CHAPTER 8

TAXATION

Antonio C. Cayetano, B.S.Ed., LL.B., MARE

San Pedro College, Davao City
A. Taxation, In General

B. History of Taxation

C. Taxation in the Philippine

D. Kinds of Taxes
Taxation Defined
The inherent power of the state
- exercised through the legislature

To impose burdens
- upon subjects and objects
- within its jurisdiction

For the purpose of raising revenues

To carry out the legitimate objectives

of the government
Theory of Taxation
Lifeblood Theory

- Without revenue raised from

taxation, the government
will not survive, resulting in
detriment to society

- Performance of governmental functions

redounds to the benefit of the populace in
general

- Revenues could be raised to defray

expenditures for public purposes
Basis of Taxation
Symbiotic Relationship

- The reciprocal relation of

protection and support between
the state and the taxpayers

- The state gives protection and for it to

continue giving protection, it must be
supported by the taxpayers in the form of taxes
Purposes of Taxation
The basic purpose
- Revenue purpose: to raise funds to meet the
objectives of government

To secondary purposes
- Sumptuary or regulatory purpose: to
promote the general welfare; ex. Sin Tax

- Compensatory purpose: to maintain

high level of employment thru the
acceleration of infrastructure projects
Canons of Taxation
Principles of a Sound Tax System

- Fiscal adequacy: must be able to provide sufficient

revenues to meet the objectives
of government

- Administrative feasibility: should easily be

implemented to assure the smooth
flow into the treasury of the fiscally
adequate amounts

- Theoretical justice: should be collected

premised on the ability to pay
History
Reign of Egyptian Pharaohs
- Pharaoh would conduct a biennial tour
of the kingdom

Earliest taxes in Rome

- Taxes known as Portoria were customs
duties on imports and exports

- Augustus Caesar introduced the

inheritance tax to provide retirement funds for
the military.
History
In England
- Taxes were first used as an emergency measure

In the Philippines
- The pre-colonial society, being communitarian,
did not have taxes
History
In Modern Industrial Nations
- The government designates a tax base (such as
income, property holdings, or a given commodity)

- A Tax Law is a body of rules passed by the

legislature by which the government
acquires a claim on taxpayers to convey,
transfer and pay to the public authority
Taxation in the
Philippines
Tax law in the Philippines covers national and local taxes:

National taxes: refer to national internal revenue

taxes imposed and collected by the
national government through the Bureau of
Internal Revenue (BIR)

Local taxes: refer to those imposed and

collected by the local government.
Taxation in the
Philippines
The 1987 Philippine Constitution sets limitations
on the exercise of the power to tax:

The rule of taxation shall be uniform and

equitable. The Congress shall evolve a progressive
system of taxation.

(Article VI, Section 28,

paragraph 1)
Taxation in the
Philippines
The Constitution expressly grants tax exemptions:

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.
(Article VI, Section 28, paragraph 3)
Taxation in the
Philippines
National Internal Revenue Law: codifies all tax
provisions, the latest of which is embodied in Republic
Act No. 8424 (The Tax Reform Act of 1997)

- Taxpayer: any person subject to tax whose

sources of income is derived from within the
Philippines

- Taxpayer Identification Number (TIN)

is required for any individual taxpayer
Kinds of Taxes
Income Tax
- Tax on a person's income,
emoluments, profits arising from
property, practice of profession,
conduct of trade or business

Donors Tax
- Tax imposed on donations inter-vivos or
those made between living persons to take
effect during the lifetime of the donor

Estate Tax
- Tax on the right of the deceased
person to transmit property at death
Kinds of Taxes
Value-added Tax (VAT)
- Tax on consumption levied
on the sale, barter, exchange or lease of
goods or properties and services in
the Philippines and on importation of
goods into the Philippines

Capital Gains Tax

- Tax imposed on the gains presumed
to have been realized by the seller for
the sale, exchange or other disposition of
real property located in the Philippines
Kinds of Taxes
Excise Tax
- Tax applicable to specified goods
manufactured in the Philippines for
domestic sale or consumption

Documentary Stamp Tax

- Tax on documents, instruments, loan
agreements and papers, agreements
evidencing the acceptance, assignments, sale
or transfer of an obligation, rights or property
incident thereto
Who Pays Taxes
Resident citizens
- Taxed on all their net income
derived from sources within
and without the Philippines

Alien individuals
- Whether a resident or not, is taxable
only on income derived from sources
within the Philippines
Philippine Tax Rates

Income Tax Rate - 32%

Corporate Tax Rate - 30%

Value Added Tax Rate 12%

PHILIPPINE TAX RATES
PHILIPPINE TAX RATES
Tax Avoidance
The exploitation by the taxpayer of
legally permissible alternative
rates or methods of assessing
taxable property or income to
reduce or entirely avoid tax liability

- Availing of all deductions allowed by law of

refraining from engaging in activities subject to
tax
 INCOME TAXATION
AMOUNTS OF PERSONAL AND ADDITIONAL
EXEMPTIONS
1. PHP 50,000 for single, or married individual judicially
decreed as legally separated with no qualified
dependents
2. PHP 50,000 for married individual or a total of
P100,000 for both husband & wife.
3. PHP 50,000 for unmarried individual who is head of
the family depending upon him for support.
4. PHP 25,000 for every child not exceeding four
children
SAMPLE PROBLEM
TAXABLE YEAR, COVERING JANUARY1 2016 UP TO DECEMBER 31,
2016
JUAN DELA CRUZ, BDAY:01-01 1972
TIN: 002-245-121
ADDRESS: 123 LEGASPI ST., DAVAO CITY 8000
EMPLOYER: ABC CORP WITH TIN 004-245-453
: ADDRESS@ 234 PICHON ST., DAVAO CITY 8000
MARRIED WITH 4 CHILDREN
BASIC MONTHLY SALARY: PHP 30,000 X 12 = PHP 360,000
13TH MONTH PAY: PHP 30,000
DE MINIMIS BENEFITS:
RICE ALLOWANCE: PHP 1,500/MO. X 12 = PHP 18,000
MEDICAL ALLOWAN E: PHP 250/MO. X 12 = PHP 3,000
LAUNDRY ALLOWANCE: PHP 300/MO. X 12 = PHP 3,600
TOTAL ANNUAL DE MINIMIS BENEFITS = PHP 24,600
TOTAL ANNUAL CONTRIBUTION FOR SSS, PAG-IBIG & PHILHEALTH =
PHP 8,500
ANNUAL TAX WITHHELD = PHP 25,000
Tax Evasion
A scheme used outside those lawful means and when
availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities:

- Under-declaration of income
- Non-declaration of income and other items
subject to tax
- Under-appraisal of goods subject to tariff
- Over-declaration of deductions
 Tax Avoidance v. Tax Evasion
VALIDITY:
Legal; not subject to illegal; subject to
criminal penalty criminal penalty

EFFECT:
Minimization of taxes Almost always
results in absence of tax
payments

MEANS & METHOD

Legal; valid means Illegal methods
 INCOME TAXATION
1. INCOME ALL WEALTH WHICH FLOWS INTO THE
TAXPAYER OTHER THAN MERE RETURN OF
CAPITAL.

2. INCOME TAX IS A TAX ON A PERSONS

INCOME, PROFITS & THE LIKE IN ONE TAXABLE
YEAR. IT IS IMPOSED ON PROGRESSIVE OR
GRADUATED RATES.

3. GROSS INCOME ALL INCOME BUT NOT

INCLUDING EXEMPT INCOME & INCOME SUBJECT
OT FINAL TAX.

4. TAXABLE INCOME IS GROSS INCOME LESS

THE DEDUCTIONS ALLOWED BY LAW INCLUDING
 INCOME TAXATION
INCOMES SUBJECT TO FINAL TAX

1. ROYALTIES, PRIZES, OTHER WINNINGS, INTEREST

FROM BANK DEPOSITS, YIELD FROM MONEY
MARKET, OR YIELD FROM TRUST FUNDS.

2. CASH OR PROPERTY DIVIDENDS RECEIVED FROM

CORPORATIONS.

3. NET CAPITAL GAINS FROM SALES OF SHARES OF

STOCK NOT TRADED THROUGH STOCK
EXCHANGE.

4. CAPITAL GAINS FROM SALE OF REAL PROPERTY

 INCOME TAXATION
ALLOWABLE DEDUCTIONS FROM GROSS
INCOME OF COMPENSATION EARNERS

1. PERSONAL.

2. ADDITIONAL EXEMPTIONS.

3. PREMIUMS NOT TO EXCEED 2,400 PER FAMILY

ON HEALTH & HOSPITAL INSURANCE OF THE
INDIVIDUAL TAXPAYER PROVIDED THAT THE
GROSS INCOME DOESNOT EXCEED P250,000
PER YEAR.
 INCOME TAXATION
HOW TO FILL UP BIR FORM 2136

A. NON-TAXABLE/EXEMPT INCOME
37. 13TH MONTH PAY (MONTHLY INCOME 12 12) 25,000

38. DE MINIMIS 20,000

39. SSS, GSIS, PHIC & PAG-IBIG 15,000
IV-B
40. SALARIES AND OTHER FORMS OF COMPENSATION XXX
TOTAL NON-TAXABLE/EXEMPT COMPENSATION INCOME 60,000

B. TAXABLE COMPENSATION INCOME REGULAR

42. BASIC SALARY 300,000

55. TOTAL TAXABLE COMPENSATION (ITEM NO. 42 MINUS ITEM NO. 41 240,000
 INCOME TAXATION
HOW TO FILL UP BIR FORM 2136

A. SUMMARY
GROSS COMPENSATION INCOME FRM PRESENT ER (ITEMS 41 &
21 300,000
55)
22. LESS: TOTAL NON-TAXABLE EXEMPT (ITEM 41) 60,000
IV-A 23. TAXABLE COMPENSATION INCOME FRM PRESENT ER (ITEM 55) 240,000
26. LESS: TOTAL EXEMPTIONS 100,000
28. NET TAXABLE COMPENSATION INCOME 140,000
29. TAX DUE 22,500

30 30A AMOUNT OF TAXES WITHHELD PRESENT ER 22,500

 INCOME TAXATION
PROBLEM
MR. X WAS BORN ON JANUARY 1, 1978 WITH A PERMANENT
ADDRESS AT 188 WEALTHY STREET, DAVAO CITY. HIS TIN IS 115-
945-151
HE IS CURRENTLY WORKING AT DAVAO WEALTH ACADEMY WHOSE
TIN IS 001-234-567. THE ACADEMYS ADDRESS IS AT 255 J.P.
LAUREL AVENUE, DAVAO CITY
HE IS A HEAD OF A FAMILY WITH 1 CHILD.
HE RECEIVED A MONTHLY SALARY OF PHP 20,000. HE ALSO
ENJOYS DE MINIMIS BENEFITS OF PHP 10,000 A YEAR. HIS TOTAL
CONTRIBUTION FOR SSS, PHILHEALTH AND PAG-IBIG IS
AMOUNTING TO PHP 8,500.
1. FILL UP THE APPROPRIATE FIELDS OF BIR FORM NO. 2316.
2. DETERMINE THE NON-TAXABLE/EXEMPT COMPENSATION
INCOME
3. HOW MUCH IS HIS GROSS INCOME?
4. HOW MUCH IS HIS 13TH MONTH PAY?
5. HOW MUCH IS HIS PERSONAL EXEMPTIONS?