INTRODUCTION TO TAXATION

WHAT IS TAXATION?
-Taxation may be defined as a State Power, a legislative process and a mode of
government cost distribution

1) As a state power
Taxation is an inherent power of the State to enforce proportional
contribution from its subjects for public purpose

2) As a process
Taxation is a process of laying taxes by the legislature of the state to
enforce proportional contribution from its subject for public purpose

3) As a mode of cost distribution

Taxation is a mode by which the state allocates its cost or burden to
its subjects who are benefited by its spending

THE BASIS OF TAXATION

The government provides benefit to the people in the form of public
services and the people provide the funds that finance the government. The
mutuality of support between the people and the government is referred to as
the basis of taxation.

This mutuality is illustrated as

Public Service

Government People

Taxes

THE LIFEBLOOD DOCTRINE

Taxes are essential and indispensable to the continued subsistence of
the government. Without taxes, the government would be paralyzed for the lack
of motive power to activate or operate it. (CIR vs. Algue)

Taxes are the lifeblood of the Government and their prompt and certain
availability are imperious need. Upon taxation depends the government ability
to serve the people for whose benefit taxes are collected. (Vera vs.
Fernandez)

THE INHERENT POWERS OF THE STATE

1. Taxation power- the power of the State to enforce proportional
contribution from its subjects to sustain itself
2. Police Power- the general power of the State to enact laws to protect
the well-being of the people
3. Eminent Domain- the power of the state to take private property for
public use after paying just compensation

ESCAPES FROM TAXATION

 Are the means available to the taxpayer to limit or even avoid the
impact of taxation

1. Tax Evasion- also known as tax dodging, refers to any act or trick
that tends to illegally reduce or avoid the payment of tax. In
income taxation, this can be perpetrated by undue understatement
of income, overstatement of expenses or non- declaration of
income.

2. Tax avoidance- also known as Tax minimization, refers to any act

or trick that reduces or totally escapes taxes by any legally
permissible means.
 3. Tax exemption- also known as tax holiday, refers to the immunity,
privilege or freedom from being subject to tax which others are
subject to. Tax exemptions may be granted by the constitution, law
or contract.

SITUS OF TAXATION
Situs is the place of taxation. It is the tax jurisdiction that has the power
to levy taxes upon the tax object. Situs rules serve as frames of reference in
gauging whether the tax object is within or outside the tax jurisdiction of
the taxing authority.

TYPES OF INCOME TAXPAYERS

A. Individuals
1) Citizen
a. Resident Citizen
 an individual whose residence is within the Philippines and who is a
citizen thereof

b. Non- resident Citizen

 Establishes the fact of the physical presence abroad with a definite
intention to reside therein
 Leaves the Philippines during the taxable year to reside abroad,
either as an immigrant or for employment on a permanent basis
 Works and derives income from abroad and whose employment requires
him to be physically present most of the time  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

2) Alien
a. Resident alien
 Any individual whose residence is within the Philippines but is not a
resident thereof
b. Non Resident alien- means an individual whose residence is not
within the Philippines and is not a citizen thereof
a. Engaged in trade or business
b. Not engaged in trade or business

3) Taxable estates and trusts

B. Corporations
1. Domestic Corporation
2. Foreign Corporation
a. Resident Foreign Corporation
b. Non Resident Foreign Corporation

TYPES OF INDIVIDUAL INCOME

TAXABLE WITHIN? TAXABLE WITHOUT?
TAXPAYERS

a. Resident Citizen Yes Yes

Yes No
b. Non Resident Citizen
Yes No
c. Resident Alien
d. Non-resident alien engaged in Yes No
trade or business
e. Non-resident alien not engaged Yes No
in trade or business

WHO ARE REQUIRED TO FILE INCOME TAX RETURNS?

Individuals

 Resident citizens receiving income from sources within or outside the

Philippines
 o Employees deriving purely compensation income from two or more
employers, concurrently or successively at any time during the
taxable year

o Employees deriving purely compensation income regardless of the

amount, whether from a single or several employers during the
calendar year, the income tax of which has not been withheld
correctly (i.e. tax due is not equal to the tax withheld)
resulting to collectible or refundable return

o Self-employed individuals receiving income from the conduct of

trade or business and/or practice of profession

o Individuals deriving mixed income, i.e., compensation income and

income from the conduct of trade or business and/or practice of
profession

o Individuals deriving other non-business, non-professional related

income in addition to compensation income not otherwise subject to
a final tax

o Individuals receiving purely compensation income from a single

employer, although the income of which has been correctly
withheld, but whose spouse is not entitled to substituted filing

 Non-resident citizens receiving income from sources within the

Philippines

 Aliens, whether resident or not, receiving income from sources within

the Philippines

Non-Individuals

 Corporations including partnerships, no matter how created or organized.

 Domestic corporations receiving income from sources within and outside

the Philippines

 Foreign corporations receiving income from sources within the

Philippines

 Estates and trusts engaged in trade or business

RA 10963: TAX REFORM FOR ACCELARATION AND INCLUSION

Background of the tax reform
 The TRAIN amends certain provisions of Republic Act
No. 8424(The National Internal Revenue Code of
1997), as amended
 The enrolled bill sent to President Duterte for
approval and was signed into law as Republic Act No.
10963 on December 19, 2017. The law takes effect
January 1, 2018 following its complete publication
in the Official Gazette last December 27, 2017.
 The President has issued a separate letter vetoing
five provisions of the signed TRAIN law
 The law is just the first tax reform package. The
second package (reduction of corporate income tax
and rationalization of fiscal incentives) is
estimated to be released by early 2018.
Key amendments:
1. Individual Income Tax
2. Final Income Tax
3. Estate Tax
 4. Donor’s Tax
5. Value Added Tax
6. Documentary Stamp Tax
7. Some Administrative provisions
8. Penalties
9. Excise tax on:
Tobacco
Automobiles
Petroleum Products
Sweetened Beverages
Mineral Products
Cosmetic Procedures (non-essential services)

Description RA 8424(Tax code of RA 10963(TRAIN)

1997)
Income tax rates Graduated rates from In general, graduated
for individuals 5% to 32% with 7 rates from 20% to 35%
tiers’ basis from P1 (beg 2023,15% to 35%)
to over P500 000 with zero rate for 1st
250 000 and 5 tiers.
Basis is from over 250
000 to over 8M, with
option under certain
cases of qualified
individuals with income
from business/practice
of profession to opt
for the 8% income tax
rate in lieu of the
graduated rates and the
percentage tax under
Sec 116
Personal/additional Available to None- already included
exemptions & Health qualified taxpayers in the 250 000 exempt
Insurance from income tax; repeal
of Sec 33A of the Magna
Carta for Persons with
disability & Sec 22(B)
of the Foster care Act
of 2012
13th month pay and Maximum of 82 000 Maximum of 90 000
other benefits

Source: Income Taxation by Rex B. Banggawan, CPA, MBA

Certified Tax Technician Training Handbook

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