CHAPTER 1 - FUNDAMENTAL PRINCIPLES Flashcards
ToF: A legislative body may enact laws to raise revenues in the absence of a constitutional provision granting said body the power to tax.
TRUE
Yes, the legislative body may enact laws even in the absence of a constitutional provision because the power to tax is inherent in the government and not merely a constitutional grant. The power of taxation is an essential and inherent attribute of sovereignty belonging as a matter of right to every independent government without being expresslv granted by the people.
X is the owner of a residential lot situated at Quirino Avenue, Pasay City. The lot has an area of 300 square meters. On June 1, 1994, 100 square meters of said lot owned by X was expropriated by the government to be used in the widening of Quirino Avenue, for P300.000.00 representing the estimated assessed value of said portion. From 1991 to 1995, X, who is a businessman, has not been paying his income taxes. X is now being assessed for the unpaid income taxes in the total amount of P150,000.00. X claims his income tax liability has already been compensated by the amount of P300.000 which the government owes him for the expropriation of his property. Decide.
The income tax liability of X cannot be compensated with the amount owed by the Government as compensation for his property expropriated, taxes are of distinct kind, essence and nature than ordinary obligations. Taxes and debts cannot be the subject of compensation because the Government and X are not mutually creditors and debtors of each other and a claim for taxes is not a debt, demand, contract, or judgment as is allowable to be set off.
May a taxpayer who has pending claims for VAT input credit or refund, set-off said claims against his other tax liabilities?
No.
Set-off is available only if both obligations are liquidated and demandable. Liquidated debts are those where the exact amounts have already been determined. In the instant case, the claim of the taxpayer for VAT refund is still pending and the amount has still to be determined. The liquidated obligation of the taxpayer to the government cannot, therefore, be set-off against the unliquidated claim which the taxpayer conceived to exist in his favor..
Since the authority of the LGUS to tax is merely a delegated power, may the Congress, under the 1987 Constitution, abolish the power of the former to tax?
NO
Congress cannot abolish what is expressly granted by the fundamental law. The only authority conferred to Congress is to provide the guidelines and limitations on the local government’s exercise of the power to tax (Sec. 5, Art. X, 1987 Constitution).
The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, issued a Revenue Regulation using gross income as the tax base for corporations doing business in the Philippines. Is the Revenue Regulation valid?
NO
The regulation establishing gross income as the tax base for corporations doing business in the Philippines (domestic as well as resident foreign) is not valid. This is no longer implementation of the law (administrative function) but actually it constitutes legislation because among the powers that are exclusively within the legislative authority to tax is the power to determine the amount of the tax.
The Congress, after much public hearing and consultations with various sectors of society, came to the conclusion that it will be good for the country to have only one system of taxation by centralizing the imposition and collection of all taxes in the national government. Accordingly, it is thinking of passing a law that would abolish the taxing power of all local government units. Would such a law be valid under the present Constitution?
NO
The law centralizing the imposition and collection of all taxes in the national government would contravene the Constitution which mandates that:. “Each local government unit shall have the power to create their own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as Congress may provide consistent with the basic policy of local autonomy.” It is clear that Congress can only give the guidelines and limitations on the exercise by the local governments of the power to tax but what was granted by the fundamental law cannot be withdrawn by Congress
An Executive Order was issued pursuant to law, granting tax and duty incentives only to businesses and residents within the “secured area” of the Subic Economic Special Zone, and denying said incentives to those who live within the Zone but outside such “secured area”. Is the constitutional right to equal protection of the law violated by the Executive Order?
NO
Equal protection of the law clause is subject to reasonable classification. Classification, to be valid, must Rest on substantial distinctions, Be germane to the purpose of the law, Not be limited to existing conditions only. Apply equally to all members of the same class. There are substantial differences between big investors being enticed to the “secured area” and the business operators outside that are in accord with the equal protection clause that does not require territorial uniformity of laws. The classification applies equally to all the resident individuals and businesses within the “secured area”. The residents, being in like circumstances to contributing directly to the achievement of the end purpose of the law, are not categorized further. Instead, they are similarly treated, both in privileges granted and obligations required.
Is Mr. Ramos exempt from the payment of real property taxes?
Mr. Ramos is the owner of a 5,000 sq. m. parcel of land located in the city limits of Naga City. He leased the property for P50,000 a year to a religious congregation for a period of fifteen (15) years (2010-2025). The religious congregation built on a 1,000 sq. m. portion a seminary and a chapel that it used in connection with its religious activities. It constructed a ten (10) storey building on the remaining 4,000 sq. m. which it rented out to various commercial establishments, the proceeds of which go to the support of its various seminaries located throughout the Philippines. These seminaries are organized as non-profit and non- stock educational institutions.
YES
Mr. Ramos is exempt from the payment of real property taxes on the 1,000 sq. m. portion of his 5,000 sq. m. lot, as well as on the remaining 4,000 sq.m.
Is the religious congregation exempt from the payment of income taxes on the rental receipts?
Mr. Ramos is the owner of a 5,000 sq. m. parcel of land located in the city limits of Naga City. He leased the property for P50,000 a year to a religious congregation for a period of fifteen (15) years (2010-2025). The religious congregation built on a 1,000 sq. m. portion a seminary and a chapel that it used in connection with its religious activities. It constructed a ten (10) storey building on the remaining 4,000 sq. m. which it rented out to various commercial establishments, the proceeds of which go to the support of its various seminaries located throughout the Philippines. These seminaries are organized as non-profit and non- stock educational institutions.
NO
The religious congregation is subject to income taxation. The constitutional tax exemptions refer only to real property that are actually, directly and exclusively used for religious, charitable or educational purposes, and that the only constitutionally recognized exemption from taxation of revenues are those eamed by non-profit, non-stock educational institutions which are actually, directly and exclusively used for educational purposes.
Is the religious congregation exempt from the payment of real property taxes?
Mr. Ramos is the owner of a 5,000 sq. m. parcel of land located in the city limits of Naga City. He leased the property for P50,000 a year to a religious congregation for a period of fifteen (15) years (2010-2025). The religious congregation built on a 1,000 sq. m. portion a seminary and a chapel that it used in connection with its religious activities. It constructed a ten (10) storey building on the remaining 4,000 sq. m. which it rented out to various commercial establishments, the proceeds of which go to the support of its various seminaries located throughout the Philippines. These seminaries are organized as non-profit and non- stock educational institutions.
YES AND NO
The religious congregation should pay real property taxes on the 4,000 sq. m. parcel of land and the 10-storey building because the basis for taxation of real property is use and not ownership. However, it is exempt from real property taxes on the 1,000 sq. m. parcel of land as well as on the improvements the chapel and the seminary. This is so because they are actually, directly and exclusively used for religious purposes. The treatment is different with regard to the 4,000 sq. m. lot and the 10 storey building which it rented out to commercial establishments.
The House of Representatives introduced HB 7000 which envisioned to levy a tax on various transactions. After the bill was approved by the House, the bill was sent to the Senate as so required by the Constitution. In the upper house, instead of a deliberation on the House Bill, the Senate introduced SB 8000 which was its own version of the same tax. The Senate deliberated on this Senate Bill and approved the same. The House Bill and the Senate Bill were then consolidated in the Bicameral Committee. Eventually, the consolidated bill was approved and sent to the President who signed the same. The private sectors affected by the new law questioned the validity of the enactment on the ground that the constitutional provision requiring that all revenue bills should originate from the House of Representatives had been violated. Resolve the issue.
There is no violation of the constitutional requirement that all revenue bills should originate from the House of Representatives. What is prohibited is for the Senate to enact revenue measures on its own without a bill originating from the House. But once the revenue bill was passed by the House and sent to the Senate, the latter can pass its own version on the same subject matter consonant with the latter’s power to propose or concur with amendments. This follows from the co-equality of the two chambers of Congress.
“X” Corporation was the recipient of two tax exemptions both from Congross, ono law exempting the company’s bond issues from taxes and the other exempting the company from taxos in the operation of its public utilities. The two laws extending the tax exemptions were revoked by Congross boforo thoir expiry dates. Were the revocations constitutional?
YES
The exempting statutos are both granted unilaterally by Congress in the exercise of taxing powers. Since taxation is the rule and tax exemption, the exception, any tax exemption unilaterally granted can be withdrawn at the pleasure of the taxing authority without violating the Constitution. Neither of these were issued by the taxing authority in a contract lawfully entered by it so that their rovocation would not constitute an impairment of the obligations of contracts. (Mactan Cebu International Airport Authority v, Marcos, G.R No. 120082, September 11, 1996).
Jimsom, a lessor of a property, pays the following; real estate tax on the premises, a real estate dealer’s tax based on rental receipts and income tax on the rentals. Jimson claims that this is double taxation. Decide.
There is no double taxation. DOUBLE TAXATION means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, by the same taxing authority for the same purpose and with the same kind or character of tax. The REAL ESTATE TAX is a tax on property; the REAL ESTATE DEALER’S TAX is a tax on the privilege to engage in business; while the INCOME TAX is a tax on the privilege to earn an income. These taxes are imposed by different taxing authorities and are essentially of different kind and character.
Municipality of Cordon has an ordinance which requires that all stores, restaurants, and other establishments selling liquor ‘should pay a fixed annual fee of P500. Subsequently, the municipal board proposed an ordinance imposing a sales tax equivalent to 5% of the amount paid for the purchase or consumption of liquor in stores, restaurants and other establishments. The municipal mayor, refused to sign the ordinance on the ground that it would constitute double taxation. Is the refusal of the mayor justified?
NO
The refusal of the mayor is not justified. The impositions are of different nature and character. The fixed annual fee is in the nature of a license fee imposed through the exercise of police power while the 5% tax on purchase or consumption is a local tax imposed through the exercise of taxing powers. Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article and this is not in violation of the rule against double taxation (Campania General de Tabacos de Filipinos v. City of Manila, 8 SCRA 367 (1963]).
Pedro’s income from leasing his property reaches the maximum rate of tax under the law. He donated one-half of his said property to a non-stock, non-profit educational institution whose income and assets are actually, directly and exclusively used for educational purposes, and therefore qualified for tax exemption under Article XIV, Section 4 (3) of the Constitution and Section 30 (h) of the Tax Code. Having thus transferred a portion of his said asset, Pedro succeeded in paying a lesser tax on the rental income derived from his property under the lower tax bracket. Is there tax avoidance or tax evasion?
There is tax avoidance. Pedro has exploited a fully permissive alternative method to reduce his income tax by transferring part of his rental income to a tax-exempt entity through a donation of one-half of the income producing property. The donation is likewise exempt from the donor’s tax. The donation is the legal means employed to transfer the incidence of income tax on the rental income.
As an incentive for investors, a law was passed giving newly established companies in certain economic zone exemption from all taxes, duties, fees, imposts and other charges for a period of three years. ABC Corp. was organized and was granted such incentive. In the course of business, ABC Corp. purchased mechanical equipment from XYZ Inc. The latter, in its ordinary business dealings, is subject to a sales tax. XYZ Inc. claims, however, that since it sold the equipment to ABC Corp. which is tax exempt, it should not be liable to pay the sales tax. Is this claim tenable?
NO
Exemption from taxes is personal in nature and covers only taxes for which the taxpayer-grantee is directly liable. The sales tax is a tax on the seller who is not exempt from taxes. Since XYZ Inc. is directly liable for the sales tax and no tax exemption privilege is ever given to him, its claim that the sale is tax exempt is not tenable. A tax exemption is construed in strictissimi juris and it cannot be permitted to exist upon vague implications.
TOF: The three fundamental powers of the state may be exercise only by the government
FALSE
The POWER TO TAX and POLICE POWER may be exercised by government only. However, EMINENT DOMAIN may be granted to public service/utility companies
TOF: Taxation is a process or means by which the sovereign, through its law- making body raises income to defray the expenses of the government.
TRUE
TOF: Eminent domain may be exercise even by public service corporations and public entities.
TRUE
TOF: Police power regulates both liberty and property.
TRUE
TOF: Taxes are raised to cover the cost of governance.
TRUE
TOF: Toll is one of the taxes collected by the government.
FALSE
Toll is an impost. not a tax. Also, Tax is imposed by the State only but Toll may be imposed by the government or private individuals or entities.
TOF: License fees are imposed in the exercise of police power.
TRUE
TOF: License fee is imposed to raise revenue.
FALSE
Tax is imposed to raise revenue but License Fee is imposed for regulation.
TOF: Tax is generally unlimited because it is based on the needs of the State.
TRUE
TOF: The amount imposed in the exercise of police power depends on whether the activity is useful or not.
TRUE
TOF: The distinction of a tax from permit or license fee is that a tax is one in which there is generally no limit on the amount that may be imposed.
TRUE
TOF: Debt, as distinguished from tax, may be paid in kind.
TRUE
TOF: Under the equal protection clause of the constitution, all persons subject to legislation shall be treated alike under dissimilar circumstances and conditions, both in the privileges conferred and liabilities imposed.
FALSE
EQUAL PROTECTION OF LAWS: All persons subject to legislation shall be treated alike under similar circumstances and conditions both in the priviledges conferred and liabilities imposed. The doctrine does not require the persons or properties different in fact be treated in law as though they were the same.
TOF: Special assessment is a tax.
FALSE
Special assessment is an impost.
TOF: Tax laws are civil and penal in nature because there are penalties provided in the case of violation.
FALSE
Internal Revenue Laws are not political in nature. Tax laws are civil and not penal in nature, alhtough there are penalties provided for their violation. The purpose of tax laws in imposing penalties for delinquencies is to compel the timely payment of taxes or to punish evasion or neglect of duty in respect thereof.
TOF: Special assessment is imposed on persons, property and property rights.
FALSE
Special assessment is imposed on property and property rights but is not a oersonal liability of the person assessed.
TOF: The Philippine government may subject the land where embassies of foreign governments are located to real property taxes.
FALSE
TOF: A revenue bill may originate from the Senate and on which same bill the House of Representatives may propose amendments.
FALSE
A revenue bill may originate from theHouse of Representatives and on which same bill the Senate may propose amendments.
TOF: A person may refuse to pay on the ground that he will not receive a benefit from the tax.
FALSE
TOF: In the exercise of the power of taxation, the State can tax anything at any time.
TRUE
TOF: In cases of deductions and exemptions, doubts shall be resolved liberally in favor of the government.
TRUE
TOF: Levying of local government taxes should be exercise only by the legislative branch of the local government.
TRUE
TOF: The taxing power of provinces, municipalities and cities precede from a constitutional grant.
TRUE
TOF: Taxation is regressive when their rate goes up depending on the resources of the person affected.
FALSE
Regressive taxation exists when there are more indirect taxes imposed than direct taxes.
TOF: No law granting any tax exemption shall be passed without the concurrence of 2/3 of all members of Congress.
FALSE
Tax exemptions are limited to those granted by law. However, no law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the Congress. (Article VI, Section 28, par. 4 of the Constitution).
TOF: There is no constitutional prohibition against double taxation in the Philippines.
TRUE
TOF: “Global system of income taxation” means separate graduated rates are imposed on different types of income.
FALSE
“Global system of income taxation” means all types of income, except those subject to final tax, are added together to arrive at taxable income.
TOF: One of the schemes of shifting the incidence of tax burden is by transferring the sales tax of a manufacturer to the distributor, then in turn to the wholesaler, to the retailer and finally to the consumer.
TRUE
TOF: Transformation is a method by which the manufacturer or producer upon whom the tax is imposed pays the tax and strives to recover such expense through lower production cost without sacrificing the quality of his product.
TRUE
TOF: In case of ambiguity, tax laws shall be interpreted liberally in favor of the government.
FALSE
In case of doubt, tax statutes are contrued strictly against the government and liberally in favor of the taxpayer.
TOF: Taxes are the revenues raised in the exercise of the police power of the State
FALSE
Taxes are to enforce contributions to raise government funds.
TOF: One of the special characteristics of tax is it is unlimited in amount.
TRUE
TOF: The three fundamental powers of the State are Inherent in the State and may be exercised without the need of any constitutional
grant
TRUE
The State, having sovereignty can enforce contributions (tax) upon its citizens even without a specific provision in the Constitution authorizing it. What will justify the foregoing statement?
- It is so because the State has the supreme power to command and enforce obedience to its will from the people within its jurisdiction.
- Any provision in the Constitution regarding taxation does not create rights for the sovereignty to have the power to tax but it merely constitutes limitations upon the supremacy of tax power
TOF: The distinction of a tax from permit or license fee is that a tax is imposed for regulation.
FALSE
The imposition for regulation is not their distinction but rather their similarity.
TOF: Non-payment of tax does not necessarily render a business illegal
TRUE
The primary purpose of taxation is to raise revenue for the support of the government. However, taxation is often employed as a devise for regulation by means of which, certain effects or conditions envisioned by the government may be achieved such as:
- Taxation may be used, to provide incentive to greater production through grant of tax exemptions.
- Taxation can strengthen weak enterprises by creating conditions conducive to their growth through grant of tax exemptions.
- Taxes may be increased in periods of prosperity to curb spending power and halt inflation or lowered in periods of slump to expand business and ward off depression
TOF: The purpose of taxation may also be “compensatory”, meaning, it may be used to make up for the benefit received.
TRUE
TOF: Taxes may be imposed for the equitable distribution of wealth and income in society.
TRUE
Which theory in taxation states that without taxes, a government would be paralyzed for lack of power to activate and operate it, resulting in its destruction?
Lifeblood theory
TOF: State needs taxation to exist, while people must support taxation because they need the presence of the state.
TRUE
TOF: People pay taxes which their government uses to expand its powers and territorial domination.
FALSE
TOF: People demand from their government certain responsibilities and then provide this govemment with the means to carry them out.
FALSE
