FUNDAMENTALS

OF TAXATION
Source: Economics, Taxation and Agrarian Reform by Manapat, C.L.,
Olaguer, J.A., and Pedrosa, F.R.

Reporter: Ayesha Mae P. Pahm

 Outline:
• Taxation
• Tax
• National Taxes
TAXATION
Taxation
• is a means for a state, through laws and
legislations, to obtain income to finance public
expenditures.
• to provide public education, health services, and
infrastructure that benefits its citizens.
Taxation
*The principle of taxation states that taxes are collected
(ONLY) to support the government in its expenses and
services for public welfare.

*Taxes safeguard newly-opened industries by extending tax

exemptions to pioneering and new industries and other
enterprises.

*Taxes also shield domestic producers by levying a much

higher custom duties on imported goods.
Canons of Taxation
-refers to the basic principles of a sound tax system (effective and less demanding).

1.Fiscal Adequacy- means that taxes collected by the BIR

must be sufficient enough to fund the necessary
government expenditures and basic services in a given
fiscal year.

2.Administrative Feasibility- means that payment of taxes

must be taxpayer- friendly, i.e., tax laws must be capable of
simple, just, and effective administration.

3.Theoretical Justice- refers to the “ability-to-pay”

principle.
Basis of Taxation
1.The Constitution, the fundamental law of the land;

2.Statutes, laws passed by congress; or Presidential Decrees;

3.Bureau of Internal Revenue rules and regulations;

4.Judicial decisions on tax cases by the Supreme Court;

5.Provincial, city, and municipal ordinances;

6.Observance of international agreements; and

7.Administrative rulings and opinions.

Object of Taxation (Taxable Entities)

1. INDIVIDUALS who earn a considerable amount of

income as a worker, or as a businessman in partnerships
or corporations, including those who inherited a property or
were given a gift or donation of a considerable value;

2.Tangible and intangible properties, i.e., personal

properties-vehicles, furnitures, patents and ownership titles;
and real properties- land, buildings, houses

3.Transactions, consumptions interests, imports and

exports; and privileges.
Situs (place or location) of Taxation

1. Income tax- either in the place where the income is

earned or the place of residence of the taxpayer.

2. Real Property Tax- where the property is situated

3. Personal Property Tax- tangible properties are paid in

the place where the property is located; intangible
properties is the owner’s domicile

4.Business and Occupation Taxes- paid in the place

where the business is located.
Limitations on Taxation

A.Inherent Limitations- specific limitations that are not

affected by changes in the provisions of the constitution

- The tax revenues must only be used for public purpose.

- There should be proper delegation of legislative power to tax. (1987

Consti delegates to LGUs the power to tax subject

- Government entities are exempted. (except GOCCs)

- There are territorial jurisdiction.

- There is an observance of international law.

 Limitations on Taxation
B. Constitutional Limitations- are those limitations
provided in the constitution

- Observance of due process of law

- Equal protection of the law

- Uniformity and equity rule.

- Non-imprisonment for non-payment of poll (community)

tax.

- No appropriation for religious purposes.

Double Taxation
*Double taxation- refers to an instance when
an income, a property, or a transaction was
imposed with two or more taxes by taxing
authority in the same year.

*The government may be taxed if it derives

profit in the exercise of its proprietary
capacity, and not when the revenues were
gained from the exercise of governmental
responsibility.
Voiding Taxation
1.Shifting i.e., business (EVAT of 12% added to the price of
the product)

2.Capitalization (lower price of real property to lower the

real property tax)

3.Tax Avoidance or Tax Minimization

4.Tax Evasion (use of illegal means in escaping, defeating

or lessening the tax due- do not declare his taxable items
or does not pay at all)

5.Tax exemption (i.e., winning in the lottery is tax exempt)

TAX
Tax
- is an onus, a Latin term
for “burden” or
“obligation”.

- an enforced proportional
contribution from persons
and property, levied by the
state by virtue of its
sovereignty for the support
of government and for all
public needs.
 Essential Characteristics of
Tax
1.It is an obligatory or a forced contribution
to the government.
2.It is usually in monetary in form.
3.It is proportionate in character.
4.It is imposed on persons and properties.
5.It is levied by the state that has jurisdiction
over the person or property.
6.It is levied by the legislative body of the
state.
7.It is levied for public purposes.
Classification of Taxes
1.According to subject
a. Personal Tax (community tax)-fixed amount imposed on individuals
residing within a specified territory.
b. Property Tax- based on the value of the property to be levied.
c. Consumption tax- levied on goods and services that people
consume from the market

2.According to who bears the burden

A.Direct tax (Income tax, community tax, estate tax)
B.Indirect Tax- paid through intermediaries such as goods and services
(VAT, excise tax, and custom duties)

3.According to the determination of amount of tax to be paid

A.Specific tax (based on its quantity such as on wines and fireworks)
B. Ad valorem “according to the value”
Classification of Taxes
4. According to purpose
a. General tax- revenue for public expenditures
b. Special tax- protective tariffs or custom duties, so local produce can
compete with imported products

5. According to scope or authority imposing the tax

a. National Tax (by national government)
b. Local Tax (by municipal corporations or LGUs)

6. According to tax system

a. Proportional Tax (i.e., value-added tax) tax rate will remain the
same
b. Progressive tax -increases as the price of the goods increases (i.e.,
income tax, estate tax, and donor’s tax)
c. Regressive tax - decreases as the price of the good increases (N/A
in the Philippines)
Other Terms Related to
Tax
1.Revenue
2.Customs Duty
3.Internal Revenue
4.Toll
5.Debt
6.Penalty
NATIONAL TAXES
Kinds of National Taxes
1.income tax;
2.Estate and Donor’s taxes;
3.Value-added taxes
4.Other percentage taxes are as follows:
a.Hotels, motels, and others;
b.Caterers;
c.Carriers and keepers of garages;
d.Dealers in securities and lending investors;
e.Franchises;
f.Overseas communication;
g.Banks and non-bank financial intermediaries;
h.Finance companies;
i.Amusements; and
j.Winnnings;

5.Excise taxes on certain goods;

6.Documentary stamp taxes; and
7.Such other taxes that may be imposed by law and collected by the BIR
Kinds of National Taxes
National Taxes imposed
by Special Laws:

1.Tariffs and custom duties;

2.Sugar adjustment taxes;
3.Taxes on narcotic drugs;
4.Travel tax;
5.Private motor vehicle tax;
6.Energy taxes
Income Taxation
Income tax- is the tax on the net income or the entire
income received in one taxable year.
- tax on the privilege to earn income

Purpose of income tax:

1) to provide revenues; 2) to offset regressive sales and
consumption taxes; and 3) to mitigate the evils arising from
the inequalities in the distribution of income and wealth
which are considered deterrents to social progress, by
means of progressive taxation scheme.
 Classification of Income and
Related Concepts
Taxable Income- refers to the gross income less deduction of personal
and additional exemptions

Passive Income- applies to income from interests on banks, deposits,

dividends, royalties, prizes, and other winnings.

Gross Income- refers to all income, regardless of kind or form, derived

from any source. (all incomes are taxable, even those derived from
gambling)

Net Income- gross income less allowable deductions.

Deductions- amounts that the law allows to be deducted from the

gross income (interests, taxes, losses, bad debts, depreciation of
properties charitable and other contributions.
Taxable Income

How to Compute the Taxable Income and Annual

Income Tax?

For us to compute the individual income tax, we should first know the
following data:
- Monthly Income
- Tax exemption
- Personal exemptions (P50,000 for each individual, regardless of
status and P25,000 per qualified dependent, not exceeding 4- below 21
years old, unemployed and unmarried; or with disabilities)
Taxable Income
Classification of Taxpayers
• Individuals
• Corporations
• General Partnerships
Status of Taxpayers
• Married (M)
• Head of the Family (H)
• Single (S)
Tax Rates
-are percentages by which an individual or a
corporation is being taxed. These rates
depend on the amount of income people or
business earn in a year.
- In the Philippines, the maximum tax rate is
around 34%.
Tax Rates
Sample Computation:)
Sample Computation:) (cont'd)
Tax Rates (before TRAIN Law)
Sample Computation:) (cont'd)
Surcharges
- is an amount imposed by law as additional
to the principal tax in the event of
delinquency.

I.e., in case of WILLFUL NEGLECT to TIMELY file the

return or in case of a FALSE or FRAUDULENT return is
willfully made