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TAXATION

Ms. Bernadette Lloret-Poquiz

Outline:
Purpose of Taxation

Characteristics of Tax
Basic Principle of a Sound Tax System Classification of Taxes Entities Exempted from Taxation Limitations on Taxation Situs of Taxation Escape from Taxation

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

ASPECTS OF TAXATION
Levy refers to the legislative function and the

declaration of the subject and the rate or amount of taxation. (People vs. Monohey) Assessment - a written notice that the amount stated therein is due as a tax and contains a demand for payment thereof. (Alhambra Cigar vs. Collector) Collection does the law-making body of the state by virtue of its sovereignty for the support of the government and all public needs levy the enforced proportional contributions from persons and properties.

ESSENTIAL CHARACTERISTICS OF TAX ARE:


It is an enforced contribution. Its payment

not voluntary in nature, and the imposition is not dependent upon the will of the person taxed. It is generally payable in money. This means that payment by checks, promissory notes or in kind is not acceptable. 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.

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 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. 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. 2. Equality or Theoretical justice which means that the burden should be in proportion to the taxpayers ability to pay. 3. Administrative Feasibility which means that the tax laws should be capable of convenient, just effective and effective administration.

Objects of Taxation:
1. Individuals a. Who earn a considerable amount of income as a worker; b. Businessman in partnerships or corporations c. Those who inherited a property or were given a gift or donation of considerable vale

2. Properties a. Real/Intangible(immovable properties) Real estates land, buildings, and houses b. Personal/Tangible(moveable properties) Vehicles, furnitures, patents, and ownership titles, 3. Transactions, consumptions interests, imports and exports; and privileges

Inherent limitation of the power of Taxation


The tax revenue must only be used for public

purpose. There should be proper delegation of legislative power to tax. Government entities are exempted. There are territorial jurisdiction. There is an observance of international law.

ENTITIES EXEMTED FROM TAXATION


Religious institutions (church, mosques,

parsonages) Charitable institutions Non-profit, non-stock educational institutions Non-profit cemeteries Government institutions Foreign diplomats (by virtue of treaty) (Art 14 Secs 4 & 3 1987 Constitution Art 8 Sec 28 (1) 1987 Constitution

SITUS OF TAXATION
Concept: Situs is a Latin term which means situation; location; place. Situs of taxation literally means the place of taxation. It refers to the place where taxes are to be paid.

Tax Income Tax

Place in the place where income is earned or the place of residence of the taxpayer. = Ms. L. resides in QC and works in Makati. She may choose to pay her income tax in either of these two places.

Real Property Tax

Personal Property tax

a. tangible properties b. intangible properties

= are paid in the place where the property is located = in the place where the property is located = owners domicile-place of permanent residence of the owner

Business and Occupation

Taxes

= in the place where the business or occupation is located.

Double taxation
Concept There are two (2) concepts of double taxation namely: 1. Direct duplicate 2. Indirect duplicate

Elements of direct taxation


The elements of direct duplicate taxation are the following: Taxing twice. by the same taxing authority within the same taxing jurisdiction for the same purpose in the same taxable period involving the same property

This kind of double taxation is not allowed by law. (Villanueva vs. City of Iloilo, L-26521). Indirect taxation, on the other hand occurs when taxes on the same property are not imposed by the same taxing authority. Example: Local government and national government impose taxes on the same property during one taxable period. This kind of imposition is legal.

Forms of Escape from Taxation


1. Shifting 2. Capitalization 3. Exemption

4. Evasion (illegal form) 5. Avoidance

Shifting
Concept: Shifting is passing the burden of tax from one person to another person (Black Law Dictionary supra). Thus, what is transferred is not the payment of the tax but the burden of the tax. Example: Taxes paid by the manufacturer may be shifted to the consumer by adding the amount the tax paid to the price of the product.

Kinds of Shifting
There are three (3) kinds of shifting namely: Forward shifting Backward shifting Onward shifting

There is forward shifting when the burden of the tax is transferred from a factor of production to the factor of distribution; Backward shifting occurs when the burden of tax is transferred from the consumer to the producer of manufacturer; and onward shifting occurs when the tax is shifted to two or more times either forward or backward.

Tax Evasion Concept: Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the amount of tax. This is also known as Tax dodging. Example Deliberate and / or malicious failure to report income to defeat tax liability.

Tax evasion presupposes malice, fraud, bad

faith, or willful intent on the part of the taxpayer. (Rep. vs. Gonzales, 13 SCRA 633). As in the case of substantial undeclaration of income for four consecutive year. (Perez vs. CTA L 10507).

Tax Avoidance Concept: Tax avoidance is the exploitation by the taxpayer of legally permissible methods on order to avoid or reduce tax liability. This is also known as tax minimization. Example: Exhausting and / or utilizing all allowable deductions or exemption in law or reduce the tax burden.

Grounds for Tax Exemption


Tax exemption may be based on the following grounds namely: 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. 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 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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