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
NATURE/ CHARACTERISTICS OF THE STATE’S POWER OF TAX
a) It is inherent in sovereignty.
-can enforce contribution in the absence of law
b) It is legislative in character.
-cannot be exercised by executive and juridical branches
c)
d)
e)
f)
Exemption of government entities, agencies and instrumentalities.
International Comity
Limitation of territorial jurisdiction
Strongest among all the inherent powers of the state

Agencies performing governmental function are tax exempt unless
expressly taxed
Agencies performing proprietary functions are subject to tax
unless expressly exempted
GOCCs performing proprietary functions are subject to tax,
however the following are granted tax exemptions:
 Government Service Insurance System (GSIS)
 Social Security System (SSS)
 Philippine Health Insurance Corporation (PHIC)
 Philippine Charity Sweepstakes Office (PCSO)
 Local Water Districts (RA 10026)


PURPOSES OF TAXATION
1. Primary: Revenue or Fiscal Purpose
- to provide funds or property with which to promote general
welfare and protection of its citizens
2. 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
1. Necessity Theory
- to preserve the state’s sovereignty
- a means to give for protection and facilities
2. 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
 Court of Tax Appeals – have the authority to grant injunction
to restrain collection of internal revenue tax, fee or charge
3. Taxes could not be the subject of compensation or set-off
 Tax is compulsory not bargain.
4. Right to select objects (subjects) of taxation
a) Subject or object to be taxed
b) Purpose of the tax (as long as it is a public purpose)
c) Amount or rate of the tax
d) Kind of tax
e) Apportionment of the tax
f) Situs (place) of taxation
g) Manner, means, and agencies of collection of the tax
5. A valid tax may result in the destruction of the taxpayer’s
property.
 Lawful tax cannot be defeated.
 Bring out the insolvency of the taxpayer
 Forfeiture of property through police power
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 –
ESSENTIAL ELEMENTS OF TAX
a)
b)
c)
d)
e)
f)
It is an enforced contribution.
It is generally payable in money.
It is proportionate in character.
It is levied on persons, property or right.
It is levied by the law-making body of the state.
It is levied for public purpose.
ASPECTS OF TAXATION
a) Levying or imposition of tax
b) Assessment or determination of the correct amount
c) Collection of tax
CLASSIFICATION OF TAXES
1. As to scope:
 National- imposed by the national government
 Local – imposed by the local government
2. 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)
3. As to who bears the burden:
 Direct – taxpayer cannot shift to another
 Indirect – indemnify himself at the expense of another
4. 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
5. As to purpose:
 Primary, Fiscal, or Revenue Purpose
 Secondary, Regulatory, Special, or Sumptuary Purpose
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
7. As to taxing authority:
 National – imposed under National Internal Revenue Code,
collected by Bureau of Internal Revenue
 Local – imposed by LGUs
ELEMENTS OF SOUND TAX SYSTEM
a. Fiscal Adequacy – sources must be adequate
b. Theoretical Justice or Equity – tax should be proportionate
c. Administrative Feasibility – law must be capable of effective and
efficient enforcement
LIMITIATIONS ON THE STATE’S POWER TO TAX
1. Inherent Limitations
2. Constitutional Limitations



Progressive System – emphasis on direct taxes
Regressive System – more indirect taxes imposed
Regressive Tax Rates – tax rates which decreases as tax base or
bracket increases
FACTORS IN DETERMINING THE SITUS OF TAXATION
a.
b.
c.
d.
e.
f.
Subject matter ( person, property, or activity)
Nature of tax
Citizenship
Residence of the taxpayer
Source of Income
Place of excise, business or occupation being taxed

TOLL is a sum of money for the use of something which is paid of
the use of a road, bridge or public nature.

PENALTY is a sanction imposed as a punishment for violation of
law or acts deem injurious.

SPECIAL ASSESSMENT is an enforced proportional contribution
from owners of the lands for special benefits resulting from public
improvements.
Characteristics: a. Levied only on land
b. Not a personal liability of the person assessed
c. Based wholly on benefits (not necessary)
d. Exceptional both as to time and place
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
intention to reside therein
2. Leaves the Philippines during the taxable year to reside abroad:

As an immigrant

For employment on a permanent basis

For work and derives income that requires him to be
physically abroad most of the time during the taxable year
3. A citizen of the Philippines who shall have stayed outside the
Philippines for one hundred eighty-three days (183) or more by
the end of the year.

REVENUE refers to all funds or income derives 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.

CUSTOMS DUTIES are taxes imposed on goods exported from or
imported into a country.

TARIFF is the system of imposing duties on the importation or
exportation of goods.
A Filipino citizen taxpayer not classified as nonresident citizen is
considered a RESIDENT CITIZEN for tax purposes.

An ALIEN is a foreign-born person who is not qualified to acquire
Philippine citizenship by birth of after birth.

Section 22(F) of the Tax Code defines RESIDENT ALIENS as an
individual whose residence is within the Philippines and who is not
a citizen thereof.

The term NONRESIDENT ALIEN under Section 22(G) of the Tax
Code means an individual whose residence is not in the Philippines
and who is not a citizen thereof.

Under Section 22(S) of the Tax Code, “trade or business” includes
performance of the functions of a public service or performance of
personal service in the Philippines.

A nonresident alien not engaged in trade or business is subject to
25% income tax based on gross profit from all sources within the
Philippines.

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 himself 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
7. Avoidance – the tax saving device within the means sanctioned by
law.
SOURCES OF TAX LAWS
1.
2.
3.
4.
5.
6.
7.
8.
9.
Constitution
National Internal Revenue Code
Tariff and Customs Code
Local Government Code (Book II)
Local tax ordinances/ City or municipal tax codes
Tax treaties and international agreements
Special Laws
Decision of the Supreme Court and the Court of Tax Appeals
Revenue rules and regulations and administrative ruling and opinion
INDIVIDUAL TAXPAYERS are natural persons with income derived from
within the territorial jurisdiction of taxing authority. They are classified
as:
1. Resident Citizens(RC)
● Engaged in trade/business
2. Nonresident Citizens (NRC)
(NRA-ETB)
3. Resident Aliens (RA)
● Nonresident aliens not engaged
4. Nonresident Aliens (NRA)
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
1.
2.
3.
APPLICABLE TAXES AND TAX RATES
Classification of the Taxpayer
Source of Income
Taxpayer
Tax Base
Source of taxable Income
RC
Net Income
Within and without
NRC, RA,NRA-ETB Net Income
Within
NRA-NETB
Gross Income
Within
Type of Income (APPLICABLE TAX)
a) Ordinary or regular income (GRADUATED RATE)
– refers to income such as compensation income, business
income, and income from practice of profession
b) Passive income (FINAL WITHHOLDING TAX)
– subject to final withholding taxes are certain passive
incomes from sources within the Philippines such as:
 Interest income
 Dividend Income
 Royalties
 Prizes
 Other winnings
c) Capital gains subject to gains tax (CAPITAL GAIN TAX)
 Capital gains from sale of shares of stocks of a
domestic corporation
 Capital gains from sale of real property in the
Philippines
Income
Tax (TRAIN Law 2018-2022)
Below 250,000
Exempt
250,000-400,000
20% excess of 250,000
400,000-800,000
30,000 + 25% excess of 400,000
800,000-2,000,000
130,000 + 30% excess of 800,000
2,000,000-8,000,000
490,000 + 32%excess of 2,000,000
Above 8,000,000
2,410,000 + 35% excess of 8,000,000
Under RA 10963 (TRAIN Law), self-employed is defined as a sole
proprietor or an independent contractor who reports income earned
from self-employment.
PROFESSIONAL is a person formally certified by professional body
belonging to a specific profession.
Regular income of SELF-EMPLOYED &/or PROFESSIONALS (SEP)
amounting to more than 250,000 but with a gross sales and other
operation income not exceeding 3M shall have the option to avail 8%
tax.
MWE are exempt from income tax on:
1. Minimum wage
2. Holiday pay
3. Overtime pay
4. Night shift differential
5. Hazard pay
FILING OF INCOME TAX RETURNS

FINAL WITHHOLDING TAX is a kind of tax, which is prescribed on
“certain income” derived from the Philippine sources.

RR- 14-2012 defines DEPOSIT SUBSITUTES as an alternative form of
obtaining funds from the public other than deposits.
Under tax code, the following are ordinary assets:
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
b)


Sale of real properties located in the Philippines
 CGT = 6% of the higher of GSP and FMV
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
 2018 – 6/10 of 1% of GSP
Subject to Basic Tax – examples:
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
PRINCIPAL RESIDENCE is the family home of the individual taxpayer
which refers to his dwelling house including his family.
FINAL WITHHOLDING TAX ON PASSIVE INCOME
 Prior to 2018 - January to November – 10th day of the month
December – January 15
 2018 – not later than the last day of the month

CAPITAL GAINS TAX
a. Share of Stock
 Ordinary Return – 30 days after each transaction
 Final Consolidated Return – on or before April 15 of the
following year
b. Real Property – 30 days following each sale or other
disposition
MANNER OF FILING
a. Manual Filing
b. Electronic Filing and Payment System (EFPS)
c. eBIR Forms
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
PERSONS REQUIRED TO FILE INCOME TAX RETURN
1.
2.
3.
REQUISITES OF TAX EXEMPTION
1.
4.
The proceeds are fully utilized in acquiring or constructing a new
principal residence within 18 calendar months from the date of
disposition.
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.
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.
The tax exemption can only be availed of once every 10 years.
a.
b.
c.
FORMAT IN COMPUTING TAXABLE INCOME
Pure Compensation Income Earner
Pure Business Income Earner
Mixed Income Earner
2.
3.





Benefits for Senior Citizen and PWDs:
20% discount and exemption from VAT on their purchase of
specified goods and services
P500 monthly social pension, for indigent senior citizens
Death benefit assistance
5% discount on utilities
Income tax exemption for minimum wage earners of for
SC/PWDs whose annual taxable income is not more than 250,000
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 as defined by the Bureau of Labor and Employment Statistics.
For Business Income Earners
 The individual taxpayer is required to file a quarterly
tax return ( May 15, Aug 15, Nov 15, and April 15)

Gain on sale of ordinary assets is commonly known as ordinary or
regular income | classified as capital gains.
CAPITAL GAINS may be:
 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
BASIC TAX

For Purely Compensation Income Earners
 On or before April 15 of the succeeding year
4.
5.
6.
Individuals engaged in business and/or practice of profession
Individuals deriving compensation from two or more employers
concurrently at any time during the taxable year
Employees deriving compensation income, the income tax of
which has not been withheld correctly
Individuals deriving other non-business, non-professional-related
income in addition to compensation income not otherwise
subject to final tax
Individuals receiving purely compensation income from a single
employer
Non-resident alien engaged in trade or business in the Philippines
deriving purely compensation income
PERSONS NOT REQUIREDTO FILE INCOME TAX RETURN
1.
2.
3.
4.
An individual earning purely compensation income whose taxable
income does not exceed 250,000.
An individual whose income tax has been correctly withheld by
his employer
An individual whose sole income has been subjected to final
withholding tax
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.