Chapter 1: Introduction to Taxation 1.

Due process of law

2. Equal protection of law
Taxation
3. Uniformity rule in taxation
 State power 4. Progressive system of taxation
 A process 5. Non-imprisonment for non-payment of debt of
 Mode of cost distribution poll tax (basic and additional community tax)
6. Non-impairment of obligation and contract
Theory of Taxation 7. Free worship rule
 Government’s necessity for funding 8. Exemption of religious entities from property
taxes
Basis of Taxation 9. Non-appropriation of public funds to any
 Government provides benefits (public service) religious systems
and people provide funds 10. Exemption of taxes on the revenues of non-
 The mutuality of support between the people stock educational institutions
and government 11. Concurrence of a majority of all members of
Congress for the passage of a law granting tax
Theories of Cost Allocation exemption
12. Non-diversification of tax collections
1. Benefit Received Theory (Gross Concept)
13. Non-delegation power of taxation
a. more benefits = more/higher tax
14. Non-impairment of the jurisdiction of the
2. Ability to Pay Theory (Net Concept)
Supreme Court to review tax cases (Supreme
a. consider the taxpayer’s ability to pay
Court > Court of Tax Appeals)
b. Vertical Equity (ability to pay = level of
15. The requirement that appropriations, revenue,
tax base)
or tariff bills shall originate exclusively in the
c. Horizontal Equity (higher expenses =
House of Representatives (Senate
less tax)
amendments only)
Lifeblood Doctrine 16. The delegation of taxing power to LGU

Taxes are essential and indispensable to the Territoriality

continued subsistence of the government. Without
The government can only tax income or activities
taxes, the government would be paralyzed for lack of
within its border (geographic area).
motive power to activate or operate it. (CIR vs Algue)
Exception:

1. (Income Taxation) resident citizens and

Inherent Powers of the State
domestic corporations
1. Taxation power 2. (Transfer Taxation) residents or citizens, non-
a. Enforce proportional contribution to resident citizens, and resident aliens
sustain itself
2. Police power
a. Enacts law to protect the well-being of Exceptions to the rule of non-delegation
the people
3. Eminent Domain 1. LGU to exercise fiscal autonomy
a. Take private property, private use, just 2. Tariff and Customs Code, the President can
compensation change the amount
3. Other cases
Scope of Taxation Power
Aspects of Due Process
 Comprehensive, plenary, unlimited and
supreme 1. Substantive due process (must not pass
unreasonable laws)
The Limitations of the Taxation Power 2. Procedural law process (right to notice and
hearing)
A. Inherent Limitations
Stages of Exercise of Taxation
1. Territoriality of taxation
2. International comity 1. Levying or Imposition
3. Public purpose a. Impact of taxation (legislative)
4. Exemption of the government 2. Assessment and Collection
5. Non-delegation of taxing power a. Incidence of Taxation (administrative
act of taxation)

Situs (Place) of Taxation

B. Constitutional Limitations
  Business tax Chapter 2: Taxes, Tax Laws, and Tax
 Income tax situs on services Administration
 Income tax situs of sale of goods
Taxation Law
 Property tax situs
- Any law that arises from the exercise of
 Personal tax situs
taxation power
Other Fundamental Doctrines Tax Laws – laws that provide for the assessment
and collection of data (4)
1. Marshall
Tax Exemption Laws – laws that grant certain
2. Holme’s
immunity from taxation (4)
3. Prospectivity of Tax Laws
Sources of Taxation Laws
4. Non-compensation or set-off
1. Constitution
5. Non-assignment of taxes
2. Statutes and Presidential Decrees
6. Imprescriptibility in taxes
3. Judicial Decisions or case laws
7. Doctrine of Estoppel
4. Executive Orders and Batas Pambansa
8. Judicial Non-interference
5. Administrative Issuances
9. Strict Construction of Tax Laws
6. Local Ordinances
a. Vague
7. Tax Treaties and Convention with foreign
b. Vague exemption
countries
Double Taxation 8. Revenue Regulations
Types of Administrative Issuances
- Taxed twice by the same tax jurisdiction and 1. Revenue regulations
the same thing 2. Revenue Memorandum Orders
o Direct Double (prohibited) 3. Memorandum Rulings
o Indirect double (legal) 4. Memorandum Circulars
Elements: 5. Bulletins
Primary (same object) 6. BIR Rulings
Secondary (same type, purpose, taxing jurisdiction,
period, taxing authority)
Types of Rulings
1. VAT
2. International Tax Affairs Divisions (ITAD)
Escapes from taxation
3. BIR Rulings
A. Loss of government revenue 4. Delegated Authority (DA)

1. Tax evasion (dodging)

GAAP vs. Tax Laws
2. Tax avoidance (minimization)
a. Standard tax deduction
Nature of Philippine Tax Laws
b. Optional tax deduction (40%)
- Laws of the occupied territory and not by the
3. Tax exemption (holiday)
occupying enemy
B. No loss - Not penal in nature because they do not define
crime
1. Shifting – transferring burden to others - Penalty to secure compliance
a. Forward (VAT)
b. Backward (Supplier contracts) Tax – enforced proportional contribution (lawmaking,
c. Onward (Utility costs, higher unit price, revenue, public purpose)
service fees)
2. Capitalization Elements of a Valid Tax (6)
3. Transformation
a. Tax amnesty Classification of Taxes
b. Tax condonation A. As to purpose
B. As to subject matter
C. As to incidence
D. As to amount
E. As to rate
F. As to imposing authority

Types of Tax Systems According to Imposition

 1. Progressive – income of individual and local 10. Compromise tax liabilities
businesses 11. Tio inquire into bank deposits
2. Proportional – corporate income and business 12. To accredit and register tax agents
3. Regressive – not employed in the Philippines 13. To refund or credit internal revenue taxes
Types of Tax System According to Impact 14. To abate or cancel tax liabilities in certain
1. Progressive (Direct) cases
2. Regressive (indirect) 15. To prescribe additional procedures or
Tax Collection Systems documentary requirements
A. Withholding System on Income Tax 16. Delegate his power to subordinates
a. Creditable
b. Final
Non-delegated power of the CIR
B. Withholding System on Business Tax
C. Voluntary Compliance System (Self- 1. The power to recommend the promulgation of
assessment method) rules and regulations to the Secretary of
D. Assessment or Enforcement System Finance
2. The power to issue rulings of first impression or
Principles of a Sound Tax System reverse existing rulings
1. Fiscal Adequacy 3. The power to compromise or abate any tax
2. Theoretical Justice liability
3. Administrative Feasibility 4. The power to assign or reassign internal
revenue officers

Tax Administration – BIR (Department of Finance)

Rules in assignments of revenue officers to other
Chief Officials of BIR (5) duties
1. One Commissioner 1. Excisable articles are kept (stay for more than
2 years)
2. Four Deputy Commissioners:
2. Perform assessment and collection function
 Operations Group (not remain in the same assignment for more
 Legal Enforcement than 3 years)
 Information Systems 3. Special duties (not exceed 1 year)
 Resource Management

Agents and Deputies for Collect of National

Powers of the BIR
Internal Revenue Taxes
1. Assessment and collection of taxes
1. Commissioner of Customs and subordinates
2. Enforcement
(imported goods)
3. Giving effect and administering
2. Head of appropriate government offices and
4. Assignment of officers
subordinates (energy tax)
5. Provision and distribution of forms
3. Authorized Government Depository Banks
6. Issuance and receipts of clearances
(AGDB).
7. Submission of annual report

Powers of the CIR

1. Interpret provisions (subject to review by the

sec of finance)
2. Decide tax cases
3. Obtain information
4. Make an assessment and additional
requirement
5. Examine tax returns and determine tax due
6. Conduct inventory-taking or surveillance
7. Prescribe presumptive gross sales and
receipts for a taxpayer
8. Determine the tax period
9. Prescribe real property values

Chapter 3: Introduction to Income Taxation

Income is the best measure of taxpayers’ ability to pay General Classification Rule for Individuals
tax. 1. Intention
2. Length of Stay
Tax concept = gross income
Taxable item of income = item of gross income
Other corporate taxpayers
Taxable income = gross income
1. One-person corporations
Gross income – inflow of wealth from whatever source 2. Partnership
that increases net worth a. General Professional Partnership
b. Business Partnership
Elements of Gross Income 3. Joint Venture
1. Return on capital that increases net worth a. Exempt
2. Realized benefit b. Taxable
3. Not exempted by law, contract, or treaty 4. Co-ownership

Other Income Situs Rules

Capital Item deemed with Infinite Value (return of
A. Gain on sale of property
capital)
a. Personal property
i. Domestic securities
Recovery of Lost Capital (maintains net worth)
ii. Other personal properties
Recovery of Lost Profits (return on capital)
b. Real property
B. Dividend income from:
Realized Benefit (increase in net worth)
a. Domestic corporation
b. Foreign corporation
Types of Transfers
C. Merchandising Income
1. Bilateral transfers or exchange (onerous)
D. Manufacturing Income
a. Barter
b. Sale
2. Unilateral transfers (gratuitous transactions)
a. Succession
b. Donation
3. Complex transactions (transfers for less than
full and adequate consideration)
Mode of Receipt
1. Actual receipt
2. Construction receipt

Types of Income Taxpayers

A. Individuals
a. Citizen
i. Resident citizen
ii. Non-resident citizen
b. Alien
i. Resident alien
ii. Non-resident alien
1. Engaged in trade or
business
2. Not engaged in trade or
business
c. Taxable estates and trusts

B. Corporations
a. Domestic
b. Foreign
i. Resident foreign
ii. Non-resident foreign

Special Corporations – special tax rules or Chapter 4: Income Tax Schemes, Accounting
preferential rates Periods, Accounting Methods and Reporting
Income Taxation Schemes:

A. Final income
B. Capital gains
C. Regular income

Classification of items of Gross Income

1. GI subject to final tax

2. GI subject to capital gains tax
3. GI subject to regular tax

Final Income Taxation

- Full taxes are withheld by the income payor at
source
Capital Gains Taxation
- Gains realized on sale, exchange, and
disposition of certain capital assets
- Capital assets are not used in business
(opposite of ordinary assets)
Regular Income Taxation
- General rule in income taxation
o Active income
o Other income
 Gains from dealings in
properties, not subject to capital
gains and tax
 Other passive income not
subject to final tax

Types of Accounting Methods

1. The general methods
a. Accrual basis
b. Cash basis
2. Installment and deferred payment
3. Percentage of completion (estimated gross
income from construction is reported based on
the percentage of completion)
4. Outright and spread-out
5. Crop year (difference between the proceeds of
harvest and expenses of the particular crop
harvested).

Tax Reporting

Types of Tax Returns to the Government

1. ITR
2. Withholding Tax Returns
3. Information Returns

Mode of Filing ITR

1. Manual Filing System

2. E-BIR forms
3. Electronic Filing and Payment System (eFPS)

Payment of Income Taxes – Pay as you file

Penalties for late filing or payment of tax

1. Surcharge
2. Interest
3. Compromise penalty