blt 134 chapter 1

• Earliest taxes in Rome• Taxes known as Portoria were customs duties on imports and

exports• Augustus Caesar introduced the inheritance tax to provide

retirement funds for the military. The tax was five percent on all inheritances except gifts to children and spouses

• In England• Taxes were first used as an emergency measure• Taxes on income or capital were a recent development as a result of

increasing government intervention in the economy• In the Philippines

• The pre-colonial society, being communitarian, did not have taxes

Life is hard work. There are no shortcuts

• In Modern Industrial Nations• The government designates a tax base (such as

income, property holdings, or a given commodity)• A Tax Law is a body of rules passed by the

legislature by which the government acquires a claim on tax payers to convey, transfer and pay to the public authority


Basic Principles of Taxation and its Remedies

1. Nature, scope, classification and essential characteristics2. Principles of sound tax system3. Limitations of the power of taxation (inherent limitations

and constitutional limitations)4. Differences between taxation and police power5. Differences between taxation and eminent domain6. Tax evasion vs. Tax avoidance


• The process or means by which the sovereign, through its lawmaking body, raises income to defray the necessary expenses of the government.

• Taxation, as a power of the State, is inherent in sovereignty.

Taxation


Taxation (cont’d)

• The system of compulsory contributions levied by a government or other qualified body on people, corporations and property in order to fund public expenditures.

• An inherent power of the state to raise income and to demand enforced contributions for public purposes.


Taxes

• Taxes are the lifeblood of the government and their prompt and certain availability are an imperious need (Commissioner vs. Pineda, 21 SCRA 105). A government cannot continue to exist and operate without financial means. This inherent power gives the government the right to tax citizens and properties within its jurisdiction.


Objectives of Taxation

• To raise revenues for public needs so that persons can live in a civilized society

• The government increase taxes in order to stabilize prices and stimulate greater production.

• An instrument of fiscal policy influences the direction and structure of money supply, investments, credits, production, interest rate, inflation, prices and in general, of the national economy


Objectives of Taxation

• To shift wealth from the rich to the poor• To stimulate economic growth• To encourage full employment


Characteristics of a sound Tax system

• Fairness• Clarity and Certainty• Convenience• Efficiency


STATE POWERS

1. Taxation – the power of the state by which the sovereign raises revenue to defray the necessary expenses of the government

2. Eminent Domain – the power of the state to take private property for public use upon payment of just compensation.

3. Police Power – the power of the state to enact laws to promote public health, public morals, public safety and the general welfare of the people.


ASPECTS OF TAXATION

1. Levying of the tax – the imposition of tax requires legislative intervention. In the Philippines, it is Congress that levies taxes; and

2. Collection of tax levied. This is essentially an adminitrative function.


Effects of Taxation• Personal Income Tax which is presumed to fall entirely

on the legal taxpayers influences decisions to work, save, and invest. These decisions affect other people.

• Corporate Income Tax may simply result to lower corporate profits and dividends. It may reduce their income of all owners of property and businesses. The company may move toward raising the prices of their products


BASIC PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal Adequacy – Sources of revenue are sufficient to meet government expenditures.

2. Equality or theoretical justice – the tax imposed must be proportionate to taxpayer’s ability to pay; and

3. Administrative Feasibility – the law must be capable of convenient, just and effective administration.


Limitations on the Power of Taxation

Two types of limitations in taxation:1. Constitutional limitations – are those provided for in the constitution or

implied from the provisions of the law2. Inherent limitations – are restrictions to the power to tax attached to its

nature.


Inherent limitations on the power of taxation

1. Purpose. Taxes may be levied only for public purpose.2. Territoriality. The State may tax person and properties under its

jurisdiction.3. International comity. The property of a foreign State may not be taxed

by another.4. Exemption – Government agencies performing governmental functions

are exempt from taxation.5. Non-delegation. The power to tax being legislative in nature may not be

delegated.


Taxation in the Philippines

• The legislative branch enacts laws to continually revitalize the taxation policy of the country

• BIR (Bureau of Internal Revenue)– Mandated to comprehend the assessment

and collection of all national internal revenue taxes, fees and charges so as to promote a sustainable economic growth



• Republic Act No. 8424 (Comprehensive Tax Reform Act of 1997)– Tax Payer: any person subject to tax whose

sources of income is derived from within the Philippines

– TIN (Taxpayer Identification Number) is required for any individual taxpayer



• Tax Reforms:– Lower income tax rates to enhance the

competitiveness of the Philippines in the region

– Removal of areas which provide avenues for tax avoidance and abuse

– Exemption of OFWs from payment of tax for income earned outside the Philippines

– Simplification of the tax system which encourages payments from tax payers including those from the underground economy



• Taxes are collected within a particular period of time known as taxable year

• This is the calendar year or the fiscal year that covers an accounting period of 12 months ending on the last day of any month other that December.


Shifting the incidence of taxation

– Shifting taxation is the process of passing the burden of the tax to others.

– A tax can be shifted when the taxpayer is able to obtain a higher price for something he sells or when he pays a lower price for a commodity he purchases.


Double taxation

Double taxation standing alone and not being forbidden by our fundamental law is not a valid defense against the legality of a tax measure. However, if double taxation amounts to a direct duplicate taxation, in that the same subject is taxed twice when it should be taxed but once, in a fasion that both taxes are imposed for the same purpose by the same taxing authority, within the same jurisdiction or taxing district, for the same taxable period and for the same kind or character of a tax, then it becomes legally objectionable for being oppressive and inequitable.


Double taxation (cont’d)

Indirect double taxation is one other than the direct double taxation. Though this type may not prove unconstitutional, it is being avoided so as not to bring injustice to the taxpayer. An example of this occurs when business tax is imposed by the municipal govrnment prior to the issuance of a business license to a taxpayer for engaging in an advertising business. His income from his advertising business shall later be imposed income tax by the national government.


Tax Avoidance

It happens when the taxpayer minimizes his tax liability by taking advantage of legally available tax planning opportunites. This is otherwise known as tax minimiztion; others call it tax planning. It is the process of controlling one’s actions so as to avoid undersirable tax consequences.


Tax Evasion• When there is fraud through pretension

and the use of other illegal devices to lessen one’s taxes, there is tax evasion– Under-declaration of income– Non-declaration of income and other items

subject to tax– Under-appraisal of goods subject to tariff – Over-declaration of deductions

This is also known as tax dodging.


Situs of Taxation(Place of Taxation)

Factors to be considered in the determination of place of taxation:1. Subject matter – or what is being taxed. He may be a person or it may

be a property, an act or activity.2. Nature of tax – or which tax to impose. It may be an income tax, an

import duty or a real property tax.3. Citizenship of the taxpayer; and4. Residence of the taxpayer.


Situs of Taxation(Place of Taxation)(cont’d)

The following situs of taxation apply:1. Persons – residence of the taxpayer.2. Real Property or tangible personal property – location of the

property3. Intangible personal property – as a rule, situs is the domicile

of the owner unless he has acquired a situs elsewhere.4. Income – taxpayer’s residence or citizenship, or place where

the income was earned.


Situs of Taxation(Place of Taxation)(cont’d)

5. Income – taxpayer’s residence or citizenship, or place where the income was earned.

6. Business, occupation and transaction – place where business is being operated, occupation being practiced and transaction completed.

7. Gratuitous transfer of property – taxpayer’s residence or citizenship, or location of the property.


TAXES

• These are enforced proportional contributions from persons and property levied by the lawmaking body of the State by virtue of its sovereignty for the suppot of the government and all public needs.

• These are any contribution imposed by the government upon individuals, for the use and service of the state, whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name. Tax, in its essential characteristics, is not a debt.


Essential Characteristics of a Tax

1. It is an enforced contribution.2. It is levied by the lawmaking body.3. It is proportionate in character.4. It is generally payable in the money.5. It is imposed for the purpose of raising revenues; and6. It is to be used for public purpose.


Types of Tax Rate Structure

Tax system are often described as either Regressive - average rate decresed as the tax base increases. Proportional (also called flat or uniform taxes) – the average rate of tax

remains constant for all levels of the tax base Progressive – average rate increases as the amount of the tax bases

increases.


Classification of Taxes

1. As to subject matter or objecta. Personal, poll or capitation – tax of a fixed amount imposed on individuals,

whether citizens or not, residing within a specified territory without regard to their property or the occupation in which they may be engaged. Example: community tax

b. Property – tax imposed on property, whether eal or personal, inproportion either to its value or in accordance with some other reasonable method of appotionment. Example: real estate tax

c. Excise – tax imposed upon the performance of an act, the enjoyment of a privilege o the engaging in an occupation. Examples: estate tax, donor’s tax, income tax, value-added tax.


Classification of Taxes (cont’d)

2. As to who bears the burdena. Direct – tax demanded from persons who are intended or bound by

law to pay the tax. Examples: community tax, income tax, estate tax, donor’s tax

b. Indirect – tax which the taxpayer can shift to another. Examples: custom duties, value-added tax, some percentage taxes.



3. As to determination of amounta. Specific – tax imposed basd on a physical unit of measurement, s by

head or number, weight, or length or volume. Examples: tax on distilled spirits, fermented liquors, cigars wines, fireworks, etc.

b. Ad valorem – Tax of a fixed proprortion of the value of property; needs an independent appraiser to determine its value. Examples: real estate tax, certain customs duties, excise taxes on cigarettes, gasoline and others

Excise taxes on certain specific goods imposed under the NIRC are either specific or ad valorem taxes.



4. As to purposea. General, fixcal or revenue – ttax with no particular purpose or object

for which the revenue is raised, but is simply raised for whatever need may arise. Examples: income tax, value-added taxa. Special or regulatory – tax imposed fo a special purpose regadless

of whether revenue is raised or not, and is intended to achieve some social or economic end. Example: protective tariffs or customs duties on certain imported goods to protect local industries against foreign competition.



5. As to authority imposing the tax or scopea. National – tax imposed by the national government.

Examples: internal revenue taxes, tariff and customs duties

b. Municipal or local – tax imposed by municipal governments for specific needs. Example: real estate taxes, municipal licenses.



6. As to graduation or ratea. Proportional – tax based on a fixed percentage of the amount of

property income or other basis to be taxed. Examples: percentage taxes, real estate taxes

b. Progressive or graduated – tax rate increases as the tax base increases. Examples: income tax, estate tax, donor’s tax.

c. Regressive – tax rate decreases as the tax base increases. Example: value-added tax.


TAX DISTINGUISHED FROM OTHER FEES

1. From toll. TOLL is a sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge or the like, of a public nature.

A toll is a demand of proprietorship, is paid for the use of another’s property and may be imposed by the government or private individuals or entities; while tax is a demand of sovereignty, is paid for the support of the government and may be imposed only by the State.


TAX DISTINGUISHED FROM OTHER FEES (cont’d)

2. From penalty. PENALTY is any santion imposed as a punishment for violation of law or acts deemed injurious. Violation of tax laws may give rise to imposition of penalty.

A penalty is designed to regulate conduct and may be imposed by the government or private individuals or entities. Tax, on the other hand, is primarily aimed at raising revenue and may be imposed only by the government.



3. From special assessment. SPECIAL ASSESSMENT is an enforced proportional contribution from owners of lands for special benefits resulting from public improvements.

SPECIAL ASSESSMENT is levied only on land, is not a personal liability of the person assessed, is based wholly on benefits and is exceptional both as to time and place. Tax is levied on persons, property, or exercise of privilege, which may be made a pesonal liability of the person assessed, is based on necessity and is of general application.



4. From pemit or license fee. PERMIT or LICENSE FEE is a charge imposed under the police power for purposes of regulations.

LICENSE FEE is imposed for regulation and involves the exercise of police power while tax is levied for revenue and involves the exercise of the taxing power. Failure to pay a license fee makes an act or a business illegal while failure to pay a tax does not necessarily make an act or a business illegal.



5. From debt. A DEBT is generally based on contract, is assignable and may be paid in kind while a tax is based on law, cannot generaly be assigned and is generally payable in money. A person cannot be imprisoned for non-payment of debt while he can be for non-payment of tax (except poll tax).



6. From revenue. REVENUE is broader than tax since it refers to all funds or income derived by the government axes included. Other sources of revenues are government services, income from public enterprises and foreign loans.



7. From custom duties. Customs duties are taxes imposed on goods exported from or imported to a country. Customs duties are actually taxes but the latter is broader in scope.


SOURCES OF TAX AUTHORITY

EXECUTIVE

JUDICIAL


SOURCES OF TAX LAWS

1. Constitution2. Statutes and Presidential Decrees3. Revenue Regulations by the Department of Finance4. Rulings issued by the Commissioner of Internal Revenue and Opinions by the

Secretary of Justice5. Decisions of the Supreme Court and the Court of Tax Appeals6. Provincial, city, municipal, and barangay ordinaces subject to limitations set forth

in the Local Government Code; and7. Treaties or international agreements the purpose of which is to avoid or minimize

double taxation.


Philippine Tax Laws and Taxes

1. National Internal Revenue Code of 1997 (PD 1158, as amended)a. Income taxes (individual and corporate);b. Estate and donor’s taxesc. Value-added taxd. Other percentage taxese. Excise tax; andf. Documentary stamp tax


Philippine Tax Laws and Taxes (cont’d)

2. Tariff and Customs Code of 1978 (PD 1464, as amended);a. Import duties; andb. Export duties

CUSTOMS DUTIES FOR IMPORTATION AND EXPORTATION OF GOODS

3. Local Government Code of 1991 (RA 7160);a. Real property taxb. Business taxes, fees and chargesc. Professional taxd. Community tax ande. Tax on banks and other financial institutions.


Philippine Tax Laws and Taxes (cont’d)

4. Special Lawsa. Motor Vehicle Law (RA 4136) motor vehicle feesb. Private Motor vehicle Tax Law (PD 1958) private motor

vehicle taxc. Philippine Immigration Act of 1940 (CA 613, as amended)

immigration tax; andd. Travel Tax Law (PD 1183, as amended) – travel tax


Tax Laws Versus GAAP and GAASAll returns required to be filed by the Tax Code shall be prepared always in

conformity with the provisions of the Tax Code, and the rules and regulations issued implementing said Tax Code. Taxability of income and deductibility of expenses shall be dtermined strictly in ans issued implemeccordance with the provisions of the Tax Code and the rules and regulations issued implementting the said Tax Code. In case of difference between the provisions of the Tax Code and the rules and regulations implementing the Tax Code, on one hand, and the generally accepted accounting principles (GAAP) and the generally accepted auditing standards (GAAS) on the other hand, the provisions of the Tax Code and the rules and regulations issued implementing the said Tax Code shall prevail (RMC 22-04, April 12, 2004).


BIR ISSUANCES AND RULINGS DEFINED

Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon recommendation of the Commissiner of Intenal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the NIRC related statutes.

Revenue Memorandum Circulars (RMCs) are issuances that publish pertinent and applicable potions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.



Revenue Memorandum Orders (RMOs) are issuances that provide or 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 operations, except auditing.



Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and othe tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; othewise, the Rulings are null and void ab initio.



BIR Rulings are official position of the Bureau of to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.

Revenue Bulletins (RBs) 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 to tax laws and other issuances for the guidance of the public.


POWERS AND DUTIES OF THE BIR

The chief officials of the Bureau are the Commissioner and four (4) Deputy Commissioners. Its powers and duties follows:

1. Assessment and collection of all national internal revenue taxes, fees and charges;

2. Enforcement of all forfeitures, penalties, and fines;3. Execution of judgments in all cases decided in its favor by the Court of Tax

Appeals and ordinary courts; and4. Administration of supervisory and police powers conferred to it.


POWERS OF THE COMMISSIONERKIM JACINTO-HENARES

1. Interpret tax laws and decide tax cases;2. Obtain information, and to summon, examine, and take

testimony of persons;3. Make assessments and prescribe additional requriement for

tax administration and enforcement.The Commissioner of Internal Revenue is authorized to inquire

into the bank deposit of4. A decedent to determine his gross estate; and5. Any taxpayer who hs filed an application for compromise of

his tax liability (Sec. 6(F), NIRC)


DOF SECRETARY – CESAR V. PURISIMA


Revenue District Office No. 111 - Koronadal, South Cotabato

• Office Address: Barrio Concepcion, National Highway, Koronadal City, South Cotabato

• Revenue District Officer: BAGRO S. SARANSAMUN• e-mail: [email protected]; [email protected]• direct no.: (083) 228-4061/ 228-4035• telefax: (082) 228-4035• Assistant Revenue District Officer: ANATACIA B. DEGALA• e-mail: [email protected] • direct no.: (083) 228-4061• telefax: (082) 228-2710• Area of Jurisdiction:• Comprised of the Municipalities of Tantangan, Norala, Sto. Niño, Banga, Tampakan,

Surallah, Tupi, Lake Sebu, Polomolok, T'boli, and the City of Koronadal. The District shall be bounded as follows: by Tantangan on the North to General Santos Drive, by Tupi on the South to General Santos Drive. From Banga on the East to Alunan Avenue and Southwest by Tampakan to General Santos Drive.


mailto:[email protected]



TAX INCENTIVES

“Adopt-a-School Act of 1998” RA 8525. Reveneu Regulatins 10-2003 dated Jan. 27, 2003 implements the tax incentive provisions of said law.• Deduction from gross income of the amount of contribution/donation that

were actually, directly and exclusively incurred for the Program, subject to limitations, plus an additional amount equivalent to fifty (50%) of such contribution/donation.

• Exemption of the Assistance made by the donor from payment of donor’s tax.


INCOME AND INCOME TAXES

In its broad sense, income means all wealth, which flows into the taxpayer other than a mere return of capital. It is the return in money from one’s business, labor, o capital invested, e.g., gains, profits, salary and wages. The words income from any source whatever disclose a legislative policy to include all income not expressly exempted from the class of taxable income under our laws.


INCOME AND INCOME TAXES (cont’d)

Income is also defined as the amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment. Unless othewise specified, it means cash or its equivalent. Income may also be thought of as a flow of the fruits of one’s labor.


CAPITAL VS. INCOME

CAPITAL is a fund or property existing at one distinct point of time. INCOME, on the other hand, denotes a flow of welath during a definite period of time. While capital is wealth, income is the service of wealth.


INCOME TAX DEFINED, BASED AND NATURE

DEFINITION OF INCOME TAX– Income tax is a tax on all yearly profits arising from

property, rofession, trade or business, or is a tax on person’s income, emoluments, profits and the like.

BASED OF INCOME TAX – It is based on income, either gross or net, realized in

one taxable year.NATURE OF INCOME TAX -

It is generally regarded as an excise (privilege) tax. It is not levied upon person, property, funds, o profits as such but upon the right of a person to receive income or profits.


GENERAL PROCEDURES IN DETERMINING INCOME TAXStep 1. Identify the taxpaying party or “entity” to which the tax computation formula

applies. Some legal entities are taxed; others are not.Step 2. Determine the taxpayer’s “gross income”. Appreciation in market value is not

generally regarded as income for tax purposes unless realized through a sale or exchange.

Step 3. Determine the expenses and certain other items that can be “deducted” in computing the taxpayer’s “taxable income”.

Step 4. Apply appropriate “tax rate” to the taxpayer’s taxable income to find the “tax due”.

Step 5. Subtract any applicable “tax credits/payments” from the taxpayer’s tax due in finding the “tax payable”.

Step 6. Increase the tax by “penalties and interests” to obtain the “total amount payable”.



THANK YOU!

Kinds of taxes

• Income Tax– Tax on all yearly profits arising form property, possessions, trades or offices– Tax on a person’s income, emoluments and profits

• Estate Tax– Tax on the right of the deceased person to transmit property at death

• Donor’s Tax– Tax imposed on donations inter-vivos or those made between living persons to

take effect during the lifetime of the donor. • Value-added Tax (VAT)

– Tax imposed and collected on every sale, barter, exchange or transaction deemed sale of taxable goods, properties, lease of goods, services or properties in the course of trade as they pass along the production and distribution chain


Kinds of taxes

• Excise Tax– Tax applicable to specified goods manufactured in the Philippines for

domestic sale or consumption– Specific tax: imposed on certain goods based on weight or

volume capacity or any other physical unit of measurement (Specific tax = volume x tax rate)

» Alcohol products, petroleum products, tobacco products– Ad valorem tax: imposed on certain goods based on selling

price or other specified value of the goods

(Ad valorem tax = selling price x tax rate)» Mineral products, automobiles


Kinds of taxes

• Documentary Tax– Tax on documents, instruments, loan agreements and papers, agreements

evidencing the acceptance, assignments, sale or transfer of an obligation, rights or property incident thereto


Kinds of taxes

• Capital Gains Tax– Tax imposed on the gains presumed to have

been realized by the seller for the sale, exchange or other disposition of real property located in the Philippines, classified as capital assets


Withholding tax

• Expanded withholding tax:–A system of collecting taxes whereby

the taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payer on said income.


Withholding tax

• Final withholding tax:– A system of collecting taxes whereby the amount of

income tax withheld by the withholding agent is constituted as a full payment of the income tax due form the payer on the said income. The payer is not required to file an income tax return for the particular income.


Withholding tax

• Withholding tax for compensation income: –Commonly referred to as pay as you go

or pay as you earn. –A method of collecting the income tax at

source upon receipt of the income.

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blt 134 chapter 1

Business

tax base increases

general santos

philippine

income taxpayers

taxpayers

local government

real property

generally