INCOME TAXATION REVIEWER

Introduction:

Two types of taxes collected in the Philippines;

1. National tax – collected by BIR (Donor taxes, Estate tax, Value added tax, Income taxes, etc.)
2. Local tax – collected by local treasurer’s office

January 01, 2018 – amendments were made to Tax code of the Philippines or NIRC (National Internal Revenue Code) through
enactment of TRAIN Law.

Income tax in the Philippines is collected from individuals or corporations and is imposed on different sources of income like labor,
pensions, interest and dividends.

Module 1: General Principles and Concepts of taxation

 The policy of taxation in the Philippines is governed chiefly by the Constitution of the Philippines and Republic Acts issued by
Congress.

Constitution: Article VI, Section 28 of the Philippine Constitution states that “the rule of taxation shall be uniform and equitable” and that
“Congress shall evolve a progressive system of taxation”.

National law: National Internal Revenue Code (NIRC) – enacted as R.A No. 8424 or the Tax Reform Act of 1997 – amended by R.A
No. 10963 or the Tax Reform for Acceleration and Inclusion Act;

Tariffs and Customs Code for collection of customs duties from importations and local laws: major sources of revenue for the
local government units (LGUs) are taxes collected by virtue of Republic Act No. 7160 or the Local Government Code of 1991 and
those sourced from the proceeds collected by virtue of a local ordinance.

Custom duties – collected by Bureau of Custom or BOC

Taxation

- Refers to the inherent power of the state

- A process or act of imposing a charge by the government authority on property, individuals or transactions to raise money for
public purposes.
- The act of levying a tax
- A method of apportioning the cost of government among those who, in some measure are privileged to enjoy its benefits and
must therefore bear its burdens.

Taxes

- The enforced proportional contributions from persons and properly levied by the law-making body of the State by virtue of its
sovereignty for the support of the government and all public needs.
- Enforced burden or mandatory contribution imposed by the government based on its power of taxation, upon person, properties,
or rights.
- It is the bread and butter or the lifeblood of the government hence, no court shall be empowered to interfere with or restrain the
collection of it.

Essential elements of a Tax

1. An enforced contribution (means not required but a must because it is enforced by law)
2. Generally payable in money (means in cash)
 3. Proportionate in character
4. Levied on persons, property, or the exercise of a right or privilege.
5. Levied by the State which has jurisdiction over the subject or object of taxation (means the government authority has a
taxation power)
6. Levied by the law-making body of the State (by the Congress, collected by BIR or Local treasurer’s office)
7. Levied for public purpose or purposes (means it is for public use, not for personal agenda of the one collected the tax)
8. Imposed to raise government revenues
9. Paid at regular intervals

Purposes of Taxation

1. Revenue or Fiscal - primary purpose of taxation on the part of the gov’t is to raise revenues for the use and support of the
government to enable it to carry out its appropriate functions.
2. Non-revenue or Regulatory (Sumptuary purpose of taxation) – means it may also employed for purposes of regulation or
control. This means to contend or promote the general welfare, social and economic development of a country and its people.
a. Imposition of tariffs on imported goods to protect local industries
b. The adoption of progressively higher tax rates to reduce inequalities in wealth and income.
c. The increase or decrease of taxes to prevent inflation or ward off depression.

Taxation is no longer a measure merely to raise revenue to support the government, it may be levied with a regulatory
purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be
within the police power of the State.

Nature of taxation

1. Theory of taxation
- The power of taxation proceeds upon the theory that the existence of government is necessity, because it is needed for funding.
But a government cannot exist without the system of funding (hence, there is taxation)
2. Basis of taxation
- Reciprocal duties between the State and its inhabitants (citizens). Citizens are obliged to pay for a tax and the government is
obliged to perform or offer public services. Means that the taxes collected from the people used by the government for the
purpose of offering or performing public services.

Theories of cost allocation (Banggawan Book)

1. Benefit received theory – presupposes that the more benefit one receives from the government, the more taxes he should
pay
2. Ability to pay theory – presupposes that taxation should also consider the taxpayer’s ability to pay. Means the taxpayers
should consider their capacity to get support from the government.
Vertical equity (gross concept) – the extent of one’s ability to pay is directly proportional to the level of his tax base.
(In short, kung mas malaki ang income ng isang tao then the more tax he should pay because of the greater capacity to
contribute than others).
Horizontal equity (net concept) – requires consideration of the particular circumstance of the taxpayer. (In short, kung
pareho ang dalawang tao ng income but the other one has more incurred expenses than the other one then he should pay
more tax because of the greater capacity to contribute it has).

Benefit-received principle (Lintojua)

- Serves as the basis of taxation and is founded on the reciprocal duties of protection and support between the state and its
inhabitants. Also called “symbiotic relation” between the state and its citizens.

Lifeblood or necessity theory

- Constitutes the theory of taxation, which provides that the existence of government is necessity that government cannot continue
without the means to pay its expenses. Means without taxes, government would be paralyzed for lack of motive power to operate or
activate it.
- Taxes are the life blood of the government.

Implication of the life blood doctrine in taxation

 Tax is imposed even in the absence of Constitutional grant.

 Claims for tax exemption are construed against taxpayers.
 The government reserves the right to choose the objects of taxation.
 The courts are not allowed to interfere with the collection taxes
 In Income Taxation;
o Income received in advance is taxable upon receipt.
o Deduction for capital expenditures and prepayments is not allowed effectively defers the collection of income tax.
o A lower amount of deduction is preferred when a claimable expense is subject to limit.
o A higher tax base is preferred when the tax object has multiple tax bases.

Illustrations of life blood theory

 Collection of taxes cannot be enjoined by injunction

 Taxes could not be the subject of compensation or set off.
 A valid tax may result in destruction of the taxpayer’s property
 Taxation is an unlimited and plenary power.

No one is allowed to object or resist payment of taxes solely because no personal benefit to him can be pointed out as arising from the
tax. (Lorenzo v. Posadas)

Tax differentiated from other terms

1. Tariff or Duties
o The term tariff and custom duties are used interchangeably in the Tariff and Customs Code or Presidential Decree No.
1464.
o Custom duties are taxes imposed on goods exported from or imported into a country.
o Tariff may be used in one of three senses;
 A book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise
with the corresponding duties to be paid for the same; or
 The duties payable on goods imported or exported; or
 The system or principle of imposing duties on the importation or exportation of goods.
2. License fee
o Legal compensation or reward of an officer for specific services
o Imposed for regulation
o Involves the exercise of police power
o Amount of it should be limited to the necessary expenses of inspection and regulation.
o Imposed only on the right to exercise a privilege.
o Failure to pay it makes the act or business illegal.
3. Regulatory tax
o i.e. motor vehicle registration fee, sugar levy, coconut levy, regulation of non-useful occupations.

Criteria for determining license fees

 1. Imposition must relate to an occupation which involves the health, morals, safety and development of the people which needs
regulation for the protection and promotion of the public interest.
2. Imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account the costs of direct
regulation as well as the incidental expenses.

Instances when license fees could exceed cost of regulation, control or administration

 When the license fee is authorized under both the power of taxation and police.
 When the license fee is collected to regulate a non-useful regulation.

4. Special Assessment
o an enforced proportional contribution from owners of lands specially or peculiarly by public improvements
o Levied only on land.
o Not a personal liability of the person assessed; it is limited to the land.
o Based wholly on benefits, not necessity.
o Exceptional both as to time and place; a tax has general application.
o Levy on property which derives some special benefit from the improvement.
o Its purpose is to finance such improvement.
o It is not a tax measure intended to raise revenues for the government.
Some rules:
 an exemption from taxation does not include exemption from a special assessment.
 The power to tax carries with it the power to levy a special assessment.
5. Toll
o A sum of money for the use of something.
o It is the consideration which is paid for the use of road, bridge or the like, of a public nature.
o A demand of proprietorship
o Paid for the use of another’s property
o The amount paid as toll depends upon the cost of construction or maintenance of the public improvement used.
o May be imposed by the government or by private individuals or entities
6. Penalty
o Any sanction imposed as a punishment for violation of law or for acts deemed injurious
o Designed to regulate conduct
o May be imposed by the government or by private individuals or entities
7. Debt
o A debt is generally based on contract, express or implied
o It is assignable
o May be paid in kind
o May be subject of set off or compensation
o A person cannot be imprisoned for non-payment of tax, except poll tax.
o A debt is governed by the ordinary periods of prescription
o A debt draws interest when it is so stipulated or where there is default.

Requisites of compensation;

 That each of one obligor be bound principally, and that he be at the same time a principal creditor of the other.
 That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind and also of the
same quality if the latter has been stated.
 That the two debts be due.
  That they be liquidated and demandable.
 That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time
to the debtors.

Rules re: set off or compensation of debts

 General rule: a tax delinquency cannot be extinguished by legal compensation. This is so because the government and the
tax delinquent are not mutually creditors and debtors. Neither is a tax obligation an ordinary debt. Moreover, the collection of a
tax cannot await the results of a lawsuit against the government. Finally taxes are not in the nature of contracts but grow out of
duty to, and are the positive acts of the, government to the making and enforcing of which the personal consent of the
taxpayer is not required. [Francia v. IAC, 162 SCRA 754 and Republic v. Mambulao Lumber, 4 SCRA 622]
 Exception: Supreme Court allowed set off in the case of Domingo v. Garlitos [8 SCRA 443] re. claim for payment of unpaid
services of a government employee vis-à-vis the estate taxes due from his estate. The fact that the court having jurisdiction of
the estate had found the claim of the estate against the government has been appropriated for the purpose by a
corresponding law shows that both the claim of the government for inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as well as fully liquidated. Compensation therefore takes place by
operation of law.

Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of
each other. There is material distinction between a tax and a debt. Debts are due to the government in its corporate capacity, while
taxes are due to the government in its sovereign capacity.

Philippine Taxes

A. Internal revenue taxes imposed under the NIRC o VAT or Value Added Tax
1. Income tax o Other percentage taxes
2. Transfer taxes 4. Excise Taxes
o Estate Tax 5. Documentary stamp tax
o Donor’s Tax B. Local or Municipal Taxes
3. Business or Percentage Tax C. Tariff and Customs Duties
D. Taxes or Tax Incentives under special laws

Classification of Taxes

As to subject matter or object

1. Personal, Poll or Capitation Tax

- Tax of a fixed amount imposed on persons residing within a specified territory, whether citizens or not, without regard to their
property or the occupation or business in which they may be engaged i.e. community tax
2. Property Tax
- Tax imposed on taxpayer’s property, real or personal.
3. Excise or Privilege Tax
- A charge imposed upon the performance of an act, the enjoyment of privilege, or the engaging in an occupation. i.e. donor’ and
estate tax

As to purpose

1. General or Fiscal or Revenue Tax

- A tax that imposed for the purpose of raising public funds for the service of the government.
2. Special or regulatory tax
- Imposed primarily for the regulation of useful or non-useful occupation or enterprises and secondarily only for the purpose of
raising public funds. Imposed for special purpose, the proceeds of which go to special funds. i.e. gasoline tax
As to who bears the burden

1. Direct tax
- Demanded from the person who also shoulders the burden of the tax. A tax which the taxpayer is directly or primarily liable and
which he or she cannot shift to another.
2. Indirect tax
- Demanded from a person in the expectation and intention that he or she shall indemnify himself or herself at the expense of
another, falling finally upon the ultimate purchaser or consumer. A tax which the taxpayer can shift to another.

As to scope of the tax

1. National tax
- Imposed by the national government.
2. Local tax
- Imposed by municipal corporations or local government units (LGUs).

As to the determination of amount

1. Specific tax
- Taxes imposed upon property or rights which amounts are determined based on weight or volume capacity or any physical unit of
measurement.
2. Ad Valorem tax
- Taxes imposed which amounts are determined based on the sales price or other specified values of the properties.

As to graduation or rate

1. Proportional tax
- The amount of tax may be higher or lower depending upon the bracket or classification. [dependent] i.e. estate tax
2. Progressive or graduated tax (directly proportional)
- Taxes imposed upon persons, properties, rights which amount of tax increases as the bracket or layer increases. i.e. gift tax
3. Regressive tax (inversely proportional)
- Tax the rate of which decreases as the tax base or bracket increases. There is no such tax in the Philippines.

Aspects of taxation

A. Processes that are included or embodied in the term “taxation”

1. Levying or imposition of the tax – refers to the legislative process of determining the persons, properties, transactions or rights
to be taxed.
2. Assessment and Collection of the tax – refers to the manner or procedures of enforcing the tax obligation of the taxpayers.
Administrative in character with the power vested in the Department of Finance [DOF] and Bureau of Customs and the Local
Government Units.

Tax systems

Constitutional mandate

- the rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation [Section 28.1,
Article VI, Philippine Constitution]

1. Progressive system of taxation – means that tax laws shall place emphasis on direct taxes rather than on indirect taxes, with
ability to pay as the principal criterion.

2. Regressive system of taxation – exists when there are more indirect taxes imposed than direct taxes.
 Regressive tax rates

Tax the rate of which decreases as the tax base or bracket increases. There are no regressive taxes in the Philippine Jurisdiction.
Should be differentiated from a regressive system of taxation.

3 basic principles of a sound tax system

1. Fiscal adequacy - means that the sources of revenue should be sufficient to meet the demands of public expenditures
2. Equality or theoretical justice (ability to pay principle) – means that the tax burden should be proportionate to the taxpayer’s
ability to pay.
3. Administrative feasibility – means that the tax laws should be capable of convenient, just and effective administration.

Nature and Limitations of the power of taxation

A. Nature or characteristics of the state’s power to tax

1. It is inherent in sovereignty; it may be exercised although it is not expressly granted by the Constitution.
2. It is legislative in character; only the legislature can impose taxes (although the power may be delegated).
3. It is subject to Constitutional and inherent limitations; it is not an absolute power that can be exercised by the legislature
anyway it pleases.

INHERENT POWERS OF THE GOVERNMENT

Taxation power Police Power Eminent Domain
Power to enact such laws in relation
Power to take private property for
to persons and property as may
Power to demand enforced public use upon paying to the owner
Definition promote public health, safety,
contributions for public purposes. a just compensation to be
morals and the general welfare of
ascertained according to law
the public.
Government or its political
Exercising Government or its political Government or its political
subdivisions and public service
authority subdivisions subdivisions
companies
Purpose For the support of the government Promoting general welfare For public use
Persons
Community or class of individuals Community or class of individuals Owner of the particular property
affected
Effect Money contributed (taxes) becomes No transfer of title, at most, there is Transfer of the right to property
part of the public funds restraint on injurious use of the whether it be ownership or a lesser
property right
Benefits Receives the equivalent of the tax in No direct and immediate benefit but Receives the market value of the
received the form of protection and benefits only such as may arise from the property taken
from the government maintenance of a healthy economic
standard of society
Amount of Unlimited (tax is based on the Limited (Imposition is limited to No amount imposed (but rather the
imposition government needs) cover cost of regulation) owner is paid the market value of the
property taken)
Relation with Subject to certain Constitutional Relatively free from Constitutional Inferior to impairment of contracts
the constitution limitations (inferior to the “non- limitations (Superior to the clause
impairment clause of the constitution) impairment provisions)
Limitation Constitutional and inherent limitations Public interest and due process Public purpose and just
compensation

Similarities
  They all underlie and exist independently with the constitution although the condition for their exercise may be prescribed by
the constitution and by law.
 They are ways or means by which the government interferes with private rights and properties.
 They all rest upon necessity because there can be no effective government without the,
 They all presupposed an equivalent compensation received
 They are legislative in nature

----------------

 The power of tax involves the power to destroy so it must be exercised with caution (Chief Justice Marshall)
 The power of tax is not the power to destroy while this court sits (Justice Holmes)
 The power to tax is peculiarly and exclusively legislative and cannot be exercised by the executive or judicial branches of the
government. Hence, only Congress can impose taxes.
 Power to tax cannot be delegated; this limitation arises from the doctrine of separation of powers among the three branches of
the government.

Exceptions to the non-delegation rule

1. Delegation to the President - congress may authorize, by law, the President to fix, within specific limits and subject to such
limitations and restrictions as it may impose: tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the national development program of the government. [the authorization is embodied in Section 401
of the Tariff and Customs Code which is also called the flexible tariff clause].
2. Delegation to local government units (LGUs) – the power of LGUs to impose taxes and fees is always subject to the
limitations which Congress may provide, the former having no inherent power to tax. Municipal Corp. are mere creatures of
Congress which has the power to create and abolish municipal corp. Congress therefore has power of control over LGUs. If
Congress can grant to a municipal corp. the power to tax certain matters, it can also provide for exemptions or even to take
back the power.
3. Delegation to administrative agencies – has become the rule and non-delegation the exception. The task may be assigned to
an administrative body like the Fiscal Incentives Review Board (FIRB)

For delegation to be constitutionally valid, the law must be complete in itself and must set forth sufficient standards.

Flexible tariff clause - The president, upon recommendation of the National Economic and Development Authority is empowered;

- To increase, reduce or remove existing protective rates of import duty, provided that the increase should not be higher than 100%
ad valorem.
- To establish import quota or to ban imports of any commodity; and
- To impose additional duty on all imports not exceeding 10% ad valorem.

Matters within the competence of the legislature

1. The subject or object to be taxed.

2. The purpose of the tax as long as it is a public purpose.
3. The amount or rate of tax
4. The manner, means and agencies of collection of the tax

It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that
“inequalities which result from a singling out of one particular class for taxation, or exemption, infringe no Constitutional limitation”

Taxpayer’s suit

- A case where the act complained of directly involves the illegal disbursement of public funds derived from taxation.
 - Taxpayers have locus stand to question the validity of tax measures or illegal expenditures of public money. On the other hand,
public officials have locus standi because it is their duty to protect public interest.
- General rule; not only persons individually affected but also taxpayers have sufficient interest of preventing the illegal
expenditures of money raised by taxation.

Reasons for exception

1. Sovereign equality of states

2. When one states enters the territory of another state, there is an implied understanding that the former does not intend to
denigrate its dignity by placing itself under the jurisdiction of the other state.
3. Immunity from suit of a state

Limitations of territorial jurisdiction

- Tax laws cannot operate beyond a state’s territorial limits.

- Property outside one’s jurisdiction does not receive any protection from the state.

Limitations on the power of taxation

I. Constitutional Limitations – refers to those limitations which are specifically cited or written in the provisions of the Philippine
Constitutions.
1. Due process of law - before a taxpayer is made to answer for criminal offense, due process must be observed. This means a
law which hears before it condemns, which precedes inquiry and renders judgment only after trial supported by [Section 1,
Article 3, Constitution]
2. Equal protection of laws – this means a law that prevents any taxpayer, a person or class from being singled out as a special
subject of hostile or discriminating tax legislation. Every taxpayer should enjoy protection against illegal or unreasonable tax
assessments, searches, and seizures.
3. Rule of uniformity and equity in taxation – Congress shall evolve a progressive system of taxation. Uniformity has reference to
taxing at the same rate people or things belonging to the same class, thus avoiding class tax legislation. A tax is equitable if it
is based on the ability to pay and reasonable in amount taking into account certain factors. A tax that is confiscatory is
certainty not equitable.
4. Prohibition against imprisonment for non-payment of a debt or a poll tax – [Section 20, Article III, Philippine Constitution]. The
non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge but not to other violations
like falsification of community tax certificate and non-payment of other taxes.

Poll tax - fixed amount imposed on residents within a specific territory regardless of citizenship, business or profession. i.e.
community tax.

5. Prohibition against impairment of obligation of contracts – [Section 10, Article III, Philippine Constitution]. The obligation of a
contract is impaired when its terms or conditions are changed by law or by a party without the consent of the other, thereby
weakening the position or rights of the latter.
6. Prohibition against infringement of religious freedom - [Section 5, Article III, Philippine Constitution]
7. Prohibition against appropriation of proceeds of taxation for the use, benefit or support of any church – [Section 29, Article VI,
Philippine Constitution]
8. Prohibition against taxation of real property actually, directly and exclusively used for religious, charitable and educational
purposes – exempt from taxation (real property only) under [Section 28 (3), Article VI, Constitution]
9. Prohibition against taxation of the revenues and assets of non-stock, non-profit educational institutions – shall be exempt from
taxes and duties [Section 4, Article XIV, Constitution]. The exemption from corporate income tax is embodied in [Section 30 of
the NIRC]
10. Grant tax exemption – [Section 28 (4), Article VI, Constitution]
11. Veto of appropriation, revenue or tariff bills by the President – [ Section 27 (2), Article VI, Constitution]
 12. Non-impairment of Jurisdiction of the Supreme Court – the SC is empowered to review, revised, modify or affirm an appeal or
certiorari, as the laws or the rules of court may provide, final judgments and orders of lower courts in all cases involving the
legality of any tax, impost or toll or any penalty imposed in relation thereto.
13. Revenue bills shall originate exclusively from the House of Representative – [Section 5 (2,b), Article VIII, Constitution]
II. Inherent Limitations – refers to those limitations which are not and need not be specifically cited or expressed in the provisions of
the Philippine Constitution.
1. Public purpose – taxes may be levied only for public purpose. It should not be exercised with private interest.
2. Non-delegation of the taxing power – non-delegation of the power to tax except to local government.
3. Exemption of the government – exemption from taxation of government entities;
a. Government Service Insurance System (GSIS)
b. Social Security System (SSS)
c. Philippine Health Insurance Corporation (PHIC)
d. Philippine Charity Sweepstakes Office (PCSO) – under the TRAIN law (effective 01/01/2018), is removed from tax
exempt GOCCs
e. Philippine Amusement and Gaming Corporation (PAGCOR)

Reasons for exempting governmental entities

 Government will be taxing itself to raise money for itself.
 Immunity is necessary in order that governmental functions will not be imposed.
4. Territoriality of taxation – tax laws must be within the state’s territorial jurisdiction [the exemption on the principle explained
further in income taxation]
5. International comity – tax laws must be subject to international comity, convention, friendly agreements in other nations. No
law shall be passed to imposed taxation on the property owned by a foreign government or sovereignty.
6. Prohibition of double taxation – the double taxation occurs when the same taxpayer is taxed twice by the same tax jurisdiction
for the same thing. No constitutional limitations for double taxation. If this occurs, the taxpayer may seek relief under the
uniformity rule of taxation or under equal protection of the law guaranty under the constitutions.

Categories of Double Taxation

1. Direct double taxation – it means the direct act of taxing the same taxpayer.
2. Indirect double taxation – it means double taxation other than direct double taxation. The indirect act of taxing the same
taxpayer.

Tax Situs or Place of Taxation – refers to the territorial jurisdiction of the government where it has the authority to impose its taxation
power which is to levy and collect taxes on persons, properties, or rights. Basically means as the place of taxation.

Following factors or Situs rules;

1. Persons – poll tax may be properly levied upon person who are inhabitants or residents of the state whether citizens or not.
[Personal tax situs]
2. Real Property – with respect to real property taxes, real estate is subject to taxation in the state in which it is located, whether
the owner is a resident or a non-resident. [Property tax situs]
3. Tangible Personal property – the modern rule is that the tangible personal property is taxable in the state where it has actual
situs, where it is physically located, although the owner resided in another jurisdiction.
4. Intangible Personal property – intangible personal property, such as cash, money, credits, bills, receivables, bank deposits,
bonds, promissory notes, mortgage loans, judgments and corporate stocks does not admit of actual location, and as to such
property, the general rule is that the situs for purposes of property taxation is at the domicile of the owner. (residence)
5. Income – income tax may properly exacted from persons who are residents or citizens in the taxing jurisdiction and even
those who are neither residents nor citizens provided that the income is derived from sources within the taxing state. [Income
tax situs on sale of goods and service fees]
6. Business, Occupation and Transaction – the general rule is that the power to levy excise tax depends upon the place where
the business is done or where the occupation is eneged in. or where the transaction took place.
 7. Gratuitous Transfer of property – the transmission of property for without consideration may be subject to taxation in the stae
where the transfer is a citizen or resident or where the property is located.

Classification of Tax escapes

Tax escapes - ways and means that can be availed of by the taxpayer in order to reduce their tax liabilities and payments.

1. Tax credit – tax payments directly made by the taxpayer or through withholding agents, that are expressly allowed by law as
deductions directly against the basic taxes due.
2. Tax exemption (tax holiday) – it is a grant of immunity, express or implied to particular persons, right, transaction or property
from a particular tax to which other person generally within the same taxing authority is subjected to.
a. Express or affirmative – benefiting certain persons, property, transaction or right is expressly written or cited under
the provisions of the constitutions, statue, treaty or franchise.
b. By Omission or Implied Tax exemption – occurs when a particular tax is levied on certain classes of persons,
properties, transactions, or rights without mentioning other particular classes. Hence, all those omitted
or not mentioned under the law are deemed tax exempted.
3. Tax Evasion or Tax dodging – fraudulent act of using pretenses or forbidden devices in order to lessen the tax liability or
payment. The “illegal” means of reducing or avoiding taxes is prohibited and punishable by law.
4. Tax avoidance - act of using legitimate or lawful means permitted by our tax laws in order to minimize or totally avoid one’s tax
liability payment.
5. Tax Shifting – act of legitimacy passing one’s tax liability for payment to another person in accordance with the provisions of
the tax laws.
a. Forward shifting – shifting of tax which follows the normal flow of distribution. This is common with essential
commodities.
b. Backward shifting – this is common with non-essential commodities where buyers have considerable market power
and commodities with numerous substitute products.
c. Onward shifting – refers to any tax shifting in the distribution channel that exhibits forward shifting or backward
shifting.
6. Tax Amnesty – general pardon granted by the government for erring taxpayer to give them a chance to reform and enable
them to have a fresh start to be part of a government society with a clean slate.
7. Tax Condonation – forgiveness of the tax obligation of a certain taxpayer under certain justifiable grounds.

Sources of National Tax Laws

1. National Internal Revenue Code of the Philippines (NIRC)

2. BIR revenue Rulings and Regulations.
3. Philippine Special Laws or Statutes
4. Decisions of the Philippine Courts: Higher courts or Lower courts
5. Opinions Rulings of Secretary of Justice
6. Philippine Constitutions
7. Presidential Decrees

BIR or Bureau of Internal Revenue – is a government agency that is tasked to administer and execute internal revenue laws and
regulations. It is organizationally part and under the supervision and control of the Department of Finance.

Primary officers of the BIR

a. Chief Commissioners
b. Four Deputy Commissioners
c. Revenue Regional Directors
 d. Assistant Revenue Regional Directors
e. Revenue District Officers
f. Department Heads of the Assessment, Collections, Legal, Administrative Groups, and
g. Other BIR Officials of various operational or functional support offices.

Two Working Groups

a. Assessment and Collection Group

b. Legal and Administrative Group