Taxation 1 (Cabanero)

(1) It is one of the 3 inherent powers of the government

They are the powers that government needs to survive

(2) Taxation is the collection of mandatory contribution from the people in order for the government to have funds to
support the activity of the government

(3) The right of the person is subordinated to the greater interest of the majority

(4) Taxation is an inherent right of the government, whereby mandatory contributions are being collected from the
inhabitants by laying burdens on persons, properties or privileges and rights, in order for the government to have
funds to sustain the governmental expenditures

(5) Cooley: it is a way of approximation or distributing to the inhabitants the expenses of the government who are
beneficiaries of the benefits that are given by the government

(6) Taxation is for revenue

(7) Broad spectrum of taxation

The power to tax is so broad, so supreme, so plenary, so comprehensive, awesome, it pierces on all activities. It is
unlimited. It is all encompassing It is subject to no injunction rule

(8) It is a power to destroy

(9) Taxation may also be used for non revenue purposes

(10) It is subject to constitutional limitations

(11) It is inherent

(12) Collection of mandatory collection

(13) Levying on properties, privileges and rights through the law making bodies

For a tax to be collected, there has to be a law. Otherwise, it will be a plain extortion

(14) Inherent there is no need for a constitutional grant or law to allow the country to collect taxes

The provisions on the law are not grant of taxation, those are there in order to place safeguard. To avoid abuse
on the part of the government

The power to tax is not a power to destroy, as long as the court sits

There is no room for abusive taxation

1. Characteristic of taxes

1. It is a mandatory contribution

It is enforced ad invitum

It is to be distinguished from contractual debt

 2. It is territorial

It is co-terminus with the territorial boundaries as a rule

Because there are exceptions when it comes to situs on income tax

3. The collection of taxes must be in money

When we say money, it is legal tender

If it is in kind, there will be a problem in valuation

As exception, one time after the war, there were back pay certifications issued by the government, and it was allowed
for the payment of tax

Another is when units of car were valued and it was made for payment of tax

4. It is legislative in nature

Legislature enacts the law, executive implements the law, judiciary interprets the law

Legislature must move

5. It must be for a public purpose

2. Importance of taxes

1. Theory of necessity

Blood theory - taxation is the life blood of the government

In a case, it was clearly emphasized that despite the natural reluctance of a person to pay his tax, the government will
all out to mobilize its resources to make the taxpayer pay lest the government will be paralyzed

3. Basis of taxation

1. Reciprocity

Between the government and the taxpayer, there is symbiotic relationship

It means that for the taxpayer to expect the government to render services, it is incumbent for the government to pay
tax

We cannot achieve state equality in taxation, only theoretical equality

Not true that the person who pays more tax should get more benefit

Benefits receive principle

Tax is being collected for the building of a public school. X does not want to pay on the ground that none of his
children are studying in public school

Is the argument tenable?

 No. Because in taxation, not all tax payers are the same.

A person is paying big amount of tax, and is complaining that his fellowmen is only paying smaller taxes

The fact that a person is paying a big amount, the government is recognizing that

4. Aspects of taxation

1. Levying

Before tax can be collected, congress has to act

This process is the act of choosing who will be taxed. And this is the job of the congress

Who shall be taxed, what properties are to be taxed, what are the rates of tax, who will collect the tax, manner of
imposition of penalty

These are addressed to the prerogative of legislature

2. Collection

This will be the job of secretary of finance

When it is internal revenue tax, it is the BIR

If it is customs tax, then it is customs

5. Principle of sound tax system

1. Fiscal adequacy

The government is working on a budget

The government in order to be efficient, they must be able to produce budget

That is the reason that in BIR, they have a goal

They have goal setting being done by them

The collection of budget must be sufficient to meet the budget, in order to comply with the basic principle of sound
tax system

Operation RIP
Tax mapping
Lifestyle check

To sustain the expenditure of the government

2. Theoretical justice

It means that in taxation one cannot achieve strict compensation (1:1) benefit = tax
 One can only achieve theoretical compensation or theoretical justice

This is illustrated by the ability to pay doctrine

It is exemplified in the tax laws by the use of the progressive taxation

Most of our taxes are progressive (5%-32%)

Estate tax = for gross estate more than 10M = 20%

It is graduated according to the amount

That is a manifestation of the ability to pay doctrine

Because not every tax payer is the same

3. Administrative feasibility

For a tax law to be implemented well, it must be convenient of administration both on the part of the tax payer and
the part of the government

To achieve this, the government must come up with laws that are clear

Also, the law must be published

The law that comes out in Congress may be general in nature

Necessarily, Secretary of Finance shall issue implementing rules and regulations

Rules and regulations are pronouncements of the Secretary of finance to clarify the law, and to provide details of
implementation

If the tax law is not clear, then the tax payer should not pay the tax

Because tax is a forced exaction

Tax is a burden. Rich or poor, nobody should be forced to pay taxes. And if ever somebody is made to pay taxes, there
must be a very clear legal basis and the persons are apprised of that

They must be informed

So that the taxpayer is informed what he is paying for, and that if he has any questions, he can question.

That is perfectly the right of taxpayer under the doctrine of the taxpayers suit. The taxpayer is a proper party in
interest to question the tax law.

Naturally because this is hard earned money

So the court requires it (Tuvera vs Tanada)

If the tax law is not circulated, but the BIR would want to collect such kind of tax, then that cannot be done because
there must be publication

Justice Isagani Cruz said that taxpayers must be informed about that

Now tax laws are required to be published in at least 2 newspapers of general circulation
6. Suppose there is a violation of fiscal adequacy, is there a violation of the constitution?

No. Because the effect of the violation of fiscal adequacy goes to the capability of the commissioner to collect. He stands
the risk of being replaced

7. Suppose there is a violation of theoretical justice, is there a violation of the constitution?

Yes, because this may be violative of the equal protection of law

8. Suppose there is a violation of administrative feasibility, is there a violation of the constitution?

Yes, that will be violative of due process of law which is required by taxation

Classification of taxes

1. According to nature (intrinsic)

(1) Pool tax

Tax on presence
This is the community tax certificate

Guaranty in constitution that there is no imprisonment for non-payment of pool tax

Whether you are a Filipino or an alien, as long as you are here in the Philippines, you are exposed to the pool tax,
and you should get your community tax certificate

(2) Property tax

(1) Basis of real property tax

(2) Charged against persons who own property

(3) Excise tax

(1) The tax on all types of privileges, exercise of a right

(2) Example is income tax, estate tax, donors tax, VAT

(3) Income tax is an excise tax on the right to earn income

(4) Estate tax is an excise tax on the right to transmit properties to the heirs upon the death of the testator or
person

(5) VAT is an excise tax on the right to do business, to do activities in the ordinary course of business

(6) Excise that is the broadest of all

(4) Tariff tax

(1) Deals with importation and exportation

(2) It is with Bureau of Customs
Classification of taxes in accordance to persons who shoulders the tax

1. Direct tax

It is a tax that is payable by the person himself. The one who is taxed is the one who should pay the same, just like income
tax

Estate tax is direct tax because it is payable by the administrator

There are two inevitable things in life. Death and taxes

When you are alive, you are liable for tax. When you die, you are still liable for tax

It is a tax that is payable by the person himself

In other words, it cannot be shifted to another

2. Indirect tax

The kind of tax that is imposable to one person like the seller, who has the liberty to shift it to another (buyer), who will
finally shoulder the tax

VAT is the best example of indirect tax

It is an indirect tax and it can be shifted by the seller to the buyer

Impact of taxation and incidents of taxation

1. When a tax is imposed on a seller (Landmark), that is called impact of taxation. But since seller is allowed under the
law to shift it to its buyer, when the buyer buys the shoes from landmark, a part of it will be the VAT that is being
shifted to the buyer. This last part is called incident of taxation

2. Value added tax is called a pass on tax

3. What if a direct tax is shifter to another?

If CGT is a tax on the sale of property

A capital asset is one that is not used for business

A residential house is an example of a capital asset

An idle land is an example of a capital asset

If one sells his residential lot or idle land, he is going to pay CGT, and under the law CGT is part of income tax, under
Sec 39 of the tax code.

It is a direct tax of the seller. So, if that is shifted by the seller to the buyer, the seller will be exposed to assessment
for imputed income, under the theory of economic benefit under income tax law

This is because a direct tax should be shouldered by the person himself. In this case the seller

But since he agreed that this be shouldered by the other person, up to that extent, he is benefitted, and therefore it is
imputed income
Classification of tax as to manner of computation

1. Specific tax

This is the kind of tax that is computed based on a certain measurement or number, like cigarettes

For every pack of cigarettes, one pays for so much, and that is the specific tax

2. Ad valorem tax

It is per value
Before one can complete the tax, he must first determine the valuation

Real property tax is an ad valorem tax

This is because there is a need for the intervention of an assessor

The assessor is the one who determines and validates the valuation of a real property

That is why if the assessor does not come out with the valuation of the property, one cannot compute the real
property tax. It needs the intervention of another person. That is ad valorem (per value)

Tariff duties is also ad valorem in nature because it also needs the intervention of the customs appraiser

Under the tariff code, whenever importation arrives, then it will be stocked in the bonded warehouse of customs, the
appraiser comes, and on the basis of import entry, the appraiser will determine how much is due. That is why it is
called ad valorem

Classification of taxes based on the rate that is being used

1. Progressive

This means to say that the amount of taxes is dependent on how big is the tax base

The bigger the tax base, the bigger the tax

Like income tax (sec 24. It is graduated

The lesser income, the lesser tax will be

Estate tax. The lesser estate you have, the lesser tax will be

2. Regressive

Even if the tax base increases, the tax rate is reduced or lower

Tolentino vs Secretary of Finance

Senator Tolentino questioned RA 7615, the expanded value added tax law

SC has no choice but to issue a TRO.

Finally, the law was declared valid

Despite, the no injunction rule on Sec 218 of the tax code, TRO was issued
 Tolentino was saying that value added tax is a regressive tax because rich and poor alike pays the same

SC said that admittedly the VAT is regressive, but there are in the VAT law measures to counteract the regressivility of the
VAT law

Like VAT exempt or zero rated products

Also the SC said that in our constitution, regressive tax are not prohibited

The wordings of the constitution are clear. The government will only endeavor to come out with a progressive system of
taxation

In other words, if regressivility cannot be prevented, one cannot question the same, because the constitution allows it

Distinction of tax from all other kinds of burden

1. Tax as distinguished from a license

The license is an exercise of police power. A tax is an exercise of taxing power. As to purpose, the purpose of a tax is
revenue. The purpose of a license is regulatory

One must be able to distinguish whether a local ordinance provides for the collection of a tax or for the collection of a
license

Sec 133 of the LGC, on will find the common limitations. Those are the taxes that as much as possible the local
government could not impose. Because that is intended to avoid local taxation

That is why it is called the doctrine of pre-emption the exclusionary doctrine

The restriction admits of exception

License under Section 153 to Section 155 of LGC of 1991, under the common revenue raising powers, all LGU can
collect that kind of collection

Those kinds of collections are called fees. These are collections based on the exercise of police power. They are
regulatory in nature

Caveat: when it comes to tax, the collection is unlimited. There is no limit when it comes to collection of tax

But collection of a fee is limited only to the cause of supervision and surveillance

That is why when the collection for fee is so big, a taxpayer can always question the same because that is just a fee for
the compensation for a person for his doing the activity

If there is an ordinance passed in Nueva Ecija which says that for every cow slaughtered in the public market, there
must be payment of 20 pesos inspection fee, it is not a tax but a license. Because the purpose of it is to be able to
regulate all that is being sold in the market. The collection there is not a tax, but the collection must be limited only to
the cause of supervision and surveillance

If a business person does not pay tax, his business is still a valid. What is prohibited is for him not to pay license. If one
has a business but has no license, his business becomes illegal. But if he has a business, only that he does not pay
taxes, he only becomes tax delinquent but the business remains legal
2. Tax from a debt

Tax is a legal obligation, because it is mandated by law. There is no actual meeting of the minds that is required unlike
in a contract

On the other hand, debt is a contractual obligation

Tax is generally payable in money. Debt may be payable in kind

Tax and a debt cannot be compensated. The government can pursue its assessment, and the person in order to
pursue his case against the government can file a separate action

Offsetting cannot be done because it goes against the life blood theory (Francis vs IAC

There are exceptions to the rule (Domingo vs Carmitos)

Equitable recoupment

Deals with offsetting

Rule in US which states that if one is being assessed by the BIR and the assessment prescribed, and at the same time
the taxpayer is claiming a refund, then one can make an offsetting between the two

That is not recognized in our country. That is against public policy because it tolerates indolence

3. Tax from special assessment

A tax is payable by everybody

Special assessment is payable only by the person benefitted

Example of this is the SLEX, Diversion road

If there are roads that were constructed over a farm land, which were previously agricultural land, and because of the
construction of the road, the value of the properties around the road were increased, then the local government of
that place can collect the special tax because you were benefitted by that improvement

A tax on the other hand, can be collected from anybody whether or not he has benefitted or not

4. Tax from a tariff

Tariff is a type of collection under the tariff code on importation

A tax on the other hand is a more generic word because that is applied to all

Tax is broader because it covers also the tariff

5. Tax from a toll