Escalante, Maria Jhasmin D | AT3D | INCOME TAXATION

ELEMENTS OF A VALID TAX

1. Must be levied by the taxing power having jurisdiction over the object of taxation.
2. Must not violate constitutional and inherent limitations.
3. Must be uniform and equitable.
4. Must be for public purpose
5. Must be proportional in character.
6. Generally payable in money.

CLASSIFICATION OF TAXES
A. As to purpose
1. Fiscal or Revenue Tax - imposed for general purpose
2. Regulatory - imposed to regulate business, conduct, acts or transactions
3. Sumptuary - levied to achieve some social or economic objectives
B. As to subject matter
1. Personal, poll or capitation - tax on persons who are residents of a particular territory
2. Property tax - tax on properties, real or personal
3. Excise or privilege tax - tax imposed upon the performance of an act, enjoyment of a
privilege or engagement in an occupation
C. As to incidence
1. Direct tax - both the impact and incidence of taxation rest upon the same taxpayer. The
statutory taxpayer is economic taxpayer.
2. Indirect tax - tax is paid by any person other than the one who is intended to pay the
same. The statutory taxpayer is the person named by law to pay the tax.
An economic taxpayer is the one who actually pays the tax.
D. As to amounts
1. Specific tax - tax of a fixed amount imposed on a per unit basis.
2. As valorem - tax of a fixed proportion imposed upon the value of the tax object.
E. As to rate
1. Proportional tax - a flat or fixed rate tax (ex. VAT)
2. Progressive or Graduated tax - tax which imposes increasing rates as the tax base
increase. This results in equitable taxation.
 3. Regressive tax - tax imposes decreasing tax rates as the tax base increase. This is a
total reserve of progressive tax. This is regarded as anti-poor.
4. Mixed tax - a combination of any of the above types of tax.
F. As to imposing authority
1. National tax - imposed by the national government.
2. Local tax - tax imposed by the municipal or local government.

EXAMPLES OF NATIONAL TAXES

a. Income tax tax on annual income, gains or profits
b. Estate tax tax on gratuitous transfer of properties by a decedent upon death
c. Donor's tax tax on gratuitous transfer of properties by living donor
d. Value Added Tax consumption tax collected by VAT business taxpayers
e. Other percentage tax consumption tax collected by non-VAT business taxpayers
f. Excise tax tax on sinus products and non-essential commodities
g. Documentary stamp tax tax on documents, instruments, loan agreements and paper
evidencing the acceptance, assignment, sale or transfer of an obligation, right or properly
incident thereto.

EXAMPLES OF LOCAL TAXES

a. Real property tax
b. Professional tax
c. Business taxes, fees, and charges
d. Community tax
e. Tax on banks and other financial institutions

TAX vs. REVENUE

Tax - amount imposed by the government for public purpose
Revenue - all income collections of the government. (taxes, tariff, licenses, toll, penalties and
others)

TAX vs. LICENSE FEE

Tax has broader subject than license. It emanates from taxation power and imposed upon any
object.
 License fee emanates from police power and is imposed to regulate the exercise of a privilege
such as the commencement of business or a profession.
// Tax is a post-activity imposition whereas license is a pre-activity imposition.

TAX vs. TOLL

Tax is a levy of government; hence, it is a demand of sovereignty. Only private entity cannot
impose taxes.
Toll is a charge for tge use of other's property; hence, it is a demand of ownership. Both
government and private entity can impose toll.

TAX vs. DEBT

Tax arises from law. Non-payment leads to imprisonment. It cannot be subject to set-off. It is
generally payable in money.
Debt arises from private contracts. Non-payment does not lead to imprisonment. Can be
subject to set-off and can be paid in kind.

TAX vs. SPECIAL ASSESSMENT

Tax is an amount imposed upon persons, properties, or privileges. It is levied without
expectation of a direct proximate benefit.
Special assessment is levied by the government on lands adjacent to a public improvement.
Its basis is the benefit in terms of the appreciation in land value caused by the public
improvement.

TAX vs. TARIFF

Tax is broader than tariff. It is imposed upon persons, privilege, transactions, or properties.
Tariff is the amount imposed on imported or exported commodities.

TAX vs. PENALTY

Tax is an amount imposed for the support of the government.
Penalty is an amount imposed to discourage an act. This may be imposed by both the
government and private individuals
SOURCES OF TAX LAWS
1. Constitution
2. Statutes and Presidential Decrees
3. Judicial Decision or case laws
4. Executive Orders and Batas Pambansa
5. Administrative Issuances
6. Local Ordinances
7. Tax Treaties and conventions with foreign countries
8. Revenue Regulations

TYPES OF ADMINISTRATIVE ISSUANCES

Revenue Regulations
Formal pronouncements intended to clarify or explain the law and carry into effect its general
provisions by providing details of administration and procedure.

BIR Rulings
Official positions of the Bureau to queries raised by taxpayers and other stakeholders relative
to clarification and interpretation of tax laws.

Marshall Doctrine
Taxation power can be used as an instrument of police power.
"The power to tax involves the power to destroy"

Holme's Doctrine
Taxation power may be used to build or encourage beneficial activities or industries by the
grant of tax incentives.
"Taxation power is not the power to destroy while court sits.

Doctrine of Judicial Non-Interference

Generally, courts are not allowed to issue injunction against the government'd pursuit to collect
tax as this would unnecessarily defer tax collection.
Anchored to lifeblood doctrine
Prospectivity of tax laws
Tax laws are generally prospective in operation.
Ex post facto or retroactivity of tax is prohibited by the Constitution unless if it is intended by
Congress under certain justifiable conditions.

Imprescriptibility in taxation
Prescription is the lapsing of a right due to the passage of time. (Read Banggawan, p.15)

Principle of strictissimi juris

Taxation is rule, exemption is the exeption
Taxation is general rule unless there is exemption
When language of law is clear and categorical, there is no room for interpretation, only room
for application, if vague doctrine of strict legal construction is observed

Doctrine of equitable recoupment

states that a tax claim for refund, which is prevented by prescription, may be allowed to be
used as payment for unsettled tax liabilities if both taxes arises from the same transaction in
which overpayment is made and underpayments due; not applicable to cases where the taxes
involved are totally unrelated.

Non-compensation or Set-off rule

Taxes are not subject to automatic set-off or compensation
Taxpayer cant delay payment of tax to wait for the resolution of a lawsuit involving his pending
claim against the government

Doctrine of estopell
Any misrepresentation made by one party toward another who relied therein in good faith will
be held true and binding against that person who made the misrepresentation.
The government is not subject to estoppel

PRIMARY TASK OF BIR

BIR is primarily in charge to assess and collect all taxes ad charges imposed by NIRC
At present, the chief officers of the Bureau are:
1 Commissioner Ceasar R. Dulay
4 Deputy Commissioners
a. Operations group
b. Legal Enforcement Group
c. Information Systems Group
d. Resource Management Group

POWERS OF THE COMMISSIONER OF INTERNAL REVENUE

1. Interpret the provisions of the NIRC, subject to review by the Secretary of Finance.
2. Decide tax cases, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals,
such as:
a. Disputed assessments
b. Refunds of internal revenue taxes, fees, or other charges
c. Penalties imposed
d. Other NIRC and special law matters administered by the BIR
3. Obtain information and to summon, examine, and take testimony of persons to effect tax
collection
Purpose: For the CIR to ascertain:
a. The correctness of any tax return or in making a return when none has been made by
the taxpayer
b. The tax liability of any person for any internal revenue tax or in correcting any such
liability
c. Tax compliance of the taxpayer
Authorized acts:
a. To examine any book, paper, record or other data relevant to such inqury.
b. To obtain on a regular basis any information from any person other than the person
whose internal revenue tax liability is subject to audit.
c. To summon the person liable for tax or required to file a return, his employees, or any
person having possession and custody of his books of accounts and accounting records to
produce such books, papers, records or other data and to give testimony.
d. To take testimony of the person concerned, under oath, as may be relevant or material to
the inquiry.
e. To cause revenue officers and employees to make canvass of any revenue district
4. To make assessment and prescribe additional requirement for tax administration and
enforcement.
5. To examine tax returns and determine tax due thereon. (Read Banggawan, p.45)
6. To conduct inventory taking or surveillance
7. To prescribe presumptive gross sales and receipts for a taxpayer when:
a. The taxpayer failed to issue receipts
b. The CIR believes that the books or other records of the taxpayer do not correctly reflect
the declaration in the return.
The presumptive gross sales or receipt shall be derived from the performance of similar
business under similar circumstances adjusted for other relevant information.
8. To terminate tax (shall be communicated through a notice to the tax payer together with a
request for immediate payment) period when the taxpayer is:
a. Retiring from business
b. Intending to leave the Philippines
c. Intending to remove, hide, or conceal his property
d. Intending to perform any act tending to obstruct the proceedings for the collection of the
tax or render the same ineffective
Taxes shall be due and payable immediately
9. To prescribe real property values (Read Banggawan p.46)
10. To compromise tax liabilities of taxpayers
11. To inquire into bank deposits, only under the following instances:
a. Determination of the gross estate of a decent
b. To substantiate the taxpayer's claim of financial incapacity to pay tax in an application for
tax compromise.
12. To accredit and register tax agents (Read Banggawan, p.46)
13. To refund or credit internal revenue taxes
14. To abate or cancel tax liabilities in certain cases
15. To prescribe additional procedures or documentary requirements
16. To delegate his powers to any subordinate officer with a rank equivalent to a division chief of
an office
.
NON-DELEGATED POWER OF THE CIR
1. The power to recommend the promulgation of rules and regulations to the Secretary of
Finance.
2. The power to issue rulings of first impression or to reverse, revoke or modify any existing
rulings of the Bureau.
3. The power to compromise or abate any tax liability. (Others, Read Banggawan, p.47)
4. The power to assign and reassign internal revenue officers to establishments where articles
subject to excise tax are produced or kept.

INCOME RELATION TO TAXATION

Gross Income tax concept of income under NIRC
- Means taxable income in laymans term
- In NIRC, taxable income refers to certain items of gross income less
deductions and personal exemptions allowable by law; inflow of
wealth to the taxpayer from whatever source, legal or illegal, that
increases worth
Item of Gross income/inclusion in gross income taxable item of income

WHY IS INCOME TAXED?

Income is regarded as the best measure of taxpayers ability to pay tax. It is an excellent
object of taxation in the allocation of government costs

CHARACTERISTICS OF GROSS INCOME

Return on capital that increase worth
Realized benefits
Not exempted by law, contract or treaty

ITEMS THAT CONSTITUTE GROSS INCOME

a. Returns of capital
a1. Life
a2. Health
a3. Human Reputation
b. Inflow of wealth without increase in net worth.
b1. Receipt of property in trust
 b2. Borrowing of money under an obligation to return
c. Not benefits
c1. Receipt of loan
c2. Discovery of lost properties
c3. Receipt of money or property to be held in trust for or to be remitted to another
person
d. Exempted by law from taxation
d1. Income of qualified employee trust fund
d2. Revenues of non-profit, non-stock educational institutions
d3. PCSO or lotto winnings
d4. SSS, GSIS, Pag-Ibig or PhilHeath Benefits
d5. Salaries and wages or minimum wage earners and qualifies senior citizen
d6. Regular income of Barangay Micro-business Enterprises
d7. Income of foreign governments and foreign government-owned and controlled
corporations
d8. Income of international missions and organizations with income tax immunity

SITUS OF THE FOLLOWING INCOMES:

a. Interest debtors residence
b. Dividends
i. Domestic corporation earned within
ii. Foreign corporation depends on the predominance test
c. Service place where service is rendered
d. Rent location of property
e. Royalties where intangible assets is employed
f. Gain on sale
i. Real property where property is located
ii. Domestic shares of stock earned within the Philippines
iii. Personal Property earned in the place where property is sold
g. Mining where mining is located
h. Farming where land is located
i. Merchandising earned where property is sold
j. Manufacturing earned where goods are manufactured
WHO SHALL FILE INCOME TAX RETURNS?
a. Individuals deriving compensation from 2 or more employees concurrently or successively at
any time during the taxable year
b. Employees deriving compensation income, regardless of amount, whether from single or
several employees during the calendar year, the income tax of which has not been withheld
correctly
c. Individuals deriving other non-business non-profession related income in additional to
compensation income not otherwise subject to final tax.
d. Individuals receiving purely compensation income from a single employer, although income
tax of which has been correctly withheld but whose spouse is required to file income tax
return
e. Non-resident alien engaged in trade or business in the Philippines deriving purely
compensation income and other non-business, non-profession related income.

NOT REQUIRED TO FILE INDIVIDUAL RETURNS

a. An individual whose gross income does not exceed his total personal and additional
exemptions for dependents
b. Individual taxpayers receiving purely compensation income, regardless of amount, from only
one employer in the Philippines for the calendar year, the income tax of which has been
withheld correctly by the said employer
c. An individual whose sole income has been subjected to final withholding tax
d. An individual who is exempt from income tax pursuant to the provisions of the Tax Code and
other laws, general or special.

WHERE TO FILE INCOME TAX RETURNS

a. Authorized agent banks
b. Revenue Distinct Officer
c. Collection agent
d. Duly authorized city or municipal treasurer in which taxpayer has his legal residence or
principal place of business in Philippines or if there be no legal residence or place of
business in Philippines, with office of the Commissioner of Internal Revenue.