STRATEGIC TAX
MANAGEMENT
Nikka S. Asidera, MBA, CAT, RCA, MICB
CHAPTER 1
A FRAMEWORK FOR
UNDERSTANDING
TAXES
Inherent Powers of the State
When a sovereign state is born, it exists with indispensable powers necessary for
its survival. These powers are called inherent powers. They naturally exist as essential
force in order that a government can command, maintain peace and order and survive,
irrespective of any Constitutional provision.
Inherent Powers of the Sovereign State
Police Power Eminent Domain Taxation Power
Power
Police Power refers to the inherent power of the
sovereign state to legislate for the protection of
health, welfare and morals of the community.
Eminent Domain refers to the power of the
sovereign state to take private property for public
purpose.
Taxation Defined
[Link]
[Link]
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By the definitions provided, the strongest among all
the inherent powers of the government is the
Taxation Power.
Basis of Taxation
1. Principle of Necessity - The government has the right to compel all its
citizens, residents and property within its territory to contribute money. It is because
the government cannot exist without any means to pay its expenses - a necessary
burden to preserve the State’s sovereignty.
2. Principle of Benefits-Received or Benefits-Protection Theory -
Based on the reciprocal duties, the government collects taxes from the subjects of
taxation in order that it may be able to perform its functions and provide services to
then.
Purposes of Taxation
[Link] Purpose - primary purpose is to raise revenue by collecting
funds or property for the support of the government in promoting the
general welfare and protecting its inhabitants.
[Link] Purpose - also known as Sumptuary, is a secondary
objective of imposing tax. This objective is accomplished to:
a. Regulate Inflation
b. Achieve economic and social stability
c. Serve as key instrument for social control
3. Compensatory Purpose - A tax may be used to make up for the
benefit received.
Tax reforms are crucial for fostering
economic growth, ensuring fairness, and improving
government revenue. By updating tax laws,
governments can address changing economic
conditions, promote investment, and incentivize
businesses.
Taxation is the process means by which the
sovereign, through its lawmaking body, raises
income to defray the necessary expenses of the
government
Aspects of Taxation
⚬ Levy - deals with the provisions of law which
determines:
[Link] person or property to be taxed
[Link] sum or sums to be raised
[Link] rate of the tax
[Link] time and manner of levying, receiving and
collection of tax
Aspects of Taxation
⚬ Assessment
involves the act of administration and
implementation of the tax laws by the executive
through its administrative agencies such as the BIR
or BOC
Aspects of Taxation
⚬ Collections - constituted of the provisions of
law which prescribe the manner of enforcing
the obligation on the part of those taxes. BIR
or Bureau of Internal Revenue collects taxes
The first two stages of taxation (levy and
assessment) are referred to as the impact of
taxation, and the third phase is referred to as the
incidence of taxation.
Principles of a Sound Tax System
The fundamental principles of a sound tax system
based on Adam Smith’s Canons of Taxation are:
[Link] Adequacy
[Link] or Theoretical Justice
[Link] Feasibility
Fiscal Adequacy
States that the sources of revenue of the government should be
sufficient to meet the demand of public expenditures regardless of
business condition
Equality of Theoretical Justice
States that the tax burden must be proportionate to the
taxpayer’s ability to pay.
Administrative Feasibility
Tax laws must be convenient, just, uniform and effective in their
administration - free from confusion and uncertainty.
Sources of Philippine Tax Laws
• Constitution of the Philippines - it is often
referred to as the Supreme or Fundamental Law of
the land because all other laws must conform to it.
• Statutes - are laws enacted and established by the
will of the legislative department of the government.
• Judicial Decisions - refer to the decisions for
application made concerning tax issues by the
proper courts exercising judicial authority of
competent jurisdiction
Sources of Philippine Tax Laws
• Executive Orders - are regulations issued by the
President or some administrative authority under his
direction for the purpose of interpreting,
implementing, or giving administrative effect to a
provision of the Constitution or of some law or treaty.
• Tax Treaties and Conventions - treaties or
international agreements with foreign countries
regarding tax enforcement and exemptions.
Sources of Philippine Tax Laws
• Revenue Regulations by the DOF - are rules or
orders having force of law issued by executive
authority of the government to ensure uniform
application of the tax law.
• BIR Revenue Memorandum Circulars and BOC
Memorandum Orders - administrative rulings or
opinions which are less general interpretations of tax
laws being issued from time to time.
Sources of Philippine Tax Laws
• BIR Rulings - are expressed official interpretations
of the tax laws as applied to specific transactions.
• Local Tax Ordinances - issued by the Province,
City, Municipality and Barrio subject to such
limitations as provided by the Local Government
Code and the Real Property Tax Code.
Tax Laws passed year 2024
1. Ease of Paying Taxes Act 2024
Started on a high note as the Republic Act No. 11976, also known as the
Ease of Paying Taxes Act (EOPT), was passed into law on January 5, 2024,
and took effect on January 22, 2024. The law has introduced a more
comprehensive and streamlined process designed to encourage timely tax
payments and promote greater taxpayer compliance. Significant changes
have also been implemented in the Value Added Tax (VAT) system, most
notably the harmonization of the timing for VAT recognition and
documentary requirements for both the sale of goods and the sale of
services.
2. Digital Services Law
On October 2, 2024, President Marcos signed into law Republic Act (RA)
No. 12023 or the VAT on Digital Services Law which imposes a 12% VAT on
digital service providers (DSPs) so as for the government to generate
additional revenue.
Tax Laws passed year 2024
3. CREATE MORE Act
The CREATE MORE Act (Corporate Recovery and Tax Incentives for
Enterprises to Maximize Opportunities for Reinvigorating the Economy) was
also passed November this year, which aims to improve the nation’s fiscal
incentives policies as well as certain provisions of the CREATE Act to provide
‘more’ benefits for taxpayers.
4. VAT Refund Mechanism for Non-Resident Tourists
Signed into law on December 6, 2024, the Republic Act No. 120791
establishes a VAT refund mechanism for non-resident tourists (NRT) in the
Philippines. This law aims to maximize the spending power of NRTs and to
promote the Philippines as a premier shopping destination, further boosting
economic growth and the country’s tourism industry.
Tax Evasion and Tax Avoidance
• Tax Evasion - The taxpayer uses illegal or
unlawful means to defeat, evade or lessen the
payment of tax. These forms of tax dodging are
prohibited and therefore subject to civil and/or
criminal penalties.
• Tax Avoidance - Also called “Tax Minimization”.
It is reducing or totally escaping payment of
taxes through legally permissible means.
CHAPTER 2
A FRAMEWORK FOR
UNDERSTANDING
TAXES
The SAVANT Principle
To add maximum value to each transaction, decision
makers need to stay focused on the firm’s strategic
plan, anticipating tax impacts across time for all
parties affected by the transactions. Managers add
value by considering these impacts when
negotiating the most advantageous arrangement,
thereby transforming the tax treatment of items to
the most favorable status.
The SAVANT Principle
To maximize shareholder’s value
Anticipation Negotiating
Strategy Transforming
Value
Added
Strategy
The overall plan for developing resources to
establish a favorable position and to achieve short-
term and long-term objectives of an entity ---
consistent with the ultimate aim of adding value to
the entity
Anticipation
Thinking and/or talking about something
ahead of time, and either taking action in order to be
prepared or being ready to respond at the time of
the unforeseen circumstance --- unexpected results,
abrupt changes in tax legislation, and evolving
trends --- keeping in mind the value to be added to
entity.
Negotiating
Bargaining and discussing between both sides
regarding an issue (tax or otherwise) until an
agreement is reached --- preferably upon terms and
conditions which would add value to an entity
Transforming
Taking the appropriate (and legally feasible)
courses of action with the view of changing the
nature, function, condition, and ultimately, the tax
effects of certain transactions, to one which would
add more value to an entity
CHAPTER 3
CHOOSING A LEGAL
ENTITY
Interaction of Taxes and Choice
of Entity
Factors to consider in deciding the form of business
organization
• The liability of owners for all business debts and obligations;
• Tax treatment;
• Control and management of the business;
• Ease of raising capital; and
• Ease of establishing the business.
Conclusi
onyou have to decide which is the
After weighing all the factors,
best form of business. The right structure for your business
depends on many things, including your goals, the nature of your
products or services, and your management style preference.
While you must consider all these, you also need to have a
proactive approach and think about how your business structure
can affect your operations in the long run.
CHAPTER 4
FINANCING A NEW
VENTURE
Two basic Forms or Strategies financing a business
fit into the SAVANT Framework
Internal Financing
•It refers to fundraising options that exist within the business
itself.
•It results when firms retain earnings.
•This occurs when firms have positive net cash flows but do not
distribute them all to the firm’s owners.
•Companies that limit expansion by purchasing new property,
plant, and equipment only out of cash flows from operations are
using an internal financing strategy.
•Examples: day-to-day profit-boosting operations, such as the
sale of stock or services or proceeds from the sale of business
assets, undistributed earnings.
Two basic Forms or Strategies financing a business
fit into the SAVANT Framework
External Financing
•It is a strategy whereby cash comes from sources other than
the firm’s own positive cash flow.
•These are those that come from outside the business.
•Examples: money that comes from loans or investors through
stocks and shares as well as lines of credits that can be opened
with banks or financial institutions.
CHAPTER 5
NEW PRODUCTS
Development, Promotion, and Advertising
For a business to stay competitive, it must deliver
products or services that are perceived to be better, less
expensive, or more convenient. Given competitors with the same
objectives, this implies a
constant evolution in products.
New Product Development
New Product Development (NPD) refers to the complete
process of bringing a new product to market. This can apply to
developing an entirely new product, improving an existing one to
keep it attractive and competitive, or introducing an old product to
a new market.
New Product Development
The emergence of new product development can be
attributed to the needs of companies to maintain a competitive
advantage in the market by introducing new products or
innovating existing ones. While regular product development
refers to building a product that already has a proof of concept,
new product development focuses on developing an entirely new
idea—from idea generation to development to launch.
Idea Generation
•Idea generation involves brainstorming for new product ideas or
ways to improve an existing product.
•During product discovery, companies examine market trends,
conduct research, and dig deep into users' wants and needs to
identify a problem and propose innovative solutions.
Idea Generation
• There are two primary sources of generating new ideas.
Internal ideas come from different areas within the company—
such as marketing, customer support, the sales team, or the
technical department. External ideas come from outside sources,
such as studying your competitors and, most importantly,
feedback from your target audience.
Idea Screening
• This second step of new product development revolves around
screening all your generated ideas and picking only the ones with
the highest chance of success. Deciding which ideas to pursue and
discard depends on many factors, including the expected benefits
to your consumers, product improvements most needed, technical
feasibility, or marketing potential.
• The idea screening stage is best carried out within the
company. Experts from different teams can help you check aspects
such as the technical requirements, resources needed, and
marketability of your idea.
Concept Development and Testing
•All ideas passing the screening stage are developed into
concepts. A product concept is a detailed description or blueprint
of your idea. It should indicate the target market for your product,
the features and benefits of your solution that may appeal to your
customers, and the proposed price for the product. A concept
should also contain the estimated cost of designing, developing,
and launching the product.
•Developing alternative product concepts will help you determine
how attractive each concept is to customers and select the one
that would provide them the highest value.
Concept Development and Testing
•Once you’ve developed your concepts, test each of them with a
select group of consumers. Concept testing is a great way to
validate product ideas with users before investing time and
resources into building them.
•Concepts are also often used for market validation. Before
committing to developing a new product, share your concept with
your prospective buyers to collect insights and gauge how viable
the product idea would be in the target market.
Marketing Strategy and Business Analysis
•Now that you’ve selected the concept, it’s time to put together
an initial marketing strategy to introduce the product to the
market and analyze the value of your solution from a business
perspective.
•The marketing strategy serves to guide the positioning,
pricing, and promotion of your new product. Once the marketing
strategy is planned, product management can evaluate the
business attractiveness of the product idea.
•The business analysis comprises a review of the sales
forecasts, expected costs, and profit projections. If they satisfy the
company’s objectives, the product can move to the product
Product Development
•The product development stage consists of developing the
product concept into a finished, marketable product. Your product
development process and the stages you’ll go through will depend
on your company’s preference for development, whether it’s agile
product development (breaking down projects into smaller, more
manageable tasks), waterfall, or another viable alternative.
•This stage usually involves creating the prototype and testing it
with users to see how they interact with it and collect feedback.
Prototype testing allows product teams to validate design
decisions and uncover any flaws or usability issues before handing
the designs to the development team.
Test Marketing
Test marketing involves releasing the finished product to a sample
market to evaluate its performance under the predetermined
marketing strategy.
There are two testing methods you can employ:
•Alpha testing is software testing used to identify bugs before
releasing the product to the public
•Beta testing is an opportunity for actual users to use the product
and give their feedback about it
The goal of the test marketing stage is to validate the entire
concept behind the new product and get ready to launch the
product.
Product Launch
•At this point, you’re ready to introduce your new product to the
market. Ensure your product, marketing, sales, and customer
support teams are in place to guarantee a successful launch and
monitor its performance.
Product Launch
•At this point, you’re ready to introduce your new product to the
market. Ensure your product, marketing, sales, and customer
support teams are in place to guarantee a successful launch and
monitor its performance.
Here are some essential elements to consider.
•Customers: Understand who will be making the final purchasing
decisions and why they will be purchasing your product. Create
buyer personas and identify their roles, objectives, and pain
points.
•Value proposition: Identify what makes you different from the
competition and why people should choose to buy your product
•Messaging: Determine how you will communicate your product’s
value to potential customers
•Channels: Pick the right marketing channels to promote your
CHAPTER 6
ATTRACTING AND
MOTIVATING EMPLOYEES
AND MANAGERS
Although direct wages form the vast bulk of
employer payments, a multitude of schemes have been
used for compensating employees. These plans all have the
same basic goal: to improve labor productivity over that
derived from simply paying wages.
Two Fundamental Approaches
of Compensating Employees
[Link] rewards with employee needs
[Link] employee performance more with a
firm’s strategic goals
Wage and Wage-Related Benefits Overview
•At least the minimum wage per region and/or sector
•Holiday wage and overtime pay for work during holidays or rest
days
•Overtime pay when working in excess of 8 hours
•Service Incentive Leave: 5 days of vacation per year of service
•Parental leaves (Maternity, Paternity and Solo parent leaves)
•Other Leaves
•13th month
•Separation pay
Mandatory Employee Benefits
Under the Labor Code, employees in the private sector are
granted six (6) basic mandatory benefits, which are as follows:
•Social Security System (SSS) – the social insurance program
for employees in the private sector, which provides these
employees and their families protection from disability, illness, old
age, and death
•Philippine National Health Corporation (PhilHealth) – the
health insurance program, which provides private employees with
a practical means of paying for adequate medical care
•Home Development Mutual Fund (Pag-IBIG Fund) – the
housing loan program, which offers flexible housing loans to
private employees
Mandatory Employee Benefits
•13th Month Pay – a mandatory salary bonus equivalent to an
employee’s one (1) month salary, which must be given not later
than December 24 every year
•Service Incentive Leave – employees who have rendered at
least one (1) year of service is entitled to a yearly service
incentive of five (5) days with pay
•Meal and Rest Periods – a meal period of not less than one (1)
hour and rest periods of short duration in the morning and
afternoon that should be included in the hours worked
Exceptions to Coverage of Benefits granted under the provisions on
Overtime, Premium, Holiday, Night Shift Differential Pays and Service
Charges
•Government employees
•Workers of retail and service establishments regularly employing
less than 10 workers
•Managerial employees and officers or members of a managerial
staff
•Househelpers and persons in the personal service of another
•Workers who are paid by results/output
•Field personnel if they regularly perform their duties away from
the office or place of business.
Three Categories of Local Employment
•Managerial Employees - lay down and execute management
policies and/or hire, transfer, suspend, lay-off, recall, discharge,
assign or discipline employees
•Supervisory Employees - members of the managerial staff
because they are granted the authority to recommend managerial
actions, provided that the exercise of such is not merely routine or
clerical in nature but requires the use of independent judgment.
•Rank-and-file Employees - those who do not occupy high-level
positions in a company
Entitlement Benefits
•Managerial Employees - not entitled to overtime, night shift
differential, holiday pays and 13th month pay but accepted
practice to be given a monetary incentive that is equivalent to a
13th month pay.
•Supervisory Employees - not entitled to overtime, night shift
differential, and holiday pays but also given a monetary incentive
that is equivalent to a 13th month pay.
•Rank-and-file Employees - entitled to most, if not all, of the
mandatory employee benefits provided by the Labor Code, from
night shift differential and overtime pay to work leaves and
organization of labor unions
Gross Benefits and De Minimis Benefits
•To reward employee performance and to set incentives it is
common for employers to give compensations in cash or in kind to
employees. According to the Philippine regulations, these benefits
are exempt of taxes under certain conditions.
•Following the TRAIN Law, benefits received are excluded from the
computation of gross income as long as it remains below P90,000.
“Gross benefits” include: the 13th month pay, Christmas bonuses,
productivity and incentive bonuses, and other benefits of the same
nature in cash or in kind.
Gross Benefits and De Minimis Benefits
•In addition to that, compensations of small value, called De
Minimis Benefits, are also excluded from the computation of gross
income. De Minimis Benefits have the purpose to promote the
well-being and efficiency of employees and are limited to facilities
or privileges of relatively small size.
Gross Benefits and De Minimis Benefits
De Minimis Benefits under TRAIN Law include:
•Convertible unused vacation leave credits of private employees
not exceeding ten days during a year.
•The convertible value of vacation and sick leave credits paid to
government officials and employees
•Medical cash allowance to dependents of employees not
exceeding 1,500 per semester (before it was 750.00) or 250.00
per month (before 125.00)
Gross Benefits and De Minimis Benefits
De Minimis Benefits under TRAIN Law include:
•Rice subsidy of 2,000.00 (replaced the amount of 1,500.00) or
one sack of 50 kg. Rice per month amount to not over 2,000.00
•Uniform and clothing allowance not exceeding 6,000 per year
(replaced the amount of 5,000)
•Actual medical assistance, e.g., a therapeutic benefit to cover
medical and healthcare needs, annual medical/executive check-
ups, maternity assistance, and routine consultations, not
exceeding 10,000 yearly.
•Laundry allowance not exceeding 300 per month
Gross Benefits and De Minimis Benefits
Other De Minimis Benefits include:
•Employees’ achievement awards, e.g., for a length of service or
safety achievement, employees’ achievement awards must be as
tangible personal property other than cash or gift certificates. It
has an annual monetary value not exceeding 10,000 received by
the employee under an established written plan. This benefit does
not discriminate in favor of highly paid employees.
Gross Benefits and De Minimis Benefits
Other De Minimis Benefits include:
•Any gifts received during Christmas and major anniversary
celebrations not exceeding 5,000 per employee once a year.
•Daily meal allowance for overtime work and night/graveyard shift
not exceeding 25% of the basic minimum wage on per region
basis
•Last, benefits received by an employee by a collective bargaining
annual monetary value received from both this and productivity
incentive schemes combined do not exceed 10,000 per employee
per taxable year.
The de minimis benefits are any benefits given to the employees
by the employer, which are mandated by law. In the computation
of taxable income for the employee, any excess beyond the
allowable amount of 90,000 tax exemption Philippines will be part
of the taxable income. The taxable benefits are determined if the
particular services exceeded the de minimis benefits threshold per
benefit. You accumulate all excess amounts of those benefits to
computing if there is any excess on the total de minimis benefits
threshold.
Employees are one of the key factors in the success of an
organization and also to the country’s economic growth. In order
to maintain the enthusiasm of employees with respect to their
work, they must be motivated by adequate compensation.
