2019-2018

TAXATION 1 – Dumaual, Jeanne Pauline J.

FIRST MEETING – GENERAL PRINCIPLES, are living at the time of the transfer. It is
LIMITATIONS based on a graduated schedule of tax rate.

Questions: 4. Estate Tax – is tax on the right of the

- What are the kinds of taxes (NATIONAL)? deceased person to transmit his/her estate to
his/her lawful heirs and the beneficiaries at
A: the time of death and on certain transfers
which are made by law as equivalent to
1. Capital Gains Tax – tax imposed on the gains testamentary disposition. Estate tax is also
presumed to have been realized by the seller based on a graduated schedule of tax rate.
from the sale, exchange, or other disposition
of capital assets located in the Philippines, 5. Income Tax – is tax on all yearly profits
including pacto de retro sales and other forms arising from property, profession, trades or
of conditional sales. offices or as a tax on a person’s income,
emoluments, profits, and the like. Self-
2. Documentary Stamp Tax – is tax on employed individuals and corporate
documents, instruments, loan agreements, taxpayers pay quarterly income taxes from 1st
and papers evidencing the acceptance, quarter to 3rd quarter. Instead of filing
assignment, sale or transfer of an obligation, quarterly income tax on the fourth quarter,
rights, or property incident thereto. (EX: tax the file and pay their annual income tax
charged on promissory notes, deed of sale, return for the taxable year. Individual income
and deed of assignment on transfer of shares tax is based on graduated1 schedule of tax
or corporate stock ownership) rate, while corporate income tax is based on a
fixed rate prescribed by the tax law or a
3. Donor’s Tax – tax on a donation or gift, and is special law.
imposed on the gratuitous transfer of
property between two or more persons who
1
Arranged in series or according to a scale

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TAXATION 1 – Dumaual, Jeanne Pauline J.
6. Percentage Tax – is business tax imposed on
persons or entities that sell or lease goods, 9. Withholding Tax – tax withheld from
properties or services in the course of trade individuals receiving purely compensation
or business, whose gross annual sales or income. This tax is what employers withhold
receipts do not exceed the amount required to in their employees’ compensation income and
register as VAT-registered taxpayers. remit to the government through the BIR or
Percentage taxes are usually based on a fixed authorized accrediting agent.
rate. They are usually paid monthly by
businesses or professionals. However, some
special industries and transactions pay - How many agencies are tasked to collect taxes?
percentage tax on a quarterly basis.
A: Three (3): BIR, Customs, LGU’s
7. Value Added Tax – is business tax imposed
and collected from the seller in the course of - Distinguish among the three (3) powers of the
trade or business on every sale of properties state.
(real or personal) lease of goods or properties
(real or personal) or vendors of services. It is A:
an indirect tax, thus can be passed on to the
1. As to authority who exercises the power:
buyer causing this to increase the prices of
a. Taxation – government or its political
most goods and services brought and paid by
subdivision
consumers. VAT returns are usually filed and
b. Police Power – government or its political
paid monthly and quarterly.
subdivision
c. Eminent Domain – government or public
8. Excise Tax – tax imposed on goods
service companies and public utilities
manufactured or produced in the Philippines
2. As to purpose:
for domestic sale or consumption or any
a. Taxation – to raise revenue in support of the
other disposition. It is also imposed on things
government; regulation is merely incidental
that are imported.

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 2019-2018
TAXATION 1 – Dumaual, Jeanne Pauline J.
b. Police Power – promotion of general welfare c. Eminent Domain – Person receives fair
through regulations market value of the property taken from
c. Eminent Domain – to facilitate the taking of him/her, thus, direct benefit results
private property for public purpose 6. As to non-impairment of contracts:
3. As to persons affected: a. Taxation – Generally do not impair contract,
a. Taxation – Community or class of individuals unless the government is party to the
b. Police Power – Community or class of contract granting exemption for a
individuals consideration
c. Eminent Domain – On an individual as the b. Police Power – Contracts may be impaired
owner of a particular property c. Eminent Domain – Contracts may be
4. As to amount of monetary imposition: impaired
a. Taxation – No ceiling except inherent 7. As to test of validity:
limitations a. Taxation – must not be contrary to inherent
b. Police Power – Limited to the cost of and constitutional limitations
regulation, issuance of license or surveillance b. Police Power – must comply with the tests on
c. Eminent Domain – No imposition, the owner “lawful subjects” and “lawful means”
is paid the fair market value2 of his property c. Eminent Domain – must be for public
5. As to benefits received: purpose and with payment of just
a. Taxation – Protection of a secured organized compensation
society, benefits received from - What is TAXATION?
government/no direct benefit
b. Police Power – Maintenance of healthy A:
economic standard of society/no direct
benefit Is the power by which the sovereign, through its
law-making body, raises revenue to defray the
necessary expenses of the government. It is merely
2
A selling price for an item to which a buyer and seller can agree; the price for a way of apportioning the costs of government
which you could sell your property to a willing buyer, when neither of you has to among those who, in some measure, are privileged
sell or buy and both of you know all the relevant facts

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TAXATION 1 – Dumaual, Jeanne Pauline J.
to enjoy its benefits and must bear its burdens. 4. Non-profit business league, chamber of
(Aban, 2001) commerce or board of trade
5. Cemetery company-owned and operated
It is a mode by which governments make exactions exclusively for the benefit of its members
for revenue in order to support their existence and 6. Mutual savings bank and cooperative banks
carry out their legitimate objectives. Taxation may without capital stock and shares organized and
refer to either or both the power to tax or the act or operated for mutual purposes without profit,
process by which the power is exercised. (Vitug, and development banks
2006) 7. General professional partnership formed by
persons for the sole purpose of exercising their
- What are taxes? common profession; no part of the income is
derived from engaging in any trade or business
A: Are enforced proportional contributions from 8. A minimum wage earner or an individual
persons and property, levied by the state by virtue pursuant to the provisions of the National
of its sovereignty for the support of the government Internal Revenue Code Section 51 (2)
and for all its public needs. (Cooley) 9. A Non-resident citizen of the Philippines:
a. who establishes to the satisfaction of
- Who are exempted from INCOME TAX? the Commissioner the fact of his
physical presence abroad with a
A: definite intention to reside therein
b. who leaves the Philippines during the
1. Non-stock and non-profit educational institution taxable year to reside abroad, either as
and government educational institution an immigrant or for employment on a
2. Non-stock corporation and organization operated permanent basis
exclusively for religious, charitable, scientific, c. who works and derives income from
athletic or cultural purposes abroad and whose employment thereat
3. Non-profit civic league or organization requires him to be physically present

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 2019-2018
TAXATION 1 – Dumaual, Jeanne Pauline J.
abroad most of the time during the e. Exemption of pioneer and registered
taxable year enterprises under the Investment
d. who has been previously considered as Incentives Act (RA No. 5186)
a non-resident citizen and who arrives
in the Philippines at any time during - When is tax imposable? During the payment or
the year to reside permanently in the the perfection of the contract?
Philippines will likewise be treated as a
non-resident citizen during the taxable A: (Atty. Agnes Santos)
year in which he arrives in the Income Tax – Whether payable or not, as long as
Philippines, with respect to his income there is a contract, it is imposable
derived from sources abroad until the VAT – Payable irrespective of payment
date of his arrival in the Philippines.
10. Income from bonds and securities for sale in - Who imposes the power to tax?
the international market
11. Prizes and winnings from a charity horse race A: The legislative department, (Atty. Agnes Santos)
sweepstakes from the Philippine Charity EXCEPT where the Constitution provides otherwise
Sweepstakes Office (Art. VI, Sec. 28 [2]; Art. X, Sec. 5)
12. SSS and GSIS Benefits
13. Benefits received from the US government - Do we need a law to impose tax?
through the US Veterans Administration
14. Annual taxable income of Senior Citizens or A:
those at least 60 years old who have income of
not more than P60,000 per year, subject to No as it is an inherent power of the state, but it is the
review by NEDA power of Congress to limit the power of the
15. Exemption for a limited period of new and government to tax; to identify the extent of the taxing
necessary industries (RA No. 901) power of the government through legislation

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TAXATION 1 – Dumaual, Jeanne Pauline J.
The power of taxation is an incident of sovereignty priest, religious minister, etc., Grant of tax
as it is inherent in the state, belonging as a matter exemptions, Grant of power of taxation to local
of right to every independent government. It does government units, Money collected for a special
not need of constitutional conferment. purpose shall be considered a special fund,
Constitutional provisions do not give rise to the Exclusive appellate jurisdiction of the Supreme
power to tax but merely impose limitations on what Court over judgments of lower courts involving the
would otherwise be an invincible power. legality of taxes, imports, assessment, fees, penalty

- What are the limitations of taxation? - What is PUBLIC PURPOSE?

A: Inherent Limitations and Constitutional A: There is no exact definition of public purpose.

Limitations The proceeds of tax must be used for (a) the
support of the state or (b) for some recognized
Inherent Limitations: Public Purpose, International objective of the government or to directly promote
Comity, Territoriality, Non-delegation of the power the welfare of the community
to tax, and various tax exemptions
Constitutional Limitations: Due process of law, Tax is considered for public purpose if:
Equal protection of laws, Uniformity, Progressive 1. It is for the welfare of the nation and/or
system of taxation, Non-impairment of contracts, for greater portion of the population;
Non-imprisonment for non-payment of poll tax, 2. It affects the area as a community
Appropriation, revenue, and tariff bills must rather than as individuals;
originate exclusively in the HoR, Presidential veto, 3. It is designed to support the services of
Presidential power to fix tariff rates, Freedom of the the government for some of its recognized
press, Freedom of religion, Exemption from objects.
property tax of properties of religious, educational,
charitable institutions, Tax exemptions granted to - What do you call the individuals of taxpayers?
non-stock, non-profit educational institutions, No
public money or property used for a particular sect,

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TAXATION 1 – Dumaual, Jeanne Pauline J.
A: Non-resident alien, non-resident foreign  An alien individual, whether a resident or not of the
corporation, non-resident citizen, resident citizen, Philippines, is taxable only on income derived from
domestic corporation, resident alien, resident sources within the Philippines;
foreign corporation
 A domestic corporation is taxable on all income
- When do you tax these individuals? derived from sources within and without the
Philippines; and
A:
 A foreign corporation, whether engaged or not in
 A citizen of the Philippines residing therein is trade or business in the Philippines, is taxable only
taxable on all income derived from sources within on income derived from sources within the
and without the Philippines; Philippines.

 A nonresident citizen is taxable only on income

derived from sources within the Philippines; - Is VAT progressive tax?

 An individual citizen of the Philippines who is A: No.

working and deriving income from abroad as an
overseas contract worker is taxable only on income - What is theoretical justice?
derived from sources within the Philippines:
Provided, That a seaman who is a citizen of the A: A sound tax system must take into consideration
Philippines and who receives compensation for the taxpayers’ ability to pay. Our laws mandate that
services rendered abroad as a member of the taxes must be reasonable, just, fair, and
complement of a vessel engaged exclusively in conscionable. Under Article VI, Section 28 (1) of the
international trade shall be treated as an overseas Constitution, the rule of taxation must be uniform
contract worker; and equitable. The state must evolve a progressive
system of taxation. Taxation is said to be equitable
when its burden falls on those better able to pay;

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TAXATION 1 – Dumaual, Jeanne Pauline J.
taxation is progressive when its rate goes up XPN: When the tax due is in excess of P2,000, the
depending on the resources of the person affected. taxpayer other than a corporation may elect to pay
the tax in 2 equal installments in which case, the
- What are the stages of taxation? first installment shall be paid at the time the return
is filed and the second installment, on or before
A: July 15 following the close of the calendar year
(Sec. 56[A][2], NIRC).
1. Levy or imposition (tax legislation) – This refers
to the enactment of a law by Congress authorizing NOTE: If any installment is not paid on or before
the imposition of tax. It further contemplates the the date fixed for its payment, the whole amount of
determination of the subject of taxation, purpose the tax unpaid becomes due and payable, together
for which the tax shall be levied, fixing the rate of with delinquency penalties.
taxation and the rules of taxation in general.
4. Refund – The recovery of any alleged to have
2. Assessment and collection (tax administration) been erroneously or illegally assessed or collected,
– This is the act of administration and or of any penalty claimed to have been collected
implementation of the tax law by executive through without authority, or of any sum alleged to have
its administrative agencies. The act of assessing been excessively, or in any manner wrongfully
and collecting taxes is administrative in character, collected.
and therefore can be delegated (J. Dimaampao,
2015,).

3. Payment – The act of compliance by the taxpayer,

including such options, schemes or remedies as
may be legally available.
GR: Tax shall be paid by the person subject thereto
at the time the return is filed (Sec. 56[A][1], NIRC).

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