Eleanor Finch
Taxation in the Philippines is governed by the Constitution of the Philippines and three Republic Acts. The Constitution states that the rule of taxation shall be uniform and equitable and that Congress shall evolve a progressive system of taxation. Local governments have no power to tax instrumentalities of the National Government, and the National Government has supremacy over local governments in taxation matters. The power to tax is an incident of sovereignty and is unlimited in its range, but security against its abuse is found in the responsibility of the legislature that imposes the tax. The Philippines imposes a territorial tax system, with taxes collected at the national level by the Bureau of Internal Revenue (BIR) and at the local level by local government units (LGUs).
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What You'll Learn
The power to tax is an incident of sovereignty
Taxation in the Philippines is governed by the Constitution of the Philippines and three Republic Acts. The Constitution states that "the rule of taxation shall be uniform and equitable" and that "Congress shall evolve a progressive system of taxation".
The National Government holds supremacy over local governments in taxation matters. Local governments cannot tax the instrumentalities of the National Government, such as the Philippine Amusement and Gaming Corporation (PAGCOR). This is to ensure that local governments do not impede the operations of federal government agencies or their execution of federal responsibilities.
The Local Government Code (LGC) outlines the power of local government units to tax, its scope, limitations, and exemptions. The LGC prescribes common limitations on the taxing powers of local government units, such as exemptions for private parties based on mutual consideration, which are then covered by the non-impairment clause of the Constitution.
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The Constitution mandates a uniform and equitable taxation system
The Constitution of the Philippines is the chief governing document for the country's taxation policy, alongside three Republic Acts. Article VI, Section 28 of the Constitution states that "the rule of taxation shall be uniform and equitable" and delegates to Congress the task of establishing a progressive system of taxation. This mandate ensures fairness and consistency in the country's taxation system.
The principle of uniformity in taxation means that taxes should be applied evenly and consistently across similar entities or situations. It aims to prevent arbitrary or discriminatory tax policies and ensure that all taxpayers are treated equally under the law. Uniformity in taxation can be achieved through consistent tax rates, rules, and procedures, ensuring that similar transactions or taxpayers are taxed in the same manner.
Equitable taxation, on the other hand, refers to the concept of fairness and justice in the distribution of tax burdens. It entails that the tax system should be designed to ensure that taxpayers contribute according to their ability to pay. Equitable taxation considers factors such as income levels, wealth distribution, and social welfare when determining the appropriate tax obligations for individuals and entities.
The Constitution's mandate for a uniform and equitable taxation system serves to protect the rights of taxpayers and prevent arbitrary or excessive taxation. It ensures that the tax system is transparent, predictable, and applied consistently across the country. By delegating the task of establishing a progressive taxation system to Congress, the Constitution also allows for a flexible and adaptable approach to taxation, recognising that the specific tax policies may need to evolve over time to meet the changing needs of the country and its citizens.
The Philippines' taxation system is also influenced by the concept of sovereignty, acknowledging that the power to tax is inherent to the government's authority. This power, however, is not without limitations, as the Constitution serves as a safeguard against its abuse. The separation of powers and the responsibility of the legislature to the people help ensure that taxation policies are implemented fairly and justly. Additionally, the Constitution recognises the supremacy of the National Government over local governments in taxation matters, preventing local authorities from impeding or controlling the operations of constitutional laws and federal responsibilities.
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Congress must evolve a progressive system of taxation
Taxation in the Philippines is governed by the Constitution of the Philippines and three Republic Acts. The Constitution states that "the rule of taxation shall be uniform and equitable" and that "Congress shall evolve a progressive system of taxation".
The power to tax is an incident of sovereignty and is unlimited in its range. However, security against its abuse is found in the responsibility of the legislature that imposes the tax and the constituency that pays it. The Constitution of the Philippines provides effective limitations on this power.
The progressive system of taxation that Congress must evolve should reflect the principle that taxation shall be uniform and equitable. This means that the tax system should be fair and just, with taxes imposed in a consistent manner across the board.
The national government of the Philippines imposes taxes on citizens and resident aliens for all income derived from various sources. This includes compensation income, income from self-employment and professional services, interest income, dividends, rents, royalties, and capital gains, among others. The Philippines also imposes excise taxes on goods manufactured or produced in the country for domestic sales or consumption, as well as on imported items. Additionally, the Philippines has a territorial tax system, meaning that only income sourced from the Philippines is subject to Philippine taxes.
The Philippine Constitution's mandate for Congress to evolve a progressive system of taxation ensures that the tax structure is adaptable and responsive to the needs of the country. It allows for adjustments to be made over time, reflecting changes in economic conditions, social priorities, and the overall development of the nation. A progressive system of taxation also implies a commitment to fairness, where the tax burden is distributed in a way that considers the ability of individuals to pay. This can foster a sense of shared responsibility and contribute to a more equitable society.
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Local governments cannot tax national government instrumentalities
The taxation policy in the Philippines is governed by the Constitution of the Philippines and three Republic Acts. The Constitution states that "the rule of taxation shall be uniform and equitable" and that Congress should implement a progressive system of taxation. Local government units (LGUs) in the Philippines derive a significant portion of their revenue from taxes collected under the Local Government Code of 1991 (Republic Act No. 7160) and from local ordinance proceeds.
In the context of federal tax obligations, an instrumentality is an organization established by or under state statute to serve public purposes. While instrumentalities typically carry out governmental functions, they do not possess the full powers of a government, such as taxation or police authority. Their authority is derived from the state or political subdivisions they are associated with, and they are treated as state or local government employers for specific provisions like mandatory social security and Medicare.
In the case of the National Food Authority (NFA) in the Philippines, the Supreme Court ruled that the NFA is a government instrumentality exempt from real property tax. The NFA, which maintains a rice buffer stock sourced from local farmers for emergency relief, operates with operational autonomy under the supervision of the Department of Agriculture. The Court emphasized that the NFA's properties are intended for public use, and without evidence of beneficial use by a taxable entity, they are exempt from such taxation.
Section 133(o) of the Local Government Code in the Philippines stipulates that local governments cannot tax the national government. This principle of tax exemption for government agencies is based on the understanding that taxing government property would merely shift funds from one government entity to another without any substantive gain. Section 234(a) of the same law further reinforces this by exempting property owned by the Republic of the Philippines or its political subdivisions from real property tax, unless granted for the beneficial use of taxable private entities.
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Taxation laws are governed by the Constitution and Republic Acts
Taxation laws in the Philippines are governed by the Constitution and three Republic Acts. The Constitution states that "the rule of taxation shall be uniform and equitable" and that "Congress shall evolve a progressive system of taxation".
The National Internal Revenue Code is enacted as Republic Act No. 8424, also known as the Tax Reform Act of 1997. This has been amended over time, most recently by Republic Act No. 10963, the Tax Reform for Acceleration and Inclusion Law. Local government units (LGUs) also have their own taxation laws, outlined by Republic Act No. 7160, or the Local Government Code of 1991.
The Constitution grants Congress the power to implement a progressive system of taxation. This means that taxes are levied based on an individual's ability to pay, with higher taxes imposed on those with higher incomes. This progressive system aims to reduce the tax burden on low-income earners and ensure a more equitable distribution of wealth.
In addition to the Constitution and Republic Acts, taxation laws in the Philippines are also shaped by various policies and incentives. For example, the CREATE MORE Act, which builds upon the 2021 Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, introduces a 20% corporate income tax rate and provides VAT incentives and deductions for energy, research, and development. The Ease of Paying Taxes Act, or Republic Act No. 11976, is another example of legislation aimed at modernizing tax administration and streamlining processes to encourage compliance from taxpayers.
The power to tax is an incident of sovereignty and is considered unlimited in its range. This power is balanced by the responsibility of the legislature, which must consider the impact of taxation on the constituency who bear the burden of taxes. The Constitution provides guidelines to ensure uniformity and equity in taxation, with local government units also exercising their power to tax within their jurisdictions, as outlined in the Local Government Code.
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Frequently asked questions
The power to tax is an incident of sovereignty and is unlimited in range. The Constitution of the Philippines states that "the rule of taxation shall be uniform and equitable" and that "Congress shall evolve a progressive system of taxation".
The power to tax is so potent that it has been described as having the potential to destroy. Taxation interferes with personal and property rights, taking a portion of an individual's property to support the government.
Local governments do have the power to tax, but there are limitations. The Constitution provides that taxation shall be uniform, and local governments cannot tax instrumentalities of the National Government.
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