TAXATION

THINGS TO REMEMBER
1. Tax amnesty is when the State grants general pardon or intentionally overlooked its authority to
impose penalties on persons guilty of tax evasion or violation of tax law. The government allows
absolute forgiveness or waive its right to collect what is due in order to give the tax evader who
wishes to reform a chance to become a part of the new society with a clean slate. Tax condonation
is when the State desists or refrain from exacting, inflicting or enforcing something as well as to
restore what has already been taken.
2. Tax capitalization is made when the price of the property is lowered to accommodate the exclusion
of the tax which is expected to be paid by the seller as a result of sale transaction. Transformation
is made when the producer absorbs the payment of tax to reduce prices and to maintain market
share. He recovers his additional tax expense by improving the process of production.
3. The two-thirds requirement for the grant of tax exemption is based on the total number of members
of the Congress, not on the actual number of members present.
4. 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.
5. The power of Judicial Review is “limited only to the interpretation and application of tax laws”.
6. Tax laws are civil in nature.
7. The doctrine of equitable recoupment states that a tax claim for refund which is prevented by
prescription may be allowed to be used as payment for unsettled tax liabilities if both taxes arise
from the same transaction in which overpayment is made and underpayment is due.
8. There is no time limit for the right of the BIR to assess taxes on improperly accumulated earnings.
9. RA 8424 – “The Comprehensive Tax Reform of the Philippines”, “National Internal Revenue Code of
1997”
10. RA 9337 – The VAT Reform Law
11. Four elements of the state: (1) Government, (2) People, (3) Territory and (4) Sovereignty.
12. Local government units do not possess the inherent power of taxation.
13. Tax levying and tax assessment are referred to as the impact of taxation. Tax collection is the
incidence of taxation.
14. Direct double taxation is not prohibited by the Constitution. However, taxpayers may validly use the
constitutional defenses against oppression and inequality.
15. Transfer taxes are applicable for properties within and without, except those of nonresident aliens,
in which case only properties within are subject to transfer taxes.
16. Electronic Filing and Payment System (EFPS)
17. The annual registration fee is P500 for every separate or distinct establishment or place of business,
including facility types where sales transactions occur. Payment must be made on the last day of
January. Cooperatives, individuals earning purely compensation and overseas contract workers
are not liable to the registration fee herein imposed.
18. The final decision made by the CTA can be appealed to the Supreme Court within 15 days.
19. By forfeiture, no part of the proceeds goes to the taxpayer because the property is confiscated in
favor of the government.
20. By seizure, the proceeds of the property sold are applied to satisfy the tax liability and the excess
thereof shall be returned to the taxpayer.
21. Relatives of an internal revenue officer up to the 6th degree (second cousin) of consanguinity are
not allowed to receive an informer’s reward.
22. Tax may be collected through distraint or levy within 3 years following the assessment of tax.
23. Tax collection is to be made within 5 years from the date assessment was issued.
24. Redemption of property sold in public for the collection of tax is subject to 15% interest on purchase
price.
25. The required initial bond for manufacturers and importers subject to excise tax is P100,000.
26. The informer’s reward is subject to a 10% final withholding tax.
27. The Department of Finance has the executive supervision and control over tax administration.
28. Registration with the BIR must be made on or before commencement of the business.
29. Businesses with gross sales or receipts of more than P1,919,500/year must be VAT-registered.
30. Deficiency interest is imposed on taxes that should have been paid. Delinquency interest is imposed
on the delay in payment of taxes due as provided by final assessment.
31. Those whose quarterly sales, earnings, receipts or output do not exceed P50,000 shall keep and use
a simplified set of bookkeeping records duly authorized by the Secretary of Finance.
32. Taxpayers whose gross quarterly sales, earnings, receipts, or output exceed P150,000 shall have their
books of accounts audited and examined yearly by an independent CPA and their income tax
returns accompanied with a duly accomplished Account Information Form (AIF).
33. A Letter of Authority must be presented to the taxpayer within 30 days from its date of issue,
otherwise it becomes null and void.
34. The five-year period for the prescription of tax refund check runs from the date the check was
received.
35. A taxpayer may appeal to the CTA 30 days after receipt of adverse decision or after the lapse of
the 180-day period without a decision.
36. Warehouses are included as separate establishment for the payment of P500 annual registration.
37. Corporations reporting income under fiscal year shall file quarterly income returns 60 days after
each of the first three quarters and file the final return for the year on the 15th day of the fourth month
following the close of the taxable year.
38. Withholding tax cases, criminal tax fraud cases, criminal violations already filed in court, delinquent
accounts with duly approved schedule of installment payments, cases where final reports of
reinvestigation or reconsideration have been issued where the taxpayer is agreeable, cases which
became final and executory after final judgment of a court (where compromise is requested on
the ground of doubtful validity of the assessment) and estate tax cases (where compromise is
requested on the ground of financial incapacity of the taxpayer) are not subject to compromise.
39. The price of the property forfeited in favor of the government is equal to the taxes, penalties and
costs. However, if the such sum is higher the fair market value, then the fair market value will be
considered the price of the property.
40. Deficiency interest is based on the deficiency, excluding the surcharges.
41. Documentary stamp tax for sale of real property is 1.5% of the selling price or zonal value, whichever
is higher.
42. Disposal of a property subject to constructive distraint is chargeable with a fine of not less than
twice the value of the property, but not less than P5,000.
43. Documentary stamp tax for sale of stocks is 0.75% of the par value.
44. OPT for sale of shares through stocks of exchange is 0.50% of the gross selling price.
45. “Surcharge” does not include interest.
46. Understatement of sales, receipts, and income of more than 30% is considered fraudulent.
47. Service businesses use the cash basis of accounting, while manufacturing and trading industries
usually use the accrual basis of accounting. However, the accrual shall be for determination of
expenses only.
48. The accrual method uses the “All-events test” which requires (1) the fixing of a right to income or
liability to pay; and (2) the availability of the reasonable accurate determination of such income
or liability.
49. If more than 50% of the gross income of a corporation is earned without, the dividend income
should be pro-rated based on income from all sources.
50. The Philippines has the highest average income tax rate in the entire ASEAN region.
51. The installment method is used for reporting: (1) installment sale of personal property by a dealer
regularly selling personal property on installment basis; (2) casual sale of personal property where
the selling price exceeds P1,000, the initial payments do not exceed 25% of the selling price, and
the property sold is not an inventory; and (3) sale of real property (ordinary or capital) if initial
payments do not exceed 25%.
52. Terms related to installment method of reporting income are:
Selling price
Cash received P xxx
Fair market value of the property received xxx
Installment obligations of the buyer xxx
Mortgage assumed by the buyer xxx
Selling price xxx
Contract price
Selling price P xxx
Add: Excess of mortgage over cost xxx
Total xxx
Less: Mortgage assumed by the buyer xxx
Selling price xxx
Initial payment
Downpayment P xxx
Installments received in the year of sale xxx
Total xxx
Add: Excess of mortgage over payment xxx
Selling price xxx
53. For installment method, reportable income = installment collection received x (gross profit/contract
price)
54. Insurance premium paid the employer on the coverage of an employee is not compensation
income for employee and deductible expense for employer if the beneficiary is the employer.
55. As if theory of constructive income presupposes the existence of income on transactions
supposedly not subject to tax.
56. The reporting of income is under a variable period when the taxpayers is required to file and pay
tax within a period that varies depending on the nature of income earned.
57. The proceeds of life insurance are nontaxable regardless of who the beneficiary is.
58. When lending is the main course of business of the taxpayer, the interest income is subject to normal
tax.
59. If the amount of the prize is P10,000 or less, it is not subject to final withholding tax but to normal tax.
60. If the construction project is completed within one year, the 100% completed contract method of
reporting income is applicable. Otherwise, the percentage of completion method is to be used.
61.

THINGS TO RESEARCH
1. Are compromises available only for the basic tax assessed due?
2. How are creditable withholding taxes accounted for in the computation of installment tax
payments?
3. What is meaning of tax imprescriptibility?
4. Is a tax levied for the support of religious activities valid if all churches benefit from it?
5. What are the powers of autonomous regions when it comes to taxation?
6. What are the differences between revenue regulations and BIR rulings?
7. What is the classification of capital gains on sale of personal property in the reporting of gross
income?
8. How is contract price computed when the mortgage does not exceed cost?