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Taxation Defined

Is the power by which the sovereign through its lawmaking body,


raises

revenue

to

defray

the

necessary

expenses

of

the

persons

and

government.

Taxes Defined
Are

enforced

proportional

contribution

from

properties levied by the lawmaking body of the state by virtue of


sovereign for the support of government and public needs

Importance of Taxes
Taxes are important because they are the Life Blood of the
Government.

I.
Taxation
A. Theory and basis of taxation (3)
1. Necessity Theory
2. Benefit Protection Theory
3. Life Blood Theory

Necessity Theory existence of the government is a

necessary.
Benefits Protection Theory state demands and receive
taxes so that it may be enabled to carry its mandate into
effect and perform the functions of the government and to
be secured in the enjoyment of the benefits of organized
society.

B. Purposes of taxation (6) RRR-E-PP


1. Reduction
2. Regulation
3. Revenue
4. Encourage Economic Growth
5. Promotion of General Welfare
6. Protectionism

Reduction to prevent the undue concentration of wealth

in the hands of a few individuals


Regulation levied on excises or privileges
Revenue to provide funds or properties

Encourage Economic Growth to encourage investments

and thereby promote the country economic growth


Promotion of General Welfare to implement police power

in order to promote the general welfare


Protectionism to protect local industries like protective
tariffs and customs duties

C. Principles of Sound Tax System (3) FAT


1. Fiscal Adequacy
2. Administrative Feasibility
3. Theoretical Justice

Fiscal Adequacy sources of government revenue must be


sufficient to meet government expenditures and other

public needs
Administrative Feasibility taxes should be capable of

being effectively enforced


Theoretical Justice good tax system must be based on
the taxpayers ability to pay

D. Taxation Distinguished from Police Power and Eminent


Domain

1. Purpose

Taxation
Raising revenue

Police Power
Promote general

2. Amount of

No limit

welfare
Cover the cost of

exaction

regulation,
issuance of the
license or
surveillance

3. Benefits

General benefit

Direct benefit

received
4. Non

Rule subsists

Limitation does not

impairment of
contracts
5. Transfer of

apply
Taxes paid become

No transfer, only

Property

part of the public

restraint on the

Rights

funds

exercise of property
right exists

1. Nature of the
power

Raise

Taxation
public

Eminent Domain
Taking of private

revenue

property for public

exercised
2. Compensation

General benefit

use
Direct benefit

received
3. Non

Contract may not be

This is not so in

impaired

Eminent Domain

impairment
contracts
4. Persons
affected

Applies
persons,

to

all

properties

Only

particular

property

and excises
E. Taxes distinguished from other impositions
a. Toll

Demand ownership

TAXES
Demand

b. Penalty

Punishment for the

sovereignty
Civil liability

commission
c. Compromise
Penalty
d. Special
Assessment

crime
Amount

of

the

that

is

collected in violations
of Tax Code
Levied only on land

Imposed on
persons, property

and excises
constitutional
e. License Fee

Emanates

from

police power
Purpose

exemption
Levied in the
excise of the

is

regulatory

taxing power
Purpose is to
raise revenue

f.

Margin Fee

g. Debt

Stabilize currency

An

obligation

created

by

contract
No person

shall

An

obligation

imposed

by

law
Non-payment

be imprisoned for

of local tax is

non-payment

liable

of

debt
Are due

corporate capacity
Sum of money
due

for

criminal
in

its

prosecution
Are due to the
government in

upon

in

contract

its

sovereign

capacity
Imposts levied
by

the

government
for its support
or

some

special
purposes
Taxes are not subject to set-off or compensation because
government and tax payers are not mutually debtors and
creditors of each other and a claim for a tax is not a debt,
demand, contract of judgment as is allowable to set off.

In all cases, interests on taxes may be deducted?


Answer: Interests on taxes that are NOT connected with the tax
payers Profession, Trader or Business, it seems deduction is not
allowed.
The law of the Tax Code provides that the deduction of
interest speaks only of the amount of interest paid or incurred
within a taxable year on indebtedness incurred in connection
with the taxpayer Profession, Trade or Business.

How about corporations and taxable partnerships?


Answer: It would seem that deduction of interest on taxes is
legally justified provided that the taxes paid or incurred are in
connection with the taxpayers trade or business.

As a rule, Taxes and debts cannot be compensated against each


other. However, when the two obligations are both due and
demandable and all the requisites for a valid compensation are
present, compensation of the two obligations takes effect by
operation of law.

May an excess payment of quarterly corporate income tax


for the preceding taxable year be automatically credited or
applied against the corporations estimated quarterly
income tax liabilities for the taxable quarters of the
succeeding taxable year?

Answer: Once a taxpayer opts for either refund or the automatic


tax credit scheme, this does not ipso facto confer on him the right
to avail of the same immediately. It is prior to the approval of the
commissioner of the tax credit. Automatic credit is not available.

F. Scope of Legislative Taxing Power

a. Person, property, occupation, or business to be taxed.


b. Determination of the amount or rule of tax
c. Mode, method or kinds of tax
G. Power of Judicial Review in Taxation
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.
Courts power in taxation is limited only to the application
and interpretation of the law.

H. Nature of the Power of Taxation (3) LIS


1. Legislative in Nature
2. Inherent in Sovereignty
3. Subject to Constitutional & Inherent Limitations

Legislative in Nature power can only be exercised by the


law making body (congress) except when delegated to a
local legislative body or executive branch subject to the

limitations provided by law.


Inherent Sovereignty the power can be exercised even
w/out the constitution or any law expressly conferring

with such powers.


The scope of the power of taxations is comprehensive,
unlimited, plenary and supreme (CUPS) but subject to
constitutional and inherent limitations.

I.

Essential Characteristics of Tax (7)


a. Enforced contribution
b. Proportionate in character
c. Levied on Persons and Properties
d. Levied by the Lawmaking Body
e. To be used for Public Purpose
f. Generally payable in money
g. Commonly required to be paid a regular intervals

II.
A.
1.
2.
3.
4.

Limitations upon the power of taxation


Inherent Limitations (PINE)
Public Purpose
International Comity
Non-Delegability
Exemption of Government Agencies
Public Purpose
Test for determining public purpose
1. Duty of the State, as a government, to provide
2. Directly promote the welfare of the community
International Comity
- International Law
- Certain representatives of foreign states stationed and
property of such foreign states found within our

territory be exempted from taxation


Non-Delegability
- Power of taxation is exclusively in legislature
- GR: Power of taxation cannot be delegated
XPN:
1. Tariff rates, import and export within

the

framework of the national development program of


the government
2. Local taxing power/ delegation of taxing power to
local governments
If what is delegated is tax legislation, the delegations is invalid but
if what is involve is tax administration, non-delegability rule is not
violated.

Exemption of the Government from Taxes


- Property of the state devoted to government uses and
-

purposes
Income derived from public utility or from exercise
thereof
Real properties owned by the Government
XPN: Beneficial use is granted for consideration or a
taxable person

B. Constitutional Limitations (9)


1. Due process of law

The court ruled that due process may be invoked


where a tax statute is so arbitrary that it finds no

support in the constitution


2. Equal protection of laws
-reasonable and natural classifications
- equality of taxation rule is not violated if classifications
and distinctions are made so long as the same are based
on reasonable and substantial differences/distinctions
3. Rule of Uniformity and equity in taxation
- Uniformity in taxation means all taxable articles or
kinds of property of the same class shall be taxed at
-

the same rate


A tax is uniform when it operates w/ the same force
and effect in every place where the subject of it is
found

Progressivity of taxation principle of the taxpayers ability to pay.


Taxation is progressive when its rate goes up depending on the
resources of the person affected.
4. Prohibition

against

impairment

of

obligations

and

contracts
- Alter or change the terms or effect of the contract and
thus in contemplation of the law, weaken the rights of
one or all of the parties.
5. Prohibition against imprisonment for non-payment of a
poll tax
- Poll tax a tax fixed amount on individuals residing
within a specified territory
6. Prohibition against taxation of real property used for
religious, charitable and educational entities
7. Prohibition against taxation of the revenue and assets of
non-stock, non-profit educational institutions
8. Restrictions on the appropriate of proceeds of taxation
9. Prohibition against infringement of religious freedom

TAX REMEDIES
A. Tax remedies
1. Importance
G.R: No injunction to restrain tax collection
The law of the NIRC provides that no court shall have the
authority to grant injunction to restrain the collection of
any national internal revenue tax, fee or charged imposed
by this Code.
XPN: when the collection of the tax may jeopardize the
interest of the Government or taxpayer.

Collectability of tax as a basis for collection and


enforcement where the unpaid tax due per return as in
the case of a self-assessed income under the pay-as-you
file system, collection may be instated without need of any

assessment.
Preassessment notice (PAN) shall not be required in the
following cases
a. Deficiency tax is result of mathematical error
b. Discrepancy between tax withheld and the amount
actually remitted
c. Carried over and automatically applied the same
amount claimed against the estimated tax liabilities of
the succeeding taxable year
d. Excise tax due on excisable articles has not been paid
e. An article locally purchased or imported by an exempt
person has been sold, traded or transferred to non-

exempt persons.
The taxpayer shall be informed in writing of the LAW and
FACTS on which assessment is made; otherwise the

assessment shall be void.


A. PROTEST
Such assessment may be protested administratively by the
taxpayer within 30 days from the receipt

Within 60 days from filing the protest, all relevant


documents shall have been submitted, otherwise the

assessment shall become final


If the protest is denied in whole or in part, or is not acted
upon within 180 days from the submission of the

documents,
the taxpayer may appeal to the Court of Tax of Appeals

within 30 days from receipt of the said decision


or from the lapse of the 180-day period otherwise the
decision will become final and executory and demandable

B. COMPROMISE

2. Classifications (REMEDIES AVAILABLE TO)


a. Taxpayers
b. Government