Republ

icoft hePhil
ippi
nes
BATANGASSTATEUNI VERSITYJPLPC- Malvar
Malvar,
Batangas
Tel
.Nos.:(
043)778-2170/(043)406-0830loc.116
Websit
eAddress:http:
//www.batst
ate-u.
edu.ph

COLLEGEOFACCOUNTANCY,BUSINESS,
ECONOMI
CS&
I
NTERNATI
ONALHOSPITALI
TYMANAGEMENT

TAX301–INCOMETAXATION
INSTRUCTI
ONALMODULENO.1
FUNDAMENTALPRINCI
PLESANDCONCEPTSOFTAXATI
ON

I
ntr
oduct
ion

Thismodul eintr
oducest hefundament alspr i
nci pl
esofi ncomet axationandt heor
iest hat
underli
eoursy stem oft axati
oni nthePhi lippines.Themai nt opicsthatwi l
lbecov eredinclude:
generalprincipl
esoft axati
on,inherentpoweroft hest ate,purposesoft axation,theoryandbasi sof
taxati
on,scopeoft hepoweroft axat
ion,essent ialelement sofat ax,aspectsoft axat
ion,natureand
character
isticsoft hestate’
spowert ot ax,cl assifi
cationoft axes,element sofsoundt axsy stem,
l
imitati
onont heSt at
e’spowert otax,situsoft axation,taxdistinguishedf rom ot hertermsor
i
mpost s,doubl etaxati
on,meansofav oi
dingormi nimizingthebur dentaxation, pri
nci
plesgov erning
taxexempt ions,sourcesoft axlawsandappl icationoft axlaws.

I
ntendedLear
ningOut
comes

I
LO1Demonst r
ateanextensiveknowl edgeofthenat
ureandconcept sofi
ncomet axati
on.
I
LO2Explai
nthegovernment’sinherentpowertoimposetaxesandenf or
cecoll
ectionthereof
.
I
LO3Correct
lydemonstrat
esr esolut
ionoftaxprobl
emsofindividual
sandcorporatetaxpayer
s.
I
LO4Executeskil
l
sinresolv
ingi ncomet axpr
oblemsofindi
vidualsandcorpor
ati
ons.

I
NHERENTPOWERSOFTHESTATE

WhenaSover
eignStat
ei sborn,
itexi
stswit
hindi
spensablepowersnecessaryf
orit
ssurv i
val
.
Thesepower sar
ecall
ed“ i
nherentpowers.”Theynatur
all
yexistasessentialf
orceinorderthata
governmentcancommand, maintai
npeaceandor der
,andsurviv
e,ir
respect
iveofanyconsti
tut
ional
provi
sion

Thet
hreei
nher
entpower
soft
hesov
erei
gnst
atear
esummar
izedasf
oll
ows:

I
NHERENTPOWERSOFSOVEREI GNSTATE
POLI
CEPOWER
Thepowert
opr
otectci
ti
zensandpr
ovi
deforsaf
etyandwel
far
eofsoci
ety
.
EMINENTDOMAINPOWER
Thepowert
otakepr
ivat
epr
oper
ty(
wit
hjustcompensat
ion)f
orpubl
i
cuse.
TAXATIONPOWER
Thepowertoenf
orcecont
ri
but
ionst
osuppor
tthegov
ernment
,andot
heri
nher
entpower
sof
theSt
ate.

Nat
ureofPol
icePower

Police powerreferstot he i
nherentpoweroft he sov erei
gn statet olegisl
atef orthe
protecti
onoft hehealt
h,welfareandmor al
soft hecommuni ty.Itisexer cisedusual l
yt oguard
againstexcessesorabusesofi ndiv
idualli
bert
y.Thi
sisrestri
ctedbyt he“duepr ocessclause”ofthe
Const i
tut
ionwhi chprov
idesthatnoper sonmaybedepr i
vedof“ li
fe,l
iber
ty,orpr oper
ty,withoutdue
processofl aw.ThepolicepoweroftheSt at
emaybeexer cisedt hroughtaxationbecauset axesmay
belev i
edf orthepromotionofthewelfareofthepublc.Exampl
i esofpol i
cepowerar epreservat
ion

Page|
1
ofnatur
alresour
ces,segr
egati
onofleper
sfr
om t
hepubl
ici
mpr
isonmentofconvi
ctedcr
imi
nal
s,
andregul
ati
onofvari
ousprofessi
ons.

Nat
ureofEmi
nentDomai
n

Eminentdomainreferstot hepoweroft hesov er

eignstatetotakeprivatepr
opertyforpubl
ic
purpose.Itisfoundedupont hei deat hatthecommonnecessi tiesandinterestofthecommuni ty
tr
anscendi ndiv
idualri
ghtsinpr oper ty
.Consequent l
y,thestatemayexpr opri
atepriv
atepr oper
ty
wheni tisnecessar yint hei nt
er estofnat i
onalwel f
are.Sinceemi nentdomai ni sinherentin
soverei
gnty,perti
nentprov i
sions i nthe consti
tuti
on are notgr ants ofthe power ,butr at
her
l
imitati
onsuponi tsexerci
se.TheConst i
tuti
onli
mi tstheexerciseoft hepowerbypr ovi
dingthat
propert
ymaynotbet akenwithoutj ustcompensation.

“Justcompensat
ion”meanspay
ingt
heownert
hef
ullmonet
aryequi
val
entt
hepr
oper
ty
t
akenf
orpubli
cuse.

TAXATI
ONDEFI
NED

1.Apowerbywhi chanI ndependentst ate,throughi tslawmaki ngbody ,raisesand

accumul atesr ev enuef r
om i tsi nhabi tant stopayt henecessar yexpenseoft he
government .
As a power ,i tr ef
erst ot he i nher entpowerofa st ate,coext ensive with
sovereigntyt o demand cont ributions f orpubl ic pur poses t o suppor tt he
government .
2.Apr ocessoractofi mposingachar gebygov ernment alaut hori
tyonpr operty
,
i
ndividualsort ransact i
onst or aisemoneyf orpubl i
cpur poses.
Asapr ocess,i tpassesal egi slati
v eunder t
akingt hr
ought heenact mentoft ax
l
awsbyt hecongr esswhi chwi llbei mpl ementedbyt heexecut ivebranchoft he
governmentt hroughi t
sBur eauofi nt ernalRev enue( BI R)tor aiserevenuef rom
theinhabitantsi nor dertopayt henecessar yexpensesoft hegov ernment .
3.Ameansbywhi cht hesov ereignst at et hroughit slaw- makingbodydemandsf or
revenuei nordert osupportitsexi st
enceandcar ryouti t
sl egit
imateobj ecti
ves.
Asameans,i tisawayofcol lectingandappor ti
oningt hecostofgov er
nment
amongt hosewhoar epri
vil
egedt oenj oyi t
sbenef its.

Si
milari
ti
esamongTaxati
on,Emi
nentdomainandPol
icePower
s
Thesimil
ari
ti
esamongthethr
eei
nherentpower
soft
hestat
eareasf
oll
ows:
1.Theyar ei nherentinsov er
eignty( t
heycanbeexer cisedevenwi thoutbeing
expresslygrantedintheConst it
ution)
2.Theyar e al
lnecessar yat tr
ibutes ofsovereigntybecause ther
e can be no
eff
ectivegov er
nmentwi t
houtthem.
3.Theyconst i
tut
et het hr
eeway sbywhi cht hest ateint
erf
ereswitht hepri
vate
ri
ghtsandpr operty;
4.Theyar ealll
egislat
iveinnatureandcharacter;
5.Theypr esupposeanequi valentcompensati
on; and
6.Thepr ovisi
onsi ntheconst it
utionar ej
ustlimitati
onsont heexerci
seoft hese
power s.

Di
sti
nct
ionofTaxat
ion,
Pol
icePower
,andEmi
nentDomai
n

Taxation Poli
cePower EminentDomain
1.Asto Power t o enforce Powert o make and
Powert omakepriv
ate
concept contr
ibuti
on to rai
se i
mplement laws for
propert
yforpubl
i
cuse
governmentf
unds thegener
alwelf
are with j
ust
compensati
on
2.Ast
oa Pl
enar
y, Br
oaderi
nappl
i
cat
ion Merelyapowertotake

Page|
2
 scope comprehensi
ve
and general welf
are t o pri
vate proper
ty f
or
supr
eme makeandi mplement publi
cuse
l
aws
3.Asaut
hor
it
y Exerci
sed onl
y Exerci
sed onl y by May be gr anted t o
government or i ts government i
ts publ i
c ser vi
ce or
pol
iti
calsubdi
vi
sions poli
ti
calsubdi
vi
sions publ i
c ut i
l
ity
compani es
4.Asto Money i s t aken to Proper tyist aken or Pr ivate pr operty i s
pur
pose support the dest royedtopromot e takenf orpubl i
cuse
government gener alwelf
are
5.Asto Thepowert omaket ax Can be expr essly Can be expr essly
necessary l
aws cannot be delegat edtothel ocal delegat edt othel ocal
del
egated gov ernmentuni ts by gov ernment uni t
s by
del
egation thel aw-makingbody t hel aw-maki ngbody
6.Astoper son Oper
ates on Oper ates on Oper ates on t he
aff
ected commu ni
tyoracl
ass communi tyoracl ass particularpr operty of
ofi
ndivi
dual
s ofindi v
idual
s anindi vidual
7.Asto Cont
inuous pr
otect
ion Cost of r egulat i
on, Mar ket v alue of t he
benef
it
s andorgani
zedsoci
ety l
icense and ot her proper t
yexpr opriated
necessar yexpenses
8.Asto Gener
all
ynol
i
mit Cost of r egulation Noi mposi t
ion
amountof l
icense and ot her
necessar yexpenses
i
mpositi
on
9.Asto Inseparable f or t he Protection,safet
yand Common necessi t
ies
i
mportance exist
enceofanat ion– welfareofsoci et
y and i nter
est of t he
i
t suppor t
s pol ice communi t
yt ranscend
power and emi nent i
ndividual r i
ghts i n
domai n property
10.
Asto S ubj
ect to Relativ
elyf r
ee from Super iort o and may
rel
ationship C onsti
tuti
onal and Const i
tuti
onal overr
ideConst it
utional
Inherentli
mitati
ons l
imitations i
mpai rment pr ovision
to Infer
ior t
o non- Super i
or t o non- becauset hewelfare
Const i
tut
ion i
mp ai
rme ntclause i
mpai rmentcl ause
11.
Asto Const r
ains by Li
mi ted by t he Bounded by publ i
c
li
mitati
on C onsti
tuti
onal and demand f or publ i
c purpose and j ust
Inherentli
mitati
ons i
nterest and due compensat ion
process

NATUREOFTAXATI
ONPOWER

Thepowert
ot axisanatt
ri
but
eofsov er
eignt
ythatisexer
cisedbyt
hegover
nmentf ort
he
bett
ermentofthepeoplewit
hinit
sjuri
sdi
cti
onwhosei nter
estshouldbeser
ved,enhancedand
prot
ected.

Thenat
ureoft
axpoweri
ncl
udest
hef
oll
owi
ng:

1.I
nher
entPowerofSov
erei
gnt
y

Taxati
oni sasoldasgov er
nmenti tsel
f.It
sexistencecommencesconcur rent
lywi
ththef our
elementsofast ate–peopl e,t
err
itory,sover
eigntyandgov er
nment.From themomentast ateis
born,itautomat i
cal
lypossessesthepowert ocol l
ecttaxesf r
om it
si nhabi
tant
s.Thegovernment
havingsov er
eigntycanenf or
cecont r
ibuti
onsuponi tsciti
zensevenwi thoutaspeci
fi
cprovi
si onin
theConst i
tut
ionaut hori
zi
ngit.I
tissobecauset hestatehast hesupremepowert ocommandand
enforceobediencetoi t
swillf
rom t
hepeopl ewithi
nitsjuri
sdicti
on.

Page|
3
I
nor
derf
ort
hesegov
ernmentuni
tsorpol
i
tical
subdi
vi
sionst
ohav
ethepowert
otax,
ther
emustbe:
● Anexpr
essedConst
it
uti
onal
prov
isi
ongr
ant
ingt
hem t
hepowert
otax
● Vali
ddel egati
onoft axpowerthr
oughthestatutefrom t
henati
onallegi
slat
ure
grant
ingl ocalgovernmentuni
tsorpol
it
icalsubdiv
isi
onstoexer
cisesuchpower
(i
.e.
,LocalGov ernment Code of t
he Phi l
ippi
nes),inthe absence of a
Constit
utionalprovi
sion.

2.Essent
ial
lyaLegi
slat
iveFunct
ion

Thel aw-maki
ngbodyoft hegovernmentandi tspol
it
icalsubdi
vi
sionsexerci
sethepowerof
taxati
on.Thepowert oenactlawsandor di
nances,andtoimposeandcol l
ectt
axesisgiv
entothe
Congr ess.Thescopeofl
egi
slati
vet
axingpowercompr i
sesthefol
lowi
ng:
a.Subj ectoft axati
on( person,pr
operty
,ri
ghts,tr
ansactions,occupat
ion,et
c.tobe
taxed) ;
b.Amountorr ateoft hetax(e.g.
,5%-32%f orindivi
dual’snettaxabl
eincome,30%
forcor poration’snett axableincome;12% value-addedt axbasedonsal esor
grossr eceipts,etc.)
c.Pur posesoft ax( publi
cpurposes);
d.Appor ti
onmentoft ax
e.Si tusoft axation;and
f. Met hodoft axcol lect
ion.

3.Non-
del
egat
ionofLegi
slat
ivePowert
otax

Init
sst rictsense,thepowert omaket axlawscannotbedel egatedtootherbranchesofthe
gover
nment .Sincepecul i
arlyandexclusiv
elylegi
slati
veinnatur
e, t
hepowert omaket axlawscannot
beexerci
sedbyt heexecutiveorjudi
cialbranchoft hegovernment .Theref
oreunit
s( LGU),onl
ythe
l
egisl
ati
vebr anchoft heLGUcanexer cisethepower .Also,
ifdelegatedtothePresi
dent ,
itisl
imit
ed
toadminist
rativediscret
ionsubjecttovalidstandards.

Exampl
esoft
axat
ionpowert
hatcannotbedel
egat
edar
ethef
oll
owi
ng:
a.Powert oselectthecov er
age,objectorproper t
yt obetaxed;
b.Det ermini
ngthenatureandpur posef orwhicht axesshallbecol
l
ect
ed;
c.Det ermini
ngtheplaceorsitusoft aximposition;
d.Fixingtheamountt obei mposedandt axrates;and
e.Gr anti
ngtaxexempt i
onorcondonat i
ons;
f. Sett
ingdownr ul
esoft axati
oningener al

4.ForPubl
i
cPur
poses

Thepowert ot axati
onflowsf ortht helegit
imateobject
iveofsuppor t
ingtheserviceoft he
government.Publ
ictaxesarepubl i
cmoney .Theymustbeusedt ofi
nancerecogni
zedpubl icneeds.
Taxesar eusedtofi
nanceconst ruct
ionsandmai ntenanceofroads;healthcar
e,educat
ion, secur
ity
,
promotionofscience,commer ce,i ndust ryandot herforthewel f
areoft hegeneralpubl i
c.The
SupremeCour talsohel dthatt hel egislatur
ehasnopowert oappr opri
atepubli
crev enuesf or
anythi
ng butf orpubl i
c purpose-gener alwel f
are oft he nati
on.Thus,i n orderto consi der
appropri
ati
onoftaxesv al
id,
itmustbef ort hecommongoodoft hepeople.

5.Ter
ri
tor
iali
noper
ati
on

Thet axi
ngaut hor
it
ymustobser v
e“ taxsitus”becauset hecountry’
st axlawsar eaf fecti
veand
enfor
ceabl eonlywithinit
ster
ri
tori
allimi
ts.Asar ul
e,t
hepowertot axcanonl ybeexer cisedwithin
theterri
tori
aljuri
sdict
ionofat axi
ngaut hori
ty,exceptwhenther
eexi stsa“ pr
ivateofr elat
ionshi
p”
betweent hetaxingstateandt
heobj ectoftaxbasedont hetaxpr
incipl
eofr eci
procalduties.

6.TaxExempt
ionoft
heGov
ernment

Page|
4
Exempti
onfrom t
axationi sagrantoftaximmuni t
ytoapar t
icul
arclassofpersonsorcor porat
ions.
Thestat
e’simmunityf rom taxati
onisinherentit
spoweri mposet ax.Thest atecannotbet axed
wit
houtit
sconsent;otherwise,suchi
sder ogati
ontoitssoverei
gnty.Taxexempt ionappli
esonlyto
gover
nmentent i
ti
es t hrough which the governmenti mmediately and directl
y exerci
ses its
gover
nmentalf
unctionsliketheArmedForcesoft hePhil
i
ppines(AFP).

7.St
rongestamongt
heI
nher
entPower
s

Taxat
ionpoweristhest r
ongestofal
linher
entpowersoft
hegov
ernmentcanei
thersur
viv
eor
di
spenseanyofi
tsotherpowersandf
uncti
onseff
ect
ivel
y.

I
mpor
tanceofTaxat
ion

Taxati
onpowerexi st
sinsepar abl ywiththest at
e.I tisessenti
alfort heexistenceoft hegov ernment.
Taxati
onisv er
yimpor t
antf ort hecont i
nuousexi stenceofanat ion.Itisthepr imar ysour ceoft he
governmentrevenuethatisusedt oef f
ectiv
elyandper manentlyper for
m gov ernmentf uncti
ons.The
powert ot
axmaybeusedasani mpl ementofpol icepoweri nor dert opromot et hegener alwelfare
ofthepeople,Taxati
oni sexer cisedt oraiserevenuef orthev eryexistenceoft hegov er
nmentt o
serv
et hepeopleforwho’st heser easonsmaket hepay mentoft axescompul sory.Wi thouttaxati
on,
theotheri
nherentpower s(policeandemi nentdomai npowers)woul dbepar alyzed.Fort hisreason,
eventhepoli
cepoweroft hegov ernmentmaybeexer ci
sedthrought axati
onpower .Withoutrevenue,
ther
ecanbenocont i
nuinggov er nmentwi t
houtgov ernment,t
herecanbenoci vili
zation.

BASI
SOFTAXATI
ON

Taxat
ioni
sbasi
cal
l
yest
abl
i
shedbasedont
hef
oll
owi
ngpr
inci
ples:

1.PrinciplesofNecessi ty.Tax ationispoweremanat i

ngf r
om necessi
tytopreserv
e
theSt at
e’ssovereignty.Thegov ernmenthasar i
ghtt ocompelallitsciti
zen,
residentsandpr oper t
ywi t
hini tsterr
itorytocontr
ibutemoney .I
tisbecausethe
gov ernmentcannotexi stwi thoutanymeanst opayi tsexpense–anecessar y
burdent opr
eservet hest at
e’ssov ereignty.
Taxat i
oni sthe“l
ifeblood”ort he“breadandbut ter”ofthegovernmentandev ery
cit
izenmustpayhi st axes.Taxes,bei ngtheli
febloodofthegov er
nment ,t
heir
promptandcer t
ainav ailabil
ityareoft heessence.

2.PrinciplesofBenef its-
Receiv
edorBenef its-
Pr ot
ectionTheor y .Basedont he
reciprocalduties,thegov er
nmentcollectst axesf r
om t hesubj ectsoft axat
ionin
ordert hatitmaybeabl etoperformit
sf unctionandpr ovideservicet othem.
Thegov ernment s’ri
ghttotaxincomeemanat esf r
om i t
sbei ngasi l
entpart
nerin
the pr oducti
on ofi ncome t hrough means ofpr oviding pr otecti
on,proper
businesscl i
mat e,and peaceand or der st ot het axpay ersi nt hemaki ng of
earnings.Theci tiz
en, ontheotherhand, payst axestosuppor tthegov ernmentin
ordert hathemaycont i
nuouslybesust ai
nedwi t
hsecur it
yandbenef i
tsofan
organizedsoci ety.

Qual
if
icati
onofBenef
it
-Recei
vedPrinci
ple
Theappli
cati
onoft
he“benefi
t-
recei
ved”i
sint
endedf
ort
hegener
alwel
far
e.
a.I
tdoesnotmeant hatonlyt hosewhoar eabl et opayt axescanenjoythe
pri
vil
egesandpr ot
ecti
ongivent oaciti
zenbythegov ernment
.
Hecannotobjecttoorr esi
stthepay mentoftaxesbecausenospecif
icpersonal
benefi
ttohim canbepoi nt
edoutasar isi
ngf
rom tax.
b.Thegov er
nmentr ender
snospeci alorcommensur atebenef
itst
oanyparti
cular
propert
yorperson.

Page|
5
 Theonlybenef
it
stowhi cht
het axpay
ersi
sent i
tledi
sthatderi
vedfrom hi
s
enj
oymentofthepri
vi
legesofli
vinginanorganizedsoci
etyest
abl
ishedand
saf
eguar
dbythedev
otionoft
axespubli
cpur
poses.

PURPOSESOFTAXATI
ON

Thef
oll
owi
ngar
etheobj
ect
ivei
ntheexer
ciseoft
axi
ngpower
:

1.Revenuepurpose.Thepr i
mar ypurposeoft hetaxati
onist or
aiserev
enueby
col
lecti
onfundsorproper
tyf orthesuppor tofthegovernmenti
npromotingthe
generalwelfar
e and protecting it
si nhabitant
s.The f i
scalpoli
cy of the
governmentisbasedont her ul
ethatr ecei
ptsorrevenueshouldbeequalt o
annualgover
nmentexpenditures.Thesignifi
cantpor
ti
onoft her
equir
edrecei
pts
i
sraisedfr
om taxat
ion.

2.Regulat
or y Purpose.Regulator
y purpose,also known as sumpt
uar
yisa
secondaryobjectiv
eofimposingtax.Thisobj
ect
iveofaccompl
i
shedto
a.Regul atei
nflati
on
b.Achi eveeconomi candsocial
stabil
i
ty,and
c.Ser v
easkeyi nstr
umentforsoci
alcontrol
.

Theamountoft axesmaybeincreasedt
ocur v
espendi
ngpowerandmini
mizedinf
lat
ionin
ti
mesofprosperi
ty.I
tmaybereducedtoexpandbusi
nessandwar
dsof
fdepressi
onintimes
ofdecl
i
ningeconomiccondi
ti
on.

Asat
ool
topr
otectt
rader
elat
ion,
speci
aldut
iesmaybecr
eat
edt
opr
otectnewcondi
ti
ons.

(
1.) Discrimi natoryduty– t hi
sspeci aldutyi sdesi gnedt ooffsetanyf or
eign
discri
mi nat i
onagainstourlocal commer ce.
(
2.) Count erv ai
li
ngduty–i tmaybei mposedt oof fsetanyf orei
gnsubsidygranted
toimpor tedgoodst otheprejudiceofourl ocal i
ndust r
ies.
(
3.) Mar kingdut y– itisgener al
lyi mposedasaddi ti
onaldut yt axinimported
arti
clesand/orcont ai
nerswi thimpr operclassif
ications.
(
4.) Dumpi ngdut ies–itreferstot headdi t
ionaldut ytaxesi mposedoni mported
goodswi thlowerpri
cescompar edt otheirfairmar ketv al
uest opr
otectl
ocal
i
ndust ries.

3.Compensat oryPurpose.Ataxmaybeusedt omakeupf ort hebenefit

srecei
ved.
Forexampl e,ataxongasol i
neconsumedi simposedonv ehi
cleowner susing
roads.Inthecase,thet
axiscompensatoryfort
heuseofr oad.
Taxesmaybei mposedf ortheequit
abledist
ributi
onf orwelfareandi ncome
general
I
nest atetaxati
on,thestat
etaxreducesthepropertyreceivedbyt hesuccessor
throughthepor t
ionofthepropert
ycoll
ectedbyt hegover nment,whichistobe
usedf ort
hebenef i
tofthepubl
icortodef
raytheexpensesoft hegov ernment.

OBJECTI
VESOFTAXATI
ON

Obj
ect
softaxat
ionmayref
ert
othesubj
ectt
owhi
cht
axesar
eimposed.Gener
all
y,t
axesar
e
i
mposedont
hefoll
owi
ng:

1.Per
sons,whethernatur
alorj
uridi
calper
sons
a.Naturalperson–refer
stoindi
vidualtaxpay
ers.
b.Juri
dicalperson–incl
udescorporat
ions,part
ner
shi
pandanyassoci
ati
on.

Page|
6
 2.Pr
operti
es, whetherreal,
personal,
tangibleorintangibl
epr opert
ies.
a.Real proper ti
es–i mmov ableproperti
essuchasl andandbui ldi
ngs.
b.Personalpr operti
es– mov abl
epr operti
essuchascarandot herper sonal
belongi ngs.
c.Tangi blepr opert
ies–t hatwhi chmaybef eltortouchedandr enecessar i
ly
corpor eal,eit
herrealorpersonalpropert
ies.
d.Int
angi blepr oper
ties–pr oper
ti
est hatare“ri
ghts”r at
herthanphy sicalobject
s.
Exampl esar epat ent
s,stocks,bonds,goodwi l
l,tr
ademar ks,franchises,and
copyright s.

3.Exciseobj ect
s,suchas;
a.Tr ansact i
on– theactofconduct ingact i
vi
ti
esr el
atedt oanybusinessor
profession.Itmayinvolv
esell
ing,servi
cing,l
easi
ng,bor rowi
ng,mortgagi
ng,
l
endi ng
b.Pr ivi
lege–abenef i
tderi
vedthroughgratuit
oustransferbyfactofdeathor
donat i
on.
c.Ri ght–apower ,facul
tyordemandi nherentinoneper sonandinci
dentalt
o
another .
d.I nter
est–anadv ant
ageaccr
uingfrom anythi
ng.

ScopeofTaxat
ionPower

Intheabsenceoft hel i
mitat
ionsprovidedbyt heconstit
ution,t
hepowert ot axisunli
mitedinits
range,compl ete(pl
enary)
,withwideext entofapplicati
on(compr ehensiv
e)andwithhighestdegree
(supreme).Ifthereisanyli
mitati
onatal l
,itisthesenseofr esponsibi
li
tybythemember softhelaw-
makingbodyt ot hepeoplethatrestr
ictsitsexercise.Taxationreacheseverytr
adeoroccupat i
on,
everyobjectofi ndustr
y,andev eryspeciesofpossessi on.I ti
mposesabur denwhich,incaseof
fai
luretodischarge,maybef oll
owedbysei zur
eofconf i
scationofpropert
y.

Li
mit
ati
onst
othePoweroft
heTaxat
ion

Alt
houghtaxati
onpoweri ssupreme,itsexerci
seisnotabsolut
ebecauseitissubjecttoi
nherent
andconst
it
utionalr
est
ri
ctions.Asaninherentpower
,byitsver
ypurposeandnatur
erestri
ctt
axat
ion.
Taxpowershouldbeexercisedfori
tsverynatur
epurposeandjur
isdi
cti
on.

Whiletaxat i
oni ssaidt obet hepowert odestr
oy ,iti
sbynomeansunl imited.Itisequall
ycor r
ectto
saythat“ powert otaxi snott hepowert odest r
oywhi letheSupremeCour tsi t
s.”Becauseoft he
constit
utional r
estraintspl acedonat axingpowert hatviolat
edfundament alri
ghts.Av iol
ati
onofthis
i
nherentl i
mi tat
ioni st antamountt ot aki
ngapr opertywi t
houtduepr ocessofl aw.OurConst i
tut
ion
assumest heexi st
encesoft axat
ionandi talsopr ovidessomepr ovisi
onst olimittheexerciseoftax
power .I
tsmai npur posei st oprotecttheobj ectsoft axationagainstit
sabusi veimplementati
on.
Therefore,ifataxv iolatest heConst i
tuti
on,suchl awshal lbedeclar
ednullandv oid.Anytaxlawthat
contradi
ct sthelimitationoft axati
oni salsounconst itut
ional

● I
nher
entLi
mit
ati
ons

Inherentli
mitati
onsar
et henatur
alr
estr
ict
ionst
osafeguar
dandensur
et hatt
hepoweroftaxati
on
shallbeexercisedbyt
hegov er
nmentonl
yforthebet
ter
mentoft
hepeoplewhosei
nter
estshouldbe
served,enhancedandprotect
ed.
1.Taxesmaybel otleviedonlyf orpublicpurpose;
2.Beinginherent
lylegislati
ve,taxati
onmaynotbedel egated;
3.Taxpoweri sli
mi tedtot err
it
orialjuri
sdicti
onofthestat
e;
4.Taxati
oni ssubjecttoi nt
ernationalcomi ty
;and
5.Gov er
nmentent it
iesar egener al
lytax-exempt

Page|
7
 ● Const
it
uti
onalLi
mit
ati
ons

Consti
tutional
li
mitat
ionsareprovisi
onsofthefundament allawoft helandthatrestr
ictt
hesupreme,
pl
enary,unlimi
tedandcompr ehensiv
epowert otaxbythest ate.
Asar ule,theConsti
tut
iondoesnotr equir
ethepowert ot axont hest ate.I
nst
ead,itsimplydefi
nes
andregulatestheexerciseoftaxpoweri nordert
osaf eguar dandi nt
erestofaffectedtaxpay
ers.I
t
mustber emember edthatataxlawi sofnolegalf
orcewheni tvi
olatestheconstit
uti
on.

The1987Phi
l
ippi
neconst
it
uti
onset
sli
mit
ati
onsi
ntheexer
ciseoft
hepowert
otaxasf
oll
ow:
1.Duepr ocessofl aw;
2.Equal protectionofl aws;
3.Ruleofuni formi tyandequi t
y;
4.Non-impai rmentofcont ract
s;
5.Origi
nat i
onofappr opri
ati
on,rev enueandt ari
ffbil
ls;
6.President’
spowert ov et
osepar ateit
emsi nrevenueort ar
if
fbil
ls;
7.Congr essgr antingt axexempt ion;
8.Exempt ionf rom t axati
onofpr operti
esact ual
ly,dir
ect
lyandexcl usi
vel
yusedf
or
rel
igi
ous, char it
ableoreducat ional purposes;
9.Nopubl icmoneyshal lbeappr opr i
atedforreli
giouspurposes;
10.
Thepowert oj udicialrevi
ew;
11.
Noi mpr i
sonmentf ornonpaymentofpol l
tax;and
12.
Taxcol l
ect i
onshal lgeneral
l
yt reatasgener alfundsofthegover nment.

STAGES,
ASPECTSORPROCESSESOFTAXATI
ON

Taxat
ioni
nvol
vest
hreest
ages,
namel
y:

1.Lev
y

Levyori mpositi
onoft axesinv olvesthepassageoft axl awsoror dinancest hr ought helegislature.
Stri
ctl
yspeaki ng,i
tref erstot axat i
onoft hetaxpol i
cyoft heSov ereignSt ate.Thet axlawst obe
passesshal ldeter
mi net henat ur eoftaxes( ki
nd),thoset obet axed( subject–per son,pr oper tyor
ri
ghts),thepurposeoft ax( object i
ve)
,howmuchi stobecol l
ected(ther ateandt hebaseoft ax ),and
how taxesar etobei mpl ement ed( t
hemannerofi mposi ngandcol lectingtax) .
Italsoi nvolvest he
granti
ngoft axexempt i
ons, t
axamnest iesandt axremedi esthatthegov ernmentandt axpayersmay
availf
ort heproperimpl ementat ionoftaxmeasur e.Thisgivesthelegislaturethef reedom t ochoose
theobj ectsoft axation provided t hatt helaw-maki ng bodydoesnotv i
olateanyi nherentand
consti
tutionalli
mitati
ons.I tcannotbedel egatedt ot heexecut i
veandj udicialbr anchesoft he
governmentbecausebynat urei tisalegislat
ivefuncti
on.Exampl esoft axl egi
slativefunct i
onar ethe
fol
lowing:
a.Prescri
binggener
al r
ulesoftaxati
on,
b.Select
ionoftheobjectorsubjecttobetaxed,
c.Determinati
onofthepurposef orwhichtaxesshal
lbeimposed,
and
d.Fi
xingtheamountoft hetaxand/ort axratestobeimposed.

ThepowerofthePr esi
dentto“remitf
inesandforf
eit
ures”doesnoti
ncl
udeci
vilpenal
ti
esregardi
ng
nonpaymentoftaxandot hervi
olat
ionoftaxlaws.Suchpowerembracesonl
yf i
nesandforfei
tur
es
i
nvolvi
ngcri
minall
iabil
i
tiesuponconvi
ctionbyfi
nalj
udgment.

2.Assessment

Assessmentinvolvestheactofadmi ni
str
ati
onandi mplementat
ionoft hetaxlawsbyt heexecut
ive
throughitsadministr
ati
v eagenciesast heBIRorBur eauofCustoms.Gener ally,taxesar eself
-
assessing.I
tmeanst hatthet axpayer
scancomput ehistaxesbyhi mself.Techni cally
,thewor d
“assessment,
”asusedher e,meanst heappraisalandv al
uati
onoft hesubj ectt ot axati
on.This
processisimportanti
nt hedeterminati
onoftaxprescri
pti
on,sur
chargesandi nteresttoar ri
veatthe
specifi
csum oftaxchargedonaper sonproper
tyinaccordancetopr
ev ail
i
ngtaxl aw.

Page|
8
3.Pay
mentofTax

Paymentoft axisthepr ocessinvolv i

ngt heactofcompl i
ancebyt hetaxpayerincontr
ibuti
nghi s
sharetodefraytheexpensesoft hegov ernment.Itisal
socall
ed“ taxcoll
ecti
on,”t
hepr ocessof
obtai
ningpaymentoft ax.Pay mentoft axalsoi ncl
udestheopti
onschemesorr emediesasMay
l
egall
yopenorav ail
abletot hetaxpay er
.Thef ir
sttwostagesoftaxati
on(lev
yandassessment )are
ref
erredtoastheimpactoft axati
on, andthet hi
rdphaseisref
err
edt oastheimpactoftaxati
on, and
thi
rdphaseisref
erredtoast heincidenceoft axati
on.
Examplesoftaxadmi ni
strat
ivefuncti
onsar et
hef oll
owi
ng:
a.Valuationofproper
tyfort
axat
ion,
b.Equalizati
onofassessment
c.Collecti
onoftaxes

PRINCI
PLESOFASOUNDTAXSYSTEM:Thef undament
alpr
inci
plesofasoundt
axat
ionsy
stem
basedonAdam Smi
th’
sCanonsofTaxat
ionar
e

1.Fi
scalAdequacy

Thepr inci
pleoff i
scaladequacyst atesthatthesourcesofrevenuesoft hegovernmentshoul
dbe
suffi
cientt o meett he demand ofpubl i
c expendit
ures r
egardl
ess ofbusiness condi
ti
on.The
revenuesoft hegov ernmentshoul dbecapableofexpandingorcontracti
ngannuallyi
nresponseto
vari
ationinpubl i
cexpendi tures.Becausei finel
ast
icgovernmentrevenue,theremaybesur pl
us
budgeti frevenueisgr eat
ert hangov er
nmentexpenseandbudgetdef i
citi
fgovernmentexpenses
aremor et
hangov ernmentrev enue.Anidealbudgett
oachievefi
scaladequacyisabalancebetween
governmentr evenueandgov ernmentexpense.

2.Equal
it
y/Theor
eti
calJust
ice

Thispri
nciplestat
est hatthetaxburdenmustbepr opor
ti
onatethet axpay er’
sabili
tytopay .I
tis
basedont hephi l
osophythat“hewhor eceiv
edmor eshouldgivemor e.”Thecont ri
but
ionofeach
i
ndivi
dualtot hegovernmentshouldbefairenoughaccor
dingtohisear ni
ngsandweal t
h.Sincethe
Consti
tut
ionpr ovi
dest hattaxat
ionmustbeequi tabl
e,at axmeasur et hatviol
atesequalit
yand
theor
eti
caljusti
cewoul dmakesuchtaxmeasur enul
landvoid.(
Art.VI
,Sec.8, Phil
.Consti
tut
ion)

3.Admi
nist
rat
iveFeasi
bil
it
y

Taxl awsmustbeconv enient

,just,unifor
m and ef
fect
iveintheiradminist
rat
ion – fr
eef r
om
confusi
onanduncert
aint
y.Thei
rexer ci
seshoul
dbeconv eni
entastot hepl
ace,ti
meandmodeof
payment,andnotbur
densomeordi scouragi
ngt
obusiness.Competentpubl
icoffi
cialmustenf
orce
them uni
for
mly.
a.Appli
cati
onsofadmi ni
str
at i
vefeasibi
li
tyare
b.Coll
ecti
onoftaxesatsour ce(withhol
dingtax)
c.Assi
gningofdulyauthori
zedbankst ocoll
ecttaxes
d.Quart
erlyf
il
ingandpay mentofi ncomet axes,
and
e.El
ectroni
cfi
lli
ngoftaxreturns.

Thepri
nci
plesoffi
scaladequacyandtheoret
icaljust
icerepr
esentthenat
ureoft
hegov
ernment
’s
taxpol
i
cyandtheadmini
strat
ivef
easi
bil
i
tyrepresentstaxadmini
str
ati
on.

CERTAI
NDOCTRI
NESI
NTAXATI
ON

I
ntheexer
ciseoft
axat
ionpower
,someunder
lyi
ngdoct
ri
nesf
ori
tsi
mpl
ement
ati
onar
easf
oll
ows:
● Pr
ospect
iveappli
cat
ionoft
ax ● Escapef
rom t
axat
ion
l
aws
● I
mprescr
ipt
ibi
li
tyoft
axes ● Exempt
ionf
rom t
axat
ion
● Doubl
etaxat
ion ● Equi
tabl
erecoupment

Page|
9
 ● Set
-of
ftaxes ● Powert
odest
roy
● Taxpay
ersui
t ● Si
tusoft
axat
ion
● Compr
omi
ses

1.Pr
ospect
iveAppl
icat
ionofTaxLaws

Thepri
ncipl
eof“prospecti
veappl i
cat
ionoftaxlaws”st atesthatataxmustonlybeapplicabl
eand
oper
ati
veafterbecomingal aw.Thus,t heeff
ecti
vi
tyoft het axlaw commencesuponi t
sappr oval
andit
sscopewoul donlycov erthepresentandfuturetransacti
ons.Theret
roact
iveappl
icati
onof f
taxl
awsshallnotbeappliedunlessthereisaclearintentofthelegi
slat
uret
hatsuchlawshal lal
so
beimposedonpasttransacti
ons.

2.I
mpr
escr
ipt
ibi
li
tyofTaxes

Ther uleon“taxi mprescriptabil

it
y”stat
esthatunl essother
wiseprovidedbythelawi t
self
,taxesin
generalarenotcancel able.AlthoughtheTaxCodepr ovi
desfortheli
mi t
ati
onintheassessmentand
col
lectionoft axesimposedsuchpr escri
pti
bil
i
t yperi
odwi l
lonl
ybeappl i
cabl
et othosetaxesthat
werer etur
nable.Thepr escri
ptiveperi
odshallstartfr
om theti
met hetaxpayerf
il
esthetaxretur
nand
declareshistaxliabi
l
ity.

3.Doubl
eTaxat
ion

DoubleTaxat
ionmeansanactofthesoverei
gnbytaxi
ngtwicefort
hesamepur
poseinthesame
yearuponthesameproper
tyoracti
vi
tyofthesameperson,whenitshoul
dbet
axedoncefort
he
samepurposeandwit
hthesamekindofcharact
eroft
ax.

I
ndi
rectDupl
icat
eTaxat
ion

Thisisdoubletaxati
oni
ni t
sbr oadsense.Itextendst
oal
lcasesi
nwhicht
her
eisaburdenoft
woor
mor epecuniar
yi mposi
tions.Itisusuallyallowedaslongasther
ei snoviol
ati
onoftheequal
protect
ionanduniformi
tyclausesoftheConst it
uti
on.

I
ndi
rectdoubl
etaxat
ionmaybecount
eredt
hrought
heappl
i
cat
ionof
:
● Taxexempt
ion;
● Reci
proci
tycl
ause/t
axt
reat
y;
● Taxcr
edi
tand
● Al
l
owancef
ordeduct
ionssuchasv
ani
shi
ngdeduct
ioni
nEst
ateTax

Di
rectDupl
icat
eTaxat
ion

Thisisdoubletaxat
ionini
tsst ri
ctsense.Iti
sprohibi
tedbecauseitcompr i
sesimposit
ionofthe
samet axonthesamepr oper t
yforthesamepur posesbyt hesamest at
eduringthesamet axi
ng
peri
od.Thiskindofdoublet axat
ionviol
atestheconstit
uti
onalprovi
sionofunifor
mityandequal
prot
ecti
on,aswellasthepr
incipl
ethattaxmustnotbeexcessive,
unreasonabl
eandinequi
tabl
e.

Therefor
e,suchtaxat
ionshoul
d,whenev
erandwheneverpossi
ble,
beav
oidedt
opr
eventi
njust
iceor
unfai
rness.Ther
eisnodoubletaxat
ioni
nthef
oll
owingcases:

Byt
aki
ngcorpor
atei
ncomeandstockholder
s’di
vi
dendsfr
om thesamecor por
ati
on.At
axi
mposed
byt
hestat
eandthel
ocalgov
ernmentuponthesameoccupat
ion,cal
l
ingoracti
vi
ty.

4.Escapef
rom Taxat
ion

“
At axev aderbreaksthelaw( taxev
asi
on),t
hetaxavoi
dersi
dest
epsit(taxav
oidance)
”(Schult
z&
Harr
is,Amer icanPubli
cFi nance)
.The“doct
ri
neofescapefr
om taxat
ion”per
mitsthetaxpayerto
mini
mi ze(ifnottoescape)paymentoft
axbylawful
means.

For
msofEscapef
rom Taxat
ion

Thewaysbywhi
chat axpayercoul
descapet
axburdensmaybethrought
hefol
l
owingways:Tax
evasi
on(
unl
awf
ulmeans);andTaxavoi
dance(
lawf
ulmeans)
:Sev
eralfor
mstot
axavoi
dance,
which

Page|
10
coul
dbel
egal
l
yusedbyt
het
axpay
er,
tomi
nimi
zehi
sincomet
axl
i
abi
l
ityar
e:
● Taxopt
ion; ● Exempt
ion;
● Shi
ft
ing; ● Taxamnest
y;and
● Capi
tat
ion; ● Taxcondonat
ion.
● Tr
ansf
ormat
ion; ● TaxEv
asi
on
Underthi
smet hod,thet axpayeruseslegalorunl
awfulmeanst odef
eat,evadeorl essenthe
paymentofftax.Itpresupposesmice,f
raudbadfai
thorwill
fulint
entonthepar tofthetaxpayer
.
(Rep.v
s.Gonzales,13SCRA633)t osubstant
ial
l
yunder
-decl
areincome(Per
ezv .CTA,L-10507)
.

Examples:Non-i
nclusi
on ofsales,deliber
atefabr
icati
on ofexpenses,and forming an ar
ti
fi
cial
persontoevadet axat
ionortodeliberatel
yreducetaxableincome;ormalici
ousf ai
lur
et oreport
i
ncomet odefeattaxli
abil
i
ty.Theseformsof“ taxdodging”areprohi
bit
edandt her
eforesubj
ectto
ci
viland/
orcr
iminalpenal
ti
es(GutbinandBeck,Taxev asi
on,p.21)

Taxav
oidance

Thi
siscall
edTaxmi ni
mizati
on.I
tisr
educi
ngortot
all
yescapi
ngpay
mentoft
axest
hroughl
egal
l
y
per
missi
blemeans.Examplesoft
axavoi
dancear
e:

● Sel
lingsharesofstockt hr
oughastockexchangeinorderavai
lofthel
owert
ax
rat
es.(Sec.127[A],NIRC)
● Estatepl
anningwithinthemeanssanctionedbytheTaxCodehasbeenheldto
beoneofper missi
blet axmini
mizat
ion.(Sec.34,
NIRC;Del
pherTrades
Corporat
ionvs.IAC,157SCRA349)

Taxopt
ion

Taxpayermaychooset opayl owertaxr

atei nsomet ransacti
onasper mit
tedbyTaxLaws.For
i
nstance,ataxpay
erwhosel l
sinvest
menti
nst ockdir
ectl
ytot hebuyermayopttopay5%to10%tax
basedoncapi t
algains,buti
fheoptedtoselltheinv
estmenti nstockst
hroughstockmar
ket
,heis
requi
redtopayat axof1/2of1%baseont hesell
ingpri
ce.

Shi
ft
ing

Shif
ting,basical
ly,i
sthet
ransf
eroft axburdentoanother
;thei
mposi
tionoft axi
stransf
erredf
rom
the statutorytaxpayert
o anotherwithoutviol
ati
ng the l
aw.Forinstance,taxes pai
d byt he
manuf acturermaybeshift
edtot heconsumerbyaddingtheamountoftaxpai dtothepriceofthe
productsol d.

Asar
ule,
onl
yindi
rectt
axesmaybeshi
ft
ed;
dir
ectt
axescannotbeshi
ft
ed.

● For
msoft
axshi
ft
ing:
Theshi
ft
ingoft
axesmaybemadei
nthef
oll
owi
ngf
orms:
● ForwardShifting-t hebur denoft axist ransfer
redfrom themanuf actur
e,then
thedistr
ibut
orandf inal
lytot heulti
mateconsumeroft heproduct.Thisisbest
exemplif
iedbyi ndi
recttaxeslikethevalue-addedt ax(VAT)
.
● BackwardShi fting-t hetaxbur denist ransferr
edf r
om theulti
mat econsumer
thr
oughf act
orsofdi stri
butiontothefactorsofpr oducti
on.
● Onwar dShif
ting–t hetaxbur denisshiftedt woormor etimeseitherforwar
dor
backward.

Capi
tal
izat
ion

Thisref erstother
educt i
onint hepri
ceoft hetaxedobj ectequalt othecapi t
ali
zedv alueoft he
fut
uret axeswhichthepurchaserexpect
stobecal l
edupont opay .I
notherwor ds,t
axcapi tal
i
zation
i
smadewhent hepriceofthepropert
yisloweredtoaccommodat etheexclusi
onoft hetaxwhi chis
expectedt obepaidbyt hesell
erasar esul
tofsalet r
ansaction.Forexampl e,areducti
onmadeby
theselleront hepriceoft heRealEstate,i
nant i
cipati
onof ft hecapitalgainstaxagr eedt obe
shoulder edbyt
hebuy er
.

Page|
11
Tr
ansf
ormat
ion

Thepr oducerabsorbst
hepay mentoftaxtor educepri
cesandtomai nt
ainmar
ketshare.He
recovershi
sadditi
onalt
axexpensebyimprovi
ngt hepr
ocessofpr
oduct
ion.Thet
ax,t
heref
ore,i
s
transf
ormedint
oagai nt
hrought
hemedium ofpr
oducti
on.

5.Exempt
ionf
rom Taxat
ion

Exempt i
onf r
om taxat
iondenotesagr antofimmuni ty,expr
essedorimplied,t
oapar t
icul
arperson,
corporat
ion,ortopersonsorparti
cularcorporati
onsofapar t
icul
arcl
ass,from ataxuponproperty
oronexci sewhichpersonsandcor porat
iongener al
l
ywi thi
nthesamet axingdist
ri
ctareobl
igedto
pay.(51Am.Jur .503).Thegrantofimmuni tyisaf r
eedom from fi
nanci
alchargedobli
gat
ionortax
burdentowhi chother
saresubject
ed.

Classi
fi
cat
ionsofTaxExemption
Taxexemptionmaybeclassi
fi
edas:

● Expressedexempt i
on.Theset axexempt ionsarest atut
orylawsinnatureas
provi
ded byconst i
tuti
on,statute,t r
eat
ies,or di
nances,f r
anchi
ses orsi
mil
ar
l
egislati
veact s.Examplesofstat utor
ytaxexempt i
onsare
a.Int
er-corpor
at e div
idends bya domest i
ccor por
ati
on f r
om anotherdomesti
c
corporaton(
i Secti
on27D[ 4]
,NIRC) ;
b.Secti
on105oft heTari
ffandCust omsCode;
c.Secti
on234oft heLocalGovernmentCode; and
d.Otherspeci all aws such as Omni bus InvestmentCode of1987 Phi li
ppi
ne
OverseasShi ppingActandet c.

● Impliedexempt ionorbyomi ssi

on.Theseexempt i
onsareeit
herint
enti
onalor
accident al
.Theseoccurwhent axi simposedonacer tai
nclassofper sons,
proper t
ies or transact
ions without menti
oning ot
her cl
asses;those not
ment ionedaredeemedexempt edbyomission.

● Contractualexempt ion.Cont r
actualtaxexempt ionsar ethosel awf ul
lyentered
i
ntobyt hegov er
nmenti ncontractsunderexisti
nglaws.Theseexempt ionsmust
notbeconf usedwi t
ht hetaxexempt ionrantedunderf r
anchises,whi charenot
contr
act s withinthe contextofnon- i
mpai rmentcl ause oft he Const i
tuti
on.
Contr
act ualtaxexempt ionscoveri
ngmat tersthatarenotessent iall
ygov er
nment
i
nnat ure,suchast hosecont ai
nedi ngovernmentbondsordebent uremaynotbe
rev
okedwi t
houti mpair
ingtheobl i
gati
onsoft hecontract.

● TaxAmnest y.Ther ei
sat axamnest ywhent heSt ategr antsgenerapar donor
i
ntent ionall
yov erl
ookedi t
saut horit
ytoimposepenal t
iesonper sonsguilt
yoft ax
evasi onorv iol
ati
onoft axl aw.Thegov ernmentallowsabsol uteforgi
venessor
waiv eritsrighttocol l
ectwhati sduei nordertogivethet axev aderwhowi shes
tor eform achancebecomeapar toft henew societywi thacl eanstate.Tax
amnest yhas l i
mited applicabi
li
tyas t o covera par ti
culart axi
ng period or
tr
ansact i
ononl y.Liketaxexempt ion,t
axamnest yi
snev erfavorednorpr esumed
i
nl aw.I tisgr ant
edbyst atute.Thet er
msoft heamnest ymustal sobeconst rued
againstt het axpayerandliberall
yinfavorofthegovernment .

Page|
12
 ● TaxCondonat ionorTaxRemi ssi
on.Thereist axcondonat ionort axremission
when t he State desi
sts orr ef
rai
ns from exacting,i nfl
icti
ng orenf orcing
somethingaswel lastorestor
ewhathasal r
eadybeent aken.(JuanLunaSubs.V.
Sarmiento,91Phil370)Thecondonat i
onoft axli
abi
lityisequi val
enttoandi sin
thenatureofat axexemption.Thus,
itshouldbesust ainedonl ywhenexpr essed
i
nt helaw.(Suri
gaoConsol i
datedMiningv.Commi ssionerofI nternalRev
enue,9
SCRA728) .

6.Equi
tabl
eRecoupment

Thisdoctr
ineoflaw st
atesthatataxclai
mf orrefund,whichi
spreventedbyprescr
ipt
ion,maybe
all
owedt obeusedaspay mentforunsettl
edt axliabi
li
ti
esifbothtaxesari
sef r
om t hesame
tr
ansacti
oninwhichov er
paymentismadeandunder pay menti
sdue.Thi
sdoctr
ineisnotappli
cabl
e
tocaseswherethetaxesinv
olvedaret
otal
lyunrel
ated.

7.Set
-Of
fTaxes

Thisdoct rinest atesthattaxesarenotsubj ectt o set-

offorlegalcompensati
onbecauset he
gov ernmentandt hetaxpayerarenotmut ualcr edit
oranddebt orofeachot her
.(Republicv s.
Mambul aoLumberCo. ,6SCRA622;Cal t
exPhils.Vs.COA,208SCRA726) .Apersoncannotr ef
use
topayt axont hebasist hatthegover
nmentoweshi m anamountequaltoorgr eat
erthant hetax
beingcol l
ect ed.Thecol l
ecti
onofataxcannotawai ttheresul
tsofalawsui
tagai
nstthegovernment .
(PhilexMi ningCor porati
onv s.Commissi
onofI nternalRevenue,CAandCTA,G. R.No.125704,28
August1998; Franciavs.I
ntermedi
ateCourt
,162SCRA753)

Wherebot
htheclai
msoft hegovernmentandthetaxpayeragai
nsteachotherhav
eal
readybecome
due,
demandabl
eandf ul
lyl
iqui
dated(Domingovs.Garl
it
os,8SCRA443) ;
and
Whenther
eisanactualcompromisebetweenthetaxpayerandt
hetaxoffi
cer.

8.Taxpay
erSui
t

A" taxpay
ersuit"effectedthr
oughcourtpr
oceedi
ngscouldonlybeall
owedi ftheactinvol
vesa
di
rectandi l
legaldisbursementofpubl
icfundsderi
vedfrom t
axati
on.(
Pascualv s.Secr
etar
yof
Publi
cWor ks,110Phi l.331;11Am.Jur.761)Theref
ore,thef
oll
owinglegalquesti
onswouldbe
i
mpr opert
obecl assif
iedastaxpay
ersui
t:
1.Wherethedisbur
sementdoesnoti
nvolv
edf undsraisedbytaxati
on(
Gonzal esvs.
Marcos,65SCRA624) ;
and
2.Tostopt heCommi ssi
ononElect
ionf r
om hol di
nganexer ciseofsuf f
rageor
quest
ionitsinacti
ontocallaspecialelecti
on.(Duml ao vs.Commi ssi
onon
El
ecti
ons,95SCRA392;LozadaandI gotv s.Commi ssi
ononEl ect
ion,L-59068,
27January1983)

9.Compr
omi
ses

Thi
sdoctrineprov
idesthecompromisesaregeneral
lyal
lowedandenfor
ceablewhent hesubj
ect
matt
erthereofi
snotprohi
bit
edf
rom beingcompromisedandtheper
sonenter
ingsuchcompromise
i
sdulyauthori
zedtodoso.

10.Powert
oDest
roy

Thist
axdoctri
neisbasedont heMar shal
lDict
um whi
chstatesthatt
hepowertotaxi ncl
udesthe
powertodestr
oybecausethetaxpay
erhasnoopt i
onbuttopaytaximposedtohi
m.( McCull
ochv s.
Maryl
and,17U.S316[1819]Thegov ernmentcancompelpay
mentoft axandfor
fei
tureofproperty
thr
oughtheexerci
seofpol
icepower.

11.Si
tusofTaxat
ion

Page|
13
Si
tusoft
axat
ionref
erst
ot heplaceoft
axat
ion,
ort
hest
ateorpol
i
ticaluni
twhi
chhasj
uri
sdi
cti
ont
o
i
mposetaxoveri
tsi
nhabi
tants.

Itistheappl
icati
onoftheprinci
pleofter
ri
tor
ialjur
isdi
cti
onwhichl
imit
stheexer
ciseoftaxpoweri
n
defini
ngtheobj ect
soft axati
on.Itdefi
nesboundar i
esoft hetaxi
ngpowerov ertheobject
sof
taxati
onintermsofl ocati
onwhet herornott heyshallbesubj
ecttotax.Pr
otect
ionisthebasi
c
consider
ati
ont hatj
ust
if
iestaxsit
us.

Thef
ollowingf actor
saredet erminantstothesi
tusoftaxat
ion:
1.Nature,ki
ndorcl assifi
cationtothetaxbeingimposed;
2.Subjectmat terofthetax( per
son,propert
y,r
ight
s,oract
ivit
y;
3.Sourceofi ncomebei ngtaxed;
4.Placeoftheexci se,pri
vil
ege,businessoroccupati
onbeingtaxed.
5.Citi
zenshipoft hetaxpayer;and
6.Residenceoft hetaxpayer;

NATUREOFTAXES

Taxesar eforcedburdens,char
ges,exact
ions,i
mpositi
onsorcont ri
butionsassessedin
accordancewi thsomer easonablerul
eofappor t
ionment,byaut horit
yofasov erei
gn
stat
e,upont heperson,proper
ty,orri
ght
sexer ci
sed,wit
hinitsjurisdi
ction,t
opr ovi
de
publi
crev enuesforthesupportofthegovernment,t
headmi ni
str
at i
onoft helaw,orthe
paymentofpubl icexpenses.

● Taxesar eobl i
gati
onscreatedbylaw.Taxesarisefrom law andcoul
donlybe
i
mposedev enwi t
houtpreviousagreementbet
weent hegov er
nmentandthe
taxpayers. Intaxati
on,i
tisone’sci v
ill
i
abil
i
tytopayt axesthatgi
vesri
seto
cri
mi nalli
abil
i
ty,unli
kecri
minalcaseswherecri
mi nall
iabil
it
ygivesri
setoci
vi
l
l
iabil
ity.

● Taxes ar e general
lyper sonaltot axpay er
.Thei rpay mentshoul d be bor ne
specif
icall
ybyt heper sonwi thtaxl i
abil
it
y.Sincel aw v est
sacor porati
onwi t
h
personalit
ythatisseparateanddi sti
nctfrom thoseper sonscomposi ngit,
itstax
deli
nquencycannotbeenf orced againstit
sst ockholders.The stockholders,
howev er,maybehel dl i
ablefortheunpai dtaxesofadi ssolvedcorporati
oni fit
appearst hatthecor porateassetshav ebeent ransferredinfavoroft hesai d
stockholders.

ESSENTI
ALCHARACTERI
STI
CSOFTAXES

Theessent
ial
char
act
eri
sti
csoft
axesar
e:
1.Enforcedcont ri
buti
on.Thei mposi tionshal lnotbedependentupont hewillofa
taxpayer;
2.Imposedbyt helegi
slativebody.Thecongr essmakest axlaws;
3.Proportionat einchar acter.The“ abi
lit
yt opaypr i
ncipl
e”isthebasi crulei n
coll
ectingt axes.Thosewhoear nmor econt r
ibutetot hegovernment’
scof fer
mor ethant hosewi t
hl esserearni
ngs;
4.Pay abl
ei nf orm ofmoney .Moneyi sthepr eferredpaymentoftaxes.Ifproperty
i
st akent osat i
sfytaxl i
abi
li
ty,thepr oper tyissol dthroughpublicauctiont o
sati
sfyt hetaxobl i
gati
on;
5.Imposedf ort hepurposeofr aisingr evenue.Taxesar ethepri
marysour ceof
governmentf undstofinanceitsexpendi turesandpr oj
ects;

Page|
14
 6.Usedf orapubl icpur pose.Moneyi st akenf rom t hepubl i
csoi tcanber et
urned
tothem inthef orm ofpublicbenefits;
7.Enforcedonsomeper sons,pr opertiesorr ight s.Obj ect
soft axationareeit
her
tangibleori
ntangibleproperties,i
ncludi ngbusi nesst ransactions.
8.Commonl yrequiredt obepai datr egul arinter vals.Thedat esf orpay i
ngoftaxes
arefixedbythel awt ocompl ywi t
ht hepr incipleofadmi ni
strati
v efeasi
bil
i
ty.
9.Imposedbyt hesover eignstatewi thini t
sj urisdiction.Theenf orcementoftaxis
subjecttoterri
tori
aljuri
sdict
ionandi nternational comi t
y

CLASSI
FICATI
ONOFTAXES

Taxesar
egroupedaccor
dingt
othef
oll
owi
ngcl
assi
fi
cat
ions.
Astopurpose:
a)Rev enueorFi
scal
.Theset
axesarei
mposedsolel
yfort
hepurposeofrai
sing
revenueforthegover
nment(e.
g.I
ncometax,v
alueaddedtax,andtr
ansfer
tax).

b)Regulator
y,Speci alorSumpt uar
y.Thesetaxesareimposedforthepurpose
ofachievi
ngsomesoci aloreconomicgoalshavi
ngnor el
ati
ontotheraisi
ng
revenue(e.g.cust omsdut i
es,Prot
ecti
vetari
ffonimportstocontr
olforei
gn
tradeandexciset ax).
c)Compensat ory.Taxesmaybei mposedfortheequi
tabl
edist
ri
buti
onofwealth
andincomei nt hesociety.

AstoObj ectorSubj ectMat ter:

a)Per sonal,PollorCapi t
ali
zati
on.Thesetaxesar efixedinamountandi mposedon
per sonsr esidingwi thinaspecifiedterr
it
or yregardlessoft heamountoft hei
r
proper tyont heiroccupat i
onorbusiness(e.g.Communi t
yTax) ;
b)Pr oper ty.Theset axesar eimposedonper sonalorr ealpropert
ybasedoni ts
propor ti
onatev al
ue or i n accordance wi th some r easonable method of
appor ti
onment .
a.( e.g.Real EstateTax);and
c)Exci se.Theset axesar ei mposedupont heper f
or manceofar i
ghtoract,the
enjoy mentofapr ivi
legeort heengagementi nanoccupat i
on( e.
g.Prof
essi
onal
tax, I
ncomeTax, EstateTax ,
Donor ’
staxandVal ue-AddedTax) .

Ast
oDet
ermi nationofAmount
a)AdVal orem.Theset axesaref i
xedamount sinpropor ti
ont othev alueoft he
proper ty wi t
hr espectt o which t
he tax i s assessed.I tr equires the
intervent i
onofAssessor stoestimatethev al
ueofsuchpr opertybef orethe
amountduef r
om eacht axpayercanbedet ermined( e.g.RealEst ateTax,
Cust om Dut ies and Excise Tax on fer
ment ed liquors,cigars,ci garet
tes
gasol ineandaut omobil
es).
b)Speci fic.These t axes arefixed amountsi mposed and based on some
standar dofwei ghtormeasur ement,headornumberl engthorv ol ume.It
requi r
esi ndependentassessmentot herthanl i
stingacl assi
fi
cat i
onoft he
subj ectt axed li
keexci setaxesondi st
il
led spir
its,wi nes,fi
rewor ks,and
cinemat ographicfil
ms.

Ast
owhoBear
stheBur
den:

Page|
15
 a)Direct.Theset axesarenon- t
ransfer
able.Theyar edemandedfr
om per sonswho
areboundbyl awt opayt hetax.Theliabi
lit
yforthepaymentoftaxaswel lasthe
burdenoft het axfal
lsont hesameper son(e.g.CommunityTax,IncomeTax,
TransfertaxesTr avel
er’
sTaxandCor porateIncomeTax).
b)Indir
ect.Theset axesaret r
ansferabl
e.Thel i
abil
ityf
orthepay
mentoft axf al
l
son
oneper son, butt heburdenthereofcanbeshi ft
edorpassedtoanother.

Ast
oScopeorAut horit
yCol lectingTax
● National.Thoset axescol lect edbyt heNat i
onalGovernment
.Exampl
eofnat
ional
taxesare:
i. Est ateandDonor ’sTaxes;
ii
. I ncomeTax;
ii
i. Val ue–AddedTax;
iv. Exci seTax;
v. Cust omsDut i
es; and
vi. Document ar ystampTaxes.
● LocalorMuni ci
pal.Those t axes col l
ected by t
he Munici
palGover
nments.
Exampl esofl ocalormuni cipal t
axesar e:
i
. Communi t
yt ax;
i
i. Muni cipal l
icensest axes;
i
ii. Pr ofessional t
ax;and
i
v . Real estatet ax.

Ast
oRateorGr aduation:
● ProportionalorFl atRat e.Ther ateoft hetaxisbasedonaf i
xedper centageof
theamountoft hepr operty
, r
eceiptorotherbasistobet axed(e.g.Real estatetax
andVAT) .
● ProgressiveorGr aduat edRate.Ther ateoft hetaxincreasesast hetaxbaseor
bracketincreases( e.g.IncomeTaxes, Estat
eTaxesandDonor ’sTaxes) .
● RegressiveRat e.Ther ateoftaxdecr easesast hetaxbaseorbr acketincreases.
Thereisnor egressivet axinthePhili
ppines.
● Digressiverate.A f i
xedr ateisi mposedonacer t
ainamountbutdi minishes
graduall
yonsumsbel ow it.I
ndi gr
essiverate,thetaxr atei
sar bit
rarybecause
theincreasei ntaxr ateisnotpropor t
ionatetotheincreaseoftaxbase.
● MixedTax.I tisat axsy st
em thatusesacombi nati
onoft hedif
fer enttaxrates.

OTHERCHARGES/
FEES
1)Penal tyisanysanct i
oni mposedasapuni shmentf orv iolati
onsofl aw oract s
deemedi njur ious.Itar i
sesfrom l
aw and/orcont racts.Iti simposedt oregulate
conductt hr ough puni shmentand suppr ession ofi njurious acts orunl awful
behav ior
s.Thegov ernmentofapr iv
atepersonmayi mposei t.
2)Rev enuer efer stoal lfundsorincomederivedbyt hegov ernmentwhet herfr
om t ax
orf rom ot hersour ces.Forex ample,al
lnat i
onali nternalr evenuet axes,fi
nancial
assistancef rom ot hergov er
nment,donat
ionsf rom pr i
v ateindivi
duals,commer cial
revenues l ike t ol
ls,post age,pri
ce paidf orgoods and ser vices produced by
gover nmentowned ent er
pri
ses and administrat
iver ev enues like penalti
es and
for
fei t
ures.

Page|
16
3)Debti sanobl igationt opayorr enderser vicef oradef i
nit
ef utureper iodoft i
me
basedoncont ract .Itispay ablei nmoneyori nki nd,subj ecttol egalcompensat i
on,
andmaybeassi gned.I mpr isonmenti snotcov eredbynon- pay mentofdebt .Debt
drawsi nter estwhent hereisanagr eementbet weent hecont ractingpar t
iesorwhen
ther ei sdef aul t.
4)Tol lisacompensat ionf ort heuseofsomebodyel se’spr oper t
ydet erminedbyt he
costofi mpr ov ement .Itisademandofpr opr ietorshipascompensat i
onf ortheuse
ofpr oper t
y ,whi ch may be i mposed by a pr ivatei ndivi
dualorent ity ort he
gov er nment .
5)LicenseFeei sacont ri
butionenf orcedbyt hegov er nmentpr imar i
lyt orestrainand
regul at ebusi nessoroccupat ion.Iti sr
equi redf orthecommencementofabusi ness
orpr of essionr ender i
ngt hebusi nessi ll
egali ncaseofnon- pay ment .Howev er,i
tis
alway ssubj ectt or evocat i
on.Thepowert ocol lectlicensef eedoesnoti ncludet he
powert ot ax.Nonpay mentoft axdoesnotmaket hebusi nessi llegalal t
houghi t
mi ghtbeagr oundf orcr i
mi nal prosecut i
onagai nsttheper son( s)violatingthel aw.
6)Speci alAssessmenti sanamountcol lectedbyt hegov er nmentf ort hepur poseof
reimbur singi tsel ff orcer tainext endedbenef i
tsr egar dingconst ruct i
onofpubl i
c
wor ks.I tisl ev iedonl yonl andandnotaper sonal li
abi l
it
yoft heper sonassessed.
7)Cust om dut iesar ei mposi ti
ononi mpor t
edgoodsbr oughti ntot hecount r
yt opr ot
ect
locali ndust r y.Taxesar ebr oadert hancust omsdut iesbecauseal lcustomsdut i
es
aret ax esbutnotal ltaxesar ecust om dut i
es.
8)Subsi dyi sa monet aryai d di rectlygr anted orgi v en byt hegov ernmentt o an
indiv i
dualorpr i
vate commer cialent erpri
se deemed benef ici
alt ot he publ i
c.A
subsi dyi snotat axal t
houghat axmayhav et obei mposedt opayi t.
9)Tar iffisaschedul eofl i
stofr ates,duti
esort axesi mposedoni mpor tedgoods.
10)
Mar ginFeei sat axonf oreignexchangedesi gnedt ocur btheexcessi v
edemands
uponouri nt er national r
eserv es.

TAXLAW DEFI
NED

TaxLawi st
hatbodyofl awswhi chcodif
iesal
lnati
onalt
axlawsincludingincome, est
ate,
gift
,exci
se,
st
ampandot hertaxes.Suchl awcompr isesoftheRepubli
cAct8424ent it
led“TheCompr ehensi
ve
TaxReform ActofthePhi l
ippines,
”other
wiseknownast he“Nat
ionalInter
nal RevenueCodeof1997”
orthe“ TaxCode. ”Italsoi ncludesRepubli
cAct9337– “ TheVAT Ref orm Law,andl ocaltax
ordi
nancesissuedbyt helocal gover
nment.

I
nternalRevenueLaw –I ti
ncludesalll
awsl egisl
atedpertainingtot henati
onalgovernmenttaxes,
whichisembodiedi ntheNIRC.Suchl egi
slationi scommonl yreferredtounderthegeneralterm
“
revenuemeasur es”
.Themai npurposeofpr omul gat
inginternalrevenuelawsistor ai
semoneyt o
meetpecuniaryneedsbyt hegov er
nment.Gener ally
,itisimposedbyt heStateoveritssubject
s
wit
houtgivi
nganydirectandimmediateequi
v alentinret
urnf orthepay ment.

Int
ernalRev enueTaxes– taxesimposedbythelegi
slat
ivebodyotherthancustom dutieson
i
mpor ts.The f ol
l
owing nat
ionalt
axes ar
e cl
assi
fi
ed as Int
ernalRevenue Taxes underthe
administ
rat
ionofBI R:
● I
ncomet
ax;
● Tr
ansf
erTaxes(
Est
atet
axandDonor
’sTax)
;
● Busi
nessTaxes(
VAT,
Per
cent
aget
axandExci
set
ax)
;
● Document
arySt
ampTax(
DST)
;and
● Suchot
hert
axesasmaybei
mposedandcol
l
ect
edbyBI
R.

Nat
ureofTaxLaws

Page|
17
ThePhi l
ippi
neI nt
ernalRevenuel
awsar
egener
alyci
l vi
linnat
ure;t
heyar
enei
ther
pol
i
ticalnorpenali
nnature.

Althought axlawsdealwi t
hthefundamentalsy
mbi oti
crelat
ionshi
pofpeoplewitht
he
gov ernment,basi
calyt
l heyar
enotpol i
ti
calinnature.Thetaxcode( 1997,NI
RC)are
speciall awswhichpr evai
lovergener
allawssuchasCi vi
lCodeorRul esofCourt.
Accor dingl
y,t
hepr ov
isionsoftheNIRCont heprescript
ionaregivenpri
ori
tyovert
he
prov i
sionsofCivi
lCode.

I
nter
pret
ati
onandAppl
icat
ionofTaxLaws

TheSupr
emeCour
thastheexcl
usiv
epowerofconst
ructi
ngandint
erpret
ingt
axlaws.
Asarul
e,t
axl
awsmustbeconst
ruedwi
thvi
ewtocarr
yingoutt
hei
rpurposeandint
ent
.

Thewell
-set
tl
eddoct
rineof“
str
icti
nter
pret
ati
oninthei
mposi
ti
onoft
axesandot
her
bur
dens”shal
lbef
oll
owedint
heappli
cati
onoftaxl
aws.

Specif
ical
ly
,the fol
l
owing r
ules ar
e gener
all
yfol
l
owed f
ort
he i
nter
pret
ati
on and
appl
icati
onofvar
ioustaxl
aws:

● Taxst atutemustbeenf orcedaswr i

tt
en.
Whent her eisambi guit
yoft axlaws, therulesofst
atut
oryconst
ructi
onmaybeusedt o
searchf ort helegisl
ativ
ei ntent
.Howev er,whenthemeaningoft hel aw i
sclear,t
he
statut
emustbeenf orcedaswr i
tten.
Undert hepr inci
pleof“ PariMat eria”
,taxlawsshouldbeinter
pret
edwi t
hrefer
enceto
othertaxlegi sl
ati
onsandt heireffectasawhol emaybegivenconsiderati
on.

● I mposit
ionoft axburdensisnotpresumed.
Taxbur denshallneit
herbei mposednorpresumedbey ondwhatt hestat
utesexpr
essl
y
and clearl
y state because tax st
atutes shoul
d be construed st
ri
ctl
y agai
nstthe
government.
At axcannotbei mposedwi thoutcl
earandexpr esswor dsforthatpurposeandthe
provi
sionsofat axingactarenottobeextendedforimpli
cati
on.

● Doubt sshoul dberesol

vedliberall
yinfavorofthetaxpay er.
Whent hepr i
mar yconsi
derati
oni sthelegisl
ati
veintentbutdoubtexi stsi
ndet er
mining
suchi ntent,thedoubt smustber esolv
edl i
beral
lyinf avoroft axpayer
s,andst r
ictl
y
againstthet axingaut
horit
ysincet axlawsimposespeci albur denupont hetaxpayer
.
Inor dert opr otectt
het axpayeragai nstabuseappl icat
ionoft axlaws,thelaw on
prescri
ptionbei ngar emedialmeasur eshouldbei nterpr
et edliberall
yinfavoroft he
taxpayer.

● Taxexempt ionsarestr
ictl
yconstruedagainstthetaxpay er.
Thereisnowayt odisputethecardinaldoctri
neintaxati
ont hat“
exempt i
onstherefr
om
arehighlydisf
avoredinlawandhewhocl aimst axexempt ionmustbeabl etojustif
yhis
cl
aim orr i
ght.
”Taxexempt ionshouldbeconst ruedinstricti
ssmijuri
sagainsttaxpayer
.
Therefore,taxexempt i
onscannotbeest abl
ishedbymer ei mpl
icati
onbutmustbe
cl
earlyexpressedbyt hel aw.Methodsf orcol l
ecti
onsoft axesmandat edbyl aw are
generall
yexclusiveandmustbef ol
lowedst ri
ctl
y,unl
esst hel awsti
pulat
edotherwise.

Page|
18
● Taxl awsareappl i
edprospectiv
ely.
At axstatutemustbeappl icableandoperati
veonlyuponbecomi ngalaw.Taxl awsar e
givenret r
oacti
veef f
ectonlyifthereisaclearlegisl
ati
veint
entinthatregard.Fort hi
s
reason,ourt axlawsar egener all
yprospecti
veinoper at
ionexceptwheni tisclearl
y
provi
dedbyt hel egi
slat
iveintentthatataxst at
ureshalloper
ater et
rospecti
vely
.Tax
l
aws,howev er,shouldnotbegi venretr
oacti
veappl i
cat
ionwheni twouldbehar shand
oppressiveagainstthetaxpay ersoasnott oviol
atetheconsti
tuti
onalli
mitati
onoft he
duepr ocess.

● Taxlawsprev
ailov
erciv
illaws
TheTaxCodeisaspeciall
awi nrel
ati
ontotheCi
vilCode.Whenevert
her
eisaconf
li
ct
bet
weentheTaxCodeandt heCivi
lCode,t
hefor
mer( TaxCode)shal
lpr
evai
lov
erthe
l
att
er(Ci
vi
lCode).

Sequenceoft
heI
nter
pret
ati
onofTaxLaws

TheBIRCommi ssioneri
ssuesBI RRulingsopar ti
culartaxcasewhi chcouldbeov er
rul
edbyBI R
Rul
ingsofsucceedingBIRCommi ssi
oner.TheRevenueRegul ati
onsareissuedbytheDepar
tmentof
Fi
nancetocov erthei mpl
ement i
ngguidelinespert
ainingtoapar ti
cularSecti
onofTaxCode.The
RevenueRegul
ationsareoverr
uledbyCour tdeci
sionsuponi ssuanceofsuchresol
uti
on.

Sour
cesofPhi
li
ppi
neTaxLaws

Ini
tsendeav
ortoeff
ect
ivel
yexer
ciset
axpower
,thePhi
l
ippi
neRepubl
i
cmakesl
awswhi
chmaybe
compri
sedofthef
oll
owi
ng:
1.ConstitutionofthePhil
ippines;
2.Judici
al Decisions;
3.ExecutiveOr ders;
4.Special Laws;
5.TaxTr eatiesandConv entionswithf
orei
gncount
ries;
6.RevenueRegul ati
onspromul gat
edbytheDepart
mentofFi
nance;
7.BIR Rev enueMemor andum Ci rcul
arsand Bur
eau ofCust
omsMemor
andum
Orders;
8.BIRRul i
ngs; and
9.LocalGov er
nmentCode( BookII)

Const
it
uti
onsoft
hePhi
li
ppi
nes

Thet erm Consti

tut
ionreferstot
hatbodyofr ul
esandmaxi msinaccordancewi t
hwhi chthepower s
ofsov erei
gntyarehabit
uall
yexerci
sed.Itisoftenref
erredtoastheSupremeorFundament alLawof
thelandbecauseal lotherlawsmustconf ormtoit.I tisthebasisinAconst i
tut
ionalprovi
sion
regardingtaxati
onispr imari
lyi
ntendedt olimitandregulat
et heexerci
seoft axati
onpower .The
statecanexer ci
sethepowert ot
axev eniftheConstit
utioni
scompletel
ysilentabouttaxat
ion.

St
atut
es

Statut
es arelaws enact
ed and establ
i
shed by the wil
lofthe legisl
ati
ve depar
tmentofthe
government.Thepr
esenttaxst
atut
esoft hePhil
i
ppinesareembodi
edi ntheR.A.Act8424,
whi
chis
now theprevai
li
ngNIRCef f
ect
iveJanuary1,1998,whichwasamendedperR. A.9337–TheVAT
Reform Law.

Judi
cialDeci
sions

Theser ef
ertot hedecisi
onsforappl
icati
onsmadeconcer ni
ngtaxissuesbyt hepropercour
ts
exer
cisi
ngjudi
ciaryaut
hori
tyofcompetentj
uri
sdi
cti
on.Thesecour
tsmaybet heSupremeCourtand
the CourtofTax Appeals.Theirdecisi
ons on t
ax l
aws comprise t
he great
erporti
on oftax

Page|
19
j
uri
spr
udence.Theyform par
tofthel
egalsyst
em ofthePhil
ippines.Byt
henat
ureofi
tsj
uri
sdi
ction,
t
hedecisi
onsoftheCourtofTaxAppealsaresti
llappeal
abl
et otheSupr
emeCour.Thedeci
t sionof
t
heSupremeCour tonanymat t
eri
sfi
nalandexecutory.

Execut
iveOr
der
s

Execut
iveorder
sarer egul
ati
onsissuedbythePresi
dentorsomeadmini
str
ati
veauthor
it
yunderhis
di
recti
onforthepurposeofinter
preti
ng,i
mplementi
ng,orgi
vi
ngadmini
str
ati
veef
fecttoaprovi
sion
oftheConsti
tut
ionorofsomel awort r
eat
y.

TaxTreati
esandConvent
ions
These ref
ertothe tr
eati
es orinter
nati
onalagr
eements wi
thforei
gn count
ri
es regar
ding tax
enfor
cementandexempti
ons.Theyhavethefor
ceandeff
ectofl
aw.Agoodexampl eofataxtreaty
i
sthePhi l
i
ppi
ne-
Unit
edStatesMil
it
aryBasesAgr
eement(
PUSMBA) .

Rev
enueRegul
ati
onsbyt
heDepar
tmentofFi
nance

Thesecr et
aryofFinanceupont her ecommendat i
onsoftheCommi ssi
onershallpromul gat
eall
needfulrul
esandr egulat
ionsf ort
heef fecti
veenf or
cementoft heprovi
sionsoft heTaxCode.
RevenueRegulati
onsarerulesororder shav i
ngf or
ceoflawissuedbytheexecuti
veaut hor
ityofthe
governmenttoensureuniform appl
icationoft axlaws.Inor
derthatadminist
rat
iveregulat
ionsmay
beconsideredval
id,
alloft
hef ol
lowi
ngr equi
sitesmustbecompl i
edwith:
1.Theregul
ati
onsmustbeusef ul
,pract
icalandnecessar
yfort
heenf
orcementof
thel
aw.
2.Theymustbereasonableinthei
rprovi
sions;
3.Theymustnotbecontrarytolaw;and
4.Theymustbedulypubli
shedi ntheOff
icial
Gazet
te.

BI
RRev
enueMemor
andum Ci
rcul
arsandBur
eauofCust
omsMemor
andum Or
der
s

Thesear etheadminist
rati
verul
ingsoropinionswhi charelessgener ali
nter
pretati
onsoft ax
l
awsbei ngissuedfrom t
imet otimebyt heCommi ssioneroftheInternalRevenueorCommi ssioner
oftheBur eauofCust oms,ast hecasemaybe.Theyar eprimaril
yi nt
endedt omai ntai
nuni form
appl
icat
ionoft axlawswi t
hinthedepart mentorareaofaut hori
ty.Memor andahavet hest atusof
advi
soryorsor tofinf
ormati
onser vi
ce.Fort hi
sreason,theycanber eversedanyti
me.Ast hechi ef
l
egaloff
iceroft hegover
nment ,
theSecretaryofJusti
cemayal sogi vememor andum concerningt ax
i
ssues.

BI
RRul
ings

BI R Ruli
ngsar eexpr essedof fi
ciali
nterpr
etat
ionsoft hetaxl awsasappl iedtospeci f
ic
tr
ansactions.UnlikeaRev enueRegul ati
on,itismor el i
mitedinapplication.ABIRRul i
ngi sfi
rst
publ
ishedi nanInternalRevenueBul l
eti
nandl atert
ransferr
edt otheappropr i
ateCumulat
iveBull
eti
n.
BIRRulingsar enott hefi
nalinterpr
etati
onoft hetaxlaws.Theyar econsi deredthebestopini
onor
advi
soryatt hemomentandar econsideredsoundlawunt ilchangedbythecour t
.

LocalTaxOrdinances
Thesear etaxordi
nancesi
ssuedbytheProv
ince,Ci
ty,Munici
pal
it
yandBarri
osubjectt
o
suchli
mitat
ionsasprovi
dedbytheLocal
Gover
nmentCodeandt heRealPr
oper
tyTaxCode.

Page|
20
 ENDOFMODULETEST

Pr
obl
em 1.Wr
it
eTRUEi
fthest
atementi
scor
rect
,andwr
it
eFALSEi
fthest
atementi
sincor
rect
.

1.Taxat i
oncoul dbedescr i
bedasapower ,asapr ocess,orasameans.Asapower ,
taxationi sawayofappor tioni ngt hecostofgov er
nmentamongt hosewhoar e
privi
legedt oenj oyi tsbenef its.
2.TheSt at ecanenf or cecont ribut ionsuponi t
sci ti
zensint hef orm oft axesev en
withoutaconst itutional pr ovisi onaut hori
zingi t
.
3.Appr opr iati
onoft axesi sconsi der edv al
idi fintendedf ort hecommongoodof
thepeopl ewithouti dent i
f yingapar ticularper sont obebenef i
tedfrom it.
4.Taxat i
oni sinsepar abl ei nt heexi stenceofanat ion.
5.Taxat i
oni sconsi der edast hel if
ebl oodoft hegov er
nmentandev erygov ernment
unitmustexer ciset hi spower .
6.Theamountoft axesmaybei ncr easedt ocur vespendi ngpowerandmi ni
mi ze
infl
ation.
7.Aspeci ficprov i
sioni nt heconst itutioni sthesour ceofthest ate’staxingpower .
8.Taxat i
oni sthegov er nment ’sl egi ti
mat emeansofi nterferi
ngwi tht hepr ivate
proper tiesofi tssubj ect s.
9.Thebenef i
tsfrom t axat ionhav et obeexper i
encedt oj ustifythel egiti
macyof
coll
ect ionoft axesf rom t hepeopl e.
10.
Taxat i
oni sthepr imar ysour ceofgov ernmentr evenue.Hence,al lgov ernment
fundscomef rom t axes.
11.
Sov ereignequal it
ydi ctat est hatanat ioncannoti mposet axesont hepr oper tyof
anot hercount ry.
12.
Thest at ecanst il
lexer cisei tst axingpower sov erit
sci t
izen,ev eni fher esides
outsidesuchst ate’st er ri
t or y.
13.
Allgov ernmentent iti
esr egar dlessoft heirf unct i
onsar eexempt edf rom t axes
becausei twoul dbei mpr act ical fort hegov ernmentt obet axingitself.
14.
Rev enuesder i
v edf rom t ax escannotbeusedf ortheexcl usiveuseofpr ivate
persons.

Page|
21
 15.
Localtaxor
dinancesmustbeuni
for
mlyand equal
l
yappl
i
edt
hroughoutt
he
count
ry.

Pr
obl
em 2.Wr
it
eTRUEi
fthest
atementi
scor
rect
,andwr
it
eFALSEi
fthest
atementi
sincor
rect
.

1.Thepr imar yr equisi t

eofequi typr inciplei sthateacht axpay ershoul dber equired
tocont ri
but eequal amount sint hefor m oft axes.
2.Taxassessmentr ef erst othef iscalpol icyoft hegov ernment .
3.Anaspectoft axpowert hatcoul dbedel egatedt ot hePr esidentcov ersbot h
legislat iveandadmi nistrat
ivedi scretion.
4.Emi nentdomai nandpol i
cepowercanef fecti
velybeper f ormedev enwi t
hout
taxat ion.
5.Whent hepowert ot axi sdel egatedt ot hel ocalgov ernment ,onlythelegisl
ative
branchoft hel ocal gov ernmentcanexer ciset hepower .
6.Allinher entpower spr esupposeequi val entcompensat ion.
7.Ther eisnoi mposi tionofamounti npol i
cepower .
8.Pol i
cepowerandemi nentdomai nmaydef eatt heconst itut
ionalrightsofa
per son.
9.Taxexempt i
onappl iesonl yt o gov er nmentent i
tiest hatexer cisepr opri
etary
funct ions.
10.
Taxassessmenti sapr ocessoft axat ionwhi chinvol vest hepassageoft axlaws
andor dinancest hroughl egislature.
11.
Taxat i
on,l i
keemi nentdomai n,isl i
mi tedbyConst itutionalpr ovisionthatprivate
proper tymaynotbet akenwi thoutj ustcompensat i
on.
12.
Theexer ciseofpol icepoweri ssuper i
ort henon- impair mentcl auseoft he
Const itution.
13.
Taxat i
on,l ike pol ice power ,isr estrict ed byt he due pr ocess cl ause oft he
Const itution.
14.
Dumpi ngdut yist headdi ti
onaldut yt axi mposedoni mpor t edgoodswi thlower
pricest hant heirfairmar ketvaluest opr otectl ocalindust ri
es.
15.
Taxi mpr escr i
pt i
bil
ityi sat axdoct ri
newhi chst atest hatt axesi ngener alarenot
cancel lable.

Pr
obl
em 3.Wr
it
eTRUEi
fthest
atementi
scor
rect
,andwr
it
eFALSEi
fthest
atementi
sincor
rect
.

1.Taxes may be exer cised t o encour age economi c gr owt h by grant

ing tax
exempt ions.
2.Taxesmaybeusedasat oolandweaponi ninternat
ionalr el
ationsandtopr ot
ect
tr
ader elations.
3.Protect ioni sthebasi cconsi derati
ont hatjustifi
estaxsi t
us.
4.Thet axsi tusforoccupat ioni st heplacewher eoccupat ionispur suedevenifthe
cri
terionf ornationalit
yisgi ven.
5.Therei s di rectdoubl et axation byt axi ng corporatei ncome and cor por
ate
stockhol ders’divi
dendsf rom t hesamecor porati
on.
6.A nonr esidental ieni sliablet o payt ransfertaxesf orpr operti
eswi t
hinand
outsidet hePhi l
ippines.
7.At axmaybel ev i
edf orthesuppor tofr eli
giousact i
vit
iesasl ongasal lchurches
benef i
tf rom i t
.
8.Abi l
l,neednotbesi gnedbyt hePr esi
dentt obecomel aw.

Page|
22
 9.Nol aw gr antinganyt axexempt ionshal lbepassedwi thouttheconcur renceof
twot hirdsoft hemember softheCongr ess.
10.
TheConst i
tutiongr antsaut onomousr egionscer tai
nlegi sl
ati
vepower swhi ch
shallincludel egisl
ativepowerov ertaxat ion.
11.
Taxescol l
ectedbyt heBI Rarelocaltaxes.
12.
Realest atet axandi ncomet axcoll
ect edont hesamer ealestatepropertyisnot
aform ofdoubl etaxation.
13.
Ataxev adersi destepst helaw,whil
et heav oiderbreaksit.
14.
Allrev enuesandasset sofnon- stock,nonpr of
iteducationalinsti
tut
ionsused
dir
ect l
yori ndirectl
yf oreducat i
onalpur poseshal lbeexemptf rom taxesand
duti
es.

Pr
obl
em 4.Wr
it
eTRUEi
fthest
atementi
scor
rect
,andwr
it
eFALSEi
fthest
atementi
sincor
rect
.

1.ThepowerofJudi cialRev i
ewi nt axat ionisl imi tedonl yt ot heinterpretat i
onand
appl i
cat i
onoft axl aws.
2.Interpretationsmadebyexecut i
v ebr anchf ort heenf or cementoft axl awsar e
gener allyrespect edbyt heCour tsbecauset heyar econcl usive.
3.Taxl awsar egi venr etr
oact iveef fectbecauset her uleof“ expostf act ol aw”is
appl i
cabl efort axpur poses.
4.Intaxat ion,iti sone’ scivilliabilitytopayt axeswhi chgi vesr i
setocr i
mi nal l
iabil
i
ty.
5.Noper sonshal lbei mpr i
sonedf ornonpay mentofi ncomet ax.
6.Taxl awsmustbeconst ruedst rictlyagai nstt hegov ernment ,andt axexempt i
ons
mustbeconst ruedst ri
ct l
yagai nstt het axpay er .
7.Asar ule,doubt sast oi mposi t i
onmustber esolvedl i
beral
lyi nfav oroft he
gov ernmentandst rictl
yagai nstt het axpay er .
8.ThePhi li
ppi net axl awsar enotpol itical andpenal innatur e.
9.Thedoct ri
neofequi tabler ecoupmenti sappl icablet ocaseswher et het axes
involvedar et otallyunr elated.
10.
Whent herei sambi guit
yoft axl aws,t her ulesofst atut or yconstructionmaybe
usedt osear chf ort hel egisl ativei ntent .Howev er,whent hemeani ngoft hel awis
clear,thest at uremustbeenf or cedaswr it
ten.
11.
Taxexempt i
oni st ransfer abl eandassi gnable.
12.
Rev enuer egul ationst hatar ei nconsi stentwi thl aw hav et heeffectandf orceof
lawi ftheyusef ul andr easonabl e.
13.
BIRRul i
ngsar ethebestopi nionsr egar dingt hei nt er
pret at i
onoft axlawsandar e
consi deredsoundl awunt ilchangedbyt heCour t
.
14.
Thet axdoct ri
neofMar shal l Dictum expl ai
nst hatt axisapowert odest r
oy .
15.
Taxr uli
ngsoft heSecr etar yofFi nancear ebi ndi ngt ot heCour tsbecauset he
Depar tmentofFi nancei st hehi ghestagencyr egar di
ngt axadmi nistr
ation.

Pr
obl
em 5.Chooset
hel
ett
ert
hatcont
ainst
hebestanswer
.

1.Whi
choft
hef
oll
owi
ngst
atement
sis/
arecor
rect
?
i
. Taxationisapr ocess
i
i
. Enact mentofTaxLawsi spartofthetaxati
onprocess
i
i
i. TheConst itut
ionexpressl
yconferredthepowerofTaxationtot
hePresi
dentof
thePhi
lippi
nes.
i
v. Taxation requir
es volunt
ary contri
buti
on fr
om i nhabi
tant
sto supportthe
gover
nment .

Page|
23
a.i
,ii
,i
ii
,andiv
b.i
,ii
,andiii
onl
y
c.i
andi ionl
y
d.ionl
y

2.Whi
choft
hef
oll
owi
ngi
s/ar
enat
ural
qual
i
tiesofTaxat
ionPower
?
i
. Aninherentpower
i
i
. Essenti
al l
yanexecuti
vef
unct
ion
i
i
i. Anabsol ut
epower
i
v. Ter
rit
oriali
noperati
on

a.iandivonly
b.i
iandiiionl
y
c.i
andii onl
y
d.ionl
y

3.Taxationco-exi
stwi
tht
hef
ourel
ement
soft
hest
atewhi
chi
ncl
udesal
l
,except
a.Government
b.Property
c.Sovereignt
y
d.Terr
itory

4.Whichoft hefol
lowingstatementsisnotcorr
ect?
a.Thegov ernmentautomatical
lypossessesthepowertocoll
ecttaxesfrom i
tsinhabi
tant
s.
b.Thegov ernmentcanenforcecont r
ibut
ionuponitsci
ti
zenonlywhent heConstit
uti
ongrant
si t
.
c.Taxati
onpowerexi stsi
nseparablywiththeStat
e.
d.TheSt atehasthesupr emepowert ocommandandenf orcecontri
buti
onf r
om peoplewithini
ts
j
urisdi
cti
on.

5.Whichoft hef oll

owi ngstatementsisnotcorrect?
a.Onlythenat i
onal governmentexerci
sestheinherentpoweroftaxat
ion.
b.Thepowert ot axbyt helocalgover
nmentuni tsisadelegat
edpowergr ant
edbyt
heConst
it
uti
on
andotherspeci allaws.
c.Nati
onallegislationisexer ci
sedbyCongress.
d.I
nterpret
ationofTaxLawsi sdonebytheLegislati
vebranchofthegover
nment.

6.Whichofthef oll
owingst at
ementsi snotcorrect?
a.Coll
ecti
onsfrom taxesar epubli
cmoney .
b.Appropri
ati
onoft axesforthecommongoodoft hepeopl
eisv al
id.
c.Constr
ucti
onofpr i
vat
er oadfrom taxesisav ali
dappropr
iat
ion.
d.Al
locati
onoft axesforthebenefitofgreaterporti
onofpopulati
onisconsi
der
edf
orpubl
i
cpur
pose.

7.Alloft
hefol
lowingstatementsarecorrect,exceptone.
a.Taxati
onpowerisanabsol ut
epower .
b.Taxati
onpoweristhest r
ongestofalli
nherentpower soft
hegov
ernment
,
c.Taxlawsmustnotv i
olateConsti
tuti
onalrestri
cti
ons.
d.Exerci
seofTaxati
onpoweri ssubjectt
or estri
cti
ons.

8.Oneofthefol
l
owingi snotamongt hebasicjust
if
icat
ionfort
axat
ion.
a.Taxat
ioni
sbasedonnecessi ty.
b.Taxat
ioni
stheli
febloodofthegov ernment.
c.Taxat
ioni
sthebreadandbut terofthegovernment.
d.Taxat
ioni
sav ol
untarycontr
ibuti
onf ort
hebenefi
tsrecei
ved.

9.Whi
choft
hef
oll
owi
ngcoul
dbeanobj
ectoft
axat
ion?
i
. Person
i
i
. Tangibl
eproper
ty
i
i
i. I
ntangi
blepr
opert
y
i
v. Ri
ghts

a.iandii
b.i
,ii
,andii
i
c.i
andi v

Page|
24
d.i
,i
i,
ii
i,
andi
v

10.Theser efertotherul
esoror dershavi
ngf orceoflaw i
ssuedbyt
heexecut
ivebr
anchoft
he
governmenttoensureunif
orm appl
icat
ionofthetaxlaw.
a.Revenueregulat
ions
b.BIRrul
ings
c.Memor andum order
s.
d.Localtaxordi
nances

Pr
obl
em 6.Chooset
hel
ett
ert
hatcont
ainst
hebestanswer
.

1.Thisref
erstot
hepr
ocessoft
axat
iont
odet
ermi
net
heamountoft
axbasedonexi
sti
ngt
axl
aws.
a.Levyi
ng
b.Imposit
ion
c.Assessment
d.Coll
ecti
on

2.Alloft
hefoll
owi ngarelegisl
ati
veaspectoft
axat
ion,
except
a.Select
ionoft
heobj ectorsubjectoftax
b.Fi
xingoftaxrates
c.Valuat
ionofpropertyfortaxati
on
d.Prescr
ibi
ngthegener alrul
esoft axat
ion

3.Whi
choft
hef
oll
owi
ngi
s/ar
eel
ement
sofi
mpactoft
axat
ion?
i
. Levy
i
i
. Assessment
i
i
i. Col
lect
ion

a.i
,ii
,andiii
b.iandiionly
c.i
iandii
i onl
y
d.i
iionl
y

4.Allofthef ol
lowi ngareadmini
str
ati
vef
unct
ionsoft
axat
ion,
except
a.Sel
ect ionofobj ectoftax
b.Valuationofpr opertyfort
axat
ion
c.Equalizati
onofassessment
d.Collectionoftaxes

5.Thestatementt hat“
hewhor
ecei
vedmor
eshoul
dgi
vemor
e”i
sbasedont
hisbasi
ctaxpr
inci
ple.
a.Fi
scaladequacy
b.Theoreti
caljust
ice
c.Administrat
ivef
easibi
li
ty
d.Duepr ocessoflaw

6.Tospr eadthebur denoft axat

ion,thecorrespondingest
imatedtaxiscoll
ect
edatonceev er
y
payr
ollper iodsot hatatt heendoft axableyear,theamountoft axwi t
hhel
dwi l
lbeequalor
approxi
mat etotheactualtaxfort
hey ear.Thi
st axat
ionsyst
em ofcoll
ect
ionatsour
ceisbasedon
whattaxpr inci
ple?
a.Fi
scaladequacy
b.Theoreticalj
usti
ce
c.Administrati
vefeasi
bil
it
y
d.Duepr ocessoflaw

7.Allofthefoll
owingarei
nher
entr
est
ri
cti
onont
heexer
ciseoft
axat
ionpower
,except
a.Ruleofuniformit
y
b.Forpublicpurpose
c.Terri
tori
alj
urisdi
cti
on
d.Int
ernati
onalcomi t
y

8.Whichoft
hefol
lowingisnotcorr
ect?
a.I
ntheabsenceofspeci
fictaxpr
ovisi
on,
taxesi
ngener
alarenotcancel
abl
e.
b.Pr
escri
pti
veper
iodforassessmentandcoll
ect
ioni
sappl
icabl
etoretur
nabl
etaxes.

Page|
25
c.Thelaw onpr escri
pti
onbei
ngaremedi
almeasur
eshoul
dbei nt
erpret
edli
beral
lyi
nor dert
o
prot
ectt
het axpayer
.
d.Theprescri
pti
veperi
odshoul
dbet
heshor
terbet
weent
herequi
redf
il
ingdateandtheact
ualdat
e
offi
li
ng.

9.Whichoft hef oll

owi ngstatement siscorr
ect?
a.I
ndirectdoubl et axati
onisl egalaslongast hereisnov i
olat
ionofequalprot
ect
ionanduniformit
y
cl
ausesoft heConst itut
ion.
b.I
ndirectdoubl etaxat i
onv i
olatestheConstit
utionalprov
isi
onofunifor
mityandequalpr
otecti
on.
c.Therei sdirectdoubl etaxat i
onint axi
ngt heincomeoft hecorporat
ionandagainsubjectthe
port
ionofthati ncomedecl aredasdi vi
dendtof i
naltax.
d.Dir
ectdoublet axationisprohibit
edbyt heConst i
tut
ion.

10.Whichofthef ol
l
owingr
emedi
esagai
nstdoubl
etaxat
ionr
equi
rest
axt
reat
y?
a.Taxexemption
b.Taxcredi
t
c.Reci
proci
ty
d.Deducti
onallowance

Pr
obl
em 7.Chooset
hel
ett
ert
hatcont
ainst
hebestanswer
.

1.Whichoft hef
oll
owingtaxescapei
sper
missi
bleunderTaxCode?
a.Taxavoidance
b.Taxevasion
c.Taxdodging
d.Overst
atementofexpenses

2.St atement1:Gov ernmentunitsper

for
minggover
nment
alfunct
ionsareexemptfrom taxunl
ess
expresslytaxabl
e.
Statement2:Gov ernmentownedorcont r
oll
edcor
por
ati
onsexercisi
ngpropr
iet
aryfuncti
onsare
taxableunlessexpresslyexempt.
a.Onl yStat
ement1i scorrect
b.Onl yStatement2iscor r
ect
c.Bot hstatementsarecorrect
d.Bot hstatementsarenotcorrect

3.Whichoft hef
oll
owingi sanincorr
ectdescri
pti
onoftaxat
ion?
a.Legislati
veandinherentfortheexist
enceofthegovernments.
b.Necessar yandforpublicpurposes
c.Supremeandanabsol utepoweroft heState
d,rest
rictedbyConstit
utionalandinherentl
i
mitat
ions

4.Whi
choft
hef
oll
owi
ngi
snott
rue?
Taxat
ion Poli
ce Eminent
Power Power Domain
a.I
nherenttotheexistenceofthegov er
nment Yes Yes Yes
b.Notlegi
slat
iveinnature No No No
c.Superi
ortothenon-impairmentclause Yes Yes No
d.Restr
ict
edbyj ustcompensation No No Yes

5.Whichoft hefollowingi
sacorr
ectnat
ureofr
est
ri
cti
ontoexerci
setaxationpower
?
Consti
tut
ional Inherent
Limi
tati
on Limitati
on
a.Terri
tori
aljur
isdicti
on Yes Yes
b.Int
ernati
onal comity Yes No
c.Ruleofuniformi t
yandequi
ty No No
d.Duepr ocessofl aw Yes No

6.Whichstatement sref
erstopolicepowerasdisti
ngui
shedfrom t
axat
ion?
a.I
tisrest
rictedbyConst i
tuti
onalprovi
sion.
b.I
tissuperiortothenon-impairmentclauseoftheConst
it
uti
on,
c.I
tinvol
vest hetakingofpropert
ybyt hegover
nment.
d.Theamounti mposedhasnotl i
mi t
.

Page|
26
7.Poli
cepoweri sdist
inguishedf r
om taxati
onpowerbecause
a.I
tinvol
vestakingofpr opert
y
b.Theamountcol l
ectedi sli
mitedtot hecostofr
egul
ati
on
c.I
tisaninherentpoweroft heSt ate
d.Thebenefi
tder i
vedist heprotecti
ongivenbytheSt
ate

8.Thefoll
owingrestr
ict
ionsar
einher
entont
heexer
ciseoft
axat
ionpower
,except
a.Ruleofunifor
mity
b.Forpublicpur
posed
c.Terr
itor
ialj
uri
sdi
cti
on
d.Int
ernati
onalcomit
y

9.Whichoft hefol
lowingstatement sisnotcorr
ect?
a.Thenationalandlocalgovernmentuni t
sexercisethei nher
entpowertotax.
b.Localgovernmentunitscoul dexerci
sethepoweroft axati
onthoughlegi
slat
eddel
egat
ion.
c.Nati
onal l
egisl
ati
onisexercisedbyCongr ess.
d.Int
erpr
etationofTaxLawsi sdonebyt hejudi
cialbranchoft hegover
nment .

10.Taxaf fectstheareaornat
ionasacommuni
tyr
athert
hanasi
ndi
vi
dual
s.Thi
sisaspeci
fi
c
explanati
onof
a.Inter
nationalcomit
y
b.Publicpur pose
c.Supremepower
d.Reciprocity

Pr
obl
em 8.Chooset
hel
ett
ert
hatcont
ainst
hebestanswer
.

1.Iti
sachievedt hr
ought
hepassageoft
axl
awt
hatdef
inest
het
axsy
stem ofanat
ion.
a.Taxlegi
slati
on
b.Taxadmi ni
strati
on
c.Taxpoli
cy
d.Taxassessment

2.Af undament alrul

eintaxat
ioni
sthatt
hepr
oper
tyofonecount
rymaynotbet
axedbyanot
her
country.Thisisknownas
a.I
nternationall
aw
b.Int
ernationalcomit
y
c.Reciprocit
y
d.Int
ernationali
nhibi
ti
on

3.Whi chofthef oll

owingstat
ementsisnotcor
rect?
a.Collecti
onsfrom taxesarepubli
cmoney.
b.Appr opri
ati
onoft axesfort
hecommongoodoft hepeopleisval
i
d.
c.Const r
ucti
onofpr i
vat
eroadfrom t
axesisavali
dappropri
ati
on.
d.Allocati
onoft axesforthebenefi
tofthegreaterport
ionofpopul
ati
oni
sconsi
der
edf
orpubl
i
c
purpose.

4.A taxpayergi vesthef ollowingr easonsinr efusi

ngt
opayat
ax.Whi
chofhi
sreasonsi
snot
acceptabl
eforl egal
lyrefusingt opaythet ax?
a.Thathehasbeendepr i
vedofduepr ocessoflaw
b.Thatthereislackoft err
itori
al j
uri
sdicti
on
c.thathederivesnobenef itfrom thetax
d.thattheprescript
iveperiodf orthetaxhasel apsed

5.Thefoll
owingaretheconsti
tut
ionall
imi
tati
onsont hepoweroft
axat
ion,
except
a.Taxesarenotsubjectt
oset-of
forcompensat i
on
b.OnlyCongresscanexerci
sethepoweroft axat
ion
c.Non-i
mpairmentoftheobli
gati
onofcontracts
d.Therul
eoft axat
ionmustbeuni f
orm

6.Whi
choft
hef
oll
owi
ngi
s/ar
etaxabl
eonl
yfori
ncomeear
nedwi
thi
nthePhi
l
ippi
nes?
i
. Nonr
esidentci
ti
zen
i
i
. Nonresi
dentali
en

Page|
27
 i
i
i. Resi
dentci
tizen
i
v. Resi
dental
ien

a.i
,i
i,andii
ionl
y
b.I
,ii
,andivonl
y
c.i
andi i
ionl
y
d.i
iiandivonl
y

7.Whi
choft
hef
oll
owi
ngar
echar
act
eri
sti
csoft
axes?
i
. Voluntarycontri
buti
on
i
i
. Imposedbyl egi
slat
ivebody
i
i
i. Proporti
onateincharacter
i
v. Usedf orpubli
cpurpose

a.i
,i
i,andiiionl
y
b.i
,i
i,andivonly
c.i
andi ii
only
d.i
i,
ii
i andivonly

8.Thef oll
owingarebusi
nesst
axes,
except
a.Value-addedtax
b.Otherper cent
agetax
c.Excisetax
d.Cust om duti
es

9.Allofthef ol
lowingar
eNat
ional
taxesast
ocol
l
ect
ingaut
hor
it
y,except
a.Incomet ax
b.Realpr opert
yt ax
c.Estatetax
d.Value-addedt ax

10.Whi chofthefol
l
owi
ngt
axr
atesbehav
esi
nthesamedi
rect
ionwi
tht
het
axabl
eval
ue?
a.Proporti
onate
b.Progressi
ve
c.Regressiv
e
d.Digressi
ve

Pr
obl
em 9.Chooset
hel
ett
ert
hatcont
ainst
hebestanswer
.

1.TheUSEmbassydonat edv ehiclet

ot heDepart
mentofForeignAffair
softhePhi
li
ppines.Whichof
thefoll
owingstatementsiscorrect?
a.Thistransact
ionisexemptedf rom paymentofdonor’
staxonly.
b.Thistransact
ionisexemptedonl yform paymentofdocumentarystamptax.
c.Thistransact
ionisexemptedf rom paymentofbothdonor’
staxanddocument ar
ystampt ax
.
d.Thistransact
ionissubj
ecttobot hdonor ’
staxanddocumentarystamptax.

2.All
oft hefoll
owingar
enott
axesexcept
a.Surcharge
b.Specialassessment
c.Custom duties
d.Li
censef ee

3.Whi
choft
hef
oll
owi
ngcoul
dbeanobj
ectoft
axat
ion?
i
. Person
i
i
. Tangibl
eproper
ty
i
i
i. I
ntangi
blepr
opert
y
i
v. Ri
ghts

a.iandii
b.i
,ii
,andii
i
c.i
andi v
d.i
,ii
,i
ii
,andiv

Page|
28
4.Whichoft
hefol
lowi
ngcor
rect
lydescr
ibest
hepr
imar
ypur poseoft
axat
ion?
Fi
scal Regulat
ory
purpose purpose
a.Torai
serev
enue Yes Yes
b.Tochecki nfl
ati
on Yes No
c. To di scourage consumpti
on of har
mful
products No No
d.Tolimiti
nfluxoffor
eignpr
oduct
s No Yes

5.Allofthefol
lowingst atement saretr
ue,except
a.Doubletaxati
oni staxingt wicethesamet axpay
erforthesamepurposecover
ingt
hesameperi
od
andtaxedbyt hesameaut horit
y.
b.Doubletaxati
oni sprohibitedbyt hePhi
l
ippineConsti
tuti
on.
c.Indir
ectdoubl etaxat i
oni sal l
owedasl ongast hisdoesnotv i
olat
etheequalprot
ect
ionand
uni
formitypri
nciple.
d.Doubtsregardingdoubl et axati
onmustber esol
vedinfavoroft
het
axpayer.

6.Oneofthefoll
owingsitusoftaxationisnott
rue.
LocatedorEarned
Wi thi
n Outsi
de
a.Taxabl
eincomeofnonr esidentciti
zen Yes No
b.Taxabl
eestateofresi
dental i
en Yes Yes
c.Taxabl
edonationofresidentcit
izen Yes Yes
d.Taxabl
esale Yes Yes

7.Statement1:TheCi t
yofBagui oclai
mst hatitcanimposeaddit
ionalt
axesonbanksundert
he
LocalGov ernmentCode( inadditi
ontothepercentagetaxonbanksi
mposedintheNI
RC).
Stat
ement 2: Suchimpositi
oni sadir
ectdoubletaxati
on.
a.Bothstatement sarecorrect.
b.Onlystatement1i scorrect.
c.Onlystatement2i scorrect.
d.Bothstatement sareincorrect
.

8.Oneoft hefoll
owingisincorrectr
egardi
ngt
axexemption
Expressed Impli
ed
Exempt i
on Exempti
on
a.13thmont hpayofP90, 000andbel ow Yes Yes
b.Int
er-
corporatediv
idend Yes No
c.Nontaxabil
it
yofgov ernmentunits No No
d.Separati
onpayduet osickness Yes No

9.Whichofthefoll
owingst at
ementsisnotcorr
ect?
a.Ataxbil
lmustonlybeappl icabl
eandoperat
iveafterbecomingataxlaw.
b.Theeff
ectiv
ityofthetaxlawcommencesuponi t
sappr oval
.
c.Theappl
icabil
it
yoft helaxl
awcov erst
hepresentandf ut
uretr
ansact
ions.
d.Taxlawisexpostf actoinappli
cat
ion.

10.Whi choft hefoll

owingisnotcorr
ect?
a.Intheabsenceofspeci f
ictaxpr
ovisi
on,t
axesingeneralarenotcancelable.
b.Adv alorem taxesareimposedbasedont hestandar
dwei ghtormeasur ement.
c.Prescripti
veperiodforassessmentandcoll
ecti
onisapplicabletoret
urnabletaxes.
d.Thel awonpr escri
pti
onbeingremedialmeasureshouldbei nter
pret
edl i
beral
lyinordert
opr
otect
thetaxpay er
.

Pr
obl
em 10.Chooset
hel
ett
ert
hatcont
ainst
hebestanswer
.

1.Whichofthefol
lowingchar
act
eri
sti
csdescr
ibesouri
nter
nal
rev
enuel
aws?
a.Pol
iti
cali
nnature
b.Penali
nnature
c.Retr
oacti
veincharact
er

Page|
29
d.Gener al
ly pr
ospect
ivei n oper
ati
on although the t
ax st
atur
e may nev
ert
hel
ess oper
ate
ret
rospecti
vel
yprov
idediti
sclear
lyt
helegi
slati
veint
ent.

2.St at
ement1:When t he pri
maryconsideration i
st he legi
slat
iveintent
,butdoubt
s exi
sti
n
determini
ngsuchintent
,thedoubtsmustber esolvedstr
ict
lyagainstthetaxi
ngaut
hor
it
y.
Statement2:Taxexemptionsarestr
ict
lyconstruedagainstthetaxpayer.
a.OnlyStatement1istr
ue.
b.OnlyStatement2istr
ue.
c.Bothstatementsaretr
ue.
d.Bothstatementsarei
ncorrect
.

3.Incaseofdeduct i
onsandexempt i
onsoni
ncomet
axr
etur
ns,
doubt
sshal
lber
esol
ved
a.Liberall
yinf
avorofthet axpayer
b.Stri
ctlyagai
nstthegov ernment
c.Stri
ctlyagai
nstthetaxpay er
.
d.Wi t
hcompr omise

4.Incaseofconfli
ctbetweent hetaxlawsandgener
all
yaccept
edaccount
ingpr
inci
ples(
GAAP)f
or
prepar
ati
onoftaxr et
urns,
a.GAAPshallprevail
overtaxlaws.
b.Taxlawsshal
l prevai
loverGAAP.
c.Thecourt
sshal l
resolvetheissue.
d.Bothtaxl
awsandGAAPshal lbeenforced.

5.Whi choft hef oll

owi ngstat
ementisnottrue?
a.Ifat axpay erisacqui tt
edinacriminalv
iolat
ionoftheTaxCode, t
hisacqui
tt
aldoesnotexonerat
e
himfrom hi sci v
illi
abilit
ytopaythetaxes.
b.Aconv ict
ionf ortaxev asi
onisnotabarforcollecti
onofunpaidt
axes.
c.At axassessmenti snecessar
ytoacr iminalprosecut
ionforwi
ll
fulat
tempttodefeatandevade
paymentoft axes.
d.Cri
mi nalproceedi ngsundertheTaxCodear enowamodeofcol l
ecti
onofinter
nalrev
enuetaxes,
fees,
orchar ges.

6.St
atement1:BI
Rruli
ngsar ethefi
nali
nter
pret
ati
onsoftheTaxCode.
Stat
ement2:SupremeCour tDecisi
onshall
prevai
lov
ertheBIRRul
ings.
a.OnlySt
atement1istr
ue.
b.OnlySt
atement2istrue.
c.Bothst
atementsar
et rue.
d.Bothst
atementsarei
ncor r
ect.

7.Allofthefol
lowingstatementsar eincorrect,
except
a.Generalprovi
sionsunderTaxCodepr ev
ai l
sov erBIRRegulat
ions.
b.BIRRul i
ngsprevai
lsoverLocal TaxOr di
nanceonmat t
ersconcerni
ngbar
angayt
axes.
c.BI
RRul ingsaresoundlawunt i
l changedbycour tresol
uti
on.
d.TaxCodecoul dv i
olat
eConstituti
onal provisi
ons.

8.Whi
chstatementiswr ong?Arevenuebill
a.Mustor
iginatefr
om t heHouseofRepr esentat
iveandonwhi chsamebillt
heSenatemaypropose
amendments.
b.Mayori
ginatefortheSenat eandonwhi chthesamebi l
ltheHouseofRepresent
ati
vemaypropose
amendments.
c.MayhaveaHousev ersi
onandaSenat eversi
onapprovedseparat
elyandthenconsol
i
dat
ed,with
bot
hhousesappr ovi
ngt heconsoli
dationversi
on.
d.Mayberecommendedbyt hePresidenttoCongress.

9.Whichoft hef oll

owi ngst at
ement si
scor r
ect?
a.Rev enue r egulati
ons hav et he for
ce and effectoflaw and a memor andum orderoft he
Commi ssionerofI nternalRevenue,approvedbytheSecretar
yofFinance,hasthesamef orceand
eff
ectasr evenuer egul ati
ons.
b.Ther evenuer egulati
onsi nconfl
ictwit
ht helawarenul
landvoi
d.
c.Theinterpretati
onsoft heformerSecretaryofFi
nancedonotnecessar
il
ybindthei
rsuccessors.
d.All
oft heabov e

10.Stat
ement1:Thelawonprescr
ipt
ionbei
ngar emedi
almeasur
eshouldbeint
erpret
edli
ber
all
y.
Stat
ement2:Doubtsastowhetherdoubl
etaxat
ionhasbeenimposedshoul
dber esol
vedi
nfavorof

Page|
30
thetaxpayer.
a.OnlyStatement1istr
ue.
b.OnlyStatement2istr
ue.
c.Bothstatementsar
etrue.
d.Bothstatementsarei
ncorr
ect
.

>>END<<

Pr
epar
edby
:

DESIREEL.LAT,CPA,
MBA
GuestLect
urer

Page|
31