BMGT 28: Taxation Cooperative Development Authority
(CDA) rules.
Further topic discussion for your review & 3. Estates and Trusts – Taxed similarly to
study individuals.
Taxation in the Philippines: Subjects, Situs, 2. Situs of Taxation (Place of Taxation)
and Limitations
The situs of taxation determines where a tax
Taxation is one of the inherent powers of the should be imposed. It follows these general
State, allowing the government to impose and rules:
collect taxes from individuals and businesses to
fund public services. However, this power is 1. Income Tax – The place where income
subject to certain limitations to prevent abuse is earned determines taxation.
and ensure fairness. o Resident citizens and domestic
corporations: Taxed on
1. Who Are Subject to Taxation in the worldwide income.
Philippines? o Non-resident citizens, resident
aliens, and foreign corporations:
The subjects of taxation refer to individuals and Taxed only on Philippine-
entities required to pay taxes in the Philippines. sourced income.
These include: 2. Property Tax – Taxed where the
property is located.
3. Business Tax (e.g., VAT, Percentage
A. Individuals (Natural Persons)
Tax) – Taxed where the business
operates or where the sale occurs.
1. Resident Citizens – Taxed on their 4. Estate Tax and Donor’s (Gift) Tax
worldwide income. o If the decedent or donor is a
2. Non-Resident Citizens – Taxed only on resident citizen, their
Philippine-sourced income. worldwide properties are
3. Resident Aliens – Taxed only on taxable.
Philippine-sourced income. o If the decedent or donor is a
4. Non-Resident Aliens (Engaged or Not
non-resident, only Philippine-
Engaged in Trade/Business) – Taxed
based properties are taxable.
on Philippine-sourced income, with
5. Excise Tax – Taxed where the goods
different tax rates applied.
are produced, manufactured, or sold.
B. Corporations (Juridical Persons)
3. Limitations on the Power of Taxation
1. Domestic Corporations – Taxed on
The power of taxation is broad, but it is subject
worldwide income.
to certain constitutional, inherent, and
2. Resident Foreign Corporations –
legislative limitations to prevent abuse.
Taxed only on Philippine-sourced
income.
3. Non-Resident Foreign Corporations – A. Inherent Limitations (Limitations Imposed
Taxed only on Philippine-sourced by the Nature of Taxation)
income, usually through final withholding
tax. These limitations apply to taxation as a
fundamental power of the state:
C. Other Entities
1. Public Purpose – Taxes must be used
1. Partnerships – Generally taxed as for public services and welfare, not for
corporations. private benefit.
2. Cooperatives – Generally tax-exempt if 2. Non-Delegation of the Power to Tax –
registered and compliant with Congress cannot delegate its power to
tax to another body unless expressly B. Constitutional Limitations (Imposed by the
allowed by law. Philippine Constitution)
3. Territoriality or Situs – Taxes can only
be imposed on persons, properties, and These limitations ensure fairness and protect
transactions within the jurisdiction of taxpayers' rights:
the taxing authority.
4. Exemption of Government Entities – 1. Due Process Clause (Art. III, Sec. 1 of
The government cannot tax itself or its the 1987 Constitution)
agencies performing essential o The
government functions.
5. International Comity – The Philippine
government respects the tax sovereignty
of other countries.
o government
o cannot impose taxes arbitrarily o All tax bills must start in the
or unfairly. House of Representatives,
2. Equal Protection Clause (Art. III, Sec. though the Senate may propose
1) changes.
o Tax laws must apply equally to
all individuals and entities in C. Legislative Limitations (Imposed by Laws
similar situations. Passed by Congress)
o Example: Two businesses with
the same income should be These limitations ensure fairness and prevent
taxed at the same rate. excessive taxation:
3. Rule of Uniformity and Equity (Art. VI,
Sec. 28(1))
1. Special Tax Exemptions – Some
o Taxes must be uniform (same
individuals and organizations (e.g.,
tax rate for similar taxpayers) religious institutions, charities) are
and equitable (ability to pay is exempt from certain taxes.
considered). 2. Limitations on Local Government
o Example: Progressive income Taxation – Local government units
tax rates (higher earners pay (LGUs) can only impose taxes as
higher taxes) follow this authorized by the Local Government
principle. Code.
4. No Taxation Without Representation 3. Tax Treaties and Agreements – The
(Art. VI, Sec. 28(1)) government may enter agreements with
o Congress must approve tax other countries to avoid double taxation.
laws, ensuring democratic
representation in taxation.
4. Case Scenario: Applying the Limitations
o Example: The government
on Taxation
cannot impose a new tax
without congressional approval.
5. Non-Impairment of Contracts (Art. III, Case: Taxation of an International Business
Sec. 10)
o Tax laws cannot invalidate valid Facts:
contracts between private XYZ Corp., a domestic corporation, operates in
parties. the Philippines and has a branch in Japan. The
6. No Imprisonment for Non-Payment of company earns ₱100 million in the Philippines
Poll Tax (Art. III, Sec. 20) and ₱50 million in Japan. The Philippine
o A person cannot be jailed for government attempts to tax XYZ Corp. on its
failing to pay a community tax total income, including its earnings from Japan.
(cedula).
7. Revenue Bills Must Originate from Analysis:
the House of Representatives (Art. VI,
Sec. 24)
1. Situs of Taxation – Since XYZ Corp. is Payroll tax—A percentage withheld from
a domestic corporation, it is taxed on an employee’s pay by an employer, who
worldwide income, so its Japan pays it to the government on the
earnings are taxable in the Philippines. employee’s behalf to fund Medicare and
2. International Comity – If there is a tax Social Security programs
treaty between the Philippines and Corporate tax—A percentage of
Japan, XYZ Corp. may claim a foreign corporate profits taken as tax by the
tax credit to avoid double taxation. government to fund federal programs
3. Due Process – If XYZ Corp. argues that Sales tax—Taxes levied on certain
the tax imposition is unfair, it can goods and services; varies by
challenge it in court. jurisdiction
Property tax—Based on the value of
Topic: What Are Taxes? land and property assets
Tariff—Taxes on imported goods;
Taxes are mandatory contributions levied on imposed with the aim of strengthening
individuals or corporations by a government domestic businesses
entity—whether local, regional, or national. Tax Estate tax—Rate applied to the fair
revenues finance government activities, market value (FMV) of property in a
including public works and services such as person’s estate at the time of death; the
roads and schools, or programs such as Social total estate must exceed thresholds set
Security and Medicare. by state and federal governments
Types of Taxes Why Do We Pay Taxes?
There are several very common types of taxes: Taxes are the primary source of revenue for
most governments. Among other things, this
money is spent to improve and maintain public
Income tax—A percentage of generated infrastructure, including the roads we travel on,
income that is relinquished to the state and fund public services, such as schools,
or federal government emergency services, and welfare programs
