Summarize notes for Principles of Taxation | Summaries Business Taxation and Tax Management

GENERAL PRINCIPLES OF TAXATION

Define Taxation

1. As a state power: Taxation refers to the inherent power of a sovereign state acting

through its legislature to impose a proportionate burden upon persons, property

rights or transaction to raise revenue to support government expenditure and as a

tool for general and economic welfare.

2. As a process: Taxation refers to the act of imposing a tax by a sovereign state

to raise revenue for the use and support of the government.

What are the PURPOSES of taxation?

1. Primary purposes: to raise funds for the expenses of the government: ( also called

Revenue purpose)

2. Secondary purpose: as a tool for general, social and economic welfare (also called

Regulatory / Sumptuary / Compensatory purpose)

3. Other purpose: promotion of general welfare, reduction of social inequality,

encourages economic growth and protectionism.

Give the NATURE or CHARACTERISTICS of the taxing power

1. It is inherent power of a sovereign state – being inherent in sovereignty, the state

has the power to tax even if not expressly granted by the constitution.

2. It is legislative in character – taxation is generally exercised by the law-making

body of a state.

3. It is subject to inherent and constitutional limitations.

What is SCOPE of the power of taxation?

In the absence of inherent and constitutional limitations, the power to tax is

comprehensive and unlimited. It is so comprehensive that in the words of justice

Marshall of US Supreme Court, the power to tax includes the power to destroy. It is

an awesome power.

Scope of the legislative taxing power (SARPKASM)

1. Subject of Taxation - The person, property, or occupation to be taxed.

2. The amount or rate of tax

3. The purpose for which taxes shall be levied provided they are public purpose

4. The kind of tax to be collected

5. The apportionment of the tax

6. The situs of taxation

7. The method of collection.

Where does the power of taxation proceed from?

It proceeds from the necessity of the existence of the government, and since it exists

for the people, it can compel them to pay taxes.

What is the basis of taxation?

The reciprocal obligation of protection and support between the state and its citizens.

In return for the protection provided by the state, the people pay taxes. Benefit –

Protection Theory.

Power of judicial REVIEW

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GENERAL PRINCIPLES OF TAXATION

A. Define Taxation

As a state power : Taxation refers to the inherent power of a sovereign state acting through its legislature to impose a proportionate burden upon persons, property rights or transaction to raise revenue to support government expenditure and as a tool for general and economic welfare.
As a process : Taxation refers to the act of imposing a tax by a sovereign state to raise revenue for the use and support of the government. B. What are the PURPOSES of taxation?
Primary purposes : to raise funds for the expenses of the government: ( also called Revenue purpose)
Secondary purpose : as a tool for general, social and economic welfare (also called Regulatory / Sumptuary / Compensatory purpose)
Other purpose : promotion of general welfare, reduction of social inequality, encourages economic growth and protectionism. C. Give the NATURE or CHARACTERISTICS of the taxing power
It is inherent power of a sovereign state – being inherent in sovereignty, the state has the power to tax even if not expressly granted by the constitution.
It is legislative in character – taxation is generally exercised by the law-making body of a state.
It is subject to inherent and constitutional limitations. D. What is SCOPE of the power of taxation? In the absence of inherent and constitutional limitations, the power to tax is comprehensive and unlimited. It is so comprehensive that in the words of justice Marshall of US Supreme Court, the power to tax includes the power to destroy. It is an awesome power. Scope of the legislative taxing power (SARPKASM)
S ubject of Taxation - The person, property, or occupation to be taxed.
The a mount or r ate of tax
The p urpose for which taxes shall be levied provided they are public purpose
The k ind of tax to be collected
The a pportionment of the tax
The s itus of taxation
The m ethod of collection. E. Where does the power of taxation proceed from? It proceeds from the necessity of the existence of the government, and since it exists for the people, it can compel them to pay taxes. F. What is the basis of taxation? The reciprocal obligation of protection and support between the state and its citizens. In return for the protection provided by the state, the people pay taxes. Benefit – Protection Theory. G. Power of judicial REVIEW

Courts cannot inquire into the wisdom of a taxing act. As long as the legislature, in imposing a tax, does not violate applicable constitutional limitations or restrictions, the courts have no concern with the wisdom or policy of the exaction, the political or other collateral motives behind it, the amount to be raised, or the persons, property or other privileges to be taxed. H. Rules of interpretation of tax laws

Tax laws are construed in favor of the taxpayer and strictly against the Government
Tax exemptions to be construed strictly against the taxpayer I. What are the three inherent powers of the state? PET
Police Power
Eminent Domain
Taxation SIMILARITIES:
They are indispensable to government existence.
They can exist independent of the constitution.
They are means by which the state interferes with private rights and properties.
They are generally exercised by the legislature.
They contemplate an equivalent compensation or benefit. DISTINCTIONS Taxation Eminent Domain Police Power Subject (^) Persons, property and exercise of right or privilege. Private property (^) Persons, property and exercise of rights or privileges. Purpose Raise revenue for the support of the government. To acquire private property for public use. For regulation and control. Limitation Generally unlimited Limited to the fair value of the property. Limited to the amount necessary to defray the cost of regulation Act involved Taxpayer pays taxes. Private property is taken. Restriction of personal and/or property rights. Benefit in exchange of the foregoing Benefits and protection from the Government Amount equivalent to jus compensation. Protection and other benefits from the Government. Status as against the non- impairment clause of the constitution Inferior Superior Superior J. Enumerate and briefly define the principles/characteristics of a SOUND TAX SYSTEM
Fiscal adequacy – The source of revenue as a whole should provide enough funds to meet the various expenditures of the government.
Administrative feasibility and compliance – Tax laws should be easy to understand, capable of enforcement by the administrative personnel and convenient to the taxpayers as to the modes and methods and time of payment.
Theoretical justice and equality – Taxes should be imposed equitably based on the taxpayer’s ability to pay and benefits received.
Consistency or compatibility with economic goals – Tax laws should be consistent with the economic goals of the state.

b. It is proportionate in character. c. It is imposed pursuant to a legislative authority. d. It is imposed for public purpose. e. It is generally payable in money. f. It is levied within the territorial and legal jurisdiction of a state. P. CLASSIFICATION of taxes

As to subject matter: a. Personal, poll or capitation tax b. Property tax c. Excise tax
As to who bears the burden: a. Direct tax b. Indirect tax
As to determination of amount: a. Specific tax – tax based on weight, number or some other standards of weight or measurement. b. Advalorem tax – tax imposed based on the value of the taxable item.
As to purpose: a. General tax – tax imposed for general purposes of the government. b. Special tax – tax imposed for a special purpose or purposes.
As to jurisdiction /scope or authority imposing tax: a. National tax – tax imposed on a national and for the national/government. b. Local tax – tax imposed on a local level for the support of local governments.
As to graduation or rate: a. Proportional tax – the tax rate of which is fixed or constant. b. Progressive tax - the tax rate increases as the taxable amount or tax bracket increases. c. Regressive tax – the tax rate decreases as the taxable amount or tax bracket increases. Q. Tax distinguished from OTHER CHARGES and FEES TAX TOLL Demand of sovereignty Demand of proprietorship Generally amount is unlimited Amount is limited to the cost and maintenance of public improvement. For the support of the government For the use of another’s property Imposed by the State only May be imposed by private individuals or entities TAX SPECIAL ASSESSMENT Imposed on persons, property rights and transactions Levied only on lands Support of the Government Contribution to the cost of public improvement. Regular exaction Exceptional as to time and place. TAX LICENSE FEE Imposed to raise revenue. For regulation.

Exercised under taxation power of the State. Exercised under police power of the state. Generally, amount imposed is unlimited. Limited to the amount necessary to defray the cost of regulation. Non-payment does not make the activity illegal. Non payment makes the activity illegal. TAX DEBT Based on law Based on contract Not assignable Assignable Payable in money Payable in kind or money Non-payment may result to imprisonment No imprisonment Bears interest only if delinquent Interest only if stipulated in writing P. DOUBLE TAXATION Direct double taxation – means taxing twice, on the same purpose, in the same year. To constitute double taxation – the two or more taxes must be:

1. Imposed on the same property 2. By the same state or government 3. During the same taxing period, and 4. For the same purpose. Q. Tax Administration It is a system involving assessment, collection and enforcement of taxes, including the execution of judgement in all tax cases decided in favor of the BIR by the courts. R. Powers and duties of the BIR 1. Assessment and collection of all national internal revenue taxes, fees and charges 2. Enforcement of all forfeitures, penalties and fines connected therewith 3. Execution of judgement in all cases decided in its favor by CTA and ordinary courts 4. Give effect to and administer the supervisory and police power conferred to it by the NIRC or other laws. S. Chief official of the BIR The BIR shall have a chief to be known as Commissioner of internal revenue and four assistant chiefs to be known as Deputy Commissioners.

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GENERAL PRINCIPLES OF TAXATION