Legal Bases of

Philippine Taxation
A. Constitution
Article VI, Section 28- “rule of taxation shall be uniform and equitable” and Congress shall
evolve a progressive system of taxation

(Lahat ng batas na may connection sa taxation, ay patas at hindi pabago bago)

B. National Law
1. National Internal Revenue
- A nonresident
Philippines shall be subject
citizen and a resident alien
within the Philippines.
Code- R.A No. 8424 or the Tax Reform Act of 1997
alien individual engaged in trade or business in the
to an income tax in the same manner as an individual
individual, on taxable income received from all sources

(Sinasaad dito na meron tayog kakayahang magdispute ng mga assessments, refunds

of internal revenue taxes, fees or other charges, penalties imposed in relation thereto)

2. R.A No. 10963 or Tax Reform for Acceleration and Inclusion (TRAIN) Act of 2017
- The TRAIN Act aims to make the Philippine Tax System simpler, fairer,
and more efficient to promote investments, create jobs, and reduce poverty. Along with
this objective, the CTRP (Comprehensive Tax Reform Program) also aims to raise
revenues that will fund the President’s Build, Build, Build Project that will sustain high
and inclusive growth of the country, and finance investment in our people through
enhanced education, health, and social services.
( ang ninanais ng batas TRAIN ay makabuo ng maayos,simple at epektibong Sistema
ng pangongolekta at pagpapataw ng buwis.)

3. R.A No. 7160 or Local Government Code of 1991

- It is hereby declared the policy of the State that the territorial and political
subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development as self-reliant communities and make them
more effective partners in the attainment of national goals. Toward this end, the State
shall provide for a more responsive and accountable local government structure
instituted through a system of decentralization whereby local government units shall be
given more powers, authority, responsibilities, and resources. The process of
decentralization shall proceed from the national government to the local government
units.
(to summarize this, sinasaad lang naman dito na ang bawat area na may may local
government ay binibigyan ng sariling kakayanan na pamunuan ang bawat lugar na
nasasakupan nito at dahil dito, may sarili silang kakayanan at kjapangyarihang isaayos
ang kanilang lugar na nasasakupan. Parang sinasabi lang nito is that yung power and
responsibilities ng national government ay ipinapasa sa mga local government natin.)
LGUs play a major role in a community's development, provide the links between the
people and government, address its community's problems and concerns,
enforce policies and hold influence over its communities.
(1) ROLES AND FUNCTIONS OF LOCAL GOVERNMENT UNITS || PHILIPPINE
POLITICS AND GOVERNANCE - YouTube
 Bureau of Internal Revenue (BIR)- collect tax in national level

 Local treasurer’s office- collect tax at local level (provincial, city, Municipal,
barangay)
 BIR power and duty
1. Reduction and collection of all internal revenue taxes, fees, charges
(tatalakayin natin mamaya kung ano nga ba ang mga kinds ng taxes na
kinokolekta nila)
2. Enforcement of forfeitures, penalties, and fines. Execution of judgements in all
cases decided by Court of Appeals and ordinary courts
3. Administer, supervise, and police power by National Internal Revenue Code
(It shall be the BIR employee’s duty to execute and comply the laws and
regulation under the National Internal Revenue Code)
 Now that we’ve discussed the power and duty of BIR, I’d like to talk about the
different kinds of taxes that they collect

Kinds of Taxes
1. Direct taxes- paid from your income and properties. Ex: personal and corporate
income tax, property, capital taxes

2. Indirect taxes- based on consumption like excise tax, VAT Percentage tax,
documentary stamp tax (DST)

Direct Taxes
 Income Tax- direct tax paid by individual or organization imposed on
(ito yung commonly na alam natin na tax, ito yung binabayadan ng ating mga
magulang na tax)
 Compensation Income- salaries, wages, taxable bonuses, fringe benefits
(Ito yung sahod na tinatawag natin. bago magarise o magkaroon ng
compensation, dapat magkaroon ng employer-employee relationship. Ibig
sabihin, dapat may employer, dapat may employee. For example,
nagtratrabaho ako sa law firm na pagmamay-ari ni jhonrey. Dahil nagtratrabaho
ako sa kanya, bibigyan niya ako ng compensation like salaries and wages, fringe
benefits (fringe benefits ay yung mga benefits na offer sayo ng employer or ng
company na pagtratrabahuhan mo such as health insurance, retirement-plan
services, employer-provided celphone)
 Business Income- practice of profession, trades, sale of assets.
(Ang business income ay yung mga income na nakukuha ng isang tao from a sale
of product or services. Isa sa example nito ay yung nakukuhang income ng isang
individual from a service business such as airlines, lawfirms, bank etc {Example
ay pilot and rents from real estate business}

 Passive Income- tax on deposits, royalties, dividends

A royalty is a legally binding payment made to an individual or company for the ongoing use of their assets,
including copyrighted works, franchises, and natural resources.

A dividend is the distribution of a company's earnings to its shareholders

(ang passive income is kumikita ka ng pera without moving a muscle.

Pumapasok na lang yung pera sayo. Example is… apartment…30 rooms… 3k a
month… passive income=90k a month)
 Compensation and self-employment income
 - Individual earning compensation income are tax base on income tax
schedule for individuals. (yung mga individuals na nageearn ng
compensation income, nagbabase sila sa income tax schedule which is
ididiscuss ko later)
- Self-employed individuals and professional- tax base on income tax
schedule, applicable percentage tax, VAT. (ang mga example ng self
employed individuals ay mga single proprietors, professionals, and mixed
income earners)

 If gross sales do not exceed VAT threshold, they have option to tax base on
income tax schedule for individual and applicable percentage or flax tax rate of
8% on gross sales
(lets’s talk about first kung sino yung pwedeng gumamit nung 8% percent flax
tax rate method.
So 1st criteria is that the tax payer should be either a self-employed person
(self-proprietor, professionals, sales agent, book marketer etc.) and 2 nd is that
you must be registered as a non-vat registered entity, and 3 rd is that you must
express your intention to avail the 8% tax rate sa simula palang or kapag
magreregister ka sa BIR ng isang business.)
(even though na non-vat registered entity ka, but lumagpas sa 3 million ang
gross sales mo, you will0 be considered as a vat registered entity)
(vat threshold is 1919500 -3000000)
Kapag lumagpas ka ng ng 3000000,mandatory tax payer ka na

 Income Tax Schedule for Individuals 2018-2022

 Types of Regular Income Tax | Glen Ramos - YouTube
(may table na ishoshow)

 Interest income- bank deposit, trust funds; tax at rate of 20%

(example nito is naglagay ako ng 100000 sa banko at pinautang ito ng banko sa
ibang tao. Sabihin nating umabot na ng tatlong taon ang utang na ito. So paano
natin malalaman kung magkano ang interest na makukuha ko dito. Unang una
inconvert muna natin ang interest rate dito sa Pilipinas which is 4.25% into
decimal figure para mas madaling icompute. So bale 0.0425. and then I
mumultiply natin ito sa number of years kung ilang taon na itong nautang and
ang makukuha natin ay 0.1275. and imumultiply ito sa kung magkano ang
pinahiram nating pera which 100000 pesos. So the interest earned for the
money lent for a period of 3 years is 12,750 pesos.)
 Royalties- except on books, literary works, and musical composition; tax at rate
of 10% (bayad sa intellectual property ng isang tao. [ copyright of literacy, artistic,
or scientific])
 Prices and winnings from PCSO Lotto in excess of 10,000 are tax at rate of 20%,
below 10,000 are tax base on income tax for individuals (Other winnings:
Provided, that winnings amounting to P10,000 or less from PCSO and lotto
shall be exempt from tax; Provided, further that should the winnings exceed
P10,000, the tax herein imposed shall be ten percent.”)

 Income tax from depository bank under expanded foreign currency deposit
system is tax at rate of 15% (FOREIGN CURRENCY DEPOSIT UNIT? Refers
to a unit of a local bank/branch of a foreign bank authorized by the Bangko
Sentral ng Pilipinas (BSP) to engage in foreign-currency denominated
transactions) (examples of foreign banks in the Philippines are Citibank,
Bank of America, JP morgan chase)
 Income from long-term deposits and investments when pre- terminated in less
than 3 years after making deposit or investment is tax at rate of 20%, less than
4 years, 12%, less than 5 years, 5% (Short-term deposits are considered to be
term deposits with terms lasting no longer than one year. Long-term deposits can
have interest paid at maturity too but are more likely to pay interest on an annual
or monthly basis have terms lying anywhere between that one to five year range.
In the majority of cases, longer-term deposits have higher interest rates than
shorter ones. This is because banks want to hold your deposits for an extended
period of time, so they're more likely to offer a more lucrative interest rate to
attract your business.)

 Dividends- 10% tax ( Dividend refers to a reward, cash or otherwise, that a

company gives to its shareholders.)
 Capital gains- from sale of share of stocks not traded in tax exchanged-15% tax
(Capital gain is the profit one earns on the sale of an asset like stocks,
bonds or real estate.)

 Income tax for corporation is 30% (A corporation is a legal entity created by

individuals, stockholders, or shareholders, with the purpose of operating for
profit. Corporations are allowed to enter into contracts, sue and be sued,
own assets, remit federal and state taxes, and borrow money from financial
institutions.
 Brief History of
Philippine Taxation
Spanish Era
(nang dumationg ang mga espanol noong 1521, nagkaroon na ng ibang paraan sa pangongolekta
ng buwis, nagkaroon na tayo ng Contador de resultas)
Contador de’ Resultas- serve as Chief Royal Accountant; function similar to
Commissioner of Internal Revenue; Chief Arbitrator whose decision on financial
matters are final except when revoke by Council of Indies
(sila yung nangongolekta ng taxes noon)

 Taxes collected varies from tribute or head tax of one gold maiz annually, tax
on value of jewelries and gold trinkets, indirect taxes on tobacco, wine,
cockpits, burlas and powder
 Spanish treasury- subsidize the Philippines in amount of P250,000 per annum
due to poor financial condition of the country

American Era
 1898-1901- ruled by American military governors
 1902- first civil government establish under William H. Taft
 Luke E. Wright- second civil governor; BIR was created on July 2, 1904
  August 1, 1904- BIR was formally organized and operational under Secretary of
Finance, Henry Ide (author of Internal Revenue Law of 1904) with John S. Hord
as first collector
 Ellis Cromwell- second collector
 William T. Holting- third collector; collection made by Real Estate and License
Division were confined to revenue

Accruing to City of Manila

 James J. Rafferty- fourth American collector
 US Pres. McKinley- Filipinization policy
 First 3 Filipino BIR Collectors:
1. Wenceslao Trinidad
2. Juan Posadas Jr.
3. Alfredo Yatao

Japanese Era
Bureau was combined with Customs Office and headed by Director of Customs and
Internal Revenue

Post War Era

 July 4, 1946- Philippines gained independence from US
 31 inspection units- country is divided; each is under Provincial Revenue Agent
and City Revenue Agent in distilleries and tobacco factories

 R.A 690- adopt the withholding tax system; collecting income tax upon receipt
result to collection of 25% of total income tax collected during the said period
 1955- regional office set up in Cebu and Davao
 January 1957- title of head of Bureau was changed from Collector to
Commissioner

 Jose Arenas- last Collector and first Commissioner of BIR

 Tax Census Division- establish to consolidate all statements of assets, income
and liabilities of all individuals and resident corporations in the Philippines by a
National Tax Census
  June 19,1959- Rewards Law (R.A No. 233); strictly enforce the payment of

taxes and discourage tax evasion where Informers were rewarded 25%
equivalent of revenue collected from tax evader
 Tobacco Inspection Board and Accountable Forms Committee created directly
under Office of the Commissioner

Marcos Administration
 Misael Vera- implement “Blue Master-Program” to curb abuses of both taxpayer
and BIR personnel
“Voluntary Compliance Program”- to encourage professional in private and

government sectors to report their true income and pay correct taxes

 TAN- Tax account Number; used for faster verification of tax records
 Martial Law- tax amnesty decrees- issue to enable erring taxpayers to start
anew
Bureau’s National Office- transferred from Finance Building in Manila to its own
Building in Quezon City
 National Internal Revenue Code of 1977- updated the 1934 Tax Code

Aquino Administration
 “Operation: Walang Lagay”- launched to promote efficient and honest
collection of taxes
 January 30,1987- Bienvenido Tan, Jr.- reorganized the Bureau
 1988- VAT was introduced
1986 Tax Reform Program- adapt the VAT system; design to simplify tax
administration and make tax system more equitable
 Jose Ong- improve tax collection and simplified tax administration
 TIN- Tax Identification Number; replace the TAN or Tax Account Number
Tax Reform Program
Build Build Build Projects | Subic-Clark Alliance for Development | World within Reach
(scad.gov.ph)
Marcos vows to continue ‘Build, Build, Build’ program - BusinessMirror

 TRAIN- Tax Reform for Acceleration and Inclusion- first package of

comprehensive tax reform program (CTRP) by Pres. Duterte’s administration
seek to correct number of deficiencies in tax system to make It simpler, fairer,
and more efficient
 Designed to redistribute some of the gains to the poor
 Lower and simplify personal income taxes, simplify estate and donor’s tax,
expand VAT, adjust oil and automobile excise tax and excise tax on sugar-
sweetened beverages

What will Tax Reform fund?

1. Education
 100% enrollment and completion rates
 Build 113,553 more classroom
 Hire 181,980 more teachers between 2017-2020
2. Healthcare Services
 Upgrade 704 local hospital and establish 25 local hospitals
 Achieve 100% Philhealth coverage
 Upgrade/relocate 263 rural and urban health units to disaster-resilient
facilities
 Build 15,988 new barangay health stations
 Build 2,424 new rural health units and urban health centers
 Hire additional 2,424 doctors, 29,466 nurses, 1,114 dentists, 3,288 medical
technologist, 911 public health associates and 2,497 UHC implementers

3. Infrastructure Programs

 Major highways, expressways, flood control projects

TRAIN Law
 Main features:
1. Lowering Personal Income Tax (PIT)
 2. Simplifying Estate and Donor’s Tax
3. Expanding VAT
4. Increasing Excise Tax of Petroleum Products
5. Increasing Excise Tax of Automobiles
6. Excise Tax on Sweetened Beverages

Lowering Personal Income Tax (PIT)

 Those with annual taxable income below P250,000 are exempt from paying PIT
 Rest of taxpayer, except the richest, see lower rates from 15% to 30% by 2023
 Top individual taxpayer who exceeds 8 million, face higher
Tax rate from 32% to 35%
 32% tax- income of 500,000 annually but TRAIN will bring it down to 25%
 Minimum wage earners- exempted from income tax as their income is below
P250,000

Simplifying Estate and Donor’s Tax

 Lowered and harmonized so it does not matter if the person pass away, donated
a property or transfer a property
 Loss in revenue but make land market more efficient so that land will go to its
best use

Estate Tax
 Tax rate of 6% based on the net value with standard reduction of P5million and
exemption for first P10 million for family home
( Estate Tax is a tax on the right of the deceased person to transmit his/her
estate to his/her lawful heirs and beneficiaries at the time of death and on
certain transfers)
Donor Tax
 Rate of 6% of net donations for gifts above P250,000 yearly regardless of
relationship to the donor

Expanding VAT
 Philippines- one of has highest VAT rates but has highest number of exemptions
in Southeast Asia Region
(In the Philippines, too many goods and services are exempted from taxes.
For instance, our value-added tax (VAT) law has 59 lines of exemptions – more
compared with the VAT laws of our neighbors.)
 Collect same VAT revenues as Thailand who had 7% while Philippines has 12%
 TRAIN- aims to clean VAT system by limiting VAT exemptions to necessities like
raw agriculture food, education, and health
 Use budget to provide targeted transfers and programs that are more
transparent and accountable
 Repeals 54 out of 61 special laws with non-essential VAT exemptions

 Purchase of senior citizen and PWD will continue to exempt from VAT
 Housing below P2 million will exempt from VAT in 2021
 Medicines for diabetes, high cholesterol and hypertension will exempt from VAT
in 2019