Tax Law D. Requisites of a Valid Tax (1987 CONST., art. VI, sec. 28) Flashcards
D. Requisites of a Valid Tax (1987 CONST., art. VI, sec. 28)
PubPurp
UniEq
Consttl Limittns (inherent limitations) r not violated
Equitable - applied fairly, progressive
SM (prop/pers) 2b taxed W/iN J
Summary of Section 28 of the Philippine Constitution on Taxation:
This section outlines key principles and guidelines for taxation in the Philippines.
Remember it using the acronym “PUCE”:
1) Uniform & Equitable: Taxes should be applied fairly and consistently across similar situations. (Example: Everyone earning the same income level within a certain bracket should pay the same income tax rate.)
3) Progressive System: Ideally, the tax burden should increase as the taxpayer’s ability to pay increases. (Example: Higher income tax rates for higher income brackets.)
Exemptions: Certain institutions are exempt from specific taxes, like property tax for religious or educational buildings.
4) Congressional Approval: Any law granting tax exemptions requires majority approval from both houses of Congress.
Example for Point 1 (Uniform & Equitable):
Applying the same sales tax rate to all individuals purchasing similar goods, regardless of their profession or location.
Example for Point 2 (Progressive System):
Having a graduated income tax system where individuals with higher incomes pay a higher percentage of their income in taxes compared to those with lower incomes.
Example for Point 3 (Exemptions):
A church property used solely for religious services is exempt from property tax.
Example for Point 4 (Congressional Approval):
Congress needs a majority vote in both houses to pass a law granting tax breaks to a specific industry.
What are the requirements for a valid tax?
In the Philippines, the requisites of a valid tax are established through a combination of:
The Philippine Constitution:
Article VI, Section 28(1): Mandates that the rule of taxation be uniform and equitable and that Congress evolve a progressive system of taxation.
Tax Code (Republic Act No. 8424, as amended):
Section 2: Defines a tax as an enforced, periodic contribution to the support of the government, levied upon persons, their property, or their activities, exercised by legislative authority and generally payable in money.
Judicial Interpretations:
These are established through various Supreme Court decisions that interpret and apply the aforementioned legal bases.
Based on these sources, the following are generally considered the requisites of a valid tax:
Legislative authorization: The tax must be imposed by a valid law passed by Congress.
Public purpose: The tax must be levied for a public purpose, meaning the revenue generated is used for the benefit of the general public.
Equality and uniformity: The tax must be equally and uniformly applied to all persons within the same class, considering their ability to pay. (This aligns with the constitutional mandate of uniformity and equity.)
Proportionality: The tax burden should be proportionate to the taxpayer’s ability to pay, adhering to the principle of progressivity enshrined in the Constitution.
Non-confiscatory: The tax must not be confiscatory in nature, meaning it should not deprive individuals of their property without just compensation.
Illustrating the Requisites of a Valid Tax with Case Scenarios:
1. Legislative Authorization:
Scenario: The local government of a city implements a new “clean air levy” on all vehicles entering the city, but the city council hasn’t passed any ordinance authorizing this charge.
Question: Can the city legally impose this levy without a formal ordinance?
Illustrating the Requisites of a Valid Tax with Case Scenarios:
1. Legislative Authorization:
Answer: No. The levy lacks legislative authorization, violating a fundamental requirement of a valid tax. The Philippine Constitution grants Congress, the national legislature, the power to impose taxes. Local governments can only levy taxes authorized by Congress through specific laws or ordinances.
Legal Basis: Article VI, Section 28 (1) of the Philippine Constitution states, “The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.” This provision establishes Congress as the primary body with the power to impose taxes.
Scenario: A new law imposes a tax on sugary drinks, with the revenue reportedly going towards funding a specific politician’s re-election campaign.
Question: Does the purpose of this tax raise concerns about its validity?
Illustrating the Requisites of a Valid Tax with Case Scenarios:
2. Public Purpose:
Answer: Yes. While the law itself might authorize the tax, its stated purpose raises concerns. Taxes must be levied for a public purpose, meaning the revenue generated should benefit the general public, not private individuals or specific political campaigns.
Legal Basis: Supreme Court decisions have emphasized the requirement of a public purpose for taxation. In Collector of Internal Revenue vs. Velayo (G.R. No. L-42242), the court stated that “the essence of taxation is the levy of a burden for the purpose of raising public revenue which is to be used for public purposes and not for private benefit.”
3.
Scenario: A law imposes a 10% income tax on all individuals, regardless of their income level.
Question: Does this flat tax structure violate the principle of equality and uniformity in taxation?
Illustrating the Requisites of a Valid Tax with Case Scenarios:
Equality and Uniformity:
Answer: Potentially. While the law might be formally authorized and levied for a public purpose, it might violate the principle of equality and uniformity by not considering the taxpayer’s ability to pay. The Constitution mandates a progressive system, suggesting that the tax burden should increase as the taxpayer’s ability to pay increases.
Legal Basis: Article VI, Section 28 (1) of the Philippine Constitution states, “The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.” This provision requires that taxes be applied fairly and consider the taxpayer’s ability to pay, potentially invalidating a flat tax structure in this scenario.
Scenario: A new law imposes a 95% income tax on individuals earning above 1 million pesos annually.
Question: Does this extreme tax rate raise concerns about proportionality in taxation?
Illustrating the Requisites of a Valid Tax with Case Scenarios:
4. Proportionality:
Answer: Yes. While the law might be authorized and levied for a public purpose, the 95% tax rate on a specific income bracket raises concerns about proportionality. This high rate might be deemed excessive and not reflect a fair relationship to the taxpayer’s ability to pay, potentially violating the principle of proportionality.
Legal Basis: Although not explicitly mentioned in the Philippine Constitution, the concept of “taxation with due process” has been established in jurisprudence. Cases like Collector of Internal Revenue vs. Velayo (G.R. No. L-42242) recognize that excessively high and arbitrary tax rates can violate due process. Additionally, the progressive system envisioned in the Constitution implies a consideration of the taxpayer’s ability to pay.
Scenario: A business owner faces a tax penalty that amounts to more than the total value of their business and personal assets combined.
Question: Can such a high penalty be considered a confiscatory tax, violating the right to property?
Illustrating the Requisites of a Valid Tax with Case Scenarios:
5. Non-Confiscatory:
Answer: This scenario raises concerns about a confiscatory tax. While the government has the power to impose taxes and penalties, these cannot be so excessive that they essentially deprive an individual of their property without just compensation. In this case, a penalty exceeding the total value of all the owner’s assets might be deemed confiscatory and potentially violate the right to property.
Legal Basis: Article III, Section 1 of the Philippine Constitution prohibits the taking of private property for public use without just compensation. While not directly addressing “confiscatory taxes,” the Supreme Court has recognized this concept in specific instances. In CIR vs. Albay (G.R. No. L-12267), the court stated that “the government’s power to tax is not absolute and cannot be exercised in a confiscatory or oppressive manner.”
