Taxation – The more benefits a person derives from the activities of the state,

the more he should pay to the government

■ It is a mode by which government make exactions for revenue in order
to support their existence and carry out their legitimate objectives ■ The Cost of Service Theory

■ It is the most pervasive and the strongest of all the powers of the – if the state charges actual cost of the service rendered from the
government. people, it will satisfy the idea of equity or justice in taxation

■ Taxes are the lifeblood of the government, without which, it cannot – can no doubt be applied to some extent in those cases where the
subsist. services are rendered out of prices and are a bit easy to determine,
e.g., postal, railway services, supply of electricity, etc., etc.
TAX
■ Ability to Pay Theory
■ the enforced proportional contributions from persons or property levied
by the law-making body of the state by virtue of its sovereignty for the – that citizens of a country should pay taxes to the government in
support of the government and all public needs. accordance with their ability to pay.

Importance of Taxes in Society A. Ownership of Property - ownership of the property is a very good
basis of measuring one's ability to pay.
■ Health
(b) Tax on the Basis of Expenditure - The greater the expenditure, the
– Taxes go funding health services such as social healthcare, medical higher should be the tax and vice versa.
research, social security, etc.
(c) Income as the Basics - income should be the basis of measuring a man's
■ Education ability to pay.
– One of the most deserving recipients of tax money. ESSENTIAL CHARACTERISTICS OF TAX
– Money from taxes is channeled to funding, furnishing, and maintaining 1. It is an enforced contribution- its payment is not voluntary in
the public education system nature, & the nature is not dependent upon the will of the person
■ Governance taxed.

– Taxes are know to be the lifeblood of the government 2. It is generally payable in money-payment by check, promisossory
notes are not allowed
– Money goes to pay public servants, police officers, members of
parliaments, the postal system and others. 3. It is proportionate in character-based on on ability to pay; the
higher the income of the taxpayer, the bigger the amount of tax
HISTORY OF TAXATION paid.

WHER WHAT WHO WHEN WHY

4. It is levied on persons or property- imposed on rights/priveledge
E and act like document tax

5. It is levied by the state which has jurisdiction over the person or

ANCIEN MANUAL LABOR Promulgated 3000 BC – to fund grain
T EGYPT
property- only person, properties,acts,rights/transaction within the
by:PHAROAHS 2800 BC warehouses,
building projects
jurisdiction of the taxing state(city,municipilaty orprovince) are
Collectors: SCRIBES (including the subject for taxations.
pyramids) and local
Taxpayer: EGYPTIANS armies 6. It is levied by the law-making body of the state – prioir lawmust be
enacted first by the congress before assessment and collection may
ROME PORTORIA Promulgated by: 27 BC – 14 To provide be implemented (Act 6, Sec 28 of 1987 Consti.)
AUGUSTUS CAESAR AD retirement funds for
the military 7. It is levied for public purpose- imposed to support the government
Collectors: PUBLICANI
for implementation of its projects and program
Taxpayer: LATINS
NATURE OF THE POWER OF TAXATION

ENGLAN DANEGELD Promulgated by: LADY 11TH To provide funds for 1. It is inherent in sovereignty – essential to the existence of every
D GODIVA the military
CENTURY government.
Collector: LEOFRIC
2. It is legislative in character- power of tax is legislative and cannot
Taxpayer: ENGLISH be exercised by the executive or judicial branch of the government.
Only Congress can impose taxes.

3. It is subject to constitutional and inherent limitations – the power

THEORIES OF TAXATION of taxes is not absolute. It subjects to certain limitations. Most of
the limitations are specially provided in the Constitution while the
■ Benefit Theory rest are inherent.

– the state should levy taxes on individuals according to the benefit CLASSIFICATION OF TAXES
conferred on them
■ Progressive tax
 – a tax in which the tax rate increases as the taxable amount
increases.
– Investment income taxes are progressive.
– They target income that wealthier families can afford better than
poor families.
Regressive tax
– a tax imposed in such a manner that the tax rate decreases as the
amount subject to taxation increases.
– Gambling tax - those on low incomes have a high propensity to
spend money on gambling and therefore pay a higher percentage
of their income on gambling taxes.
Proportional tax
– a tax imposed so that the tax rate is fixed, with no change as the
taxable base amount increases or decreases.
– The sales tax is an example of a proportional tax because all
consumers, regardless of income, pay the same fixed rate.
LOCAL TAX AND FISCAL MATTERS
Where do taxes go?
-The government collects several kinds of taxes, among them, personal
income taxes, value-added tax, estate and donor’s tax, other percentage
taxes, excise taxes, and documentary stamp taxes. These levies are collected
on all types of revenue, except when these are explicitly exempted by the
Bureau of Internal Revenue.
They ensure that we receive our basic needs:
-Taxes answer for all of government’s expenditures, including the
running of those agencies that make it possible for us to access basic
necessities and services.
 They help keep us safe :
-Our taxes are used to pay for the salaries of military personnel and
policemen, who keep us safe and keep peace and order in our country.
 They keep business costs low
-When the government is able to collect enough taxes, it does not
suffer a revenue shortfall which can otherwise affect the country’s economic
fundamentals and prospects.
 They help ensure a better future for our children.
-Our taxes pay for the salaries of teachers in public schools and
fund the construction of school buildings, as well as the procurement of
books, and school supplies.
They help the poorest of the poor.
-Taxes fund government assistance for the poorest of the poor.
Taxes on alcohol and tobacco, for instance, have been used to fund
PhilHealth, the state health insurance fund.
TYPES OF TAXES
A. NATIONAL TAX -National taxes are the ones paid to the government
through the Bureau of Internal Revenue (BIR). Our national taxation system is
based on the National Internal Revenue Code of 1997 or the Republic Act No.
8424 also known as the Tax Reform Act of 1997, as amended
B. LOCAL TAX-A local tax is tax assessed and levied by a local authority such
as a state, county or municipality. A local tax is usually collected in the form
of property taxes, and is used to fund a wide range of civic services from
garbage collection to sewer maintenance.
LOCAL GOVERNMENT CODE
 This Code establishes the states and de, city, municipal and barangay
governments in the Philippines.
“It is to provide for a more responsive and accountable local
government structure instituted through a system of decentralization with
effective mechanisms of recall, initiative, and referendum, allocate among
the different local government units”
LOCAL GOVERNMENT UNIT
LGU’s are divided into three levels
 PROVINCES AND INDEPENDET CITIES
 MUNICIPALITIES
 BARANGGAYS
LOCAL TAXES
Local government units derive their revenues from local and external
sources. Local sources include tax revenues from the real property tax and
the business tax, and non-tax revenues from fees and charges ,receipts from
the government business operations and proceeds from sale of assets
TAXING POWERS OF LOCAL GOVERNMENTS
 TAXES ON REAL PROPERTY
Basic Real Property -the real property tax is and ad valorem tax on real
properties such as lands, buildings, and other improvements, and
machineries imposed by provinces, cities, and municipalities at the following
rates.
FISCAL MATTERS - These taxes are imposed solely for the purpose of raising
revenue for the government(e.g. income tax, value added tax, and transfer
taxes.)
 Fiscal resources are the means for purchasing and/or obtaining the
supplies, materials, equipment, services, and personnel required to
provide programs. Fiscal resources are anything the government says
is a fiscal resource if it has created a law that makes it a fiscal resource,
such as the U.S. legal tender laws which makes a fiscal resource out of
what would otherwise be called counterfeit.
Examples of Fiscal Resources:
• Legal Tender Laws - means that the note must, by law, be accepted as  To give protection to the natives
payment for all debts, public charges, taxes, and dues. ... United States
coins and currency(including Federal reserve notes and circulating notes of  To help the missionaries convert to Christianity
Federal reserve banks and national banks) are legal tender for all debts,  To promote education
public charges, taxes, and dues.
 Tribute Buwis - Cash or kind payment (8 reales to 15 reales)
• Price Control - a government regulation establishing a maximum price to
be charged for specified goods and services, especially during periods of American Period (1898-1946)
war or inflation.
 January 1, 1940 – the cedula was imposed by the Americans
• Quantitative Easing - the introduction of new money into the money
supply by a central bank.  Residence certificate – a legal identity document in the Philippines

• Inflation - is a sustained increase in the price level of goods and services in  Cedula – a national identity document
an economy over a period of time. Who will pay for cedula?
• Fiscal Responsibility - implies a government pursues the appropriate level 18 years old and above
of government spending and tax to:
Regularly employed on a wage or salary basis for at least 30 consecutive working
• -Maintain sustainable public finances. days

• -Ensure fiscal policy aids the optimal rate of economic growth. Businessmen or employees & Property owner

• -Maintain appropriate levels of public investment. Required by the law to file an Income tax return (ITR)

• Taxation in the Philippines  1902- the first civil government was established under William H. Taft

Pre-Colonial Period (900-1521)  January 1, 1913-first reorganization of Bureau with the creation of 8
divisions during the term of Collector Holting
The collected tax or tribute was called “buwis” or “handug”.
 8 divisions during the term of Collector Holting
The chieftain’s family members were enjoying exemption from paying
taxes. Accounting,Cash, Clerical, Inspection, Law, Real estate, License; and
Records
Non-payment of taxes was already punishable during this period.
 May 1921- by virtue of Act No. 299, the Real Estate, License and Cash
Three classes. Divisions were Abolished and their functions were transferred to the
City of Manila. As a result of this transfer, the Bureau was left with five
 ”tumao” class (includes datu).
divisions
 ”timawa” class (free men)
 The five remaining divisions
 ”oripun” class (commoners and slaves),
Administrative, Law, Accounting, Income tax & Inspection
Government were called “Barangays”
Bureau established the following:
Some barangays united to form a confederation. It was headed by a ruler
 The examiner's division which was later merged with the income tax
called “datu” or raja”.
division
Ancient Filipinos practice paying taxes for the protection from their “datu”.
 The secret service section but was later abolished on January 1, 1951
Spanish Period (1521-1898). "New Income-Generating means"
Japanese Regime (1942-1945)
Examples:  Director of Customs and Internal Revenue - head of the Bureau in
combination w/ the Customs Office.
 Manila – Acapulco Galleon Trade (1565-1815)  First issuance of the denominations 1, 5, 10 and 50 centavos and 1, 5,
and 10 Pesos. (1942).
 Fundamental income  Issued "replacement notes" for the 1, 5 and 10 Pesos. (1943).
 Peso note and soon after an inflationary 500 Peso note. (1944).
 Silver from Nueva Castilla and Silk from China
 The Japanese issued a 1,000 Peso note and became known in the
 Polo Y Servicio (Forced Labor) Men ( 16 to 60 years ) are obligated to Philippines as “Mickey Mouse Money”. (1945).
serve the community  CONSTITUTION OF THE REPUBLIC OF THE PHILIPPINES (Effective During
the Japanese Occupation)
 Exemption for falla payment Article 3 : The Legislative
Section 11.
 Bandala - Selling of goods to the government. (1) All money collected on any tax levied for a special purpose shall be
treated as a special fund and paid out for such purpose only.
Encomienda System (1570) (2) No money shall be paid out of the Treasury except in pursuance of an
appropriation made by law.
 King Phillip II in 1558 distributed lands in Cebu loyal Spanish subjects.
(3) No public money or property shall be appropriated, applied, or used,
 The man who receives this favor was called encomendero directly or indirectly, for the use, benefit, or support of any sect, church,
denomination, sectarian institution, or system of religion.
 Duties of encomenderos Section 12.
1) The rule of taxation shall be uniform.
 (2) The National Assembly may, by law, authorize the President, subject to
such limitations and restrictions as it may impose, to fix, within specified
limits, tariff rates, import or export quotas, and tonnage and wharfage
duties.
Section 13.
In times of war or other national emergency, the National Assembly may by
law authorize the President, for a limited period and subject to such
restrictions as it may prescribe, to promulgate rules and regulations to carry
out a declared national policy.
Section 14.
When the National Assembly is not in session, the President may, in cases of
urgent necessity, promulgate rules and ordinances which shall have the force
and effect of law until disapproved by resolution before the end of the next
regular session of the National Assembly.
Post War Era
o July 4, 1946- Independence day
o October 1, 1947- Executive Order No. 94
o October 23, 1947- Revenue Regulations No. V-2
o January 1, 1951- Executive Order No. 392
o January of the same year- Memorandum Order NO. V-188 created
Withholding Tax Unit
o March 1, 1954- Revenue Memorandum Order (RMO) No 41
o September 1, 1954- RMO No. V-4-47
o January 1957- Collector to Commissioner
o 1958- establishment of Tax Census Division and Tax Census Unit
o June 19, 1959- RA No. 233 or The Rewards Law
o 1964- The Tobacco Inspection Board and Accountable Forms Committee
Marcos Administration (1965-1986)
 "Blue Master Program” and "Voluntary Tax Compliance Program“
 It was also during Commissioner Vera's administration that the country
was further subdivided into 20 Regional Offices and 90 Revenue District
Offices
 September 21, 1972, The proclamation of Martial Law
 August 1, 1980, the Bureau was further reorganized under the
administration of Commissioner Ruben Ancheta
Corazon Aquino Administration (1986 – 1992)
 February 1986, After the People's Revolution
 “Operation: Walang Lagay”
 1988, that the Revenue Information Systems Services Inc.
 The entry of Commissioner Jose Ong in 1989 saw the advent of the "Tax
Administration Program"
Ramos Administration (1992-1998)
 In 1993 marked the entry into the Bureau of its first lady Commissioner,
Liwayway Vinzons-Chato
 During Commissioner Chato's term that a five-year Tax Computerization
Project (TCP) was undertaken in 1994
 Further streamlining of the BIR was approved on July 1997 through the
passage of EO No.430. Highlights of the said EO included the:
1) creation of a fourth Revenue Group in the BIR, which is the Legal and
Enforcement Group.
2) creation of the Internal Affairs Service, Taxpayers Assistance Service,
Information Planning and Quality Service and the Revenue Data Centers.
Estrada Administration (1998-2001)
 Deputy Commissioner of the BIR, Beethoven Rualo, was appointed as
Commissioner of Internal Revenue
 In 1999 encourage and educate consumers/taxpayers to demand sales
invoices and receipts, the raffle promo "Humingi ng Resibo, Manalo ng
Libo-Libo" was institutionalized.
 Memoranda of Agreement were also forged with the league of local
government units and several private sector and professional organizations
(i.e. MAP, TMAP, PCCI, FFCCCI, etc.)
 September 1, 2000, the Large Taxpayers Service (LTS) and the Excise
Taxpayers Service (ETS) were established under EO No. 175
Arroyo Administration (2001-2010)
 Following the momentous events of EDSA II in January 2001, Atty. René
G. Bañez, as the new Commissioner of Internal Revenue.
 On October 28, 2006, Deputy Commissioner for Legal and Inspection
Group, Jose Mario C. Buñag
 In 2007, the National Program Support for Tax Administration Reform
(NPSTAR)
 November 2009, When Commissioner Esquivias resigned Senior Deputy
Commissioner, Joel L. Tan-Torres assumed the position of Commissioner
of Internal Revenue.
Laws, Treaties, & Administrative Materials
o The basic source of Philippine tax law is the National Internal Revenue
Law (Republic Act No. 8424)
o At present, there are 31 Philippine Tax Treaties in force.
o Revenue Regulations (RRs) are issuances signed by the Secretary of
Finance, upon recommendation of the Commissioner of Internal
Revenue, 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.
o Revenue Memorandum Orders (RMOs) are issuances that provide
directives 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.
o 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 other 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.
o Revenue Memorandum Circular (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.
o Local government taxation in the Philippines is based on the constitutional
grant of the power to tax to the local governments.
o Certain taxes, such as the following, may not be imposed by local
government units:
 Income tax
 Documentary stamp tax;
 Taxes, fees or charges on agricultural and aquatic products when
sold by marginal farmers or fishermen;
 Taxes on business enterprises certified by the Board of Investments
as pioneer or non-pioneer for a period of six and four years,
respectively, from the date of registration;
 Taxes, fees or charges for the registration of motor vehicles and for
the issuance of all kinds of licenses or permits for the driving
thereof, except tricycles;
 Taxes, fees or charges on duly organized and registered
Countryside and Barangay Business Enterprises (R.A. No. 6810) and
on cooperatives (R.A. No. 6938); and
 Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units (Section
133, LGC)
Old Tax System
 Tax law in the Philippines covers national and local taxes.
 National taxes refer to national internal revenue taxes imposed and
collected by the national government through the Bureau of Internal
Revenue (BIR)
 Local taxes refer to those imposed and collected by the local government.
 National Tax Law in 1987 Constitution
The 1987 Philippine Constitution sets limitations on the exercise of the
power to tax.
Article VI, Section 28 - The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of taxation.
Article VI, Section 29 - All money collected on any tax levied for a special
purpose shall be treated as a special fund and paid out for such purpose only.
Article VI, Section 28 - The Congress may, by law, authorize the President to
fix within specified limits, and subject to such limitations and restriction as it
may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national
development program of the Government.
Article VI, Section 27 - The President shall have the power to veto any
particular item or items in an appropriation, revenue or tariff bill, but the
veto shall not affect the item or items to which he does not object
Article VIII, Section 5 - The Supreme Court shall have the power to review,
revise, reverse, modify or affirm on appeal or certiorari, as the law or the
Rules of Court may provide, final judgments and orders of lower courts in all
cases involving the legality of any tax, impost, assessment, or toll or any
penalty imposed in relation thereto.
 Republic Act No. 8424 (“The Tax Reform Act of 1997”)
 Section 105. Persons Liable. – Any person who, in the course of trade or
business, sells barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the value-
added tax (VAT)
 Annual income tax rates are as follows:
 ₱0-₱10,000 Exempted
 ₱10,000-₱30,000 – 10%
 ₱30,000-₱70,000 – 15%
 ₱70,000-₱140,000 – 20%
 ₱140,000-₱250,000 – 25%
 ₱250,000-₱500,000 – 30%
 ₱500,000 or more – 32%
Advantages and Disadvanatages:
 Taxpayers who earn an annual income of ₱10,000-₱30,000, for
example, already qualify for 10% income tax but that annual income
equates to only ₱800-₱2,500 a month — well below the poverty
threshold set by the government.
 As of the first half of 2015, it was estimated that a family needed a
monthly income of ₱9,140 to meet its basic needs.
TRAIN LAW (RA 10963 )
SECTION 2. DECLARATION OF POLICY
 To enhance the progressivity of the tax system through the
rationalization of the Philippine internal revenue tax system, thereby
promoting sustainable and inclusive economic growth;
 To provide, as much as possible, an equitable relief to a greater number
of taxpayers and their families in order to improve levels of disposable
income and increase economic activity; and
 To ensure that the government is able to provide for the needs of those
under its jurisdiction and care through the provision of better
infrastructure, health, education, jobs, and social protection for the
people.
SECTION 24. INCOME TAX RATES
The Tax Reform Program for Acceleration and Inclusion has already been
enacted. The main changes are:
o Lowering the personal income tax
o Simplifying transfer taxes (Donor’s Tax and Estate Tax)
o Further expanding the Value Added Tax
o And increasing excise taxes on certain goods
Advanatges
 Higher Take-Home Pay
 Fair Tax System
 Higher Tax Exemption Cap for 13th Month Pay
 Simpler Tax Filing and Payment
 Higher VAT Threshold and New Exemptions
)
Disadvanatges
 Tax the rich more
 Increase in taxes on consumer goods
POWER OF TAXATION
The power of taxation is vested in the legislative branch of the government.
Taxation generally has two major phases: the legislative phase which refers to
the making of taxation laws; and the administrative phase that refers to the
assessment and collection of taxes
The legislative aspect of taxation cannot be delegated by the legislative body
to the two other branches of the government-executive and judiciary.
Example
An ordinance of Talisay City on the operation of its market stall fees created
a market committee “to formulate, recommend and adopt subject to the
ratification of the Sangguniang Panlunsod and approval by the city mayor,
policies and rules in the operation of the market stalls.” Is the creation of the
committee a violation of the rule of non-delegation of the legislative power of
taxation?
Answer
No, because the authority to make the law has not been delegated. This is
clear from the requirement that the recommendations of the market
committee are subject to the ratification of the Sangguniang Panlunsod and
approval by the City Mayor.
LIMITATIONS ON THE POWER OF TAXATION
Constitutional limitations
Inherent limitations
Constitutional Limitations
are those provided for in the constitution or implied from its provisions
Constitutional Limitations
1. Due process of law
2. No appropriation for religious purposes.
3. Rule of uniformity and equity in taxation
4. No imprisonment for non-payment of a poll tax
5. Non-impairment of the obligation of contracts
6. Non-infringement of religious freedom
7.Exemption of religious, charitable, and educational entities, non-
profit cemeteries, and churches from property tax.
8. Equal protection of the laws
9. Exemption of non-stock, non-profit educational institution from
taxation
Inherent Limitations
are restrictions to the power to tax attached to its nature.
Inherent Limitations
• Requirement that levy must be for public purpose
• Non-delegation of the legislative power to tax
• Exemption from taxation of government entities
• International comity
• Territorial jurisdiction
CONSTITUTIONAL LIMITATIONS
1. DUE PROCESS OF LAW
“No person shall be deprived of life, liberty, or property without due process of
law…” (Art. III, Sec. 1, 1987 Phil. Constitution)
The 1987 Philippine Constitution states that life, liberty or property cannot be
taken unless the established procedures prescribed by law have been
followed.
Deprivation of life, liberty or property, therefore, is not allowed unless:
a. There is a law not contrary to the constitution authorizing such deprivation;
b. The prescribed procedures in the deprivation must have been followed.

EXAMPLE
During the current taxable year, Mr. Lee was declared delinquent for non-
payment of taxes amounting to P1 million. To effect the payment, his personal
and real properties were seized or foreclosed by the government without
giving him a proper notice.
Query: Was there observance of due process of law?
Answer: No, there was no observance of due process of law. Although there is
a law to effect the collection of taxes, the process adopted to collect them
was not in accordance with the required procedures. The taxpayer should
have been given first a notice and an opportunity to contest his tax liability
before his properties were seized.
2. No money shall be appropriated for religious or private purposes.
“No public money or property shall be appropriated, applied, paid or
employed, directly or indirectly, for the use, benefit or support of any sect,
church, denomination, sectarian, institution or system of religion…”(Art. VI,
Sec. 29(2), 1987 Phil. Constitution)
Appropriation is a budgetary act of setting government funds for a particular
object of expenditures.
The Philippine Constitution strictly prohibits enactment of taxation laws or
spending government funds to support religious activities.
3. POWER TO VETO
Art. VI, Sec. 27, Paragraph 2
The president shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not affect
the item or items to which he does not object.
Tax Reform Acceleration and Inclusion (TRAIN)
4. RULE OF UNIFORMITY AND EQUITY IN TAXATION
Art. VI, Sec. 28, Paragraph 1
The rule of taxation shall be uniform and equitable. The Congress shall evolve
a progressive system of taxation.
5. NO IMPRISONMENT FOR NON-PAYMENT OF A POLL TAX
Art. III, Sec. 20, 1987 Phil. Constitution
6. NON-IMPAIRMENT OF THE OBLIGATION OF CONTRACTS
Art. III, Sec. 10, 1987 Phil. Constitution
7. Exemption of religious, charitable, and educational entities, non-profit
cemeteries, and churches from property tax.
Art. VI, Sec. 28(3), 1987 Phil. Constitution
Charitable institutions, churches and personages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable,
or educational purposes shall be exempt from taxation.
8. EQUAL PROTECTION OF THE LAWS
Art. VI, Sec. 28(4), 1987 Phil. Constitution
No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress.
9. EXEMPTION OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION
FROM TAXATION
Art. XIV, Sec. 4(3), 1987 Phil. Constitution
All revenues and assets of non-stock, non-profit educational
institutions used actually, directly and exclusively for educational purposes shall
be exempt from taxes and duties.
ELEMENTS OF THE STATE
PEOPLE
The state cannot tax the people who are not citizens of the Philippines.
TERRITORY
The state cannot tax the people who are not in its territory - with the
exception of those non-citizens who may have a particular undertaking in
the country subject to tax law.
SOVEREIGNTY
The state cannot tax people for other purposes – it must be for the people;
as the republic is a government for the people, by the people, and of the
people.
GOVERNMENT
The state cannot tax government agencies – as they are subject to tax
exemption.
The power to tax is lodged within the legislative government only – with
the exception of the President’s tariff powers and local government unit’s
fiscal autonomy.
INTERNATIONAL RECOGNITION
The State cannot tax other States.
INHERENT LIMITATIONS
PUBLIC PURPOSE
Taxes may be levied only for public purpose.
TERRITORIAL JURISDICTION
The state may tax persons and properties under its jurisdiction.
INTERNATIONAL COMITY
The property of a foreign State may not be taxed by another.
NON-DELEGATION
The power to tax being legislative in nature may not be delegated.
EXEMPTION
Government agencies performing governmental functions are
exempt from taxation.
TAX AVOIDANCE & TAX EVASION
TAX AVOIDANCE
Is the legitimate minimizing of tax liabilities, using methods included in the
tax code.
Is not punishable by law.
Methods to Reduce Tax Liabilities
SETTING UP A DEFERRAL PLAN
A tax-deferred plan is a savings plan or account that is registered
with the government and provides deferral of tax obligations.
MAKE SOME DONATIONS
If donations are increased, the tax liability is decreased due to a
lower net income.
TAX DEDUCTIONS
Deductions are typically expenses that the taxpayer incurs during
the year that can be applied against or subtracted from his gross
income in order to figure out how much tax is owed.
DECLARE DEPENDENT FOR ADDITIONAL EXEMPTIONS
It is important to declare any dependent child (up to 4) to avail of the
Php25,000 (for every dependent) additional exemption.
DECLARE DEPENDENT FOR ADDITIONAL EXEMPTIONS
Dependent – a legitimate, illegitimate, legally adopted child who is
unmarried, not more than 21 years old unless if disabled (in which
case can be of any age), not gainfully employed, receives over 50%
of support from the taxpayer, and living with the taxpayer.
DOUBLE DECLINING DEPRECIATION
The double declining method is a depreciation method wherein
your depreciation expense is higher in the earlier life of an asset. In
turn, our deductions from gross income higher at the early life of an
asset hence lesser tax liability.
TRACK ALL ITEMIZED DEDUCTIONS
It is very important to keep track of all your deductions for you to
include everything in your yearly tax form and avoid paying beyond
your correct tax liability.
AVAIL ANOTHER RETIREMENT PLAN
Availing of another retirement plan at work gives lesser salary
because your gross income is adjusted due to your pension
contribution.
TAX EVASION
Is the act of reducing taxes by illegal or fraudulent means
TAX AVOIDANCE vs. TAX EVASION
If a tax in mushrooms is levied, and you sell fewer mushrooms, it is
tax avoidance. If you fail to report your sales of mushrooms to the
government, therefore not paying the tax required, it is called tax evasion.
SOURCES OF TAX EVASION
NON-FILING OF TAX RETURN
 The tax system in the Philippines is on a pay-as-you-file system
under voluntary compliance.
OVERSTATEMENT OF DEDUCTIONS
Understatement of tax liability
Exaggeration of charitable contributions
Padding business expenses
Claiming personal expense as business expense
UNDER DECLARATION OF INCOME
Failure to declare one’s true and actual income.
KEEPING MORE THAN ONE BOOK OF ACCOUNT
COMPLICATED TAX RULES
A 2015 study found that the Philippines ranked 127th out of 189
economies in terms of ease of paying taxes (we ranked below Iraq
and Afghanistan). Another study revealed that the “complexity of
tax regulations” and our “high tax rates” are some of the most
problematic factors for doing business in the country.
BIR PROGRAMS TO PREVENT EVASION
Taxpayers Reconciliation System (TRS) in Philippines
Another way for the BIR to get caught tax evaders is through the
use of tax returns, reports and attachments filed with them, and
third-party information such as importation details from the Bureau
of Customs (BoC).
Tax Compliance Verification Drive in Philippines
This is commonly known to many as “tax mapping” where BIR
officers in the Philippines visits business establishments of
taxpayers to verify compliance of taxpayers.
Oplan Kandado Program in the Philippines
This program intended to punish erring taxpayers by temporarily
shutting down business operations of taxpayers based on specific
grounds such as:
- failure to issue VAT receipt/invoice
- failure to file VAT return
Oplan Kandado Program in the Philippines
This program intended to punish erring taxpayers by temporarily
shutting down business operations of taxpayers based on specific
grounds such as:
- understatement of VATable sales by
30% or more
- failure to register
Run after Tax Evaders (RATE) in the Philippines
This is a joint program of the BIR and Department of Justice (DOJ)
to investigate, prosecute and convict tax evaders for their criminal
and other violations of the Tax Code that the BIR would deemed
necessary.
Tax code Section 255
Nature of violation:
Failure to file and/or pay any internal revenue tax at the time or
times required by law or regulation.
Criminal Penalty Imposed:
Fine of not less than P10,000 and imprisonment of not less than one
(1) year but nor more than 10 years
Section 255
Section 256
Section 248 (b)
Main points of the case:
Altered official receipt or sales invoice
Royalty Fee
Franchisor
Franchisee
The BIR said its investigations showed there was deliberate failure to provide
correct information in the company’s Income Tax Returns (ITR).
“Further investigation also disclosed that Golden Donuts
underdeclared its Royalty Income by P38,963,462.56,” said the BIR.
BIR said that they also found that “sales invoices issued by various suppliers
were intentionally altered, in a desperate attempt to conform to
substantiation requirements”.
SEC. 255. Failure to return, Supply Correct and Accurate Information, Pay Tax
Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation.
Any person required under this Code or by rules and regulations
promulgated thereunder to pay any tax make a return, keep any
record, or supply correct the accurate information.
“Through this scheme, Golden Donuts was able to claim the altered
invoices as deductions from its income and as input VAT credits in
the amount of Php99,297,036.47 and Php11,915,644.38,
respectively,” the BIR said.
Based on its finding, 39% of its income was supposedly underdeclared.
“An underdeclaration of income or overstatement of deductions is
substantial when it exceeds 30% of that declared. Such substantial
underdeclaration constitutes prima facie evidence of a false or
fraudulent return under the Tax Code,” the BIR said.
SEC. 248B.
That failure to report sales, receipts or income in an amount
exceeeding thirty percent (30%) of that declared per return, and a
claim of deductions in an amount exceeding (30%) of actual
deductions, shall render the taxpayer liable for substantial
underdeclaration of sales, receipts or income or for ovestatement of
deductions, as mentioned herein.

Tax code Section 255

Nature of violation:
Failure to make/file submit any return or supply correct information
at the time or times required by law or regulation
Criminal Penalty Imposed:
Fine of not less than P10,000 and imprisonment of not less than one
(1) year but nor more than 10 years

P1B-TAX EVASION COMPLAINT FILED VS PH FRANCHISEE OF DUNKIN DONUTS

The BIR alleged that GDI had a tax deficiency of P1,118,331,640.79
covering taxable year 2007.
“Investigation likewise revealed that Golden
Donuts substantially underdeclared its sales by 39%,”
the BIR said.

Sections violated or involved:

Section 253 (d)
Section 254