TAX REVIEWER GENERAL PRINCIPLES: BY: Rene Callanta DEFINITION OF TAXATION Taxation is the inherent power of the sovereign, exercised through the legislature, to impose burdens upon the subjects and objects within its jurisdiction, for the purpose of raising revenues to carry out the legitimate objects of the government. TAXES
Enforced proportional contributions from properties and persons levied by the State by virtue its sovereignty for the support of the government and for public needs. BASIS OF TAXATION > GOVERNMENTAL NECESSITY * The existence of the government depends upon its capacity to perform its two (2) basic functions: A.. to serve the people B.. to protect the people THEORY OF TAXATION >RECIPROCAL DUTIES OF SUPPORT AND PROTECTION 1) Support on the part of the taxpayers 2) Protection and benefits on the part of the government BENEFITS RECEIVED PRINCIPLE (CIR vs. ALGUE) • Despite the natural reluctance to surrender part of ones hard earned income to the taxing authority, every person who is able to must contribute his share in the running of the government. • The government is expected to respond in the form of tangible or intangible benefits intended to improve the lives of the people and enhanced their material and moral values. • 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 for support and support for protection. However, it does not mean that only those who are able to pay taxes can enjoy the privileges and protection given to a citizen by the government. LORENZO vs. POSADAS • > The only benefit to which the taxpayer is entitled is that derived form the enjoyment of the privileges of living in an organized society established and safeguarded by the devotion of taxes to public purpose. The government promises nothing to the person taxed beyond what maybe anticipated from an administration of the laws for the general good. • > Taxes are essential to the existence of the government. The obligation to pay taxes rests not upon the privileges enjoyed by or the protection afforded to the citizen by the government, but upon the necessity of money for the support of the State. For this reason, no one is allowed to object to or resist payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax. ESSENTIAL ELEMENTS OF A TAX 1) It is an enforced contribution 2) It is generally payable in money 3) It is proportionate in character 4) It is levied on persons, property, or the exercise of a right or privilege
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5) It is levied by the State which has jurisdiction over the subject or object of taxation 6) It is levied by the law-making body of the State 7) It is levied for publics purpose or purposes REQUISITES of a VALID TAX code: [P, U, J, A, N] 1) It should be for a public purpose 2) The rule of taxation should be uniform 3) That either the person or property taxed be within the jurisdiction of the taxing authority 4) That the assessment and collection be in consonance with the due process clause 5) The tax must not infringe on the inherent and constitutional limitations of the power of taxation *> Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. But their collection should not be tainted with arbitrariness NATURE OF TAXATION 1) Inherent in sovereignty 2) Legislative in character SCOPE OF TAXATION 1) Comprehensive 2) Unlimited 3) Plenary 4) Supreme TOLENTINO vs. SEC. Of FINANCE • > In the selection of the object or subject of taxation the courts have no power to inquire into the wisdom, objectivity, motive, expediency or necessity of such tax law. (WOMEN) PURPOSES OF TAXATION PRIMARY - To raise revenue in order to support the government SECONDARY 1) Used to reduce social inequality 2) Utilized to implement the police power of the State 3) Used to protect our local industries against unfair competition 4) Utilized by the government to encourage the growth of local industries PAL vs. EDU • > It is possible for an exaction to be both a tax and a regulation. License fees and charges, looked to as a source of revenue as well as a means regulation. The fees may properly regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax. CALTEX vs.. CIR • > Taxation is no longer a measure merely to raise revenue to support the existence of the government. Taxes may be levied with a regulatory purpose to provide means for rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State. LIFEBLOOD DOCTRINE • > Taxes are the lifeblood of the nation
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•
> Without revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. (CIR vs. ALGUE)
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> Taxes are the lifeblood of the government and there prompt and certain availability is an imperious need.
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> Taxes are the lifeblood of the nation through which the agencies of the government continue to operate and with which the state effects its functions for the benefit of its constituents
ILLUSTRATIONS OF THE LIFEBLOOD THEORY 1) Collection of the taxes may not be enjoined by injunction 2) Taxes could not be the subject of compensation or set off 3) A valid tax may result in destruction of the taxpayer’s property 4) Taxation is an unlimited and plenary power POWER TO TAX AND POWER TO DESTROY * > The power to tax includes the power to destroy if it is used as an implement of the police power (regulatory) of the State. However, it does not include the power to destroy if it is used solely for the purpose of raising revenue. (ROXAS vs. CTA) NOTES: • > If the purpose of taxation is regulatory in character, taxation is used to implement the police power of the state •
> If the power of taxation is used to destroy things, businesses, or enterprises and the purpose is to raise revenue, the court will come in because there will be violation of the inherent and constitutional limitations and it will be declared invalid.
NATURE OF THE TAXING POWER 1) Attribute of sovereignty and emanates from necessity, relinquishment of which is never presumed 2) Legislative in character, and 3) Subject to inherent and constitutional limitations NECESSITY THEORY • > Existence of a government is a necessity and cannot continue without any means to pay for expenses BENEFITS – PROTECTION THEORY • > Reciprocal duties of protection and support between State and inhabitants. Inhabitants pay taxes and in return receive benefits and protection from the State SCOPE OF LEGISLATIVE TAXING POWER 1) The persons, property and excises to be taxed, provided it is within its jurisdiction 2) Amount or rate of tax 3) Purposes for its levy, provided it be for a public purpose 4) Kind of tax to be collected 5) Apportionment of the tax 6) Situs of taxation 7) Method of collection ASPECTS OF TAXATION 1) LEVY or IMPOSITION
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enactment of tax laws legislative in character 2) ASSESSMENT collection administrative in character NOTES: • > It is inherent in the power to tax that the State is free to select the object of taxation
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> The 1) 2) 3)
power of the legislature to impose tax includes the power what to tax whom to tax how much to tax
BAGATSING vs. RAMIREZ • > What cannot be delegated is the legislative enactment of a tax measure but as regards to the administrative implementation of a tax law that can be delegated. > The collection may be entrusted to a private corporation. •
> The rule that the power of taxation cannot be delegated does not apply to the administrative implementation of a tax law > There is no violation because what is delegated or entrusted is the collection and not the enactment of such laws
•
> The issuance of regulations or circulars by the BIR or the Secretary of Finance should not go beyond the scope of the tax measure
BASIC PRINCIPLES OF A SOUND TAX SYSTEM 1) THEORETICAL JUSTICE 2) FISCAL ADEQUACY 3) ADMINISTRATIVE FEASIBILITY NOTES: FISCAL ADEQUACY - VIOLATION – VALID • > Sources of revenue should be sufficient to meet the demands of public expenditure > Revenues should be elastic or capable of expanding or contracting annually in response to variations in public expenditure >Elasticity may be obtained without creating annually any new taxes or any new tax machinery but merely by changes in the rates applicable to existing taxes •
> Even if a tax law violates the principle of Fiscal Adequacy , in other words, the proceeds may not be sufficient to satisfy the needs of the government, still the tax law is valid
ADMINISTRATIVE FEASIBILITY - VIOLATION – VALID • > The tax law must be capable of effective or efficient enforcement > Tax laws should be capable of convenient, just and effective administration • •
> Tax laws should close-up the loopholes for tax evasion and deter unscrupulous officials from committing fraud > There is no law that requires compliance with this principle, so even if the tax law violates this principle; such tax law is valid.
THEORETICAL JUSTICE
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•
VIOLATION – INVALID > This principle mandates that taxes must be just, reasonable and fair Taxation shall be uniform and equitable
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> Equitable taxation has been mandated by our constitution, as if taxes are unjust and unreasonable then they are not equitable, thus invalid.
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> The tax burden should be in proportion to the taxpayers ability to pay (ABILITY TO PAY PRINCIPLE)
DISTINCTIONS: TAXATION vs. POLICE POWER vs. EMINENT DOMAIN 1) As to purpose: Taxation – for the support of the government Eminent Domain_- for public use Police Power – to promote general welfare, public health, public morals, and public safety. 2) As to compensation: Taxation – Protection and benefits received from the government. Eminent Domain – just compensation, not to exceed the market value declared by the owner or administrator or anyone having legal interest in the property, or as determined by the assessor, whichever is lower. Police Power – The maintenance of a healthy economic standard of society. 3) As to persons affected: Taxation and Police Power – operate upon a community or a class of individuals Eminent Domain – operates on the individual property owner.
4) As to authority which exercises the power: Taxation and Police Power – Exercised only by the government or its political subdivisions. Eminent Domain – may be exercised by public services corporation or public utilities if granted by law.
5) As to amount of imposition: Taxation – Generally no limit to the amount of tax that may be imposed. Police Power – Limited to the cost of regulation Eminent Domain – There is no imposition; rather, it is the owner of the property taken who is just paid compensation.
6) As to the relationship to the Constitution: Taxation and Eminent Domain – Subject to certain constitutional limitations, including the prohibition against impairment of the obligation of contracts. Police Power – Relatively free from constitutional limitations and superior to the non-impairment provisions thereof. TAX DISTINGUISHED FROM LICENSE FEE: a) PURPOSE: Tax imposed for revenue WHILE license fee for regulation. Tax for general purposes WHILE license fee for regulatory purposes only.
b)
BASIS: Tax imposed under power of taxation WHILE license fee under police power.
c)
AMOUNT: In taxation, no limit as to amount WHILE license fee limited to cost of the license and expenses of police surveillance and regulation.
d)
TIME OF PAYMENT: Taxes normally paid after commencement of business WHILE license fee before.
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e) f)
EFFECT OF PAYMENT: Failure to pay a tax does not make the business illegal WHILE failure to pay license fee makes business illegal. SURRENDER: Taxes, being lifeblood of the state, cannot be surrendered except for lawful consideration WHILE a license fee may be surrendered with or without consideration.
IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES. It is necessary to determine whether a particular imposition is a tax or a license fee, because some limitations apply only to one and not to the other. Furthermore, exemption from taxes does not include exemption from license fees
TAXES DISTINGUISHED FROM OTHER IMPOSITIONS: 1) toll – amount charged for the cost and maintenance of property used;
2) compromise penalty – amount collected in lieu of criminal prosecution in cases of tax violations;
3) special assessment – levied only on land based wholly on the benefit accruing thereon as a result of improvements of public works undertaken by government within the vicinity.
4) license fee – regulatory imposition in the exercise of the police power of the State;
5) margin fee – exaction designed to stabilize the currency 6) custom duties and fees – duties charged upon commodities on their being imported into or exported from a country;
7) debt – a tax is not a debt but is an obligation imposed by law. Special assessment v. tax 1. 2. 3. 4. 5.
A special assessment tax is an enforced proportional contribution from owners of lands especially benefited by public improvements A special assessment is levied only on land. A special assessment is not a personal liability of the person assessed; it is limited to the land. A special assessment is based wholly on benefits, not necessity. A special assessment is exceptional both as to time and place; a tax has general application.
Republic v. Bacolod, 17 SCRA 632 •
A special assessment is a levy on property which derives some special benefit from the improvement. Its purpose is to finance such improvement. It is not a tax measure intended to raise revenues for the government. The proceeds thereof may be devoted to the specific purpose for which the assessment was authorized, thus accruing only to the owners thereof who, after all, pay the assessment.
Some Rules: •
An exemption from taxation does not include exemption from a special treatment.
•
The power to tax carries with it a power to levy a special assessment.
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Toll v. tax
1. 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.
2. Toll is a demand of proprietorship; tax is a demand of sovereignty. 3. Toll is paid for the used of another’s property; tax is paid for the support of government. 4. The amount paid as toll depends upon the cost of construction or maintenance of the public improvements used; while there is no limit on the amount collected as tax as long as it is not excessive, unreasonable, or confiscatory.
5. Toll may be imposed by the government or by private individuals or entities; tax may be imposed only by the government. Tax v. penalty
1.
Penalty is 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.
2.
Penalty is designed to regulate conduct; taxes are generally intended to generate revenue.
3.
Penalty may be imposed by the government or by private individuals or entities; taxes only by the government.
Obligation to pay debt v. obligation to pay tax
1.
A debt is generally based on contract, express or implied, while a tax is based on laws.
2.
A debt is assignable, while a tax cannot generally be assigned.
3.
A debt may be paid in kind, while a tax is generally paid in money.
4.
A debt may be the subject of set off or compensation, a tax cannot.
5.
A person cannot be imprisoned for non-payment of tax, except poll tax.
6.
A debt is governed by the ordinary periods of prescription, while a tax is governed by the special prescriptive periods provided for in the NIRC.
7.
A debt draws interest when it is so stipulated or where there is default, while a tax does not draw interest except only when delinquent.
Requisites of compensation 1.
That each one of the obligor be bound principally, and that he be at the same time a principal creditor of the other.
2.
That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind and also of the same quality if the latter has been stated.
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3.
That the two (2) debts be due.
4.
That they be liquidated and demandable.
5.
That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtors.
Rules re: set off or compensation of debts
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General rule: A tax delinquency cannot be extinguished by legal compensation. This is so because the government and the tax delinquent are not mutually creditors and debtors. Neither is a tax obligation an ordinary act. Moreover, the collection of a tax cannot await the results of a lawsuit against the government. Finally, taxes are not in the nature of contracts but grow out of the 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)
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Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443] re: claim for payment of unpaid services of a government employee vis-à-vis the estate taxes due from his estate. The fact that the court having jurisdiction of the estate had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law shows that both the claim of the government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation therefore takes place by operation of law.
Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998) Philex Mining Corporation was to set off its claims for VAT input credit/refund for the excise taxes due from it. The Supreme Court disallowed such set off or compensation. Survey of Philippine Taxes A. Internal Revenue taxes imposed under the NIRC. 1. Income tax 2. Transfer taxes a) Estate tax b) Donor’s tax 3. Percentage taxes a) Value Added Tax b) Other Percentage Taxes 4. Excise taxes 5. Documentary stamp tax B. Local/ Municipal Taxes C. Tariff and Customs Duties D. Taxes / Tax Incentives under special laws CLASSIFICATION OF TAXES AS TO SUBJECT MATTER OR OBJECT 1. Personal, poll or capitation tax
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Tax of a fixed amount imposed on persons residing within a specified territory, whether citizens or not, without regard to their property or the occupation or business in which they may be engaged, i.e. community tax. 2. Property tax Tax imposed on property, real or personal, in proportion to its value or in accordance with some other reasonable method of apportionment. 3. Excise tax A charge impose upon the performance of an act, the enjoyment of privilege, or the engaging in an occupation. AS TO PURPOSE General/fiscal revenue tax is that imposed for the purpose of raising public funds for the service of the government. A special or regulatory tax is imposed primarily for the regulation of useful or nonuseful occupation or enterprises and secondarily only for the purpose of raising public funds. AS TO WHO BEARS THE BURDEN 1.
Direct tax
A direct tax is demanded from the person who also shoul,ders the burden of the tax. It is a tax which the taxpayer is directly or primarily liable and which he or she cannot shift to another. 2.
Indirect tax
An indirect tax is demanded from a person in the expectation and intention that he or she shall indemnify himself or herself at the expense of another, falling finally upon the ultimate purchaser or consumer. A tax which the taxpayer can shift to another. AS TO THE SCOPE OF THE TAX 1. National tax A national tax is imposed by the national government. 2. Local tax A local tax is imposed by the municipal corporations or local government units (LGUs). AS TO THE DETERMINATION OF AMOUNT 1. Specific tax A specific tax is a tax of a fixed amount imposed by the head or number or by some other standard of weight or measurement. It requires no assessment other than the listing or classification of the objects to be taxed. 2. Ad valorem tax An ad valorem tax is a fixed proportion of the value of the property with respect to which the tax is assessed. It requires the intervention of assessors or appraisers to estimate the value of such property before due from each taxpayer can be determined. AS TO GRADUATION OR RATE
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1.
Proportional tax
Tax based on a fixed percentage of the amount of the property receipts or other basis to be taxed. Example: real estate tax. 2.
Progressive or graduated tax
Tax the rate of which increases as the tax base or bracket increases. Digressive tax rate: progressive rate stops at a certain point. Progression halts at a particular stage. 3.
Regressive tax
Tax the rate of which decreases as the tax base or bracket increases. There is no such tax in the Philippines.
TAX SYSTEMS Constitutional mandate
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The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. [Section 28 (1), Article VI, Constitution]
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Regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to “evolve a progressive system of taxation.” This is a directive to Congress, just like the directive to it to give priority of the enactment of law for the enhancement of human dignity. The provisions are put in the Constitution as moral incentives to legislation, not as judicially enforceable rights. (Tolentino v. Secretary of Finance.)
Progressive system of taxation v. regressive system of taxation
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A progressive system of taxation means that tax laws shall place emphasis on direct taxes rather than on indirect taxes, with ability to pay as the principal criterion.
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A regressive system of taxation exists when there are more indirect taxes imposed than direct taxes.
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No regressive taxes in the Philippine jurisdiction
CLASSIFICATION OF TAXES:
1.
personal tax – also known as capitalization or poll tax;
2.
property tax – assessed on property of a certain class;
3.
direct tax – incidence and impact of taxation falls on one person and cannot be shifted to another;
4.
indirect tax – incidence and liability for the tax falls on one person but the burden thereof can be passed on to another;
5.
excise tax – imposed on the exercise of a privilege;
6.
general taxes – taxes levied for ordinary or general purpose of the government;
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7.
special tax – levied for a special purpose;
8.
specific taxes – imposed on a specific sum by the head or number or by some standards of weight or measurement;
9.
ad valorem tax – tax imposed upon the value of the article;
10. local taxes – taxes levied by local government units pursuant to validly delegated power to tax;
11. progressive taxes – rate increases as the tax base increases; and 12. regressive taxes – rate increases as tax base decreases. GENERAL RULE: - Taxes are personal to the taxpayer. Corporation’s tax delinquency cannot be enforced on the stockholder or transfer taxes on the estate be assessed on the heirs. EXCEPTIONS 1. stockholders may be held liable for unpaid taxes of a dissolved corporation if the corporate assets have passed into their hands; and 2. heirs may be held liable for the transfer taxes on the estate, if prior to the payment of the same, the properties of the decedent have been distributed to the heirs.
LIMITATIONS ON THE POWER OF TAXATION Inherent Limitations 1. It must be imposed for a public purpose. 2. If delegated either to the President or to a L.G.U., it should be validly delegated. 3. It is limited to the territorial jurisdiction of the taxing authority. 4. Government entities are exempted. 5. International comity is recognized i.e. property of foreign sovereigns are not subject to tax. Constitutional limitations – Indirect – a) Due process clause b) Equal protection clause c) Freedom of the press d) Religious freedom e) Non-impairment clause f) Law-making process – 1. One-subject – One-title Rule 2. 3 readings on Certificate of Emergency
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separate
days
Rule
except
when
there
is
a
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3. Distribution of copies 3 days before the 3rd reading. g) Presidential power to grant reprieves, commutations and pardons, and remit fines and forfeitures after conviction by final judgment. Direct – a) Revenue bill must originate exclusively in H.R. but the Senate may propose with amendments. b) Non-imprisonment for non-payment of poll tax. c) Taxation shall be uniform and equitable. d) Congress shall evolve a progressive system of taxation. e) Tax exemption of charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings and improvements ADE (actually, directly , exclusively) used for charitable, religious, and educational purposes. f) Tax exemption of all revenues and assets used ADE for educational purposes of – 1. Non-profit non-stock educational institutions. 2. Proprietary or cooperative educational institutions subject to limitations provided by law including – a) restriction on dividends b) provisions for re-investments. g) Tax exemption of grants, endowments, donations or contributions ADE for educational purposes, subject to conditions prescribed by law. h) No tax exemption without the concurrence of a majority of all members of Congress. i) SC power to review judgments or orders of lower courts in all cases involving – Legality of any tax. Impost or toll, Legality of any penalty imposed in relation thereto.
INHERENT LIMITATIONS NOTES: PUBLIC PURPOSE – GOVERNMENTAL PURPOSE RULE: •
“The Legislature is without the power to appropriate revenues for anything but for public purposes.”
RULE: •
“Public money can only be spent for a public purpose.”
PUBLIC PURPOSE – A purpose affecting the inhabitants of the State or taxing district as a community and not merely as individuals > Public purpose includes not only direct benefits or advantage, it also includes indirect benefits or advantage
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TIO vs. VIDEOGRAM
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> It is not the immediate result but the ultimate result that determines, whether the purpose is public or not
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> It is not the number of persons benefited but it is the character of the purpose that determines the public character of such tax law
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> What is not allowed is that if it has no link to public welfare
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> Public purpose is determined by the use to which the tax money is devoted > If it benefits the community in general then it is for a public purpose no matter who collects it
TEST 1.
If the public advantage or benefit is merely incidental in the promotion of a particular enterprise, that will render the law INVALID
2.
If what is incidental is the promotion of a private enterprise, the tax law is still for a public purpose(VALID)
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> A tax levied for a private, not public purpose constitutes taking of property without due process of law as it is beyond the powers of the government to impose it.
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> Although private individuals are directly benefited, the tax would still be valid, provided such benefit is only incidental
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> If what is incidental is the promotion of a private enterprise, as long as there is a link to the public welfare, the purpose is still public
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> 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
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> The test that must be applied in determining whether the purpose is public or private
1) The character of the direct object 2) The ultimate result not the immediate result 3) The general welfare for public good TEST OF RIGHTFUL TAXATION -
Proceeds of a tax must be used
1) for the support of the government 2) for any of the recognized objects of the government 3) to promote the welfare of the community
LEGISLATIVE PREROGATIVE RULE: It is Congress which has the power to determine whether the purpose is public or private
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> You can always question the validity of such tax measure on the ground that it is not for a public purpose before the courts. But once it is settled that it is for a public purpose, you can no longer inquire on such tax measure
TAXPAYERS SUIT -
a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation > courts discretion to allow
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> Taxpayers have sufficient interest of preventing the illegal expenditures of money raised by taxation (NOT DONATIONS AND CONTRIBUTIONS)
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> A taxpayer is not relieved from the obligation of paying a tax because of his belief that it is being misappropriated by certain officials
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> A taxpayer has no legal standing to question executive acts that do not involve the use of public funds. (GONZALES vs. MARCOS)
LOZADA vs. COMELEC •
> It is only when an act complained of which may include a legislative enactment of a statute, involves the illegal expenditure of public money that the so-called taxpayers suit may be allowed.
CALTEX vs. COA •
> Taxpayers may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with the public interest as to be within the police power of the State.
•
> A law imposing burdens may be both a tax measure and an exercise of the police power in which case the license fee may exceed the necessary expenses of police surveillance and regulation.
REQUISITES FOR A TAXPAYERS PETITION 1)
That money is being extracted and spent in violation of specific constitutional protections against abuses of legislative power
2)
That public money is being deflected to any improper purpose
3)
That the petitioner seeks to restrain respondents from wasting public funds through the enforcement of an invalid or unconstitutional law.
KILOS BAYAN vs. GUINGONA •
> The Supreme Court has discretion whether or not to entertain taxpayers suit and could brush aside lack of locus standi
CONCEPTS RELATIVE TO PUBLIC PURPOSE 1) Inequalities resulting from the singling out of one particular class for taxation or exemption infringe no constitutional limitation
It is inherent in the power to tax that the legislature is free to select the subject of taxation
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2) An individual taxpayer need not derive direct benefits from the tax
The paramount consideration is the welfare of the greater portion of the population
3) Public purpose is continually expanding. Areas formerly left to private initiative now loose their boundaries and may be undertaken by the government, if it is to meet the increasing social challenges of the times 4) Public purpose is determined at the time of enactment of the tax law and not at the time of implementation
NOTES: INTERNATIONAL COMITY -
Based on tradition, practice or custom
DOCTRINE OF INCORPORATION
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> The Philippines adopts the generally accepted principles of international law as part of the law of the land
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> If a tax law violates certain principles of international law, then it is not only invalid but also unconstitutional
GROUNDS FOR TAX EXEMPTION OF FOREIGN GOVERNMENT PROPERTY 1) Sovereign equality of States 2) Usage among States 3) Immunity from suit of a State
NOTES: NON-DELEGATION OF THE POWER TO TAX GENERAL RULE: -
The power of taxation is peculiarly and exclusively legislative, therefore, it may not be delegated
EXCEPTIONS: 1) Delegation to the President 2) Delegation to local government units 3) Delegation to administrative units
POWERS WHICH CANNOT BE DELEGATED 1) Determination of the subjects to be taxed 2) Purpose of the tax 3) Amount or rate of the tax
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4) Manner, means and agencies of collection 5) Prescription of the necessary rules with respect thereto
DELEGATION TO THE PRESIDENT •
> Congress may authorize, by law, the President to fix, within specified limits and subject to such limitations and restrictions as it may impose
1) Tariff rates 2) Import and export quotas 3) Tonnage and wharfage dues 4) Other duties and import within the national development program of the government •
> There must be a law authorizing the President to fix tariff rates
•
> The delegation of power must impose limitations and restrictions and specify the minimum as well as the maximum tariff rates.
FLEXIBLE TARIFF CLAUSE (SEC. 401 TCC) -
In the interest of national economy, general welfare and/or national security, the President upon the recommendation of the National Economic and Development Authority is empowered:
1) To increase, reduce or remove existing protective rates of import duty, provided that the increase should not be higher than 100% ad valorem 2)
To establish import quota or to ban imports of any commodity
3)
To impose additional duty on all imports not exceeding 10% ad valorem
DELEGATION TO LOCAL GOVERNMENT UNITS
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> Each local government unit has the power to create its own revenue and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide (ART X Sec 5)
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> Local government units have no power to further delegate said constitutional grant to raise revenue, because what is delegated is not the enactment or the imposition of a tax, it is the administrative implementation
BASCO vs. PAGCOR •
> The power of local government units to impose taxes and fees is always subject to the limitations which Congress may provide, the former having no inherent power to tax.
•
> Municipal corporations are mere creatures of Congress which has the power to create and abolish municipal corporations. Congress therefore has the power to control over local government units. If Congress can grant to a
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municipal corporation the power to tax certain matters, it can also provide for exemptions or even take back the power
DELEGATION TO ADMINISTRATIVE AGENCIES •
> For the delegation to be constitutionally valid, the law must be complete in itself and must set forth sufficient standards
•
> Certain aspects of the taxing process that are not really legislative in nature are vested in administrative agencies. In these cases, there really is no delegation, to wit:
A) power to value property B) power to assess and collect taxes C) power to perform details of computation, appraisement or adjustments.
NOTES: EXEMPTION OF GOVERNMENT AGENCIES 1) Agencies performing governmental functions > TAX EXEMPT 2) Agencies performing proprietary functions > SUBJECT TO TAX * > The exemption applies only to governmental entities through which the government immediately and directly exercises its sovereign powers. NDC vs. CEBU CITY •
> Tax exemption of property owned by the Republic of the Philippines refers to the property owned by the government and its agencies which do not have separate and distinct personality. > Those with ORIGINAL CHARTERS (incorporated agencies)
•
> Those created by SPECIAL CHARTER (incorporated agencies) are not covered by the exemption
GOVERNMENT ENTITIES EXEMPT FROM INCOMING TAX 1) GSIS 2) SSS 3) PHIC 4) PCSO 5) PAGCOR REASON FOR EXEMPTIONS 1) Government will be taxing itself to raise money for itself.
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2) Immunity is necessary in order that governmental functions will not be impeded.
NOTES: TERRITORIAL JURISDICTION RULES: •
> Tax laws cannot operate beyond a State’s territorial limits
•
> The government cannot tax a particular object of taxation which is not within its territorial jurisdiction.
•
> Property outside ones jurisdiction does not receive any protection of the State
•
> If a law is passed by Congress, Congress must always see to it that the object or subject of taxation is within the territorial jurisdiction of the taxing authority
SITUS OF TAXATION
Place of taxation
RULE: -
The State where the subject to be taxed has a situs may rightfully levy and collect the tax
•
> In determining the situs of taxation, you have to consider the nature of the taxes
Example: 1) POLL TAX, CAPITATION TAX, COMMUNITY TAX > Residence of the taxpayer
2) REAL PROPERTY TAX OR PROPERTY TAX > Location of the property •
> We can only impose property tax on the properties of a person whose residence is in the Philippines.
EXCEPTIONS TO THE TERRITORIALITY RULE
A) Where the tax laws operate outside territorial jurisdiction 1) TAXATION of resident citizens on their incomes derived from abroad
B) Where tax laws do not operate within the territorial jurisdiction of the State 1) When exempted by treaty obligations 2) When exempted by international comity
19
SITUS OF TAX ON REAL PROPERTY - LEX REI SITUS or where the property is located REASON:
The place where the real property is located gives protection to the real property, hence the property or its owner should support the government of that place
SITUS OF PROPERTY TAX ON PERSONAL PROPERTY - MOBILIA SEQUNTUR PERSONAM = movables follow the owner = movables follow the domicile of the owner RULES: 1) TANGIBLE PERSONAL PROPERTY - Where located, usually the owners domicile 2) INTANGIBLLE PERSONAL PROPERTY G. R. – Domicile of the owner EXCEPTION: The situs location not domicile > Where the intangible personal property has acquired a business situs in another jurisdiction * > The principle of “Mobilia Sequntur Personam” is only for purposes of convenience. It must yield to the actual situs of such property. * > Personal intangible properties which acquires business situs here in the Philippines 1) Franchise which is exercised within the Philippines 2) Shares, obligations, bonds issued by a domestic corporation 3) Shares, obligations, bonds issued by a foreign corporation, 85% of its business is conducted in the Philippines 4) Shares, obligations, bonds issued by a foreign corporation which shares of stock or bonds acquire situs here 5) Rights, interest in a partnership, business or industry established in the Philippines > These intangible properties acquire business situs here in the Philippines, you cannot apply the principle of “Mobilia Sequntur Personam” because the properties have acquired situs here.
SITUS OF INCOME TAX A) DOMICILLARY THEORY
20
- The location where the income earner resides in the situs of taxation B) NATIONALITY THEORY - The country where the income earner is a citizen is the situs of taxation C) SOURCE RULE - The country which is the source of the income or where the activity that produced the income took place is the situs of taxation.
SITUS OF SALE OF PERSONAL PROPERTY •
> The place where the sale is consummated and perfected
SITUS OF TAX ON INTEREST INCOME •
> The residence of the borrower who pays the interest irrespective of the place where the obligation was contracted
CIR vs. BOAC •
> Revenue derived by an of-line international carrier without any flight from the Philippines, from ticket sales through its local agent are subject to tax on gross Philippine billings
SITUS OF EXCISE TAX > Where the transaction performed HOPEWELL vs. COM. OF CUSTOMS •
> The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the exercise, nor upon the physical location of the property or in connection with the act or occupation taxed, but depends upon the place on which the act is performed or occupation engaged in. Thus, the gauge of taxability does not depend on the location of the office, but attaches upon the place where the respective transaction is perfected and consummated
CONSTITUTIONAL LIMITATIONS I.
DUE PROCESS
•
> Due process mandates that no person shall be deprived of life, liberty, or property without due process of law.
PEPSI COLA vs. MUN. OF TANAUAN - REQUIREMENTS OF DUE PROCESS IN TAXATION
21
1) Tax must be for a Public purpose 2) Imposed within the Territorial jurisdiction 3) No arbitrariness or oppression in A) assessment, and B) collection
DUE PROCESS IN TAXATION DOES NOT REQUIRE
1) Determination through judicial inquiry of A) property subject to tax B) amount of tax to be imposed 2) Notice of hearing as to: A) amount of the tax B) manner of apportionment
REQUISITES OF DUE PROCESS OF LAW 1) There must be a valid law 2) Tax measure should not be unconscionable and unjust as to amount to confiscation of property 3) Tax statute must not be arbitrary as to find no support in the constitution
•
> When is deprivation of life, liberty or property done in accordance with due process of law?
1)
If done under authority of a law that is valid or of the constitution itself
2)
After compliance with fair and reasonable methods of procedure prescribed by law.
•
> If properties are taxed on the basis of an invalid law, such deprivation is a violation of due process
REMEDY – ask for refund •
> To justify the nullification of a tax law, there must be a clear and unequivocal breach of the constitution
> There must be proof of arbitrariness INSTANCES WHEN UNCONSTITUTIONAL
THE TAX [C, O, N, U]
LAW
MAYBE
DECLARED
AS
1) If it amounts to confiscation of property without due process 2) If the subject of taxation is outside of the jurisdiction of the taxing state
22
3) The law maybe declared as unconstitutional if it is imposed not for a public purpose
4) If a tax law which is applied retroactively, imposes unjust and oppressive taxes.
•
> A tax law which denies a taxpayer a fair opportunity to assert his substantial rights before a competent tribunal is invalid
•
> A taxpayer must not be deprived of his property for non-payment of taxes without 1) notice of liability 2) sale of property at public auction
II.
•
> The validity of statute maybe contested only by one who will sustain a direct injury in consequence of its enforcement
•
> A violation of the inherent limitations on taxation would contravene the constitutional injunctions against deprivation of property without due process of law
•
> There must be proof of arbitrariness, otherwise apply the presumption of constitutionality
•
> Due process requires hearing before adoption of legislative rules by administrative bodies of interpretative rulings. (Misamis vs. DFA)
•
> Compliance with strict procedural requirements must be followed effectively to avoid a collision course between the states power to tax and the individual recognized rights (CIR vs. Algue)
•
> The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of tax power. (Tan vs. del Rosario)
•
> SUBSTATNTIVE DUE PROCESS requires that a tax statute must be within the constitutional authority of Congress to pass and that it be reasonable, fair and just
•
> PROCEDURAL DUE PROCESS requires notice and hearing or at least an opportunity to be heard
EQUAL PROTECTION CLAUSE
> All persons, all properties, all businesses should be taxed at the same rate > prohibits class legislation > prohibits undue discrimination EQUALITY IN TAXATION (UNIFORMITY) > Equality in taxation requires that all subjects or objects of taxation similarly situated should be treated alike or put on equal footing both on the privilege conferred and liabilities imposed > All taxable articles of the same class shall be taxed at the same rate
23
•
> The Doctrine does not require that persons or properties different in fact be treated in law as though there were the same. What it prohibits is class legislation which discriminates against some and favors others
•
> As long as there are rational or reasonable grounds for doing so, Congress may group persons or properties to be taxed and it is sufficient if all members of the same class are subject to the same rate and the tax is administered impartially upon them.
REQUISITES OF A VALID CLASSIFICATION (S A G E ) 1) It must be based on substantial distinction 2) It must apply not only to the present condition, but also to future conditions 3) It must be germane to the purpose of the law 4) It must apply equally to all members of the same class
SUBSTANTIAL DISTINCTION > It must be real, material and not superficial distinction
•
> What is not allowed is inequality resulting from singling out of a particular class which violates the requisites of a valid classification
•
> There maybe inequality but as long as it does not violate the requisites of a valid classification that such mere inequality is not enough to justify the nullification of a tax law or tax ordinance
•
> Taxation is equitable when its burden falls on those better able to pay
•
>Although the equal protection clause does not forbid classification, it is imperative that the substantial differences having a reasonable relation to the subject of the particular legislation
•
> Taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority
•
> Tax exemptions are not violative of the equal protection clause, as long as there is valid classification.
TIU vs. CA The Constitutional right to equal protection of the law is not violated by an executive order, issued pursuant to law, granting tax and duty incentives only to business within the “secured area” of the Subic Special Economic Zone” and denying them to those who live within the zone but outside such “fenced in” territory. The Constitution does not require the absolute equality among residents. It is enough that all persons under like circumstances or conditions are given the same privileges and required to follow the same obligations. In short, a classification based on valid and reasonable standards does not violate the equal protection clause. We find real and substantial distinctions between the circumstances obtaining inside and those outside the Subic Naval Base, thereby justifying a valid and reasonable classification.
24
TWO WAYS EQUAL PROTECTION CLAUSE CAN BE VIOLATED 1) When classification is made where there should be none ex. When the classification does not rest upon substantial distinctions that make for real difference 2) When no classification is made where a classification is called for ex. When substantial distinctions exist but no corresponding classification is made on the basis thereof
ORMOC SUGAR CENTRAL vs. CIR
•
> If the ordinance is intended to supply to a specific taxpayer and to no one else regardless of whether or not other entities belonging to the same class are established in the future, it is a violation of the equal protection clause, but if it is intended to apply also to similar establishments which maybe established in the future, then the tax ordinance is valid even if in the meantime, it applies to only one entity or taxpayer for the simple reason that there is so far only one member of the class subject of the tax measure
UNIFORMITY IN TAXATION
•
> The concept of uniformity in taxation implies that all taxable articles or properties of the same class shall be taxed at the same rate. It requires the uniform application and operation, without discrimination, of the tax in every place where the subject of the tax is found. It does not, however, require absolute identity or equality under all circumstances, but subject to reasonable classification.
EQUITY IN TAXATION
•
> The concept of equity in taxation requires that the apportionment of the tax burden be more or less, just in the light of the taxpayer’s ability to shoulder to tax burden and if warranted, on the basis of the benefits received from the government. Its cornerstone is the taxpayers ability to pay.
CRITERIA OF EQUAL PROTECTION 1) When the laws operate uniformly A) on all persons B) under similar circumstances 2) All persons are treated in the same manner A) The conditions not being different B) Both in privileges conferred and liabilities imposed C) Favoritism and preference not allowed REYES vs. ALMAZOR
25
•
> Taxation is equitable when its burden falls on those better able to pay
KAPATIRAN vs. TAN
•
III.
> It is inherent in the power to tax that the state be free to select the subjects of taxation and it has been repeatedly held that inequalities which result from a singling out of one particular class of taxation or exemption infringe no constitutional limitation
FREEDOM OF THE PRESS
•
> The press is not exempt from taxation
•
> The sale of magazines or newspapers, maybe the subject of taxation
•
> What is not allowed is to impose tax on the exercise of an activity which has a connection with freedom of the press (license fee)
> If we impose tax on persons before they can deliver or broadcast a particular news or information, that is the one which cannot be taxed. TOLENTINO vs. SEC. OF FINANCE
•
IV.
> What is prohibited by the constitutional guarantee of free press are laws which single out the press or target a group belonging to the press for special treatment or which in any way discriminates against the press on the basis of the content of the publication.
FREEDOM OF RELIGION
• •
> It is the activity which cannot be taxed > activities which have connection with the exercise of religion
AMERICAN BIBLE SOCIETY vs. MANILA
•
> The payment of license fees for the distribution and sale of bibles suppresses the constitutional right of free exercise of religion.
JIMMY SWAGGART vs. BOARD OF EQUALIZATION
•
> The Free Exercise of Religion Clause does not prohibit imposing a generally applicable sales and use tax on the sale of religious materials by a religious organization.
•
> The Sale of religious articles can be the subject of the VAT
•
> What cannot be taxed is the exercise of religious worship or activity
•
> The income of the priest derived from the exercise of religious activity can be taxed.
26
V.
NON-IMPAIRMENT CLAUSE
•
> The parties to the contract cannot exercise the power of taxation.
•
> They cannot agree or stipulate that this particular transaction may be exempt from tax- not allowed (except if government)
OPOSA vs. FACTORAN
•
> Police power prevails over the non-impairment clause
LA INSULAR vs. MANCHUCA
•
> A lawful tax on a new subject or an increased tax on an old one, does not interfere with a contract or impairs its obligation.
•
> The constitutional guarantee of the non-impairment clause can only invoked in the grant of tax exemption.
RULES: 1) If the exemption was granted for valuable consideration and it is granted on the basis of a contract. > cannot be revoked 2) If the exemption is granted by virtue of a contract, wherein the government enters into a contract with a private corporation > cannot be revoked unilaterally by the government 3) If the basis of the tax exemption is a franchise granted by Congress and under the franchise or the tax exemption is given to a particular holder or person > can be unilaterally revoked by the government (Congress)
•
> The non-impairment clause applies only to contracts and not to a franchise.
•
> The non-impairment clause applies to taxation but not to police power and eminent domain. Furthermore, it applies only where one party is the government and the other, a private individual.
•
> As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer enters into a compromise with the BIR, the obligation of the taxpayer becomes one based on contract
PROVINCE OF MISAMIS vs. CAGAYAN ELECTRIC
•
> Franchises with magic words, “shall be in lieu of all taxes” descriptive of the payment of a franchise tax on their gross earnings are exempt from: 1) all taxes 2) the franchise tax under the NIRC 3) the franchise tax under the local tax code
JUAREZ vs. CA
27
•
> As long as the contract affects the public welfare one way or another so as to require the interference of the state, then must the police power be asserted and prevail over the impairment clause
RULES ON TAX AMNESTY
•
> Tax amnesty, like tax exemption, is never favored nor presumed in law and if granted by statute must be construed strictly against the taxpayer, who must show compliance with the law.
•
>The government is not estopped from questioning the tax liability even if amnesty tax payments were already received REASON: Erroneous application and enforcement of the law by public officers do not block subsequent correct application of the statute. The government is never estopped by mistakes or errors by its agents.
PP vs. CASTAÑEDA
•
> Defense of tax amnesty, like amnesty, is a personal defense
REASON: It relates to the circumstances of a particular accused and not the character of the acts charged in the information REPUBLIC vs. IAC
•
>In case of doubt, tax amnesty is to be strictly construed against the government
REASON: Taxes are not construed, for taxes being burdens are not to be presumed beyond what the tax amnesty expressly and clearly declares
VI.
LAW MAKING PROCESS
A) ONE SUBJECT – ONE TITLE RULE > Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof (Sec. 26 (1) ART II) B) THREE READING RULE > No bill passed by either House shall become a law unless it has passed three readings on separate days and printed copies thereof in its final form have been distributed to its members three days before its passage, EXCEPT when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. (Sec. 26 (2) ART II)
PHIL. JUDGES ASSOC. vs. PRADO
•
> A presidential certification dispenses with the requirement not only of printing but also that of reading the bill on separate days.
•
>It is within the power of a Bicameral Conference Committee to include in its report an entirely new provision that is not found either in the House Bill or
28
Senate Bill, so long as such amendment is germane to the subject of the bills before the committee. After all its report was not final but needed the approval of both houses of Congress to become valid as an act of the legislative department. C) ENROLLED BILL DOCTRINE G.R. – An enrolled copy of a bill is conclusive not only of its provisions but also of its due enactment EXCEPTION: In ASTORGA vs. VILLEGAS, the Supreme Court “went behind” the enrolled bill and consulted the journal to determine whether certain provisions of a state had been approved by the Senate President’s admission of a mistake and withdrawal of his signature.
VII.
PARDONING POWER OF THE PRESIDENT
> The President has the power to grant reprieves, commutations and pardons and remit fines and forfeitures after conviction by final judgment. (Sec. 19, ART VII) NATURE OF TAX AMNESTY – A general pardon or intentional overlooking by the state of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law -
VIII.
absolute forgiveness or waiver to collect
NO IMPRISONMENT FOR NON-PAYMENT OF POLL TAX
-
No person shall be imprisoned for debt or non-payment of poll tax (Sec. 20 ART III)
•
> The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge, but not to other violations like falsification of community tax certificate or non-payment of other taxes
POLL TAX – tax of fixed amount imposed upon residents within a specific territory regardless of citizenship, business or profession Ex. Community tax
IX. TAXATION SHALL BE UNIFORM AND EQUITABLE
-
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. (Sec. 28 (1) ART VI)
UNIFORMITY -
means that all taxable articles kinds of property of the same class shall be taxed at the same rate
•
> A tax is uniform when it operates with the same force and effect in every place where the subject of it is found
EQUITABILITY
29
•
X.
> Taxation is said to be equitable when its burden falls on those better able to pay
CONGRESS SHALL EVOLVE A PROGRESSIVE SYSTEM OF TAXATION
PROGRESSIVITY •
> Taxation is progressive when its rate goes up depending on the sources of the person affected
SYTEMS OF TAXATION 1) PROPORTIONAL TAXATION -
where the tax increases or decreases in relation to the tax bracket
2) PROGRESSIVE or GRADUATED SYSTEM -
where the tax increases as the income of the taxpayer goes higher
3) REGRESSIVE SYSTEM -
where the tax decreases as the income of the taxpayer increases
PROGRESSIVITY IS NOT REPUGNANT TO UNIFORMITY and EQUALITY A) Uniformity does not require the things which are not different be treated in the same manner B) Differentiation, which is not arbitrary and conforms to the dictates of justice and equity is allowed. Progressivity is one way of classification. C) The State has the inherent right to select subjects of taxation
TOLENTINO vs. SEC. OF FINANCE •
> RA 7716 (EVAT), does not violate the constitutional mandate that Congress shall “evolve a progressive system of taxation”
> The Constitution does not really prohibit the imposition of indirect taxes, which like the VAT, are regressive. The constitutional provision means simply that indirect taxes shall be minimized. •
> The mandate to Congress is not to prescribe, but to evolve, a progressive system of taxation
•
> Resort to indirect taxes should be minimized but not to be avoided entirely because it is difficult, if not impossible to avoid them by imposing such taxes according to the taxpayers ability to pay.
XI. ORIGIN OF REVENUE, TARIFF or TAX BILLS All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. (Section 24, Article VI)
30
RULE: -
It is not the revenue statute but the revenue bill which is required by the constitution to originate exclusively in the House of Representatives
REASON:
-
To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the law must substantially be the same as the House bill would be to deny the Senate’s power not only to “concur with amendments” but also to “propose amendments.” It would be to violate the co-equality of legislative power of the two houses of Congress and in fact make the House superior to the Senate. (Tolentino vs. Sec. of Finance)
•
> The Constitution simply requires that there must be that initiative coming from the House of Representatives relative to appropriation, revenue and tariff bills.
•
>The Constitution does not also prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House, as long as action by the Senate is withheld until receipt of said bill (Tolentino vs. Sec. of Finance)
XII. PRESIDENTIAL VETO
•
> “The President shall have the power to veto any particular item or items in an appropriation, revenue or tariff bill, but the veto shall not affect the item or items to which he does not object” (Sec. 27 (2), ART VI)
XIII. TARIFF POWER OF THE PRESIDENT
•
“The Congress may, by law, authorizing the President to fix within specific limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, the other duties or imports within the framework of the national development program of the Government” (Sec. 28 (2), ART VI)
REQUISITES: 1) There must be a law passed by Congress authorizing the President to impose tariff rates and other fees. 2) Under the law, there must be limitations and restrictions on the exercise of such power 3) The taxes that may be imposed by the President are limited to: A) Tariff rates B) Import and export quotas C) Tonnage and wharfage dues D) Other duties (customs duties) 4) The imposition of these tariff and duties must be within the framework of the National Development program of the government •
> Congress “may not pass” a law authorizing the President to impose income tax, donors tax, and other taxes which are not in the nature of customs duties.
31
> The Constitution allows only the imposition by the President of these custom duties
XIV.
•
TAX EXEMPTION OF REAL PROPERTY “Charitable institutions, churches and personages or convents appurtenant thereto, morgues, non-profit cemeteries and all lands, buildings and improvements, actually directly and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.” (Sec. 28 (3) ART VI)
APPLICATION: > The exemption only covers property taxes and not other taxes TEST OF EXEMPTION: > It is the USE of the property and not ownership of the property ABRA VALLEY COLLEGE vs. AQUINO (162 SCRA 106) •
> The exemption does not only extend to indispensable facilities but also covers incidental facilities which are reasonably necessary to the accomplishment of said purpose
•
> A property leased by the owner to another who uses it exclusively for religious purposes is exempt from property tax, but the owner is subject to income tax or rents received.
•
> Real property purchased by any religious sect to be used exclusively for religious purposes are subject to the tax on the transfer of ownership or of title to real property (also if donated- donor’s tax)
•
> Property held for future use is not tax exempt
XV.
LAW GRANTING TAX EXEMPTIONS
•
“ No law granting any tax exemptions shall be passed without the concurrence of a majority of all members of the Congress” (Sec. 28 (4) ART VI)
RULES ON VOTE REQUIREMENT 1) Law granting any tax exemption > absolute majority 2) Law withdrawing any tax exemption > Relative majority • •
> Tax exemption, amnesties, refunds are considered in the nature of tax exemptions
> A law granting such needs approval of the absolute majority of the Congress
32
XVI.
NO USE OF PUBLIC MONEY OR PROPERTY FOR PUBLIC PURPOSES
•
> “ No public money or property shall be appropriated, applied, paid, or employed, directly or indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian, institution or system of religion, or of any priest, preacher, minister or other religious teacher or dignitary as such, EXCEPT when such priest, preacher, minister or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium as such” (Sec. 29 (2) ART VI)
•
> Public property may be leased to a religious group provided that the lease will be totally under the same conditions as that to private persons (amount of rent)
•
> Congress is without power to appropriate funds for a private purpose.
XVII.
TAX LEVIED FOR SPECIAL PURPOSES
“ All money collected or any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government.” (Sec. 29 (3) ART VI)
•
XVIII.
> If a President of the Philippines spent a special fund for a general purpose, he can be charged with culpable violation of the Constitution.
SUPREME COURT’S POWER OF REVIEW
“The Supreme Court shall have the power to review, revise, reverse, modify or affirm on appeal or certiorari, all cases involving the legality of any tax imposed, assessment, or toll, or any penalty imposed in relation thereto.” (Sec. 5 (2B) ART VIII)
•
XIX.
> Congress cannot take away from the Supreme Court the power given to it by the Constitution as the final arbiter of the tax cases.
DELEGATED AUTHORITY TO LOCAL GOVERNMENT UNITS
“ Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, charges shall have exclusivity to the local government.” (Sec. 5, ART X) LIMITATIONS ON POWER TO TAX (L.G.U.) 1) It is subject to such guidelines and limitations provided by Congress. 2) It must be consistent with the basic policy of local autonomy. 3) Such taxes, fees, and charges shall accrue exclusively to the local government.
33
RULES: NATIONAL GOV’T vs. LGU
IMPOSITION OF TAXES
1) The National Government may impose local taxes on articles or subjects which are within the territorial jurisdiction of the local government unit. 2) The Local Government unit cannot impose tax on the national government. > You can only tax those articles, which are within your jurisdiction SEC. 6, ART X “ local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.”
XX. TAX EXEMPTIONS OF EDUCATIONAL INSTITUTIONS “ All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties.” (Sec. 4 (3) ART XIV) REQUISITES FOR EXEMPTION: 1) It must be a private educational institution 2) It must be non-stock and non-profit 3) It’s assets (property) and revenues (income) must be used actually, directly and exclusively for educational purposes RULES: 1) If the first requisite is absent (meaning, it’s a government educational institution), it is nonetheless exempt from income tax 2) If the second requirement is absent (meaning, it is stock and profit) as long as the third requirement is present, it is nonetheless exempt from real estate tax 3) If the third requirement is absent, as long as it is non-stock and non-profit, it is nonetheless exempt from income tax 4) If the third requirement is absent, but it is private and non-profit, it is subject to income tax, but at the preferential rate of ten percent (10%) •
> Under the present tax code, for a private educational institution to be exempt from the payment of income tax, all it has to be is non-stock and nonprofit. However, a governmental educational institution is exempt from income tax without any condition
EXEMPTION DOES NOT EXTEND TO: 1) Income derived by these educational institutions from their property, real or personal, and 2) From activities conducted by them for profit regardless of the disposition made on such income MANILA POLO CLUB vs. CTA
•
> Proceeds of the sale of real property by the Roman Catholic church is exempt from income tax because the transaction was an isolated one
ST. PAUL HOSPITAL of ILOILO vs. CIR
34
•
> Income derived from the hospital pharmacy, dormitory and canteen was exempt from income tax because the operation of those entities was merely incidental to the primary purpose of the exempt corporation
•
> Where the educational institution is private and non-profit (but a stock corporation) it is subject to income tax but at the preferential rate of ten percent (10%)
REQUISITES for APPLICATION of 10% PREFERENTIAL RATE 1) It is private; 2) It has permit to operate from the DECS, or CHED or TESDA; 3) It is non-profit; 4) Its gross income from unrelated trade or business must not exceed fifty percent (50%) of its total gross income from all sources. 10% PREFERENTIAL TAX RATE DOES NOT APPLY TO THE FOLLOWING: 1) Passive incomes derived by the educational institution (subject to final income tax) and 2) Where the educational institution is engaged in unrelated trade, business or other activity, and the gross income from such unrelated trade, business or other activities exceeds fifty percent (50%) of the total gross income derived by the school from all sources •
> Where a donation is made in favor of an educational institution pursuant to sports competition and tournaments, the donor is exempt from the payment of donor’s tax
CIR vs. CA (298 SCRA 83) •
> Income derived by YMCA from leasing out a portion of its premises to small shop owners, like restaurant and canteen operators, and from parking fees collected from non-members are taxable income
XXI.
•
XXII.
YMCA is not an educational institution
TAX EXEMPTION OF DONATIONS for EDUCATIONAL PURPOSES > “Subject to conditions prescribed by law, all grants endowments, donations, or contributions used actually, directly and exclusively for educational purposes shall be exempt from tax.” (Sec. 4 (4) ART XIV)
NO EXPOST FACTO LAW PROHIBITION IN TAXATION
FERNANDEZ vs. FERNANDEZ •
> The prohibition against “ex post facto laws” applies only to criminal laws and not to those that concern civil matters
•
Our tax laws are civil in nature
> The collection of interest on taxes is not penal in nature and the ex post facto law prohibition does not apply to it.
35
DOUBLE TAXATION •
> Taxing same property twice when it should be taxed but once. Taxing the same person twice by the same jurisdiction over the same thing.
Also known as duplicate taxation
PEPSI COLA vs. CITY OF BUTUAN •
> There is no constitutional prohibition against double taxation in the Philippines. It is something not favored but is permissible, provided that the other constitutional requirements is not thereby violated
KINDS OF DOUBLE TAXATION 1) DIRECT DOUBLE TAXATION
-
Double taxation in the objectionable or prohibited sense
-
Same property is taxed twice
REQUISITES: A) The same property is taxed twice when it should only be taxed once; B) Both taxes are imposed on the same property or subject matter for the same purpose; C) Imposed by the same taxing authority; D) Within the same jurisdiction; E) During the same period; and F) Covering the same kind or character of tax
2) INDIRECT DOUBLE TAXATION -
Not legally objectionable
-
If taxes are not of the same kind, or the imposition are imposed for different taxing authority and this may involve the same subject matter
EXAMPLES: A) The taxpayers warehousing business although carried on in relation to the operation of its sugar central is a distinct and separate taxable business B) A license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax C) Both a license fee and a tax may be imposed on the same business or occupation for selling the same article and this is not in violation of the rules against double taxation D) When every bottle or container of intoxicating beverages is subject to local tax and at the same time the business of selling such product is also subject to liquors license
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E) A tax imposed on both on the occupation of fishing and of the fishpond itself F) A local ordinance imposes a tax on the storage of copra where it appears that the finished products manufactured out of the copra are subject to VAT
MEANS EMPLOYED TO AVOID DOUBLE TAXATION 1) Tax deductions 2) Tax credits 3) Provide for exemption 4) Enter into treatise with other states 5) Allowance on the principle of reciprocity TAX CREDIT -
An amount allowed as a deduction of the Philippine Income tax on account of income taxes paid or incurred to foreign countries. It is given to a taxpayer in order to provide a relief from too onerous a burden of taxation in case where the same income is subject to a foreign income tax and the Philippine Income tax.
WHO CAN CLAIM TAX CREDIT 1) Citizens of the Philippines 2) Domestic corporations CITY OF BAGUIO vs. DE LEON •
> The argument against double taxation may not be invoked where one tax is imposed by the state and the other imposed by the city, it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and a political subdivision thereof. And where the statute or ordinance in question applies equally to all persons, firms and corporations placed in a similar situation, there is no infringement of the rule on equality.
VILLANUEVA vs. CITY OF ILOILO •
> An ordinance imposing a municipal tax on tenement houses was challenged because the owners already pay real estate taxes and also income taxes under the NIRC. The Supreme Court held that there was no double taxation. The same tax may be imposed by the National Government as well as the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the state and a political subdivision thereof. Further, a license tax may be levied upon a business or occupation although the land used in connection therewith is subject to property tax.
DOCTRINES ON DOUBLE TAXATION 1) Direct Double Taxation (DDT) is not allowed because it amounts to confiscation of property without due process of law 2) You can question the validity of double taxation if there is a violation of the Equal protection clause or Equality or Uniformity of Taxation
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3) All doubts as to whether double taxation has been imposed should be resolved in favor of the taxpayer
ESCAPE FROM TAXATION BASIC FORMS OF ESCAPE FROM TAXATION 1) SHIFTING 2) CAPITALIZATION 3) TRANSFORMATION 4) AVOIDANCE 5) EXEMPTION 6) EVASION I. SHIFTING -
Shifting is the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to someone else
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Process by which such tax burden is transferred from statutory taxpayer to another without violating the law
•
> It should be borne in mind that what is transferred is not the payment of the tax, but the burden of the tax
•
> Only indirect taxes may be shifted; direct taxes cannot be shifted
WAYS OF SHIFTING THE TAX BURDEN 1) FORWARD SHIFTING -
When the burden of the tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer.
Example: -
Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to the retailer, who also shifts it to the final purchaser or consumer
2) BACKWARD SHIFTING -
When the burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factors of production
Example: -
Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced, and from the latter to the wholesaler, or finally to the manufacturer or producer
3) ONWARD SHIFTING -
When the tax is shifted two or more times either forward or backward
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Example: -
Thus, a transfer from the seller to the purchaser involves one shift; from the producer to the wholesaler, then to retailer, we have two shifts; and if the tax is transferred again to the purchaser by the retailer, we have three shifts in all.
Impact and Incidence of Taxation
•
Impact of taxation is the point on which a tax is originally imposed. In so far as the law is concerned, the taxpayer is the person who must pay the tax to the government. He is also termed as the statutory taxpayer-the one on whom the tax is formally assessed. He is the subject of the tax
•
Incidence of taxation is that point on which the tax burden finally rests or settle down. It takes place when shifting has been effected from the statutory taxpayer to another.
Statutory Taxpayer •
The Statutory taxpayer is the person required by law to pay the tax or the one on whom the tax is formally assessed. In short, he or she is the subject of the tax.
•
In direct taxes, the statutory taxpayer is the one who shoulders the burden of the tax while in indirect taxes, the statutory taxpayer is the one who pay the tax to the government but the burden can be passed to another person or entity.
Relationship between impact, shifting, and incidence of a tax
•
The impact is the initial phenomenon, the shifting is the intermediate process, and the incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on the seller (manufacturer) who shifts the burden to the customer who finally bears the incidence of the tax.
•
Impact is the imposition of the tax; shifting is the transfer of the tax; while incidence is the setting or coming to rest of the tax.
II.
CAPITALIZATION -
Reduction is the price of the taxed object equal to the capitalized value of future taxes on the property sold
•
> This is a special form of backward shifting, where the burden of future taxes which the buyer may have to pay is shifted back to the seller in the form of reduction in the selling price
III.
TRANSFORMATION -
IV.
The manufacturer in an effort to avoid losing his customers, maintains the same selling price and margin of profit, not by shifting the tax burden to his customers, but by improving his method of production and cutting down or other production cost, thereby transforming the tax into or earn through the medium of production.
TAX AVOIDANCE
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Also known as “tax minimization”
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not punished by law
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Tax avoidance is the exploitation of the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability
DELPHERS TRADERS CORP vs. IAC (157 SCRA 349) •
> The Supreme Court upheld the estate planning scheme resorted to by the Pacheco family in converting their property to shares of stock in a corporation which they themselves owned and controlled. By virtue of the deed of exchange, the Pacheco co-owners saved on inheritance taxes. The Supreme Court said the records do not point anything wrong and objectionable about this estate planning scheme resorted to. The legal right of the taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them by means which the law permits cannot be doubted.
Example: Following the “holding period rule” in capital gains transaction, by postponing the sale of the capital asset until after twelve months from date of acquisition you can reduce the tax on the capital gains by 50%
V.
TAX EXEMPTION
Tax Exemption •
It is the grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. It is an immunity or privilege; it is freedom from a financial charge or burden to which others are subjected.
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Exemption is allowed only if there is a clear provision there for.
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It is not necessarily discriminatory as long as there is a reasonable foundation or rational basis.
•
Exemptions are not presumed, but when public property is involved, exemption is the rule and taxation is the exemption.
Rationale for granting tax exemptions •
Its avowed purpose is some public benefit or interests which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the exemption.
•
The theory behind the grant of tax exemptions is that such act will benefit the body of the people. It is not based on the idea of lessening the burden of the individual owners of property.
Grounds for granting tax exemptions 1) May be based on contract. In such a case, the public, which is represented by the government is supposed to receive a full equivalent therefor, i.e. charter of a corporation. 2) May be based on some ground of public policy, i.e., to encourage new industries or to foster charitable institutions. Here, the government need not receive any consideration in return for the tax exemption.
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3) May be based on grounds of reciprocity or to lessen the rigors of international double or multiple taxation Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is a clear provision therefor. Nature of tax exemption 1) It is a mere personal privilege of the grantee. 2) It is generally revocable by the government unless the exemption is founded on a contract which is contract which is protected from impairment. 3) It implies a waiver on the part of the government of its right to collect what otherwise would be due to it, and so is prejudicial thereto. 4) It is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis. 5) It is not transferable except if the law expressly provides so. Kinds of tax exemption according to manner of creation 1) Express or affirmative exemption When certain persons, property or transactions are, by express provision, exempted from all certain taxes, either entirely or in part. 2) Implied exemption or exemption by omission When a tax is levied on certain classes of persons, properties, or transactions without mentioning the other classes. Every tax statute makes exemptions because of omissions. •
No tax exemption by implication
It must be expressed in clear and unmistakable language
CALTEX vs. COA •
> In claiming tax exemption, the burden of proof lies upon the claimant
It cannot be created by mere implication
It cannot be presumed that you are entitled to tax exemption
You must prove it
RULE: -
Taxation is the rule and exemption is the exception
PROPERTY TAX – GOVERNMENT PROPERTY •
> Properties owned by the government whether in their proprietary or governmental capacity are exempt from real estate tax
TEST: - OWNERSHIP •
> Once established that it belongs to the government, the nature of the use of the property whether proprietary or sovereign becomes immaterial.
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•
> Exemption of public property from taxation does not extend to improvements therein made by occupants or claimants at their own expense.
KINDS OF TAX EXEMPTIONS ACCORDING TO SCOPE OR EXTENT 1) TOTAL -
When certain persons, property or transactions are exempted, expressly or impliedly from all taxes
2) PARTIAL -
When certain persons, property or transactions are exempted, expressly or impliedly from certain taxes, either entirely or in part.
3) There can be no simultaneous exemptions under two laws, when one grants partial exemption while other grants total exemption.
Does provision in a statute granting exemption from “all taxes” include indirect taxes? •
NO. As a general rule, indirect taxes are not included in the grant of such exemption unless it is expressly stated.
Nature of power to grant tax exemption 1) National government The power to grant tax exemptions is an attribute of sovereignty for the power to prescribe who or what persons or property shall not be taxed. It is inherent in the exercise of the power to tax that the sovereign state be free to select the subjects of taxation and to grant exemptions therefrom. Unless restricted by the Constitution, the legislative power to exempt is as broad as its power to tax. 2) Local governments Municipal corporations are clothed with no inherent power to tax or grant tax exemptions. But the moment the power to impose a particular tax is granted, they also have the power to grant exemption therefrom unless forbidden by some provision of the Constitution or the law The legislature may delegate its power to grant tax exemptions to the same extent that it may exercise the power to exempt. Basco vs. PAGCOR (196 SCRA 52): The power to tax municipal corporations must always yield to a legislative act which is superior, having been passed by the State itself. Municipal corporations are mere creatures of Congress which has the power to create and abolish municipal corporations due to its general legislative powers. If Congress can grant the power to tax, it can also provide for exemptions or even take back the power. Chavez v. PCGG, G.R. No. 130716, 09 December 1998 •
In a compromise agreement between the Philippine Government, represented by the PCGG, and the Marcos heirs, the PCGG granted tax exemptions to the assets which will be apportioned to the Marcos heirs. The Supreme Court ruled that the PCGG has absolutely no power to grant tax exemptions, even under the cover of its authority to compromise ill gotten wealth cases. The grant of tax exemptions is the exclusive prerogative of the Congress.
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•
In fact, the Supreme Court even stated that Congress itself cannot grant tax exemptions in the case at bar because it will violate the equal protection clause of the Constitution.
Interpretation of the laws granting tax exemptions •
General rule
In the construction of tax statutes, exemptions are not favored and are construed strictissimi juris against the taxpayer. The fundamental theory is that all taxable property should bear its share in the cost and expense of the government. Taxation is the rule and exemption is the exemption. He who claims exemption must be able to justify his claim or right thereto by a grant express in terms “too plain to be mistaken and too categorical to be misinterpreted.” If not expressly mentioned in the law, it must be at least within its purview by clear legislative intent.
•
Exceptions
1) When the law itself expressly provides for a liberal construction thereof. 2) In cases of exemptions granted to religious, charitable and educational institutions or to the government or its agencies or to public property because the general rule is that they are exempt from tax.
Strict interpretation does not apply to the government and its agencies
•
Petitioner cannot invoke the rule on stritissimi juris with respect to the interpretation of statutes granting tax exemptions to the NPC. The rule on strict interpretation does not apply in the case of exemptions in favor of a political subdivision or instrumentality of the government. [Maceda v. Macaraig]
Davao Gulf v. Commissioner, 293 SCRA 76 (1998)
•
A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other hand, once the tax is unquestionably imposed, “a claim of exemption from tax payers must be clearly shown and based on language in the law too plain to be mistaken.” Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. Hence, petitioner’s claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken.
•
> Exemption of the buyer does not extend to the seller
Exemption of the principal does not extend to the accessory
SURIGAO vs. COLLECTOR of CUSTOMS
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•
> Tax refunds, condonations and amnesties, they being in the nature of tax exemptions must be strictly construed against the taxpayer and liberally in favor of the government.
Tax remission or tax condonation
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The word “remit” means to desist or refrain from exacting, inflicting or enforcing something as well as to restore what has already been taken. The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Such a set of taxes is a class by itself and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. [Juan Luna Subd. V. Sarmiento, 91 Phil 370]
•
The condition of a tax liability is equivalent to and is in the nature of a tax exemption. Thus, it should be sustained only when expressly provided in the law. [Surigao Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728]
Tax amnesty
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Tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue to collect what otherwise would be due it and, in this sense, prejudicial thereto. It is granted particularly to tax evaders who wish to relent and are willing to reform, thus giving them a chance to do so and thereby become a part of the new society with a clean slate. [Republic v. Intermediate Appellate Court, 196 SCRA 335]
•
Like tax exemption, tax amnesty is never favored nor presumed in law. It is granted by statute. The terms of the amnesty must also be construed against the taxpayer and liberally in favor of the government.
Tax amnesty v. tax condonation v. tax exemption
•
A tax amnesty, being a general pardon or intentional overlooking by the Statute of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it and, in this sense, prejudicial thereto, particularly to tax evaders who wish to relent and are willing to reform are given a chance to do so and therefore become a part of the society with a clean slate.
•
Like a tax exemption, a tax amnesty is never favored nor presumed in law, and is granted by statute. The terms of the amnesty must be strictly construed against the taxpayer and literally in favor of the government. Unlike a tax exemption, however, a tax amnesty has limited applicability as to cover a particular taxing period or transaction only.
•
There is a tax condonation or remission when the State desists or refrains from exacting, inflicting or enforcing something as well as to reduce what has already been taken. The condonation of a tax liability is equivalent to and is in the nature of a tax exemption. Thus, it should be sustained only when expressed in the law.
•
Tax exemption, on the other hand, is the grant of immunity to particular persons or corporations of a particular class from a tax of which persons and corporations generally within the same state or taxing district are obliged to
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pay. Tax exemptions are not favored and are construed strictissimi juris against the taxpayer.
CIR vs. RIO TUBA •
> Law granting partial refund partakes the nature of a tax exemption and therefore must be strictly construed against the taxpayer
CIR vs. TOUR SPECIALIST
•
> Gross receipts subject to tax under the tax code do not include monies or receipts entrusted to the taxpayer which do not belong to it and does not redound to the taxpayers benefit, and it is not necessary that there must be a law or regulation which would exempt such monies and receipts within the meaning of gross receipts.
CONSTITUTIONAL RESTRICTION: “No law granting any tax exemption shall be passed without the concurrence of a majority of all members of Congress.” (Sec. 28 (4) ART VI) PROV. OF NUEVA ECIJA vs. IMPERIAL MINING
•
> Basis or test for real property taxation is use and not ownership. Thus, it does not matter who the owner of the property is even if it is not tax exempt entity, as long as it is being used for religious, charitable or educational purposes, then it is tax exempt.
Conversely, even if the property taxation is owned by the government if the beneficial use has been granted, for consideration or otherwise, to a taxable person, then the property is subject to tax.
VI. TAX EVASION
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It is also known as “tax dodging”
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It is punishable by law
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Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax.
YUTIVO vs. CTA •
> Tax evasion is a term that connotes fraud through the use of pretenses or forbidden devices to lessen or defeat taxes
ELEMENTS OF TAX EVASION
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Tax evasion connotes the integration of three (3) factors:
1) The end to be achieved, i.e. payment of less than that known by the taxpayer to be legally due, or paying no tax when it is shown that tax is due 2) An accompanying state of mind which is described as being “evil”, “in bad faith”, “willful”, or “deliberate” and not “accidental”
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3) A course of action (or failure of action) which is unlawful
INDICIA of FRAUD IN TAX EVASION 1) Failure to declare for taxation purposes true and actual income derived from business for two (2) consecutive years; or 2) Substantial underdeclaration of income tax returns of the taxpayer for four (4) consecutive years coupled with unintentional overstatement of deductions EVIDENCE TO PROVE TAX EVASION
•
> Since fraud is a state of mind, it need not be proved by direct evidence but may be proved from the circumstances of the case.
REPUBLIC vs. GONZALES (13 SCRA 638)
•
> Failure of the taxpayer to declare for taxation purposes his true and actual income derived from his business for two (2) consecutive years is an indication of his fraudulent intent to cheat the government of its due taxes.
TAX ENFORCEMENT AND ADMINISTRATION SOURCES OF TAX LAWS: 1) Statutes 2) Presidential decrees 3) Executive orders 4) Constitution 5) Court decisions 6) Tax code 7) Revenue regulations 8) Administrative issuances 9) BIR rulings 10) Local tax ordinances 11) Tax treaties and conventions with foreign countries PROSPECTIVITY OF TAX LAWS (APPLICATION) GENERAL RULE: -
Tax laws should be applied prospectively
EXCEPTION: -
It may be applied retroactively when the law expressly provides for such retroactive application
EXCEPTION TO THE EXCEPTION: -
It may not be given retroactive application even if the tax law expressly so provides if it imposes unjust and oppressive taxes.
IMPRESCRIPTIBILITY OF TAXES GENERAL RULE: -
Taxes are imprescriptible
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EXCEPTION: -
They are prescriptible if the tax laws provide for statute of limitations
PRESCRIPTIVE PERIODS: 1) Prescriptive periods for the assessment and collection of taxes
10 years if return is tainted with falsity or fraud
3 years if there is no fraud
2) TARIFF AND CUSTOMS CODE - After the expiration of 1 year from the payment of final duties. > You should impose those custom duties that are supposed to be imposed on the imported articles within the 1 year period, except if it is in the nature of partial liquidation, if there is fraud or protest 3) LOCAL GOVERNMENT CODE - Prescriptive periods for local taxes and real property tax > 5 years > 10 years if fraud has been employed
INTERPRETATION AND APPLICATION OF TAX LAWS Nature of Internal revenue laws 1) Internal revenue laws are not political in nature. 2) Tax laws are civil and not penal in nature. Not political in nature Internal revenue laws are not political in nature. They are deemed to be laws of the occupied territory and not of the occupying enemy. Thus, our tax laws continued in force during the Japanese occupation. Hilado v. Collector, 100 Phil. 288): It is well known that our internal revenue laws are not political in nature and, as such, continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. Income tax returns that were filed during that period and income tax payments made were considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. Civil not penal in nature Tax laws are civil and not penal in nature, although there are penalties provided for their violation. The purpose of tax laws in imposing penalties for delinquencies is to compel the timely payment of taxes or to punish evasion or neglect of duty in respect thereof. Republic v. Oasan, 99 Phil 934: The war profits tax is not subject to the prohibition on ex post facto laws as the latter applies only to criminal or penal matters. Tax laws are civil in nature.
Construction of tax laws
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1) Rule when legislative intent is clear Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent. They should not be construed as to permit the taxpayer easily to evade the payment of taxes. 2) Rule when there is doubt No person or property is subject to taxation unless within the terms or plain import of a taxing statute. In every case of doubt, tax statutes are construed strictly against the government and liberally in favor of the taxpayer. Taxes, being burdens, are not to be presumed beyond what the statute expressly and clearly declares. 3) Provisions granting tax exemptions Such provisions are construed strictly against the taxpayer claiming tax exemption.
Application of tax laws
•
General rule: Tax laws are prospective in operation because the nature and amount to the tax could not be foreseen and understood by the taxpayer at the time the transactions which the law seeks to tax was completed
•
Exception: While it is not favored, a statute may nevertheless operate retroactively provided it is expressly declared or is clearly the legislative intent. But a tax law should not be given retroactive application when it would be harsh and oppressive.
Directory and mandatory provisions of tax laws
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Directory provisions are those designed merely for the information or direction of office or to secure methodical and systematic modes of proceedings.
•
Mandatory provisions are those intended for the security of the citizens or which are designed to ensure equality of taxation or certainty as to the nature and amount of each person’s tax.
•
The omission to follow mandatory provisions renders invalid the act or proceeding to which it relates while the omission to follow directory provisions does not involve such consequence. [Roxas v. Rafferty, 37 Phil 958]
REQUISITES OF TAX REGULATIONS 1. reasonable 2. within the authority conferred 3. not contrary to law 4. must be published
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EXCEPTIONS TO NON-RETROACTIVITY OF RULINGS Revocation, modification of revenue of any rules and regulations promulgated by the Sec. of Finance or CIR shall not have retroactive effect if it will be prejudicial to the taxpayer, except: 1. where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the BIR 2. where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based 3. where the taxpayer acted in bad faith AGENCIES INVOLVED IN TAX ADMINISTRATION 1. BIR 2. Bureau of Customs 3. Provincial, city, and municipal assessors and treasurers POWERS AND DUTIES OF THE BIR 1. Assessment and collection of all national internal revenue taxes, fees and charges 2. Give effect to and administer the supervisory and police power conferred to it by the Tax Code or other laws 3. Enforcement of all forfeitures, penalties and fines in connection therewith 4. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts
CLASSIFFICATION OF ASSESSMENTS
1. Self-assessment – one in which the tax is assessed by the taxpayer himself. 2. Illegal and Void assessment – one wherein the tax assessor has no power to act at all.
3. Deficiency assessment – one made by the tax assessor himself whereby the correct amount of the tax is determined by the examination or investigation is conducted. The liability is determined and is thereafter assessed for the following reasons: a. the 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. the taxpayer did not file any return at all
4. Erroneous assessment – one wherein the assessor has the power to assess but errs in the exercise of the power. PRINCIPLES GOVERNING TAX ASSESSMENTS
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1. assessments are prima facie presumed correct and made in good faith 2. assessment should be based on actual facts 3. assessment is discretionary on the part of the Commissioner to assess taxes may be delegated 4. assessments must be directed to the right party. MEANS EMPLOYED IN THE ASSESSMENT OF TAXES 1. Examination of tax returns 2. Use of the best evidence obtainable 3. Inventory taking, surveillance and use of presumptive gross sales and receipts 4. Termination of taxable period 5. Prescription of real property values
6. Examination of bank deposits to determine the correct amount of the gross estate
7. Accreditation and registration of tax agents 8. Prescription of additional procedural or documentary requirements
GENERAL RULE: Income tax returns are confidential EXCEPTIONS: 1. when the inspection of the return is authorized upon written order of the President of the Philippines 2. when inspection is authorized under Finance Regulations no. 33 of the Secretary of Finance 3. when the production of the tax return is material evidence in a criminal case wherein the Government is interested in the result 4. when the production or inspection thereof is authorized by the taxpayer himself CASES WHEN COMMISSIONER MAY ASSESS TAXES ON THE BASIS OF THE BEST EVIDENCE OBTAINABLE: 1. in case a person fails to file a return or other document at the time prescribed by law 2. he willfully or otherwise files a false or fraudulent return or other document GROUNDS FOR TERMINATION OF TAXABLE PERIOD: 1. the taxpayer is retiring from business subject to tax 2. he intends to leave the Philippines or remove his property therefrom 3. he hides or conceals his property 4. he performs any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or renders the same totally or partly ineffective unless such proceedings are began immediately. INSTANCES WHEN THE COMMISSIONER MAY INQUIRE INTO BANK DEPOSITS:
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1. for the purpose of determining the gross estate of a decedent 2. where a taxpayer offers to compromise his tax liability on the ground of financial inability in which case he must submit a waiver. INSPECTION AND EXAMINATION OF BOOKS AND RECORDS SHALL BE MADE ONCE IN A TAXABLE YEAR, EXCEPT: 1. in cases of fraud, irregularity, or mistakes 2. when taxpayer requests a reinvestigation 3. to verify compliance with withholding tax laws and regulations 4. to verify capital gains tax liabilities 5. upon order of the Commissioner 25% SURCHARGE ON THE AMOUNT OF THE TAX DUE IS IMPOSED IN THE FOLLOWING CASES: 1. failure to file any return required under the provisions of the Tax Code or regulations on the date prescribed 2. filing a return with an internal revenue officer other than those with whom the return is required to be filed 3. failure to pay the tax within the time prescribed for its payment
4. failure to pay the full amount of tax shown on any return required to be filed under the provisions of the Tax Code or regulations or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment
REVENUE RULES AND REGULATIONS AND ADMINISTRATIVE RULINGS AND OPINIONS Authority to promulgate rules and regulations and rulings and opinions •
The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, shall promulgate needful rules and regulations for the effective enforcement of the provisions of the NIRC.
•
This is without the prejudice to the power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes.
Purpose of rules and regulations 1. To properly enforce and execute the laws 2. To clarify and explain the law
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3. To carry into effect the law’s general provisions by providing details of administration and procedure Requisites for validity of rules and regulations 1. They must not be contrary to law and the Constitution. 2. They must be published in the Official Gazette or a newspaper of general circulation. Commissioner v. Court of Appeals, 240 SCRA 368
•
The authority of the Minister of Finance, in conjunction with the Commissioner of Internal Revenue, to promulgate rules and regulations for the effective enforcement of internal revenue rules cannot be converted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is that all issuances must not override, but must remain consistent with, the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify, the law.
La Suerte v. Court of Tax Appleals, 134 SCRA 29 •
When an administrative agency renders an opinion by means of a circular or memorandum, it merely interprets existing law and no publication is therefore necessary for its validity. Construction by an executive branch of the government of a particular law, although not binding upon courts, must be given weight as the construction came from the branch of the government which is called upon to implement the law.
Effectivity of revenue rules and regulations
•
Revenue Memorandum Circular 20-86 was issued to govern the drafting, issuance and implementation of revenue tax issuances including:
1. Revenue Regulations; 2. Revenue and Memorandum Orders; and 3. Revenue Memorandum Circulars and Revenue Memorandum Orders.
•
Except when the law otherwise expressly provides, the aforesaid revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly assumed.
•
Due notice of said issuances may be fairly presumed only after the following procedures have been taken:
1. Copies of tax issuance have been sent through registered mail to the following business and professional organizations: a. Philippine Institute of Certified Public Accountants;; b. Integrated Bar of the Philippines; c. Philippine Chamber of Commerce and Industry; d. American Chamber of Commerce; e. Federation of Filipino-Chinese Chamber of Commerce; and
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f.
Japanese Chamber of Commerce and Industry in the Philippines.
2. The Bureau of Internal Revenue shall issue a press release covering the highlights and features of the new tax issuance in any newspaper of general circulation. 3. Effectivity date for enforcement of the new issuance shall take place thirty (30) days from the date the issuance has been sent to the above-enumerated organizations.
BIR rulings •
Administrative rulings, known as BIR rulings, are the less general interpretation of tax laws being issued from time to time by the Commissioner of Internal Revenue. They are usually rendered on request of taxpayers to clarify certain provisions of a tax law. These rulings may be revoked by the Secretary of Finance if the latter finds them not in accordance with the law.
•
The Commissioner may revoke, repeal or abrogate the acts or previous rulings of his predecessors in office because the construction of the statute by those administering it is not binding on their successors if, thereafter, such successors are satisfied that a different construction of the law should be given.
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Rulings in the forms of opinion are also given by the Secretary of Justice who is the chief legal officer of the Government.
EFFECTIVITY AND VALIDITY OF A TAX ORDINANCE Tuazon v. Court of Tax Appleals, 212 SCRA 739 If the resolution is to be considered as a tax ordinance, it must be shown to have been enacted in accordance with the requirements of the Local Government Code. These would include the holding of a public hearing on the measure and its subsequent approval by the Secretary of Finance, in addition to the usual requisites for publication of ordinances in general.
BASIC POWERS OF THE BIR COMMISSIONER - CODE: [E R A P] 1. Enforcement of forfeitures, fines, and penalties imposed in relation thereto, including the enforcement execution of judgment rendered by the CTA or SC in favor of the BIR 2. Recommend needful rules and regulations to the Secretary of Finance for the effective implementation of the provisions of the NIRC and special laws
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3. Assessment and collection of internal revenue taxes, fees and other taxes. 4. Police power, to administer or to give effect to the police power conferred upon it by law.
CORROLARY POWERS OF THE BIR COMMISSIONER CODE: [S I E O T A A T ] 1. Summon persons on certain cases pending investigation 2. Inquire into bank deposits - Except: Secrecy of bank deposits law > Only to determine the gross estate of decedent not to determine the income 3. Examine books of the accounts of the taxpayer and other documents 4. Obtain information 5. Take testimony of persons 6. Administer oaths 7. Arrest persons who have violated the provisions of the tax code > should have warrant of arrest 8. Take inventory
