Taxation

- inherent power of a sovereign state which imposes a levy, a burden upon

persons, property and rights for purposes of raising revenue to defray the expenses of the government. A mode of raising revenue for public purposes Life and strength of the government

Inherent: a necessary attribute and a consequence of sovereignty Necessity: the basis of the right of the government to compel all persons, natural or juridical, who has income, wealth, property and rights within its territorial boundaries to contribute. Constitutional provisions: only limits the power of tax, but not remove/grant it; a legislative function. Inherent powers of the government: taxation, police power, eminent domain. Difference: Taxation- legislative; revenue collected for public purpose; cannot impair obligations of contracts; subject to constitutional limitations; can be delegated to President Police power- executive; amount collected for operation and existence of agency; can impair obligations of contracts; free from constitutional limitations but limited to public demand and due process; can be delegated to local government units Eminent Domain- judicial; power to take private property for public use upon payment of just compensation; property must be expropriated first through court proceedings; can be delegated to local government units; can override constitutional impairment provision because the welfare of the State is superior to any private contract; limited by public purpose and just compensation Purposes and Objectives: Revenue- collecting funds from taxpayers to fund operations for public welfare and protection Regulation- to regulate tobacco, alcoholic products, luxury products (Sin products) Promotion of General Welfare- tool of police power to promote general welfare Encourage Economic Growth- tax incentives or exemptions attract investments Reduction of Social Inequity- system of taxation to prevent undue concentration of wealth Protectionism- tax imposed to protect local industries from foreign industries Incidental Purposes- tool in International Relations: discriminatory duty (equalize foreign discrimination against local products), countervailing duty (to offset subsidies from exporting countries to their exporters to protect local industries), marking duty (to imported articles with improper classifications),

dumping duties (tax on imported goods with prices lower than their market value to protect local industries). Basis of Taxation: Doctrine of Attribute of Sovereignty- taxing power is a right to every independent government; burden to those who enjoyed the privileges of the government; of protection and welfare Lifeblood Doctrine- tax is essential because the government cannot exist and operate without it General Welfare Doctrine- tax is the strongest because it involves the power to destroy; can prohibit certain activities inimical to the public good Theories of Taxation: Necessity Theory- It is a power predicated upon necessity. Benefits Protection Theory- States power to tax is grounded on the reciprocal duties of support and protection; symbiotic relationship. Personal Liability Theory- a tax is personal to the taxpayer. (On corporations: piercing the corporate veil doctrine) Nature of Taxation: Inherent power of the State A Legislative function Intended for purposes of raising revenue Revenue collected is exclusively for public purpose Cannot be applied to heads of State, ambassadors, and its diplomatic corps or staff Strongest power of the Government subject only to its inherent and constitutional limitations

Points to Ponder: a. Taxation recognizes superiority of contracts- the power to tax recognizes obligations imposed by contracts as guaranteed by Article 3 Section 10 of the 1987 Constitution. This does not apply when the State exercises its police power in disregarding or impairing the obligation of contracts. b. The legislature has unlimited scope to everything to be taxed where there are no constitutional restrictions. c. The power to tax includes the power to destroy but when it is unjust the court can strike it down for the power to tax cannot override constitutional proscriptions.

d. The power to destroy should be exercised with great caution to minimize injury to the proprietary rights of the taxpayer. The tax collector must not kill the hen that lays the golden eggs. e. The power to tax carries with it the power to exempt which only Congress is authorized to exercise. f. The power to tax can be delegated to the President of the Philippines under certain conditions and its delegation to local governments. g. Only the Congress can exercise the power of taxation and cannot be delegated because it involves discretion on: 1. The power to select the object and subject to be taxed 2. The determination of the purposes of tax collection 3. The fixing of the amount and the rates to be imposed 4. The formulation of the coverage of the tax laws What can be delegated is the ministerial and advisory powers like property valuation, assessment and collection. Delegated power cannot be delegated. BIR, delegated by Tax Code, cannot delegate its power further. Can be delegated to PRESIDENT (must be within the frame of national development; tarrif rates, import and export quotas, etc.) or the LOCAL GOVERNMENT (Counselors only, to safeguard their self-sufficiency)

INHERENT LIMITATIONS: It must be exercised for purposes of raising revenue Revenue collected must be used for public purpose Applicable within territorial jurisdiction Legislative in character and may not be delegated Subject to international comity or agreement Provides safeguards on double taxation Not unjust, excessive, oppressive or confiscatory Allows exemption of government agencies or instrumentalities

DOUBLE TAXATION: act of the sovereign to tax twice the same property of the same taxpayer for the same purpose during the same year by the same authorities. KINDS: direct duplicate (requirements for tax uniformity: classification must be based on substantial distinctions, must be germane to the purpose of the law, must apply to future conditions identical to present, applicable to all taxpayers who belong to the same class. Direct duplicate is illegal); indirect duplicate taxation ( two different taxing authorities represented by two different local government units; or a local government unit and the national government.); domestic double (imposed by local and national government); international double (different taxing jurisdictions). Remedies to prevent double taxation are: 1. Adoption of a reciprocal exemption 2. Allowance of Tax Deduction 3. Allowance of a Tax Credit Double taxation does NOT apply when: 1. 2. 3. 4. Reciprocity clause is applied Tax credits are allowed and applied Tax benefit agreement with foreign countries Tax paid in another taxing authority are allowed as a deduction for same taxable property