Taxation

Meaning of Taxation: 

Power to enforce proportional contribution from persons and property. Levied by: The State; By virtue of: His Sovereignty; Purposes of: Support of Government and Public Needs

Question: Is it allowed when national government taxes a person twice.
Ans: It depends on what double taxation we are talking about.

Double Taxation – taxing the same subject under the same jurisdiction and the same income, asset, or financial transaction. Not all double taxation are disallowed.

  1. Direct Duplicate – obnoxious double constitution which is not allowed by the Consti
  2. Indirect Double Taxation – made by two distinct jurisdictions

Purposes of Taxation:

(1) To raise revenue
(2) Tool for regulation
(3) Protection / power to keep alive
“Special Tax” or tax for special purposes (Artivle VI Sec 29)

What is Special Tax? A special fund for special purposes only; when purpose is fulfilled, the remainder is transferred to general funds of the Government

Purposes of Taxation (Bernas)

(1) “To pay debts, defense, and welfare of the U.S.” (US Constitution Art 1) • (2) To raise revenue • (3) To destroy – Justice Marshall (U.S.) – it can regulate, discourage, deter activities even when the purpose to raise revenue is only secondary (Lifeblood Doctrine)• (4) To “keep alive” – meaning, taxes may be used to the competitor of a certain industry in order to keep alive the other party. (e.g. taxing imported goods to keep the life of local goods).

Scope and Limitations:

(1) Exists for general welfare; to be used for public purpose (2) Might be justified for public use even used for private individuals (3) If a tax is unconscionable and confiscatory, the Court can invalidate it. But Court must purposefully hesitate because otherwise, the act will curtail the State’s power to legislate. Source: (Tan v Del Rosario) (4) The specific limitation of taxation is geographical uniformity. It means that taxation should operate within the same effect and force where the subjects are found or classified. 

Limits of Taxation (Bernas)

(1) For public purpose, not to enrich private fortunes. – It must be invalid if not used for public good. (2) Invalidating taxes must be exercised with extreme utmost caution – because doing so may curtail public welfare (3) Can delegate the powers to the President (Art VI Sec 28 (2))(4) Uniform(5) Equitable

Judicial Review for Unjust Taxes

The Supreme court can invalidate tax impositions if they are unconscionable or overrides constitutional prescriptions. (Tan v Del Rosario)

Constitutional Exemptions (E.C.R.)

The following are exempted by the Constitution from taxation:Source: Article VI Sec 28 (3) of the 1987 Constitution

  1. Charitable institutions
  2. Churches
  3. Personages or convents related to (2) 
  4. Mosques
  5. Non-profit cemeteries
  6. All lands, buildings, improvements that are….

“actually, directly, and exclusively {ADE} used for religious, charitable, and educational purposes shall be exempt from taxation.”

(a) Educational Institutions – those used directly for educational purposes whether for profit or non-profit; Excise taxes shall be imposed but not property or real taxes; The purpose of the exemptions is that the benefits will redound to the students. (Commissioner Guingona) “for profit” – it generates profit (e.g. bookstore, coliseum, cafeteria) but do not go to private pockets but go back to the general fund.

Properties exempted are:

  • Lands;
  • Buildings
  • Improvements all used directly and exclusively for religious, charitable, or educational purposes.

Limitations: Tax exemptions must be applied to achieve the purpose by which they were enacted or PURPOSE**.
Purpose**: For the sake of MAKING QUALITY EDUCATION AFFORDABLE to all.

(b) Charitable Institutions – those that are religious or charitable by nature are exempted from taxation; The ratio is that they help the State in improving the morality of the people, caring of the indigent and the handicapped.
Purpose**: TO ENHANCE THE SERVICE THEY ARE CAPABLE OF GIVING;

(c) Religious Property – those that are directly and exclusively used for religious, charitable, and educational purposes are exempt from taxation.
Purpose**: To ensure RELIGIOUS LIBERTY
Tax Exemptions must be passed with concurrence of the majority of the members of the Congress (Article VI Sec 28 (4))

Tax Exemptions (Bernas)

Corollary (proposition that follows to the one that’s already approved) to the power to tax, is the power to exempt from tax. 

Exemptions must be: 1. For Public Purpose2. Uniform3. Equitable4. In conformity to the Equal Protection ClauseExemptions are the E.C.R. or the constitutional exemptions

“actually, directly, and exclusively” – extends to facilities incidental and necessary to the accomplishment of the said purposes. 

For example: In the case of hospitals, nursing training centers, nurse homes, facilities for doctors, nurses, and staff; in the case of prisons, athletic fields, including farms used by nmates. 

Equal Protection Clause

The Constitution provides an equal protection clause on taxation. This is found in Article VI > Section 28 > Paragraph 1 of the 1987 Constitution. It provides that taxation should be:

(1) Uniform – means that persons in the same classification should be taxed with the same rate = “Geographic.” Opposite is intrinsic (means no classification); Must apply to present and future conditions.

(2) Equitable – means that persons shall be taxed according to their ability to pay; According to capacity. Also known as “Progressive System of Taxation” – means that the tax rate increases as the tax base increases. 

From Bernas: (1) Classification based on substantial distinctions(2) Germane to the purpose of the law – the means must concur with the preamblical (3) Must apply to present and future conditions (Uniform)(4) Apply equally to same class (Uniform)

Progressive System of Taxation

Constitutional Basis: Article VI > Section 28 > Par 1: “The Congress shall evolve a progressive system of taxation.”
Ratio: This explicit mention reflects the wish of the Convention to follow the social justice command, which should use taxation for a more equitable distribution of wealth. 

Delegated Tax Legislation (Bernas)

General rule: Congress may not delegate its law-making authority. However, this rule is not absolute. It may be delegated as the Constitution authorizes it. 

Under Article VI > Section 28 > Par 2, “the Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions… tariffs rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.””within the framework of the national development program of the Government.” – is not a limit to the President, but a limit on the Congress’ authority on what it can delegate. 

In other words, setting tariff rates, must be consistent with the national economic programs and not distort the production cycle. 

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by Bryan Villarosa

by Bryan Villarosa

Bacolod City-based Marketing Services Provider | Licensed Financial Advisor

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