PHILIPPINE

TAXATION
Present by:
Mr. Dolse A. Ramirez
BENJAMIN FRANKLIN
WROTE, IN THIS
WORLD, NOTHING CAN
BE SAID TO BE
CERTAIN EXCEPT
DEATH AND TAXES.
 Nobody Enjoys
Paying Taxes
Mans love to his country is
always opposed by his
displeasure to part away
with his treasure or savings
to pay taxes.
The Question
About Paying
Taxes
 WHY SHOULD WE PAY
TAXES?

Taxes are the lifeblood of

the nation. (Lifeblood theory)

Without taxes, government

can neither exist nor endure.
 Taxation is in Accord
with the Bible

[] In Luke, 20:22-25, Jesus was

asked by the Pharisees, Tell
us, is it against our law for us
to pay taxes to the Roman
Emperor or not?
Jesus said to them, show me a
silver coin. Whose face and
name are these on it? The
Emperors, they answered. So
Jesus said, well then, pay to the
Emperor what belongs to the
Emperor and pay to God what
belongs to God.
Taxation
DEFINITION
[] An inherent power of
sovereign
[] Imposes burden upon
persons and property
[] Raises revenues for
public purposes
 Power to Tax
Includes the Power
to Destroy
Asopined by CJ Marshall of the
US SC, taxation is a destructive
power which interferes with the
personal and property rights of
the people as it takes from them
a portion of their property for
the support of the government.
Contrary View: Power to Tax
Not Power to Destroy

Justice Holmes of US SC
brushed aside Marshalls
view by declaring that the
power to tax is not the
power to destroy while this
Court sits.
 Reconciliation of
Marshalls View with
Holmes View
[] A valid tax should not be judicially
restrained merely because it would
prejudice taxpayers property.
[] An illegal tax could be judicially
declared invalid.
THEORY AND BASIS OF
TAXATION
[] Necessity theory

[] Benefits-
Protection theory
OBJECTIVES OF
TAXATION
[] Revenue
[] Regulatory
[] Compensatory
STAGES OF TAXATION
[] Levy or imposition of
tax
[] Collection (including
assessment)
 Philippine Tax
Laws
[] National Tax Laws
NIRC and Tariff and Customs Code
[] Local Tax Laws
Local Government Code on Local
Tax
Ordinances
[] Miscellaneous Tax Laws
Power of Judicial Review in
Taxation
As long as the legislature, in
imposing a tax, does not violate
applicable constitutional limitations
or restrictions, the courts cannot
inquire into the wisdom of a taxing
act.
The Courts power in taxation is
limited only to the application and
interpretation of the law.
 TAXES
DEFINITION OF TAXES
A burden or charge
imposed by legislative
power upon persons or
property to raise money
for public purposes.
 CHARACTERISTICS OF
TAXES
[] An enforced contribution
[] Generally payable in money
[] Proportionate in character
[] Levied on persons, property or
exercise of a right or privilege
[] Levied by state having jurisdiction
[] Levied by legislature
[] Levied for public purpose
[] Paid at regular a periods or intervals
BASIC PRINCIPLES OF A
SOUND TAX SYSTEM

[] Fiscal adequacy
[] Administrative
feasibility
[] Theoretical justice
CLASSIFICATION OF TAXES
As to subject or object

1. Personal (poll or capitalization)

Imposed on all residents, whether citizens
or not (e.g.,community tax)

2. Property
Imposed on property (e.g.,property tax)

3. Excise
Imposed upon performance of an act, the
enjoyment of a privilege or the engaging in
occupation (e.g.,income tax, estate tax, donors tax)
WHO BEARS THE BURDEN
1. Direct
Personal taxes due from natural
persons; non-transferable
(e.g.,income tax, donors tax, estate
tax)

2. Indirect
Business taxes due from either
natural or juridical persons;
transferable (e.g.,VAT, documentary
stamp tax)
DETERMINATION OF AMOUNT
1. Specific
Based on some standard of weight or
measurement (e.g., excise taxes on distilled
spirits and wines, cinematographic films)

2. Ad valorem
Based on the value fixed by law or as
appraised (e.g., real estate tax, custom duties)

3. Mixed or compound
Both specific and ad valorem
 PURPOSE
1. General
For purpose of raising public
funds for the government (e.g.,
income tax, VAT, transfer taxes)

2. Special
Primarily for the regulation of
useful or non-useful occupation or
enterprises and secondarily only for
raising public funds (e.g.,customs
duties, excise taxes)
 GRADATION OR RATE
1. Proportional or flat rate
Rate of tax increases or
decreases in relation to bracket.
2. Progressive
Increases as the tax base or
bracket goes higher
3. Regressive
Decreases as the tax base or
bracket goes higher
IMPOSING AUTHORITY
National
Taxes imposed by national
government (e.g.,NIRC taxes)

Local
Taxes imposed by local government
units (e.g., community taxes, business
licenses and permits, professional tax,
real estate tax)
 Tax Laws, In
General
Sources

[] Philippine Constitution
[] Existing tax laws of the
Philippines
(National, Local and Miscellaneous
tax laws)
NATURE
[] Not political in character

[] Civil in nature and not

subject to
ex post facto law prohibition

[] Not penal in character

 Escape from
Taxation
[] Tax evasion

[] Tax avoidance
 A tax evader
breaks the law
(tax evasion), the
tax avoider
sidesteps it (tax
avoidance).
LIMITATIONS ON
THE POWER OF
TAXATION
As a general rule,
there are no
limitations upon the
power to tax.
RATIONALE FOR
LIMITATIONS
To prevent abuse on the exercise of
the otherwise unlimited power of
taxation.

To serve as a standard for

determining whether a tax law or an
act of the taxing authorities in the
implementation of tax laws is valid
or not.
LIMITATIONS ON THE POWER
OF TAXATION
Inherent limitations
These are part and parcel of the
power of taxation and originate from
the very nature of taxation.

Constitutional limitations
These are the restrictions imposed
by the constitution.
 INHERENT
LIMITATIONS
oPublic purpose of taxes
oNon-delegability of the taxing power
oTerritoriality or the situs of taxation
oExemption of the government from
taxes
o International comity
 CONSTITUTIONAL
LIMITATIONS

Due process of the law

Equal protection of the law
Freedom of speech and of the press
Non-infringement of religious
freedom
 Non-impairment of contracts
Non-imprisonment for debt or

non-payment of poll tax

Origin of appropriation, revenue and

tariff bills
Uniformity, equitability and
progressivity of taxation
Delegation of legislative authority to

fix tariff rates, import and export

quotas
 Tax exemption of properties actually,
directly and exclusively used for religious,
charitable and educational purposes.
Voting requirements in connection.

with the legislative grant of tax exemption.

Non-impairment of the Supreme .

Courts jurisdiction in tax cases.

Tax exemption of revenues and assets,

including grants
endowments, donations or contributions to
educational institutions.
.
 DOUBLE
TAXATION
Double taxation, in its
general sense, means
taxing the same subject or
object twice during the
same taxing period.
 No prohibition
against double
Taxation
There is no constitutional
prohibition against double taxation
in the Philippines.

It is something not favored, but

is nevertheless permissible.
Double taxation is not prohibited by
our constitution.
 Kinds of Double
Taxation
1. Direct double taxation
Taxing the same object or property
twice, by the same taxing authority, for the
same taxing purpose, within the
same tax period.

2. Indirect double taxation

Not repugnant to the constitution.
 TAX
EXEMPTIONS
An exemption from taxation may be
defined as a grant of immunity,
express or implied, to particular
persons or corporations from the
obligation to pay taxes.
 Kinds of Tax
Exemptions

Immunities from taxation which

originate from the Constitution
are known as constitutional
exemptions; those which
emanate from legislation are
statutory exemptions.
 Selected Principles
Governing Tax Exemptions

Exemptions from taxation are highly

disfavored in law.

He who claims exemption should

prove by convincing proof that he is
exempted.
 Tax exemptions must be
strictly construed.
Tax exemptions are not
presumed.
Constitutional grants of tax
exemption are self-executing.
Tax exemptions are
personal.
 Interpretation of Tax
Laws

No statutory construction needed if law

is clear.

Statutes granting tax exemptions are

construed stricissimi juris against the
taxpayer and liberally in favor of the
taxing authority.
Income Taxation-
Individuals
GENERAL PRINCIPLES OF INCOME TAXATION IN
THE
PHILIPPINES OR THE SOURCE RULE OF INCOME
TAXATION FOR AS PROVIDED IN THE NIRC OF
1997.

a. A citizen of the Philippines residing

therein is taxable on all income
derived from sources within and
without the Philippines.
b. A nonresident citizen is taxable
only on income derived from sources
within the Philippines.
 c.
An individual citizen of the
Philippines who is working and deriving
income abroad as an overseas contract
worker is taxable on income from
sources within the Philippines.
Provided, That 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.
d. An alien individual,
whether a resident or not of
the Philippines, is taxable
only on income derived from
sources within the
Philippines.
INCOME TAXATION
2

Basic formula for the computation

of income tax of a resident citizen
from income derived solely from
compensation.
 Gross compensation income
derived from all sources from
within and without the
Philippines

LESS: Personal and additional

exemptions (1)
Insurance premium for
health and hospitalization (2)
-------------------------------------------------------
Taxable Income
MULTIPLIED BY: The schedular tax rate
-------------------------------------------------------
Income Tax due
LESS: Taxes withheld on the
compensation income
Tax credits
-------------------------------------------------------
Net Income Tax payable
================================
 Income Taxation 3

Personal exemption (regardless of status)

P50,000
Additional exemption (whether
single or married) P25,000
for each qualified dependent child not to
exceed four (4) dependents
Insurance premium for health

and hospitalization (family has

gross income of not more than
P250,000 for taxable year P2,400
 Income Taxation
4

Basic formula for the

computation of income tax of a
resident citizen from mixed
income derived both from
compensation and from exercise
of a profession or from engaging
in trade or business.
Gross compensation income
derived from all sources from
within and without the
Philippines

LESS: Personal and additional

exemptions (1)
Insurance premium for health
and
hospitalization (2)
--------------------------------------------------------------
Taxable Compensation Income
PLUS: Net income derived from exercise of a
profession or engaging in trade or
business
(see page 6 for formula) ***
--------------------------------------------------------------
Total mixed taxable income
MULTIPLIED BY: The schedular tax rate
--------------------------------------------------------------
Income Tax due

(Forward)
Income Taxation 5

Income Tax due

LESS: Taxes withheld on the
compensation income
Quarterly income taxes paid
Tax credits
-------------------------------------------------
Net Income Tax payable on mixed
income
==============================
 Income Taxation
6
*** Computation of net income derived
from exercise of a profession or engaging in
trade or business under the optional
standard deduction.

Total receipts from all sources from

within and without the Philippines
LESS: Exclusions from gross income
Income subject to final taxes
--------------------------------------------------------------
Gross receipts derived from all sources from
within and without the Philippines*
LESS: Excess personal and additional
exemptions (1)
Insurance premium for health and
hospitalization (2)
Optional standard deduction (40% of
gross receipts derived from all sources
within and without the Philippines*)
--------------------------------------------------------------
Net income derived from exercise of a profession
or engaging in trade or business
 Income Taxation
7

*** Computation of net income derived

from exercise of a profession or engaging in
trade or business using itemized deduction.

Total sales from all sources from

within and without the Philippines
LESS: Exclusions from gross income
Income subject to final taxes
---------------------------------------------------------
Gross sales derived from all sources from
within and without the Philippines
LESS: Excess personal and additional
exemptions (1)
Insurance premium for health and
hospitalization (2)
Itemized deductions
---------------------------------------------------------
Net income derived from exercise of a
profession or engaging in trade or business
 Income Taxation
8
NOTES AND COMMENTS ON MIXED
INCOME.

An individual receiving a combination of

compensation, business and professional
income shall first deduct the allowable
personal and additional exemptions
from compensation income, only the
excess there from can be deducted from
business or professional income.
 In the case of husband and wife, the
husband shall be the proper claimant for
the exemptions unless he waives it in
favor of his wife.

================================
CONTENTS OF THIS MATERIAL WAS SOURCED
FROM THE FOLLOWING REFERENCE
TEXTBOOKS:

TAXATION, VOLUME 1, GENERAL PRINCIPLES BY

ABELARDO T. DOMONDON, 2009 9TH ED
PHILIPPINE TAXATION HANDBOOK, A SIMPLIFIED
COURSE BY DANILO A. DUNCANO, CPA, 2009 ED
LAW OF BASIC TAXATION IN THE PHILIPPINES BY
BENJAMIN B. ABAN, REVISED EDITION
******THE END********