CONSTITUTIONALITY OF DOUBLE  It contained the first formal and

TAXATION official declaration of the United

States commitment to grant
 Unlike the United States
independence to the Philippines.
Constitution, our Constitution does
 Among the salient provisions:
not prohibit double taxation.
o Creation of an all Filipino
 While it is not forbidden, it is
legislature (senate to
something not favored.
replace the Philippine
 However, where there is direct
Commission which had
double taxation, there may be a
served as the upper
violation of the constitutional
chamber of the legistature).
precepts of equal protection and
 On October 3, 1917, the U.S.
uniformity in taxation.
Congress passed the War
BASIC PRINCIPLES OF A SOUND TAX Revenue Act of 1917, increasing
SYSTEM income taxes to unprecedented
levels in order to raise more money
1. Fiscal Adequacy – the sources of for the war effort.
revenues, as a whole, should  Act No. 2833 enacted on March 9,
provide enough funds to meet the 1919 was the first income tax law
expanding expenditures of the passed by the Philippine Legislative
government. Body, although it was patterned
2. Theoretical Justice – taxes must after the US Act of 1916.
be based on the taxpayer’s ability  On June 15, 1939,
to pay. Commonwealth Act No. 466,
3. Administrative Feasibility – tax otherwise known as the National
should be clear to the taxpayer, Internal Revenue Code, was
not unduly burdensome and approved with Title II thereof
discouraging to business which took effect only on July 1,
convenient as to time and manner 1939, but the provisions of the
of payment, and capable of income tax law were made to apply
enforcement by competent public to income earned from January 1,
officials. 1939.
 On June 3, 1977, Presidential
The Philippine Income Tax Law
Decree No. 1158 consolidated the
 The first income tax law in the internal revenue law and
Philippines was the US Revenue Presidential Decrees into a single
of 1913, also known as the Tariff tax code known as the National
Act or Underwood-Simmons Act. Internal Revenue Code of 1977.
 It was signed into law by Pres.  In October 1985, Presidential
Woodrow Wilson on October 3, Decree No. 1994, after
1913, and sponsored by Alabama amending certain provisions of the
Representative Oscar Underwood, National Internal Revenue Code,
but made to apply to income called the Code the “National
earned from March 1, 1913. Internal Revenue of 1986.”
 This law was amended by the US  Executive Orders during the
Act of 1916 also known as the Revolutionary Government of the
Jones Act, the Philippine Autonomy Philippines in 1986 amended
Act or the Act of Congress of certain provisions of the National
August 29, 1916. Internal Revenue Code.
  Tax Reform Act of 1977 (RA Tax defined Essential Characteristics
8424) renamed the Code as the of a Tax
National Internal Revenue Code
 a forced contribution upon the
of 1977 which is the present
person, or rights exercised
Income Tax Law.
 exacted pursuant to legislative
 RA 9504, “An Act Amending
authority in the exercise of the
Sections 22, 24, 343, 35, and 79 of
taxing power of a sovereign state
RA 8424 as amended,” was signed
 proportionate in character
into law and made effective July 6,
 payable in money
2008
 imposed for the purpose o raising
Amendments:
revenue
o Increase of personal and
 to be used for a public purpose
additional exemption,
o Compensation received by Classification of Taxes
minimum wage earners and
other concerns. 1. As to Subject Matter
2. As to Who Bears the Burden
RA 10653 3. As to Determination of the
Amount
 “An act adjusting the 13th MONTH
4. As to Purpose
PAY and other benefits ceiling
5. As to Scope
excluded from computation off
6. As to Proportionality or Rate
GROSS INCOME for purposes of
income taxation, amending Section As to Subject Matter
32(B), Chapter VI of the NIRC OF
1997, as amended” 1. Personal, capitation or poll
 Signed on February 12, 2015 and tax – a fixed amount upon all
made effective February 27, persons, or upon all persons of
2015. a certain class, residents within
 The amount of P82,000.00 shall a specified territory, without
apply to the 13th month pay and regard to their property or
other benefits received by officials occupation.
and employees of public and 2. Property tax – a tax assessed
private entities beginning January against all properties, or all
1, 2015. properties of a certain class
located within the jurisdiction of
“Tax Reform for Acceleration and the taxing authority in
Inclusion Act (TRAIN)” proportion to its value.
3. Excise tax – a charge upon
o Introduces omnibus
the performance of an act, the
amendments to the current
enjoyment of a privilege, or
NIRC
engaging in an occupation.
-new sections
-repealed a number of special
laws and codal provisions
-revised administrative
provisions
o Effective January 1, 2018
As to who Bears the Burden 3. Proportional tax – a tax of a
fixed percentage of amount of
1. Direct tax – one which is
the base.
demanded from the person
whom the law intends or
desires to pay it.
2. Indirect tax – one which is
shifted by the taxpayer to
someone else.

As to Determination of the Amount

1. Specific tax – a tax which

imposes a specific sum by the
head or number, or some
standard of weight or
measurement, and which
requires no assessment other
than by the listing and
classification of the subjects to
be taxed.
2. Ad valorem – a tax or duty
upon the value of the article or
subject of taxation.

As to Purpose

1. General tax – a tax levied for

the general purposes of
government.
2. Special tax – a tax levied for a
special purpose.

As to Scope

1. National tax – a tax levied by

the national government.
2. Local tax – a tax levied by a
local government unit.

As to Proportionality

1. Progressive tax – a tax in

which the increase in the tax
rate is proportionate to the
increase in the tax base.
2. Regressive tax – a tax in
which the increase in the tax
rate is not proportional to the
increase in the tax base.
 Tax
 Imposed under the taxing power of
the state for purposes of revenue
 Forced contributions for
maintaining government functions
 Unlimited amount as to
 
Tax
 Imposed regardless of public
improvements
 Is a contribution of a taxpayer for
the support of the government
 Regular extraction anywhere within
the jurisdiction of the taxing
authority
Tax
 Is a demand of sovereignty
 Levied for the support of the
government
 Imposed only by the legislative
authority
License Fees
 Levied under the police power of the
state
 Exacted Primarily to regulate certain
business/occupations
Should not unreasonably exceed the
expenses of issuing license

Special Assessment
 Imposed because of an increase in
the value of land benefited by a
public
 Is a contribution of a person for the
construction of a public improvement
 Is exceptional both as to time and
locality
Toll
 Is a demand of proprietorship
 Is a compensation for use of
another’s property
 May be imposed by government or
private individuals or entities
 Tax Debt

 Is created by law  Arises from contract, express or

implied
 Cannot be generally assigned
 Is assignable
 Payable only in money
 May be paid in kind
 Imprisonment is a sanction for non-
payment of tax  No person shall be imprisoned for non-
payment of debt

Situs of Taxation

-refers to the place of taxation

General Rule:

The state which has jurisdiction to tax the person, property or transactions may rightfully
levy and collect the tax.

Subject and Situs of Taxation

Subject of Taxation Situs of Taxation

 Business, Occupation or Transaction  Place where the subject was conducted,

practiced or has occurred.
 Real & tangible personal property  Location of property

 Intangible personal property  Domicile of the owner

 Income  Place where income was earned

(citizenship & domicile-income earner)

 Gratuitous transfer of property  Location of property

(citizenship & domicile-donor)
Interpretation of Tax Law – Those that do not reduce the
Resolution of tax conflicts
 In case of doubt as to whether a
taxpayer is covered by the tax
or not, the doubt shall be resolved
in favor of the taxpayer and
against the government.
 In case of doubt as to the validity
of the tax exemptions¸ the
doubt shall be resolved in favor of
the government and against
the, except under certain
circumstances.
REVENUE
-refers to all funds or income derived by
the government, whether from tax or any
other source
1. Grants received from another
government
2. Donations from non-governmental
sources
3. Loans from private entities or
another government
4. Commercial revenues of GOCCs
5. Administrative revenues (fines,
penalties, forfeitures)
6. Taxes (internal revenues &
customs duties)
Escapes from Taxation
 Are means of methods by which
taxpayer saves the tax or escapes
the payment of tax
Basic Forms
 Those that do not reduce the
revenue collection of government
 Those that result in loss of
government revenue
revenue collection of government
1. Shifting – transfer of the tax
burden by one on whom tax is
assessed to another.
2. Capitalization – reduction in the
selling price of income-producing
property by an amount equal to
the capitalized value of future
taxes paid by the buyer.
3. Transformation – where the
manufacturer upon whom tax is
imposed pays the tax and recovers
the expense through lower
production cost.
Those that result in loss of
government revenue
1. Tax evasion (tax dodging) –
fraudulent or forbidden schemes or
devices designed to lessen or
defeat taxes.
2. Tax avoidance (tax
minimization) – exploitation by
the taxpayer of legally permissible
alternative tax rates or methods of
assessing taxable property or
income to reduce tax liability.
3. Exemption from taxation –
grant of immunity to particular
persons or corporations or of a
particular class from a tax which
others generally within the same
taxing district are required to pay.
Other Tax terms
1. Tax amnesty – immunity from all
criminal and civil obligations arising
from non-payment of taxes.
Pardon given to all taxpayers;
applicable only to past periods.
A tax presently assessed against a
taxpayer may be recouped or set-
off against the tax whose refund is
now barred by prescription.
3. Rule on set-off or
compensation –
“There can be no off-setting of
taxes against the claims that the
Source of Tax Laws
1. The Constitution
2. Statutory enactments
2. Doctrine of equitable
recoupment – the refund of a tax
illegally or erroneously collected or
overpaid by the taxpayer is barred
by prescription.
taxpayer may have against the
government.”
Taxpayer’s suit – A taxpayer has
sufficient personality and interest
to seek judicial assistance with a
view of restraining what he
believes to be an attempt to
unlawfully disburse public funds.
3. Administrative ruling and
regulations
4. Judicial decisions
CHAPTER 5
Compensation paid in kind
If the compensation is paid in kind,
the following rules shall apply:
a. The fair market value of
the thing taken in as
payment is the amount to
be included as
compensation income
b. In the absence of stipulated
price, the compensation
income is presumed to be
the fair market value of the
remuneration received
c. For stocks as remuneration
for services rendered, the
amount is the fair market
value of the stock at the
time services were
rendered.
Compensation paid in promissory
note
-Promissory notes received in payment of
services constitute income to the extent of
the fair market value at the time of
receipt.
-PN amounting to P100,000 was received
on November 2, 2019 for services
rendered. The note is payable on February
1, 2020.
-The fair discounted value of the note is
equal to 90% of the face amount.
-How much income is to be reported in
2019?
P90,000
-How much income is to be reported in
2020?
P10,000
Tips and gratuities,
Transportation, representation &
other allowances
Vacation and sick leave allowances
 Tips and Gratuities are taxable
income of the employee but not
subject to withholding tax.
 Transportation, representation
& other allowances received in
addition to regular compensation
are taxable as compensation
income, except if incurred in the
performance of the employee’s
duties.
 Vacation allowances or sick
leave credits constitute
compensation except if classified
as de minimis benefits.
Forgiveness of Indebtedness
If the creditor condones the indebtedness
of the debtor, the following rules shall
apply:
a. On the account of the debtor’s
services to the creditor, the
same is income subject to tax
to the debtor.
b. If no services were rendered
but the creditor simply
condones the debt, it is a gift.
c. If the creditor is a corporation
and the debtor is a stockholder,
it has the effect of a payment
of dividend (income subject to
tax).
Remuneratory Donations
- Those who remunerate past services
that do not constitute demandable
debts.
a. If the motivating cause is
gratitude, acknowledgement of a
debt, or a desire to compensate,
remuneratory donations are
deemed income subject to tax.
b. If the motivating cause is liberality
of the donor, remuneratory
donation is not considered as
income.
Recovery of Bad Debts previously Deducted
Application of Tax Benefite Rule
- Whenever bad debts that have been claimed as deductions from gross income are
recovered in the succeeding periods, “the amount of recovered shall be included as
part of gross income in the year of recovery to the extent of the income tax
benefit derived therefrom.”

Tax Benefit Rule

Example 1

2018
Net Income before write-off P100,000
Less: Written-off A/R (BD) 20,000
Net Income after write-off P 80,000

2019
Amount of Bad Debts
Recovered P 20,000

Taxable amount in 2019 P 20,000

Example 2
2018
Net Income before write-off P100,000
Less: Written-off A/R (BD) 120,000
Net Income after write-off P (20,000)

2019
Amount of Bad Debts
Recovered P 120,000

Taxable amount in 2019 P 100,000

Example 3
Net Income before write-off P (60,000)
Less: Written-off A/R (BD) 20,000
Net Income after write-off P (80,000)

2019
Amount of Bad Debts
Recovered P 20,000

Taxable amount in 2019 P0

Refund of Tax
A tax refund is taxable if the tax is previously deducted as an expense in computing the
tax during the previous year.

- Considered as gross income in the year of receipt to the extent of the income tax
benefit of said deduction.

Note: Income tax, estate tax, donor’s tax and special assessments are not
deductible from gross income

Dividend Income But not exceed P1.0M

Forms of dividends:
1. Cash dividend – measured by Subject to final withholding tax of 10%
amount of cash received
2. Property dividend – Leasehold improvements – Definition
measured by the fair value of  Alterations made to rental
the property received at the premises in order to customize it
time of receipt or distribution for the specific needs of a tenant.
3. Stock dividend – measured  Leasehold improvements include
by the fair value of the stocks construction of building, fencing,
received if taxable painting, installing partitions,
changing the flooring, putting in
Taxable Stock Dividend customized light fixtures, etc.
 Shares are later redeemed for a  Leasehold improvements can either
consideration by the corporation be undertaken by landlords
 Recipient is other than a (lessors), who may offer to do so
stockholder to increase the marketability of
 There is a change in the their rental units, or by the tenants
stockholders’ equity resulting from (lessees) themselves.
the issuance of stock dividends When the lessee makes useful
improvement to the leased
Intercompany Dividends property, the following rules shall
Rules: apply if no reimbursements are
a. Dividends received by a domestic made by the lessor:
corporation from another domestic 1. The lessor may report income
corporation. Not subject to tax under the:
a. Outright method – based
b. Dividends received by a resident on fair market value (FMV)
foreign corporation from a of improvements in the year
domestic corporation. of completion
Not subject to tax b. Spread-out method –
book value (BV) of
c. Other intercompany dividends improvements are spread
Subject to (final withholding) tax over the remaining term of
the lease
Tax Information Reward 2. Lessee may claim depreciation of
A tax information reward is an the improvements over the
amount equivalent to 10% of the remaining term of the lease or life
revenues, surcharges recovered and of the improvements, whichever is
penalties imposed and collected given to shorter.
persons who are instrumental in the 3. If there is a premature termination
discovery of tax violations. of leave, the lessor should report
 income based on the BV upon Leasehold improvements
termination less amount already additional info:
reported as income.  If leased property (land and
4. The lessor shall apply cash method building) is being used actually,
on prepayment of rental even if it directly and exclusive for
is using accrual accounting. educational purpose, the lessee
shall be exempt from paying real
estate tax.
 All assessments or reassessments
made after the 1st day of January
of any year shall take effect on the
1st day of January of the
succeeding year (Sec. 221, Local
Government Code of 1991)