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Taxation

Kwin

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K w i n T r a n s c r i p t s Page 1

July 20, 2010

Taxation

Pre-midterms - July 17 20%

Midterms 30%

Finals 30%

20% - class standing (orals,

unannounced quizzes)

Coverage:

I. Tax 11. General Principles- You have studied this in constitution wherein you studiedthe three powers of sovereignty.

1. Taxation2. Eminent Domain3. Police Power2. Income Taxation- By far is the largest chunk in bar40% - Income taxation60% - General principles

Estate taxation

Donors taxation

VAT

Local taxation

Real property taxation

Tariff and customs code

Remedies of government

So tax 1 is important because of income taxation.

II. Tax 2 (4 units)1. Estate Taxation and Donors Taxation2. VAT3. Remedies in taxationa. Remedies of government if cannot calledb. Remedies of taxpayer if harassed or if overpaiderroneous taxes.

4. Local Government Code- Local taxation is that which is imposed by city mayoroffice, actually the Treasurers Office.

These are taxes imposed by the Local Government Units.

5. Real Property Taxation-

Used to be a national tax but is now delegated forcollection LGUs. So in every area wherein you have real

properties either in parcels of land, building, machineries,

then you will be subjected to real property taxes.

6. Tariff and Customs Code- This is enforced by the Bureau of Customs7. National Internal Revenue Code- Covers the percentage taxes and documentary stamptaxes

As of right now, these are not part of the BAR.

So for Tax 1, we will have General Principles today, and for

succeeding, we will have income taxation.

Book: De Leon Fundamentals of Income Taxation

- For general principlesNational Internal Revenue Code

RA 8424, Jan 1, 1998 (effectively)

- Sometimes called 1997 tax codeHas NIRC been amended since then? Yes

a. 2005, RA 9337 amended parts of NIRC specifically VATand a portion of income taxation especially passive incomes.

b. In 2008, RA 9504 took effect on July 6, amending portionof income taxation of individual taxpayers.

You are familiar with minimum wage right? Minimum wageincome earners are no longer subject to income tax.

So if your income is 267, your income will not be held by the

employer.

But if I were your employer and I pay you 268, will I subject

you to tax?

Yes, because you are no longer a minimum wage income

earner.

So I want you to have a copy of the tax code and at least 1

textbook and outline of the subject.

Discussions will be according to the outline.

Is the power of taxation an inherent power of the

government or does it depend on the law granting such

power?

If we take out the constitution, will it change the power of

the government to impose taxes on its people?

No. Because it is inherent in every sovereign.

You think the Philippines can survive without taxation?

Youre saying no state could survive without financial

stability? That puts in equal footing the Philippines and USand for that matter developed countries and third world

countries?

Almost all states actually impose taxes and burdens among

people out of necessity.

I think there is only 1 state that does not and they solely exist

on

So as a rule, taxation is applicable to third world countries or

developed or developing countries.


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US is taxing in people because in 1939 we followed the tax

code of US, s we did with our civil code from some other

countries.

So the tax code was patterned after the tax code of US on

1939.

It eventually evolved into our code and in 1997, we also had

the version of the 1977 rational internal revenue code,

amended in part in 1983 and now our current tax code is

National Internal Revenue Code of 1997 which is RA 8424.

What is taxation?

Taxation is the inherent power of every sovereign nation

Exercised through its legislative or law making body

Imposing burdens

Upon people, subjects or objects within its jurisdiction

For the purpose of raising revenueTo meet the legitimate needs of the government

So if you break it down,

It is an INHERENT POWER of sovereignty.

Who exercise the power?

The legislative body which is the congress composed by

senate and the house on the national scope.

And on the lower levels/local government units, who

comprises the legislative bodies?

The Sangguniang Panlalawigan for the province;

Sangguniang Panglunsod for the cityetc

So taxation is exercised the lawmaking body of every

sovereignty.

Against whom is the burden of taxes imposed?

Against subjects and objects

But are all subjects and objects covered by taxation?

Say for example, you went abroad as a nurse. You have

immigrant status in US. Will you be covered by Philippine

income taxation?

When you say subjects and objects within its jurisdiction, it

actually refers also to taxation observing territorial

boundaries.

The power of taxation extends to everyone within the

territorial jurisdiction.

Of course, that is a very general definition, later one you will

know who are actually covered by tax, who are liable, who

are not.

Then for the PURPOSE OF RAISING REVENUES TO MEET THE

NEDDS OF THE GOVERNMENT

As a rule, what kind of purpose may a government have in

order to raise revenues for taxation?

For public purpose

The power of taxation has 3 natures. What are there? (2 are

included in definition)

1. Legislative in nature2. Inherent in sovereign3. Subject to constitutional and inherent limitations1. So you are saying that the power of taxation is legislativein nature.

In the exercise of power of taxation, it is required that only

congress or local lawmaking bodies are the only ones

authorizes to impose taxes.

Wherein you say that it is legislative in nature

Can congress collect a tax without enacting a law, if the need

arises?

Probably you might be referring to the time when there is

no constitution but 1986-87, when congress cannot convene

but tax laws is civil in nature. They are not affected.

2. Inherent in sovereigntyWe have earlier said that the power of taxation exists in every

government without need that the constitution will provide

and grant such power.

And even if the constitution is removed, amended, etc, thepower to tax is still inherent for survival of the government.

If we see a constitutional provision discussing about taxes,

what is tits purpose?

For limitations only

It is not the grant of power if you see the word tax in the

constitution but simply a constitutional provision to limit an

otherwise unlimited power of taxation.

3. Subject to constitutional and inherent limitationWhat is the difference between the two?

Can you remember a limitation provided by the constitution

insofar as the power of taxation is concerned?

There are various, I think there are more than 12. Whether is

a direct limitation or indirect.

Example: Uniformity and Equity of Taxation


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We say that the power of taxation has the following nature:

1. It is INHERENT IN EVERY SOVEREIGNTY such that there isno need for a law or constitution to grant for the power.

For every sovereignty, taxation is inherent, notwithstanding

if you removed the constitution

2. There are CONSTITUTIONAL LIMITATIONS or INHERENTLIMITATIONS

Otherwise the power of taxation can be abused because it is

supreme, plenary, unlimited in character.

So there are constitutional and inherent limitations like

constitution provides various constitutional limitations.

Ex: UNIFORMITY of taxation for those belonging in the same

class and

Inherent limitations of the power of taxation are those that

go with the power without a law.

Let us say that we repeal/ take out the constitution, will the

power of taxation be limitless because it is the constitution

with the taxation will have limitations?

Even if we take out the constitution, still the power of

taxation will not be without limitation.

There are still limitations which we call inherent limitations

Ex: that every law enacted to impose and collect taxes must

be for public purpose.

If it so happens that the purpose is for private or for the

benefit of few individuals or entities, then the tax law will bedeclared unconstitutional.

3. It is LEGISLATIVE IN CHARACTERYour classmate said that the tax can be collected even

without the tax law imposing such. Is that right?

The power of taxation is legislative in character.

So every burden imposed on the tax payer must be based on

the existing statute or tax law.

The power of taxation is statutory in nature without a law

imposing a particular tax, no collection can be made.

Otherwise you will be violating a very important limitation

provided in the constitution that there shall be no taking of

property without due process.

Due process involves:

Substantive due process, the existence of the law and of

course without the law, there will be no Procedural Due

Process

So it cannot happen that even in emergency cases,

collection can be made without law. There should always be

a law.

So at this point, you will really know the IMPORTANCE OF

TAXATION.

It somebody harasses you or extorts money saying this is your

taxes, if you know that there is a law then you will be paying

But if you know that there is no law, then you can actually

legally refuse to pay.

We so not delve into state of emergency. What I meant is

that in cases wherein there is a need for money by the

government and the congress has not yet enacted a law, can

we impose the tax?

True that the president has been delegated the power in the

constitution to collect taxes in emergency cases, but is only

involves customs duties, which actually requires flexibility.

Because in customs cases, it involves different nations.

If we need to stop the importations of goods form foreign

country, all the president will have to do is the increase

taxes so that there will be no entry of goods.

If we wait forever for congress for how many monthshow

many pleadings to pass through

Thats why there is that special power in he constitutional

granted to the president. But that refers only to customs

cases.

But for national internal revenue cases, there is none.

Why should there be a law imposing tax?

The reason there is that it is burdensome. You cannot expect

the people to pay without being informed that there is such

a law requiring

Why is it that the taxation is inherent?

What it its BASIS?

The basis of taxation in NECESSITY;

the need of the government to serve the people and

the need of the government to protect its people.

But in order to address service and protection to its people,

it needs funds to run the government.

And funds come from taxes.


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There are 3 major sources of money for the government in

order to run its business

1. Taxes2. Borrowings from the world bank or other countries3. Subsidies received form other countriesIf we want to be independent, we should rely on our taxes.We cannot borrow every time and we cannot expect to

receive subsidies from other governments always. They have

their own needs.

Which leads us wherein we say that if the basis of taxation

is necessity this leads us to the famous doctrine, the LIFE

BLOOD DOCTRINE.

What is LIFE BLOOD DOCTRINE?

The LIFE BLOOD DOCTRINE is that the power of taxation is

an inherent necessity of the government that without which

the government cannot run.

So in case of doubt, we say it is taxable because of the life

blood doctrine.

58.11

So just like in your legal ethics, wherein you dont have a fall

back answer, you always think of GMC Good Moral

Character.

In taxation, when you dont know if the person is taxable or

not, probably your answer will be Life Blood Doctrine

because the government needs taxes. But that is only a last

recourse. Dont answer this from 1 to 10. If only for supportfor your first affirmative answer.

No government can exist without taxes, the selected

doctrine is illustrated in many situations.

Ex. If the government has assessed you your taxes and you

have a pending claim for refund of overpaid taxes, can you

offer to set off your payable against your collectible from the

government?

Can there be offsetting of taxes due from you against the

taxes due from the government?

This is a situation wherein you are assessed of taxes but you

have a claim for refund for pending claim of taxes year

before. Can you offer to just have it compensate against

each other?

There can be no offsetting of taxes payable in taxes already

paid before because of the life blood doctrine.

The reason being is that taxes is an obligation which exists

even before you can make a claim or refund.

So its your obligation. Your civil liability for the government.

It is independent from any advances you have made prior to

your tax liability.

And number 2, it is not a debt. Not being a debt, you have

no relationship with the government which we call creditor

debtor relationship.

You are actually a citizen of the government liable to pay

taxes. You are not indebted to the government for a debt. In

the same way is the government not indebted to you for the

overpaid taxes.

There is no creditor debtor relationship but simply a

relationship between the government and its constituents.

Therefore, taxes have to be paid regardless whether you

have a claim from the government.

Lets go to the THEORY OF TAXATION

We say that there is a SYMBOITIC RELATIONSHIP between the

government and its people.

Can you expound further on that?

When we say symbiotic relationship, one gives to another in

exchange for something. Its a relationship of give and take.

Taxation is similar because the government needs funds in

order to protect its people.

Thus the people need to support the government throughtaxes and in turn the government gives the people

protection and support.

How does the government give support?

By the infrastructure, educational services Whether or not

you are actually benefiting out of it, since it is directed for

the common good, there are basic services rendered by the

government to its people that would be enough to say that

is the support given by the government to its people.

When you say Symbiotic Relationship, it is synonymous to

COMPENSATION THEORY one compensates the others

services or the BENEFITS RECEIVED THEORY.

These theories are actually the same.

Its the theory that supports why there is that power of the

government to tax its people.

There is the need and there is the support.

What is the main PURPOSE OF TAXATION?

TO RAISE REVENUE


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As Ive said, to run a government, there is a need of

multibillion tax.

What department of the government is enforcing the tax

collection for the government?

BIR Bureau of Internal Revenue

BC Bureau of Customs

LGU Local Government Units Treasury Division in thecollection of local taxes and Real Property Taxes.

So we have 3 collecting bodies of the government

1. BIR for internal revenue taxesWhat are internal revenue taxes?

These are taxes found in the nation internal revenue code.

2. The Bureau of Customs for customs duties and tariffs.3.

The local government units for local taxes and realproperty taxes.

Majority of the taxes collected comes from BIR which is 70%

of the entire taxes.

How about the Department of Finance?

Is it collecting taxes, fees and surcharges?

No.

What is Department of Finance there for?

Who is the head of Department of Finance?Secretary of Finance

Who is the head of BIR?

Commissioner of Internal Revenue

Who has a higher power?

Secretary of Finance

The BIR and Bureau of Customs are just agencies below the

Dept of Finance.

So if ever there is a ruling that you have questioned before

the BIR, it can be over turned by the Secretary of Finance

himself who can review the rulings of the commissioner.

The commissioner is very powerful insofar as BIR is

concerned.

If we have the primary purpose for taxation, we also have the

SECONDARY PURPOSE.

Another purpose of the power is taxation which is the NON-

REVENUE RAISING part of taxation is TO REGULATE.

What do you mean by TO REGULATE what?Taxation can be used to regulate a certain business such as

cabarets, night clubs etc.

Are they taxable?

Amusement taxes are imposed for amusement places.

And amusement taxes mind you are higher. For example, in

the LGU, the amusement tax imposed is 30%.

In order to regulate businesses, taxation may imposed by

lowering it or highering the tax rates, etc.

Can taxation be used to close up the business?

Do you agree with what they say that taxation involves the

power to destroy?

Wherein a justice once said that the power of taxation

involves the power to destroy, it is not all encompassing.

Because its a legal and valid statement only if it is exercised

together with police power only.

You know police power for the general welfare of the

people

That is the purpose of destroying the business is simply the

power of taxation with revenue raising purpose, it is invalid.

So due process must at all times be exercised in the rising of

revenues under the power taxation.

And exception only will come in if police power is exercised.

Because police power is supreme than the power of

taxation.

Thats why when we say it involves the power to destroy,

the closing of business, it is valid only within police power is

exercised.

If solely taxation, it is not. Taxation is only to raise revenue

as a rule.

Ok. So we have identified 2 non-revenue raising powers:

1. The power to regulate2. The power to promote general welfare- Which is in fact the implementation of police power ofthe state

What are the 2 other non-revenue raising power of the state?

3. Encourage economic growth


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4. To reduce social inequalityHow do you inject taxation in order to encourage economic

growth?

One perfect example of encouraging economic growth is to

introduce or enact the tax law granting fiscal incentives to

investors when they put up business in the Philippines in

exchange for income tax holidays, no income taxes for

certain number of years after its initial operation

Notwithstanding that the government is giving up its right to

collect taxes for the first 4 or 6 years, the fact that it has

brought investment to the Philippines when it will also

encourage the hiring of Filipinos, the government is actually

encouraging economic growth.

Taxes may be collected in other areas because for every

business its not only income tax. There are other taxes that

can be collected out of that investment.

And finally, the fourth non-revenue raising objective of the

power of taxation is to REDUCE SOCIAL INEQUALITY.

How do you use taxation in order to reduce social inequality?

When you say reduce social inequality one perfect example

for this is wherein taxation is used in estate and donors

taxation.

Is the estate taxation the same as real property taxation?

Estate planning is one that you can do only for the rich.

There is nothing to plan if one does not have estate.

So wherein you say estate taxes, these are taxes imposed onthe privilege to transmit properties upon death.

And who are subject to estate taxes?

Not all of us will be liable for estate tax. Because estate tax is

only imposed on the amount left after the first net 200k.

So if your assets do not reach one million w/n you die, no

estate tax will be due. Because there is a standard deduction

for your gross estate.

So it is only a tax for the rich. And it is only imposed upon

transfer.

Supposedly its not even on activity, youre not even earning

income there.

But in order to collect money from those who can afford, it

is imposed on the privilege of transmitting the property

down to the heir.

How about inheritance tax?

You know what inheritance tax is?

It is the tax on the heir upon the privilege to receive

property.

But that tax has already been repealed.

That PD69 imposing inheritance tax and donors tax of one

receiving the gift because that is already double taxation of

the same transmittal of property.

One giving and one receiving.

So only the tax should be imposed on the one who can afford

the one giving or the one who died.

Anyway, that is a way where taxation is not one for raising

revenue but in a sense reducing social inequality but those

who can afford and those who cannot.

SCOPE OF TAXATION

At this point is unlimited, is plenary and supreme.

Very comprehensive indeed.

AFTER BREAK

A while ago, we say taxation is unlimited, supreme,

comprehensive, and plenary.

For such reason, there has been the identification of what arethese constitutional limitations and the inherent limitations

to such unlimited power.

Now, we say that the congress in a way who has the power to

legislate the tax law has an unlimited power to determining

the scope of the power to tax.

Number one is to DETERMINE THE PURPOSE OF THE TAX LAW

TO BE ENACTED.

Number two, WHAT SUBJECT MATTER or WHAT OBJECTS

WILL BE COVERED BY THE POWER TO TAX. It is for congress

to know as well.

Number three, WHAT AMOUNT OF TAX SHALL BE IMPOSED

or @ WHAT RATE SHALL THE TAX BE COLLECTED?

Number four, is THE DETERMINATION OF THE KIND OF TAX

TO BE COLLECTED.

Number five, is HOW IT WILL BE APPORTIONED W/ THE

DIFFERENT CLASSES OF SUBJECTS AND OBJECT MATTERS.

Number six, DETERMINATION OF THE SITUS OF TAXATION

belongs to congress.

And finally, number seven, belongs with the executive branch

of the government, its the MANNER AND MODE OF

ENFORCING AND COLLECTING TAXES.

Are all the three branches of the government somewhat

involved in the power of taxation? One way or the other?

We have all been mentioning legislative insofar as taxation is

concerned

It is legislative in character.


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It is congress who will enact the law.

How about the two branches of the government?

Do they have participation in the overall effectiveness of the

government of the power to tax?

Congress is not involved in the manner and means of

enforcing tax collection and tax administration.

The legislative branch of the government is only up to the

point of enforcing tax law. But as to how the law will be

enforced as to the manner, means, and methods of

collecting/enforcing the taxes against the subject matter and

objects of taxation, it now exclusively belongs to the

executive branch wherein in this case, we have BIR and

Bureau of Customs and the LGU.

How about the judiciary?

We have mentioned a while ago that there are 6 items or

scope of the power to tax determined by congress with the

7

th

belongs to the executive branch enforcing the law.

Number one is the

DETERMINATION OF THE PURPOSE OF THE LAW

What again will be the purpose of the tax law to be enacted

by the congress?

Public purpose

When can you say that it is for public purpose?

The determination of the purpose of the tax law belongs

exclusively to the wisdom of congress.

Although we say, the determination of the constitutionality

of the tax law belongs to the judiciary, not the wisdombehind the purpose of the law.

It belongs to congress.

Now if congress says that the purpose is for public purpose,

then it will be taken as it is. Public purpose.

Only when it would appear, there is question as to the

subjective/procedural due process of the enactment of the

law may judiciary interfere.

Only when there is question of constitutionality, thats

wherein the judiciary interferences.

But once the judiciary will say that the law is

unconstitutional, then it will be part of the law of the land.

Congress cannot do anything about the decision.

So its actually an equal task for all three branches of the

government to make taxation as effective as it should be.

In DETERMINING WHO ARE THE SUBJECTS AND OBJECTS OF

TAXATION are.

It still belongs to congress.

Can we expound on who are liable for taxes? Because we

know it is congress who determines who are liable for taxes.Who are liable for taxes?

In determining who are liable for taxes, it is not only an

individual, and entity or a person.

Taxes can be directed against a person

Against a property or

Against inactivity

These are the three subject matters for taxation purposes.

We will discuss that later when we go to classification of

taxes.

As to DETERMINATION OF AMOUNT OR RATE OF TAXIt still belongs to congress.

Is a tax a rate or a fixed amount?

Both.

Its a rate. VAT is a rate. When VAT is imposed, it is not a

fixed amount that is collected. It is the rate of the value as

computed. At what rate is it? 12%

Taxes may be rates; taxes may be fixed amounts.

If you read through NIRC or any other tax law like LG, most

of the taxes imposed are rates.

Income taxes rates of corporations are in the flag rate of

30% on the net income earned.

Individual tax payers are liable for 5% to 32% income tax

rates on the income earned.

Ex: If you are an employee, even before you receive your

salary, your employer has already withheld the tax that is

due to the government.

If your salary is only minimum wage, youre not withheld of

tax, you are exempted.

If your salary is more than the minimum wage but is in the

lower bracket of income, you get to be held of the lower

rate of 5% to 10%.

If your income will now exceed of 500k, it is the highest leve

of 30%.


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What point of the tax code do we see tax imposed on a flat

rate?

If you see common carriers tax or jeepney utilities, its a

fixed amount depending on the capacity of the vehicle.

How about shipping vessels and aircrafts is there VATimposed or common carrier tax imposed?

Before the enactment of RA 9337, all common carriers were

imposed of the fixed rate of common carriers tax in the tax

code.

But in 2005, it was revised that common carriers by air and

by sea are already imputed of the fixed rate of 12% VAT.

There is a big difference.

Prior to VAT being imposed on an airline ticket, we were not

liable for taxes on ticket purchase. It is the shipping/airlinecompany that is paying for the carriers tax.

But now, we shoulder the burden at 12%.

So the burden was shifted on the consuming public but it

was not applied to common carriers by land which include

buses, jeepneys, and taxies.

Theyre still liable for common carriers tax and the riding

public is not liable to pay any tax upon embarkment of these

vehicles.

Why do you think they are not included?Public utility vehicles by land involve the general public.

And VAT was directed to the consuming public who can

afford.

You remember that there was an issue of the 10% VAT being

increased to 12%. It was actually the reason why Recto was

not elected for senate because he was one of the

proponents of the VAT being increased to 12%.

But one of the arguments why they say VAT was really not

burdensome to the public is because Vat is only imposed on

those items which are more or less luxurious items, while

items which are in the original state are not imposed of VAT.

So you cannot expect the marginalized citizens to pay for

VAT.

Lets go to the KIND OF TAX COLLECTED.

What are the different taxes that you have encountered?

The legislative of the government can actually tax every

move that you make.

If you have illegal gambling games, is it taxable? What kind of

tax?

As to you, the winner, how do you call it?

Income

Illegal games winnings are subjects to income tax.

The definition of income tax is the tax of an income from

whatsoever source.

So having said that it may come from whatever source,

whether the source of your earnings is legal or illegal, it is

taxable as provided in the tax code.

For academic discussion, it is taxable. But in reality, will you

declare it?

No.

You wont declare it. Why would you want to be penalized?

Thats double jeopardy, being subjected to tax and being

prosecuted for double jeopardy.

So the only recourse left is for you not to report it.

Unless somebody tips off the government in lieu of an

informers reward.

If you want to report your employer for not paying the

correct amount of tax or for keeping two sets of books of

accounts, you get informers reward.But of course, there are requirements for you to get hold of

the money.

And speaking of receipts early on,

What do you do with your receipts?

Do you know the Premyo sa Resibo of BIR?

What you simply text in the endorser, the OR number,

establishment, amount paid, etc and if it is chosen as a

winner, you get a maximum if 1 million.

Is it taxable?

No.

Its for congress also in their enactment of a law to

DETERMINE how the tax shall be APPORTIONED WITH THE

DIFFERENT CITIZENS OR APPORTIONMENT OF THE

DIFFERENT RATES TO BE APPLIED

For income taxation purpose involving individual s such as us

of the tax for the first peso we earn is 5%.

For every peso that you earn, 5% goes to the government.


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Anything beyond 500k is 32%.

So the range starts from 5%, 10%, 15%, 25%... up to 32%

Can the BIR change the rates by issuing a regulation

themselves?

The task of BIR is simply to enforce what the law is all about.

Speaking of enforcement of the law and VAT, what about in

2007 of February when the president raised the VAT from

10% to 12%?

Is that not questionable?

Is it violating taxations legislative in nature such that

determining the rates belongs exclusively to congress?

RA9337 w/ amended in part RA8424, the tax code, already

provided the limited power of the president to raise the

value added tax rate from 10% to 12%.

So what the president did in raising the rate to 12% was not

beyond the boundaries allowed by law. The law already

provided the specific rate of 12%Rate to be raised by president only upon compliance with

the Gross Domestic Property conditions.

Now in Feb 2007, conditions were met. The president only

did what was appropriate according to law.

When you say the law already provided for the procedural

requirements/parameters on which it will be enforced, then

there is actually no violated rule on the power to delegate.

The president only followed what the rule provided and the

law was valid. So there is nothing wrong with the presidentraising is to 12%.

And then we said that it is within the scope of congress to

DETERMINE THE SITUS OF TAXATION.

Situs of Taxation is complicated.

Therefore, I have a topic for that next meeting after the

constitutional limitations.

It simply means, as a starter, the law provides the place of

taxation

What is the situs of taxation?

It is when the tax authorities have every legal right to

impose the tax.

So every item, every property, every person, and every

entity.. before answering a question whether it is taxable or

not, you have to answer the question of- where is the situs

of taxation?

Because if it does not belong here in the Philippines, then it is

not taxable. Situs of taxation will be discussed later.

Lets go on to the ASPECT OF TAXATION.

There are 2 major aspects of taxation which are the levying of

taxes and the administration of taxes.

What do you understand of LEVYING OF TAXES?

When you say taxation class, it is not the enactment of the

law wherein the power of taxation stops.

There are 2 major aspects.

First is the ENACTMENT OF THE LAW the levying of the

burden of taxes or the imposition of taxes through a law that

had been enacted by congress.

The seen aspect to perfect the power of taxation is to

administer the law itself.

And how do we administer the law?

Its passing the obligation from congress to the executive

branch in which there are collective agencies or bureaus in

charge of enforcing the law itself, who provide for the

modes, manners, and methods of enforcing the law.

If you have read towards the end of every law, there is an end

provision that says separate rules and regulations will be

enacted

Administration will belong to BIR and Dept of Finance.

Who makes the regulations for the tax collection of thebureau?

It is the secretary of finance, not the commissioner.

There are three BASIC PRINCIPLES to make the tax system of

every country sound.

1. Fiscal Adequacy2. Theoretical Justice3. Administrative FeasibilityFISCAL ADEQUACY

When you say fiscal adequacy,

Fiscal is more on monetary,

Adequacy is the adequateness of the money available to

meet the needs of the public.

SOUND TAX SYSTEM

So when you say to make a sound tax system, there must be

an adequate finance, so that taxation must be so flexible to

be reduced, contracted or expanded in order to meet the

needs of the public.

So it must be contractible. It can be reduced or increased.


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Now, what if our budget for the entire fiscal year, congress

will convene and decide.. if the budget is 100billion and

collection if taxes is only 50billion.

Do we have a sound tax system?So theres a 50% deficit. It makes the tax system unsound.

If the tax collection is double the budget, is the system

sound?

Would you say sound if its more than the expenses?

You know class, to make a sound tax system you dont look

at the equation where the government gains more than

what is expected.

If it so happen that the collection is way way more than the

expenses, its not a sound tax system.

It simply means that the government is under-delivering thebasic needs of the people.

So that makes the tax system as well unsound.

But we so not require the exactness of the amount of the

expenses and collection.

All we need is an approximate.

But more or less, the government is delivering according to

what has been collected.

If there is a big disparity whether its positive or not for the

ground, then there is an absence of fiscal adequacy and the

tax system is no sound.

THEORETICAL JUSTICE

Lets go to theoretical justice. Very difficult word

If you only take out the root word, theory so its only justice

in theory.

What do you mean by theoretical justice?

Were saying that the Philippines tax system must have

theoretical justice that the imposition of taxes must be

based on the affinity of every taxpayer to pay his taxes.

It is in compliance with the provision in the constitution

which says that we must evolve a progressive tax system

which is equivalent as well to the ability to pay principle in

which as your income increases, the tax should also increase

and those who have the ability to pay has higher burden of

shouldering the expenses for the general public.

But that is not applicable to all __________. Not all taxes are

escalating rates. Not all taxes are based on the ability to pay.

Some taxes are at a flat rate.

Ex. Income tax for corporations is at 30% whether or not it is

earning P1 in one year or 100B in one year.

For individuals, we have escalating rates.

Decedents who transmit his property or estate also has

escalating rates.

The owners who transmit properties during their life also

have escalating rates based on their ability to pay.

Talking about services rendered by the government, can you

refuse to pay the tax simply because you did not avail any of

the services rendered by the government?

No education services, no health services, you are not using

the roads nor flyover, youre living in the mountains.

Can you refuse to pay taxes?

No.

ADMINISTRATIVE FEASIBILITY

Lets go to administrative feasibility.Perfect for all tax system.

What do you mean by administrative feasibility?

It simply means that every tax law should be capable of

being carried out in an efficient manner.

OW, it would be of no use if the tax law is so difficult to

impose against the people or the collect taxes from the

people.

Therefore, in order to have a sound tax system, we need have

fiscal adequacy wherein the collection of taxes approximates

the services given by the government.There must be theoretical justice or equally in the imposition

of justice based in the ability to pay principle.

There must be administrative feasibility in running the tax

collection.

Now lets go through these three one by one.

If there is no fiscal adequacy because expenses are way lower

the collection, there is violation of fiscal adequacy rule.

Does that make the tax law invalid?

No. Even if there is no fiscal adequacy because there is no

meeting of budget collection and expenses of the

government, it odes not disturb the validity of the tax law.

The tax law remains valid.

What about administrative feasibility?

What will happen if it is not administratively feasible to

collect taxes?

But since tax collection is the l ife blood of the government,

the executive branch will exhaust all means to make

collection easier for them.


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Before you pay your taxes before BIR then it evolves to

authorizing banks; we call them authorized agent banks to

collect taxes in behalf of the government.

Now it has further evolved into E-collection wherein you can

file your tax returns through the internet and pay your taxes

on line.

Actually the government is doing everything to make it

administratively feasible.

In any case, even if there is no/if not easy to collect, that

does not make the tax nullified.

The government has to do is to redraft another regulation.

Lets go to the third, theoretical justice or equality.

If there is a violation of the principle, does that make the taxlaw invalid?

There is that unwritten limitation in taxation, even in local

taxation that tax imposition must be just fair reasonable and

not oppressive.

It means that it has to follow ability to pay principle; taxes

must be proportionate to the income earned, to the ability

to pay, it must be equitable in character such that its

violation is already against the constitutional limitation that

there should not be undue taking of the property of the

taxpayer.

So if the tax law is oppressive in nature, violative of theconstitution, in this case, not only is the tax system unsound,

it makes the tax law invalid.

Before we leave taxation and focus on the rootword of

taxation which is taxes, let us distinguish the power of

taxation from the power of eminent domain and police

power.

1. As to what is the purpose of the power2. As to who are affected3. As to who are compensated by the power4. As to amounts involved5. As to authority who exercises6. As to limitations1. There are different purposes.Taxation is to raise revenue.

Police power is to maintain general welfare of the public

public safety, public health, morals, etc.

Eminent domain is to use the private property for public

purposes.

2. Who are affected by these powers?

Who gets burdened by these powers?

If at any time, the police power and the power of taxation is

exercised by the government, the persons affected belong

to a class of individuals.

Its a group. You cannot impose tax on a certain person

alone.

That is a void tax law.

It will always be a class of individuals in the same situation.

With police power is directed usually on the class of

individuals for the common good.

Unlike the power of domain which is exercised every point in

time to more or less a few individuals or even simply

individual who is the property owner for which the

government is interested for public purpose.

3. As to whether or not the exercise of these powers resultsto compensation, how do you distinguish the 3?

As we said earlier, in the imposition of taxes, the government

does not promise to benefit the persons paying the tax

because the proceeds of the tax law is used to benefit

everyone.

But in case one or more individuals are benefited especially, it

does not automatically make the law invalid so long as

general premise of the law is still the general public.

Ex: if it benefits the particular areas for real property

taxation.

If there is a specific area benefited by taxation, then the law

will not actually be invalidated.The government will simply think of a way to tax differently

the persons benefited by the government using the power

of taxation.

For police power? Is there compensation?

It results to the promotion of general welfare, the

maintenance of a healthy living environment, etc.

No one is directly benefited by police power.

Does the government compensate for eminent domain?

Yes. FMV

4. Lets go to the forth distinction the ants involvedIn taxation, is there amount involved?

So long as it follows both the constitutional and inherent

limitations, the amount is unlimited for taxes.

Can the government tax 50% income tax?

Yes. It depends on the status of the person.

Is there an amount involved in the exercise of police power?


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The exercise of police power does not grant an unlimited

power to collect fees and charges.

They are only allowed to collect fees for the cause of

regulating those that they are involved in.

Ex: for regulating the industry of tourism, etc, they collect the

license fees. For every LGU you belong to, and if you decideto put up a business, you will be liable to pay not only taxes

but fess for business permits.

Nonpayment for business permits.

Every January 20 you are required to renew your business

permits before the LGU, together with the business taxes.

Is the business permit fee a regulatory or a revenue raising

activity?

Is it a license or is it a tax?

What is the difference between a license and a tax?

If you fail to pay the tax, can you be imprisoned? Yes.

The basic difference between license and a tax is the

purpose/s.

The tax is for revenue raising purpose.

The license is to recover the cost of regulation by the

government.

But nonpayment of either does not result to same thing

If you dont pay any taxes, it does not make your business

illegal. It simply means that you are delinquent in paying.

The government can enforce the means and methods of

collecting the tax either through a court case if levying yourreal property or restraining your personal property.

On the other hand, if you fail to pay a license or permit fee,

it makes your business illegal because you dont have a

license to operate.

For police power, its move on cause of regulation that every

individual subjected to it is required to pay.

How about in eminent domain?

In eminent domain, it is the government that is paying just

compensation which is actually, which ever is lower than the

FMV of the property declared by the taxpayer and the FMV

by the local assessor.

5. What authority exercise the power of taxation, eminentdomain and police power

The power of taxation is exercised by the legislative body.

The power of eminent domain is exercised by the legislative

body of the government.

Can private persons exercise eminent domain?

As a rule, all the three powers are exercisable by the

government but the private entity can come n exercising the

power of eminent domain but only on in stances of

rendering public utility services.

Ex: telecommunications company, power company, etc

These are private companies which actually exercise eminent

domain, offer to purchase land for just compensation in

order to use it publicly.

They can justify that because public utility is for the public.

6. Lets go to the last distinction among the three.Are all three powers subject to constitutional limitations?

Yes.

Taxes are enforced proportional contributions.Can we make taxes as voluntary proportional contributions?

It we make it voluntary, would the people voluntarily pay the

taxes?

No one is expected to voluntarily pay their taxes.

Being enforced contributions, everyone who is within the

jurisdiction and covered by the tax is expected to raise an

amount, shoulder the burden and pay the government.

Its proportional.

What do you mean proportional?

The definition of taxes is that it is an enforced proportional

contribution, generally paid in money levied on persons,

properties, or activities by the state through the legislativebody for the purpose of raising revenue or for public

purpose to meet the needs of the public.

So its a long definition but if you break it down, dissect the

definition, you arrive at the attributes or elements of what

tax is all about.

1. It is an enforced contribution. Not voluntary in nature.2. It is proportionate in character such that every tax law isdesigned to capture the progressive system of taxation that

we only impose taxes to those who have the ability to pay

tax.

3. It is generally payable in money.Can you offer to pay your carabao for the taxes on your

salary? Why not?

There is an exception to the rule that taxes are generally

payable in money.

First, why taxes should be payable in money is that the

government cannot afford to take time to convert your

property to cash.


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Its not liquid.

To run a government, they need cash.

Its as if money runs in the veins of the government to make

it flow.

So its generally payable in money because money is the

standard of measure as what you learned in negotiable

instruments... every thing may rise and fall in value but notmoney.

Therefore, to make things work, we should pay money as

taxes in government.

But there is an exception to the rule but I doubt that back pay

certificates are still available.

We have what we call as TAX CREDIT CERTIFICATES

What do you do if you have paid erroneous taxes?

If you have paid erroneous taxes or taxes in error, your

remedy is to ask for a refund.

But class, asking for a refund from the government is near

impossible.

The government does not give back to you an erroneously

paid tax in cash.

If they found out after examination that indeed you have

overpaid taxes erroneously, what they will offer you 99% at

a time is to give you a tax credit certificate.

1% wherein you will be given cash for overpaid taxes is when

you are about to close your business.

Because tax credit certificate given in lieu of cash for overpaid

erroneous tax can be used pay your other tax liabilities.

If youre closing you business, you have no use for your

certificates.

This is the time when youre saying that these certificates will

be used to pay the tax liabilities.

Therefore, you violated the GR that taxes are generally

payable in money.

You can use the certificate which is a one piece of paper to

pay for your tax liabilities.

As the relationship of the 3 powers to the constitution,

almost all of these powers are limited by the constitution.

To be exact, the power of taxation has many limitations by

the constitution. So the constitution is supreme.

As to eminent domain, it is as well limited by the constitution.

1. No undue taking of the propertyFollow the rule.

Pay just compensation

2. The government cannot violate an existing contract thata person has with another person.

You will know that the non impairment clause of the

constitution is supreme.

Whenever a government enters into a contract with an

individual for compensation, that contract cannot be

disturbed.Not by taxation, not by eminent domain.

That contract can be invalidated by the exercise of police

power.


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June 26, 2010

What are taxes?

Taxes are enforced proportional contributions

generally payable in money

imposed on persons, properties or activities within the

jurisdiction

by the state

through its law making body

for the public purpose or needs of the public.

It may be a long definition but if you break it down you will

have the elements of the taxes.

First is, it is an enforced contribution.

These are actually burden imposed and exacted by the

government from the people, from the objects found within

its jurisdiction and from different exercises of activities of

professions.

So these cannot be deemed as voluntary.

It is proportional in nature.

Taxes are imposed by the government based on the ability of

that person to pay his taxes.

On the value if his property for instance, it proportionate.

Generally Payable in Money

In order to make taxation simple, taxes are generally payable

in money. So all settlements in your civil liability to pay

should be made in legal fender or the money circulating in

the Philippines.

This admits of one exception which is the payment of

government certificates.

Since the Landbank certificates that are mentioned in the

book, I think that is a previous case, so what we have right

now are certificates usually by the government in the forum

of TAX CREDIT CERFITICATES representing ones paid taxes

by the same taxpayer.

As an exception to the rule, these certificates can be used to

settle tax obligations of the same tax payer for his other tax

liabilities for which he is liable to the same issuing authority.

So when its a tax credit certificate issued by the BIR for

overpaid internal revenue taxes, then you can use the tax

credit certificates to offset other internal revenue taxes.

If it is used by Bureau of Customs, then you can only use it ti

pay the Bureau of Customs.

If it is issued the LGU, it can be used to pay your liability toLGU but in the actual world, I dont think LGUs are issuing

tax certificates for overpaid taxes. All they do is offer these

payments as future offsetting the Real Property Taxes or

Local Business Tax paid.

It is very difficult to get refund or tax credit certificates from

the government.

It reaches even the SC.

Another characteristic of the taxes is that it is imposable on

persons, properties or the exercise of a right or privilege.

These are actually the subject matter of taxations

Discuss each.

Number 4 in characteristics of taxes are the same as number

in classification of taxes.

As to the subject matter as against what is such tax directed

against that, you only have three classification/types.

The subject matter could only be a person, property, or

activity.

One is what we cal personal tax.

The other is called property tax.

The third is excise tax.

The poll tax/cedula is an example of personal tax because tax

is collected against a person, regardless of his citizenship,

income and activity.

So long as a person is a resident of a particular place, he is

liable for cedula.

Of course.. an exception of cedula.

If you are a student without income, you are not liable for

cedula.

Also those non resident aliens who are in the Philippines for

not more than 3 months.

A corporation is still liable for cedula because it is a juridical

person.

It is liable for cedula every year except for the year that it is

incorporated.

We will discuss that further ince we reach local taxation.

But at this point, there is only one personal tax identified and

that is poll tax/cedula.


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It is imposed on the person regardless if what income he is

earning or property he is owning or his citizenship as long as

he is a resident.

We go to property tax

Ex: Real Property Tax (before Real Estate Tax)

Although we call it a property tax, it is directed against theproperty, but it is the person owning it who is going to pay

the taxes.

Although the owner or user of real property is going to pay

the RPT, we dont consider that as a personal tax. It is a

property tax.

Such kind of tax follows the property wherever it goes.

that property is liable for taxes.

And we go to the third classification as to the subject matter

the excise taxes.

If you browse through the tax code, it starts with the

introduction with the BIR org. The first tax discussed is the

income tax, followed by the estate tax, donors tax, then

percentage tax, excise tax and doc stamp tax.

Excise tax found on the tax code is a very specific name for a

type of tax imposed on non-essential commodities or goods.

That which we substitutely call as sin taxes.

But if in this classification as to how we classify the different

subjects or objects of taxation is either a person, a property

or an activity/excise.

This is the more genera term of exise. It covers privilege

which are taxable, activities which are taxable, and the

exercise of profession or any type of activity.

You cannot actually interchange it.

Exise tax or sin taxes is very much different because it is a

particular tax.

With this one is simply a catch all on what is not a personal

tax and what is not a property tax.

Ex: income tax is an exise tax because it is not a property nor

a personal tax. It is a tax imposed on an activity that lets you

earn an income.

So any type of other taxes actually that you cannot classify as

personal or property are exise taxes.

Is estate tax an excise tax?

Yes. Because it is neither a property nor personal tax. What

is being taxed is the transmitted of the property from the

decedent down to the heir.

Estate tax is the tax on the privilege of transmitting the

property upon death. Donors tax is the tax on the giving of

gift during life time.

So these are taxes based on the activity of transferring

property with the property itself is subject to another type

of tax which is real property tax.

Real Property Tax is an annual tax imposed on your real

property.

It is not based on the transfer.

Whenever you transfer that property, not only are you liable

for real property tax yearly but you are liable for the transfer

if its made through donation, donors tax, if at death, estate

tax, if you sold it income tax or VAT and you pay local

transfer tax.

So for every transaction, dont expect paying one tax. It maybe one to maximum of 4.

Lets go to the 5th

characteristic, LEVIED

BY THE STATE WHICH HAS JURISDICTION OVER THE SUBJECT

MATTER OF TAXATION.

This refers to situs of taxation

So for Filipino living abroad as an immigrant, are they liable

for Philippine tax here for their income abroad?

If they renting out their house here to someone else because

they are living abroad, is he liable for any form of tax in the

Philippines?

The property is till within the Philippine territory, thereforeit is liable for real property tax, because in situs of taxation,

you will learn later on follow where ever the property is

located.

Since the property is located in the Philippines, therefore the

property tax is due on the property.

At the same time, since the activity of renting it out is still

also within the Philippines, it is liable also for income tax.

What is not liable for income tax?

It is the income abroad.

He worked abroad therefore the activity was performed

abroad. It is not within jurisdiction of the Philippines.

This is one of the difficult part of income taxation;

determining whether a particular income, property or

activity is subject to tax or not.

We sill discuss more of that within me reach situs of

taxation.

We dont really have to discuss jurisdiction between Cebu

tax and Manila, because we are actually centralized insofar

as income taxation is concerned whether it be the revenue


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district of Cebu or Manila. Still it goes back to the central

government which we call for tax purposes, the BIR and

Dept of Finance.

Of course, the exercising authority for taxation, we have

learned that is the LAWMAKING BODY or CONGRESS or

sanggunian for the local levels.

And finally, the last characteristic of taxes, it is LEVIED FOR

PUBLIC PURPOSE

If a tax law benefits a particular person, will it make the law

invalid?

When you say public purpose, what comes to mind is that it

is for the common good of the people.

What we will have to look into to say if it is for public

purpose or not, does it violate the inherent limitations

imposed on the power of taxation

Is that you will have to know whether the general purpose

of the law is for public purpose.If at any point, there is an incidental benefit granted to a

particular person or individual, so long as the general

purpose of the law is still for public purpose, it does not

make the law invalid.

But on the other hand, if what is incidental is only for the

benefit of the common good, with the major benefit is

directed to a particular group of individuals at enterprise,

that makes the law unconstitutional or invalid.

So you cannot expect at all times when you say for public

purpose that it is strictly public.

At what point in the enforcement of the law and the usage of

public funds derived from taxation, it may be directed

incidentally to some particular activities/enterprises or

individuals.

So to make a tax vaid:

It must have a public purpose;

It must be uniform as applied to all individuals situated in

the same circumstance.

Exercised within the jurisdiction of the taxing authority and;

the application, assessment or collection of the taxes must

be in accordance with the due process clause; and

it must never infringe any of the limitations whether

inherent or constitutional.

You cannot say without considering the limitations whether

the tax is valid or not.

At all time, you consult with the limitations whether it has

been violates or not.

And there are many various limitations. We identify 5

inherent limitations, more many constitutional limitations,

more that 12 whether it is directly mentioned in the

constitution or indirectly mentioned.

Now lets go to the CLASSIFICATION OF TAXES

We already discussed as to subject matter of taxation.

Lets go to classifying taxes ACCORDING TO THE BURDEN OFTAXATION.

We have direct taxes or indirect taxes.

So youre talking of direct taxes as only one person while

individual taxes you have at least 2 persons.

The DIRECT tax is a tax demandable against a person who

actually shouldering the burden of tax.

While INDIRECT tax is a tax demandable froma person who

can shift the burden of taxes to another person.

Thats why its indirect or direct, because the one who is

liable for direct taxes cannot look into any other person to

whom he can pass on the liability.

An example of a direct tax would be estate taxes are not

the liability of the decedents, because when a person dies,

he loses his personality as far as taxation is concerned.

The heirs are also not liable for inheritance taxes.

The liability on the estate taxes falls upon the estate left by

the decedent.

When an estate or a set of properties are left by the decedent

that estate creates its own personality for taxation purposesThat estate may even be liable for income taxes if the

property left earns income during the settlement period.

Example if its a set of apartment building which can be

rented out and earns income prior to distribution to the

heirs, that estate will be liable for income tax as long as it is

not yet distributed to the heirs.

What do you call a person who is liable for income tax under

the law?

For purpose of distinguishing a person who is liable fro

direct or indirect tax, we call that person a STATUTORY TAX

PAYER.

For statutory tax payers are the taxpayers on whom the BIR

or the tax authorities will collect the taxes from.

Whether we convene ourselves on direct taxes or indirect

taxes, even if there is an unpaid direct tax or indirect tax, it is

always the statutory tax payer who will be liable to the

government, because there is a need to identify who the

government will run after.


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So in the law, it is provided there that a person is liable for

that person is a statutory tax payer.

One who sells, barters, exchanges goods or properties is

liable for VAT. That one individual is the statutory tax payer.

In the first classification, the direct tax, the statutory tax

payer himself is the one burdened with paying the tax and

shoulders it.

So if B engages himself in a particular profession such as

practicing law, the statutory tax payer is the one liable for

the tax in the income earned.

But what about indirect taxes?

Is the statutory tax payer the one burdened to pay taxes.

VAT is an indirect tax.

Under the law, you have given the example income tax and

VAT.

Income tax is a direct tax because whoever earns income

under the law is liable to pay the tax directly to the

government.

Is the person, who we call a statutory tax payer found under

sec 27 and 24 of tour tax code, is he allowed to shift on the

income tax collectible by the government to another

person?

No.

What happens in income taxation as a direct tax?

Whenever a statutory tax payer sells goods or engages in the

protection, any income that he earns, he is liable for the tax

to the government directly.

But in indirect taxation, example VAT, sec 105 says that one

who sells, barters, or exchanges his properties or services to

another is liable for 12% VAT.

That statutory tax payer is that person who sells.

But VAT is an indirect tax because there is that shifting of

burden.

The seller of a VATABLE goods or services will shift on the

burden to another person.

Ex: You are a consumer; you purchase gasoline from the

station.

Whatever you paid for for the gasoline station, it is already

imputed of the 12% VAT.

What only the statutory tax payer does is to remit the 12%

collected from the consumer to the government.

This is a mere conduct between the government and the

consumer.

The consumer is not actually paying for taxes. What the

consumer did is simply consider the VAT as part of its costour purchase price.

But is in case that s statutory tax payer fails to pass on the

VAT to the consumer, who is l iable to the government?

Still the statutory tax payer, because in all cases, the

government only runs after these persons.

Direct tax, no shifting of burden. While indirect taxes the

burden of taxes can be shifter to one person or as can be

shifted to one person or as many as 10 persons down the

line.

At this point, we classify taxes according to subject matter

and according to who bears the burden.

Let me insert to you a topic when the general rule is, taxes

are personal to every taxpayer, may it be personal tax,

property tax or excise tax.

What I mean to say is that, taxes are the personal liabilities of

whoever the owner of that property is, the user of the

property or the one who earns the income .

It cannot be shifted on especially if ____.

For example, corporation has a separate juridical personality.In case the corporation fails to pay its taxes, can the

government run after the persons or stockholders owing the

corporation?

As a rule, no.

Estate, is the estate fails to pay the taxes, as a rule, can the

government collect from the heirs?

Because it is the personal liability of the estate.

There are certain exceptions of course life blood doctrine

again.

If the estate distributes the property to the heirs without

paying estate tax, who is liable for taxes?

Of course the heirs because theres no more estate to speak

of.

If the corporation dissolves without paying the taxes, who are

liable?

The stockholders because they received the property and

there is no more corporation to speak of.


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So these are only exceptions to the rule. But generally, there

is always that 1 person against who in the government will

collect the tax.

Taxes can be classifies to DETERMINATION OF THE AMOUNT

specific or ad valorem

Excise taxes in more cases are specific taxes because they areimposed on the number of cigarettes, tax, etc, bottles of

wines.

When we say specific taxes, its regardless of the value of

goods. Its based on the numbers, your standard of weight,

measurement, etc.

When we say ad valorem taxes, these are taxes imposed and

very much dependent on the value of the goods of

properties that is in issue.

Is Real Property Tax a specific tax or an ad valorem tax?Real Property Taxes are ad valorem taxes because it is a tax

given at a fixed percentage. And it is imposed on the

property with different values.

It is a tax very dependent on the assessed value of real

properties.

You tax liability for your real property tax maybe low because

the value of your property may also be low.

There are many ad valorem taxes because what we have in

the tax code is more on rates rather than fixed amounts.

As for the PURPOSE, we have said that as for taxation, has the

major purpose of raising revenue for the general purpose

while the secondary purpose is for regulation purposes.

As for the SCOPE or AUTHORITY of who impose the tax, you

know that there is the BIR which is national in scope,

although the power is delegated to the different regions,

they are to make the tax collection efficient.

We have another imposing authority for taxes, which is the

municipal level or the LGUs.

Lets go to the classification of taxes according to rates or

GRADUATION.

We said before last meeting that it is congress who has the

exclusive power of determining the whether to impose a tax

based on the rate or a tax giving a fixed amount.

Now lets go to rates. What are the three classification of

taxes according to rates? Proportional, Progressive and

Regressive.

In progressive taxes, rates increases while your income

increases. Example would be the income taxes on individual

tax payers, found in sec24A of government tax code.

Income tax rates starts from 5% up to 32% from your first P1

income to more than 500,000.

If based on the ability to pay principle, the more income you

learn, the more taxes you should be liable for.

As you have said, the regressive taxes the rates increases as

your income decreases. There are no regressive taxes in the

Philippines. What we only have are progressive taxes

illustrated by income taxes applicable to individual

taxpayers.

Estate taxes are also progressive of 5% to 20%

Donors taxes are also progressive because of the value of

your donation increase, the tax rate increase from 2% to15%.

As provided in the constitution, although it is not mandatory,

it is only a directive that the Philippines develop a

progressive system of taxation.

The constitution does not say do not develop a regressive

tax system.

Having progressive taxes and regressive taxes is not the same

as progressive system of taxation and regressive system of

taxation.

These are taxes lang.

But what about progressive system of taxation?

You will have a progressive system of taxation if we have

more direct taxes than indirect taxes.

You will have a regressive system of taxation if we have

more indirect taxes than direct taxes.

Does the constitution prohibit the institution of indirect

taxes?

No. VAT would have been declared as unconstitutional.

In ABACADA case, their recent case in the VAT, on the issue

on it being unconstitutional, SC upheld its validity.

What comes to mind if you say proportional?

For taxation purpose, proportional tax is a fixed rate of tax.

It is a fixed percentage applied into whatever value

property/income is concerned.

This is one (progressive), there is a movement of rates and

movement of income.


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In proportional tax, you have a flat rate of tax to the varying

movements of property, subjects or objects of taxation.

Ex: Real Property Tax. It is a proportional tax. For example in

Cebu City. A PRT is a 2% plus special education fund of 1%,

for a total of 3%.

Now theres a flat rate of 3%. Its applied on the real propertyvalued at P1 and on real property valued at 1billion. So it

remains fixed, whatever the value of the real property is.

Income tax is not a proportional tax for individuals. But it is a

proportional tax for the income of juridical persons because

it is 30% of income.

VAT is also a proportional tax. It is 12% whatever is the value

of the product/property/service being sold.

There are arguments that VAT is a regressive tax.

It is the argument that VAT should be declaredunconstitutional because it is a regressive tax that we

discussed before, because the burden of VAT increases as

the income decreases.

SC said that VAT is till constitutional because it is not a

regressive tax because the poor need not spend on

purchases which are not vatable. There are lots of items

which are not vat-able in nature available to low income

earners.

Ex: Items which are in its original state, agricultural or marine

products, those that you can purchase from the wet market.

Second, the condition does not prohibit indirect taxes, which

is value added tax.

Third, indirect taxes like sales taxes and VAT has long been in

the system of taxation in the Philippines which is not high

time for it to be declared unconstitutional.

What is LICENSE?

How are they the same and different from taxes?

As to the purpose, taxes are for revenue, license are for

regulation.

As to the amount that can be collected, taxes are unlimited,

license fees are limited to cover the amount or cost of the

regulation unless it is also used for revenue raising purposes.

What about toll fees?

Toll fees are demand of proprietorship. They are collections

made to recover the cost of the infrastructure of a

government or even a private project.

What the government does is actually give the project to a

private enterprise or foreign government because our

government cannot afford the development.

Let them collect the toll fee until everything is recovered.

And if A BOT agreement is entered into, after building and

operation is recovered, the property is transferred to the

government.

Not everyone is liable for the toll fees.

Once we study local government taxation, we will know that

portman deliver mails and armed forces of the Philippines is

exempted from paying toll fees. Also disabled persons.

Compromise Penalties

For tax purpose, will have what we call tax penalities

collected by the BIR in lieu of the criminal procreation for

the violation of the tax law.

Can a person be imposed for non-payment of taxes?Yes.

Although the tax law is not penal in nature, it provides there

for penal sanctions including imprisonment and payment of

fine for violation of the tax law.

OW, no penalty, no one will be forced to pay the taxes.

In some cases, non filing of tax return would not equipped to

imprisonment but simply the payment of compromise

penalty.

Ex.if you had not filed your ITR on the belief that you are not

liable for income tax since you were operating at a lose.

If found out you will be liable not for surcharge because you

have no income tax liability, not for interest because there is

no basis for which to complete the interest. But for mere

non filing of return, its a violation already. You will be

offered and pay compromise penalty in lieu of criminal

procreation.

That is entirely different from taxes. Taxes are civil liabilities

from the violation of the tax law.

Compromise penalty is an offer from the government to

settle your violation.

Can you be forced to pay compromise penalty by the

government?

Compromise penalty cannot be enforced upon an individual.

Its only an offer coming form the government.

But if you fail to pay the compromise penalty, the only

recourse of the government is to proceed with the

procreation,

Special Assessment


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Special Assessment is some kind of real property tax, no the

basic type. But it is a special type of RPT which we

interchangeably call as the special levy,

It is a tax directed specifically on a parcel of land which has

been benefited by government project on improvement.

So in example given, if you have a parcel of land, then agovernment road is constructed, making your parcel of land

accessible. It has been benefited a government

project/improvement.

That makes you land more sellable than before. It becomes

accessible to the public.

Therefore, as part of the power of taxation, LGU are

empowered to impose special assessment.

It is not a personal tax but a property tax directed against aparcel of land itself and it is collected every time a project

benefits the property.

It is unlike a real property tax wherein you have a real

property and every Jan 1, you liability accrues as long as you

own that property.

But as for special levy only be liable if there is a public

improvement and you liability is not automatic.

There has to be a special ordinance imposing such liability

and due process must be given to the land owners for him to

be heard before an imposition can be made.

So its not a regular tax. Its not an imposition on a group of

people but only to a selected new whose property has been

benefited by the government project.

The government can actually collection much as 60% of the

cost of the project including the value of the parcel of land.

From whom will they collect?

They can collect from all those who have been benefited.

So if there are 20 parcels of land, thats 20 individuals will be

liable for special assessment or special levy.

Its not a personal liability unlike the tax. It is imposed on the

parcel of land unlike the tax which can be imposed not only

on property but also person or excise (activity, profession,

privileges).

DEBT

How so you distinguish debt from taxes?

Insofar as interest is concerned, is interest imposable on debt

and on tax?

Interest insofar as obligations are concerned are imposable

against the other party if it is still stipulated, as provided in

NCC: no interest shall be collected without being stipulated.

And insofar as taxation is concerned, as a rule you are only

required to pay your basic tax liability. Your interest can only

come in as a penalty even if it is not written because theres

no contract at all.

The enactment of the law is sufficient to enforce you to pay.

Interest comes in as a penalty for the taxes that are paid late,

taxes that are deficient, delinquent.

And insofar as prescriptive periods are concerned, tax law is a

special law. Therefore we follow whatever prescriptive

period that is provided in the tax code.

Ex. In the tax code, you are only given 3 years to make an

assessment.But there are different period of prescription provided in the

NCC 6 years, 10 yrs.

Only when there is no provision of the tax code we look into

the provision in NCC.

Can taxes be subject of setoff?

Generally, no.

Can you offer the government your pending claim for refunds

against your pending tax liabilities?

Subsidy

What is a subsidy?Is subsidy a revenue?

Yes.

Is revenue a tax?

Revenue is better that tax.

What comprises revenues?

Revenue is actually broader than taxes and subsidy, because

the revenue of the government comprises 3 major items,

the

1. Tax collection2. Subsidy3. Borrowing form the world bankSubsidy is an aid from foreign government.

Internal Revenues are simply taxes found in internal revenue

code.

Those are the taxes collectible by BIR.

Customs Duties and Tariffs are collected by Bureau of

Customs

Customs Duties and Tariffs are interchangeable word or they

are synonymous.


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When you notarize, you observe tariff of rates on how much

to collect.

But for purpose of taxation, tariff is interchangeable used

with customs duties which may be special or regular

customs duties collectible from every importation coming

into the Philippines.

Going back to the subject if tax can subject to set off or

compensation, the GR is that it is not offsettable. It cannot

be offset by the government for the tax payer.

It cannot be compensated for by the liability of one against

the receivable of another.

Since there must be a creditor-debtor relationship

Do we have a creditor-debtor relationship but the

government and tax payer?

No. there was no contract.

Tax liabilities are enforced payments enforced by tax law.

Theres no D-C relationship and the collection of tax is a

necessity of the government.

Thats the reason why no offsetting is allowed. Whenever the

government has a collectible against the tax payer, the tax

payer cannot offer the pay his pending claim on refund of

taxes to the government.

Ex: If the tax payer filed to claim a VAT refund and he has a

pending assessment of deficient tax liabilities of 10m.

Can the tax payer say that they can compensate?

No. Your pending claim for refund is not yet proven.

Although the assessment is done the BIR could not easily

give up the bottle of not collecting the excess amount.

The only exception found is in the Domingo vs Gaslitos case

wherein the government allowed the offsetting for liability

in estate tax, and the unpaid liability for the government

services for the tax payer.

The basic requirement for offsetting if ever this is allowed in

the future is that both items of the government and the

taxpayer , it must be in an amount already bee liquidated

and demandable.

Meaning there is a fixed amount already demandable of one

by the other.

Pending claims for refund are not liquidated amounts.

Theyre not as yet demandable.

Theyre only applications for refund.

Assessments, are they demandable?

Yes.

But is it final?

Not as yet.

Unless SC or any lower court has made it final and executor

and the taxpayer did nothing to appeal the case.

So we require the liquidation and demandability of the

amount before offsetting the taxes and pending claims forrefunds.

Lets go to the limitations of the power to tax.

We have inherent limitations against the power of taxes and

the constitutional limitations.

If when the constitution is removed, therefore we can no

longer find any constitutional limitation against the power to

tax but it does not make the power to tax as without limit,

because we have inherent limitations of the power of

taxation.

What are the 5 inherent limitations?

1. For public purpose2. Exemption of government agencies3. International comity4. Territorial jurisdiction5. Non-delegation1. For public purposeIf a tax law is enacted to benefit a particular industry, is it a

valid tax law?

SC has upheld as valid the tax law supporting the sugar

industry of the Philippines, because it will redound to the

benefit of the common good.Its for the whole industry.

In another case, the congress enacted a law levying P1 for

every sack of fertilizers.

Finds will go to rehabilitate a fertilizer company which is a

private corporation.

Is the tax law valid?

No.

These said in the recent case that the law enacted by the

congress levying a tax or fee on every fertilizer produced in

order to rehabilitate the private fertilizer company is invalid

because the objective is to benefit the particular private

company.

Its not the total industry of the fertilizer.

Unlike the one supporting the sugar industry. Its the entire

sugar industry that was supported by the power of taxation

that is for the common good.


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What you have to look into is whether at the time of the

enactment of the law, the purpose intended by congress is

for public purpose.

It is not at the time of the implementation of the law wherein

public purpose would really matter for the validation or

invalidation of the law.

It at the point of enactment, it is already announced as public

purpose, then by all means.

Remember that the wisdom of determining whether its for

public purpose belongs exclusively to congress.

Congress determines the motive, the wisdom, behind every

law.

The necessity of the law that needs to be enacted.

At the time the taxes has been collected and it is supposed to

be implemented

kwin_s tax pre-mid

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