Taxation (1)

Taxation

I. Definition and Characteristics

1. A State Power

• Taxation is an inherent power of the state to enforce proportional contributions for public purposes.
• Other State Powers:
  • Power of Eminent Domain - The State can take private property for public use with just compensation.
  • Police Power - The State can enact laws to protect the well-being of the people.

2. A Process

• Taxation is the process of laying taxes by the legislature to enforce proportional contributions for public purposes.
• Government Departments Involved:
  • Judiciary Department - Interprets and applies laws.
  • Executive Department - Carries out and enforces laws:
    • Department of Finance: Sec. Ralph G. Recto
    • Bureau of Internal Revenue (BIR): Commissioner Romeo D. Lumagui Jr.
  • Legislative Department - Enacts tax laws:
    • Congress: House Speaker Ferdinand Martin G. Romualdez
    • Senate: Senate President Francis Joseph G. Escudero

3. A Mode of Cost Distribution

• Taxation allocates the State's costs to its subjects who benefit from public spending.
• Flow of Taxation: Government → Public Services → People → Taxes → Government

II. Limitations of Taxation

1. Inherent Limitations

• Territoriality of taxation
• International comity
• Public purpose
• Exemption of the government
• Non-delegation of the taxing power

2. Constitutional Limitations

• Due process of law
• Equal protection of the law
• Uniformity rule in taxation
• Progressive system of taxation
• No imprisonment for non-payment of debt or poll tax

III. Stages of the Exercise of Taxation

• Levy or Imposition
• Assessment and Collection

IV. Escapes from Taxation

A. Resulting in Loss of Revenue

• Tax Evasion - Illegal avoidance of taxes ("tax dodging").
• Tax Avoidance - Legal minimization of taxes through careful planning.
• Tax Exemption - Freedom from taxation ("tax holiday").

B. Not Resulting in Loss of Revenue

• Shifting
• Capitalization - Incorporating tax into asset value.
• Transformation - Cost savings to offset tax.
• Tax Amnesty - Retrospective forgiveness of tax liability.
• Tax Condonation - Prospective forgiveness under justifiable grounds.

V. Doctrines of Taxation

• Lifeblood Doctrine
• Benefits Received Theory
• Ability to Pay Theory
• Marshall Doctrine - "The power to tax involves the power to destroy."
• Holme's Doctrine - Taxation is not destructive while courts intervene.
• Prospectivity of Tax Laws
• Non-Compensation or Set-Off
• Double Taxation
  • Occurs when the same taxpayer is taxed for the same object by the same jurisdiction.
  • Elements:
    • Primary: Same object
    • Secondary: Same type, purpose, jurisdiction, and tax period

VI. Principles of a Sound Tax System

• Fiscal Adequacy - Government revenue must cover its costs.
• Theoretical Justice - Taxation should consider the ability to pay and must not be oppressive.
• Administrative Feasibility - Tax laws must be efficient and effective to encourage compliance.

VII. Notable Tax Laws

• RA 10963 or TRAIN Law (Tax Reform for Acceleration and Inclusion) - Implemented on January 1, 2018.