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TAXATION: I. GENERAL PRINCIPLES OF TAXATION - Coggle Diagram

- - - - UNDERLYING THEORY AND BASIS; NECESSITY THEORY;
        BENEFIT-RECEIVED PRINCIPLE
        
        PURPOSE OF TAXATION
        
        PRINCIPLES OF A SOUND TAX SYSTEM
        
        COMPARISON WITH
        POLICE POWER AND EMINENT DOMAIN
        
        TAXING POWER IS EXERCISED FOR THE PURPOSE OF RAISING REVENUE
        Taxing power is exercised for the purpose of raising revenue and is subject to certain designated constitutional limitations...
        
        SUBJECT TO CONSTITUTIONAL
        LIMITATIONS
        
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        POLICE POWER IS EXERCISED FOR THE PURPOSE OF PROMOTING PUBLIC WELFARE BY REGULATING DANGEROUS/POTENTIALLY DANGEROUS ACTIVITIES
        ...while police power is exercised for the promotion of the public welfare by means of the regulation of dangerous or potentially dangerous businesses, occupations, or activities and is not subject to the constitutional restrictions applicable to the taxing power.
        
        IF PRIMARY PURPOSE IS TO...
        
        RAISE REVENUE = TAX POWER
        
        REGULATION = POLICE POWER
        If the primary purpose is to raise revenue it represents an exercise of taxing power, while if the primary purpose is the regulation of some particular occupation, calling, or activity, it is an exercise of police power even if it incidentally produces revenue. [71 AmJur 2d 396]
        
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        DISTINCTION BETWEEN TAX POWER AND POLICE POWER IS OF NO MOMENT IF CONGRESS ITSELF EXERCISES THE POWER
        It bears stressing that it is not the NTC that imposed such a fee. It is the legislature itself.
        Since Congress has the power to exercise the State inherent powers of Police Power, Eminent Domain and Taxation...the distinction between police power and the power to tax, would not be of any moment when, as in the case under consideration, Congress itself exercises the power.
        All that is to be done would be to apply and enforce the law when sufficiently definitive and not constitutional infirm.
        (National Telecommunications Commission v. Court of Appeals, G.R. No. 127937, [July 28, 1999], 370 PHIL 538-546)
        
        UNLIKE EMINENT DOMAIN,
        TAXATION IS NOT SUBJECT TO
        JUST COMPENSATION
        Taxation and Eminent Domain The requirements of just compensation for private property taken for a public use applies only to eminent domain and not to taxation.
        [71 AmJur 2d 397]
        
        FISCAL ADEQUACY
        
        TAX SYSTEM MUST
        ADEQUATELY MEET GOV'T
        EXPENDITURES AND VARIATIONS
        Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.
        [Chavez v. Ongpin]
        
        ADMINISTRATIVE FEASIBILITY
        
        TAX SYSTEM MUST BE EFFICIENTLY ADMINISTERED BY THE GOVERNMENT + ENFORCED WITH LEAST INCONVENIENCE TO THE TAXPAYER
        Administrative Feasibility; the tax system should be capable of being properly and efficiently administered by the government and enforced with the least inconvenience to the taxpayer
        
        THEORETICAL JUSTICE
        
        TAX SYSTEM MUST BE
        FAIR TO THE AVERAGE TAXPAYER +
        BASED ON THEIR ABILITY TO PAY
        Theoretical Justice; the tax system should be fair to the average taxpayer and based upon the ability to pay
        
        GENERAL/FISCAL/REVENUE
        
        NON-REVENUE/SPECIAL OR REGULATORY
        
        NOT IN E2018 REVIEWER
        
        TAXES ARE NECESSARY FOR THE EXISTENCE OF THE GOVERNMENT, TO PAY ITS EXPENSES
        Taxes proceed upon the theory that the existence of government is a necessity; that it cannot continue without means to pay its expenses and that for those means it has the right to compel all citizens and property within its limits to contribute.
        
        SO GOVERNMENT CAN CARRY OUT ITS MANDATES AND FUNCTIONS
        The state demands and receive taxes so that it may be enabled to carry out its mandates into effect and perform the functions of government.
        
        FOR GENERAL BENEFITS OF GOVERNMENT FOR THE GENERAL PUBLIC GOOD
        The general levy of taxes is understood to exact contributions in return for the general benefits of government, and it promises nothing to the person taxed beyond what may be anticipated from an administration of the laws for individual protection and the general public good. [71 AmJur 2d 346]
        
        BENEFITS ARE PROVIDED AND INTENDED TO IMPROVE PEOPLE'S LIVES AND ENHANCE THEIR MORAL & MATERIAL VALUES
        Taxes are paid for the civilization of society. Without it, gov’t would be paralyzed for lack of motive power to operate it. Every person who is able must then contribute his share in the running of the government.
        
        SYMBIOTIC RELATIONSHIP
        On the other hand, government must respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation.
        [CIR v. Algue]
        
        IF NOT REASONABLY EXERCISED,
        TAX POWERS ARE SUBJECT TO REMEDIES AVAILABLE TO TAXPAYERS
        But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.
        If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.|||
        (Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, [February 17, 1988], 241 PHIL 829-836)
      - CONSTITUTIONAL
        
        ART. VI, SECTION 28. 1987 Constitution
        
        UNIFORM AND EQUITABLE - The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
        
        DELEGATED POWERS TO PRESIDENT TO FIX TARIFF RATES, IMPORT & EXPORT QUOTAS, TONNAGE AND WHARFAGE DUES, AND OTHER DUTIES OR IMPOSTS
        The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.
        
        EXEMPTION FOR CHARITABLE, RELIGIOUS, AND EDUCATIONAL PURPOSES INSTITUTIONS
        
        Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, 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.
        
        MAJORITY VOTE OF CONGRESS REQUIRED FOR EXEMPTION
        
        No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.
        
        (ART. VI, SECTION 28. 1987 Constitution)
        
        PERFECT UNIFORMITY NOT REQUIRED
        This requirement is met according to Justice Laurel in Philippine Trust Company v: Yatco, 69 Phil. 420 (1940) when the tax "operates with the same force and effect in every place where the subject may be found. The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable."
        (Sison, Jr. v. Ancheta, G.R. No. L-59431, [July 25, 1984], 215 PHIL 582-593)
        
        NOT MERELY UNIFORM, BUT ALSO "EQUITABLE" AND "PROGRESSIVE"
        Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be uniform, but must also be equitable and progressive.
        
        UNIFORMITY = SAME CLASS, SAME RATE
        Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
        
        EQUITABLE = BURDENS THOSE
        BETTER ABLE TO PAY
        Taxation is said to be equitable when its burden falls on those better able to pay.
        
        PROGRESSIVE = RATE GOES UP^ DEPENDING ON RESOURCES OF PERSON AFFECTED
        Taxation is progressive when its rate goes up depending on the resources of the person affected (Ibid.).
        ||| (Reyes v. Almanzor, G.R. Nos. L-49839-46, [April 26, 1991], 273 PHIL 558-566)
        
        POWER TO TAX, GENERALLY
        
        UNLIMITED, PLENARY, AND SUPREME
        In the absence of constitutional restrictions, and subject to the will of the legislative bodies and the discretion of the authorities which exercise it, the power of taxation is regarded as unlimited, plenary, and supreme.
        
        NOT REQUIRING CONSENT OF INDIVIDUAL TAXPAYERS
        While the taxing power has been said to inhere in the obligation of a sovereign state to protect its citizens, it is not dependent upon the consent of individual taxpayers, nor upon the enjoyment of any special funds raised...
        
        JUSTICE
        Nevertheless, such exercise must rest on justice.
        
        CONSTITUTION
        (Subject to) "constitutional restrictions"
        
        DUE PROCESS
        +
        EQUAL PROTECTION
        Adversely affecting as it does property rights, both the due process and equal protection clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy."
        (Sison, Jr. v. Ancheta, G.R. No. L-59431, [July 25, 1984], 215 PHIL 582-593)
        
        ABSENT PROOF, PRESUMPTION OF VALIDITY PREVAILS
        where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.||| (Sison, Jr. v. Ancheta, G.R. No. L-59431, [July 25, 1984], 215 PHIL 582-593)
        
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        DEFERRING AN INCREASE IN TAXES IS
        NOT AN EXERCISE OF THE POWER TO TAX;
        HENCE, THE DUE PROCESS REQUIREMENT DOES NOT APPLY TO SUCH DEFERMENT
        ...the due process requirement called for therein applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes. Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real property taxes.
        Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988.|||
        (Chavez v. Ongpin, G.R. No. 76778, [June 6, 1990], 264 PHIL 695-704)
        
        FOREIGN PERSONAL PROPERTY NOT SUBJECT TO STATE TAXATION
        ...Further,
        
        PERSONAL PROPERTY
        Personal property
        
        OF FOREIGN SOVEREIGN
        Belonging to a foreign sovereign and
        
        TEMPORARILY IN THE COUNTRY
        Temporarily located in a particular country
        
        is NOT subject to state taxation in that count[r]y [71 AmJur 2d 394-395]
        
        Is there an example of a foreigner's personal property PERMANENTLY in the country so as to be subjected to tax?
        
        TAXATION: INHERENT IN SOVEREIGNTY
        
        NOT NEEDING CONSTITUTIONAL GRANT, POWER TO TAX IS INHERENT IN SOVEREIGN
        The power of taxation is inherent in sovereignty as an incident or attribute thereof.
        Thus, a sovereign state has inherent power to determine the subjects of taxation for general or particular purposes and may make appropriate changes in the selections and classifications of the properties made subject to or exempted from taxation.
        The right to tax exists apart from constitutions, and without being expressly conferred by the people resides in the government as a part of itself. [Id., 397-398]
        
        (STATE vs INDIVIDUAL)
        
        EVERY TAXPAYER HAS A RIGHT TO A REMEDY
        Every taxpayer has a right to a remedy for any actual wrong he may have suffered in the collection of taxes.||| (Sarasola v. Trinidad, G.R. No. 14595, [October 11, 1919], 40 PHIL 252-265)
        
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        INTEREST CLAIMED AGAINST THE STATE
        (Sarsola v. Trinidad)
        
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        DEFERMENT IS NOT AN EXERCISE OF THE POWER TO TAX;
        ...the due process requirement called for therein applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes. Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real property taxes.
        Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988.|||
        (Chavez v. Ongpin, G.R. No. 76778, [June 6, 1990], 264 PHIL 695-704)
    - - LAW CONTINUES UNTIL CHANGED BY COMPETENT LEGISLATIVE POWER
        It is a legal maxim that excepting that of a political nature, ‘Law once established continues until changed by some competent legislative power.
      - INSPITE OF A CHANGE OF CONSTITUTION,
        LAWS REMAIN UNCHANGED UNTIL LEGISLATIVE ACT CREATES A CHANGE
        Conquest or colonization is impotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new sovereign by legislative act creates a change.'"
        (Co Kim Chan vs. Valdes Tan Keh and Dizon, 75 Phil., 113, 142-143.)||| (Hilado v. Collector of Internal Revenue, G.R. No. L-9408, [October 31, 1956], 100 PHIL 288-295)
        
        IR LAWS ARE NOT CHANGED BY
        MERE CHANGE OF SOVEREIGNTY
        It is not changed merely by change of sovereignty.’
        [Hilado v. Collector of Internal Revenue]
        
        THEREFORE, YEARS DURING ENEMY OCCUPATION ARE STILL SUBJECT TO TAX
        Emilio Hilado filed his income tax return in 1951, and deducted PhP 12,837.65 which was a portion of his war damage claim which had been approved but not yet paid. Hilado claimed that he validly deducted the amount as a “business asset.”
        The Court held that since the deduction depended on the magnanimity of the U.S. government, it could not be claimed as a valid business asset.
        Further, the Secretary of Finance issued a Circular clarifying that deductions due to property losses must be claimed during the year that the loss was sustained.
        Hilado claims he could not have made that deduction since the last year of the Japanese occupation was not a “taxable year.”
        The Court disagreed, holding that since revenue laws are not political in nature, they subsist despite a change in sovereignty.
        Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.||| (Hilado v. Collector of Internal Revenue, G.R. No. L-9408, [October 31, 1956], 100 PHIL 288-295)