PRINCIPLES OF

TAXATION

TAXATION- Is the inherent power of the sovereign,

exercised through the legislature, to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government.

the action, process, or system of taxing people or things

TAXES- are the enforced proportional

contributions from persons and property levied by the law-making body of the state by virtue of its sovereignty for the support of the government and all public needs.

Essential elements of a tax

1. It is enforced contributions which signifies that it is compulsory on the part of the government and an obligations of the citizen.

2. is generally payable in money.

3. It is proportionate in character which means it is largely based on the ability to pay principle.

4. It is levied on persons, property, or the exercise of a right or privilege.

5. It is levied by the state which has jurisdiction over the subjects or objects of taxation.

6. It is levied by the law-making body of the state which is deemed to be the direct representatives of the taxpayers themselves, the people.

7. It is levied for public purpose or purposes which takes the form of benefit for the greater majority.

Purposes of taxation

1. Revenue or fiscal: the primary purpose of the taxation on the part of the government is to provide funds or property with which to promote the general welfare and the protection of its citizens and to enable it to finance its multifarious activities without which the government cannot function.

2. Non-revenue or regulatory: taxation may also be employed for purposes of regulation or control. This takes the form of the following measures, to wit;

a.) imposition or tariffs on imported goods to protect local industries

b.) the adoption of progressively higher tax rates to reduce inequalities in wealth and income

c.) the increase or decrease of taxes prevent inflation or ward off depression.

PUBLIC PURPOSE IN TAXATION

This is one of the inherent limitations of the power to tax and is synonymous to “governmental purpose”, a tax must always be imposed for a public purpose otherwise, it will be declared as invalid. The term “public purpose” has no fixed connotation.

It has been said that the best test of rightful taxation is the proceeds tax must be used:

a)For the support of the government; or

b)Some of the recognized objects of government; or

c) To promote the welfare of the community.

Effects of incidental benefit to private interest

The purpose to be accomplished by taxation need not to be exclusively public although private individuals are directly benefited, the tax would still be valid provided such benefit is only incidental. The test is not as to who receives the money, but the character of the purpose for which it is expended; not the immediate result of the expenditure, but rather the ultimate results.

Inherent limitations

1. Purpose must be public in nature2. Prohibition against delegation of the taxing power3. Exemption of government entities, agencies and

instrumentalities4. International comity5. Limitation of territorial jurisdiction

Nature of the power of taxation

1. It is inherent in sovereignty; hence, it may be exercised although it is not expressly granted by the constitution.

2. It is legislative in character; hence, only the legislature can impose taxes.

3. It is subject to constitutional and inherent limitations; hence, it is not an absolute power that can be exercised by the legislature anyway it pleases.

Theory and basis of taxation

It should be very well emphasized that the power of taxation proceeds upon the theory that the existence of government is a necessity; that it cannot continue without means to pay its expenses; and that for these means , it has a right to compel all its citizens and property within its limit to contribute. The basis of taxation is found in the reciprocal duties of protection and support between the state and inhabitants. In return for his contribution, the taxpayer receive benefits and protection from the government. This is so-called “benefit received principle”

Life-blood necessity theory

The life blood theory of taxation provides that the existence of government is a necessity; that the government cannot continue without means to pay its expenses and that for these means it has a right to compel its citizens and property within its limits to contribute

Benefit receive principle

This principle serves as the basis of taxation and is founded on the reciprocal duties of protection and support between the state and its inhabitants. Also called “symbiotic relation” between the state and its citizens. In return for his contribution, the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property. One is compensation or consideration for the other; protection or support and support for protection. However, it does not means that only those who are able to and do pay taxes can enjoy the privileges and protection given to a citizen by the government

Tariff/duties

Customs duties or simply duties, are taxes imposed on goods exported from or imported into a country. Customs duties are really taxes but the latter term is broader in scope

License fee

License fee is legal compensation or reward of an officer for specific service while a tax is an enforced contribution from person or property by the law-making body by virtue of its sovereignty and for the support of the government and all public needs. License fee is imposed for regulation, while tax is levied for revenue

Toll vs. tax• Toll is a sum of money for the use of something, it is

the consideration which is paid for the use of a road, bridge, or the like, of a public nature. Taxes, on the other hand, are enforced proportional contributions from persons and property levied by the state by virtue of its sovereignty for the support of the government and all public needs.

• Toll is a demand of proprietorship; tax is a demand of sovereignty.

• Toll is paid for the use of another’s property; tax is paid for the support of government.

• Toll may be imposed by the government or by private individuals or entities; tax may be imposed only by the government

Tax vs. penalty

Penalty is an any sanction imposed as a punishment for violation of law or for acts deemed injurious; taxes are enforced proportional contributions from persons and property levied by the state by virtue of its sovereignty for the support of the government and all public needs. Penalty is a designed to regulate conduct; taxes are generally intended to regulate revenue.

Obligations to pay debt vs. obligations to pay tax

• A debt is generally based on contract, express or implied, while a tax is based on laws.

• A debt is assignable, while tax cannot generally be assigned.

• A debt may be paid in kind, while tax is generally paid in money.

• A debt may be the subject of set off or compensation, a tax cannot.

• A person cannot be imprisoned for non-payment of tax. Except poll tax

General rule

A tax delinquency cannot e extinguished by legal compensation. This is because the government and the delinquent are not mutually creditors and debtors. Neither is a tax obligation an ordinary debt. Moreover, the collection of a tax cannot await the result of a lawsuit against the government. Taxes are not in the nature of contracts but grow out of a duty to, and are the positive acts of the government to the making and enforcing of which the personal consent of the taxpayer is not required. [francia v. IAC, 162 SCRA 754 and republic v. Mambulao lumber 4 SCRA 622]

Three basic principle of a sound systemA good taxation is grounded on the following;

1.Fiscal adequacy it means that the sources of revenue should be sufficient to meet the demands of public expenditure. (Chavez V. Ongpin, 186 SCRA 331)

2. Equality or theoretical justiceIt means that the tax burden should be proportionate to the taxpayer’s ability to pay. This is the so-called “ability to pay principle”

3. Administrative feasibilityIt means that the laws should be capable of convenient, just and effective administration