Definition of Taxation

7/28/2019 Definition of Taxation

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DEFINITION OF TAXATIONTaxation is the inherent power of the sovereign, exercised through the legislature, toimpose burdens upon the subjects and objects within its jurisdiction, for the purposeof raising revenues to carry out the legitimate objects of the government.

TAXESEnforced proportional contributions from properties and persons levied by the Stateby virtue its sovereignty for the support of the government and for public needs.

BASIS OF TAXATION> GOVERNMENTAL NECESSITY* The existence of the government depends upon its capacity to perform its two (2)basic functions:A.. to serve the peopleB.. to protect the people

THEORY OF TAXATION>RECIPROCAL DUTIES OF SUPPORT AND PROTECTION1) Support on the part of the taxpayers2) Protection and benefits on the part of the government

BENEFITS RECEIVED PRINCIPLE(CIR vs. ALGUE) Despite the natural reluctance to surrender part of ones hard earned income to thetaxing authority, every person who is able to must contribute his share in therunning of the government. The government is expected to respond in the form of tangible or intangiblebenefits intended to improve the lives of the people and enhanced their material andmoral values. In return for his contribution, the taxpayer receives the general advantages andprotection which the government affords the taxpayer and his property. One iscompensation or consideration for the other. Protection for support and support forprotection.However, it does not mean that only those who are able topay taxes can enjoy the privileges and protectiongiven to a citizen by the government.

LORENZO vs. POSADAS > The only benefit to which the taxpayer is entitled is that derived form theenjoyment of the privileges of living in an organized society established andsafeguarded by the devotion of taxes to public purpose. The government promisesnothing to the person taxed beyond what maybe anticipated from an administrationof the laws for the general good. > Taxes are essential to the existence of the government. The


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obligation to pay taxes rests not upon the privileges enjoyed by or the protectionafforded to the citizen by the government, but upon the necessity of money for thesupport of the State. For this reason, no one is allowed to object to or resist paymentof taxes solely because no personal benefit to him can be pointed out as arising fromthe tax.

ESSENTIAL ELEMENTS OF A TAX1) It is an enforced contribution2) It is generally payable in money3) It is proportionate in character4) It is levied on persons, property, or the exercise of a right or privilege5) It is levied by the State which has jurisdiction over the subject or object of taxation6) It is levied by the law-making body of the State7) It is levied for publics purpose or purposes

REQUISITES of a VALID TAX code: [P, U, J, A, N]

1) It should be for a public purpose2) The rule of taxation should be uniform3) That either the person or property taxed be within the jurisdiction of the taxingauthority4) That the assessment and collection be in consonance with the due process clause5) The tax must not infringe on the inherent and constitutional limitations of thepower of taxation

*> Taxes are the lifeblood of the government and should be collected withoutunnecessary hindrance. But their collection should not be tainted with arbitrariness

NATURE OF TAXATION1) Inherent in sovereignty2) Legislative in character

SCOPE OF TAXATION1) Comprehensive2) Unlimited3) Plenary4) Supreme

TOLENTINO vs. SEC. Of FINANCE > In the selection of the object or subject of taxation the courts have no power toinquire into the wisdom, objectivity, motive, expediency or necessity of such tax law.(WOMEN)

PURPOSES OF TAXATION


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PRIMARY- To raise revenue in order to support the government

SECONDARY1) Used to reduce social inequality

2) Utilized to implement the police power of the State3) Used to protect our local industries against unfair competition4) Utilized by the government to encourage the growth of local industries

LIFEBLOOD DOCTRINE > Taxes are the lifeblood of the nation

> Without revenue raised from taxation, the government will not survive, resultingin detriment to society. Without taxes, the government would be paralyzed for lack

of motive power to activate and operate it. (CIR vs. ALGUE)

> Taxes are the lifeblood of the government and there prompt and certainavailability is an imperious need.

> Taxes are the lifeblood of the nation through which the agencies of thegovernment continue to operate and with which the state effects its functions for thebenefit of its constituents

ILLUSTRATIONS OF THE LIFEBLOOD THEORY1) Collection of the taxes may not be enjoined by injunction2) Taxes could not be the subject of compensation or set off3) A valid tax may result in destruction of the taxpayers property4) Taxation is an unlimited and plenary power

POWER TO TAX AND POWER TO DESTROY

* > The power to tax includes the power to destroy if it is used as an implement ofthe police power (regulatory) of the State. However, it does not include the power todestroy if it is used solely for the purpose of raising revenue. (ROXAS vs. CTA)

NOTES: > If the purpose of taxation is regulatory in character, taxation is used toimplement the police power of the state

> If the power of taxation is used to destroy things, businesses, or enterprises andthe purpose is to raise revenue, the court will come in because there will be violationof the inherent and constitutional limitations and it will be declared invalid.


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NATURE OF THE TAXING POWER1) Attribute of sovereignty and emanates from necessity, relinquishment of which isnever presumed

2) Legislative in character, and3) Subject to inherent and constitutional limitations

NECESSITY THEORY > Existence of a government is a necessity and cannot continue without any meansto pay for expenses

BENEFITS PROTECTION THEORY > Reciprocal duties of protection and support between State and inhabitants.

Inhabitants pay taxes and in return receive benefits and protection from the State

SCOPE OF LEGISLATIVE TAXING POWER1) The persons, property and excises to be taxed, provided it is within its jurisdiction2) Amount or rate of tax3) Purposes for its levy, provided it be for a public purpose4) Kind of tax to be collected5) Apportionment of the tax6) Situs of taxation7) Method of collection

ASPECTS OF TAXATION1) LEVY or IMPOSITIONenactment of tax lawslegislative in character2) ASSESSMENTcollectionadministrative in character

NOTES: > It is inherent in the power to tax that the State is free to select the object of

taxation

> The power of the legislature to impose tax includes the power1) what to tax2) whom to tax3) how much to tax

BAGATSING vs. RAMIREZ


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> What cannot be delegated is the legislative enactment of a tax measure but asregards to the administrative implementation of a tax law that can be delegated.

> The collection may be entrusted to a private corporation.

> The rule that the power of taxation cannot be delegated does not apply to theadministrative implementation of a tax law

> There is no violation because what is delegated or entrusted is the collection andnot the enactment of such laws

> The issuance of regulations or circulars by the BIR or the Secretary of Financeshould not go beyond the scope of the tax measure

BASIC PRINCIPLES OF A SOUND TAX SYSTEM1) THEORETICAL JUSTICE

2) FISCAL ADEQUACY3) ADMINISTRATIVE FEASIBILITY

NOTES:FISCAL ADEQUACY- VIOLATION VALID > Sources of revenue should be sufficient to meet the demands of publicexpenditure

> Revenues should be elastic or capable of expanding or contracting annually inresponse to variations in public expenditure

>Elasticity may be obtained without creating annually any new taxes or any new taxmachinery but merely by changes in the rates applicable to existing taxes

> Even if a tax law violates the principle of Fiscal Adequacy , in other words, theproceeds may not be sufficient to satisfy the needs of the government, still the taxlaw is valid

ADMINISTRATIVE FEASIBILITY- VIOLATION VALID

> The tax law must be capable of effective or efficient enforcement> Tax laws should be capable of convenient, just and effective administration

> Tax laws should close-up the loopholes for tax evasion and deter unscrupulousofficials from committing fraud > There is no law that requires compliance with this principle, so even if the tax lawviolates this principle; such tax law is valid.


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THEORETICAL JUSTICE- VIOLATION INVALID > This principle mandates that taxes must be just, reasonable and fairTaxation shall be uniform and equitable

> Equitable taxation has been mandated by our constitution, as if taxes are unjustand unreasonable then they are not equitable, thus invalid.

> The tax burden should be in proportion to the taxpayers ability to pay (ABILITYTO PAY PRINCIPLE)

DISTINCTIONS:

TAXATION vs. POLICE POWER vs. EMINENT DOMAIN

1) As to purpose:Taxation for the support of the governmentEminent Domain_- for public usePolice Power to promote general welfare, public health, public morals, and publicsafety.

2) As to compensation:Taxation Protection and benefits received from the government.Eminent Domain just compensation, not to exceed the market value declared bythe owner or administrator or anyone having legal interest in the property, or asdetermined by the assessor, whichever is lower.Police Power The maintenance of a healthy economic standard of society.

3) As to persons affected:Taxation and Police Power operate upon a community or a class of individualsEminent Domain operates on the individual property owner.

4) As to authority which exercises the power:Taxation and Police Power Exercised only by the government or its politicalsubdivisions.Eminent Domain may be exercised by public services corporation or public

utilities if granted by law.5) As to amount of imposition:Taxation Generally no limit to the amount of tax that may be imposed.Police Power Limited to the cost of regulationEminent Domain There is no imposition; rather, it is the owner of the propertytaken who is just paid compensation.


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6) As to the relationship to the Constitution:Taxation and Eminent Domain Subject to certain constitutional limitations,including the prohibition against impairment of the obligation of contracts.Police Power Relatively free from constitutional limitations and superior to thenon-impairment provisions thereof.

TAX DISTINGUISHED FROM LICENSE FEE:a) PURPOSE: Tax imposed for revenue WHILE license fee for regulation. Tax forgeneral purposes WHILE license fee for regulatory purposes only.

b) BASIS: Tax imposed under power of taxation WHILE license fee under policepower.

c) AMOUNT: In taxation, no limit as to amount WHILE license fee limited to cost ofthe license and expenses of police surveillance and regulation.

d) TIME OF PAYMENT: Taxes normally paid after commencement of businessWHILE license fee before.

e) EFFECT OF PAYMENT: Failure to pay a tax does not make the business illegalWHILE failure to pay license fee makes business illegal.f) SURRENDER: Taxes, being lifeblood of the state, cannot be surrendered exceptfor lawful consideration WHILE a license fee may be surrendered with or withoutconsideration.

IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES.It is necessary to determine whether a particular imposition is a tax or a license fee,because some limitations apply only to one and not to the other.Furthermore, exemption from taxes does not include exemption from license fees

TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:1) toll amount charged for the cost and maintenance of property used;

2) compromise penalty amount collected in lieu of criminal prosecution in cases oftax violations;

3) special assessment levied only on land based wholly on the benefit accruingthereon as a result of improvements of public works undertaken by governmentwithin the vicinity.

4) license fee regulatory imposition in the exercise of the police power of the State;

5) margin fee exaction designed to stabilize the currency


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6) custom duties and fees duties charged upon commodities on their beingimported into or exported from a country;

7) debt a tax is not a debt but is an obligation imposed by law.

Special assessment v. tax

1. A special assessment tax is an enforced proportional contribution from owners oflands especially benefited by public improvements2. A special assessment is levied only on land.3. A special assessment is not a personal liability of the person assessed; it is limitedto the land.4. A special assessment is based wholly on benefits, not necessity.5. A special assessment is exceptional both as to time and place; a tax has general

application.

Some Rules:

An exemption from taxation does not include exemption from a special treatment.

The power to tax carries with it a power to levy a special assessment.

Toll v. tax

1. Toll is a sum of money for the use of something. It is the consideration which ispaid for the use of a road, bridge, or the like, of a public nature. Taxes, on the otherhand, are enforced proportional contributions from persons and property levied bythe State by virtue of its sovereignty for the support of the government and all publicneeds.

2. Toll is a demand of proprietorship; tax is a demand of sovereignty.

3. Toll is paid for the used of anothers property; tax is paid for the support of

government.4. The amount paid as toll depends upon the cost of construction or maintenance ofthe public improvements used; while there is no limit on the amount collected as taxas long as it is not excessive, unreasonable, or confiscatory.

5. Toll may be imposed by the government or by private individuals or entities; taxmay be imposed only by the government.


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Tax v. penalty

1. Penalty is any sanction imposed as a punishment for violation of law or for actsdeemed injurious; taxes are enforced proportional contributions from persons and

property levied by the State by virtue of its sovereignty for the support of thegovernment and all public needs.

2. Penalty is designed to regulate conduct; taxes are generally intended to generaterevenue.

3. Penalty may be imposed by the government or by private individuals or entities;taxes only by the government.

Obligation to pay debt v. obligation to pay tax

1. A debt is generally based on contract, express or implied, while a tax is based onlaws.

2. A debt is assignable, while a tax cannot generally be assigned.

3. A debt may be paid in kind, while a tax is generally paid in money.

4. A debt may be the subject of set off or compensation, a tax cannot.

5. A person cannot be imprisoned for non-payment of tax, except poll tax.

6. A debt is governed by the ordinary periods of prescription, while a tax is governedby the special prescriptive periods provided for in the NIRC.

7. A debt draws interest when it is so stipulated or where there is default, while a taxdoes not draw interest except only when delinquent.

Requisites of compensation

1. That each one of the obligor be bound principally, and that he be at the same time

a principal creditor of the other.2. That both debts consist in a sum of money, or if the things due are consumable,they be of the same kind and also of the same quality if the latter has been stated.

3. That the two (2) debts be due.

4. That they be liquidated and demandable.


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5. That over neither of them there be any retention or controversy, commenced bythird persons and communicated in due time to the debtors.

Rules re: set off or compensation of debts

General rule: A tax delinquency cannot be extinguished by legal compensation.This is so because the government and the tax delinquent are not mutually creditorsand debtors. Neither is a tax obligation an ordinary act. Moreover, the collection of atax cannot await the results of a lawsuit against the government. Finally, taxes arenot in the nature of contracts but grow out of the duty to, and are the positive acts ofthe government to the making and enforcing of which the personal consent of thetaxpayer is not required. (Francia v. IAC, 162 SCRA 754 and Republic v. MambulaoLumber, 4 SCRA 622)

Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443] re:claim for payment of unpaid services of a government employee vis--vis the estatetaxes due from his estate. The fact that the court having jurisdiction of the estate hadfound that the claim of the estate against the government has been appropriated forthe purpose by a corresponding law shows that both the claim of the government forinheritance taxes and the claim of the intestate for services rendered have alreadybecome overdue and demandable as well as fully liquidated. Compensation thereforetakes place by operation of law.

Survey of Philippine TaxesA. Internal Revenue taxes imposed under the NIRC.1. Income tax2. Transfer taxesa) Estate taxb) Donors tax3. Percentage taxesa) Value Added Taxb) Other Percentage Taxes

4. Excise taxes5. Documentary stamp taxB. Local/ Municipal TaxesC. Tariff and Customs DutiesD. Taxes / Tax Incentives under special lawsCLASSIFICATION OF TAXESAS TO SUBJECT MATTER OR OBJECT1. Personal, poll or capitation tax


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Tax of a fixed amount imposed on persons residing within a specified territory,whether citizens or not, without regard to their property or the occupation orbusiness in which they may be engaged, i.e. community tax.2. Property taxTax imposed on property, real or personal, in proportion to its value or in

accordance with some other reasonable method of apportionment.3. Excise taxA charge impose upon the performance of an act, the enjoyment of privilege, or theengaging in an occupation.AS TO PURPOSEGeneral/fiscal revenue tax is that imposed for the purpose of raising public funds forthe service of the government.A special or regulatory tax is imposed primarily for the regulation of useful or non-useful occupation or enterprises and secondarily only for the purpose of raisingpublic funds.AS TO WHO BEARS THE BURDEN

1. Direct taxA direct tax is demanded from the person who also shoul,ders the burden of the tax.It is a tax which the taxpayer is directly or primarily liable and which he or shecannot shift to another.2. Indirect taxAn indirect tax is demanded from a person in the expectation and intention that heor she shall indemnify himself or herself at the expense of another, falling finallyupon the ultimate purchaser or consumer. A tax which the taxpayer can shift toanother.AS TO THE SCOPE OF THE TAX1. National taxA national tax is imposed by the national government.2. Local taxA local tax is imposed by the municipal corporations or local government units(LGUs).AS TO THE DETERMINATION OF AMOUNT1. Specific taxA specific tax is a tax of a fixed amount imposed by the head or number or by someother standard of weight or measurement. It requires no assessment other than thelisting or classification of the objects to be taxed.2. Ad valorem tax

An ad valorem tax is a fixed proportion of the value of the property with respect towhich the tax is assessed. It requires the intervention of assessors or appraisers toestimate the value of such property before due from each taxpayer can bedetermined.AS TO GRADUATION OR RATE1. Proportional taxTax based on a fixed percentage of the amount of the property receipts or other basisto be taxed. Example: real estate tax.


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2. Progressive or graduated taxTax the rate of which increases as the tax base or bracket increases.Digressive tax rate: progressive rate stops at a certain point. Progression halts at aparticular stage.3. Regressive tax

Tax the rate of which decreases as the tax base or bracket increases. There is no suchtax in the Philippines.

TAX SYSTEMSConstitutional mandate The rule of taxation shall be uniform and equitable. The Congress shall evolve aprogressive system of taxation. [Section 28 (1), Article VI, Constitution] Regressivity is not a negative standard for courts to enforce. What Congress isrequired by the Constitution to do is to evolve a progressive system of taxation.This is a directive to Congress, just like the directive to it to give priority of the

enactment of law for the enhancement of human dignity. The provisions are put inthe Constitution as moral incentives to legislation, not as judicially enforceablerights. (Tolentino v. Secretary of Finance.)Progressive system of taxation v. regressive system of taxation A progressive system of taxation means that tax laws shall place emphasis on directtaxes rather than on indirect taxes, with ability to pay as the principal criterion. A regressive system of taxation exists when there are more indirect taxes imposedthan direct taxes. No regressive taxes in the Philippine jurisdictionCLASSIFICATION OF TAXES:1. personal tax also known as capitalization or poll tax;2. property tax assessed on property of a certain class;3. direct tax incidence and impact of taxation falls on one person and cannot beshifted to another;4. indirect tax incidence and liability for the tax falls on one person but the burdenthereof can be passed on to another;5. excise tax imposed on the exercise of a privilege;6. general taxes taxes levied for ordinary or general purpose of the government;7. special tax levied for a special purpose;8. specific taxes imposed on a specific sum by the head or number or by somestandards of weight or measurement;

9. ad valorem tax tax imposed upon the value of the article;10. local taxes taxes levied by local government units pursuant to validly delegatedpower to tax;11. progressive taxes rate increases as the tax base increases; and12. regressive taxes rate increases as tax base decreases.

GENERAL RULE:- Taxes are personal to the taxpayer. Corporations tax delinquency cannot be


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enforced on the stockholder or transfer taxes on the estate be assessed on the heirs.EXCEPTIONS1. stockholders may be held liable for unpaid taxes of a dissolved corporation if thecorporate assets have passed into their hands; and2. heirs may be held liable for the transfer taxes on the estate, if prior to the payment

of the same, the properties of the decedent have been distributed to the heirs.

LIMITATIONS ON THE POWER OF TAXATIONInherent Limitations1. It must be imposed for a public purpose.2. If delegated either to the President or to a L.G.U., it should be validly delegated.3. It is limited to the territorial jurisdiction of the taxing authority.4. Government entities are exempted.5. International comity is recognized i.e. property of foreign sovereigns are notsubject to tax.Constitutional limitations

Indirect a) Due process clauseb) Equal protection clausec) Freedom of the pressd) Religious freedome) Non-impairment clausef) Law-making process 1. One-subject One-title Rule2. 3 readings on 3 separate days Rule except when there is a Certificate of Emergency3. Distribution of copies 3 days before the 3rd reading.g) Presidential power to grant reprieves, commutations and pardons, and remit finesand forfeitures after conviction by final judgment.Direct a) Revenue bill must originate exclusively in H.R. but the Senate may propose withamendments.b) Non-imprisonment for non-payment of poll tax.c) Taxation shall be uniform and equitable.d) Congress shall evolve a progressive system of taxation.e) Tax exemption of charitable institutions, churches and personages or conventsappurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings andimprovements ADE (actually, directly , exclusively) used for charitable, religious,

and educational purposes.f) Tax exemption of all revenues and assets used ADE for educational purposes of1. Non-profit non-stock educational institutions.2. Proprietary or cooperative educational institutions subject to limitations providedby law including a) restriction on dividendsb) provisions for re-investments.g) Tax exemption of grants, endowments, donations or contributions ADE for


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educational purposes, subject to conditions prescribed by law.h) No tax exemption without the concurrence of a majority of all members ofCongress.i) SC power to review judgments or orders of lower courts in all cases involving Legality of any tax. Impost or toll, Legality of any penalty imposed in relation

thereto.

INHERENT LIMITATIONSNOTES: PUBLIC PURPOSE GOVERNMENTAL PURPOSERULE: The Legislature is without the power to appropriate revenues for anything but forpublic purposes.RULE: Public money can only be spent for a public purpose.PUBLIC PURPOSE A purpose affecting the inhabitants of the State or taxing

district as a community and not merely as individuals> Public purpose includes not only direct benefits or advantage, it also includesindirect benefits or advantageTIO vs. VIDEOGRAM > It is not the immediate result but the ultimate result that determines, whetherthe purpose is public or not > It is not the number of persons benefited but it is the character of the purposethat determines the public character of such tax law > What is not allowed is that if it has no link to public welfare > Public purpose is determined by the use to which the tax money is devoted> If it benefits the community in general then it is for a public purpose no matterwho collects itTEST1. If the public advantage or benefit is merely incidental in the promotion of aparticular enterprise, that will render the law INVALID2. If what is incidental is the promotion of a private enterprise, the tax law is still fora public purpose(VALID) > A tax levied for a private, not public purpose constitutes taking of propertywithout due process of law as it is beyond the powers of the government to impose it. > Although private individuals are directly benefited, the tax would still be valid,provided such benefit is only incidental

> If what is incidental is the promotion of a private enterprise, as long as there is alink to the public welfare, the purpose is still public > The test is not as to who receives the money, but the character of the purpose forwhich it is expended> Not the immediate result of the expenditure, but rather the ultimate > The test that must be applied in determining whether the purpose is public orprivate1) The character of the direct object


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2) The ultimate result not the immediate result3) The general welfare for public goodTEST OF RIGHTFUL TAXATION- Proceeds of a tax must be used1) for the support of the government

2) for any of the recognized objects of the government3) to promote the welfare of the community

LEGISLATIVE PREROGATIVERULE: It is Congress which has the power to determine whether the purpose ispublic or private > You can always question the validity of such tax measure on the ground that it isnot for a public purpose before the courts. But once it is settled that it is for a publicpurpose, you can no longer inquire on such tax measureTAXPAYERS SUIT- a case where the act complained of directly involves the illegal disbursement of

public funds derived from taxation> courts discretion to allow > Taxpayers have sufficient interest of preventing the illegal expenditures of moneyraised by taxation (NOT DONATIONS AND CONTRIBUTIONS) > A taxpayer is not relieved from the obligation of paying a tax because of his beliefthat it is being misappropriated by certain officials > A taxpayer has no legal standing to question executive acts that do not involvethe use of public funds. (GONZALES vs. MARCOS)

REQUISITES FOR A TAXPAYERS PETITION1) That money is being extracted and spent in violation of specific constitutionalprotections against abuses of legislative power2) That public money is being deflected to any improper purpose3) That the petitioner seeks to restrain respondents from wasting public fundsthrough the enforcement of an invalid or unconstitutional law.KILOS BAYAN vs. GUINGONA > The Supreme Court has discretion whether or not to entertain taxpayers suit andcould brush aside lack of locus standiCONCEPTS RELATIVE TO PUBLIC PURPOSE1) Inequalities resulting from the singling out of one particular class for taxation orexemption infringe no constitutional limitation

It is inherent in the power to tax that the legislature is free to select the subject oftaxation2) An individual taxpayer need not derive direct benefits from the taxThe paramount consideration is the welfare of the greater portion of thepopulation3) Public purpose is continually expanding. Areas formerly left to private initiativenow loose their boundaries and may be undertaken by the government, if it is tomeet the increasing social challenges of the times


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4) Public purpose is determined at the time of enactment of the tax law and not atthe time of implementation

NOTES: INTERNATIONAL COMITY

- Based on tradition, practice or customDOCTRINE OF INCORPORATION > The Philippines adopts the generally accepted principles of international law aspart of the law of the land > If a tax law violates certain principles of international law, then it is not onlyinvalid but also unconstitutional

GROUNDS FOR TAX EXEMPTION OF FOREIGN GOVERNMENT PROPERTY1) Sovereign equality of States2) Usage among States3) Immunity from suit of a State

NOTES: NON-DELEGATION OF THE POWER TO TAXGENERAL RULE:- The power of taxation is peculiarly and exclusively legislative, therefore, it may notbe delegatedEXCEPTIONS:1) Delegation to the President2) Delegation to local government units3) Delegation to administrative units

POWERS WHICH CANNOT BE DELEGATED1) Determination of the subjects to be taxed2) Purpose of the tax3) Amount or rate of the tax4) Manner, means and agencies of collection5) Prescription of the necessary rules with respect thereto

DELEGATION TO THE PRESIDENT > Congress may authorize, by law, the President to fix, within specified limits andsubject to such limitations and restrictions as it may impose1) Tariff rates

2) Import and export quotas3) Tonnage and wharfage dues4) Other duties and import within the national development program of thegovernment > There must be a law authorizing the President to fix tariff rates > The delegation of power must impose limitations and restrictions and specify theminimum as well as the maximum tariff rates.


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FLEXIBLE TARIFF CLAUSE (SEC. 401 TCC)- In the interest of national economy, general welfare and/or national security, thePresident upon the recommendation of the National Economic and DevelopmentAuthority is empowered:

1) To increase, reduce or remove existing protective rates of import duty, providedthat the increase should not be higher than 100% ad valorem2) To establish import quota or to ban imports of any commodity3) To impose additional duty on all imports not exceeding 10% ad valorem

DELEGATION TO LOCAL GOVERNMENT UNITS > Each local government unit has the power to create its own revenue and to levytaxes, fees and charges subject to such guidelines and limitations as the Congressmay provide (ART X Sec 5) > Local government units have no power to further delegate said constitutionalgrant to raise revenue, because what is delegated is not the enactment or the

imposition of a tax, it is the administrative implementationBASCO vs. PAGCOR > The power of local government units to impose taxes and fees is always subject tothe limitations which Congress may provide, the former having no inherent power totax. > Municipal corporations are mere creatures of Congress which has the power tocreate and abolish municipal corporations. Congress therefore has the power tocontrol over local government units. If Congress can grant to a municipalcorporation the power to tax certain matters, it can also provide for exemptions oreven take back the power

DELEGATION TO ADMINISTRATIVE AGENCIES > For the delegation to be constitutionally valid, the law must be complete in itselfand must set forth sufficient standards > Certain aspects of the taxing process that are not really legislative in nature arevested in administrative agencies. In these cases, there really is no delegation, to wit:A) power to value propertyB) power to assess and collect taxesC) power to perform details of computation, appraisement or adjustments.

NOTES: EXEMPTION OF GOVERNMENT AGENCIES

1) Agencies performing governmental functions> TAX EXEMPT2) Agencies performing proprietary functions> SUBJECT TO TAX* > The exemption applies only to governmental entities through which thegovernment immediately and directly exercises its sovereign powers.NDC vs. CEBU CITY > Tax exemption of property owned by the Republic of the Philippines refers to the


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property owned by the government and its agencies which do not have separate anddistinct personality.> Those with ORIGINAL CHARTERS (incorporated agencies) > Those created by SPECIAL CHARTER (incorporated agencies) are not covered bythe exemption

GOVERNMENT ENTITIES EXEMPT FROM INCOMING TAX1) GSIS2) SSS3) PHIC4) PCSO5) PAGCORREASON FOR EXEMPTIONS1) Government will be taxing itself to raise money for itself.2) Immunity is necessary in order that governmental functions will not be impeded.

NOTES: TERRITORIAL JURISDICTIONRULES: > Tax laws cannot operate beyond a States territorial limits > The government cannot tax a particular object of taxation which is not within itsterritorial jurisdiction. > Property outside ones jurisdiction does not receive any protection of the State > If a law is passed by Congress, Congress must always see to it that the object orsubject of taxation is within the territorial jurisdiction of the taxing authority

SITUS OF TAXATIONPlace of taxationRULE:- The State where the subject to be taxed has a situs may rightfully levy and collectthe tax > In determining the situs of taxation, you have to consider the nature of the taxesExample:1) POLL TAX, CAPITATION TAX, COMMUNITY TAX> Residence of the taxpayer

2) REAL PROPERTY TAX OR PROPERTY TAX> Location of the property

> We can only impose property tax on the properties of a person whose residence isin the Philippines.

EXCEPTIONS TO THE TERRITORIALITY RULEA) Where the tax laws operate outside territorial jurisdiction1) TAXATION of resident citizens on their incomes derived from abroadB) Where tax laws do not operate within the territorial jurisdiction of the State1) When exempted by treaty obligations


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2) When exempted by international comity

SITUS OF TAX ON REAL PROPERTY- LEX REI SITUS or where the property is locatedREASON:

The place where the real property is located gives protection to the real property,hence the property or its owner should support the government of that place

SITUS OF PROPERTY TAX ON PERSONAL PROPERTY- MOBILIA SEQUNTUR PERSONAM= movables follow the owner= movables follow the domicile of the ownerRULES:1) TANGIBLE PERSONAL PROPERTY- Where located, usually the owners domicile2) INTANGIBLLE PERSONAL PROPERTY

G. R. Domicile of the ownerEXCEPTION: The situs location not domicile> Where the intangible personal property has acquired a business situs in anotherjurisdiction* > The principle of Mobilia Sequntur Personam is only for purposes ofconvenience. It must yield to the actual situs of such property.* > Personal intangible properties which acquires business situs here in thePhilippines1) Franchise which is exercised within the Philippines2) Shares, obligations, bonds issued by a domestic corporation3) Shares, obligations, bonds issued by a foreign corporation, 85% of its business isconducted in the Philippines4) Shares, obligations, bonds issued by a foreign corporation which shares of stockor bonds acquire situs here5) Rights, interest in a partnership, business or industry established in thePhilippines> These intangible properties acquire business situs here in the Philippines, youcannot apply the principle of Mobilia Sequntur Personam because the propertieshave acquired situs here.

SITUS OF INCOME TAX

A) DOMICILLARY THEORY- The location where the income earner resides in the situs of taxationB) NATIONALITY THEORY- The country where the income earner is a citizen is the situs of taxationC) SOURCE RULE- The country which is the source of the income or where the activity that producedthe income took place is the situs of taxation.


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SITUS OF SALE OF PERSONAL PROPERTY > The place where the sale is consummated and perfected

SITUS OF TAX ON INTEREST INCOME > The residence of the borrower who pays the interest irrespective of the place

where the obligation was contractedCIR vs. BOAC > Revenue derived by an of-line international carrier without any flight from thePhilippines, from ticket sales through its local agent are subject to tax on grossPhilippine billings

SITUS OF EXCISE TAX> Where the transaction performedHOPEWELL vs. COM. OF CUSTOMS > The power to levy an excise upon the performance of an act or the engaging in anoccupation does not depend upon the domicile of the person subject to the exercise,

nor upon the physical location of the property or in connection with the act oroccupation taxed, but depends upon the place on which the act is performed oroccupation engaged in.Thus, the gauge of taxability does not depend on the location of the office, butattaches upon the place where the respective transaction is perfected andconsummated

CONSTITUTIONAL LIMITATIONSI. DUE PROCESS > Due process mandates that no person shall be deprived of life, liberty, or

property without due process of law.PEPSI COLA vs. MUN. OF TANAUAN- REQUIREMENTS OF DUE PROCESS IN TAXATION1) Tax must be for a Public purpose2) Imposed within the Territorial jurisdiction3) No arbitrariness or oppression inA) assessment, andB) collection

DUE PROCESS IN TAXATION DOES NOT REQUIRE

1) Determination through judicial inquiry ofA) property subject to taxB) amount of tax to be imposed2) Notice of hearing as to:A) amount of the taxB) manner of apportionment

REQUISITES OF DUE PROCESS OF LAW


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1) There must be a valid law2) Tax measure should not be unconscionable and unjust as to amount toconfiscation of property3) Tax statute must not be arbitrary as to find no support in the constitution

> When is deprivation of life, liberty or property done in accordance with dueprocess of law?1) If done under authority of a law that is valid or of the constitution itself2) After compliance with fair and reasonable methods of procedure prescribed bylaw. > If properties are taxed on the basis of an invalid law, such deprivation is aviolation of due processREMEDY ask for refund > To justify the nullification of a tax law, there must be a clear and unequivocalbreach of the constitution> There must be proof of arbitrariness

INSTANCES WHEN THE TAX LAW MAYBE DECLARED ASUNCONSTITUTIONAL [C, O, N, U]1) If it amounts to confiscation of property without due process2) If the subject of taxation is outside of the jurisdiction of the taxing state3) The law maybe declared as unconstitutional if it is imposed not for a publicpurpose4) If a tax law which is applied retroactively, imposes unjust and oppressive taxes.A tax law which denies a taxpayer a fair opportunity to assert his substantial rightsbefore a competent tribunal is invalidA taxpayer must not be deprived of his property for non-payment of taxes without1) notice of liability2) sale of property at public auctionThe validity of statute maybe contested only by one who will sustain a direct injuryin consequence of its enforcementA violation of the inherent limitations on taxation would contravene theconstitutional injunctions against deprivation of property without due process oflawThere must be proof of arbitrariness, otherwise apply the presumption ofconstitutionalityDue process requires hearing before adoption of legislative rules by administrative

bodies of interpretative rulings. (Misamis vs. DFA)

Compliance with strict procedural requirements must be followed effectively toavoid a collision course between the states power to tax and the individualrecognized rights (CIR vs. Algue)The due process clause may correctly be invoked only when there is a clearcontravention of inherent or constitutional limitations in the exercise of tax power.(Tan vs. del Rosario)SUBSTATNTIVE DUE PROCESS requires that a tax statute must be within the


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constitutional authority of Congress to pass and that it be reasonable, fair and justPROCEDURAL DUE PROCESS requires notice and hearing or at least anopportunity to be heard

II. EQUAL PROTECTION CLAUSE

> All persons, all properties, all businesses should be taxed at the same rate> prohibits class legislation> prohibits undue discriminationEQUALITY IN TAXATION (UNIFORMITY)> Equality in taxation requires that all subjects or objects of taxation similarlysituated should be treated alike or put on equal footing both on the privilegeconferred and liabilities imposed> All taxable articles of the same class shall be taxed at the same rate > The Doctrine does not require that persons or properties different in fact betreated in law as though there were the same. What it prohibits is class legislationwhich discriminates against some and favors others > As long as there are rational or reasonable grounds for doing so, Congress maygroup persons or properties to be taxed and it is sufficient if all members of the sameclass are subject to the same rate and the tax is administered impartially upon them.

REQUISITES OF A VALID CLASSIFICATION (S A G E )1) It must be based on substantial distinction2) It must apply not only to the present condition, but also to future conditions3) It must be germane to the purpose of the law4) It must apply equally to all members of the same class

SUBSTANTIAL DISTINCTION> It must be real, material and not superficial distinction > What is not allowed is inequality resulting from singling out of a particular classwhich violates the requisites of a valid classification > There maybe inequality but as long as it does not violate the requisites of a validclassification that such mere inequality is not enough to justify the nullification of atax law or tax ordinance > Taxation is equitable when its burden falls on those better able to pay >Although the equal protection clause does not forbid classification, it isimperative that the substantial differences having a reasonable relation to thesubject of the particular legislation

> Taxes are uniform and equal when imposed upon all property of the same classor character within the taxing authority > Tax exemptions are not violative of the equal protection clause, as long as there isvalid classification.TIU vs. CAThe Constitutional right to equal protection of the law is not violated by an executiveorder, issued pursuant to law, granting tax and duty incentives only to businesswithin the secured area of the Subic Special Economic Zone and denying them to


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those who live within the zone but outside such fenced in territory. TheConstitution does not require the absolute equality among residents. It is enoughthat all persons under like circumstances or conditions are given the same privilegesand required to follow the same obligations. In short, a classification based on validand reasonable standards does not violate the equal protection clause.

We find real and substantial distinctions between the circumstances obtaining insideand those outside the Subic Naval Base, thereby justifying a valid and reasonableclassification.TWO WAYS EQUAL PROTECTION CLAUSE CAN BE VIOLATED1) When classification is made where there should be noneex. When the classification does not rest upon substantial distinctions that make forreal difference2) When no classification is made where a classification is called forex. When substantial distinctions exist but no corresponding classification is madeon the basis thereof

ORMOC SUGAR CENTRAL vs. CIR > If the ordinance is intended to supply to a specific taxpayer and to no one elseregardless of whether or not other entities belonging to the same class areestablished in the future, it is a violation of the equal protection clause, but if it isintended to apply also to similar establishments which maybe established in thefuture, then the tax ordinance is valid even if in the meantime, it applies to only oneentity or taxpayer for the simple reason that there is so far only one member of theclass subject of the tax measure

UNIFORMITY IN TAXATION > The concept of uniformity in taxation implies that all taxable articles or

properties of the same class shall be taxed at the same rate.It requires the uniform application and operation, without discrimination, of the taxin every place where the subject of the tax is found. It does not, however, requireabsolute identity or equality under all circumstances, but subject to reasonableclassification.EQUITY IN TAXATION > The concept of equity in taxation requires that the apportionment of the taxburden be more or less, just in the light of the taxpayers ability to shoulder to taxburden and if warranted, on the basis of the benefits received from the government.Its cornerstone is the taxpayers ability to pay.

CRITERIA OF EQUAL PROTECTION1) When the laws operate uniformlyA) on all personsB) under similar circumstances2) All persons are treated in the same mannerA) The conditions not being different


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B) Both in privileges conferred and liabilities imposedC) Favoritism and preference not allowedREYES vs. ALMAZOR > Taxation is equitable when its burden falls on those better able to payKAPATIRAN vs. TAN

> It is inherent in the power to tax that the state be free to select the subjects oftaxation and it has been repeatedly held that inequalities which result from asingling out of one particular class of taxation or exemption infringe noconstitutional limitation

III. FREEDOM OF THE PRESS > The press is not exempt from taxation > The sale of magazines or newspapers, maybe the subject of taxation > What is not allowed is to impose tax on the exercise of an activity which has aconnection with freedom of the press (license fee)> If we impose tax on persons before they can deliver or broadcast a particular news

or information, that is the one which cannot be taxed.TOLENTINO vs. SEC. OF FINANCE > What is prohibited by the constitutional guarantee of free press are laws whichsingle out the press or target a group belonging to the press for special treatment orwhich in any way discriminates against the press on the basis of the content of thepublication.

IV. FREEDOM OF RELIGION > It is the activity which cannot be taxed > activities which have connection with the exercise of religion

AMERICAN BIBLE SOCIETY vs. MANILA > The payment of license fees for the distribution and sale of bibles suppresses theconstitutional right of free exercise of religion.

JIMMY SWAGGART vs. BOARD OF EQUALIZATION > The Free Exercise of Religion Clause does not prohibit imposing a generallyapplicable sales and use tax on the sale of religious materials by a religiousorganization. > The Sale of religious articles can be the subject of the VAT > What cannot be taxed is the exercise of religious worship or activity

> The income of the priest derived from the exercise of religious activity can betaxed.

V. NON-IMPAIRMENT CLAUSE > The parties to the contract cannot exercise the power of taxation. > They cannot agree or stipulate that this particular transaction may be exemptfrom tax- not allowed (except if government)OPOSA vs. FACTORAN


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> Police power prevails over the non-impairment clauseLA INSULAR vs. MANCHUCA > A lawful tax on a new subject or an increased tax on an old one, does not interferewith a contract or impairs its obligation. > The constitutional guarantee of the non-impairment clause can only invoked in

the grant of tax exemption.RULES:1) If the exemption was granted for valuable consideration and it is granted on thebasis of a contract.> cannot be revoked2) If the exemption is granted by virtue of a contract, wherein the government entersinto a contract with a private corporation> cannot be revoked unilaterally by the government3) If the basis of the tax exemption is a franchise granted by Congress and under thefranchise or the tax exemption is given to a particular holder or person> can be unilaterally revoked by the government (Congress)

> The non-impairment clause applies only to contracts and not to a franchise. > The non-impairment clause applies to taxation but not to police power andeminent domain. Furthermore, it applies only where one party is the governmentand the other, a private individual. > As a rule, the obligation to pay tax is based on law. But when, for instance, ataxpayer enters into a compromise with the BIR, the obligation of the taxpayerbecomes one based on contract

PROVINCE OF MISAMIS vs. CAGAYAN ELECTRIC

> Franchises with magic words, shall be in lieu of all taxes descriptive of thepayment of a franchise tax on their gross earnings are exempt from:1) all taxes2) the franchise tax under the NIRC3) the franchise tax under the local tax code

JUAREZ vs. CA > As long as the contract affects the public welfare one way or another so as torequire the interference of the state, then must the police power be asserted andprevail over the impairment clause

RULES ON TAX AMNESTY > Tax amnesty, like tax exemption, is never favored nor presumed in law and ifgranted by statute must be construed strictly against the taxpayer, who must showcompliance with the law. >The government is not estopped from questioning the tax liability even if amnestytax payments were already receivedREASON: Erroneous application and enforcement of the law by public officers do


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not block subsequent correct application of the statute. The government is neverestopped by mistakes or errors by its agents.PP vs. CASTAEDA > Defense of tax amnesty, like amnesty, is a personal defenseREASON: It relates to the circumstances of a particular accused and not the

character of the acts charged in the informationREPUBLIC vs. IAC >In case of doubt, tax amnesty is to be strictly construed against the governmentREASON: Taxes are not construed, for taxes being burdens are not to be presumedbeyond what the tax amnesty expressly and clearly declares

VI. LAW MAKING PROCESSA) ONE SUBJECT ONE TITLE RULE> Every bill passed by the Congress shall embrace only one subject which shall beexpressed in the title thereof (Sec. 26 (1) ART II)B) THREE READING RULE

> No bill passed by either House shall become a law unless it has passed threereadings on separate days and printed copies thereof in its final form have beendistributed to its members three days before its passage, EXCEPT when thePresident certifies to the necessity of its immediate enactment to meet a publiccalamity or emergency. (Sec. 26 (2) ART II)

C) ENROLLED BILL DOCTRINEG.R. An enrolled copy of a bill is conclusive not only of its provisions but also of itsdue enactment

VII. PARDONING POWER OF THE PRESIDENT> The President has the power to grant reprieves, commutations and pardons andremit fines and forfeitures after conviction by final judgment. (Sec. 19, ART VII)NATURE OF TAX AMNESTY A general pardon or intentional overlooking by the state of its authority to imposepenalties on persons otherwise guilty of evasion or violation of a revenue or tax law- absolute forgiveness or waiver to collect

VIII. NO IMPRISONMENT FOR NON-PAYMENT OF POLL TAX

- No person shall be imprisoned for debt or non-payment of poll tax (Sec. 20 ARTIII) > The non-imprisonment rule applies to non-payment of poll tax which ispunishable only by a surcharge, but not to other violations like falsification ofcommunity tax certificate or non-payment of other taxesPOLL TAX tax of fixed amount imposed upon residents within a specific territoryregardless of citizenship, business or professionEx. Community tax


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IX. TAXATION SHALL BE UNIFORM AND EQUITABLE- The rule of taxation shall be uniform and equitable. The Congress shall evolve aprogressive system of taxation. (Sec. 28 (1) ART VI)UNIFORMITY

- means that all taxable articles kinds of property of the same class shall be taxed atthe same rate > A tax is uniform when it operates with the same force and effect in every placewhere the subject of it is foundEQUITABILITY > Taxation is said to be equitable when its burden falls on those better able to pay

X. CONGRESS SHALL EVOLVE A PROGRESSIVE SYSTEM OF TAXATIONPROGRESSIVITY > Taxation is progressive when its rate goes up depending on the sources of theperson affected

SYTEMS OF TAXATION1) PROPORTIONAL TAXATION- where the tax increases or decreases in relation to the tax bracket2) PROGRESSIVE or GRADUATED SYSTEM- where the tax increases as the income of the taxpayer goes higher3) REGRESSIVE SYSTEM- where the tax decreases as the income of the taxpayer increases

PROGRESSIVITY IS NOT REPUGNANT TO UNIFORMITY and EQUALITYA) Uniformity does not require the things which are not different be treated in thesame mannerB) Differentiation, which is not arbitrary and conforms to the dictates of justice andequity is allowed. Progressivity is one way of classification.C) The State has the inherent right to select subjects of taxation

> The Constitution does not really prohibit the imposition of indirect taxes, whichlike the VAT, are regressive. The constitutional provision means simply that indirecttaxes shall be minimized. > The mandate to Congress is not to prescribe, but to evolve, a progressive systemof taxation

> Resort to indirect taxes should be minimized but not to be avoided entirelybecause it is difficult, if not impossible to avoid them by imposing such taxesaccording to the taxpayers ability to pay.

XI. ORIGIN OF REVENUE, TARIFF or TAX BILLSAll appropriation, revenue or tariff bills, bills authorizing increase of the public debt,bills of local application, and private bills shall originate exclusively in the House ofRepresentatives, but the Senate may propose or concur with amendments. (Section


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24, Article VI)RULE:- It is not the revenue statute but the revenue bill which is required by theconstitution to originate exclusively in the House of RepresentativesREASON:

- To insist that a revenue statute and not only the bill which initiated the legislativeprocess culminating in the enactment of the law must substantially be the same asthe House bill would be to deny the Senates power not only to concur withamendments but also to propose amendments. It would be to violate the co-equality of legislative power of the two houses of Congress and in fact make theHouse superior to the Senate. (Tolentino vs. Sec. of Finance) > The Constitution simply requires that there must be that initiative coming fromthe House of Representatives relative to appropriation, revenue and tariff bills. >The Constitution does not also prohibit the filing in the Senate of a substitute billin anticipation of its receipt of the bill from the House, as long as action by theSenate is withheld until receipt of said bill (Tolentino vs. Sec. of Finance)

XII. PRESIDENTIAL VETO > The President shall have the power to veto any particular item or items in anappropriation, revenue or tariff bill, but the veto shall not affect the item or items towhich he does not object (Sec. 27 (2), ART VI)

XIII. TARIFF POWER OF THE PRESIDENT The Congress may, by law, authorizing the President to fix within specific limits,and subject to such limitations and restrictions as it may impose, tariff rates, importand export quotas, tonnage and wharfage dues, the other duties or imports withinthe framework of the national development program of the Government (Sec. 28

(2), ART VI)REQUISITES:1) There must be a law passed by Congress authorizing the President to impose tariffrates and other fees.2) Under the law, there must be limitations and restrictions on the exercise of suchpower3) The taxes that may be imposed by the President are limited to:A) Tariff ratesB) Import and export quotasC) Tonnage and wharfage dues

D) Other duties (customs duties)4) The imposition of these tariff and duties must be within the framework of theNational Development program of the government > Congress may not pass a law authorizing the President to impose income tax,donors tax, and other taxes which are not in the nature of customs duties.> The Constitution allows only the imposition by the President of these customduties


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XIV. TAX EXEMPTION OF REAL PROPERTY Charitable institutions, churches and personages or convents appurtenant thereto,morgues, non-profit cemeteries and all lands, buildings and improvements, actuallydirectly and exclusively used for religious, charitable, or educational purposes shallbe exempt from taxation. (Sec. 28 (3) ART VI)

APPLICATION:> The exemption only covers property taxes and not other taxesTEST OF EXEMPTION:> It is the USE of the property and not ownership of the property

XV. LAW GRANTING TAX EXEMPTIONS No law granting any tax exemptions shall be passed without the concurrence of amajorityof all members of the Congress (Sec. 28 (4) ART VI)RULES ON VOTE REQUIREMENT

1) Law granting any tax exemption> absolute majority2) Law withdrawing any tax exemption> Relative majority > Tax exemption, amnesties, refunds are considered in the nature of taxexemptions> A law granting such needs approval of the absolute majority of the Congress

XVI. NO USE OF PUBLIC MONEY OR PROPERTY FOR PUBLIC PURPOSES > No public money or property shall be appropriated, applied, paid, or employed,

directly or indirectly, for the use, benefit, or support of any sect, church,denomination, sectarian, institution or system of religion, or of any priest, preacher,minister or other religious teacher or dignitary as such, EXCEPT when such priest,preacher, minister or dignitary is assigned to the armed forces, or to any penalinstitution, or government orphanage or leprosarium as such (Sec. 29 (2) ART VI) > Public property may be leased to a religious group provided that the lease will betotally under the same conditions as that to private persons (amount of rent) > Congress is without power to appropriate funds for a private purpose.

XVII. TAX LEVIED FOR SPECIAL PURPOSES

All money collected or any tax levied for a special purpose shall be treated as aspecial fund and paid out for such purpose only. If the purpose for which a specialfund was created has been fulfilled or abandoned, the balance, if any, shall betransferred to the general funds of the Government. (Sec. 29 (3) ART VI) > If a President ofthe Philippines spent a special fund for a general purpose, he canbe charged with culpable violation of the Constitution.

XVIII. SUPREME COURTS POWER OF REVIEW


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The Supreme Court shall have the power to review, revise, reverse, modify or affirmon appeal or certiorari, all cases involving the legality of any tax imposed,assessment, or toll, or any penalty imposed in relation thereto. (Sec. 5 (2B) ARTVIII) > Congress cannot take away from the Supreme Court the power given to it by the

Constitution as the final arbiter of the tax cases.

XIX. DELEGATED AUTHORITY TO LOCAL GOVERNMENT UNITS Each local government unit shall have the power to create its own sources ofrevenues and to levy taxes, fees, and charges subject to such guidelines andlimitations as the Congress may provide, consistent with the basic policy of localautonomy. Such taxes, fees, charges shall have exclusivity to the local government.(Sec. 5, ART X)LIMITATIONS ON POWER TO TAX (L.G.U.)1) It is subject to such guidelines and limitations provided by Congress.2) It must be consistent with the basic policy of local autonomy.

3) Such taxes, fees, and charges shall accrue exclusively to the local government.RULES: NATIONAL GOVT vs. LGUIMPOSITION OF TAXES1) The National Government may impose local taxes on articles or subjects which arewithin the territorial jurisdiction of the local government unit.2) The Local Government unit cannot impose tax on the national government.> You can only tax those articles, which are within your jurisdictionSEC. 6, ART X local government units shall have a just share, as determined by law, in thenational taxes which shall be automatically released to them.

XX. TAX EXEMPTIONS OF EDUCATIONAL INSTITUTIONS All revenues and assets of non-stock, non-profit educational institutions usedactually, directly, and exclusively for educational purposes shall be exempt fromtaxes and duties. (Sec. 4 (3) ART XIV)REQUISITES FOR EXEMPTION:1) It must be a private educational institution2) It must be non-stock and non-profit3) Its assets (property) and revenues (income) must be used actually, directly andexclusively for educational purposesRULES:

1) If the first requisite is absent (meaning, its a government educational institution),it is nonetheless exempt from income tax2) If the second requirement is absent (meaning, it is stock and profit) as long as thethird requirement is present, it is nonetheless exempt from real estate tax3) If the third requirement is absent, as long as it is non-stock and non-profit, it isnonetheless exempt from income tax4) If the third requirement is absent, but it is private and non-profit, it is subject toincome tax, but at the preferential rate of ten percent (10%)


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> Under the present tax code, for a private educational institution to be exemptfrom the payment of income tax, all it has to be is non-stock and non-profit.However, a governmental educational institution is exempt from income tax withoutany condition

EXEMPTION DOES NOT EXTEND TO:1) Income derived by these educational institutions from their property, real orpersonal, and2) From activities conducted by them for profit regardless of the disposition made onsuch income

> Where the educational institution is private and non-profit (but a stockcorporation) it is subject to income tax but at the preferential rate of ten percent(10%)

REQUISITES for APPLICATION of 10% PREFERENTIAL RATE

1) It is private;2) It has permit to operate from the DECS, or CHED or TESDA;3) It is non-profit;4) Its gross income from unrelated trade or business must not exceed fifty percent(50%) of its total gross income from all sources.10% PREFERENTIAL TAX RATE DOES NOT APPLY TO THE FOLLOWING:1) Passive incomes derived by the educational institution (subject to final incometax) and2) Where the educational institution is engaged in unrelated trade, business or otheractivity, and the gross income from such unrelated trade, business or other activitiesexceeds fifty percent (50%) of the total gross income derived by the school from allsources > Where a donation is made in favor of an educational institution pursuant tosports competition and tournaments, the donor is exempt from the payment ofdonors taxCIR vs. CA (298 SCRA 83) > Income derived by YMCA from leasing out a portion of its premises to small shopowners, like restaurant and canteen operators, and from parking fees collected fromnon-members are taxable incomeYMCA is not an educational institution

XXI. TAX EXEMPTION OF DONATIONS for EDUCATIONAL PURPOSES > Subject to conditions prescribed by law, all grants endowments, donations, orcontributions used actually, directly and exclusively for educational purposes shallbe exempt from tax. (Sec. 4 (4) ART XIV)

XXII. NO EXPOST FACTO LAW PROHIBITION IN TAXATIONFERNANDEZ vs. FERNANDEZ > The prohibition against ex post facto laws applies only to criminal laws and not


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to those that concern civil mattersOur tax laws are civil in nature > The collection of interest on taxes is not penal in nature and the ex post facto lawprohibition does not apply to it.

ESCAPE FROM TAXATIONBASIC FORMS OF ESCAPE FROM TAXATION1) SHIFTING2) CAPITALIZATION3) TRANSFORMATION4) AVOIDANCE5) EXEMPTION6) EVASION

I. SHIFTING- Shifting is the transfer of the burden of a tax by the original payer or the one onwhom the tax was assessed or imposed to someone else- Process by which such tax burden is transferred from statutory taxpayer to anotherwithout violating the law > It should be borne in mind that what is transferred is not the payment of the tax,but the burden of the tax > Only indirect taxes may be shifted; direct taxes cannot be shiftedWAYS OF SHIFTING THE TAX BURDEN1) FORWARD SHIFTING- When the burden of the tax is transferred from a factor of production through thefactors of distribution until it finally settles on the ultimate purchaser or consumer.Example:- Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts itto the retailer, who also shifts it to the final purchaser or consumer2) BACKWARD SHIFTING- When the burden of the tax is transferred from the consumer or purchaser throughthe factors of distribution to the factors of productionExample:- Consumer or purchaser may shift tax imposed on him to retailer by purchasing

only after the price is reduced, and from the latter to the wholesaler, or finally to themanufacturer or producer3) ONWARD SHIFTING- When the tax is shifted two or more times either forward or backwardExample:- Thus, a transfer from the seller to the purchaser involves one shift; from theproducer to the wholesaler, then to retailer, we have two shifts; and if the tax istransferred again to the purchaser by the retailer, we have three shifts in all.


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Impact and Incidence of Taxation Impact of taxation is the point on which a tax is originally imposed. In so far as thelaw is concerned, the taxpayer is the person who must pay the tax to the government.He is also termed as the statutory taxpayer-the one on whom the tax is formallyassessed. He is the subject of the tax

Incidence of taxation is that point on which the tax burden finally rests or settledown. It takes place when shifting has been effected from the statutory taxpayer toanother.Statutory Taxpayer The Statutory taxpayer is the person required by law to pay the tax or the one onwhom the tax is formally assessed. In short, he or she is the subject of the tax. In direct taxes, the statutory taxpayer is the one who shoulders the burden of thetax while in indirect taxes, the statutory taxpayer is the one who pay the tax to thegovernment but the burden can be passed to another person or entity.Relationship between impact, shifting, and incidence of a tax The impact is the initial phenomenon, the shifting is the intermediate process, and

the incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on the seller(manufacturer) who shifts the burden to the customer who finally bears theincidence of the tax. Impact is the imposition of the tax; shifting is the transfer of the tax; whileincidence is the setting or coming to rest of the tax.

II. CAPITALIZATION- Reduction is the price of the taxed object equal to the capitalized value of futuretaxes on the property sold > This is a special form of backward shifting, where the burden of future taxeswhich the buyer may have to pay is shifted back to the seller in the form of reductionin the selling price

III. TRANSFORMATION- The manufacturer in an effort to avoid losing his customers, maintains the sameselling price and margin of profit, not by shifting the tax burden to his customers,but by improving his method of production and cutting down or other productioncost, thereby transforming the tax into or earn through the medium of production.

IV. TAX AVOIDANCE-Also known as tax minimization

- not punished by law- Tax avoidance is the exploitation of the taxpayer of legally permissible alternativetax rates or methods of assessing taxable property or income in order to avoid orreduce tax liabilityDELPHERS TRADERS CORP vs. IAC (157 SCRA 349) > The Supreme Court upheld the estate planning scheme resorted to by thePacheco family in converting their property to shares of stock in a corporation whichthey themselves owned and controlled. By virtue of the deed of exchange, the


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Pacheco co-owners saved on inheritance taxes. The Supreme Court said the recordsdo not point anything wrong and objectionable about this estate planning schemeresorted to. The legal right of the taxpayer to decrease the amount of what otherwisecould be his taxes or altogether avoid them by means which the law permits cannotbe doubted.

Example:Following the holding period rule in capital gains transaction, by postponing thesale of the capital asset until after twelve months from date of acquisition you canreduce the tax on the capital gains by 50%

V. TAX EXEMPTIONTax Exemption It is the grant of immunity to particular persons or corporations or to persons orcorporations of a particular class from a tax which persons and corporationsgenerally within the same state or taxing district are obliged to pay. It is an immunityor privilege; it is freedom from a financial charge or burden to which others are

subjected. Exemption is allowed only if there is a clear provision there for. It is not necessarily discriminatory as long as there is a reasonable foundation orrational basis. Exemptions are not presumed, but when public property is involved, exemption isthe rule and taxation is the exemption.Rationale for granting tax exemptions Its avowed purpose is some public benefit or interests which the lawmaking bodyconsiders sufficient to offset the monetary loss entailed in the grant of theexemption. The theory behind the grant of tax exemptions is that such act will benefit the bodyof the people. It is not based on the idea of lessening the burden of the individualowners of property.Grounds for granting tax exemptions

1) May be based on contract. In such a case, the public, which is represented by thegovernment is supposed to receive a full equivalent therefor, i.e. charter of acorporation.

2) May be based on some ground of public policy, i.e., to encourage new industriesor to foster charitable institutions. Here, the government need not receive any

consideration in return for the tax exemption.3) May be based on grounds of reciprocity or to lessen the rigors of internationaldouble or multiple taxation

Note: Equity is not a ground for tax exemption. Exemption is allowed only if there isa clear provision therefor.


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Nature of tax exemption1) It is a mere personal privilege of the grantee.2) It is generally revocable by the government unless the exemption is founded on acontract which is contract which is protected from impairment.3) It implies a waiver on the part of the government of its right to collect what

otherwise would be due to it, and so is prejudicial thereto.4) It is not necessarily discriminatory so long as the exemption has a reasonablefoundation or rational basis.5) It is not transferable except if the law expressly provides so.Kinds of tax exemption according to manner of creation

1) Express or affirmative exemptionWhen certain persons, property or transactions are, by express provision, exemptedfrom all certain taxes, either entirely or in part.

2) Implied exemption or exemption by omission

When a tax is levied on certain classes of persons, properties, or transactions withoutmentioning the other classes.

Every tax statute makes exemptions because of omissions. No tax exemption by implicationIt must be expressed in clear and unmistakable languageCALTEX vs. COA > In claiming tax exemption, the burden of proof lies upon the claimantIt cannot be created by mere implicationIt cannot be presumed that you are entitled to tax exemption

You must prove it

RULE:- Taxation is the rule and exemption is the exceptionPROPERTY TAX GOVERNMENT PROPERTY > Properties owned by the government whether in their proprietary orgovernmental capacity are exempt from real estate taxTEST:- OWNERSHIP > Once established that it belongs to the government, the nature of the use of theproperty whether proprietary or sovereign becomes immaterial. > Exemption of public property from taxation does not extend to improvements

therein made by occupants or claimants at their own expense.KINDS OF TAX EXEMPTIONS ACCORDING TO SCOPE OR EXTENT1) TOTAL- When certain persons, property or transactions are exempted, expressly orimpliedly from all taxes2) PARTIAL- When certain persons, property or transactions are exempted, expressly orimpliedly from certain taxes, either entirely or in part.


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3) There can be no simultaneous exemptions under two laws, when one grantspartial exemption while other grants total exemption.

Does provision in a statute granting exemption from all taxes include indirecttaxes?

NO. As a general rule, indirect taxes are not included in the grant of suchexemption unless it is expressly stated.

Nature of power to grant tax exemption

1) National government

The power to grant tax exemptions is an attribute of sovereignty for the power toprescribe who or what persons or property shall not be taxed.It is inherent in the exercise of the power to tax that the sovereign state be free toselect the subjects of taxation and to grant exemptions therefrom.

Unless restricted by the Constitution, the legislative power to exempt is as broad asits power to tax.

2) Local governments

Municipal corporations are clothed with no inherent power to tax or grant taxexemptions. But the moment the power to impose a particular tax is granted, theyalso have the power to grant exemption therefrom unless forbidden by someprovision of the Constitution or the lawThe legislature may delegate its power to grant tax exemptions to the same extentthat it may exercise the power to exempt.

Basco vs. PAGCOR (196 SCRA 52): The power to tax municipal corporations mustalways yield to a legislative act which is superior, having been passed by the Stateitself. Municipal corporations are mere creatures of Congress which has the power tocreate and abolish municipal corporations due to its general legislative powers. IfCongress can grant the power to tax, it can also provide for exemptions or even takeback the power.

Chavez v. PCGG, G.R. No. 130716, 09 December 1998 In a compromise agreement between the Philippine Government, represented by

the PCGG, and the Marcos heirs, the PCGG granted tax exemptions to the assetswhich will be apportioned to the Marcos heirs. The Supreme Court ruled that thePCGG has absolutely no power to grant tax exemptions, even under the cover of itsauthority to compromise ill gotten wealth cases. The grant of tax exemptions is theexclusive prerogative of the Congress. In fact, the Supreme Court even stated that Congress itself cannot grant taxexemptions in the case at bar because it will violate the equal protection clause of theConstitution.


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Interpretation of the laws granting tax exemptions General ruleIn the construction of tax statutes, exemptions are not favored and are construedstrictissimi juris against the taxpayer. The fundamental theory is that all taxable

property should bear its share in the cost and expense of the government.Taxation is the rule and exemption is the exemption.He who claims exemption must be able to justify his claim or right thereto by a grantexpress in terms too plain to be mistaken and too categorical to be misinterpreted.If not expressly mentioned in the law, it must be at least within its purview by clearlegislative intent.

Exceptions1) When the law itself expressly provides for a liberal construction thereof.2) In cases of exemptions granted to religious, charitable and educationalinstitutions or to the government or its agencies or to public property because the

general rule is that they are exempt from tax.

Strict interpretation does not apply to the government and its agencies Petitioner cannot invoke the rule on stritissimi juris with respect to theinterpretation of statutes granting tax exemptions to the NPC. The rule on strictinterpretation does not apply in the case of exemptions in favor of a politicalsubdivision or instrumentality of the government. [Maceda v. Macaraig]

Davao Gulf v. Commissioner, 293 SCRA 76 (1998) A tax cannot be imposed unless it is supported by the clear and express language ofa statute; on the other hand, once the tax is unquestionably imposed, a claim of

exemption from tax payers must be clearly shown and based on language in the lawtoo plain to be mistaken. Since the partial refund authorized under Section 5, RA1435, is in the nature of a tax exemption, it must be construed strictissimi jurisagainst the grantee. Hence, petitioners claim of refund on the basis of the specifictaxes it actually paid must expressly be granted in a statute stated in a language tooclear to be mistaken. > Exemption of the buyer does not extend to the sellerExemption of the principal does not extend to the accessory

Tax remission or tax condonation The word remit means to desist or refrain from exacting, inflicting or enforcingsomething as well as to restore what has already been taken. The remission of taxesdue and payable to the exclusion of taxes already collected does not constitute unfairdiscrimination. Such a set of taxes is a class by itself and the law would be open toattack as class legislation only if all taxpayers belonging to one class were not treatedalike. [Juan Luna Subd. V. Sarmiento, 91 Phil 370] The condition of a tax liability is equivalent to and is in the nature of a tax


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exemption. Thus, it should be sustained only when expressly provided in the law.[Surigao Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728]Tax amnesty Tax amnesty, being a general pardon or intentional overlooking by the State of itsauthority to impose penalties on persons otherwise guilty of evasion or violation of a

revenue to collect what otherwise would be due it and, in this sense, prejudicialthereto. It is granted particularly to tax evaders who wish to relent and are willing toreform, thus giving them a chance to do so and thereby become a part of the newsociety with a clean slate. [Republic v. Intermediate Appellate Court, 196 SCRA 335] Like tax exemption, tax amnesty is never favored nor presumed in law. It is grantedby statute. The terms of the amnesty must also be construed against the taxpayerand liberally in favor of the government.

Tax amnesty v. tax condonation v. tax exemption A tax amnesty, being a general pardon or intentional overlooking by the Statute ofits authority to impose penalties on persons otherwise guilty of evasion or violation

of a revenue or tax law, partakes of an absolute forgiveness or waiver by theGovernment of its right to collect what otherwise would be due it and, in this sense,prejudicial thereto, particularly to tax evaders who wish to relent and are willing toreform are given a chance to do so and therefore become a part of the society with aclean slate. Like a tax exemption, a tax amnesty is never favored nor presumed in law, and isgranted by statute. The terms of the amnesty must be strictly construed against thetaxpayer and literally in favor of the government. Unlike a tax exemption, however, atax amnesty has limited applicability as to cover a particular taxing period ortransaction only. There is a tax condonation or remission when the State desists or refrains from

exacting, inflicting or enforcing something as well as to reduce what has alreadybeen taken. The condonation of a tax liability is equivalent to and is in the nature ofa tax exemption. Thus, it should be sustained only when expressed in the law. Tax exemption, on the other hand, is the grant of immunity to particular persons orcorporations of a particular class from a tax of which persons and corporationsgenerally within the same state or taxing district are obliged to pay. Tax exemptionsare not favored and are construed strictissimi juris against the taxpayer.

CONSTITUTIONAL RESTRICTION:

No law granting any tax exemption shall be passed without the concurrence of amajority of all members of Congress. (Sec. 28 (4) ART VI)

VI. TAX EVASION- It is also known as tax dodging- It is punishable by law- Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or


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lessen the payment of tax.YUTIVO vs. CTA > Tax evasion is a term that connotes fraud through the use of pretenses orforbidden devices to lessen or defeat taxes

ELEMENTS OF TAX EVASION- Tax evasion connotes the integration of three (3) factors:1) The end to be achieved, i.e. payment of less than that known by the taxpayer to belegally due, or paying no tax when it is shown that tax is due2) An accompanying state of mind which is described as being evil, in bad faith,willful, or deliberate and notaccidental3) A course of action (or failure of action) which is unlawful

INDICIA of FRAUD IN TAX EVASION1) Failure to declare for taxation purposes true and actual income derived frombusiness for two (2) consecutive years; or

2) Substantial underdeclaration of income tax returns of the taxpayer for four (4)consecutive years coupled with unintentional overstatement of deductionsEVIDENCE TO PROVE TAX EVASION > Since fraud is a state of mind, it need not be proved by direct evidence but may beproved from the circumstances of the case.REPUBLIC vs. GONZALES (13 SCRA 638) > Failure of the taxpayer to declare for taxation purposes his true and actualincome derived from his business for two (2) consecutive years is an indication of hisfraudulent intent to cheat the government of its due taxes.Posted by intro to intl law second term at11:51 PMNo comments:

WEDNESDAY, JUNE 24, 2009course syllabusBasic Economics, Land Reform & TaxationCLARENDON COLLEGE1st Sem, AY 2009-2010

ATTY. S.C. MADRONA, JR.ATTY. AIREEN DIMAPILIS SISON-MADRONA

COURSE DESCRIPTION

Introduction to economics and economic concepts in theory, policy and practice,with particular reference to Philippine economic experience. It also includes ageneral background of the laws of taxation and land reform.

COURSE OBJECTIVES

The course aims to impart to its students: first, appreciate the importance of taxation
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as means of supporting the government in sustaining its programs and projects asopposed to common notion on taxation as a burden; second, realize the necessity forland reform program as means of states pursuit of social justice, and; lastly, betterunderstand basic economic principles and processes i.e. resources, market, moneyetc.

COURSE OUTLINE

IntroductionI.TaxationA.General Principles in TaxationB.Limitations on the Power of TaxationC.Double Taxation and Tax ExemptionsD.Income Taxation

II.Land Reform

A.Components and AspectsB.Agrarian Reform

III.EconomicsA.Basic Principles in EconomicsB.Economic Activitiesi.Circular Flow of Economic Activitiesii.Supply and Demandiii.Production, Cost and Profitiv.Monopoly and Competitionv.Philippine Financial Systemvi.Money and Monetary PolicyC.International Trade

Conclusion

REQUIRED READINGS

The following books are required for this course:

TAXATION:

De Leon, Hector. 2004. Fundamentals of Taxation. Quezon City: Rex Bookstore

LAND REFORM:

De Leon, Hector. 2005. Textbook on Agrarian Reform and Taxation. Quezon City:Rex Book Store.


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ECONOMICS:

Mankiw, N. Gregory. 2007. Principles of Economics, 4th Edition. Thomson South-Western.Case, Karl and Ray C. Fair. 2004. Principles of Economics, 7th edition. Pearson

Prentice Hall.

COURSE REQUIREMENTS

PPrelim examination: 15% (July 18, 2009)Midterm examination: 15% (August 29, 2009)Semi-Final examination: 10%Class Participation: 40%Final Exam: 20% (October 10, 2009)Total 100%

A. READ, TAKE NOTES AND ASK QUESTIONS. This course requires muchreading and the student is expected to have read the required materials whencoming to class.B. EXAM. The exam will consists of problem-solving and short answer questionsbased on the class lectures and the assigned reading materials.C. FINAL EXAM. Comprehensive of all lectures and selected required readingmaterials.D. There will be GRADED RECITATION (50% of final grade) based on the requiredreading materials and assigned cases.

CLASSROOM POLICIES

1. Students must submit a 3x5 index card with their names, courses, contactnumbers, 1x1 ID color or BW picture by the second-class meeting.2. A student is considered absent from class if s/he is not present within the firstthird fraction (30 minutes) of the scheduled class time. The students should beresponsible for keeping tracks of their absences.3. As a courtesy of the entire class, smoking and eating inside the classroom shall bestrictly prohibited. All electronic devices must be either deactivated or at least silent.

Documents

Definition of Taxation