Taxation Lecture by Dr.

Lim

- The power of taxation is an enforced contribution.

- For public purpose. Cannot be used to the benefit of private individuals. (Planter's Products
case)
- 4Ps / SAP is a gift, exempted from taxation
- Power of taxation is exercised by legislative department. The President's power of taxation is
not inherent, given by constitution (for tariff/import and export taxes with recommendation of
NEDA). President has no say in VAT and IR taxes.
- Legal bases of power of taxation: Lifeblood doctrine. Principle of Necessity. Benefit Protection
Theory - the symbiotic relationship of government and tax payer. Mutual, reciprocal, support,
protection. The payment of taxes is in support of government. The government meanwhile will
use it to perform basic services for the benefit of the public.
- non payment of taxes is a criminal offense.
- doctrine of imprescriptibility. Tax exemption is not presumed.
- Tax exemption - immunity from payment of tax where others similarly situated is obliged to pay.
Given after business starts. The entity that exercises the power of taxation (legislative) is the
only one to grant power of taxation. Not automatic, needs application (lower house/sanggunian).
Tax exemption is not perpetual (there is limited period). There is no blanket tax exemption
(entity exempted to "all" taxes/only exempted in particular and specific kinds of taxes). Tax
exemption is not transferrable. If government is exercising governmental function- not taxable /
if government is exercising proprietiary function - taxable
- exemption given by government in exercise of governmental function- franchise. Always
revocable. Not protected by non impairment clause of constitution because franchise is not a
contract but a privilege.
- contractual tax exemption (applied by investor/taxpayer to Congress) - cannot be revoked.
There is a meeting of the minds.
- tax exemption is always in favor of the government. Disfavored.
- there is no exemption by implication.
- Tax incentive - given to business before the business starts.
- cgt is not income tax. Paid by seller. 6% tax based is zonal value/assessed value/
consideration whichever is higher. Paid to where the property is located. Within 30 days from
sale. Deed of sale, Conditional sale, exchanges of properties even without consideration but the
exchange involved are capital assets (zonal or assessed value), dacion en pago of capital
asset, pacto de retro, foreclosure, expropriation
- if property is voluntarily sold to government , property owner has option to pay cgt within 30
days or declare the income you earn and subject that to normal income tax. But if property is
involuntarily sold (expropriation/forced sale), no option.
- mortgage with bank, foreclosed by bank. If foreclosed by bank is there payment of cgt? Yes.
Within 30 days from the expiration of one year period to redeem without mortgagor redeeming
the property.
- in partition/subdivision of property/dissolution of co-ownership, no need to pay cgt.
- if property sold is used in business / income generating, payment of income tax
- power to tax of senate- AARMS. Amend, Adopt, Revise, Modify, Substitute.
- implementing guidelines are done by secretary of finance with recommendation of bir or
bureau of customs, depending on what kind of tax.
- revenue regulation - implementing guidelines of tax laws made by commissioner of internal
revenue, non delegable authority. must be within the law. If it has insertions which are not in the
law itself, rr has to be voided.
- non delegable powers: cancel a tax liability (1. When assessed tax is without legal basis. 2.
Cost of collection is more than the amount tax collected.)
- president condoning power is not applicable to tax, it is only available in criminal cases.
- revenue regulation - request for review with secretary of finance. If denied, regular courts.
- bir ruling is an answer to a taxpayer's query. Opinion. If taxpayer does not agree, subject the
ruling for a.petition for review with cta.
- when to apply tax laws retroactively. 1. When law itself so provides 2.when implied in the law.
3. When it is the intention of house or Congress 4. When it involves income tax
- revenue regulation. Retroactive application when it will not cause injury to the taxpayer.
- Congress chooses the object of taxation. How to know if within equality clause: classification
statute - the law that will give validity to choice of the Congress to tax. (CREBA case)
- elements of.classification statute 1. There is a substantial difference between object of taxation
2. There is no violation of uniformity and equality clause of the constitution. Applies to
everybody similarly situated. 3. Not a temporary measure. Applicable to present and future.
- uniformity and equality in tax: uniformity - all those similarly situated in like condition are taxed
at the same rate. Equality - both are enjoying the same privilege.
- equitable: the distribution of benefits to the people should be based on needs.
- BIR does not have the power to choose the object of taxation/classify object of taxation from
one category to another.
- Philippine Lung Cancer case. BIR cannot revoke tax exemption (belongs to Congress) but can
suspend.
- self assessing tax - self computing tax. Self-serving document.
- Taxpayer to compute, presented in prescribed tax form (tax return) (income tax). Local taxes -
no tax return because it is the local government who computes your tax, indicated in law
prescriptive period. Real property tax has no tax return, law indicates prescriptive period. Import
tax has no tax return, imprescriptible.
- Powers of Commissioner of BIR. *Power to amend tax return. Should be guided by best
evidence obtainable rule - supported by valid evidence, not hear say. Rule can also be used in
tax investigation (taxpayer is not cooperating)
- conflict between prescriptive period and lifeblood doctrine. Lifeblood doctrine cannot be used
in defense of collection when it is outside prescriptive period. (Prescriptive period shall prevail)
- Tax return. Taxpayer will be bound by what is indicated in tax return (even errors). Once
submitted to BIR, cannot be withdrawn anymore.
- Remedies if there are errors in tax return. 1.amend return in case of errors. 2. Submit
supplemental return. (both: 3 years from submission of return as long as no investigation). BIR
can do return in your behalf if you fail to submit one.
- The government has 3 years to investigate the validity of return and inform you of such
- undeclared income in return: 10 years.
- sec. 229. Invalid payments
- sec. 112 (d)
- TRAIN LAW: 1. Compensation income earners - from er/ee relationship. 250k below exempt
from income tax and withholding tax. Non taxable: holiday pay, overtime pay, hazard pay, night
differential. If above 250k, taxable - use TRAIN schedule. No personal exemption anymore. No
exemption for head of family/ dependent / insurance.
- 2. Proprietors, self employed and professionals - income tax, business tax (local and BIR).
Business tax is not dependent on whether or not you have income. Gross sales (goods) /
receipts (services) not more than 3million. Choose: 8% flat or Graduated tax rates. *8% - during
first qtr of year, go to BIR and inform them that you will use 8%; failure to do so - fall under
graduated rates. (Gross sales-250k)x8%. Exempt from business taxes and percentage tax. No
need to submit FS but you have to submit ITR and accounting books. Cannot deduct expenses
(allowable deductions). *Graduated Tax Rates - need also to pay business taxes. Can deduct
allowable deductions.
- who cannot use 8%: 1. Purely compensation earners. 2. Those gross receipts or sales are
more than 3mil. 3. VAT registered taxpayers regardless of gross receipts or sales. 4. Taxpayer
covered by other percentage taxes (common carriers, amusement tax, banks, intl shipping,
agents of foreign insurance, etc.) 5. Partners in general professional partnership. 6. Exempt
from income tax (brgy micro business)
- if 8% at first qtr but upon computation exceed 3mil. - taxable by VAT. Other payments of 8%
can be claimed as credit.
- 3. Mixed income earners. Add business and salary then choose 8 or graduated. Or go with
regular (separate computation). But you cannot subtract 250k.
- Passive income (interest income in bank deposits) - FOREIGN - 15% . Peso interest rate -
20%
- Special aliens. Considered ordinary employees.
- estate tax: no need for notice of death below 20k estate.
- estate under judicidial settlement and irrevocable trust: artificial single Corp for purpose of tax.
Personal exemption 20k - do not exist in TRAIN law anymore.