INTRODUCTION TO

TAXATION
NIRC

The Current Tax Code of the Philippines is called the National Internal
Revenue Code of 1997.

It was passed through RA 8484 and amended currently by RA 10963.

RA 10963 is known as TRAIN (Tax Reform for Inclusion and

Acceleration) Act. TRAIN Act is to be enacted starting January 01, 2018.
TAXING AUTHORITY

The taxing authority in the Philippines is enacted through the

Bureau of Internal Revenue (BIR), which is responsible for the
collection of national taxes in the Philippines.

The current Commissioner of the BIR is Caesar Dulay.

WHAT IS TAXATION

Taxation as defined in the NIRC is a state power, a legislative process, a mode of

government cost distribtuon.
1. As a state power
Taxation is an inherent power of the state to enforce proportional contribution from its subjects
to used for public purpose.

2. Of As a process
Taxation is a process of laying taxes by the legislature of the state.

3. As a mode of government cost distribution

Taxation is a mode wherein the government can distribute the cost of its projects to its people.
WHY IS THERE A NEED FOR TAXATION?
THEORY OF TAXATION

All government provide a vast array of services to its people which includes health
care, public works, public order and safety, education, defense, and social protection.

A system of government is indispensable to every society, without which, society

would fall into anarchy and chaos.
As a way for the government maintain its form and system, and continue providing
the said benefits, the government needs funding. The government’s necessity for
funding is the theory of taxation. Also known as the Necessity Theory.
BASIS OF TAXATION

The government provides benefits to the people in the form of public services and the
people provide the funds that finance a government.

This is the mutuality of Taxation. The mutual support between the government and
the people.

One cannot survive without the other.

Receipt of Benefit is conclusively presumed – benefit need not be actually received to

THEORIES OF COST ALLOCATION

1. Benefit Received Theory

The benefit received theory presupposes that the more benefits one receives from the government
the more taxes one needs to pay.

2. Ability to Pay
The ability to pay theory presupposes that taxation should also consider the taxpyers ability to
pay. Taxpayers should be required to contribute based on their relative capacity to pay.
(millionaires pay more, than middle class workers)
LIFE BLOOD DOCTRINE

Taxes are essential and indispensable to the continued subsistence of the government.

Without taxes, the government would be paralyzed for lack of motive and funds to activate
or operate properly.

Taxes are the lifeblood of the government, and their PROMPT AND CERTAIN
AVAILABILITY are imperious need.
IMPLICATIONS OF THE LIFE BLOOD THEORY

1. Taxes are imposed in the absence of a constitutional grant.

2. Claims for tax exemption are construed against the tax payer.
3. The government reserves the right to choose the objects of
taxation.
4. The courts are not allowed to interfere with the collection of
taxes (only adjudicate and decide the validity of tax laws)
IMPLICATIONS OF THE LIFE BLOOD THEORY

5. In income taxation
a. Income received in advance is taxable upon receipt (i.e. advance
rental payment)
b. Deduction for capital expenditures and prepayments is not allowed as
it effectively defers the collection of income taxes. Expense only
allowed upon actual use of property.
c. Lower deduction is preferred for a claimable expense/
d. A higher tax base in preferred when tax objects has multiple tax
bases.
INHERENT POWER
OF THE STATE
TAXATION
POLICE POWER
EMINENT DOMAIN
INHERENT POWERS OF THE STATE

1. Taxation power
The power of the state to enforce proportional contributions from its subjects to sustain
itself.

2. Police power
The general power of the state to enact laws and protect the well-being of the people.

3. Eminent domain
The power of the state to take private property for public use after paying just
compensation.
SCOPE OF TAXATION

THE SCOPE OF TAXATION IS

S - SUPREME
C - COMPREHENSIVE
U – UNLIMITED
P – PLENARY (ABSOLUTE)
*SUBJECT TO LIMITATIONS
LIMITATIONS TO TAXATION

1. Inherent limitations
Limitation innate within Taxation, always and will ever be
present In all forms of Taxation.
2. Constitutional limitations
Limitations stemming from the Philippine Constitution.
INHERENT LIMITATIONS
S P I N E
I U N O X
B TER N E
T L NA M
DE
U I TIO
LE P
S C NAL T
PUR CO GA I
POSE MI TI O
TY ON N
SITUS OF TAXATION/TERRITORIALITY OF
TAXATION

Services provided by the government are only within the

boundaries of the State. Hence, the government can only
demand tax obligations upon its own subjects (taxable
within and outside the Philippines) or residents (persons
staying with the Philippines, may include Philippine citizens
and aliens)
SITUS OF TAXATION/TERRITORIALITY OF
TAXATION

Exceptions
1. For Income Tax purposes, Resident Citizens and Domestic
Corporations are taxable within and without the Philippines.
2. In transfer taxation, residents and citizen are taxable within
and without the Philippines.
PUBLIC PURPOSE

TAX IS INTENDED FOR THE PUBLIC GOOD. IT MUST NOT BE USED OR

APPROPRIATED FOR ANY PRIVATE OR INDIVIDUAL PURPOSE.
INTERNATIONAL COMITY

Each Country respects the sovereignty of each other, wherein all

nations are DEEMED EQUAL with one another regardless of
race, religion, culture, economic culture or military power.

Foreign governments, their embassies, and non-Filipino workers

in said embassies are not taxable. Foreign owned GOCC are also
not taxable under this limitation.
NON-DELEGATION OF THE TAXING POWER

The legislative taxing is VESTED EXCLUSIVELY in Congress (HOR) and is NON-

DELEGATABLE.
This is as vested by the people towards the Congress. What has been delegated cannot be
delegated further.
Exceptions:
1. Local government units are allowed to exercise the power to tax to enable them to exercise
their fiscal autonomy.
2. Tariff and customs code, allows the president to fix amount or tariffs.
3. Other cases that require the expedient and effective administration and implementation of
assessment and collection of taxes.
EXEMPTION OF THE GOVERNMENT

The taxation power is BROAD. The government can exercise the power to tax
anything including itself. However, the government does not raise additional
funds when it does so but will only incur additional cost.

Under the NIRC, income from the government, and essential public functions
are NOT subject to taxation. However, income from government properties and
activities conducted for profit including income from GOCC is subject to tax.
GOCC’S

•SSS, PHIC, PAGCOR, etc.

CONSTITUTIONAL LIMITATIONS

16 Constitutional Limitations

D.U.E. PRO,WORS.
NO P. IMP. REPT.AR.
EDU.CON.NODI.DE
SC.HOR. LG.
CONSTITUTIONAL LIMITATIONS

1. DUE PROCESS OF THE LAW

2. UNIFORMITY RULE IN TAXATION
3. EQUAL PROTECTION OF THE LAW
4. PROGRESSIVE SYSTEM OF TAXATION
5. FREE WORSHIP RULE
CONSTITUTIONAL LIMITATIONS

1. NON-IMPRISONMENT FOR NON-PAYMENT OF DEBT OR POLL TAX

2. NON-IMPAIRMENT OF OBLIGATIONS AND CONTRACTS
3. EXEMPTION OF RELIGIOUS OR CHARITABLE ENTITIES FROM PROPERTY
TAXES
4. NON-APPROPRIATION OF PUBLIC FUNDS OR PROPERTY FOR THE BENEFIT
OF A CHURCH, SECT OR SYSTEM OF RELIGION.
CONSTITUTIONAL LIMITATIONS

1. EXEMPTION OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION

2. CONCURRENCE OF A MAJORITY OF ALL MEMBERS OF CONGRESS FOR
THE PASSING OF LAW GRANTING EXEMPTION
3. NON-DIVERSIFICATION OF TAX COLLECTION
4. NON-DELEGATION OF THE POWER TAXATION
CONSTITUTIONAL LIMITATIONS

1. NON-IMPAIRMENT OF THE JURISDICTION OF THE SUPREME COURT TO

REVIEW TAX CASES
2. APPROPRIATIONS, REVENUE OR TARRIF BILLS MUST EXCLUSIVELY
ORIGINATE FROM THE HOUSE OF REPRESENTATIVES.
3. THE DELEGATION OF TAXING POWER TO LOCAL GOVERNMENT UNITS.
STAGES OF THE POWER OF TAXATION

STAGE IN-CHARGE
1. LEVY OR IMPOSITION LEGISLATIVE BRANCH
(HOR)
2. ASSESSMENT AND EXECUTIVE BRANCH (BIR)
COLLECTION
3. REVIEW OF TAX CASES JUDICIARY BRANCH (MTC,
RTC, CTA, SC)
LEVY OR IMPOSITIONS

This process involves enactment of a tax law by congress and is called impact of taxation (IOT).
This is also called as the legislative act in taxation.
Congress is composed of
A. The house of Representatives (Lower House), and
B. The Senate ( Upper House)

As mandated by the constitution, tax bills MUST originate from the HOR. However, each house
may have their own versions of a proposed law which is approved by both bodies.
LEGISLATIVE DISCRETION IN THE EXERCISE OF
TAXATION
P – PURPOSE OF TAXATION
O – OBJECT OF TAXATION
R – RATE OR AMOUNT OF COLLECTIONS
K – KIND OF TAX
A – PPORTION BETWEEN LGU AND NG
S – SITUS OF TAXATION
M – METHOD OF COLLECTION
ASSESSMENT AND COLLECTION

IT IS IMPLEMENTED BY THE ADMINISTRATIVE BRANCH OF THE

GOVERNMENT.

REFERRED TO AS THE INCIDENCE OF TAXATION.

SITUS OF TAXATION

IS CALLED THE PLACE OF TAXATION. IT IS THE TAX JURISIDICTION THAT HAS

THE POWER TO LEVY TAXES UPON THE TAX OBJECT. SERVES AS THE FRAME
OF REFERENCE IN GAUGING WHETHER THE TAX OBJECT IS WITHIN OR
OUTSIDE THE TAX JURISIDICTION OF THE TAXING AUTHORITY.
SITUS OF TAXATION

1. Business Tax Situs

2. Income Tax on Service Income
3. Tax on the Sale of Goods
4. Property Tax
5. Personal Situs Tax
OTHER DOCTRINES IN TAXATION

1. Marshall Doctrine
2. Homes Doctrine
3. Perspectivity of Tax Laws
4. Non-Compensation or Set-Off
5. Non-Assignment of Taxes
6. Imprescriptibility of Tax Laws
7. Doctrine of Estoppel
8. Judicial Non-Interference
9. Strict Construction of Tax Laws
DOUBLE TAXATION

• Occurs when the same TAXPAYER is TAXED

TWICE by the same tax jurisdiction for the same thing.
DOUBLE TAXATION

1. Primary Element – Same Object

2. Secondary Element
a. T - Same Type
b. T – Same Taxing Jurisidiction
c. P – Same Purpose
d. P- Same Tax Period
TYPES OF DOUBLE TAXATION

1. Direct double taxation

2. Indirect double taxation
ESCAPES FROM TAXATION

Categories that result to loss of government revenue

1. Tax Evasion
2. Tax Minimization
3. Tax Exemption
Categories that does not result to loss of government revenue
4. Shifting
5. Transformation
6. Capitalization
ESCAPES FROM TAXATION

Categories that result to loss of government revenue

1. Tax Evasion
2. Tax Minimization
3. Tax Exemption
Categories that does not result to loss of government revenue
4. Shifting
5. Transformation
6. Capitalization
TAX AMNESTY

• a limited-time offer by the government to a specified group of

taxpayers to pay a defined amount, in exchange for forgiveness
of a tax liability (including interest and penalties)
TAX CONDONATION

• State desists or refrains from exacting, inflicting or enforcing something as well as

to restore what has already been taken. The condonation of a tax liability is
equivalent to and is in the nature of a tax exemption.
AMNESTY VS CONDONATION

• Amnesty forgives the criminal and a reduction in civil

liablity.
• Condonation forgives only the civil liablity.