Reviewer in Taxation (Lifted from San Beda Reviewer 2012) DISTINCTIONS GENERAL PRINCIPLES Comparison of Power of Taxation with

Other Inherent Powers Taxation Police Power Eminent Domain Purpose To raise revenue To promote public To facilitate the welfare through taking of private regulations property for public use Amount of Exaction No limit, but as Limited to the cost No amount much as possible, of regulation, imposed but rather must be equal to issuance of the the owner is paid the needs of Gov’t license or the market value of in order to avoid a surveillance (fee) the property taken deficit scenario for the State. Benefits Received No special or direct No direct benefit is A direct benefit benefit is received received; a healthy results in the form by the taxpayer, economic standard of just merely general of society is compensation to benefit of attained the property owner protection Non-Impairment of Contracts Contracts may not Contracts may be Contracts may be be impaired impaired impaired Transfer of property rights Taxes paid become No transfer but Transfer is effected part of public funds only restraint in its in favor of the State existence Scope All persons, All persons, Only upon a property and property, rights and particular property excises privileges Who Exercises the Power May be exercised May be exercised May be: only by the only by the a. Exercised by government or its government or its the political political government subdivisions subdivisions or its political subdivisions; b. Granted to public service companies or public utilities Debt Basis Based on Law Based on contract or judgement Failure to Pay Failure to pay tax (other than No imprisonment for nonpoll tax) may result in payment of debt imprisonment Mode of Payment Generally payable in money Payable in money, property, or Taxes

service Assignability Not assignable Assignable Payment Not subject to compensation or May be subject to set-off compensation or set-off Interest Tax does not draw interest Debt draws interest if unless delinquent stipulated or delayed Authority Imposed by public Authority Imposed by private individuals Prescription Determined by NIRC Determined by Civil Code Toll Definition Demand of sovereignty for the Demand of ownership – an purpose of raising public amount charged for the cost revenue and maintenance of property used Purpose Taxes are levied for the support Tolls are compensation for the of the government use of another’s property Determination of Amound The amount of tax is The amount of the toll is determined by the sovereign determined by the cost of teh property or of the improvement Who may impose May only be imposed by the Imposed by the government or State private individual Special Assessments Definition Imposed only on persons, Special levy on the lands properties, and excises comprised within the territorial jurisdiction of a province, city, or municipality specially benefited by the public works projects or improvements funded by the LGU concerned Subject Taxes are levied on land, Levied on land persons, property, income, business, etc. Liability Personal liability of the tax Cannot be made a personal payer liability of the person assessed Basis Based on necessity and Based solely on benefits partially on benefits Applicability General application Special application only as to a particular time and place License Fee Basis Based on the power of taxation Based on police power Purpose Purpose is revenue Purpose is regulation Limitation on Amount Page 1 of 6 Tax Taxes Taxes

NRA-NETB – 25% If net loss. 24(A) Share of A Partner in Taxable or Business Partnership If net income.000 or more and the tax paid by the executor or administrator. RA – 10% b. or distributed to the heirs Capital Fund or property existing at one distinct point of time. The income tax return shall be filed if the gross income is P20.000 or more and the tax paid by the fiduciary. Service of wealth Income is subject to tax Fruit Taxable Estate The taxable income shall be determined in the same way as that of individuals. Issuance of license 2. being the lifeblood of License fee may be with or the State. it may be taken by the individual partner in his return of income. which can be used in producing goods or services Wealth Return or capital is not subject to tax Tree Taxable Trust The taxable income shall be determined in the same way as that of individuals but with:  A special deduction for any amount of income paid. Government 2. Tax Levied by the law making body of the State for the support of the government and for public needs Tax A source of revenue of the government If net loss. but with a special deduction for any amount of income paid. Share of A Partner in GPP Compromise Penalty Collected as a compromise in cases involving violations of the Tax Code. rules or regulations Subsidy A legislative grant of money in aid of a private enterprise deemed to promote the public welfare Revenue A broad term that includes not only taxes but income from other sources as well Tax Evasion If net income. cannot be without consideration surrendered except for lawful consideration Effect of non-payment Non-payment does not make Non-payment makes the the business illegal but may be business illegal ground for criminal prosecution Penalty Definition Enforced proportional Sanction imposed as a contributions from persons and punishment for violation of law property or acts deemed injurious. NRC. credited. There is a creditable withholding tax on the heir of 15%. property and excises Tariff A kind of tax imposed on articles which are traded internationally Tax Minimization of taxes Effect Almost always results in the absence of tax payments INCOME TAX Income Denotes a flow of wealth during a definite period of time.000 The income tax rates for individuals apply. NRA-ETB – 20% c. it may be taken by the individual partner in his return of income. it shall be treated as dividend and shall be subject to a final tax as follows: a. it shall form part of the gross income of each partner based on his agreed ratio subject to 10% creditable withholding tax.Amount is unlimited Amount is limited to the cost of: 1. Payments made to a partner for services rendered shall be considered as ordinary business income subject to Sec. Private individuals or entities Tax All embracing term to include various kinds of enforced contributions upon persons for the attainment of public purpose Tax Basic imposition on persons. All wealth other than as a mere return of capital. There is a creditable withholding tax on the heir of 15%. The exemption is 20. or distributed to the heirs  A special deduction for any amount of the income applied for the benefit of the grantor The exemption is 20. Payments made to a partner for services rendered shall be considered as compensation income subject to Sec. violation of tax laws may give rise to imposition of penalty Purpose Intended to raise revenue Designed to regulate conduct Authority May be impose only by the May be imposed by the: government 1.000 The income tax rates for individuals apply. credited. 24 (A) Tax Avoidance Legal and not criminal penalty subject Validity to Illegal and subject to criminal penalty Managerial/ Supervisory Rank and File Employees Employees Compensation/ Salaries/ Wages Subject to Income Tax Subject to Income Tax Page 2 of 6 . RC. Inspection and surveillance When paid Normally paid the start of Normally paid before the business commencement of business Surrender Taxes. The income tax return shall be filed if the gross income is P20.

Creditable Withholding Tax System Amount of Tax Collected No need to file an application form and to secure BIR approval before the sale. May be subtracted ONLY from income derived from trade. Payments that are subsequent to “initial payment” shall no longer be subject to output VAT. Something spent or paid in earning gross income It is an immunity or privilege. Something earned or received by the taxpayer which do not form part of gross income. May be availed of by NRA-ETB whether or not there is reciprocity. The . Payments that are subsequent to initial payments shall be subject to output VAT. including the interests and penalties for late payment actually and/or constructively received. Income but not compensation hence not taxable hence not taxable Exclusions Refer to flow of wealth not treated as part of gross income because exempted by the Constitution. Sale of Vat-registered person to ADB or IRRI An application for zero-rating must be filed in and approved by the BIR before the Page 3 of 6 Tax credit Reduces the Philippine Income tax liability It is subtracted from the tax (net) amount to be paid. Sale on a Deferred Plan Initial payments exceed 25% of the gross selling price Transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale. Subject to exceptions De Minimis Benefits Income but not compensation. passive gross covered by the expanded income of NRA-NETB) withholding tax. income. whether natural or juridical.Fringe Benefits Subject to fringe benefit tax Forms part of compensation (FBT) therefore subject to income tax. properties and supply of services by a VAT-registered person. Allowed for all kinds of taxpayers. business or exercise of profession Sale on Installment Plan Initial payment do not exceed 25% of the gross selling price Seller shall be subject to output VAT on the instalment payments received. Income derived from trade. Allowed ONLY to individuals. Final Withholding Tax System Deduction Reduces taxable income upon which tax liability is calculated from Subtracted from gross income before tax is computed. Generally a receipt which is excluded from taxable income. the discovery of violations Fees paid to medical of the NIRC and the practitioners discovery and seizure of Income payments to partners smuggles goods of GPP VALUE ADDED TAX (VAT) Generally allowed for all kinds of taxpayer. Fringe benefit c. Personal Exemptio Are arbitrary amounts allowed by law to an individual taxpayer. Output tax shall be recognized by the seller and input tax shall accrue to the buyer at the time of the execution of the instrument of sale.e. a freedom of charge or burden to which other are subjected. May be subtracted from both: a. Automatically Zero-rated A zero-rated sale generally refers to the export of sale of goods. theoretically to provide for personal and living expenses. talent fees. or b. b. All income subject to final Those income payments taxes (e. May be availed of by a NRA-ETB whether or not there is reciprocity. May be availed of by NRA-ETB only upon the basis of reciprocity. properties and supply of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreements i. Deduction Refer to the amounts which the law allows to be subtracted from gross income in order to arrive at net income. Compensation income. Constituted as a full and final Intended to equal or at least payment of the income due approximate the tax due from from the payee on the said the payee on the said income. Theoretical provision of law for the personal and living expenses of the individual. Effectively Zero-rated Effectively zero-rated sales shall refer to the local sale of goods. Who is primarily liable Liability rests primarily on the Liability rests upon the withholding agent taxpayer Need to File a Return Payee is not required to file an Income recipient is still income tax return for the required to file an income tax particular income return and/or pay the difference between the tax withheld and the tax due on the income. The buyer of the property can claim the input tax in the same period as the seller recognized the output tax. business or exercise of profession. or do not come within the definition of income.g. statute. Informer’s reward to Examples: Persons instrumental in Professional fees. Is not a receipt but is generally an expenditure which is permitted to be subtracted from income to determine the amount subject to tax. Coverage a. whether natural or juridical.

and by virtue of which its taxable transactions become exempt from the VAT. This requirement prevents the buyer from claiming input tax credits arising from such taxable sale. and 2. the transaction becomes subject to the regular VAT rate. hence.sale is automatically.  Considered a taxable transaction for VAT purposes. zero-rated provided that: 1. transaction may be considered effectively zero-rated. property from the deceased. VAT payer can claim and enjoy a credit or refund for the input tax. zero-rated VAT taxpayer. NIRC REMEDIES Table Of Prescriptive Periods Normal or Ordinary Abnormal or Collection Without Assessment Extraordinary Assessment Assessment Prescriptive Period of Assessment 3 years from the 10 years from No prescriptive last day prescribed discovery of non. Sales to registered ecozones Sales to foreign embassies and and Freeport zones enterprises its personnels are effectively are automatically zero-rated. Without an approved application for effective zero-rating. Zero-rating allowed on the basis of reciprocity duly proved thru authentic documents. in case of an extended assessment agreed upon under Sec. without regard to the tax status – Vat-exempt or nor – of the party to the transaction. Such party is also not subject to the VAT. Taxpayers: Individuals and Corporations Generally imposed on Donations Inter Vivos Tax Rate lower (2-15%) Extension for payments is not allowed Exemption from net gift per table is P100. Who pays the tax Paid by the estate represented Paid by the recipients of the by the administrator or properties of the estate. the seller charges no output tax. Exempt Transactions Involves goods or services which. are specifically listed in and expressly exempted from the VAT under the Tax Code. Vat-exempt Sales Exemption only as it removes the VAT at the exempt stage.000 Estate Tax Donor’s Tax Tax on privilege to transfer property during one’s lifetime. The sale has been made to the embassies in their official capacities. executor. unless assessment filing or fraudulent there is fraud in or false return which case 5 years. Exempt Party A person or entity granted VAT exemption under the Tax Code. by their nature. (total relief) Still considered as “taxable sales” for the purpose of measuring turnover sales VAT registration is required. Zero-rated Sales The transaction is completely free of VAT because the tax rate applied on the tax base is zero. A person who makes only exempt sales is not a taxable person for VAT purposes and may not register for VAT VAT registration is optional. depending on its registration as a VAT or non- Page 4 of 6 .000 Inheritance Tax Basis Tax on the privilege to transfer Tax on the privilege to receive property upon one’s death. but may be allowed a tax refund of or credit for input taxes paid. but shall not result in any output tax  The seller can claim a refund or a tax credit certificate for the VAT previously charged by suppliers  The word “ZERO-RATED” must be prominently imprinted or stamped on the face of the VAT invoice or receipt to be issued by the seller.period for by law for the filing filing of return or assessment when of the return. a special law or an international agreement to which the Philippines is a signatory. the transaction otherwise entitles to zero-rating shall be considered EXEMPT. or a period agreed upon between the CIR and the taxpayer (which may be less than 5 years). Taxpayers: Individuals only Generally imposed on Donations Mortis Causa Tax Rate are relatively higher (5-20%) Extension for payments is allowed Exemption from net estate per table is P200. Transaction is not subject to the VAT. Prescriptive Period For Collection 3 years from 5 years from the 10 years from issuance of date of final discovery of nonassessment. or if filing of false or the government filed beyond fraudulent return opts to collect prescribed by law without assessment from the day the return was filed. but the seller is not allowed any tax refund of or credit for any input taxes paid. The benefit is 100% of the tax. 222 (b) VAT payer cannot claim a credit or refund for the input tax (which could result to increased prices of goods or services) (partial relief) Not considered as taxable sales. Otherwise. TRANSFER TAXES Estate Tax Tax on privilege to transfer property upon one’s death.

Right of Pre-emption With right of pre-emption With right of pre-emption Abatement Nature Involves a reduction of the Involves the cancellation of the taxpayer’s liability entire tax liability of a taxpayer Officer/s authorized to compromise/abate CIR and Regional Evaluation CIR Board Grounds 1. authenticated certificate the description of the property upon which the levy is made and AT THE SAME TIME. Penalties A delinquent tax is subject to A deficiency tax is generally not administrative penalties such subject to the 25% surcharge. or appears to be 2. Notice of The Sale The notice of the sale shall be Within 20 days after the levy. The administration and collection costs involved do not justify the collection Page 5 of 6 Compromise . and the taxpayer loses his right However. as 25% surcharge. Directory vs Mandatory Filing of the reply is directory Due to the consequences. interest.) entrance of the municipal building or city hall and in a public and conspicuous place in the barrio or district in which the real estate lies AND publication once every week for 3 consecutive weeks in a newspaper of general circulation. and manner to the specific findings certain documentary evidence of the revenue officer not presented during the preliminary assessment phase and legal authorities and jurisprudence relevant to the findings of the revenue officers are submitted or presented. forfeited to the government. during the pendency of protest may be the subject of a motion to dismiss. (One place advertisement shall be effected of posting is the Office of the by posting a notice at the main Mayor. the comprehensive to explain the taxpayer generally does not legal and factual bases why the respond in an adequate assessment is incorrect. Deficiency Tax Collection Delinquent tax can be Deficiency tax can be collected immediately collected also through administrative administratively through the and/or judicial remedies but issuance of a warrant of has to go through the process distraint and levy. even if such assessment is weak or has no legal basis. official to issue the FAN. chattels writing upon the duly or effects. Acquisition by the Government Purchase by the Commissioner The Internal Revenue Officer or his deputy in behalf of the conducting the sales shall National Government under declare the property forfeited Section 212 of the NIRC. and/or of filing the protest by the judicial action. the taxpayer must file a petition for review with the CTA to toll the running of the prescriptive period. can be said that the filing of a protest against an assessment is mandatory and had to be made on a timely manner. Civil Action The filing of the civil action for The filing of a civil action at the the collection of the delinquent ordinary court for the tax in the ordinary court is a collection of a deficiency tax proper remedy. Financial incapacity unjustly or of taxpayer excessively assessed. or 2. and compromise penalty. The tax or any to validity of portion thereof assessment. exhibited in not less than 2 the real property will be public places in the advertised for sale for a period municipality or city where the of at least 30 days. Right of Redemption The taxpayer is not given the The right of redemption is right of redemption with granted in case of real property respect to distrained personal levied upon and sold. it on the part of the taxpayer. in favour of the government under Section 215 of the NIRC. Delinquency Tax Reply Distraint Levy As to the properties covered Personal Property Real Property How Effected Distraint is effected by the Levy shall be effected by seizure of the goods. no liability for to contest the assessment. and although subject to interest compromise penalty. The distraint was made. levels. Sufficiency Due to the shorter period of Usually sufficient and time given to make a reply. taxpayers against the assessment and the denial of such protest by the BIR. written notice of the levy shall be mailed to or served upon the Register of Deeds and upon the tax payer. In addition to a motion to dismiss. or property. Reasonable doubt as 1. FAN to file his protest. at additional or deficiency tax the administrative and judicial arises from such failure.Protest Period to File Taxpayer is given 15 days from Taxpayer is given 30 days from receipt of the PAN to make his the date of the receipt of the written “reply” thereto. Effect of Failure to File Failure to reply to PAN on time Failure to file a timely protest makes the taxpayer in default to FAN makes the formal and authorizes the revenue assessment final and executor.

Income Tax Income tax is a tax on all yearly profits arising from property. new taxes.of the amount due. Judicial action for tax b. Prerequisites to the conduct of the business. Citites and and Barangays Municipalities in Metro Manila Power or Authority to Grant Tax Exemptios Expressly provided (Sec. however. Local Taxation Real Property Taxation LGUS authorized to levy the taxes Provinces. including community tax as a means to create its own sources of revenue. local governments to vary the rates of taxation. Questioning the Constitutionality of the Constitutionality of the Local Tax Ordinance ordinance before the before the Secretary of Secretary of Justice Justice 2. Civil Remedies: a. Administrative action a. Distraint – levy of real property ii. Civil Remedies. Levy b. Government’s lien 2. fees and other impositions. fees or st charges shall accrue on the 1 day of January of each year. 166. Exemptions from RPT granted under Sec. shall accrue on the 1 day of the quarter next following the effectivity of the ordinance imposing such new levies or rates (Sec. professions. It does not toll the Statute of Limitations Reinvestigation Involves presentation of newly discovered or additional evidence. all local taxes. CBAA Note: “payment under protest 3. 2. or as tax on a person’s income. Protest against the 2. emoluments. Paid at the beginning of the year as a fee to allow the business to operate for the rest of the year. Real Property Taxation System of levy on real property imposed on a country-wide basis but authorizing. Cities. th Due on or before the 15 day th of the 4 month following the close of the taxpayer’s taxable year. taxes. Government’s lien 1. Two-year period starts from the date such credit was allowed (in case credit is wrongfully made). Claims for refund or tax is not necessary) credit Note: “payment under protest is generally necessary) LOCAL TAXATION Local Government Taxation Imposition of license. Page 6 of 6 . Questioning the 1. Judicial action for tax collection collection Taxpayer’s Remedies: Taxpayer’s Remedies: 1. Municipalities Provinces. LGC) Manner of Payment Maybe paid in quarterly Four equal instalments instalments Time of Payment st st Within first 20 days of January 1 – on or before the 31 of or of each subsequent quarter March nd th as the case maybe 2 – on or before 30 of June rd th 3 – on or before 30 of September th st 4 – on or before 31 of December Exception: special levy Prescriptive Period of Assessment Within 3 years from the date No express provision on they become due prescriptive period of assessment Prescriptive Period of Collection Within 5 years from the date of Within 5 years from the date assessment by administrative they become due. LGC granted by CONGRESS Date of Accrual st Unless otherwise provided in On the 1 day of January the LGC. Protest against the assessment assessment with 3. It tolls the Statute of Limitations Tax Refund The taxpayer asks for restitution of the money paid as tax. 192. Administrative action i. to a limited extent and within certain parameters. profits and the like. No power to grant tax LGC) exemptions. Reconsideration Involves re-evaluation of assessment based on existing records. trades or offices. within 10 years from the discovery of years from the discovery of fraud or intent to evade fraud or intent to evade payment payment Remedies Government’s Remedies: Government’s Remedies: 1. Claims for refund or tax a. Business Tax Business taxes imposed in the exercise of police power for regulatory purposes are paid for the privilege of carrying on a business in the year the tax was paid. fees or charges or changes in the rates st thereof. LBAA then to credit b. within 10 or judicial action. Due when the taxpayer has earned income as a result of the conduct of its business. Two-year period to file claim with the CIR starts after the payment of the tax or penalty Tax Credit The taxpayer’s asks that the money so paid be applied to his existing tax liability. 234.