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GENERAL

PRINCIPLES OF
TAXATION
MIA-M
• DEFINITION OF TAXATION
• UNDERLYING BASIS OF TAXATION
• PURPOSES OF TAXATION
• NATURE OF THE POWER TO TAX
• ASPECTS OF TAXATION
• ATTRIBUTES OF A SOUND TAX SYSTEM
• DEFINITION OF TAXES
• CHARACTERISTICS OF TAXES
• TAXATION VS. OTHER FUNDAMENTAL POWERS
• TAXES VS. OTHER EXACTIONS
• TAX EVASION VS. TAX AVOIDANCE
• DOUBLE TAXATION

OUTLINE OF DISCUSSION
• The power by which the sovereign raises
revenue to defray the expenses of
government.

What is Taxation?
• Taxes are the lifeblood of government and their prompt
and certain availability is an imperious need.
• The existence of government is a necessity; it cannot
exist nor endure without the means to pay its expenses;
and for those means, the government has the right to
compel all its citizens and property within its limits to
contribute in the form of taxes.

UNDERLYING BASIS OF
TAXATION; LIFEBLOOD
THEORY
• No right to set-off / compensation
• The right of the government to tax its subjects exists
without a constitutional grant
• Generally, the courts cannot issue a writ of injunction
against the collection of taxes
• The State is not estopped from collecting taxes by the
mistakes or errors of its agents

Lifeblood Theory;
Manifestations
Lifeblood Theory: The Power to Tax
is the Power to Destroy? Or Not?
• The existence of the government is a necessity and it
cannot continue without the means to support itself.

UNDERLYING BASIS:
NECESSITY THEORY
• Taxes are what we pay for civilized society. Without
taxes, the government would be paralyzed for lack of the
motive power to activate and operate it.
• Every person who is able to must contribute his share in
the running of the government.
• The government, for its part, is expected to respond in the
form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral
and material values.

BENEFITS-RECEIVED THEORY;
SYMBIOTIC RELATIONSHIP
• Briefly explain the following doctrines: lifeblood
doctrine; necessity theory; benefits received; doctrine of
symbiotic relationship. (5%).

2016 Bar Exam


• PRIMARY PURPOSE – REVENUE
• SUMPTUARY PURPOSE –REGULATORY
• Pigovian Tax (levies on activities that have harmful side
effects not factored in the market price)
• OTHER PURPOSES, e.g.,
• reduction of social inequality (question of the middle
class?);
• Encourage economic growth
• protectionism

PURPOSES OF TAXATION
• INHERENT
• Is it also inherent in local governments?
• May Congress abolish the power of local governments to tax?
• LEGISLATIVE
• Subject, purpose, object, method
• As a general rule, it is not delegated to the executive or judicial
departments
• Exceptions?
• LIMITED
• Subject to inherent and constitutional limitations

Nature of the Power of


Taxation ( I L L )
• L EVY
• A SSESSMENT
• P AYMENT or COLLECTION

ASPECTS OF TAXATION ( L A P )
• FINANCIAL ADEQUACY
• ADMINISTRATIVE FEASIBILITY
• THEORETICAL JUSTICE

ATTRIBUTES OF A SOUND
TAX SYSTEM
Explain the principles of a sound tax system.
(3%)

2015 Bar Exam


• Enforced proportional contributions from persons and
property levied by the lawmaking body of the State by
virtue of its sovereignty for the support of government
and for all public needs

TAXES: definition
• Forced
• Pecuniary burden payable in money
• Jurisdictional
• Levied by the legislative body
• For a public purpose
• Personal to the taxpayer
• Assessed in accordance with a reasonable rule of
apportionment

TAXES: Characteristics
• SIMILARITIES
• Inherent
• Independent
• Interfere
• Legislative
• Equivalent compensation

TAXATION & OTHER FUNDAMENTAL


POWERS; Similarities
• As to the exercising authority
• Purpose
• Persons affected
• Effect
• Benefits received
• Amount of imposition
• Relationship to the impairment clause of the Constitution

TAXATION & OTHER FUNDAMENTAL


POWERS; Distinctions
• Tax vs. Debt
• Basis
• Effect of non-payment
• Implementing “authority”
• Tax vs. Toll; Tax vs. Special Assessments
• Basis
• Implementing authority
• Tax vs. License Fee
• Purpose
• Basis
• Amount of collection
• Effect of non-payment

TAX vs. Other Exactions


• Is double taxation legal?
• INDIRECT
• DIRECT
• Same property
• Same purpose
• Same taxing authority
• Same taxing period
• Same kind or character of tax

DOUBLE TAXATION
• KM Corporation, doing business in the City of Kalookan,
has been a distributor and retailer of clothing and
household materials. It has been paying the City of
Kalookan local taxes based on Sections 15 (Tax on
Wholesalers, Distributors or Dealers) and 17 (Tax on
Retailers) of the Revenue Code of Kalookan City (Code).
Subsequently, the Sangguniang Panlungsod enacted an
ordinance amending the Code by inserting Section 21
which imposes a tax on “Businesses subject to Excise,
Value Added and Percentage Taxes under the NIRC” at
the rate of 50% of 1% per annum on the gross sales and
receipts on persons “who sells goods and services in the
course of trade or business.

2018 Bar Exams


• KM Corporation paid the taxes due under Section 21
under protest, claiming that (a) local government units
could not impose a tax on businesses already taxed under
the NIRC and (b) this would amount to double taxation,
since its business was already taxed under Sections 15
and 17 of the Code.
• A) May local government units impose a tax on
businesses already subjected to tax under the NIRC?
(2.5%)
• B) Does this amount to double taxation? (2.5%)

2018 Bar Exams


• Impact vs. incidence of taxation
• Impact
• incidence
• Direct vs. indirect tax
• Direct
• indirect
• Taxpayers suit

Other concepts
• A GRANT OF IMMUNITY, EXPRESS OR IMPLIED,
• TO PARTICULAR PERSONS OR CORPORATIONS
OR TO PERSONS OR CORPORATIONS OF A
PARTICULAR CLASS,
• FROM A TAX UPON PROPERTY OR AN EXCISE
(RIGHT)
• WHICH PERSONS AND CORPORATIONS
GENERALLY WITHIN THE SAME TAXING
DISTRICT ARE OBLIGED TO PAY

ESCAPE FROM TAXATION; Tax


Exemptions
• Tax saving device within the means sanctioned by law
• Should be used by the taxpayer in good faith and at arm’s
length
• E.g., Use of holding period in computing ordinary capital
gains in income tax
• VAT zero-rated transactions

ESCAPE FROM TAXATION; Tax


Avoidance
• A scheme used outside of those lawful means and when
availed of, usually subjects the taxpayer to further or
additional civil or criminal liabilities
• Integration of Three factors:
• The end to be achieved
• An accompanying state of mind which is described as in
bad faith
• A course of action or failure of action which is unlawful

ESCAPE FROM TAXATION;


Tax Evasion
CIR v. Altonaga (GR No. 147188, 14 Sept 2004)

CIC authorized its President, Mr. Toda, to sell a land and


building for P90M. On 1 Jan 2017, Toda sold the property
for P100M to Mr. Altonaga, who, in turn, sold the same
property on the same day to ABC Corp for P200M. These
two transactions were evidenced by Deeds of Absolute Sale
notarized on the same day by the same notary public.

Tax Evasion or Tax


Avoidance?
• A taxpayer’s suit may only be allowed when an act
complained of, which may include a legislative
enactment, directly involves the illegal disbursement of
public funds derived from taxation.

TAXPAYERS’ SUIT