Chapter 13-

Taxation
 What is Taxation?

 Compulsory or coercive
money collection by a
levying authority, usually a
government
 All types of involuntary
levies from income to
capital gains to estate tax
 An act, the resulting revenue is
called taxes
 Taxation- means by which
government finance their
expenditure by imposing charges
on citizens and corporate
entities
 Government- use taxation to
encourage or discourage
economic decisions
 Practice of the government
collecting money from its citizens
to pay for public service like
public libraries or park
 Practice of collecting taxes from
citizens based on their earnings
and property to support the
government and allow to fund
police, courts, military, build and
maintain roads
 The price of being a citizen
 Government compels taxation
through force- penalties or
imprisonment
 Government- imposing institution
to tax
 Physical assets- property
 Specific events- sales transaction
 Philippine Taxation

 Department of Finance-
taxes are mandatory
contributions of everyone
to raise revenue for nation-
building
 Revenue- use to pay our
doctors, teachers, other
Government personnel and
officials, building schools, building
 Why does the government collect
taxes?- to provide basic services
such education, health,
infrastructure
 Who pay taxes?- We all pay taxes
directly or indirectly. We pay
taxes according to our income or
level of consumption
 Income tax- based on ability to
pay principle wherein people
with higher income should pay
more
 Consumption tax- based on the
amount of goods and services
utilize, the more you consume,
the higher the tax you pay
 Filipino residing in the Philippines
are tax based on income earned
Here and abroad
 Filipino living abroad- tax based
on income earned in the
Philippines
 Resident aliens and non-resident
aliens in the Philippines- tax based
on their income earned in the
country
 Where do my taxes go?- fund
social services, infrastructure,
Human capital development; part
of taxes directly transferred to the
poorest through targeted transfer (
4P’s, pension of senior citizen,
PWD allowance, Philhealth)
 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
B. National Law
1. National Internal Revenue Code-
R.A No. 8424 or the Tax Reform Act
of 1997
2. R.A No. 10963 or Tax Reform for
Acceleration and Inclusion Act of
2017
3. R.A No. 7160 or Local
Government Code of 1991
 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
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
 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
• Compensation Income- salaries,
wages, taxable bonuses, fringe
benefits
• Business Income- practice of pro-
fession, trades, sale of assets
• Passive Income- tax on deposits,
royalties, dividends
 Compensation and self-
employment income-
 Individual earning compensation
income are tax base on income
tax schedule for individuals.
 Self-employed individuals and
professional- tax base on income
tax schedule, applicable percen-
Tage tax, VAT
 If gross sales does 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
 Income Tax Schedule for
Individuals 2018-2022
Annual Taxable Tax to pay
income
over But not over

0 250,000 0%

250,000 400,000 20% of excess over

250,000
400,000 800,000 30,000 + 25% of excess
over 400,000

800,000 2,000,000 130,000+30% of excess

over 800,000

2,000,000 8,000,000 490,000 + 32% of excess

over 2,000,000

8,000,000 2,410,000+ 35% of

excess over 8,000,000
 Interest income- bank deposit,
trust funds; tax at rate of 20%
 Royalties- except on books,
literary works and musical
composition; tax at rate of 10%
 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
 Income tax from depository bank
under expanded foreign currency
deposit system is tax at rate of
15%
 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%
 Dividends- 10% tax
 Capital gains- from sale of share
of stocks not traded in tax
exchanged-15% tax
 Capital gains from sale of real
property are tax at 6% except
when use to construct new
property within 18 months after
sale occur
 Income tax for corporation is 30%
 B. Indirect Taxes

1. VAT- impose on goods and

services; pass to buyer as part of
selling price; 12% rate since 2006
 Imported and domestic goods and
services are covered by VAT but
there are exemptions as found in
Section 109 of Tax Code
2. Percentage Tax- business tax
imposed on person/ transaction:
sell or lease goods, properties,
services
 Gross annual sales is below
1,919,500, not VAT registered are
exempt on VAT under Section 109
of National Internal Revenue Code
3. Excise Tax- indirect tax on goods
and services that have negative
Externalities and non-essential; can
be specific or ad valorem
• Specific- based on weight, volume
capacity, any other physical unit
of measurement
• Ad valorem- literally meaning
“according to value”, based on
selling price. A measure to
discourage too much consumption
of scarce resources and limit the
bad effects of some products
 Commodities subject to excise
tax: Sin products (alcohol,
tobacco), petroleum,
miscellaneous articles
(automobiles, jewelry, perfume,
toilet waters, yachts, vessels for
pleasure and sports) and mineral
products
 C. National Taxes

 Income Tax (Compensation,

Business, Passive)
 Estate Tax
 Donor’s Tax
 VAT
 Percentage Tax
 Excise
Tax
 Documentary Stamp Tax
 D. Local Taxes

 Real property tax- one of main

sources of revenues of local
government units; tax on all types
of real properties like lands,
building, improvements,
machinery
 Local ordinance- parking fees
 Brief History of
Philippine Taxation
 Spanish Era

 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
 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
 Ramos Administration

 Liwayway Vinzons-Chato-
implement the Action Centered
Transformation Program (ACTS) to
realign and direct the entire
organization for fulfillment of its
mission and vision
5 year Tax Computerization
Project (TCP)- establishment of
Modern and computerized
Integrated Tax System and Internal
Administration System
 Estrada Administration

 Beethoven Rualo- enhance

voluntary compliance and
implemented the Economic
Recovery Assistance Payment
(ERAP) Program- granted
immunity from audit and
investigation to taxpayer who
paid 20% more than the tax paid
In 1997 for income tax, VAT or
percentage tax
 Raffle promo- Humingi ng Resibo,
Manalo ng Libo-Libo-
institutionalized to encourage
consumers to demand sales
invoices and receipts
 Dakila Fonacier- implemented full
utilization of tax computerization,
use of electronic documentary
Stamp metering machine and tie-
up with national government
agencies and local government unit
for remittance of withholding tax;
Compromise Settlement Program-
for taxpayers with account
receivable and disputed
assessment with BIR
 Large Taxpayer Services (LTS) and
Excise Taxpayers Service (ETS)-
enforce tax administration and
Enforcement capabilities of BIR
 Full Integrated Tax System (ITS)
Rollout Acceleration Program for
full utilization of tax
computerization in Bureau’s
operation
 Arroyo Administration

 Atty.Rene G. Bañez- implemented

Voluntary Assessment Program and
Compromise Settlement Program
and creditable withholding tax
system
 Creditable withholding tax
system- technology-based system
That promotes paperless filling of
tax returns
 eFPS- Electronic Filing and
Payment System- adopt the
payment of taxes
 Guillermo Parayno Jr.- offered
Voluntary Assessment and
Abatement Program (VAAP) to
taxpayers with under-declared
sales/receipts/income
 Reconciliation of Listings for
Enforcement or RELIEF System to
Detect under-declaration of
taxable income by taxpayers
 RATE- Run After Tax Evaders
Program- sued high-profile tax
evaders
 Jose Mario C. Buñag- expand the
RATE Program to Regional
Offices; inclusion of new
payment gateways like Efficient
Service Machine and G-Cash and
Smart Money facilities, install
E-Complaint System- new e-
Service that allow taxpayers to log
their complains through BIR
Website
 Nationwide Rollout of
Computerized System (NRCS)-
extend use of Integrated Tax
System across its non-
computerized Revenue District
Office
 National Program Support for Tax
Administration Reform (NPSTAR)-
improve BIR in various area of tax
administration
 Computer-Assisted Audit Tools
and Techniques (CAATTs)-
enhance audit capabilities
 Sixto S. Esquivias IV- close erring
business under Oplan Kandado
Program
 Taxpayer Feedback Mechanism-
Complaints on eering BIR
employees and taxpayers who do
not pay taxes or issue
OR’s/invoices are reported
 Joel L. Tan-Torres- public
awareness campaign on
enforcement and taxpayer’s
service program
 Aquino adminstration

 Kim S. Jacinto-Henares- focus on

filing of tax evasion cases
 Collect more than one-half of
total revenue of government
 Duterte Administration

 Signed R.A 10963 or Tax Reform

for Inclusion and Acceleration Act
of 2017- lowered personal income
tax rate but increase taxes on
certain goods, leading to net
increase in revenue. This excess
revenue will fund public
infrastructure
 Tax Reform Program

 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 hospital
 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

 Taxrate of 6% base on the net

value with standard reduction of
P5million and exemption for first
P10 million for family home
 Donor Tax

 Rate of 6% of net donations for

gifts above P250,000 yearly
regardless of relationship to the
donor
 C. Expanding VAT

 Philippines- one of has highest VAT

rates but has highest number of
exemptions in Southeast Asia
Region
 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 on 2021
 Medicines for diabetes, high
cholesterol and hypertension will
exempt from VAT on 2019
D. Increasing Fuel Excise Tax

 TRAIN increase excise of

petroleum products which is not
adjusted since 1997
 Fuel excise- wrongly perceived as
anti-poor
 Family Income and Expenditure
Survey (FIES) 2015- top 10 riches
Households consume 51% of total
fuel consumption
 Top 1 richest household- consume
13%, equivalent to aggregate
consumption of bottom 50% of
household
 This is a tax that will affect the
rich more than the poor
 Address environmental and
health concerns
 One consequence of exempting
diesel from excise is the shift
from gasoline to diesel
automobiles
 Cheaper diesel prices, consumer
shifted to diesel SUVs
 2013- 72% of newly register SUVs
are diesel power than 28% of
gasoline
 2016- despite P14 increase in
Diesel oil price from P18.25 to
P32.10, inflation remain low and
stable
 2 major economic shock:
1. VAT reform of 2005
2. Global oil price hike in 2011
 After VAT Reform in 2005- FDP
growth slowed as consumption
slowed down and inflation
increase but economy did not
Collapsed and inflation was
manageable
 Increasing Excise Tax of
Automobiles

 TRAIN simplifies excise tax on

automobile but power price cars
continue to be tax at lower rates
while more expensive cars are tax
at higher rate
 Raise revenue as richer buyers
tend to own expensive cars
compared to those who earn less
F. Increasing the Tax of Sugar-
Sweetened Beverages

 Promote a healthier Philippines

 Part of comprehensive measure to
curb the consumption of SSB and
worsen number of diabetic person
and obesity
 Encourage consumption of
healthier products, raise public
Awareness of harms of SSBs
 Why impose tax on SSBs?
1. Most SSB provide
unnecessary or empty
calories with little or no
nutrition. SSB is not
substitute for healthy
foods like fruits and rice
2. SSB are affordable to
children and the poor who
Are most vulnerable to the
negative effects on health
3. SSBs are easily accessible and
found in any store
 Examples of SSB: carbonated
beverage, sports and energy
drinks, sweetened juice drinks
 Excise rate of P6 per liter- drinks
containing caloric or non-caloric
sweetener and P12 per liter on
Drinks with high-fructose corn
syrup. 3 in 1 coffee and milk are
exempted in this tax