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PHILIPPINE
TAXATION
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BENJAMIN FRANKLINWROTE, INTHISWORLD,NOTHINGCANBESAIDTO
BECERTAINEXCEPTDEATHANDTAXES.
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Mans love to his country isalways opposed by hisdispleasure to part away withhis treasure or savings to paytaxes.
Nobody Enjoys
Paying Taxes
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The Question
About Paying
Taxes
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WHYSHOULDWEPAY
TAXES?
Taxes are the lifeblood of
the nation. (Lifeblood theory)
Without taxes, governmentcan neither exist nor endure.
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[] In Luke, 20:22-25, Jesus wasasked by the Pharisees, Tell us,
is it against our law for us to paytaxes to the Roman Emperor ornot?
Taxation is in Accord with
the Bible
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Jesus said to them, show me asilver coin. Whose face and name
are these on it? The Emperors,
they answered. So Jesus said,well then, pay to the Emperor
what belongs to the Emperor and
pay to God what belongs to God.
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Taxation
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DEFINITION
[] An inherent power ofsovereign[] Imposes burden uponpersons and property
[] Raises revenues forpublic purposes
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As opined by CJ Marshall of the
US SC, taxation is a destructivepower which interferes with thepersonal and property rights of the
people as it takes from them aportion of their property for thesupport of the government.
Power to Tax Includes
the Power to Destroy
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Justice Holmes of US SCbrushed aside Marshalls viewby declaring that the power
to tax is not the power todestroy while this Court sits.
Contrary View: Power to Tax
Not Power to Destroy
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[] A valid tax should not be judiciallyrestrained merely because it would
prejudice taxpayers property.
[] An illegal tax could be judicially
declared invalid.
Reconciliation of
Marshalls View withHolmes View
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THEORYAND BASISOFTAXATION
[] Necessity theory
[] Benefits-Protectiontheory
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OBJECTIVESOF
TAXATION
[] Revenue[] Regulatory
[] Compensatory
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STAGESOF TAXATION
[] Levy or imposition of tax[] Collection (including
assessment)
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[] National Tax Laws
NIRC and Tariff and Customs Code[] Local Tax Laws
Local Government Code on Local Tax
Ordinances[] Miscellaneous Tax Laws
Philippine Tax Laws
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As long as the legislature, inimposing a tax, does not violate applicable
constitutional limitations or restrictions,the courts cannot inquire into the wisdomof a taxing act.
The Courts power in taxation islimited only to the application andinterpretation of the law.
Power of Judicial Review in
Taxation
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CHARACTERISTICSOF
TAXES[] An enforced contribution[] Generally payable in money
[] Proportionate in character
[] Levied on persons, property or exerciseof a right or privilege
[] Levied by state having jurisdiction
[] Levied by legislature[] Levied for public purpose
[] Paid at regular a periods or intervals
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BASIC PRINCIPLESOFA
SOUND TAX SYSTEM
[] Fiscal adequacy[] Administrative feasibility
[] Theoretical justice
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CLASSIFICATIONOF TAXES
As to subject or object
1. Personal (poll or capitalization)Imposed on all residents, whether citizens or not
(e.g.,community tax)
2. Property
Imposed on property (e.g.,property tax)
3. ExciseImposed upon performance of an act, the
enjoyment of a privilege or the engaging in occupation(e.g.,income tax, estate tax, donors tax)
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WHOBEARSTHEBURDEN
1. Direct
Personal taxes due from naturalpersons; non-transferable (e.g.,incometax, donors tax, estate tax)
2. Indirect
Business taxes due from either natural
or juridical persons; transferable(e.g.,VAT, documentary stamp tax)
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DETERMINATIONOFAMOUNT
1. SpecificBased on some standard of weight or
measurement (e.g., excise taxes on distilled
spirits and wines, cinematographic films)
2. Ad valorem
Based on the value fixed by law or as
appraised (e.g., real estate tax, custom duties)
3. Mixed or compound
Both specific and ad valorem
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PURPOSE
1. GeneralFor purpose of raising public funds
for the government (e.g., income tax,
VAT, transfer taxes)
2. SpecialPrimarily for the regulation of
useful or non-useful occupation orenterprises and secondarily only forraising public funds (e.g.,customsduties, excise taxes)
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GRADATIONORRATE
1. Proportional or flat rateRate of tax increases or
decreases in relation to bracket.
2. ProgressiveIncreases as the tax base or bracket
goes higher
3. RegressiveDecreases as the tax base or
bracket goes higher
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IMPOSINGAUTHORITYNationalTaxes imposed by national government(e.g.,NIRC taxes)
LocalTaxes imposed by local government units
(e.g., community taxes, business licensesand permits, professional tax, real estatetax)
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Sources
[] Philippine Constitution
[] Existing tax laws of the Philippines
(National, Local and Miscellaneoustax laws)
Tax Laws, In
General
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NATURE[] Not political in character
[] Civil in nature and not subjectto
ex post factolaw prohibition
[] Not penal in character
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[] Tax evasion
[] Tax avoidance
Escape from
Taxation
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A tax evader breaksthe law (tax
evasion), the taxavoider sidesteps it
(tax avoidance).
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As a general rule,there are no limitations
upon the power to tax.
LIMITATIONS ON THE
POWER OF TAXATION
RATIONALE FOR
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RATIONALEFORLIMITATIONS
To prevent abuse on the exercise ofthe otherwise unlimited power of
taxation.
To serve as a standard fordetermining whether a tax law or anact of the taxing authorities in theimplementation of tax laws is valid ornot.
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LIMITATIONSONTHEPOWEROF
TAXATIONInherent limitations
These are part and parcel of the power
of taxation and originate from the verynature of taxation.
Constitutional limitations
These are the restrictions imposed bythe constitution.
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oPublic purpose of taxes
oNon-delegability of the taxing power
oTerritoriality or the situsof taxation
oExemption of the government from
taxes
o International comity
INHERENT
LIMITATIONS
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Due process of the lawEqual protection of the law
Freedom of speech and of the press
Non-infringement of religiousfreedom
CONSTITUTIONAL
LIMITATIONS
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Non-impairment of contracts
Non-imprisonment for debt or
non-payment of poll tax
Origin of appropriation, revenue and
tariff bills
Uniformity, equitability and
progressivity of taxation
Delegation of legislative authority to
fix tariff rates, import and export quotas
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Tax exemption of properties actually, directlyand exclusively used for religious, charitable and
educational purposes. Voting requirements in connection.
with the legislative grant of tax exemption.
Non-impairment of the Supreme . Courts jurisdiction in tax cases.
Tax exemption of revenues and assets,including grants
endowments, donations or contributions toeducational institutions.
.
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Double taxation, in its
general sense, meanstaxing the same subject or
object twice during the sametaxing period.
DOUBLE TAXATION
N hibi i
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There is no constitutional
prohibition against double taxation inthe Philippines.
It is something not favored, but isnevertheless permissible.
Double taxation is not prohibited by ourconstitution.
No prohibitionagainst double
Taxation
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1. Direct double taxation
Taxing the same object or property twice,by the same taxing authority, for the sametaxing purpose, within thesame tax period.
2. Indirect double taxationNot repugnant to the constitution.
Kinds of Double
Taxation
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An exemption from taxation may be
defined as a grant of immunity, expressor implied, to particular persons orcorporations from the obligation to pay
taxes.
TAX EXEMPTIONS
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Immunities from taxation whichoriginate from the Constitution areknown as constitutionalexemptions; those which emanatefrom legislation are statutoryexemptions.
Kinds of Tax Exemptions
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Exemptions from taxation are highly
disfavored in law.
He who claims exemption should proveby convincing proof that he is
exempted.
Selected Principles
Governing Tax Exemptions
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Tax exemptions must bestrictly construed.
Tax exemptions are notpresumed.
Constitutional grants of tax
exemption are self-executing. Tax exemptions are personal.
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No statutory construction needed if law is
clear.
Statutes granting tax exemptions are
construed stricissimi jurisagainst thetaxpayer and liberally in favor of thetaxing authority.
Interpretation of Tax
Laws
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Income Taxation-
Individuals
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GENERALPRINCIPLESOFINCOMETAXATIONINTHE
PHILIPPINESORTHESOURCERULEOFINCOMETAXATIONFORASPROVIDEDINTHE NIRC OF 1997.
a. A citizen of the Philippines residing
therein is taxable on all income derivedfrom sources within and without thePhilippines.
b.
A nonresident citizen is taxable onlyon income derived from sources withinthe Philippines.
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c.An individual citizen of the Philippines
who is working and deriving income abroadas an overseas contract worker is taxableon income from sources within thePhilippines. Provided, That a seaman who
is a citizen of the Philippines and whoreceives compensation for servicesrendered abroad as a member of thecomplement of a vessel engaged
exclusively in international trade shall betreated as an overseas contract worker.
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d. An alien individual, whether aresident or not of the Philippines,is taxable only on income
derived from sources within thePhilippines.
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INCOME TAXATION2
Basic formula for the computation ofincome tax of a resident citizen from
income derived solely fromcompensation.
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Gross compensation income
derived from all sources from withinand without the Philippines
LESS: Personal and additionalexemptions (1)
Insurance premium for health
and hospitalization (2)
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-------------------------------------------------------Taxable Income
MULTIPLIED BY: The schedular tax rate-------------------------------------------------------Income Tax dueLESS: Taxes withheld on the compensation
incomeTax credits
-------------------------------------------------------
Net Income Tax payable================================
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Income Taxation 3
Personal exemption (regardless of status)
P50,000
Additional exemption (whether
single or married) P25,000
for each qualified dependent child not toexceed four (4) dependents
Insurance premium for health
and hospitalization (family hasgross income of not more than
P250,000 for taxable year P2,400
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Income Taxation4
Basic formula for the
computation of income tax of aresident citizen from mixed incomederived both from compensation and
from exercise of a profession or fromengaging in trade or business.
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Gross compensation income derived
from all sources from within andwithout the Philippines
LESS: Personal and additionalexemptions (1)
Insurance premium for healthand
hospitalization (2)
--------------------------------------------------------------
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Taxable Compensation Income
PLUS: Net income derived from exercise of a
profession or engaging in trade or business
(see page 6 for formula) ***
--------------------------------------------------------------
Total mixed taxable incomeMULTIPLIED BY: The schedular tax rate
--------------------------------------------------------------
Income Tax due
(Forward)
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Income Taxation 5
Income Tax dueLESS: Taxes withheld on the
compensation income
Quarterly income taxes paidTax credits
-------------------------------------------------
Net Income Tax payable on mixed income==============================
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Income Taxation6
*** Computation of net income derived fromexercise of a profession or engaging in trade orbusiness under the optional standard
deduction.
Total receipts from all sources from
within and without the Philippines
LESS: Exclusions from gross income
Income subject to final taxes
--------------------------------------------------------------
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Gross receipts derived from all sources from withinand without the Philippines*
LESS: Excess personal and additionalexemptions (1)Insurance premium for health and
hospitalization (2)Optional standard deduction (40% of
gross receipts derived from all sources withinand without the Philippines*)
--------------------------------------------------------------Net income derived from exercise of a profession
or engaging in trade or business
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Income Taxation7
*** Computation of net income derived fromexercise of a profession or engaging in trade orbusiness using itemized deduction.
Total sales from all sources from
within and without the Philippines
LESS: Exclusions from gross income
Income subject to final taxes
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---------------------------------------------------------Gross sales derived from all sources from
within and without the PhilippinesLESS: Excess personal and additionalexemptions (1)
Insurance premium for health and
hospitalization (2)Itemized deductions---------------------------------------------------------Net income derived from exercise of a
profession or engaging in trade or business
Income Taxation
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Income Taxation8
NOTES AND COMMENTS ON MIXED
INCOME.
An individual receiving a combination ofcompensation, business and professional
income shall first deduct the allowablepersonal and additional exemptions fromcompensation income, only the excess therefrom can be deducted from business or
professional income.
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In the case of husband and wife, the
husband shall be the proper claimant forthe exemptions unless he waives it in favor
of his wife.
================================
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CONTENTSOFTHISMATERIALWASSOURCEDFROMTHEFOLLOWINGREFERENCETEXTBOOKS:
TAXATION, VOLUME 1, GENERAL PRINCIPLESBY ABELARDO T.
DOMONDON, 2009 9TH EDPHILIPPINE TAXATION HANDBOOK, A SIMPLIFIED COURSEBY
DANILO A. DUNCANO, CPA, 2009 EDLAWOF BASIC TAXATIONINTHE PHILIPPINESBY BENJAMIN B.
ABAN, REVISED EDITION
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******THE END********