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TAXATION
Ms. Bernadette Lloret-Poquiz
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Purpose of Taxation
Characteristics of Tax
Basic Principle of a Sound Tax System
Classification of Taxes
Entities Exempted from Taxation
Limitations on Taxation
Situs of Taxation
Escape from Taxation
Outline:
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PURPOSES OF TAXATION:
The purposes of taxation are the following:
To raise revenue
To equitably distribute the wealth of the
nation
To pick new industries (by providing taxexemption new or pioneering industry)
To protect local procedures (by imposinghigher custom on cheap imported goods
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ASPECTS OF TAXATION
Levy refers to the legislative function and thedeclaration of the subject and the rate or amount oftaxation. (People vs. Monohey)
Assessment - a written notice that the amount stated
therein is due as a tax and contains a demand forpayment thereof. (Alhambra Cigar vs. Collector)
Collection does the law-making body of the state byvirtue of its sovereignty for the support of the
government and all public needs levy the enforcedproportional contributions from persons andproperties.
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ESSENTIAL CHARACTERISTICS OF TAX
ARE:
It is an enforced contribution. Its paymentnot voluntary in nature, and the imposition isnot dependent upon the will of the person
taxed. It is generally payable in money. This means
that payment by checks, promissory notes orin kind is not acceptable.
It is proportionate in character. Payment oftaxes must be based on the ability-to-payprinciple; thus, the higher the income of the
taxpayer, the bigger the amount of the taxaid.
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It is levied on persons or property. Although there aretaxes that are imposed or levied on acts,transactions, rights or privileges.
Example. Documentary tax
It is levied by the State which has jurisdiction overthe person or the property. As a general rule, onlypersons, properties, acts, rights, transactions withinthe jurisdiction of the taxing States are subject to tax.
It is levied by the law-making body of the State. Thismeans that the prior law must be enacted first by theCongress before assessment and collection maybeimplemented. (Art. 6, Sec. 29, par (1) of the 1999
Constitution)
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BASIC PRINCIPLES OF A SOUND TAX
SYSTEM
1. Fiscal adequacy which means that sourcesof revenue be sufficient to meet the demandsof public expenditures.
2. Equality or Theoretical justice
which meansthat the burden should be in proportion to thetaxpayers ability to pay.
3. Administrative Feasibility which means thatthe tax laws should be capable of convenient,
just effective and effective administration.
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Objects of Taxation:
1. Individuals
a. Who earn a considerable amount of incomeas a worker;
b. Businessman in partnerships or corporations
c. Those who inherited a property or weregiven a gift or donation of considerable vale
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2. Properties
a. Real/Intangible(immovable properties)
Real estates land, buildings, and houses
b. Personal/Tangible(moveable properties)
Vehicles, furnitures, patents, and ownershiptitles,
3. Transactions, consumptions interests,imports and exports; and privileges
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Inherent limitation of the power of
Taxation
The tax revenue must only be used for publicpurpose.
There should be proper delegation of
legislative power to tax. Government entities are exempted.
There are territorial jurisdiction.
There is an observance of international law.
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ENTITIES EXEMTED FROM
TAXATION
Religious institutions (church, mosques,parsonages)
Charitable institutions
Non-profit, non-stock educational institutions
Non-profit cemeteries
Government institutions
Foreign diplomats (by virtue of treaty)(Art 14 Secs 4 & 3 1987 Constitution Art 8 Sec
28 (1) 1987 Constitution
SITUS OF TAXATION
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SITUS OF TAXATIONConcept: Situs is a Latin term which meanssituation; location; place. Situs of taxationliterally means the place of taxation. It refersto the place where taxes are to be paid.
Tax
Income Tax
Place
in the place whereincome is earned or the
place of residence of thetaxpayer.
= Ms. L. resides in QC andworks in Makati. She may
choose to pay her incometax in either of these twoplaces.
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Real Property Tax
Personal Property tax
a. tangible properties
b. intangibleproperties
= are paid in the place
where the property islocated
= in the place where theproperty is located
= owners domicile-place ofpermanent residence of theowner
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Business and OccupationTaxes
= in the place where thebusiness or occupation is
located.
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Double taxation
Concept
There are two (2) concepts of double taxation
namely:
1. Direct duplicate
2. Indirect duplicate
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Elements of direct taxation
The elements of direct duplicate taxation arethe following:
Taxing twice.
by the same taxing authority
within the same taxing jurisdiction
for the same purpose
in the same taxable period involving the same property
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This kind of double taxation is not allowed bylaw. (Villanueva vs. City of Iloilo, L-26521).
Indirect taxation, on the other hand
occurs when taxes on the same property arenot imposed by the same taxing authority.
Example:
Local government and nationalgovernment impose taxes on the sameproperty during one taxable period. This kindof imposition is legal.
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Forms of Escape from Taxation
1. Shifting 4. Evasion (illegal form)2. Capitalization 5. Avoidance
3. Exemption
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ShiftingConcept: Shifting is passing the burden of tax
from one person to another person (BlackLaw Dictionary supra). Thus, what is
transferred is not the payment of the tax butthe burden of the tax.
Example:
Taxes paid by the manufacturer may beshifted to the consumer by adding the amountthe tax paid to the price of the product.
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Kinds of Shifting
There are three (3) kinds of shifting namely:
Forward shifting
Backward shifting
Onward shifting
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There is forward shiftingwhen the burden of thetax is transferred from a factor of productionto the factor of distribution;
Backward shiftingoccurs when the burden oftax is transferred from the consumer to theproducer of manufacturer; and
onward shiftingoccurs when the tax is shifted totwo or more times either forward orbackward.
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Tax Evasion
Concept: Tax evasion is the use by thetaxpayer of illegal or fraudulent means to
defeat or lessen the amount of tax. This isalso known as Tax dodging.
Example Deliberate and / or malicious failureto report income to defeat tax liability.
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Tax evasion presupposes malice, fraud, badfaith, or willful intent on the part of thetaxpayer. (Rep. vs. Gonzales, 13 SCRA 633).
As in the case of substantial undeclaration ofincome for four consecutive year. (Perez vs.CTA L 10507).
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Tax Avoidance
Concept: Tax avoidance is the exploitationby the taxpayer of legally permissible
methods on order to avoid or reduce taxliability. This is also known as tax
minimization.
Example:
Exhausting and / or utilizing all allowabledeductions or exemption in law or reduce thetax burden.
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Grounds for Tax Exemption
Tax exemption may be based on the following
grounds namely: Contract In this instance, the government is one of
the contracting parties. In which case, thegovernment must receive a full equivalent for the
exemption. Generally, the previous of a contractexemption are contained in the charter of anexempted corporation.
Public Policy Government need not receive any
consideration return for the tax exemption.Ex. Policy of encouraging new and necessaryindustries e.g. step manufacturing
Reciprocity Exemption many be created in a treatyon grounds reciprocity or to lessen the rigors ofinternational double or multiple taxation