Introduction to Income Taxation
The inherent and fundamental powers of the State are: 1. Police power,2. Power of eminent domain and 3, power of taxation. Taxation is an inherent right of the state. A state as a matter of essential necessity , is deemed conferred with the right and power of taxation from the moment of its creation. Like the other inherent powers, taxation emanates from the sovereign character of the state. It is an inherent prerogative of sovereignty such that it can be exercised and enforced even without any constitutional or statutory provision authorizing taxation. The constitution therefore, does not confer but simply confirms this awesome and immeasurable power of the state to tax its inhabitants, and it confirms by defining and delimiting the same.
Taxation is fundamental and necessary to the survival of any government. The government is obliged to protect and render basic services to its inhabitants, and the latter, in turn, are required to support their government in terms of enforced and mandatory contributions called taxes. This reciprocal and mutually beneficial arrangement, which has been described as a symbiotic relationship is what makes taxation necessary not only to the general well-being of the State but to its very survival as well.
Clearly then, the principal purpose of taxation is to raise revenue to support the government and its services, without which the government cannot exist. Thus, quite appropriately, taxes are regarded as the lifeblood of the government. In light off this, it is not difficult to conclude that taxation shapes the government and its policies.
It has been said however that the power to tax includes the power to destroy. Rhetoric or not, absolute or qualified, this statement may as well serve as a timeless and timely reminder that taxation being levied against person, property, rights and privileges, can cause injustice if abused by the taxing authority. It is for this reason that the constitutional and statutory provisions on taxation are necessary if only to restrain and properly guide the government in the exercise of this raw and immense power. It is therefore a relief that in another case, the judiciary corrected itself by stating that taxation does not involve the power to destroy for as long as this court sits.
It has been said however that the power to tax includes the power to destroy. Rhetoric or not, absolute or qualified, this statement may as well serve as a timeless and timely reminder that taxation being levied against person, property, rights and privileges, can cause injustice if abused by the taxing authority. It is for this reason that the constitutional and statutory provisions on taxation are necessary if only to restrain and properly guide the government in the exercise of this raw and immense power. It is therefore a relief that in another case, the judiciary corrected itself by stating that taxation does not involve the power to destroy for as long as this court sits.
The power to tax is exercised by the legislature whose good faith in the imposition of taxes is always presumed. Such presumption notwithstanding, under the principle of check and balance, the judiciary is empowered to inquire into the constitutionality or legality of a tax statute and also to ascertain whether or not it is for public purpose. But even then, the scope of judicial inquiry is severely limited in the sense that courts have no power to pass judgments on the overall propriety of a tax statute. The matters of what and whom to tax, at what rate and in what manner, as well as the determination of the situs thereof are strictly legislative prerogatives. Courts by reason of the principle of separation of powers cannot question the legislative wisdom behind a tax statue.
Scope of the Power of Taxation—it is comprehensive, unlimited, supreme and plenary, but subject to constitutional and inherent limitations
Constitutional limitations.
1. Observance of due process of law and equal protection of the laws. (sec, 1, Art. 3) Any deprivation of life , liberty or property is with due process if it is done under the authority of a valid law and after compliance with fair and reasonable methods or procedure prescribed. The power to tax, can be exercised only for a constitutionally valid public purpose and the subject of taxation must be within the taxing jurisdiction of the state. The government may not utilize any form of assessment or review which is arbitrary, unjust and which denies the taxpayer a fair opportunity to assert his rights before a competent tribunal. All persons subject to legislation shall be treated alike under like circumstances and conditions, both in the privileges conferred in liabilities imposed. Persons and properties to be taxed shall be group, and all the same class shall be subject to the same rate and the tax shall be administered impartially upon them.
2. Rule of uniformity and equity in taxation (sec 28(1)Art VI) All taxable articles or properties of the same class shall be taxed at the same rate. Uniformity implies equality in burden not in amount. Equity requires that the apportionment of the tax burden be more or less just in the light of the taxpayers ability to bear the tax burden.
3. No imprisonment for non-payment of poll tax (sec. 20, Art III) A person cannot be imprisoned for non-payment of community tax, but may be imprisoned for other violations of the community tax law, such as falsification of the community tax certificate, or for failure to pay other taxes.
4. Non-impairment of obligations and contracts, sec 10, Art III . the obligation of a contract is impaired when its terms and conditions are changed by law or by a party without the consent of the other, thereby weakening the position or the rights of the latter. IF a tax exemption granted by law and of the nature of a contract between the taxpayer and the government is revoked by a later taxing law, the said law shall not be valid, because it will impair the obligation of contract.
5. Prohibition against infringement of religious freedom Sec 5, Art III, it has been said that the constitutional guarantee of the free exercise and enjoyment of religious profession and worship, which carries the right to disseminate religious belief and information, is violated by the imposition of a license fee on the distribution and sale of bibles and other religious literatures not for profit by a non-stock, non-profit religious corporation.
6. Prohibition against appropriations for religious purposes, sec 29, (2) Art. VI, Congress cannot appropriate funds for a private purpose, or for the benefit of any priest, preacher or minister or for the support of any sect, church except when such priest, preacher, is assigned to the armed forces or to any penal institutions, orphanage or leprosarium.
7. exemption of all revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes from income, property and donor’s taxes and custom duties (sec. 4 (3 and 4) art. XIV
8. Concurrence by a majority of all members of Congress in the passage of a law granting tax exemptions. Sec. 28 (4) Art. VI
9. Congress may not deprive the Supreme Court of its jurisdiction to review, revise, reverse, modify or affirm on appeal or certiorari, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment or any penalty imposed in the relation thereto.
1. Observance of due process of law and equal protection of the laws. (sec, 1, Art. 3) Any deprivation of life , liberty or property is with due process if it is done under the authority of a valid law and after compliance with fair and reasonable methods or procedure prescribed. The power to tax, can be exercised only for a constitutionally valid public purpose and the subject of taxation must be within the taxing jurisdiction of the state. The government may not utilize any form of assessment or review which is arbitrary, unjust and which denies the taxpayer a fair opportunity to assert his rights before a competent tribunal. All persons subject to legislation shall be treated alike under like circumstances and conditions, both in the privileges conferred in liabilities imposed. Persons and properties to be taxed shall be group, and all the same class shall be subject to the same rate and the tax shall be administered impartially upon them.
2. Rule of uniformity and equity in taxation (sec 28(1)Art VI) All taxable articles or properties of the same class shall be taxed at the same rate. Uniformity implies equality in burden not in amount. Equity requires that the apportionment of the tax burden be more or less just in the light of the taxpayers ability to bear the tax burden.
3. No imprisonment for non-payment of poll tax (sec. 20, Art III) A person cannot be imprisoned for non-payment of community tax, but may be imprisoned for other violations of the community tax law, such as falsification of the community tax certificate, or for failure to pay other taxes.
4. Non-impairment of obligations and contracts, sec 10, Art III . the obligation of a contract is impaired when its terms and conditions are changed by law or by a party without the consent of the other, thereby weakening the position or the rights of the latter. IF a tax exemption granted by law and of the nature of a contract between the taxpayer and the government is revoked by a later taxing law, the said law shall not be valid, because it will impair the obligation of contract.
5. Prohibition against infringement of religious freedom Sec 5, Art III, it has been said that the constitutional guarantee of the free exercise and enjoyment of religious profession and worship, which carries the right to disseminate religious belief and information, is violated by the imposition of a license fee on the distribution and sale of bibles and other religious literatures not for profit by a non-stock, non-profit religious corporation.
6. Prohibition against appropriations for religious purposes, sec 29, (2) Art. VI, Congress cannot appropriate funds for a private purpose, or for the benefit of any priest, preacher or minister or for the support of any sect, church except when such priest, preacher, is assigned to the armed forces or to any penal institutions, orphanage or leprosarium.
7. exemption of all revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes from income, property and donor’s taxes and custom duties (sec. 4 (3 and 4) art. XIV
8. Concurrence by a majority of all members of Congress in the passage of a law granting tax exemptions. Sec. 28 (4) Art. VI
9. Congress may not deprive the Supreme Court of its jurisdiction to review, revise, reverse, modify or affirm on appeal or certiorari, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment or any penalty imposed in the relation thereto.
Inherent- those not embodied in the constitution.
a. Taxes may be levied only for a public purpose or a purpose affecting the inhabitants of a state or taxing district as a community and not merely as individuals. The tax must be used for the support of the government or for the promotion of community welfare, such as promotion of science, agriculture, industry, commerce, financing educational activities, construction and maintenance of roads, bridges, piers, etc.
b. Power to tax is limited to territorial jurisdiction of the state. The government can impose taxes only on persons and properties within its territorial jurisdiction, except when there is privity of relationship between the government and the person subject to tax, wherein the jurisdiction of the government remains, wherever the taxpayer may be.
c. Prohibition against delegation of taxing power- legislative power cannot be delegated, except
1. Delegation to the president- for purposes or practicality and expediency, the constitution expressly allows congress to authorize the president to fix within specified limits, and subject to such limitations and restrictions as it may, impose tariff rates, import or export quotas, tonnage and wharfage dues, and other duties or impost.
SITUS OF TAXATION- literally means the place of taxation, or the country that has jurisdiction to levy a particular tax on persons, property, rights or business.
SITUS OF PERSONS
1. Residence tax- place where the person resides
2. Income Tax-
a. citizenship, or the country of which he is a citizen
b. legal residence
c. place where the income is derived.
3. Estate Tax- residence of the decedent at the time of his death
4. Donor’s Tax- residence of the donor at the time of donation
5. Business/occupation tax- where the business is done or the occupation is engaged in;
SITUS OF TAXATION OF PROPERTY
1. Real Property- location of the property
2. Tangible personal property- location of the property
3. Intangible personal property- domicile or residence of the owner
NATURE OF THE POWER OF TAXATION
1. Legislative- this power can only be exercised by the law making body (Congress) not be 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.
1. Delegation to the president- for purposes or practicality and expediency, the constitution expressly allows congress to authorize the president to fix within specified limits, and subject to such limitations and restrictions as it may, impose tariff rates, import or export quotas, tonnage and wharfage dues, and other duties or impost.
SITUS OF TAXATION- literally means the place of taxation, or the country that has jurisdiction to levy a particular tax on persons, property, rights or business.
SITUS OF PERSONS
1. Residence tax- place where the person resides
2. Income Tax-
a. citizenship, or the country of which he is a citizen
b. legal residence
c. place where the income is derived.
3. Estate Tax- residence of the decedent at the time of his death
4. Donor’s Tax- residence of the donor at the time of donation
5. Business/occupation tax- where the business is done or the occupation is engaged in;
SITUS OF TAXATION OF PROPERTY
1. Real Property- location of the property
2. Tangible personal property- location of the property
3. Intangible personal property- domicile or residence of the owner
NATURE OF THE POWER OF TAXATION
1. Legislative- this power can only be exercised by the law making body (Congress) not be 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.
PURPOSE OF TAXATION
1. Primary- to provide funds or property with which the government discharges its appropriate functions for the protection and general welfare of its citizens.
2. Non revenue objectives-
a. to strengthen anemic enterprises by granting them tax exemptions or other conditions or incentives for growth;
b. to protect local industries against foreign competition by increasing import taxes
c. as a bargaining too in trade negotiations with other countries
d. to counter the effects of inflation or depression
e. to reduce inequalities in the distribution of wealth
f. to promote science and invention, finance educational activities or maintain and improve the efficiency of local police forces.
g. to implement police power and promote general welfare.
1. Primary- to provide funds or property with which the government discharges its appropriate functions for the protection and general welfare of its citizens.
2. Non revenue objectives-
a. to strengthen anemic enterprises by granting them tax exemptions or other conditions or incentives for growth;
b. to protect local industries against foreign competition by increasing import taxes
c. as a bargaining too in trade negotiations with other countries
d. to counter the effects of inflation or depression
e. to reduce inequalities in the distribution of wealth
f. to promote science and invention, finance educational activities or maintain and improve the efficiency of local police forces.
g. to implement police power and promote general welfare.
ASPECTS OF TAXATION
1. Levying or imposition- legislative act
2. Collection of tax levied- administration
BASIC PRINCIPLES OF A SOUND TAX SYSTEM. (IMPT!)
1. Fiscal Adequacy- The sources (proceeds) of tax revenue should coincide with and approximate needs of government expenditures. The sources of revenue should be sufficient and elastic to meet the demands of public expenditures;
2. Theoretical Justice- The tax system should be fair to the average taxpayer and based upon his ability to pay.
3. Administrative Feasibility- The tax system should be capable of being properly and efficiently administered by the government and enforced with the least inconvenience to the taxpayer.
1. Levying or imposition- legislative act
2. Collection of tax levied- administration
BASIC PRINCIPLES OF A SOUND TAX SYSTEM. (IMPT!)
1. Fiscal Adequacy- The sources (proceeds) of tax revenue should coincide with and approximate needs of government expenditures. The sources of revenue should be sufficient and elastic to meet the demands of public expenditures;
2. Theoretical Justice- The tax system should be fair to the average taxpayer and based upon his ability to pay.
3. Administrative Feasibility- The tax system should be capable of being properly and efficiently administered by the government and enforced with the least inconvenience to the taxpayer.
TAXES AND TAX LAWS IN GENERAL
Taxes are the enforced proportional contributions from persons and property levied by the law making body of the state by virtue of its sovereignty for the support of the government and all public needs.
Tax is a forced burden, charge, exaction, imposition or contribution assessed in accordance with some reasonable rule of apportionment by authority of a sovereign state upon the persons or property within its jurisdiction, to provide public revenues for the support of the government, the administration of law, or the payment of a public expense.
Tax is a forced burden, charge, exaction, imposition or contribution assessed in accordance with some reasonable rule of apportionment by authority of a sovereign state upon the persons or property within its jurisdiction, to provide public revenues for the support of the government, the administration of law, or the payment of a public expense.
Essential characteristics of tax.
1. it is an enforce contribution
2. it is generally payable in money.
3. It is proportionate in character, usually based on the ability to pay
4. it is levied on persons and property within the jurisdiction of the state
5. it is levied pursuant to legislative authority, the power to tax can only be exercised by the law making body or congress
6. it is levied for public purpose
7. it is commonly required to be paid a regular intervals.
1. it is an enforce contribution
2. it is generally payable in money.
3. It is proportionate in character, usually based on the ability to pay
4. it is levied on persons and property within the jurisdiction of the state
5. it is levied pursuant to legislative authority, the power to tax can only be exercised by the law making body or congress
6. it is levied for public purpose
7. it is commonly required to be paid a regular intervals.
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