PRINCPLES OF TAXATION

JANET G. TAOJO-MATUGUINAS, CPA, MBA

PRESENTER
•Importance of taxation to the taxpayers
and to the government
•Kinds and Characteristics of Taxes
•Taxation System in the Philippines
A Tax Law is a body of rules
passed by the legislature by
which the government acquires
a claim on tax payers to convey,
transfer and pay to the public
authority
Taxation
 The system of compulsory contributions
levied by a government or other qualified
body on people, corporations and property
in order to fund public expenditures.
 An inherent power of the state to raise
income and to demand enforced
contributions for public purposes.
Purposes Taxation
 to raise revenues for public needs so that persons can
live in a civilized society

 The government increase taxes in order to stabilize

prices and stimulate greater production.

 An instrument of fiscal policy that influences the

direction and structure of money supply, investments,
credits, production, interest rate, inflation, prices and
in general, of the national economy
Effects of Taxation
 Personal Income Tax which is presumed to fall
entirely on the legal taxpayers , influences
decisions to work, save, and invest. These
decisions affect other people.
 Corporate Income Tax may simply result to lower
corporate profits and dividends. It may reduce
their income of all owners of property and
businesses. The company may move toward raising
the prices of their products
Taxation in the Philippines
 The legislative branch enacts laws to continually
revitalize the taxation policy of the country

BIR (Bureau of Internal Revenue)

 Mandated to comprehend the assessment and collection
of all national internal revenue taxes, fees and charges so
as to promote a sustainable economic growth
Taxation in the Philippines
 Republic Act No. 8424 (Comprehensive
Tax Reform Act of 1997)
 Tax Payer: any person subject to tax whose
sources of income is derived from within
the Philippines
 TIN (Taxpayer Identification Number) is
required for any individual taxpayer
Taxation in the Philippines
Taxes are collected within a
particular period of time known as
taxable year
 This is the calendar year or the fiscal year
that covers an accounting period of 12
months ending on the last day of any
month other that of December.
Kinds of taxes
 Income Tax
 Tax on all yearly profits arising form property,
possessions, trades or offices
 Tax on a person’s income, emoluments and profits
 Donor’s 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 imposed and collected on every sale, barter,
exchange or transaction deemed sale of taxable goods,
properties, lease of goods, services or properties in the
course of trade as they pass along the production and
distribution chain
 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,
classified as capital assets
Kinds of taxes
 Excise Tax
 Tax applicable to specified goods manufactured in the
Philippines for domestic sale or consumption
 Specific tax: imposed on certain goods based on weight or
volume capacity or any other physical unit of measurement
(Specific tax = volume x tax rate)
 Alcohol products, petroleum products, tobacco products

 Ad valorem tax: imposed on certain goods based on selling

price or other specified value of the goods
(Ad valorem tax = selling price x tax rate)
 Mineral products, automobiles
Kinds of taxes
 Documentary 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
Withholding tax
Expanded withholding tax:
A system of collecting taxes
whereby the taxes withheld on
certain income payments are
intended to equal or at least
approximate the tax due of the
payer on said income.
Withholding tax
Final withholding tax:
 A system of collecting taxes whereby the
amount of income tax withheld by the
withholding agent is constituted as a full
payment of the income tax due form the
payer on the said income. The payer is not
required to file an income tax return for
the particular income.
Withholding tax
Withholding tax for
compensation income:
 Commonly referred to as pay as you go or
pay as you earn.
 A method of collecting the income tax at
source upon receipt of the income.
Shifting the incidence of
taxation
 Shifting taxation is the process of passing
the burden of the tax to others. (such as
VAT)
 A tax can be shifted when the taxpayer is
able to obtain a higher price for something
he sells or when he pays a lower price for a
commodity he purchases.
Tax Evasion
 When there is fraud through pretension and the use of
other illegal devices to lessen one’s taxes, there is tax
evasion
 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
COMPLIANCE REQUIREMENTS
 CHAPTER I – KEEPING OF BOOKS OF ACCOUNT
S AND RECORDS

Section 232. Keeping of Books of Accounts.

Section 233. Subsidiary Books.
Section 234. Language in which Books are to be
Kept; Translation
COMPLIANCE REQUIREMENT S
 Section 235. Preservation of Books and Accounts and
Other Accounting Records. ( 10 YEARS)
All t he books of account s, including t he subsidiary books
and ot her account ing records of corporat ions, part
nerships, or persons, shall be preserved by t hem f or a
period beginning f rom t he last ent ry in each book unt il
t he last day prescribed by Sect ion 203 wit hin which t he
Commissioner is aut horized t o make an assessment . T he
said books and records shall be subject t o examinat ion
and inspect ion by int ernal revenue of f icers:
COMPLIANCE REQUIREMENT S
 Provided, T hat f or income t ax purposes, such
examinat ion and inspect ion shall be made only once
in a t axable year, except in t he f ollowing cases:
 (a) Fraud, irregularit y or mist akes, as det ermined by t
he Commissioner;
 (b) T he t axpayer request s reinvest igat ion;
 (c) Verif icat ion of compliance wit h wit hholding t ax
laws and regulat ions;
 (d) Verif icat ion of capit al gains t ax liabilit ies; and
COMPLIANCE REQUIREMENT S
 (e) In t he exercise of t he Commissioner’s power under
Sect ion 5(B) t o obt ain inf ormat ion f rom ot her
persons in which case, anot her or separat e examinat
ion and inspect ion may be made. Examinat ion and
inspect ion of books of account s and ot her account
ing records shall be done in t he t axpayer’s of f ice or
place of business or in t he of f ice of t he Bureau of Int
ernal Revenue.
COMPLIANCE REQUIREMENT S
 All corporat ions, part nerships or persons t hat ret ire f
rom business shall, wit hin t en (10) days f rom t he dat
e of ret irement or wit hin such period of t ime as may
be allowed by t he Commissioner in special cases,
submit t heir books of account s, including t he
subsidiary books and ot her account ing records t o t
he Commissioner or any of his deput ies f or examinat
ion, af t er which t hey shall be ret urned. Corporat
ions and part nerships cont emplat ing dissolut ion
must not if y t he Commissioner and shall not be
dissolved unt il cleared of any t ax liabilit y.
COMPLIANCE REQUIREMENT S
 CHAPT ER II – ADMINIST RAT IVE PROVISIONS
 Section 236. Registration Requirements. -
 (A) Requirements. – Every person subject t o any int ernal
revenue t ax shall regist er once wit h t he
 appropriat e Revenue Dist rict Of f icer:
 (1) Wit hin t en (10) days f rom dat e of employment , or
 (2) On or bef ore t he commencement of business,or
 (3) Bef ore payment of any t ax due, or
 (4) Upon f iling of a ret urn, st at ement or declarat ion as
required in t his Code.
COMPLIANCE REQUIREMENT S
 (B) Annual Registration Fee. – An annual regist rat ion
f ee in t he amount of Five hundred pesos (P500)
 f or every separat e or dist inct est ablishment or place
of business, including f acilit y t ypes where sales
 t ransact ions occur, shall be paid upon regist rat ion
and every year t hereaf t er on or bef ore t he last day
 of January: Provided, however, T hat cooperat ives,
individuals earning purely compensat ion income,
 whet her locally or abroad, and overseas workers are
not liable t o t he regist rat ion f ee herein imposed.
COMPLIANCE REQUIREMENT S
 (C) Registration of Each Type of Internal Revenue Tax.
 (D) Transfer of Registration
 (E) Other Updates. –
 (F) Cancellation of Registration
 (G) Persons Commencing Business. – Any person, who expect s t
o realize gross sales or receipt s
 subject t o value-added t ax in excess of t he amount prescribed
under Sect ion 109(z) of t his Code f or
 t he next 12-mont h period f rom t he commencement of t he
business, shall regist er wit h t he Revenue
 Dist rict Of f ice which has jurisdict ion over t he head of f ice or
branch and shall pay t he annual
 regist rat ion f ee prescribed in Subsect ion (B) hereof
COMPLIANCE REQUIREMENT S
 (H) Persons Becoming Liable to the Value-added Tax. – Any
person, whose gross sales or receipt s in any
 12-mont h period exceeds t he amount prescribed under
Subsect ion 109(z) of t his Code f or exempt ion
 f rom t he value-added t ax shall regist er in accordance wit
h Subsect ion (A) hereof , and shall pay t he
 annual regist rat ion f ee prescribed wit hin t en (10) days af
t er t he end of t he last mont h of t hat period,
 and shall be liable t o t he value-added t ax commencing f
rom t he f irst day of t he mont h f ollowing his
 regist rat ion.
COMPLIANCE REQUIREMENT S
 (I) Optional Registration of Exempt Person. – Any person
whose t ransact ions are exempt f rom valueadded
 t ax under Sect ion 109(z) of t his Code; or any person
whose t ransact ions are exempt f rom t he
 value-added t ax under Sect ion 109(a), (b), (c), and (d) of t
his Code, who opt s t o regist er as a VAT
 t axpayer wit h respect t o his export sales only, may updat e
his regist rat ion inf ormat ion in accordance
 wit h Subsect ion (E) hereof , not lat er t han t en (10) days
bef ore t he beginning of t he t axable quart er
 and shall pay t he annual regist rat ion f ee prescribed in
Subsect ion (B) hereof .
COMPLIANCE REQUIREMENT S
 (J) Supplying of Taxpayer Identification Number (TIN).
– Any person required under t he aut horit y of t his
 Code t o make, render or f ile a ret urn, st at ement or
ot her document shall be supplied wit h or assigned
 a T axpayer Ident if icat ion Number (T IN) which he
shall indicat e in such ret urn, st at ement or document
 f iled wit h t he Bureau of Int ernal Revenue f or his
proper ident if icat ion f or t ax purposes
COMPLIANCE REQUIREMENT S
Section 237. Issuance of Receipts or Sales or
Commercial Invoices.
Section 238. Printing of Receipts or Sales or
Commercial Invoices. –
 All persons who are engaged in business shall secure f
rom t he Bureau of Int ernal Revenue an aut horit y t o
print receipt s or sales or commercial invoices bef ore a
print er can print t he same.
COMPLIANCE REQUIREMENT S
 All persons who print receipt or sales or commercial
invoices shall maint ain a logbook/regist er of
 t axpayers who availed of t heir print ing services. T he
logbook/regist er shall cont ain t he f ollowing
 inf ormat ion:
 (1) Names, T axpayer Ident if icat ion Numbers of t he
persons or ent it ies f or whom t he receipt s or sales
 or commercial invoices were print ed; and
 (2) Number of booklet s, number of set s per booklet ,
number of copies per set and t he serial numbers
 of t he receipt s or invoices in each bookle
END !!!
Powers of the Commissioner
 Section 6. Power of the Commissioner to Make assessments
and Prescribe additional Requirements for Tax
Administration and Enforcement. –
(A) Examination of Returns and Determination of Tax Due. –
After a return has been filed as required under the provisions
of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer
and the assessment of the correct amount of tax: Provided,
however; That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any
taxpayer.
Powers of the Commissioner
 (B) Failure to Submit Required Returns, Statements,
Reports and other Documents. – When a report required
by law as a basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time fixed
by laws or rules and regulations or when there is reason to
believe that any such report is false, incomplete or
erroneous, the Commissioner shall assess the proper tax on
the best evidence obtainable.
Powers of the Commissioner
 (C) Authority to Conduct Inventory-taking, surveillance
and to Prescribe Presumptive Gross Sales and Receipts. –
The Commissioner may, at any time during the taxable year,
order inventory-taking of goods of any taxpayer as a basis for
determining his internal revenue tax liabilities, or may place the
business operations of any person, natural or juridical, under
observation or surveillance if there is reason to believe that such
person is not declaring his correct income, sales or receipt s for
internal revenue tax purposes. The findings may be used as the
basis for assessing the taxes for the other months or quarters of
the same or different taxable years and such assessment shall be
deemed prima facie correct
Powers of the Commissioner
 (D) Authority to Terminate Taxable Period. _ When it shall
come to the knowledge of the Commissioner that a
taxpayer is retiring from business subject to tax, or is
intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property, or is
performing any act tending to obstruct the proceedings for
the collection of the tax for the past or current quarter or
year or to render the same totally or partly ineffective
unless such proceedings are begun immediately, the
Commissioner shall declare the tax period of such taxpayer
terminated at any time
Powers of the Commissioner
 and shall send the taxpayer a notice of such decision,
together with a request for the immediate payment of the
tax for the period so declared terminated and the tax for
the preceding year or quarter, or such portion thereof as
may be unpaid, and said taxes shall be due and payable
immediately and shall be subject to all the penalties
hereafter prescribed, unless paid within the time fixed in
the demand made by the Commissioner.
Powers of the Commissioner
 (E) Authority of the Commissioner to Prescribe Real
Property Values. – The Commissioner is hereby authorized
to divide the Philippines into different zones or areas and
shall, upon consultation with competent appraisers both
from the private and public sectors, determine the fair
market value of real properties located in each zone or
area. For purposes of computing any internal revenue tax,
the value of the propert y shall be, whichever is the higher
of; (1) the fair market value as determined by the
Commissioner, or (2) the fair market value as shown in the
schedule of values of the Provincial and City Assessors.
Powers of the Commissioner
 (F) Authority of the Commissioner to inquire into
Bank Deposit Account s. – Notwithstanding any
contrary provision of Republic Act No. 1405
(Bank Secrecy Law) and other general or special
laws, the Commissioner is hereby authorized to
inquire into the bank deposit s of: (1) a decedent to
determine his gross estate; and (2) any taxpayer
who has filed an application for compromise of his
tax liabilit y under Sec. 204 (A) (2) of this Code by
reason of financial incapacit y to pay his tax liabilit
y.
Powers of the Commissioner
 (G) Authorit y to Accredit and Register Tax Agents. –
The Commissioner shall accredit and register,
based on their professional competence,
integrity and moral fitness, individuals and
general professional partnerships and their
representatives who prepare and file tax
returns, statement s, reports, protest s, and
other papers with or who appear before, the
Bureau for taxpayers
Powers of the Commissioner
 (H) Authority of the Commissioner to Prescribe
Additional Procedural or Documentary Requirement
s. – The Commissioner may prescribe the manner of
compliance with any documentary or procedural
requirement in connection with the submission or
preparation of financial statements accompanying the
tax returns.
Powers of the Commissioner
 Section 7. Authority of the Commissioner to
Delegate Power. – The Commissioner may delegate
the powers vested in him under the pertinent
provisions of this Code to any or such subordinate
officials with the rank equivalent to a division chief
or higher, subject to such limitations and
restrictions as may be imposed under rules and
regulations to be promulgated by the Secretary of
finance, upon recommendation of the
Commissioner
Powers of the Commissioner
 Section 8. Dut y of the Commissioner to Ensure the
Provision and Distribution of forms, Receipt s,
Certificates, and Appliances, and the Acknowledgment
of Payment of Taxes.-