BASIC CONCEPTS

OF
TAXATION
 RATIONALE OF TAXATION

- Cost of maintaining a civilized society

- Symbiotic relationship
 PRIMARY PURPOSE

RAISE REVENUE TO DEFRAY THE NECESSARY

EXPENSES OF THE GOVERNMENT.
 SECONDARY PURPOSES

Assignment:
✓To redistribute wealth
Can taxation be used to control
inflation?
✓To attract more employment

✓To complement the police

power
 THREE INHERENT POWERS OF THE STATE

✓ POLICE POWER
✓ POWER OF EMINENT DOMAIN
✓ POWER OF TAXATION
 TAXING POWER OF LGU IS NOT INHERENT

“Each local government unit shall have the power to

create its own sources of revenues and to levy taxes,
fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local
governments.” [Sec. 5, Art. X of the 1987 Constitution]
 BRANCHES OF THE GOVERNMENT

Q: What is the
significance of these
✓ LEGISLATIVE branches in taxation
✓ EXECUTIVE topic?
✓ JUDICIAL
 CREATION OF TAX BILLS

“All appropriation, revenue or tariff bills, bills

authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in
the House of Representatives, but the Senate may propose
or concur with amendments.” [Art. VI, Sec. 24, 1987 Constitution]
 CONSOLIDATION OF BILLS?

“The contention of petitioners is that in enacting

Republic Act No. 7716, or the Expanded Value-Added
Tax Law, Congress violated the Constitution because,
although H. No. 11197 had originated in the House of
Representatives, it was not passed by the Senate but
was simply consolidated with the Senate version (S. No.
1630) in the Conference Committee to produce the bill
which the President signed into law.” [Tolentino v. Secretary of Finance,
G.R. No. 115455, 25 August 1994]
 POSSIBLE EXTENT OF AMENDMENT

“To begin with, it is not the law — but the revenue

bill — which is required by the Constitution to
"originate exclusively" in the House of
Representatives. It is important to emphasize this,
because a bill originating in the House may undergo
such extensive changes in the Senate that the result
may be a rewriting of the whole.” [Tolentino v. Secretary of Finance, G.R.
No. 115455, 25 August 1994]
 APPLICATION OF TAX LAWS

General rule: Prospectively applied

Exception: Retroactive effect is expressly declared

 INTERPRETING TAX LAWS

“The power to interpret the provisions of this

Code and other tax laws shall be under the
exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary
of Finance.” [Sec. 4, NIRC]
PROMULGATING RULES AND REGULATIONS

“The Secretary of Finance, upon

recommendation of the Commissioner, shall
promulgate all needful rules and regulations for
the effective enforcement of the provisions of this
Code.” [Sec. 244 NIRC]
SAMPLE REVENUE REGULATION
TAX ISSUE ON PROPRIETARY EDUCATIONAL INSTITUTIONS

“Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of
ten percent (10%) on their taxable income except those covered by Subsection (D)
hereof: Provided, That beginning July 1, 2020 until June 30, 2023, the tax rate herein
imposed shall be one percent (1%): Provided, further, That if the gross income from
'unrelated trade, business or other activity' exceeds fifty percent (50%) of the total gross
income derived by such educational institutions or hospitals from all sources, the tax
prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For
purposes of this Subsection, the term 'unrelated trade, business or other activity' means
any trade, business or other activity, the conduct of which is not substantially related to the
exercise or performance by such educational institution or hospital of its primary purpose
or function. 'Proprietary' means a private hospital, or any private school maintained and
administered by private individuals or groups with an issued permit to operate from the
Department of Education (DepEd), or the Commission on Higher Education (CHED), or the
Technical Education and Skills Development Authority (TESDA), as the case may be, in
accordance with existing laws and regulations.” [Sec. 27 (B), NIRC]
REVENUE REGULATION 5 - 2021
REVENUE REGULATION 14 - 2021
 PROMULGATING RULES AND REGULATIONS: LIMITATION

“BIR Commissioner is empowered to interpret

our tax laws but not expand or alter them.” [IN THE MATTER OF
DECLARATORY RELIEF ON THE VALIDITY OF BIR REVENUE MEMORANDUM CIRCULAR NO. 65-2012 "CLARIFYING THE TAXABILITY OF
ASSOCIATION DUES, MEMBERSHIP FEES AND OTHER ASSESSMENTS/CHARGES COLLECTED BY CONDOMINIUM CORPORATIONS“; G.R.
No. 215801, 15 January 2020]
 LIMITATIONS
ON THE
POWER OF TAXATION
 INHERENT LIMITATIONS

1. Public purpose
2. Territoriality
3. Exemption of the government
4. International comity [RMO 10 – 2019]
5. Non-delegation of power to impose tax
 CONSTITUTIONAL LIMITATIONS

What are the other

constitutional limitations
1. Due process clause on the power of
taxation?
2. Uniformity clause
3. Progressive system
 CONSTITUTIONAL LIMITATIONS – DUE PROCESS

“The rationale behind the requirement that taxpayers should be

informed of the facts and the law on which the assessments are based
conforms with the constitutional mandate that no person shall be deprived
of his or her property without due process of law. Between the power of the
State to tax and an individual's right to due process, the scale favors the
right of the taxpayer to due process.” [CIR v. Fitness By Design, Inc, G.R. No. 215957, 9
November 2016]
CONSTITUTIONAL LIMITATIONS - UNIFORMITY

“Uniformity of taxation, like the kindred concept of

equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated
alike both in privileges and liabilities.” [British American Tobacco v.
Camacho, G.R. No. 163583, 15 April 2009]
 CONSTITUTIONAL LIMITATIONS – PROGRESSIVE SYSTEM

“The rule of taxation shall be uniform

and equitable. The Congress shall evolve
a progressive system of taxation.” [Art. VI, Sec. 28(1),
1987 Constitution]
INCOME TAX RATES TABLE
Recall
TAXATION

✓ Process
✓ Legislative body
✓ Raise revenue
✓ To defray necessary expenses (public purpose)
 PUBLIC PURPOSE

“Government funds or property shall be

spent or used solely for public purposes.” [Sec. 4
(2), PD 1445, Government Auditing Code of the Philippines.]
PUBLIC PURPOSE (view that fits modern standard)

Not
✓ Essential government functions unconstitutional
even if it only
benefits a limited
number of
✓ Purposes designed to promote persons.

social justice.
- relocation of illegal settlers
- providing low cost housing
TAXPAYERS’ SUIT
 TAXPAYERS’ SUIT - REQUISITES

✓ There must be illegal

disbursement of Give example of a
situation where you
public funds. can file a taxpayer’s
suit?

✓ Petitioner is directly
affected by the
alleged act.
ESSENTIAL ELEMENTS OF TAX
RECALL
LIFE BLOOD DOCTRINE

“The power to tax is an attribute of sovereignty. It is a power

emanating from necessity. It is a necessary burden to
preserve the state's sovereignty and a means to give the
citizenry an army to resist an aggression, a navy to defend its
shores from invasion, a corps of civil servants to serve, public
improvement designed for the enjoyment of the citizenry and
those which come within the state's territory, and facilities and
protection which a government is supposed to provide.” [The Phil.
Guaranty Co., Inc. v. CIR, et al., G.R. No. L-22074, 30 April 1965]
 ESSENTIAL ELEMENTS OF TAX

✓ Enforced contribution
✓ Proportionate in character
✓ Generally payable in money
✓ Levied by legislative body
✓ Levied upon person, property, right/privilege
✓ For public purpose.
DOUBLE TAXATION
 DIRECT DOUBLE TAXATION

Two taxes:

✓Imposed on same subject matter

✓For the same purpose
✓By the same taxing authority
✓Within the same jurisdiction
✓During the same taxing period
✓Of the same kind/character
MITIGATING THE IMPACT OF INDIRECT DOUBLE TAXATION

✓ Foreign tax credit

✓ Tax exemption expressly provided
✓ Tax treaty
✓ Reciprocal tax treatment
 COMPENSATION
---
OFF-SETTING OF TAXES
 COMPENSATION NOT ALLOWED

✓ Government and taxpayers are not creditors and debtors of

each other.

✓ Debts are due from the government in its corporate capacity.

✓ taxes are due to the government in its sovereign capacity.

PRINCIPLES OF SOUND
TAX SYSTEM
 PRINCIPLES OF SOUND TAX SYSTEM

✓ Fiscal Adequacy (tax revenue v. expenditure)

✓ Administrative feasibility (effective enforcement)

✓ Theoretical justice (ability to pay)

STAGES OF TAXATION
 STAGES OF TAXATION

✓ Levy / imposition
✓ Assessment (self assessment)
✓ Payment (pay as you file)
- Assessment and collection
- Refund
SITUS OF TAXATION
 SITUS OF TAXATION

- Place where the tax should be paid.

- Jurisdiction of taxing authority.
 SITUS OF TAXATION - EXAMPLE

“Under the Local Government

Code (LGC), local business taxes are payable for
every separate or distinct establishment or place
where business subject to the tax is conducted,
which must be paid by the person conducting the
same.” [Municipality of Cainta v. City of Pasig, G.R. No. 176703, 28 June 2017]
 SITUS OF TAXATION - EXAMPLE

“Situs of the Tax. - (a) For purposes of collection of the taxes under Section 143
of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and
compounders of liquor, distilled spirits and wines, millers, producers, exporters,
wholesalers, distributors, dealers, contractors, banks and other financial institutions,
and other businesses, maintaining or operating branch or sales outlet
elsewhere shall record the sale in the branch or sales outlet making the sale or
transaction, and the tax thereon shall accrue and shall be paid to the
municipality where such branch or sales outlet is located. In cases where there is
no such branch or sales outlet in the city or municipality where the sale or
transaction is made, the sale shall be duly recorded in the principal office and the
taxes due shall accrue and shall be paid to such city or municipality.”
[Sec. 150, Local Government Code]
 SITUS OF TAXATION - EXAMPLE

- Different RDO
 IMPORTANCE OF SITUS

“(A) There shall be imposed, in addition to the tax required to be

paid, a penalty equivalent to twenty-five percent (25%) of the amount
due, in the following cases:

(1) Failure to file any return and pay the tax due thereon as
required under the provisions of this Code or rules and regulations
on the date prescribed; or

(2) Unless otherwise authorized by the Commissioner, filing a

return with an internal revenue officer other than those with whom
the return is required to be filed; or xxx” [Sec. 248, NIRC]
TAX EVASION v. TAX AVOIDANCE
 TAX AVOIDANCE

- Tax minimization
- Legal means of reducing (or totally) avoiding tax.
 TAX AVOIDANCE - example

“The tax for each calendar

Assuming Ranny
year shall be six percent (6%)
would want to
computed on the basis of the donate P500,000 to
total gifts in excess of Two Ryan. Is there a
hundred fifty thousand pesos way to avoid
(P250,000) exempt gift made paying tax?
during the calendar year.” [Sec. 99,
NIRC]
 TAX EVASION

“Any person who willfully attempts in any manner to evade

or defeat any tax imposed under this Code or the payment
thereof shall, in addition to other penalties provided by law,
upon conviction thereof, be punished by a fine not less
than Five hundred thousand pesos (P500,000) but not more
than Ten million pesos (P10,000,000) and suffer
imprisonment of not less than six (6) years but not more
than Ten (10) years: Provided, That the conviction or acquittal
obtained under this Section shall not be a bar to the filing of a
civil suit for the collection of taxes.” [Sec. 254, NIRC]
 SUBSIDIARY PENALTY

“If the person convicted for violation of any of the

provisions of this Code has no property with which
to meet the fine imposed upon him by the court, or
is unable to pay such fine, he shall be subject to a
subsidiary personal liability at the rate of one (1)
day for each Eight pesos and fifty centavos (P8.50)
subject to the rules established in Article 39 of the
Revised Penal Code.” [Sec. 280, NIRC]
 AMENDMENT OF ARTICLE 39, RPC

"Art. 39. Subsidiary Penalty. – If the convict has no

property with which to meet the fine mentioned in
paragraph 3 of the next preceding article, he shall be
subject to a subsidiary personal liability at the rate of one
day for each amount equivalent to the highest minimum
wage rate prevailing in the Philippines at the time of the
rendition of judgment of conviction by the trial court,
subject to the following rules:” [Sec. 1, R.A. 10159]
Lesson: AVOID tax evasion.
INFORMER’S REWARD
 INFORMER’S REWARD

“Any person, except an Internal Revenue official or employee, or other public official
or employee, or his relative within the sixth degree of consanguinity, who voluntarily gives
definite and sworn information, not yet in the possession of the Bureau of Internal
Revenue, leading to the discovery of frauds upon the internal revenue laws or
violations of any of the provisions thereof, thereby resulting in the recovery of
revenues, surcharges and fees and/or the conviction of the guilty party and/or the
imposition of any of the fine or penalty, shall be rewarded in a sum equivalent to
ten percent (10%) of the revenues, surcharges or fees recovered and/or fine or
penalty imposed and collected or One Million Pesos (P1,000,000) per case,
whichever is lower. The same amount of reward shall also be given to an informer
where the offender has offered to compromise the violation of law committed by
him and his offer has been accepted by the Commissioner and collected from the
offender: xxx” [Sec. 282, NIRC]
 RULES ON
CONSTRUCTION
 GENERAL INTERPRETATION OF TAX LAWS

“Tax laws should be interpreted liberally in

favor of the taxpayer and strictly against the
Government, except in the matter of tax
exemptions.” [CIR v. Suyoc Consolidated Mining Company, G.R. No. L-
11527, 25 November 1958]
 STRICTISSIMI JURIS – TAX EXEMPTION

“Exemptions from FIND OUT WHAT IS THE

taxation are construed in OBJECTIVE OF
H.B. 9990

strictissimi juris against the

taxpayer and liberally in
favor of the taxing
authority.” [H. Tambunting Pawnshop, Inc. v. CIR,
G.R. No. 173373, 29 July 2013]
 STRICTISSIMI JURIS – TAX AMNESTY

“A tax amnesty, much like a tax exemption,

is never favored nor presumed in law. The
grant of a tax amnesty is akin to a tax
exemption; thus, it must be construed strictly
against the taxpayer and liberally in favor of
the taxing authority.” [ CIR v. Transfield Philippines Inc., G.R. No. 211449, 16
January 2019]
 ASSIGNMENT

1. Constitutional limitations on the power of taxation.

2. Create a mind map of the tax rules on minimum wage

earners. [Be ready to show and explain your mind map
next meeting]
THANK YOU!