Taxation The lifeblood Doctrine

● May be defined as a state power, a legislative process, and a mode of government Tax
cost distribution ● Are essential and indispensable to the continued subsistence of the government
● As a state of power ● Are the lifeblood of thegovernment
○ Taxation is an inherent power of the state
● As process The inherent Powers of the state
○ Taxation is a process of levying taxes by the legislature of the state 1. Taxation power
● As mode of cost distribution ○ Proportional contribution from its subject to sustain itself
○ Taxation is a mode by which the state allocates its costs or burden to its 2. Police power
subject ○ To enact laws to protect the well-being of the people
3. Eminent domain
Theory of Taxation ○ To take private property for public use after paying just compensation
● Every government provides a vast array of public services
Point of difference Taxation Police Power Eminent Domain
Basis taxation
● The mutuality support between the people and the government Exercising Authority Government Government Government and
private utilities
Taxation
Purpose For the support of To protect the for public use
● Is a mode of allocating government costs or burden to the people
the government general welfare of
the people
Benefit received theory
● Presupposes that the more benefit one receives from the government, the more taxes Person Affected Community or class Community or class Owner of the
he should pay of individuals of individuals property

Amount of Imposition Unlimited Limited No amount imposed

Ability to pay theory (Tax is based on (Imposition is limited (The government
● Theory presupposes that taxation should also consider the taxpayers ability to pay government needs) to cover cost pays just
regulation.) compensation)

Aspects of the Ability to Pay theory Importance Most important Most superior Important
1. Vertical equity Relationship with the Inferior to the Superior to the Superior to the
○ Proposes that the extent of one’s ability to pay is directly proportional the level consitution “Non-impairment “Non-impairment “Non-impairment
of his tax base Clause” of the Clause” of the Clause” of the
2. Horizontal equity constitution constitution constitution
○ Requires consideration of the particular circumstance of the tax payer
Limitation Constitutional and Public interest and Public purpose and
inherent limitations due process just compensation
Similarities of the three powers of the state
● they are all necessary attributes to the sovereignty
● they are all inherent to the state
● they are all legislative in nature
● they are all ways in which the state interferes with private right and properties
● they all exist independently of the constitution
● they all presuppose an equivalent form of compensation
● the exercise of these powers by the local government units may be limited by the
national legislature
Scope of the taxation power
● is widely regarded as comprehensive, plenary, unlimited and supreme
The limitation of the taxation power
● Inherent limitations
○ Territoriality of taxation
○ International comity
○ Public purpose
○ Exemption of the government
○ Non-delegation of the taxing power
● constitutional limitations
○ Due process of law
○ equal protection of the law
○ uniformity rule in taxation
○ progressive system in taxation
○ Non-imprisonment for non-payment of debt or poll tax
○ Non-impairment of obligation and contract
○ Free worship rule
○ Exemption of religious or charitable entities
○ Non-Appropriation of public funds or property
○ Exemption from taxes of the revenues and assets of non-profit
○ concurrence of majority of all members of congress
○ non-diversificati9on of tax collection
○ non-delegation of the power of taxation
○ Non-impairement of the jurisdiction of the supreme court
○ the requirement that appropriation, revenue, or tariff bills shall originate
exclusively in the house of representatives
○ The delegation of taxing power to the local government units
Territoriality of taxation
● Public service are normally provided within the boundaries of the state.
Two fold obligations of taxpayers
● Filing of returns and payment of taxes
● withholding of taxes on expenses and its remittance to the government
Exception to the territoriality principle
● In income taxation, resident, citizens, and domestic corporation are taxable on income
derived both within and outside the philippines
● In transfer taxation, resident, or citizens such as resident citizens, non resident
citizens, and resident alients are taxable on transfers of properties
Internation comity
● Government do not tax the income and properties od other governments
● Governments give primacy to their treaty obligation over thor own domestic tax laws
Public Purpose
● Tax in intended for the common good.
● Taxation must be exercised absolutely for public purpose
Exeptions to the rule of non-delegation
● Under the constitution
● under the tariff
● Other cases that requires expedient and effective administration
Aspect of Due process
● Substantive due process
○ Tax must be imposed only for public purpose, collected only under authority of
a valid law and only by the taxing power having jurisdiction
● Procedural due process
○ There should be no arbitrariness in assessment and collection of taxes, and
the government shall observe the taxpayer’s right to notice and hearing.
Equal protection of the law
● this rule applies where taxpayers are under the same circumstances and conditions
Uniformity rule in taxation Assessment and collection
● the rule of taxation shall be uniform and equitable. Taxpayers under dissimilar ● The tax law is implemented by the administrative branch of the government
circumstances ● this stage is referred to as incidence of taxation or the administrative act of taxation

Progressive system of taxation Situs

● congress shall evolve a progressive system of taxation ● is the place of taxation

Examples of Situs Rules

Poll tax has two components: ● Business tax situs
● Basic community tax ○ Businesses are subject to tax in the place where the business is conducted
● Additional community tax ● Income tax situs on services
○ service fees are subject to tax where they are rendered
Property tax’ ● Income tax situs on sales of goods
● exemption of religious, charitable or educational entities, non-profit cemeteries, ○ the gain on sale is subject to tax in place of sale
churches and mosques, lands, buildings, and improvements ● Property tax situs
○ properties are taxable in their location
Stages of the Exercise of taxation power ● Personal \tax situs
● Levy or imposition ○ Persons are taxable in their place of residence
● Assessment and collection
Other fundamental doctrines in taxation
Levy or imposition 1. Marshall Doctrine
● this process involves the enactment of a tax law by congress ○ the power of tax involves the power to destroy
● impact of taxation or it is also referred to as the legislative act in taxation 2. Holme’s Doctrine
○ Taxation power is not the power to destroy
Congress is compound of two bodies 3. Prospectivity of tax laws
● The house of representative and ○ Tax laws are generally prospective in operation. Exceptionally, income tax laws
● the senate may operate retrospectively
4. Non-compensation or set off
Matters of legislative discretion in the exercise of taxation ○ Tax are not subject to automatic setoff or compensation
● Determining the object of taxation 5. Non-assignment of taxes
● setting the tax rate or amount to be collected ○ Tax obligation cannot be assigned or transferred to another entity by contract
● determining the purpose for the levy which must be public use 6. Imprescriptibility in taxation
● kind of tax to be imposed ○ Prescription: is the lapsing of a right due to the passage of time
● apportionment of the tax between the national and local government 7. Doctrine of estoppel
● situs of taxation ○ any misrepresentation made by one party toward another who relied their in
● Method od collection goodfaith will be held true
○ the government is not subject to estoppel
 8. Judicial Non-interference Tax evasion
○ Generally, Courts are not allowed to issue injunction againts the government ● also known as tax dodging
○ This rule is anchored on the Lifeblood Doctrine ● tends to illegally reduce or avoid the payment of tax
9. Strict Construction of Tax Laws
○ Taxation is the rule, exemption the exemption Tax avoidance
○ Vague tax laws: are constructed against the government ● also known as tax minimization
○ Vague exemption laws: laws are construed against the taxpayer ● refers to any act or trick that reduces or totally escapes taxes

Double Taxation Tax exemption

● occurs when the same taxpayer is taxed twice by the same tax jurisdiction for the ● also knon as tax holiday
same thing ● may be granted by the constitution, law, or contract

Elements of Double Taxation Shifting

● Primary element: Same object ● trnaferrring tax burden to other taxpayers
● Secondary elements:
○ Same type of of tax Foward shifting
○ Same purpose of tax ● follows the normal flow of distribution
○ Same taxing jurisdiction ● is common with essential commodities and services such as food and fuel
○ Same tax period
Backward shifting
Types of Double taxation ● reverse of forward shifting
1. Direct double taxation ● is common with non-essential commodities
○ This occurs when all the elements of double taxation exist for both impositions
2. Indirect Double Taxation Onward shifting
○ This occurs when at least one of the secondary elements of double taxation is ● refers to any tax shifting in the distribution channel
not common for both impositions
Capitalization
How can double taxation be minimized? ● this pertains to the adjustments of the value of an asset caused by chanes in tax rates
● Provision of tax exemption: only one tax law is allowed to apply to the object while
the other tax law exempts the same tax object transformation
● Allowing Foreign tax credit: both tax laws of the domestic country and foreign ● elimination of wastes or losses by the taxpayer
country tax the tax object
● Allowing reciprocal tax treatment: provisions in tax laws imposing a reduced tax Tax amnesty
rates or even exemption if the country of foreign taxpayer also give the same ● amnesty is a general pardon granted by the government for erring taxpayers
treatment
● Entering into treaties or bilateral agreement: countries may stipulate for a lower tax Tax condonation
rates for their residents if they engage in transaction that are taxable by both of them ● is forgiveness of the tax obligation
● also referred to as tax remission
Tax amnesty vs Tax Condonation Revenue Bulletin (RB)
● Amnesty covers both civil and criminal liabilities, but condonation covers only civil ● refers to periodic issuances, notices, and official announcements of the commissioner
liabilities of the taxpayers of the internal revenue
● Amnesty operates retrospectively by forgiving past violation, condonation applies
BIR rulings
prospectively to any unpaid balance of the tax ● are official positions of the Bureau to queries related by taxpayers
● Amnesty is also conditional upon the taxpayer paying the government, condonation
requires no payment Rulings
● are merely advisory or sort of information service

CHAPTER 2 Types of rulings

● Value added Tax (VAT) rulings
● Internation Tax affairs Divison (ITAD) rulings
Sources of Taxation Laws Types of Administrative Issuances ● BIR rulings
● Delegated Authority (DA) rulings
● Constitution ● Revenue regulations
● Statutes and Presidential Decrees ● Revenue memorandum orders Generally Accepted Accounting Principle (GAAP) vs. Tax Law
● Juridicial Decisions or case laws ● Revenue memorandum rulings ● GAAP: they are benchmarks for the fair and relevant valuation and recognition of
● Executive Order and Batas ● Revenue memorandum circulars income, expense, assets, liabilities, and equity of a reporting entity for general purpose
Pambansa ● Revenue Bulletins financial reporting
● Administrative Issuances ● BIR rulings ● tax laws: including rules, regulation, and rulings prescribe the criteria for tax reporting,
● Local Ordinances a special form of financial reporting which is intended to meet specific needs of tax
● Tax Treaties and Conventions with authorities
foreign countries
● Revenue Regulation Tax
● is an enforced proportional contribution levied by the lawmaking body of the state to
raise revenue for public purpose
Revenue Regulations
● are issuances signed by the Secretary of Finance Elements of a valid tax
● Tax must be levied by the taxing power having jurisdiction over the object of taxation
Revenue regulations ● tax must not violate constitutional and inherent limitations
● are formal pronouncements intended to clarify or explainthe tax law ● Tax must be uniform and equitable
● Tax must be for public purpose
● Tax must be proportional in character
Revenue memorandum Order (RMOs)
● Tax is generally payable in money
● are issuances that provide directives or instruction

Revenue memorandum rulings (RMRs)

● are rulings, opinions and interpretation of the CIR
Classification of taxes
● As to purpose
Revenue memorandum Circulars (RMCs)
○ Fiscal or revenue tax: tax imposed for general purpose
● are issuances that publish pertinent
○ Regulatory: imposed to regulate business
○ Sumptuary: levied to achieve some social or economic objectives
 ● As to subject matter
○ Personal, poll or capitation: a tax on persons who are residents of a
particular territory
○ Property tax: a tax on properties, real or personal
○ Excise or privilege tax: imposed upon the performance of an act of
enjoyment of a privilege
● As to incidence
○ Direct tax: when both the impact and incidence of taxation rest upon the same
taxpayer. the tax is collected from the person who is intended to pay the same
○ Indirect tax: when the tax is paid by any person. This occurs in the case of
business taxes where the statutory taxpayer
○ Statutory taxpayer: is the person named by law to pay the tax
● As to amount
○ Specific tax: a tax fixed amount imposed on a per unit basis
○ ad valorem: a tax fixed proportion imposed upon the value of the tax object
● As to rate
○ Proportional tax: this is a flat or fixed rate tax
○ Progressive or graduated tax: this is a tax which imposes increasing rates
the tax based increase
○ Regressuce tax: this tax imposes decreasing tax rates as the tax base
increase
○ Mixed tax: a combination of any of the above types of tax
● As to imposing authority
○ National Tax: imposed by the national government
○ A.) Income tax: tax on annual income, gains, or profits
○ B.) Estate tax: transfer of properties by a decendent upon death
○ C.) Donor’s Tax: Transfer of properties by a living donor
○ D.) Value Added tax: consumption tax collected by vat business taxpayers
○ E.) Other percentage tax: consumption tax collected by non-vat business
taxpayers
○ F.)Excise Tax: Tax on sin products and non-essential commodities such as
alcohol
○ G.) Documentary stamp tax: a tax on documents, instrument, loan
agreements
○ Local tax: imposed by the municipal or local government
○ Ex: Real Property tax, Professional Tax, Business Tax. fees, and charges,
Community Tax, Tax on Banks
Tax vs. Revenue
● Tax refers to the amount imposed by the government for public purpose
● Revenue refers to all income collection of the government which includes taxes, tariff,
licenses, toll, penalties and others
Tax vs. License fee
● Tax emanates from taxation power
● License fee emanates from police power and is imposed to regulate the exercise
Tax vs. Toll
● Tax is levy of government; hence, it is demand of sovereignty
● Toll is a charge for the use of other’s property
Tax vs. Debt
● Tax arises from law while debt arises from provide contracts
● Debt can be paid in kind
Tax vs. Special Assessment
● Tax is an amount imposed upon persons, properties, or privilege
● Special Assessment is levied by the government on lands, adjacent to a public
improvement
Tax vs. Tariff
● Tax is an amount imposed upon persons
● tariff is the amount imposed on imported or exported commodities
Tax vs. Penalty
● Tax is an amount imposed for the support of the government
● Penalty is an amount imposed to discourage an act
Tax system
● refers to the methods or schemes of imposing, assessing, and collecting taxes
Types of Tax Systems According yo Imposition
● Progressive- employed in the taxation of income of individuals
● Proportional- employed in taxation of corporate income and business
● Regressive- not employed in the philippines
Types of Tax Systems According to Impact
● Progressive tax system- is one that emphasizes direct taxes
● Regressive tax system- is one that emphasizes indirect taxes
Withholding system on income tax
● under this collection, the payor of the income withholds or deducts the tax on the
income
● Creditable withholding tax
○ Withholding tax on compensation- an estimated required by the government to
be withheld
 ○ Expanded withholding tax- an estimated tax required by the government to be To prescribe real property values
deducted ● the CIR is authorized to divide the Philippines into zones and prescribe real property
● Final Withholding tax- a system of tax collection wherein payors are require to deduct values after consultation with competent appraiser
● the values thus prescribed are referred to as zonal value

Differences Between FWT and CWT
Final withholding tax
Income tax withheld full
Coverage of withholding certain passive income
Who remits the actual tax income payor
Necessity of income tax Not required
return for taxpayer
Other Agencies tasked with tax collections or tax incentives related functions
● Bureau of customs
Creditable withholding tax
● Board of Investments
only a portion ● Philippine Economic Zone Authority
● Local Government Tax Collecting unit
certain passive and active ● Fiscal Incentives Review board
income
Bureau of Customs (BOC)
income payor for the CWT ● is tasked to administer collection of tariffs on imported articles and collection of the
and the Taxpayer for the value added tax on importation
balance
Board of Investments (BOI)
required ● is tasked to lead the promotion of investment in the Philippines
● is an attached agency of the Department of trade and Industry (DTI)

Philippine Economic Zone Authority (PEZA)

Withholding syste on business tax
● is created to promote investments in export-oriented manufacturing industries in the
● when the national government agencies and instrumentalities including
Philippines
government-owned and controlled corporations
● is also an attached agency of the DTI
● is headed by a director general and is assisted by three deputy directors
Voluntary compliance system
● the tax payer himself determines his income
Fiscal Incentive REview Board (FIRB)
● also referred as the self assessment method
● has oversight function on the administration and grant of tax
Assessment or enforcement syste
Large taxpayers
● under this collection system, the government identifies non compliant taxpayers,
● under supervision of the large taxpayuer service (LTS) of the BIR national office
assesses their tax dues
Non-large Taxpayers
● under the supervision of the respective revenue district offices (RDOs)
Principles od a sound tax system
● Fiscal adequacy
○ requires that the sources of government funds must be sufficient to cover
Criteria for Large taxpayers
government costs
1. As to payment
● Theoretical justice
○ Value added tax: At least 200,000 per quarter for the preceding year
○ or equity suggest that taxation should consider the taxpayer’s ability to pay
○ Excise tax: at least 1,000,000 tax paid for the preceding year
● Administrative feasibility
○ Income tax: at least 1,000,000 tax annual income tax paid for the preceding
○ Suggest that tax laws should be capable of efficient and effective
year
○ Withholding tax: at least 1,000,000 annual withholding tax payments or
Tax Administration
remittance from all types of withholding tax
● refers to the management of the tax system
 ○ Percentage tax: at least 200,000 percentage tax paid or payable per quarter Taxable recovery of loss profits
for the preceding year ● the recovery of lost profits through insurance, indemnity, contracts, or legal suits
○ Documentary stamp tax: at least 1,000,000 aggregate amount per year constitutes a taxable return on capital
● the following are taxable recoveries of loss profits:
2. as to financial conditions and results of operations ○ Proceeds of crop or livestock insurance
○ Gross receipts or sales- 1,000,000,000 total annual gross sales or receipts ○ Guarantee payments
○ Net worth- 300,000,000 total net worth at the close of each calendar or fiscal ○ indemnity received from patent infringement suit
year
○ Gross purchases- 800,000,000 total annual purchases for the preceding year What is meant by realized benefit
○ Top corporate taxpayer listed and published by the securities and exchange ● The benefit concept: means any form of advantage derived by the taxpayer, there
commission benefit when there is an increase in the net worth of the taxpayer
● The following are not benefits, hence, not taxable
○ Receipt of a loan- properties increase but obligations also increase resulting in
CHAPTER 3 an offsetting effect in net worth
○ Discovery of lost properties- under the law, the finder has an obligation to
What is income of taxation purposes return the same to the owner
● the tax concept of income is simply referred to as gross income, under the NIRC ○ Receipt of money or property to be held un trust fir, or to be remitted to another
person
Elements of Gross Income
● it is a return on capital that increases net worth The realized concept
● It is a realized benefit 1. means earned, it requires that there is degree of undertaking or sacrifice from the
● it is not exempted by law, contract, or treaty. taxpayer to be entitled of the benefit
2. Requisites of a realized benefit:
Return on Capital ○ There must be an exchange transaction
● capital means any wealth or property. Gross income is a return on wealth or property ○ the transaction involves another entity
that increases the taxpayer’s net worth ○ it increases the net worth of the recipient
● increases net worth is income subject to income tax
● merely maintains net worth; hence, it is not taxable Types of transfer
● Bilateral transfer or exchanges, such as:
Capital items deemed with finite value ○ Sale
● there are capital items that have infinite value and are incapable of pecuniary valuation ○ Barter
● Example: ○ these are referred to as onerous transactions
○ Life: is immeasurable by money ● Unilateral transfer, such as:
○ health: any compensation received in consideration for the loss of health such ○ Succession- transfer of property upon death
as compensation for personal injuries ○ Donation
○ Human reputation: the value of one’s reputation cannot be measured ○ these are also referred to as gratuitous transaction
financially ● Complex transaction
■ Ex: Oral defamation or slander, Alienation of affection, Breach of ○ are partly gratuitous and partly onerous
promise to marry ○ these are commonly referred to as transfer for less than full and adequate
consideration
Recovery of lost capital vs. Recovery of lost profits
● the loss of capital results in decrease in net worth while the loss of profits does not
decrease networtj
Benefits in the absence of transfers corporations
● the increase in wealth of the taxpayer in the form of appreciation or increase in the ○ Income of internal missions and organization with income tax immunity
value of his properties or decrease in the value of his obligations
● these are referred to as unrealized gains or holding gains because they have not yet Types of Income taxpayers
materialized in an exchange transaction ● Individuals
● example of unrealized gains or holding gains ○ Citizens: Resident, Non-resident
○ increase in value of investments in equity or debt securities ○ Alien: Resident, Non resident alient (engaged in trade or business, not engage
○ increase in value of real properties held in trade or business)
○ increase invalue foreign currency held or receivable ○ Taxable estates and trust
○ decrease in value of foreign currency denominated debt by virtue of favorable ● Corporations
fluctuation in exchange rates ○ Domestic Corporation
○ Birth of animal offspring, accruals of fruits in an orchard or growth of farm ○ Foreign corporation: Resident foreign corporation, Non-resident foreign
vegetables corporation
○ increase in value of land due to the discovery of mineral reserves
Classification of citizens
Rendering of services ● resident citizens: Filipino citizen residing in the Philippines
● for a consideration is an exchange but does not cause loss of capital ● Non-resident citizen
○ A citizen of the Philippines who establishes to the satisfaction of the
Mode of receipt/realization benefits commissioner the fact of his physical presence abroad with a definite intention
● Taxable items of income may be realized by the taxpayer in two ways to reside therein
○ Actual receipt involves actual physical taking of the income in the form of cash ○ A citizen of the philippines who leaves the Philippines during the taxable year
or property to reside abroad
○ Constructive receipt involves no actual physical taking of the income but the
taxpayer is effectively benefited Alien
● Resident Alien
Inflow of wealth without increase in net worth ○ an individual who is residing in the Philippines but is not citizen
● the inflow of wealth to a person that does not increase his net worth is not income due ● Non-resident alien
to the total absence of benefit ○ an individual who is not residing in the Philippines and who is not a citizen
● Examples:
○ Receipt of property in trust The General Classification rule for individuals
○ Borrowing of money under an obligation to return ● Intention: of the tax payer regarding the nature of his stay within or outside the
Philippines shall determine his appropriate residence classification
Not exempted by law, contract, or treaty ● length to stay: In default of such documentary proof, the length of stay of the taxpayer
1. an item of gross income is not exempted by the constitution, law, or treaties from
taxation Taxable estates and trusts
2. the following items of income are exempted by law from taxation; hence, they are not ● estates refers to the properties, rights, and obligations of a deceased person not
considered items of gross income: extinguished by his death, under judicial settlement are treated as individual taxpayers
○ income of qualified employee trustfund ● trust is an arrangement whereby one person (grantor, trustor) transfers property to
○ revenues of non-profit, non stock education institutions another person (beneficiary), that is irrevocable designated by the grantor is treated in
○ SSS,GSIS, Pag-IBIG, or Philhealth Benefits taxation it is an individual taxpayer
○ Salaries and wages of minimum wage earners and qualified senior citizen
○ Regular income of Barangay Micro-Busines Enterprise (BMBEs) Domestic corporation
○ Income of foreign governments and foreign government-owned controlled ● is a corporation that is organized in accordance with Philippine laws
Foreign Corporation Income Situs Rules
● is one organized under a foreign law
Types of Income Place of Taxation (situs)
Types of Foreign corporation ● Interest income ● Debtor’s residence
● resident foreign corporation(RFC)- foreign corporation which operates and conduct ● Royalties ● Where the intangible is employed
business in the philippines through a permanent establishment ● Rent income ● Location of the Property
● non-resident foreign corporation (NRFC)- a foreign corporation which does not operate ● Service Income ● Place where the service is rendered
or conduct business in the Philippines

Special Corporation Gain on sale of properties

● are domestic or foreign corporations which are subject to special tax rules or 1. Personal Properties
preferential tax rates ○ Domestic Securities- presumed earned within the philippines
○ Other personal properties- eanred in the place where the property is sold
Other corporate Taxpayers 2. Real property- earned where the property is located
● One-person corporation- is a corporation with a single stockholder who may be a
natural person, trust or an estate Divided income from
● partnership- is a business organization owned by two or more persons who contribute ● Domestic corporation- presumed earned within
their industry or resources to a common fund ● Foreign corporation- situs depends on pre-dominance test

Types of Partnership Merchandising income

● general professional partnership (GPP) - is a partnership formed by persons for the ● earned where the property is sold
sole purpose exercising a common profession, is not treated as a corporation and is
not taxable entity Manufacturing income
● Business partnership- is one formed for profit, it is taxable corporation ● earned where the goods are manufactured and sold

Joint venture
● is a business undertaking for a particular purpose it may be organized as a partnership CHAPTER 4
or a corporation
Income taxation schemes
types of joint venture ● There are three income taxation schemes under the NIRC
● Exempt joint venture- are those formed for the purpose of undertaking construction ○ Final income taxation
projects ○ capital gains taxation
● Taxable joint ventures- all other joint ventures are taxable as corporation ○ Regular income taxation

Co-ownership Classification of items of gross income

● is joint ownership of a property formed for the purpose of preserving the same and/or ● gross income subject to final tax
dividing its income ● gross income subject to capital gain tax
● gross income subject to regular tax
Situs of Income
● is the place of taxation of income Final income taxation
● is characterized by final taxes wherein full taxes are withheld by the income payor at
source
● is applicable only on certain passive income listed by the law
Passive income vs. active income Fiscal Year
● Passive income are earned with very minimal or even without active involvement of ● The fiscal accounting period is any 12 month period that ends on any day other than
the taxpayer in the earning process December 31.
● Examples of Passive income ● is available only to corporate income taxpayers and is not allowed to individual income
○ Interest income from banks taxpayers
○ dividends from domestic corporations
○ Royalties Instances of short accounting period
● Active or regular income arises from transactions requiring a considerable degree of ● Newly commenced business- the accounting period covers the date of the start of
effort or undertaking from the taxpayer the business until the designated year-end of the business
● Examples of active income ● Dissolution of business- the accounting period covers the start of the current year to
○ Compensation income the date of dissolution of the business
○ business income ● Change of accounting period by corporate taxpayer- the accountinf period covers
○ Professional income the start of the previous accounting period up to the designated year-end of the new
accounting period
Capital Gains Taxation ● Death of the taxpayer- the accounting period covers the start of the calendar year
● is imposed on the gain realized on the sale, exchange and other dispositions of certain until the death of the taxpayer
capital assets ● Termination of the accounting period of the taxpayer by the commissioner of
internal revenue- the accounting period covers the start of the current year until the
date of the termination of the accounting period
Capital Assets
● are assets not used in business Accounting methods
● opposites of ordinary assets ● are accounting techniques used to measure income

Regular Income Taxation Types of Accounting period

● is the general rule in income taxation and covers all other income such as: ● The general method ( Accrual basis, cash basis)
○ Active income ● Installment and deferred payment method
○ Other income ● Percentage of completion method
■ gains from dealings in properties, not subject to capital gains tax ● Outright and spread out method
■ Other passive income not subject to final tax ● Crop year basis

Accounting Period General Methods for income from sale of goods or service
● is the length of time over which income is measured and reported ● Accural basis- income is recognized when earned regardless of when received
● Cash Basis- income is recognized when received and expense is recognized when
Types of Accounting Period paid
● Regular accounting period 12 months in length
○ Calendar Tax and accounting concepts of accrual basis and cash basis distinguished
○ Fiscal ● Advanced income is taxable upon receipt- income received in advanced is taxable
● short accounting period less than 12 months upon receipt in pursuant to the lifeblood doctrine and the ability to pay theory.
● Prepaid expense is non-deductible- are advanced payment for expenses of future
Calendar year taxable periods
● the calendar accounting period starts from January 2 and ends in December 31. ● Special tax accounting requirement must be followed- there are cases where the tax
● This accounting period is available to both corporate taxpayers and individual law itself provides for a specific accounting treatment of an income or expense
taxpayers
Hybrid basis Mode of Filing Income tax returns
● is any combination of accrual basis, cash basis, and/or other methods of accounting ● Manual Filing System- is by paper documents where taxpayers fillup BIR forms to
report income, expenses
Sale of goods with extended payment terms ● e-BIR forms- fill up their income tax return in electronic spreadsheets without the need
● may be reported using the accrual basis, installment method, or deferred payment of writing on papers returns
method ● Electronic Filing and Payment system- is a paperles tax filing system developed and
maintained by the BIR
Installment method
● gross income is recognized and reported in proportion to the collection from the
installment sales
BASIC COMPARISON OF FILINF AND PAYMENT SYSTEMS
Initial payment Manual E-BIR EFPS
● means total payments by the buyer, in cash or property in the taxable year the sale
was made Data Entry Manual Electronic Electronic

Selling price Filing/Submission Manual Electronic Electronic

● means the entire amount for which the buyer is obligated to the seller
Tax payment Manual Manual Electronic
Contract price
● is the amount receivable in cash or other property from the buyer
Penalties for late filing or payment of tax
● Surcharge
Deferred payment method
○ 25% of the basic tax for failure to file or pay
● is a variant of the accrual basis and is used in reporting income when a non-interest
○ 50% for willful neglect to file and pay taxes
bearing note is received as consideration in a sale
● Interest
○ shall be double of the legal interest rate for loans or forbearance of any money
Outright method
● Compromise penalty
● the lessor may report as income the fair market value of such buildings or
○ is an amount paid in lieu of criminal prosecurion over a tax violation
improvements subject to the lease at the time when such buildings improvements are
completed
GENERAL PRINCIPLES OF TAXATION
Spread out method
● the lessor may spread over the life of the lease the estimated depreciated value of
The principal purpose of taxation is
such buildings or improvements at the termination of the lease and report as income
A. To encourage the growth of home industries through the proper use of tax exemptions
for each year of the lease and aliquot part
and tax incentives
B. To implement the police power of the state
Types of returns to the government
C. The reduce excessive inequalities of wealth
● Income tax returns- provide details of the taxpayer’s income. expense, tax, due, tax
D. To raise revenues for governmental needs
credit, and tax still due the government
● Withholding tax return- provide reports of income payments subjected to withholding
tax by the taxpayer withholding agent
● information returns
The aspects of taxation are The power to acquire private property upon payment of just compensation for public purpose
A. Legislative in character A. Power of taxation
B. Executive in character B. Police power
C. Shared by the legislative and executive departments C. Power of eminent domain
D. Judicial in power D. Power of recall

Taxation as distinguished from police power and power of eminent domain The power to regulate liberty and property to promote the general welfare
A. Property is taken to promote the general welfare A. Police power
B. Maybe exercised only by the government B. Power of taxation
C. Operates upon the whole industry C. Power of eminent domain
D. There is generally no limit as to the amount that may be imposed D. super power

Which of the inherent powers maybe exercised even by public service corporations and public The power to demand proportionate contributions from persons and property to defray the
entries expenses of the government
A. Power of taxation A. Power of taxation
B. Police power B. Police power
C. Power of eminent domain C. Power of eminent domain
D. A and C\ D. National power

Which of the following statements is correct? Basic principles of a sound tax system, except
A. The President is authorized to increase or decrease national internal revenue tax rates A. Fiscal adequacy
B. One of the nature of taxation is the reciprocal duties of protection and support between B. Equality or theoretical justice
the state and subjects thereof C. Administrative feasibility
C. Every sovereign government has the inherent power to tax D. Intellectual sensitivity
D. Income tax is an indirect tax
The tax imposed should be proportionate to the taxpayer’s ability to pay
This is an inherent limitation on the power of taxation A. Fiscal adequacy
A. Rule on uniformity and equity in taxation B. Equality or theoretical justice
B. Due process of law and equal protection of the laws C. Administrative feasibility
C. Non-impairment of the jurisdiction of the Supreme Court in tax cases D. Economic consistency
D. Tax must be for public purpose
The sources of revenue as a whole, should be sufficient to meet the demands of public
This is a constitutional limitation on the power of taxation expenditures/etd
A. Tax laws must be applied within the territorial jurisdiction of the state A. Fiscal adequacy
B. Exemption of government agencies and instrumentalities from taxation B. Equality or theoretical justice
C. No appropriation of public money for religious purposes C. Administrative feasibility
D. Power to tax cannot be delegated to private persons or entities D. Revenue generation

They exist independent of the constitution being fundamental powers of the state, except
A. Power of taxation
B. Police power
C. Power of eminent domain
D. People power
The tax laws must be capable of convenient, just and effective administration The process or means by which the sovereign, through its law-making body raises income to
A. Fiscal adequacy defray the expenses of the government
B. Equality or theoretical justice A. Toll
C. Administrative feasibility B. License fee
D. Internal acceptability C. Taxation
D. Assessment
Our National Internal Revenue Laws are
A. Political in nature Enforced proportional contributions from persons and property levied by the state by virtue of
B. Penal in nature its sovereignty for the support of the government and for all public needs
C. Criminal in nature A. Toll
D. Civil in nature B. License fee
C. Tax
Subject to inherent and constitutional limitations, the power of taxation is regarded as D. Assessment
supreme, plenary, unlimited and comprehensive
A. Basis of taxation Persons or things belonging to the same class shall be taxed at the same rate
B. Situs of taxation A. Simplicity in taxation
C. Scope of taxation B. Reciprocity in taxation
D. Theory of taxation C. Equality in taxation
D. Uniformity in taxation
Statement 1 – The point on which a tax is originally imposed is impact of taxation
Statement 2 – Police power is superior to the non-impairment clause of the constitution The tax should be proportional to the relative value of the property to be taxed
Statements 3 – As a rule, taxes are subject to set-off or compensation A. Simplicity in taxation
Statements 4 - As a rule, provisions on validity of tax exemptions are resolved liberally in the B. Reciprocity in taxation
favor of the taxpayer C. Equality in taxation
D. Uniformity in taxation
statement 1 statement 2 statement 3 statement 4

True False False False The following are the nature of taxation, except
A. Inherent in sovereignty
True True False True B. Essentially legislative in character
C. Subject to inherent and constitutional limitations
True True False False D. Subject to approval by the people

False True False True It literally mean “place of taxation”; the country that has the power and jurisdiction to levy and
collect the tax.
A. Basis of taxation
The levying or imposition of tax and the collection of the tax are processes which constitute
B. Situs of taxation
the taxation system
C. Scope of taxation
A. Basis of taxation
D. Theory of taxation
B. Aspects of taxation
C. Nature of taxation
D. Theory of taxation
The existence of the government is a necessity and that the state has the right to compel all As to scope of the legislative power to tax, which is not correct?
individuals and property within its limits to contribute A. Where there are no constitutional restrictions, and provided the subjects are within the
A. Basis of taxation territorial jurisdiction of the state, Congress has unlimited discretion as to the persons,
B. Situs of taxation property or occupations to be taxed
C. Scope of taxation B. In the absence of any constitutional prohibition, the House of Representatives has the
D. Theory of taxation right to levy a tax of any amount it sees fit
C. The discretion of Congress in imposing taxes extends to the mode, method or kind of
The reciprocal duties of support and protection between the people and the government tax, if not restricted by the constitution
A. Basis of taxation D. The sole arbiter of the purpose for which taxes shall be levied is CIR, provided the
B. Situs of taxation purpose is public but the courts may review the levy of the tax to determine whether or
C. Scope of taxation not the purpose is public
D. Theory of taxation
Which of the following is a nature of taxation?
A tax must be imposed for public purpose. Which of the following is not a public purpose A. The power is exercised by legislative action
A. National defense B. It is generally payable is money
B. Public education C. It is essentially an administrative function
C. Improvement of the sugar and coconut industries D. Without it the state can continue to exist
D. Improvement of a subdivision road
Which of the following is not a determinant of the place of taxation?
Which is not an essential characteristic of a tax? A. Source of the income
A. It is unlimited as to amount B. Residence of the taxpayer
B. It is payable in money C. Citizenship of the taxpayer
C. It is proportionate in character/etd D. Amount of tax to be imposed
D. It is an enforced contribution
An escape from taxation where the tax burden is transferred by the one on whom the tax is
Special assessment is an enforced proportional contribution from owners of land especially imposed or assessed to another
benefited by public improvement. Which one of the following is not considered as one of its A. Shifting
characteristics? B. Exemption
A. It is levied on land C. Transformation
B. It is based on the government’s need of money to support its legitimate objectives D. Capitalization
C. It is not a personal liability of the persons assessed
D. It is based solely on the benefit derived by the owners of the land An escape from taxation where the producer or manufacturer pays the tax and endeavors to
recoup himself by improving his process of production thereby turning out his units of
It is the privilege of not being imposed a financial obligation to which others are subject products at a lower cost
A. Tax incentive A. Shifting
B. Tax exemption B. Exemption
C. Tax amnesty C. Transformation
D. Tax credit D. Capitalization
An escape from taxation where there is a reduction in the price of the taxed object equal to In case of conflict between the Tax Code and the Philippine Accounting Standards (PAS)
the capitalized value of future taxes which the taxpayer expects to be called upon to pay A. PAS shall prevail over the Tax Code
A. Shifting B. PAS and Tax Code shall be both disregarded
B. Exemption C. Tax Code shall prevail over PAS
C. Transformation D. The taxpayer may choose between the PAS or the Tax Code
D. Capitalization
Tax of a fixed amount imposed upon all persons residing within a specified territory without
The use of illegal or fraudulent means to avoid or defeat the payment of tax regard to their property or occupation they may be engaged
A. Exemption A. Personal, poll or capitation
B. Shifting B. Property
C. Avoidance C. Excise
D. Evasion D. Regressive

The use of legal or permissible means to minimize or avoid taxes Tax imposed on personal or real property in proportion to its value or on some other
A. Exemption reasonable method of apportionment
B. Shifting A. Personal, poll or capitation
C. Avoidance B. Property
D. Evasion C. Excise
D. Regressive
Synonymous to tax evasion
A. Tax dodging Tax imposed upon the performance of an act, the enjoyment of privilege or the engaging in an
B. Tax minimization occupation
C. Tax exemption A. Personal, poll or capitation
D. Tax evasion B. Property
C. Excise
Synonymous to tax avoidance D. Regressive
A. Tax dodging
B. Tax minimization Tax which is demanded from the person whom the law intends or desires to pay it
C. Tax exemption A. Direct
D. Tax evasion B. Indirect
C. Excise
In every case of doubt, tax statutes are construed D. Percentage
A. Strictly against the government and the taxpayer
B. Liberally in favor of the government and the taxpayer Tax which is demanded from one person in the expectation and intention that he shall
C. Strictly against the government and liberally in favor of the taxpayer indemnify himself at the expense of another
D. Liberally in favor of the government and strictly against the taxpayer A. Direct
B. Indirect
In every case of doubt, tax exemptions are construed C. Excise
A. Strictly against the government and the taxpayer D. Percentage
B. Liberally in favor of the government and the taxpayer
C. Strictly against the government and liberally in favor of the taxpayer
D. Liberally in favor of the government and strictly against the taxpayer
Tax which imposes a specific sum by the head or number or by some standard of weight or D. The Bureau of the Internal Revenue has the duty and the exclusive power of
measurement and which requires no assessment other than a listing classification of the enacting,implementing and interpreting tax laws
objects to be taxed The strongest of all inherent powers of the state because without it, the government can
A. Specific neither survive nor dispense any of its other powers and functions effectively.
B. Ad-valorem A. Police Power
C. Excise B. Power of Eminent Domain
D. Income C. Power of Taxation
D. Power of Recall
Tax of a fixed proportion of the amount or value of the property with respect to which the tax is
assessed This power is superior to the non-impairment clause and is broader in application because it is
A. Specific a power to make and implement the laws.
B. Ad-valorem A. Power of Taxation
C. Excise B. Power of Recall
D. Percentage C. Power of Eminent Domain
D. Police Power
Tax based on a fixed percentage of the amount of property, income or other basis to be taxed
A. Proportional Which of the following statements is not correct?
B. Progressive A. An inherent limitation of taxation may be disregarded by the application of a
C. Regressive constitutional limitation.
D. Indirect B. Income tax liabilities shall be paid by the inhabitants even if foreign invaders occupy
our country
Tax where the rate decreases as the tax base increases C. Taxes may be imposed retroactively by law, but unless so expressed by such law,
A. Proportional these taxes must only be imposed prospectively.
B. Progressive D. Tax laws are either political or penal in nature.
C. Regressive
D. Indirect Which of the following is not a constitutional limitation on the Power of Taxation?
A. No person shall be deprived of life, liberty or property without due process of law.
Tax where the rate increases as the tax base increases B. No person shall be denied the equal protection of the law.
A. Proportional C. No person shall be imprisoned for debt or non-payment of tax.
B. Progressive D. No law granting any tax exemption shall be passed without the concurrence of a
C. Regressive majority of all the members of Congress.
D. Indirect
The distinction of a tax from permit or license fee is that a tax is:
A. Imposed for regulation.
Which of the following statements is not correct? B. One which involves an exercise of police power.
A. Tax burdens shall neither be imposed nor presumed to be imposed beyond what the C. One in which there is generally no limit on the amount that maybe imposed.
statute expressly and clearly states because tax statutes should be constructed strictly D. Limited to the cost of regulation.
against the government
B. Tax exemptions, tax amnesty, tax condonations and their equivalent provisions are not Police power as distinguished from the power of eminent domain:
presumed and, when granted, are strictly construed against the taxpayer because A. Just compensation is received by the owner of the property.
such provisions are highly disfavored by the government B. Maybe exercised by private individuals.
C. Exemptions from taxation are highly disfavored in law and he who claims tax C. May regulate both liberty and property.
exemption must be able to justify his claim it right D. Property is taken by the government for public purpose.
A tax wherein both the incidence of or the liability for the payment of the tax as well as the Which of the following is not a scheme of shifting the incidence of taxation?
burden of the tax falls on the same person. A. The manufacturer transfers the tax to the consumer by adding the tax to the selling
A. Direct tax price of the goods sold;
B. Value added tax B. The purchaser asks for a discount or refuse to buy at a regular prices unless it is
C. Indirect tax reduced by the amount equal to the tax he will pay;
D. Percentage tax C. Changing the terms of the sale like FOB shipping point in the Philippines to FOB
destination abroad, so that the title passes abroad instead of in the Philippines;
Which one of the following is not a characteristic or element of a tax? D. The manufacturer transfers the sales tax to the distributor, then in turn to the
A. It is an enforced contribution wholesaler, in turn to the retailer and finally to the consumer.
B. It is based on the ability to pay.
C. It is legislative in character. Which if the following statements is not correct?
D. It is payable in money or in kind A. Taxes may be imposed to raise revenues or to provide disincentives to certain
activities within the state;
Tax as distinguished from license fees: B. The state can have the power of taxation even if the Constitution does not expressly
A. Limited to cover cost of regulation give it the power to tax;
B. Non-payment does not necessarily render the business illegal C. For the exercise of the power of taxation, the state can tax anything at any time;
C. A regulatory measure. D. The provisions of taxation in the Philippine Constitution are grants of power enabling
D. Imposed in the exercise of police power the state to impose taxes.

The power to impose taxes is exercised by License fee as distinguished from tax:
A. The President A. No-payment does not necessary render the business illegal;
B. The Supreme Court B. imposed in the exercise of taxing power
C. Bureau of Internal Revenue C. . A revenue raising measure;
D. Congress D. Limited to cover cost of regulation

One of the characteristics of internal revenue laws is that they are: Value-added tax is an example of:
A. Criminal in nature; A. Graduated tax;
B. Political in nature; B. Progressive tax;
C. Penal in nature; C. Regressive tax;
D. generally prospective in application; D. Proportional tax.

Which of the following is not an example of excise tax: Which tax principle is described in the statement ‘The more income earned by the taxpayer,
A. Transfer tax; the more tax he has to pay.’
B. Sales tax; A. Fiscal adequacy
C. Real property tax; B. Theoretical justice
D. Income tax. C. Administrative feasibility
D. Inherent in sovereignty
The following are similarities of the inherent power of taxation, eminent domain, and police
power, except one: The most superior and least limitable among the fundamental powers of the state:
A. Are necessary attributes of sovereignty; A. Power of recall
B. Compensation is received; B. Police power
C. Superior to the non-impairment clause of the constitution C. Power of taxation
D. Are legislative in character. D. Power of eminent domain
One of the characteristics of a tax is that: 82. This is a demand of ownership:
A. It is generally based on contract; A. License fee
B. It is generally assignable; B. Tax
C. It is generally payable in money; C. Toll
D. It is generally subject to compensation. D. Customs duties

The following are the characteristics of our internal revenue laws except: Income tax is generally regarded as
A. Political in nature; A. An excise tax
B. Generally prospective in application B. a tax on persons
C. Civil in nature; C. a property tax
D. May operate retrospectively if congress so provides D. tax on profits

Which of the following has no power to impose taxes? Which of the following is not acceptable for legally refusing to pay the tax?
A. Provinces A. That the right of the state to collect the tax has prescribed
B. Cities B. That there is no jurisdiction to collect the tax
C. Barangays C. That the tax law was declared as unconstitutional
D. Barrios D. That there is no benefit derived from the tax

Tax as distinguished from special assessment: A law granting tax exemption requires the concurrence of
A. Not a personal liability of the person assessed A. Majority vote of members of Congress
B. exceptional as to time and place B. ¾ vote of members of Congress
C. Based wholly on benefits C. 2/3 vote of members of Congress
D. based on necessity and is to raise revenues D. unanimous vote of members of Congress

Under this basic principle of a sound tax system, the Government should not incur a deficit: No person shall be imprisoned for debt or non-payment of poll tax. This is a (an)
A. Theoretical justice A. Inherent limitation
B. Fiscal Adequacy B. International limitation
C. Administrative feasibility C. Constitutional limitation
D. Uniformity in taxation D. Territorial limitation

Which of the following may not raise money for the government? The Department of Finance thru its officers entered into a contract with foreign investors
A. Power of taxation granting them exemption from all forms of taxes to encourage investments in the Phils. The
B. Police power contract is
C. Eminent domain A. Void, unless the President ratifies
D. License fees B. Void, because the power to grant tax exemption is vested in Congress
C. Valid, if the President has authorized the officers to enter into such contract
No person shall be imprisoned for non-payment of this: D. Valid, because the purpose is to promote public welfare
A. Excise tax
B. Value added tax Tax as distinguished from debt
C. Income tax A. No imprisonment for non-payment
D. Poll tax B. based on contract
C. May be paid in kind
D. based on law
Compliance with procedural requirements must be followed strictly to avoid collision between
the state's power to tax and the individuals recognized rights.
A. Due process of law
B. Equality in taxation
C. Non-infringement of religious freedom
D. Non-impairment of obligations and contracts.

“Goodluck”
-Hannah B.