I.
Basic principles of taxation in the Constitution
            Constitutional Limitations
a. Provisions directly affecting Taxation:
Constitutional
provisions
1. Prohibition against
imprisonment for
non-payment of poll
tax (Sec. 20, Art. III,
Constitution)
2.          Uniformity and
equality of taxation
(Sec. 28 (1), Art VI,
Constitution)
3.          Grant by
Congress of authority
to the President to
impose tariff rates
(flexible tariff clause)
(Sec. 28 (2), Art. VI,
Constitution)
 
4. Prohibition against
taxation of religious,
charitable and
educational
entities/Exemption
from real property
Provisions
SECTION 20. No person shall be
imprisoned for debt or non-payment
of a poll tax.
 
SECTION 28. (1) The rule of
taxation shall be uniform and
equitable. The Congress shall
evolve a progressive system of
taxation.
SECTION 28.  including those cooperatively
(2) The
  Congress may, by law, authorize
the President to fix within specified
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 framework of
the national development program
of the
  Government.
Section 28.
(3) Charitable institutions, churches
and parsonages or convents
appurtenant  thereto, mosques,
non-profit cemeteries, and all lands,
buildings, and improvements,
taxes (Sec. 28 [3], Art. actually, directly, and exclusively
VI, Constitution) used for religious, charitable, or
  educational purposes shall be
exempt from taxation.
 
5. Prohibition against (3) All revenues and assets of non-
taxation of non-stock, stock, non-profit educational
non- profit institutions used actually, directly,
[educational] and exclusively for educational
institutions (Sec. purposes shall be exempt from
4[3&4], Art. XIV, taxes and duties. Upon the
Constitution) dissolution or cessation of the
  corporate existence of such
institutions, their assets shall be
disposed of in the manner provided
by law
 
Proprietary educational institutions,
owned, may likewise be entitled to
such exemptions subject to the
limitations provided by law including
restrictions on dividends and
provisions for reinvestment.
 
(4)
  Subject to conditions prescribed by
law, all grants, endowments,
donations, or contributions used
actually, directly, and exclusively for
educational  purposes shall be
exempt from tax.
6. Majority vote of (4) No law granting any tax
Congress for grant of exemption shall be passed without
tax exemption ( Sec. 28 the concurrence of a majority of all
[4], Art. VI, the Members of the Congress.
Constitution)  
 
7.   Prohibition on use (3) All money collected on any tax
of tax levied for special levied for a special purpose
purpose (Sec. 29 [3],   shall be treated as a special fund
Art. VI, Constitution) and paid out for such purpose only.
  If the purpose for which a special
fund was created has been fulfilled
or abandoned   the balance, if any,
shall be transferred to the general
funds of the  Government.
 
8. President’s veto (2) The President shall have the
power on power to veto any particular item or
appropriation, revenue  items in an appropriation, revenue,
and tariff bills (Sec. 27 or tariff bill, but the veto shall not
[2], Art. VI, affect the item or items to which he
Constitution) does not object.
9. Grant of power to the Each local government unit shall
local government units have the power to create its own
to create its own sources of revenues and to levy
sources of revenue taxes, fees and charges subject to
(Sec. 5, Art. X, such guidelines and limitations as
Constitution) the Congress may provide,
consistent with the basic policy of
local autonomy. Such taxes, fees,
and charges shall accrue
exclusively to the local
governments.
 
10. Flexible tariff clause The Congress may, by law,
(Sec. 28 [2], Art. VI, authorize the President to fix within
Constitution) specified 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 framework of the
national development program of
b. Provisions indirectly affecting Taxation:
the Government.
 
11. No appropriation or No public money or property shall
use of public money for be appropriated, applied, paid, or
religious purposes employed, directly or indirectly, for
(Sec. 29 [2], Art. VI, the use, benefit, or support of any
Constitution) sect, church, denomination,
sectarian institution, or system of
religion, or of any priest, preacher,
minister, other religious teacher, or
dignitary as such, except when such
priest, preacher, minister, or
dignitary is assigned to the armed
forces, or to any penal institution, or
government orphanage or
leprosarium.
12. Tax bills should All appropriation, revenue or tariff
originate exclusively in bills, bills authorizing increase of the
the House of public debt, bills of local application,
Representatives (Sec. and private bills shall originate
24, Art. VI, Constitution) exclusively in the House of
Representatives, but the Senate
may propose or concur with
amendments.
 
13. Judicial power to The Supreme Court shall have the
review legality of tax power to Review, revise, reverse,
(Sec. 5 (2b), Art. VIII, modify, or affirm on appeal or
Constitution) certiorari, as the law or the Rules of
Court may provide, final judgments
and orders of lower courts in all
cases involving the legality of any
tax, impost, assessment, or toll, or
any penalty imposed in relation
thereto.
 
1. due process  
         No state may tax anything not within its jurisdiction without Double Taxation
violating the due process clause; the taxing power of a state does Elements:
not extend beyond its territorial limits, but within such it may tax The same property is taxed twice when it should be taxed only
persons, property, income, or business once
Both taxes are imposed: on the same
2. equal protection clause 1. subject matter
         The classification to be valid must: 2. purpose
1. Rest on substantial distinctions; 3. taxing authority
2. Be germane to the purpose of the law; 4. same jurisdiction
3. Not be limited to existing conditions only; and 5. taxing period
4. Apply equally to all members of the same class 6. taxes must be of the same kind or characters.               
   
3. religious freedom REQUISITES OF A VALID TAX
         Tax is unconstitutional if it operates as a prior restraint on 1. Must be for a public purpose;
exercise of religion or favors a certain religion (non- establishment 2. Should be uniform and equitable;
of religion). 3. Either the person or property taxed is within the
Income of religious organizations from any activity conducted for jurisdiction of the taxing authority;
profit or from any of their property, real or personal, regardless of 4. Complies with the requirements of due process; and
disposition of such income, is taxable. 5. Does not infringe any constitutional or inherent limitations.
   
4. non-impairment of obligations of contracts   
Applies only when
government is party to the contract granting exemption
 
Exception: In case of franchise tax. The Constitution provides that
franchise is subject to amendment, alteration, or repeal by
Congress.
Contractual tax exemptions, in the real sense of the term and I.Income tax
where the non-impairment clause of the Constitution can rightly be  
invoked, are those agreed to by the taxing authority in contracts, Income tax
such as those contained in government bonds or debentures, -    A tax on all yearly profits arising from property,
lawfully entered into by them under enabling laws in which the professions, trades, or offices, or as a tax on a person’s
government, acting in its private capacity, sheds its cloak of income, emoluments, profits and the like. Income tax is a
authority and waives its governmental immunity. These contractual direct tax.
tax exemptions, however, are not to be confused with tax  
exemptions granted under franchises. A franchise partakes the d. General principles of income taxation
nature of a grant which is beyond the purview of the non- Except when otherwise provided in this Code: (NIRC, Sect.
impairment clause of the Constitution. (MERALCO v. Province of 23)
Laguna, G.R. No. 131359, 1999) 1. A citizen of the Philippines residing therein is taxable on all
  income derived from sources within and without the
5. freedom of press Philippines;
 2. A non-resident citizen is taxable only on income derived
of the taxpayer
from sources within the Philippines;
3. An individual citizen of the Philippines who is working and
Others All compensation income, business, or
deriving income from abroad as an overseas contract
professional income, capital gain, passive income
worker (OCW) is taxable only on income derived from
and other income not subject to final tax are added
sources within the Philippines: Provided, That a seaman
together to arrive at the gross income. After
who is a citizen of the Philippines and who receives
deducting the allowable deductions and
compensation for services rendered abroad as a member of
exemptions from the gross income, the taxable
the complement of a vessel engaged exclusively in
income is subjected to one set of graduated tax
international trade shall be treated as an overseas contract
rate for individual or normal corporate income tax
worker;
rate for corporation.
4. An alien individual, whether a resident or not of the
Philippines, is taxable only on income derived from sources  
within the Philippines Criteria in imposing Philippine income tax law
5. A domestic corporation is taxable on all income derived 1. citizenship
from sources within and without the Philippines; and 2. residence
6. A foreign corporation, whether engaged or not in trade or 3. source
business in the Philippines, is taxable only on income  
derived from sources within the Philippines. Kinds of income tax:
  1. Minimum corporate income tax
2. Capital gains tax on sale or exchange of unlisted shares
  RC NRC RA NRA DC FC
of stock of a domestic corporation classified as capital
asset
Within Yes  yes yes    Yes    Yes    Yes 
3. Capital gains tax on sale or exchange of real property
located in the Philippines classifies as capital asset
without   Yes  No No No   Yes  No
4. Final withholding tax on certain passive investment
  incomes
Income 5. Final withholding tax on certain passive investment
-    Refers to all wealth which flows into the taxpayer other income payments made to non-resident individuals or
than as mere return of capital corporations
- anything that flows into the wealth of the taxpayer other than 6. Fringe benefits
mere return of capital or anything that increases your net 7. Branch profit remittance tax
worth other than mere return of capital.  8. Improperly accumulated earnings tax
  9. Normal corporate income tax
INCOME TAX SYSTEMS: 10. Graduated income tax on individuals
11. Optional income tax of 8% for individuals
Global Tax system views indifferently the tax base and
12. Special income tax on certain corporations
generally treats in common all categories of
 
taxable income of the individual
Kinds of taxpayers:
1. Individuals
Schedula Where income tax treatment varies and is made to a. Citizen
r depend on the kind or category of taxable income i. Resident citizen
 ii. Non-resident citizen
domestic and foreign 2. Dividends (other 2. Income from sale of
b. Aliens
corporations (if 50% or than those derived personal property
i. Resident alien
more of the gross from sources within produced (in
ii. Non-resident alien
income of the foreign the Philippines) whole or in part) within
1. Engaged in trade or business
corporation [for the 3. Compensation for and sold without the
2. Not engaged in trade or business
past 3 years] was labor or personal Philippines; and
iii. Special alien
derived from sources services performed 3. Income from sale of
c. Special class of individual employees
within the Philippines.) without the personal property
i. Minimum wage earner
3. Compensation for Philippines produced (in
2. Estates
services performed 4. Rentals or whole or in part) without
3. Trusts
within the Philippines. royalties from and sold within the
 
4. Rentals and property located Philippines.
Taxable period
royalties from without the
 Period within which the net income is computed as a properties located in Philippines or from
whole for income tax purposes the Philippines or any any interest in such
Kinds: interest in such property including
1. Calendar period- 12 consecutive months starting from property including rentals/royalties for
Jan. 1 and ending Dec 31( applies to individual or corp) rentals or royalties for the use of or for the
2. Fiscal period- 12 months ending on the last day of any the use of or for the privilege of using
month other than December ( applies to corp only) privilege of using without the
3. Short period- A taxpayer may have a taxable period of within the Philippines, Philippines, patents,
less than twelve (12) months when: patents, copyrights copyrights, secret
1. Taxpayer dies and other like processes &
2. Corporation is newly organized properties. formulas, goodwill,
3. Corporation changes its accounting period 5. Sale of real property trademarks, trade
4. Corporation is dissolved located in the brands, franchises &
When is income taxable: Philippines. other like properties
1. existence of income 6. Sale of personal 5. Gains, profits &
2. realization of income property income from the
3. recognition of income   sale of real property
  located without the
  Philippines
Gross income from Gross income Income partly within  
sources within the from sources and partly without the Gross Income
Philippines without the Philippines  
Philippines  
1. Interest derived from 1. Interests (other 1. Income from services   Exclusions Deductions
sources within the than those derived rendered partly within Inclusions Section 32 B and other
Philippines. from sources within and partly (Section 32 ( A) provisions
2. Dividends from the Philippines) without;
1. Gross income Under Consti: ITEMIZED government by
derived from the Income derived by the DEDUCTIONS residents or
conduct of trade or Government or its nonresident citizens
business or the political subdivision, or aliens who reside
exercise of a including government 1. Bad debts permanently in the
profession instrumentalities, from 2. Business Philippines
2. Rent Income the exercise of any expenses 10. Veterans benefits
3. Interest Income essential government 3. Losses 11. Under SSS
4. Prizes & winnings function 4. Taxes 12. Under GSIS
5. Compensation for 5. Depreciation 13. Income derived from
services in whatever Under Tax Code: 6. Interests Govt or its Political
form paid, 1. Proceeds of life 7. Depletion of Subdivisions
including, but not insurance policies oil and gas 14. Winning, prizes and
limited to fees, 2. Amount received by well and awards
salaries, wages, insured as return of mines
 
commissions & similar premium 8. Charitable
items 3. Amounts received and other
6. Annuities under life insurance, contributions
7. Royalties endowment or annuity 9. Pension
8. Dividend Income contracts trusts
9. Gains derived from 4. Value of property 10. Research
dealings in property acquired by gifts, and
10.Pensions bequest, devise or development
11.Partner’s descent
distributive share from 5. Amount received
INCOME TAX ON INDIVIDUALS
the net income of the through accident or
1. Schedular
GPP (distributive health insurance plus
 
share from ordinary damages received
partnerships is taxable 6. Income exempt under
as dividends; in this treaty
case, the ordinary 7. Retirement benefits,
partnership has pensions, gratuities
already been subject 8. Amount received as a
to ordinary corporate consequence of
income tax) separation for any
cause beyond control
of employee (death,
sickness or other
physical disability
9. Benefits received
from a foreign
  Self-employed individuals and/or professionals whose
gross sales/gross receipts and other non-operating
income does not exceed the VAT threshold of
P3,000,000 shall have the option to avail of an eight
percent (8%) tax on gross sales or gross receipts and
other non-operating income in excess of 250,000 in
lieu of the graduated income tax rates and percentage
tax. 

 
d. Corporations Exempt from Income Tax
The following organizations shall not be taxed under this Title
in respect to income received by them as such:
1. Labor, agricultural or horticultural organization not organized
principally for profit;
2. Mutual savings bank not having a capital stock represented by
shares, and cooperative bank without capital stock organized
and operated for mutual purposes and without profit;
3. A beneficiary society, order or association, operating for the
exclusive benefit of the members such as a fraternal
organization operating under the lodge system, or mutual aid
association or a nonstock corporation organized by employees
providing for the payment of life, sickness, accident, or other
benefits exclusively to the members of such society, order, or
association, or nonstock corporation or their dependents;
4. Cemetery company owned and operated exclusively for the
benefit of its members;
5. Nonstock corporation or association organized and operated
exclusively for religious, charitable, scientific, athletic, or
cultural purposes, or for the rehabilitation of veterans, no part of
its net income or asset shall belong to or inure to the benefit of
any member, organizer, officer or any specific person;
6. Business league chamber of commerce, or board of trade, not
organized for profit and no part of the net income of which
inures to the benefit of any private stock-holder, or individual;
7. Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare;
8. A nonstock and nonprofit educational institution;
  9. Government educational institution;
  10. Farmers' or other mutual typhoon or fire insurance
2. Optional 8% income tax company, mutual ditch or irrigation company, mutual or
cooperative telephone company, or like organization of a purely
 local character, the income of which consists solely of -    on the privilege of transmitting one’s property or property
assessments, dues, and fees collected from members for the rights to another or others without adequate and full
sole purpose of meeting its expenses valuable consideration; an act of liberality.
11. Farmer’s fruit growers', or like association organized and -    It is an excise tax imposed on the exercise of donor’s right
operated as a sales agent for the purpose of marketing the during his lifetime to transfer property to others in the form
products of its members and turning back to them the proceeds of gift.
of sales, less the necessary selling expenses on the basis of
  Donation inter Donation mortis
the quantity of produce finished by them
vivos causa

II.Value-added tax As to Not made out of the It is made in

- tax on consumption levied on the sale, barter, exchange consideration donor’s generosity, consideration of death,
or lease of goods or properties and services in the although he subject without the donor’s
Philippines and on importation of goods into the matter is not intention to lose the
Philippines. delivered at once, or thing conveyed or its
 Seller is the one statutorily liable for the payment of the the delivery is to be free disporal in case of
tax but the amount of the tax may be shifted or passed on made post-mortem, survival.
to the buyer, transferee or lessee of the goods, properties which is a simple
or services. matter of form and
  does not change the
 Elements of a VAT-taxable transaction (PSBPE): (Sec. 105) nature of the act.
a. It Involves any Person; It is perfected upon
b. There must be a Sale (unless the same is a “deemed Sale” knowledge of the
transaction), barter, e􏰎change, lease of goods or properties, or donor of the
rendering of service; acceptance of the
c. It must be done in the ordinary course of trade or Business; done. Such contract
d. The transaction is done in the Philippines. is consensual in
e. It must neither be VAT-Exempt or VAT zero-rated. nature
 
Impact and incidence of tax As to form 1. personal property Being testamentary in
 The impact of VAT is on the seller because it is the one a. oral with nature, it should be
who is statutorily liable for the payment of the tax. simultaneous embodied in a last will
However, in the case of importation, the importer is the delivery if value does and testament
one liable for VAT. not exceed P5,000
 The incidence of the tax, on the other hand, is on the final b. in writing if value
consumer where the tax comes to rest. VAT is an indirect exceeds 5,000.
tax which may be shifted or passed on to the buyer, 2. real property
transferee or lessee of goods, properties or services. a. both donation and
  acceptance must be
in a public
instrument
III.Donor's tax
 As to Effect is produced The transfer conveys 1. sale, exchange, or transfer or XPN:
effectivity while the donor is no title or ownership to property for less than adequate 1. Where the sale,
still alive the transferee before and full consideration exchange, or transfer is
the death of the GR: Where a property is transferred made in the ordinary
transferor, or the for less than adequate and full course of business
transferor retains the consideration in money or money's which is:
ownership, full or worth, the amount by which the FMV a. Bona fide;
naked, of the property exceeds the consideration shall be b. Made at arm's
conveyed. It is the deemed a gift and be included in length;
donor’s death that computing the amount of gifts made C. Free from any
determines the during the calendar year. It is as if the donative intent
acquisition of or the property was donated but in order to 2. Where property
right to the property. avoid paying donor's tax, the donor transferred is real
opted to transfer the property for property located in the
As to irrevocable The transfer is inadequate consideration. Philippines considered
irrevocability revocable before the   as capital asset, the
transferor’s death and   transfer is not subject to
revocability may be donor's tax but to a
provided by means of capital gains tax, which
a reserved power in is a final income tax of
the donor to dispose of 6% of the fair market
the property conveyed. value or gross selling
price, whichever is
As to Acceptance is a Being in the for of a higher, and therefore,
acceptance requirement will, it is never there can be no
accepted by the done instance where the
during the donor’s seller can avoid any tax
lifetime. by selling his capital
assets below its FMV.
NOTE: Arm's length
REQUISITES OF A VALID DONATION transactions are
Generally, the following are the requisites for a valid donation  described as those
a. Capacity of the donor; dealings wherein both
b. Intent to donate; parties are independent
c. Delivery of the subject gift, whether actual or constructive; and of each other has no
d. Acceptance by the done. relationship with the
  other dealing party.
They are acting in their
own self-interest.
TRANSFERS WHICH MAY BE EXCEPTION
CONSIDERED AS DONATION
 2. condonation or remission of   RC, NC & All real properties, tangible and intangible personal
debt NA properties whenever located
If the creditor condones the
indebtedness of the debtor, the NRA All real properties, tangible and intangible
following rules shall apply: properties located in the Philippines unless the
1. on account of debtor’s services to reciprocity applies
the creditor the same is in taxable
 
income to the debtor
Exemption of certain gift
2. if no services were rendered but
1. donation for political campaign purposes
the creditor simply condones the
2. certain gifts made by residents
debt, it is taxable gift the not a taxable
3. certain gifts made by non-resident aliens
income.
4. donation of intangibles subject to reciprocity
5. donation for athlete’s prizes and awards
6. donation under the adopt-a-school
3. renunciation of inheritance  
7. exemption under the other special laws.
1. renunciation by the surviving
 
spouse of his/her share in the
Any contribution in cash or in kind to any candidate, political party
conjugal partnership or absolute
or coalition of parties for campaign purposes shall be governed by
community after other person/s is
the Election Code as amended.
subject to the donor’s tax
2. general renunciation by an heir,
including the surviving spouse, of
his/her share in the hereditary estate
left by the decedent is not subject to
donor’s tax, unless specifically and
categorically done in favor identified
heir/s to the exclusion or
disadvantage of the other co-heirs in
the hereditary estate.
 

Gross gift:
 
DONOR GROSS GIFT