Taxation- is the process or means by which the Manifestation of the Lifeblood theory:

sovereign through its law-making body, imposes 1. Rule of “No estoppel against the Government”- it
burdens upon subjects and objects within its jurisdiction means that in the performance of its government
for the purpose of raising revenues to carry out the functions,
legitimate objects of the government. The state cannot be estopped by the neglect of its
agent/officers.
Three inherent powers of the state:
Erroneous application and enforcement of law by public
1. Police power- It is the power of the state for
officers do not block the subsequent correct application
promoting public welfare by restraining and regulating
of statutes.
the use of liberty and property.
2. Collection of taxes cannot be enjoined (stopped) by
- the property taken in the exercise of this power is
injunction.
destroyed because it is noxious or intended for a
3. taxes could not be the subject of compensation or
noxious purpose
set-off
2. Power of Taxation- It is the power by which the state
4. Right to select objects (subjects) of taxation
raises revenue to defray necessary expenses for the
5. A valid tax may result in the destruction of the
government.
taxpayer’s property
3. Power of eminent Domain- It is the power of the
state to acquire private property for the purpose upon
Scope of power to tax:
payment of just compensation
A. comprehensive
Similarities among the three: b. unlimited
1. They are inherent in the state. c. plenary
2. They exist independently of the constitution although d. supreme
the conditions for their exercise may be prescribed by
the constitution. Essential elements of tax
3. ways by which the state interferes with private rights A. It is an enforced contribution
and property. b. It is generally payable in money
4. Legislative in nature and character c. It is proportionate in character
5. presuppose an equivalent compensation received, d. it is levied on persons, property, or the exercise of a
directly or indirectly, by the persons affected. right or privilege
e. it is levied by the law-making body of the state
Purposes of taxation: f. It is levied for public purpose
1. Primary- Revenue or fiscal purpose
2. Secondary- Regulatory purpose (or Aspects of taxation (stages):
Sumptuary/compensatory) goal is to achieve: 1. Levying or imposition of the tax which is a legislative
a. promotion on general welfare act or function
b. reduction of social inequality 2. Assessment or determination of the correct amount
c. economic growth of applicable tax
3. Collection of the tax levied which is essentially
Theory and basis of taxation administrative in character.
1. Theory: LIFEBLOOD THEORY AND NECESSITY
THEORY- It is a necessary burden to preserve the state’s Nature or characteristics of the state’s power to tax
sovereignty and to give the citizenry an army to resist 1. It is inherent in sovereignty
aggression. Taxation is essential because the 2. It is legislative in character
government can neither exist nor endure without
taxation.
2. basis of taxation: BENEFITS RECEIVED AND
RECIPROCITY THEORY- the basis is the reciprocal duties
of protection and support between the state and its
inhabitants. Acc. Doctrine of symbiotic relationship,
taxes are what we pay for a civilized society.
Classification of taxes 7. As to taxing authority
1. As to Scope 1. national- tax imposed under the national internal
a. National- imposed by the national government revenue code collected by the national government
(income tax, donor’s tax, VAT, documentary stamp tax) through the BIR and other national taxes agencies.
b. Local- imposed by the LGU b. local- taxes imposed by the government units.

2. As to subject matter or object Elements of a sound tax system

a. Personal, poll, or capitation- tax of a fixed amount 1. Fiscal adequacy- the fundamental purpose of
imposed upon individual, whether citizens or not. taxation is to raise revenue necessary to fund public
(community tax) services.
b. Property- tax imposed on a property whether real or 2. Theoretical justice or equity (ability to pay
personal, in proportion either to its value or in principle)- tax payers ability to pay must be taken into
accordance with some other reasonable method of consideration.
apportionment 3. administrative feasibility- tax laws must be capable
c. Excise- any tax which does not fall within the of effective and efficient enforcement. A good tax
classification of a poll tax or a property tax. This is a tax system requires informed stakeholders who understand
on the exercise of certain rights and privileges (income how taxes are assessed.
tax, estate tax, donor’s tax)
Limitations on the state’s power to tax
3. As to who bears the burden 1. inherent limitations
a. Direct- tax which is demanded from a person and a. purpose must be public in nature.
cannot shift the burden to another. b. prohibition against delegation of the taxing power
b. Indirect- tax which is demanded from one person in c. territorial limitation
the expectation and intention that he shall indemnify 2. constitutional limitations
himself at the expense of another. Eg. VAT, percentage a. due process of law
tax, excise tax b. equal protection of laws
c. rule of uniformity and equity in taxation
4. As to determination of amount d. prohibition against imprisonment for non-payment of
a. Specific- tax of a fixed amount imposed by the head poll tax
or number, or by some standard of weight or e. prohibition against impairment of obligation of
measurement (excise tax on cigars and liquors) contracts.
b. Ad valorem- tax of fixed proportion of the value of f. prohibition against infringement of religious freedom
the property with respect to which the tax is assessed. g. prohibition against appropriation of proceeds of
taxation for the use, benefit, or support of any church
5. As to purpose h. prohibition against taxation of religious, charitable,
a. Primary, fiscal, or revenue purpose- tax imposed and educational entities.
solely for the general purpose of the government i. prohibition against taxation of non-stock, non-profit
b. secondary, regulatory, special, or sumptuary educational institutions
purpose- tax imposed for a specific purpose (tariff, and j. others:
certain duties on imports) 1. grant tax exemption
2. veto of appropriation, revenue, tariff bills by the
6. As to graduation or rate president
a. Proportional- Tax based on a fixed percentages of the 3. delegated authority of president to impose tariff
amount of the property, receipts, or other basis to be rates, import and export quotas, tonnage, and wharfage
taxed. dues as delegated by congress through the law.
b. progressive or graduated- tax rate of which increases 4. Non-impairment of the supreme court(SC)
as the tax base or bracket increases. jurisdiction
c. regressive- tax of which decreases as the tax base or 5. revenue bills shall originate exclusively from the
bracket increases. house of representatives
6. infringement of press freedom
7. revocation of tax exemptions
Tax distinguished from other terms or imposts
[Link] vs. toll- toll is a sum of money for the use of Means of avoiding or minimizing the burden of
something, generally applied to the consideration, taxation
which is paid for the use of a road, bridge, or the like for 1. Shifting- the transfer of the burden of the tax by the
public nature. original payer or the one on whom the tax was assessed
2. tax vs. penalty- penalty is a sanction imposed as a or imposed to someone else.
punishment for violation of law or acts deem injurious. 2. Transformation- increasing the quantity of
The violation of tax may give right to imposition of production. Turning their units of production at a lower
penalty. cost resulting to the transformation of tac into a gain
3. tax vs. special assessment- special assessment is an through the medium of production
enforced proportional contribution from owners of 3. tax evasion- using of illegal means to defeat or lessen
lands for special benefits resulting from public the payment of a tax. Also known as “tax dodging”
improvements. 4. tax avoidance- the exploitation by the taxpayer of
4. tax vs. revenue- revenue refers to all the funds or legally permissible alternative tax rates or methods.
income derived by the government, wether from tax or Politely called tax, “tax minimization”
any other resources. 5. Exemption- it is the grant of immunity to particular
5. tax vs. subsidy- subsidy is a pecuniary aid directly persons or corporations of a particular class from a tax
granted the government to an individual or private which persons and corporations generally within the
commercial enterprise deemed beneficial to the public. same state or taxing district are obliged to pay. ]
6. Tax vs. permit or license fee-permit or license is a Kinds of tax exemptions;
charge imposed under the police power for purposes of As to basis:
regulation. 1. constitutional
7. Tax vs. custom duties- custom duties are taxes 2. statutory
imposed on goods exported from or imported into the As to form:
country. 1. Express
8. Tax vs. Debt- 2. Implied
9. tax vs. tariff As to extent:
1. Total
Double taxation: 2. Partial
Direct Double taxation- means taxing twice: 6. Capitalization-the seller is willing to lower the price
1. By the same taxing authority pf the commodity provided the taxed will be shouldered
[Link] the same purpose by the buyer.
3. in the same year or taxing period
4. same subjet or object A taxpayer's suit is where an individual taxpayer seeks
5. same kind/character of the tax to prevent the illegal disbursement of public funds. It is
Indirect duplicate taxation- present if any of the an effective tool for ordinary citizens to challenge
elements described above is not present. governmental actions.
 5. the SEP signifies his/her intention to elect the
8%income tax.

Individual taxpayers- are natural persons with income Passive incomes subject to final withholding tax are
derived from within the territorial jurisdiction of the certain passive incomes from sources within the
taxing authority. Philippines as enumerated under sections 24b and 25a2
1. Resident Citizen of the tax code as amended.
2. Nonresident Citizen Passive incomes Received by
3. Resident Aliens [Link] RC/NRC NRA- NRA-
4. Nonresident Aliens ETB NETB
-engaged in trade or business a. interest from any currency 20% 20% 25%
-nonresident aliens not engaged in trade or business bank deposit
-alien individuals employed by POGOS or OGLS b. Yield or any monetary benefit 20% 20% 20%
from deposit substitutes
TYPES OF INCOME c. Yield or any other monetary 20% 20% 20%
Ordinary or regular income benefit from trust funds and
refers to income such as compensation income(salaries similar arrangements
or wages), business income, income from practice of D. Interest income received from RC-15% exempt exempt
profession, income from sale and or dealings of a depository bank under NRC-
expanded FCDU exempt
property and miscellaneous income and passive income
E. Interest income from a long Exempt Exempt Exempt
other that those subject to final taxes and capital gains
term deposit or investment
tax of the tax code, as amended.
If preterminated before 5th year:
-subjected to graduated tax table (also known as basic 4 less than 5 years 5% 5%
or normal tax) 3 less than 4 years 12% 12% 25%
2018-2022 Less than 3 years 20% 20%
Income Tax rate 2. Royalties
Less than 250k exempt a. Royalties in general 20% 20% 25%
250k-400k 20% of excess over 250k b. books and other literary works 10% 10% 25%
400k-800k 30k+25% excess over 400k 3. Prizes more than 10,000 20% 20% 20%
800k-2M 130k+30% excess over 800k a. prizes less than 10,000 Btx btx 25%
2M-8M 490k+32% excess over 2M 4. Other winnings
8M and more 2,410,000+35% excess over 8M Regardless of amount 20% 20% 25%
2023 onwards 5. PSCO winnings
Income Tax rate Less than 10k exempt exempt 25%
Less than 250k exempt more than 10k 20% 20% 25%
250k-400k 15% in excess of 250k 6. Cash and property dividend
400k-800k 22,500+20% in excess of 400k a. cash/property dividends 10% 20% 25%
800k-2m 102,500+25% in excess of 800k actually received from a
2m-8m 402,500+30% in excess of 2m domestic corpo or a joint stock
8m onwards 2,202,500+35% in excess of 8M company, insurance or mutual
fund companies and ROHQ
-SEP may opt to avail 8% preferential tax rate if, multinational companies
1. gross sales and other non-operating income does not b. Share of an individual in the 10% 20% 25%
exceed 3M distributable net income after
2. the SEP shall be non-VAT registered tax of a partnership except GPP
3. The gross sales were not derived from vat-exempt c. Share of an individual in the 10% 205 25%
sales and transaction net income after tax of an
association, a joint account, or a
4. the SEP is not subject to percentage tax other than
joint venture or consortium
under section 116 of the tax code
taxable as a corporation, which
he is a member or co-venturer

Capital gains tax- income from a sale of a capital asset, Creditable withholding tax- tax method of collecting tax
specifically from shares of stocks of a closely held in advance. From the recipient of income through the
corporation and real properties located in the payor. Must be certified by 2316 that the said tax is
Philippines are subject to cgt. withheld.
A. Capital gain on sale of shares of stocks of a closely- Purchase/payments for: CWT %
held domestic corporation is subject to a capital gains Professional fees
tax of 15% Individual payee
 Must be from a domestic corporation -if gross income for the current year is less than 3 m 5%
 Not through the local stock exchange -more than 3m 10%
 Seller should not be a dealer in securities Individual payee
 Should result to a capital gain. -if gross income for the current year is less than 720k 10%
- more than 720k 15%
Selling price-Cost=capital gain x 15% = CGT Rentals
Goods
Services
B. Sale of real properties classified as capital asset
Income payments to beneficiaries of estate or trust
located in the Philippines is subject to 6% CGT imposed
Income payments to partners of GPPs
under section 124 of the tax code as amended.
-if gross income for the current year is less than 720k 10%
Pacto de retro- must be included during a sale, More than 720k 15%
exchange or other disposition of real property subject Income payments made by JV
to capital gains. Supplier of goods 1%
Supplier of service 2%
Formula: Distributive shareds of co-venturers from the net 15%
Tax base (highest)x6%= CGT income of the JV or consortium, not taxable as a
corporation
Sale of principal residence: Certain income payments made by credit card 1%
Must be the family home of the individual taxpayer and companies
be certified by the barangay cahirman over the place. Quarterly tax returjns are made during:
Requisites for tax exemption: 1st quarter- May 15
1. proceeds is fully utilized in acquiring a new home 2nd quarter- aug 15
within 18 months 3rd quarter- nov 15
If not, Final adjusted return (annual) april 15
unutilized portion
x GSP∨FMV x 6 % MWE are exempt from the income tax on:
gross selling pricce
2. The historical cost or adjusted basis of real property 1. minimum wage
sold or disposed shall be carried over to the new 2. holiday pay
principal residence built or acquired. 3. Overtime pay
3. the BIR shall be notified within 30 days from the date 4. night shift differential
of sale or disposition through a prescribed return of his 5. hazard pay
intention to avail the tax exemption Senior citizens and pwds and solo parents are treated
4. the tax exemption can only be availed once every 10 the same as minimum wage earners but has the
years. following tax benefits:
Senior citizen and PWDs:
-exemption from VAT
-20% discount on their purchases of specific goods and
services
 -5% discount on basic and prime commodities c. medical cash allowance to dependents of employees
Solo parents not exceeding 1,500 per semester or 250 a month
-exemption from VAT and 10% discount on their d. rice subsidy of not more than 2k a month or 1
purchase on specific goods sack(50kg) rice a month.
Fringe tax Benefits- is a monetary burden imposed by e. uniforms given to employee by the employer not
the sovereignty on any good, service, or other benefits exceeding 6,000 per annum
furnished or granted by an employer, in cash or in kind, f. Actual medical assistance not exceeding 10,000 per
in addition to basic salaries, individual employee, other annum such as medical allowance to cover medical and
than a rank- and-file employee. healthcare needs, annual medical/exclusive checkup,
Items subject to FBT: maternity assistance and routine consultations
[Link] g. laundry allowance not exceeding 300 a month
2. expense account h. employee achievement awards not exceeding 10,000.
[Link] of any kind i. Gifts during Christmas and major anniversary
4. household personnel celebrations not exceeding 5,000 per employee per
5. Interest on loan annum.
6. membership fees, social and athletic clubs j. daily meal allowance for overtime work and graveyard
7. expenses for foreign travel shift not exceeding 25% of the basic minimum wage
8. holiday and vacation expenses k. benefits received by an employee by virtue of a
9. educational assistance to the employee or his collective bargaining agreement and productivity
dependents incentive schemes provided that the total annual
10. life or health insurance and other non-life insurance monetary value received from the two items combined
premiums or similar amounts in excess to what the law do not exceed the 10,000 per employee per taxable
allows. year.
If not more than 10k, considered as de Minimis
Computation of fringe benefit tax: If more than 10k- shall be included in the 90,000 ceiling
Classification of taxpayers CIT.,RA,NRAET NRA- 4. If the grant of benefits is for the convenience or
NETB advantage of the employer.
Monetary value 39,000 39,000
Divide by Gross monetary 65% 75% Special rules in computing the monetary value of
value factor Fringe benefit
Grossed up monetary value 60,000 52,000 Monetary value of housing benefits
X tax rate 35% 25% Employer leases a residential property for the Rental paidx50%
Fringe benefit tax 21,000 13,000 use of the employee
Employer owns a residential property for the Higher valuex5%x50%
use of the employee
Tax exempt fringe benefit Employer purchases residential property for Acquisition cost, exclusive of
1. fringe benefit which are authorized and exempted the use of the employee interest 5% x 50%
Employer purchases residential property and 100% value
from income tax under any special law:
transfers ownership to employee
a. contributions required under law Employer purchases residential property and Higher value-cost to the
b. premiums for group insurance of employees transfers ownership to employee on a lesser employee
2. if the grant of fringe benefits to the employee is amount

required by the nature of, or necessary to the trade, Monetary value of motor vehicles
Employer owns and maintains a fleet of motor Acquisition cost of the
business or profession of the employer.
vehicles for the use of the business and vehicle/5 yearsx50%
3. de Minimis benefits: employees
a. monetized unused vacation leave credits of private Employer leases/maintains a fleet of motor Amount of rental
employees not exceeding 10 days during the vehicles for the use of the business and the paymentsx50%
employees
year(exceeding amount will be included in the 90,000 Employer purchases vehicle in the name of the Acquisition cost
ceiling.) employee
b. Monetized value of vacation and sick leave credits Employer provides employee with cash for the Cash received
purchase of the vehicle, and ownership is
paid to government officials and employees. placed in the name of the employee
Employer purchases the vehicle on installment Acquisition cost exclusive of
and ownership is placed in the name of the interest divided by 5 years
employee
Employer shoulders a portion of the amount of amount shouldered by the
the purchase price of vehicle and ownership is employer
placed in the name of the employee

Corporation- an artificial being created by operation of

law, having the right of succession and the powers,
attributes and properties expressly authorized by law or
incident to its existence. Shall include;
[Link] person corporation
[Link], no matter how created or organized
3. joint stock companies
4. joint accounts
5. associations
6. insurance companies

Corporation does not include:

1. GPP
[Link] Venture or consortium formed for the purpose
of undertaking construction projects and is registered
under PCAb
3. Foreign Constractors