Notes in Taxation and Agrarian Reform

Part I. TAXATION
1. Definition of Taxation Taxation is the inherent power of the sovereign 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 objects of the government.
2. Nature of Taxation The nature of the states power to tax is twofold: it is both an inherent
power and a legislative power. It is inherent in nature being an attribute of sovereignty. This is
so because without taxes the states existence would be imperiled. There is thus no need for a
constitutional grant for the state to exercise this power. It is a legislative power because it
involves the promulgation of rules.
3. Theory of Taxation Acceptance that governmental existence is a necessity. Performance of
governmental function redounds to the benefit of the populace in general.
4. Basis of Taxation Reciprocal duties of protection and support between the state and its
citizens and residents. Also called symbiotic relation between the state and its citizens.
Despite the natural reluctance to surrender part of ones hard earned income to the taxing
authorities, every person who is able must contribute his share in running the government. The
government for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values.
5. Lifeblood Theory of Taxation Taxes are the lifeblood of the government. Without revenues
raised from taxation, the government will not survive, resulting in detriment in society. Without
taxes, the government will be paralyzed for lack of motive power to activate and operate it.
6. Purposes of Taxation Taxation is used:
- To finance purely governmental expenditures
- As a tool to carry out the national objectives of social and economic development
- To reduce inequalities in wealth and income by imposing progressively higher tax rates as in
the case of estate and income taxes.
- To prevent or reduce inflation by increasing taxes, or to expand business during periods of
slump by decreasing taxes.
7. Two Aspects of Taxation:
- Levying or imposition of the tax which is a legislative act, and
- Collection of the tax levied which is essentially administrative in character.
8. Scope of Taxation The power to tax is:
- Comprehensive (it can cover any article to be subject of tax);
- Unlimited ( generally, the power to tax is not subject to limitations);
- Plenary (the states power to tax cannot be diminished);
- Supreme (by virtue of the states sovereignty, the power to tax is inherent and supreme).
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9. Limitations of Taxation Limitations are either inherent or implied in the states power to tax,
or provided for in the constitution.
Inherent Limitations:
- Territoriality (the states power to tax is limited to the bounds of its territory);
- International Comity (the states power to tax respects treaties and international
agreements);
- Exemption of Government Entities (the state, through its government cannot tax itself).
Implied Limitations:
- The tax collected must be only for public purpose;
- The legislative power to tax cannot be delegated.
Constitutional Limitations:
- Due Process of Law (Taxation cannot be arbitrary. Taxes cannot be collected without due
process of law.)
- Equal Protection of the Law (No one should be above the law.)
- Rule of Uniformity (Taxes must be uniform. Those who are similarly situated must be
similarly treated.)
- Exemption of Religious, Charitable and Educational Entities (These entities are no longer
taxed because they already assist the government in the performance of its duties.)
- Exemption of Non-Stock, Non-Profit Organizations (These organizations are not taxed
because they are not organized primarily for profit.)
10. Basic Principles of Sound Tax System
- Fiscal Adequacy: the sources of revenues should be sufficient to meet the demands of public
pay.
- Equality or Theoretical Justice: tax imposed should be proportionate to the taxpayers ability
to pay.
- Administrative Feasibility: tax laws should be capable of convenient, just and effective
administration.
11. Essential Elements/Characteristics of Tax
- Enforced contribution
- Generally payable in money
- Proportionate in character
- Levied on persons, property or exercise of a right or privilege
- Levied by the State having jurisdiction
- Levied by the legislature
- Levied for public purpose
- Paid at regular periods or intervals
12. Applicable Law on Philippine Taxation
The present tax system is governed by the National Internal Revenue Code, as amended
by Tax Reform Act of 1997 (Republic Act 8424)
Portions of Republic Act 8424 pertaining to compensation income taxation is further
amended by Republic Act 9504, the main feature of which is make personal exemption of
individual income tax payers uniform at P50,000 per taxpayer, regardless of status.

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13. Classification of Taxes

A. As to Subject Matter
1. Personal imposed on all residents, whether citizens or not. Example: Community Tax
(Residence Tax)
2. Property imposed on property. Example: Real Property Tax
3. Excise imposed upon the performance of an act, the enjoyment of a privilege or the
engaging in an occupation. Example: Income Tax, Estate Tax, Donors Tax
B. As to Who Bears the Burden
1. Direct demanded from the very person to whom it is intended or desired; he should pay
them and he cannot shift the burden to another. Example: Income Tax
2. Indirect demanded in the first instance from one person in the expectation and intention
that he can shift the burden to someone else, not as a tax but as part of the purchase price.
Example: Value Added Tax (VAT)
C. As to Determination of the Amount
1. Specific imposed based on some standard of weight or measurement and which requires no
assessment beyond a listing and classification of the object to be taxed. Example: Taxes of
distilled spirits and wines.
2. Ad Valorem imposed based on a specific proportion of the value fixed by law or as
appraised.
D. As to purpose
1. General, Fiscal or Revenue imposed for the purpose of raising public funds for the service of
the government.
2. Special or Regulatory imposed primarily for the regulation of useful or non-useful
occupation or enterprises and secondarily only for the raising of public funds.
E. As to Authority Imposing the Tax
1. National imposed by the national government. Example: Income Tax, Estate Tax, Donors
Tax
2. Municipal or Local - imposed by the local (municipal or city) government. Example: Real
Property Tax
F. As to Gradation or Rate
1. Proportional that which increases or decreases in relation to bracket.
2. Progressive or Graduated that which increases as the income of taxpayer goes higher
3. Regressive that which decreases as the income of taxpayer goes higher.
14. Kinds of Taxes
INCOME TAX a tax on a persons income, profits and the like, realized in one taxable year. It is
imposed at progressive or graduated rates, there being one set of scheduled rates for
compensation or employment income, and for business, professional and other types of noncompensation income.
Rates of taxable income of individuals
If taxable income is...
Tax due is:
Not over P10,000
5%
Over P10,000 but not over P30,000
P500 + 15% of the excess over P10,000
Over P30,000 but not over P70,000
P2,500 + 15% of the excess over P30,000
Over P70,000 but not over P140,000
P8,500 + 20% of the excess over P70,000
Over P140,000 but not over P250,000 P22,500 + 25% of the excess over P140,000
Over P250,000 but not over P500,000 P50,000 + 30% of the excess over P250,000
Over P500,000 P125,000 + 32% of the excess over P500,000
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R.A. 9504 fixes personal exemption at P50,000 (regardless of status), and additional exemption
at P25,000 per child (not exceeding 4).
ESTATE TAX a tax on the right of the deceased person to transmit his estate to his lawful heirs
or beneficiaries. Tax base is the Net Estate, meaning, gross estate less allowable deductions and
specific exemptions. Specific exemptions are those which are declared by law as expressly
exempt from the tax such as bequests to charitable institutions, subject to certain conditions
(see Sec. 87, NIRC). The first P200,000 of the net estate is exempt. Thus, if the value of the
estate is P300,000, only P100,000 is subject to estate tax.
DONORS TAX a tax levied on the act of giving or donating.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor
of another who accepts it.
Donation is inter vivos if made between living persons, to take effect during the lifetime of the
donor.
Donation is mortis causa if made in the nature of testamentary disposition, that is, it shall take
effect upon the death of the donor. This act is subject to Estate Tax.
Tax is imposed on the Net Gift, meaning, the total amount of gifts less the allowable deductions
and specific exemptions provided by law (see Sec. 101, NIRC).
Net gifts of the amount of P100,000 or less are exempt. Thus, if the value of the net gift is
P150,000, only P50,000 is subject to donors tax.
VALUE-ADDED TAX a percentage tax imposed on every sale, barter, exchange, or lease of
goods or properties (real or personal) or sale of services in the course of trade or business, and
on every importation of goods, whether or not in the course of trade or business, based on the
gross selling price or value, or the gross receipts, payable by the seller, transferor, lessor, or
importer. It is a tax on value added, but tax rate is 12% of the gross selling price.
PERCENTAGE TAX tax based on a certain percentage of the gross selling price or gross value in
money of goods sold, bartered, exchanged, or imported, or gross receipts or earnings derived by
a person engaged in the sale of services. Value-Added Tax (VAT) is a kind of percentage tax.
OTHER PERCENTAGE TAXES include Overseas Communication Tax, Tax on Receipts of Life
Insurance Companies, Amusement Tax, and Tax on Sale of Shares of Stock.
OVERSEAS COMMUNICATION TAX tax imposed upon every overseas dispatch message or
conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange,
wireless and other communication services payable by the person paying for the services
rendered. The government, diplomatic services, international organizations or any of their
agencies based in the Philippines enjoying privileges and exemptions which the Philippines is
committed to recognize pursuant to an international agreement to which the Philippines is a
party, and news services are exempt from the tax.
TAX ON RECEIPTS OF LIFE INSURANCE COMPANIES imposed on persons, companies or
corporations engaged in insurance business in the Philippines, equivalent to 5% of the total
premiums collected.
AMUSEMENT TAX can be any of the following:
(1) Tax on gross receipts tax equivalent to 18% of the gross receipts of cockpits,
cabarets, and day or night clubs; 10% in the case of boxing exhibitions; 15% in case of
professional basketball games; and 30% in the case of race tracks and jai-alai.
(2) Tax on winnings imposed on every person who wins in a horse race or jai-alai
equivalent to 10% of his winnings or dividends. The same tax is collected from the owners of
winning race horses.
TAX ON SALE OF SHARES OF STOCK tax imposed on shares of stock listed and traded through
the local stock exchange (tax is of 1% or 0.005 based on the gross selling price or gross value
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in money of the shares); also imposed on shares of stock sold through initial public offering in
closely-held corporations.
EXCISE TAX tax imposed on certain specified goods manufactured or produced in the
Philippines for domestic sale or consumption or produced in the Philippines for domestic sale or
consumption or for any other disposition and on goods imported into the Philippines. Excise tax
can either be Specific Tax or Ad Valorem Tax. Goods subject to excise tax are the following:
SPECIFIC TAX imposed and based on weight, volume capacity, length, number, or any other
physical unit of measurement. It requires no valuation beyond a listing and classification of the
objects to be taxed.
AD VALOREM TAX imposed and based on selling price or other specified value of the article.
DOCUMENTARY STAMP TAX tax on documents, instruments and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.
TRAVEL TAX payable by all Filipino citizens, permanent resident aliens, and non-immigrant
aliens who have stayed in the Philippines for more than one (1) hear and are leaving the
country, irrespective of the place of issuance of ticket and the form and place of payment.
ENERGY TAX tax imposed in view of the need to discourage the uneconomic consumption of
fuel and the need for additional revenue to support economic development.
15. General Principles of Income Tax
1. A citizen of the Philippines residing therein is taxable on all income derived from sources
within and without the Philippines.
2. A non-resident citizen is taxable only on income derived from sources within the Philippines.
3. An individual citizen of the Philippines who is working and deriving income from 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.
4. An alien individual, whether a resident or not of the Philippines, is taxable only on income
derived from sources within the Philippines.
5. A domestic corporation is taxable on all income derived from sources within and without the
Philippines.
6. A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines.
16. Gross Income (Sec. 32[A], NIRC)
1. Compensation for services in whatever form paid, including, but not limited to fees, salaries,
wages, commissions, and other similar items;
2. Gross income derived from the conduct of trade or business or the exercise of a profession;
3. Gains derived from dealings in property;
4. Interests;
5. Rents;
6. Royalties;
7. Dividends;
8. Annuities;
9. Prizes and winnings;
10. Pensions; and
11. Partners distributive share from the net income of the general professional partnership.

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17. Exclusions from Gross Income

1. Proceeds of life insurance
2. Amounts received by the insured as return of premiums paid
3. Gifts, bequests and devises (subject to estate or donors tax)
4. Compensation for personal injuries or sickness
5. Income exempt under treaty
6. Certain retirement benefits, pensions, gratuities
7. Miscellaneous items
18. Definition of Taxable Income
The term taxable income means the pertinent item of gross income, less the deduction and/or
personal and additional exemptions, if any, authorized for such types of income.
19. 3 Kinds of Taxable Income
1. Passive investment income subject to final tax
2. Compensation income (tax base is gross income)
3. Non-compensation income (tax base is net income)
20. Sample Computation for Compensation Income Tax
Step 1. Get the total of salaries received for the entire taxable year.
Example, if salary is 10,000/month, then it is P10,000 x 12 months =
P120,000.
Step 2. Deduct the personal exemption of P50,000 as mandated by R.A. 9504 = ( 50,000)
Step 3. Deduct also the allowable additional exemption (i.e., P25,000 per dependent child, up to
a maximum of 4 children); if theres no dependent, then it is:
(
0)
Step 4. Arrive at Taxable Income =
P 70,000
Step 5. Refer to number 14 of this handout for the applicable tax rate:
Over 30,000 but not over P70,000, tax due is P2,500 + 15% of the excess over P30,000
= P2,500.00 + 15%(excess over P30,000)
= P2,500.00 + 15%(70,000-30,000=40,000)
=P2,500.00 + 15%(40,000)
= P2,500 + 6,000
= P8,500
21. Income Subject to Final Tax
1. Royalties (except on books, literary works, musical composition) final tax is 10% of the
amount of royalties received.
2. Prizes and other winnings (except prizes amount to P10,000 or less, which shall form part of
ordinary taxable income) final tax is 10% of the amount of prizes or other winnings received.
3. Interest from Philippine currency bank deposits and yield from deposit substitute and from
trust funds or similar arrangements final tax of 20% of the interest received
4. Dividends from domestic corporations and shares of individual partners in the net profits of
taxable partnerships final tax of 10% of the amount of dividends received.
5. Capital gains on certain sales or exchanges of real property by individuals final tax of 6% of
gross selling price or fair market value (fmv) whichever is higher (exempt: sale of principal
residence; proceeds to be used within 18 months from date of sale in acquiring or constructing a
new principal residence.
6. Fringe benefits subject to final tax of 32% of the amount received as fringe benefits. (Fringe
benefits means any good, service or other benefit furnished or granted in cash or in kind by an
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employer to an individual employee [except rank and file employees] such as, but not limited to
the following:
Housing
Expense account
Vehicle of any kind
Household personnel, such as maid, driver and others
Interest on loan at less than market rate to the extent of the difference between the
market rate and actual rate granted
Membership fees, dues and other expenses borne by the employer for the employee in
social and athletic clubs or other similar organizations
Expenses for foreign travel
Holiday and vacation expenses
Educational assistance to the employee or his dependents
Life or health insurance and other non-life insurance premiums or similar amounts in
excess of what the law allows.
The following fringe benefits are not taxable:
Fringe benefits which are authorized and exempted from tax under special laws
Contributions of the employer for the benefit of the employee to retirement insurance and
hospitalization benefit plans
Benefits given to the rank and file employees, whether granted under a collective bargaining
agreement or not; and
De minimis benefits as defined in the rules and regulations promulgated by the Secretary of
Finance.
22. Tax Evasion vs. Tax Avoidance
Tax avoidance is legal and not subject to criminal penalty, while tax evasion Is illegal and subject
to criminal penalty.
Tax avoidance is minimization of taxes while tax evasion almost always results in absence of tax
payments.

Part II. AGRARIAN REFORM

1. Land Reform: It is an integrated set of measures designed to eliminate obstacles to economic

and social development arising out of defects in the agrarian structure.
2. Objectives of Land Reform:
Political Objectives:
(1) To abolish feudal farms
(2) To free peasants/farmers and make them active citizens
(3) To promote democracy
(4) To resolve a crisis or avoid revolution when peasants become
hopeless.
Economic Objectives: (1) To accelerate economic development especially agricultural progress
(2) To encourage more intensive cultivation
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(3) To promote optimum scale operation of the farm.

(4) To coordinate agricultural production with the rest of the econmy.
3. Scope of the Comprehensive Agrarian Reform Program (Under R.A. 6657)
- All alienable and disposable lands of the public domain devoted to or suitable for agriculture
- All lands of public domain in excess of the specified limits as determined by the Congress
- All private lands devoted to or suitable for agriculture regardless of the tenurial
arrangement and the products raised or that can be produced thereon
4. Definition of Agricultural Lands
Agricultural lands include lands devoted principally to the raising of crops such as rice, corn,
sugarcane, tobacco, coconut, etc., or to pasturing, dairying, inland fishery, salt making, and
other agricultural uses (including timberlands and forest lands).
5. Lands Exempted and Excluded from the Coverage of CARP
These are lands actually, directly and exclusively used and found to be necessary for the
following:
- Parks, wildlife, forest reserves, reforestation
- Fish sanctuaries and breeding grounds
- Watersheds and mangroves
- National defense
- School sites and campuses. Including experimental farm stations operated by public or
private schools for educational purposes
- Seeds and seedlings research and pilot production centers
- Church sites and convents appurtenant thereto, mosque sites and Islamic centers
appurtenant thereto
- Communal burial grounds and cemeteries
- Penal colonies and penal farms actually worked by inmates
- Government private research and quarantine centers
- All lands with 18 degrees slope and over
6. Retention Limits
It is provided that
- Landowners shall retain 5 hectares only.
- Landowners under P.D. 27 shall keep their lands originally retained by them
- Original homestead grantees or their direct compulsory heirs who still own the original
homestead at the time of the approval of CARP, shall retain the same areas as long as they
continue to cultivate said homestead.
- 3 hectares may be awarded to each child of the landowner, provided, he is at least 15 years
of age and actually tilling the land or directly managing the farm.
- The landowner has a better right in choosing the area to be retained, except when the land
is tenanted. In that case, the tenant shall be given the option to choose whether to remain
therein or be a beneficiary in the same or another agricultural land with similar or
comparable features.
7. Some terms defined
- AGRARIAN REFORM the redistribution of lands regardless of crops or fruits produced, to
farmers and regular farmworkers who landless, irrespective of tenurial arrangement, to
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include the totality of actors and support services designed to lift the economic status of the
beneficiaries and all other arrangements alternative to the physical redistribution of lands,
such as production or profit-sharing, labor administration, and the distribution of share of
stock, which will allow beneficiaries to receive a just share of the fruits of the lands they
work.
AGRICULTURAL LAND land devoted to agricultural activity and not classified as mineral,
forest, residential, commercial or industrial land.
IDLE OR ABANDONED LAND any agricultural land not cultivated, tilled or developed to
produce any crop nor devoted to any specific economic purpose continuously for a period of
three (3) years immediately prior to the receipt of notice or acquisition by the government.
LANDLESS BENEFICIARY any farmer/tiller who owns less than three (3) hectares of
agricultural land.
COOPERATIVES organizations composed primarily of small agricultural producers, farmers,
farmworkers, or other agrarian reform beneficiaries who voluntarily organize themselves for
the purpose of pooling land, human, technological, financial or other economic resources
and operated on the principle of one member, one vote. A juridical person may be a
member of a cooperative, with the same rights and duties as a natural person.

8. Just Compensation
In determining just compensation, the following factors must be considered:
- The cost of acquisition of the land
- The current value of like properties, its nature, actual use and income
- Sworn valuation by the owner
- Tax declaration
- Assessment made by the government assessors
- The social and economic benefits contributed by the farmers and farmworkers and the
Government to the property
- The non-payment of taxes or loans secured from any government financing institution on
the said land.

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