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GENERAL PRINCIPLES OF TAXATION

TAXATION
Concept: Taxation is the inherent power of the State to impose and demand contribution
for public purpose. (Cooley 72-73)

   •   INHERENT POWER OF THE STATE means that taxation is essential to the existence
       of the government. Thus, it exists without necessity of any specific grant of power by the
       constitution.
   • TO IMPOSE AND DEMAND CONTRIBUTION means that taxation is not a voluntary
       payment or donation since its imposition is dependent upon the will or assent of the
       taxpayer.
   • FOR PUBLIC PURPOSE means that taxation must have for objective the support of the
       government in the performance of various services and the satisfaction of recognized
       public network. Hence, proceeds of the tax must be used:
   (a) for the support of the government;
   (b) for some of the recognized objects of the government;
   (c) to promote the welfare of the community.

PURPOSES OF TAXATION:
The purposes of taxation are the following:
   1. To raise revenue
   2. To equitably distribute the wealth of the nation
   3. To pick new industries (by providing tax exemption new or pioneering industry)
   4. To protect local procedures (by imposing higher custom on cheap imported goods)


ESSENTIAL CHARACTERISTICS OF TAX ARE:
  1. It is an enforced contribution. It’s payment not voluntary in nature, and the imposition is
     not dependent upon the will of the person taxed. (84 cjs32)
  2. It is generally payable in money. This means that payment by checks, promissory notes
     or in kind is not acceptable.
  3. It is proportionate in character. Payment of taxes must be based on the “ability-to-pay”
     principle; thus, the higher the income of the taxpayer, the bigger the amount of the tax
     paid.
  4. It is levied on persons or property. Although there are taxes that are imposed or levied
     on acts, transactions, rights or privileges.
     Example. Documentary tax
  5. It is levied by the State which has jurisdiction over the person or the property. As a
     general rule, only persons, properties, acts, rights, transactions within the jurisdiction of
     the taxing States are subject to tax.
  6. It is levied by the law-making body of the State. This means that the prior law must be
     enacted first by the Congress before assessment and collection maybe implemented.
     (Art. 6, Sec. 29, par (1) of the 1999 Constitution)

BASIC PRINCIPLES OF A SOUND TAX SYSTEM
  1. Fiscal adequacy – which means that sources of revenue be sufficient to meet the
      demands of public expenditures (Tax Report Vol. 1 pg. 23)
  2. Equality or Theoretical justice – which means that the burden should be in proportion to
      the taxpayer’s ability to pay. (Principles of Pol. Eco. Vol. 11)
  3. Administrative Feasibility – which means that the tax laws should be capable of
      convenient, just effective and effective administration.
CLASSIFICATION OF TAXES

AS TO SUBJECT MATTER:
        (1) Personal, or poll capitation tax – is a tax of a fixed important on persons
            residing within a specified territory, whether citizens not, without regard to their
            priority, occupation or business in which they maybe engaged.
        (2) Property Tax – is tax imposed on property, whether real or proportional and
            proportion either to its value, or in accordance with some reasonable method of
            appointment. Ex. Residence Tax
        (3) Excise Tax – is a charge imposed upon the performance of an act, enjoyment of
            a privilege, or the engaging in a occupation, professions or business. Ex. VAT
AS TO WHO BEARS THE BURDEN:
        (4) Direct Tax – is tax which is demanded from the person who also shoulders the
            burden of the tax; thus it is the tax for which the taxpayer is directly liable or
            which he cannot shift to another. Ex. Income Tax
        (5) Indirect Tax – refers to a tax imposed upon goods before they reached the
            consumer who ultimately pays for it not as tax but as part of purchased price.
            Ex. Vat
AS TO DETERMINATION OF AMOUNT
        (6) Specific Tax - is tax of a fixed amount imposed by the head or number, or
            by some standard of weight or measurement; it requires no assessment
            other than listing or classification of the objects to be taxed. Ex. Taxes on
            wines
        (7) Ad Valorem (According to Value) -refers to tax of a fixed proportion of the value
            of the property with respect to which the tax is assessed. Consequently, it
            requires the intervention of assessors or appraisers estimate the value of the
            property before amount due from taxpayer can be determine. Ex. Taxes on
            cigarettes.

TAX DISTINGUISHED FROM DEBT
         1- A tax is based from law, while debt is based on contract.
         2- A tax may be not assignable; while debt is assignable.
         3- A tax is generally payable in money, while a debt is payable money or in kind.
         4- A person may be imprisoned for non-payment of tax, but he may not be
            imprisoned for non-payment of debt

ENTITIES EXEMTED FROM TAXATION
  1- Religious institutions (church, mosques, parsonages)
  2- Charitable institutions
  3- Non-profit, non-stock educational institutions
  4- Non-profit cemeteries
  5- Government institutions
  6- Foreign diplomats (by virtue of treaty)
      (Art 14 Secs 4 & 3 1987 Constitution Art 8 Sec 28 (1) 1987 Constitution)


Grounds for Tax Exemption
     Tax exemption may be based on the following grounds namely:

   1) Contract – In this instance, the government is one of the contracting parties. In which case, the
      government must receive a full equivalent for the exemption. Generally, the previous of a
      contract exemption are contained in the charter of an exempted corporation.
2) Public Policy – Government need not receive any consideration return for the tax exemption.
     Ex. Policy of encouraging new and necessary industries e.g. step manufacturing
3) Reciprocity – Exemption many be created in a treaty on grounds reciprocity or to lessen the
   rigors of international double or multiple taxation.

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Taxation lectures[1]

  • 1. GENERAL PRINCIPLES OF TAXATION TAXATION Concept: Taxation is the inherent power of the State to impose and demand contribution for public purpose. (Cooley 72-73) • INHERENT POWER OF THE STATE means that taxation is essential to the existence of the government. Thus, it exists without necessity of any specific grant of power by the constitution. • TO IMPOSE AND DEMAND CONTRIBUTION means that taxation is not a voluntary payment or donation since its imposition is dependent upon the will or assent of the taxpayer. • FOR PUBLIC PURPOSE means that taxation must have for objective the support of the government in the performance of various services and the satisfaction of recognized public network. Hence, proceeds of the tax must be used: (a) for the support of the government; (b) for some of the recognized objects of the government; (c) to promote the welfare of the community. PURPOSES OF TAXATION: The purposes of taxation are the following: 1. To raise revenue 2. To equitably distribute the wealth of the nation 3. To pick new industries (by providing tax exemption new or pioneering industry) 4. To protect local procedures (by imposing higher custom on cheap imported goods) ESSENTIAL CHARACTERISTICS OF TAX ARE: 1. It is an enforced contribution. It’s payment not voluntary in nature, and the imposition is not dependent upon the will of the person taxed. (84 cjs32) 2. It is generally payable in money. This means that payment by checks, promissory notes or in kind is not acceptable. 3. It is proportionate in character. Payment of taxes must be based on the “ability-to-pay” principle; thus, the higher the income of the taxpayer, the bigger the amount of the tax paid. 4. It is levied on persons or property. Although there are taxes that are imposed or levied on acts, transactions, rights or privileges. Example. Documentary tax 5. It is levied by the State which has jurisdiction over the person or the property. As a general rule, only persons, properties, acts, rights, transactions within the jurisdiction of the taxing States are subject to tax. 6. It is levied by the law-making body of the State. This means that the prior law must be enacted first by the Congress before assessment and collection maybe implemented. (Art. 6, Sec. 29, par (1) of the 1999 Constitution) BASIC PRINCIPLES OF A SOUND TAX SYSTEM 1. Fiscal adequacy – which means that sources of revenue be sufficient to meet the demands of public expenditures (Tax Report Vol. 1 pg. 23) 2. Equality or Theoretical justice – which means that the burden should be in proportion to the taxpayer’s ability to pay. (Principles of Pol. Eco. Vol. 11) 3. Administrative Feasibility – which means that the tax laws should be capable of convenient, just effective and effective administration.
  • 2. CLASSIFICATION OF TAXES AS TO SUBJECT MATTER: (1) Personal, or poll capitation tax – is a tax of a fixed important on persons residing within a specified territory, whether citizens not, without regard to their priority, occupation or business in which they maybe engaged. (2) Property Tax – is tax imposed on property, whether real or proportional and proportion either to its value, or in accordance with some reasonable method of appointment. Ex. Residence Tax (3) Excise Tax – is a charge imposed upon the performance of an act, enjoyment of a privilege, or the engaging in a occupation, professions or business. Ex. VAT AS TO WHO BEARS THE BURDEN: (4) Direct Tax – is tax which is demanded from the person who also shoulders the burden of the tax; thus it is the tax for which the taxpayer is directly liable or which he cannot shift to another. Ex. Income Tax (5) Indirect Tax – refers to a tax imposed upon goods before they reached the consumer who ultimately pays for it not as tax but as part of purchased price. Ex. Vat AS TO DETERMINATION OF AMOUNT (6) Specific Tax - is tax of a fixed amount imposed by the head or number, or by some standard of weight or measurement; it requires no assessment other than listing or classification of the objects to be taxed. Ex. Taxes on wines (7) Ad Valorem (According to Value) -refers to tax of a fixed proportion of the value of the property with respect to which the tax is assessed. Consequently, it requires the intervention of assessors or appraisers estimate the value of the property before amount due from taxpayer can be determine. Ex. Taxes on cigarettes. TAX DISTINGUISHED FROM DEBT 1- A tax is based from law, while debt is based on contract. 2- A tax may be not assignable; while debt is assignable. 3- A tax is generally payable in money, while a debt is payable money or in kind. 4- A person may be imprisoned for non-payment of tax, but he may not be imprisoned for non-payment of debt ENTITIES EXEMTED FROM TAXATION 1- Religious institutions (church, mosques, parsonages) 2- Charitable institutions 3- Non-profit, non-stock educational institutions 4- Non-profit cemeteries 5- Government institutions 6- Foreign diplomats (by virtue of treaty) (Art 14 Secs 4 & 3 1987 Constitution Art 8 Sec 28 (1) 1987 Constitution) Grounds for Tax Exemption Tax exemption may be based on the following grounds namely: 1) Contract – In this instance, the government is one of the contracting parties. In which case, the government must receive a full equivalent for the exemption. Generally, the previous of a contract exemption are contained in the charter of an exempted corporation.
  • 3. 2) Public Policy – Government need not receive any consideration return for the tax exemption. Ex. Policy of encouraging new and necessary industries e.g. step manufacturing 3) Reciprocity – Exemption many be created in a treaty on grounds reciprocity or to lessen the rigors of international double or multiple taxation.