Professional Documents
Culture Documents
Characteristics of Taxes: EPP-LL-PP The tax law must designate which agency will collect
the taxes.
1. Enforced contributions;
Regulations must be in accordance with the tax
2. Payable in money generally; measures imposed by Congress.
3. Proportional in character;
7. Paid at regular periods or intervals. 1. Primary Purpose - to raise revenue for the support of the
government and for all public needs.
THEORIES ON TAXATION
2. Secondary and Non-revenue Purposes: RIPE
1. Lifeblood Doctrine - taxes are the lifeblood of the
government. The government can neither exist nor endure a. Reduction of social inequity;
without it; their prompt and certain availability is an
imperious need. b. An Implement of the police power of the State.
Taxation is the indispensible and inevitable price for c. Protect our local industry against unfair competition;
civilized society; without taxes, the government would d. Encourage growth of local industry.
be paralyzed.
May the power of taxation be used as an implement of General Rule: Taxation is legislative in character.
the power of eminent domain?
Exceptions - Delegation is allowed in the
Yes. The Supreme Court ruled in one case that tax following cases:
measures are but enforced contributions exacted on pain of
penal sanctions. Failure to pay taxes may result in the 1) LGU
forfeiture of the taxpayer’s property in favor of the
government. 2) President - flexible tariff clause
Poll tax - one levied on persons who are residents Neither does it distinguish between a motor
within the territory of a taxing authority without regard vehicle registered in the City of Manila and
to their property, business or occupation. one registered in another place but
occasionally comes to Manila.
Basic community tax.
2. The rule on taxation must be uniform and equitable Taxation power is delegated to the president to modify
(Art. 4, Sec. 28, Par. 1) import duties.
Equitable - just, fair, reasonable and proportionate to The term exclusively means primarily, and not solely.
one’s ability to pay.
The president may veto items in an appropriation If objective and methods are alike constitutionally valid,
revenue or tariff bill but such veto shall not affect no reason is seen why the sate may not levy to raise
items which he does not object. funds for their prosecution and attainment. Taxation
may be made the implement of the State’s police
power.
6. No law granting tax exemptions shall be passed
without the concurrence of the majority of all
members of the Congress 3. Non-impairment of contracts
Majority of ALL THE MEMBERS of the Congress. Applies only to contractual exemptions granted to
taxpayers.
4. Freedom of Religion
8. Power of review of the Supreme Court
Taxation must not operate as a prior restraint to the
In all cases involving the legality of taxes, impost, exercise of religion.
assessment, toll and penalty relating thereto.
1. Direct - demanded from persons primarily burdened to Exemptions are generally disfavored.
pay them, or those directly liable for transactions they
engage in. In favor of taxability - in consonance with the lifeblood
doctrine.
2. Indirect - burden may ultimately be charged or shifted.
2. Special
Kinds of Tax Exemptions:
1. National
2. Implied/By Omission - no tax by silence but, where the
2. Local law levies a tax, so also must the tax exemption be explicit
in the law.
3. Mixed
3. Contractual - those agreed to by the taxing authority in
contracts entered into by them under enabling laws.
Exception: The law may provide otherwise. 2) Tax credit for foreign taxes paid;
c. Reinvestigation was requested by taxpayer A subject or object that may not be destroyed by the
- request must be granted first before the taxing authority may not be taxed.
prescriptive period is interrupted. An illegal tax could be judicially declared invalid and
should not prejudice property.
3. DOUBLE TAXATION This doctrine refers to a valid tax, while the “court
sits doctrine” refers to an invalid tax.
Means taxing for the same tax period the
same thing or activity TWICE, when it should 5. ESCAPE FROM TAXATION
be taxed but once, for the same purpose and Tax avoidance - tax saving device within the means
with the same kind of character of tax. sanctioned by law. This method should be used by the
Double taxation, standing alone and not being taxpayer in good faith and at arms length. A tax
forbidden by our fundamental law, is not a valid avoider sidesteps the law.
defense against the legality of a tax measure. But Tax evasion - scheme outside of lawful means and,
from it might emanate such defenses against when availed of, it usually subjects the taxpayer to
taxation as oppressiveness and inequity of tax.
c. Wastage of funds.
6. EQUITABLE 7. SET-OFF
RECOUPMENT Commissioner may compromise the payment of any
internal revenue tax in the following cases: RF
The reduction of a claim Offsetting claim arising out of
because of an offseting claim completely independent and a. Reasonable doubt exists as to the validity of a claim
arising out of exactly the same unrelated transactions. against the taxpayer; or
transaction. b. Financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax.
Applies when transactions are Does not apply in taxation.
unrelated.
This doctrine finds no Taxes are not subject to set-off Limits of Commissioner’s power to compromise:
application to cases where the because they are not ordinary
taxes involved are totally obligations. For cases of financial incapacity - a minimum
unrelated. compromise rate equivalent to 10% of the basic assessed
tax.
Taxpayer and government are For other cases: a minimum compromise rate equivalent
not debtors and creditors of to 40% of the basic assessed tax.
each other.
3. No injunction lies against the government, unless the act is 2. It must be Issued by the BIR;
prejudicial to the interest of the government and the 3. It must contain a Demand for payment within the
taxpayer. prescribed period;
1. Assessment and collection of all internal revenue taxes, fees Exceptions: TDTD
and charges; 1. Tax period of taxpayer is terminated;
2. Interpret the NIRC and other tax laws, subject to review by 2. Deficiency tax arising from a tax audit conducted
the Secretary of Finance; by the BIR;
3. Enforcement of all forfeitures, penalties, and fines 3. Tax lien;
connected therewith, including the execution of judgments
in all cases decided in its favor by the CTA and ordinary 4. Dissolving corporation.
courts;
5. Obtaining information summoning, examining, and taking 1. Self-assessment - tax is assessed by taxpayer himself.
testimony of persons for purposes of ascertaining the
correctness of any return or determining the liability of any
person. 2. Deficiency assessment - made by tax assessor. Correct
amount of tax is determined after examination or
investigation is conducted.
ASSESSMENT - a finding by the taxing authority that the
Proper when:(1) taxpayer did not file a return
taxpayer has not paid the correct taxes.
at all; (2) no amount is shown in the income tax
It is a written notice and demand made by the Bureau on return; or (3) if in the ITR filed, tax due is higher
the taxpayer for the settlement of a due tax liability that is than the declared amount in the ITR.
there definitely set and fixed.
d. Other matters arising from the code or other laws. 1. Is Performing any act tending to obstruct the
proceedings for the collection of tax.
After a return has been filed, the Commissioner or his 5. Intending to Hide or conceal his property;
representative may authorize (1) examination of
any taxpayer and (2) assessment of the correct
amount of tax. 8. PRESCRIBE REAL PROPERTY VALUES
Failure to file a return shall not prevent the Commissioner is authorized to:
commissioner from authorizing the examination of any
taxpayer. 1. Divide Philippines into different zones or areas;
and
a. Fails to file a required return or report at the time FMV is that which is (1) determined by the
prescribed; or Commissioner or that which is (2) shown in the
schedule of values of the provincial and city assessors,
b. Willfully files a false or fraudulent return. whichever is higher.
Commissioner shall create national and regional 1. Deliberate misstating or omission of material facts by
accreditation boards. taxpayer;
Those denied accreditation may appeal to the 2. Facts subsequently gathered by BOR are materially
SOF who shall rule on the appeal within 60 days different from facts on which the ruling is based;
from receipt. Failure to do so within the required
period shall be deemed as approval for 3. Bad faith on the part of taxpayer.
accreditation. Administrative decisions do not enjoy the same level or
recognition with judicial decisions.
3. Donors tax
2. Reasonable;
3. It must not be Excluded by law or treaty from taxation. KINDS OF INCOME TAXES UNDER THE NIRC
5. Preferential rates or special rates of income tax 6. Retirement benefits, pensions, gratuities
It is all income derived from whatever source, including, but 3rd person is irrevocably designated; or
not limited to, the following: CGG-IRR-DAPPP
Proceeds of group insurance.
1. Compensation for services;
5. Rents;
II. AMOUNT RECEIVED AS RETURN OF PREMIUM
6. Royalties;
Reason: Return of premium means a repayment of a
7. Dividends; part or the whole of the premiums paid. Only a return
of capital.
8. Annuities;
1. Accident and health insurance Exemption holds regardless of age and length of
2. Workmen’s compensation service. Exclusion may be enjoyed more than
once.
3. Damages received on account of such
injuries or sickness
SSS benefits
VI. RETIREMENT BENEFITS, PENSIONS, GRATUITIES,
ETC.
2. Benefit of exclusion shall be availed of only Once; To be exempt, the CREDITOR must be the
3. At least Fifty years of age at the time of FOREIGN government or financing
retirement; institutions owned, controlled and
established by such GOVERNMENT. Foreign
4. At least Ten years of service rendered by retiring private corporations not included.
official or employee.
Total exclusion shall not exceed P90,000. The 15% preferential tax treatment shall not be
applicable to RHQs, OBUs, or PSCs registering with the
SEC after January 1, 2018.
GSIS, SSS, Medicare and other contributions. Existing RHQs, OBUs and PSCs presently availing of
preferential tax rates for qualified employees shall
Gains from sale or exchange of retirement continue to be entitled to avail of the preferential tax
bonds, debentures, or other certificate of rate for present and future qualified employees.
indebtedness with a maturity of more than 5
years.
Gains from redemption of shares in Mutual Only RESIDENT CITIZENS are taxable for income derived
Fund Companies. within and without the Philippines.
CATEGORIES OF INCOME
Classification of Individual Taxpayers:
1. Compensation income
1. Resident Citizens - citizens of Philippines, residing
therein. 2. Business income derived by self-employed
a. Leaves the Philippines during the taxable year to 5. Gains derived from dealings in property
reside abroad, either as an immigrant or for
employment on a permanent basis;
Compensation for services rendered by independent a. Employer may claim premiums as deductible
contractor not included in gross compensation gross income if beneficiary designated is the
income. family, executor, administrator or estate of
employee;
Amounts paid as advances or reimbursement for
transportation, representation, and other bona fide b. Employer not allowed to claim premiums paid as
ordinary and necessary expenses incurred in the deductible if he is designated as beneficiary.
performance of duty is not taxable compensation 7. Income tax paid by employer in consideration of
income. The excess, if any, over actual expenses is employee’s services rendered - amount of such tax paid
taxable.
6. Daily meal allowance for overtime work and 10. Insurance premiums in excess of what the law allows.
night shift not exceeding 25% of basic
minimum wage;
Housing privileges are not taxable if primarily for the
7. Gifts given during Christmas and major
employer’s benefit (i.e., employee’s quarterhouse).
anniversary celebrations not exceeding
P5,000 per employee per annum;
8. Rice subsidy of P1,500 or 50kg rice per In Interest loans, if the employer lends money to his
month amounting to not more than P1,500; employee, free of interest or at a rate lower than 12%,
interest foregone by the employer shall be treated as
9. Uniform and clothing allowance not
taxable fringe benefit.
exceeding P5,000 per annum;
If foreign travel is for the purpose of attending business
10. Employee achievement awards in the form
meetings and conventions, it is not taxable fringe benefits.
of tangible personal property other than
But in the absence of documentary evidence that the travel
cash or gift certificate, with annual
was related to business, taxable.
monetary value not exceeding P10,000
received by employee under an established
written plan which does not discriminate in
favor of highly paid employees; Educational assistance is not taxable as fringe benefits if:
DWC
11. Laundry allowance not exceeding P300 per
month. 1. Directly connected with employer’s trade or business;
They refer to goods, services, or other benefits furnished or 3. Assistance was provided thru a Competitive scheme
granted by an employer, in cash or in kind, in addition to under a scholarship program, in case of dependents.
basic salaries, to managerial and supervisory
employees.
Managerial employee - one vested with the power The following FRINGE BENEFITS are NOT SUBJECT TO
and prerogatives to lay down and execute FRINGE BENEFIT TAX: ABCD-CR
management policies, and/or to hire, transfer,
1. Those Authorized and exempted from income tax by the
suspend, lay-off, recall, discharge, assign, or discipline
Code or special law;
employees.
2. Benefits granted to employee as required by nature of, or
necessary to trade, business or profession of employer;
Supervisory employee - those who, in the interest
3. Convenience of the employer benefits;
of the employer, effectively recommend such
managerial actions, if the exercise of such authority is 4. De minimis benefits;
not merely routinary or clerical in nature, but requires
the use of independent judgment. 5. Contributions of employer for the benefit of the employee to
retirement, insurance and hospitalization benefit plans;
1. Housing;
2. Housing unit situated inside or at most 50m from perimeter 2. Within 18 months from the date of sale or
of business premises; disposition;
3. Employee expenses reimbursed by employer supported by 3. Historical cost or adjusted basis of real property
receipts in the name of employer, and do not partake the sold or disposed shall be carried over to the new
nature of a personal expense of employee; principal residence built or acquired;
4. Business expenses for foreign travel supported by 4. Commissioner shall have been duly notified by
documents; taxpayer within 30 days from date of sale or
disposition of his intention to avail of tax
5. Aircraft used which is owned and maintained by employer; exemption;
6. Military officials of AFP housing privilege located inside or 5. Said exemption can be availed of Once every 10
near military camps; years;
7. Motor vehicles used for sales, delivery, etc. 6. If there is No full utilization of the proceeds of
sale or disposition, the portion of the gain shall
be subject to capital gains tax.
Who should pay FRINGE BENEFIT TAX?
Tax: Final Tax of 6% based on the gross selling price or Capital Gains from Sale of Shares of Stock NOT TRADED
current fair value, whichever is higher. in the Stock Exchange - final tax rate of 15% imposed on the
If disposition of property is to the government or to net capital gains realized during the taxable year from sale,
GOCCs, the tax liability on gains from such sale or barter, exchange or other disposition of stock in a domestic
disposition shall be determined either under Sec. 24(A) corporation, except shares sold or disposed of thru the stock
or under this subsection, at the option of the taxpayer. exchange.
Property taxed: Capital gains presumed to have been Tax Schedule Effective Jan. 1, 2018 until Dec. 31, 2022
realized from the sale, exchange, or other disposition of Over But not Tax shall Plus Of the
real property located in the Philippines, classified as over be excess over
capital assets.
250,000 exempt
Exceptions: Sale or disposition of their PRINCIPAL
RESIDENCE by natural persons. 250,000 400,000 20% - 250,000
800,000 2,000,000 130,000 30% 800,000 b. If total gross sales and/or gross receipts and
other non-operating income exceeds the VAT
2,000,000 8,000,000 490,000 32% 2,000,000 threshold of P3,000,000 - the rates prescribed
under Subsection (A)(2)(a).
8,000,000 - 2,410,000 35% 8,000,000
ITEMIZED DEDUCTION
Tax Schedule Effective Jan. 1, 2023 and onwards
Expenses are allowed as deductions when the taxpayer is
Over But not Tax shall Plus Of the engaged in business or in the exercise of his
over be excess over profession.
250,000 exempt These deductions to not apply to income derived from
employer-employee relationship.
250,000 400,000 15% - 250,000
4. Losses;
Under the TRAIN LAW:
5. Bad debts;
Self-employed individuals and/or Professionals shall
have the OPTION to avail of: 6. Depreciation;
An 8% tax on gross sales or gross receipts and other 7. Depletion of oil and gas wells and mines;
non-operating income in excess of P250,000
8. Charitable and other contributions;
in lieu of the graduated income tax rates under
Subsection (A)(2)(a) of Sec. 24 and the 9. Research and development;
percentage tax under Sec. 116 of the NIRC.
10. Pension trusts;
1. All income from compensation - subject to If he does not signify his intention to elect for OSD, he is
(A)(2)(a) of Sec. 24. deemed as having availed himself of ID.
d. Reasonable;
II. INTEREST EXPENSES
e. Not contrary to law, morals, public policy.
Amago, Jann Claudine M. 19
Interest on business debts ONLY. d. Between Grantor and fiduciary of any tust;
c. License taxes;
Some non-deductible expenses: d. Privilege taxes;
1. Interest on preferred stock which is considered e. Documentary stamp taxes.
interest on capital;
3. General professional partnership members; Capital Losses - loss from sales or exchanges of
capital assets shall be allowed only to the extent of
4. Beneficiaries of estate and trust. capital gain.
Conditions for allowance of credit for foreign Losses from Wash Sales
taxes:
Wash sale - sale or disposition of stock or
1. Taxpayer must signify in his income tax return securities to claim a capital loss, only to
his desire to claim tax credit; repurchase it for a bargain.
2. Return must be accompanied by the Substantially identical stock or securities are
appropriate form prescribed by the acquired within a period beginning 30 days
Commissioner, signed and sworn. before the date of sale and ending 30 days after
such date.
Includes all losses which are not general or natural to Wagering losses - losses from wagering transactions
the ordinary course of business and not covered under shall be allowed only to the extent of the gains from
the other kinds of losses. such transactions.
3. Not be compensated by insurance or other forms In this example, the taxpayer can only claim a loss of P70,000,
of indemnity; the extent of the amount of his gains from such transactions.
5. Evidenced by a closed and completed NET OPERATING LOSS CARRY OVER (NOLCO) -
transaction; The net operating loss of the business or enterprise for
any taxable year immediately preceding the current
6. Connected with Trade or business or profession. taxable year, which had not been previously offset as
deduction shall be carried over as a deduction from
gross income for the next 3 consecutive taxable years
Charged off during the taxable year - deducted immediately following the uear of such loss.
only in the taxable year they were sustained. Any net loss incurred in a taxable year during
In addition, it should be charged off in the books which the taxpayer was exempt from income tax
of the claimant within the taxable year. shall not be allowed as a deduction.
City Lumber v. Commissioner - The conduct NOLCO shall be allowed only if there has been no
of the taxpayer in not charging off in its books its substantial change in the ownership of the
loss proves that the alleged loss has not been business enterprise.
suffered. When is there NO change in
ownership?
Closed and completed transaction - fixed and a. Not less than 75% in nominal value
identifiable event which justifies the loss. of outstanding issued shares, if
the business is in the name of a
corporation, is held by or on behalf of
the same persons; or
Declaration and substantiation - the mere filing of
a declaration of loss does not automatically entitle the b. Not less than 75% of the paid-up
corporation to deduct the alleged loss for gross income. capital of the corporation, if the
The failure to submit proof of loss within the business is in the name of the
prescribed period results in the disallowance of the corporation, is held by or on behalf of
claim for deduction. the same persons.
These are debts due to the taxpayer which are actually 4. A Statement of allowance must be attached to
ascertained to be worthless and charged off the return.
during the taxable year.
Non-Depreciable Assets:
Requisites for deductibility: VACANS
1. Inventories or stock
1. Valid and subsisting deb;
2. Land and improvements
2. Actually ascertained during the taxable year;
3. Bodies of minerals subject to depletion
3. Charged of from the books of accounts;
4. Automobiles or transportation equipment for
4. It Arises from trade, business, or practice of personal use
profession;
5. Buildings and furnitures for personal use
5. Must Not be between related taxpayers;
6. Intangibles where the use is unlimited
6. Taxpayer must Show that it is indeed
incollectible. 7. Personal effects and clothing
VI. DEPLETION
Debts must be charged off within the year of
worthlessness. The taxpayer cannot defer the It is the exhaustion of natural resources like mines, oil
deduction to a later year of a bad debt. and gas wells, as a result of production or severance
from such mines or wells.
2. Charged during the taxable year; 1. Expenditure for the acquisition and
improvement of land;
3. Not exceed 5%/10%;
2. Expenditure for ascertaining existence,
4. Evidenced by adequate records; location, extent or quality of natural
5. Must Not inure to the benefit of any member or resources.
individual.
8. Social Welfare, Cultural and Charitable 4. Premiums paid for insurance policy covering the life of any
Institution officer or employee, or any person financially interested in
any trade or business when the taxpayer is directly or
9. Museum of Philippine Costumes indirectly the beneficiary;
10. Intramuros Administration 5. Losses from sales or exchanges between related taxpayers
who are - MIC-GFF
11. Lungsod ng Kabataan
a. Members of a family;
JOINT ASSOCIATIONS
Exceptions: JGJ
DOMESTIC CORPORATIONS
1. Joint construction venture;
subject to 10% on their taxable income Gross Philippine billings - amount of gross
provided that its gross ncome from unrelated revenye realized from the carriage of persons,
trade, business or other activities does not excess baggage, cargo, and mail originating
exceed 50% of the total gross income; from the Philippines in a continuous and
otherwise, entire taxable income is subject to uninterrupted flight.
30% regular income tax.
1. GSIS;
3. PhilHealth;
4. Local Water Districts. 30% of the gross income received from all sources within
the Philippines, except capital gains resulting from the sale
General Rule: Government is exempt from tax. of shares of stock of a domestic corporation not listed and
Exception: When it chooses to tax itself. Nothing can traded thru a local stock exchange, held as a capital asset.
prevent Congress from decreeing that even the
instrumentalities of the government performing
governmental functions may be subject to tax. Special Non-Resident Foreign Corporations:
Tax as punishment/penalty on the corporation for The corporation must be able to establish the
unreported unreasonable accumulated earnings. purpose of the accumulation of its earnings;
otherwise, they will be subjected to IEAT.
10% of the IAET.
BCMNG - MFCR - FL
1. Business, chamber of commerce, or board of trade; Net capital loss - excess of the losses from sales or
exchange of capital assets over the gains from such sales or
2. Cemetery companies; exchanges.
3. Mutual savings bank and cooperatives bank; In the case of a TAXPAYER, other than a CORPORATION,
4. Non-stock, non-profit educational institutions; only the following percentages of the gain or loss
recognized upon the sale or exchange of a capital asset shall
5. Government educational institution; be taken into account in computing net capital gain, net
capital loss, and net income.
6. Mutual fire insurance companies and like
organizations; 1. 100% if capital asset has been held for not more
than 12 months;
7. Fraternal beneficiary society, order or association;
2. 50% if the capital asset has been held for more than
8. Civil league; 12 months.
9. Religious, charitable, scientific or cultural
corporations;
Losses from sales or exchange of capital assets shall be
10. Farmers, fruit growers or like association. allowed only to the extent of gain from such sales or
exchanges.
11. Labor, agricultural, or horticultural organization not
organized principally for profit.