ACT 103:

Fundamentals of Income
Taxation
ASST. PROF. FAITH P. REGADIO, CPA
Department of Accountancy, MSU-Iligan Institute of Technology

faith.perez@g.msuiit.edu.ph facebook.com/faith.f.perez
 INCOME TAXATION
TAX FUNDAMENTAL PRINCIPLES
Questions, clarifications, and suggestions will be entertained after the discussion.
 INPUT VAT Rent (12% VAT)
(Purchases) Owned (Real property tax)

INPUT VAT Income Tax

https://www.grantthornton.com.ph/insights/articles-and-updates1/
lets-talk-tax/tiktax-ing-social-media-influencers/
Learning Objectives:
➢ Define taxation;
➢ Identify the 3 Inherent Powers of the State;
➢ Determine the purpose of taxation;
➢ Describe the taxation in the Philippines;
➢ Discuss the History of Taxation
➢ Discuss the Theory and Basis of taxation;
➢ Discuss the Essential Elements of Taxation;
➢ Enumerate the Aspects of Taxation; and
➢ Differentiate between Inherent and Constitutional Limitation
INTRODUCTION
The greater part of the necessary expense of any great or civilized state must be defrayed by taxes; the
people contributing part of their own private revenue in order to make a public revenue to the sovereign.

-Adam Smith

Consistent with their mandate to collect taxes for and at the least cost to the
government, tax authorities all over the world continuously explore various
approaches to enhances the effectiveness of their tax collection systems. The
bureau of Internal Revenue(BIR), the premier tax agency of the Philippines, is one
with them.
TAXATION - definition
Taxation is an INHERENT power of the State to enforce proportional contribution
upon persons, properties or rights to generate revenues which defray the expenses
of the government.

Taxation is a LEGISLATIVE act of the State to exact contributions on persons,

properties or transactions to raise money for public expenditures.
TAXATION - definition
Taxation is the process or means by which the sovereign, through its lawmaking
body raises once to defray the necessary expenses of the government. Taxation, as a
power of the State, is inherent in sovereignty.

Taxes are the lifeblood of the government and their prompt and certain availability
are an imperious need (Commissioner vs. Pineda, 21 SCRA 105). A government
cannot continue to exist and operate without financial means. This inherent power
gives the government the right to tax citizens and properties within its jurisdiction.
TAXATION - definition
1. Benefit-received theory. The government imposes taxes, and, in return, the
taxpayers receive benefits from the State in the form of services, safety and
protection to life, property and liberty.
2. Ability-to-pay theory.Taxes are imposed and collected by the government
based on the ability of the taxpayer to pay. The basic principle is that an
individual who earns higher income pays more taxes.
 Three Inherent State Powers
Taxation Police Power
To enact laws to promote
The sovereign raises
public health, public
revenue to defray the
morals,public safety and the
necessary expense of the
general welfare of the
government.
people.
Eminent
Domain
take private property for the public use
upon payment of just compensation.
TAXATION
STRONGEST AMONG THE INHERENT POWERS OF THE STATE

The power of taxation is the strongest among the three inherent powers of the State.
No State can exist without taxation.

Without taxation, the two other inherent powers, namely the power of eminent
domain and police power, can neither survive nor can be effectively exercised by
the government.

Being the strongest among the inherent powers, taxation includes the power to
destroy. Thus, collection of taxes will result sometimes in seizure of property and
bring about insolvency to the taxpayer.*
Similarities of the Three Inherent Powers
1. Based on existence. The existence of the 3 inherent powers is based on necessity.
Once a government exists, the three inherent powers will also exist.
2. Based on relationship with the Constitution. The existence of the 3 inherent
powers is not dependent upon the Constitution. What the Constitution prescribes are
the various conditions in the application of the 3 inherent powers.
3. Based on relationship with the subject of taxation. The 3 inherent powers are
considered mechanisms of the sovereignty to interfere on the private activities,
properties, life and rights of the inhabitants.
4. Based on relationship with the branches of the government. They are vested in the
legislative body of the government, although the administrative aspect can be
delegated to other branches of the gov’t.
Differences of the Three Inherent Powers
Taxation Police Power Eminent Domain

As to authority which Exercised only by the Exercised only by the May be granted to
exercises the power government government public utility companies

As to person affected Affects individual or Affects individual or Affects ONLY the

community community OWNER of the property

As to purpose For REVENUE to To promote the general For PUBLIC PURPOSE

support the government WELFARE

As to the effect of Money collected To cover the cost of Title of property is

charges becomes public funds injury made transferred
Differences of the Three Inherent Powers
Taxation Police Power Eminent Domain

As benefit received Protection and socio- No direct benefits, but Owner receives a fair
economic benefits society has healthy and just compensation
standards

As to amount No limitations Sufficient to cover the Owner is paid based on

cost of regulation the fair value of the
property

As to relationship with Subject to limitation and Free from constitutional Inferior to the
the Philippines prohibition to impair limitation and superior impairment provision
obligation contract to impairment provision
 Purposes of Taxation
Primary: Revenue or Fiscal Purpose
To provide funds or property with
which to promote the general
welfare and the protection of its
citizens and to enable it to finance
its multifarious activities. *
Secondary: Regulatory Purposes
Taxation is often employed as a devise
for regulation or control by means of
which certain effects or conditions
envisioned by the government may be
achieved such as:
a. Promotion of General Welfare
b. Reduction of Social Inequality
c. Economic Growth

Examples of taxes imposed for regulation: Excise

taxes such as cigarettes and alcohols; amusement
taxes for night and day clubs, cockpits and racetracks
Taxation in the Philippines
Bureau of Internal Revenue (BIR)

The BIR shall be under the supervision and

control of the Department of Finance and its
power and duties shall comprehend the
assessment and collection of all national internal
revenue taxes, fees, and charges and the
enforcement of all forfeitures, penalties and
fines connected therewith, including the
execution of judgments in all cases decided in
its favor by the Court of Tax Appeals and the
ordinary courts. The Bureau shall give effect to
and administer the supervisory and police
powers conferred to it by the internal revenue
code or other laws.
BRIEF HISTORICAL BACKGROUND OF PHILIPPINE
REVENUE LAWS
A taxation law is called or termed a revenue law when the primary underlying
objective is to collect taxes or to raise revenue for the government.

When a revenue law applies to the whole sovereign state, the law is said to be a
NATIONAL REVENUE LAW.

History of revenue of taxation in the Philippines:

● July 2, 1904 - Philippine Commission approved the adoption of US Revenue
Act No. 1189
History of revenue of taxation in the Philippines:
● October 3, 1913 - Philippine Commission approved the adoption of US
Revenue Act of 1913, which was amended by US Revenue Act of 1916
● March 9, 1919 - Philippine Legislature enacted Act No 2833, the country’s
first income tax law.
● June 15, 1939 - the National Assembly approved Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code*
● In 1969, RA No. 6110 - otherwise known as the Omnibus Tax Law, was
passed.
● Through PD Np. 1158, passed in June 1977 the national internal revenue laws
embodied in 1939 NIRC and the various laws and presidential decrees were
consolidated and codified into a single tax code known as the NIRC of 1977.
History of revenue of taxation in the Philippines:
● November 5, 1985 - PD No. 1994 amended certain provisions of the NIRC of
1977 this is known as the National Internal Revenue Code of 1986.*
● May 5, 1994 - RA No. 7716 restructured the VAT system, widened its tax base,
and enhanced its administration. It was amended by RA No. 8241 that took
effect on January 1, 1997.
● July 28, 1997 - Philippine Congress enacted RA No. 8424, otherwise known as
the TAX REFORM ACT of 1997. **
At present:

It was during Commissioner Dulay’s term that significant revisions in the tax laws
were passed and implemented by the BIR through the issuance of Revenue
Regulations and other revenue issuances. The first revision was made under the Tax
Reform for Acceleration and Inclusion or TRAIN Act (per RA No. 10963), which
took effect on January 1, 2018. This was followed by the passage of the Corporate
Recovery and Tax Incentives for Enterprises (CREATE) Act per RA No. 11534,
which took effect on April 11, 2021. A Tax Amnesty Program (per RA No. 11213)
was also implemented covering tax delinquencies and unpaid Estate Tax.

https://www.bir.gov.ph/index.php/transparency/bir-history.html
The Theory of Taxation
➢ The power of taxation proceeds upon the theory that the existence of
government is a necessity “NECESSITY THEORY”.
○ Every government provides a vast array of public services including
defense, public order and safety, health, education and social protection
among others.*
➢ Taxes are the lifeblood of the government and their prompt and certain
availability is an imperious need “LIFEBLOOD DOCTRINE”
○ The government cannot continue to perform its basic functions of serving
and protecting its people without means to pay its expenses
The Basis of Taxation
The government provides benefits to the people in the form of public services, and
the people provide the funds that finance the government. This mutuality of support
between the people and the government is referred to as the basis of taxation.

The reciprocal duties of support and protection between the people and the
government.
Essential Elements of Tax
It is an enforced It is generally
contribution payable in money
It is proportionate
in character
It is levied on persons,
property or the exercise of For public purpose
a right or privilege
Legislative
function
Essential Elements of Tax
It is an enforced contribution. Payment of tax is not voluntary payment
or donation, but an enforced contribution, exacted pursuant to legislative
authority.

It is generally payable in money. It is a pecuniary burden payable in

money which must be in legal tender.

It is proportionate in character. Payment of taxes should be based on

the ability to pay theory or theoretical justice. The use of graduated tax
rates is in consonance with this rule.
Essential Elements of Tax
Subjects or objects of taxation. It is levied on persons, property, or the
exercise of a right or privilege.

Legislative function. The power of “imposing” a tax being purely

legislative function. Congress cannot delegate such power. This limitation
arises from the doctrine of separation of powers among the three branches
of the government.

It is levied for public purpose.

Aspects of Taxation

COLLECTION LEVYING
(Executive Function) (Legislative Function)

ASSESSMENT
(Executive Function)
 LIMITATIONS OF THE POWER OF TAXATION
Although taxation is considered the strongest among the inherent powers of the State, has
a wide scope, is comprehensive in character, and is clothed with supreme authority, its
power is not absolute.
The exercise of taxation is subject to inherent and constitutional limitations.
Inherent limitations are intrinsic to the existence of the power of taxation. These are
limitations that exist because the power of taxation exists.
Constitutional limitations are those limitations that are specifically provided in the various
provisions of the 1987 Philippine Constitution.
LIMITATION ON THE POWER OF TAXATION
The power of taxation is, however, subject to constitutional and inherent limitations.
Constitutional limitations are those provided for in the constitution or implied from its provisions
while inherent limitations are restrictions to the power to tax attached to its nature.
The following are in the inherent limitations.
1. Purpose. Taxes may be levied only for public purposes.
2. Non-delegation. The power to tax being legislative in nature may not be delegate
3. Exemption. Government agencies performing governmental functions are exempt from taxation;
4. Territorial. The state may tax persons and properties under it jurisdictions;
5. International comity. The property of a foreign state may not be taxed by another;
6. Double taxation.
 INHERENT LIMITATIONS
1. Levied for public purpose. Taxation laws and ordinances are intended absolutely for
public purposes like promotion of the general welfare, financing legitimate
government infrastructure projects, financial assistance to victims of calamities and
financial support to defense and security of the State.
2. Non-delegation of power to tax. The power of taxation is vested in the legislative
branch of the government.*
2 major phases of taxation:
a. Legislative phase
b. Administrative phase
 INHERENT LIMITATIONS
2. Non-delegation of power to tax. The power of taxation is vested in the legislative
branch of the government.*
2 major phases of taxation:
a. Legislative phase - refers to the making of taxation laws
b. Administrative phase - refers to the assessment and collection of taxes

The legislative aspect of taxation cannot be delegated by the legislative body to the two
other branches of the government - executive and judiciary.
 INHERENT LIMITATIONS
3. Exemptions of government entities from taxation. The different government
agencies like the DPWH, DTI and various LGUs are exempted from taxation.

Tax exemption It is the privilege of not being imposed a financial obligation to which
others are subject.

Except Government Owned and Controlled Corporations

 INHERENT LIMITATIONS
3. Exemptions of government entities from taxation. The different government
agencies like the DPWH, DTI and various LGUs are exempted from taxation.
4. Taxation laws are confined within the territorial jurisdiction of the State. The laws
and ordinances are enforceable only within except when privity of relationship exists
between the taxing State and the object of taxation.*
Two fold tax obligations:
1. You file (self-assessment method)
2. You withhold
 INHERENT LIMITATIONS
5. Taxation laws are subject to international comity. There exists equality among states
under international law. States extend friendly relations, interactions, and respect between
them. This relationship is referred to as International Comity.
Since states are of equal rank, they do not impose enforced contribution on one another’s
properties.
Not objects of taxation:
1. Property and income of foreign governments
2. Observance of treaty provisions
Internation comity is contingent to RECIPROCITY.
 INHERENT LIMITATIONS
6. Prohibition of double taxation.
DOUBLE TAXATION simply means duplication of imposing tax. Double taxation may
be direct or indirect.
Indirect double taxation - there are two or more types of imposition on the subject without
violating the equity and uniformity provisions of the Philippine Constitution.*
Direct double taxation - the same tax is imposed on the same property covering the same
purpose and at the same taxable year by the same sovereign state.
 INHERENT LIMITATIONS
The following elements should be present in a direct double taxation:
a. Taxing twice
b. Taxing for the same purpose
c. Taxing by the same government authority
d. Taxing within the same period or taxable year
e. Taxing on the same property or activity of the same jurisdiction.*
 CONSTITUTIONAL LIMITATIONS
1. Due process. “No person shall be deprived of life, liberty, or property without due
process of law”.*
Deprivation of life, liberty or property, therefore is not allowed unless:
a. There is a law not contrary to the Constitution authorizing such deprivation; and
b. The prescribed procedures in the deprivation must have been followed.
 CONSTITUTIONAL LIMITATIONS
Due process:
a. Substantive due process = legal basis that is expressed, categorical and unequivocal
b. Procedural due process = Assessments shall be made within three (3) years from the
due date of filing of the return or from the date of actual filing, whichever is later.
Collection shall be made withing five (5) years from the date of assessment.
 CONSTITUTIONAL LIMITATIONS
2. Equal protection of the law. “No person shall be deprived of life, liberty or property
without due process of law nor shall any person shall be denied the equal protection of the
laws”.
All persons are treated alike under the same circumstances, and there shall be no
discrimination in the implementation of taxation laws. The provision of the Philippine
Constitution, as quoted above, is intended to prevent any person or class from being
treated differently with discrimination.*
 CONSTITUTIONAL LIMITATIONS
3. No imprisonment for non-payment of poll tax.
Poll tax is a kind of tax imposed upon certain class of persons residing within a territorial
jurisdiction, regardless of property, profession or occupation. An example is the
community tax.
The constitutional provision specifically states that non-payment of poll tax is not subject
to imprisonment. Non-payment of other types of taxes, therefore, is subject to
imprisonment.*
 CONSTITUTIONAL LIMITATIONS
4. Rules of taxation shall be uniform and equitable.
“The rule of taxation shall be uniform and equitable. Congress shall evolve a progressive
system of taxation”
UNIFORMITY taxation simply means that all subjects of taxation under the same class shall be treated
alike. Thus, the same rate shall apply to the subject belonging under the same class.
EQUITABLE taxation means that the tax shall be based on the ability of the individual to pay. The
more income an individual earns, the more tax shall be collected from him/her.
PROGRESSIVE system of taxation is a system wherein direct taxes are given preference over indirect
taxes. It applies progressing tax rates as the tax base increases.
 CONSTITUTIONAL LIMITATIONS
5. No money shall be appropriated for religious or private purposes.
“No public money or property shall be appropriated, applied, paid or employed, directly or
indirectly, for the use, benefit or support of any sect, church, denomination, sectarian,
institution or system of religion…”
APPROPRIATION is a budgetary act of setting government funds for a particular object of
expenditures.
The Philippine Constitution strictly prohibits enactment of taxation laws or spending
government funds to support religious activities.
- Compensation to priests, imams, or religious ministers working with the military, penal institutions,
orphanages, or leprosarium is not considered religious appropriation.(this constitute Government service)
 CONSTITUTIONAL LIMITATIONS
6. Exemption from property taxation of charitable institutions, churches,
educational entities, convents, non-profit cemeteries.
“Charitable institutions, churches, parsonages or convents appurtenants thereto, mosques,
non-profit cemeteries and all lands, buildings, and improvements, actually, directly and
exclusively used for religious,charitable or educational purposes shall be exempt from
taxation.”
The constitutional provision is very specific in relation to exemption. What is exempted is
property tax only on the properties of the aforementioned entities.*
 CONSTITUTIONAL LIMITATIONS
7. Majority of all the members of the Congress shall pass laws granting tax
exemptions.
“No law granting any tax exemption shall be passed without the concurrence of a
majority of all the Members of the Congress.”
Only the Congress of the Philippines can grant or provide exemption from taxation to
individuals, properties or transaction, provided there is a concurrence or approval of the
majority of its members.
It is inherent on the legislative body to grant exemptions from payment of taxes to certain
persons, properties, transactions or income as long as the exemptions are considered
reasonable and not arbitrary.
Tax exemption is based on the concept that the exemption will benefit a group of people.
It is not based on the idea that tax exemption will reduce the tax burden of the concerned
group.
 CONSTITUTIONAL LIMITATIONS
7. Majority of all the members of the Congress shall pass laws granting tax
exemptions.
- If tax imposition the vote of a relative majority or quorum majority is required.
- The Constitution requires the vote of the majority of all members of Congress in the
grant of tax exemption (absolute majority).
 CONSTITUTIONAL LIMITATIONS
8.Non-impairment of the Supreme Court jurisdiction of tax cases.
“The Supreme Court shall have the power… to review, revise, reverse, modify or affirm
on appeal or ceritiorari, as the law or the Rules of Court may provide, final judgments and
orders of lower courts..In all cases involving the legality of any tax, impost, assessment or
toll, or any penalty imposed in relation thereto.”
The Supreme Court has the final judgment on the legality of any tax law and the penalty
imposed thereon.
 CONSTITUTIONAL LIMITATIONS
9. The Philippine President can veto any time in a tax bill approved by the Congress.
Veto power refers to the power of the President refusing to sign into law a bill enacted by
the legislative body. The veto power can either be an item veto or a pocket veto.
ITEM VETO happens when the President objects to certain items in the
proposed bill without affecting other provisions of the bill.
POCKET VETO occurs when the President disapproves in totality the bill
enacted by the Congress.*
 CONSTITUTIONAL LIMITATIONS
10. Tax collection is a general fund of the government.*
Taxes collected are, in most cases, treated as general fund for public purpose. If a certain
collection is made, and, by its nature, it is for the promotion of certain industry or activity,
the collection shall be treated as a special fund. Any unexpended amount of the special
fund shall revert to the general fund.
COLLEGE OF ECONOMICS, BUSINESS & ACCOUNTANCY

THANK YOU!

FAITH PEREZ REGADIO,CPA

 ACT 103:
Fundamentals of Income
Taxation
ASST. PROF. FAITH P. REGADIO, CPA
Department of Accountancy, MSU-Iligan Institute of Technology

faith.perez@g.msuiit.edu.ph facebook.com/faith.f.perez
Different taxes in the Philippines
● Capital Gains Tax - Capital Gains Tax is a tax imposed on the gains presumed to have
been realized by the seller from the sale, exchange, or other disposition of capital assets
located in the Philippines, including pacto de retro sales and other forms of conditional
sale.
● Documentary Stamp Tax - Documentary Stamp Tax is a tax on documents,
instruments, loan agreements and papers evidencing the acceptance, assignment, sale
or transfer of an obligation, right or property incident thereto.
Different taxes in the Philippines
● Donor’s Tax. Donor’s Tax is a tax on a donation or gift, and is imposed on the
gratuitous transfer of property between two or more persons who are living at the time
of the transfer. It shall apply whether the transfer is in trust or otherwise, whether the
gift is direct or indirect and whether the property is real or personal, tangible or
intangible.
● Estate Tax. 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, which are made by law as equivalent to testamentary disposition. It is not a
tax on property. It is a tax imposed on the privilege of transmitting property upon the
death of the owner. The Estate Tax is based on the laws in force at the time of death
notwithstanding the postponement of the actual possession or enjoyment of the estate
by the beneficiary.
Different taxes in the Philippines
● Percentage Tax. Percentage tax is a business tax imposed on persons, entities, or
transactions specified under Sections 116 to 127 of the National Internal Revenue Code
of 1997 (also known as Tax Code), as amended, and as required under special laws.
● Value Added Tax. Value-Added Tax (VAT) is a form of sales tax. It is a tax on
consumption levied on the sale, barter, exchange or lease of goods or properties and
services in the Philippines and on importation of goods into the Philippines. It is an
indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of
goods, properties or services.
Different taxes in the Philippines
Income Tax
● Income Tax is a tax on a person's income, emoluments, profits arising from property,
practice of profession, conduct of trade or business or on the pertinent items of gross
income specified in the Tax Code of 1997 (Tax Code), as amended, less the
deductions if any, authorized for such types of income, by the Tax Code, as amended,
or other special laws.
Different taxes in the Philippines
Who are Required to File Income Tax Returns?
● Individuals
● Resident citizens receiving income from sources within or outside the Philippines
○ Employees deriving purely compensation income from two or more employers,
concurrently or successively at any time during the taxable year
○ Employees deriving purely compensation income regardless of the amount,
whether from a single or several employers during the calendar year, the income
tax of which has not been withheld correctly (i.e. tax due is not equal to the tax
withheld) resulting to collectible or refundable return
Different taxes in the Philippines
Who are Required to File Income Tax Returns?
● Individuals
● Resident citizens receiving income from sources within or outside the Philippines
○ Self-employed individuals receiving income from the conduct of trade or
business and/or practice of profession
○ Individuals deriving mixed income, i.e., compensation income and income from
the conduct of trade or business and/or practice of profession
○ Individuals deriving other non-business, non-professional related income in
addition to compensation income not otherwise subject to a final tax
Different taxes in the Philippines
Who are Required to File Income Tax Returns?
● Individuals
● Resident citizens receiving income from sources within or outside the Philippines
○ Individuals receiving purely compensation income from a single employer,
although the income of which has been correctly withheld, but whose spouse is
not entitled to substituted filing
● Non-resident citizens receiving income from sources within the Philippines
● Aliens, whether resident or not, receiving income from sources within the Philippines
Different taxes in the Philippines
Who are Required to File Income Tax Returns?
● Non-Individuals
● Corporations including partnerships, no matter how created or organized.
● Domestic corporations receiving income from sources within and outside the
Philippines
● Foreign corporations receiving income from sources within the Philippines
● Estates and trusts engaged in trade or business
Classification of Taxes
1. As to subject matter or object
a. Personal, poll or capitation – Tax of a fixed amount imposed on individuals
whether citizens or not, residing within a specified territory without regard to
their property or the occupation in which they may be engaged. Example:
community tax.
b. Property – Tax imposed on property, whether real or personal, in proportion
either to its value in accordance with some other reasonable method of
apportionment. Example: real estate tax.
c. Excise - Tax imposed upon the performance of an act, the enjoyment of a
privilege or the engaging in an occupation. Examples: estate tax, donor’s tax,
income tax, value-added tax.
2. As to who bears the burden
a. Direct – Tax demanded from persons who are intended or bound by law to pay the tax. Examples :
community tax, income tax, estate tax, donor’s tax.
b. Indirect – Tax which the taxpayer can shift to another. Examples: customs duties, value added tax,
some percentage taxes.
3. As to determination of amount
c. Specific – Tax imposed based on a physical unit of measurement, as by head or number, weight,
or length or volume. Examples: Tax on distilled spirits, fermented liquors, cigars, wines
fireworks, etc.
d. Ad valorem – Tax of a fixed proportion of the value of the property; needs an independent
appraiser to determine it value. Examples : real estate tax, certain, customs duties, excise taxes in
cigarettes, gasoline and others. Excise taxes on certain goods imposed under the National Internal
Revenue Code are either specific or ad valorem taxes.
4. As to purpose
a. General, fiscal or revenue – Tax with no particular purpose or object, for which the revenue is
raised, but simply raised for whatever need may arise. Examples: income tax, value-added tax.
b. Special regulatory – Tax imposed for a special purpose regardless of whether revenue is raised or
not, and is intended to achieve some social or economic end. Example: protective tariffs or
customs duties on certain imported goods to protect local industries against foreign competition.
5. As to authority imposing the tax scope
c. National – Tax imposed by the national government. Examples: internal revenue taxes, tariff and
customs duties.
d. Municipal or local – Tax imposed by municipal governments for specific needs. Examples: real
estate taxes, municipal licenses.
6. As to graduation or rate
a. Proportional – Tax based on a fixed percentage of the amount of property income
or other bases to be taxed. Example; percentage taxes , real estate taxes.
b. Progressive or graduated – Tax rate increases as the tax based increases. Example
: income tax, estate tax, donor’s tax.
c. Regressive – Tax rate decreases as the tax based increases. Example: value-added
tax.
Interpretation of Taxation Laws
In interpreting tax laws, the following guidelines are usually followed:
1. Taxation laws have prospective application.
Unless there is a clear indication of the legislative intention, taxation laws are
operative and effective after the date of the signing of the President.*
2. Taxation laws are resolved in favor of the taxpayer in case of doubts.
In case taxation law has several interpretations, it shall be resolved in favor
of the taxpayer.
Interpretation of Taxation Laws
In interpreting tax laws, the following guidelines are usually followed:
3. Taxation laws should clearly indicate tax burden.
In the event the burden of tax is not clearly indicated, it shall not be presumed, since
taxation laws are resolved strictly against the taxing authority.
4. Provisions on tax exemption should be clear.
Tax exemptions and tax cancellations favor the taxpayer. The taxpayer,
therefore, has the burden of proof to substantiate claims on tax exemption, since
exemptions are construed against him/her.
Constitutional Provision on Progressive System of Taxation
The Supreme Court declared R.A. 9337 or the VAT Reform Act Constitutional. In the same
decision, it clarified and constitutional provision on progressive system of taxation. The
increase in corporate income tax rate and the removal of certain exemptions are meant to
distribute the burden of taxation. Although indirect taxes, e.g. VAT are regressive by nature, the
constitution does not prohibit the imposition of indirect taxes. When the Constitutions mandated
Congress to evolve a progressive system of taxation, it simply meant that direct taxes should be
preferred and that the regressive indirect taxes can be minimized with exemptions and
differentiated rates (G.R. 168056, G.R. 168207, G.R.168461, and G.R. 168730, Sept. 1, 2005).
Illustration
1. During the current taxable year, Mr.
Bart Tolomie was declared delinquent
for non-payment of taxes amounting to
P800,000. To effect the payment, his
personal and real properties were
seized or foreclosed by the government
without giving him proper notice.
QUERY: Was there observance of
due process of law?
2. Ms. Jocelyn and Ms. Joylyn are both
employees of Western Christian
University, with current taxable
compensation income of P300,000 and
P450,000, respectively.
QUERY: Can Ms. Jocelyn challenge
the law as being discriminatory
because she pays more taxes and
yet both of them enjoy the same
level of protection and safety from
the government?
Situs of Taxation
The situs of taxation is the place of taxation. The rule is that the State may rightfully levy and collect the
tax where the subject being taxed has a situs under its jurisdiction. The situs of taxation is determined by
a number of factors.
1. Subject matter – or what is being taxed. He may be a person or it may be a property, an act or
activity.
2. Nature of Tax – or which tax is impose. It may be an income tax, an important duty or a real
property tax;
3. Citizenship if the taxpayer;
4. Residence of the taxpayer;
5. Source of income
6. Place of excise, business or occupation being taxed
The following situs of Taxation apply;
1. Persons – Residence of the taxpayer.
2. Real property or tangible personal property – Location of the property.
3. Intangible personal property – As a rule, situs is the domicile of the owner unless he has acquired a
sites everywhere
4. Income – Taxpayers residence or citizenship or place where the income was earned,
5. Business, occupation and transaction – place where business is being operated, occupation being
practiced and transaction complete.
6. Gratuitous transfer of property - Taxpayer’s residence or citizenship, or location of the property.
Tax Distinguished from other Fees
1. From toll. Toll is a sum of money for the use of something, generally applied to the
consideration which is paid for the use of a roads, bridge or the like, of a public
nature.
A toll is demanded for proprietorship, is paid for the use of another’s property
and may be imposed by the government or private individuals or entities; while tax is a
demand of sovereignty, is paid for the support of the government and may be imposed
only by the State.
2. From penalty. Penalty is any sanction imposed as a punishment for violation of
law or acts deemed injurious. Violation of tax laws may give rise to imposition of penalty.
3. From special assessment. Special assessment is an enforced proportional contribution
from owners of lands for special resulting from public improvements.
4. From permit or license fee. Permit or license fee is a charge imposed under the police power
for purpose of regulation.
5. From debt. A debt is generally based on contract, is assignable and may be paid in kind while
a tax is based on law, cannot generally be assigned and is generally payable in money. A person
cannot be imprisoned for non-payment of debt while he can be for non-payment of tax (except
poll tax).
6. From Revenue. Revenue is broader than tax since it refers to all funds or income derived by
the government taxes included. Other sources of revenue are government services, income
from public enterprises and foreign loans.
7. From customs duties. Customs duties are taxes imposed on goods exported from or imported
to a country. Customs duties are actually taxes but the latter is broader in scope.
SOURCES OF TAX LAWS
1. Constitutions
2. Statutes and Presidential Decrees;
3. Revenue Regulations by the Department of Finance;
4. Rulings issued by the Commissioner of Internal Revenue and
Opinions by the Secretary Justice:
5. Decisions of the Supreme Court and the court of Tax Appeals;
6. Provincial, city municipal, and barangay ordinance subject to
limitations set forth in the Local Government Code; and
7. Treaties or International agreements the purpose of which is to avoid
or minimize double taxation.
Interpretation and Construction of Tax Statutes

The recognized rules in statutory construction also apply to tax statutes. As in other
statutes, the legislative intent is the primary concern . However, where there is doubt
in determining the legislative intent, the doubt must be resolved liberally in favor of
taxpayers and strictly against the taxing authority.
INTERNAL REVENUE LAWS

Revenue law is a law passed for the purpose of authorizing the levy and collection of
taxes in some form to raise revenue. A revenue law is said to be a national revenue law
when it is applicable all over the country.
Internal revenue laws are neither political nor penal in nature although there are penalties
in case of violations. Tax laws are civil in nature.
Means of Escape from Taxation
A taxpayer sometimes tries to minimize the amount of tax or escapes totally the burden of
taxation.
The concept of minimizing or totally escaping the tax burden is referred to as the doctrine of
escape from taxation.
Escapes from Taxation
1. Escapes that result in LOSSES of government revenue
a. Tax Avoidance - is the reduction of tax burden or total escape from payment of tax
liabilities through legal means. This is also termed as
“Tax minimization.”
b. Tax evasion - is a unlawful means of reducing tax payment. This doctrine is prohibited
and subject to civil and criminal liabilities and actions.
c. Tax exemption - is the privilege of not being levied with a particular tax wherein other
individuals are obligated to pay. Tax exemption is not presumed and usually construed
strictly against the taxpayer.
Escapes from Taxation
2. Escapes that do not result in losses of government revenue
a. Tax Shifting - is the process of transferring tax liabilities from one taxpayer to another
without violating any provisions of the tax laws. It can either be forward, backward or
onward.
FORWARD tax shifting - transferring tax from a producer of goods to distributor, and finally
to the ultimate end user. Under this situation, the price of goods keeps on increasing as the tax
increases.
BACKWARD tax shifting - has an ultimate effect of price reduction due to the removal of tax
that has been added.
Onward tax shifting - is the transferring of tax burden twice or more, using forward or
backward tax shifting.
Escapes from Taxation
2. Escapes that do not result in losses of government revenue (cont’n)
b. Tax Transformation - this is an escape from the burden of taxation whereby the
producer of goods simply absorbs the tax. The amount of tax paid is simply recovered by
improving the process of production to reduce the cost of goods.
c. Tax capitalization - is similar to tax transformation.In tax capitalization, however, the mark-
up is reduced so that the tax paid can be added to the selling price.
THE BUREAU OF INTERNAL REVENUE LAWS
The Bureau of Internal Revenue (BIR) functions under the supervision and controls
of the Department of Finance (DOF). The Bureau was created by Commonwealth
Act 466, approved by the National Assembly on June 15, 1939, effective July 1,
1939, which revised and codifies the then internal revenue laws of the Philippines.

https://www.bir.gov.ph/index.php/philippine-transparency-seal/bir-officials.html
 BIR Issuance and Ruling Defined
Revenue Regulations(RRs) are issuances signed by the Secretary of Finance , upon
recommendation of the Commissioner of Internal Revenue, that specify , prescribe or define rules
and regulations for the effective enforcement of the provisions of the National Internal Revenue
Code(NIRC) and related statutes.

Revenue Memorandum Circulars(RMCs) are issuances that publish pertinent and applicable
portions, as well as amplifications, of laws, rules regulations and precedents issued by the BIR
and other agencies/offices.

Revenue Memorandum Orders (RMOs) are issuances that provide directiveness or instructions;
prescribe guidelines; and outlines processes, operations, activities, workflows, methods and
procedures necessary in the implementation of stated policies, goals, objectives, plans and
programs of the Bureau in all areas of operations, except auditing.
Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the
Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax
laws, as applied to a specific set of acts, with or without established precedents, and which the
Commissioner may issue from time to time for the purpose of providing taxpayers guidance on
the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued
RMRSs; otherwise, the Rulings are null and void ab initio.

BIR Rulings are official position of the Bureau to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws.

Revenue Bulletins (RBs) refer to periodic issuances, notices and official announcements of the
Commissioner of Internal Revenue that consolidate the Bureau od Interna Revenue's Position on
certain specific issues of law or administration in relation to the provisions of the Tax Code
Relevants to tax laws and other issuance for the guidance of the public. The BIR also issues
Revenue Audit Memorandum Orders (RAMOs).
Powers and Duties of the Bureau of Internal Revenue
The chief officials of the Bureau are the Commissioner and the seven Deputy Commissioners. The
Deputy Commissioners are tasked to handle particular groups within the Bureau such as information
systems, legal and inspection, operations, resources management, tax reforms administrations, special
concerns, and large taxpayers. Its power and duties follow:
1. Assessment and collection of all national internal revenue taxes, fees and charges.
2. Enforcement of all forfeitures, penalties and fines;
3. Execution of judgement in all cases decided in its favor by the Court of Tax Appeals and ordinary
court and
4. Administration of supervisory and police powers conferred to it;
 Powers of the Commissioner
1. Interpret tax laws, and decide tax cases;
2. Obtain information, and to summon, examine and take testimony of persons;
3. Make assessments and prescribe additional requirement for tax administration and
enforcement
4. Delegate powers vested in him by the Code to any subordinate officer with rank equivalent to
a division chief or higher.
5. Suspend business operations of a taxpayer.
6. Compromise, abate and refund or credit taxes.
COLLEGE OF ECONOMICS, BUSINESS & ACCOUNTANCY

THANK YOU!

FAITH PEREZ REGADIO,CPA