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TAXATION : the act of laying tax

Purpose of Taxation : 1. Revenue purposes 2. Regulatory purposes 3. Compensatory purposes

Taxes : are the enforced proportional contributions from persons and property levied by the law making body of the state by virtue of its sovereignty for the support of the government and public needs

NATURE OF TAXATION
Inherent power of sovereignty Essentially legislative in function For public purposes The strongest of all the inherent powers of the government Territorial in operation Subject to constitutional and inherent limitation

NATURE OF THE POWER OF TAXATION

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It is inherent in sovereignty It is legislative in character It is subject to Constitutional and Inherent limitation

BASIC PRINCIPLE OF A SOUND TAX SYTEM
1. 2.

3.

FISCAL ADEQUACY EQUALITY OR THEORITICAL JUSTICE : based on ability to pay principle ADMINISTRATIVE FEASIBILITY

ESSENTIAL CHARACTERISTIC OF TAX
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It is an enforced contribution It is generally payable in money It is proportionate in character It is levied on persons or property It is levied by the state which has a jurisdiction over the person or property It is levied by the law making body of the state It is levied for public purposes

Non Revenue Objectives of Taxation
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Strengthen anemic enterprise Protect local industries Bargaining tool Halt inflation Reduce inequalities in wealth Promote science Implement police power

TAX EXEMPTION
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RELIGIOUS PURPOSES RELIGIOUS,CHARITABLE, AND EDUCATIONAL ENTITIES, NON PROFIT CEMETERIES AND CHURCES NON-STOCK, NON-PROFIT EDUCATION INSTITUTION THOSE WHICH HAD BEEN VETO BY THE PRESIDENT GOVERNMENT ENTITIES Business league, chamber of commerce or board of trade not organized for profit General professional partnership Labor. Agricultural, or horticular organization not organized principally for profit Gifts made in account of marriage by parents to each of their legitimate. Recognized natural or adopted children Gifts for use of the national government Gifts made in favor of educational institution, social welfare corporation, research organization Benefit payment to member made by the GSIS and SSS Benefits from the US government through US veterans administration Prize receive by winners in charity horse race The annual senior citizen income of not more than P60,000 per annum NON TERRITORIAL JURISDICTION

Constitutional Limitations
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Due Process of Law Equal Protection of the Law Rule of uniformity and equity in taxation No imprisonment for non payment of poll tax Non-impairment of the obligations of contracts Non-infringement of religious freedom No appropriation for religious purposes Exemption of religious, charitable, and educational entities, non-profit cemeteries, and churches from property taxation Exemption of non-stock, non-profit educational institutions from taxation Concurrence by a majority of all members of the Congress for the passage of a law granting tax exemption Power of the President to veto any particular item or itens in a revenue or tariff bill Non-impairment of jurisdiction of the Supreme Court in tax cases

INHERENT LIMITATIONS

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Requirement that levy must be for a public purpose Non-delegation of the legislative power to tax Exemption from taxation of government entities International Comity Territorial Jurisdiction

Prohibition against infringement of religious freedom

Prohibition against appropriation for religious purposes

Basis : “ No Law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed xxx (Sec. 5, Art. III)

Basis : No public money or property shall be appropriated, applied, paid or employed, directly or indirectly for use, benefit or support or any sect, church, denomination, sectarian or institution or system of religion or of any priest, preacher, minister or other religious teacher or dignitary as such, except when such, except when such priest, preacher, minister or dignitary, is assigned to the armed forces, or any penal institutions, or government orphanage or leprosarium. (Sec. 29, Art. VI)

Prohibition against taxation of religious, charitable, educational entities

Prohibition against taxation of non-stock, non-profit educational institution

Basis : Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings and improvements actually, directly, and exclusively used for religious, charitable or educational purposes shall be exempt from taxation (Sec. 28, Art VI)

Basis : All revenues and assets of non-stock, nonprofit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties xxx (Sec. 4, Art. XIV) Subject to conditions prescribed by law, all grants, endowments, donations or contributions used actually, directly and exclusively for educational purposes shall be exempt from tax (Sec.4, Art. XIV)

GRANTING OF TAX EXEMPTION

“ No law granting any tax exmption shall be passed wihtuot the concurrence of a majority of all members of the Congress” (Sec. 28 (4) Art. VI)

Delegation to the President

For purposes of practicality and expediency, our Constitution expressly allows Congress “ to authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import or export quotas, tonnage and wharfage dues and other duties or imposts.xxx(Sec.28, Art.VI)

Requirement of Uniformity Prohibition against imprisonment for non-payment and Equity of poll tax
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Basis : “The rule of taxation shall be uniform and equitable” (Sec.28, Art. VI)

Basis : “ No person shall be imprisoned for debt or non payment of a poll tax (Sec.20, Art.III)

STAGES OR PROCESSES OF TAXATION
1.

2.

3.

Levy – determination of certain amount or of certain percentage to be imposed on persons, property or acts Assessment : computation of the sum due, giving of notice, making of the demand Collection : taking or getting by proper governmental agencies if taxes imposed

When to pay taxes

On or before April 15 of the current year

Classification of taxes
1. As to subject matter or object : a. Personal, poll or capitation b. Property c. Excise 2. As to who bears the burden : a. direct b. indirect 3. As to determination of amount a. specific b. ad valorem 4. As to purpose : a. general, fiscal or revenue b. special or regulatory

5. As to scope a. National b. Municipal 6. As to graduation or rate a. proportional b. progressive c. regressive

Kinds of National Internal Revenue Taxes
1. 2. 3. 4.

Income Tax Estate and Donor Tax Value Added Tax Other percentage taxes : on small business enterprise, on carriers, on franchise holders, on persons paying for overseas communications, on banks and non-bank financial intermediaries, on life insurance, on proprietors, lessees or operators of amusement, on winners of prizes in horse races and jaialai, on sale, barter or exchange of stocks

5. Excise tax on certain goods 6. Documentary stamp tax 7. Other taxes : custom duties, sugar adjustment tax, narcotic drugs, travel tax, private motor vehicle tax, energy tax, special education fund tax

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Income tax : tax on the net income or the entire income realized in one taxable year Transfer taxes: Estate tax :tax on the right of the deceased person to transmit his estate to his lawful heirs or beneficiaries Inheritance tax : tax on the right of the heirs or beneficiaries to receive the estate of the deceased person


1.

2.

Gift taxes : Donors tax : tax levied on the act of giving Donee’s tax : Value Added tax : uniform tax imposed on each sale, barter or exchange or lease of goods, properties or services

Value Added Tax

A uniform tax (0% or 10%) imposed on each sale, barter, exchange or lease of goods, properties or services in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties, or services by seller, transferor or lessor

It is levied on every importation of goods

NATURE OF VAT
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It is a privilege tax It is a percentage tax It is an indirect tax

RATE AND BASE OF THE TAX

1. On sale of goods or properties : tax is equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged 2. On imported goods : tax is equivalent to 10% based in total value used by the Bureau of Customs 3. On sale of services and use or lease of properties : tax is equivalent to 10% of gross receipts derived by any person engaged in the sale or exchange of services for a fee or consideration including the use or lease of properties whether real or personal

COMPUTATION OF THE TAX
Gross sales/rptsx 1/11 = Output Tax

Less :purchase of goods x 1/11

=

Input Tax

Output Tax – Input Tac

=

VAT payable

Sales (domestic) Brokerage

P660,000 330,000

Total
Output Tax (1/11) Importation Local purchases: Raw Materials Supplies Capital Equipment Services

990, 000
P90,000 P220,000

66,000 44,000 165,000 55,000 330,000

Total
Less : Input Tax VAT PAYABLE

550,000
50,000 P40,00

Percentage Taxes are taxes measured by a certain percentage of the gross selling price or gross value of goods sold


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Persons or enterprise Liable for percentage taxes Small business enterprise (<P500,000: 3%) Domestic carriers (3%) International carriers (3%) Franchise grantees (3%) Overseas Communications (10%) Banks and Financial Intermediaries Finance Companies (5%) Life Insurance companies (5% of the premium)

Amusement a. Proporietors or lessees or operators of amusement places (cockpits, cabaret (18%), boxing exhibition (10%), professional basketbal games (15%), race tracks and jai alai (30%) `b. Winners in horse races (10% of the dividend)

EXCISE TAX taxes imposed on certain specified goods or articles manufactured or produced in the Philippines for domestic sale or consumption and to things imported to the Philippines.

Goods subject to excise taxes
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2.

Excise Tax : Specific tax : weight or volume Ad valorem : value

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Goods manufactured or produced in the Philippines for domestic sale or consumption Imported items Alcohol products :distilled spirits, wines and fermented liquor Tobacco products : scrap cuttings, tobacco, cigars and cigarettes Petroleum products Misc.goods Mineral products

Rates are levied in terms of
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Volume Length Weight Number

DOCUMENTARY STAMP TAX

EFFECTS OF FAILURE TO STAMP TAXABLE INSTRUMENTS

Tax on documents, instruments, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, rights or property incident

The document can not be recorded in the government registry Such document, instrument or paper or any record or transfer of the same shall not be admitted or used in evidence in any court No notary public or other officer authorized to administer oaths shall add his jurat Subject to penalty violation

Custom Duties taxes levied by the government on goods exported from or imported into the country

Classification  Regular : ad valorem, specific, alternate, compound  Special

Special Custom Duties

Dumping duty : imposed on a specific kind or class of foreign article which is being imported into, or sold for exportation to the Philippines at a price less than the fair value Countervailing duty : imposed on articles, upon the production, manufacture or export of which any bounty or subsidy is directly or indirectly granted in the country of origin and/ or exportation Marking duty : on articles and containers which have not been properly marked in any official language in the Philippines Retaliatory or discriminatory duty : imposed upon articles of a foreign country which discriminates against Philippine commerce

SUGAR ADJUSTMENT TAXES commonwealth act 567
Purpose

To stabilize the sugar industry To obtain readjustment benefits derived from sugar industry To limit the production of sugar to areas more economically suited for the production To afford labor employed in the industry a living wage and to improved their working condition

Persons liable  Proprietors or operators of mills in centrifugal sugar  Owners or persons in control of sugar lands

tax imposed on drugs which produces insensibility, melancholy or dullness of mind with delusions and which may be habit forming (RA 953)

Taxes on Narcotic Drugs

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Fixed or Annual Occupation Taxes Specific Tax Transfer Tax

The travel tax is a levy imposed by the Philippine government on the following individuals who are leaving the country irrespective of the place where the air ticket is issued and the form or place of payment, as provided for by Presidential Decree (PD) 1183, as amended:
A. Citizens of the Philippines; B. Permanent resident aliens whose immigration status maybe any of the following: Sec. 13 Quota or Preference Immigrant Visa Sec. 13 A Visa issued to an Alien Spouse of Philippine Citizen Sec. 13 B Child born outside the Philippines by a 13A Mother Sec. 13 C Child born in the Philippines by a 13A Mother Sec. 13 D Loss of Citizenship by a Filipino Woman by her Marriage to an Alien Sec. 13 E Returning Resident Sec. 13 G Former Natural-born Citizen of the Philippines who was Naturalized by a Foreign Country TRV Temporary Residence Visa RA 7919 Alien Social Integration Act of 1995 RC /RFC Recognition as Filipino Citizen RA 7837 Permanent Resident

C. Non-resident aliens who have stayed in the Philippines for more than one(1) year.
Note: Non-immigrant aliens who have not stayed in the Philippines for more than a year are not covered by the travel tax. However, PTA F356 need to be prepared by the ticketing officer for passengers with the following immigration status except for FGO & their dependents (Sec. 9E) who have stayed for more than a year, they have to secure Travel Tax Exemption Certificate. EO 408 / E0 Tourist without visa - EO 21 Stay valid for 21 days - 11 Days Stay valid for 11 days - 7 Days Stay valid for 7 days BB Balikbayan Sec. 9A Temporary Visitor coming for business or for pleasure or for reasons of health Sec. 9B Transit Passengers Sec. 9C Foreign Seamen Sec. 9D Treaty Trader / Investor Sec. 9E Foreign Government Officials Sec. 9F Foreign Students Sec. 9G Pre-arranged Employee 47 A2/PEZA Special Non-immigrant Visa 47B Refugees PD 1034 Executives of Multinational Companies EO 63 / EO 226 / RA 8756 Omnibus Investment Act of 1987 - SIRV - Special Investor Resident Visa

RA 7227 Bases Conversion and Development Act of 1992 - SSIV - Subic Special Investor's Visa - SSRV - Subic Special Retiree Visa - SSRV - Subic Special Retiree Visa - SSWV - Subic Special Working Visa - SCWV - Special Clark Working Visa EO 1037 / SRRV Special Resident Retiree Visa EO 191 Granting No-Visa Entry for Initial Stay of 7 Days for Chinese Nationals who are holders of Macao - Portuguese Passport LOI 911 / LOI Granting No-Visa Entry for Initial Stay of 7 Days for holders of HK-British-HK-SAR Passport As mandated by the law, the taxes are divided among the Philippine Tourism Authority (PTA), the National Parks Development Committee (NPDC), the National Commission for Culture and the Arts (NCCA), Commission for Higher Education (CHED), and the General Fund of the National Government for use in government programs.

Travel Tax rates

First Class Passage Economy Class Passage Full rate PHP 2700 PHP 1620 Standard reduced rate PHP 1350 PHP 810 Privileged reduced rate for Overseas Contract Workers' (OCWs) dependents PHP 400 PHP 300

Section 2 of PD 1183, as amended, provides that the following are exempted from the payment of the travel tax:

Travel Tax Exemption

Foreign diplomatic representatives Employees of the United Nations (UN) Organization or its agencies

United States (US) Military Personnel including dependents and other US nationals with fares paid for by the US Government or on US Governmentowned/chartered transport facilities.

Filipino Overseas Contract Worker International carrier crew Filipino permanent residents abroad whose stay in the Philippines is less than one (1) year. Philippine Foreign Service personnel assigned abroad and their dependents Philippine government (excluding government-owned and controlled corporations) employees on official travel Grantees of foreign government-funded trips Students with approved scholarships by appropriate government agency Infants (2 years & below) Personnel (and their dependents) of Philippine offices of multinational companies not engaged in business in the Philippines B. RA 6768 provides for the exemption of the following from payment of the travel tax: Balikbayans whose stay in the Philippines is less than one (1) year

Family members of former Filipinos accompanying the latter

C. Section 2-A of PD 1183, as amended, states that the following are entitled to a standard reduced travel tax rate: Minors from 2 to 12 years

D. Section 2-B of PD 1183, as amended, states that the following are entitled to a privileged reduced travel tax rate: Legitimate spouse of overseas contract worker (OCW) Legitimate unmarried children of OCW below 21 years old

PRIVATE MOTO VEHICLE TAX

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EO 43 (RA 4136) Land Transportation and Traffic Code Purpose : Nationalization Discourage the uneconomic consumption of fuel Revenue SCHEDULE (L,M,H:Age)

ENERGY TAX


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RRA 776 (Civil Aeronautics Act of the Philippines) Purpose: Fuel Conservation Revenue Conserving energy ((BP Blg.36)

Energy Tax

It shall be paid to and withheld by electric utilities from their respective residential customers along with their monthly electric billings. The owner or proprietor, operator, or any person in charge of the public utility shall, within 20 calendar days after the end of each calendar month in which the tax is collected file a true and correct return with the Commissioner of Internal Revenue and remit within the same period the total amount of tax collected.

FORMS OF ESCAPE FROM TAXATION
1. Shifting : the transfer of the

burden of a tax by the original payer or the one whom the tax is asses or imposed to another or someone else

FORWARD : burden of tax is transferred from a factor of production through factors of distribution until it settles finally on the consumer BACKWARD : burden of the tax is transferred by consumer through factors of distribution to the factors of production Onward Shifting : tax is shifted two or three times either forward or backward

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P (t) =100(90+10) ; 110 P—R(110)= (110+10)120(10%)13 2=132 P—R—B B—R-P

B132(120)—120R--P(100)— BRP


P—R----B P--RxB

FORMS OF ESCAPE FROM TAXATION
2. TAX CAPITALIZATION : reduction of the price of the taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay 3. TRANSFORMATION : the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process or production thereby turning his units of product at a lower cost

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100sqm. : 1M:  P800,000+200,000= P1M  P700,000/800,000  Capital tax :
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S, Bread, drinks P10,000 ; P10,000, P10,00 1,000; 1,000; 1,000 P11,000,/10, 11,000/10, 11,000/ 10 Per plate P110/30 , P110, P110 3spnful 10combo meal 30+30+30 = 90

FORMS OF ESCAPE FROM TAXATION
4. TAX EVASION : the use of the tax payer of illegal and fraud 5. TAX AVOIDANCE : use of the tax payer of legally permissible alternative tax rates or methods inorder to avoid or reduce tax liability

ABS CBN
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100M : 10 M BB : 10M GK: 10 M SSI : 5M En: 15 M Total charitable and socio projects :40M 100M-40M = 60 M ; 6M (4M)

1.

FACTORS IN TAX EVASION

2.

The end to be achieved An accompanying state of mind which is described as evil 3. A course of action which is unlawful

TAX ADMINISTRATIVE AGENCIES

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Bureau of Internal Revenue Bureau of Customs Court of Tax Appeals Ordinary Court Supreme Court

REMEDIES AVAILABLE FOR THE GOVERNMENT TO COLLECTION OF TAXES

ADMINISTRATIVE



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Distraint of personal property Levy of real property Enforcement of forfeiture Enforcement of tax lien Entering into compromise of tax cases Requiring the filing of bonds Requiring proof of filing income tax returns

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Giving of rewards to informers Imposition if surcharge and interest Making arrest, search or seizure Deportation of aliens Inspection of books of accounts Use of national tax register Obtaining information on tax liability of any person

Distraint of Personal Property
involves the seizure by the Government of personal property tangible or intangible - to enforce the payment of taxes, followed by the public sale of such property, if the Taxpayer fails to pay the taxes voluntarily Requisites : Taxpayer must be delinquent in the payment of tax There must be subsequent demand The taxpayer must fail to pay the delinquent tax at the time required The period within which to assess the tax has not yet been prescribed

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Two Kinds Actual Distraint : taking of possession of the personal property out of the tax payer into that of the government Constructive Distraint : the owner is prohibited from disposing of his personal property

Properties subject to Distraint

In general : All goods, chattels, or effects and other personal property belonging to the taxpayer Bank Accounts : (RA 1405)

Levy of Real Property

refers to the same act of seizure, but in this case of real property, and interest in or rights to such property in order to enforce the payment of taxes. As in the distraint of personal property, the real property under levy shall be sold in a public sale, if the taxes involved are not voluntarily paid following such levy.

ENFORCEMENT OF FORFEITURE

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It implies a divestiture of property without compensation, in consequence of default or offense. > losing> property transferred to another without the consent of the owner and wrongdoer Personal Property Real Property

TAX LIEN

COMPROMISE OF TA X LIABILITY

It is a legal claim or charge on property, either real or personal, established by law as a security in default of the payment of taxes

It is a contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one already commenced

REMEDIES AVAILABLE FOR THE GOVERNMENT TO COLLECTION OF TAXES
ADMINISTRATIVE  Inventory taking of stock in trade and making surveillance  Prescribing gross sales and receipts  Termination of tax period ADMINISTRATIVE  Prescribing real property value  Inquiring into bank deposit account  Requiring registration of taxpayers

REMEDIES AVAILABLE FOR THE GOVERNMENT TO COLLECTION OF TAXES
JUDICIAL

Ordinary civil action

Criminal action

300,000; tax due :

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300,000-250,000= 50,000 x .30 = 15,000 ( 30% of the excess of 250,000 Tax due : 50,000 + 15,000 Tax due : 65,000/12= 5.400

Meaning of taxable income

Income base of tax rate : the amount of income upon which the tax rate prescribed by law is applied to get the amount of income tax payable Net Income : pertinent items of gross income specified in the tax code less deductions, if any, including personal and additional exemption Non Exempt Income : all incomes of the tax payer which are subject to tax or which are not exempted from taxation

ITEMS OF GROSS INCOME
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Compensation for services Gross income derived from conduct of trade or business Gains derived from dealings in property Interests Rents Royalties Dividends Annuities Prize and winnings Pensions Partner’s distributive share from the net income

REQUISITES FOR INCOME TO BE TAXABLE
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1. There must be gain or profit 2. The gain must be received and realized 3. The gain must be excluded by law or treaty from taxation

EXCLUSIONS : are incomes that are exempt from tax. They are not considered in determining gross income

DEDUCTIONS : are items or amounts which the law allows to be deducted under certain conditions from the gross income of taxpayer in order to arrive at the taxable income

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30,000/ mo x 12 = 360,000 SSS: 1,500x 12= 18,000 PhilH= 100x12= 1,200 PG = 500x 12 = 6,000/ total 25, 200 Single, but has :child 5yrs Head of the family / dependent 16,500 (37,500+16,500=54,000 360,000-25,200-54,000 =280,800 (taxable income) Tax due :( 50,000+30%% of the excess of 250,000 280,800-250,000 =30,800x.3 =9,240 Tax due : 50,000 + 9,240 = 59,240