Gen Pnew

GENERAL PRINCIPLES
AND CONCEPTS OF
TAXATION
atty. cleo d. sabado-andrada. cpa, mba,ll.m

GENERAL PRINCIPLES AND
CONCEPTS OF TAXATION
When the Sovereign State is born,
it will exist continuously with
ESSENTIAL POWERS.
INHERENT POWERS OF
SOVEREIGN STATE
Necessary for the
survival of the
Government
atty. cleo d. sabado-andrada. cpa, mba.ll.m
GENERAL PRINCIPLES AND CONCEPTS OF TAXATION
INHERENT POWERS OF SOVEREIGN STATE
EMINENT
POLICE TAXATION
DOMAIN
POWER POWER
POWER
•The power to • The power to • The power to
protect take private enforce
citizens and property for contributions
public use to support the
provide for government
• (but with just
safety and compensation) and other
welfare of inherent
society. powers of the
State.
atty. cleo d. sabado-andrada. cpa, mba.ll.m

DISTINCTIONS OF TAXATION,
POLICE POWER, AND EMINENT DOMAIN
As to CONCEPT
POLICE EMINENT TAXATION

POWER DOMAIN POWER
POWER
•Power to make •Power to take •The power to
and implement private enforce
laws for the property for contributions
general welfare public use with to raise
just government
compensation funds.

As to PURPOSE

POWER DOMAIN POWER
POWER
•Property is •Private •Money is taken
taken or property is to support the
destroyed to taken for public government
promote use
general
welfare.

As to AUTHORITY

POWER DOMAIN POWER
POWER
•Exercised only •May be granted •Exercised only
by government to public by government
or its political service or or its political
subdivisions. public utility subdivisions.
companies

As to NECESSITY OF DELEGATION

POWER DOMAIN POWER
POWER
•Can be •Can be •The power to
expressly expressly make tax laws
delegated to delegated to cannot be
the local the local delegated,
government government unless there is an
units by the law express
units by the law constitutional
making body. making body provisions or
statute granting it.
As to PERSON AFFECTED

POWER DOMAIN POWER
POWER
•Operates on a •Operates on •Operates on a
community or a the particular community or a
class of private class of
individual. property of an individual
individual

NOT All the inherent powers of the state are

applicable to the community as a whole
BECAUSE….. Eminent Domain is

affecting only the particular person
whose real property is needed by
the government in its priority
projects.
As to BENEFITS

POWER DOMAIN POWER
POWER
•Healthy •Market value of •Continuous
economic the property protection and
standard of expropriated organized
society. society

As to AMOUNT OF IMPOSITION/EXACTION

POWER DOMAIN POWER
POWER
•Cost of •No imposition •Generally no
regulation, limit
license and
other
necessary
expenses.

Taxation is considered as the

STRONGEST of all the inherent powers
….. because much of the needed

government revenue are raised
through taxation.

As to RELATIONSHIP TO CONSTITUTION/
As to SUPERIORITY of CONTRACTS
EMINENT TAXATION
POLICE POWER DOMAIN POWER
POWER
•Relatively free • Superior to and •Subject to
from may override Constitutional
Constitutional Constitutional and Inherent
impairment
limitations provision because limitations
•Superior to non- the welfare of the •Inferior to non-
impairment State is superior impairment
clause to any private clause
contract
•.
NOT all the inherent powers of the government

are superior over the non-impairment clause
of the Constitution.
BECAUSE…Taxation Power is inferior

to the non-impairment clause of
the Constitution.

Taxation is NOT broader than Police

Power as to scope of application
…. because taxation is governed by

SPECIAL LAW while police power is
governed by GENERAL LAW.

As to LIMITATIONS

POWER DOMAIN POWER
POWER
•Limited by the •Bounded by •Constraints by
demand for public purpose Constitutional
public interest and just and Inherent
and due compensation limitations
process.

X corporation was the recipient in 1990 of two (2) tax
exemptions both from Congress, one law exempting the
company’s bond issues from taxes and the other exempting
the company from taxes in the operation of its public utilities.
The two laws extending the tax exemptions were revoked by
Congress before their expiry dates.
Were the revocations constitutional?
Would this constitute impairment of the obligations and

contracts?
(Mactan Cebu IAA v. Marcos G.R. No. 120082, September 11,

1996.)
1997 BAR Examination
The police power, the power to tax and the power
of eminent domain are inherent powers of
government. May a tax be validly imposed in the
exercise of the police power and not of the power
to tax? If your answer is in the affirmative, give an
example.

SIMILARITIES AMONG TAXATION,

EMINENT DOMAIN AND POLICE POWERS
•They are inherent powers of the state;
•They constitute the three ways by which

the state interferes with the private rights
and property;
•They are all necessary attributes of sovereignty.
They are legislative in nature and character;
•They all underlie and exist independently of the

Constitution; The provisions in the Constitution
are just limitations on the exercise of these powers.
SIMILARITIES AMONG TAXATION,

EMINENT DOMAIN AND POLICE POWERS
•They all underlie and exist

independently of the Constitution;
•The provisions in the Constitution are just

limitations on the exercise of these powers.

Describe the power of taxation. May a legislative
body enact laws to raise revenues in the absence
of a constitutional provision granting said body
the power to tax? Explain.


POLICE The exercised of Police Power is
POWER RESTRICTED BY Article III,
Section 1 of the Philippine
Constitution
“No person shall be

The power to deprived of life,
protect citizens liberty, or property
and provide for without due process
safety and welfare of law, “
of society.

The exercised of the Power
POWER OF of Eminent Domain is
EMINENT RESTRICTED BY Article III,
DOMAIN Section 9 of the Philippine
Constitution
“Private Property
shall not be taken
The power to
take private
for public use
property for without just
public use compensation.”

POWER OF
TAXATION
Subject to
INHERENT and
CONSTITUTIONAL
The power to enforce
LIMITATIONS
contributions to
support the
government and
other inherent
powers of the State.
Why is the power to tax considered inherent in a
sovereign State?
meaning of the statement that

“taxation is an inherent power”
This means that it is inseparable for
the existence of the nation.
What is the nature of the power of taxation?

NATURE OF TAXATION POWER

– An inherent power of the sovereignty (exist
inseparably with the state)
– Essentially legislative ( as to passage of tax law)
– For public purposes ( for the benefits of greater
majority)
– Territorial in operation ( within the physical
boundaries of jurisdiction)
– Strongest among the inherent powers of the
government ( plenary and comprehensive)
– Subject to Constitutional and Inherent limitations
DO YOU LOVE PAYING YOUR
TAXES?
FISCAL PROCESSES
BUDGET PROPOSAL
APPROPRIATION OF EXPECTED REVENUES

-80% FROM taxes
ALLOCATION OF ACTUAL COLLECTIONS
atty. cleo d. sabado-andrada. cpa, mba, ll.m

FISCAL POLICY
these are measures employed by

governments to stabilize the economy,
specifically by manipulating the levels and
allocations of taxes and government
expenditures.

REVENUES and FUNDING
The Philippine government generates

revenues through personal and INCOME
TAX collection…
TAX COLLECTIONS COMPRISE THE

BIGGEST PERCENTAGE OF REVENUE
COLLECTED.

Appropriation is the authority to spend
tax money through legislation

TAXES?
MEANING
NATURE
BASIS
CHARACTERISTICS
AND
PURPOSE OF TAXATION

DEFINITION OF TAXATION
A power by which an Independent State,
through its law-making body, raises and
accumulates revenue from its inhabitants
to pay the necessary expenses of the
government. (51 Am. Jur. 341; 1 Cooley 72 – 93)
Means Process

As a power, it refers to the inherent power of a

state,
As a process, it passes a legislative undertaking through

the enactment of tax laws by the Congress which will
be implemented by the Executive Branch of the
government through its Bureau of Internal Revenue (BIR)
As a means, it is a way of collecting and
apportioning the cost of government among
those who are privileged to enjoy its benefits.
(Commissioner vs. Algue Inc. February 17, 1988)
UNLIMITED.
atty. cleo d. sabado-andrada. cpa, mba,llm

•Taxation is Comprehensive,
Unlimited, Plenary, and
Supreme .==CUPS
Note:
•it is unlimited in the absence of any
Constitutional provision restricting it.
POWER TO TAX IS THE POWER TO DESTROY
Taxation is a DESTRUCTIVE POWER which
interferes with the personal and property
rights of the people and takes from them a
portion of their property for the support of
the government.

POWER TO TAX IS NOT THE POWER TO DESTROY
WHILE THIS COURT SITS.
The Constitution as the fundamental law of the land overrides
any legislative act that runs counter to it.
Any tax law that violates the Constitution must be declared by

the court null and void.
Any abusive act in relation to the imposition of tax that leads

in the destruction of the natural and fundamental rights,
which no free government could consistently violate, it is the
duty of the judiciary to hold such act unconstitutional.
atty. cleo d. sabado-andrada. cpa, mba,ll.m.

Justice Holmes once said: “The power to tax is
not the power to destroy while this Court
(Supreme Court) sits.” Describe the power to tax
and its limitations.

1. Prepare 1/8 sheet of yellow paper.
2. Write your name.
3. At the front portion, put the numbers 1 to

8.
4. See the example below.

5. Write only the
letter of your
choice.
1…2…3…4…5…
6…7…8…9…10…
1. THE SHARING OF ACTUAL GOVERNMENT
REVENUE COLLECTED IS CORRECTLY DESCRIBED
AS
 A. Expropriation
 B. Appropriation
 C. Allocation
 D. Dividend declaration
2. THE FOLLOWING ARE SIMILARITIES OF THE
THREE INHERENT POWERS OF THE GOVERNMENT,
TAXATION, POLICE AND EMINENT DOMAIN, EXCEPT
ONE;
 A. They affect all persons or the public

 B. They are legislative in implementation
 C. They are necessary attributes of sovereignty
 D. They interfere with private rights and property.

3. WHICH STATEMENT REFERS TO POLICE
POWER AS DISTINGUISHED FROM TAXATION?
 A. It is restricted by Constitutional provision.

 B. It is superior to the non-impairment clause
of the constitution.
 C. It involves the taking of property by the
government.
 D. The amount imposed has no limit.
 A. The amount imposed has no limit

 B. It can only be imposed on specific properties
 C. It involves the taking of property by the

government
 D. The amount imposed depends on whether
the activity is useful or not
5. WHICH OF THE FOLLOWING IS A CHARACTERISTIC OF
TAXATION WHICH DISTINGUISHES IT FROM POLICE POWER
AND
EMINENT DOMAIN?
 A. For public purposes

 B. Legislative in nature
 C. Generally payable in money
 D. Applied to the community as a whole.

6. WHICH OF THE FOLLOWING LIMITATIONS ON THE
POWER OF TAXATION RESTRICTS THE DELEGATION OF
TAXATION POWER TO THOSE MINISTERIAL AND ADVISORY
IN NATURE, SUCH AS VALUATION AND ASSESSMENT OF
OBJECT OF TAXATION?
 A. Inherently legislative
 B. Due process of law
 C. International comity
 D. Non-impairment clause
7. ONE OF THE FOLLOWING IS NOT AMONG THE
BASIC JUSTIFICATION FOR THE EXERCISE OF
TAXATION POWER.
 A. Taxation is based on necessity.

 B. Taxation is the lifeblood of the
government.
 C. Taxation is the bread and butter of the
government.
 D. Taxation is granted in the Constitution.
8. THIS DEPARTMENT OF NATIONAL GOVERNMENT
HAS THE EXECUTIVE SUPERVISION AND CONTROL
OVER TAX ADMINISTRATION.
 A. Bureau of Internal Revenue

 B. Bureau of Customs
 C. Department of Finance
 D. Court of Justice
PASS NOW
YOUR PAPERS….
ANSWERS…
1. THE SHARING OF ACTUAL GOVERNMENT
REVENUE COLLECTED IS CORRECTLY DESCRIBED
AS
 A. Expropriation
 B. Appropriation
 C. Allocation
 D. Dividend declaration
2. THE FOLLOWING ARE SIMILARITIES OF THE
THREE INHERENT POWERS OF THE GOVERNMENT,
TAXATION, POLICE AND EMINENT DOMAIN, EXCEPT
ONE;
 A. They affect all persons or the public

 B. They are legislative in implementation
 C. They are necessary attributes of sovereignty
 D. They interfere with private rights and property.

 A. It is restricted by Constitutional provision.

 B. It is superior to the non-impairment
clause of the constitution.
 C. It involves the taking of property by the
government.
 D. The amount imposed has no limit.
 A. The amount imposed has no limit

 B. It can only be imposed on specific properties
 C. It involves the taking of property by the

government
 D. The amount imposed depends on whether
the activity is useful or not
5. WHICH OF THE FOLLOWING IS A CHARACTERISTIC OF
TAXATION WHICH DISTINGUISHES IT FROM POLICE POWER
AND
EMINENT DOMAIN?
 A. For public purposes

 B. Legislative in nature
 C. Generally payable in money
 D. Applied to the community as a whole.

6. WHICH OF THE FOLLOWING LIMITATIONS ON THE
POWER OF TAXATION RESTRICTS THE DELEGATION OF
TAXATION POWER TO THOSE MINISTERIAL AND ADVISORY
IN NATURE, SUCH AS VALUATION AND ASSESSMENT OF
OBJECT OF TAXATION?
 A. Inherently legislative
 B. Due process of law
 C. International comity
 D. Non-impairment clause
7. ONE OF THE FOLLOWING IS NOT AMONG THE
BASIC JUSTIFICATION FOR THE EXERCISE OF
TAXATION POWER.
 A. Taxation is based on necessity.

 B. Taxation is the lifeblood of the
government.
 C. Taxation is the bread and butter of the
government.
 D. Taxation is granted in the Constitution.
8. THIS DEPARTMENT OF NATIONAL GOVERNMENT
HAS THE EXECUTIVE SUPERVISION AND CONTROL
OVER TAX ADMINISTRATION.
 A. Bureau of Internal Revenue

 B. Bureau of Customs
 C. Department of Finance
 D. Court of Justice
TAXES?
MEANING
AND
ESSENTIAL
CHARACTERISTICS
OF
TAX/ES

Definition of Tax/Taxes
are :
-enforced proportional contributions
-from persons and property,
-levied by the state by virtue of its sovereignty
-for the support of the government and for all
its public needs.
TAXES DISTINGUISHED FROM OTHER IMPOSITIONS
TAX versus LICENSE
Levied in the exercise of Emanates from the police

the power of taxation power of the State.
Purpose is to generate revenue Imposed for regulatory

purposes

SPECIAL
TAX versus
ASSESSMENT
Levied on land, persons, Levied on land. Collected by the
property, income, and business government for the purpose of reimbursing
itself for certain benefits regarding
construction of public works
Personal liability of the taxpayer As a rule, it cannot be made a

personal liability of the persons
assessed.
Based on necessity and Based solely on benefits
partially on benefits
Special application only as to
General application a particular time and place.
TAX versus TOLL
Levied for the support Compensation for the use

of government of another’s property.
Imposed only by the State Imposed by the

government or private
individual

TAX versus PENALTY
Civil Liability. Only

A punishment for the
when a person fails commission of the crime
to pay his civil
obligation to pay
taxes that he will be
criminally liable
FINE
versus
TAX
WE SHOULD BE THANKFUL FOR THE

TAXES WE PAY BECAUSE IT MEANS THAT
WE ARE EMPLOYED--Nancy J. Carmody

FINE
versus
TAX
WE SHOULD BE THANKFUL FOR THE

TAXES WE PAY BECAUSE IT MEANS THAT
WE ARE EMPLOYED--Nancy J. Carmody

TAX versus TARIFF
Includes various kinds of

enforced contributions A kind of tax imposed on
imposed upon persons for articles which are traded
the attainment of public internationally
purposes.

TAX versus DEBT
Based on law Based on contract or judgment
Failure to pay may result in Failure to pay does not

imprisonment result to imprisonment
Generally payable in money Can be payable in money,

property or service
Can not be assigned Can be assigned
Not subject to May be subject to
compensation or set-off compensation or set-off
Does not draw interest Draws interest if stipulated
unless delinquent or delayed
TAX versus DEBT

Not subject to May be subject to
compensation or set-off compensation or set-off
REQUISITES OF LEGAL COMPENSATION
Article 1279 and 1290, New Civil Code

Artilce 1279 , New Civil Code: “In order that compensation may
be proper , it is necessary:
1. That each one of the obligors be bound principally, and that he

be at the same time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things due

are consumable, they be of the same kind, and also of the
same quality if the latter has been stated.
3. That the two debts be due;
4. That they be liquidated and demandable;
5.That over neither of them there be any retention or controversy,

commenced by third persons and communicated in due time to
the debtor.
Article 1290 , New Civil Code: “ When all
the requisites mentioned in Article 1279 are
present, compensation takes effect by
operation of law, and extinguishes both
debts to the concurrent amount even though
the creditors and debtors are not aware of
the compensation.”

taxes are not
government and the
subject to set-off taxpayer are NOT
or legal mutual creditor and
compensation debtor of each other.

government and the
taxes are not subject to
taxpayer are NOT mutual
set-off or legal
creditor and debtor of each
compensation
other.

X is the owner of a residential lot situated at Quirino
Avenue, Pasay City. The lot has an area of 300 square
meters. On June 1, 1994, 100 square meters of said lot
owned by X was expropriated by the government to be
used in the widening of Quirino Avenue, for P300,000.00
representing the estimated assessed value of said
portion. From 1991 to 1995, X, who is a businessman,
has not been paying his income taxes in the total
amount of P150,000.00. X claims his income tax liability
has already been compensated by the amount of
P300,000.00 which the government owes him for the
expropriation of his property. Decide.
(1996 BAR Examination)

May taxes be the subject of set-off or
compensation?

May a taxpayer who has pending claims for VAT
input credit or refund, set-off said claims against
his other tax liabilities? Explain your answer.

Can an assessment on local tax be the subject of
set-off or compensation against a final judgment
for a sum of money obtained by the taxpayer
against the local government that made the
assessment?. Explain.

Definition of Tax/Taxes
are :
-enforced proportional contributions
-from persons and property,
-levied by the state by virtue of its sovereignty
-for the support of the government and for all
its public needs.
ESSENTIAL ELEMENTS/CHARACTERISTICS OF A TAX
Enforced The imposition of tax is not

Contribution dependent upon the will or assent of
the person being taxed.
Proportionate The imposition of tax is based on

in Character the ability to pay; higher income –
higher tax rates

Money is the preferred payment of
Generally taxes. If property is taken to satisfy
payable in tax liability, the property is sold
money through public auction to satisfy the
tax obligation;
Levied ON persons, property, acts, privileges or transactions

TRUE or FALSE.
1. A law that allows taxes to be paid either in

cash or in kind is valid.

Levied BY the State which has jurisdiction or

control over the subject to be taxed
Levied BY the Legislature
Levied FOR public purpose
PAID at regular periods or intervals

Taxes are assessed for the purpose of generating revenue to
be used for public needs. Taxation itself is the power by which
the State raises revenue to defray the expenses of
government. A jurist said that a tax is what we pay for
civilzation. In our jurisdiction, which of the following
statements may be erroneous:
1. Taxes are pecuniary in nature.
2. Taxes are enforced charges and contributions.
3. Taxes are imposed on persons and property within the
territorial jurisdiction of a State.
4. Taxes are levied by the executive branch of the
government.
5. Taxes are assessed according to a reasonable rule of
apportionment. Justify your answer or choice briefly.
Taxes are assessed for the purpose of generating revenue to
be used for public needs. Taxation itself is the power by which
the State raises revenue to defray the expenses of
government. A jurist said that a tax is what we pay for
civilzation. In our jurisdiction, which of the following
statements may be erroneous:
1. Taxes are pecuniary in nature.
2. Taxes are enforced charges and contributions.
3. Taxes are imposed on persons and property within the
territorial jurisdiction of a State.
4. Taxes are levied by the executive branch of the
government.
5. Taxes are assessed according to a reasonable rule of
apportionment. Justify your answer or choice briefly.
THEORY
AND
BASIS
OF
TAXATION

IMPORTANCE OF TAXATION
Taxation power exists inseparably with the

State because it is essential for the existence
of the government. (Luzon Stevedoring Co. vs. CTA, July
29, 1988).
WITHOUT TAXATION, NO REVENUE
Without revenue, no continuing government
Without government, no civilization.
atty. cleo d. sabado-andrada. cpa, mba

BASIS OF TAXATION
government cannot exist without any means

to pay its expenses – a necessary burden to
preserve the State’s sovereignty.
Taxation is the “lifeblood” or the “bread and

butter” of the government

Discuss the meaning and the implications of the
following statement:
“Taxes are the lifeblood of government and

their prompt and certain availability is an
imperious need.”

IMPORTANCE OF TAXATION
Taxation power exists inseparably with the

State because it is essential for the existence
of the government. (Luzon Stevedoring Co. vs. CTA, July
29, 1988).
WITHOUT TAXATION, NO REVENUE
Without revenue, no continuing government
Without government, no civilization.

BASIS OF TAXATION
government cannot exist without any means

to pay its expenses – a necessary burden to
preserve the State’s sovereignty.
Taxation is the “lifeblood” or the “bread and

butter” of the government

BASIS OF TAXATION
GOVERN SILENT PARTNER in PROVIDING

INCOME/GIVING PROTECTION TO ITS
MENT CITIZENRY
pay taxes to support the government
PEOPLE
symbiotic relationship and partnership
between the taxing authority and the subject of taxation
PURPOSE/OBJECTIVES
OF
TAXATION

PURPOSES OF TAXATION
REVENUE PURPOSE
PRIMARY PURPOSE
TO RAISE REVENUE TO SUPPORT THE GOVERNMENT

REGULATORY PURPOSE or SUMPTUARY PURPOSE
SECONDARY or NON REVENUE OBJECTIVE
Encourage Tool to protect

growth of local TRADE
industries RELATION
Implement the police

power of the state
REGULATORY PURPOSE or SUMPTUARY PURPOSE
Special duties may be

Tool to protect
TRADE
created to protect local
RELATION industries against
foreign competition.

SPECIAL DUTIES IMPOSED
TO PROTECT LOCAL INDUSTRIES
this special duty is

Discriminatory designed to offset any
Duty foreign discrimination
against our local
commerce.

imposed to offset any

Countervailing foreign subsidy granted
Duty to imported goods to the
prejudice of our local
industries.

MARKING DUTY

DUMPING DUTIES

POWER TO TAX IS THE POWER TO BUILD
Taxation is a a tool that creates, builds and

sustains the upliftment of social condition of the
people in general
Taxation supports the other inherent

powers of the State (police power and
power of eminent domain) that preserve
the fundamental rights of the people.
SURVEY
OF
PHILIPPINE TAXES

THE NATIONAL INTERNAL REVENUE TAXES
Sec. 21 of NIRC
Percentage
Documentary
Taxes Donor’s Tax
Stamp Taxes
E-VAT Excise Income

Tax Tax
Estate Such other taxes as may be

Taxes imposed
and collected by the BIR
•Direct TAXES
are those taxes paid by the persons who
are bound by law to pay the tax. These
taxes are non-transferrable.
•Indirect TAXES
are those demanded in the first instance
from one person but the burden thereof can
be shifted or passed to another. These taxes
are transferrable.

Sec. 21 of NIRC
DIRECT TAXES
Donor’s Tax
Income
Estate
Tax
Taxes

Sec. 21 of NIRC
INDIRECT TAXES
Percentage Taxes Documentary

Stamp Taxes
R-VAT Excise Tax

Distinguish a direct from an indirect tax.”

Among the taxes imposed by the Bureau of
Internal Revenue are income tax, estate and
donor’s tax, value-added tax, excise tax, other
percentage taxes, and documentary stamp tax.
Classify these taxes into direct and indirect taxes,
and differentiate direct from indirect taxes.

Distinguish direct from indirect taxes, and give
an example for each one.

Distinguish direct taxes from indirect taxes. Give
examples.

What kind of taxes, fees and charges are
considered as National Internal Revenue Taxes
under the national Internal Revenue Codes
(NIRC)?

THE LOCAL TAXES
TAXING POWER OF THE PROVINCES
Tax on Transfer of Real Property Ownership
Tax on Business of Printing and Publication.
Franchise Tax
Tax on Sand, Gravel and Other Quarry Resources
Professional Tax
Amusement Tax

LOCAL GOVERNMENT TAXATION
TAXING POWER OF THE PROVINCES
Annual Fixed Tax For Every Delivery Truck or Van
of Manufacturers or Producers, Wholesalers pf,
Dealers, or Retailers in Certain Products
in an amount not
exceeding Five hundred
pesos (P500.00).

TAXING POWER OF THE MUNICIPALITIES
Tax on Business
Fees and Charges On

BUSINESS and
OCCUPATION
Fees for Sealing and Licensing of Weights and Measures
Fishery Rentals, Fees and Charges

TAXING POWER OF THE CITIES

the city, may levy the taxes, fees, and charges
which the province or municipality may impose
The rates of taxes that the city may levy may

exceed the maximum rates allowed for the
province or municipality by not more than
fifty percent (50%) except the rates of
professional and amusement taxes.

TAXING POWER OF THE BARANGAYS
On stores or retailers with fixed business

establishments with gross sales or receipts of
the preceding calendar year of Fifty thousand
pesos (P=50,000.00) or less, in the case of
cities and Thirty thousand pesos
(P=30,000.00) or less, in the case of
municipalities, at a rate not exceeding one
percent (1%) on such gross sales or
receipts.
TAXING POWER OF THE BARANGAYS
Other Fees and Charges - The barangay may
levy reasonable fees and charges:
(1) On commercial breeding of fighting cocks,

cockfights and cockpits;
(2) On places of recreation which charge admission

fees; and
(3) On billboards, signboards, neon signs, and

outdoor advertisements.
COMMON REVENUE-RAISING POWERS
Service Fees and Charges.
Public Utility Charges. –

-public utilities owned, operated and
maintained by them within their
jurisdiction.

Toll Fees or Charges.
- toll fees or charges for the use of any

public road, pier or wharf, waterway,
bridge, ferry or telecommunication system
funded and constructed by the local
government unit concerned

Provided, That no such toll fees or charges

shall be collected from officers and enlisted
men of the Armed Forces of the
Philippines and members of the
Philippine National Police on mission,
post office personnel delivering mail,
physically-handicapped, and disabled
citizens who are sixty-five (65) years or
older.
When public safety and welfare so

requires, the sanggunian concerned
may discontinue the collection of the
tolls, and thereafter the said facility
shall be free and open for public use.

Aside from the basic real estate tax, give three
(3) other taxes which may be imposed by
provincial and city governments as well as by
municipalities in the Metro Manila area.”

TARIFF/DUTIES
FLEXIBLE TARIFF CLAUSE
It refers to the authority given to the

President to adjust TARIFF RATES.

TARIFF/DUTIES
These are customs or duties imposed on those

who bring merchandise into a country from
abroad .
A schedule or list of rates, duties or taxes

imposed on imported goods.

PURPOSES OF TARIFF
For the protection of

domestic producers
Tariff may be created as a retaliation

against the tariffs levied by a foreign
country

What do you understand by the term “flexible
tariff clause” as used in the Tariff and Customs
Code.”

Under the Tariff and Customs Code, what are (a)
dumping duties (b) countervailing duties ©
marking duties (d) discriminatory duties?

Special Safeguard duty imposed on an
agricultural product whenever the
cumulative import volume in a given year
exceeds its trigger volume and when the
actual (C.I.F.) import price falls below its
trigger price. It is imposed by the
Commissioner of Customs through SOF
upon request by the Sec of Agriculture.
(R.A. 8800 7-17-2000 An Act Protecting Local
Industry by Providing Safeguard Measures to be
undertaken in response to increased imports and
providing penalties for violations thereof)
General Safeguard Measure in case of
non-agricultural products, a product is
being imported into the country in increased
quantities as to cause or threaten to cause
serious injury to the domestic industry.
Commissioner of Customs through SOF
upon request by the Sec of Trade and
Industry.
(R.A. 8800 7-17-2000 An Act Protecting Local
Industry by Providing Safeguard Measures to be
undertaken in response to increased imports and
providing penalties for violations thereof)
Explain briefly each of the special custom duties
authorized under the Tariff and Customs Code.

CLASSIFICATION
OF
TAXES

1. Prepare 1/4
sheet of
YELLOW yellow
paper.
2. Write your
name.
3. At the front
portion, place
the numbers
1 to 20.
5. Write only the letter
of your choice.
STRICTLY NO ERASURE.
ANSWERS WITH ERASURE
WILL NOT BE MERITED
WITH POINT/S.
1…2…3…4…5…
6…7…8…9…10…
1.The following are Internal
Revenue Taxes, except:
a. Excise Tax on Sin Products

b. Documentary Stamp Tax
c. Custom Duties
d. VAT
2.The following are not taxes,
except:
a. Marking Duties
b. License Fee
c. Special Assessment
d. Toll Fee
3. Which of the following statement is
correct?
a. Custom duties are more of
regulatory than fiscal as to purpose
b. Excise Taxes on Sin products are
more of fiscal than regulatory as to
purpose
c. Income Tax is more of regulatory
than fiscal as to purpose
d. Transfer taxes are more of
regulatory than fiscal as to purpose.
4. It pertains to the distribution of
actual revenue collected to
different departments in
accordance to the General
Appropriation Act,
a. Allocation
b. Sharing
c. Appropriation
d. Dividend
5. Which of the following is not correct?
a. Taxation is a way of apportioning the cost of
government among those who are privileged to
enjoy its benefits.
b. Taxation is a process or act of imposing a
charge by governmental authority on property,
individuals or transactions to raise money for
public purposes.
c. Taxation refers to the inherent power of a
state, co-extensive with sovereignty, to demand
contributions for public purposes to support the
government.
d. Imposition of tax is exclusively under
President’s authority
6. All of the following are the
justification for the exercise of
taxation power, except:
a. A grant in the Constitution
b. Because of necessity
c. Reciprocal duties of support
and protection
d. Lifeblood of the government
7. Which of the following is not a
natural attributes of taxation?
a. Inherent power of sovereignty

b.Essentially a legislative function
c.The strongest among the
inherent powers of the
government
d.Not subject to Constitutional
and Inherent limitations
a. Any provision in the Constitution regarding

taxation creates rights for the sovereignty to
have the power tax.
b. The law-making body of the government and
its political subdivisions exercise the power of
taxation.
c. The power of taxation flows forth from the
legitimate objective of supporting the services of
the government.
d.Taxes are utilized for public purpose if the
welfare of the nation or the greater portion of its
population has benefited with its use.
a. Taxation is inseparable in the existence of a

nation
b. Taxation is the indispensable and inevitable
price for civilized society, the government
would be paralyzed without it.
c. To raise revenue by collecting funds or
property for the support of the government is a
Sumptuary Purpose of taxation.
d.The fiscal policy of the government is based
on the rule that receipts or revenue should be
equal to annual government expenditures.
10. This Constitutional provision on
taxation is embodying the
philosophy that “he who received
more should give more.”
a. Due process of law

b. Uniformity in application of law
c. Equity in taxation
d. Non-impairment clause
11. Which of the following statements is
not correct?
a. A revenue bill must originate from the

Lower House of Congress.
b. A Senate can amend or concur the
House of Representatives Bill
c. Any differences between the House of
Representatives and Senate version are
resolved in a joint conference committee.
d. The President’s veto of the Tax Bill
could not be reversed by Congress.
12. The following as the
characteristics of Tax Law,
except:
a. A special law
b. Penal in Nature
c. Prospective in Application
d. A legislative act
13. The following are basic
characteristics of taxes, except:
a. A contractual contribution
b.Proportionate to the ability of
taxpayer to pay
c.Generally payable in money
d. Imposed on person, property
and rights.
14. The following is not
considered as among the
elements of a civilized society?
a. The government
b. Its territory
c. Its people
d. His property
15. Which of the following is not
one of the inherent powers of the
government to be able to
maintain a civilized society?
a. Taxation power
b. Police power
c. Legislative power
d. Power of eminent domain
16. The following are the similarities
among the inherent powers of the
government, except:
a. All are inherent to the existence of

the government
b. All are applied to the community
as a whole
c. All requires legislation
d. All are for public purposes
17. Its exercise is/are restricted
by Constitutional “just
compensation” clause
a.Taxation
b.Police power
c.Eminent domain
d.B or C
18. Its exercise will mainly
involve expropriation process to
carry out government program.
a.Taxation
b.Police Power
c.Eminent Domain
d.All of the above
19. Which of the following is not one of the
similarities among the three inherent
powers of the state?
a. They are inherent powers of the state
b. They constitute the three ways by which
and property
c.They are restricted by the “just
compensation clause” of the Constitution.
d.They all underlie and exist independently
20. All of the following are
similarities among inherent powers
of the government, except:
a. All are superior than the non
impairment clause of the
constitution
b. All are inherent to the existence of
the government
c. All are for public purposes
d. All requires legislation of rules
and regulations
AT THE BACK PORTION OF
YOUR PAPER….
ANSWER THIS QUESTION…..
DEFINE TAXATION.
5 points
PASS NOW
YOUR PAPERS….
1.The following are Internal
Revenue Taxes, except:
a. Excise Tax on Sin Products

b. Documentary Stamp Tax
c. Custom Duties
d. VAT
2.The following are not taxes,
except:
a. Marking Duties
b. License Fee
c. Special Assessment
d. Toll Fee
3. Which of the following statement is
correct?
a. Custom duties are more of
regulatory than fiscal as to purpose
b. Excise Taxes on Sin products are
more of fiscal than regulatory as to
purpose
c. Income Tax is more of regulatory
than fiscal as to purpose
d. Transfer taxes are more of
regulatory than fiscal as to purpose.
4. It pertains to the distribution of
actual revenue collected to
different departments in
accordance to the General
Appropriation Act,
a. Allocation
b. Sharing
c. Appropriation
d. Dividend
a. Taxation is a way of apportioning the cost of
government among those who are privileged to
enjoy its benefits.
b. Taxation is a process or act of imposing a
charge by governmental authority on property,
individuals or transactions to raise money for
public purposes.
c. Taxation refers to the inherent power of a
state, co-extensive with sovereignty, to demand
contributions for public purposes to support the
government.
d. Imposition of tax is exclusively under
President’s authority
6. All of the following are the
justification for the exercise of
a. A grant in the Constitution
b. Because of necessity
c. Reciprocal duties of support
and protection
d. Lifeblood of the government
7. Which of the following is not a
natural attributes of taxation?
a. Inherent power of sovereignty

b.Essentially a legislative function
c.The strongest among the
inherent powers of the
government
d.Not subject to Constitutional
and Inherent limitations
a. Any provision in the Constitution regarding

taxation creates rights for the sovereignty to
have the power tax.
b. The law-making body of the government and
its political subdivisions exercise the power of
taxation.
c. The power of taxation flows forth from the
legitimate objective of supporting the services of
the government.
d.Taxes are utilized for public purpose if the
welfare of the nation or the greater portion of its
population has benefited with its use.
a. Taxation is inseparable in the existence of a

nation
b. Taxation is the indispensable and inevitable
price for civilized society, the government
would be paralyzed without it.
c. To raise revenue by collecting funds or
property for the support of the government is a
Sumptuary Purpose of taxation.
d.The fiscal policy of the government is based
on the rule that receipts or revenue should be
equal to annual government expenditures.
10. This Constitutional provision on
taxation is embodying the
philosophy that “he who received
more should give more.”
a. Due process of law

b. Uniformity in application of law
c. Equity in taxation
d. Non-impairment clause
11. Which of the following statements is
not correct?
a. A revenue bill must originate from the

Lower House of Congress.
b. A Senate can amend or concur the
House of Representatives Bill
c. Any differences between the House of
Representatives and Senate version are
resolved in a joint conference committee.
d. The President’s veto of the Tax Bill
could not be reversed by Congress.
12. The following as the
characteristics of Tax Law,
except:
a. A special law
b. Penal in Nature
c. Prospective in Application
d. A legislative act
13. The following are basic
characteristics of taxes, except:
a. A contractual contribution
b.Proportionate to the ability of
taxpayer to pay
c.Generally payable in money
d. Imposed on person, property
and rights.
14. The following is not
considered as among the
elements of a civilized society?
a. The government
b. Its territory
c. Its people
d. His property
15. Which of the following is not
one of the inherent powers of the
government to be able to
maintain a civilized society?
a. Taxation power
b. Police power
c. Legislative power
d. Power of eminent domain
16. The following are the similarities
among the inherent powers of the
government, except:
a. All are inherent to the existence of

the government
b. All are applied to the community
as a whole
c. All requires legislation
d. All are for public purposes
17. Its exercise is/are restricted
by Constitutional
“just compensation” clause
a.Taxation
b.Police power
c.Eminent domain
d.B or C
8. Its exercise will mainly involve
expropriation process to carry
out government program.
a.Taxation
b.Police Power
c.Eminent Domain
d.All of the above
19. Which of the following is not one of the
similarities among the three inherent
powers of the state?
a. They are inherent powers of the state
b. They constitute the three ways by which
and property
c.They are restricted by the “just
compensation clause” of the Constitution.
d.They all underlie and exist independently
20. All of the following are
similarities among inherent powers
of the government, except:
a. All are superior than the non
impairment clause of the
constitution
b. All are inherent to the existence of
the government
c. All are for public purposes
d. All requires legislation of rules
and regulations
ANSWERS:
1. Prepare 1/4
1.Csheet11.
of d
2.AYELLOW12. byellow
3.Apaper.13. a
4.A 14.
2. Write your
d
5.Dname.15. c
6.A 16. b
3.
7.DAt the17.
front
c
portion, place
8.Athe numbers
18. c
9.C1 to 20.
19. c
10.C 20.a
YOUR PAPER….
ANSWER THIS QUESTION…..
DEFINE TAXATION.
5 points
A power by which an Independent State,
through its law-making body, raises and
accumulates revenue from its inhabitants to
pay the necessary expenses of the
government. (51 Am. Jur. 341; 1 Cooley 72 – 93)
Means Process

CLASSIFICATION
OF
TAXES

CLASSIFICATION OF TAXES
BASIS FOR CLASSIFICATION OF TAXES
ACCORDING TO:
Subject or Object Who bears the burden
Purpose Determination of Amount

As to Scope or imposing authority
Rate

As to SCOPE and AUTHORITY IMPOSING THE
TAX
•National.
Taxes collected by the National Government.
Examples :Estate and Donor’s Taxes; Income Tax; Value -
Added Tax; Excise Tax; Customs Duties; and
Documentary Stamp Taxes.
•Local or Municipal.
Taxes collected by the Municipal Governments.
Examples : Community tax; Municipal licenses taxes;
Professional tax; and Real estate tax.
As to WHO BEARS THE BURDEN
•Direct.
demanded from persons who are bound by law to
pay the tax. These taxes are non-transferrable.
Examples: Community Tax, Income Tax, Transfer taxes,
Traveler’s Tax and Corporate Income Tax.
•Indirect.
demanded in the first instance from one person
but the burden thereof can be shifted or passed to
another. These taxes are transferrable.
Examples: VAT, Customs Duties, Amusement tax, Excise tax
on specified goods, and Percentage taxes.
As to SUBJECT MATTER/OBJECT
•Personal, Poll, or Capitation.
imposed on all RESIDENTS, whether citizen or
not. Examples: Community Tax
•Property.
imposed on personal or real property.
Examples: Real Property Tax
•Excise.
imposed upon the performance of a right or act,
the enjoyment of a privilege or the engagement
in an occupation
Examples: Professional tax, Income Tax, Estate Tax, Donor’s
Tax and Value-Added Tax.

OBJECTS OF TAXATION
EXCISE
PERSONS PROPERTIES OBJECTS
•Natural •real •transaction

•Juridical •Personal •Privilege
•Tangible •Right
•Intangible •interest

As to DETERMINATION OF
AMOUNT/MANNER OF COMPUTING TAX
•Ad Valorem.
imposed based on a specific proportion of the VALUE fixed by
law or as appraised.
Examples: Real Estate Tax, Custom Duties and Excise Tax on
fermented liquors, cigars, cigarettes, gasoline and
automobiles.
•Specific.
imposed and based on some standard of WEIGHT or
MEASUREMENT.
Examples: excise taxes on distilled spirits, wines, fireworks, and
cinematographic films.
Mixed or Compound- imposed both specific and ad valorem.

TITLE VI-NIRC
EXCISE TAXES ON CERTAIN GOODS
Chapter I General Provisions
Chapter II Exemption or Conditional Tax-Free
Removal of Certain Articles
Chapter III Excise Tax on Alcohol Products
Chapter IV Excise Tax on Tobacco Products
Chapter V Excise Tax on Petroleum Products
Chapter VI Excise Tax on Miscellaneous Articles
Chapter VII Excise Tax on Mineral Products
Chapter VIII Administrative Provisions Regulating
Business of Persons Dealing in
Articles Subject To Excise Tax
As to the RATE or GRADUATION
•Proportional or Flat Rate
rate of the tax is based on a fixed percentage of
the amount of the property, receipt or other basis to be
taxed.
Examples: Real estate tax and VAT, Uniform Corporate
Income Tax Rate
•Progressive or Graduated Rate
rate of the tax increases as the tax base or
bracket increases
Examples: Income Taxes, Estate Taxes and Donor’s
Taxes
•Regressive Rate
rate of tax decreases as the tax base or bracket
increases.

PROGRESSIVE RATES IN
COMPUTING INCOME TAX
ANNUAL TAXABLE INCOME (January 1, 2018 – (January 1, 2023 –
December 31, 2022) Onwards)
Not over P10,000 5%
Over P10,000
Not over P250,000 but P500 0% + 10% of the 0% excess
not over P30,000 over P10,000
Example: Over P30,000butbut
Over P250,000 notnot20%
P2,500
of the excess +
over15%
15% of theexcess
of the excess
over
The over P400,000
over P70,000 overP250,000
P30,000 P250%
INDIVIDUAL Over P70,000 but P8,500 + 20% of the excess

not
Overover P140,000
P400,000 but not over P70,000
P30,000 + 25% of the P22,500 + 20% of the
TAX over P800,000
Over P140,000 butexcess over P400,000
P22,500 + 25% excess
of over
the P400,000
excess
SYSTEM not over P250,000 over P140,000
Over P250,000
Over P800,000 but notbutP130,000
P50,000 + 30% + 30%P102,500
of the of excess over
+ 25% of the
overover
not P2,000,000
P500,000 excess over P800,000
P250,000 excess over P800,000
Over P500,000 P125,000 + 32% of the excess
Over P2,000,000 but over P500,000
P490,000 + 32% of the P402,500 + 30% of the
not over P8,000,000 excess over excess over
P2,000,000 P2,000,000
Over P8,000,000 P2,410,000 + 35% of P2,202,500 + 35% of

the excess over the excess over
atty. cleo d. sabado-andrada. cpa, mba P8,000,000 P8,000,000
PROGRESSIVE RATES IN COMPUTING DONOR’S TAX
Rates of Donor’s Tax – GIFT TO RELATIVES
TAX TABLE:
If Net Gift is : Donor’s Tax is:
Not over P 100,000.00 Exempt
Over P 100,000 but not over P 200,000 P 0 + 2% of the excess
over P100,000
Over P 200,000 but not over P 500,000 P 2,000 + 4% of the
excess over P200,000
Over P 500,000 but not over P 1,000,000 P 14,000 + 6% of the
excess over P500,000
Over P 1,000,000 but not over P 3,000,000 P 44,000 +8% of the
excess over P1,000,000
Over P 3,000,000 but not over P 5,000,000 P 204,000 + 10% of the
Over P 5,000,000 but not over P10,000,000 P 404,000 + 12% of the
Over P10,000,000 and above P1,004,000 + 15% of the
Rates of Donor’s Tax – GIFT TO STRANGERS
When the donee or beneficiary is

a STRANGER the tax payable by
the donor shall be 30% of the
NET gifts.
Section 99 (B), NIRC

PROGRESSIVE RATES IN COMPUTING ESTATE TAX
TAX TABLE:
If Net Taxable Estate is : Estate Tax is:
Not over P 200,000.00 0%
Over P 200,000 but not over P 500,000 P 0 + 5% of the excess over

P200,000
Over P 500,000 but not over P 2,000,000 P 15,000 + 8% of the excess

over P 500,000

excess over P 2,000,000

Over P 10,000,000 P 1215,000 + 20% of the

As to PURPOSE
•Revenue or Fiscal.
imposed for the purpose of raising public
funds for the service of the government.
Examples: Income tax, value added tax, and
transfer taxes
•Regulatory, Compensatory and Sumptuary.
imposed primarily for the regulation of useful
or non-useful occupation or enterprises and
secondarily only for the raising of revenue.
Examples: Customs duties, Protective tariff on imports
to control foreign trade and excise tax.
IMPRESCRIPTIBILITY
OF TAXES
General Rule:
taxes in general are not cancellable
Exemptions:
unless otherwise the limitation are

provided by the tax laws or the tax code
itself.
IMPRESCRIPTIBILITY
OF TAXES
LIMITATIONS in the ASSESSMENT and
COLLECTION OF TAXES as provided for
by the TAX CODE
Sections 203 and 222 of the NIRC

IMPRESCRIPTIBILITY
OF TAXES
RULES in Section 203 and 222 of the NIRC
LIMITATION for ASSESSMENT OF TAX
Within
3 YEARS
From the date If filed after the
prescribed by date prescribed
law to file a by law, from the
return date of ACTUAL
FILING.
IMPRESCRIPTIBILITY
OF TAXES
If no return is filed
If the return filed is false or

fraudulent
PERIOD TO ASSESS IS WITHIN

TEN (10) YEARS
FROM Discovery of the OMISSION,
FRAUD or FALSITY
IMPRESCRIPTIBILITY
OF TAXES
LIMITATIONS in the ASSESSMENT and
COLLECTION OF TAXES as provided for
by other TAX LAWS
Section 4 of R.A. 9135 and

Section 194 of R.A. 7160

IMPRESCRIPTIBILITY
OF TAXES
Section 4, R.A. 9135
TARIFF and CUSTOMS CODE
“When articles have been entered and passed free of duty
of final adjustment duties made, with subsequent delivery,
such entry and passage free from duty or settlements of
duties will, after the expiration of three (3) years, from
the date of the final payment of duties and in the absence
of fraud or protest or compliance audit pursuant to the
provisions of this Code, BE FINAL AND CONCLUSIVE
UPON ALL THE PARTIES, unless the liquidation of the
import entry was merely tentative.”
LIQUIDATION OF IMPORT ENTRY
BECOMES FINAL AND CONCLUSIVE
UPON ALL PARTIES AFTER THE
EXPIRATION OF ONE (1) YEAR FROM THE
FINAL SETTLEMENT OF DUTIES AND
DELIVERY OF THE IMPORTED ARTICLES
IN THE ABSENCE OF FRAUD OR
PROTEST.
LIQUIDATIONS THAT ARE TENTATIVE IN

CHARACTER ARE NOT COVERED BY THE
LIMITATION.
atty. cleo d. sabado-andrada, cpa, mba

IMPRESCRIPTIBILITY
OF TAXES
Section 194 R.A. 7160
LOCAL GOVERNMENT CODE
General Rule:
Local taxes, fees or charges
Assessed within FIVE (5) years

from the date they became due.
IMPRESCRIPTIBILITY
OF TAXES
Section 194 R.A. 7160
LOCAL GOVERNMENT CODE
Exemption:
In case of fraud, intent to evade
payment of local taxes, fees or charges
Assessed within TEN (10) years from discovery

of the fraud or intent to evade payment
TAX PYRAMIDING
THE IMPOSITION OF A TAX UPON
ANOTHER TAX.
The incorrect imposition of several sales taxes

to goods from production to final sale, thus
shifting the tax burden to the ultimate consumer.
IMPOSITION OF A TAX UPON ANOTHER TAX.
IT HAS NO BASIS IN FACT and IN LAW.
(People vs. Sandiganbayan, G.R. No. 152532, August 16, 2005)

What is Tax Pyramiding? What is its basis?

ASPECTS
OF
TAXATION

ASPECTS, STAGES OR PROCESSESS
OF TAXATION
FIRST ASPECT,
involves the passage of tax

TAX
LEVY laws or ordinances through
POLICY
the legislature.

the effectivity of the tax law
commences upon its approval
and its scope would only
cover the present and
future transactions.
PROSPECTIVITY
OF TAX LAWS
retroactive application of tax
laws shall not be applied
unless there is a clear intent
of the legislature that such law
shall also be imposed on past
transactions.
Ex Post NOT APPLICABLE for TAX
FACTO LAW PURPOSES
a law is said to be ex post facto if it provides for the

infliction of punishment upon a person for an act done
when such act was committed, is not
which,
subject to any punishment.
OF TAXATION
SECOND ASPECT,
involves the act of
ASSESSMENT
administration and
implementation of the tax
laws by the executive TAX
branch of the government ADMINIS-
TRATION
TAX PAYMENT/ involves the act of
COLLECTION collecting the tax.
“tax collections”

OF TAXATION
TAX PAYMENT/COLLECTION METHODS
PAY AS YOU ARE

PAY AS YOU EARN ASSESSED
PAY AS YOU TRANSACT PAY AS YOU FILE

OF TAXATION
involves the passage of tax
LEVY TAX
laws or ordinances through
POLICY
the legislature.
involves the act of

ASSESSMENT administration and
implementation of the tax
laws by the executive
branch of the government TAX
ADMINIS-
TAX PAYMENT/ involves the act of TRATION
COLLECTION collecting the tax.
“tax collections”
Enumerate the 3 stages or aspects of taxation.
Explain each.

TAX SYSTEMS

PROGRESSIVE SYSTEM OF TAXATION
tax laws shall give emphasis on direct

rather than indirect taxes or on the ability-
to-pay principle of taxation
The tax rate INCREASES as the amount

of taxable income INCREASES

REGRESSIVE SYSTEM OF TAXATION
The tax rate DECREASES as the

amount of taxable income INCREASES

BASIC PRINCIPLES
OF A
SOUND TAX SYSTEM

PRINCIPLES OF A SOUND TAX SYSTEM
FISCAL ADEQUACY
EQUALITY/THEORETICAL
JUSTICE
ADMINISTRATIVE FEASIBILITY

PRINCIPLES OF A SOUND TAX SYSTEM
•Equality or Theoretical Justice
the tax imposed should be
proportionate to the taxpayer’s
ability to pay.

What are the three (3) basic principles of a sound
tax system. Explain each briefly.

CANONS
OF
TAXATION

“A GOOD TAX SYSTEM
IS ONE WHICH IS
DESIGNED ON THE
BASIS OF AN
APPROPRIATE SET OF
PRINCIPLES/RULES”

MAIN CANONS of TAXATION
Canon of Equity
Aims at providing economic and

social justice to the people. That
every person should pay tax to the
government depending upon his
ability to pay

Canon of Certainty
The tax which an individual has to

pay should be certain, not arbitrary.
Taxpayer should know in advance
how much tax he has to pay, what
time he has to pay, what form the
tax is to be paid to the government.
Canon of Convenience
The mode and timing of payment

should be as far as possible,
convenient to the taxpayers.

Canon of Economy
There should be economy in the tax

administration. The cost of tax
collection should be lower than the
amount of tax collected.

Canon of Productivity
The tax when levied should produce

sufficient revenue to the
government.

Canon of Elasticity
The tax system should be fairly

elastic so that if at anytime the
government is in need of more
funds, it should increase its
financial resources without
incurring any additional cost of
collection.
Canon of Simplicity
The tax system must not be

complicated and difficult to
understand as it would not lead to
oppression and corruption. It
should be fairly simple, plain and
intelligible to the taxpayer.
Canon of Diversity
The system of taxation should

include a large number of taxes
which are economical, like the
collection of direct and indirect
taxes. There should be variety in
taxation to achieve equity, yield and
stability.
NATURE
OF
TAXATION

INHERENT POWER OF SOVEREIGNTY

Essentially a LEGISLATIVE FUNCTION
For PUBLIC PURPOSES
TERRITORIAL IN OPERATION
TAX EXEMPTION OF GOVERNMENT
STRONGEST AMONG THE INHERENT

POWERS OF THE GOVERNMENT
Subject to CONSTITUTIONAL and INHERENT
LIMITATIONS
It is a necessary attribute of sovereignty, belonging as

a matter of RIGHT to every independent State or
government.
Without the power of taxation, no sovereign State
can continue to exist without means to pay its
expenses; and for those means, it has the right to
compel all its citizens and properties within its
jurisdiction to pay taxes.

Can the government having sovereignty enforce

contributions through taxation even without a
specific provision in the Constitution authorizing
it?
YES. Any provision in the Constitution

regarding taxation does not create rights for
the sovereignty to have the power to tax but
it merely constitutes limitations upon the
supremacy of tax power

The NATIONAL GOVERNMENT exercises the
INHERENT POWER of taxation of the state.
Do LOCAL GOVERNMENT UNITS possess the
inherent power of taxation of the state?
NO. In order for these local government units to
have the power to tax, there must be an expressed
constitutional provision granting them the power to
tax or at least a valid delegation of tax power through
a statute
•What is the nature of the power of taxation?
The POWER TO TAX is an attribute of

sovereignty and is inherent in the State. It is
a power emanating from necessity because it
imposes a necessary burden to preserve the
State’s sovereignty. It is inherently legislative
in nature and character in that the power of
taxation can only be exercised through the
enactment of law.

ESSENTIALLY A LEGISLATIVE FUNCTION
The LAW-MAKING BODY of the government

exercises the power of taxation.
GENERAL RULE:
In strict sense, the power to make tax laws

CANNOT be DELEGATED.
EXEMPTIONS: (CAN BE DELEGATED)
1. The power to tax can be delegated

to the LOCAL GOVERNMENT UNITS
(LGU)

“Each local government unit shall have the power to

create its own sources of revenue, fees, charges,
subject to guidelines and limitations as the Congress
may provide consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.”
Article X, Section 5 of the Constitution; Section 133 of R.A. 7160

So, when the power to tax is delegated

to the LGU..
What branch of the LGU can exercise the power

tax?
Only the LEGISLATIVE BRANCH of the LGU can

exercise the power to tax.

Therefore, the power to make tax

laws CANNOT be delegated to a
non-legislative body

WHAT CAN BE DELEGATED TO A NON-LEGISLATIVE

BODY/ADMINISTRATIVE BODY?
Only if the power delegated is ministerial and

advisory since said powers are not legislative but
only administrative in nature. (power to value property,
assess and collect taxes)

SUMMARY:
If what is delegated to a non-
legislative body is TAX LEGISLATION,
the delegation is INVALID.
BUT, if what is involved is only TAX

ADMINISTRATION, the delegation is allowed and
valid and the non-delegability rule is not violated.

2. The Congress may, by law, authorize the President

to impose tariff rates, import and export quotas, etc,
subject to the limitations and guidelines as the
Congress may impose, consistent with the national
development program of the government.
Article VI, Section 28 (2) of the Constitution


EXAMPLES OF TAXATION POWER
THAT CANNOT BE DELEGATED
Power to select the coverage, object, or

property to be taxed
Determining the NATURE and PURPOSES for

which taxes shall be collected.
Determining the place or situs of tax imposition


EXAMPLES OF TAXATION POWER
THAT CANNOT BE DELEGATED
Granting tax
exemptions or Fixing the amount to be
condonations. imposed and tax rates.
Setting down the rules of taxation in general.

•Congress, after much public hearing and
consultations with various sectors of society, came
to the conclusion that it will be good for the
country to have only one system of taxation by
centralizing the imposition and collection of all
taxes in the national government. Accordingly, it
is thinking of passing a law that would abolish the
taxing power of all local government units. In your
opinion, would such a law be valid under the
present Constitution? Explain your answer.

May Congress, under the 1987 Constitution,
abolish the power to tax of local governments?

WHO MAY
QUESTION THE
VALIDITY OF A TAX
MEASURE OR
EXPENDITURE OF
TAXES
effected through court proceedings
and could only be allowed if the act
involves a direct and illegal
disbursement of public funds
derived from taxation

Subject to INHERENT and
CONSTITUTIONAL LIMITATIONS
violation of these inherent limitations is

tantamount to taking a property without due
process of law
a tax law that violates the Constitution, shall

be declared null and void.
Any tax law that contradicts the limitation of

taxation is also unconstitutional
INHERENT LIMITATIONS
INHERENT
LIMITATIONS
NATURAL RESTRICTIONS to safeguard and

ensure that the power of taxation shall be
exercised by the government only for the
betterment of the people whose interest
should be served, enhanced and protected
Taxation is subject
to international
comity
•Government entities
are generally tax-
exempt.
FOR PUBLIC PURPOSE
WHO MAY DETERMINE “PUBLIC PURPOSE”?
The power to determine whether the

purpose of taxation is PUBLIC or PRIVATE
resides in Congress. Such power is the
exclusive right of the legislative.

FOR PUBLIC PURPOSE
It has been held that tax has been

utilized for public purpose if the
welfare of the nation or the
greater portion of its population
has benefited with its use.
(Gomez vs. Palomar, 25 SCRA 827)

FOR PUBLIC PURPOSE
Can the court question the propriety of a

statute on the ground that the law enacted is
not for public purpose?
YES. But once it is settled that the law is for a

public purpose, the court may no longer
inquire into the wisdom, expediency or
necessity of such tax measure.
FOR PUBLIC PURPOSE
SETTLED CASES OF “PUBLIC PURPOSE”
Local Police
Forces Industries classified as
(subsidies) under indispensable under P.D.
R.A. 6141 1987
Construction of home Promotion of science
sites and invention
R.A. 6141
Act to create Peace and Order Special Account in
the General Fund to finance the activities and
functions of the Police Commission as defined in
the Police Act of 1966 and certain police activities
of the National Bureau of Investigation and for
other purposes.
P.D. 1987
An Act creating the Videogram Regulatory Board

FOR PUBLIC PURPOSE
SETTLED CASES OF “PUBLIC PURPOSE”
Rehabilitation of
the sugar industry
and coconut Oil Industry’s Protection
industry.
Upliftment of the
Socialized Housing
underprivileged
PROHIBITION AGAINST DELEGATION OF
TAXING POWERS
The LAW-MAKING BODY of the government

exercises the power of taxation.
GENERAL RULE:
In strict sense, the power to make tax laws

CANNOT be DELEGATED.
PROHIBITION AGAINST DELEGATION OF
TAXING POWERS
1. The power to tax can be delegated

to the LOCAL GOVERNMENT UNITS
(LGU)

2. Delegation to Administrative Bodies.
Only if the power delegated is ministerial

and advisory since said powers are not
legislative but only administrative in nature.
(power to value property, assess and collect
taxes)

3. The Congress may, by law, authorize the President

to impose tariff rates, import and export quotas, etc,
subject to the limitations and guidelines as the
Congress may impose, consistent with the national
development program of the government.
Article VI, Section28 (2) of the Constitution

TAX EXEMPTION OF THE GOVERNMENT
The state cannot be taxed without its consent;

otherwise, such is derogation to its
sovereignty.
The State immunity from taxation is inherent

in its power to impose tax.

GENERAL RULE
TAX EXEMPTION applies only to

government entities through which
the government immediately and
directly exercises GOVERNMENTAL
FUNCTIONS.

EXCEPTION to the GENERAL RULE:
Government Entities performing

PROPRIETARY FUNCTIONS are
generally subject to tax.
EXCEPTION to the EXCEPTION:
When the provisions in their

charters or the law creating them
provides for a tax exemption.
SUMMARY:
Agencies performing governmental
functions are exempt from tax unless
expressly taxed.
WHILE, agencies performing proprietary

functions are subject to tax unless expressly
exempted.

Does the activity is

one that government
is not statutorily
required to perform?
Is the activity carried

by private enterprise?
Is the activity Proprietary

conducted/used as Functions
a means of raising
revenue?
Does the activity

conducted/used
benefits the general
public?
Examples:
GOVERNMENTAL
Operations of police department
FUNCTIONS
Conducting safety inspections
Suing to enforce public policy

Govt. of the
Philippines/ National
RP Government
NOT INTERCHANGEABLE
Republic of
the Philippines
It is synonymous with “Government

of the Republic of the Philippines”.
It is the corporate governmental
authority through which the functions
of the government are exercised
through the Philippines .
National
Government
It refers to the entire machinery of the
central government as distinguished
from the different forms of local
governments. It is composed of the
three (3) great departments: the
executive, legislative and the judicial.

Govt. of the
RP Government
Does not include Includes all the bureaus
Government
and instrumentalities
Owned and including Government
Controlled Owned and Controlled
Corporations Corporations (GOCCs)
(GOCCs)
GENERAL RULE:
National
Section 27(C) of the NIRC
Government
Includes all the bureaus Income received

and instrumentalities by GOCCs is
including Government SUBJECT TO
Owned and Controlled
Corporations (GOCCs) TAX.
EXEMPTION:
Section 27(C) of the NIRC
4 tax exempts
GOCCs

4 tax exempts GOCCs
under Section 27(C), NIRC
1. GSIS Government Service Insurance System
2. SSS Social Security System
3. PHIC Philippine Health Insurance Corporation
4. Local Water Districts (RA 10964)
Note: PAGCOR was deleted from list of exempt

GOCCs per R.A. No. 9337
PCSO (with winnings below P10,000) RA10964
1 tax exempt GOCC

under R.A. 9679 otherwise known as
New PagIBIG Fund Law of 2009
Pag IBIG
Pagtutulungan sa Kinabukasan:
Ikaw, Bangko, Industriya at Gobyerno

TERRITORIALITY
General
Rule
The power to tax can only be exercised

WITHIN the territorial jurisdiction of a
taxing authority.
Tax laws are not applicable to the
property of foreign government.

TERRITORIALITY
Taxation is bound to observe

INTERNATIONAL COMITY
Basis of this Rule:
Section 2, Article II of the Constitution “ The
Philippines renounces war as an instrument of
national policy, adopts the generally accepted
principles of international law as part of the law of
the land and adheres to the policy of peace,
equality, justice, freedom, cooperation, and amity
with all nations.”

TERRITORIALITY
Taxation is bound to observe

INTERNATIONAL COMITY
Basis of this Rule:
Principle of International Law:
“Sovereign Equality Among States”
“ states are juridically equal, enjoy the same

rights, and have equal capacity in their
exercise.”

TERRITORIAL IN OPERATION/
TERRITORIALITY
EXCEPTION
when there exists a “privity of relationship”

between the taxing State and the object of
tax.

TERRITORIAL IN OPERATION/
TERRITORIALITY
Where privity of relationship exists, the state can

still exercise its taxing powers over its citizen
outside its territory.
Basis of this Rule:
“the right to tax is the capacity of the
government to provide benefits and protection
to the object of the tax.

TERRITORIALITY
RULES OBSERVED in FIXING TAX SITUS
POLL/CAPITATION/COMMUNITY TAX
Poll or capitation, or community taxes are

based upon the residence of the taxpayer,
regardless of the source of income or
location of the property of the taxpayer.

TERRITORIALITY
REAL PROPERTY TAX
Real estate is subject to taxation in the state

or country where it is located, regardless of
whether the owner is a resident or a non-
resident

TERRITORIALITY
PERSONAL PROPERTY
The situs of personal property, wherever it

was actually kept or located, was held to be
at the domicile of its owner, following the
age-old doctrine of mobilia sequuntur
personam.
TERRITORIALITY
PERSONAL PROPERTY
mobilia sequuntur personam.
MOVABLES FOLLOW THE PERSON.

What is the principle of Mobilia Sequuntur
personam in income taxation?
Principle of Mobilia Sequuntur Personam in

income taxation refers to the Principle that
taxation follows the property or person who
shall be subject to the tax.

TERRITORIALITY
PERSONAL PROPERTY
EXCEPTION to the principle of
mobilia sequuntur personam.
In cases of shares of stocks.

The situs for the purposes of taxation is the
state in which they are permanently kept regardless
of the domicile of the owner or the state in which the
corporation was organized.
Taxation is subject
to international
comity
•Government entities
are generally tax-
exempt.
PROVISIONS OF THE FUNDAMENTAL

LAW OF THE LAND that restrict the
comprehensive, unlimited, plenary and
sunpreme exercise by the State of its
inherent power to tax.

DUE PROCESS OF LAW
“No person shall be deprived of life,

liberty, or property without due process
of law, nor shall any person be denied the equal
protection of the laws.”
Article III, Section 1 of the 1987 Constitution

DUE PROCESS OF LAW
Give taxpayer fair

opportunity to assert his
substantial rights before
competent court
Before he shall be denied or
deprived of his property for
non-payment of tax.
EQUAL PROTECTION OF LAW
“No person shall be deprived of life, liberty, or property

without due process of law, nor shall any
person be denied the equal protection of
the laws.”

that all persons subject to legislation shall be

treated alike under similar circumstances
and conditions both in the privileges
conferred and liabilities imposed
There is denial of equal protection of laws if

there is discrimination in the implementation
of tax laws
SUBJECT
to
reasonable classification


REQUISITES of VALID
reasonable classification
Must be germane to
the purpose of the
law
RULE OF UNIFORMITY and EQUITY
“The rule of taxation shall be uniform and

equitable. Congress shall evolve a
progressive system of taxation.”
Article VI, Section 28 of the 1987 Constitution

All taxable property situated

alike shall be subjected to
the tax
operates with the same

UNIFORMITY force and effect in every
place where the subject
may be found,
PROGRESSIVE SYSTEM OF TAXATION
tax laws shall give emphasis on direct rather than

indirect taxes or on the ability-to-pay principle
of taxation
The tax rate INCREASES as the amount of

taxable income INCREASES
Is a tax law adopting a regressive system of

taxation VALID?
YES. “Congress shall evolve a

progressive system of taxation.”-this is
only a mere directive upon Congress, not
legally enforceable. The Congress is not
mandated to prescribe, but to evolve
progressive system of taxation.
REGRESSIVE SYSTEM OF TAXATION
The tax rate DECREASES as the amount of

taxable income INCREASES

The burden of tax falls

equally and impartially
upon all the persons and
property subject to it.
EQUALITY

primary requisite of equity principle
a progressive tax rate shall be applied equally

to all persons, firms and corporations, and
transactions placed in similar
classification and situation.
Sison, Jr. vs. Ancheta,
(130 SCRA 654, July 25, 1984)
a progressive tax
rate shall be
applied equally
to all persons, CLASSIFICATIONS
firms and OF TAXPAYERS
corporations,
and transactions
placed in
similar
classification
and situation.
CLASSIFICATIONS OF TAXPAYERS
CORPORATE
TAXPAYERS
INDIVIDUAL
TAXPAYERS
INDIVIDUAL TAXPAYERS
Section I, Art. III of the 1987
CITIZEN Constitution, a Filipino Citizen is he
who is/has:
•born (by birth) with father and/or
mother as Filipino citizens;
•born before January 17, 1973 of
Filipino mother who elects Philippine
citizenship upon reaching the age of
majority; or
•acquired Philippine citizenship after
birth (naturalized) in accordance with
the Philippine laws.
a foreign-born person
ALIEN
who is not qualified to
acquire Philippine
citizenship by birth or
after birth.

CITIZEN ALIEN
RESIDENT CITIZEN (RC)
NON RESIDENT CITIZEN (NRC)

CITIZEN ALIEN
RESIDENT ALIEN (RA)

NON RESIDENT ALIEN ENGAGED IN
TRADE OR BUSINESS- (NRA-ETB)
NON RESIDENT ALIEN NOT ENGAGED IN

TRADE OR BUSINESS- (NRA-NETB)
INDIVIDUAL
CITIZEN
TAXPAYERS

a Filipino citizen who stayed
permanently in the Philippines or
stayed outside the Philippines for
less than 183 days during the
taxable year.
INDIVIDUAL
CITIZEN
TAXPAYERS
all income derived

TAXABLE for
from sources within and
without the Philippines.
(Sec.23A, NIRC)
INDIVIDUAL
CITIZEN
TAXPAYERS
•a Filipino citizen who stayed outside the
Philippines for 183 days or more during the
taxable year and has established proof to the
BIR Commissioner of his definite intention
to reside outside the Philippines on a
permanent basis as an immigrant or
employee.
(Sec. 2, Rev. Reg.9-99)
INDIVIDUAL
CITIZEN
TAXPAYERS
citizen of the Philippines who works and derives

income from abroad and whose employment
requires him to be physically present abroad
most of the time (at least 183 days) during the
taxable year
(BIR Ruling No. 128 – 99)
INDIVIDUAL
CITIZEN
TAXPAYERS
A nonresident citizen is taxable only on

income derived from sources
within the Philippines.
(Sec.23B, NIRC)
INDIVIDUAL
CITIZEN
TAXPAYERS
A Filipino citizen who was previously a
nonresident citizen and who arrives and
resides permanently in the Philippines at
any time during the taxable year shall
likewise be treated as a nonresident citizen
for the same taxable year with respect to
his income derived from sources abroad
until the date of his arrival to the
Philippines.
INDIVIDUAL
CITIZEN
TAXPAYERS
How about an Overseas Contract Worker?
An individual citizen of the Philippines who
is working and deriving income from
abroad as overseas contract
worker is taxable only on income from
sources within the Philippines.
(Sec.23C, NIRC)
INDIVIDUAL
CITIZEN
TAXPAYERS
How about a SEAMAN?
A seaman who is a citizen of the Philippines
and who receives compensation for services
rendered abroad as a member of the
complement of a vessel engaged exclusively
in international trade shall be treated as
an overseas contract worker.
(Sec. 24 A 1b;(Sec.23C, NIRC; Rev. Reg. 5-2001)
INDIVIDUAL
ALIEN
TAXPAYERS
RESIDENT ALIEN (RA)

are persons who are not citizens of the
Philippines but are residing within the
Philippines including foreign individuals who
have stayed in the Philippines for more than
one year from date of arrival.
(Sec.22F, NIRC)
INDIVIDUAL
ALIEN
TAXPAYERS

are foreign individuals whose residences

are not within the Philippines but earning
business income in the Philippines.

INDIVIDUAL
ALIEN
TAXPAYERS

Those who have stayed within the Philippines

for more than 180 days during the taxable
year shall be deemed nonresident aliens
doing business in the Philippines
INDIVIDUAL
ALIEN
TAXPAYERS
NON RESIDENT ALIEN NOT ENGAGED IN

TRADE OR BUSINESS- (NRA-NETB)
They are nonresident foreign individuals who

have stayed within the Philippines for only
180 days or less, and have no business
income derived within the Philippines.
(Sec.25B, NIRC)
INDIVIDUAL
ALIEN
TAXPAYERS
an alien individual, whether a

resident or not resident of the
Philippines, is taxable only for
income derived fromsources
within the Philippines.
(Sec.23D, NIRC)
SPECIAL INDIVIDUAL TAXPAYERS
Special Tax Rate of 15% of GROSS INCOME
applies to compensation income

derived within by aliens or Filipino
citizen (not engaged in trade or
business in the Philippines) with
special employment contracts with:

SPECIAL INDIVIDUAL TAXPAYERS

applies to compensation income derived within by
aliens or Filipino citizen (not engaged in trade or
business in the Philippines) with special
employment contracts with:
Regional or area headquarters of multi-

national corporations. (Sec.25C, NIRC)
Petroleum service contractors and

subcontractors. (Sec.25C, NIRC)
Offshore banking units. (Sec.25D, NIRC)

SUMMARY-for Individual
Situs of Income
Taxpayers Within Outside
Citizens:
Resident citizen Taxable Taxable
Nonresident citizen Taxable Nontaxable
Aliens:
Resident alien, NRAETB and Taxable Nontaxable
NRANETB
Special Taxpayers:
Citizen Taxable Taxable
Aliens Taxable Nontaxable
1. Prepare 1/4 sheet of
YELLOW yellow paper.
2. Write your name.
3. At the front portion,

place the numbers
1 to 16.
5. Write only the letter
of your choice.
STRICTLY NO ERASURE.
ANSWERS WITH ERASURE
WILL NOT BE MERITED
WITH POINT/S.
1…2…3…4…5…
6…7…8…9…10…
1. Which statement refers to police
power as distinguished from
taxation?
a. It is restricted by Constitutional
provision.
b. It is superior to the no-impairment
c. It involves the taking of property to
the government.
d. The amount imposed has no limit.
2. An example of a tax where the
concept of progressivity finds
application is the
a. income tax on individuals.

b. excise tax on petroleum products.
c. value-added tax on certain
articles.
d. amusement tax on boxing
exhibitions.
3. All of the following are inherent
restrictions on the exercise of
a. Rule of uniformity
b. For public purpose
c. Territorial jurisdiction
d. International comity
4. Special assessment is an enforced
proportional contribution from owners of land
especially benefited by public improvement.
Which one of the following is not considered as
one of its characteristics?
a. It is levied on land
b. It is based on the government’s need of
money to support its legitimate
objectives.
c. It is not a personal liability of the person
being assessed.
d. It is based solely on the benefit derived
by the owners of the land.
5. A taxpayer gives the following reasons
in refusing to pay a tax. Which of his
reasons is not acceptable for legally
refusing to pay the tax.
a. That he has been deprived of due

process of law.
b. That there is lack of territorial
jurisdiction.
c. That he derives no benefit from the tax.
d. That the prescriptive period for the tax
has elapsed.
6. The power to tax is the power to destroy. Is
this always so?
a. No. The Executive Branch may decide not

to enforce a tax law which it believes to be
confiscatory.
b. Yes. The tax collectors should enforce a tax
law even if it results to the destruction of the
property rights of a taxpayer.
c. Yes. Tax laws should always be enforced
because without taxes the very existence of
the State is endangered.
d. No. The Supreme Court may nullify a tax
law, hence, property rights are not affected.
7. All of the following are national
taxes as to collecting authority,
except:
a. Value Added tax

b. Income Tax
c. Donor’s tax
d. Real Property tax
8. Statement I : Customs duties
are national taxes
Statement II : Tariff is an import
tax.
a. Both statements are true.

b. Only statement I is true
c. Only statement II is true
d. Both statements are incorrect.
9. Which of the following tax rates
behaves in the same direction
with the taxable value.
a. Progressive
b. Proportionate
c. Digressive
d. Regressive
10. Due process in taxation means
that
a. Individual taxpayer must derive

direct benefit from taxes
b. Taxpayers must be given
opportunity to be heard.
c. Tax imposed must not be harsh,
oppressive and arbitrary.
d. Tax imposed must be subject to
the rule on uniformity.
11. Money collected from taxation shall
not be paid to any religious
dignitary EXCEPT when
a. the religious dignitary is assigned

to the Philippine Army.
b. t is paid by a local government
unit.
c. the payment is passed in audit by
the COA.
d. it is part of a lawmaker’s pork
barrel.
12. The actual effort exerted by the
government to effect the
exaction of what is due from
the taxpayer is known as
a. assessment.
b. levy.
c. payment.
d. collection.
13. For taxation purposes, the
following are nontaxable
corporation, except:
a. SSS.
b. General Professional partnership.
c. General Commercial partnership.
d. Cooperatives
14. Which theory in taxation states
that without taxes, a government
would be paralyzed for lack of
power to activate and operate it,
resulting in its destruction?
a. Power to destroy theory

b. Lifeblood theory
c. Sumptuary theory
d. Symbiotic doctrine
15. Which of the following could not
be considered as purpose of
taxation?
a. To impose monetary burden to

the people.
b. To check inflation.
c. To distribute the wealth of the
nation.
d. To raise revenue to support the
government.
16. A tax on business is
a. Direct tax
b. Indirect Tax
c. Property Tax
d. None of the above
YOUR PAPER….
ANSWER THESE QUESTIONS…..

1. A. What is the main
administrative department of the
government that has the
executive supervision of control
over the tax administration?
B. Who is the head of the said

department?
administrative agency of the
government in charge of he
implementation of the National
Internal Revenue Code?

administrative agency?
PASS NOW
YOUR PAPERS….
ANSWERS
1. Which statement refers to police
power as distinguished from
taxation?
a. It is restricted by Constitutional
provision.
b. It is superior to the no-impairment
c. It involves the taking of property to
the government.
d. The amount imposed has no limit.
2. An example of a tax where the
concept of progressivity finds
application is the
a. income tax on individuals.

b. excise tax on petroleum products.
c. value-added tax on certain
articles.
d. amusement tax on boxing
exhibitions.
3. All of the following are inherent
restrictions on the exercise of
a. Rule of uniformity
b. For public purpose
c. Territorial jurisdiction
d. International comity
4. Special assessment is an enforced
proportional contribution from owners of land
especially benefited by public improvement.
Which one of the following is not considered as
one of its characteristics?
a. It is levied on land
b. It is based on the government’s need of
money to support its legitimate
objectives.
c. It is not a personal liability of the person
being assessed.
d. It is based solely on the benefit derived
by the owners of the land.
5. A taxpayer gives the following reasons
in refusing to pay a tax. Which of his
reasons is not acceptable for legally
refusing to pay the tax.
a. That he has been deprived of due

process of law.
b. That there is lack of territorial
jurisdiction.
c. That he derives no benefit from the tax.
d. That the prescriptive period for the tax
has elapsed.
6. The power to tax is the power to destroy. Is
this always so?
a. No. The Executive Branch may decide not

to enforce a tax law which it believes to be
confiscatory.
b. Yes. The tax collectors should enforce a tax
law even if it results to the destruction of the
property rights of a taxpayer.
c. Yes. Tax laws should always be enforced
because without taxes the very existence of
the State is endangered.
d. No. The Supreme Court may nullify a tax
law, hence, property rights are not affected.
7. All of the following are national
taxes as to collecting authority,
except:
a. Value Added tax

b. Income Tax
c. Donor’s tax
d. Real Property tax
8. Statement I : Customs duties
are national taxes
Statement II : Tariff is an import
tax.
a. Both statements are true.

b. Only statement I is true
c. Only statement II is true
d. Both statements are incorrect.
9. Which of the following tax rates
behaves in the same direction
with the taxable value.
a. Progressive
b. Proportionate
c. Digressive
d. Regressive
10. Due process in taxation means
that
a. Individual taxpayer must derive

direct benefit from taxes
b. Taxpayers must be given
opportunity to be heard.
c. Tax imposed must not be harsh,
oppressive and arbitrary.
d. Tax imposed must be subject to
the rule on uniformity.
11. Money collected from taxation shall
not be paid to any religious
dignitary EXCEPT when
a. the religious dignitary is assigned

to the Philippine Army.
b. t is paid by a local government
unit.
c. the payment is passed in audit by
the COA.
d. it is part of a lawmaker’s pork
barrel.
12. The actual effort exerted by the
government to effect the
exaction of what is due from
the taxpayer is known as
a. assessment.
b. levy.
c. payment.
d. collection.
13. For taxation purposes, the
following are nontaxable
corporation, except:
a. SSS.
b. General Professional partnership.
c. General Commercial partnership.
d. Cooperatives
14. Which theory in taxation states
that without taxes, a government
would be paralyzed for lack of
power to activate and operate it,
resulting in its destruction?
a. Power to destroy theory

b. Lifeblood theory
c. Sumptuary theory
d. Symbiotic doctrine
15. Which of the following could not
be considered as purpose of
taxation?
a. To impose monetary burden to

the people.
b. To check inflation.
c. To distribute the wealth of the
nation.
d. To raise revenue to support the
government.
16. A tax on business is
a. Direct tax
b. Indirect Tax
c. Property Tax
d. None of the above
administrative department of the
government that has the
executive supervision of control
over the tax administration?
B. Who is the cabinet secretary

of the said department?
administrative agency of the
government in charge of he
implementation of the National
Internal Revenue Code?

administrative agency?
1. B
2. A
3. A
4. B
5. C
6. D 1.A. Department of Finance
7. D B. Cesar Purisima
8. A
9. A 2. A. Bureau of Internal Revenue
10.B B. Kim Henares
11.A
12.D
13.C
14.B
15.A
16.B
WHAT IS A CORPORATION?
Section 22 (B)
For purposes of taxation, corporation

includes partnerships, no matter how created or
organized, joint accounts, associations or
insurance companies.

CORPORATE TAXPAYERS
DOMESTIC Foreign
Corporation Corporation
Resident Non
Foreign Resident
Corporation Foreign
Corporation
CORPORATE TAXPAYERS
DOMESTIC one organized and

Corporation existing under
Philippine laws.
taxable on all income from

sources within and outside
the Philippines.
(Sec. 23(E), NIRC)
SPECIAL DOMESTIC CORPORATION
1. PRIVATE
Section 27 (B) 2. NON PROFIT
EDUCATIONAL
HOSPITAL
INSTITUTION
Tax Rate is 10% on their Taxable Income

provided the Gross Income from unrelated
trade, business or other activity DOES NOT
EXCEED 50% of the Total Gross Income.

SPECIAL DOMESTIC CORPORATION
1. PRIVATE
Section 27 (B) 2. NON PROFIT
EDUCATIONAL
HOSPITAL
INSTITUTION
Tax Rate is 30% of the Taxable Income if

its income from unrelated trade or business
EXCEEDS 50% of the Total Gross Income.

What is an unrelated trade, business, or

other activity?
The conduct of which is not substantially

related to the exercise or performance by such
educational institution of its educational
purpose or function.

What are those related activities?
Include income derived from

auxiliary activities-school owned
canteen, cafeteria, dormitory and
bookstore within the school
premises.

CORPORATE TAXPAYERS
Foreign corporation organized

Corporation and existing under
the laws of foreign
country irrespective
of the nationality of
taxable only on its stockholders
income from
(Sec. 22(D), NIRC).
sources within
the Philippines.
(Sec. 23(F), NIRC)
CORPORATE Foreign
TAXPAYERS Corporation
refers to a foreign corporation

Resident that is engaged in business
Foreign or trade in the Philippines.
Corporation
establishes a branch or an
office for the purpose of
doing business or trade.
(Sec. 22(H), NIRC)
SPECIAL RESIDENT FOREIGN CORPORATION
1. International
Carriers
2.5%
BASED ON INCOME
Section 28 (28)(3)
DERIVED FROM WITHIN
or BASED ON GROSS
International PHILIPPINE BILLINGS
Shipping
Section 28 (28)(3)(b)
Section 28 (A)(3)(a)

10%
2. Offshore Banking
based on income
Unit.
derived from
Section 28(A)(4) WITHIN Gross
Onshore Income.
10%
3. Offshore
based on income
Currency Deposit
derived from
Unit. WITHIN Gross
Section 28(A)(7)(b) Onshore Income.

Offshore Currency
Deposit Unit. EXCEPTION
Section 28(A)(7)(b)
Last paragraph of
Section 28(7)(b)
10% NON RESIDENTS,

based on income derived individual s or
from WITHIN Gross corporations are
Onshore Income. EXEMPT.

CORPORATE Foreign
TAXPAYERS Corporation
NON Resident does not engage in

Foreign business or trade in
Corporation the Philippines.
(Sec. 221, NIRC).

SPECIAL NON RESIDENT FOREIGN CORPORATION
1. NON RESIDENT 25%

LESSOR OF BASED ON GROSS
CINEMATOGRAPHIC INCOME DERIVED
FILM FROM WITHIN
Section 28 (B)(2) THE PHILIPPINES

2. NON RESIDENT 4.5%

OWNER OR OF BASED ON GROSS
VESSELS RENTALS
CHARTERED BY DERIVED FROM
PHILIPPINE WITHIN THE
NATIONALS PHILIPPINES
Section 28 (B)(3)

3. NON RESIDENT 7.5%

OWNER OR OF BASED ON GROSS
AIRCRAFT, RENTALS
MACHINERIES and DERIVED FROM
OTHER EQUIPMENT WITHIN THE
Section 28 (B)(4) PHILIPPINES

SUMMARY-for Corporate Taxpayers
DOMESTIC RESIDENT NON-RESIDENT
CLASSIFICATIONS CORPORATIONS FOREIGN FOREIGN
CORPORATIONS CORPORATIONS
SOURCES OF Within and Within Within

TAXABLE without the Philippines the Philippines
INCOME the Philippines
INCOME IN TAXABLE TAXABLE GROSS

GENERAL INCOME INCOME INCOME
(R.A. 9337) Normal Tax Rate Normal Tax Rate Final Tax Rate
35% from July 1, 35% from July 1, 35% from July 1,
2005 to 2005 to 2005 to
December 31, December 31, December 31,
2008 2008 2008
30% effective 30% effective 30% effective
January
atty. cleo d. sabado-andrada, cpa, mba 1, 2009 January 1, 2009 January 1, 2009
SUMMARY-for Individual
Situs of Income
Taxpayers Within Outside
Citizens:
Resident citizen Taxable Taxable
Nonresident citizen Taxable Nontaxable
Aliens:
Resident alien, NRAETB and Taxable Nontaxable
NRANETB
Special Taxpayers:
Citizen Taxable Taxable
Aliens Taxable Nontaxable
NO IMPRISONMENT
FOR NON-PAYMENT of POLL TAX
“no person shall be imprisoned for debt or non-

payment of a poll tax.”

NO IMPRISONMENT
POLL TAX COMMUNITY

TAX
a tax imposed on a person as a resident

within a territory of the taxing authority
without regard to his property, business or
occupation.
NO IMPRISONMENT
the prohibition of imprisonment applies only to

the nonpayment of poll tax.
imprisonment for nonpayment of other

taxes or imposition of fine would not be
contrary to the Constitution.

PROHIBITION AGAINST IMPAIRMENT OF

OBLIGATIONS OF CONTRACTS
“no law impairing the obligation of contracts

shall be passed”
Section 10 Article III, 1987 Constitution


If the State will enter into a contract, it

does so upon the same terms and
conditions as entered into by a private
individual or corporation and may not
assert its sovereignty as justification in
impairing a contractual obligation
which it has assumed.

A tax exemption based on

There is
a contract entered into by
IMPAIRMENT
the government is revoked
BY LAW
by a later taxing statute

PROHIBITION AGAINST INFRINGEMENT OF

RELIGIOUS FREEDOM
No law shall be made respecting an

establishment of religion, or prohibiting the free
exercise thereof. The free exercise and
enjoyment of religious profession and worship,
without discrimination or preference, shall
forever be allowed. No religious test shall be
required for the exercise of civil or political
rights.
Section 5 Article III, 1987 Constitution
PROHIBITION: re: APPROPRIATION OF
PROCEEDS OF TAXATION
“No public money or property shall ever be

appropriated, applied, paid or used directly or indirectly for
the use, benefit, or support of any sect, church,
denomination, sectarian , institution, or system of religion,
or for the use, benefit or support of any priest, preacher,
minister, or other religious teacher or dignitary as such,
except when such priest, preacher, minister, or
dignitary is assigned to the armed forces, or to any
penal institution, or government orphanage or
leprosarium.”

PROHIBITION: re: APPROPRIATION OF

PROCEEDS OF TAXATION
BASIS:
Tax principle that taxes can only be levied for

public purposes
principle of the separation of the church and the

State.

PROHIBITION AGAINST TAXATION OF
RELIGIOUS, CHARITABLE AND EDUCATIONAL
ENTITIES
EXEMPTION FROM REAL PROPERTY TAXES
“Charitable institutions, churches, parsonages or

convents appurtenant thereto, mosques and non-
profit cemeteries and all lands, buildings and
improvements actually, directly and exclusively used
for religious, charitable or educational purposes
shall be exempt from taxation.”
Article VI, Section 28 (3) of the 1987 Constitution

ENTITIES
The Supreme Court, however, held that such tax

exemption for the above provision should be
applicable only to REAL PROPERTY TAXES
and not to transfer taxes.

ENTITIES
To be exempted from taxation, the real property

must be exclusively used for religious, educational
and charitable purposes.
the issue of ownership is not relevant, as long as the
real property is used exclusively for religious,
educational and charitable purposes, THEN IT
SHALL BE EXEMPTED FROM REAL ESTATE TAX.

ENTITIES
“idle lands or property” used by others for other

purposes although owned by religious, educational
and charitable institutions could be subjected to
real estate tax


ENTITIES
income derived from these “idle lands or property”

not related to the exercise or performance of
religious, educational and charitable purposes or
functions shall be subject to internal revenue
taxes---INCOME TAX.
PROHIBITION AGAINST TAXATION OF NON-

STOCK, NON PROFIT EDUCATIONAL
INSTITUTIONS
All revenues and assets of non-stock, non-profit

educational institutions used actually, directly, and
exclusively for educational purposes shall be
exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of
such institutions, their assets shall be disposed of in
the manner provided by law.
Article XIV, Section 4 (3) 1ST PAR. of the 1987 Constitution

INSTITUTIONS
Proprietary educational institutions, including those

cooperatively owned, may likewise be entitled to
such exemptions, subject to the limitations
provided by law, including restrictions on
dividends and provisions for reinvestment.
Article XIV, Section 4 (3) 2ND PAR. of the 1987 Constitution


INSTITUTIONS
Subject to conditions prescribed by law, all

grants, endowments, donations, or contributions
used actually, directly, and exclusively for
educational purposes shall be exempt from tax.
Article XIV, Section 4 (4) of the 1987 Constitution

CONGRESS GRANTING TAX EXEMPTION
“No law granting any tax exemption shall be

passed without the concurrence of a
majority of all the members of the
Congress.”

CONGRESS GRANTING TAX EXEMPTION
GRANT OF Absolute Majority Vote of the

TAX EXEMPTIONS
ALL MEMBERS of Congress
Relative majority vote is

WITHDRAWAL OF sufficient/ majority of the
TAX EXEMPTIONS
attendees constituting
quorum
PRESIDENT’s VETO POWER
“Every bill passed by the Congress shall, before

it becomes a law be presented to the
President. If he approves the same, he shall
sign it; otherwise, he shall veto it and return the
same with his objections at large in its journal
and proceed to reconsider it….”

The power of the President to

V E TO refuse to sign into law (can be tax
POWER laws) a bill that has been passed
by a legislature.
ITEM POWER
VETO VETO

the power to
the power to veto items disapprove legislative
in appropriation bills act with the result
without affecting any that bills shall fail to
other provisions of such become laws.
bills
If the President vetoed the bill, two-thirds

(2/3) of the members of the House are required
to make such bill to become a law.
The power of the President to “remit fines

and forfeitures” does not include civil
penalties regarding nonpayment of tax and
other violation of tax laws.
SUPREME COURT’S JURISDICTION

OVER TAX CASES
“The Supreme Court shall have the power to

review, revise, reverse, modify or affirm on
appeal or certiorari, as the laws or the Rules of
Court may provide, final judgments and orders
of lower courts in all cases involving the legality
of any tax, impost, assessment, or toll or any
penalty imposed in relation thereto.”
Article VIII, Section 5 (2)(b) of the 1987 Constitution


OVER TAX CASES
“no law shall be passed increasing the

appellate jurisdiction of the Supreme Court
as provided in this Constitution without its
advice and concurrence.”


OVER TAX CASES
The Power of Judicial Review in taxation is

limited only to the interpretation and
application of tax laws.

REVENUE BILLS SHALL ORIGINATE FROM THE
HOUSE OF REPRESENTATIVES
All appropriation, revenue or tariff bills, bills

authorizing increase of the public debt, bills of
local application, and private bills, shall
originate exclusively in the House of
Representatives, but the Senate may propose or
concur with amendments.
ARt - IdLaP
INFRINGEMENT OF PRESS FREEDOM
No law shall be passed abridging the

freedom of speech, of expression, or
of the press, or the right of the people
peaceably to assemble and petition
the government for redress of
grievances.
GRANT OF FRANCHISE
No franchise, certificate, or any other form of

authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the
laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; x x x The
participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive
and managing officers of such corporation or
association must be citizens of the Philippines.
atty. cleo d. sabado-andrada, cpa, mba Article XII, Section 11 of the 1987 Constitution
TAXES as GENERAL FUNDS of the GOVERNMENT
“All money collected on any tax levied for a

special purpose shall be treated as a special
fund and paid out for such purpose only. If the
purpose for which a special fund was created has
been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds
of the Government.”
PLACE OF TAXATION
Defines BOUNDARIES of the taxing power over

the objects of taxation IN TERMS OF
LOCATION whether or not they shall be subject
to tax.
Basic
consideration
that justifies
TAX SITUS
GOVERNMENT PROTECTION
DETERMINING FACTORS
TO THE
SITUS OF TAXATION
Residence of the taxpayer; Citizenship of
the taxpayer
Subject matter of the tax Source of the
(person, property, rights income being
or activity);
taxed;
Nature, kind or classification of the tax being imposed
Place of the activity, privilege,
business or occupation being taxed;
GENERAL RULES OF TAX SITUS
Source or Location
of Object (Taxable?)
Within the Outside the
Nature of Citizenship Residency Philippines Philippines
Tax
I
.
Income Tax Filipino Resident Yes Yes
Filipino Nonresident Yes No
Aliens Resident Yes No
Aliens Nonresident Yes No
I
I
. Transfer Tax Filipino Resident Yes Yes
Filipino Nonresident Yes Yes
Aliens Resident Yes Yes
Aliens Nonresident Yes No
I
I
I Business Yes No
.
Tax
DOUBLE
TAXATION
act of the sovereign by when it should be

TAXING TWICE
-for the same TAXED ONCE
purpose -for the same
-in the same year
-upon the same
purpose and
property or with the same kind
activity of the of character of tax.
same person
When an item is taxed in the Philippines and the
same income is taxed in another country, is there
a case of double taxation?
YES. But it is only a case of indirect

duplicate taxation which is not legally
prohibited because the taxes are imposed by
different taxing authorities.

KINDS OF DOUBLE TAXATION
Imposition of comparable taxes in two or

more states on the same taxpayer in
respect of the same subject matter and for
identical periods

It arises when the taxes are imposed by the

local or national government within the same
state.

What are the usual methods of avoiding
the occurrence of double taxation?

Through. . . .
The INCOME or CAPITAL

TAX which is taxable in the state
EXEMPTIONS of source/situs is
EXEMPTED in the state of
residence
Through. . . .
The TAX PAID in the state
of source/situs is
TAX CREDIT CREDITED against the tax
levied in the state of
residence
Through. . . .

Through. . . .

Vanishing Deduction or
Property Previously Taxed
This deduction is a privilege allowed to the

estate of the decedent to provide some
relief from the burden of taxation as a
result of the successive transfers by
inheritance or donation of the same
property within a relatively short period of
time.
( not exceeding five (5) years ).

WHEN CAN A VANISHING DEDUCTION BE CLAIMED?
1. The present decedent died within five years from the receipt
of the inheritance or donation;
2. The property on which to claim a vanishing deduction must

be located in the Philippines;
3. The property must have formed part of the taxable

estate of the prior decedent, or of the taxable gift
of the donor;

WHEN CAN A VANISHING DEDUCTION BE CLAIMED?
4. The property for which vanishing deduction is claimed
can be identified as having been received by the
decedent from donor as gift or from such prior
decedent by gift, bequest, devise, or inheritance, or
a property acquired in exchange therefore
5. The donor’s tax or estate tax has been finally
determined and paid by or in behalf of such donor or
the estate of such prior decedent.
6. No vanishing deduction on the property was allowed to

the estate of the prior decedent.

Vanishing Deduction Rates:
Period from receipt of property

to decedent’s death
Rate
within 1 year 100 %
beyond 1 year to 2 years 80 %
beyond 2 years to 3 years 60 %
Vanishing Deductions in Estate taxation?

FROM THE SAME

CORPORATION
TAX ON THE
CORPORATE INCOME
and TAX ON THE
STOCKHOLDERS’
DIVIDENDS
UPON SAME
OCCUPATION/ACTIVITY
TAX imposed BY THE

STATE and TAX
imposed BY THE LOCAL
GOVERNMENT
UPON SAME REAL

PROPERTY LEASED FOR
EARNING PURPOSES
Subject to REAL
ESTATE TAX and
INCOME TAX
PROHIBITED

act of the sovereign by when it should be
TAXING TWICE
-for the same purpose TAXED ONCE
-in the same year -for the same purpose
-upon the same and
property or activity with the same kind of
of the same person character of tax.
Is double taxation a valid defense against the
legality of a tax measure?
NO. Double taxation standing alone and not being
forbidden by our fundamental law is not a valid defense
against the legality of a tax measure. However, if double
taxation amounts to a direct duplicate taxation, in that
the same subject is taxed twice when it should be taxed
once, that both taxes are imposed for the same purpose
by the same taxing authority, within the same jurisdiction
or taxing district, for the same taxable period and for the
same kind or character of a tax, then it becomes legally
objectionable for being oppressive and inequitable.
X, a lessor of a property, pays a real estate tax
on the premises, a real estate dealer’s tax based
on rental receipts and income tax on the rentals.
X claims that this is double taxation? Decide.

Distinguish Tax Evasion from Tax Avoidance.

ESCAPE FROM TAXATION
A scheme wherein taxpayer uses Also called “TAX MINIMIZATION”

UNLAWFUL means to defeat or and valid if used by the taxpayer
lessen the payment of tax in GOOD FAITH
A scheme wherein taxpayer

uses LEGALLY PERMISSIBLE
Taxpayer is subject to civil and/or means to reduce or totally
criminal liabilities escape payment of taxes.
Mr. Pascual’s income from leasing his property
reaches the maximum rate of tax under the law.
He donated on-half of his said property to a non
stock, non profit educational institution whose
income and assets are actually, directly and
exclusively used for educational purposes and
therefore qualified for exemption under the law.
Having thus transferred a portion of his said
asset, Mr. Pascual succeeded in paying a lesser
tax on the rental income derived from his
property. Is there tax avoidance or tax evasion?
SEVERAL FORMS OF TAX
AVOIDANCE TO MINIMIZE TAX
LIABILITY
Shifting
Tax Option
Transformation
Exemption

SEVERAL FORMS OF TAX AVOIDANCE
TO MINIMIZE TAX LIABILITY
Taxpayers may choose to pay lower

Tax tax rate in some transactions as
Option permitted by Tax Laws.
Selling shares of stock
Selling directly to the buyer- 5 % to 10% tax based on capital gains
Selling through stock market- ½ of 1% based on the selling price.

Shifting Transfer of tax burden to another.
Exemplified by INDIRECT TAXES
Value-Added Tax,
Percentage Tax and
Excise Tax

The producer absorbs the

payment of tax to reduce prices
to maintain market share.
Transformation Additional tax expense can be
recovered by the producer by
improving the process of
production. The tax is
transformed into a gain
through the medium of
production
A grant of immunity, expressed or

implied, to a persons or corporations of
a particular class, from a tax upon
TAX
property or an excise which persons
EXEMPTION
and corporation generally within the
same taxing district are obliged to pay.

TAX p
EXEMPTION r
TAX i
DEDUCTIONS n
c
TAX AMNESTY i
p
TAX l
CONDONATIONS e
s
Distinguish A TAX AMNESTY from a TAX
EXEMPTION.

It is an immunity or privilege, a freedom
from a charge or burden to which others
are subjected
The condonation of a tax
versus liability is equivalent and is in
the nature of a tax exemption
it should be sustained only when

expressed in explicit terms, and
it can not be extended beyond
the plain meaning of those
terms.
TAX TAX
EXEMPTION EXCLUSIONS
versus
TAX TAX
EXEMPTION
versus DEDUCTIONS
Distinguish a “Exclusion from Gross Income” from

“Deductions from Gross Income”?

Items/receipts NOT
TAX INCLUDED in the
EXCLUSIONS determination of the
Taxable Income
Exempt from Income Tax
Not included in
the Income Tax
Return
Not Taxable

TAX EXCLUSIONS
Reasons for Exclusion
A. The item of receipt does not fall

within the definition of income for
income tax purposes.

A. The item of receipt does not fall
within the definition of income for
income tax purposes.
WHAT IS AN INCOME?
Income means ALL WEALTH that flows into the hands of the
taxpayer other than as a mere return of capital.
It includes the forms of income specifically described as

gains derived from the sale or other disposition of
capital.

A. The item of receipt does not fall within the
definition of income for income tax purposes.
SOURCES OF INCOME
Source of income is any property, activity or service

that produced the income.
PROPERTY (Capital)
LABOR (Service)
SALE (Exchange of capital asset
and activity)

Mr. Lajojo is a big time swindler. In one year he was
able to earn P1M from his swindling activities.
When the Commissioner of Internal Revenue
discovered his income from swindling, the
Commissioner assessed him a deficiency income
tax for such income. The lawyer of Mr. Lajojo
protested the assessment on the following grounds:

Grounds:
1. The income tax applies only to legal income;
2. Mr. Lajojo’s receipts from his swindling activities did not
constitute income because he was under obligation to
return the amount he had swindled, hence, his receipt
from swindling is similar to a loan, which is not income,
because every peso borrowed, he has a corresponding
liability to pay one peso.
3. If he has to pay the deficiency income tax assessment,
there will be hardly anything left to return to the victims
of the swindling. Rule on these 3 grounds. Explain.

SOURCES OF INCOME
INCOME DERIVED FROM WHATEVER SOURCE FORMS

PART OF THE TAXPAYER’S INCOME.
This includes the following:

1. Treasure found or punitive damages representing
profits lost
2. Amount received by mistake
3. Cancellation of the taxpayer’s indebtedness
4. Payment of usurious interest
5. Illegal gains-gambling, theft, embezzlement(income to
embezzler if forgiven by the owner), extortion, fraud
6. Tax refund
7. Bad debts recovery
SOURCES OF INCOME
INCOME DERIVED FROM WHATEVER SOURCE FORMS
PART OF THE TAXPAYER’S INCOME.
Earnings, lawfully or unlawfully, acquired without

the consensual recognition, express or implied, of an
obligation to repay AND without restriction as to their
disposition are TAXABLE, even though it may still be
claimed that he is not entitled to retain the money or
even though he may still be adjudged to restore its
equivalent.

1. There must be GAIN or PROFIT, whether in cash

or its equivalent
There should be an earnings in EXCESS of the capital

invested or in EXCESS of the amount invested.
A RECOVERY OF AMOUNT INVESTED
IS NOT AN INCOME

2. The gain must be REALIZED or RECEIVED
that income must be credited to

RECEIPT includes the taxpayer without any
constructive receipt substantial limitation or
condition upon which payment
is to be made.

•The gain must be REALIZED or RECEIVED

Examples of
INCOME CONSTRUCTIVELY RECEIVED
1. Interest credited on savings bank deposit;

2. Matured interest coupons not yet collected by the
taxpayer;
3. Dividends applied by the corporation against the
indebtedness of a stockholder
4. Share in the profit of a partner in a general
professional partnership, although not yet
distributed, is regarded as constructively
received;
5. Intended payment deposited in court(CONSIGNATION)
3. The gain MUST NOT BE EXCLUDED BY LAW or

TREATY from taxation.
There are some EXCLUSIONS FROM GROSS INCOME,

(as provided for by the NIRC, other tax laws and treaty)
so, not all income is required to be included in computing
the taxable income.

TAX EXCLUSIONS
A.
The item of receipt does not fall within the
NON TAXABLE DAMAGES

1.damages recovered in libel and slander suits;
2.damages recovered for alienation of affection;
3.damages recovered for breach of promise to
marry;
4.damages recovered for loss of life of spouse;
5.damages recovered in annulment of marriage.

TAX EXCLUSIONS
A.
Reason why not taxable damages:
recovery in such action is not derived from

CAPITAL, LABOR, or from BOTH COMBINED
but merely COMPENSATORY.

TAX EXCLUSIONS
A.
EXEMPTIONS: TAXABLE DAMAGES:
1. Compensation for unrealized earnings

2. Interest for those non taxable damages
3. Damages for unrealized profits
4. Compensatory liquidated damages
5. Damages recovered in intangible assets
infringement suits.
TAX EXCLUSIONS
A.
Reason why taxable damages:
represent recovery of loss of profit.

TAX EXCLUSIONS
B. A SPECIAL LAW exempts it from

tax.

TAX EXCLUSIONS
B.
A SPECIAL LAW exempts it from tax.
1. PRIZES RECEIVED IN CHARITY, HORSE
RACING, SWEEPSTAKES FROM
PCSO;
2. INCOME FROM BOND and SECURITIES
-for sale in the international market

P.D. 81
-Issued by EPZA P.D.66

TAX EXCLUSIONS
B.
A SPECIAL LAW exempts it from tax.
3. SALARIES AND STIPEND IN DOLLARS
RECEIVED BY NON-FILIPINO CITIZENS
SERVING AS STAFF OF:
-International Rice Research Institute

-Ford Foundation Grants
-Agricultural Department of the
Southeast Asian Fisheries
Development Center
-Population Council of New York

TAX EXCLUSIONS
C. A provision of the TAX CODE

exempts it from tax.
Section 32(B)
TAX EXCLUSIONS Section 32(B)
C.
A provision of the TAX CODE
Section 32(B)(1)
PROCEEDS FROM LIFE INSURANCE,

whether such is received in an INSTALLMENT
or LUMP SUM

State with reasons the tax treatment of the
following in the preparation of annual income
tax returns: Proceeds of life insurance received
by a child as irrevocable beneficiary.

Section 32(B)(1)
PROCEEDS FROM LIFE INSURANCE, whether such
is received in an INSTALLMENT or LUMP SUM
ALWAYS EXCLUDED irrespective of the

beneficiary designated in the policy

Section 32(B)(1)
PROCEEDS FROM LIFE INSURANCE, whether
such is received in an INSTALLMENT or LUMP SUM
This applies to GROUP INSURANCE, DEATH

BENEFITS, WORKMEN’S COMPENSATION
INSURANCE, HEALTH or ACCIDENT
INSURANCE.
Reason: It is an indemnity rather than gain

or profit, because insurance is a CONTRACT
OF INDEMNITY.
C.
Section 32(B)(2)
AMOUNT RECEIVED AS A RETURN OF

PREMIUM
Reason: It is JUST A MERE RETURN OF

CAPITAL.
C.
Section 32(B)(3)
GIFTS, BEQUESTS, AND DEVISES
Reason: It is NOT a product of capital or

industry.

Section 32(B)(3)
GIFTS, BEQUESTS, AND DEVISES
BUT
The INCOME from such property shall be
INCLUDED in the GROSS INCOME

C.
Section 32(B)(4)
COMPENSATION FOR INJURIES
OR SICKNESS
Reason: It is COMPENSATORY, NOT

GAIN/PROFIT. It adds nothing to the individual.

Section 32(B)(4)
COMPENSATION FOR INJURIES OR SICKNESS
Moral Damages NOT TAXABLE/EXEMPT
Exemplary
NOT TAXABLE/EXEMPT
Damages
Damages for Loss of Earnings/Income

TAXABLE

C.
Section 32(B)(5)
INCOME EXEMPT UNDER TREATY
Reason: Adherence to the generally accepted
principles of international law.
Example: Income derived by the US Consular

officials in the Philippines in connection with such
consular service
C.
Section 32(B)(6)
RETIREMENT BENEFFITS,
PENSIONS, GRATUITIES, ETC.

Section 32(B)(6)
RETIREMENT BENEFFITS, PENSIONS,GRATUITIES,ETC.
Retirement Benefits received by officials and

employees of private firms, individuals or
corporations.
1.Private plan maintained by their employer

approved by the BIR for the exclusive benefit of
the employee.
2.Retiring official or employee who has rendered
at least 10 years of service;
3.At least 50 years of age at the time of
retirement.

Section 32(B)(6)
Separation benefits due to death,

sickness or other physical
disability or any causes beyond
the control of the said official or
employee.

Section 32(B)(6)
Social security benefits, retirement

gratuities received by resident or non-
resident citizens or resident aliens from
foreign government agencies and other
private or public institutions.
Benefits received from GSIS including
retirement gratuity received by government
officials and employees.
C.
Section 32(B)(7)
MISCELLANEOUS ITEMS

Section 32(B)(7)
MISCELLANEOUS ITEMS
Section 32(B) (7)(a)

INCOME DERIVED BY FOREIGN GOVERNMENT
•Income received from investments in the
Philippines BY:
Foreign Government
Financing Institutions controlled and

owned by Foreign Government
Regional or International Financing institutions

established by Foreign Government
Section 32(B)(7)(a)
INCOME DERIVED BY FOREIGN GOVERNMENT
•Income received from investments in the Philippines

BY:
Foreign Government
Financing Institutions controlled and

owned by Foreign Government
Regional or International Financing institutions

established by Foreign Government
Reason: to lessen the burden of foreign loans

or lessen the interest of the foreign loans.
Section 32(B)(7)
MISCELLANEOUS ITEMS
Section 32(B) (7)(b)

INCOME DERIVED BY THE GOVERNMENT or
ITS POLITICAL SUBDIVISION
from any PUBLIC UTILITY
from THE EXERCISE OF ESSENTIAL

GOVERNMENTAL FUNCTIONS

RECIPIENTS OF THE INCOME MUST BE:
1. Local Government Units (LGU)
Example: Income derived by the municipality

from the operation of power plant.

RECIPIENTS OF THE INCOME MUST BE:
2. Government of the Philippines/Republic

of the Philippines .

Govt. of the
RP Government
NOT INTERCHANGEABLE
Govt. of the
RP Government
Does not include Includes all the bureaus
Government
and instrumentalities
Owned and including Government
Controlled Owned and Controlled
Corporations Corporations (GOCCs)
(GOCCs)
Section 32(B)(7)
MISCELLANEOUS ITEMS
Section 32(B) (7)(c)

PRIZES and AWARDS
•Prizes and awards under the following
conditions:
A. received in recognition of religious,

charitable, scientific, educational, artistic,
literary or civic achievement;

Section 32(B) (7)(c)
PRIZES and AWARDS
•Prizes and awards under the following

conditions:
B. recipient was selected without any action

on his part to enter the contest;
C. recipient is not required to render

substantial future services as a condition to
receiving the prize or awards
Section 32(B)(7)
MISCELLANEOUS ITEMS
Section 32(B) (7)(d)

PRIZES and AWARDS in SPORTS COMPETITION
exempted by:
Republic Act 7549 otherwise known as an

Act Exempting all Prizes and Awards gained
from Local and International Sports
Tournament and competitions for the payment
of income and other forms of taxes and for
other purposes.
exempted by:
Republic Act 7549
1. Recipient is EXEMPT from INCOME TAX

2. Contributor of the Award/Donor is
EXEMPT from DONOR’s TAX.
3. Contributor of the Award/Donor can claim
it as DEDUCTION from Gross Income.
CONDITIONS FOR EXEMPTIONS:

1. Received in Recognition of local and
international Sports competition held in
Philippines and abroad sanctioned by National
Sports Association (accredited by the Philippine
Olympic Committee)
CONDITIONS FOR EXEMPTIONS:

2. It must be an unconditional receipt; recipient
is not required to render substantial future
services.

Section 32(B)(7)
MISCELLANEOUS ITEMS
Section 32(B) (7)(e)

13th MONTH PAY and OTHER BENEFITS
TOTAL
EXCLUSION It will INCLUDE
shall NOT CHRISTMAS
EXCEED BONUS,
P30,000.00 PRODUCTIVITY
INCENTIVES

Section 32(B)(7)
MISCELLANEOUS ITEMS
Section 32(B) (7)(f)

GSIS, SSS, Medicare and Other Contributions
EXEMPTION:
GSIS Educational Plan Premium
GSIS Memorial Plan Premium

Section 32(B)(7)
MISCELLANEOUS ITEMS
Section 32(B) (7)(g)

Gains from the Sale of Bonds, Debentures or
other Certificate of Indebtedness
WITH MATURITY of MORE THAN FIVE (5) YEARS

Section 32(B)(7)
MISCELLANEOUS ITEMS
Section 32(B) (7)(h)
Gains from Redemption of Shares in Mutual Fund
Section 22 (BB) of the NIRC

C.
Republic Act 9504
TAX EXEMPTION of STATUTORY

MINIMUM WAGE EARNER

Republic Act 9504
TAX EXEMPTION of STATUTORY MINIMUM WAGE EARNER
SMW Statutory Minimum Wage

Section 22(GG)
FIXED
BY
RTWPB of the
DOLE
MWE Minimum Wage Earner

Section 22(HH)
Republic Act 9504
EXEMPT from
PRIVATE SECTOR TAX and NOT
MWEs subject to
PUBLIC SECTOR Withholding
tax
Holiday pay, overtime pay, night shift

differential pay and hazard pay earned
by the MWEs shall be covered by the
INCOME TAX EXEMPTION
Republic Act 9504
BUT,
REMEMBER THAT
Republic Act 9504
An employee who receives additional

compensation such as: commissions, honoraria,
Fringe benefits, benefits in excess of allowable
statutory amount of P30,000, taxable allowances and
Other taxable income other than SMW, Holiday pay,
Overtime pay, night shift differential pay and hazard pay
SHALL NOT ENJOY THE PRIVILEGE OF BEING
A MWE, therefore, his ENTIRE EARNINGS ARE
NO LONGER EXEMPT FROM INCOME TAX.
TAX TAX
EXEMPTION EXCLUSIONS
versus
TAX TAX
EXEMPTION
versus DEDUCTIONS
Distinguish a “Exclusion from Gross Income” from

“Deductions from Gross Income”?

Section 34 of the NIRC
These are amounts allowed by law to

reduce the gross income to taxable income.

BASIC PRINCIPLES
NON RESIDENT ALIEN NOT ENGAGED

IN TRADE OR BUSINESS and NON
RESIDENT FOREIGN CORPORATION
are not allowed to claim deductions
The taxpayer must point to

some specific provisions of
the statute/law authorizing
the deduction.
BASIC PRINCIPLES
The taxpayer must prove that
he is entitled to the deduction
authorized or allowed.
If the taxpayer fails to deduct certain

expenses for the taxable year, he cannot
deduct them from the income of the next or
any succeeding year
BASIC PRINCIPLES
If expenses were incurred and there are
no documentary evidence to support
such, BIR must make an estimate of
Cohan Rule
deduction that may be allowed in
Principle
computing the taxpayer’s taxable
income.
disallowance of 50% of
the taxpayer’s claimed
deduction is VALID.
KINDS OF ALLOWABLE DEDUCTIONS
I.
PREMIUM PAYMENTS ON HEALTH and/or
HOSPITALIZATION INSURANCE (PHHI)
Section 34(M)
premiums paid during the taxable year for

health and/or hospitalization insurance
taken by him on himself, including his family.
applicable only to individual

I.
CONDITIONS BEFORE PHHI SHALL BE ALLOWED
AS DEDUCTION FROM GROSS INCOME.
1. That the family had a gross income of not more
than two hundred fifty thousand pesos
(P250,000.00) for the taxable year.
PARENTS and the CHILDREN

NUCLEAR who are not yet taxpayers their
FAMILY income notwithstanding.
I.
2. In case of married persons, only the spouse

claiming the additional exemptions for dependents
shall be entitled to the deduction;

I.
3. The deduction shall not exceed P2,400 for the

family, or P200 a month.

II.
OPTIONAL STANDARD DEDUCTION (OSD)
Section 34(L)
OSD is a deduction from gross income allowed

to be taken in lieu of the itemized deductions.
Applicable to INDIVIDUAL (but not to

non-resident alien)
applicable also to CORPORATION as
allowed by Sec. 3 of R.A. 9504.
II.
OSD
RATE
40% 40%
Of Gross Sales/Gross Of Gross Income
Receipts CORPORATE
INDIVIDUAL TAXPAYERS, TAXPAYERS
other than NRA
II.
the taxpayer must signifies in his return his

intention to elect Optional Standard Deduction,
OTHERWISE, he shall be considered as having

availed of the Itemized Deductions.
The election of OSD is irrevocable for

the taxable year for which the choice is
made.
II.
SHALL NOT APPLY TO

GROSS COMPENSATION
INCOME ARISING OUT OF
EMPLOYER-EMPLOYEE
RELATIONSHIP.

III.
ITEMIZED DEDUCTIONS
Section 34(A to J)
These are expenses related to trade or

business or to the practice of profession
applicable to BOTH individual

and corporate taxpayers

III.
ITEMIZED DEDUCTIONS
KINDS OF ITEMIZED DEDUCTION

(by statutory classification)
A.Business Expenses
B.Interest
C.Taxes
D.Losses
E.Bad Debts
III.
ITEMIZED DEDUCTIONS
KINDS OF ITEMIZED DEDUCTION

(by statutory classification)
F. Depreciation
G. Depletion
H. Charitable and Other Contributions
I. Research and Development Expenditure
J. Pension Trust Contribution
Deductions from Exclusions from
Gross Income Gross Income
Section 34 Section 32(B)
Should not form part
Something paid or of gross income
incurred in doing because excluded by
business or trade law, by the
constitution or does
not fall within the
definition of income.
Pertains to the
computation of Pertains to the
ordinary taxable determination of
income. Gross Income.
SUBSTITUTES FOR THE DISALLOWANCE OF
FAMILY, LIVING and PERSONAL EXPENSES
Kinds
BASIC PERSONAL EXEMPTION
ADDITIONAL PERSONAL EXEMPTION

PERSONAL EXEMPTION
II.
I.
ADDITIONAL
BASIC PERSONAL
PERSONAL
EXEMPTION
EXEMPTION
P50,000 P25,000
whether taxpayer is IN ADDITION to the basic
personal exemption for each
married, head of qualified dependent children not
the family or single. exceeding four (4).
(R.A. 9504) (R.A. 9504)
PERSONAL EXEMPTION (PE)
TAXPAYERS ALLOWED TAXPAYERS NOT ALLOWED
for PERSONAL EXEMPTION FOR PERSONAL EXEMPTION
1. RC 1. NRA-ETB not
2. NRC enjoying
3. RA reciprocity clause
4. Estates and Trusts 2. NRA-NETB
5. NRA-ETB enjoying 3. Corporations
reciprocity clause 4. Partnerships

PRINCIPLE OF RECIPROCITY
Section 35(D)
means that NRAETB shall be allowed a personal exemption
only if the income tax law in his country grants
personal exemptions to the citizens and residents of
the Philippines, subject to the following limitations:
•The amount of exemption shall in no case exceed the

personal exemption granted by our law to citizens or
residents of the Philippines.

Personal exemptions are available only
to citizens and residents, including
estate and trust.
Non-resident alien engaged in
business in the Philippines is allowed
with personal exemption based on
reciprocity;
(Section 35D of the NIRC states “personal
exemption”---some authors said that
reciprocity extends only to basic personal
exemption.)
PRINCIPLE OF RECIPROCITY
Section 35(D)
NRA-ETB
Those who have stayed within the
Philippines for more than 180 days during
the taxable year shall be deemed
nonresident aliens doing business in the
Philippines.

TAXPAYERS ENTITLED TO ADDITIONAL EXEMPTIONS
1. RC
2. NRC
3. RA if qualified children are LIVING
WITH HIM IN THE PHILIPPINES
If children are living abroad, RA is not

entitled to additional exemptions.

REQUISITES for ADDITIONAL EXEMPTIONS
DEPENDENT MUST BE:
1. a taxpayer’s child, whether legitimate,

illegitimate or legally adopted;
2. chiefly depending for support on the taxpayer;
3. living with the taxpayer;

REQUISITES for ADDITIONAL EXEMPTIONS
DEPENDENT MUST BE:
4. not married; not gainfully employed, and not more

than 21 years old. (Sec. 35(B), NIRC)
The law allows the continuous additional exemption even if

the dependent child is more than 21 years old, with the
provision stating “or if such dependent, regardless of
age, is incapable of self-support because of mental or
physical defect.” (Sec. 35B, par.4, NIRC)
RULES IN CLAIMING
ADDITIONAL EXEMPTIONS
If BOTH spouses are working,
only one can claim the additional
exemption. If only one spouse
General Rule: Husband is the proper is working,
claimant. said spouse may
Exemption: Wife can claim if: claim
-husband explicitly waives Additional
his right Exemption.
- husband has no income.
-husband works abroad.
Charlie, a widower, has two sons by his previous
marriage, Charlie lives with Jane who is legally
married to Mario, They have a child named Jill. The
children are all minors and not gainfully employed.
1. How much personal exemption can Charlie
claim? Explain.
2. How much additional exemption can Charlie
claim? Explain.

QUALIFIED DEPENDENTS OTHER THAN CHILDREN
A. PARENTS
1. incapable of self support
2. taxpayer should provide the chief support.
B. BROTHERS/SISTERS
1. should not be more than 21 years old
2. should not be gainfully employed
3. regardless of age, if brother/sister is incapable of self
support due to mental or physical defect
4. taxpayer provided for the chief support.
C. SENIOR CITIZEN
1. resident of the Philippines
2. at least 60 years old
3. retired from either government or private service
2. has income of NOT MORE THAN P60,000 per year
which will be reviewed by NEDA every 3 years.

Taxpayer or benefactor of senior citizen shall be

entitled only to the BASIC PESONAL EXEMPTION of
P50,000.
He shall not be entitled to claim the

ADDITIONAL EXEMPTION OF P25,000 for
supporting his/her parents, brother/sister or
senior citizen
CHANGE OF STATUS SUMMARY
Individual Taxpayer Exemption
Change of Status: This year Next year

1. Married P50,000 P50,000
2. Died P50,000
3. Widowed with 1 qualified dependent child P75,000 P75,000
4. Widowed with qualified dependent not
his child P50,000 P50,000
5. Widowed without dependents P50,000 P50,000
6. Legally separated with 1 qualified
dependent child P75,000 P75,000
7. Legally separated with qualified
dependent not his child P50,000 P50,000
8. Legally separated without dependents P50,000 P50,000
9. Not legally separated P50,000 P50,000
CHANGE OF STATUS SUMMARY
DEPENDENT CHILDREN
(Maximum of Four)
Additional Exemption
Change of Status: This year Next year

1. Born P25,000 P25,000
2. Reaches 21 years old – normal child P25,000
3. Reaches 21 years old – abnormal child
and incapable to support himself P25,000 P25,000
4. Marries P25,000
5. Gainfully employed P25,000
6. Dies P25,000

RAM got married to LISA last January 2003. On
November 20, 2003, LISA gave birth to twins.
Unfortunately, however, LISA died in the course of
her delivery. Due to complications, one of the twins
also died on December 15, 2003.
In preparing his Income Tax Return (ITR) for the

year 2003, what should RAM indicate in the ITR as
his civil status? (a) single (b) married © Head of the
Family (d) widower (e) none of the above. Why?
Reasons.
Dependent means a legitimate, illegitimate
or legally adopted child chiefly dependent
upon and living with the taxpayer if such
dependent met the criteria provided under
Sec. 35(b) of NIRC.

head of family means an unmarried or legally
separated man or woman with one or both parents, or
with one or more brothers or sisters, or with one or
more legitimate, recognized, natural, or legally
adopted children, living with and dependent upon him
or her for their chief support; where such brothers,
sisters or children are not more than twenty-one
years of age, unmarried, and not gainfully employed;
or where such brothers, sisters or children, regardless
of age, are incapable of self-support because of mental
or physical defect. (Sec. 35A par.3, NIRC)

living with may be construed that the
taxpayer and his dependents reside under
one roof, or do not necessarily reside
under one roof with consideration on the
character of the separation.

Gainfully employed means that the
dependent is engaged in an employment,
work or trade that will remove him from the
status of chief support from the taxpayer.

Chief support refers to the principal or main
support whether money or in kind extended
continuously to the dependent, such that if
withdrawn, the dependent will have a destitute
life.

Deductions from Allowance for
Gross Income Personal Exemptions
Section 34 Section 35
Actual business Arbitrary amounts
expenses or because it may not
As to AMOUNT
expenses incurred be enough to cover
in the exercise of personal living
profession expenses.
To recover the To cover the family,

cost of doing As to PURPOSE living and personal
business. expenses.

Business
Expenses As to NATURE Family, living and
personal expenses.
Corporate
Taxpayers except
NRFC, it can also Individual
be claimed by As to CLAIMANT Taxpayers only
Individual except NRA-
Taxpayers except NETB.
NRA-NETB.
1. Itemized
Deductions
2. Optional 1. Basic Personal
Deductions Exemption
(OSD) of 40% of As to KINDS 2. Additional
Gross Income or Personal
Receipt.
Exemption.
OSD is applicable to
individual and
corporate
taxpayers (Sec. 3
R.A. 9504)
BRIEF HISTORY
NATIONAL INTERNAL REVENUE CODE
June 3, 1977
Presidential Decree No. 1158 consolidated the
internal revenue laws and Presidential Decrees into a
single TAX CODE—”National Internal Revenue Code
(NIRC) of 1977.”
October 1985
Presidential Decree No. 1994, after amending
certain provisions of the NIRC, called the code “National
Internal Revenue Code of 1986”.

BRIEF HISTORY
During the 1986 Revolutionary Government

Executive Orders (EO) amended provisions of the
NIRC.
NIRC of 1986 was amended by various Presidential

Decrees, Executive Orders, and laws enacted by different
legislative bodies of the Philippines, the latest being the
TAX REFORM ACT of 1997 (R.A. No. 8424)
BRIEF HISTORY
The latest amendment being the provisions of Republic Act

9504 “An Act Amending Sections 22, 24, 34, 35, 51 and 79
of Republic Act No. 8424, as amended , otherwise known as
the National Internal Revenue Code” relative to the
Withholding of Income Tax on Compensation and other
Concerns,
and renamed the Code as….
NATIONAL INTERNAL REVENUE CODE OF 1997

(Sec.1 of NIRC).
(P.D. No. 1158 as amended up to R.A. No. 9504)

The BIR, under the
SUPERVISION and CONTROL of
the Department of Finance
(DOF), is principally tasked with
the enforcement of the NIRC.
POWERS and DUTIES
Section 2 of NIRC
1. ASSESSMENT and COLLECTIONS of all national

internal revenue taxes, fees,
and charges
2. ENFORCEMENT of all forfeitures, penalties and fines
connected assessment and collection
3. EXECUTION of judgments in all cases decided in its favor
by the Court of Tax Appeals and Ordinary
Courts.
5. ADMINISTRATION OF THE SUPERVISORY POLICE
POWERS conferred by the NIRC and other laws.

THE BUREAU OF INTERNAL REVENUE
Chief Officials of the Bureau of Internal Revenue
1. The Chief is known as the COMMISSIONER
OF INTERNAL REVENUE; (Sec. 3 of NIRC).
2. The Four (4) Assistant Chiefs to be known
as DEPUTY COMMISSIONERS; (Sec. 3 of NIRC).
3. The Revenue Regional Directors; (Sec. 10,14,15
of NIRC).
4. The Revenue District Officers; (Sec. 9,11,14, 15 of
NIRC.)
5. Revenue Examiners and Officers; (Sec.
13,14,15,16,17,18 of NIRC).
6. Division Chiefs of the BIR;
7. BIR Collecting Agents. (Sec. 12 of NIRC)
BIR
COLLECTING
AGENTS

Other Government Agencies, under
the SUPERVISON and CONTROL of the
Department of Finance (DOF), tasked
in enforcing other tax laws.
Bureau of Customs (BC) and the

Tariff Commission (TC)
Tasked to enforce the Tariff and Customs
Code (TCC).
The Bureau of Customs is also tasked to
collects taxes on imports embodied in the
NIRC.

Land Transportation Office (LTO)
Responsible to collect registration fees

and motor vehicle tax.

Local Offices in charge to enforce
local taxation
1. Provincial, City, Municipal and

Barangay Treasurers;
2. Provincial and City Assessors;
3. Provincial and City Board Assessment
Appeals;
4. Central Board of Assessment Appeals.

Duly and lawfully authorized

collectors
These are persons, agencies or duly

accredited banks authorized by the
BIR, BC, TC and LTO to collect taxes.

Other Governmental Offices that may
have incidental functions regarding
TAX ENFORCEMENT
INTERPRETATION OF TAX LAWS
Secretary of Justice as the Chief Legal

Officer of the Government
-has authority to render
administrative interpretation and
ascertain the validity of tax laws.
Is the interpretation of the Secretary of
Justice subject to review?
It is subject to review by the
Courts of Justice.

Various Offices that indirectly provide
assistance in the
COLLECTION OF TAXES
1. The Courts;
2. Register of Deeds;
3. Secretary of Public Works and
Highways Offices;
4. City Prosecutors Office or City Fiscals;
5. Notaries Public.

POWERS of the Internal Revenue Commissioner
1. The BIR Commissioner has the
exclusive and original power to
INTERPRET provisions of the NIRC and
other tax laws. (Sec. 4, par. 1 of NIRC)
Is the interpretation subject to review?

Who will review?
SUBJECT TO REVIEW BY THE

SECRETARY OF FINANCE
2. DECIDE TAX CASES (Sec. 4 par. 2 of NIRC
-Disputed assessments
-Refunds of internal revenue taxes, fees or other
charges
-Penalties imposed arising under the Tax Code or
other tax laws;
-Other matters arising under the NIRC.
Is the Decision of the Commissioner subject to APPEAL?
It is subject to the EXCLUSIVE APPELLATE

JURISDICTION of the COURT OF TAX APPEALS.
3. POWER TO SUMMON (Sec. 5 of NIRC)
The intention is to ascertain the correctness of
tax return, and to determine the taxpayer’s
liability and compliance.
-Examine taxpayer’s records;
-Obtain taxpayer’s financial information;
-Summon the person liable for tax;
-Take testimony of the person concerned under
oath;
-Conduct regular canvass concerning all
persons liable to pay any internal revenue tax.
4. POWER TO MAKE ASSESSMENT
I. Examination of the following:
a. Returns and determination of tax due, and

(Sec. 6 (A) of NIRC)
b. Statements, reports and other documents not

submitted. (Sec. 6 (B) of NIRC)

II. Authority on the

following:
a. Conduct inventory and

surveillance, and prescribe
presumptive Gross Sales
and Receipts. (Sec. 6 (C) of
NIRC)

II. Authority on the following:
b.Terminate taxable period. (Sec. 6(D) of NIRC)
If it shall come to the knowledge of the Commissioner that

taxpayer:
-retiring from business subject to tax
-Intends to leave the Philippines;
-Removes, hide or conceals his properties in the
Philippines
-Performs any act tending to obstruct the proceedings of
the collection of tax for the past or current quarter, or
renders the same totally or partially inefficient.
c. To prescribe real property values
(Sec. 6(E) of NIRC)
For purposes of computing internal revenue tax the value
of the property shall be:
Whichever is higher of:
the FAIR MARKET VALUE as determined by the
Commissioner; OR
the FAIR MARKET VALUE as shown schedule of
values of the Provincial and Assessors.
d. To inquire into Bank Deposits
Accounts. (Sec. 6(F) of NIRC)
Inquiry is limited only to the bank deposits of:
1. A decedent to determine his gross estate; and

2. Any taxpayer who has filed an application for
compromise of his tax liability under Sec. 204 (A)(2)
of the NIRC by reason of financial incapacity.

e. To accredit and register Tax Agents.
Sec. 6(F) of NIRC)
These are individuals and general professional

partnership accredited based on the following:
Professional Competence
Integrity
Moral Fitness

e. To accredit and register Tax Agents.
Sec. 6(F) of NIRC)
IF DENIED ACCREDITATION:
An appeal can be made to the Secretary of
Finance who shall rule within 60 days.
Failure to rule within the prescribed period

shall be deemed as APPROVAL of the
application for accreditation of the appellant
individual or general professional partnership.
f. To prescribe additional procedural
or documentary requirements.
Sec. 6(H) of NIRC)
This is in connection with the submission or

preparation of financial statements
accompanying the tax returns.

Tax Assessment
is the determination of tax
liability
TYPES OF TAX ASSESSMENTS
Taxpayers assessment (Tax Return)
Government assessment
within 3 years from date of actual filing
or from prescribed date of filing
whichever is longer
Within 10 years from date of discovery

of tax violation
TERMINATION OF TAX PERIOD
The commissioner can demand for

immediate payment of tax when it is
discovered that:
The taxpayer retires from business
The taxpayer intends to leave the
country
The taxpayer removes his property
from the Philippines
The taxpayer hides/conceal his
property
Distinguish government assessment from
assessment notice
Assessment is the official action of

ascertaining the amount of tax due from a
taxpayer, done under the existing law;
Assessment notice is a formal demand sent

to the taxpayer requiring payment within a
specified time, the tax due, including interest
and civil penalties.
5. POWER of DELEGATION (Sec. 7 of NIRC)
BIR Commissioner can delegate powers

vested in him under the pertinent
provisions of the NIRC to ANY or such
subordinate officials with the rank
equivalent to a Division Chief or higher.

BUT, the following powers of the BIR

Commissioner SHALL NOT be delegated:
1. The power to recommend the

promulgation of rules and regulations by
the Secretary of Finance;


2. The power to issue rulings of first

impression or to reverse, revoke or modify
any existing ruling of the Bureau;


3. The power to compromise or abate,

under Sec. 204(A) and (B) of the NIRC,
ANY tax liability;

General Rule:
The power to compromise or abate, under
Sec. 204(A) and (B) of the NIRC, ANY tax liability
shall NOT be delegated.
Exemption:
Assessments issued by the regional
offices involving basic deficiency taxes of
P500,000 or less,
AND minor criminal violations, may be
compromised by the regional evaluation board.
Composition of the Regional Evaluation Board:

Chairman : Regional Director
Members :
Heads of the Legal, Assessment and
Collections Divisions
Revenue District Officer having
jurisdiction over the taxpayers

5. POWER TO ENSURE THE PROVISION AND

DISTRIBUTION OF FORMS, RECEIPTS,
CERTIFICATES, and APPLIANCES, AND
THE ACKNOWLEDGMENT OF PAYMENT
OF TAXES. (Sec. 8 of NIRC)

REGISTRATION REQUIREMENTS
WITH THE BIR
 Registration (Sec 236):
 W/I 10 days from date of first employment ( form
1902)
 On or before the start of the business (form 1901,
1903)
 Renewal, on or before end of January
P500/business establishment (form 605)
 Registration Update (form 1905), no charge:
 Transfer of place of business
 Closing of business
BUT, NOT ALL TAXPAYERS ARE
REQUIRED TO PAY AN ANNUAL
REGISTRATION FEE OF P500
TAXPAYERS EXEMPT FROM PAYMENT OF
P500 REGISTRATION FEE:
 cooperatives
 individualsearning purely
compensation income
 overseas workers (Sec. 236B)
 Businesses with P100,000 and

below earnings/year
There should only be one (1)
Taxpayers Identification Number
to be issued to each taxpayer
BIR ADMINISTRATIVE REQUIREMENTS FOR
DOING BUSINESS
 Printing of Sales Invoice/Receipts
 Secure an authority to print (form 1906)
 Invoicefor sale of goods/ Official Receipts for
services and rent
 tobe issued in duplicate, duplicate copy to be preserved
for at least 3 years.
 Keeping of books of accounts ( journal/ledger)
 Recorded in native language, English or Spanish
 Preserve for at least 3 years
 Need to be audited by a CPA if quarterly gross
receipts/earnings is more than P150,000
Is the Customs Commissioner under the
supervision of the BIR Commissioner?
The Customs Commissioner and his

subordinates are agents of the BIR
Commissioner with respect to the
collection of national internal revenue
taxes on imported goods.(Sec. 12)
Commissioner’s Annual report
Sec. 19 of NIRC
Detailed Statements of the

Contents: Collection specifying the
following:
-Sources of revenue by type of tax

by manner of payment
by revenue region
by industry group
- Disbursements by classes of expenditures

Commissioner’s Annual report
Exceeds
by
ACTUAL
15% 1% to ANNUAL
OR 14.99 NATIONAL
COLLECTION %
BUDGET
Falls
short by
15%
If actual collection exceeds or falls short of target as
set in the annual national budget by 15% or more,
the Commissioner shall explain the reason for such
excess or shortfall.

Submission of Report and Pertinentt Information
Sec. 20 (A) of NIRC
Upon request of In AID of

& legislation
Congress
The Commissioner shall furnish the

appropriate Committee pertinent
information including but not limited to the
following:
1. Industry audit
2. Collection performance data
3. Status reports in criminal actions against
persons and taxpayer’s returns.

Submission of Report and Pertinent Information
Sec. 20 (B) of NIRC
Authority of the Commissioner to COMPROMISE, ABATE &
REFUND or CREDIT TAXES
In the exercise of his power

pursuant to Section 204, the
Commissioner SHALL:
SUBMIT TO THE OVERSIGHT COMMITTEE (section 290
of the NIRC) through its Chairmen of the Committee on
Ways and Means of the SENATE and HOUSE of
REPRESENTATIVES every SIX (6) months of each
calendar year.
Sec. 21 of NIRC
PercentageTaxes Documentary
Stamp Taxes Donor’s Tax
Excise Income
E-VAT Tax Tax
Such other taxes as may be

Estate imposed
Taxes and collected by the BIR

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GENERAL PRINCIPLES

atty. cleo d. sabado-andrada. cpa, mba,ll.m

INHERENT POWERS OF SOVEREIGN STATE

atty. cleo d. sabado-andrada. cpa, mba.ll.m

POLICE EMINENT TAXATION

atty. cleo d. sabado-andrada. cpa, mba,ll.m

POLICE EMINENT TAXATION

atty. cleo d. sabado-andrada. cpa, mba,ll.m

POLICE EMINENT TAXATION

atty. cleo d. sabado-andrada. cpa, mba,ll.m

POLICE EMINENT TAXATION

POLICE EMINENT TAXATION

atty. cleo d. sabado-andrada. cpa, mba,ll.m

NOT All the inherent powers of the state are

BECAUSE….. Eminent Domain is

POLICE EMINENT TAXATION

atty. cleo d. sabado-andrada. cpa, mba,ll.m

POLICE EMINENT TAXATION

atty. cleo d. sabado-andrada. cpa, mba,ll.m

Taxation is considered as the

….. because much of the needed

atty. cleo d. sabado-andrada. cpa, mba,ll.m

NOT all the inherent powers of the government

BECAUSE…Taxation Power is inferior

atty. cleo d. sabado-andrada. cpa, mba,ll.m

Taxation is NOT broader than Police

…. because taxation is governed by

atty. cleo d. sabado-andrada. cpa, mba,ll.m

POLICE EMINENT TAXATION

atty. cleo d. sabado-andrada. cpa, mba,ll.m

Were the revocations constitutional?

Would this constitute impairment of the obligations and

(Mactan Cebu IAA v. Marcos G.R. No. 120082, September 11,

1991 BAR Examination

atty. cleo d. sabado-andrada. cpa, mba,ll.m

SIMILARITIES AMONG TAXATION,

•They constitute the three ways by which

•They all underlie and exist independently of the

SIMILARITIES AMONG TAXATION,

•They all underlie and exist

•The provisions in the Constitution are just

atty. cleo d. sabado-andrada. cpa, mba,ll.m

2005 BAR Examination

atty. cleo d. sabado-andrada. cpa, mba,ll.m

INHERENT POWERS OF SOVEREIGN STATE

“No person shall be

INHERENT POWERS OF SOVEREIGN STATE

INHERENT POWERS OF SOVEREIGN STATE

2003 BAR Examination

meaning of the statement that

1996 BAR Examination

atty. cleo d. sabado-andrada. cpa, mba,ll.m

NATURE OF TAXATION POWER

APPROPRIATION OF EXPECTED REVENUES

ALLOCATION OF ACTUAL COLLECTIONS

atty. cleo d. sabado-andrada. cpa, mba, ll.m

these are measures employed by

atty. cleo d. sabado-andrada. cpa, mba, ll.m

The Philippine government generates

TAX COLLECTIONS COMPRISE THE

atty. cleo d. sabado-andrada. cpa, mba, ll.m

atty. cleo d. sabado-andrada. cpa, mba, ll.m

atty. cleo d. sabado-andrada. cpa, mba,ll.m