TAXATION

What is taxation?

It is the process or means by which the sovereign, through its law-making body, raises
income to defray the necessary expenses of the government.
Thus, tax collection is the way of the government to raise funds for its necessary
expenditures. Just an ordinary student depends on the regular allowance by his parents for his
daily expenses, the government depends on the taxes paid by its citizens for its local and
national expenses.

Nature of Taxation

1. Inherent in sovereignty
2. Legislative
3. Subject to constitutional and inherent limitations

Purpose of Taxation

1. Earn revenue - the money collected by the government is used to provide for various
public services to promote the welfare of the people.
2. Non-revenue objectives - taxation may be used to regulate the behavior of people
towards a particular purpose the government seeks to achieve. Some examples include
the following:
a. Increase in taxes on foreign products to make local products more competitive
b. Increase in taxes on alcoholic drinks and cigarettes to discourage vices
c. Decrease in taxes for particular businesses to encourage start-upsand
investments which will create more jobs

The Bureau of Internal Revenue

The government agency in charge of tax collection is known as the Bureau of Internal
Revenue or BIR. The BIR is under the Department of Finance (DOF) and is headed by the
Commissioner of Internal Revenue. The Commissioner is appointed by the President of the
Philippines.

Forms of Escape from Taxation

While paying taxes is an enforced contribution and not simply depending on the will of
the taxpayer, there are instances when the taxpayer could escape from the obligation. With the
exception of tax evasion, all others enumerated below are legal means of tax escape.

1. Shifting - the original payor or one whom the tax was assessed transfers the burden of
tax to someone else. This is a scenario if a tax is indirect. What is transferred is not the
PAYMENT of the tax but the BURDEN of the tax.
 2. Capitalization - the total amount of future taxes expected to be paid for the object is
deducted from the purchase price of the object. Capitalization occurs if the property is
income generating and the buyer considers the reasonability of his/her purchase.

3. Transformation - the seller maintains his selling price and margin of profit not by shifting
the tax to his customers but by improving his method of production. The saving he
acquires from reduced production cost is used to cover the amount of tax.Technically, it
is as if no tax has been added to the price when in fact it has already been factored in.

4. Evasion - the use of illegal or fraudulent means to escape or lessen the payment of
tax;evasion only occurs on the amount not paid. Evasion is a crime punishable by a fine
and imprisonment.

5. Avoidance - the use of tax-saving devices or means sanctioned by law to avoid or

reduce tax liability. It could involve the use of alternative tax rates or methods of tax
assessments as provided by the law.

6. Exemption - the government grants immunity to particular persons, corporations, or a

particular class of persons or nature of business; it is a privilege without which they
would be taxed like others similarly situated.

For example, an employee is normally taxed for his salary. But those who earn the minimum
wage prescribed by the government are exempted from income tax and from withholding tax on
compensation.

What is Income Tax?

Income tax is a tax on a person’s income, emoluments, profits arising from property,
practice of profession, conduct of trade or business or on the pertinent items of gross income
specified in the Tax Code of 1197 (Tax Code), as amended, less the deductions and/or
personal and additional exemptions, if any, authorized for such types of income, by the Tax
Code, ss amended, or other special laws.

All income from sources within the State are taxable whether the recipient is a resident
or non-resident citizen or alien or even a domestic or foreign corporation. This means that
whether a person is citizen or not, a company is foreign or domestic, as long as the income is
derived from activities conducted within the Philippines, the State can tax the income.

SECURING A TAXPAYER IDENTIFICATION NUMBER

A Taxpayer Identification Number (TIN) is a unique number assigned to each taxpayer

whether individual or juridical person. The basic purpose of a TIN is to monitor taxpayers and
ensure that they pay their obligations to the government.
How to get a TIN

INDIVIDUALS EARNING PURELY COMPENSATION INCOME

Ø Tax Form

BIR Form 1902 - Application for Registration For Individuals Earning Purely Compensation
Income (Local and Alien Employee)

Ø Documentary Requirements

1. Any identification issued by an authorized government body (e.g. Birth Certificate, passport,
PhilID, driver’s license, Community Tax Certificate) that shows the name, address and birthdate
of the applicant;

2. Marriage Contract, if applicable;

3. For Alien Employee - Passport; and

4. Working Permit; or Photocopy of duly received Application for Alien Employment Permit
(AEP) by the Department of Labor and Employment (DOLE)

For employers using eREG System, the above requirements shall be required from their
employees

Ø Procedures

1. Accomplish BIR Form 1902 and submit the same together with the documentary requirements
to the employer.

2. The employer shall accomplish the applicable sections of the application form.
3. Submit BIR Form 1902 to the Revenue District Office (RDO) having jurisdiction over the
place of office of the employer where such employee is expected to report for work.

Ø Deadline

› New employees shall accomplish and file the application within ten (10) days from date of
employment.

Of relevance to the topic are BIR Form 1901 for self-employed and mixed income
individuals doing or just staring a business. BIR Form 1902 for individuals earning purely
compensation income including non-resident citizens/resident alien employees. BIR Form 1905
is for registration information up