REMEDIES OF THE TAXPAYER

1. Where the tax has not been paid

a. Dispute the assessment administratively- file with the BIR a request for reconsideration of the assessment. If the BIR decides against the taxpayer, he may appeal to the Court of Tax Appeals.

b. Appeal to the CTA- within 30 days from receipt of the decision of the CIR on the disputed assessment, the taxpayer may appeal the decision to the CTA. Refunds for internal revenue taxes, fees or other charges, penalties imposed in relation thereto are also appealable to the CTA.

The appeal taken to the CTA shall not suspend the payment, levy, distraint and/or sale of any property of the taxpayer for the satisfaction of his tax liability. However, if in the opinion of the CTA the collection of the tax may jeopardize the interest of the government or the taxpayer, the Court at any stage of the proceeding may suspend the collection of tax and require the taxpayer to deposit the amount claimed, or file a surety bond for not more than double the amount with the court.

c. Appeal to the Supreme Court.

2. Where the tax has been paid- Claim for a refund

Grounds for claiming refund or tax credit IMPT!!!!!!!!
a. the tax has been erroneously or illegally assessed or collected;
b. the penalty had been collected without authority
c. any sum which have been excessive or in any manner wrongfully collected
d. the tax was paid by mistake.

3. Action to contest forfeiture of chattel

4. Question the validity of the sale of property

5. Action against the revenue officers for damages cased in the performance of duties

6. Appeal the President of the Philippines, where the decision of the Commissioner of Internal Revenue is a revocation of privilege

Remedies of the Government in the Collection of Taxes

1. ADMINISTRATIVE

a. Distraint of personal property;
b. Levy of personal property
c. Enforcement of forfeiture of property
d. Enforcement of tax lien
e. Requiring the filing of bonds
f. Requiring proof of filing income tax returns
g. Deportation of aliens
h. Inspection of books of accounts.

2. JUDICIAL
a. ordinary civil action
b. criminal action

REMEDIES AVAILABLE TO THE GOVERNMENT IN THE COLLECTION OF THE INCOME TAX...VERY IMPT!!

1. ADMINISTRATIVE
a. Distraint of personal property;
b. Levy of personal property
c. Enforcement of forfeiture of property
d. Enforcement of tax lien
e. Requiring the filing of bonds
f. Requiring proof of filing income tax returns
g. Deportation of aliens
h. Inspection of books of accounts.

2. JUDICIAL
a. ordinary civil action
b. criminal action


DISTRAINT- seizure by the government of personal property, tangible or intangible, to enforce the payment of taxes to be followed by its public sale if the taxes are not voluntarily paid.

Kinds of Distraint
a. Actual- there is taking of possession of the personal property out of the taxpayer into that of the government;
b. Constructive- the owner is merely prohibited from disposing of his property.

LEVY- A summary administrative remedy, seizure of real property to enforce payment of taxes.

A written notice of levy, containing a description of the property upon which levy is made, the name of the taxpayer and the amounts of the tax and penalty due from them is served upon the taxpayer.

FORFEITURE- a divestiture of property without compensation, in consequence of a default or offense. In case of chattels and removal of fixtures of any sort, forfeiture is enforced by seizure and sale or destruction of the specific forfeited property. The forfeiture of real property is enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require.

TAX LIEN- a legal claim or charge on property either real or personal established by law as a security in default of the payment of taxes. The tax, together with interest, penalties and cost that may accrue in addition thereto is a lien upon all property and rights to property belonging to the taxpayer. The lien however, shall not be valid against any mortgagee, purchaser or judgment creditor until legal notice of such liens should be filed by the Commissioner of internal revenue in the Office of the Register of Deeds of the province or city where the property of the taxpayer is located. The lien attaches when the taxpayer neglects or refuses to pay the tax after demand, but relates back from the time when assessment was made by the Commissioner.

REQUIRING THE FILING OF BONDS- Filing of performance bond to secure the payment of taxes or compliance with certain provisions of tax laws and regulations. This may be required by the BIR for the issuance of a tax clearance.

REQUIRING PROOF OF FILING INCOME TAX RETURNS. – Before a license to engage in trade or business or occupation or to practice a profession can be issued to a person, partnership, association or corporation, he must submit to the officer issuing such license or permit, proof that he has filed his income tax return during the preceding year and that income taxes due have been paid thereon.

DEPORTATION OF ALIENS- any alien who
1. knowingly and fraudulently evades the payment of any internal revenue tax or
2. willfully refuses to pay such tax and its accessory penalties after the decision on the tax liability rendered by the Commissioner of Internal Revenue, or the CTA or any competent judicial tribunal shall have become final and executor, is subject to deportation. The penalty of deportation is not a bar to any proceeding taken by the government to enforce collection of tax delinquency.

INSPECTION OF BOOKS OF ACCOUNTS

JUDICIAL ACTION
1. Civil Action- After the assessment made by the Commissioner of Internal Revenue has become final and executory for failure of the taxpayer to dispute the same and appeal the disputed assessment to the Court of Tax Appeals, the government may institute civil actions to collect internal revenue taxes in the Regional Trial Court and the Metropolitan Trial Court, City and municipal courts.

2. Criminal Action- maybe pursued by the authorities for the collection of delinquent taxes. An assessment of a tax deficiency is not necessary to a criminal prosecution for tax evasion. The crime is complete when the violator has knowingly and willfully filed a fraudulent return or neglected to file a return with intent to evade the tax. If the taxpayer is acquitted, the government may still collect the tax in a civil action, because the payment of a tax is an obligation imposed by statute and does not arise from a criminal act.

FORMS OF ESCAPE FROM TAXATION/ EXEMPTION FROM TAXATION

FORMS OF ESCAPE FROM TAXATION

1. Shifting
2. Capitalization
3. Transformation
4. Avoidance
5. Exemption
6. Evasion

Shifting- process by which tax burden is transferred from statutory taxpayer to another without violating the law.

Kinds of Shifting

1. Forward shifting- when burden of tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer

2. Backward shifting – when the burden is transferred from consumer through factors of distribution to the factors of production;

3. Onward shifting- when the tax is shifted 2 or more times either forward or backward.

Capitalization- is the reduction in the price of the taxed object equal to the capitalized value of the future taxes which the purchaser expects to be called upon to pay.

Transformation- the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units at a lower cost.

Tax avoidance- exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce tax liability.

Tax Exemption- grant of immunity to particular persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay.

Basic Principles Regarding Tax Exemptions

1. Exemptions are highly disfavored by law and he who claims an exemption must be able to justify his claim by the clearest grant of law.

2. He who claims tax exemption should prove by convincing proofs that he is exempted

3. Tax exemptions should be strictly construed against the person claiming it.

4. Taxation is the rule and exemption Is the exception

5. Constitutional grant of tax exemptions are self-executing

6. In the same way that taxes are personal, tax exemptions are also personal

7. Deductions for income tax purposes partake of the nature of tax exemptions, therefore deductions should also be construed strictly against the taxpayer.

Tax evasion- use of taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax.

Indicia of Fraud in tax evasion

1. Failure to declare for taxation purposes true and actual income derived from business for 2 consecutive years;

2. Substantial under declaration of income tax returns of the tax payer for 4 consecutive years coupled with intentional overstatement of deductions.

Role of the Judiciary in Taxation

The power of taxation is based on the reciprocal obligation of protection by the State of its citizens and the support by such citizens of the State to give funds to provide them protection.

Consequently, the citizen has a right to have a sympathetic and vigilant court or tribunal to check whatever injustices or abuses that may be committed by the administrative agents of the state in the exercise of the power of taxation.

Tax Evasion vs. Tax Avoidance

TAX EVASION VS. TAX AVOIDANCE

Tax Evasion occurs when the taxpayer resorts to unlawful means to lessen or to get away with his tax liability. This is also known as tax dodging.

Tax Avoidance happens when the taxpayer minimizes his tax liability by taking advantage of a legally available tax planning opportunities. This is otherwise known as tax minimization.

Distinction between Tax Evasion and Tax Avoidance

1. Tax avoidance is legal and not subject to criminal penalty WHILE tax evasion is illegal and subject to criminal penalty.
2. Tax avoidance is minimization of taxes WHILE tax evasion always results in absence of tax payments.

Double and Multiple Taxation

Double taxation- both taxes where imposed in the same year for the same purpose, upon property owned by the same person and by the same taxing authority.

Kinds:

Direct duplicate taxation- the same property is taxed twice when it should only be taxed once.

Indirect duplicate taxation- not prohibited and usually allowed provided no violation of equal protection and uniformity clauses in the constitution.

Remedies of Double or Multiple Taxation

1. Provide for exemption;

2. Allowance for tax deduction

3. Allowance for tax credit for foreign taxes

4. Enter into treaties with other states

5. Allowance of the principle of reciprocity.

Situs of Taxation

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.

Basis: Symbiotic relationship. The jurisdiction, state or political unit that gives protection has the right to demand support.

The situs of taxation is determined by a number of factors

a. Subject matter- or what is being taxed. He may be a person or it may be a property, an act or activity;

b. Nature of tax- or which tax to impose. It may be an income tax, an import duty or a real property tax;

c. Citizenship of the taxpayer

d. Residence of the taxpayer.

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

Limitations on The Power of Taxation

The power of taxation, is however, subject to constitutional and inherent limitations.

Constitutional limitations are those provided for in the constitution or implied from its provisions, while inherent limitations are restrictions to the power to tax attached to its nature.

The following are the inherent limitations.

1. Purpose. Taxes may be levied only for public purpose;
2. Territoriality. The State may tax persons and properties under its jurisdiction;
3. International Comity. the property of a foreign State may not be taxed by another.
4. Exemption. Government agencies performing governmental functions are exempt from taxation
5. Non-delegation. The power to tax being legislative in nature may not be delegated. (subject to exceptions)

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.

Tax Distinguished From Other Fees

Tax distinguished from other fees. IMPT

1. From TOLL. Toll is a sum of money for 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 toll is a demand of proprietorship, is paid for the use of another’s property and may be imposed by the government or private individuals or entities; while a tax is a demand of sovereignty, is paid for the support of the government and may be imposed only by the State.

2. From PENALTY. Penalty is any sanction imposed as a punishment for violation of law or acts deemed injurious. Violation of tax laws may give rise to imposition of penalty.

A penalty is designed to regulate conduct and may be imposed by the government or private individuals or entities. Tax, on the other hand, is primarily aimed at raising revenue and may be imposed only by the government.

3. From SPECIAL ASSESSMENT. Special Assessment is an enforced proportional contribution from owners of lands for special benefits resulting from public improvements.

Special Assessment is levied only on land, is not a personal liability of the person assessed, is based wholly on benefits and is exceptional both as to time and place. Tax is levied on persons, property, or exercise of privilege, which may be made a personal liability of the person assessed, is based on necessity and is of general application.

4. From PERMIT or LICENSE FEE. Permit or License Fee is a charge imposed under the police power for purposes or regulation.

License fee is imposed for regulation and involves the exercise of police power while tax is levied for revenue and involves the exercise of the taxing power. Failure to pay a license gee makes an act or a business illegal, while failure to pay a tax does not necessarily make an act or a business illegal.

5. From DEBT. Debt is generally based on contract, is assignable and may be paid in kind while a tax is based on law, cannot generally be assigned and is generally payable in money. A person cannot be imprisoned for non-payment of debt while he can be for non-payment of tax except poll tax.

A tax is considered a debt for purposes of remedies for its enforcement;

6. From REVENUE. Revenue is broader that tax since it refers to all funds or income derived by the government taxes included. Other sources of revenues are government services, income from public enterprises and foreign loans.

7. From CUSTOM DUTIES. Custom duties are taxes imposed on goods exported from or imported to a country. Custom duties are actually taxes but the latter is broader in scope.

Classification of Taxes

Classification of taxes

1. As to subject matter or object

A. personal, poll or capitation- tax of a fixed amount on individuals residing within a specified territory, without regard to their property, occupation or business. Ex. Community tax (basic)

B. property- imposed on property, real or personal, in proportion to its value, or in accordance with some reasonable method or apportionment. Ex. Real estate Tax

C. Excise- imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation, profession or business. Ex. Income tax, VAT, Estate Tax, Donor’s Tax

2. As to who bears the burden of the tax

a. Direct- the tax is imposed on the person who also bears the burden thereof
Ex. Income tax, community tax, estate tax

b. Indirect – imposed on the taxpayer who shifts the burden of the tax to another, Ex. VAT, customs duties.

3. As to determination of amount

a. specific – imposed and based on a physical unit of measurement as by head number, weight, length or volume. Ex. Tax on distilled spirits, fermented liquors, cigars

b. Ad Valorem of a fixed proportion of the value of the property with respect to which the tax is assessed. Ex. Real estate tax, excise tax on cars, non essential goods.

4. As to purpose

A. general, fiscal, or revenue- imposed for the general purpose of supporting the government. Ex. Income tax, percentage tax

B. special or regulatory- imposed for a special purpose, to achieve some social or economic objective. Ex. Protective tariffs or custom duties on imported goods intended to protect local industries.

5. As to scope or authority imposing the tax

a. national- imposed by the national government ex. NIRC, custom duties
b. municipal or local- imposed by municipal corporations or local governments ex. Real estate tax,

6. As to graduation of rates.

a. proportional- based on a fixed percentage of the amount of the property, receipts or on other basis to be taxed ex. Real estate tax, VAT

b. progressive and graduated- the rate of the tax increases as the tax base or bracket increases ex. Income tax, estate tax, donor’s tax

c. regressive- the rate of tax decreases as the tax base or bracket increases.

d. degressive- increase of rate is not proportionate to the increase of tax base.

Aspects of Taxation/ Basic Principles of a Sound Tax System

ASPECTS OF TAXATION

1. Levying of the tax- The imposition of tax requires legislative intervention. In the Philippines, it is Congress that levies the tax;

2. Collection of the tax levied. This is essentially an administrative function.

The two processes together constitute the taxation system.

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.

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.

NOTICE: NO CLASSES THIS AFTERNOON JUNE 19, 2009

Will resume classes on June 22, 2009. Prepare for a quiz (10 pts.)

Happy Weekend All.

Atty. C.Villarin

Concept, Nature and Characteristics of Taxation and Taxes.

Meaning of Taxation

Taxation is the inherent power of the state, acting through the legislature, to impose and collect revenues to support the government and its recognized objects. Simply stated, taxation is the power of the State to collect revenues for public purpose.

Purpose of Taxation

Primary Purpose - is to provide funds or property with which the government discharges its appropriate functions for the protection and general welfare of the its citizens.

Non Revenue Objectives

Aside from purely financing government operational expenditures, taxation is also utilized as a tool to carry out the national objective of social and economic development.

1. to strengthen anemic enterprises by granting them tax exemptions or other conditions or incentives for growth;
2. to protect local industries against foreign competition by increasing local import taxes;
3. as a bargaining tool in trade negotiations with other countries;
4. to counter the effects of inflation or depression;
5. to reduce inequalities in the distribution of wealth;
6. to promote science and invention, finance educational activities or maintain and improve the efficiency of local police forces;
7. to implement police power and promote general welfare.

Meaning of Taxes

Taxes are enforced proportional contributions from persons and property levied by the lawmaking body of the state by virtue of its sovereignty for the support of the government and all public needs.

Tax in a general sense, is any contribution imposed by the government upon individuals for the use and service of the state, whether under the name of toll, tribute, impost, duty, custom, excise, subsidy, aid, supply or other name. Tax, in its essential characteristics , is not a debt.

Essential characteristics of tax.

1. it is an enforced 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.

Welcome to the Tax 71 Blog

This course is designed for non-accountancy students. A study of the fundamentals of taxation- the concept, theory and basis, and aspects of taxation; the nature and characteristics of taxation and taxes; the classification of taxes, the limitations on the exercise of the power of taxation by the state. It will also include a study of the general principles of the different business and transfer taxes.