TAXATION 3. Administrative feasibility.

The law must be capable of

 Taxation is the process or means by which the convenient, just and effective administrative.
sovereign, through its lawmaking body, raises
income to defray the necessary expenses of the Limitations of the Power of Taxation
government. Taxation, as a power of the state, is
-The power of taxation is, however, subject to
inherent in sovereignty.
constitutional and inherent limitations. Constitutional
 Taxes are lifeblood of the government and their
prompt and certain availability are imperious need. A limitations are those provided for in the constitution or
government cannot continue to exist and operate implied from its provisions while inherent limitations are
without financial means. This Inherent power gives restrictions to the power to tax attached to its nature.
the government the right to tax citizens and
properties within its jurisdiction. Inherent Limitations
1. Purpose. Taxes may be levied only for public purpose;
Objectives of Taxation 2. Territoriality. The State may tax persons and properties
Taxation is much more than just a means of raising revenue under its jurisdiction;
for the government. It is also one of the major means by 3. International comity. The property of a foreign state may
which the national government attempts to achieve not be taxed by another;
economic and social objectives. 4. Exemption. Governmental agencies performing
-Shifting Wealth from rich to poor governmental functions are exempt from taxation;
-Maintaining Price Stability 5. Non-delegation. The power to tax being legislative in
-Stimulating economic growth nature may not be delegated.
-Encouraging full employment
Some Doctrines in Taxation
Provisions of Congress in achieving objectives.  Prospectivity of Tax Laws. Taxes must be imposed
 First, some tax rules are enacted for the purpose by prospectively. But if the legislative intent is for a
of mitigating certain undesirable economic and tax statute to operate retroactively, then such
social conditions already existing. statute much state so explicitly and clearly.
 Second, other tax rules provide incentives for  “Taxes may be imposed retroactively by law but,
certain desirable activities unless so expressed by such law, these taxes must
only be imposed prospectively.”
 Double Taxation- standing alone and not being
Inherent Powers of the State forbidden our fundamental law is not a valid
Power of Taxation - The power of the State by which the defense against the legality of a tax measure.
sovereign raises revenue to defray the necessary expenses Unless If double taxation amounts to a direct
of the government. duplicate taxation (when subject is taxed twice
Power of Eminent Domain - The power of the state to take when it should be taxed but once) of:
private property for public use upon payment or just -Imposed for the same purpose by the sametaxing
compensation. authority
Police Power - The power of the state to enact laws to -within the same jurisdiction or taxing district
promote public health, public morals, public safety and the -same taxable period
general welfare of the people. -same kind or character of a tax
 Indirect Double Taxation- is one other than the
Aspects of Taxation direct double taxation. Though this type may not
1. Levying of the Tax. The imposition of tax requires prove unconstitutional, it is being avoided so as
legislative intervention. In the Philippines, it is congress that not to bring injustice to the taxpayer
levies taxes; and  Set-off of Taxes- Taxes are not subject to set-off or
legal compensation under Article 1279 of the Civil
2. Collection of the tax levied. This is essentially an
Code.
administrative function.

Basic Principles of a Sound Tax System

1. Fiscal Adequacy. Sources of revenue are sufficient to
meet government expenditures;
Escape from Taxation
2. Equality or theoretical justice. The tax imposed must be
proportionate to taxpayer’s ability to pay; and
Tax Avoidance (tax minimization/tax planning)- happens 1. As a subject matter or object
when the taxpayer minimizes his tax liability by taking a. Personal, poll or capitation - tax of a fixed amount
advantage of legally available tax planning opportunities. imposed on individuals, whether citizens or not, residing
Controlling of actions so as to avoid undesirable tax within a specific territory without regard to their
consequences property or the occupation in which they may be
Tax Evasion (tax dodging)- Occurs when the taxpayer engaged
resorts to unlawful means to lessen or get away with his tax b. Property - Tax imposed on property, whether real or
liability personal, in proportion either to its value or in
Situs of Taxation- Is the place of taxation; Following the accordance with some other reasonable method of
rule, the state may rightfully levy collect the tax where the apportionment
subject is being taxed has a situs under its jurisdiction. c. Excise - Tax imposed upon the performance of an act,
-Subject matter the enjoyment of privilege or the engaging in an
-Nature of tax occupation
-Citizenship of the taxpayer 2. As to who bears the burden
-Residence of the taxpayer a. Direct - tax demanded from the persons who are
intended or bound by law to pay the tax.

The following situs of Taxation apply: b. Indirect - Tax which the taxpayer can shift to another.

-Persons 3. As to determination of amount

-Real Property or tangible personal property a. Specific - Tax imposed based on physical unit of
-Intangible personal property measurements, as by head or number, weight, or length
-Income or volume.
-Business Occupation and transaction b. Ad valorem - Tax of a fixed proportion of the value of
-Gratuitous transfer of property property, needs and independent appraiser to determine
its value.
TAXES 4. As to purpose
-Are enforced proportional contributions from persons and a. General, fiscal or revenue - Tax with no particular
property levied by the lawmaking body of the state by purpose or object for which the revenue is raised, but is
virtue of its sovereignty for the support of the government simply raised for whatever need may arise.
and all public needs b. Special or regulatory- Tax imposed for a special
-Is any contribution imposed by the government upon purpose regardless of whether the revenue is raised or
individuals, for the use and service of the state not, and is intended to achieve some social or economic
-In its essential characteristics, is not a debt. end.
5. As to authority imposing the tax or scope
Essential Characteristics of a Tax a. National - Tax imposed by the national government.
-It is an enforced contribution; b. Municipal or Local - Tax imposed by municipal
-It is levied by the lawmaking body; governments for specific needs.
-It is proportionate in character; 6. As to graduation rate
-It is generally payable in money; a. Proportional - Tax based on fixed percentage of the
-It is imposed for the purpose of raising revenues, and; amount of property income or another basis to be taxed
-It is to be used for public purposes b. Progressive or graduated - Tax rate increases as the
tax base increase.
Types of Tax Rate Structures c. Regressive - Tax rate decreases as the tax base
-Tax System is often described as either regressive, increases
proportional, or progressive.
Regressive - if the average rate decreases asthe tax base Tax distinguished from Other Fees
increases. 1. From Toll - Toll is a sum of money for the use of
Proportional - (also called flat or uniform taxes) tax remains something, generally applied to the consideration which is
constant for all levels of the tax base. paid for the use of a road, bridge or the like of a public
Progressive - average tax rate increases as the amount of nature.
the tax base increases. 2. From penalty - Penalty is any sanction imposed as a
Classification of Taxes punishment for violation of law or acts deemed injurious.
Violation on tax laws may give rise to imposition of penalty. 6. Provincial, city, municipal and barangay ordinances
Improvements subject to Limitations set forth in the Local Government
3. From special assessment - Special Assessment is an Code; and
enforced proportional contribution from owners of lands 7. Treaties or international Agreements the purpose of
for special benefits resulting from public improvements. which is to avoid or minimize double
4. From permit or license - Permit or license fee is taxation.
a charge imposed under the police power for purposes of
regulation. Republic Act 9282
- expanded Jurisdiction of the Court of tax Appeals (CTA).
5. From debt - Debt is generally based on contract, is
This law took effect on Apr. 22, 2024. It amended R.A. 1125
assignable and may be paid in kind while a tax is based on
(the law creating the CTA).
law, cannot generally be assigned and is generally payable
in money.
Court of Tax Appeals
6. From revenue - Revenue is broader than tax since it
- has exclusive original jurisdiction over all criminal offenses
refers to all funds or income derived by the government
arising from violations of the NIRC and other laws
taxes included.
administered by the BIR where the principal amount of
7. From customs duties- Customs duties are taxes imposed taxes and fees (exclusive of charges and penalties) claimed
on goods exported from or imported to a country. is 1 million and above

TAX LAWS Interpretation and Construction of Tax Statutes

Sources of Tax Authorities - The recognized rules in statutory construction also apply
 Executive - President and his Administration to tax statutes. As in other statutes, the legislative intent is
 Department of Finance - the department that the primary concern. However, where there is doubt in
includes Bureau of Internal Revenue. determining the legislative
 Legislative - The Congress (Senate and House of intent, the doubt must be resolved liberally in favor of
Representatives) taxpayers and strictly against the taxing authority.
 Judicial/Judiciary - Court of Justice
Philippine Tax Laws and Taxes
Administrative Tax Authorities 1. National Internal Revenue Code of 1997 (P.D. 1158; as
 Revenue Regulations - (macro) administrative amended)
interpretations of the of the statutes enacted by a. income taxes (individual and corporate);
the Congress and tend to be somewhat more b. estate and donor’s taxes;
detailed than the code itself. c. value-added tax;
 Revenue Rulings - (micro) issues order to explain d. other percentage tax;
the tax results of very specific transactions. e. excise tax; and
f. documentary stamp
Judicial
 Court Decisions - occurs when the BIR and 2. Tariff and Customs Code of 1978 (P.D. 1464, as amended)
taxpayers are unable to agree on what constitutes a. import duties; and
the correct application of the tax authorities to b. export duties
specific situations.
3. Local Government Code of 1991 (R.A. 7160)
3 Elements of Tax Laws a. real property tax;
- The Code, Regulations and Rulings, and The Court b. business tax, fees and charges;
Decisions c. professional tax;
d. community tax;
Sources of Tax Laws e. tax on banks and other financial institutions.
1. Constitution;
2. Statutes and Presidential Decree; Special Laws
3. Revenue Regulations by the Department of Finance; a. Motor Vehicle Law (R.A. 4136) - motor vehicle fees
4. Rulings issued by the Commissioner of Internal Revenue b. Private Motor Vehicle Tax Law (P.D. 1958) – private
and Opinions by the Secretary of Justice; motor vehicle tax
5. Decisions of the Supreme Court and the Court of Tax c. Philippine Immigration Act of 1940 (C.A. 613, as
Appeals; amended) - immigration tax; and
d. Travel Tax Law (P.D. 1183, as amended) - travel tax
 investigation of enterprises and companies that are part of
Tax Laws Versus GAAP and GAAS these selected industries.
- All returns required to be filed by the Tax Code
shall be prepared always in conformity with the BIR Issuances and rulings defined
provisions of the Tax Code, and the rules and
regulations issued implementing said Tax Code In  Revenue Regulations (RRs) - issuances that specify,
case a difference between provision of Tax Codes prescribe or define rules and regulations for the
and GAAP/GAAS occurred, Tax Code shall prevail effective enforcement of the provisions of National
(Revenue Memorandum Circular 22-04, Apr. 12, Internal Revenue Code (NIRC) and related statutes.
2004) Revenue Memorandum Circulars (RMCs) –
issuances that publish pertinent and applicable
Internal Revenue Laws portions, as well as amplifications, of laws, rules
- Revenue Law is a law passed for the purpose of and regulations and precedents issued by the BIR
authorizing the levy and collection of taxes in and other agencies/offices.
some form to raise revenue. Internal revenue laws  Revenue Memorandum Orders (RMOs) - are
are neither political nor penal in nature although issuances that provide directives or instructions,
there are penalties in case of violations. Tax Laws prescribe guidelines, and outline processes
are civil in nature The first Philippine Internal operations, activities and workflows, methods and
Revenue Law, patterned after that existing in the procedure necessary in the implementation of
United States, was approved by the Philippine stated policies, goals objectives, plans and
Commission on July 2, 1904 as Act 1189 effective programs of the Bureau in all area of operations,
Aug. 4, 1904. except auditing.
 Revenue Memorandum Rulings (RMRs) - opinions
The Bureau of Internal Revenue (BIR) and interpretations of the commissioner of
- functions under the supervision and control of the Internal Revenue with respect to the provisions of
Department of Finance (DOF). The Bureau was the Tax Codes and other Tax Laws, as applied to a
created by Commonwealth Act 466, approved by specific set of facts, with or without established
the National Assembly on June 15, 1939 effective precedents, and which the Commissioner may
July 1, 1939, which revised and codified the then issue from time to time for the purpose of
internal revenue laws of the Philippines. providing taxpayers guidance on the tax
- mission of the BIR is to “collect taxes efficiently consequences in specific situations. BIR rulings
and effectively, for and at the least cost to the therefore, cannot contravene duly issued RMRs;
government, through impartial and consistent otherwise, Rulings are null and void ab initio.
enforcement of internal revenue laws, and  BIR Rulings - are official positions of the BIR on
convenient and honest service to taxpayers.” inquiries of taxpayers, who request clarification on
certain provisions of the Tax Code, other tax laws,
Tax Collection System or their implementing regulations, usually seeking
Self Assessment System for tax exemptions. Rulings are based on particular
- With the growing taxpayer population and limited facts and circumstances presented and are
resources, the BIR adopted the “self- assessment system” interpretations of the law at a specific point in
when republic act 2343 was enacted in 1959. Republic act time.
8424 otherwise known as the Tax Reform Act of 1997,  Revenue Bulletins (RBs) - refer to periodic
retained this principle. issuances, notices and official announcements of
- under this system, the taxpayer calculates the tax by the Commissioner of Internal Revenue.
himself or through an accountant, fills up his tax return,
files it with the proper tax office, and pays the tax due Powers and Duties of the Bureau of Internal Revenue
thereon upon tax filing. - The chief officials of the Bureau are the Commissioner
and seven (7) Deputy Commissioners. The Deputy
Methods of Collection Commissioners are tasked to handle particular groups
Voluntary Compliance (Voluntary Payment) – act of within the Bureau such as:
tendering payment of the self-assessed ta.  Information Systems
Collection by Enforcement – identification of sectors of  Legal and Inspection
business or industries, and/or economic  Operations
segments of economic activities where the degree of  Resource Management
compliance is low, and the subsequent audit or  Tax Reforms
  Administration
 Special Concerns
 Large Taxpayers

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
requirements 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.

Income and Income Taxes

Income Defined and Distinguished from Capital
Income (service of wealth) - in a broader sense, means all
wealth, which flows into taxpayer other than a mere return
of capital. It is the return in money from one’s business,
labor, or capital invested.
Capital (wealth) - is a fund or property existing at one
distinct point of time.

Income Tax Defined, Base and Nature

Income Tax
- is a tax on all yearly profits arising from property,
profession, trade or business, or is a tax on a
person’s income, emoluments, profits and the like.
- generally regarded as an excise (privilege) tax. It is
not levied upon persons, property, funds or profits
as such but upon the right of a person to receive
income or profits.

General Procedures in Determining Income Tax

Step 1: identify the taxpaying party or “entity” to which the
tax computation formula applies.
Step 2: is to determine the taxpayer’s “gross income”
Step 3: determine the expenses and certain other items
that can be “deducted” in tax payers “taxable income”
Step 4: apply appropriate “tax rate” to the tax payer’s
taxable income to find the “tax due”
Step 5: subtract all applicable “tax credits/payments” from
tax payer’s tax due in finding the tax payable
Step 6: increase the tax by “penalties and interests” to
obtain the “total amount payable”