TAXATION
 the process by which the sovereign, through
its lawmaking body, imposes burdens for
the purpose of raising revenues to carry out
legitimate objects of the government.
TAXES
 the enforced contributions levied by the law-
making body of the state for the support of
the government and all the public needs.
3 INHERENT POWERS OF THE STATE
1. Police Power – the power of promoting
public welfare and regulating the use of
liberty and property.
2. Power of Taxation – the power which raises
revenue for the expenses of the government
3. Power of Eminent Domain – the power to
acquire private property for public purpose
upon payment of just compensation
PURPOSES OF TAXATION
 Primary: Revenue or Fiscal Purpose
To provide funds or property with
which to promote general welfare and
protection of its citizens
 Secondary: Regulatory Purpose
Employed as a devise for regulation
or control
Effects:
● Promotion of General Welfare
● Reduction of Social Inequality
● Economic Growth
THEORIES OF TAXATION
Necessity Theory
 to preserve the state’s sovereignty
 a means to give for protection and facilities
Lifeblood Theory
 used to continue to perform the
government’s basic function of serving and
protecting its people
 give tangible and intangible benefits
Basis of Taxation –
The government may be able to perform its
functions while the citizens may be secured in the
enjoyment of the benefits.
MANIFESTATION OF LIFEBLOOD THEORY
1. Rule of “No Estoppel against the
government”
2. Collection of taxes cannot be stopped by
injunction
3. Court of Tax Appeals – have the authority to
grant injunction to restrain collection of
internal revenue tax, fee or charge
4. Taxes could not be the subject of
compensation or set-off
5. Tax is compulsory not bargain.
SCOPE OF TAXATION
The power of taxation is the most absolute of all
the powers of the government.
a) Comprehensive – covers all (persons,
businesses, professions)
b) Unlimited – absence of limitations
c) Plenary – it is complete
d) Supreme – with highest degree
ESSENTIAL ELEMENTS OF TAX
 It is an enforced contribution- imposition
does not depend on the will of the taxpayer
 It is generally payable in money- money is
the preferred payment
 It is proportionate in character- the ability to
pay principle
 It is levied on persons, property or right-
objects of taxation are either tangible or
intangible
 It is levied by the law-making body of the
state-the congress makes tax laws
 It is levied for public purpose- returned in
form of public benefits.

STAGES/ASPECTS/ PROCESSES OF
TAXATION
Levying or imposition of tax
It is passage of laws through the legislature
(legislative function). It cannot be delegated to
executive and judicial branches.
Assessment/determination of correct amount
Act of administration and implementation of
tax laws by EXECUTIVE through BIR.
Collection of tax
Act of compliance by the taxpayer.
NOTE:
LEVY & ASSESSMENT- impact of taxation
COLLECTION- incidence of taxation
Collection and Assessment are administrative
in nature
NATURE/ CHARACTERISTICS OF THE STATE’S
POWER OF TAX
a.) It is inherent in sovereignty.
 can enforce contribution in the absence of
law
 Local government DO NOT possess the
inherent power
b.) It is legislative in character.
 -cannot be exercised by executive and
juridical branches
c.) Exemption of government entities, agencies
and instrumentalities.
 -grant of tax immunity to a particular class
 -Agencies performing governmental
functions are exempt from tax unless
expressly taxed and those performing
proprietary functions are subject to tax
unless expressly exempt.
d.) Territorial in Operation
 Tax laws are effective and enforceable only
within its territorial limits.
 “Privity of relationships”, the state can still
exercise its taxing power over its citizen
outside its territory
 “International Comity” is the courteous
recognition, friendly agreement by one
nation to the laws and institutions of
another.
e.) For Public Purpose
 It must be for the common good of the
people.
f.) Strongest among all the inherent powers of the
state
 Because without money the government
cannot survive.
CLASSIFICATION OF TAXES
1. As to subject matter or object:
 Personal, poll, or capitation – tax of a fixed
amount imposed upon individual residing
within a specified territory.
 Property – tax imposed on property in
proportion to its value
 Excise – tax on certain rights and privileges
(sin products or imported goods)
2. As to who bears the burden:
 Direct – taxpayer cannot shift to another
 Indirect – indemnify himself at the expense
of another
3. As to determination of fixed amount:
 Specific- tax of fixed amount by number,
standard of weight, or measurement
 Ad valorem – tax of fixed proportion of the
value of the property
4. As to purpose:
 Primary, Fiscal, or Revenue Purpose- Tax
with no particular purpose or object
 Secondary, Regulatory, Special, or
Sumptuary Purpose- Tax imposed for a
special purpose regardless of whether a
revenue is raised or not.
5. As to scope:
 National- imposed by the national
government
 Local – imposed by the local government
6. As to graduation or rate:
 Proportional – tax based on fixed
percentages of amount
 Progressive – tax the rate of which
increases as the tax base or bracket
increases
 Regressive - tax the rate of which
decreases as the tax base or bracket
increases
ELEMENTS OF SOUND TAXSYSTEM
Fiscal Adequacy – sources must be adequate
Theoretical Justice or Equity – tax should be
proportionate
Administrative Feasibility – law must be capable
of effective and efficient enforcement
LIMITIATIONS ON THE STATE’S POWER TO
TAX
1. Inherent Limitations
a. Purpose- levied only for public purpose
b. International Comity- property of a foreign
state may not be taxed by another
c. Territoriality- the State may tax persons and
properties under its jurisdiction
 d. Exemption- governmental agencies
performing governmental functions are
exempt from taxation
e. Non-delegation- the power of tax being
legislative in nature may not be delegated
2. Constitutional Limitations
 Congress granting tax exemption
- needs the vote of majority
 Origination of appropriation
- the constitution exclusively vested to
congress the origination of all revenues,
appropriation or tariff bills
 Non-impairment of contracts
- no law impairing the obligation of
contracts shall be passed
 The power of juridical review
- the Supreme Court, may provide final
judgment in all tax cases
 Equal protection of law
 No public money shall be used for religious
purposes
 Tax collection shall be treated as public
fund
 President’s Veto power
- Item and Pocket
 Rule of uniformity and equality
 Exemption of taxes
 No imprisonment for nonpayment of poll tax
 Due process of law
DOCTRINES IN TAXATION
Set-off taxes
Prospective application of tax laws
Imprescriptibility of taxes
Compromises
Escape from taxation
Double taxation
Power to destroy (marshall dictum)
- Holmes Doctrine (power to build)
Exemption from taxation
Situs of taxation
Taxpayer suit
Equitable recoupment
FACTORS IN DETERMINING THE SITUS OF
TAXATION
a. Subject matter ( person, property, or activity)
b. Nature of tax
c. Citizenship
d. Residence of the taxpayer
e. Source of Income
f. Place of excise, business or occupation being
taxed
OTHER CHARGES/FEES vs TAXES
 TOLL– demand of proprietorship paid for
the use of another’s property and may be
imposed by government and private
individuals while tax is demand of
sovereignty and may be imposed only by
state.
 PENALTY is designed to regulate conduct
and may be imposed by government and
private individuals while tax is aimed at
raising revenue and may be imposed only
by state.
 SPECIAL ASSESSMENT is an enforced
proportional contribution from owners of the
lands for special benefits resulting from
public improvements. It’s levied only on land
and not a personal liability of the person
assessed while tax is levied on person,
property or right which may be made a
personal liability of a person assessed.
 REVENUE is broader than tax for it refers to
all funds or income derived by the
government.
 SUBSIDY is a pecuniary aid directly granted
by the government to an individual or
enterprise deemed beneficial to the public.
 PERMIT or LICENSE is a charge imposed
under the police power for purposes of
regulation while tax is imposed for revenue.
Failure to pay license fee makes an act
illegal but failure to pay tax does not make
an act illegal.
 CUSTOMS DUTIES are taxes imposed on
goods exported from or imported into a
country.
 DEBT is based on contract, assignable and
payable in kind while tax is based on law,
not assignable and payable in money.
DIRECT DOUBLE TAXATION means taxing twice:
1. By the same taxing authority, jurisdiction or
taxing district
2. For the same purpose
3. In the same year or taxing period
4. Same subject or object
5. Same kind or character of the tax
 MEANS OF AVOIDING THE BURDEN OF
TAXATION
1. Shifting – the transfer of the burden of tax by the
original payer to someone else
2. Transformation – the producer pays the tax and
endeavor to recoup him by improving his process of
production
3. Evasion – the use of illegal means to defeat or
lessen tax
4. Tax Avoidance – the exploitation of legally
permissible alternative tax rates of assessing
taxable income to reduce tax liability
5. Exemption – the grant of immunity to particular
persons of a particular class
6. Capitalization – the reduction in the selling price
of income producing property by an amount equal
to the capitalized value
SOURCES OF TAX LAWS
1. Constitution
2. National Internal Revenue Code
3. Tariff and Customs Code
4. Local Government Code (Book II)
5. Local tax ordinances/ City or municipal tax codes
6. Tax treaties and international agreements
7. Special Laws
8. Decision of the Supreme Court and the Court of
Tax Appeals
9. Revenue rules and regulations and
administrative ruling and opinion
TAW LAWS
- Body of laws which codifies all national tax
laws including income, estate, gift, excise, etc.
 R.A 8424 (The Comprehensive Tax Reform
of the Philippines/National Internal Revenue
Code of 1997or Tax Code)
 R.A 9337 (VAT reform Law)
 R.A 10963(Tax Reform for Acceleration
&Inclusion)
NATURE OF TAX LAWS
 Civil in nature, neither political nor penal.
INTERPRETATION AND APPLICATION OF TAX
LAWS
Supreme Court- has the exclusive power of
constructing and interpretation of tax laws
1. Tax Statute must be enforced as written
2. Imposition of tax burden is not presumed-
tax statutes should be construed strictly
against government
3. Doubts should be resolved liberally in favor
of taxpayer- in order to protect the taxpayer
against abuse application of tax laws
4. Tax exemptions are strictly construed
against taxpayer- tax exemptions cannot be
established by implication but should be
clearly expressed by law.
5. Tax laws are applied prospectively
6. Tax laws prevail over civil laws.
Chapter 2: INCOME TAXES FOR
INDIVIDUALS
INDIVIDUAL TAXPAYERS are natural persons
with income derived from within the territorial
jurisdiction of taxing authority. They are classified
as:
1. Resident Citizens(RC)
2. Nonresident Citizens (NRC)
3. Resident Aliens (RA
4. Nonresident Aliens (NRA)
 Engaged in trade or business(NRA-
ETB)
 Not engaged in trade or
business(NRA-NETB)
Importance of classification:
They differ as to
Situs of income
Manner of computing tax
Treatment of certain passive incomes
Allowable deductions
References in the tax choice
CITIZENS OF THE PHILIPPINES
1. Born with father and/or mother as Filipino
citizens
2. Born before Jan. 17,1973 of Filipino mother who
elects Philippine citizenship upon reaching the age
of maturity
3. Acquired Philippine citizenship after birth
(naturalized) in accordance with Philippine Laws
NONRESIDENT CITIZEN OF THE PHILIPPINES
1. Establishes to the satisfaction of the
Commissioner of Internal Revenue, the fact of
his physical presence abroad with a definite to 25% income tax based on gross
intention to reside therein income from all sources within
2. Leaves the Philippines during the taxable Philippines)
year to reside abroad: APPLICABLE TAXES AND TAX RATES
 As an immigrant 1. Classification of the Taxpayer
 For employment on a permanent basis 2. Source of Income
 For work and derives income that requires
him to be physically abroad most of the time Taxpayer Tax Base Source of
during the taxable year taxable income
3. A citizen of the Philippines who shall have RC Net Income Within & without
stayed outside the Philippines for one hundred NRC,RA, Net Income Within only
eighty-three days (183) or more by the end of NRA-ETB
the year. NRA-NETB Gross Income Within only
*A non-resident citizen who arrives in Philippines
during the taxable year to reside permanently shall 3. Type of Income (APPLICABLE TAX)
be considered resident citizen from the day he  Ordinary or regular income
arrived. (GRADUATED RATE)
- A Filipino citizen taxpayer not classified as – refers to income such as compensation income,
nonresident citizen is considered a RESIDENT business income, and income from practice of
CITIZEN for tax purposes. profession
 An ALIEN is a foreign-born person who is  Passive income (FINAL WITHHOLDING
not qualified to acquire Philippine citizenship TAX)
by birth of after birth. – subject to final withholding taxes are certain
passive incomes from sources within the
Section 22(F) of the Tax Code defines RESIDENT Philippines such as:
ALIENS  Interest income
 As an individual whose residence is within  Dividend Income
the Philippines and who is not a citizen  Royalties
thereof.  Prizes
 An alien who lives in the Philippines with no  Other winnings
definite intention as to his stay  Capital gains subject to gains tax
 An alien who lives in the Philippines for the (CAPITAL GAIN TAX)
purpose that requires extended stay for its - Capital gains from sale of shares of stocks
accomplishment. of a Domestic corporation
NON-RESIDENT ALIENS - Capital gains from sale of real property in
 Residence is not in Philippines and who is the Philippines
not citizen thereof Summary of INCOME and APPLICABLE
 Came for definite purpose which may be INCOME TAX
promptly accomplished.
a) Engaged in Trade and Business TYPES OF INCOME APPLICABLE TAX
- Aliens who stayed in Philippines for Regular Income Graduated
aggregate period of more than 180 days Passive Income, Phils Final Withholding Tax
during taxable year and/or aliens who Capital Gains Capital Gains Tax
have business income in Philippines (Subj. to CGT) (CGT)
(except passive income).
b) Not Engaged in Trade and Business SELF-EMPLOYED and/or PROFESSIONALS
- Alien that stays in Philippines for less Under RA 10963 (TRAIN Law),
than 180 days or he is not deriving - Self-employed is defined as a sole
business income in Philippines. (subject proprietor or an independent contractor who
 reports income earned from self- Tax Rate
employment. *In addition: Subject to business tax
- Professional is a person formally certified Business Tax= Gross Sales x 12% (we used the
by professional body belonging to a specific 12% since it exceeds the VAT threshold)
profession.
*8% tax is NOT APPLICABLE if since gross sales
and other non-operating income> 3M
Regular income of SELF-EMPLOYED &/or
PROFESSIONALS (SEP) amounting to more than PASSIVE INCOME
250,000 but with a gross sales and other
operation income not exceeding 3M shall have
the option to avail 8% tax

Case A. Purely SEP (gross sales/receipts and other

operating income does not exceed VAT threshold
of 3,000,000
-Net Income- Subject to Graduated Tax Rate
*In addition: Subject to Percentage Tax (if non-vat
registered, and gross sale<3M)
Business Tax= Gross Sales x 3%

-If opted to avail 8% tax (TRAIN LAW)

*(Gross Sales – 250,000) x 8%
NO NEED FOR BUSINESS TAX
Case B. Purely SEP (gross sales/ receipts > Vat
threshold 3M)
-Net Income- Subject to Graduated Tax Rate
*In addition: Subject to business tax
Business Tax= Gross Sales x 12% (we used the
12% since it exceeds the VAT threshold)

*8% tax is NOT APPLICABLE if a.) gross sales and

other non-operating income> 3M or b.) the SEP is
vat registered c.)those liable to percentage taxes
other than sec 116
Case C. MIXED Income Earner (gross
sales/receipts < Vat threshold of 3M)
Total taxable Net Income - Subject to graduated
tax rate
*In addition: Subject to Percentage Tax (if non-vat
registered, and gross sale<3M)
Business Tax= Gross Sales x 3%

-If opted to avail 8% tax (TRAIN LAW)

*Compensation Income- Graduated Tax Rate
*Business Income-Gross sales x 8%
Case D. MIXED Income Earner (gross
sales/receipts > Vat threshold of 3M)
-total taxable Net Income- Subject to Graduated
FINAL WITHHOLDING TAX is a kind of tax, which
is prescribed on “certain income” derived from
the Philippine sources.
 TAXABLE INCOME- ordinary income
subject to graduated tax rate
Following examples are part of the taxable inc:
 INTEREST INCOME from sources
OUTSIDE the Philippines
 DIVIDEND INCOME from foreign
corporations
 PRIZES not exceeding 10K from sources
WITHIN the Philippines.
Informer’s Reward
- any person except internal revenue officials
or employee or other public official or
employee, or his relatives within the sixth
degree of consanguinity, who voluntarily
gives definite sworn information shall be
rewarded 10% of the revenue, surcharges
or fees recovered or 1 Million, whichever is
lower
- for discovering and seizing of smuggled
goods
GAIN ON SALE OF ASSET
Under tax code, the following are ORDINARY
ASSET
1. Stock in trade of the tax payer or other property
of a kind
2. Property used in trade or business subject to
depreciation
3. Real property held by the taxpayer primarily for
sale to customers in the ordinary course of
business
4. Real property used in trade of the taxpayer
Gain on sale of ordinary assets is commonly
known as ordinary or regular income |
classified as capital gains.
*Ordinary assets are subject to GRADUATED
TAX RATE
*Capital Asset include all other property held by
taxpayer (whether or not connected to the
business) NOT included in the examples above.
CAPITAL GAINS may be:
1. Subject to CAPITAL GAINS TAX (CGT)
pertain to sale of:
a) Shares of stock of a domestic corporation
sold directly to a buyer
 Prior to 2018 – 5% to 100,000 ;
10% to excess
 2018 – 15% of capital gain
b) Sale of real properties located in the
Philippines
 CGT = 6% of the higher of GSP and FMV
2. OTHER PERCENTAGE TAX is not an
income tax but a business tax.
The applicable tax for this is known as “stock
transaction tax.”
 Prior to 2018 – ½ of 1% of GSP or (0.005)
 2018 – 6/10 of 1% of GSP O (0.006)
3. Capital Gains NOT Subject to Basic Tax
– examples: (ALL ARE SUBJECT TO
GRADUATED TAX RATE)
a) Sale of Share of foreign corporations
b) Sale of real properties located abroad
c) Sale of other personal assets other than share of
stock of domestic corporations (cars, jewelries etc)
PRINCIPAL RESIDENCE is the family home of the
individual taxpayer which refers to his dwelling
house including his family.
REQUISITES OF TAX EXEMPTION
1. The proceeds are fully utilized in acquiring or
constructing a new principal residence within 18
calendar months from the date of disposition.
Unutilized Portion
𝑡𝑎𝑥𝑎𝑏𝑙𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 = Gross seline Price
x (gross selling
price/FMV whichever is higher)
2. The historical cost or adjusted basis of the real
property sold or disposed shall be carried over to
the new principal residence built or acquired.
3. The BIR shall have been duly notified by the
taxpayer within 30 days from the date of sale or
disposition through a prescribed return of his
intention to avail of the tax exemption.
4. The tax exemption can only be availed of once
every 10 years.
FORMAT IN COMPUTING TAXABLE INCOME
a. Pure Compensation Income Earner
b. Pure Business Income Earner The term “statutory minimum wage earner
(SMW)” or “minimum wage earner (MWE)” under
RA 9504 shall refer to a worker in the private sector
paid the statutory minimum wage.

The rate is fixed by the Regional Tripartite Wage

and Productivity Board

MWE are exempt from income tax on:

1. Minimum wage
c. Mixed Income Earner 2. Holiday pay
3. Overtime pay
4. Night shift differential
5. Hazard pay

CREDITABLE WITHHOLDING HAND

FILING OF INCOME TAX RETURNS
- Certain regular not subject to final taxes on
passive income and capital gains are
 BASIC TAX
subject to creditable withholding tax
 For Purely Compensation Income
- Deducted to tax due on the income
Earners - On or before April 15 of
the succeeding year
INCOME TAX FOR MARRIED TAXPAYERS
 For Business Income Earners - The
- Husband and wife shall compute their
individual income tax based in their individual taxpayer is required to file
a quarterly tax return ( May 15, Aug
respective total taxable income separately
- Provided income cannot be identified as 15, Nov 15, and April 15)
income exclusively earned or realized of  FINAL WITHHOLDING TAX ON PASSIVE
either of the spouses, the same shall be INCOME
divided equally among them  Prior to 2018
o January to November –
Benefits for Senior Citizen and PWDs: 10th day of the month
following the month the
 20% discount and exemption from VAT on withholding was made
their purchase of specified goods and o December – January 15
services  2018 – not later than the last day of
 P500 monthly social pension, for indigent the month
senior citizens
 Death benefit assistance  CAPITAL GAINS TAX
 5% discount on utilities  Share of Stock
 Income tax exemption for minimum wage o Ordinary Return – 30 days
earners of for SC/PWDs whose annual after each transaction
taxable income is not more than 250,000
 o Final Consolidated Return
– on or before April 15 of the
following year
 Real Property – 30 days following
each sale or other disposition
MANNER OF FILING
1. Manual Filing
2. Electronic Filing and Payment System
(EFPS)
3. eBIR Forms
Payment:
1st installment: at the time of filing the annual ITR
2nd installment: on or before October 15 following
the close of the calendar year
PLACE OF FILING INCOME TAX RETURN
1. Authorized Agent Banks
2. Revenue District Officer
3. Collection Agent
4. Duly Authorized City or Municipal Treasurer
3. An individual whose sole income has been
subjected to final withholding tax
4. Minimum wage earners, the Certificate of
Withholding filed by the respective employers, duly
stamped “Received” by the
Bureau
SUBSITUTED FILING OF INCOME TAX
RETURNS (ITR)
Under RA 9504 and RR 10-2008, individual
taxpayers may no longer file income tax return
provided he has (all the requirements must be
satisfied):
1. Receiving purely compensation income,
regardless of amount
2. The amount of income tax withheld by the
employer is correct
(Tax due = Tax withheld)
3. Only one employer during taxable year
4. If married, the employee’s spouse also complies
with all the three aforementioned conditions, or
otherwise receives no income.

PERSONS REQUIRED TO FILE INCOME TAX

RETURN
1. Individuals engaged in business and/or practice
of profession
2. Individuals deriving compensation from two or
more employers concurrently at any time during the
taxable year
3. Employees deriving compensation income, the
income tax of which has not been withheld correctly
4. Individuals deriving other non-business, non-
professional-related income in addition to
compensation income not otherwise subject to final
tax
5. Individuals receiving purely compensation
income from a single employer
6. Non-resident alien engaged in trade or business
in the Philippines deriving purely compensation
income

PERSONS NOT REQUIRED TO FILE INCOME

TAX RETURN
1. An individual earning purely compensation
income whose taxable income does not exceed
250,000.
2. An individual whose income tax has been
correctly withheld by his employer