TAXATION LAW I Part I: TAXATION IN GENERAL Chapter I: GENERAL PRINCIPLES OF TAXATION TAXATION, defined. (71 Am Jur 2nd) -the -the powe powerr by whic which h the the sove sovere reig ign n rais raises es revenue to defray the necessary expenses of government. -it is merely a way of apportioning the cost of gov govern ernmen ment among mong thos those e who in som some measure measure are privileg privileged ed to enjoy enjoy its benefits and must bear its burdens. NATURE of INTERNAL REVENUE LAWS (Hilado v. CIR) “…in “… inte tern rnal al reve revenu nue e laws laws are are not poli politic tical al in natu nature re and as such were continued in force during the period of enemy occu occupa pati tion on and and in effe effect ct were were actua ctuall lly y enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.” “…excepting that of a political nature, ‘La ‘Law once once esta estab blis lished cont ontinue inues s unti untill chan change ged d by some some comp compet eten entt legi legisl slat ativ ive e power. It is not changed merely by change of sovereignty.’
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SCOPE of TAXATION Constitution: a) Sec. 28, Art. VI, 1987 Constitution: (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. (2) The Congress, may, by law, authorize the President to fix within specified limits, and subjec bjectt to such uch limi limita tati tion ons s and restrictions as it may impose, tariff rates, import import and export quotas, quotas, tonnage, tonnage, and whar harfag fage dues dues,, and oth other dutie uties s or impo impost sts s with within in the the fram framew ewor ork k of the the nati nation onal al deve develo lopm pmen entt prog progra ram m of the the Government. (3) Charitab Charitable le instituti institutions, ons, churches churches and pers person onag ages es or conv conven ents ts appu appurt rten enan antt thereto, thereto, mosques, mosques, non-profi non-profitt cemeteri cemeteries, es, and all lands, buildings, and impr improv ovem emen ents ts,, actu actual ally ly,, dire direct ctly ly,, and and exclusiv exclusively ely used for religious religious,, charitab charitable, le, or educational purposes shall be exempt from taxation. (4) No law grantin granting g and tax tax exempt exemption ion shall be passed without the concurrence of a majority of all the Members of Congress.
“In “In the the abse absenc nce e of cons consti titu tuti tion onal al restrictions, and subject to the will of the legislative bodies and discretion of the authorit authorities ies which which exercise exercise it, the pow power of taxati xation on is rega regarrded as unlimited, unlimited, plenar plenary y and suprem supreme e, the the prin princi cipa pall chec check k upon upon its its abus abuse e rest restin ing g in the the resp respon onsi sibi bili lity ty of the the member members s of the legisl legislat ature ure to their their constituents. Although the power may be exer exerci cise sed d even even to the the poin pointt of dest destro royi ying ng the the comm commer erci cial al or use use value of the thing taxed, it has been said, on the other hand, that even in the absence of constitutional restrict restrictions, ions, such exercise exercise must rest upon justice.” “Per “Perso sona nall prop proper erty ty belo belong ngin ing g to a fore foreig ign n sove sovere reig ign n and and temp tempor orar aril ily y located located in a particul particular ar country is not subje ubjec ct to stat tate tax taxation tion in tha that country.” “…a “… a sove sovere reig ign n stat state e has has inhe inhere rent nt powe powerr to dete determ rmin ine e the the subj subjec ects ts of taxation for general or particular particular public purposes, purposes, and may take appropriate appropriate changes in the selections and classifications of the properties made subject to or exempted from taxation.”
Sis on v. v . Anchet An cheta a: c) Sison •
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The The power power to tax is not unconf unconfine ined. d. There are restrictions set forth by the Consti Constitut tution ion.. As it adver adverse sely ly affect affects s property rights, both the due process and equal protection clauses may be properly invoked. Justi Justice ce Marsh Marshall all:: “The “The power power to tax tax involv involves es the power power to destro destroy.” y.” But Justi Justice ce Frank Frankfur furter ter dis disagr agrees ees,, “The “The pow power to tax tax is not not the pow power to destroy while this Court sits.” According to C.J. Fernando, so it is in the Philippines. Philippines. Equa Equali lity ty and and unif unifor ormi mity ty in taxa taxati tion on means that all taxable articles of kinds of property of the same class shall be taxe taxed d at the the same same rate rate.. The The taxi taxing ng powe powerr has has the the auth author orit ity y to make make reasonable and natural classifications for purposes purposes of taxat taxation ion.. There There is a simi simila lari rity ty to the the stan standa dard rd of equa equall protection for what is required is that the tax applies applies equally to all persons, persons,
b) 71 Am Jur 2 nd 394-395 & 397-398: Emilia Jourdanne S. Magbanua 2D, 2014
firms and corporations placed in a similar situation.
d) Reyes v. Almanzor: •
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Taxation is uniform when all taxable articles or kinds of property of the same class are taxed at the same rate. Taxation is equitable when the burden falls on those better able to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected. The power to tax is an attribute of sovereignty. It is the strongest of all powers of government but it is not unconfined and there are restrictions.
e) Sarasola v. Trinidad: Sec. 1578 of the Administrative Code: No court shall have authority to grant an injunction to restrain the collection of any internal revenue tax. Public policy decrees that, since upon the prompt collection of revenue there depends the very existence of government itself, whatever determination shall be arrived at by the Legislature should not be interfered with unless there be a clear violation of some constitutional inhibition. *Re: Payment of Interest—Taxes only draw interest as do sums of money when expressly authorized: Interest is not to be awarded against a sovereign government, unless its consent has been manifested by an Act of its legislature or by lawful contract of its executive officers. If there be doubt upon the subject, that doubt must be resolved in favor of the State. There is no ground for charging the Crown with interest. Interest is only payable by statute or by contract. The State never pays interest unless she expressly engages to do so. But when an illegal tax has been collected, the citizen who has paid and is obliged to bring suit against the collector is entitled to interest from the time of the illegal exaction. The difference lies in the fact that the suit is against the collector and not the State, although the judgment is not be paid by the collector but directly from the treasury.
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means to pay its expenses; and for those means it has the right to compel all citizens and property within its limits to contribute. The state demands and receives taxes so that it may be enabled to carry its mandates into effect and perform the functions of government. The citizen pays from his property the portion demanded, in order that he may, by means thereof, be secured in the enjoyment of the benefits of organized society. The general levy of taxes is understood to exact contributions in return for the general benefits of government, and it promises nothing to the person taxed beyond what may be anticipated from an administration of the laws for individual protection and the general public good. Although the duty to pay taxes by the individual is founded in his participation in the benefits arising from the expenditure, it does not mean that a man’s property cannot be taxed unless some benefit to him personally can be pointed out.
CIR v. Algue 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 the running of the government. The government, for his part, is expected to respond in the form of intangible and tangible benefits intended to improve the lives of people and enhance their moral and material values. This symbiotic relationship is the rationale for taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in seat of power. •
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PRINCIPLES OF A SOUND TAX SYSTEM (Chavez v. Ongpin)
To continue collecting real property UNDERLYING THEORY AND BASIS taxes based on valuations arrived at several years ago, in disregard of increases in the 71 Am Jur 2nd 346-347 value of real properties that have occurred The existence of government is a necessity; it cannot continue without Emilia Jourdanne S. Magbanua 2D, 2014 •
since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations. *EO No. 73: Collection of Real Prop Taxes based on 1984 values COMPARISON WITH POLICE POWER AND EMINENT DOMAIN Am Jur: TAXATION Exercised for the purpose of raising revenue
Subject to certain designated constitutional limitations
POLICE POWER Exercised for the promotion of the public welfare by means of regulation of dangerous or potentially dangerous businesses, occupations, or activities Not subject to constitutional restrictions applicable to taxing power
the security against pervasive, most its abuse is to be demanding and least found only in the limitable power of the responsibility of the State legislature which imposes the tax on the constituency that is to pay it Emanates from Basis: necessity: without Salus populi est taxes, the govt suprema lex—the cannot fulfill its welfare of the people mandate of is the supreme law promoting the general welfare and well-being of the Sic utere tuo ut people alienum non laedas— so use your property so as not to injure the property of others If generation of revenue is the primary purpose and regulation is merely incidental—the imposition is a tax. If regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax. The taxing power may be used as an implement of police power. •
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The power of taxation and the police power are both distinct, coexistent powers of a state. An exaction which is invalid as an exercise of the taxing power may not be upheld as an exercise of police power where it is clear that the legislative body imposing it did not intend it as such. An exaction which would be invalid as an exercise of the taxing power may be upheld as a regulatory measure where the primary purpose of the legislature in imposing it was the regulation of some calling or activity which is potentially adverse, unless, of course, the legislature, in imposing such an exaction, acts in an arbitrary and unreasonable manner.
TAXATION No compensation.
EMINENT DOMAIN Requires compensation for private property taken for public use.
Gerochi v. Department of Energy TAXATION POLICE POWER The power of the Power of the State to State that is an promote public incident of welfare by restraining sovereignty and is and regulating the unlimited in its range, use of liberty and has no limits so that property; The most
Facts of Gerochi v. Dept of Energy: Petitioners assail that the Electric Power Industry Reform Act of 2001 (EPIRA) is unconstitutional and that the Universal Charge imposed upon consumers be refunded. They argue that the Universal Charge is a tax. The power to tax is a legislative function and as such, the delegation of such power to any executive or administrative agency like the ERC is unconstitutional. On the other hand, the government claims that the universal charge is levied for a specific regulatory purpose, which is to ensure the viability of the country’s electric power industry. Thus, it is exacted by the State in the exercise of its inherent police power. Matalin Coconut Co. v. Municipal Council of Malabang, Lanao del Sur Facts: The Municipal Council of Malabang enacted an Ordinance which made it unlawful for any person or company to ship out of the municipality cassava, starch or flour without paying to the Treasurer the fees fixed by the ordinance. It imposed a police inspection fee of P.30 per sack.
Emilia Jourdanne S. Magbanua 2D, 2014
Though denominated as a “police inspection fee”, the purpose of the ordinance is to raise revenue. Thus, it partakes of the nature of a tax.
LUTZ v. ARANETA Facts: Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar. The plaintiff alleges that the tax is unconstitutional and void for being levied for the aid and support of the sugar industry exclusively, which in his opinion is not a public purpose for which a tax may be constitutionally levied. Held: An analysis of the Act will show that the tax is levied with regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. The act is thus primarily an exercise of police power. Sugar production is one of the great industries of our nation and a great source of our nation’s wealth. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn. And in the field of its police power, the law making body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain. NTC v. CA Sec 40 (e) of the Public Service Act states that the basis for computing the fee to be charged by the NTC on PLDT is the capital stock subscribed or paid. The law is clear and categorical and simply calls for application. It is not the NTC that imposed such a fee, it is the legislature itself. Since Congress has the power to exercise the State’s inherent powers of police power, eminent domain and taxation, the distinction between police power and the power to tax, which could be significant if the exercising authority were political subdivisions, would not be of any moment when, as in the case under consideration, Congress itself exercises the power. All that is to be done would be to apply and enforce the law when sufficiently definitive and not constitutionally infirm.
Emilia Jourdanne S. Magbanua 2D, 2014
