Taxation

- a inherent power by which an independent state, through its law-making body, raises and
accumulates revenue from its inhabitants to pay necessary expense of the government
- process (series of actions) or means/act by which the sovereign (independent state), through
its law-making body (the legislature - congress & senate), imposed burdens (tax) upon subjects
and objects:
1) persons – natural and juridical persons (corporations, partnership, and any association)
2) properties
3) privileges/rights ex. to earn, donate, pass inheritance, other transactions
within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of
government (ex. pandemic purposes)
- one of the means (pamamaraan) by which the sovereign state through its law-making body
demands for revenue in order to support its existence and carry out it’s legitimate objectives
- act of levying (impose or enact tax law because there’s a law about income tax, you’re liable) a
tax to apportion the cost of government among those who, in some measures are privileged to
enjoy its benefits and must therefore share its burden
> Tax Code - National Internal Revenue Code of 1997 (take effect on Jan 1, 1998) R.A 8424 by
BIR
- the power of the government to exercise taxation is exercised by both the LEGISLATIVE
(enact/make tax laws) and EXECUTIVE/ADMINISTRATIVE (implement tax law)
branches
- Internal revenue taxes

Stages, Aspect or Processes of Taxation

1. Levying (Legislative Function)
- imposition/enactment of Tax Law involves the passage of tax laws or ordinance by legislative
bodies who determines how much is the tax, how will collect the tax, and what penalty
(Congress & Senate)
- also applies to local government units (Sanggunian of Province/Councilors)
- National & Local Taxes (ordinances about additional taxes in business permit should not
conflict to constitution/passed laws)
2. Assessment (Executive/Administrative Function)
- determination of the correct amount of tax due
- National Government: BIR & Bureau of Customs
- LGU: City Treasurers, etc.
- if late: penalty or interest
3. Collection (Executive/Administrative Function)
- not collected by senate, congress and sanggunian
- collected by BIR & Bureau of Customs if National and City Treasurer if Local
- possible refund

ADMINISTRATIVE
FUNTION
(BIR, BOC, CITY
TREASURER)
 Purposes of Taxation
* Primary: Revenue/Fiscal
- to raise revenue for legitimate objects or programs
- on the part of government, taxation is to raise revenue to provide funds or property with
which to promote the general welfare and the protection of its citizens and to enable it to
finance its multifarious activities

* Secondary: Regulatory (Sumptuary/ Compensatory)

- devise for regulation or control (Implementation of State’s police power) by means of
which certain effects or conditions envisioned by the government may be achieved such as:
a) Promotion of General Welfare
- public infrastructures, safety (Armed forces)
- sin taxes on non-essential goods ex. cigarettes, alcohol (for health), cars (traffic), amusement
taxes (clubs, massage parlor)
b) Reduction of Social Inequality
- tax inheritance; achieve economic stability
- tax is progressive, higher income = higher tax; low tax = nontaxable;
- limit based on TRAIN LAW (below 250,000) = nontaxable
c) Economic Growth
- special taxes such as companies registered under Philippine Economic Zone Authority, DOI
(lower taxes compared to others to improve the economic growth of the country for foreign
entities)
- Regulation:
1. Inflation – curving/pagtaas ng presyo ng bilihin at pagbaba ng value ng pera,
2. Importation – tataasan yung importation tax ng mga nakakaapekto sa farmers/imported
pesticide
d) Encouragement of economic growth thru tax incentives
- Philippine economic zone authority
- provide employment to Filipinos, encourage foreign businessmen to establish business in
Philippines = minimal tax to encourage them
e) Compensatory purpose
- property donated to government = value donated is deducted to your income tax

Three Inherent Powers of the State

- basic needs of the State to be effective
- no need to be granted by the laws or constitution
- the moment you establish an independent state, these powers shall be available right away
- from the time the Philippine government is created, these powers are available right away
- essential/fundamental powers; government is useless without these powers that’s why it is
not needed to be granted

1. The power to Tax/Taxation (MOST POWERFUL)

- the power by which the State raises revenue to defray/fund the necessary expenses of the
government
- power to enforce contributions to support the government and other inherent power of the
state
- forced levied from within its jurisdiction
- NO POLICE POWER and EMINENT DOMAIN without taxation because both of them
need funds

2. Police Power
- the power of the state for promoting public welfare by restraining and regulating the use of
liberty and property; maintain peace and order
- ex. pandemic (enforce lockdown to restrain virus), buying guns must be restrained, PNP,
Armed Forces from foreign aggression, Marriage
- power to protect citizen and provide for safety and welfare of society
- need funds for enforcement salaries
3. Power of Eminent Domain
- the power of the State to acquire private property for public purpose upon payment of just
compensation
- right of government whether the tax payer don’t want to sell provided for public purpose
(owner of the private property must be entitled for payment equivalent to the assess/fair value of
the property > not MARKET value or the present value kaya minsan mukhang lugi, if minimal
amount minsan hindi binabayaran)
- ex. DPWH for road widening

Similarities among the three Inherent powers of the State

1. They are inherent in the State/Sovereignty (not actually granted by the Philippine
constitution, shall be available right away the moment independent state is formed); once the
STATE existed, Inherent Powers are already PRESENT
2. Exist independently of the constitution (available even if it is NOT included in Philippine
constitution) although the conditions for their exercise may be prescribed by the constitution
(ex. Power to tax, but Constitution includes pertaining limitations about Government exercising
taxes)
3. Ways by which the State Interfere with private rights and property
(ex. tax, police power like guns, public purpose like road widening)
4. Legislative in nature and character (there should be a TAX LAW BEFORE
implementation)
5. Presuppose an equivalent compensation received, directly or indirectly, by the persons
affected. (ex. tax - roads, inheritance, order)
6. All necessary attributes of sovereignty because there can be no effective government
without them

Distinctions among the Three Inherent Powers

Taxation Police Eminent
Power Domain
1. NATURE Power to Power to Power to take
enforce make and private
contributions implement property for
to raise laws for the public use with
government general just
funds welfare compensation
2. AUTHORITY Government Government May be granted
(National: (National: to public
Value Added Value Added service/utility
or Percentage or companies ex.
Tax) or Percentage Private
political Tax) or company:
subdivisions political Tower for
(LGU subdivisions communication
collecting taxes (LGU purposes
through collecting (permission to
business taxes through government
permit) only business first)
permit) only
3. PURPOSE Money is Property is The taking of
taken to taken or private
support the destroyed to property for
government promote public use
general
welfare
through
regulation
4. PERSONS Community or Community Not applied to
AFFECTED a class of or a class of all.
individuals. individuals. Owner of the
Applies to all Applies to all personal/private
 persons, persons, property. Only
property, and property, and particular
excises excises property is
(privileges and (privileges comprehended.
rights) that and rights)
may be subject that may be
thereto. subject
thereto.
5. SCOPE Plenary, Broader in Merely a power
comprehensive application. to take private
, supreme General property for
power to public use.
make and
implement
laws.
6. EFFECT Contribution No transfer There is a
becomes part or title. transfer of title
of public fund There may to property.
just be a
restraint on
the injurious
use of
property
7. BENEFITS In form of No direct Assess value
RECEIVED protection, and (mas mababa)
organization, immediate or whichever is
and benefits benefit but lower of
received from only such as property taken.
government. may arise Always favor
Welfare of from the to government.
each citizen maintenance
ex. public of a healthy
school economic
standard of
society.
Peace and
order
8. AMOUNT OF Generally, no Sufficient to No imposition.
IMPOSITION limit. cover cost of The owner is
the license paid equivalent
Congress and the to the assess
limits. necessary value of his
expenses of property.
police
surveillance
and
regulation.
9. AS TO The power to Can be Can be
NECESSITY OF make tax laws expressly expressly
DELEGATION cannot be delegated to delegated to
delegated the local the local
(Only government government
Congress) units by the units by the
law-making law-making
body body
10. AS TO Inseparable Protection, Common
IMPORTANCE for the safety and necessities and
existence of a welfare of interest of the
nation- its society. No community
supports crime/ No transcend
police power invasion individual
and eminent rights in
 domain property
11. AS TO Subject to Relatively Superior to
RELATIONSHIP constitutional free from and may
TO and inherent constitutiona override
CONSTITUTIO limitation l limitations constitutional
N impairment
Inferior to Superior to provision
non- non- because the
impairment impairment welfare of the
clause clause state is
superior to
any private
contract
12. AS TO Constraints by Limited by Bounded by
LIMITATION constitutional the demand public purpose
and inherent for public and just
limitations interest and compensation
due process.
Civil rights
of public
(search
warrant).

- Tax depends to the extent government’s need of resources for public use
- Permit/Licenses under police force and NOT classified as tax. The amount of permit
depends on what kind of business. (How hard it is to regulate?) small amount because it is NOT
intended for public use

- Eminent Domain > No imposition because the government is the one WHO WILL PAY

Theory of Taxation
- Theory: Hypothesis/Assumptions
- Should answer the question “WHY?”, Why there is tax?

* Lifeblood Doctrine
- life of the government
- Government will die if there is NO tax
- Without taxes, the government would be paralyzed for lack of the motive power to activate and
operate it
- The power of taxation is ESSENTIAL because the government can NEITHER EXIST NOR
ENDURE without taxation
- “Taxes are the LIFEBLOOD of the government and their prompt and certain availability is an
imperious need” (Lifeblood Doctrine)
- The government cannot continue to perform its basic functions of serving and protecting its
people WITHOUT means to pay its expenses
- Consequently, the State has the right to compel all its citizens (natural/juridical) and property
within its limits to contribute

~ Paying tax is MANDATORY, not optional. Also known as “Enforced Contribution”

(compelled to contribute) because government will DIE

* Necessity Theory
- government’s needs; will not function without funds
- Power emanating from necessity
- Necessary burden to preserve the state’s sovereignty and a means to give the citizenry an army
to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to
serve, public improvements designed for the enjoyment of the citizenry and those which some
within the state’s territory, and facilitates and protection which a government is supposed to
provide. (Phil. guarantee sci., zinc. vs. Commissioner of Internal Revenue 13 SCRA 775)
* Symbiotic Relationship Theory
- benefits gained indirectly or directly
- ex. public schools, Police force (maintaining piece and order), Roads, Public hospitals

Basis of Taxation: (Justification/Rationale for the imposition of tax)

- The government, for its part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance their moral and material values

* Benefits Received or Reciprocity Theory

- Justifies the collection of tax
- Government should do its part, tax payers should do its part
- The basis is the reciprocal duties of protection (from government) and support (from
taxpayers) between the state and its inhabitants.
- The State collects taxes from the subjects (persons, properties, privileges, rights including
transactions) of taxation in order that it may be able to perform the functions of government
- The citizens, on the other hand, pay taxes in order that they may be secured in the enjoyment
of the benefits of organized society
- This theory spawned the Doctrine of Symbiotic Relationship which means, taxes are what we
pay for a civilized society (Commissioner v. Algue)

Elements/Characteristics of Tax
1. It is an enforced contribution (MANDATORY, the moment you are taxable under Tax
Code otherwise can be subjected to penalty, interest and prison)
2. It is generally payable in money (there are instances that it is allowed not in the form of
money, so, government can take the tax payer’s property and take it to public auction)
3. It is proportionate in character (unlimited amount of it is unlimited resources; depends on
tax payer’s capacity to pay)
4. Subject matter of taxation: It is levied/imposed on persons, property, and exercise of a
right or privilege (excises) ex. 1) Sedula (personal tax), 2) real properties tax, 3) income tax,
donor’s tax, estate tax, business tax/value added tax (excise taxes)
5. It is levied/imposed by the law-making body of the government (the government’s power
to tax is exercised by Legislative Branch - make/enact tax law and Executive Branch -
assessment & collection)
6. It is levied for public purpose

Nature of the State’s Power to Impose/Levied Tax

1. It is inherent power of sovereignty (powers that doesn’t need grant; NOT absolute powers
since there are also limitations)
a) Inherent limitations - tax is for public purpose, territorial jurisdiction
b) Constitutional limitations - don’t tax real properties of educational or religious institutions

2. It is legislative in character (tax law originates from CONGRESS, NOT SENATE – void)
- Legislative: Upper house (Senate) and Lower house (Congress composing
representatives/congressman who represent different Districts)
- if approved by lower house, upper house will propose a counter, then bicameral meeting
(representative from both upper and lower house), unite ideas until formed, give to President for
signature to make it a LAW (Power to make Veto but can be override by Congress / If lapsed,
automatically a LAW, can be questioned after making a LAW because of democracy, could be
NULL AND VOID if proven unconstitutional)

3. Exemption of government entities, agencies and instrumentalities (generally, the government

is TAX EXEMPT)
- Essential Governmental Functions ex. DSWD, DOJ, PNP, PhilHealth
- Proprietary (Business) Function ex. Municipality operating public market, Pag-Ibig

4. International comity (foreign governments are tax exempt as respect since it is foreign
land for Philippine government)
5. Limitation on Territorial Jurisdiction
- cannot tax other foreign countries/individuals/properties

6. STRONGEST among the inherent powers of the State

7. For Public Purpose

- cannot use excuse due to graft and corruption
- as a citizen, tax is your duty

Principle of Sound Tax System

1. Fiscal Adequacy
- revenue raised must be sufficient to meet the government/public expenditure and other
public needs
- tama lang for the government expense; national budget approved (yun lang irraise na
tax, di na sosobra pa)

2. Administrative Feasibility
- tax laws must be clear and concise, capable of effective and efficient enforcement,
convenient as to time and manner of payment, must not obstruct business growth and
economic development
- if tax is imposed, kayang ma-kolekta ng BIR nang tama

3. Theoretical Justice
- must take into consideration the taxpayers’ ability to pay
- higher income = higher tax, lower/no income = lower/no tax

o Non-observance of Fiscal Adequacy and Administrative Feasibility will render the

tax measure unsound (hindi lang maayos o makokolekta) BUT NOT
UNCONSTITUTIONAL (NULL and VOID, as if wala, bawal ipatupad)
o However, Nonobservance of the Principle of Theoretical Justice is INVALID because
the Constitution itself requires that taxation must be equitable.
o Taxes are generally imprescriptible, except when the law provides otherwise.

Object of Taxation
1. Persons, whether NATURAL or JURIDICAL PERSONS
a. Natural persons – individual taxpayers
b. Juridical person – corporation, partnership, and any association

2. Properties, whether REAL, PERSONAL, TANGIBLE or INTANGIBLE

PROPERTIES
a. Real – immovable properties: land, buildings
b. Personal – movable properties: car, personal belonging, jewelry
c. Tangible – may be felt or touched and are necessarily corporeal, real, or personal
properties
d. Intangible – rights rather than physical objects: patents, goodwill, shares of stocks

3. Excise objects such as:

a. Transaction – the act of conducting activities related to any business or
profession: selling, servicing, leasing
b. Privilege – a benefit derived through gratuitous transfer by fact of death or
donation (has limit depending on the amount, marriage is exempted)
c. Right – a power, faculty or demand inherent in one persons and incidental to
another: stock rights
d. Interest – an advantage accruing from anything: interest on bank deposit

Limitations of Taxation
Natural Restrictions
– taxes may be levied only for public purpose
– being inherently legislative (anchored to constitution), taxation may not be
delegated
– tax power is limited to territorial jurisdiction of the state
– taxation is subject to international comity (agreement ex. Treaties)
– Government entities are generally tax exempt (Government Control Corporations)

Income generating agencies (collecting agencies):

- BOC & BIR

LIMITATIONS OF TAXATION
- Generally, no limit
- defined taxable
- stop BIR

NATURAL RESTRICTIONS
1. taxes may be levied only for public purpose (directly & indirectly benefited – Symbiotic
Relationship)
2. being inherently legislative, taxation may not be delegated (Should originate from
congress/lower house > senate/upper house will create a counter > bicameral legislative
committee to unite and reconcile the 2 versions of law > signature president a) signature, b)
VETO, c) forgot to signature and automatically considered as law; he can also VETO a
PROVISONS > if VETO, it can still be override by legislative branch through 2/3 vote
3. tax power is limited to territorial jurisdiction of the state
4. subject to international comity (agreement/treaties ex. US – nontaxable foreigners in PH,
vice versa)
5. government entities are generally tax exempt

CONSTITUTIONAL LIMITATIONS
– are provision of fundamental law of the land restrict the power to tax
– constitution should respect human rights in collecting tax > VOID
1. Due process of law (void/unconstitutional if violated or not accordance with due
process)
- ex. Coordination with barangay for possible abuses then search warrant = void
- right to answer in assessment
- if not settled, COURT OF TAX APPEAL (present evidence)
- if forfeited in court of tax appeal, complainant can go to SUPREME COURT
(reconsideration if still lose)
2. Equal protection of law
- ignorance of the law is NOT AN EXCUSE
3. Rule of uniformity and equality
4. Non-impairment of contracts (violation of contracts – sanctity)
- existing contract should be CONSIDERED
5. President’s power to veto (oppose) separate items in revenue – BIR or tariff bills –
BOC - 2/3 of congress and senate can override the veto to make it effective
- certain provision in tax bill
- can be questioned in supreme court for constitutionality
(2x – a) reconsideration & b) finality)
6. exemption of religious, charitable or educational entities, nonprofit cemeteries, churches
and convents appurtenant thereto (increase value of people, helping people)
PROPERTY TAXES
7. no public money shall be appropriated for religious purposes
8. majority of all the members of the congress requires in granting tax exemptions
9. the congress may not deprive the supreme court of its jurisdiction in all cases
involving the legality of any tax, impost or assessment or toll or any penalty imposed in
relation to tax (FINAL DECISION, if same after reconsideration, nobody can ask the
law)
 a. court of tax appeal first (if not valid yung tax, pag natalo tsaka pa lang pupunta
sa SUPREME COURT)
10. No imprisonment of nonpayment of poll tax
11. tax collection shall generally be treated as general funds of the government

DOCTRINES IN TAXATION
1. Taxpayer’s suit
- as a taxpayer, you can FILE A DEMAND if government do not use funds
PROPERLY
- can win or lose depending on your agreement
- seek for an explanation about tax allocations
- right of taxpayer to question if tax is not used properly

2. Imprescriptibly of Taxes
- taxes are generally imprescriptible (continuous collection of tax)
- except the law provides otherwise
- example the stature of limitations provided under the tax code

3. Double taxation
- taxing the same person for the same tax period and the same activity twice by the
same jurisdiction
- VAT and Percentage tax are business taxes
- Income tax every April 15
- BIR = IRS (equivalent in United States)
- tax credit (penalty and interest)
- LEGAL

DOUBLE TAXATION IN DIRECT SENSE

1. both taxes are imposed on the same property or subject matter
2. for the same purpose
3. imposed by the same taxing authority (BIR and BOC is different)
4. within the same jurisdiction (international, different districts)
5. during the same taxing period
6. covering the same kind or character of tax (vat, withholding tax)

DOUBLE TAXATION IN BROAD SENSE

- opposite of direct double taxation
- not legally objectionable
- the absence of one or more of the foregoing requisites of obnoxious direct tax
makes it indirect

CONSITITUTIONALY OF DOUBLE TAXATION

- double taxation in its stricter sense is unconstitutional but that in the broader
sense is not necessarily so
- void yung second time
- our constitution does not prohibit double taxation
- double taxation will not be allowed if it results in a violation of the equal
protection clause

MODES OF ELIMINATING DOUBLE TAXATION

- tax deduction (VALID RECEIPTS)
- tax credit (first payment is credit, income tax can be deducted)
Ex. Working in private company if taxable (higher than 250k)
> withholding tax in first payment = 12k in total for a year (1k per month)
> On April 15, 12k is deducted to your 2nd payment/tax credit
- treaties with other states (international comity/agreement for the benefit of the citizen
or certain transactions)
CERTAIN DOCTRINES IN TAXATION
FORMS OF ESCAPE IN TAXATION (LEGAL)
1. Shifting
– a burden of payment is transferred from STATUTORY TAXPAYER without
violating the law
- 12% VAT transferred indirectly to consumer
- ex. Output vat – Input vat = VAT PAYABLE

2. Capitalization
- the reduction in the price of taxed object equal to the capitalized value of future
taxes the purchaser is expected to be called upon to pay
- dependent on price competition; how to eliminate tax?
a) Include on your price to transfer in your consumer
b) sometimes ikaw mismo nagbabayad baka hindi kasi mabili pag mahal yung presyo
(existing price competition in the market)

3. Transformation
- for manufacturers or producers, upon whom tax are imposed, fearing the loss of his
market if he should add to the price pays the tax and endeavor to recoup himself by
improving his process of production, thereby producing his units at a lower cost
- ikaw mismo ang sumasagot ng price
- lower income = improve process/produce more without sacrificing product quality

4. Tax Avoidance (LEGAL)

- TAX MINIMIZATION
- exploitation by the taxpayer of legally permissible alternative tax rates or methods
of assessing taxable property or income, in order to avoid or reduce tax liability
- tax consultant/tax accountant knowledge on provision of law > tax code to save tax
- Tax Evasion (ILLEGAL)

5. Tax exemption
- grant of immunity to particular person or corporation of a particular class from
a tax which persons or corporations generally within the same rate or taxing district
are obliged to pay
- encourage businessman ex. Philippine Economic Zone Authority > tax exempt for
a certain period for encouragement to provide JOBS > employees will buy products
that are taxable, thus it can be eventually collected INDIRECTLY
- PPE products
- Tax Incentives (minimum wage earner)
- TRAIN LAW: 250k and lower

BASIC PRINCIPLE REGARDING TAX EXEMPTION – reduction in revenue

- exemption are highly disfavored by law and he who claims an exemption must be able
to JUSTIFY his claims by the clearest grant of the law
- prove factual and legal basis for exemption
- strictly construed against the taxpayer claiming
- constitutional grant of exception are self-executing
(If constitution is the one who give exemption = self-executing/no need to prove)
- in the same way that taxes are personal, tax exemptions are also personal
- same treatment are given to tax refund (excess tax payment > proper documentation)
- deduction from income tax purposes partake of the nature of tax exemption, therefore
should be construed strictly against taxpayer

KINDS OF TAX EXEMPTION

- AS TO FORM
a. Express – expressly granted by the constitution, statutes, treaties, franchises or
similar legislative acts (minimum wage law)
 b. Implied – when persons, properties, or exercise are deemed exempt as they fall
outside the scope of the taxing provisions itself
c. Contractual – are those agreed to by the taxing authority in contract lawfully
entered by them under enabling laws tax exempt by government)

- AS TO BASIS
a. Constitutional Exemptions – immunities from taxation which originate from the
constitution
b. Statutory Exemptions – those which emanate from legislation (made from laws)

- AS TO EXTENT
a. Total exemption
b. Partial exemption (in a certain percentage)

GROUNDS FOR TAX EXEMPTION

a. Contract
b. Public policy – ex. Farmers for their crops, PEZA to generate jobs
c. Reciprocity – international agreements where both countries will benefit
> tax treaty/mutual favors

TAX EVASION (ILLEGAL)

- illegal or fraudulent means to defeat or lessen the payment of tax
- TAX DODGING
- it presupposes malice, fraud, bad faith or willful intent on the part of the taxpayer either
to underdeclared income or over declare deductions to defeat tax liability
- liable criminally and civilly
WILLFUL INTENT or FRAUD:
1. underdeclared income
2. over declare deductions
3. combination
NOT WILLFUL? (subject to penalty and interest)
1. Could be part of TAX EVASION, already criminally LIABLE
2. Provision; if equivalent to 30% of undeclared sales or undeclared expenses,
already considered as tax evasion

CONNOTES THE INTEGRATION OF 3 FACTORS

a. The end to be achieved, the payment of less than that known by the taxpayer to be
legally due.
b. An accompanying state of mind which is described as being evil, in bad faith willful
deliberate and not merely accidental (forgot – still, threshold of 30%)
c. A course of action or failure of action which is unlawful

COMPENSATION OR SET OFF

- as a general rule, taxes cannot be the subject of a set off or compensation because of
the LIFEBLOOD DOCTRINE
Ex. Contractor is still not paid by in DPWH – NO SET OFF, you should still pay tax
- the government and the taxpayer are not mutually debtors and creditors of each other
- person cannot refuse to pay on the basis that the government owes him an amount equal
to or greater than the tax being collected (YOU SHOULD STILL PAY TAX TO
GOVERNMENT EVEN IF THEY HAVE DEBT TO YOU)

DOCTRINE OF EQUTIBALE RECOUPMENT

- a doctrine in a common law applicable where the taxpayer has a claim for refund, but
he was not able to file a written claim due to the lapse of the prescription period within
which to make a refund
- about refund

COMPROMISE AND ABATEMENT

 - limited power of BIR
- these are powers granted to the commissioner of internal revenue to reduce tax
liabilities and or penalties, but NOT TAX ITSELF (assessment first should be filed in
court o compromise)
- assessment of penalties and interest (not principal yung deducted)

TAX AMNESTY
- articulation of the absolute waiver by a sovereign of its right to collect taxes and power
to impose penalties on persons or entities guilty of violating tax law
- give time for people who did not pay tax
- no interest no penalty, just pay the PRINCIPAL
- opportunity to correct tax; amend income tax report & correct = no penalty
- not declared easily > secured on CONGRESS to pass laws first for tax amnesty
- real estate tax amnesty
- BIR for national taxes
- aims to grant a general reprieve to tax evaders who wish to come clean by giving
them an opportunity to straighten out their records
- General Amnesty > the law originally includes a general tax amnesty to cover all
other taxes

 TAX AMNESTY ACT (RA 11213)

- towards the policy of the state in protecting and enhancing revenue administration
and collection
a) provides a one-time opportunity to settle estate tax obligation through an
estate tax amnesty program that will give reasonable relied to estates with
deficient estate taxes
- dead persons who transfer land, di malilipat unless may binayarang tax
> tax clearance to register 6% + documentary stamp
- opportunity to pay estate tax without penalty and interest
b) enhances revenue collection by providing a tax amnesty on delinquencies to
minimize administrative cost in pursuing tax cases and de-clog the dockets of
the BIR and the court
- clean tax cases on BIR’s part
c) provides a more equitable tax system by adopting a comprehensive tax reform
that will simplify the requirements on tax amnesties with the use of simplified
forms and utilization of information technology in expanding the tax base

CONSTRUCTION AND INTERPRETATION OF TAX LAWS

- tax laws must be construed reasonably to carry out the purpose, intent and the
objectives of the law
- if not clear, law should not be imposed
- if there are doubt as to validity or if it is ambiguous, the law will be construed
strictly against the government and liberally in favor of the taxpayer
- BIR issues Implementing Rules and Regulations (IRR)

TAX EXEMPTION, DEDUCTIONS AND REFUNDS

1. where the statue granting exemptions expressly provides for a liberal
interpretation
2. special taxes relating to special cases and affecting only special classes of persons
3. property held in private ownership
4. traditional exempts such as those in favor of religious and charitable institutions
5. in favor of the government, its political subdivision or instruments
6. by clear legislative intent

Taxes
- burden; enforced; duty to pay tax
- Philippines has the highest tax imposition in South Asia > 30% to 25%
- enforced proportional contributions from the persons and property levied by the law-making
body of the State by virtue of its sovereignty in support of government and for public end

Essential characteristics of tax

1. imposed by state which has jurisdiction over the person, property, or excises
(practices/activity)
2. levied by the legislature
3. it is an enforced contribution
4. generally payable in money
5. proportionate in character

Classification of taxes
As to purposes
A. general/fiscal or revenue – purpose is to raise revenue for the government’s ordinary
needs
B. special/regulatory or sumptuary – purpose is some social or economic ends irrespective
of whether revenue is actually raised

As to subject matter
a. personal, poll or capitation – sedula
b. property – amilyar
c. excise or privilege – imposed upon the performance of an act, enjoyment of a privilege,
or engaging in an occupation, profession or business (excise tax)

As to incidence
a. direct – income tax
b. indirect – VAT (purchases), output vat > output vat – input vat = vat payable/refund pag
mas Malaki input vat

CTA
- court of tax appeal
- jurisdiction with national taxes

RTC
- regional trial court

Amend tax before auditing

TAX
- amount imposed by the government

REVENUE
- income collected by the government
- taxes, tariff, licenses, toll, penalties

TAXES
DEFINITION
- enforced proportional contributions from the persons and property levied by the law-making
body of the State by virtue of its sovereignty in support of government and for public need.

ESSENTIAL CHARACTERISTICS OF TAX

1. Imposed by the State which has jurisdiction over the person, property or excises (activity) >
Lifeblood Doctrine
2. Levied by the Legislature (lower house)
3. It is an enforced contribution (mandatory)
4, Generally payable in money (property/Dacion en Pago > auction = only amount that is
applicable)
5. Proportionate in character - based on the taxpayer's ability to pay (minimum wage earner)
6. Levied on persons, property or excises
7. Levied for public purpose (symbiotic relationship)
8. Paid at regular periods of intervals (annually, quarterly, etc.)

CLASSIFICATION OF TAXES
1) As to Purposes
a. General/Fiscal or Revenue - purpose is to raise revenue (primary purpose) for the
government's ordinary needs
b. Special/Regulatory or Sumptuary - purpose is some social or economic ends
irrespective of whether revenue is actually raised. Ex. Farmers (increased importation)

2) As to Subject Matter
a. Personal, Poll (Sedula) or Capitation - those imposed upon residents of a territory,
regardless of citizenship, property, occupation, business,
b. Property (Amilyar) - those imposed upon real and personal property depending on
their value. (land)
c. Excise or privilege - those imposed upon the performance of an act, enjoyment of a
privilege, or engaging in an occupation, profession or business.

3) As to Incidence
a. Direct - where the burden for the payment of the tax as well as the impact falls on the
same person; as such, the person who pays is the person who is statutory liable to pay the
tax (e.g., income tax)
b. Indirect - where the incidence falls on one person but the burden falls another (e.g.,
VAT . Output Vat – Input Vat = Vat Payable)

4) As to Amount
a. Specific - amounts fixed and is imposed by the head or number or some measurement,
hence, no valuation is needed except for the list of things to be taxed.
b. Ad valorem - one which is based on the value of the object to be taxed

5) As to Rate/Progression
a. Progressive - tax rates increase as the tax base or bracket increases.
b. Regressive - tax rate decreases as tax base or bracket increases. Ex. Time deposit
c. Proportionate - tax is based on a fixed percentage of the amount of the property,
receipts or other bases to be taxed

6) As to Authority Imposing the Tax

a. National - levied by the national government and enforced by the BIR
(VAT, income tax)
b. Local - levied by the local government through its Sanggunian and enforced by the
treasurer (business permit, tax and licenses based on locality; enforceable within
jurisdiction)

TAX VS LICENSE FEE

TAX LICENSE FEE
Basis Taxation power to persons, Police power
properties, or privileges
Primary purpose Revenue Regulation of the exercise of
privilege (commencement of
business or profession)
Limitation on amount Subject only to inherent and Limited to the cost of issuance
constitutional limitations of license and cost of
inspection and surveillance
When paid After the start of business Before the start of the business
Surrender vis-a-vis Cannot be surrendered except Lawful consideration not
necessity of consideration for lawful considerations necessary
Effect of non-payment Will not render the business Will render the business
 illegal but will result to illegal
criminal and civil prosecution

IMPORTANCE OF DISTINCTION:
1. Government instrumentality concerned may not be authorized to exact taxes but IS
authorized to exact license fees
2. Person imposed upon may be exempt from taxes BUT NOT exempt from license fees
3. Tax, NOT fees, may be claimed as income tax deduction for income tax purpose. However,
fees may be considered as ordinary and necessary expenses for business.
4. In Local Government Taxation, Sec. 187 of the Local Government Code covers only "tax"
ordinance. Such that, if the ordinance is regulatory, it does not come within the purview of
Sec. 187 and the CTA does not have jurisdiction over the legality of the same, jurisdiction
thereof being under the Regional Trial Court (Local tax = RTC JURISDICTION NOT CPA)

TAX VS TOLL
TAX TOLL
Definition Demand of sovereignty for Demand of ownership
raising revenue (Amount charged for the cost and
maintenance of property used)
Purpose For support of the As compensation for use of
government another's property
Determination of Determined by the needs of Determined by the cost or value of the
amount sovereign property leased or improvement
Who may impose Imposed by the State Imposed by the government (Built
Operate and Transfer contract > certain
period, then turnover to government),
private entity or individual
* Toll Regulatory Board *

TAX VS PENALTY
TAX PENALTY
Definition Enforced proportional contribution Sanction imposed for violation of
form person and property for the laws and to discourage and act
support of government
Purpose For revenue/support of government To regulate conduct
Authority Imposed only by the government Imposed either by the government,
private individuals or entities
Aroused from Law Law or contract

3 TYPES OF PENALTY:
1. Compromise
2. Penalty
3. Interest

TAX VS SPECIAL ASSESSMENT

TAX SPECIAL ASSESSMENT
Definition Imposed upon persons, Special levy on lands comprised within the
properties, or privileges territorial jurisdiction of a province, City or
Municipality specially benefitted by public
works, projects, improvements funded by the
LGU concerned.
Subject Imposed on lands, person, * Imposed on land only
property, activity, income * Intended to compensate the government for
business etc. a part of the cost of the improvement
Liability Personal * Attaches to the land
* Non-personal obligation of the land owner
Basis * Based on necessity (and Based solely on benefits in terms of the
partially on benefits) appreciation in land value caused by public
* Without expectation of a improvement
direct proximate benefit
 Application General Special to a particular time and place
Effect of Imprisonment Does not lead to imprisonment
non-payment

TAX VS CUSTOM DUTIES/TARIFFS

TAX CUSTOM DUTIES/TARIFFS
Purpose Raising revenue Controlling the flow of the goods of the country

Broadness Broader term Tariff or tax on the importation (usually) or

exportation (usually) of goods

TAX VS DEBT
TAX DEBT
Basis Law Private contracts/judgement
Effect of failure to Civil and criminal Civil liability (Does not lead to
pay liability imprisonment)
Small claims: 400 (no lawyer needed;
Imprisonment (except documentation to prove; binding;
poll tax) imprisonment if violated)
Mode of payment Generally payable in Paid in any kind (Dacion en pago):
money Money, property or service
Assignability No Yes
Subjectivity to No Yes (Set-off)
compensation
Interest Yes, if deficient or General rule: no interest, unless, expressly
delinquent stipulated by the contracting parties or after
the demand is made/legal delay
Authority Public authority Private individuals
Prescription Determined by the Tax Determined by the Civil Code
Code

THE FOLLOWING ARE CONSIDERED NATIONAL INTERNAL REVENUE TAXES:

1. Income tax
2. Estate taxes (from dead person; cannot be transferred) and
donor's taxes (gifts; more than 20,000 except from wedding)
3. Value-added tax
4. Other percentage taxes
5. Excise taxes
6. Documentary Stamp Taxes
7. Such other taxes as are or hereafter may be imposed and collected by the Bureau of Internal
Revenue

LIMITATIONS OF TAXATION – prevent State to collect tax

I. Inherent Limitations
1. It must be for public purpose (illegal if PRIVATE purpose; thru
service/infrastructure)
- A revenue measure must be laid for a public purpose determined by the legislature.
- The proceeds of the tax must be used either for the support of the State or for some
recognized objective of government or directly to promote the welfare of the community.
- The public purpose must exist at the time the law is enacted.
Tests in determining public purpose:
a. Duty Test - whether the thing to be furthered by the appropriation of
public revenue is something which is the duty of the State, as a
government.
b. Promotion of General Welfare Test - whether the law providing the
tax directly promotes the welfare of the community in equal measure.
One sector is not benefited: Public purpose is not destroyed by the fact that the tax law
may not be beneficial to one group. The fact that one sector is benefited and in the
process another sector is being in a way prejudiced would not diminish the public
character of the tax

2. Exemption of government entities, agencies and instrumentalities

- as a rule, the government, its agencies and instrumentalities performing governmental
function are exempt from VAT.
"This is because taxes are financial burdens imposed for the purpose of raising
revenues to defray the cost of the operation of the Government, and a tax on property of
the Government, whether national or local, would merely have the effect of taking money
from one pocket to put it in another pocket."
Exceptions:
1. Agencies performing proprietary functions
2. When the charter creating the agency or instrumentality or the law provides
that they are subject to tax.
3. If the government wishes to tax itself.

Government Owned Control Corporations (GOCCs):

- performing proprietary functions are taxable similar to a corporation. However,
Sec. 27(c) of the Tax Code provides for the following corporations as EXEMPT:
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Philippine Health Insurance Corporation (PHIC)
4. Local Water Districts

PAGCOR:
- no longer exempt from income tax by its omission from the above list.
- However, PAGCOR remains exempt from income tax for its income arising
from casino operations which are subject to franchise tax in lieu of all taxes.

PCSO: was removed under the TRAIN and is thus taxable beginning Jan 1, 2018

3. The power to tax is inherently legislative (Non-Delegability)

- Taxation is the inherent power of the state and it is exercised primarily by the
Legislature as delegates of the people. In accordance with the Latin maxim, potestas
delegatas non delegare potest, which means, what has been delegated can no longer be
delegated, as a rule, only the Congress (to whom the legislative power has been delegated
by the people) can exercise this power. (Sec. 5, Art. X of the Constitution)

Exceptions:
1. Delegation to Local Government - the Constitution, as implemented by the
Local Government Code, empowers the local government units (LGU) to create
its own sources of revenue and to levy taxes, fees and charges which shall accrue
exclusively to the LGU.
2. Delegation to the President - the Constitution, as implemented by the Tariff
and Customs Code, allows the President to fix tariff rates, import and export
quotas, tonnage and wharfage dues and other duties or imposts. Likewise, the
President may exercise emergency powers and enter into executive agreements or
treaties which may contain tax exemption provisions subject to the concurrence of
the Senate. (All treaties are subjected to SCRUTINY of senate which they
approve & must disapprove)
3. Delegation to Administrative Agencies - administrative agencies may issue
rules and regulations to implement tax laws, under their quasi-legislative powers,
subject to the following tests:
a. Completeness test - in order for the delegation to be valid, the law must
be complete in all aspects when it leaves the legislature. The only thing
left for the delegate to do is to implement the law.
b. Sufficiently Determinable Standards test - there must exist sufficient
standards which should limit the boundaries of the delegate's authority by
 defining legislative policy and the circumstance under which it is to be
pursued and implemented.

4. International Comity
- The principle of international comity recognizes that States are co-equal sovereigns
such that one cannot exercise its inherent sovereign powers over another, including the
power to tax. (US Embassy workers are non-taxable)
- States find it mutually advantageous to create self-imposed restraints on their taxing
powers with reference to properties of foreign governments.
- when on state enters the territory of another, there is an implied understanding that the
former does not intend to degrade its dignity by placing itself under the jurisdiction of the
latter, note that a foreign state cannot be sued without its consent, thus it would be useless
to impose or assess a tax which cannot be collected.

5. Territorial in Application (Situs)

- Tax is territorial in application in the sense that the object and/or subject of the tax must
be within the territorial jurisdiction of a State.
- income earned by non-residents and aliens are not subject to tax in the Philippines
unless they are earned herein - here the subject of the tax is the income.
- resident citizens are subject to income tax for their worldwide income - here the object
of the tax is the individual who is subject to the protection of the State

II. Constitutional Limitations

1. Due Process requirements
Art. Ill, Sec. 1; No person shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied the equal protection of laws (Warrant
of arrest and Citizen’s arrest)

Procedural Due Process

- requires that taxpayers must be notified of the assessment (BIR:
discrepancy/insufficient payment with receipt/explanation letter) in writing and
must state the fact and the law upon which it is based. Moreover, assessments and
collection must not be arbitrary. (Properly notified)

Substantive Due Process:

- requires that assessments must not be harsh, oppressive or confiscatory; it must be
made under authority of a valid law; and must be imposed within the territorial
jurisdiction of the State.
2. Equal protection of Law
Art. Ill, Sec. 1; No person shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied the equal protection of laws

- the requirement of equal protection of the laws requires that the law must apply equally
to all persons within the same class. As such, providing for a classification and applying
the law only to a particular class is not violative of the constitutional right so long as it
comes from a valid classification
Requisites For a Valid Classification:
1. Must be based upon substantial distinctions
2. Must be germane to the purpose of law
3. Must apply to both present and future conditions
4. Must apply equally to all members of a class

3. Uniformity and Progressivity of Taxation

Art. VI, Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
 UNIFORMITY means that all taxable articles or kinds of property of the same classes
shall be taxed at the same rate. A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.

Amusement Tax:
Uniformity is not disregarded if a tax is levied on admission to cinema, theaters,
vaudeville companies, theatrical shows and boxing exhibitions but does not tax other
places of amusement such as race tracks, cockpits, cabarets, concert halls, circuses and
other places of amusement. (Different taxes but SAME ENTERTAINEMNET
SECTION)

UNIFORMITY VS. EQUITABILITY VS. EQUALITY

• Uniformity - All taxable property shall be alike to be subjected to tax
• Equitability - The burden of taxation falls to those better able to pay.
• Equality - When the burden of the tax falls equally and impartially upon all persons and
property subject to it.

PROGRESSIVITY
means that the tax rate increases as the tax base thereof increases. Our income tax system
is one good example of such progressivity because it is built on the principle of the
taxpayer's ability to pay. Taxation is progressive when its rate goes up depending on the
resources of the person affected.

4. No imprisonment for payment of poll tax (Sedula)

- Art. Ill, Sec. 20. No person shall be imprisoned for debt or non- payment of a poll tax.

5. Exemption from property tax of religious, charitable and educational institutions

- Art. VI, Section 28. (3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation. (Income tax donated by members are
exempted)

6. Exemption of non-stock, non-profit educational Institutions and Foundations

- Art. XIV, Sec. 4(3): All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational purposes shall be exempt
from taxes and duties. Upon the dissolution or cessation of the corporate existence of such
institutions, their assets shall be given to government. (Certain qualifications to meet ex.
Expenses allocation)

7. Grant of exemption requires the majority vote of congress

- Art. VI, Sec. 28(4): No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress.

8. Prohibition on tax levied for special purpose (should be PUBLIC)

- Art. VI, Sec. 29(3): All money collected or any tax levied for special purposes shall be
treated as special fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to
the general funds of the government.

9. Veto Power of The President

-Art. VI, Sec. 27(2): The President shall have the power to veto any particular item or
items (provisions) or whole in an appropriation, revenue or tariff bill but the veto shall not
affect the item or items which he does not object. (Congress can override the veto)

10. Revenue or tariff bill must exclusively originate from the LOWER HOUSE
 - Art. VI, Sec. 24: All appropriation, revenue or tariff bills, bills authorizing the increase of
public debts, bills of local application and private bills, shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with amendments

11. Local government's power to tax

- Art. X, Sec. 5: Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local governments.

12. No appropriation for religious purposes

- Art VI, Sec. 29(2): No public money or property shall be appropriated applied, paid or
employed, directly or indirectly, for the use, benefit or support of any sect, church,
denomination, sectarian institution or system of religion, or of any priest, preacher, minister,
other religious teacher, or dignitary as such, except when such priest, preacher, minister, or
dignitary is assigned to the armed forces, or to any penal institution, or government
orphanage or leprosarium

13. Religious Freedom

- Art. Ill, Sec. 5: No law shall be made respecting an establishment of religion, or prohibiting
the free of civil or political rights. (Selling religious items are NOT TAXABLE)

14. Non-Impairment of Contracts

- Art. Ill, Sec. 10: No law impairing the obligation of contracts shall be passed.

the non-impairment rule does not apply to public utility franchises since a franchise is
subject to amendment, alteration or repeal by the Congress when the public interest so
requires (Article XIl, Section 11). This is so because under the Constitution [now Section 11,
Article XII, 1987 Constitution], the legislature can impair a grantee's franchise since a
franchise is subject to amendment, alteration or repeal by the Congress when the public
interest so requires.

15. Non-Impairment of the jurisdiction of the supreme court

- Art. VIll, Sec. 5[2]: The Supreme Court shall have the power to review, revise, modify or
affirm on appeal or certiorari as the law or the Rules of Court may provide, final judgments
and orders of lower courts in all cases involving the legality of any tax, impost, assessment,
or toll, or any penalty imposed in relation thereto. (COURT OF LAST RESORT)

STAGES OF TAXATION
1. LEVY
The determination by Congress of the subject and object of taxation as well as the
rate. It refers to the enactment of tax laws or statutes

Note: This is NOT the "Levy" under Sec. 207 of NIRC, which refers to the remedy of
the Government to collect taxes.

2. ASSESSMENT AND COLLECTION

Assessment is a notice to the effect that the amount therein stated is due as tax and a
demand for payment thereof.
Rules governing assessment and collection of taxes to prevent its abuse
1. The tax law must designate which agency will collect the taxes
2. The circulars or regulations issued by the Secretary of Finance or the
Commissioner of the Internal Revenue must be in accordance with the
tax measures imposed by Congress. Collection is the final stage and goal
of tax administration.

3. PAYMENT
 The act of compliance by the taxpayer, including such options, schemes or remedies
as may be legally open or available to him.

4. REFUND
- The taxpayer asks for restitution of the money paid as tax which is either excessive
or erroneous
- taxpayer pay first then question its legality to avoid possible penalty and interest
- Court of Tax Appeal then Supreme Court

TAX ADMINISTRATION
- system of collecting taxes in accordance with the country’s tax policies (existing laws)
- enforcement of taxes through the following aspects of taxation
(a) assessment
(b) collections
- execution of judgment and capacity to act in all tax cases decided by the Supreme Court in
favor of the BIR (implementation) > whatever the Supreme Court decides is already part of
Tax Laws

TAX ADMINISTRATIVE AGENCIES - defendant of tax laws

DEPARTMENT OF FINANCE
1. BOC – main/major (import and export)
2. BIR – main/major
3. LTO (income generating) – collected license fees
4. Duly lawfully authorized collections
5. Local offices in charge to enforce local taxation
a. Barangay treasurer
b. Provincial city municipal
c. Provincial and city assessors
d. Provincial and city board of assessment appeals
e. Central board of assessment appeal

The Secretary of Justice (validity of tax laws/interpreter in behalf of administration) and the
Office of Solicitor General (in case the government needs to defend the questionable tax laws)
as the Chief legal Officer of the government subject to review by the court of Justice.

Various office indirectly provide assistance:

1. The courts – promulgate decisions
2. Register of deeds – land
3. Secretary of Public Works and Highways Offices – tolls by both private and
government
4. Philippine Economic Zone Authority – tax holidays and incentives inside PEZA
5. Board of Investment – determining incentives given to potential investors
6. City fiscals and Notaries Public
7. The head of the appropriate government offices and his subordinates, with respect to
the collection of energy tax
8. Banks duly accredited by the BIR Commissioner with respect to receipt of payments
of internal revenue taxes (alternatives changes in settlement: credit card, online payment,
Pay maya)

BUREAU OF INTERNAL REVENUE (BIR) - headed by 1 commissioner (Caesar Dulay) of

internal revenue appointed by president
Organizational Structure or 4 Deputy Commissioners:
 Operations Group – how BIR operates
 Legal Enforcement Group – legal cases/pending cases/file cases/interpretation of laws
 Information System Group – delivering information to public/information
drive/conveying to public
 Resource Management Group – hiring of BIR personnel
 1. Revenue Regional Director – head every region/area manager
2. Revenue District Officer – individual per city (sub)/head of CERTAIN area
a) Revenue Examiners and Officers –
b) Division Chiefs of the BIR – FOUND IN RDO OFFICE
c) BIR Collection Agents (banks) –

NIRC – National Internal Revenue Code (LAW)

POWERS AND DUTIES OF COMMISSIONER OF BIR

1. To interpret the provision of the NIRC (Tax Laws) subject to review by Secretary of
Finance & CTA
2. To decide tax cases (not final and can be questioned), subject to the exclusive appellate
jurisdiction of the CTA such as:
**Supreme Court 2x (Reconsideration from additional evidence)
Finality: included in Tax Law
a) Disputed assessments
b) Refunds of internal revenue taxes, fees or other charges
c) Penalties Imposed
d) Other NIRC and special law matters administered by the BIR
3. To obtain information and to summon, examine and take testimony of persons to effect
tax collection (probable cause of questionable incorrect payment of tax)
**Letter of Authority from BIR (“Open Cases” if taxpayer not paid)
PURPOSE: CIR to ascertain:
a) The correctness of any tax return or in making a return when none has been made
by the taxpayer.
b) The tax liability of any person for any internal revenue tax or in correcting any
such liability (discrepancy)
Tax compliance of the taxpayer **penalties if not posted
> Certificate of Registration (2307) – Certificate issued by BIR to post in place of
Business; Checklist of your tax compliance (quarterly, annually, monthly)
> As of Receipts or Issued receipts

AUTHORIZED ACTS:
a) To examine any book, paper, record or other data relevant to such inquiry
b) To obtain on a regular basis any information from any person other than the
person whose internal revenue tax liability is subject to audit
c) To summon the person liable for tax or required to file a return his employees or
any person having possession and custody of his books of accounts and
accounting records to produce such books, papers, records or other data and to
give testimony
d) To take testimony of the person concerned under oath as may be relevant or
material to the inquiry.
e) To cause revenue officers and employees to make canvass of any revenue district.
(inquire other information from another Revenue Bureau)
4. To make an assessment and prescribe additional requirement for tax administration and
enforcement.
5. To examine tax returns and determine tax due thereon
6. To conduct inventory taking or surveillance (manufacturing companies; questionable
sales)
7. To prescribe presumptive gross sales and receipts for a taxpayer when:
a) The taxpayer failed to issue receipts (penalty of 50,000)
b) The CIR believes that the books or other records of the taxpayer do not
correctly reflect the declaration in the return. (declaration of sales records –
COGS)
8. To terminate tax period when the taxpayer is
a) Retiring from business (audited first before approval of retirement)
b) Intending to leave the Philippines
 c) Intending to remove, hide or conceal his property. (fraudulent)
d) Intending to perform any act tending to obstruct proceedings

NON-DELEGATED ACTS – only Commissioner has the responsibility

1. The power to recommend the promulgation of rules and regulations to the Secretary of
Finance
2. The power to issue rulings of first impression or to reverse, revoke or modify any existing
rulings of the Bureau
3. The power to compromise or abate any tax liability (except for Regional Evaluation
Boards less than 500,000)
4. The power to assign and reassign internal revenue officers to established where articles
subject to excise tax are produced or kept (number of years to rotate positions; familiarity
> graft and corruptions)

RULES IN ASSIGNMENT OF REVENUE OFFICERS TO OTHER DUFIES

1. Revenue officers assigned to an establishment where excisable articles are kept shall in
no case stay there for more than 2 years
2. Revenue officers assigned to perform assessment and collection function shall not
remain in the same assignment for more than 3 years.
3. Assignment of internal revenue officers and employees of the Bureau to special duties
shall not exceed 1 year.

AGENTS AND DEPUTIES FOR COLLECTIONS OF NATIONAL INTERNAL REVENUE TAX

1. The Commissioner of Customs and his subordinates with respect to collection of
national internal revenue taxes on imported goods (VAT should be remitted to BIR)
2. The head of appropriate government offices and his subordinates with respect to the
collection of energy tax
3. Banks duly accredited by the Commissioner with respect to receipts of payments of
internal revenue taxes authorized to be made thru banks (Authorized government
depository banks AGDB)

OTHER AGENCIES TASKED WITH TAX COLLECTIONS

1. Bureau of Customs (BOC)
 Is tasked to administer collections of tariffs on imported article and collection of the
Value Added Tax on importation.

2. Board of Investments (BOI)

 Is tasked to lead the promotion of investments in the Philippines by assisting Filipinos
and foreign investors to venture and prosper in desirable areas of economic activities.
 Approval for tax incentives

3. Philippine Economic Zone Authority (PEZA)

 Is created to promote, investment in export-oriented manufacturing industries in the
Philippines and among other myriads of function, supervise the grant of both fiscal
and non-fiscal incentives.

4. Local Government Tax Collecting Unit

 Provinces, municipalities, and barangays also imposed and collect various local taxes,
fees and charges, to rationalize their fiscal autonomy.

5. Fiscal Incentives Review Board

 Has oversight function on the administration and grant of tax incentives by the
investment promotion agencies and other government agencies administering tax
incentives
 Approves or disapproves grant of tax incentives to private entities and tax subsidies to
government owned and controlled corporations, government instrumentalities,
government commissaries, state universities, and colleges,
TYPES OF ADMINISTRATIVE ISSUANCES – revenue issuances/documentations
1. Revenue Regulations (RR)
 prescribe or define rules and regulations for the effective enforcement of the
provisions of the NIRC and related statutes (claim of exemptions to show proof of
entitlement)
 IRR: implementing guidelines

2. Revenue Memorandum Orders (RMO's)

 Issuances that provide directives or instructions prescribe guidelines and outlines
processes, operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals, objectives, plans and programs of the Bureau
in all areas of operations except auditing.

3. Revenue Memorandum Circulars (RMC)

 Issuances that publish pertinent and applicable portions as well as amplifications of
laws, rules, regulations and precedents issued by the BIR and other agencies/offices.

4. Revenue Administration Orders (RAO)

 Issuances that cover subject matters dealing strictly with the permanent administrative
set up of the Bureau more specifically the organizational structure, statement of
functions and or responsibilities of BIR offices, definitions and delegations of
authority, staffing and personnel requirements and standards of performance.

5. Revenue Delegation of Authority Orders (RDAOs)

 Function delegated by the commissioner to revenue officials in accordance with Law

Vat registered – 3,000,000 – percentage tax or VAT

VAT OR NON-VAT upon registration

SELLER must have first:

 Business Permit
 If renting space: Contact of Lease

Choose between business registration:

A. VAT Registered Business
 sales are subject to Output VAT (Output Vat – Input Vat = Output Payable which
should be remitted to BIR)
 Gross receipts of MORE THAN 3,000,000 per year (AUTOMATIC VAT
REGISTERED)
 VAT Registered: six books (journal, ledger, book of receipts, book of disbursements,
summary of sales subject to vat, purchases subject to VAT)
1. Issues VAT sales invoice for sales of goods (Sales Price + 12% VAT)
2. Issues VAT receipts for sales of services (Value of Service + 12% VAT)

B. NON-VAT Registered Business

 Gross receipts of 3,000,000 per year and BELOW (OPTIONS TO CHOOSE)
 NON-VAT Registered: four books (journal, ledger, book of receipts, book of
disbursements)
1. Issues sales invoice for sales of goods
2. Issues receipts for sales of services
Last Step: Purchase Invoice or Receipts issued to customers/buyers (non-issuance of receipts
may be subjected to penalty of 50,000/ “As for Receipts”)

Tax Remedies
- procedures or actions available both to the government to collect taxes and to the taxpayer to
avoid abuses in the payment of taxes; from the point of view of taxpayer
- protect taxpayers themselves from abuses ex. Entrapment
Tax Assessment
- a formal letter made by the BIR demanding the taxpayer to settle his tax liability within the
indicated period; calculations > discrepancy based on income tax filings against their records >
assessment to collect the right amount of tax
- relevant in the proper pursuit of judicial and extra-judicial remedies to enforce tax liabilities;
for government to be able to collect tax
- Assessment is presumed correct and made in good faith in the performance of the official duties
and failure to present proof of error will prosper such an assessment
- benefit of doubt that assessment is correct > if not, taxpayer must provide proof to contest the
assessment BASED on documents
- right due process under audit; fees imposed if proven wrong; seen tax deficiencies/insufficient
payment of tax upon filing ex. sales; fake tax assessment
- example: discrepancy on sales > comparison > assessment if found any

KINDS OF ASSESSMENT
 SELF–ASSESSMENT - made by taxpayer himself; justification > dispute if none
 PROSPECTIVE – Pre-assessment notice which informs the taxpayers about findings
(tax deficiency) by the tax examiner (records based on your filings vs. records based on
customer’s receipts = pre-assessment)
 DEFICIENCY - made by tax assessor showing correct amount of tax after tax audit.
 JEOPARDY ASSESSMENT - benefit of complete or partial tax audit intended to
prevent the delay of the assessment and collections of taxes cause by the taxpayer's
failure to comply with tax investigation, requirements and substantiate his records with
proper documents; to comply based on procedures (Due Process of Taxpayers should be
not violated > usually takes number of days before finishing to comply Due Process)
 DISPUTED - assessment that is being questioned by the taxpayers as to its validity or
legality and ask the same to be cancelled; can be considered DISPUTE if taxpayer
received receipt but no assessment was made; bigger rates imposed by BIR officials for
assessment purposes
- assessment from HEAD OFFICE itself to ensure its authenticity, validity, and legality
 FINAL - an official assessment which was not disputed or appealed by the taxpayer
within the prescribed period and become final and executory.
 Illegal / Void - made without authority; no proper procedure > assessment can be
questioned

ASSESSMENT PERIOD
- span of time allowed by law to the BIR to investigate a taxpayer's tax discrepancy to enforce
collection of taxes
- step by step procedure for assessment to become final
- what taxpayers & bureau must do

(hanggang kalian?)
PRESCRIPTIVE PERIODS OF TAX ASSESSMENT SUMMARY OF APPLICATION
1) Simple neglect (Income Tax Return without fraud)
⁃ ASSESSMENT PERIOD: Within 3 years from the filing of ITR

2) Willful neglect (Income Tax Return with fraud or omission)

⁃ ASSESSMENT PERIOD: Within 10 years form the discovery of fraud or omission or
⁃ No assessment needed (Court)
⁃ Court proceeding for tax collection within 10 years for the discovery of fraud or
omission
- 30% threshold already considered as FRAUD (simple neglect can be willful neglect)

TAX ASSESSMENT PROCEDURE (void if NO notification)

 BIR > Sends Written Notice of Discrepancy (NoD)/Notice for Informal Conference
(NIC) – negotiation how much happens > Taxpayers
  Taxpayers respond within 15 days from the receipt of NoD/NIC (documents are also
included = vouchers, receipts, registered books you submitted, expenses & any pertinent
documents listed on NoD/NIC)
 Fails, to respond, in default > Serves Pre-Assessment Notice (kwenta)
 Respond within 15 days from the receipt of PAN
 Fails, to respond, in default > Issues Formal Letter of assessment
 Files Protest within 30 days from receipt of assessment (Taxpayer has the right to file if
one believes there’s wrong)
 Submit Proofs/Evidences (document to document) to contest within 60 days from filing
of protest in Legal Branch of BIR (No supporting documents > assessment becomes final
executory)
 Denies taxpayer’s protest or ignores supporting documents within 180 days upon
submission
 Appeal to Court of Tax Appeal within 30 days from the receipt of denial or from the
lapse of the 180-day period (No appeal was made > BIR decision in Tax assessment
becomes Final & Demandable)
 Supreme Court > appeal or reconsideration for TWO TIMES > Final & Demandable

WAYS TO CONTEST THE VALIDITY OF AN ASSESSMENT

1. Motion for Reconsideration - request the BIR to review the existing records
2. Motion for Reinvestigation - taxpayer request the BIR to have a second look based on
the newly discovered evidence.
3. Motion for Withdrawal (legally) - the taxpayer requests the BIR or Court to remove a
tax plea bargain he entered because he was pressured to accept the agreement
4. Motion for Cancellation - the taxpayer requests the BIR or Court to stop the tax
assessment due to prescription and violation of due process of law
= VOID by BIR (courtesy) or Supreme Court

COLLECTION OF TAXES
1. ADMINISTRATIVE:
 Distraint of personal property (cars, jewelry, money confiscated by BIR)
 Levy of real property (building, land)
 Other administrative collection remedies

2. JUDICIAL REMEDIES:
 Civil action (go to court and file case against taxpayer specially if it is
FRADUALENT = tax evasion is criminal act)
 Criminal Action

DISTRAINT OF PERSONAL PROPERTY

⁃ Is the seizure by the government of personal property (tangible or intangible) to enforce
the payment of taxes, followed by its public sale if taxes accruing thereto are not
voluntary paid
⁃ This remedy SHALL NOT AVAIL of if the amount of tax involved is NOT MORE
THAN P100.00
- Dacion En Pago – property applied to your tax liability > Bidding:
return if there is an excess or considered sufficient/paid already if the amount still
does not cover the whole liability/ as if taxpayment is already settled

KINDS OF DISTRAINT
1. Constructive distraint
- the government prohibits the taxpayer from disposing his personal property to enforce
collection of taxes; not allowed to sale
- government give letter to withhold

2. Actual Distraint
⁃ the government takes possession of the taxpayer's personal property and sells the same
through public auction to settle the latter's unpaid tax liabilities.
 - hinahatak or lahat kinukuha na
⁃ the amount to be paid by the delinquent taxpayer would be:
a) The total tax or charge (surcharge, interest, and penalty), together with any
increment thereto incident to delinquency
b) The expenses of the distraint and the cost of subsequent sale

LEVY OF REAL PROPERTY

⁃ Is the seizure by the government of immovable property in order to enforce the
payment of taxes. As distraint, the property may be sold at a public sale if after seizure
the taxes are not voluntary paid.

 Redemption of Property Sold

⁃ Within one year from the date of sale, the delinquent taxpayer or anyone for him, shall
have the right of paying to the RDO the amount of the public taxes & penalties thereon
from the date of delinquency to the date of sale, together with the interest on said
purchase price at the rate of 15% per annum from the date of purchase to the date of
redemption.
- BIR can inquire all records from government ex. Land of Registration

OTHER COLLECTION REMEDIES

1. Imposition of Injunction (restraining order issued by court to stop any
sale/transactions)
2. Enforcement of Tax Lien (legal claim to secure proper payment)
3. Enforcement of Forfeiture (taking property without compensation)
4. Entering compromise of tax case (a contract reciprocal concession avoids litigation;
party/agreement of certain amount of comprise avoiding court)
5. Requiring the filing of bonds (BIR secured/ safety net)
6. Requiring proof of filing of income tax returns.

CASES WHICH MAY BE COMPROMISED (not willful)

1. Delinquent accounts (particular amount to be paid)
2. Cases under Administrative protest after issuance of the Final Assessment Notice to
the taxpayer which are still pending in the Regional Offices, RDO, Legal Services, Large
Taxpayers, Collection service Enforcement Service and other offices in the National
Office (not yet to Court so comprise is still allowed)
- usually under the table to minimize tax > graft & corruption of officials; due process is
too long
3. Civil tax cases (no fraudulent factor or involved; simple neglect) disputed before the
court
4. Collection cases file in court
5. Criminal violations other than those already filed in court or those involving criminal
tax fraud

CASES THAT ARE NOT SUBJECT TO COMPROMISE

1. Withholding tax cases (you did not remit, you are liable), UNLESS the applicant
taxpayer invokes provision of law that cast doubt on the taxpayer's obligation to
withhold. Ex. Compensation
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue
or his duly authorized representative.
3. Criminal violations already filed in court.
4. Delinquent accounts with duly approved schedule of installment payments
5. Cases where final reports of reinvestigation or reconsideration have been issued where
the taxpayer is agreeable
6. Cases which became final and executory after final judgement of a court where
compromise is requested on the ground of doubtful validity of the assessment
7. Estate tax cases (transfer tax) where compromise is requested on the ground of
financial incapacity of the taxpayers (not easily compromised)
MINIMUM COMPROMISE PERCENTAGE (RR 7-2001)
> 10% OF BASIC TAX ASSESSED DUE TO FINANCIAL INCAPABILITY FOR
1. An individual taxpayer whose only source of income is from employment and whose
monthly salary, if single is P10,500 or less or if married whose salary together with his
spouse is P21,000/ month or less must possess no other leviable / distrainable assets,
other than his family home.
2. An individual without any income
a) Zero net worth taxpayer > Asset = Liability
b) Non-operating companies with a period of 3 years or more as the date of
application for compromise.

> 20% OF BASIC TAX ASSESSED DUE TO FINANCIAL INCAPABILITY FOR

1. Dissolved corporations
2. Non-operating companies for a period of less than 3 years
3. Corporation declared insolvent or bankrupt.

⁃ 40% of assessed tax due to financial incapability for surplus or earnings deficit resulting to
impairment in the original capital at least 50% (negative reattained earnings through heavy
losses through the years)
⁃ 40% for doubtful validity of assessment (questionable assessment)
⁃ Where the basic tax involved exceeds one million pesos (P1,000,000.00) or where the
settlement offered is less than the prescribed minimum rates, the compromise shall be
subject to the approval of the evaluation Board which shall composed by BIR Commissioner
and the six-deputy commissioner.

INFORMER’S AWARD
- voluntary sworn information given to the BIR which leach leads to the discovery of
frauds thereby resulting in revenue recoveries
- OLD: 10% from collection based on taxpayer’s delinquency
- NEW: more than 1,000,000 subjected to 10% withholding tax = 900k remaining

INSPECTION OF BOOKS
1. Fraud irregularity mistakes as determined by the commissioner.
o VAT (6) and Non-VAT (4) Business Books renewable every year
o Simplified Book by professionals (Income and Expenses) renewable every year or if
full
2. The taxpayer requests for reinvestigation
3. Verification of compliance with withholding tax laws and regulation
4. Verification of capital gain tax and liabilities

KEEPING OF BOOKS OF ACCOUNTS

1. Journal, ledger or their equivalent including copies of audited financial reports within
3 years due date of filing tax returns if no fraud (10 years if fraud)
2. Those whose quarterly sales, earnings, receipts or output do not exceed P50,000 shall
keep and use simplified set of bookkeeping records
3. Taxpayers whose gross quarterly sales, earnings, receipts or output exceed P150,000 shall
have their books of accounts audited and examined yearly by an independent CPA and
their income tax returns accompanied with a duly accomplished Annual Income Tax
Filing

ADDITIONS TO TAX – discrepancy found; assessment conducted

1. Surcharges - is a civil penalty imposed by law in addition to the main tax required to
be paid due to delinquency or misrepresentation of taxes
2. Delinquency - failure on the part of the taxpayer to pay the tax due on the date fixed
by law or indicated in the assessment notice or letter of demand
3. Compromise
4. Expenses – pano kinuha and binenta yung property mo
SURCHARGES (calculations first made by RDO BIR > signature of officer before receiving
on bank if lapsed)
> Simple Neglect - 25% surcharge x Tax Due/Assessment
1. Fails to file any return and pay tax due thereon (late filing even if there is NO TAX)
2. Files income tax returns with an internal revenue officer other than with whom the
return is required to be filed
- late due to long audit duration > temporary is filed as tax remedy to comply with the
date of filing; file again to amend your original file
3. Fails to pay the full or part of the amount of tax shown on any return required to be
filed, or the full amount of tax due for which no return is required. On or before the
prescribed date for its payment
4. Fails to pay the deficiency tax within the time prescribed for its payment in the notice
of assessment

> Willful neglect - 50% of the tax or the deficiency tax x Tax Due/Assessment
1. Willfully neglect to file the return with the period prescribed by the Tax code or by
rules and regulations
2. Present false or fraudulent return

COMPROMISE
Revenue Memorandum Order 7-2015
Tax Nature of Criminal Penalty Amount of Compromise
Code Violation Imposed
255 Failure to file Fine of not less If the amount of tax unpaid
and/or pay any than 10,000.00 Exceeds But does not Compromise
internal exceed
revenue tax at Imprisonment of xxx 5,000 1,000
the time or not less than one 5,000 10,000 3,000
times required (1) year but not 10,000 20,000 5,000
by law or more than 10 years 20,000 50,000 10,000
regulation 50,000 100,000 15,000
100,000 500,000 20,000
500,000 1 Million 30,000
1 Million 5 Million 40,000

INTEREST ON DEFICIENCY TAX 12% (RR 21-2018)

> P x R (12%) x T/360 or 365
1. Requires that from the date of prescribed for payment until the amount is fully paid
2. Deficiency - is the amount still due and collectible for the taxpayer upon audit or
investigation; total tax + surcharge + interest + compromise

SAMPLE PROBLEM:
Per assessment notice made for late payment amounting to 44,200.00 was due on August 30,
2021 How much is the amount due if the company paid on September 30, 2021
Tax Due 44,200 Tax Due 44,200
Surcharge (44,200) x 25% 11,050 Surcharge (44,200) x 50% 22,100
Interest (44,200 x 12% x 442 Interest (44,200 x 12% x 442
30/360) 30/360)
Compromise 10,000 Compromise 10,000
Tax Due 65,692 Tax Due 76,742

INSTALLMENT PAYMENT OF TAX

1. The taxpayer's request for extension of the period within which to pay is made on or before the
deadline prescribed for the payment of the tax due.
2. When the tax due is in excess of two thousand pesos (P2,000,00) the taxpayers other than
corporation may elect to pay the tax in two EQUAL installments (only individual can avail
installment more than 2k)
3. When deadline for payment has been duly extended the 25% surcharge shall not be imposed
for the late payment of the tax, However 12% interest per annum for the extended payment shall
be imposed, computed based on the diminishing balance of the unpaid amount.
4. If the request for extension is made after the deadline prescribed for payment, the taxpayer
shall already be treated late in payment in which case the 25% surcharge shall be imposed
even if payment of the delinquency be allowed in partial amortization aside from interest.
REQUEST IS MADE REQUEST IS MADE
BEFORE AFTER
Tax Due 65,692 65,692
Surcharge (25%) 16,423
Interest (12%) 657 657
TOTAL 66,349 82,772
Divided by 2 33,174 + 41,386 +
(1st installment)
Interest again (12%) 332 = 414 =
Total (2nd installment) 33,506 41,800
Deficiency – not correct amount
Delinquency – no payment at all

PENALTY ON CRIMINAL OFFENSE

1. If the offender is an alien (foreigner), he shall be deported immediately after serving
the sentence without further proceedings of deportation
2. If the offender is a public officer or employee, the maximum penalty prescribed for
the offense shall be imposed. Furthermore, he shall be dismissed from the public service
and perpetually disqualified from holding any public office (Perpetually Disqualified)
3. If the offender is a CPA, his CPA certificate shall be automatically revoked or
cancelled upon conviction. (NO APPEAL)
4. In the case of associations, partnership or corporations, the penalty shall be imposed
on the partner, president, general manager, branch manager, treasurer, officer in charge
and employees responsible for the violation. (even CPA – liability if signed without any
audit > fraudulent; working paper as defense to prove your justification)

OTHER PENALTIES
1. Failure to file certain information returns due to simple neglect (automatic
surcharge)
2. Failure of a withholding agent to collect/remit taxes or refund excess withholding tax
(filing are still required even if there is no payable in BIR; failure to file is called
“Open Cases” 1k - 25k each case; can submit documents to prove innocence)
 Penalty: One thousand pesos (P1,000) for each failure provided that the aggregate
amount to be imposed for all such failures during the calendar year shall not exceed
twenty-five thousand pesos (P25,000.00)

Prescriptive Periods of Tax Assessment and Tax Collection Summary Application

Income Tax Return Filed Assessment Period Collection Period
(1) Simple Neglect
ITR without fraud Within 3 years for the filing Within 3 years of assessment
of ITR
(2) Willful neglect
ITR with fraud or omission Within 10 years from the Within 3 years from
discovery of fraud or assessment
omission
No assessment needed Court proceeding for tax
(Supreme Court) collection within 10 years
from the discover of fraud

REMEDIES AVAILABLE TO TAXPAYER

Administrative Remedies:
1. Tax avoidance – Tax Minimization (LEGAL)
2. Amendment of Tax returns – filing even if no attachment > amend immediately before
audit; correct immediately the doubtful tax filing
3. Demand for the letter of Authority – PAN & Final Assessment; credibility of authorized
officers/documents for auditing purposes
4. Protesting an Assessment (in case of discrepancy) – error/wrong assessment > provide
documents (30 days to protest assessment and 60 days to submit documents related to protest)
5. Applying for No Audit Program – at least 5% of gross can be applied; certain period of
time; TRAIN LAW – for individual taxpayers (medical practitioners are encouraged to opt for
8% x Gross = Final Tax: business, vat or income tax is not needed since it is included on
8% and no audit payable as long as sales are correct); as well as those who opt optional 40%
6. Entering a compromise – certain rules and rates
7. Filing of claim for tax credit – income outside can be considered as tax credit as long as you
declare your income if you are a resident citizen (deducted to total tax payable)
- YouTube income subject to royalty tax from US (influencers) > income received should be
declared and tax credit can be applied
8. Filing of claim for refund – can be applied to next tax period; audited first before refund

Tax Credit or Tax Refund Summary Application

Tax Claim Filing Prescriptive Forfeiture in Favor of the Government
Period
(1) Tax Credit Within 2 years after the Tax Credit certificate unutilized within 5
payment of tax or years from the date of mailing or
penalty delivery
(2) Tax Refund Within 2 years after the Refund check or warrant unclaimed or
Business – RTC payment of tax or uncashed within 5 years from date of
Income – CTA penalty mailing or delivery
Final – Supreme Court

REMEDIES AVAILABLE TO TAXPAYER

1. Civil actions
⁃ Appeal to the Court of Tax appeals (appeal even before 180 days because it can
be technical)
2. Criminal actions
- ex. Entrapment operation; taxpayers will file case against officers involved
3. Other Judicial Remedies
⁃ Action for damages against Revenue Officer (shaming taxpayers)
⁃ Action to contest Forfeiture of Chattel (Appeal to Court to stop)

Unconstitutional
- stop collection; return in other forms of refund

Estoppel
- contract; not absolute; in general, not allowed

Injunction
- stop by court
International double taxation can be mitigated: providing allowance for tax credit

FINALS
GROSS INCOME
 Includes all income from whatever source (unless exempt from tax by law) including, but
not limited to, the following items:
1. Compensation for services in whatever from paid including fees, salaries and wages,
commission, and similar items.
2. Gross income derived from the conduct of trade or business or the exercise of a
profession
3. Gains from dealings in property
 4. Others: (Passive Income)
o Interests – from loan/deposit
o Rents
o Royalties
o Dividends – stock
o Annuities – investment
o Prizes and Winnings – ex. Lotto
o Pensions
o Partners distributive share from the net income of general professional
partnership – individual general income

GROSS COMPENSATION INCOME

 any enumeration for rendering personal services (RR12-86) and obtained from an employer-
employee relationship between payer and recipient. (contract)
o Compensation income is subject to tax is based on gross income less applicable
exemption. No business and personal expenses (utilities exp) are allowed as deductions
from gross compensation income. (250k fixed)
o The rule on compensation income applies only to resident citizens, resident aliens,
nonresident citizen, and nonresident aliens engaged in business in the Philippines, it
does not apply to nonresident aliens not engaged in business. Neither does it apply to
corporation, estate, and trust because compensation presuppose personal service.
o The compensation income including overtime pay, holiday pay, night shift differentials
pay 10% and hazard pay earned by minimum wage earners are not subject to tax

EMPLOYER-EMPLOYEE RELATIONSHIP EXIST – contract

 Employer-employee relationship exist when the person for whom services are rendered has
the right to control and direct the individual who performs the services, not only as to the
result in accomplishing the work but also as to the details and means by which that result is
accomplished.

CLASSIFICATION OF GROSS COMPENSATION INCOME

o SALARY - refers to earning received periodically for a regular work other than manual
labor such as a monthly salary of an employee.
o WAGES - earnings received usually according to specified intervals of work, as by the
hour, day or week.
o HONORARIA - payments given in recognition for services performed for which
established practice discourages charging a fixed fee.
o FIXED OR VARIABLE ALLOWANCES - representation, Cost of Living Allowance
and other allowances

NOTES:
 Reimbursement for traveling, representation and other Bonafide ordinary and necessary
expenses incurred or reasonably expected to be incurred by employee in the performance of
his duties are not compensation subject to tax if the following conditions are satisfied.
o It is for ordinary and necessary travelling and representation, or entertainment expenses
paid or incurred by the employee in the pursuit of the employer's trade business or
profession
o The employee is required to account/liquidate for the foregoing expenses pursuant to the
substantiation requirement of section 34 of the tax code.
o The excess of actual expenses over advances made shall constitute taxable income if such
amount is not returned to the employer.

LATEST RULING ON ALLOWANCES

o Transportation and cell phone allowances given to call center employees are not taxable
compensation
 o Fixed monthly transportation allowance of 1,500.00 for rank-and-file employees and
3,000.00 for supervisory employees pre computed on a daily basis.
o Mobile phone allowances of 1,200 for supervisors, managers, and directors who are
expected to be on call on 24 hours a day
o Transportation and night shift allowances (subject to substantiation/substantiate >
receipts) granted to night shift employees and "meal and or out of town allowances"
granted to employees assigned to conduct field work are not subject to fringe benefit tax
(FBT), income tax and withholding taxes.
o Taxi/transportation allowance of P100 per day given by BPO company servicing global
businesses 24 hours a day to employees who works overtime beyond 10 pm or work shift
starts at 10 pm.

CLASSIFICATION OF GROSS COMPENSATION INCOME

1. COMMISSION - usually a percentage of total sales or a certain quota of sales volume
attained as part of incentive such as sales commission
2. FEES - received by an employee for the services rendered to the employer including a
director's fee of the company, fees paid to the public officials, such as clerks of court or
sheriffs for services rendered in the performance of their official duty over and above their
regular salaries.
o Legal fees paid by a union on behalf of its president constitute compensation
o Marriage fees, baptismal offerings, sums paid in conducting masses for the dead and
other contributions received by a clergyman, evangelist or religious worker for services
rendered are considered compensation
3. TIPS AND GRATITUDE - paid directly to an employee which are not accounted by the
employee to the employer are considered taxable income but not subject to withholding taxes
ex. Waiters
4. HAZARD OR EMERGENCY PAY - additional payment received due to workers exposure
to danger or harm. This is normally added to the basic salary together with the overtime pay
and night differential pay to arrive at gross salary. Ex. covid
5. RETIREMENT PAY ex. Government
- refers to a lump sum payment received by an employee who has served a company for
considerable period of time and has decided to withdraw form work into privacy.
- taxable except in the following instances: SSS/ or GSIS retirement pays.
- due to old age provided that the following requisites are met:
a) The retirement program is approved by the BIR commissioner
b) It must be reasonable benefit plan
c) The retiree should have been employed for 10 years in the said company
d) The retiree should have been 50 years old at the time of retirement
e) It should be availed for the first time
6. SEPARATION PAY - taxable if voluntary availed of. Shall not be taxable if involuntary:
a) Death
b) Sickness
c) Disability
d) Reorganization / merger of the company
e) Company at the brink of bankruptcy
7. PENSION - stated allowance paid regularly to a person on his retirement or to his
dependents on his death in consideration of past services, meritorious work age, loss or
injury. Taxable unless the law states otherwise or unless the BIR approves the pension plan.
8. VACATION AND SICK LEAVE
o If paid or availed of as salary of an employee who is on vacation or on sick leave
notwithstanding his absence form work constitute taxable compensation income.
o Monetized value of unutilized vacation leave credits of 10 days or less which was paid to
private employees during the year are not subject to tax and to the withholding tax. (More
than 10 days & above are taxable)
o Monetized value of vacation and sick leave credits to paid to government officials and
employees are not subject to income tax and to the withholding tax. (No limit on days)
9. 13th MONTH PAY AND OTHER BENEFITS (and 14th month pay)- thirteenth month pay
and other benefits are not taxable if the total amount received is 82,000.00 or less. Any
amount exceeding 82,000.00 is taxable.
10. 14th month pay – gratuitous
11. FRINGE BENEFITS (Taxable) and DE MINIMIS (Exclusions) - as any good service or
other benefits furnished or granted by an employer in cash or in kind, in addition to basic
salaries of an individual employee. – excess is included in 13th month pay
12. OVERTIME PAY - this refers to premium payment received for working beyond regular
hours of work which is included in the computation of gross salary of employee (in excess of
8 hours)
a) Regular Holiday – double pay
b) Special Holiday – 30%
13. PROFIT SHARING - it is the proportionate share in the profits of the business received by
the employee in addition to his wages; motivates employees
14. AWARDS FOR SPECIAL SERVICES - as an award for special services of employee or
suggestions to employer resulting in the prevention of theft and robbery. Awards for past
services and the like are also compensation. Taxable.
15. BENEFICIAL PAYMENTS - where an employer pays the income tax owed by the
employee are additional income. Taxable.
16. OTHER FORMS OF COMPENSATION - other forms received due to service rendered
are compensation paid in kind except cash. Taxable.
17. SHARES OF STOCKS RECEIVED AS COMPENSATION - compensation paid to
employee of a corporation in its stock is to be treated as if the corporation sold the stock at its
market value and paid the employee in cash. The fair market value of the shares of stock at
the time the service is rendered is the basis of stocks.
18. EMPLOYEE STOCK OPTION - a stock option is a privilege granted to some key
employees of a corporation to avail of the said corporation shares of stock in the future for a
certain price.
o AS A COMPENSATION INCOME - if the market price is greater than the option
price. The difference is a compensation income at the date of grant. Tax table.
o AS CAPITAL GAIN - when the stocks resold the excess of the market price at the date
of sale over the market price at the date of grant is capital gain. 7.5%
19. CANCELLATION OF DEBT- the cancellation and forgiveness of indebtedness may
amount to payment of income, gift (donors’ tax), or capital transactions, depending upon the
circumstances. Part of compensation.
o If a creditor merely desires to benefit a debtor and without any consideration cancels the
debt, the amount of the canceled debt is a gift, not an income of debtor. (Donor’s tax)
o If a corporation to which a stockholder is indebted forgives the debt, the transaction has
the effect of the payment of a dividend income to debtor.
o If, however a debtor performs services for a creditor who in consideration thereof cancels
the debt the debtor realizes income for his services to the extent of the amount of debt
cancelled. (difference is subject to compensation)
20. INSURANCE PREMIUM AS COMPENSATION - these are premiums paid by the
employer on life insurance coverage of the employee wherein the beneficiary is the
employees family. These constitutes taxable income on the basis of the amount premium
paid.
21. INCOME TAX PAID AS COMPENSATION - for income tax paid by the employer in
favor of the employee the basis of tax is the amount of tax paid.

CONVENIENCE OF THE EMPLOYER'S RULE

 Provides those allowances in kind furnished to the employee for and as necessary
incident to the performance of his duties are not taxable
 Not taxable in the part of employee if employer benefits
o Living quarters
o Meals subsidized by employer

REMUNERATION FOR CASUAL LABOR

The following rules shall be observed regarding remuneration for casual labor:
o Remuneration for casual labor not in the course of an employee trade or business is not
considered compensation (no employer and employee relationship)
1. Any remuneration paid for casual labor (that is labor which is occasional, accidental or
irregular, but which is rendered in the course of the employer's trade or business) is
considered compensation and
2. Any remuneration paid for casual labor performed for a corporation is considered as
compensation (regardless whether related or not)

GROSS INCOME FROM BUSINESS AND PROFESSION

 Business - means any commercial activity engaged in as a means of livelihood or profit
of an individual or group of individuals
o Manufacturing
o Merchandising or trading
o Servicing
o Farming
o Long term contract
 Profession - primarily any endeavor or work requiring specialized training in the field of
learning, art or science engaged in as means of livelihood or profit of an individual or
group of individuals

GROSS INCOME
o Gross sales less sales returns, discount, allowances and cost of goods sold
o In case of taxpayers engaged in the sale of service gross income is based on gross receipts
less returns, allowances and discounts.

COST OF SALES
 Cost of goods sold shall include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use
o Cost of goods manufactured and sold of manufacturing concern
o Cost of goods sold trading or merchandising concern and
o Cost of service of servicing concern

1. COST OF GOODS MANUFACTURED AND SOLD

 Shall include all cost of finished goods that are sold such as raw materials used
direct labor and manufacturing overhead, freight cost, insurance premiums and
other cost incurred to bring the raw materials to the factory or warehouse
2. COST OF GOODS SOLD OF TRADING OR MERCHADISING CONCERN
 Refers to invoice cost of the good sold, plus import duties and freight incurred in
transporting the goods to the place where they are actually sold including insurance
while the goods are in transit
3. COST OF SERVICE
 The cost of service shall include the direct cost and expenses necessarily incurred to
provide the services required by the customers and clients which include the
following:
1. Salaries
2. Benefits of personnel, consultants and specialist directly rendering the services
3. Cost of facilities (depreciation and rental)
4. In the case of banks, cost of service shall include interest expense

TELEGRAPH AND CABLE SERVICES

 The gross income of telegraph and cable services of foreign corporation shall include income
from services within the Philippines only.
 Gross revenue derived from messages originating in the Philippines.
 Amount received by the company collected abroad on collect messages originating in the
Philippines and deducting from such amounts paid or accrued for transmission of messages
beyond the company's own circuit
Appreciation of land – part of gross income

RENTAL INCOME
Earnings derived from leasing real estate as well as personal property
1. Prepaid rental - if the advance payment is a prepaid rental received without restriction
as to its use the entire amount is taxable in the year it is received whether the lessor use
accrual or cash.
2. Security deposit with restriction - if the advance payment security deposit which
restrict the lessor as to its use, then the amount should be excluded in the determination
of income.
3. Security deposit with an acceleration clause - if the advance payment is a loan deposit
or option money for the property or a security deposit for the faithful compliance of the
lessee of the lease contract, such advance payment is not an income to the lessors, only
income to the lessor when the lessee violates the term of the contract.

INCOME FROM LEASEHOLD IMPROVEMENT

 When the lessee erected or built permanent improvement on the leased property which
will become the property of the lessor upon the lease, the value of the improvement should
be reported as income of the lessor.
o Outright - income from household improvement shall be recognized when the
improvement is completed at its fair market value
o Spread out method - estimated book value of the leasehold improvement at the end of
the lease is spread over the term of the lease and is reported as income each year of the
lease

TERMINATION OF THE CONTRACT OF LEASE

o If the improvement is destroyed before the expiration of the lease, the lessor is entitled to
deduct as a loss for the year when such destruction takes place, the amount previously
reported as income less any salvage value, to the extent that such loss was not
compensated for by insurance.
o If the lease is terminated so that the lessor comes into possession of the property prior to
the final fixed period of the lese contract, the lessor receives additional income for the
year if the value of improvement exceeds the amount of income already reported.
o Assess the value of property

PASSIVE INCOME
 A final tax is imposed upon gross passive income of citizen and resident aliens. An income is
considered passive if the taxpayers merely wait for it to be realized
o Yield from deposit substitutes and trust fund
o Interest income
o Royalty income
o Dividend income. (Corporation from another corporation = not taxable; individual =
taxable)
o Prizes and winnings

TERMS TO REMEMBER
 Deposit substitute - is a debt instrument issued by the bank to borrow money for the
public other that from the client’s deposit
 Trust fund - is any estate, especially stock securities or money which is held in trust by a
person in behalf of another person

Dollar time deposit – subject to tax if resident

INTEREST INCOME
  earning derived from depositing or lending money, goods or credits, unless exempted by
law, interest income received by the taxpayer whether or not usurious is subject to
income tax.
EXEMPT from INCOME SUBJECT TO FINAL SUBJECT TO NORMAL
TAX WITHHOLDING TAX INCOME TAX
By members from a duly INTEREST from BANK Lending is the main course of
registered cooperative DEPOSIT 5 cooperative business
YEAR OR LESS (20%)
BSP prescribed from of
investment maturing MORE
THAN FIVE YEARS
Expanded foreign currency
deposit system by
nonresident citizen or aliens
A tenant paid to a landowner
on the price of land under
tenant-purchase agreement
as part of carp

ROYALTY INCOME
 Royalty income is a payment or portion of proceeds paid to the owner of a right, such as an
oil right or a patent for the use of it or a portion of the proceeds from the work of an author or
composer.
o Royalty income derived from natural resources or products such as coal gas, oil copper,
silver, gold and other similar products - subject to 20% final tax
o Royalties on books, literary works, and musical composition - subject to 10% final tax

DIVIDEND INCOME
 Is a form of earnings derived from the distribution made by a corporation out of its earnings
or profits and payable to its stockholders whether in money or in other property.
o Cash dividend
o Property dividend
o Stock dividend
o Scrip dividend
o Indirect dividend
o Liquidating dividend

SUMMARY OF TAXES ON DIVIDEND

Dividend are tax Dividends are subject to final tax if Dividends are subject year end
exempt if received from a domestic normal tax pf individual or
corporation by a corporations if such dividend are
Received From Citizen/Resident alien = 10% final tax Not included as tax exempt dividends
Domestic Corporation
A) By Another
Domestic
Corporation
B) Resident Foreign
Corporation
Received From Nonresident alien doing business in Not subject to final tax
Cooperative the Philippines = 20% final tax
Pure Sock Dividend Nonresident alien not doing business Distributive shares of partner in
in the Philippines = 25% professional partnership
Pure Liquidating Nonresident foreign corporation 15%
Dividend

PRIZES AND WINNINGS

1. Prize - is a reward for a contest or a competition , in other words a prize represents
remuneration for an effort reflecting one’s superiority Like prize money of a boxing
contest.
 o In general prizes are subject to final tax of 20% except if the amount of the prize
is 10,000 or less shall be subject to normal tax
2. Winning - is a reward for an event that depends on chance such as winning from
gambling
o Winnings are subject to final tax of 20% regardless of amount

OTHER SOURCE OF INCOME

1. Partners Distributive Profit From Professional Partnership Income
2. Bad Debt Recovery
3. Tax Refund Or Credit
4. Damage Recovery
5. Annuities
6. Income From What Ever Source
7. Illegal Obtained Income