0% found this document useful (0 votes)
11 views42 pages

Module 01 General Principles

Uploaded by

bhryflores
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
11 views42 pages

Module 01 General Principles

Uploaded by

bhryflores
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 42

The Law on Taxation

Atty. Luis Gerardo C. Manabat C.P.A., F.I.C.D.


De La Salle University
Module 01

Introduction and
General Principles
NOTHING IN THIS
WORLD IS
CERTAIN EXCEPT
DEATH AND
TAXES!!!
DEFINITIONS

• Taxation is the inherent power of the


state to enforce contributions and raise
revenues to defray the necessary costs
of government.
• Taxes are the enforced proportional and
pecuniary contributions from persons and
properties levied by the state having
jurisdiction over the subject of the burden
to support the government and all public
needs
PURPOSES OF TAXATION

THE PRIMARY PURPOSE OF TAX IS TO RAISE


FUNDS TO DEFRAY COST OF GOVERNMENT

Secondary Purposes of Tax


•Strengthen anemic enterprises or provide incentives for greater production.
•Protect local industries
•Used as a bargaining chip against other countries with goods being imported
into the Philippines.
•Curb spending power to halt inflation or if it is suspended ward off depression.
•Reduce inequalities in wealth and income
•Promote science and invention
PURPOSES OF TAXATION

Secondary Purposes of Tax

•Improve the efficiency of local police force.


•Implement policies as an exercise of police power.
•Provide incentives or discouragement for certain acts or activities.
•Improving the way of life of people by providing exemptions or non-taxabilities on
certain income brackets.

There are other secondary purposes and so long as


the tax is for public purposes, any collateral
purposes or motives will not affect the tax.
ESSENTIAL CHARACTERISTICS OF TAX

 It is an enforced contribution
 It is proportionate in character
 It is generally payable in money
 It is levied on persons or property
 It is levied by the state which has jurisdiction
over the person or property
 It is levied by the law-making body of the state
 It is levied for public purposes
NATURE OF THE POWER OF TAXATION
 It is inherent in sovereignty
 It is legislative in character
 It is subject to constitutional and inherent
limitations.

THEORY AND BASIS OF TAXATION


 Existence of government
 Reciprocal duties of state and inhabitants
 Public Purpose requirement for lawful taxation
ASPECTS OF TAXATION (Or the Tax System)

• Levying of Tax • Collection of Tax


 Legislative in character  Administrative in
 It is the exercise of the Character
power to impose the  Implements the tax laws
tax on its subject by Through
passing laws and/or assessments of taxes
ordinances Collection of the
same.
EXTENT OF THE LEGISLATIVE POWER TO
TAX

The legislature, subject to constitutional


limitations, can determine the following matters
in tax laws:
The subjects or objects to be taxed
The purpose or objective of the tax so long as
it is a public purpose
The amount or rate of tax
The manner, means and agencies of
collection of the tax.
BASIC PRINCIPLES OF A SOUND TAX
SYSTEM

 Fiscal Adequacy – Sufficiency of the tax


 Administrative Feasibility – Viability of the tax
 Equality or Theoretical Justice – Fairness of tax

This determines how efficient the tax system is in performing its functions. It
does not determine the validity or legality of the taxes imposed.
CLASSIFICATIONS AND DISTINCTIONS

 As to subject matter
 Personal, Poll or capitation
 Property
 Excise

 As to who bears the burden


 Direct
 Indirect

 As to determination
 Specific
 Ad Valorem
CLASSIFICATIONS AND DISTINCTIONS

 As to purpose
 General, fiscal or revenue raising
 Special or regulatory
 As to scope
 National
 Municipal or local

 As to graduation or rate
 Proportional
 Progressive or graduated
 Regressive
CLASSIFICATIONS AND DISTINCTIONS

 As to determination
 Specific
 Ad Valorem

 As to purpose
 General, fiscal or revenue raising
 Special or regulatory
LIMITATIONS ON THE POWER OF
TAXATION

Constitutional Limits Inherent Limits


 Those expressly found in the  Limits imposed due to the very essence
Constitution of implied from its of Taxation
provisions
 Due Process Clause  Tax must be for Public Purpose
 Equal Protection Clause  Non-delegation of legislative power
 No appropriation for religious
purposes to tax
 Exemptions from Tax  Exemption of Government from Tax
 Veto Power of the President
 Non-impairment of the Supreme
 International Comity
Court Jurisdiction  Territorial Jurisdiction
SITUS OF TAXATION/DOUBLE TAXATION

 Situs of Taxation – “Place of Taxation” (Determines


how taxes are shared by different jurisdiction)
Of particular concern is Internet Commerce

 Double Taxation means:


 Being Taxed twice
 By the same Taxing authority
 Within the same jurisdiction
 For the same purpose
 In the same taxable year/period
ESCAPES FROM TAXATION

 Without Government Revenue Loss


 Shifting
 Capitalization
 Transformation
 Resulting in Loss of Revenue for Government
 Avoidance
 Evasion
 Exemption
ESCAPES FROM TAXATION
With no Government Revenue Loss

SHIFTING
Where the burden of paying the tax is shifted to another person

Taxpayer
The one who
incurs the tax

Shifts Shifts

Charges Charges

Seller Buyer
ESCAPES FROM TAXATION
With no Government Revenue Loss

CAPITALIZATION
occurs if the burden of the tax is incorporated in the value of long-term assets

Taxpayer Buyer

Sells

Pays the
Makes the tax
same price
as part of the
but absorbs
cost at reduced
the tax
price of item
Taxpayer Company
ESCAPES FROM TAXATION
With no Government Revenue Loss

TRANSFORMATION
occurs when the taxes are “offset” by the seller with some benefits

Taxpayer Buyer

Sells

Includes Freebies that does not increase the price

Effectively the seller had transformed


the tax into freebies for the Buyer
ESCAPES FROM TAXATION
With Loss of Government Revenue

Avoidance means anticipating the tax Evasion does nothing to avoid the tax
exposure and making plans to avoid exposure from occurring but instead
the tax exposure from occuring misrepresent the transaction to avoid
paying the tax
ESCAPES FROM TAXATION
With Loss of Government Revenue

EXEMPTION
Exemption is the grant of immunity to a particular persons or corporations or to persons or
corporations of a particular class from a tax which persons or corporations within the same
state to taxing district are obliged to pay
CONSTRUCTION OF TAX LAWS

 Legislative Intent is considered


 In case of doubt, resolve strictly against the
government and liberally in favor of the
taxpayer.
 In case of exemptions, the rule is reversed
 Where language is plain then literal meaning is
used.
 In case of conflicts with other laws, if conflict is
a matter of tax, the tax law prevails.
APPLICATION OF TAX LAWS

 Generally, tax laws prospective unless


provided for specifically by the law and is not
harsh and oppressive.
 Tax treaties are applied as a tax law
provided it is confirmed in accordance with
law.
Note that any error made by the
government in applying tax laws are not
prejudicial to the government.
SOURCES OF TAX LAWS

 Legal Rules on Taxation


 Legislation or statutes
 Administrative Rules and Regulations
 Judicial Decisions

 Treaties with other countries


 Tax Treaties
 Other Treaties
KINDS OF TAXES UNDER THE NIRC

 Income Taxes
 Transfer Taxes (Estate and Donor’s)
 Value-Added Taxes
 Other Percentage Taxes
 Excise Taxes
 Documentary Stamp Taxes
 Such other taxes may be promulgated
Module 01

Introduction and
General Principles
Tax Reforms in the Philippines
TAX REFORMS IN THE PHILIPPINES

Under the term of Pres. Rodrigo R. Duterte, he had seen how


complex and confusing the tax laws of the Philippines had
become so much that the ordinary taxpayers are encouraged
to just cheat than comply.

He thus proposed sweeping tax reforms in the form of new


legislations that would be enacted in 4 to 5 stages (one for
each year of his term).

The first two laws were passed during his term and a third law
was passed by the incumbent President Ferdinand R. Marcos.
These laws are:
• Republic Act 10963 – or the TRAIN Law
• Republic Act 11534 – or the CREATE Law
• Republic Act 11976 – or the EOPTA Law
R.A. 10963 – THE TRAIN LAW

• Republic Act 10963 otherwise known as the Tax


Reform for Accelaration and INclusion Law is a Tax
Reform measure introduced by the current
administration in order to fund the government’s
efforts to accelerate economic development of the
country in a more sustainable and inclusive manner.
• This is the first of the series of tax reform laws that
was envisioned to be enacted in order to finance the
“Build, Build, Build” policy of the current
administration.
R.A. 11534 – THE CREATE LAW

Originally coined as the ‘TRABAHO” Law, the onset of


the COVID Lockdowns, Covid Alleviation provisions
were added to the law and the name of the law
became “CREATE” for Corporate Recovery and Tax
Incentives for Enterprises. In essence however the
principles for the reform were to rationalize the system
for corporate taxpayers to:
 Make the corporate tax system more uniform and
less burdensome to encourage investors
 Codify and harmonize the various exemptions
 Generate more employment opportunities
R.A. 11976 – THE EOPTA LAW

The most recent reform was R.A. 11976 or the


Ease of Paying Taxes Act” whose purpose was:
 Update and modernize the tax administrative
system to enable the taxpayers to pay their taxes
more efficiently and easier.
 To enact policies and procedures which are
appropriate to the different types of taxpayers
 Aim to generate more revenues for the
government.
FUTURE TAX REFORM LAWS???

Out of the planned 4 or 5 tax reform laws to revamp the


tax laws of the country and its system, only 3 have come
to fruition. While there does not seem to be any indication
that any more tax reform laws are in the offing, it yet
remains to be seen if anymore will be enacted as planned.
Module 1b

GENERAL CONCEPTS
INTRODUCED BY R.A. 11976
NEW CLASSIFICATIONS OF TAXPAYERS

 R.A. 11976 classified taxpayers according to size, to wit:


 Micro Taxpayers – Less than P3,000,000
 Small Taxpayers – P3,000,000 to less than
P20,000,000
 Medium Taxpayers – P20,000,000 to less than
P1,000,000,000
 Large Taxpayers – P1,000,000,000 and over

 There is some clarification that needs to be made as to


what the amounts refer to (i.e. amount of Income, Taxes,
size, etc.) but is expected to be clarified by the tax office
in their revenue issuances.
NEW CLASSIFICATIONS OF TAXPAYERS

 Previous to the new classification, there were only 2


classifications, which is Large Taxpayers and all the rest.
Large Taxpayers have typically been given more
attention due to the amount of revenue it brings to the
government.
 The purpose of the new classification is to enable the
creation of streamlined processes and procedures for
taxpayers that is in synch with their level of operations
and would not serve to unduly burden the taxpayer in
complying with their tax obligations.
 Another purpose indicated is to allow for certain rules to
be made for specific taxpayers that does not need to be
applied to all due to the size and level of operations that
the taxpayer have.
REGISTRATION OF TAXPAYERS

 All taxpayers who are subject to any internal revenue tax shall
register once, either electronically or manually, with the
appropriate Revenue District Office:
 Within 10 days from date of employment, or
 On or before the commencement of business, or
 Before payment of any tax due, or
 Upon filing of a return, statement or declaration as
required by the tax code
 Upon initial registration, the taxpayer shall be issued a Tax
Identification Number which shall be needed to be disclosed
whenever the taxpayer files any return, statement or other
document with the tax office.
 The registration shall update such registration as may be
needed to take into account each type of internal revenue tax.
REGISTRATION OF TAXPAYERS

 Update of the registration is also needed in the event the


taxpayer transfers the place of business, head office or
branch.
 Registration may also be cancelled upon mere filing, either
electronically or manually, with the Revenue District Office
that that taxpayer is registered in the form prescribed therefor.
However, this does not preclude the Commissioner of Internal
Revenue or his authorized representative to conduct an audit
to determine any tax liability. (Sec. 236 as amended)
 Registrations of Taxpayers are now free (Previously, there was collected an
annual registration fee of P500 per separate or distinct establishment or place of business upon registration and every year
thereafter. This has been repealed by the EOPTA
DOCUMENTARY BASIS OF TAXATION

 The Tax Code now requires the issuance of duly registered


sales or commercial invoices for transactions valued at P500
and above.
 In previous rules and regulations, the primary documents of
taxation are the official receipts and invoices. However, under
R.A. 11976 the apparent documentation is based on
commercial invoices.
 The implication of this change is that tax accounting now
operates on the accrual method and no longer recognizes
cash basis as the basis of taxation
 However, the Bureau of Internal Revenue may issue new
guidance on the role of Official Receipts in the tax
administration process
WITHHOLDING OF TAXES

 Some income are subject to withholding tax. This is the


process by which portions of a taxpayer’s income is withheld
by the payor before the income is paid to the taxpayer. This
is then remitted by the payor directly to the government.
 In most cases, the amount withheld from the income payment
represents the tax imposed on the payment. In the event that
such is not the case, the amount withheld is treated as a tax
credit for the taxpayer.
 Likewise, unless otherwise exempted, all businesses are
required by law to withhold taxes on certain income payments
to allow the said income payment/expense to be deducted
from their taxable income.
FILING AND PAYMENT OF TAXES

 R.A. 11976 has removed many of the restrictions on where


the taxpayers may file and pay their taxes. Previously,
taxes needed to be paid in specific locations such as place
of business, situs of taxation, etc.
 To simplify the process, filing a payment of taxes may be
done at any bank, revenue district office or even online as
prescribed by the rules of the Bureau of Internal Revenue
TAX REMEDIES OF TAXPAYERS

 The Tax Code allows for remedies available to the


taxpayers some remedies in the case of over-payments
and unfair assessments of the tax office.
 The remedies available to the taxpayer are:
 Question the assessments/Tax imposed
 Request for the removal of taxes
 Request for refund
 Making government enforcement officers accountable
for illegal acts
 The Ease of Paying Taxes reforms removed the penalty on
filing of Tax remedies in wrong venues to enable the
taxpayers some leeway in filing their applications.
End of Module 01

ANY QUESTIONS?

You might also like