TAXES, TAX LAWS,

AND TAX
ADMINISTRATION
TAXATION LAW
This refers to any law that arises from the exercise
of the taxation power of the state.

Types of Taxation Laws:

1. Tax Laws
2. Tax Exemption Laws
TYPES OF TAXATION LAWS
1. Tax Laws – these are laws that provide for the
assessment and collection of taxes.

Examples:
a. The National Internal Revenue Code (NIRC)
b. The Tariff and Customs Code
c. The Local Tax Code
d. The Real Property Tax Code
TYPES OF TAXATION LAWS
2. Tax Exemption Laws – these are laws that grant
certain immunity from taxation.

Examples:
a. The Minimum Wage Law
b. The Omnibus Investment Code of 1987 ( E.O 226)
c. Barangay Micro-Business Enterprise (BMBE) Law
d. Cooperative Development Act
SOURCES OF TAXATION LAWS
1. Constitution
2. Statutes and Presidential Decrees
3. Judicial Decisions 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
1. Revenue Regulations
Are issuances signed by the Secretary of Finance upon the
recommendation of the Commissioner of Internal Revenue (CIR) that
specify, prescribe, or define rules and regulations for the effective
enforcement of the provisions of the National Internal Revenue Code
(NIRC) and related statutes.
Formal pronouncements intended to clarify or explain the law
and carry into effect its general provisions by providing details of
administration and procedure.
Has the force and effect of a law, but is not intended to
expand or limit the application of the law; otherwise, it is void.
TYPES OF ADMINISTRATIVE ISSUANCES
2. Revenue Memorandum Orders (RMOs)

Issuances that provide directives instructions; prescribe

guidelines; and outline processes, operations, activities workflows,
methods, and procedures necessary in the implementation of stated
policies, goals, objectives, plans, and programs of the Bureau in all
areas of operation except auditing.
TYPES OF ADMINISTRATIVE ISSUANCES
3. Revenue Memorandum Rulings (RMRs)

Are rulings, opinions and interpretations of the CIR with

respect to the provisions of the Tax Code and other tax laws as
applied to specific set of facts, with or without established
precedents.
For the purpose of providing taxpayers guidance on the
tax consequences in specific situations.
BIR Rulings, therefore, cannot contravene duly issued
RMRs; otherwise, the Rulings are null and void ab initio.
TYPES OF ADMINISTRATIVE ISSUANCES
4. Revenue Memorandum Circulars (RMCs)

Are issuances that publish pertinent and applicable

portions as well as amplifications of laws, rules, regulations, and
precedents issued by the BIR and other agencies/offices.
TYPES OF ADMINISTRATIVE ISSUANCES
5. Revenue Bulletins (RB)

Refer to periodic issuances, notices, and official

announcements of the Commissioner of Internal Revenue that
consolidate the BIR’s position on certain specific issues of law or
administration in relation to the provisions of the Tax Code,
relevant tax laws, and other issuances for the guidance of the
public.
TYPES OF ADMINISTRATIVE ISSUANCES
6. BIR Rulings

Are official positions of the Bureau to queries raised by

taxpayers and other stakeholders relative to clarification and
interpretation of tax laws. Rulings are merely advisory or a sort of
information service to the taxpayer such that none of them is
binding except to the addressee and may be reversed by the BIR at
anytime.
TYPES OF RULINGS

1. Value Added Tax (VAT) Rulings

2. International Tax Affairs Division (ITAD) Rulings
3. BIR Rulings
4. Delegated Authority (DA) Rulings
 Generally Accepted Accounting Principles
(GAAP) vs. Tax Laws

GAAP TAX LAWS

1. GAAP are not laws, but are 1. Tax laws including rules,
mere conventions of financial regulations and rulings
reporting
2. Are benchmarks for the fair and 2. Prescribe the criteria for tax
relevant valuation and recognition reporting, a special form of
of income, expense, assets, reporting which is intended to
liabilities, and equity of a reporting meet specific needs of tax
entity for general purpose financial authorities.
reporting.
 Generally Accepted Accounting Principles
(GAAP) vs. Tax Laws

GAAP TAX LAWS

3. GAAP accounting reports are 3. In the preparation and filing of
intended to cater common needs tax returns, taxpayers are
of a vast number of users in the mandated to follow the tax law in
general public cases of conflict with GAAP
4. Taxpayers follow GAAP in
recording transactions in their
books
NATURE OF PHILIPPINE TAX LAWS

1. Philippine tax laws are civil and not political in nature.

2. They are effective even in periods of enemy occupation. They are
laws of the occupied territory and not by the occupying enemy
3. Tax payments made during occupations of foreign are valid.
4. Our internal revenue laws are not penal in nature because they do
not define crime.
5. Their penalty provisions are merely intended to secure taxpayers’
compliance.
TAX ADMINISTRATION

Refers to the management of the tax system

administration of the National Tax System in the
Philippines is entrusted to BIR which is under the
supervision and administration of Department of
Finance.
 POWERS OF THE BUREAU OF INTERNAL
REVENUE

1. Assessment and collection of taxes.

2. Enforcement of all forfeitures, penalties and fines, and
judgements in all cases decided in its favor by the courts.
3. Giving effect to, and administering the supervisory and police
powers conferred to it by the NIRC and other laws.
4. Assignment of internal revenue officers and other employees
to other duties.
 POWERS OF THE BUREAU OF INTERNAL
REVENUE

5. Provision and distribution of forms, receipts, certificates,

stamps, etc. to other proper officials.
6. Issuance of receipts and clearances.
7. Submission of annual report, pertinent information to
Congress and reports to the Congressional Oversight
Committee in matters of taxation.
 The Bureau of Internal Revenue is
Divided into:

1. National Office – general direction, guidance and

control of the entire operations
2. Field Offices (Regional Offices) – execute and
implement the national policies and programs
prescribed by the National Office
 Chief Officials of the Bureau of Internal
Revenue
1. 1 Commissioner
2. 4 Deputy Commissioners, each to be designated to
the following:
a. Operations Group
b. Legal Enforcement Group
c. Information Systems Group
d. Resource Management Group
The Commissioner of Internal Revenue is:

• The chief executive of the Bureau (NIRC Sec. 3)

• He is appointed by the President of the Philippines upon
recommendation of the Secretary of Finance.
• He formulates the policies and administers the activities of the
Bureau.
• The CIR is also given full authority in matters of discipline and
appointment of Internal Revenue personnel.
• The CIR may make necessary rules and regulations needed to
delineate the authority and responsibility of the various groups
and services of the bureau.
Deputy Commissioners

• Assist the Commissioner in supervising the administrative and

operational activities of the Bureau
• They are appointed by the President of the Philippines upon
the recommendation of the Commissioner and with the
approval of the Secretary of Finance.
TAXPAYER, TAX BASE, AND
GROSS INCOME
INDIVIDUAL TAXPAYERS

Are natural persons with income derived from

within the territorial jurisdiction of a taxing authority.
Classification of Individual Taxpayers

A. CITIZENS
1. Residents Citizens (RC)
2. Non-residents Citizens (NRC)

B. ALIENS – an alien is a foreign-born person who is not qualified to

acquire Philippine citizenship by birth or after birth.
3. Resident Alien (RA)
4. Non-resident Alien (NRA)
- Engaged in Trade and Business (NRA-ETB)
- Not Engaged in Trade and Business (NRA-NETB)
Who are Residents Citizens?
 Those who are citizens of the Philippines at the time of
adoption of the 1987 Philippine Constitution;
 Those whose fathers or mothers are citizens of the
Philippines.
 Those born before January 17, 1973 , of Filipino
mothers, who elect Philippine citizenship upon
reaching the age of majority.
 Those who are naturalized in accordance with law.
Who are Non-Resident Citizens?

 A Citizen who establishes, to the satisfaction of the

commissioner of internal revenue, the fact of his physical
presence abroad with a definite intention to reside therein.
 A Citizen who leaves the Philippines during the taxable year to
reside abroad, either as an immigrant or for employment on a
permanent basis.
 A Citizen of the Philippines who work and derives income from
abroad and whose employment thereat requires him to be
physically abroad for one hundred eighty-three days(183) during
the taxable year.
 Citizens Classified Both as Resident and Non-
Resident in one Taxable Year

A Citizen who has been previously considered as non-

resident citizen and who arrives in the Philippines at any time
during the taxable year to reside permanently in the Philippines
shall likewise be treated as a non-resident citizen for the taxable
year in which he arrives in the Philippines with respect to his
income derived from sources abroad until the date of his arrival in
the Philippines.
Who are Resident Alien Taxpayers?

 Means an individual whose residence is within the Philippines

and who is not a citizen thereof. (Sec. 22(F))
 Aliens who are actually present in the Philippines and who are
not mere transients or sojourners.
 An alien who lives in the Philippines with no definite intention as
to his stay is also a resident alien.
 An alien who comes to the Philippines for the purpose that
requires extended stay for its accomplishment, so he makes his
home temporarily in the Philippines.
Who are Non-Resident Alien Taxpayers?

 Means an individual whose residence is not within the

Philippines and who is not a citizen thereof. (Sec.22)(G)

 They are aliens who come to the Philippines for a definite

purpose, which in its nature may be promptly accomplished.

 They are alien who are mere transients or non-residents.

Who are Non-Resident Alien Taxpayers
Engaged in Trade and Business?

 Aliens who have business income in the Philippines.

 Aliens who stayed in the Philippines for an aggregate period

of more than 180 days during the taxable year.
TAXPAYERS AND TAX BASE

Taxpayer Tax Base Tax Rate Taxable Source

RC Net Income Graduated Within or Without
NRC Net Income Graduated Within Only
RA Net Income Graduated Within Only
NRA ET Net Income Graduated Within Only
NRA NET Gross Income Final Tax of 25% Within Only
ILLUSTRATION: Use the following data for Cases A-E.

An individual taxpayer provided the following information in 2021:

Gross Business Income, Philippines P5,000,000

Gross Business Income, Canada 2,000,000
Gross Business Income, Singapore 1,000,000
Business Expenses, Philippines 3,000,000
Business Expenses, Canada 1,000,000
Business Expenses, Singapore 500,000

Determine the taxable income assuming:

CASE A: The taxpayer is a resident citizen.
CASE B: The taxpayer is a non-resident citizen.
CASE C: The taxpayer is a resident alien.
CASE D: The taxpayer is a nonresident alien engaged
in trade or business.
CASE E: The taxpayer is a nonresident alien not
engaged in trade or business.
SOLUTIONS:
CASE A: The taxpayer is a resident citizen.

Gross Business Income, Philippines P5,000,000

Gross Business Income, Canada 2,000,000
Gross Business Income, Singapore 1,000,000
Business Expenses, Philippines (3,000,000)
Business Expenses, Canada (1,000,000)
Business Expenses, Singapore (500,000)
TAXABLE INCOME P3,500,000
SOLUTIONS:
CASE B: The taxpayer is a nonresident citizen.

Gross Business Income, Philippines P5,000,000

Business Expenses, Philippines (3,000,000)
TAXABLE INCOME P2,000,000

CASE C: The taxpayer is resident alien.

Gross Business Income, Philippines P5,000,000

Business Expenses, Philippines (3,000,000)
TAXABLE INCOME P2,000,000
SOLUTIONS:
CASE D: The taxpayer is a nonresident alien engaged in trade
or business.

Gross Business Income, Philippines P5,000,000

Business Expenses, Philippines (3,000,000)
TAXABLE INCOME P2,000,000

CASE E: The taxpayer is a nonresident alien not engaged in

trade or business.

Answer is P5,000,000
CASE F: The income and expenses of a Filipino citizen in 2021
were provided as follows:

JANUARY – JUNE PHILIPPINES CANADA

Gross Income P5,000,000 P2,000,000
Allowable 2,000,000 1,000,000
Deductions
JULY – DECEMBER
Gross Income P2,000,000 P3,000,000
Allowable 1,000,000 1,200,000
Deductions
 Assume that the taxpayer is a resident who left the country in
July of the current year to reside permanently in Canada, how much is
his taxable income?

Solution:
Gross income, Philippines (Jan.-Dec.) P7,000,000
Gross income, Canada (Jan.-June) 2,000,000
Allowable Deductions, Philippines (Jan.-Dec.) (3,000,000)
Allowable Deductions, Canada (Jan.-June) (1,000,000)
TAXABLE INCOME P5,000,000
 Assume the same data in CASE F except that the taxpayer is a
nonresident citizen who returned and reside permanently in the country
in July of the current year. His taxable income is:

Solution:
Gross income, Philippines (Jan.-Dec.) P7,000,000
Gross income, Canada (July-Dec.) 3,000,000
Allowable Deductions, Philippines (Jan.-Dec.) (3,000,000)
Allowable Deductions, Canada (July-Dec.) (1,200,000)
TAXABLE INCOME P5,800,000
TYPES OF INCOME

1. Ordinary or Regular Income

2. Passive Income derived from Philippine
sources; and
3. Capital Gains subject to Capital Gains Tax
TYPES OF INCOME

1. Ordinary or Regular Income

 Refers to income such as compensation (salaries or wages),

business income, income from practice of profession, income
from sale and/or dealings of property and miscellaneous
income and passive income other than those subject to Final
Taxes and Capital Gain Tax of the Tax Code, as amended.
TYPES OF INCOME

2. Passive Income

 Subject to Final Withholding Taxes (FWT) are certain passive

incomes from sources within the Philippines as enumerated
under Section 24(B) and 25 (A)(2) of the Tax Code, as
amended.
TYPES OF INCOME

3. Capital Gains subject to Capital Gains Tax

 Income from Sale of Capital Assets Subject to Capital Gains

Tax (CGT):
1. Capital gains from sale of shares of stock of a
domestic corporation not traded in the local stock exchange
(Sec. 24(C) NIRC); and
2. Capital gains from sale of real property in the
Philippines (Section 24(D) NIRC).
Self-Employed & Professionals

1. SELF-EMPLOYED

- is defined under RA10963 (TRAIN LAW) as “a sole proprietor or

an independent contractor who reports income earned from self-
employment. S/he control who he/she works for, how the work is
done and when it is done. It includes professionals whose
income is derived purely from the practice od profession and not
an employer – employee relationship.
Self-Employed & Professionals

2. PROFESSIONAL
is a “person formally certified by a professional body belonging to
a specific profession by virtue of having completed a required
course of studies and/or practice, whose competence can usually
be measured against an established set of standards. It also
refers to a person who engages in some art or sport for money,
as a means of livelihood, rather than as a hobby. It includes but is
not limited to professional entertainers, professional athletes,
directors, producers, insurance adjuster, management and
technical consultants, bookkeeping agents, and other recipients
of professional, promotional and talent fees.”
Income Tax of SEP

Regular income of self-employed and professionals (SEP)

amounting to move than P250,000 in a taxable year but with a
gross sales/receipts and other none-operating not exceeding the
vat threshold of P3,000,000 shall have the option to avail of 8%
tax on gross sales/receipts and other operating income in excess
of P250,000 in LIEU of the graduated income tax and business
tax under section 116 of the Tax Code.
PURELY SEP

Gross Sales/Receipts Gross Sales/Receipts

P3,000,000 & below more than P3,000,000
Graduated Rate
or Graduated Rate
8% gross sales/receipts and other
non-operating income in excess of Not applicable in 8% TAX.
P250,000 in LIEU of Graduated
Rate & Sec. 116
ILLUSTRATION: Self-Employed and/or Professionals (SEP).

CASE A: PURELY SEP whose gross sales/receipts and other non-

operating income does not exceed the VAT threshold of P3,000,000.

1. Determine the income tax due assuming the gross sales/receipts

and other non-operating income was P240,000.

ANSWER: P0; exempt from income tax

ILLUSTRATION: Self-Employed and/or Professionals (SEP).

2. Using the data below, determine the income tax due:

Gross sales P2,800,000
Cost of sales (1,500,000)
Operating expenses ( 750,000)
Net Income P550,000

ANSWER:
Tax on
First P400,000 income P30,000
In excess of P400,000 income 37,500
(P150,000x 20%)
ILLUSTRATION: Self-Employed and/or Professionals (SEP).

3. Assume the SEP in number “2” opted to avail the 8% tax under
the TRAIN Law.
Gross sales P2,800,000
Cost of sales (1,500,000)
Operating expenses ( 750,000)
Net Income P550,000

ANSWER: P2,800,000 2,550,000

( 250,000) x 8%
2,550,000 204,000
CASE B: PURELY SEP whose gross sales/receipts and other non-
operating income EXCEEDs the VAT threshold of P3,000,000.

1. Determine the income tax due assuming the following data:

Gross sales P5,000,000
Cost of sales ( 2,250,000)
Operating expenses ( 1,250,000)
Net taxable income P1,500,000

ANSWER:
Tax on
First 800,000 income P130,000
CASE C: PURELY SEP + GR/GS < P3M + the SEP is vat registered
Assume the same data in CASE A(2) and the SEP opted to use the
8% tax. Compute the total tax due of the taxpayer.
Gross sales P5,000,000
Cost of sales ( 2,250,000)
Operating expenses ( 1,250,000)
Net taxable income P1,500,000

ANSWER:
Tax on
First 800,000 income P130,000
MIXED INCOME EARNER

The taxpayer is considered mixed income earner if s/he is

deriving from both self-employment and compensation income
arising from the presence of employer-employee relationship.
MIXED INCOME EARNER

Income from self-employment

Compensation Income
Gross Sales/Receipts not more
than P3,000,000
Graduated Rate
Graduated Rate
or
Not applicable in 8% TAX.
8% gross sales/receipts and other
non-operating income in excess of
P250,000 in LIEU of Graduated
Rate & Sec. 116
Requisites to avail the 8% preferential tax rate

1. The gross sales/receipts and other non-operating income does

not exceed the vat threshold of P3,000,000;
2. The SEP shall be non- vat registered;
3. The gross sales/receipts were not derived from vat-exempt sales
and transactions;
4. The SEP is not subject to percentage tax other than Section 116;
and
5. The SEP signifies his/her intention to elect the 8% income tax.
Signify Intention to be taxed at 8%

RR 8-2018 provides, unless the taxpayer signifies in the 1st quarter

return of the taxable year the intention to elect the 8% income tax,
the taxpayer shall be considered as having availed of the
graduated rates under Section 24 (A) of the Tax Code, as
amended, and such election shall be irrevocable.
PARTNERS OF GPPs (RR 8-2018)

- partners of GPPs are not allowed to avail of the 8% income tax

rate option since their distribution share from GPP is already net of
costs and expenses.
CONCEPT OF INCOME

o Income- All wealth (gain or profit) which flows into the taxpayer
other than a mere return of capital. (GAIN derived and severed
from capital)
o Gross Income- means total income of a taxpayer subject to tax.
It includes gains, profits, and income derived from sources
whatever, whether legal or illegal. It does not include income
excluded by law, or which are exempted from income tax.
CONCEPT OF INCOME

o Includes gain/earning derived from:

- Labor (service or employment)
- Capital (business or investment)
- Or both labor and capital
- Gain derived from sale or exchange of personal or real
property either ordinary or capital asset.
CONCEPT OF INCOME

o Taxable Income
– means all pertinent items of gross income specified by
the Tax Code less deduction if any, authorized for such types of
income by the Tax Code or other special laws.
 GROSS INCOME (Section32, NIRC)

All income derived from whatever source, including: CARD-GRIPP-

PPP
o Compensation for services in whatever for paid, including, but not
limited to fees, salaries, wages, commissions and similar items;
o Annuities;
o Rents;
o Dividends(issued by a Foreign Corporation)
o Gross Income derived from the exercise of a profession or conduct
of trade or business
GROSS INCOME (Section32, NIRC)

o Royalties (if derived from sources without)

o Interests
o Prizes
o Gains derived from dealings in property
o Pensions
o Partner’s distributive share the net income of the general
professional partnership
Requisites for Income to be taxable

 There must be gain or profit, whether in cash or its equivalent

 The gain must be realized or received- whether actual realization or

constructive receipt.

 The gain must not be excluded by law or treaty from taxation.

 Types of Taxable Income
 Compensation Income – income derived from the rendering of services under
an employment contract.
 Professional Income – fees derived from engaging in an endeavor requiring
special training (fees of CPA, doctors, lawyers, etc.)
 Business Income – gains or profits derived from rendering services, selling
merchandise, manufacturing products, etc.)
 Passive Income – income in which the taxpayer merely waits for the amount to
come in (e.g. interest income, royalty income, dividend income, winnings and
prizes)
 Capital Gain – gain from dealings in capital asset(property held by the taxpayer
used in trade or business)
Classification of Compensation Income (RR 10-
2008)

Regular Compensation
-includes basic salary, fixed allowances for representation,
transportation and others paid to an employee per payroll period.
Supplemental Compensation
- includes payments to an employee in addition to the regular
compensation such as but not limited to the following: overtime pay, fees,
including director’s fees, commission, profit sharing, monetized vacation
and sick leave, fringe benefits received by rank & file employees, hazard
pay, taxable 13th month pay and other benefits.