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tax reviewer
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W1 : GENERAL PRINCIPLES OF TAXATION

inherent power of the state

. taxation - demand from the members of society their proportionate share or contribution in the maintenance of the govt
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. eminent domain - power to forcibly acquire private property, upon payment of just compensation, for some intended
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public use
. police power - power to regulate liberty and property for the promotion of general welfare
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fundamental theories and doctrines
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. lifeblood theory - taxes should be collected w/out unnecessary hindrances
. necessity theory - govt cannot continue to without the means of paying for its right existence; hence, it has the right to
compel all citizens and properties to contribute for the same purpose
. symbiotic relationship theory - what we pay for civilized society
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. marshall doctrine - power to tax = power to destroy
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. holmes doctine - power to tax is not the power to destroy as long supreme court sists
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. non-compensation or set off - not a contract or debt but an obligation
. imprescriptibility of taxes - unable to be taken away by prescription or by lapse of time
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. strict construction of tax laws - basta yon
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scope and limitation
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. purpose
. subjects (person, property, or occupation)
. amount or rate
. kind
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. agency
. administrative and judicial remedies
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. tax exemption or condonations
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stages of taxation
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. levy - determination of subject and object of taxation
. assessment and collection - a notice to the effect that the amount therein stated is due as tax and a demand for payment
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thereof
. payment - act of compliance by the taxpayer
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. refund - restitution of the money paid as tax which is either excessive or erroneous
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situs of taxation
. residence
. nationality/citizenship
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. nature of tax
. subject matter
. source
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application of situs of taxation
. person
. real property/immovable property
. personal/movable property
. income
 . business/profession
. gratuitous transfer of property

double taxation
● taxing the same person for the same tax period and the same activity by the same jurisdiction
● our constitution does not prohibit double taxation. however, double taxation will not be allowed if it violates equal
protection clause

modes of eliminating double taxation

. tax deduction - reduces taxable income
. tax credit - reduces tax liability
. treaties with other states - a tax treaty sets out the respective rights to tax of the state of source (situs) and the state of
residence with regard to certain cases, an exclusive right to tax is conferred on one of the contracting states. it applies
when the state of source is given full or limited right to tax. the treaty make it incumbent upon the state of residence to
allow relief in order to avoid double taxation.

escape from taxation

. shifting - the burden of payment is transferred from the taxpayer to another without violating the law (ex. vat)
. capitalization - the reduction in the price of the taxed object equal to the capitalized value of future taxes the purchaser is
expected to be called upon to pay
. transformation - the manufacturers/producers lowers the cost of their product with the fear of losing their market
. tax avoidance (tax minimization) - refers to exploitation by taxpayers of legally permissible alternative tax rates or method
of assessing taxable property or income to avoid or reduce their tax liability. the opposite of this tax evasion/tax dodging
which is illegal.
. tax exemption - grant of immunity to specific persons or corporation
. tax amnesty - aims to grant a general reprieve ti tax evaders who wish to come clean by giving them opportunity to
straighten out their records. it only applies to past tax periods and past tax liabilities.

basic principles of tax exemption

. exemptions are highly disfavored by the law he who claims it must be able to justify his claim by the clearest grant or law
. he who claims exemption should prove his factual and legal basis for exemption
. strictly construer against the person claiming it
. constitutional grant of exemption is self-executing
. tax exemptions are also personal
. deductions & refunds are also construed strictly against the taxpayer

kinds of tax exemption

a. as to form
. express - granted by the constitution
. implied - deemed exempt as they fall outside the scope of the taxing provision
. contractual - agreed by the taxing authority in contract under enabling laws

b. as to basis
. constitutional exemptions - originate from the constitution
. statutory exemption - originate ftom the legislation

c. as to extent
. total exemption - absolute immunity
 . partial exemption - where a collection of a part of the tax is dispensed with

note!
tax exemptions are never presumed. it must be establisher and proved by the taxpayer; must be limited to what the law says

W2: TAXES, LAWS, SYSTEMS, & ADMINISTRATIONS

classification of taxes

a. as the subject matter

● personal, poll, or capitation tax - imposed on individuals without regards to their property or occupation (ex. cedula)
● property tax - imposed on personal or real properties (ex. RPT & CGT)
● excise tax - tax on the exercise of rights and privileges (ex. income tax, estate tax, donor’s tax, sales tax, & VAT)

b. as to burden
● direct tax - directly demand from and paid by the taxpayers
● indirect tax - levied on the seller but paid by the buyer (ex. vat)

c. as to taxing authority/jurisdiction
● national tax - imposed by national govt
● local tax - imposed by local government unit (lgu)

d. as to purpose
● general, fiscal, revenue - to raise revenue
● special or regulatory - to achieve some social or economic ends

e. as to determination of amount
● specific tax - fixed peso amount based on volume, weight, and quantity (ex. tax on cigarettes and liquor - per litter, per
pack)
● ad valorem tax - based on fixed proportion of value usually expressed in percentage

f. as to graduation or rate
● proportional (flat) rate - based on fixed % amount
● graduation – progressive - as the tax base increases, the tax rate also increases
● graduation – regressive - as the tax base decreases, the tax rate also decreases (NOT APPLICABLE TO PH)

other charges and fees imposed other than taxes

● toll
● penalty
● special assessment
● license fee
● custom duties/fees/tariff

sources of tax laws

. constitution - local govt code
. tax code - NIRC
. presidential decrees/executive orders - issued by the president (BBM PANGIT)
. tax treaties - agreement w other states
 . court decisions - supreme court/court kf tax appeals
. local tax ordinances - city or municipal tax codes
. other special laws
. revenue rules and regulations - least source of tax laws

characteristics of tax
● forced contribution
● generally payable in money/cash but there are cases where property can be used to pay taxes
● exclusively levied by the legislature for public purpose
● proportionate in character

principles of sound tax system (FAT)

● fiscal adequacy - taxes must be sufficient to meet govt expenses
● administrative feasibility - convenient process of filing and paying of taxes
● theoretical justice (equality) - tax burden should be based on taxpayer’s ability to pay

tax administration

a. chief officials of the BIR

● 1 commissioner of internal revenue (cir)
● 4 deputy commissioners (dc)

b. powers of the cir

● hwhahahaha tinatamad ako di naman tatanungin to bye

BIR large taxpayers

● once a taxpayer has been informed by the BIR that he/she/they is classified as bir large taxpayer, he/she/they will remain
classified as one until reclassified.

criteria for classification of the large taxpayers

tax payment

vat taxpayers with net vat of at least 100,000 per

quarter
excise tax taxpayers with income of at least 1,000,000
peso per year
percentage tax taxpayers with percentage tax of 100,000 per
quarter
withholding tax taxpayers with withholding tax payment o
remittance of at least 1,000,000 per year
documentary stamp tax taxpayer with aggregate documentary stamp
taxes of at least 1,000,000 per year

financial condition
 gross sales and receipts taxpayers with total gross sales and receipts of
1,000,000 per year
net worth taxpayers with total net worth of at least
300,000,000 at the close of each calendar or
fiscal year

W3: OVERVIEW OF INCOME TAX CONCEPTS

gross income
● all income derived from whatever sources, derived fron within or outside the philippines, whether illegal or illegal.

income
● all wealth which flows into the taxpayer OTHER THAN RETURN OF CAPITAL

capital
● consititues investment which is the source of income

return of capital other than return of capital

collection of loans receivable (excluding interest paid on loans receivable
interest)
liquidating dividend condonation of debt
increase in fair value of property excess of selling price over the asset’s cost

classification of income

a. as to source
● compensation income
● professional income
● business income
● other income

b. as to territorial space
● within ph
● outside ph
● mixed

c. as to taxability
● taxable income
○ ordinary/regular income tax (o/rit)
○ final withholding tax (fwt)
○ capital gains tax (cgt)
● tax exempt income
○ by constitutional mandate
○ by statutue
 ○ by international comity

types of income taxpayers

a. individuals - natural persons with income derived from within the territorial jurisdiction of a taxing authority
● resident citizen (RC)
● nonresident citizen (NRC) - a citizen of the ph who shall have stayed outside the country for 183 days or more by the end
of the year (ex. ofw, seafarers)
● resident alien (RA) - whose residence is within ph and who is not a citizen thereof
● nonresident alien (NRA)
○ nonresident alien engaged in trade/business (NRA-ETB) - stayed in ph for aggregate period of more than 180 days
○ nonresident alien not engaged in trade/business (NRA-NETB) - aliens who come to ph for a definite purpose which
in its nature maybe promptly accomplished

citizens of the philippines are those who meet the criteria specified in the 1987
constitution of the republic of the philippines. these include:
– those who are citizens of the philippines at the time of adoption of this constitution;
– those whose fathers or mothers are citizens of the philippines
– those born before jan. 17, 1973 of filipino mothers, who elect philippine citizenship upon reaching the age of majority; and
– those who are naturalized in accordance with the law

b. corporation
● domestic corporation (dc) - corporations created/incorporated within the philippines
● resident foreign corporation (rfc) - corporations organized or incorporated by a foreign law engaged in business in the
philippines
● nonresident foreign corporation (nrfc) - corporations created or incorporated by a foreign law not engaged in business in
the philippines

accounting periods
● calendar year - means accounting period of 12 months ending dec. 31. this method is required for the ff:
○ if the taxpayer does not keep books of accounts
○ if the taxpayer has no annual accounting period
○ if the taxpayer is an individual
● fiscal year - means accounting period of 12 months ending on the last day of any month other than dec. 31

short accounting period may arise for the ff:

● a newly organized corporation
● dissolution of a corporation
● taxpayer’s death
● when a corporation changes accounting period

accounting methods
● essentials of an acceptable accounting method:
○ there should be clear distinction between revenue and capital expenditures
○ expenses to restore property or prolong its useful life should be added to the property account
○ inventory at the beginning and at the end of the accounting perood should be considered
● the ff are the accounting methods:
○ cash method - income is reported in the year it is collected and expenses are deducted from the gross income in
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the year it is paid
○ accrual method - income is reported inthe year in which it is earned and expenses are deducted from the gross
income in the year in which expenses were incurred
○ crop basis - applies to farmers who is engaged in producing crops which take more than 1 year from the time of
planting to the time of gathering or disposing
○ percentage of completion (poc) - prescribed for long-term construction contracts (more than 1 year). the income to
be reported is based on POC as supported by the engineers/architects

W4: INTRODUCTION TO REGULAR/ORDINARY INCOME TAX

classification of the taxpayer

taxpayer tax base sources of taxable income
rc net income within and outside ph
nrc, ra, & nra-etb net income within ph
nra-netb gross income within ph

types of income
types examples applicable income tax
ordinary/regular income compensation income, basic tax (graduated tax rates/
business income, professional table)
income, passive income not
subjected to final withholding
tax (fwt) and capital gains tax
(cgt)
passive income within ph interest income, dividend fwt
income, royalties, prizes, and
other winnings
capital gains sales of shares of dc NOT cgt
trader in local stock exchange
and sales of real properties in
the philippines

graduated tax table

self employed and professionals (sep)
● self-employed - defined under the train law as a sole proprietor or an independent contractor who reports income earned
from self-employment.
● professional - a person formally certified by a professional body belonging to a specific profession by virtue of having
completed a required course of studies and/or practice

8% preferential tax rate for SEP

● beginning 2018, regular income of SEP amounting to > P250,000 in a taxable year but with a gross sales/ receipts and
othen non-operating income < the vat theshold of P3M shall have the option to avail 8% tax on gross sales/receipts and
aother nonoperating expenses in excess of P250,000 in lieu of the graduated income tax rate and business tax.

requisites to avail the 8% preferential tax rate

● gross sales/receipts and other income does not exceed the vat threshold of 3M
● shall be non-vat registered
● gross sales/receipts were not derived from vat exempt sales and transactions
● not subject to percentage tax other than under section 116 of the tax code
● sep signifies his/her intention to elect the 8% income tax
● the taxpayer must signifies in his/her 1st quarter return of the taxable year the intention to elect 8% income tax and
irrevocable for the taxable year

summary
● purely compenstation income earner - subjected to graduated rate
● purely sep whose gross sales/receipts is > 3M - subjected to graduated rate
● purely sep whose gross sales/receipts is < 3M - subjected to graduated rate or 8% preferential tax

final withholding tax

● passive incomes derived within ph - subjected to final taxes instead of basic tax or graduated tax rates. the amount of tax
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withheld by the government withholding agent is constituted as a full and final payment.
capital gains tax
● sale of property
○ (unutilized portion/selling price) x SP/FMV x 6%
● sale of shares NOT listed in LSE
○ 15%

● ordinary assets - ginagamit sa ordinary course of business

● capital assets - personal asset like HOUSEEE