tax notes chapter1

8/3/2019 TAX Notes Chapter1

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BRAVO NOTES on TAXATION 1

Rachel Ann Katrina P. Abad 3D AY2011-2012

CHAPTER1: GENERAL PRINCIPLES

TAXATION DEFINED

The power by which the sovereign, through its law-making body, raises revenue to defray the necessary

expenses of government.

It is merely a way of apportioning the costs of government among those who in some measure are privileged

to enjoy its benefits and must bear its burdens

RATIONALE of TAXATION: without taxes, the government would be paralyzed for lack of the motive power

to activate and operate it. Hence, despite the natural reluctance to surrender part of ones hard-earned

income to the taxing authorities, every person who is able 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 value. This

symbiotic relationship is the rationale of taxation and should dispel erroneous notion that is an arbitrary

method of exaction by those in the seat of power.

Fair dealing on both sides is important in order to maintain its harmonious relationship.

TAXES DEFINED

Enforced proportional contribution from persons and property levied by the law making body of the state by

virtue of its sovereignty for the support of government and for the public needs.

Characteristic or attributes of taxes:

a. Forced charge, impositions or contributions and as such it operates in invitum, which means that it is in no

way dependent on the will or contractual assent, express or implied, of the person taxed. They are not

contracts but positive acts of the government

b. It is a pecuniary burden payable in money. It includes back pay certificates.

c. It is levied by the legislative bodies of the state because the taxing power is peculiarly and exclusively

legislative in character. They are obligations created by law.

d. It is assessed in accordance with some reasonable rule of apportionment which mean that conformably with

the constitutional mandate on progressivity of a taxing system, taxes must be based on ability to pay

Q: do regressive taxes go against the constitutional mandate?

A: NO. The constitution does not really prohibit the imposition of indirect taxes which, like VAT, are regressive. It

simply provides that congress shall evolve a progressive system of taxation. Resort to indirect taxes should be

minimized but not avoided entirely because it is difficult, if not impossible to avoid them by imposing such taxes

according to the taxpayers ability to pay

e. It is imposed by the state on persons, property or services within its jurisdiction


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f. Levied for public purpose as taxation in itself involved a burden to provide revenue for public purpose of a

general nature.

Tax creates a civil liability on the part of the delinquent taxpayer, although the non-payment thereof, creates

a criminal liability which could be the subject of criminal prosecution under existing laws.

In taxation, it is ones civil liability to pay taxes that give rise to criminal liability not the other way around as

in criminal cases where criminal liability give rise to a civil liability.

IMPORTANCE OF TAXES

Lifeblood of the government

To generate funds for the state to finance the needs of the citizenry and to advance the common weal.

It is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is

of it most importance that the modes adopted to enforce the collection of taxes levied should be summary

and interfered with as little as possible.

TAXES, PERSONAL TO TAXPAYER

In case of a corporation: GENERAL RULE: it cannot be enforced against its stockholders

RATIONALE: corporation is vested by law with personality that is separate and distinct from those of the

persons composing it, as well as from that of any other legal entity to which it may be related

EXCEPTION: stockholder may be liable if it appears that the corporate assets have passed into their hands

or when stockholders have unpaid subscription to the capital of the corporation.

In case of transmission of the decedents estate to his heirs: if prior payment of the estate tax due on the

transfer of decedents estate, the properties of the deceased are distributed to any beneficiary, then such

beneficiary shall be subsidiarilly liable for the payment of such portion of the estate tax as his distributive

part share bears to the total value of the net estate.

NATURE OF THE TAXING POWER

The power to tax is an attribute of sovereignty.

It is inherent in the state

It is unlimited in its range, acknowledging in the very nature no limits, so that security against its abuse is to

be found only in the responsibility of the legislature which imposes the tax on the constituency what to pay it

Taxation is a power emanating from necessity. A necessary burden to preserve the states sovereignty, and a

means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps


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of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which

come within the states territory and facilities, and protection which government is supposed to provide

Power to tax is not granted in the constitution. It merely constitute limitations upon a power which would

otherwise be practically without limit

Taxing power is peculiarly and exclusively legislative in character and remains undiminished in the

legislature in the absence of an express surrender thereof, clear and explicit in its terms.

Subject to limitations

PURPOSES AND OBJECTIVES OF TAXATION1 (see page6)

Revenue

Regulation

Promotion of general welfare

Reduction of social inequality

Encourage economic growth

Protectionism

THEORY AND BASIS OF TAXATION (page3)

Necessity theory

Benefits-protection theory

SCOPE OF THE LEGISLATIVE TAXING POWER (page 7)

a. Persons, property or occupation to be taxed; subjects

b. Amount or rate of the tax

c. Purposes for which taxes shall be levied provided they are public purposes

d. Kind f tax to be collected

e. Apportionment of the tax

f. Situs of taxation

g. Method of collection

IS THE POWER TO TAX THE POWER OT DESTROY? (page 7)

1 Start of unedited part


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The power of tax involves a power to destroy is pertinent only when there is no power to tax a particular

subject and has no relation to a case where such right to tax exists.

It describe note the purposes for which that taxing power may be used but the degree of vigor with which the

taxing power may be employed in order to raise revenue

CONSTITUTIONAL RESTAINTS RE: TAXATION IS THE POWER TO DESTROY (page8)

It should be exercised with caution to minimize injury to the proprietary right of the tax payer. It must be

exercised fairly, equally and uniformly.

POWER OF JUDICIAL REVIEW IN TAXATION (page 8)

As long as the legislature in imposing a tax does not violate applicable constitutional limitations o

restrictions, the courts have no concern with the wisdom or policy of the exaction, the political motives

behind it, the amount to be raised or the persons, property or other privilege to be taxed.

ASPECTS OF TAXATION (page 5-6)

Levy or imposition of the tax

Collection of the tax

BASIC PRINCIPLES OF A SOUND TAX SYSTEM (page 9)

Fiscal adequacy

Theoretical justice

Administrative feasibility

TAXATION DISTINGUISHED FROM POLICE POWER AND EMINENT DOMAIN (page 10)

TAXES DISTINGUSHED FROM OTHER IMPOSITIONS (page 10-13)

1. Toll

2. Penalty

3. Compromise or compromise

penalty

4. Special assessment

5. License fee

6. Margin fee

7. Debt

8. Regulatory fee

9. Subsidy

10. Customs duties and fees

11. Revenue

12. Tribute

13. Impost


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TAX CLASSIFIED (page 14-16)

1. Personal tax

2. Property tax

3. Direct tax

4. Indirect tax

5. Excise tax

6. General tax

7. Special tax

8. Specific tax

9. Ad valorem tax

10. Customs duties

11. National tax

12.Local tax

13. Progressive tax

14. Regressive tax

15. Proportionate tax

TAXPAYERS SUIT (page 16)

In order to justify a taxpayers suit, it is necessary that public funds should be involved.

tax notes chapter1

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