Explain the principles of a sound tax system.

The principles are Fiscal Adequacy, Theoretical Justice and Administrative Feasibility.

Fiscal Adequacy means that sources of revenue must be adequate to meet government expenditures and other public needs. This is pursuant to the doctrine that taxes are the lifeblood of the government.

Theoretical Justice is based on Art. VI, Section 28(1) of the Constitution, which states that the rule of taxation must be uniform and equitable and that the Congress must evolve a progressive system of taxation. A good tax system must be based on the taxpayer’s ability to pay.

Administrative Feasibility mandates that taxes should be capable of being effectively and efficiently enforced and must not obstruct business growth and economic development. The Supreme Court, in Kapatiran Ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., et al, v. Tan, upheld the validity of the VAT Law by ruling that the same “is principally aimed to rationalize the system of taxes on goods and services, simplify tax administration, and make the system more equitable to enable the country to attain economic recovery.”

Differentiate between double taxation in the strict sense and in a broad sense and give example of each.

Double Taxation in the strict sense or objectionable or prohibited sense, also known as direct duplicate taxation, means that the same property is taxed twice when it should be taxed only once; and that both taxes are imposed on the same property or subject matter, for the same purpose, by the same State, Government, or taxing authority within the same jurisdiction or taxing district during the same taxing period and covering the same kind or character of tax. (Villanueva vs. City of Iloilo)

In City of Manila vs. Coca-cola Bottlers Philippines, Inc., the Supreme Court ruled that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the Local Government Code, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are not otherwise specified in preceding paragraphs. Otherwise, the imposition would be considered as double taxation in the strict sense which is legally objectionable.

Double Taxation in a broad sense or indirect duplicate taxation is permissible double taxation. The same is allowed if the taxes are of different nature or character, imposed by different taxing authorities. The Supreme Court held that a real estate tax and the tenement tax imposed by a local ordinance although

imposed by the same taxing authority are not of the same kind and character. (Villanueva vs. City of Iloilo)