SIENA COLLEGE OF TAYTAY INC.

TAXATION 1 – INCOME TAXATION

COLLEGE OF BUSINESS AND ACCOUNTANCY

Taxation is an inherent power of the state to enforce proportional contribution upon persons, properties or rights in order to
generate revenues to defray the expenses of the government.

Concept of Taxation:
 Imposition of tax
 System by which taxes are imposed
 Revenue gathered by imposing taxes
 Means of raising revenue for public purpose

Who are being taxed?

 Persons
 Properties
 Transactions, earnings or rights

Basis of Income Taxation

 Benefit-received theory
 Ability to pay theory

Nature of Taxation
 Inherent power
 Legislative function
 Public purpose
 Operating within territorial jurisdiction
 Strongest among the inherent powers of the state
 Subject to limitations: inherent and constitutional

Characteristics of income taxation in the Philippines

 It is a national tax
 It is a general purpose tax
 It is a direct tax
 It is an excise tax
 It is a progressive tax

Purposes of taxation
 Principal purpose. The primary purpose of taxation is to raise revenue. The revenue collected through taxes is
intended primarily to support the government in its various administrative functions.

 Secondary purpose. Taxation also serves as a regulatory measure of the government on some of its economic and
fiscal activities.

Stages of Taxation
1. Levying or imposition stage
2. Assessment and collection stage
3. Payment stage

Classification of Escape from Taxation

1. Escapes that result in losses of government revenue: Tax avoidance; Tax Evasion; Tax exemption
2. Escapes that do not result in losses of government revenue: Tax shifting; Tax transformation; Tax capitalization

Essential Characteristics of Taxes

 Enforced contribution
 Levied by the legislative body
 Proportionate in character
 Payable in money
 Levied for public purpose
 Collected for government revenue
 Collected by the state within its jurisdiction

When is the period for Tax Assessment?

  Three years from the date of filing the return.
 10 years from the date of discovery or omission under the following circumstances:
o Failure to file a return
o Return filed was false or fraudulent with the intention to evade the tax
o Before the expiration of the 3-year period, the BIR Commissioner and the taxpayer may agree in writing on
the assessment period.

Illustration: Mr. Enri Co, operation analyst of Green Company, filed his income tax return for 2014 on March 10, 2015. The tax
due and payable on his compensation income was P15,000. Tax audit of the BIR revealed that the tax due amounted to
P40,000.

Required: Determine whether the following assessments conducted were valid or not.

Case 1. The BIR made the assessment for deficiency tax on November 15, 2016.
Case 2. Assume that the income tax return was fraudulent and such was discovered by the BIR on July 10, 2015. The assessment
was made on February 10, 2017.

Remedies of the Government to enforce collection of taxes

1. Administrative remedies: distraint of personal property and levy on real property
2. Judicial: civil action and criminal action

Other Remedies
1. Enforcement of forfeiture of property
2. Enforcement of tax lien
3. Entering into Compromise in tax cases
4. Requiring the filing of bonds as an assurance for compliance of tax laws
5. Giving rewards to qualified tax informers
6. Imposition of surcharges for non-payment or late payment
7. Making arrest, search and seizure in certain cases
8. Deportation of aliens who violated tax laws
9. Inspection and examination of taxpayer’s records and book of accounts
10. Use of national tax register

Problems:

1. During the taxable year, Mr Alvin Thou informed the BIR about the plan of some businessmen to import smuggled
goods from Borneo. The entrapment resulted to the seizure of the smuggled goods with a fair market value of
P30,000,000. Compute the amount of reward that Mr. Alvin will receive from the government.
2. During the 2008 taxable year, Mr Eldefon Sou, self-employed with registered address at Davao City, has a tax due and
payable of P250,000 based on his income tax return.

Required: Compute the total amount of tax liabilities including surcharges and penalties under the following cases:
a. The taxpayer filed his income tax return on July 1, 2019.
b. The taxpayer filed his return on or before April 15, 2019 in Cebu City.
c. The taxpayer filed his return on time and paid the tax due thereon. An examination revealed that the tax due
was erroneously computed. Per assessment made, the correct amount of tax due would be P380,000. The notice
of demand and tax deficiency assessment was issued on September 1, 2019 to be payable on September 30,
2019.
d. Assume that per notice of tax deficiency assessment on item 3, the taxpayer did not pay the total amount still
due on September 30, 2019 but rather paid the tax liabilities on November 30, 2019.
e. Assume the taxpayer deliberately did not file his income tax return on April 15, 2019. His attention was called by
the BIR through the formal notice and demand to file the return. He filed his return on January 31, 2020.