General Principles of Taxation ❖ It is inherent in sovereignty.

❖ Legislative in character.
What is taxation? ❖ Subject to constitutional and inherent limitations.
Taxation is the process or means by which the sovereign,
through its lawmaking body, raises income to defray the Limitations of taxation
necessary expenses of the government.
● Inherent limitations – restrictions on the power
Purpose of taxation exists from the very nature of the power of
● Primary purpose taxation itself.
❖ To provide funds or property with which
to promote the general welfare of its ● Constitutional limitations – restrictions in the
citizens and to enable it to finance its exercise of the power of taxation as expressly
multifarious activities. provided in the Philippine Constitution.

● Secondary purposes Constitutional limitations

❖ To strengthen anemic enterprises by ❖ Due process.
giving tax exemptions. ❖ Equal protection of the laws.
❖ To protect local industries against ❖ Rule of uniformity and equity in taxation.
foreign competition through imposition ❖ Non-imprisonment for non-payment of poll tax.
of high customs duties on imported ❖ Non-impairment of the obligations and contracts.
goods. ❖ Non-infringement of religious freedom.
❖ To reduce inequalities in wealth and ❖ No appropriation for religious purposes.
income by imposing progressively ❖ Exemption of religious, charitable or educational
higher taxes. entities, non-profit cemeteries, and churches from
❖ To prevent inflation by increasing taxes taxation.
or ward off depression by decreasing ❖ Exemption of revenues and assets of non- stock,
taxes. non-profit educational institutions and donations
for educational purposes from taxation.
Theory and basis of taxation ❖ Concurrence by a majority of all members of the
Congress for the passage of a law granting any
Theory tax exemption.
❖ The existence of the government is a necessity. ❖ Power of the President to veto any particular item
❖ The government cannot continue without a means or items in a revenue or tariff bill.
to pay its expenses. ❖ Non-impairment of the jurisdiction of the Supreme
❖ The government has the rights to compel its Court in tax cases.
citizens and property within its limits to contribute.
Inherent limitations
Basis ❖ Requirement that levy must be for a public
❖ Taxation is based on the reciprocal duties of purpose.
protection and support between the government ❖ Non-delegation of the legislative power to tax,
and its people. except:
❖ Government receives taxes from the people ● Delegation to the President
which is used to perform functions of government ● Delegation to local governments
and other benefits. ● Delegation to administrative bodies
❖ Benefit-received theory. ❖ Exemption from taxation of government entities.
❖ International comity
Basic principles of sound tax system ❖ Territorial jurisdiction
❖ Fiscal adequacy
❖ Equality or theoretical justice Aspects of taxation
❖ Administrative feasibility
● Levy – deals with the provisions of law which
Fiscal adequacy determines:
❖ The source of government revenue should be ❖ The person or property to be
efficient to demand the needs of public taxed
expenditure. ❖ The sum or sums to be raised
❖ Creating new taxes or new tax machinery or by ❖ The rate of the tax
merely changing the rates applicable to existing ❖ The time and manner of
taxes. levying, receiving and
Equality or theoretical justice collection the tax.
❖ The tax burden should be proportionate to the
taxpayer’s ability to pay. ● Collections – constituted of the provisions of law
❖ Ability-to-pay principle which prescribe the manner of enforcing the
obligation on the part of those taxes to pay the
Administrative feasibility demand thus created.
❖ The tax laws should be capable of convenient,
just and effective administration. Tax Systems
❖ Each tax should be:
● Clear and plain to the taxpayer. ● Global
● Capable of uniform enforcement The Philippines adopted the semi-global tax system, which
● Convenient as to time, place and means that: All incomes subject to final withholding taxes
manner of payment. liable to income tax under the schedular tax system, while all
● Not unduly burdensome upon or ordinary income as well as income not subject to final
discouraging to business activity withholding tax under the global tax system;

Nature of taxation ● Schedular

Schedular Tax System is a system in which income from such property before the amount due from each
different sources is taxed separately (i.e. under a different taxpayer can be determined. (e.g. Real estate
"schedule"). Thus, separate tax assessments are made on tax)
industrial and commercial profits, wages and salaries,
income from securities and shares, income from land, etc. As to purpose

What are taxes? ● General, fiscal or revenue tax – tax that is

● Taxes are enforced proportional contributions imposed solely to raise revenue for government
from persons and properties levied by the expenditures. (e.g. Income tax, VAT)
lawmaking body of the government by virtue of its ● Special or regulatory tax – tax imposed for a
sovereignty for the support of the government and special purpose. (e.g. Sugar adjustment taxes, Oil
public need. price stabilization fund)

Elements of a tax As to authority imposing

❖ Enforced contribution
❖ Generally payable in money ● National – tax imposed by the national
❖ Proportionate in character government. (e.g. Internal revenue taxes,
❖ Levied on persons, properties, or the exercise of customs duties)
a right or privilege ● Municipal or local – tax imposed by municipal
❖ Levied by the state which has jurisdiction over the agencies. (e.g. Sand and gravel tax, occupation
subject or object of taxation tax)
❖ Levied by the lawmaking body of the state
❖ Levied for public purpose As to graduation or rate

Levied for public purpose examples ● Proportional – tax based on a fixed percentage
❖ Construction of roads and bridges. of the amount of the property, receipts or other
❖ Pensions to retired government employees and basis to be taxed. (e.g. VAT)
their widow and children. ● Progressive – tax the rate of which increases as
❖ Assistance to victims of calamities the tax base or bracket increases. (e.g. Income
❖ Social welfare and healthcare projects. tax, estate tax, donor’s tax)
● Regressive – tax the rate of which decreases as
As to subject matter or object the tax base or bracket increases.

● Personal, poll or capitation tax – tax of a fixed Inherent powers

amount imposed on individuals (citizens or
aliens), residing within a specified territory without ● Eminent domain – the power of the state to take
regard to their property or occupation in which private property for public use upon paying to the
they may be engaged. owner a just compensation.
Example: Community tax ● Police power – the power of the state to enact
such laws in relation to persons and properties as
● Property tax – tax imposed on property (real or may promote public health, public morals, public
personal), in proportion either to its value or in safety, and the general welfare of the people.
accordance with some other reasonable method ● Taxation
of apportionment.
Example: Real property tax

● Excise of privilege tax – tax imposed upon the:

❖ Performance of an act
❖ Enjoyment of a privilege
❖ Engaging in an occupation
Example: Income tax

As to who bears the burden

● Direct tax – tax that is demanded from the Terminologies

person who also shoulders the burden of the tax. ● Permit or license fee – charge imposed under
(e.g. Income tax, estate tax, donor’s tax) the police power for purposes of regulation.
● Indirect tax – tax demanded from one person in ● Toll – a sum of money for the use of something,
the expectation and intention that he shall generally applied to the consideration which is
indemnify himself at the expense of the others. paid for the use of a road, bridge of a public
(e.g. VAT, percentage tax) nature.
● Special assessment - an enforced
As to determination of amount proportional contribution from owners of lands for
special benefits resulting from public
● Specific tax – tax of a fixed amount imposed by improvements.
the head or number, or by some standard of
weight or measurement; it requires no Permit VS Tax
assessment other than a listing of classification of
the subjects to be taxed. (e.g. Excise tax on
distilled spirits, cigars and cigarettes)

● Ad valorem tax – tax of a fixed proportion of the

value of the property with respect to which the tax
is assessed; it requires the intervention of
assessors or appraisers to estimate the value of
Toll VS Tax
Escape from taxation
● Means or methods by which the taxpayer saves
the tax or escapes the burden of tax payment.
● It may or may not result to a loss of revenue to
the government.
● Legal or illegal mean

Forms of escape from taxation

Special Assessment VS Tax ● Do not reduce revenue collection of the
government
❖ Shifting
❖ Capitalization
❖ Transformation
● Result in loss of revenue of the government
❖ Tax evasion- fraudulent or forbidden
schemes or devices designed to lessen
or defeat taxes.

Debt VS Tax ❖ Tax avoidance- exploitation by the

taxpayer of the legally permissible
alternative tax rates or methods of
assessing taxable property or income in
order to reduce tax liability.

❖ Exemption from taxation- grant of

immunity to particular persons or
Custom Duties VS Tax corporations or to persons or
corporations of a particular class from a
tax which persons and corporations
generally within the same taxing district
are obliged to pay.

• Taxes include customs duties. Tax amnesty

• An act granting exemptions from all taxes of any
● Immunity from all criminal and civil obligations
arising from non-payment of taxes.
kind and nature carries with it exemptions from
customs duties ● General pardon given to all taxpayers.
● It applies only to past periods (retroactive
Double taxation application).

Direct duplicate or direct double taxation Amnesty versus Exemption

● Taxing twice for the:
❖ Same purpose
❖ Same taxing authority
❖ Same jurisdiction
❖ Same period
❖ Some of the property in the same
territory

Situs of taxation Taxability of Individuals

● This shall mean the place of taxation.
● The state which has jurisdiction to tax the person, (A) A citizen of the Philippines residing therein is taxable on
property or transactions may rightfully levy and all income derived from sources within and without the
collect the tax. Philippines;

Situs of taxation (B) A nonresident citizen is taxable only on income derived

from sources within the Philippines;

(C) An individual citizen of the Philippines who is working

and deriving income from abroad as an overseas contract
worker is taxable only on income derived from sources within
the Philippines:
Provided, That a seaman who is a citizen of the Philippines ❖ NRA not engaged in trade or business
and who receives compensation for services rendered (NRANETB) in the Philippines.
abroad as a member of the complement of a vessel engaged
exclusively in international trade shall be treated as an An NRA who shall come to the Philippines and stay for an
overseas contract worker; aggregate of more than 180 days shall be deemed a
NRAETB.
(D) An alien individual, whether a resident or not of the
Philippines, is taxable only on income derived from sources Revenue
within the Philippines; ● Refers to all funds or income derived by the
government, whether from tax or any other
Classification of Individuals source.
● Resident Citizens – A citizen of the Philippines ❖ Grants received from other government
residing therein. Under Sec. 1, Art. IV of the 1987 ❖ Donations from non-government
Constitution, the following are citizens of the sources
Philippines. ❖ Loans from other entities (private and
gov’t entity)
1. Those who are citizens of the ❖ Administrative revenues (fines,
Philippines at the time of the adoption of penalties, forfeitures)
this Constitution; ❖ Commercial revenues (GOCC)
2. Those whose fathers or mothers are ❖ Tax (internal revenue and customs
citizens of the Philippines; duties)
3. Those born before January 17, 1973, of
Filipino Mothers, who elect Philippine Set-off or compensation
citizenship upon reaching the age of ● Taxes are not subject to set-off or compensation.
majority; and ● A person cannot refuse to pay tax on the ground
4. Those who are naturalized in that the government owes him an amount equal
accordance with law. to or greater than the tax being collected.

● Non-resident citizen Taxpayer’s suit

1. A citizen of the Philippines whose physical ● A taxpayer has a sufficient personality and
presence abroad is with a definite intention to interest to seek judicial assistance with a view of
reside therein – to the satisfaction of the restraining what he believes to be an attempt to
Commissioner of Internal Revenue. unlawfully disburse public funds.

2. A citizen of the Philippines who leaves the

Philippines during the taxable year to reside
abroad, either as an immigrant or for employment
on a permanent basis.

3. A citizen of the Philippines who works and derives

income from abroad and whose employment
thereat requires him to be physically present
abroad most of the time during the taxable year.

4. 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 with respect to his income derived from
sources abroad until the date of his arrival in the
Philippines. (Sec. 22[E] of the Tax Code)

● Resident Alien
1. An alien who lives in the Philippines with no
definite intention as to his stay (floating intention);
2. One who comes to the Philippines for a definite
purpose which in its nature would require an
extended stay and to that end makes his home
temporarily in the Philippines;

3. An alien who has acquired residence in the

Philippines and retains his status as such until he
abandons the same and actually departs from the
Philippines.

● Non-resident alien (NRA)

1. An alien who comes to the Philippines
for a definite purpose which in its nature
may be promptly accomplished.

2. One who may either be a:

❖ NRA engaged in trade or business
(NRAETB) in the Philippines or
 Government Offices Handling Tax Administrative
Functions
Department of Finance (DOF)–
- the principal office responsible for the
administration/supervision of matters and
issues related to taxation
- headed by the Department secretary
o supervises several tax
administrative agencies and
bureaus

Administrative offices under the supervision of DOF:

1. BIR
2. Bureau of Customs (BOC)
3. Land Transportation Commission (LTC)

Government officials who administer and enforce tax

administrative functions:
1. Secretary of Finance
2. Commissioner of Internal Revenue
3. Commissioner of Customs
4. Presiding judge and associate judges of Court of
Tax Appeals (CTA)
5. Deputy commissioners of the BIR
6. Regional directors and regional district officers of
Tax Legislation and Tax Administration the BIR
7. Provincial, city, and municipal treasurers
8. Examiners and collection agents of BIR and BOC

Bureau of Internal Revenue (BIR)

▪ Under the supervision and control of the DOF
▪ Created on June 14, 1939 through The Commonwealth
Act No. 466, which took effect on July 1, 1939 and
made BIR an effective agency for the collection of
taxes.
Legislative aspect
❖ is the process of levying or making taxation laws Powers and duties of the BIR
❖ the first stage of taxation and is vested in the 1. To assess and collect all national Internal
legislative branch of the government Revenue taxes, fees, and charges
2. To enforce all for features, penalties, and fines
Administrative aspect connected in the assessment and collection
❖ refers to the various procedures in tax assessment functions
and tax collection 3. To execute judgment in all cases decided in its
❖ usually implemented by the executive branch of favor by the CTA and the ordinary courts
the government, through its various administrative 4. To give effect, administer, and supervise police
offices. powers conferred to it by the tax code

Legislation of tax laws: ORGANIZATION OF THE BIR

1. Concurrence by a Majority of all members of the Officials of the BIR
Congress For a passage of a law granting tax a. BIR commissioner
exemptions. b. Four deputy commissioners – heads of
2. All appropriation, revenue or tariff bills show 1. Legal and enforcement group (now Legal
originate exclusively from the House of Group)
Representatives 2. Operation Group
3. The senate may propose or concur with 3. Information System Group
amendments 4. Resource Management Group
4. The committee will harmonize the bill introduced
by the House of Representatives and a parallel bill Other BIR officials vested with the task to administer
introduced in the Senate and enforce the tax code:
5. President’s Approval. The harmonized bill signed 1. Revenue Regional Director
by the president becomes a law. 2. Revenue District Officer
6. President’s Veto. the presidential have the power 3. Revenue Examiners and Officers
to veto any particular item or items in an 4. District Chiefs of the BIR
appropriation, revenue, or tariff bill, but the veto 5. BIR collection agents
shall not affect the item or items to which he does
not object. Powers and duties of the Bureau of Internal Revenue
7. The Congress may authorize the president to fix (BIR)
tariff rates, import and export quotas, tonnage and 1. The assessment and collection of all national
wharfage dues and other duties or imposts. Internal Revenue taxes, fees, and charges
8. Congress may provide for incentives including tax 2. The enforcement of all four features, penalties,
deductions to encourage private participation in and fines connected therewith
programs of basic in applied scientific research. 3. The execution of judgments in all cases decided in
its favor by the court of tax appeals and the
Tax Administration ordinary courts
It is a system involving assessment, collection, and 4. the giving effect two and the administering of the
enforcement of taxes, including the execution of judgment in supervisory and police power conferred to it by the
all tax cases deciding in the favor of the Bureau of Internal tax code or other laws.
Revenue by courts.
Powers of the BIR Commissioner
 1. Power to interpret tax laws - Exclusive and 8. perform such other functions is may be provided
original jurisdiction of the BIR commissioner, by law and as may be delegated by the BIR
subject to review by the secretary of finance commissioner
2. Power to decide tax cases - Subjective exclusive
appellate jurisdiction of the CTA Duties of Revenue District Officers
3. Power to obtain information, summon or take 1. Ensure that all laws and rules and regulations
testimony of persons – BIR Commissioner is affecting national Internal Revenue are faithfully
authorized to: executed and comply with
- Examine any book, paper, recorder other 2. aid in the prevention, detection, and punishment of
data which will be relevant or material to such frauds or delinquencies in connection with
inquiry enforcement and collection of tax liabilities
- obtain on a regular basis from any person 3. examine the efficiency of all officers and
other than the person was Internal Revenue employees of the BIR under his/her supervision
tax liability is subject to audit or investigation 4. report in writing to the BIR commissioner, through
- summon the person liable for tax or required the regional director, any neglect of duty,
to file a return incompetency, delinquency or malfeasance in
- Take such testimony of the person concerned office of any revenue officer of which he/she/they
under oath make obtain knowledge, with a statement of all the
- cause revenue officers and employees to facts and any evidence sustaining each case.
make a canvas concerning all persons so
may be liable to pay any Internal Revenue Agents and deputies for collection of National Internal
tax Revenue Taxes
4. Power to make assessment and prescribe
additional requirements - This power includes: 1. The commissioner of customs and his/her
a. Examination of returns and determine tax due subordinates with respect to the collection of
b. Assess the property tax and examine the national Internal Revenue taxes on imported
best evidence available on returns, reports, goods
and other documents not submitted 2. The head of appropriate government office and
c. Authority to conduct inventory-taking his/her subordinates with respect to the collection
surveillance and to prescribe presumptive of energy tax
gross sales and receipts. 3. Banks duly accredited by the BIR commissioner
d. Authority to terminate taxable. with respect to receipts of payments of Internal
e. Authority to prescribe real property values Revenue taxes authorized to be made through
f. Authority to inquire bank deposit accounts banks
g. Authority to accredit and registered tax
agents ORGANIZATION OF THE BUREAU OF CUSTOMS (BOC)
h. Authority to prescribe additional procedural or Chief Officials of the BOC
documentary requirements 1. One chief
2. Four assistant Chiefs, known respectively as the
5. Authority of the Commissioner to delegate Commissioner of Customs
powers - The BIR commissioner may delegate the
powers to any or such subordinate officials with Deputy commissioners
the rank equivalent to any division chief or higher, The BOC should have 5 deputy commissioners, each one to
subject to such limitations and restrictions as may head:
be imposed under the rules and regulations to be 1. Customs Revenue Collection Monitoring Group
promulgated by the Secretary of Finance upon the 2. Customs Assessment and Operations
recommendation of the BIR commissioner. Coordinating Group
- The following power shall not be delegated: 3. Intelligence and Enforcement Group
1. the power to recommend the 4. Internal Administration Group
promulgation of rules and regulations by 5. Management System Technology Group
the secretary of finance
2. the power to issue rulings of first Appointment of the Commissioner and the Deputy
impression or to reverse, revoke or Commissioners
modify any existing rulings of the BIR The President of the Philippines shall appoint the
3. the power to compromise are abate any Commissioner and the Deputy Commissioners of Customs.
tax liability LOCAL TAX COLLECTING UNITS
4. the power to assign or reassign Internal Scope of local taxes - the provision under local government
Revenue officers to establishments taxations shall govern the exercise by provinces, cities,
where the articles subject to excise tax municipalities, and barangays of their taxing and other
are produced or kept revenue-raising powers.

Powers and duties of revenue regional director Local Taxing Authority - the power to impose a tax, fee, or
1. Implement laws, policies, plans, programs, and charge or to generate revenue under this code shall be
rules and regulations of the Department or exercised by the Sanggunian of the local government unit
agencies in the regional area concerned through an appropriate ordinance.
2. administer and enforce Internal Revenue laws, venue of filing of return - all local taxes, fees, and charges
and rules and regulations, including the shall be collected by the provincial, city, municipal, or
assessment and collection of all Internal Revenue barangay treasurer, or their duly authorized deputies.
taxes, charges, and fees
3. issue letter of authority for the examination of Time of filing of tax return - unless otherwise provided in
taxpayers within the region the code, all local taxes, fees, and charges shall be paid
4. provide economical, efficient, and effective service within the first 20 days of January or of each subsequent
to the people in the area quarter as the case may be
5. coordinate with regional offices or other
departments, bureaus, and agencies in the area - The Sanggunian concerned made, for
6. coordinate with LGUs in the area adjusted viable reason or cost, extend the
7. exercise control and supervision over the officers time of payment of such taxes, fees, or
and employees within the region charges without surcharges or penalties, but
only for a period not exceeding six (6)
months.
 b. tax and duty-free importation of raw materials,
ORGANIZATION OF BOARD OF INVESTMENTS (BOI) capital equipment, machineries, and spare parts
Composition of the board c. exemption from wharfage dues and export tax,
The BOI shall be composed of seven (7) governors: impost, or fees
a. The Secretary of Trade and Industry d. VAT zero-rating of local purchase is subject to
b. Three (3) Undersecretaries of Trade and Industry compliance with BIR and PEZA requirements
to be chosen by the president e. exemption from payment of all local government
c. three (3) representatives from other government impost, fees, licenses or taxes; and
agencies and the private sector f. exemption from expanded withholding tax

The secretary of Trade and Industry shall be concurrently Non-fiscal incentives, on the other hand include:
chairman of the board and the Under Secretary of the a. simplified import-export procedures, extended visa
Department of Trade and industry for industry and facilitation assistance to foreign nationals and
investments shall be concurrently the vice chairman of the b. spouses and dependents; special visa multiple entry
board and its managing head. privileges
c. and more
The three representatives from the other government
agencies in the private sector shall be appointed by the
president for a term of four years.

Upon the expiration of his term, a governor shall serve as

such until his successor should have been appointed and
qualified.

No vacancy shall be filled except for the unexpired portion of

any term, and that no one may be designated to be governor
of the board in an acting capacity, but all appointments shall
be ad interim or permanent.

PHILIPPINE ECONOMIC ZONE AUTHORITY

Purpose of Creation
The Philippine Economic Zone Authority (PEZA) is a
government agency in the Philippines attached to the
Department of Trade and industry created to help promote
investments in the export-oriented manufacturing industry
into the country by assisting investors in registering and
facilitating their business operations and providing tax
incentives.

PEZA also assists investors to locate in service facilities

inside selected areas in the country (areas are called PEZA
special economic zones) which are usually business process
outsourcing and knowledge process outsourcing firms.
Other activities also eligible for PEZA registration and
incentives include establishment and operation within special
economic zones for tourism, medical tourism, logistics and
warehousing services, economic zone development and
operation and facilities providers.

Composition of PEZA Board

PEZA was enacted under Republic Act 7916 and was
passed by the House of Representatives in the Senate and
approved by former Philippine president Fidel V. Ramos on
February 21, 1995.

As provided in the special economic zone act, the PEZA

board is:
a. chaired by the Secretary of the Department of
Trade and Industry
b. Vice chair is the director general (chief executive
officer) of PEZA
c. Members of the board are Under Secretaries
representing nine key government departments, to
ensure efficient coordination between PEZA and
their respective departments on matters pertaining
to investors' operations inside the special
economic zones.

Incentives offered by PEZA

PEZA offers both fiscal and non-fiscal incentives as well as
ready-to-occupy business locations in world-class economic
zones and IT parks or buildings.

Fiscal incentives include:

a. income tax holiday for a certain number of years,
which translates to 100% exemption from
corporate income tax