National Taxation Local Taxation

NIRC – TRAIN LAW LGC OF 1991

7 Internal Revenue Taxes Local Taxes

-IT -Ordinary Local Tax (Code)
-VAT -Ordinary Local Taxes (Local Sanggunian)
-Donor’s Tax (Wala sa batas pero authorized na i-levy ng
-Percentage Tax Sanggunian)
-Excise Tax
-Doc Stamp Tax -Real Property Tax
-Estate Tax

REMEDIES REMEDIES

Govt. to Taxpayer Govt. to Taxpayer

Taxpayer to Govt. Taxpayer to Govt

Collection Collection
Procedures Procedures

VAT, Percentage Tax – Business Tax

Donor’s Tax, Estate Tax – Transfer Tax (the tax is on the transfer)
Excise Tax- Tax in the manufacture, production, and importation
Doc Stamp Tax – Execute ng document

Rule on Taxation:
In case of doubt, whether to impose or not to impose, do not levy, because taxes are burdens.
In the case of exemptions from tax, strictly construed against the taxpayer.

Sweldo lang pinagkakakitaan – Compensation Income Earner

Trade/ Business – self-employed individual
Exercise of Profession ang pinagkakakitaan – Self-employed professional
Sweldo + Trade or business –
Sweldo + EOP –
Sweldo + T/B + EOP -MIXED INCOME EARNER

Corporation – Trade/Business – Corporate Taxpayer

Act of earning is already subject to income tax.

When you are engaged in trade/business or exercise of profession – automatic na may VAT or
Percentage Tax.

Dahil ikaw ay gumastos/bumili, meron kumita.

Kumita – gumastos - yung expense creates an income for another taxpayer. So lahat nagiging
taxpayer.
So dahil gumastos ka, meron kang matitira na balance. (Kita minus gastos = balance)

Balance: Withholding Tax/Income Tax

Pwede mo ibili ng Real Property etc.

-Real Property: (assets)

Tangible Personal Property
Intangible Personal Property
-Bank
-Insurance
-Shares of stocks

Bigay/inter vivos
Donor’s Tax

For all of the transactions, may document na ine-execute as proof of the transaction,
therefore, Documentary Stamp Tax.

If engaged in trade/business, you may also be involved in manufacturing and production.

Pwedeng ikaw ang nagpro-produce para ibenta mo or tagabili lang then ibebenta mo, may
excise tax.

Death – Estate Tax (‘Yung estate ang may buwis)

It can happen that one particular transaction may subjected to two or more types of taxes
and we call it double taxation.

The excess between your income and expense ay lagi mong pera. Either ipamimili mo ng asset
or ilalagay mo sa bank or Insurance

KUMITA

Remember sa Income Tax, pinaka-importanteng concept:

1. Income-Expense Cycle.

Kita (taxpayer 1) -> gastos (nagiging buyer ka) -> seller (taxpayer 2)

So everytime you received income and you have to spend, somebody else realizes income
which will also be spent, realizing income for another taxpayer and so on (spend, receive,
spend, receive.

2. Taxable period – 12 months

Calendar Year – 12 months. starts on January 1, end on December 31

Pwede gamitin ng tao (individual) and corporation.

Fiscal Year – 12 months beginning the first day of any month and ending after the 12 th month
period. It’s always the first day of the month, ending last day of the previous month.
Example: February 1 ang start, ending January 31.

For Corporation lang, bawal ang tao.

3. Definition of Income – anything that flows into the wealth of a taxpayer other than the
return of capital or anything that increases your network other than the return of capital

Gross Receipt – binibenta mo service

Gross sale – binebenta mo goods

Gross Income – after the cost of sales

Net Income – after the allowable deductions

4. a) Did you receive anything? Whether in kind or cash, Kasi kung wala kang tinanggap,
forget about income tax.
b. Yes -> Is it income?
c. Yes -> taxable?
- source of income (within or without)
- kinds of taxpayers
- kinds of income
- inclusions/exclusions, exceptions
- deductions
Capital gains v. capital loss
Ordinary gains v. ordinary loss
Capital asset v. ordinary asset
Capital Expenditures v. Ordinary expenses

Holding period

d. What kind of tax and rate? (depende kung sin, saan galing ang income, anong klaseng
income? Depende syan saan mo lang masasabi if what kind of income tax do we pay and at
what rate)
5. Kinds of Income Taxes:

a) Net Income Tax System (NIT)

In 12 months taxable period whether fiscal or calendar year, pinagsama sama yung items ng
gross income tapos meron sa batas nakalagay na allowable deduction. So, you cannot deduct
anything from the GI if not authorized by law.
GI minus AD = TNI x % (rates) (Section 34) = Tax Due
% - individual - 20%-35%
%- Corporation – 30% corporate tax

‘Yung tax due, if you have creditable withholding tax, ibabawas mo.

b) Withholding Tax (tawag niya Tong) – Tax at source

Source and Recipient. Si source and magtatanggal ng tax at mag remit sa BIR. Ang tawag na
sa matatanggap ni recipient ay income net of tax. This is one way of advanced collection of
taxes. That’s why the tax is withheld at source.

Creditable Withholding Tax – Lahat ng taxes na binawas nung binigay sa’yo na income, icre-
credit mo against dun sa taxes na due sa’yo. Kaya meron dun less creditable withholding tax,
if any.

Final Withholding Tax – it’s the same concept of the withholding of the tax at source and
remitting to the BIR but the income or transaction is already subjected to tax and no other
tax will be imposed. All transactions which have been subjected to final withholding tax shall
no longer be subject to any kind other of tax comparing it to creditable withholding tax in
which case the income or transaction will still be subjected to another kind of tax and you
credit the tax withheld against the tax due.

Expanded withholding tax – same concept kaya lang nag-iiba depende sa kind of income.

c) Gross Income Tax – Income tax on the gross = No authorized deductions. Pag nakuha mo si
gross income, tatanggalin si authorized deduction then you multiply it immediately with the
tax rate. Kaya the tax is on the gross.

d) 8% - applicable pag self-employed professional or self-employed individual, provided that

your gross sale or gross receipts do not exceed 3M. Tax on the gross, meaning wala kang AD
and applicable only if your GR/GS does not exceed 3M.

e) Fringe Benefit, MCIT, IAET, BPRT, ICDTs

Sari-sari store – Benta (12 months) – GS
Puhunan – cost of sales

Puhunan (cost of sales) minus benta (Gross sales) = Gross Income (if may deduction) minus
deduction = Taxable Net Income (yan ang tinatax)

CIE RC
SEP NRC
SEI RA
MIE NRAETB
NRA-ETB

Rentals provided that the lessee does not acquire any interest other than as a mere possessor.
The depreciation period for tangible personal property is for a period of 5 years. You cannot
claim as deductible business expense but in lieu thereof, you claim depreciation of the asset.
Ang bawal sa batas ay pag bumili ka ng asset na gagamitin mo sa trade or business mo ide-
deduct mo one time kaya in lieu thereof, what you can claim is the depreciation expense why
you are using the asset. You call this type of expense as capital expenditure.

Take note: You do not use capital expense to purchase a capital asset. It’s always, you use
capital expenditure to purchase an ordinary asset (asset which is use in trade or business) and
therefore, you cannot claim business expense (one time deduction) but in lieu thereof, because
you’re using the asset, you may now claim depreciation expense as the form of deduction.

Interest on loans

Bad debts – creditor

Interest expense – debtor (In the course of t/b)

Tax Arbitrage Rule – 33%

Business Expenses – Marketing expenditures – to maintain the sale in the nature of good will =
not allowed as business expense deduction because this are already in the nature of capital
expenditure. Example: signage.

Example: Leaflets, flyers = marketing collaterals and the purpose of which is to increase the
sales = allowed as deductible business expense.

All business expenses which are contrary to law, morals, public policy, or customs and tradition
are never allowed as deduction from gross income.
All legitimate expenses whether business is legal, or illegal are allowed as deductible business
expenses.

Tax Benefit Rule -

Effect of subsequent recovery of bad debt – shall form part of the gross income of the creditor
in the year of recovery.

Itemized Deduction
1. Necessary in the trade and business of the taxpayer
2. Actually paid or incurred
3. Reasonable in amount

Tax Benefit Rule

1. In the case of bad debt – claim as deduction subsequently recovered

2. In the case of taxes – claim as deduction subsequently refunded
3. In the case of casualty loss – claim as deduction subsequently recovered

When we apply the TBR, we declare as part of the gross income:

If asset – FMV at the time of recovery

If cash/taxes – actual value of bad debt recovered

Capital expenditure – expense incurred for the purchase of assets use in trade or business.

VAT

If output is more than input, go to BIR and pay the difference, that’s the VAT payable.
If you have more input than output, marami kang ginastos kesa binenta, wala kang babayaran
na VAT kasi may excess ka pa na input, so you have to credit it for the succeeding quarters.

You cannot claim input/output if you’re not BIR registered.

The law will always presume that you have applied the output tax of 12% on all of your sales.
It is always a requirement that whenever you sell, and you are a VAT registered with BIR, you
are under obligation to impose the VAT of 12%.
EXCEPT if your gross sales or gross receipts do not exceed 3M.

Importation = 12 % VAT
Exportation = Zero-rated

Zero-rated Exempt Transactions

The transaction is not subject to VAT at all The transaction is not subject to VAT only at
 stages. a particular stage. (ex: sales of good in
original state; bangus)
Input VAT is allowed to be credited against
output VAT. Input VAT is not allowed to be credited
against output VAT.

Negative effects of importation:

1. Pag nag-import ka, ang ibabayad mo sa seller, foreign currency na manggagaling sa PH,
therefore, it has the effect of reducing the foreign currency reserves of the country.

2. The imported goods compete with locally manufactured products.

Rentals of apartment units – 15K threshold – exempt

Gross receipts do not exceed 3M – exempt

Sale of property – 3M

If gross sale or gross receipt does not exceed 3M, it will be subject to 2% percentage tax of GS
or GR.

Donor’s Tax

When the goods are forming part of your ordinary course of trade and business and they are
for sale in the ordinary course of your trade and business and you sell them at a loss = NO
DONOR’S TAX.

Gross Estate
1.Decedent’s interest
2.Transfer for insufficient consideration
3. Transfer in contemplation of death
4. Revocable Transfer
5. Property passing under general power of appointment
6. Proceeds of life insurance policy
7. Prior interest

If the transfer for insufficient consideration is at the same time in contemplation of death,
revocable transfer, property passing under general power of appointment, then you include in
the gross estate. What do you include in the gross estate? The value at the time of death less
the consideration paid.

Proceeds of life insurance policy

1. If the designated beneficiary is the decedent himself, his estate, executor, or administrator
whether the designation is revocable or irrevocable – include in the gross estate; subject to
estate tax.

2. If the designated beneficiary is any person other than himself, his estate, executor, or
administrator and the designation is REVOCABLE – include in the gross estate; subject to estate
tax.

3. If the designated beneficiary is any person other than himself, his estate, executor, or
administrator and the designation is IRREVOCABLE – exclude in the computation of gross
estate; not subject to estate tax and no income tax.

Estate Tax – sino ang namatay

Donor’s tax – sino ang nagbigay
Income Tax – sino ang kumita

REMEDIES – collection of taxes

Cause of action – magbayad ang tao ng buwis.

All national taxes are self-assessed taxes – ang taxpayer ang nagco-compute ng babayaran
niyang buwis.

Local taxes – automatic assessment

1. Self-assessment
2. Pay as you file system

Lahat ng internal revenue taxes meron returns. Lahat nagsisimula sa taxpayer, when the
taxpayer files a return.

Return – verified statement prepared by the taxpayer providing for the material information
relevant to the kind of tax that you are paying for.

Due date –
CIE – April 15
Substituted filing – 1 employer from January to December – February 28
SEP, SEI, MIE – Quarterly (1, 2, 3, 4) – May 15, August 15, Nov 15, April 15
Corporation – Quarterly within 60 days from close of the quarter. Calendar year – on or before
April 15 of the following year – Fiscal year – on or before the 15th day of the 4th month following
the close of the fiscal year.
Capital Gains Tax – 30 days from sale
8% rate – 1, 2, 3, 4
VAT – 1, 2, 3, 4
Donor’s tax – 30 days from gift
ET – 1 year from debt

Effect if lumagpas ng 1 day sa deadline – 25% penalty = interest of double the legal interest
(12% per annum computed on daily basis from date of delay)

Fraud or bad faith – 50% surcharge + 12% interest per annum

Can the taxpayer amend the return? Yes. Within 3 years from the date of the filing of original
return provided that no notice of investigation is received by the taxpayer. Beyond 3 years –
you can no longer amend the return.

If no return has filed – the BIR has the power to file the return for you and your behalf.
(Presumptive gross sales, network method, comparing gross sales with gross sales of similar
industries or similar taxpayers within the same vicinities.

Where to file the return?

(Regional offices – Revenue District offices)
Wrong venue of filing – paano pag tinanggap ng BIR pero mali ‘yung venue? It is as if you did
not file any return and you did not pay any tax at all.

BIR

May have findings on the returns that you filed. If the BIR finds something wrong with the
return that you filed, it will come up with…

LOA – letter of authority to investigate/notice of investigation (when you received LOA, that’s
the start of the investigation by the BIR. Despite the fact that you’re still within the 3 year
period from the filing of original return, you cannot longer file an amended return.

After submission of documents as required, when the BIR finds something wrong with the
return you filed, BIR will then issue PAN. You will be given 15 days to reply, with or without
reply, BIR will then issue FAN.

Instances when the preliminary assessment notice is not required:

1. When it involves excise taxes.

2. When there is a mathematical error in the computation as appearing in the face of your
return.
3. When it involves withholding taxes, discrepancy with the withholding tax as appearing in
your return and the withholding taxes as remitted to BIR.

When any of these grounds is existing or present, BIR is not required to issue PAN and in lieu
thereof, can proceed to FAN.

Denial of due process pag hindi sinunod yung 1-3.

Until when is the BIR issue the FAN?

1. If you filed the return in good faith and filed it before due date – BIR can issue the FAN
within 3 years from due date.
Filed in good faith beyond due date – 3 years from actual date of filing.

2. If you file the return and the same is fraudulent or in bad faith, the prescriptive period
available to the government to issue FAN is 10 years from discovery of filing the fraudulent
return. Hindi pinag-uusapan dito ang date of filing because even if you filed the return before
due date, beyond dute, and the return filed is fraudulent, disregard the due date because it is
always counted 10 years from discovery.

3. If no return:

BIR has 2 options: 1. To file a return for you and your behalf or 2. Issue the FAN. When is the
due date? 10 years from discovery of the non-filing of return.

4. Waiver

When periods in 1-3 are about to expire and the BIR has not yet issued the FAN, BIR may
require you to execute a waiver (the execution of a waiver is a contract between the taxpayer
and BIR allowing the BIR to issue the FAN beyond these periods.) What is the waiver about?
Are you waiving your rights to be assessed even beyond the prescriptive period?

Strict requirements of waiver:

1. In writing
2. The signature of the taxpayer and date of execution appear in face of the waiver
3. The signature of the BIR officer and the date of acceptance by BIR officer was likewise be
indicated in the face of the waiver.
4. Duly notarized. 3 copies (Taxpayer, records of the case, BIR)

In case of failure of compliance – the waiver is not a valid one and therefore, the right of the
BIR to issue the FAN is not extended.

Period of extension – walang sinabi ang batas.

Why are dates indicated? Because the waiver should be executed prior to expiration of the
original periods.

Requisites of a valid FAN:

1. In writing
2. Address to the taxpayer (address indicated in your return) Paano kung nag change address
ka? It’s your obligation to change your address in the official records of BIR.
3. Providing for the basis in fact and in law of the amount of tax due. (nakasulat kung anong
klaseng tax and period ang covered. Pag absent ‘yan, not a valid FAN)
4. Providing for the amount of tax due (naka breakdown)
5. Demand to pay
6. Due date
7. Signed by the duly authorized BIR representative
8. Validly serve to the taxpayer (like service of summons)
-Personal service
-Substituted service to a person of sufficient discretion (capacity to fully comprehend the
consequences of a valid FAN) dapat may witness, example: Kagawad
-Pag ni-refuse, note na ayaw tanggapin kasi yan yung proof ng receipt
-Corporation-in case of absence of any of the duly authorized representatives of the
corporation, can you serve it to anybody else? Yes. Where? In the principal office of the
taxpayer as declared in his tax registration.
-Registered mail- basta kaya mo i-determine kung na-deliver or natanggap mo ‘yung mail.

Ang importante, was it validly served and validly received.

Kailangan ba ang FAN matanggap ng taxpayer within these prescriptive periods? No. ang
importante ma-issue ng BIR ‘yung FAN within the prescriptive period or within the period
covered by a valid waiver regardless of whether it is received by the taxpayer beyond the
prescriptive period. What is important is it is issued within the prescriptive periods. Hindi
importante kung kalian niya na receive, ang importante ay na-issue within the prescriptive
period.

Taxpayer
LOA- No protest
PAN- No protest
FAN- 30 days from receipt of the FAN, the taxpayer may file an ADMINISTRATIVE PROTEST.
It’s a sine qua non requirement if you want to question the FAN.

Ano itsura ng protest? MR or Motion for Reinvestigation.

MR – You are not submitting additional documents
MFR – You are submitting additional documents to assail the validity of FAN.

Regardless of any supervening event, 30-day period is non-extendible.

BIR
 Denied – Taxpayer 😞

Granted – 😀

Partly grant/deny – 🥲
Sit on your protest – non action 180 days

It is only the taxpayer who goes up to the CTA. If you do not file the protest, you cannot longer
question it because the assessment becomes final.

CTA – handling the case not in its appellate jurisdiction – Motion for New Trial available.
But if appellate jurisdiction from regular court – Motion for New Trial is not available

MTC -> RTC (in its appellate jurisdiction) -> CTA en banc -> SC
RTC -> CTA Division -> CTA en banc -> SC

Criminal case results into tax deficiency – mode of collection on the part of BIR. Where will the
fiscal file the Information – depends on jurisdictional amount of the regular courts. CTA may
exercise exclusive original jurisdictional when the principal amount of tax due is 1M above
exclusive of interest, penalties, and surcharges.
But if the criminal case does not result in any tax deficiency, the jurisdiction of regular court is
determined on the prescribed penalty, but CTA does not exercise any exclusive original
jurisdiction over criminal cases without tax deficiency.

REFUND
1. Ordinary claim for refund (229)

GROUNDS:
Illegally assessed
Illegally collected
Erroneously assessed
Erroneously collected

No claim for refund will be allowed unless you go to the stage of administrative claim for refund
or judicial claim for refund.

Administrative Judicial

Taxpayer files the claim for refund within 2 Same 2 year period
 years from payment.

In judicial claim for refund, IA, IC, EA, EC taxes, the administrative and judicial claims for refund
must be filed within the same 2 year period from payment. Pag di ka umakyat sa CTA sa ika last
day ng 2 years, then your claim for refund is denied with finality. Hindi na pwede i-file.

112 of Tax Code : Refund of excess input VAT in 0% transaction

Period for filing claim for refund.