Fundamentals Doctrines in Taxation
INCOME TAXATION
Taxation – is a made of raising revenue for public purposes. It is the process or means by which
the sovereign, through its law-making body, raises income to defray the necessary expenses of
the government. It is the act of laying a tax, i.e. the process or means by which the taxing power
is exercised.
Taxation is constant. It is impossible to live the sovereignty without taxation.
1.
The Lifeblood of Doctrine
2. Benefits Received Theory
3. Ability to pay Theory
4. Marshall Doctrine – “The power to tax involves the power to destroy”
5. Holme’s Doctrine – “Taxation power is not the power to destroy while the court sits”
6. Prospectively of tax laws
Taxation is the process or means by which the sovereign, through its law-making body imposes
7. Non-compensation or set-off
burdens upon subjects and objects (Person, Property, Privileges) within its jurisdiction for the
8. Non-assignment of taxes
purpose of raising revenues to carry out the legitimate objects of government. Taxation, as a
power of the state, is inherent in sovereignty.
9. Imprescriptibility in taxation - **Prescription is the lapsing of a right due to passage of
time
10. Doctrine of Estoppel
11. Judicial Non-interference
Aspect of Taxation
1.
Social and Economic Objective of Taxation
Levying (Legislative)
1. Shifting of wealth from rich to poor
2. Assessment (Executive)
2. Maintaining price stability
3. Collection (Executive)
3. Stimulating economic growth
4. Encouraging full employment
Purpose of Taxation
Primary Purpose: Revenues/Fiscal
To provide funds or property with which to promote general welfare and the protection
of its citizens and to enable it to finance its multifarious activities.
Secondary Purpose: Regulatory/Sumptuary/Compensatory
1.
a.
Vague tax laws
b. Vague exemption laws
13. Double Taxation
Direct Duplicate Taxation – the same subject is taxed twice when it should be
taxed but once, in a fashion that both taxes are imposed for the same purpose
by the same taxing authority, within the same jurisdiction or taxing district,
for the taxable period and for the same kind or character of tax.
14. Escape from taxation
a.
Tax Avoidance, Tax Evasion (intentional), Tax Exemption (refer #12)
b. Shifting, Capitalization, Transformation
c.
Tax Amnesty, Tax Condonation
Limitation of Taxation Power
Promotion of General Welfare
2. Reduction of Social Inequality
3. Economic Growth
Inherent Power of the State
1.
12. Strict Construction of tax laws
Taxation
2. Police Power
3. Eminent Domain
A. Inherent Limitation
1.
Territoriality of Taxation
2. International comity
3. Public Purpose
4. Exemption of the government
5. Non-delegation of the taxing power
B. Constitutional Limitation
1.
Factors in determination of situs of taxation
Due process of law
2. Equal protection of the law
3. Uniformity rule in taxation
4. Progressive system of taxation
5. Non-imprisonment for non-payment of debt or poll tax
6. Non-impairment of obligation and contract
7. Exemption of religious or charitable entities, non-profit cemeteries,
churches, and mosques from property taxes
8. Free worship rule
9. Non-appropriation of public funds or property for the benefit of any church,
sectors or system of religious.
10. Exemption from taxes of the revenues and assets of non-profit, non-stock
educational institutions.
11. Concurrence of a majority of all members of congress for the passage of law
granting tax exemptions.
a.
b. Nature of tax
c. Citizenship of taxpayer
d. Residence of taxpayer
Application of situs of taxation
1.
14. Non-impairment of the jurisdiction of the supreme court to review tax cases
3. Intangible Personal Property - domicile of the owner unless he/she acquired a situs
elsewhere.
4. Income - Taxpayer's residence or citizenship, or place where the income was earned.
5. Business, occupation and transaction - place where business is operated, occupation being
practice and transaction completed.
6. Gratuitous Transfer of Property - taxpayer's residence or citizenship or location of the
property.
Sources of Tax Laws
15. The requirement that appropriations. Revenues or tariff bills shall originate
1.
exclusively in the house of representatives.
16. The delegation of taxing power to local government units.
2. Statutes and Presidential Decrees
Taxes – are enforced proportional contribution from person and property levied by the lawmaking body of the State by virtue of its sovereignty for the support of the government and all
public needs.
It is an enforced contribution
2. It is levied by the lawmaking body
3. It is proportionate in character
4. It is generally payable in money
Situs of Taxation – Place of Taxation
Constitution
3. Revenue Regulations by the Dept. Of Finance
4. Rulings issued by the Commissioner of Internal Revenue and Opinion by the Secretary of
Justice
5. Decisions of the Supreme Court and Court of Tax Appeal
6. Provincial, city, municipality and barangay ordinances subject to limitations set forth in
the Local Government Code
Essential Characteristics of a Tax
1.
Person - residence of the taxpayer
2. Real Property or Tangible Personal Property - location of the property
12. Non-diversification of tax collections
13. Non-delegation of the power of taxation
Subject matter
5. It is imposed for the purpose of raising revenues
6. It is used for public purpose
7. Treaties or international agreements the purpose of which is to avoid or minimize double
taxation.
Tax, in general sense, is any contribution imposed by the government upon individuals for the use
and service of the State, whether under the name of toll, tribute, tillage, gable, impost, duty,
custom, exercise, subsidy, aid, supply, or other name. Tax is not a debt.
Philippine Tax Laws and Taxes
1. National Internal Revenue Code of 1997 (P.D. 1158, as amended)
1.
Income taxes
2. Estate and Donor's Taxes
3. Value Added Tax
4. Other Percentage Taxes
5. Excise Tax
6. Documentary Stamp Tax
2. Tariff and Customs Code of 1978 (P.D. 1464, as amended )
1.
Import duties
2. Export duties
3. Local Government Code of 1991 (R.A 7160)
1.
Real property tax
2. Business taxes, fees, and charges
3. Profession tax
4. Community tax
5. Tax or banks and other financial institution
4. Special Laws
1.
Motor vehicle law-motor vehicle fees
2. Private motor vehicle tax law-private motor vehicle tax
3. Phil. Immigration act of 1940-immigration tax
4. Travel tax law-travel tax
Basic Principles of Sound Tax System
1.
Fiscal Adequacy - sources of revenue are sufficient to meet government expenditures
2. Administrative Feasibility - the law must be capable of convenient, just and effective
administration.
3. Theoretical Justice or Equality - the tax imposed must be proportionate to taxpayer's
ability to pay
Classification of Taxes
1. As to subject matter or object
1.
6. As to graduation
Personal, poll, capitalization
2. Property
3. Excise
1. Proportional
2. Progressive or Graduated
3. Regressive
2. As to who bears the burden
1.
Direct
2. Indirect
3. As to determination of amount
1. Specific
2. Ad Valorem
4. As to purpose
1. General, Fiscal, or Revenue
2. Special or Regulatory
5. As to authority imposing the tax or scope
1.
National
2. Municipal or Local
Classification of Individual Income Taxpayers
Taxpayer
Resident Citizen
Non-Resident Citizen
Resident Alien
Non-Resident Alien - ETB
Non-Resident Alien - NETB
Special Employees
Tax Base
Net Income
Net Income
Net Income
Net Income
Gross Income
Tax Rate
Graduated
Graduated
Graduated
Graduated
Final Tax (25%)
Taxable Source
w/in & w/out the PH
Within only
Within only
Within only
Within only
Citizens


citizen of the PH at the time of adoption of the Feb. 2, 1987 constitution

those whose father or mother are citizen of the PH


those born before Jan. 17, 1973 of Filipino, who elect Phil. Citizen
those who are naturalized in accordance with law.
Non-Resident Citizen
A citizen of the PH who establishes to the satisfaction of the Commissioner the fact of

his/her physical presence abroad with a definite intention to resides therein
A citizen of the PH who leaves the PH during the taxable year to reside abroad, either as

an immigrant or for employment on a permanent basis
A citizen of the PH who works and derives income from abroad and whose employment

there requires him/her to be physically present abroad "most of the time during the
taxable year"
A citizen who has been previously considered as non-resident citizen and who arrives in

the PH at any time during the taxable year to reside permanently in the PH shall likewise
be treated as non-resident citizen for the taxable year in which he/she arrives in the PH
with respect to his/her income derived from sources abroad until the date of his/her
arrival in the PH.
The taxpayer shall submit proof to the commissioner to show his/her intention of leaving

the PH to reside permanently abroad or to return to and reside in the PH, as the case may
be.
Resident Alien

An individual whose residence is within the PH and who is not a citizen thereof.

He/she is one who is actually present in the PH and who is not mere transient or
sojourner.
promptly accomplished.

He/she is one who is mere transient or sojourner
NRA – ETB


Aliens who have business income in the PH
Alien who stayed in the PH for an aggregate period of more than 180 days during the
taxable year.
NRA - NETB


Aliens who don’t have business income in the PH.
---do---- 180 days or less.
Special Employees

Regional or area headquarters (RHOs) and regional operating headquarters (ROHQs)


Offshare banking units
Petroleum contractors and sub-contractors.
Individuals Exempt from Income Tax
1.
Non-Resident Citizen
2. Overseas Contract Workers, including Overseas Seamans
3. Barangay Micro Business Enterprise (BMBE)
4. Personal Equity and Retirement Account (PERA)
5. Philippine nationals and alien individuals employed by, foreign governments, embassies,
diplomatic missions, and international organizations situated in the Philippines
6. Minimum Wage Earners on their statutory minimum wage rates. Holiday pay, overtime pay,
night shift differential pays and hazard pay, if any, are also exempted.

He/she is one who lives in the PH with NO definite intention as to his/her stay.
7. Senior Citizen - No, there is no exemption. It will always depend on their income.

He/she is one who comes to the PH for the purpose the requires extended stay for
BMBE - any enterprise engaged in the production, processing or manufacturing of products or
its accomplishment, so he/she makes his/her home temporarily in the PH.
Non-Resident Alien

He/she is one who comes to the PH for a definite purpose which in its nature may be
An individual whose residence is not within the PH and who is not citizen thereof.
commodities, including agro-processing, trading and services, whose assets including these
arising from loans but exclusive of the land w/c the particular business entity's office, plant
and equipment on are situated, should not be more than P3,000,000.
✓ Sari-sari stores
✓bakeries
✓ handicraft shops
PERA - an individual's voluntary retirement account established from his/her PERA contributions
and/or his/her employer contributions, for the purpose of being invested solely in an eligible PERA
investment product (e.g. unit investment trust fund, mutual fund, annuity contract, pension plan,
share of stocks traded in a local stock exchange, exchange traded bonds, government securities)
duly approved by the concerned" regulatory authority (i.e. BSP, SEC, Office of the Insurance
Commission)
Passive Income - earned with very minimal involvement very from the taxpayer and is generally
irregular a timing and amount.
"Their existence can be difficult to predict while their actual amount may be difficult to
determine. Thus, the final withholding at source is the most favored scheme in taxing item of
passive income”
Final Tax - tax withheld at source. The amount of income tax that is withheld by a withholding
COLA - Cost of Living Allowance
agent is constituted as full and final payment of the income tax due from the payee on said
Income - in its broad sense, means all wealth, which flows into the taxpayer other than a mere
return of capital. It is the return in money from one's business, labor, or capital invested, e.g.,
gains, profits, salary, and wages.
The words "income from any source whatever " disclose a legislative policy to include all income
not expressly exempted from the class or taxable income under our of laws.
Income tax - is a tax on yearly profits arising from property, profession, trade or business, or is
a or is a tax on a person's income, emoluments, profits and the like.
Categories of Income
income.
Passive Income (Payee) – Final Tax (Withholding Agent/Payor) – Remit (BIR)
PASSIVE INCOME - IS YOUR RELATIVE PLAYING WITH DOTA & STRIKE?
RC / RA / NRC
Interest
Yield
Royalties
2. Business Income - Income Tax
3. Mixed Income - Income Tax
4. Passive Income - Final Tax
5. Capital Gain from sale of share of stocks, not traded thru Local Stock Exchange - Capital
Gain Tax
6. Capital Gain from sale of real properties - Capital Gain Tax
7. Fridge Benefit - Fridge Benefit Tax
Income
Passive
Capital Gain
Interest
✓ Shares

Compensation
✓


Business
Professional
✓ Winning
Income Tax
Final Tax
20% - depend on ST or LT
20% - depend on ST or LT
20%
20%
10k or less - exempted
under Sec.24(A) 8%
10k or less - exempted
under Sec.24(A) 8%
Under Arts Related – 10%
Under Arts Related – 10%
Religious, charitable,
educational, artistic, literary
or civic org., – NO TAX
Compete national – NO TAX
NO EFFORT – NO TAX
20% - unless the prize is 10k
less (less than 10k is
exempted)
10%
Religious, charitable,
educational, artistic, literary
or civic org., – NO TAX
Compete national – NO TAX
NO EFFORT – NO TAX
Exempted any amount that
the person won. (PCSO or
Lotto
20%
10%
20%
Prizes
1. Compensation Income - Income Tax
Active
NRA - ETB
20% - depend on ST or LT
20% - depend on ST or LT
20%
20%
✓ Land
Capital Gain Tax
Winning
Dividends
Share in Net Income
Partnership, Genera
Association
Joint Account & Venture
TAKE NOTE ON INTEREST:
Compensation - all remuneration for services performed by an employee for his/her
ST - Interest - 20%
Foreign Currency Deposit System (FCDS)
employer under employer-employee relationship, unless specifically excluded by the
LT - Interest - 0%
Before it was 7.5% but because of Train Law, it become 15%
Less than 3yrs. - 20%
Resident - 15%
3yrs to >4yrs. - 12%
Non-Resident - Exempted.
Code. The term used to designate the remuneration is immaterial. Thus, salaries,
wages, emoluments and honoraria, allowance, commission (e.g. transportation,
representation, entertainment and the like), fees including director fees, if the director
is, at the same time, an employee of the employer/corporation, taxable bonuses and
fringe benefits except those which are subject to fringe benefit tax, taxable pensions
and retirement pay, and other income of similar nature constitute compensation income.
4 yrs. to >7yrs - 5%
7yrs or more
- 0%
Passive Income of Individuals: Final Withholding Taxes
Compute the final tax of the following passive income of resident citizen individual, (unless
stated that it is not the case). Show your computation, if any.
1. Interest Income from bank deposit
80,000 X 20% = 16K
2. Prizes and Winnings
35,000 X 20% = 7K
3. Royalties
4. Royalties from musical composition by a non-resident alien
5. Dividends from a domestic Corporation
The timing or the basis is upon which the numeration is paid is immaterial in
determining whether the renumeration constitutes compensation. Thus, it may be paid
on the basis of piece-work, or a percentage of profits, and may be paid hourly, daily,
weekly, monthly, or annually
Renumeration
10,000 X 20% =2K
9,000 X 10% =.9K
25,000 X 10% =2.5K
6. Lotto winnings from PCSO
130,000 X 20% =26K
7. Share in the income of a partnership
25,000 X 10% =2.5K
8. Prizes in Wowowin
18,000 X 20% =3.6K
9. Interest income from long term deposit with a bank with
BSP certificate preterminated on its 3 ½ years
18,000 X 12% =2.160K
10. Interest income from a bank under the expanded foreign
currency deposit system by a resident alien
34,000 X 15% =5.1K
Taxable
Not Taxable
Compensation
Benefit (90,000 or less)
Benefits (exceed 90,000)
De Minimis Benefit
Others
Fridge Benefit
Forms of Compensation
1. Compensation paid in kind – Fair Market Value
2. Living quarters and meals – if convenient by employer - not taxable
4. Daily meal allowance for overtime work and night/graveyard shift twenty-five (25%) of the
basic minimum wage on a per region basis
5. Uniform and clothing allowance not exceeding 6,000 per annum
3. Facilities and privileges of relatively small values (de minimis benefits)
6. Laundry allowance not exceeding to 300 per month
4. Tips and gratuities – belong the other. Under substitute filing
7. Medical cash allowance to dependents of employees not exceeding 1,500 per employees per
5. Pensions, retirement, and separation pay – it can be unless there are formal arrangement in
BIR, it is exempted
8. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs,
You should work in a company in 10 yrs. Or more before you received the pension.
6. Fixed or variable transportation, representation, and other allowances - if convenient by
employer - not taxable
7. Vacation and sick leave allowances – 10days, exempted in private.
All days are exempted in public
8. Deductions made by employers from compensation of employee. – Gross Income basis
9. Renumeration for services as employee of NRA individuals/foreign entity - taxable
10. Compensation for services performed outside the Philippines. – taxable.
semester or 250 per month
annual medicine/executive checkup maternity assistance and routine consultation not exceeding
10,000 per annum
9. Gifts given during Christmas and major anniversary celebration not exceeding 5,000 per
annum
10. Employees achievement awards, e.g. for length of service or safety achievement, which
must be in the form of tangible personal property other than cash or gift certificate with an
annual monetary value of 10,000 received by an employee under an established written plan
which does not discriminate in favor of highly paid employees.
11. Benefit received by an employee by virtue of collective bargaining agreement (CBA) and
productivity incentives schemes provided that the total monetary value received from both CBA
and productivity incentives schemes combine do not exceed 10,000 per employee per taxable
De Minimis Benefits - facilities or privileges furnished or offered by an employer to his/her
employees that are of relatively small value and are offered or furnished by the employer
merely as a means of promoting the health, goodwill, contentment, or efficiency of his/her
employees.
1. Monetized unused vacation leave credit of private employers not exceeding ten(10) days
during the year
2. Monetized value of vacation and sick leave credits paid to government officials and
employees.
3. Rice subsidy of 2,000 or one(1) sack of 50kg. rice per month amounting to not more than
2,000.
year.
Taxable Income – refers to the pertinent items of gross income specified in the Code, less
deductions, if any, authorized for such types of income by the Code or other special laws.
Individuals Earning Purely Compensation Income
Total Compensation Income
XX
Less: Mandatory Contribution
(SSS or Pag-ibig)
(XX)
Non-Taxable Benefits
(XX)
Net Taxable Income
XX
Tax Table: Sec 24 (A), as amended
1. Money or directly paid by employer - amount granted /paid for
Under MONEY/DIRECTLY PAID BY EMPLOYEE
1.
Expense amount
2.
Household, personnel, such as maid, driver and others.
3.
Interest on loan at less than the market rate to the extent of the
difference between the market rate and act rate granted. (Bench rate is
12%. Any lower than will be subject to tax by employer)
4. Membership fees, dues and other expenses borne by the employer to the
employee in social and athletic clubs and similar organization.
5. Expenses for foreign travel (more than the budget set daily)
6. Holiday and vacation expenses
Sample Problem: Mr. Suave, resident citizen, ha the following items relating to his compensation
during the taxable year, 2021. He is not Minimum Wage Earner.
Basic Salary
600,000
Commission
Overtime Pay
Other Benefits
30,000
50,000
De Minimis Benefits
80,000
25,000
Mandatory Contribution
30,000
13th Month Pay
50,000
14th Month Pay
50,000
Total Compensation Income
(Included in basic salary)
8. Life and health insurance and other non-life insurance premium or similar
amounts in excess if what the law allows.
2. Property (ownership is transferred) - FMV or Zonal whichever is higher value of the
property.
3. Property (ownership is NOT transferred) – Depreciation value of the property. (Not
885,000
Less: Mandatory Contribution
Tax Due
400,000 = 30,000
(SSS or Pag-ibig)
(30,000)
285,000 = 71,250
De Minimis Benefit
(80,000)
685,000 = 101,250
Other Benefits
Net Taxable Income
7. Education assistance to the employee or his/her dependent.
(90,000)
685,000
Fringe Benefit - means any good, services or other benefits furnished or granted in cash or in
kind other than the basic compensation, by an employee to an employee, (except RANK AND FILE
employee as defined herein/such as, but not limited to the following:
📌Supervisor & Management are the only subject for fringe benefit.
📌Employer will be the one who will be tax with this matter.
airplane)
Under PROPERTY.
1. Housing
2. Vehicle of any kind.
Depreciation value in case brand new or rent:
Property value * 5% = XX * 50% (exclude interest)
Depreciation value in case he owns the property:
Property value * 50%
Vehicle:
Purchase in installment – divide 5
Owns a vehicle – divide 5
Yatch – divide 20
Accounting for Fridge Benefits:
🦋🦋🦋 BUSINESS INCOME 🦋🦋🦋
Monetary Value
XXX
Divide by:
65%
Grossed-up monetary value
XXX
Multiply by:
35%
Fridge Benefit Tax
XXX
Employers book:
Dr. Fridge Benefit Expense
XXX
Dr. Fridge Benefit Tax Expense
XXX
Cr. Cash/Other Assets
XXX
Concept of Gross Income
MANUFACTURING, MERCHANDISING,
OR MINING
Gross Sales
XXX
Less: COGS
(XXX)
Gross Profit from Sales
XXX
Add: Other Income
Income from invt.
Gross Income - means total income of a taxpayer subject to tax. It includes gain, profit, and
income derived from source whatever whether legal or illegal. It does not include income excluded
by the law, or which are exempt from income tax.
Taxable Income - means all pertinent items of gross income specified by the tax code less
deductions, if any, authorized for such type of income by the tax code or other special laws.
Items of Gross Income:
1. Compensation for service in whatever form paid, including but not limited to fees, wages,
Gross Income
Farming: Methods
a.
Contract Price
Value of work completed
Less: Cost to date
/outside operation or
sources.
Method: Percentage of Completion
% of completion
XXX
Income from incident
Income - in general, is the gain derived from capital, labor, or both combined, including profit gain
through a sale or conversion of capital assets.
INCOME FROM LONG-TERM
CONTRACTS
XXX
XXX
Gross income
XXX
Petroleum Operations
from the sale at market price, during the taxable year
of the petroleum produced under the service contract
and such other income incidental to and arising from any
one or more of the petroleum operations of the
contractor.
🦋🦋🦋 TAXATION FOR INDIVIDUALS 🦋🦋🦋
4. Interest Income
5. Rents
9. Prizes and winnings
10. Pension
11. Partners distributive share from the net income of a general professional partnership
XXX
and disbursement basis
b. Accrual basis
c. Crop basis
3. Gains derived from dealing in property.
8. Annuities
XXX
(XXX)
Gross Income – total entitlement of the gross proceeds
2. Gross Income derived from the conduct of trade or business or the exercise of a profession
7. Dividends
X%
Cash basis, or receipts
commission, and similar items.
6. Royalties
XXX

With business


Self-employed
Practice of profession
Tax Rates: “Options”


Graduated rates – Sec 24(A) of the Tax Code, as amended
8% tax of GSRONOI in excess of 250,000
8% tax rate not applicable:
1.
GSRONOI exceeds 3M VAT threshold