TAXATION – the process by which the sovereign, through its law- NATURE/ CHARACTERISTICS OF THE STATE’S POWER OF TAX

making body, imposes burdens for the purpose of

raising revenues to carry out legitimate objects of the a) It is inherent in sovereignty.
government -can enforce contribution in the absence of law
TAXES – the enforced contributions levied by the law-making body of b) It is legislative in character.
the state for the support of the government and all -cannot be exercised by executive and juridical branches
the public needs.
c) Exemption of government entities, agencies and instrumentalities.
3 INHERENT POWERS OF THE STATE d) International Comity
e) Limitation of territorial jurisdiction
1. Police Power- the power of promoting public welfare and
f) Strongest among all the inherent powers of the state
regulating the use of liberty and property.
2. Power of Taxation – the power which raises revenue for the  Agencies performing governmental function are tax exempt unless
expenses of the government expressly taxed
3. Power of Eminent Domain – the power to acquire private property  Agencies performing proprietary functions are subject to tax
for public purpose upon payment of just unless expressly exempted
compensation  GOCCs performing proprietary functions are subject to tax,
however the following are granted tax exemptions:
PURPOSES OF TAXATION
 Government Service Insurance System (GSIS)
1. Primary: Revenue or Fiscal Purpose
 Social Security System (SSS)
- to provide funds or property with which to promote general
 Philippine Health Insurance Corporation (PHIC)
welfare and protection of its citizens
 Philippine Charity Sweepstakes Office (PCSO)
 Local Water Districts (RA 10026)
2. Secondary: Regulatory Purpose
- employed as a devise for regulation or control CLASSIFICATION OF TAXES
Effects: ● Promotion of General Welfare 1. As to scope:
● Reduction of Social Inequality  National- imposed by the national government
● Economic Growth  Local – imposed by the local government
THEORIES OF TAXATION 2. As to subject matter or object:
1. Necessity Theory  Personal, poll, or capitation – tax of a fixed amount imposed
- to preserve the state’s sovereignty upon individual residing within a specified territory.
- a means to give for protection and facilities  Property – tax imposed on property in proportion to its value
2. Lifeblood Theory  Excise – tax on certain rights and privileges (sin products or
- used to continue to perform the government’s basic function of imported goods)
serving and protecting its people 3. As to who bears the burden:
- give tangible and intangible benefits  Direct – taxpayer cannot shift to another
Basis of Taxation – The government may be able to perform its  Indirect – indemnify himself at the expense of another
functions while the citizens may be secured in the enjoyment of the
4. As to determination of fixed amount:
benefits.
 Specific- tax of fixed amount by number, standard of weight,
MANIFESTATION OF LIFEBLOOD THEORY
or measurement
1. Rule of “No Estoppel against the government”  Ad valorem – tax of fixed proportion of the value of the
2. Collection of taxes cannot be stopped by injunction property
 Court of Tax Appeals – have the authority to grant injunction 5. As to purpose:
to restrain collection of internal revenue tax, fee or charge  Primary, Fiscal, or Revenue Purpose
3. Taxes could not be the subject of compensation or set-off  Secondary, Regulatory, Special, or Sumptuary Purpose
 Tax is compulsory not bargain.
6. As to graduation or rate:
4. Right to select objects (subjects) of taxation
 Proportional – tax based on fixed percentages of amount
a) Subject or object to be taxed
b) Purpose of the tax (as long as it is a public purpose)  Progressive – tax the rate of which increases as the tax base
c) Amount or rate of the tax or bracket increases
d) Kind of tax  Regressive - tax the rate of which decreases as the tax base
e) Apportionment of the tax or bracket increases
f) Situs (place) of taxation 7. As to taxing authority:
g) Manner, means, and agencies of collection of the tax  National – imposed under National Internal Revenue Code,
5. A valid tax may result in the destruction of the taxpayer’s collected by Bureau of Internal Revenue
property.  Local – imposed by LGUs
 Lawful tax cannot be defeated.
 Bring out the insolvency of the taxpayer ELEMENTS OF SOUND TAX SYSTEM
 Forfeiture of property through police power a. Fiscal Adequacy – sources must be adequate
SCOPE OF TAXATION b. Theoretical Justice or Equity – tax should be proportionate
The power of taxation is the most absolute of all the powers of the c. Administrative Feasibility – law must be capable of effective and
government. efficient enforcement
a) Comprehensive – covers all (persons, businesses, professions) LIMITIATIONS ON THE STATE’S POWER TO TAX
b) Unlimited – absence of limitations 1. Inherent Limitations
c) Plenary – it is complete 2. Constitutional Limitations
d) Supreme –
ESSENTIAL ELEMENTS OF TAX  Progressive System – emphasis on direct taxes
 Regressive System – more indirect taxes imposed
a) It is an enforced contribution.  Regressive Tax Rates – tax rates which decreases as tax base or
b) It is generally payable in money. bracket increases
c) It is proportionate in character.
d) It is levied on persons, property or right. FACTORS IN DETERMINING THE SITUS OF TAXATION
e) It is levied by the law-making body of the state.
a. Subject matter ( person, property, or activity)
f) It is levied for public purpose.
b. Nature of tax
ASPECTS OF TAXATION c. Citizenship
a) Levying or imposition of tax d. Residence of the taxpayer
b) Assessment or determination of the correct amount e. Source of Income
c) Collection of tax f. Place of excise, business or occupation being taxed
 TOLL is a sum of money for the use of something which is paid of CITIZENS OF THE PHILIPPINES
the use of a road, bridge or public nature. 1. Born with father and/or mother as Filipino citizens
2. Born before Jan. 17,1973 of Filipino mother who elects Philippine
 PENALTY is a sanction imposed as a punishment for violation of citizenship upon reaching the age of maturity
law or acts deem injurious. 3. Acquired Philippine citizenship after birth (naturalized) in
 SPECIAL ASSESSMENT is an enforced proportional contribution accordance with Philippine Laws
from owners of the lands for special benefits resulting from public
improvements. NONRESIDENT CITIZEN OF THE PHILIPPINES
Characteristics: a. Levied only on land 1. Establishes to the satisfaction of the Commissioner of Internal
b. Not a personal liability of the person assessed Revenue, the fact of his physical presence abroad with a definite
c. Based wholly on benefits (not necessary) intention to reside therein
d. Exceptional both as to time and place 2. Leaves the Philippines during the taxable year to reside abroad:
 REVENUE refers to all funds or income derives by the government.  As an immigrant
 For employment on a permanent basis
 SUBSIDY is a pecuniary aid directly granted by the government to  For work and derives income that requires him to be
an individual or enterprise deemed beneficial to the public. physically abroad most of the time during the taxable year
 PERMIT or LICENSE is a charge imposed under the police power for 3. A citizen of the Philippines who shall have stayed outside the
purposes of regulation. Philippines for one hundred eighty-three days (183) or more by
the end of the year.
 CUSTOMS DUTIES are taxes imposed on goods exported from or
imported into a country.  A Filipino citizen taxpayer not classified as nonresident citizen is
considered a RESIDENT CITIZEN for tax purposes.
 TARIFF is the system of imposing duties on the importation or
exportation of goods.  An ALIEN is a foreign-born person who is not qualified to acquire
Philippine citizenship by birth of after birth.
DIRECT DOUBLE TAXATION means taxing twice:
1. By the same taxing authority, jurisdiction or taxing district  Section 22(F) of the Tax Code defines RESIDENT ALIENS as an
2. For the same purpose individual whose residence is within the Philippines and who is not
3. In the same year or taxing period a citizen thereof.
4. Same subject or object  The term NONRESIDENT ALIEN under Section 22(G) of the Tax
5. Same kind or character of the tax Code means an individual whose residence is not in the Philippines
and who is not a citizen thereof.
MEANS OF AVOIDING THE BURDEN OF TAXATION
 Under Section 22(S) of the Tax Code, “trade or business” includes
1. Shifting – the transfer of the burden of tax by the original payer to performance of the functions of a public service or performance of
someone else personal service in the Philippines.
2. Transformation – the producer pays the tax and endeavor to
 A nonresident alien not engaged in trade or business is subject to
recoup himself by improving his process of production
25% income tax based on gross profit from all sources within the
3. Evasion – the use of illegal means to defeat or lessen tax
Philippines.
4. Tax Avoidance – the exploitation of legally permissible alternative
tax rates of assessing taxable income to reduce
APPLICABLE TAXES AND TAX RATES
tax liability
1. Classification of the Taxpayer
5. Exemption – the grant of immunity to particular persons of a
2. Source of Income
particular class
Taxpayer Tax Base Source of taxable Income
6. Capitalization – the reduction in the selling price of income
RC Net Income Within and without
producing property by an amount equal to the
capitalized value NRC, RA,NRA-ETB Net Income Within
7. Avoidance – the tax saving device within the means sanctioned by NRA-NETB Gross Income Within
law.
3. Type of Income (APPLICABLE TAX)
SOURCES OF TAX LAWS a) Ordinary or regular income (GRADUATED RATE)
1. Constitution – refers to income such as compensation income, business
2. National Internal Revenue Code income, and income from practice of profession
3. Tariff and Customs Code b) Passive income (FINAL WITHHOLDING TAX)
4. Local Government Code (Book II) – subject to final withholding taxes are certain passive
5. Local tax ordinances/ City or municipal tax codes incomes from sources within the Philippines such as:
6. Tax treaties and international agreements  Interest income
7. Special Laws  Dividend Income
8. Decision of the Supreme Court and the Court of Tax Appeals  Royalties
9. Revenue rules and regulations and administrative ruling and opinion  Prizes
 Other winnings

INDIVIDUAL TAXPAYERS are natural persons with income derived from c) Capital gains subject to gains tax (CAPITAL GAIN TAX)
within the territorial jurisdiction of taxing authority. They are classified  Capital gains from sale of shares of stocks of a
as: domestic corporation
1. Resident Citizens(RC) ● Engaged in trade/business  Capital gains from sale of real property in the
2. Nonresident Citizens (NRC) (NRA-ETB) Philippines
3. Resident Aliens (RA) ● Nonresident aliens not engaged Income Tax (TRAIN Law 2018-2022)
4. Nonresident Aliens (NRA) in trade or business (NRA-NETB) Below 250,000 Exempt
250,000-400,000 20% excess of 250,000
Importance of classification: 400,000-800,000 30,000 + 25% excess of 400,000
They differ as to: 800,000-2,000,000 130,000 + 30% excess of 800,000
 Situs of income 2,000,000-8,000,000 490,000 + 32%excess of 2,000,000
 Manner of computing tax Above 8,000,000 2,410,000 + 35% excess of 8,000,000
 Treatment of certain passive incomes
 Allowable deductions
 References in the tax choice
Under RA 10963 (TRAIN Law), self-employed is defined as a sole MWE are exempt from income tax on:
proprietor or an independent contractor who reports income earned 1. Minimum wage
from self-employment. 2. Holiday pay
3. Overtime pay
PROFESSIONAL is a person formally certified by professional body
4. Night shift differential
belonging to a specific profession.
5. Hazard pay
Regular income of SELF-EMPLOYED &/or PROFESSIONALS (SEP)
FILING OF INCOME TAX RETURNS
amounting to more than 250,000 but with a gross sales and other
operation income not exceeding 3M shall have the option to avail 8%  BASIC TAX
tax.  For Purely Compensation Income Earners
 On or before April 15 of the succeeding year
FINAL WITHHOLDING TAX is a kind of tax, which is prescribed on
“certain income” derived from the Philippine sources.  For Business Income Earners
 The individual taxpayer is required to file a quarterly
RR- 14-2012 defines DEPOSIT SUBSITUTES as an alternative form of
tax return ( May 15, Aug 15, Nov 15, and April 15)
obtaining funds from the public other than deposits.
 FINAL WITHHOLDING TAX ON PASSIVE INCOME
Under tax code, the following are ordinary assets:
 Prior to 2018 - January to November – 10th day of the month
1. Stock in trade of the tax payer or other property of a kind
December – January 15
2. Property used in trade or business subject to depreciation
 2018 – not later than the last day of the month
3. Real property held by the taxpayer primarily for sale to
customers in the ordinary course of business  CAPITAL GAINS TAX
4. Real property used in trade of the taxpayer a. Share of Stock
 Ordinary Return – 30 days after each transaction
Gain on sale of ordinary assets is commonly known as ordinary or
 Final Consolidated Return – on or before April 15 of the
regular income | classified as capital gains.
following year
CAPITAL GAINS may be: b. Real Property – 30 days following each sale or other
 Subject to CAPITAL GAINS TAX (CGT) pertain to sale of: disposition
a) Shares of stock of a domestic corporation sold directly to a
MANNER OF FILING
buyer
a. Manual Filing
 Prior to 2018 – 5% to 100,000 ; 10% to excess
b. Electronic Filing and Payment System (EFPS)
 2018 – 15% of capital gain
c. eBIR Forms
b) Sale of real properties located in the Philippines
1st installment: at the time of filing the annual ITR
 CGT = 6% of the higher of GSP and FMV
2nd installment: on or before October 15 following the close of the
 OTHER PERCENTAGE TAX is not an income tax but a business tax. calendar year
The applicable tax for this is known as “stock transaction tax.”
PLACE OF FILING INCOME TAX RETURN
 Prior to 2018 – ½ of 1% of GSP
1. Authorized Agent Banks
 2018 – 6/10 of 1% of GSP
2. Revenue District Officer
 Subject to Basic Tax – examples: 3. Collection Agent
a) Sale of Share of foreign corporations 4. Duly Authorized City or Municipal Treasurer
b) Sale of real properties located abroad
PERSONS REQUIRED TO FILE INCOME TAX RETURN
c) Sale of other personal assets other than share of stock of
domestic corporations 1. Individuals engaged in business and/or practice of profession
2. Individuals deriving compensation from two or more employers
PRINCIPAL RESIDENCE is the family home of the individual taxpayer
concurrently at any time during the taxable year
which refers to his dwelling house including his family.
3. Employees deriving compensation income, the income tax of
REQUISITES OF TAX EXEMPTION which has not been withheld correctly
4. Individuals deriving other non-business, non-professional-related
1. The proceeds are fully utilized in acquiring or constructing a new
income in addition to compensation income not otherwise
principal residence within 18 calendar months from the date of
subject to final tax
disposition.
5. Individuals receiving purely compensation income from a single
2. The historical cost or adjusted basis of the real property sold or
employer
disposed shall be carried over to the new principal residence built
6. Non-resident alien engaged in trade or business in the Philippines
or acquired.
deriving purely compensation income
3. The BIR shall have been duly notified by the taxpayer within 30
days from the date of sale or disposition through a prescribed
PERSONS NOT REQUIREDTO FILE INCOME TAX RETURN
return of his intention to avail of the tax exemption.
4. The tax exemption can only be availed of once every 10 years.
1. An individual earning purely compensation income whose taxable
FORMAT IN COMPUTING TAXABLE INCOME income does not exceed 250,000.
a. Pure Compensation Income Earner 2. An individual whose income tax has been correctly withheld by
b. Pure Business Income Earner his employer
c. Mixed Income Earner 3. An individual whose sole income has been subjected to final
withholding tax
Benefits for Senior Citizen and PWDs: 4. Minimum wage earners, the Certificate of Withholding filed by
 20% discount and exemption from VAT on their purchase of the respective employers, duly stamped “Received” by the
specified goods and services Bureau
 P500 monthly social pension, for indigent senior citizens
 Death benefit assistance SUBSITUTED FILING OF INCOME TAX RETURNS (ITR)
 5% discount on utilities
 Income tax exemption for minimum wage earners of for Under RA 9504 and RR 10-2008, individual taxpayers may no
SC/PWDs whose annual taxable income is not more than 250,000 longer file income tax return provided he has (all the requirements
must be satisfied):
The term “statutory minimum wage earner (SMW)” or “minimum 1. Receiving purely compensation income, regardless of amount
wage earner (MWE)” under RA 9504 shall refer to a worker in the 2. The amount of income tax withheld by the employer is correct
private sector paid the statutory minimum wage. (Tax due = Tax withheld)
3. Only one employer during taxable year
The rate is fixed by the Regional Tripartite Wage and Productivity 4. If married, the employee’s spouse also complies with all the three
Board as defined by the Bureau of Labor and Employment Statistics. aforementioned conditions, or otherwise receives no income.