Sunday, June 14, 2009

General Principles - Part III

This post is a sequel to the limitations of the taxing power of the state. This time let us proceed to the CONSTITUTIONAL LIMITATIONS - those limitations on the state's exercise of the taxing power specifically provided by the particular provisions of the Philippine Constitution.

a. Due process of law. As provided for, no person shall be deprived of life, liberty or property without due process of law. This covers two types: substantive, and procedural. Substantive due process relates to the circumstances and procedures in the passage of tax laws and ordinances, while the other relates to the procedural aspects in the implementation of the tax laws and ordinances. Applied to taxation, due process mandates that there should be a valid law imposing a tax to a particular taxpayer, and should the taxpayer failed to pay the same, it must be given each and every opportunity to explain itself and justify. No law imposing a tax, then the taxpayer shall not be collected such tax. On the other hand, granting that the taxpayer failed to pay in full but was not issued as assessment notice informing the facts and the law of the assessment, still, the taxpayer could not be held to pay. These are the essence of due process. The taxing authority, while implementing the necessary mandates of its office must give due respect to the established procedures the way it works in an organized society.

b. Equal protection of law. "...nor shall any person be denied equal protection of law". Equal protection relates to how a particular tax measure or ordinance is being applied to persons or class of persons similarly situated. Thus, if two entities falling on the same classification shall be taxed similarly. Example, if an ordinance imposes a tax on technicians and it happened that in a locality there was a single technician, such technician cannot complain for unequal application because the ordinance is made applicable to all technicians belonging to the same class.

c. Non-imprisonment for non-payment of debt or poll tax. Debt refers to a civil obligation that is payable in money or in kind, while poll tax or community tax refers to an charge or imposition administered by the local government unit (LGU) where the taxpayer is located. The prohibition admits the fact of inequality of distribution of wealth in the society and provides for instances in extreme poverty. This is likewise in furtherance of the basic doctrine in civil law that civil liability does not put the person liable behind bars. Applied to tax, while poll tax is a basic mandate in the Local Government Code, its non-payment does not entitle imprisonment.

d. Non-impairment of obligations of contracts. To impair is to damage or to harm and obligation referred to is the duty or commitment imposed upon by the valid contract entered into by the contracting parties. Applied to tax, a new tax law shall not be passed in such a way as to impair or to prejudice the obligation of a contracting party by virtue of a contract entered into with the state. This is to give due respect to the contractual terms the state is bind with respect to its contract with private individuals. A theoretical example of this is, if an exemption is granted by the state by virtue of a contract with a private entity for which a valuable consideration is involved, then no new law could later be passed to prejudice said exemption.

e. Rule of taxation shall be uniform and equitable. As stated in uniform application above, uniformity relates to classification of taxpayers to be subjected to tax. Equitable on the other hand relates to the ability to pay the tax of those that belong to the same class. In other words, it refers to how much will each pay and the constitution requires that there must be a reasonable classification and justification for the unequal imposition.

f. Separation of church and state. This is based on the sad experiences during the Spanish regime where the church had much to say about the governance of state. Applied to tax, no public money from taxes shall be spent for furtherance of religious activities. Thus, a municipality cannot spend public funds for the celebration of its municipal fiesta.

g. Exemption of educational, charitable, and religious institutions. The state acknowledges the valuable contribution of educating its inhabitants, benefits brought about by charities on various programs for general welfare, and the religious well-being of its inhabitants to the success and development of the society as a whole. Thus, to encourage private individuals and entities for the furtherance of this objectives, the constitution provided certain tax exemptions from income, real property and customs duties and taxes under specific circumstances and limitations. There must be showing of an actual, direct, and exclusive use and furtherance of such objectives in order to be exempt to prevent abuse and capitalization of such objectives to escape from tax.

h. Concurrence of the majority members of Congress in granting tax exemption. Tax exemptions are immunity from a particular tax that is being imposed to others similarly situated. The more exemptions, the less collections. Accordingly, in order to control and to see to it that only those necessarily entitled must be provided exemptions, the constitution require that such grant of tax exemption shall be concurred by the vote of the majority of the membership in the Congress. It should be noted that Philippines is on a bicameral congress, the senate and the lower house, thus, granting tax exemptions are not quite easy to legislate.

i. Non-impairment of the jurisdiction of the Supreme Court on tax cases. This is in furtherance of the principles of check and balances. The jurisdiction of the lower courts are based on the mercy of the laws passed for the purpose, thus, may be modified and revised from time to time. However, in the case of the Supreme Court, no law can take its power to become the final arbiter of tax cases.

j. Veto power of the President in tax bills. Generally, on bills passed by Congress, the President is empowered to either approve or disapprove a bill as a whole. If approved or not acted upon within a certain period of time, it becomes a law, and if vetoed, it does not become a law in its entirety. Tax bills however, can be granted either fully or partially. If a bill is granted partially, provisions which are approved becomes part of the law while those provisions vetoed upon becomes ineffective.

Please click here for Part II of the General Principles.

Please click here for Part I of the General Principles.


"Taxes affect lives, care for taxes and save lives"

Thursday, June 11, 2009

More taxes on alcoholic beverages, cigaretters and on Text messaging (SMS) CONTEMPLATED!

Collection deficit is now becoming a popular and urgent issue and government officials are now taking more steps to remedy the situation and improve Philippine economic condition.

Accordingly, the state is now reportedly contemplating to impose new taxes, if not revitalize the present tax imposition on certain articles and industries. One of which is the so called SIN taxes on alcoholic beverages, and on cigarettes as millions and millions of Filipinos are on to said items making it a great potential for tax collection improvement. Notably, the imposition of higher tax rate is premised on the state's exercise of police power to discourage the rampant use of these articles for their proven negative health effects.

Another item is the tax on short messaging service (SMS) or the commonly termed TEXT messaging. Philippines is a major contributor of messaging traffic as almost every Pinoy is equipped with these technological mobile phones and some are even maintaining a couple of these mobiles at the same time. On personal comment, admittedly, these will bring new revenues to the government, but will surely make a great impact on the average and less than average Pinoy depending on cellphones as its sole medium of communication among the family members, friends, relatives, and for other purposes.

As to date, however, no details yet on how, when, and how much will the new impositions would be.


"Taxes affect lives, care for taxes and save lives"

Is BIR ruling madatory for the transfer of title over common areas of condominium?

Under RMO No.18-2009 dated April 26, 2009, BIR Ruling previously required before a Certificate Authorizing Registration (CAR) is issued for the transfer by real state developers to the condominium corporation under RA 4726 of titles over common areas IS NO LONGER REQUIRED.

This is based on the legal mandate of RA No. 4726 or the Condominium Act that titles over common areas of condominiums shall be placed in the name of the condominium corporation composed of unit owners of the same condominium.

By this new procedure, real property developers will experience a more simpler procedure as the headaches of securing a BIR Ruling is being dispensed with. This will likewise lessen the workload of the BIR on BIR rulings and they are expected to concentrate more on other ruling areas where tons of applications are filed and pending, thereby counting months and months, if not years to get a BIR Ruling released.


"Taxes affect lives, care for taxes and save lives"

How long will tax refund or tax credit be acted upon by the BIR?

RMC No. 29-09 dated April 16, 2009. Clarifies that on processing the claim for tax refund/credit certificates, the BIR Commissioner has only within 120 days from date of filing complete documents to process the following claims:

a. Input taxes from VAT zero-rated and/or effectively zero rated;

b. Excess income tax credits;

c. Erroneous tax payments

d. Excise tax from certain importations.

As a matter of procedures, these refunds undergo the normal tax verification procedures and Revenue Officers are encourage to exercise utmost care and prudence in the recommendation for granting tax refund and/or tax credit and sanctions awaits for erring officials.

Thus, applicants of the above claims are encouraged to prepare and complete immediately the required documents and papers so the application could be acted upon. If the BIR could not act immediately within the required time frame, normally two (2) years, then the applicant should elevate the case to the Court of Tax Appeals (CTA). CTA process may take sometime, some efforts and resources. Thus, if the application could be ironed out in the administrative level, then it may prove to be better.


"Taxes affect lives, care for tax and save lives"

Target institutions of the 2008 audit program, PREPARE!

RMO 19-2009 dated May 28, 2009. As a tool to boost collection and improve the BIR's collection deficits, Revenue District Offices are ordered to adopt this 2008 audit program which concentrates on mandatory audit of establishments with gross sales or receipts exceeding P5M within the jurisdiction of Makati, Valenzuela, Quezon City and Manila.

Other mandatory audits are provided for retiring establishments with P10M gross sales or receipts, applications for refunds/tax credits, the health provider industry, review centers, TESDA accredited institutions, non-stock corporations, lending investors, and many more.

I suggest that if you belong to these institutions, kindly prepare, if not refresh and familiarize your tax issues for 2008. You may conduct an internal pre-audit tax compliance for 2008 tax filings and issues to anticipate potential exposures and adopt remedial measures. For better results, you can hire tax auditors to conduct said tax compliance for they are more familiar with the approaches of the BIR examinations by their constant dealings and transactions with the BIR examiners. Preparedness for tax audit may monetize big savings and less headaches.

"Taxes affect lives, care for tax and save lives"

Where to file real property's DST, CGT or CWT of LARGE taxpayers?

RR No. 5-2009 dated March 16, 2009 reverts back the venue for filing and payment of documentary stamp tax (DST) and capital gains tax (CGT) or creditable withholding taxes (CWT) relative to the transfer of real properties by LARGE TAXPAYERS to the Revenue District Office where the property is located. Accordingly, the CAR shall be issued by the RDO of property location upon satisfaction of the requirements. The previous venue was with the large taxpayer's division of the region or at the main office in certain cases.

This is more convenient for the taxpayers and the BIR as the RDO of location is expectedly more familiar with the details and circumstances of the property to be transferred.


"Taxes affect lives, care for tax and save lives"
 
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