Taxation Law Essay Example

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 the running of the government. (CIR v. Algue, Inc. )

2. 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 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. (Phil. Guaranty Co. , Inc. v. CIR)

3. Benefits-Protection / Reciprocity Theory

Taxation is described as a symbiotic relationship whereby in exchange of the benefits and protection that the citizens get from the Government, taxes are paid. (CIR v. Algue, Inc. ) Note: While taxes are intended for general benefits, special benefits to taxpayers are not required. The Government renders no special or commensurate benefit to any particular person or property. Is the Power to Tax the Power to Destroy?

1. “Power to tax is the power to destroy” (Marshall Dictum) – refers to the unlimitedness and the degree or vigor with which the taxing power may be employed to raise revenue. the financial needs of the State may outrun any human calculation, so the power to meet those needs by taxation must not be limited even though taxes

become burdensome or confiscatory.

2. “Power to tax is not the power to destroy while the Supreme Court sits” (Holmes Dictum) – the power to tax knows no limit except those expressly stated in the Constitution. Marshall and Holmes Dictum Reconciled Although the power to tax is almost unlimited, it must not be exercised in an arbitrary manner.

If the abuse is so great so as to destroy the natural and fundamental rights of people, it is the duty of the judiciary to hold such an act unconstitutional.

Purposes and Objectives of Taxation Revenue – basically, the purpose of taxation is to provide funds or property with which the State promotes the general welfare and protection of its citizens.

Non-Revenue (Key: PR2EP)

a. Promotion of general welfare

b. Regulation

c. Reduction of social inequality

d. Encourage economic growth

e. Protectionism Power of Judicial

Review in Taxation

As long as the legislature, in imposing a tax, does not violate applicable constitutional limitations or restrictions, it is not within the province of the courts to inquire into the wisdom or policy of the exaction, the motives behind it, the amount to be raised or the persons, property or other privileges to be taxed. The court’s power in taxation is limited only to the application and interpretation of the law. Note: The principle of judicial non-interference extends to the administrative realm.

Aspects of Taxation

1. Levy or imposition of the tax (tax legislation)

2. Enforcement or tax administration (tax administration)

Basic Principles of a Sound Tax System (Key: FAT)

1. Fiscal Adequacy – sufficiency to meet government expenditures and other public needs.

2. Administrative Feasibility/ Convenience – capability of being effectively enforced.

3. Theoretical Justice – based on the taxpayer’s ability to pay; must be progressive.

Motor

Vehicle Registration Fees Are Now Considered Revenue Or Tax Measures

This case reversed the doctrine previously held in Republic v. Philippine Rabbit Bus Lines, Inc. , 32 SCRA 211, to the effect that motor vehicle registration fees are regulatory exactions and not revenue measures.

b. The tax imposed on videogram establishments is not only regulatory but a revenue measure because the earnings of such establishments have not been subject to tax depriving the government of an additional source of income. (Tio v. Videogram Regulatory Board, 151 SCRA 208)

c. The “coconut levy funds” were all raised under the state’s taxing and police powers. The state’s concern to make it a strong and secure source not only in the livelihood of the significant segment of the population, but also of export earnings, the sustained growth of which is one of the imperatives of the economic growth. Philippine Coconut Producers Federation, Inc. Cocofed v. Presidential Commission on Good Government (178 SCRA 236, 252)

 Construction of Tax Laws

1. Public purpose is always presumed.

2. If the law is clear, apply the law in accordance to its plain and simple tenor.

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

4. In case of doubt, it is construed most strongly against the Government, and liberally in favor of the taxpayer.

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

6. 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.

7. Tax laws are special laws and prevail over a general law.

Nature of Tax Laws

1. Not political in character

2. Civil

in nature, not subject to ex post facto law prohibitions

3. Not penal in character

Taxes are personal to the taxpayer

1. A corporation’s tax delinquency cannot be enforced against its stockholders. (Corporate Entity Doctrine)

Exception: Stockholders may be held liable for unpaid taxes of a dissolved corporation:

a. f it appears that the corporate assets have passed into their hands or b. when the stockholders have unpaid subscriptions to the capital of the corporation

2. Estate taxes are obligations that must be paid by the executor or administrator out of the net assets and cannot be assessed against the heirs.

Exception: If prior to the payment of the estate tax due, the properties of the deceased are distributed to the heirs, then the latter is subsidiary liable for the payment of such portion of the estate tax as his distributive share bears to the total value of the net estate. Sec. 9, Rev. Regs. No. 2-2003; see CIR vs. Pineda G. R. No. L-22734. September 15, 1967))

Classification of Taxes

1. As to subject matter:

a. Personal Tax – taxes are of fixed amount upon all persons of a certain class within the jurisdiction without regard to property, occupation or business in which they may be engaged.

b. Property Tax – assessed on property of a certain class

c. Excise Tax – imposed on the exercise of a privilege d. Customs Duties – duties charged upon the commodities on their being imported into or exported from a country.

2. As to burden:

a.Direct Tax – both the incidence of or liability for the payment of the tax as well as the impact or burden of the tax falls on the same person.

b. Indirect Tax - The incidence of

or liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another.

3. As to purpose:

a. General Tax – levied for the general or ordinary purposes of the Government

b. Special Tax – levied for special purposes

4. As to manner of computation:

a. Specific Tax – the computation of the tax or the rates of the tax is already provided for by law.

b. Ad Valorem Tax – tax upon the value of the article or thing subject to taxation; the intervention of another party is needed for the computation of the tax.

5. As to taxing authority:

a. National Tax – levied by the National Government

b. Local Tax – levied by the local government

6. As to rate:

a. Progressive Tax – rate or amount of tax increases as the amount of the income or earning to be taxed increases.

b. Regressive Tax – tax rate decreases as the amount of income to be taxed increases.

c. Proportionate Tax – based on a fixed proportion of the value of the property assessed.

Impositions Not Strictly Considered as Taxes

1. Toll – Amount Charged For The Cost And Maintenance Of The Property Used.

2. Penalty – punishment for the commission of a crime.

3. Compromise Penalty – amount collected in lieu of criminal prosecution in cases of tax violations.

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

5. License or Fee – regulatory imposition in the exercise of the police power.

6. Margin Fee – exaction designed to stabilize the currency.

7. Debt – a sum of money due upon contract

or one which is evidenced by judgment.

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

9. Customs duties and fees – duties charged upon commodities on their being transported into or exported from a country.

10. Revenue – a broad term that includes taxes and income from other sources as well.

11. 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.

Compensation or Set-off General Rule: Taxes cannot be the subject of compensation or set-off.

Reasons:

1. lifeblood theory

2. taxes are not contractual obligation but arise out of duty to the government

3. the government and the taxpayer are not mutually creditors and debtors of each other. (Francia v. IAC) Exception: When both obligations are due and demandable as well as fully liquidated and all the requisites for a valid compensation are present, compensation takes place by operation of law. (Domingo v. Garlitos) Doctrine of Equitable Recoupment Not Followed in the Philippines.

Assessment and collection of all national internal revenue taxes, fees, and charges

1. Enforcement of all forfeitures, penalties, and fines connected therewith

2. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals (CTA) and the ordinary courts

3. Give effect to and administer the supervisory and police powers conferred to it by the Code or other laws Assessment – a finding by the taxing authority that the taxpayer has not paid the correct taxes. It is also a written notice to a taxpayer to the effect that the amount stated therein is due as a tax and containing a demand

for the payment thereof.

General rule: Taxes are self-assessing and thus, do not require the issuance of an assessment notice in order to establish the tax liability of a taxpayer.

Exceptions:

1. Tax period of a taxpayer is terminated [Sec. 6(D), NIRC]

2. Deficiency tax liability arising from a tax audit conducted by the BIR [Sec. 56(B), NIRC]

3. Tax lien [Sec. 219, NIRC]

4. Dissolving corporation [Sec. 52(c), NIRC]

Significance of Assessment

a. In the proper pursuit of judicial and extrajudicial remedies to enforce taxpayer liabilities and certain matters that relate to it, such as the imposition of surcharges and interests,

b. In the application of statute of limitations,

c. In the establishment of tax liens, and

d. In estimating the revenues that may be collected by government in the coming year. (Mamalateo, Victorino. Reviewer on Taxation, 2004)

Kinds

1. self- assessment- one in which the tax is assessed by the taxpayer himself

2. deficiency assessment- made by the tax assessor himself whereby the correct amount of the tax is determined after an examination or investigation is conducted. The liability is determined and assessed for the following reason:

a. amount ascertained exceeds that which is shown as the tax by the taxpayer in his return

b. no amount of tax is shown in the return c. taxpayer did not file any return at all.