TAXATION

A.) A Tax Law - This is a body of rules passed by the legislature by virtue of which
the government acquires a claim or property as a matter of legal duty or
obligation by operation of law.
B.) There are various ways for the government to generate funds.
a. The government can borrow funds from local and international banks,
sells public lands and other government properties, and invests in corporations.
b. But collecting taxes generate most of the countrys revenues.
C.) One of the governments primary duties is to provide for the basic needs of its
citizens through social services.
a. But the government needs to have enough funds to cover the expenses
for these services.
b. The constitution mandates the government to collect fees from
individuals who earn income or who own properties or businesses (taxation).
D.) Taxation undergoes two stages:
a. First: act of levying or imposing of the tax by the legislature
b. Second: collection of the tax that includes the enforcement of sanction
for tax evasion.
2) Nature of tax
a.Tax is an onus, a Latin term for burden or obligation
b. Not to be confused with taxation
c. A tax is a fee, which is a percentage of income, property value, or
transactions, to support the government in its expenses and services.
3) Meaning of Taxation
a. A system of raising and collecting money to finance government
expenses and services.
b. This is the power of the sovereign to impose burden or charges upon
persons, property or property rights for the use and support of government in
order to enable it to discharge its function.
- Since governments have been established to promote and protect
the general welfare, it is necessary that government should be provided
with the means.
c. It is the power vested upon the legislature for the purpose of raising
revenues to finance government expenditures and for the general welfare and
protection of its citizens.
- It is only the legislature can make tax laws.
d. Taxation is the method of apportioning the cost of government among
those who in some measure are privileged to enjoy its benefits and must
therefore, bear its burden.
e. It also regulates the flow of income in our economic system.
- When there is too much money in the system, the government withdraws
some of this money to check inflation.
Nature and Scope of the Power of Taxation
NATURE OF THE POWER OF TAXATION
1. Legislative- this power can only be exercised by the law making body
(Congress) not the executive or the judicial branch of the government,
except when delegated by the national legislative body to a local
legislative body or to the executive branch, subject to limitations as may
be provided by law;
2. Inherent in sovereignty- the power exists as an incident or attribute of
sovereignty, as it is essential to the existence of every government. The
power can therefore be exercised even without the constitution or any law
expressly conferring such power.
Scope of the Power of Taxation
-It is comprehensive, unlimited, supreme and plenary, but subject to
constitutional and inherent limitations.
Classification of Taxes
1. As to subject matter or object
a. Personal, poll, or capitation. Tax of a fixed amount imposed on persons
residing within a specified territory, whether citizens or not, without regard to their
property or the occupation or business in which they may be engaged. Example:
Community (formerly residence) tax.
b. Property. Tax imposed on property, whether real or personal, in
proportion either to its value, or in accordance with some other reasonable
method of apportionment. Example: Real estate tax.
c. Excise. Any tax which does not fall within the classification of a poll tax
or property tax. It is said that an excise tax is a charge imposed upon the
performance of an act, the enjoyment of a privilege, or the engaging in an
occupation, profession or business. Examples: Income tax, value-added tax,
estate tax
2. As to who bears the burden
a. Direct. Tax which is demanded from the person who also shoulders the
burden of the tax; or tax for which the taxpayer is directly liable or which he
cannot shift to another. Example: Corporate and individual income taxes.
b. Indirect. Tax that is demanded from one person in the expectation and
intention that he shall indemnify himself at the expense of another. Examples:
Value-added tax; excise taxes on certain specific goods; customs duties.
3. As to determination of amount
 a. Specific. Tax of a fixed amount imposed by the head or number, or by
some standard of weight or measurement; it requires no assessment (valuation)
other than a listing or classification of the objects to be taxed. Examples: Taxes
on distilled spirits, wines, fireworks, and others.
b. Ad valorem. Tax of a fixed proportion of the value of the property with
respect to which the tax is assessed; it requires the intervention of assessors or
appraisers to estimate the value of such property before the amount due from
each taxpayer can be determined. Examples: Real estate tax; excise taxes on
cigarettes, gasoline and others; customs duties
4. As to purpose
a. General, fiscal, or revenue. Tax imposed for the general purposes of the
government i.e., to raise revenue for governmental needs. Examples: Income
tax; value-added tax, and almost all taxes.
b. Special or regulatory. Tax imposed for a special purpose, i.e., to achieve
some social or economic ends irrespective of whether revenue is actually raised
or not. Example: Protective tariffs or customs duties on imported goods.
5. As to scope
a. National. Tax imposed by the national government. Examples: National
internal revenue taxes; customs duties and national taxes imposed by special
laws.
b. Municipal or local. Tax imposed by municipal corporations or local
government units. Examples: Real estate tax; professional tax.
6. As to graduation or rate
a. Proportional. Tax based on a fixed percentage of the amount of the
property, receipts, or other bases to be taxed. Examples: Real estate taxes;
value-added tax; and other percentage taxes.
b. Progressive or graduated. Tax the rate of which increases as the tax
base or bracket increases. Examples: Income tax; estate tax; donors tax.
c. Regressive. Tax the rate of which decreases as the tax base or bracket
increases, i.e., the tax rate and the tax base move in opposite directions. We
have no regressive taxes.
Tax Distinguished from other Terms
1. Toll It has been defined as a sum of money or the use of something,
generally applied to the consideration which is paid for the use of a road, bridge
or the like, of a public nature.
a. A toll is a demand of proprietorship, while a tax is a demand of
sovereignty;
b. A toll is paid for the use of anothers property, while tax is paid for the
support of the government.
c. The amount of toll depends upon the cost of construction or
maintenance of the public improvement used, while there is generally no limit on
the amount of tax that may be imposed; and
d. A toll may be imposed by the government or private individuals or
entities, while a tax may be imposed only by the government.
2. Penalty It is any sanction imposed as a punishment for violation of law or
acts deemed injurious. Thus, the violation of tax laws may give rise to imposition
of penalty.
a. A penalty is designed to regulate conduct, while a tax is generally
intended to raise revenue; and
b. A penalty may be imposed by the government or private individuals or
entities, while a tax may be imposed only by the government.
3. Special assessment It is an enforced proportional contribution from owners
of lands especially benefited by public improvements.
a. A special assessment is levied only on land;
b. It is not a personal liability of the person assessed, i.e., his liability is
limited only to the land involved;
c. It is based wholly on benefits; and
d. It is exceptional both as the time and place. A tax, on the other hand,
has general application.
4. License or permit fee It is a charge imposed under the police power for the
purposes of regulation. License is rather in the nature of a special privilege, of a
permission or authority to do what is within its terms.
a. License fee is the legal compensation or reward of an officer for specific
services, while tax is an enforced contribution assessed by sovereign authority to
defray public expenses;
b. It is imposed for regulation, while a tax is levied fro revenue;
c. It involves an exercise of police power, while a tax involves the exercise
of the taxing power;
d. Its amount should be limited to the necessary expenses of inspection
and regulation, while there is generally no limit on the amount of tax that may be
imposed;
e. It is imposed on the right to exercise a privilege, while a tax is imposed
also on persons and property; and
f. Failure to pay a license fee makes the act or business illegal while
failure to pay a tax does not necessarily make the act or business illegal.
5. Debt A tax is not a debt in the ordinary sense.
a. A debt is generally based on contract, express or implied, while tax is
based on law;
b. A debt is assignable, while a tax cannot generally be assigned;
c. A debt may be paid in kind, while a tax is generally payable in money;
 d. A debt may be the subject of set-off or compensation, while a tax is
generally not;
e. A person cannot be imprisoned for the non-payment of debt, while
imprisonment is a sanction for non-payment of tax;
f. A debt draws interest when it is so stipulated or when there is default,
while a tax does not draw interest except only when delinquent.
Tax Structures
The following tax structures show the relationship between rates and
incomes:
1. Progressive tax is one whose rate increases as income increases.
2. Regressive tax is when its rate decreases as income increases. Actually,
there are no regressive taxes.
3. Proportional tax is one whose rate remains constant regardless of the size of
the income.
Exemptions from Taxation
It has been the policy of the government to give tax exemptions to certain
economic activities in order to encourage and promote their growth such as
cooperatives, cottage industries, infant industries and rural banks among others.
In addition, organizations or institutions which are engaged in non-profit
undertakings, together with some specific financial benefits or incomes, are
exempted by the Tax Code and special laws. Examples are:
1. Corporations or associations organized and operated solely for religious,
charitable, scientific, athletic, or cultural purposes.
2. Benefits received by members from GSIS.
3. Social security benefits, retirement gratuities, pensions, and other similar
benefits received by retired employees.
4. Benefits received from the U.S. government through the U.S. Veterans
Administration.
5. Donations to special welfare, cultural and charitable institutions.