Monday, July 15, 2024

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To tax or not to tax

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Another thing that is certain, of course, it is tax. While the power to tax is inherent in every state, in our jurisdiction,”to tax or not to tax” is primarily vested in Congress.Simply put, it is the Congress that determines what to tax, who to tax, when to tax, where to tax and how to tax. Ergo, it is also Congress that is vested the power not to tax, they simply have the power to grant tax exemption.

This is because, the power to tax is coupled with the power not to tax. Basic in this power as enshrined in the Constitution is that, the Congress must evolve a progressive system of taxation. Simply put again, the higher the income the higher the tax. Likewise, under the principle of theoretical justice or equality, taxes should be based on the taxpayer’s ability to pay. Although technically speaking, regressive system of taxation is not constitutionally restricted, VAT is highly criticized for having a regressive effect on people’s purchasing power.

To illustrate, if Juan Dela Cruz is earning Php20,000.00 a month and is buying a tennis racket for Php11,200.00, VAT inclusive, the tax effect on his income of the VAT of php1,200 is 6%. On the other hand, if Victor Dela Cruz is earning Php100,000.00 and is buying the same racket, the tax impact is 1.2% only.Notice the difference and incongruity. Clearly, the principle that the higher the income the higher the tax is not present. But that is the way it is. It is the law. It is our tax law. Dura lexsedlex. The law may be harsh, but it is the law. Unless challenged, it is enjoys the presumption of constitutionality.

Truly and in deed, taxes must be based on the the taxpayer’s ability to pay. Perhaps our Congress is working behind the scenes. Perhaps our Congress is trying to balance the equation. Perhaps our Congress noticed that, an individual taxpayer may be subjected to a maximum income tax rate of 35% as introduced by TRAIN LAW (RA 10963, amending substantially the old Tax Code or RA 8424), and yet, corporations in general are subjected only to a corporate income tax at the rate of 30%. In commercial law parlance, a corporation can only be incorporated by at least five (5) natural persons but not more than fifteen (15).

Or if it is a partnership, by at least two individuals, although a partnership is similarly taxed as a corporation. The point is, an individual engaged in the practice of profession or is doing business at that, can he be deemed to have more ability to pay taxes than corporations, multinational companies or other juridical entities?  The answer is, may be yes or no. But to tax or not tax, again, is lodged in Congress.

Yes, the power to tax is primarily vested in Congress, however, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Sec. 5, Art. X of the Constitution.

Clearly, local government units can also determine what to tax, who to tax, when to tax, where to tax and how to tax. A caveat, the exercise of such power is be subject to guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. These guidelines and limitations are enunciated in the Local Government Code and other special laws.

But the LGUs in its unique exercise of its power to tax, must first armed itself with the necessary ordinance to implement a local tax law. A tax ordinance empowers a local government unit to impose taxes. Once again therefore, for local taxes, to tax or not tax is vested with the LGUs. E.g. Local franchise tax, transfer tax, business tax, real property tax, community tax, professional tax, etc. While an issue may be raised by a taxpayer that his income had already been subjected to tax by the national government (BIR), and yet, every year thereafter, upon renewal of his business permit, he has to pay a certain tax for his business.

What about his annual income tax as evidenced by his annual income tax return, is this not double taxation?Double taxation simply means taxing the same subject twice for the same taxable year, for the same tax under the same taxing authority and within the same taxable territory. It is not a constitutional limitation, there is no constitutional prohibition against double taxation but is not allowed in this jurisdiction. Sad to say, this is not double taxation. There are two(2) different taxing authorities, the Congress and the Local Government Unit.

What about the President? May our President likewise exercise the luxury, the prerogative or the choice of “to tax or not tax”? Well, constitutionally speaking, the answer is yes! The delegated authority of President to impose tariff rates, import and export quotas, tonnage and wharfage dues and other duties or imposts within the framework of the national development program of the government is clear under Art. VI, Sec. 28(2) of the Constitution. Simply put, the President may declare and impose tariffs on importations. This is one of his powers over trade policies.

This, without proper checks and balances from the Legislative Department (the Law-making Body)by which the Congress may by law impose limitations and restrictions, the President have the authority to raise taxes in the form of tariffs on imported goods whenever he wants. Perhaps, this may be done, to level the playing field and the competition on our locally manufactured or produced goods.

However, the battlefield on international trade must equally concern the tariff levels for our countrymen. It is perilous. Imposing higher tariff rates may create a controversy which can be continuous in character, as it is not a one-time event. Considerations such as economic impact, inflation, national security, international business relation, goodwill, etc., must be taken into consideration.

For one, job opportunities. A higher cost of production may entail higher price of commodities. Supply will outlast demand. Hence, closure is inevitable.

Noteworthy is, the President has the power “to tariff or not to tariff”, or in other words, “to tax or not to tax”. This is our Constitution, the highest law in the entire archipelago. Unless amended, repealed or otherwise, the President is constitutionally empowered to do so but must comply with the spirit of the Custom Modernization and Tariff Act specifically on the provisions of Flexible Clause.

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