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General Principles of Taxation Taxation Defined Taxation is a mode of raising revenue for public purpose. The term is ordinarily used to express the exercise of the sovereign power to raise a revenue for the expense of the government. It is the act of laying a tax, i.e. the process or means by which the taxing power is exercised. (1 Cooley on Taxation. 72-73)

Lecture on General Principles of Taxation

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Page 1: Lecture on General Principles of Taxation

General Principles of Taxation

Taxation Defined

Taxation is a mode of raising revenue for public purpose. The term is ordinarily used to express the exercise of the sovereign power to raise a revenue for the expense of the government. It is the act of laying a tax, i.e. the process or means by which the taxing power is exercised. (1 Cooley on Taxation. 72-73)

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A. Lifeblood Theory – it is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the 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 to must contribute his share in running of the government.

B. Necessity Theory – the power to tax is an attribute of sovereignty emanating from necessity. It is a necessary burden to preserve the State’s sovereignty and a means to give the

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citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry and those which come within the State’s territory, and facilities and protection which a government is supposed to provide.

C. Benefits-Protection Theory – taxation is described as a symbolic relationship whereby in exchange of the benefits and protection that the citizens get from the Gov’t, taxes are paid.

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Scope or Coverage of Taxation

Taxation covers two separate areas or aspects of government activity, namely:

1. Levying or imposition of the tax. This is generally a legislative act. In the Philippines, the taxing power is exercised by Congress.

2. Collection of the tax. This is essentially executive or administrative in nature.

The national agency charged with the function of collecting internal revenue taxesis the Bureau of Internal Revenue.

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The Power to TaxThe Constitution has vested in Congress the power to tax (Art.VI, Philippine Constitution)

Congress may make all the laws which shall be necessary and proper for carrying into execution the foregoing power.

The power to tax is the one great power upon which the whole national fabric is based. It is as necessary to the existence and prosperity of a nation as is the air he breathes to the natural man. It is not only the power to destroy, but it is also the power to keep alive (Nicol v. Ames, 173 U.S. 509)

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A. Amount or rate of tax B. Apportionment of the tax C. Kind of tax D. Method of collection E. Purpose/s of its levy, provided it is for

public purpose F. Subject to be taxed, provided it is

within its jurisdiction G. Situs of taxation

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A. Inherent power of the sovereign state

B. Exclusively lodged with the legislature

C. Subject to inherent, constitutional and contractual limitations

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Limitation on the Power to TaxThe power to tax is subject to three limitations, namely:

(1) Constitutional limitations

(2) Contractual limitations

(3) Inherent limitations

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Constitutional LimitationsThese are limitations imposed by the Constitution. They are:(a) 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 (Art.III, Sec. 1)

(b) No person shall be imprisoned for debt or nonpayment of a poll tax (Art.III, Sec. 20)

(c) The rule of taxation shall be uniform and equitable, The congress shall evolve a progressive system of taxation (Art. VI, Sec.28(1)).

(d) 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.

(e) No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the Congress. (Act VI, Sec.28(4)).

(f) No law impairing the obligation of contracts shall be passed (Art.III, Sec. 10).

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Contractual Limitations

•These are restrictions on the taxing power imposed by previously existing contracts entered into by the government with another party who may be another state or its own citizens.

•When it is unilaterally granted by law, and the same it withdrawn by virtue of another law

•When the exemption is granted under a franchise – it may be withdrawn at any time

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Inherent LimitationsThese are restrictions arising from the very nature of the power to tax itself. They are:

(a)Public purpose of taxes(b)Non-delagability of the taxing power(c)Territoriability or Situs of taxation(d)Tax exemption of the government(e)International comity

TESTS IN DETERMINING PUBLIC PURPOSE – the ends are public benefit and welfare

1.Duty Test-whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State, as a government, to provide.2.Promotion of General Welfare Test-whether the proceeds of the tax will directly or indirectly promote the welfare of the community in equal measure.

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General Rule-the power of taxation is exclusively exercised by the legislature. For the power emanates from, through and by the people. Hence, a delegated authority could no longer be furthered delegated.

Exceptions to Non delegability:1. Authority of the President to fix tariff rates, import and export quotas, tonnage and wharfage dues, and other duties2. Power of the local gov’t to levy taxes, fees and charges

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The power to tax is limited only to persons, property or businesses within the jurisdiction or territory of the taxing power.

FACTORS THAT DETERMINE THE SITUS OF TAXATION

1. Kind or classification of the tax being levied2. Situs of the thing or property taxed3. Citizenship of the taxpayer4. Residence of the taxpayer5. Source of the income tax6. Situs of the excise, privelege, business or

occupation being taxed

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Kind of TaxPersonal-Community taxReal Property TaxBusiness TaxTransfer Tax

Sales Tax

Income Tax

Corporate Tax

SitusResidence of taxpayerLocation of propertyPlace of businessResidence or citizenship

of the taxpayer or location of property

Where the sale is consummated

Consider (1) citizenship, (2) residence and (3) source of income

Law on incorporation

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As a matter of public policy, property of the

state and of its municipal subdivisions devoted to gov’t uses and purposes is deemed to be exempt from taxation although no express provision in thelaw is made therefore.RULES GOVERNING TAX IMMUNITY OF THE GOV’T1. Administrative Agencies-tax exempt unless when

the law expressly provides for tax2. GOCC’s-income is taxable at the rate imposed

upon corporations engaged in similar business, industry or activity. Exception: GSIS, SSS, PHIC and PCSO (Sec 27(C), NIRC) but PAGCOR exemption was lifted by RA 9337

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3. Government Educational Institutionsa. Property or real estate tax-property actually, directly and exclusively used for educational purposes-exempt but income of whatever kind and character from any of their properties, real or personal, regardless of the disposition, is taxable.b. Incomes received by them as such are exempt from taxes. However, their income from any of their activities conducted for profit regardless of the disposition is taxable.

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These principles limit the authority of the government to effectively impose taxes on a sovereign state and its instrumentalities, as well on its property held and activities undertaken in that capacity. International laws dictates peace and harmony among

stateshence, no state shall assert superiority over the other by imposing taxation.

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Basic Principles of a Sound Tax System

1. Fiscal Adequacy - which means that the sources of revenue should be sufficient to meet the demands of public expenditures;

2. Equality or Theoretical Justice - which means that the tax imposed should be proportionate to the taxpayer's ability to pay; must be progressive (rate increases as the tax base increases) and

3. Administrative Feasability - which means that the tax laws should be capable of convenient, just and effective administration (Report of 1st Tax Commission, Vol.1)

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TAXATION1. Purpose- to raise revenue

2. Amount of Exaction-no limit

3. Benefits Received-no special or direct benefit received is received by the taxpayer, merely general benefit of protection

4. Non impairment of contracts- contracts may not be impaired

5. Transfer of property rights- taxes paid become part of public funds

6. Scope-all persons, property and excise

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POLICE POWER-is the inherent power of the sovereign state that interferes with private rights to promote general welfare

1. Purpose-to promote public purpose through regulations

2. Amount of Exaction-limited to the cost of regulation, issuance of the license or surveillance

3. Benefits Received-no direct benefit is received, a healthy economic standard of society is attained

4. Non impairment of contracts-contracts may be impaired

5. Transfer of property rights-no transfer but only restraint in its exercise

6. Scope-all persons, property, rights and privileges

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EMINENT DOMAIN-inherent power of the sovereign state to take private property upon payment of just compensation for public use

1. Purpose-to facilitate the State’s need of property for public use

2. Amount of exaction-no exaction; but private property is taken by the State for public purposes

3. Benefits Received-a direct benefit results in the form of just compensation to the property owner

4. Non impairment of contracts-contracts may be impaired

5. Transfer of property rights-transfer is effected in favor of the State

6. Scope-only upon a particular property

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Definition:.... Taxing the same property twice when it should be taxed but once.

Kinds of Double Taxation:1.Direct Duplicate Taxation-double

taxation in the objectionable or prohibited sense and constitutes a violation of substantive due process.

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Elements of Direct Duplicate Taxation:a. The same property or subject matter is taxed twice when it should be taxed only onceb. Both taxes are levied for the same purposec. Imposed by the same taxing authorityd. Within the same jurisdictione. During the same taxing periodf. Covering the same kind or character of tax

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2. Indirect Duplicate Taxation-legal/permissible. The absence of one or more of the elements of direct duplicate taxation makes the double taxation indirect.

REMEDIES AGAINST DOUBLE TAXATION1. Tax sparing rule e.g. Sec 28(B)(5)(b), NIRC

2. Tax deductions e.g. Vanishing deductions

3. Tax credits

4. Exemptions

5. Treaties with other states

6. Principle of reciprocity

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Shifting-the process by which the tax burden is transferred from the statutory taxpayer to another without violating the law

Capitalization-a mere increase in the value of the property is not income but merely an unrealized increase in capital. No income until after the actual sale or other disposition of the property in excess of its original cost.

Tax Avoidance-the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce tax liability

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Transformation-the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production, thereby turning out his units at a lower cost.

Tax Evasion-the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of the tax

Tax Exemption-a grant of immunity to particular persons from the obligation to pay taxes

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As to Basis1. Constitutional-immunities from taxation which originate from the constitution2. Statutory-those which emanate from legislation

As to Form1. Express-expressly granted by organic or statute law2. Implied-when particular persons, property or excises are deemed exempt as they fall outside the scope of the taxing provision itself

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As to Extent1. Total-absolute immunity2. Partial-one where a collection of a part of the tax is dispensed with

As to Object1. Personal-granted directly in favor of certain persons2. Impersonal-granted directly in favor of a certain class of property

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Tax Defined

Tax is the enforced proportional contribution from persons and property, levied by the State, by virtue of its sovereignty, for the support of government and for all public needs (1 Cooley on Taxation)

A tax has been defined as an enforced, proportional, pecuniary contribution, from persons and property within the taxing jurisdiction, levied by the State by virtue of its sovereign power to tax, to raiserevenue for the support of the government and for its public needs (Taxation Review, Camillo).

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Purpose of taxTaxed are the lifeblood of the government. Without taxes, no government can function. Taxes must be levied in order to defray the various governmental functions (Taxation review, Camillo.)

Essential Elements or Characteristics of a Tax

1.Enforced contribution2. Exacted pursuant to legislative

authority3. For raising revenue for public needs4. Proportionate in character or uniform5. Payable in money

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Canons of a Tax

1. Proportional to one's ability to pay

2. Certain and not arbitrary

3. Convenient to pay

4. Economical to collect (Taxation Review. Camillo)

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Classification of TaxesA. According to scope or exercising authority

1. National tax - tax is levied and collected by the national government.

Example: Income tax, Estate tax, Donor's Tax2. Municipal or local tax - tax is imposed and collected by local

government.Example: Occupation tax, real estate tax

B. According to subject matter or object1. Personal tax - tax is a fixed amount imposed upon persons, or

upon persons of a certain class, residing within the jurisdiction of the taxing authority, without regard to their property or occupation or business in which they may be engaged.

Example: Community tax2. Property tax - a tax imposed on property, in proportion to its value

or some other reasonable method of appointment.Example: Real estate tax3. Excise tax - a tax upon the performance of an act, or the exercise

of a right or privilege,or the engaging in business, practice of profession or pursuit of occupation.

Example: Value-added tax, donor's tax, income tax, occupation tax, estate tax

4. Custom Duties-duties charged upon the commodities on their being imported into or exported from a country

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C. According to who bears the burden of the tax1. Direct Tax-a tax payable by the person upon whom

it is directly imposed by law.Example- Income Tax2. Indirect Tax-the burden of the tax can be legally

shifted to or passed on to others.Example-VAT, Excise Taxes, Customs Duties

D. According to purpose 1. General or revenue tax - the tax is levied without a specific or pre-determined purpose. Thus, the revenue collected can be appropriated for general public

purposes.Example: Income tax, value added tax2. Special - tax is imposed for a special purpose.

E. According to the rate applied1. Proportional - the tax is based on a fixed percentage

of the property or amount of income or receiptsExample: Real estate tax, value-added tax2. Progressive - the tax rate increases as the tax base increases. Example-Income tax, Donors Tax, Estate

Tax

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3. Regressive- the rate of tax decreases as the tax base increases. There are no regressive taxes in the Philippines.

F. According to measurement of the amount due1. Specific-tax is a fixed amount measured by the head or number, or by some standard of weight or measurement, and requires no assessment other than a listing or classification of the subjects to be taxed.Example-Excise taxes on lubricating oils, waxes and petroleum, leaded premium gasoline and liquified petroleum gas

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2. Ad Valorem Tax-tax of a fixed proportion of the amount or value of the property with respect to which the tax is assessed and requires the intervention of assessors or appraisers in certain cases.Example-Real Estate Tax, Excise Taxes on fermented liquors, cigarettes packed by machine and automobiles

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Toll-amount charged for the cost and maintenance of the property used.

Penalty-punishment for the commission of a crime

Compromise penalty-amount collected in lieu of criminal prosecution in cases of tax violations

Special Assessment-levied only on land based wholly on benefit accruing thereon as a result of improvement or public works undertaken by government within the vicinity

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License or Fee-regulatory imposition in the exercise of the police power

Margin Fee-exaction designed to stabilize the currency

Debt-a sum of money due upon contract or one which is evidenced by judgment

Subsidy-a legislative grant of money in aid of a private enterprise deemed to promote the public welfare

Customs Duties and Fees-duties charged upon commodities on their being transported into or exported from the country

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Revenue-a broad term that includes taxes and income from other sources as well

Impost-in its general sense, it signifies any tax, tribute or duty. In its limited sense, it means a duty on imported goods and merchandise

Tithe-imposes by a church or sect Tribute-imposes by a monarch

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Definition:Sets of rules that provide means for

the State to raise revenues burden upon its citizens.

How to make a tax law?Generally, all revenue bills (proposal)

must originate from the House of Representatives. After passing 3 readings by a majority vote in technical committee and deliberation of congress. It shall be elevated to Senate, which needs to pass the same 3 readings before the President signs a bill into law for its implementation.

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Republic Act/Statutes/Tax Code Presidential Decrees Executive Orders Court Decisions Revenue Regulations (lease source of

tax laws)

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Nature or Construction of Tax Laws1. Tax laws prospective, generally.Tax laws, like other statues, are to be constructed as having only a prospective operation unless the purpose and intention of the legislature to give retrospective effect is expressly declared or is necessarily implied from the language used (Lorenzo v. Posadas, 64Phil.353).There is a presumption that the legislature intended its amendment to operate only in the future. And in case of every doubt, the doubt must be resolved against the retrospective operation (Tan Chiu v. Collector, C.T.A. Case No. 451, Dec. 27, 1958).

2. Tax exemptions to be constructed strictly.Legal provisions providing for tax exemptions are to be constructed strictly against the grant and liberally in favor of the taxing power Exemption from taxation are highly disfavored in law and he who claims an exemption must be able to justify his claim by the clearest grant organic or statue law

3. Revenue laws are not political in nature.Our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government

4. Tax laws are civil and not penal in nature although there are penalties provided for their violation.

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TAX IMPOSITIONOne that provides a burden

TAX EXEMPTIONOne that provides immunity

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Public purpose is always presumed Legislative intention must be considered Where the language is plain and there is

no doubt tax laws must be given their ordinary meaning

A statute will not be construed as imposing a tax unless it does so clearly and expressly

In case of doubt, it is construed most strongly against the Gov’t, and liberally in favor of the taxpayer

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Provisions of a taxing act are not to be extended by implication

Tax laws operate prospectively unless the purpose of the legislature to give retrospective effect is expressly declared or may be implied from the language used

Tax laws are special laws and prevail over general law

Tax laws are civil in nature, not political Neither are tax laws penal in nature. Neither can the Constitutional prohibition

against passage of laws be invoked in taxation

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Exemptions from taxation are highly disfavored in law and are not presumed

He who claims as exemption must be able to justify his claim by the clearest grant of organic or statute law by words too plain to be mistaken.

He who claims exemption should prove by convincing proof that he is exempted

Taxation is the rule, tax exemption is the exceptions Tax exemption must be strictly construed against

the taxpayer Tax exemptions are not presumed Constitutional grants of tax exemption are self-

executing Tax exemptions are personal

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These are interpretations of an administrative body (BIR) intended to clarify or explain the tax laws and carry into effect its general provisions by providing the details of administration and procedure. They are deemed necessary to the proper enforcement and execution of tax laws.

REQUISITES OF TAX REGULATIONS It must be reasonable Within the authority conferred Not contrary to law Must be published Prospective, unless it is beneficial to the taxpayer, which

may be given retroactive applicationNOTE: It is provided that the Secretary Of Finance upon the

recommendation of the Commissioner of Internal Revenue shall promulgate all needed rules and regulations of the tax code.

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BIR issues a general interpretation of tax laws usually upon a request of a taxpayer to clarify a provision of law

ADMINISTRATIVE INTERPRETATIONSThese interpretations are given great weight but are not laws

JUDICIAL INTERPRETATIONSThese are court’s decisions which are considered part of the law of the land

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Tax and Licensed Fee Distinguished

1. The purpose of a tax is the revenue that is to be derived therefrom for the support of the government. Whereas, the purpose of a license is to regulate certain act, business, industries, or or professions which, unless regulated, may become harmful to the public.

2. Taxation is an exercise of the power of taxation and, therefore subject to these limitations on the power to tax. Licensing is an exercise of the police power to guard and safeguard the interest and welfare of the public. It is not subject to the three limitations on taxation.

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3. Tax- amount is unlimited Licensed Fee-amount is limited to the cost

of issuing the license and inspection and

surveillance4. Tax- non-payment does not make the business illegal but maybe a ground for criminal prosecution

Licensed Fee-non payment makes the business illegal

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Assessment DefinedIt is the process by which persons subject to taxation are listed, their property described, and its value ascertained and stated.

Assessment is merely a notice to the effect that the amount therein stated is due as tax and a demand for the payment thereof. It is a step preliminary, but essential to warrant of distraint and levy, if still feasible, and also to establish a cause for judicial action.

Assessment fixes and determines the tax liability of taxpayer. As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded.

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Special Assessment Defined

A special assessment is in the nature of a tax upon property levied according to benefits conferred in the property. The whole theory of a special assessment is based on the doctrine that the property against which it is levied derives some special benefit from the improvement xxx their property being increased in value by the expenditure to an amount at least equal to the sum they are required to pay.

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Tax and Special Assessment Distinguished

1. A special assessment can be levied only on land;2. A special assessment cannot (at least in most states) be made a personal liability of the person assessed;3. A special assessment is based wholly on benefits; and4. A special assessment is exceptional both as to time and locality.The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and not an assessment, although the purpose is to make a local improvement on a street or highway. A charge imposed only on property owners benefited is a special assessment rather than a tax notwithstanding the statue calls it a tax. If property is exempt from real property tax, it is also exempt from special assessment.

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TAXAn obligation imposed by law

Due to the gov’t in its sovereign capacity

Payable in money

Does not draw interest except in case of delinquency

Not assignable

Non payment is punished by imprisonment except in poll tax

Imposed only by public authority

DEBTCreated by contract

May be due to the gov’t but in its corporate capacity

Payable in money, property or sevices

Draws interest if stipulated or delayed

Assignable

No imprisonment in case of non payment (Art III Sec 20 of Constitution)

Can be imposed by private individual

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Meaning of Uniformity of TaxationUniformity means that the same class of persons or properties falling under the same circumstances should be taxed the same kind and rate tax.

Meaning of Equality of TaxationThe rule of equality required no more than that the same means and methods be applied impartially to all the constituents of each class, so that the law shall operate equally and uniformly upon all persons in similar circumstances.

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Taxpayer’s SuitThis suit can only be allowed if the act involves a

direct and illegal disbursement of public funds derived from taxation

Equitable RecoupmentThis states that a claim for refund which is

prevented by prescription may be allowed to be used as payment of unsettled tax liabilities if both taxes arise from the same transaction in which overpayment is made and underpayment is due

Tax AmnestyThis is an immunity from all criminal and civil

obligations arising from non payment of taxes. It is a general pardon given to all taxpayers; it applies only to past periods.

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Taxes Imposed under National Internal Revenue Code

1. Income Tax

2. Estate Tax

3. Donor's Tax

4. Value-added Tax

5. Other percentage taxes

6. Excise taxes

7. Documentary stamp taxes

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It is a system involving assessment,collection, and enforcement of taxes, including the execution of judgement in all tax cases decided in favor of

theBIR by the courts.

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Bureau of Internal Revenue-national taxesAgents of the BIR:

1. Commissioner of Customs with respect to taxes on imported goods

2. Head of the appropriate gov’t office with respect to energy tax

3. Banks duly accredited by the CIR Bureau of Customs-customs law

enforcement (international taxes) Provincial, city and municipal assessors and

treasurers-local and real property taxes (local taxes)

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BIR is under the supervision and control

of the Dep’t of Finance (Sec 2, NIRC) under the

office of the President.Who compose the BIR? One Commisioner Four Deputy Commissioners Regional Revenue Director Revenue District Officer Revenue Officer

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Power and Duties of the Bureau of Internal Revenue

The powers and duties of the Bureau of Internal Revenue shall comprehend:

1.The assessment and collection of all national internal revenue taxes, fees and charges;

2. The enforcement of all forfeitures, penalties and fines connected therewith;

3. The execution of judgements in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts;

4. Shall give effect to and administer the supervisory and police power conferred to it by the Tax Code or other laws.

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Power to interpret tax law and decide tax cases1. Interpret provisions of this Code and other tax laws subject to review of the Secretary of Finance

2. Decide cases

a. Disputed assessments

b. Refunds of internal revenue taxes, fees and charges

c. Penalties impose in relation thereto

d. Other matters arising from this Code or other laws or portions thereof administered by the BIR subject to the exclusive appellate jurisdiction of the CTA

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Power to obtain information, summon, examine, and take testimony of persons1. The Commissioner is authorized:

a. To examine any relevant book, paper, record or other data

b. To obtain any information (costs, volume of production, receipts, sales, gross income, etc)

on a regular basis from

c. To summon (sub phoena duces decum)

d. To take the testimony of the person concerned under oath as may be relevant to the inquiry

e. To cause revenue officers and employees to make a canvass of any revenue district or region

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Power to make assessments, prescribe additional requirements for tax administration and enforcement1. Examination of returns and determination of tax due

2. Terminate taxable period

3. Prescribe real property value

4. Authority to inquire into bank deposit

5. Notwithstanding RA 1405 (Bank Secrecy Law) the Commissioner is authorized to inquire into the bank deposits of:

a. A decedent to determine his gross estate

b. A taxpayer who has filed an application to compromise payment of tax liability by reason of financial incapacity

6. Authority to register tax agents

7. Authority to prescribe additional requirements

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Authority to delegate power1. The Commissioner may delegate the powers vested in him to subordinate officials with rank equivalent to Division Chief or higher, subject to limitations/restrictions imposed under the rules and regulations

EXCEPT: The following powers should not be delegated

1. Power to recommend the promulgation of rules and regulations by the Sec of Finance

2. Power to issue rulings of first impressions or to reverse, revoke, modify any existing rule of the BIR

3. Power to compromise or abate any tax liability

4. Power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are kept

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Other Powers1. Duty to ensure the provision and distribution of forms, receipts, certificates, and the acknowledgement of payment of taxes

2. Authority to administer oaths and to take testimony

3. Authority to make arrests and seizures

4. Authority to employ, assign or reassign internal revenue officers involved in excise tax functions to establishments where articles subject to excise tax are produced or kept

5. Authority to assign or reassign internal revenue officers and employees of the BIR to other or special duties connected with the enforcement or administration of the revenue laws

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An income tax is one levied on the income from property or an occupation. It is a direct tax upon the thing called income.

It is imposed upon persons within the jurisdiction of the state to raise revenue for the support of the government.

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Income tax is a tax on income, either gross or net, realized during the taxable year.

It is imposed on net income of citizens, resident aliens, domestic corporations, and non resident aliens and foreign corporations engaged in trade or business within the Philippines.

It is also imposed on the gross income of non resident aliens and foreign corporations not doing business in the Philippines.

It is further imposed as a final tax on certain passive income (interests, royalties, prizes and other winnings), cash and other property dividends, capital gains from the sale of domestic shares of stock and real property classified as capital assets located in the Philippines.

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To raise revenue to defray the expenses of the government

To mitigate the evils arising from the inequalities of wealth by a progressive scheme of taxation which places the burden on those best able to pay

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A national tax-imposed and collected by the national government throughout the country

A general tax-levied without a specific or a predetermined purpose. Thus, the revenue from income tax may be appropriated for general public purposes.

An excise tax-imposed on the right or privilege of a person to receive or earn income. It is not a personal tax or property tax.

A direct tax-payable by the person upon whom it is directly imposed by law. It cannot be shifted or passed on to others.

A progressive tax-based upon one’s ability to pay. The rate of income tax increases as the tax base increases.

Page 70: Lecture on General Principles of Taxation

Income means all wealth which flows into the taxpayer other than a mere return of capital. It includes gain derived from the sale or other disposition of capital assets.

Income is a gain derived from labor or capital, or both labor and capital, and includes the gain derived from the sale or exchange of capital assets.

Income is the amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment.

Page 71: Lecture on General Principles of Taxation

CAPITALCapital is a fundCapital is wealth

Capital is a tree

INCOMEIncome is a flowIncome is the service (fruit) of wealthIncome is the fruit

Page 72: Lecture on General Principles of Taxation

Income from sources within the Philippines

Income from sources without the Philippines

Income from sources partly within and partly without the Philippines

Page 73: Lecture on General Principles of Taxation

For income tax purposes, the word source refers to the activity or property or labor that gave rise or produced the income. Source is the origin of the income.

Page 74: Lecture on General Principles of Taxation

The situs of income is the place of taxation of the income or the country which has jurisdiction to impose the tax. For income tax purposes, income may be taxed in one or more or all of the following places or countries:

1. The place where taxpayer is a citizen

2. The place where the taxpayer is a resident

3. The place where the income was earned or derived

Page 75: Lecture on General Principles of Taxation

Gross Income Taxation-whereby a final tax is imposed on the gross amount of specified types of income such as interest, royalty, prize, dividend, and capital gains.

Net Income Taxation-whereby certain deductions are allowed and subtracted from the aggregate of incomes not subject to final tax and the tax computed based on the resulting net income therefrom.