SUGGESTED ANSWERS TO PAST EXAM (WARNING! CORRECTNESS NOT GUARANTEED) TAXATION I ATTY.

PURITA BERNALES I BIR is correct is denying the request for set-off by El Oro. Taxes are not subject to set-off or legal compensation. The government and the taxpayer are not creditors and debtors or each other. Obligations in the nature of debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of tax cannot await the results of a lawsuit against the government. II Wazz ko gets ang question Maybe gets nako pero I dont know how to attack the question Basta Government-owned or controlled corporations, when performing proprietary functions are generally subject to tax in the absence of tax exemption provisions in their charters or law creating them.. Diri maigo ang mga GOCCs. Sec 27(c) of NIRC states: Government-owned or Controlled-Corporations, Agencies or Instrumentalities. - The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business, industry, or activity. With regards to the refund by the Dept. Of Finance using TCCs, why would they refund a GOCC exempted from taxation due to indirect taxes against it? Indirect taxes are levied upon transactions or activities before the articles subject matter thereof reach the consumers to whom the burden of the tax may ultimately be charged or shifted. The following are the reasons why the government is exempted: 1) To levy tax upon public property would render necessary new taxes on other public property for the payment of the tax so laid and thus, the government would be taxing itself to raise money to pay over to itself; 2) In order that the functions of the government shall not be unduly impede; and 3) To reduce the amount of money that has to be handed by the government in the course of its operations. Refunding a government entity exempted from taxation would defeat the purpose on why the government is exempted from taxes. All these money will go to the national treasury anyway. Why would the government spend money on paper to make TCCs just to give to the GOCC so that GOCC can give it to their clients in order for them not to get hit by indirect tax when the government could just let it be and just collect taxes (including indirect taxes which will be eventually charged against the GOCC) from the GOCCs clients to avoid circuitry of flow money. In the end, you just end up with the same amount in the national treasury(actually not the same since the government will spend more on paper used to make TCC in the scenario where the Dept. of Finance refunded the GOCC. =P III

a)

Power to tax is considered inherent in a sovereign State because it is a necessary attribute of sovereignty. Without this power no sovereign State can exist or endure. The power to tax proceeds upon the theory that the existence of a government is a necessity and this power is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent state or government. No sovereign State can continue to exist without means to pay its expenses; and that for those means, it has the right to compel all citizens and property within its limits to contribute, hence, the emergence of the power to tax. Taxes are the lifeblood of the nation. Without revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. Taxes are the lifeblood of the nation through which the agencies of the government continue to operate and with which the state effects its functions for the benefit of its constituents (kamo na bahala jamming ani!) [ TPE ] As to purpose [ SPP ] Taxation for the support of the government Police Power to promote general welfare, public health, public morals, and public safety Operate upon a community or a class of individuals Limited to the cost of regulation Eminent Domain for public use

b)

c)

As to persons affected [ CCI ] As to amount of imposition [ LCN ]

Operate upon a community or a class of individuals Generally no limit to the amount of tax that may be imposed; limitless

Operates on the individual property owner There is no imposition; rather, it is the owner of the property taken who is just paid compensation property is taken for public use by the govt upon payment of just compensation

Effect [ PNG ]

taxes paid become part of public funds to be used in carrying out legitimate objects of the government

restraint on the exercise of privileges and in some cases even rights

IV fallschirmjger

Read BRITISH AMERICAN TOBACCO vs. CAMACHO (G.R. No. 163583 April 15, 2009) No violation of equal protection or uniformity of taxation clause and no unfair competition In my opinion, dili kayo convincing ang SC Their ruling didnt kill the issue. Petitioners just FAILED TO PROVE the existence of unfair competition. With regards sa equal protection, after all things they said upholding that there is no violation of equal protection then they dropped a bomb saying in the last part of their ruling in the issue, Equal protection is not a license for courts to judge the wisdom, fairness, or logic of legislative choices. We reiterate, therefore, that petitioners remedy is with Congress and not this Court. What? =P V

a)

Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. (CIR vs. The Estate of Benigno P. Toda, Jr., G.R. No. 147188, September 14, 2004) Example of Tax Avoidance: An employer has numerous employees. He is evaluating on providing his employees a higher amount of take-home pay. A concern prompted him that if he raises the salaries of his employees, then there will be consequent higher withholding taxes on compensation, as higher salaries may fall under higher withholding tax rate bracket. What then could he do legally to avoid the higher tax rates? In this situation, the employer may take into account the provisions of the de minimis benefits rule (see recent Revenue Regulatio ns No. 52011, March 16, 2011, on de minimis benefits rule). The list of employee benefits enumerated in the said rule is considered exempt from withholding tax on compensation. Thus, by giving de minimis benefits to his employees, the higher withholding tax rates on compensation could be avoided, as permitted by the tax rules; while at the same time, the employer will be able to meet his objective of providing higher amount of take-home pay for his employees. Example of Tax Evasion: Corporation "A" sells a parcel of land worth ten million pesos (P10,000,000.00) and intentionally understated the selling price to-reduce its income tax liability

b) A Taxpayers suit may be allowed only when an act complained of, which may include a legislative enactment, directly involves the illegal disbursement of public funds derived from taxation. VI Essential Characteristic of Taxes [ LEMPPPS ] 1. It is levied by the lawmaking body of the State - the power to tax is a legislative power which under the Constitution only Congress can exercise through the enactment of laws. Accordingly, the obligation to pay taxes is a statutory liability. 2. It is an enforced contribution - a tax is not a voluntary payment or donation. It is not dependent on the will or contractual assent, express or implied, of the person taxed. Taxes are not contracts but positive acts of the government. 3. It is generally payable in money - tax is a pecuniary burden an exaction to be discharged alone in the form of money which must be in legal tender, unless qualified by law, such as RA 304 which allows backpay certificates as payment of taxes. 4. It is proportionate in character - it is ordinarily based on the taxpayers ability to pay.

It is levied by the State which has jurisdiction over the persons or property - The persons, property or service to be taxed must be subject to the jurisdiction of the taxing state. (attributes = characteristics)

5. 6. 7.

It is levied on persons or property - a tax may also be imposed on acts, transactions, rights or privileges. It is levied for public purpose or purposes - taxation involves, and a tax constitutes, a burden to provide income for public purposes.

fallschirmjger