: "No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws." (Sec. 1, Art. 111)
a.
Substantive due process or under the authority of a law that is valid (not contrary to the Constitution) or of the Constitution itself
1)
Procedural due process or after compliance with fair and reasonable methods of procedure prescribed by law
2)
Meaning: Any deprivation of life, liberty, or property by the government is with due process if it is done with:
b.
A tax which is imposed for a private purpose or beyond the jurisdiction of the government to collect is void or invalid because it offends due process of law.
1)
If a tax law is juridically declared invalid, any tax levied under it cannot be enforced. If tax was already collected, the taxpayer should be refunded.
2)
A taxpayer should be given notice for his non-payment, before depriving him of his property.
3)
A taxpayer should be given opportunity to be heard before judgement is rendered affecting one's person or property, thus a tax law denying such is invalid.
4)
Application:c.
The procedure prescribed on law for paying the tax or contesting the same must be reasonable and not unjust or oppressive otherwise due process of law will be violated although the tax levy itself is valid.
d.
Due process of law1.
Basis: "No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws." (Sec. 1, Art. 111)
1)
Does not necessarily mean that persons or properties which are different should be treated as though they are the same
What is prohibited is class legislation, which discriminates against some and favors others
Meaning: "all persons subject to legislation shall be treated alike under like circumstances and conditions both in the privileges conferred and liabilities imposed"
2)
Where those with different amounts of incomes are made to pay different rates for taxes
1)
Where compensation income is subject to a lower tax rate than business and professional income (recipients of compensated income are not entitled to make deductions because there are practically no overhead expenses)
2)
Where certain corporations are made to pay lower taxes (non-profit, hospitals, educational institutions)
3)
Where unpaid real property taxes are condoned to the exclusion of taxes already collected. Each set of taxpayers is a class by itself and all those belonging to one class are treated alike.
4)
Application: What the Constitution requires is equal treatment under the law and this may involve same or different treatment depending on the circumstances. Thus, there is no violation of the protection --
3)
Equal protection of the laws2.
Constitutional LimitationsC.
all those belonging to one class are treated alike.Where stables for race horses are taxed while stable for non-race horses are not
5)
Where tax is imposed by ordinance on tenement buildings (rent/lease of buildings), which constitute a distinct class of property, in the same taxing district do not pay the same tax. Taxes are uniform and equal when tax imposed on the same class or character is the same.
6)
When tenement taxes are not imposed in other cities (different territorial jurisdictions)
7)
When an ordinance imposes a property tax on motor vehicles using the streets of Manila. Such tax is only payable by those residing in Manila and not outsiders using the streets of Manila.
1)
When a tax provision is enforced against manufacturers of filled milk but not on manufacturers of skimmed milk, where both manufacturers belong to the same class or are similarly situated.
2)
There is denial of the protection:
Basis: "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation" (Sec. 28, Art. VI) *applies only to taxation
1)
Uniformity of operation throughout tax unit: uniform application and operation, without discrimination, of the tax in every place where the subject of it is found. Example: national tax must be uniform and equal throughout the country. But it does not mean that a tax in a municipality is the same with that of an adjoining municipality.
a)
Equality in burden: Not equality in amount or the literal meaning of equality.
b)
Meaning of uniformity in taxation: "all taxable articles or properties of the same class shall be taxed at the same rate"
2)
Where a statute imposes a tax of P2.50 a square meter or fraction thereof on every billboard or sign anywhere in the country.
a)
When a tax is imposed upon hotels and the amount depends on the number of rooms devoted to the accommodation of the public.
b)
Where those with different incomes are made to pay different rate of tax (incomes are considered as belonging to different classes)
c)
Where residential houses, regardless of their assessed value, are considered belonging to the same class and subject to the same rate (2% of assessed value) but different amounts of tax depending on their value.
d)
When a municipal ordinance levies on occupation tax on the profession of "installation manager", and even if this ordinance is only applicable to one person, the tax applies to all in the same class.
e)
Where a tax (occupation tax) is imposed by certain cities while the same tax is not imposed by other cities, as long as all of the same occupation are taxed at the same rate within their respective jurisdictions. ("applies equally to all persons, firms and corporations placed in similar situation")
f)
Application: The uniformity requirement is not violated:3)
The concept of equity in taxation requires that such apportionment be just in the light of the taxpayer's ability to shoulder the tax burden (depending on one's wealth, property, income) and (if warranted) on the basis of the benefits he receives from the government. Taxation may be uniform but unequitable when amount of tax imposed is excessive or
a)Meaning of equity in taxation: 4)
Uniformity and equity in taxation3.
uniform but unequitable when amount of tax imposed is excessive or unreasonable.Reasonable classification of the entities or individuals to be taxed is also a requirement of equity in taxation.
b)
Tax laws shall place emphasis on direct rather than indirect taxation, with ability to pay as the principal criterion.
-
Progressive tax - as your income increases, the amount you are taxed increases
◊
Progressive tax ≠ progressive system of taxation-
Meaning of progressive system of taxation:5)
Equal protections refers more to the like treatment of persons in like circumstances while uniformity and equity refer to the proper relative treatment for tax purposes of persons in unlike circumstances.
-
Relationship with equal protection guarantee6)
Basis: "No person shall be imprisoned for debt or non-payment of a poll tax"1)
A person cannot be sent to prison for failure to pay community (residence) tax.
-
The only penalty according to the Local Government Code is the payment of surcharge in the form of interest at the rate of 24% per annum which shall be added to the unpaid amount.
-
A person is subject to imprisonment for violation of the community tax law other than non-payment (e.g. falsification of the community tax certificate) and for non-payment of other taxes if so expressly provided for by the pertinent law.
-
Application: 2)
Prohibition against imprisonment for non-payment of poll tax4.
Basis: "No law impairing the obligation of contracts shall be passed."1)
The obligation of a contract is impaired when its terms or conditions are changed by law or by a party without the consent of the other, weakening the rights or position of the latter.
-
Includes contracts entered into by the government-
The law includes executive orders or instructions issued by the President, administrative orders or circulars issued by the heads of departments, and ordinances by local government units
-
Meaning:2)
When a tax exemption is based on a contract is revoked by a latter taxing statute
-
However tax exemptions provided in a franchise may be revoked because under the Constitution a franchise is "subject to amendment, alteration, or repeal" by Congress.
-
Application:3)
Prohibition against impairment of obligation of contracts5.
Basis: "No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious professions and worship, without discrimination or preference, shall forever be allowed x x x."
1)
Imposition of license fees on the distribution and sale of bibles and other religious literature not for purposes of profit by a non-stock, non-profit religious corporation violates the above-mentioned constitutional provision.
-
Application:2)
Prohibition against infringement of religious freedom6.
provision.The Constitution however does not prohibit imposing a generally applicable tax on sale of religious materials by a religious organization.
-
Basis: "No public money or property shall be appropriated, applied, paid, or employed, directly or indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian institution, or system of religion, or of any priest, preacher, minister or other religious teacher or dignitary as such, except when such priest, preacher, minister, or dignitary, is assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium."
1)
Congress does not have power to appropriate funds for a private purpose e.g. construction of feeder roads on lands owned by a private person.
a)
Lease of public property to a religious sect for nominal rent also objects the constitution because such public property is used for the benefit or aid of such sect to the extent that the consideration for the lease commensurate with the use of property exceeds the nominal amount of rent charged.
b)
Public property may be leased to religious groups provided that the lease will be under the same conditions as to private persons, especially as to amount of rent. There must be no discrimination against religious sects or denominations.
c)
Application: Taxes can only be levied for a public purpose.2)
Prohibition against appropriation for religious purposes7.
Basis: "Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes shall be exempt from taxation."
1)
Test of exemption: It is the use of property and not ownership. Thus, a property leased by an owner to another who uses it for religious purposes is exempt from property tax but the owner is subject to income tax on rents received. Tax exemption is strictly construed against the taxpayer.
a)
Nature of use: to be able to be tax-exempt, the property must be actually, directly and exclusively (primarily rather than solely) used for the purposes mentioned above. So property used for another purpose is not tax-exempt even though the income from such property is devoted for religious or charitable purposes.
b)
Scope of exemption: Exemption is not only limited to property but extends to facilities which are incidental to or reasonably necessary for the accomplishment of said purposes. Example: In hospitals: school for training a nurse, housing facilities for interns, etc.
c)
Application: The exemption only covers property taxes and not other taxes.2)
Prohibition against taxation of religious, charitable entities and educational entities8.
"All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties x x x."
a)
"Subject to conditions prescribed by law, all grants, endowments, donations or contributions used actually, directly and exclusively for educational purposes shall be exempt from tax."
b)
Basis:1)
Revenue, assets, property or donations must be used actually, directly, a)
Application: The exemption covers income, property, and donor's taxes, and custom duties.
2)
Prohibition against taxation of non-stock, non-profit educational institutions9.
Revenue, assets, property or donations must be used actually, directly, and exclusively for educational purposes
a)
Exemption is limited to property tax for religious and charitable entities and non-profit cemeteries
b)
Congress is authorized to grant similar exemptions to propriety (for profit) educational institutions subject to certain limitations (restrictions on dividends and provisions for reinvestment) to insure that the tax-exemption benefits are used for educational purposes.
c)
Lands, buildings, and improvements actually, directly and exclusively used for educational purposes (whether proprietary or non-profit) are exempt from property tax.
d)
Place of taxation-
Basic Rule: The state where the subject is to be taxed has a situs may rightfully levy and collect the tax; and the situs is necessarily in the state which has jurisdiction or which exercises dominion over the subject in question.
-
A person may be subject to taxation in several jurisdictions.-
Meaning of situs of taxationA.
Persons: poll tax may be levied upon persons who are inhabitants or residents of the state
1.
Real Property: subject to taxation in the state in which it is located, whether the owner is a resident or not (lex rei sitae)
2.
Tangible Personal Property: it is taxable in the state where it has actual situs (where it is physically located, lex rei sitae) although the owner resides in another jurisdiction.
3.
At the domicile of the owner for it does not admit actual location (mobilia sequuntur personam).
-
Examples: credits, bank deposits, bonds, etc-
Example: shares of stock in a domestic corporation owned by a foreigner must be taxed in the Philippines
Exception is when justice does not demand that it should be, as where the property has in fact situs elsewhere.
-
Intangible Personal Property4.
Income: may properly be exacted from persons who are residents or citizens in the taxing jurisdiction and even from those who are neither residents nor citizens provided the income is derived from sources within the taxing state.
5.
Business, occupation and transaction: power to levy an excise tax depends upon the place where business is done, or the occupation is engaged in, or the transaction took place
6.
Gratuitous transfer of property: subject to taxation upon the place where the transferee is (was) a citizen or resident, or where the property is located
7.
Situs of subjects of taxationB.
Effect: Due to the variance in the concept of "domicile" for tax purposes, some subject may be taxed in several taxing jurisdictions.
1.
Taxing jurisdiction may provide for exemptions or allowance of deduction or tax credit for foreign sales
1)
Taxing jurisdictions may enter into treaties with other states (former Philippine-American Cases Agreement as to income tax)
2)
Remedy: 2.
Multiplicity of SitusC.
Strict Sense1.Double TaxationD.
Situs of Taxation and Double TaxationIII.
Also referred to as direct duplicate taxation or direct double taxation-
Taxing twice(a)By the same the same taxing authority(b)Within in the same jurisdiction or taxing district(c)For the same purpose(d)In the same year (or taxing period)(e)Some of the property in the territory (f)
Meaning:-
Strict Sense1.
Also referred to as indirect duplicate taxation or individual double taxation-
Taxation other than direct duplicate and extends to all cases in which there is a burden of two or more pecuniary impositions
-
A tax on mortgage as a personal property and as a real estate in its full value
(1)
A tax on a corporation for its property and its shareholders for their shares
(2)
A tax upon a corporation for its capital stock as a whole and upon the shareholders for their shares
(3)
A tax on the depositors in a bank for its deposits and a tax on the bank for the property where the deposits are invested
(4)
An excise tax on the usage of a property and a property tax on the same property
(5)
A tax on the same property imposed by two different states(6)
Instances:-
Broad Sense2.
When the tax is imposed by the national government and another by the city for the exercise of the same occupation or business
(a)
Where the real estate dealer's tax is imposed for engaging in the business of leasing real estate in addition to the real estate tax on the property leased
(b)
Where a tax in a manufacturer's products and another on the privilege of storing in warehouses within a municipality are imposed
(c)
Where, aside from tax, a license fee is imposed in the exercise of police power
(d)
General Rule: Our Constitution does not prohibit double taxation, hence it may not be invoked as defense against the validity of a law as:
-
Doubts as to whether double taxation has been imposed should be resolved in favor of the taxpayer to avoid injustice or unfairness
(a)
Where double taxation (narrow sense) occurs, the taxpayer may seek relief under the uniformity rule or the equal protection guarantee
(b)
Exception: -
Constitutionality of Double Taxation3.
Transfer or passing on of the burden of a tax by the original payer or the one whom the tax was assessed or imposed to another or someone else
-
What is transferred is not the payment of the tax or liability for the tax but merely the burden of the tax
-
Burden of the tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer
-
Example: A sugar producer shifts tax on retailers by increasing the price. -
Forward ShiftingA.Ways of Shifting the tax burden1.
Shifting of tax burdenA.Means of Avoiding or Minimizing the Burden of TaxationIV.
Example: A sugar producer shifts tax on retailers by increasing the price. -
Burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factor of production
-
Example: the government levies house tax on the tenant, then the tenant deducts it from his payment to the landlord
-
Backward ShiftingB.
Tax is shifted two or more times either forward or backward-
Onward ShiftingC.
Indirect Tax (business taxes)-
Direct tax CANNOT be shifted. A tax cannot be shifted when it is purely personal (community tax). When shifting does not occur tax is absorbed by the statutory taxpayer.
-
Taxes that can be shifted2.
The point on which a tax is originally imposed-
Statutory taxpayer: person who must pay the tax to the government, the one who is formally assessed, subject of tax
-
Impact of TaxationA.
The point on which the tax burden finally rests or settles down. -
Takes place when shifting has been effected from the statutory taxpayer to another or someone who cannot pass on the burden
-
Incidence of TaxationB.
The impact is the initial phenomenon, the shifting is the intermediate process, and the incidence is the result.
-
Relations among impact, shifting and incidence of a taxC.
Meaning of impact and incidence of taxation3.
The use by the taxpayer of illegal or fraudulent means or lessen the payment of tax-
Also known as "tax dodging"-
Punishable by law, subjecting the taxpayer to civil and criminal liabilities-
The end to be achieved (the payment of the less than that known by the taxpayer to be legally due, or in paying no tax when it is due)
(1)
An accompanying state of mind ("evil", "in bad faith", "wilful", "deliberate and not accidental")
(2)
A course of action (failure of action) which is unlawful(3)
Factors:-
The failure of the taxpayer to declare for taxation purposes his true and actual income derived from his business for two consecutive years has been held as an indication of his fraudulent intent to cheat the government of its due taxes
(1)
The substantial under declaration of income in the income tax returns of the taxpayer for four consecutive years coupled with his intentional overstatement of deductions justifies the finding of fraud
(2)
Evidence to prove tax evasion: (may be inferred from the circumstances of the case)-
Evasion of tax takes place only when there are no proceeds. It is tantamount to the absence of taxation.
-
Tax EvasionB.
Also called "tax planning" or "tax minimization"-
The use by the taxpayer of legally permissible tax rates or methods of assessing taxable property or income, on order avoid or reduce tax liability
-
Example: A man may change his residence to avoid taxation or change the form of his property by putting his money into non-taxable securities.
-
Tax Avoidance C.
The grant of immunity to particular persons or corporations or to persons or -
Exemption from taxationD.
The grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same taxing district are obliged to pay
-
Freedom from financial charge which others are subjected to-
Tax Remission/Tax Condonation(1)
General pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of tax evasion or violation of a revenue or tax law
-
Absolute forgiveness or waiver by the government of its right to collect what is due and to give tax evaders a chance to start with a clean slate
-
If granted, the terms of the amnesty must be construed strictly against the taxpayer and liberally in favor of the government
-
Seeks to address the problem of low revenue collection and poor voluntary tax compliance
-
Tax Amnesty(2)
Exclusion/deduction(3)
Compared with other termsa.
When certain persons, property, or transactions, are, by express provision, exempted from all or certain taxes, either entirely or in part
-
Exemption may be made by provisions in the Constitution, statutes, treaties, ordinances, franchises, or contracts
-
Express or affirmative exemption(a)
Occurs when tax is levied on certain classes of persons, properties, or transactions without mentioning the other classes
-
Every tax statute makes exemptions since all those not mentioned are deemed exempted, whether omission is accidental or intentional.
-
Exemptions are not presumed, but when public property is involved, exemption is the rule, and taxation, the exception.
-
Implied exemption or exemption by omission(b)
As to manner of creation:(1)
When certain persons, property, or transactions are exempted, expressly or impliedly, from all taxes
-
Total exemption(a)
When certain persons, property, or transactions are exempted, expressly or impliedly, from certain taxes, either entirely or in part
-
Partial exemption(b)
As to scope or extent:(2)
Personal - those granted directly in favor of such persons(a)Impersonal - those granted directly in favor of a certain class of property(b)
As to object:(3)
Exemption from direct tax v. indirect tax(4)
Kinds of tax exemptionb.
The power to exempt from taxation is an attribute of sovereignty. And since they prescribe who or what is taxed, they also have the power to prescribe who or what is exempt.
-
The legislative power to exempt is as broad as its power to tax.-
National Government(1)
Municipal corporations have no inherent power to tax, thus, they also have no inherent power to grant exemption.
-
But the moment the power to impose a particular (local) tax is granted, they also have the power to grant exemption unless prohibited by a
-
Local Governments(2)
Nature of power to grant tax exemptionc.
they also have the power to grant exemption unless prohibited by a provision in the Constitution or law.The legislature, to the same extent, may delegate their power to exempt from taxation.
-
If an exemption is granted, it is expected/implied that such exemption will benefit the body of the people, and not lessen the burden of the individuals.
-
Public interest will be subserved by the exemption allowed(1)
Granting a tax exemption always has a reason-
Exemption cannot be considered a gift or donation of public funds, or to aid the individual.
-
Its avowed purpose is some public benefit or interest, which the law-making body considers sufficient to offset the monetary loss entailed in the grant of the exemption
(2)
Rationale of tax exemptiond.
The public, represented by the government, is supposed to receive a full equivalent thereof
-
Usually, the provisions of a contract of exemption from taxation are contained in the charter of the corporation.
-
Based on contract(1)
Example: to encourage new and necessary industries, foster charitable and other benevolent institutions,
-
Makes the public at large interested in encouraging or favoring the class or interest in whose behalf the exemption is made.
-
In this case, government need not receive any consideration in return.-
Based on some ground of public policy(2)
Occurs when there are many taxing jurisdictions (e.g. income and intangible personal property tax)
-
Created in a treaty on grounds of reciprocity or to lessen the rigors of international double or multiple taxation
(3)
The fact that one person may not have been required to pay his taxes does not exempt another from the payment of his legal taxes, or legally entitle him to a refund of any taxes which he has paid.
-
Exemption from taxation is allowable only if there is a clear provision therefor
-
A law may validly authorize the condonation of taxes on equitable considerations even though it cannot be used as a justification for exemption.
-
Equity is NOT a ground for tax exemption(4)
Grounds for tax exemptione.
An exemption granted to a corporation does not apply to its stockholders, since a corporation is a juridical personality separate and distinct from its stockholders/
-
An exemption cannot be transferred or assigned to another without the consent of the legislature, which may be given either in the original act or in a subsequent law.
-
Mere personal privilege of the grantee(1)
Unless the exemption is founded on a contract (should have a valid cause) which is protected from impairment
-
A franchise is a contract in nature but is also a privilege granted by law thus may be repealed or amended pursuant to the Constitution.
-
Generally revocable by the government(2)
Implies a waiver on the part of the government of its right to collect -
Implies a waiver(3)
Nature of tax exemptionf.
Implies a waiver on the part of the government of its right to collect otherwise would be due to it and is prejudicial thereto
-
Exists only by virtue of an express grant and must be strictly construed-
As long as the exemption has reasonable foundation or rational basis-
When no validation exists, exemption may be challenged as violative of the equal protection guarantee or the uniformity rule
-
Not necessarily discriminatory(4)
Exemptions are not favored and are construed strictissmi juris (by the most strict right or law) against the taxpayer
-
A taxpayer claiming a tax exemption must point to a specific provision of law conferring on the taxpayer exemption from a common burden.
-
He who claims exemption must be able to justify his claim or right thereto, by a grant expressed in terms "too plain to be mistaken and too categorical to be misinterpreted."
-
General Rule(1)
When the law itself expressly provides for a liberal construction, that is, in case of doubt, it shall be resolved in favor or exemption
-
When the exemption is in favor of the government itself or its agencies, or of religious, charitable, and educational institutions because the general rule is that they are exempt from tax.
-
If there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative intent, the rule on strict construction does not apply.
-
Exceptions(2)
Construction of statutes granting tax exemptiong.
Philippine Constitution1.NIRC, as amended2.Tariff and Customs Code, as amended3.Local Government Code Bk II4.Local tax ordinance/city or municipal tax codes5.Tax treaties/international agreements6.Special laws7.Decisions of SC/CTA/CA8.
Validity of revenue rules and regulationsa.Effectivity of revenue rules and regulationsb.Effectivity and validity of tax ordinancec.
Revenue rules and regulations/administrative/BIR rulings and opinions9.
Sources of tax lawsA.
Nature of internal revenue laws1.
Rule when legislative intent is cleara.Rule when there is doubtb.Provisions granting tax exemptionsc.
Construction of tax laws2.
Application of tax lawsa.Application of revenue regulations/rulingsb.
Application of tax laws/revenue regulations/rulings and the effects of repeal3.
Mandatory and directory provisions of tax laws4.
Interpretation/Application of tax lawsB.
Sources, Application, Interpretation and Administration of Tax LawsV.
