Taxation Summary for Atty Chua's class

1. TAXATION
Camille Anne E. Duterte
4LM3
December 17, 2015

2. GENERAL PRINCIPLES

3. What is
Taxation?
Definition

4. It is the power by which
the sovereign, through its
law-making body, raises
revenue to defray the
necessary expenses of the
government.

5. Why is it
important?
Rationale

6. Taxes are what we pay for
the civilized society. Without
taxes, the government would
be paralyzed for lack of
motive power to activate and
operate it.

7. • Taxpayers owe honesty to the government just
as government owes fairness to taxpayers.
(Commissioner of Internal Revenue vs Tokyo Shipping Co., Ltd., et al., GR No. 68252)
• No one, not even the State shall enrich itself
at the expense of another. (BPI-Family Savings Bank, Inc. vs CA, et al.,
GR No.122480)
We have to
understand the
relations between
the State and the
People in Taxation
Symbiotic Relationship (State and its People)

8. Where does the
State get its
power to tax?
Nature of Taxing Power

9. • Inherent in the State
• Not to be exercised arbitrarily
• Power emanating from necessity.
“x x x a necessary burden to preserve the State’s sovereignty and a
means to give the citizenry an army to resist an aggression, a navy
to defend its shores from invasion, a corps of civil servants to serve,
public improvement designed for the enjoyment of the citizenry
and those which come within the State’s territory and facilities, and
protection which a government is supposed to provide.” (Phil. Guaranty
Co., Inc., vs Commissioner of Internal Revenue, et al.)
Nature of Taxing Power
It is inherent
but not
unlimited.

10. • Not granted in the Constitution; Constitution
merely provides for limitations
• Peculiarly and exclusively legislative in
character
• Subject to inherent and constitutional
limitations
Nature of Taxing Power

11. What are taxes?
Taxes
Taxes are:

12. • Enforced proportional contribution from
persons and property levied by the law-
making body of the State by virtue of its
sovereignty for the support of government
and for public needs.
• Lifeblood of the government
• Purpose: generate funds for the State to
finance the needs of the citizens and advance
common weal
Taxes

13. Characteristics of Taxes:
Taxes have the
following
characteristics:

14. Forced charge contribution; operates in
invitum; not contracts but positive acts of the
gov’t
Pecuniary burden payable in money
Levied by the legislative body; obligations
created by law
Assessed according to reasonable rule of
apportionment
Characteristics of Taxes:

15. Imposed on persons, property or services
within State’s jurisdiction
For public purpose
Gives rise to criminal liability
Characteristics of Taxes

16. Why do they say that
the power to tax is the
power to destroy?
The Power to Destroy

17. Justice Holmes: The power to tax is not
the power to destroy
• Taxation is not an unlimited power. The
validity of the enactment (tax laws) depends
upon the nature and character of the right
destroyed. If so great an abuse is manifested
to destroy natural and fundamental rights
which no free government consistently
violate, it is the duty of the judiciary to hold
such an act unconstitutional.

18. Marshal dictum: The power to tax is
the power to destroy
• It is a destructive power which interferes with
the personal and property rights of the people
and takes from them a portion of their
property for the support of the government.

19. What are the different
purposes of taxation?
Purposes of Taxation

20. • Revenue
• Non-revenue:
– Promotion of general welfare
– Regulation
– Reduction of Social Inequity
– Encourage economic growth
– Protectionism
Purposes of Taxation

21. Principles of a Sound Tax System
It is important to know whether
a tax bill intended to be passed
in Congress has the three
elements of a Sound Tax
imposition are present

22. 1. Fiscal Adequacy
– sufficient to meet public expenditure
– Neither excess nor deficiency
2. Administrative Feasibility
– Capable of being effectively administered with least
inconvenience
3. Theoretical Justice
– Considers taxpayer’s ability to pay
– Uniform and equitable
– Evolve a progressive system of taxation
Principles of a Sound Tax System

23. Judicial Review
When does the
Judiciary come into
picture?

24. • As long a the legislature does not violate
applicable constitutional limitations, courts
have no concern with the wisdom or policy of
the exaction, the political or other collateral
motives behind it, the amount to be raised, or
the persons, property or other privileges to be
taxed.
Judicial Review

25.  Personal
 Property
 Direct
 Indirect
 Excise
 General
 Special
 Specific
 Ad Valorem
 Customs Duties
 National
 Local
 Progressive
 Regressive
 Proportionate
Here are the different
classifications of Taxes:
Classification of Taxes

26. LIMITATIONS ON THE TAXING
POWER

27. Taxation Power Limitations
What are the two
limitations on the
Taxing power of the
State?
The limitations can
either be Inherent
or Constitutional

28. Inherent
• Proceed from the very
nature of the taxing power
itself
• Distinct and positive
limitations which inhere in
taxing power’s nature and
exist whether declared or
not in the Constitution
Constitutional
• Limitations found in the
Provisions in the
Constitution
Taxation Power Limitations

29. 1. Public Purpose
– The State’s paramount concern is the promotion of general
welfare
2. Non-delegability
– GR: Taxing power may not be delegated
– XPN:
• Congress may expressly authorize the President to fix within
specified limits tariff rates, import and export quotas, tonnage and
wharfage dues and other duties within the framework of national
development programs of the government (Sec 28 (2) Art. VI, 1987
Constitution)
• Local government units may create its source of revenues and levy
taxes, fee and charges subject to guidelines and limitations of
Congress consistent with the basic policy of local autonomy. (Sec. 5,
Art. X, 1987 Constitution)
Inherent Limitations

30. Non-delegable vs Delegable legislative
powers
Tax Legislation
• Selection of the property to
be taxed
• Determination of the
purposes for which taxes
shall be levied
• Fixing the rate
• Rules of taxation
Tax Administration
• Power to value property
• Equalization of assessments
by a central body
• Collection of taxes

31. 3. Territoriality
– Situs – place of taxation
– Only extends to persons, property or businesses
within its jurisdiction
4. Exemption of Government from Taxes
– Real property owned by the government or any of its
political subdivision is exempted unless the beneficial
use is for consideration of a taxable person
5. International Comity
Inherent Limitations

32. • Lutz v. Araneta 98 Phil 148
• Pepsi-Cola Bottling Co. of the Ph., Inc. v. City of Butuan,
et al., L-22814, Aug 28, 1968
• Smith Bell & Co., Inc. v. Commissioner of Internal
Revenue, L-28271, July 25, 1975
• Phil. Guaranty Co., Inc. v. Commissioner of Internal
Revenue, L-22074, Apr 30, 1965
• Wells Fargo Bank & Union Trust Co. v. Collector of
Internal Revenue, 70 Phil 325
• Commissioner of Internal Revenue v. British Overseas
Airways Corp., et al, GR Nos. 65773-74, Apr 30, 1987
Cases

33. a) Due Process of Law – Sec. 1, Art. III, 1987
Constitution
b) Equal Protection of the Law - Sec. 1, Art. III, 1987
Constitution
c) Freedom of Speech and of the Press – Sec. 4,
Art. III, 1987 Constitution
d) Non-Infringement of Religious Freedom – Sec.
5, Art. III, 1987 Constitution
e) Non-Impairment of Contracts – Sec. 10, Art. III,
1987 Constitution
Constitutional Limitations

34. f) Origin of Appropriation, Revenue and Tariff Bills –
Sec. 24, Art. VI, 1987 Constitution
g) Uniformity, Equitability and Progressivity of
Taxation – Sec. 28(1), Art. VI, 1987 Constitution
h) Delegation of Legislative Authority to Fix Tariff
Rate, etc. – Sec. 28(2), Art. VI, 1987 Constitution
i) Tax Exemption of Properties Actually, Directly,
and Exclusively Used for Religious, Charitable, and
Educational Purpose – Sec. 28(3), Art. VI, 1987 Constitution
Constitutional Limitations

35. • Villegas v. Hiu Chiong Tsai Pao Ho, et al., L-29646, Nov. 10,
1978
• Cagayan Electric Power & Light Co., Inc. v. Comm. of
Internal Revenue, GR No. 60126, Sept. 25, 1985
• Ormoc Sugar Co. Inc v. Treasurer of Ormoc City, et al, L-
23794, Feb. 17, 1968
• Assoc. of Customs Brokers, Inc., et al v. The Municipal
Board, et al, 93 Phil 107
Cases

36. INCOME TAXATION

37. What is
INCOME?
INCOME is wealth that
flows into the taxpayer
other than mere return
of capital, within a
specified time

38. For example:
You sold your house
property worth P 1,000,000
for P 1,500, 000.
Your Income from the sale
was P 500, 000

39. In computing for Income
tax, we answer the
following questions:

40. How do I know if Income is
taxable?
Can illegal Income be
taxable?

41. Yes, illegal income is
taxable by law because it
is forfeited in favour of the
government or return to
owner under Claim of
Right Doctrine
You will know that income is
taxable if the following are
present:

42. How do I know the proper
period of payment?

43. Tax can either be computed
for Gross Income (sec.
32(A), NIRC) or for Certain
Passive Income (Sec. 24(B),
NIRC)

44. The National Internal
Revenue Code provides for
Certain Passive Income (Sec.
24(B),NIRC)

46. The National Internal
Revenue Code provides for
Gross Income (Sec.
32(A),NIRC)

47. The National Internal
Revenue Code provides
for the Exceptions of
Gross Income (Sec.
32(B),NIRC)

52. What are
deductions and
where can I find
them in the law?
Deductions are those
subtracted from the taxable
expenses of a person doing
business. Sec. 34 of the NIRC
provides for this

53. I took a browse at the
Deductions provision of the law.
I learned that the following are
deductions granted by law to
those who operate or own
businesses.

55. A good example of depreciation
is a vehicle used for business
which value can be divided into
five, representing 5 usable years
of vehicles
Value of Vehicle

57. It is important to also take
note of Sec. 36 (M). The
deduction is applicable also to
Compensation Income Earners

58. After going through
Deductions, the Income
Tax computation also
provides for Exemptions
Yes. Exemptions are either
Personal or Additional.

59. Here is more on that:

60. How do we
compute for the
Income Tax a
taxpayer ha to
pay?
To answer that, we have
to know first the
formula.

62. The End.