Seminars Schedules

Understanding Taxes

As commonly defined, taxes refers to the enforced proportional contribution levied by the law-making body of the State for raise revenue to finance the various government expenditures. For easy understanding of its concept, the saying I first heard from my grandfather in my elementary days may be considered:

“Government is the people, for (not poor) the people and by (not buy) the people”.

From this saying, we can inter-relate the following nature and characteristics of the tax.

a. Public purpose – This has to be the case because it came from each and every citizen. If government is the people, then collections coming from the people should goes back to them in terms of benefits and services. Accordingly, the purpose with which the revenue from taxes should be used must be for public.

As to the extent of public purpose, it does not admit of a literal meaning that everyone from among the public must have a direct benefit. In one case when the Sugar Adjustment Act was enacted imposing a tax for the benefit of the sugar industry, the same was question for not having been intended for public purpose because it is limited to sugar industry only, and not all industries. It was held to be still for public purpose because of the benefits that our economy will derive if the sugar industry would flourish. Notably, sugar industry that time was a major contributor to the economy.

b. Legislative in character – This means that the exercise of the power is through the legislature and that taxes imposed should be based on law or ordinances enacted by Congress. No law imposing a tax, no tax to be imposed and collected. This is similar to the doctrine in criminal law, nullum crimen nulla poene sine legis (no crime when there is no law imposing a crime). Taxes collected out of a void law are equivalent an illegal exaction.

c. Enforced contribution – Taxes being imposed by law or ordinances has the force and effect of a law. A law, is defined as a “rule of conduct having the obligatory effect imposed by a legitimate authority for the common observance and benefit”. As such, tax laws must be enforced and must be observed by those required to comply, whether one likes it or not. In Philippine setting, we are on voluntary compliance basis, and pay-as-you-file basis so compliance initially depends upon the taxpayers, but subject to the right of the tax authority for verification and examination for correctness and accuracy of tax payments.

d. Proportional contribution – Has something to do with taxpayer’s ability to pay. Taxes imposed should be based on the taxpayer’s ability to pay to make sense. When the legislature enacts a law, they must look at the reasonableness of the tax rates for the tax legislation to be meaningful and realistic because taxes that are imposed beyond taxpayer’s capacity to pay will surely not yield so much compliance. Thus, it would be a useless legislation and a waste of time to legislate and to administer.

e. Revenue purpose – This is the primary purpose of imposing a tax, to raise government revenues for its various operational expenditures for capital outlays, salaries and benefits for personal services of government employees, maintenance and other operating expenses.

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