What is taxation?

 As a state power (propotional

contribution)
 As a process (Legislative power/levying
taxes)
 As a made of contribution (allocates its
cost)
Theory of taxation Indispensable to every society.
Gov cannot exist without fund.
Basic of Taxation People – taxes – government – public services –
people
Receipt of benefits is conclusively presumed Taxpayer cannot avoid payment of taxes
It is not a precondition to taxation
Theories of cost allocation 1. Benefits received theory – the more
benefits, the more taxes
2. Ability to pay theory - should be taxed
more even less benefits and should be
taxed less even more benefits.
Aspect of the ability to pay theory 1. Vertical equity – gross concept
2. Horizontal equity – net concept
The lifeblood doctrine Lifeblood of the government
Implication of the lifeblood doctrine in taxation 1. Even in the absence of a constitutional
grant
2. Claim for tax exemption are not allowed
3. Gov reserves the right to choose the obj
of taxation
4. The courts are not allowed to interfere
5. Income taxation:
a. Income received in advance is
taxable upon receipt
b. Deduction of capital expenditure and
prepayment is not allowed
c. A lower amount of deduction =
expense is subject to limit
d. Higher tax base = multiple tax base

INHERENT POWERS OF THE STATE Gov = Rights to sustenance, protection and

properties
Dubbed as power
Naturally exercisable

The inherent power of the states 1. Taxation power – proportional

contribution
2. Police power – to protect
3. Eminent ___domain – private property for
public use
Point of difference Taxation Police power Eminent Domain
Exercising authority Gov Gov Gov and private
utilities
Purpose Support for gov Protect people public use
Persons affected Community or class of Community or class of Owner of the property
ind. individual
Amount f imposition Unlimited (based = gov Limited No amount imposed
needs) (cost of regulation) (gov pays
compensation)
Importance Most important Most superior Import
Relationship w/ the Inferior = Non- Superior = non- Superior = non-
constitution impairment clause impairment clause impairment clause
Limitation Constitutional and Public interest and due Public purpose and
inherent limitations process compensation

Similarities of the three powers of the state Attributes of sovereignty

Inherent to the state
Legislative in nature
Private rights and properties
Even w/o constitutional grant
Form of compensation
Limited by the national legislature
SCOPE OF THE TAXATION POWER Comprehensive, plenary, unlimited and supreme
Not absolutely unlimited
Limitation of the taxation power INHERENT LIMITATION
1. Territoriality of taxation - citizen and
resident
a. Filing of returns and payment of
taxes
b. Withholding of taxes on expenses
and its remittance to the gov.
c. Constitutional Limitation
Exception:
 resident citizens and domestic
corp = taxable within and outside
the ph.
 Non-resident citizens and
resident alien are taxable on
transfer of properties within and
outside
2. International comity –
a. Gov do not tax income and
properties of oth. Gover
b. Treaty obli over their own
domestic tax laws.
Note: under NIRC, income of foreign gov and
income of foreign gov-owned and controlled corp
= not taxable.
3. Public purpose – common good
4. Exemption of the government – gov
does not tax itself. Under NIRC,
public function = not taxable but gov-
owned and controlled for profit =
taxable
5. Non deligation of taxing power –
been delegated cannot be further
delegated
Exeception:
 Under constitution, LGU are allowed to
exercise the power to tax
 Under tariff and custom code, president
= fix the amount of tariff
 Other cases that require expedient,
effective admin, implementation of
assessment and collection of taxes

CONSTITUIONAL LIMITATIONS OF TAXATION

1. Observance of due process of law – tax
law = neither harsh nor oppressive
2. Aspect of due process
 Substantive due process – public
purpose only
 Procedural due process – no
arbitrariness
Note:
Under NIRC, within 3 years from the due date of
filing of the return or actual filing, whichever is
later = assessment shall be made.
Within 5 years from the date of assessment =
collection

3. Equal protection of the law – same

circumstances and condition = equally
oblig imposed.
4. Uniformity rule in taxation – dissimilar
circumstances = nor be taxed the same.
5. Progressive system of taxation – tax rates
increase = tax base increases.
6. Non-imprisonment for non-payment of
debt or poll tax - no imprisonment for
inability to pay debt or his poverty
7. Non-impairment of obligation and
 contract – tax exemption granted under
contracts
8. Free worship rule – tithes and offerings
from religious = not taxable
9. Exemption of religious, charitable or
educational entities, non profit
cemeteries, churches and mosques,
lands, bldg., improvement fr. Property
taxes = directly and exclusively
10. Non-appropriation of public funds or
property benefits or any church, sect, or
system fr. Religion – member of the
church = not considered
11. Exemption from taxes of the revenues
and asset non-profit, non-stock
educational institution including grants,
endowments, donations and contribution
for educational purposes.
Except, private educ. In. = 10%
12. Concurrence of a majority of all members
of congress for the passage of law
granting tax exemption
13. Non-diversification of tax collections –
never private purpose
14. Non-delegation of the power of taxation
– BIR not allowed to introduce new
legislations within their quasi-legislative
authority.
15. Non-impairment of the jurisdiction of the
supreme court to review tax cases
16. Appropriations revenue or tariff bills shall
originate exclusively in the house of
representative but the senate may
propose or concur with amendments
17. Each LGU shall exercise the power to
create its own sources of revenue and
shall have a just share in the national
taxes

Stages of the exercise of taxation power/Aspect 1. Levy or imposition – impact of

taxation/legislative act
Two bodies:
a. The house of the representative/congress
b. The senate
2. Assessment and collection – incidence of
taxation/ administrative act of taxation.
Local = treasurer
Note: BIR – implementor. Congress – law.
 Privilege u receive or earned = taxed
Situs of taxation 1. Business tax situs = businesses
2. Income tax situs on services = service fee
3. Income tax situs on sales of goods = gain
on sale
4. Property situs = properties
5. Personal tax situs = place of residence
Other fundamental doctrines in taxation 1. Marshal doctrine – power to tax involves
the power to destroy
2. Holmes – taxation power is not the
power to destroy while the court sits
3. Prospectively of tax laws – ex post facto
law.
4. Non-compensation or set-off – taxes are
not subject to automatic set-off or
compensation. Except,
a. claim has already become due or
demandable.
b. overpayment.
c. local taxes
bawal ioffset.
5. Non-assignment of taxes – cannot be
assigned and transferred to another
entity.
6. Imprescriptibly in taxation – prescription
is the lapsing of a right due to the
passage of time. Bawal di magbayad kahit
matagal ka na sa place nayun.
7. Doctrine of estoppel – the error of any
gov employee does not bind the gov.
8. Juridical non-interfere – anchored on the
life of the blood
9. Strict construction of tax laws – taxation
is the rule, exemption is the exception.
a. Vague tax laws – no tax law. Against
the gov. (in favor of taxpayer)
b. Vague exemption law – no
exemption law. against the taxpayer.
(In favor of Gov)
Double Taxation Taxpayer is taxed twice by the same tax
jurisdiction

Element:
1. Primary element
2. Secondary element
a. Same type of tax
b. Same purpose
 c. Same jurisdiction
d. Same period

Types:
1. Direct double taxation - all the elements
exist for both impositions. It is
discouraged
2. Indirect double taxation – at least one of
the secondary elements is not common
for both imposition
Escapes from taxation  Avail to the taxpayer / avoid the impact
of taxation
A. Those that result to loss of government
revenue
1. Tax evasion – tax dodging. Illegally
reduce or avoid payment
2. Tax avoidance – tax minimization.
Reduces or totally escapes taxes
3. Tax exemption – tax holiday. Granted
by the constitution law.
Walang nakakolekta
B. Those that do not result to loss of gov.
revenue.
1. Shifting – transferring tax burden to
other taxpayers.
a. Forward shifting – common w/
essential commodities and
services (foods, fuel)
b. Backward shifting – with non-
essential. Reverse of forward
c. Onward shifting – distribution
channel that exhibits FS or BS
2. Capitalization – adj of the value of
the asset = changes in tax rates. Form
of backward Shi. (tumaas yung value
ng property = gain nakacapitaliza)
3. Transformation – elimination of
wastes or losses by the taxpayer. (
Tax amnesty – absolute forgiveness or waiver by
the gov on its right to collect/retrospective in
application
Tax Condonation – tax remission

Note:
Amnesty – both civil and criminal liab. Forgiving
past violations. Conditional.
Condonation – only civil liab. Prospectively. No
payment
Taxation law Exercise of the taxation of the state.
Types:
1. Tax laws – assessment and collection. Ex,
NIRC, Tariff and Customs Code, Local Tax
Code, Real Property Tax Code
2. Tax exemption laws - grant certain
immunity. Ex, Minimum Wage Law,
Omnibus Investment Code of 1987,
BMBE, CDA

Types of Administrative:
1. Revenue Regulation – signed by
Secretary of Finance of the CIR. Provision
of NIRC. To clarify and explain the tax law
2. Revenue Memorandum Orders(RMO) –
issuance that provide directives or
instruction.
3. Revenue Memorandum Rulings (RMRs) –
rulings, opinions, interpretations of the
CIR. Provision of tax code
4. Revenue Memorandum Circulars (RMCs)
– publish, pertinent and applicable
portions/ law, rules, regulation and
precedents issued by the BIR and other
agencies/offices
5. Revenue Bulletins(RB) – periodic
issuances, notices, and officials
announcements of the CIR. Consolidate
by BIR’s position
6. BIR rulings – official position of the
bureau to queries raised by taxpayer/
merely advisory
Types of rulings:
1. VAT
2. International Tax Affairs Division
3. BIR rulings
4. Delegated Authority

GAAP vs. TAX LAWS Lawmaking body, to raise revenue for public
purpose

Elements of a valid tax:

1. Must be levied = jurisdiction
2. Must not violate constitutional and
inherent limitations
 3. Public purpose
4. Proportional character
5. Generally payable in money

Classification of taxes:
A. As a purpose
1. Fiscal or revenue tax – general
purpose
2. Regulatory – regulate business,
conduct, acts or transaction
3. Sumptuary – achieve some social or
economic obj.
B. As a subject matter (Sino o ano ba
tinatax?)
1. Personal, poll, or capitation –
residents
2. Property tax – properties, real or
personal
3. Excise or privilege tax – performance
of an act
C. As to incidence (who bears the burden)
1. Direct tax – both impact and
incidence = same taxpayer. economic
taxpayer
2. Indirect tax – paid by any persons
other than the one. Not economic
taxpayer
Statutory = persons named by law to pay
the tax. Economic = actually pays the tax
D. As to determination amount
1. Specific tax – fixed amount (per unit
basis) ex, per kilo, liter or meter
2. Ad valorem – fixed proportion (value
of the tax object)
E. As to rate
1. Proportional Tax – flat or fixed rate
tax. Same rate w/o regard to ability
to pay
2. Progressive or graduated tax –
increasing rate = tax base increase
3. Regressive tax – decreases tax rates =
tax base increase. Anti-poor which
violates
4. Mixed tax – manifest tax rates =
combination
F. As to imposing authority (National
Internal Revenue Code of 1997)
1. National Tax – national government
 Examples:

a) Income tax – annual income, gains or

profits
b) Estate tax – gratuitous transfer of
properties upon death
c) Donor’s tax – gratuitous transfer of
properties by a living
d) Value added tax (VAT) – consumption tax
= VAT business taxpayers
e) Other Percentage Tax – Non-VAT
business tax payer
f) Excise Tax – on sins product and non-
essential goods
g) Documentary Stamp Tax – documents,
instruments, agreements and papers

2. Local Tax – municipal or local

government (Local Government Code
of 1991)
Example:
a. Real property tax
b. Professional tax
c. Business taxes, fees and charges
d. Community Tax
e. Bank and other financial institution

DISTINCTION OF TAXES W/ SIMILAR ITEMS  Tax vs. Revenue

Imposed = tax, collected = revenue
 Tax vs. License fee
Tax = taxation power. post activity
imposition (after),
License fee = police power. pre-activity
imposition (before)
 Tax vs. Toll
Tax = demand of sovereignty
Toll – demand of ownership
Note: both gov and private = toll but private
entities = cannot impose tax
 Tax vs. Debt
Tax = law. Non-payment = imprisonment.
Cannot be set-off. Only money. Interest =
delinquent
Debt = private contracts. Non-payment –
not imprisonment. Can be set-off. Be paid
in kind. Interest = stipulated
  Tax vs. Special Assessment
Special Assessment = imposed on land
only, not landowner
 Tax vs. Tariff (Tariff and Custom Code of
1978)
Tariff = import and export commodities.
 Tax vs. Penalty
Penalty = discourage an act. Imposed by
both gov and private individual. Law or
contract
TAX SYSTEM Methods or schemes of imposing, assessing and
collecting taxes.

Types of tax systems according to imposition

1. Progressive – individuals and transfer of
properties by ind.
2. Proportional – corporate income and
business
3. Regressive – not employed (PH)
According to impact
1. Progressive system – direct taxes =
cannot be shifted. More upon the rich.
2. Regressive system - indirect taxes =
shifted by businesses to consumer. Anti-
poor.
TAX COLLECTION SYSTEM A. Withholding system on income tax
Withholds or deducts the tax on the
income before releasing the same to the
payee and remits the same to the gov.
1. Credible withholding tax
a. Withholding tax on compensation –
to be withheld by employers against
compensation income to their
employees
b. Expanded withholding tax – to be
deducted on certain income payment
made by taxpayers engaged in
business
Note: self-assessment method to lessen burden
of lump sum tax payment of taxpayer. Third party
check (BIR)

Similarities
a. Income payor withholds a fraction of the
income and remits the same to the gov
b. Cash is available
Differences
Final withholding tax Creditable withholding
Income tax withheld Full Only a portion
Coverage of withholding Certain passive income Certain passive and active
income
Who remits the actual tax Income payor Income payor for the CWT and
taxpayer for the balance
Necessity of income tax return Not required Required
for taxpayer

B. Withholding system on business tax

Business taxation is under Business and transfer taxation
C. Voluntary compliance system – self-assessment method
(CWT 1 and 2)
D. Assessment or enforcement – non-compliant taxpayers
Principles of sound tax system 1. Fiscal adequacy – must be sufficient to cover gov costs.
2. Theoretical Justice – or equity. Should consider the taxpayer’s
ability to pay.
3. Administrative feasibility – should be capable of efficient and
effective administration to encourage compliance.
a. E-filling and e-payment of taxes
b. Substituted filling system for employees
c. Final withholding tax on non-resident aliens or corporation
d. Accreditation of authorized agent banks in the filing and
payment of taxes.
 Failure to file a return shall not prevent the CIR from
authorizing the examination
 Returns, statement and declarations shall not be withdrawn
but may be modified, changed and amended by the
taxpayer within 3 years from the date of filing. Except, a
notice for audit and investigation
 The CIR shall assess the proper tax on the basis of best
evidence avail.
 Real Property Value in CIR
Zonal Value = value prescribed.
For purposes of internal revenue taxes, whichever is higher of;
a. Zonal Value (commissioner)
b. Fair Value Market (Provincial and City Assessor’s office
NIRC previously used assed value = basis of real property value.
 The failure of sec of finance to act on appeal within 60 days
is deemed (Bank Deposit Secrecy Act)
TAXPAYER classification for 1. Large taxpayer – supervision = Large Taxpayer Service (LTS)
purpose of tax administration of the BIR national office
 By the CIR,
 LTS
 Subsidiaries, affiliates, and entities = LT
 Surviving company
 Authorized capitalization of at least 300M registered by SEC
 Multinational enterprise (300M)
 Publicly listed corp
 Universal, commercial and foreign bank
 Corp taxpayers such as insurance, tabaco, alcohol) (100M)

2. Non-Large taxpayer – supervision = Revenue District Offices

(RDOs)
Criteria for large taxpayers:

A. As to payment:
1. VAT – at least 200k per quarter for the preceding year
2. Excise tax – at least 1M tax paid for the PY
3. Income tax – at least 1M annual income tax paid for the
PY
4. Withholding tax – at least 1M annual WT payments or
remittance fr. All types of WT
5. Documentary Stamp tax – at least 1M per year
B. As to financial condition and results of operation
1. Gross receipts or Sales – 1M total annual gross sales or
receipt
2. Net Worth – 300M at the close of each calendar or fiscal
year
3. Gross purchases – 800M annual for the PY
4. Top corporate taxpayer listed and published by SEC

INCOME TAXATION Income subj to tax

 Allocation of gov cost
Income for taxation purposes
 Gross income = taxable income (layman)
 Item of gross income
 Inclusion gross income
Elements of gross income
1. Returns on capital that increases net worth – capital means
wealth or property
Selling price (Total return)
Cost (Return of capital) = not taxable/
Mark up/gross income (return on capital)

Capital items deemed with infinite value

 Infinite value/incapable of pecuniary valuation. Return of
capital = loss is deemed
Ex.
a. Life
b. Health
c. Human reputation
Recovery of loss capital vs. Recovery of lost profits
 Loss of capital = decrease in NW
 Loss of profits = not decrease NW
 Recovery of loss capital = maintains NW
 Recovery of loss profit = increases NW/return on capital
 Taxable recovery of lost profits - insurance, indemnity
contracts, or legal suits = taxable return on capital
a. Proceeds of crop or livestock insurance
b. Guarantee payment
c. Indemnity received from patent infringement suit.

2. Realized benefits –
 Benefits = taxpayer
 Increases in NW = donation or inheritance
 Not benefits/taxable:
a. Receipt of loan – properties increase = obligation increases.
Offsetting net worth
b. Discoveries of lost properties – under the law, finder has an
obli to return it
c. Receipt of money or property to be held in trust.
Note: if taxpayer is entitled to keep for his acc portion of a receipt,
only portion = benefits

The realized concept

 Means earned.
Requisite of a realized benefits
1. Exchange transaction
2. Involves another entity
3. Increases NW of the recipient

Types of transfer:

1. Bilateral transfer or exchange (onerous transaction,

exchange, earned or realized, subject to income tax)
A. Sale
B. Barter
2. Unilateral transfer (gratuitous trans, transfer, not realized,
not subject to income tax, but transfer tax)
A. Succession – transfer of property upon death
B. Donation
3. Complex transaction – partly onerous and partly gratuitous
  Transfer for less than full and adequate consideration
 Onerous = income tax,
 Gratuitous = Transfer tax
 FV and SP = transfer tax
 Cost and SP = income tax
 Excess of FV over SP = gratuity or gift
 Excess of SP over cost = gross income

Benefits in the absence of transfers

 Unrealized gains or holding gains = not yet materialized
 Examples:
a. Increase = value of investment in equity or debt securities
b. Increase = value of real properties held
c. Increase in value of foreign held or receivable
d. decrease in value of foreign dominated debt by virtue of
favorable fluctuation in exchange rates
e. Birth of animal offspring, accruals of fruits, growth of farm
vegetables
f. Increase = value of land due to the discovery of mineral
reserves
 Rendering of services = does not cause loss of capital
Mode of receipt/realization benefits
1. Actual receipt – physical. Cash or property
2. Constructive receipt – no actual physical. Effectively
benefited.
Inflow of wealth w/o increase in NW
Example, 1. Receipt of property in trust
2. Borrowing of money under obli to return

NOT EXEMPTED BY LAW< CONTARCT OR TREATY

Exempted:
a. Income of qualified employee trust fund
b. Revenues of non-profit non-stock educational institutions
c. SSS, GSIS, Pag-ibig, Philhealth
d. Salaries and wages minimum wage earners and qualified
senior citizen
e. Regualar income of Barangay Micro-business Enterprise
(BMBEs)
f. Foreign government and -owned, and controlled
g. International missions and organizations

3. Not exempted by law, contract or treaty

INDIVIDUAL Tax Base Tax Rate Taxable source
TAXPAYERS
Citizen Net Income Graduated w/n and w/o the PH
A. Resident
Citizen
B. Non-resident Net Income Graduated Within only
citizen
 Abroad
 Immigrant
 Work (180 days
more than not
here in PH)
Alien Net Income Graduated Within only
A. Resident Alien
B. Non-resident Net Income Graduated Within only
Alien
1. In business
(NRA-ETB) –
who stayed in
the PH more
than 180 days
during the year
2. Not engaged in
business (NRA-
NETB) –
a. Aliens = definte
purposes
b. Stay = Not
more than 180
days
Specific Employee Gain Income Final tax (25%) Within only

CORPORATE INCOME Tax base Tax rate Taxable source

TAXATION
a. Domestic Within/without ph
corporation
b. Foreign
Corporation
1. Resident Within only
foreign
corporation
2. Non-resident Within only
foreign
 corporation
Special Corporation Special tax rule or
preferential tax rates
Partnership
a. GPP – not
treated as corp
b. Business
partnership –
as a corp
Joint Venture
a. Exempt joint
ventures
b. Taxable joint
ventures
Co-Ownership

SITUS OF INCOME  Place of taxation of income

 Situs of income vs. source of income

a. Situs = whether or not an income is taxable
 Income Situs Rules
Type of income Place of taxation
1. Interest Income Debtor's residence
Where the intangible is
2. Royalties employed
3. Rent Income Location of the property
Place where the service is
4. Service Income rendered

OTHER INCOME SITUS RULES

A. Gain on sale of properties
1. Personal Property
/ Domestic securities = within
/Other personal properties = where the property sold
2. Real property – earned where property is located
B. Dividend income
1. Domestic corporation – within
2. Foreign corp
a. Resident foreign corporation (shall be split)
- At least 50% = within ph
- Less than 50% = abroad
a. Non-resident foreign corporation – earned abroad
C. Merchandising Income – earned where the property sold
D. Manufacturing income – earned = goods are manufactured and sold
Operation REMARK
Productio Distributio
 n n
total income fr prod and dist is earned w/n the
within within ph
total income fr prod and dist is earned w/o the
without without ph
within without Production = within but distribution = without
without within Production = w/o but distribution = w/n

INCOME TAX Under the NIRC:

SCHEME 1. Final Income taxation
2. Capital gains taxation
3. Regular income taxation

Classification of items of gross income

1. Gross Income subject to final tax
2. GI subject to capital tax gain
3. GI subject to regular tax/normal tax

Note: Gross income = income na subject to tax 😊

Final Income - Final taxes

Taxation - Withheld by income payor at source
- Final withholding tax system
- Not all items passive income is subject to tax

Passive Income vs. Active Income

 Passive income – earned w/ very minimal or even without active
involve
Example,
a. Interest income from banks
b. Dividend from domestic corp
c. Royalties

 Active or regular Income – arises fr. Transactions requiring a

considerable degree of effort. (direct opposite of pssvincm)
Example,
a. Compensation income
b. Business Income
c. Professional Income

Capital gains - Gain realized on sale, exchange and other disposition of certain
taxation capital assets
- Not used in business, trade or profession.
- Opposite of ordinary assets (such as PPE, Inventory and supplies)
- Not all capital gains are subject to CGT. Most = regular income tax
REGULAR INCOME - General rule in income taxation and covers all other income
TAXATION a. Active Income
b. Other Income
1. Gains from dealing in properties, (not subj to CGT)
2. Other passive income (not subj to FT)

- Self-assessment method
- Income tax return
- Valued and measured using Acctg method

ACCOUNTING - Length of time which income is measured and reported

PERIOD - Types of acctg period;
1. Regular Acctg period – 12 mons in length
a. Calendar year
b. Fiscal Year
2. Short Acctg period – less than 12 mons.

Calendar year
- Starts from Jan 1 and ends Dec 31. (both corp and indv taxpayers)
- Under the NIRC
a. Other than fiscal year
b. No annual acctg period
c. Does not keep book
d. TP is an individual

Fiscal year
- Is any 12 months that ends on any day to Dec 31
- Only avail to corp, not individual taxpayer

Deadline of Filing income tax return

- Under NIRC, 15th day of 4th mon following the close of the taxable year
of the taxpayer. (April 15)
- Regular tax due is payable upon filling of ITR
Example,
1. Taxpayer under the calendar year must file their Annual ITR the
current period not later than April 15 of the following year
2. A corporate with fiscal year ending June 30, 2019 must file ITR not
later than October 15th 2019.

INSTANCE OF SHORT ACCOUNTING PERIOD

1. Newly commenced business – date of start of the business until
designated June 30
2. Dissolution of business – start of current year to the date of
dissolution of the business
3. Change of accounting period by corporate taxpayer – new acctg
period. Under NIRC, it is required in changing. Not automatic
4. Death of the taxpayer – starts of the calendar year until the death
5. Termination of the acctg period of the taxpayer by the commissioner
 of internal revenue (CIR) – current year until the date of termination
of acctg period

ACCOUNTING 1. General method

METHOD a. Accrual basis
b. Cash basis
2. Installment and deferred payment method
3. Percentage of completion method
4. Outright and spread-out method
5. Crop year basis

Acctg and tax concepts of accrual basis and cash basis distinguish
1. Advanced income is taxable upon receipt
2. Prepaid expense is non-deductible
3. Special tax acctg requirement must be followed

TAX ACCRUAL BASIS INCOME

Cash income xxxx
Accrued (uncollected) income xxxx
Advanced income xxxx
Gross Income Pxxx

TAX ACCRUAL BASIS EXPENSE

Cash expense xxxx
Accrued (unpaid) expense xxxx
Amortization of prepayments xxxx
and deprecition of capital expenditure
Deduction P xxxx

TAX CASH BASIS INCOME

Cash income xxxx
Advanced Income xxxx
Gross Income Pxxxx

TAX CASH BASIS EXPENSE

Cash expense xxxx
Amortization of prepayments xxxx
and depreciation of cap. Expenditure
Deductions xxxx

Seller of goods
sales xxxx
Less: COGS xxxx
 Gross Income xxxxx

Hybrid basis
- Combination of accrual and cash basis and other methods in acctg

Installment method
- Proportion to the collection from installment sales.
A. Dealers of personal property, regularly sell
B. Dealers of real prop, only if does not exceed 25% of selling price
C. Casual sale of non-dealers in prop, real or personal when their SP
exceeds 1k and their install payment does not exceed 25% of the SP

Selling Price
Cash received/or receivable xxxx
FV of prop received or
receivable xxxx
Mortgage or any indebtness xxxx
assumed by the buyer
Selling Price xxxx

 Initial payment – total payments by the buyer, cash or property

 Selling price – obligated to the seller
 Contract price – amount receivable in cash or other property from the
buyer

 With indebtedness assumed by the buyer

Contract price (with

indebtedness assumed by
buyer)
Selling Price xxxx
Less: Mortgage assumed by
buyer xxxx
Contract price xxxx

Gross profit/income
Collection/Contract price x Gross profit

1. Compute Gross profit

2. Initial payment
3. Ratio of initial payment (Initial
payment/selling price)
4. Qualified to use the installment
method
 5. Compute contract price (2 ways can
compute this)
- Selling price less mortgage
assumed by buyer
- Cash down payment plus collectible
balance
6. Gross income at the date of sale
and upon every installment;
- Collection or cash down
payment/contract price x gross
profit

 Indebtedness assumed exceeds tax basis of property sold

Contract price
Selling Price xxxx
Less: Mortgage assumed by buyer xxxx
Cash collectible xxxx
Add: Excesss indebtedness - constructive xxxx
receipt
Contract price xxxx

Initial payment
Downpayment xxxx
Installment in the year of sales xxxx
Excess of mort over tax basis xxxx
Initial payment xxxx

1. Computation of gross profit on sale

2. Initial payment shall be determined first
3. Ratio of initial payment (Initial payment/Selling Price)
4. Contract price shall be computed
5. Recognized Gross income (same as contract price)
Deferred payment - Non-interest bearing note is received
method - Gross income = Present Value
- Computation:
Cash downpayment xxxx
Add: PV of the note xxxx
Selling price xxxx
Less: Tax basis of the property xxxx
Gross income xxxx

The percentage of - Gross income = based on the percentage of completion of the

completion method construction proj
for construction - Output method based on engineering survey = prescribed by NIRC
2019 2020
 Contract Price xxxx xxxx
Multiply by % of completion xxxx xxxx
Construction Revenue xxxx xxxx
Less: Construction revenue in prior 2019:
year NONE CR
Contruction reveue this year xxxx xxxx
Less: expense during the year xxxx xxxx
Construction Gross Income xxxx xxxx

Income - Regular Regulation;

leasehold a. Outright method – income’s lessor = FMV of such bldgs. Or improvement
Improvemen b. Spread out method
t - Benefits = income fr leasehold improvement
- Depreciated value of leasehold improvement is computed
a. Cost of improvement x excess useful life over lease term/useful life of the
improvement
- The depreciated value of the improvement at the termination of the lease
should be the proper value to be recognized as GROSS INCOME under the
OUTRIGHT METHOD

Agricultural - Cash basis or accrual basis

or Farming a. Animal husbandry
income b. Short-term crops

Sales xxxx
Direct farm cost xxxx
Less; Administrative and selling
expense xxxx
Net Income xxxx

- Accounting for long-term crops

a. Perennial crops – yield harvest thru years
b. One-time crops – harvested once after several years, crop year basis

Crop year basis

- Farming income = proceeds of harvest and expenses of the particular crop
harvested
2019 2020 2021
Proceeds of harvest xxxx xxxx
Less: Cropping expenses
2nd
Incurred last year 2019 2020
1st 2nd
Incurred this year 2020 2021
Framing Gross Income xxxx xxxx
 - Crop year basis = method, not period
- 2nd and 1st means cropping expense
TAX Types of returns to the government
REPORTING 1. Income tax return – taxpayer’s income, expense, tax due and tax credit
2. Withholding tax return – subject to withholding tax by taxpayers
3. Information returns – do not involve payment, only penalties, fines and
imprisonment

Mode of filling income

1. Manual Filing system
- Under NIRC, ITR shall be filed (order of priority)
a. An authorized agent banks (AAB)
b. Revenue Collection Officer
c. Duly authorized city or municipal treasurer, if there is no BIR office
2. E-BIR forms
- Offline or online version
- Electronic spreadsheets
- No penalties = print hard copy of the TR and proceed directly to the bank for
payment
3. Electronic Filing and Payment System (EFP)
- Electronic format and pay thru internet

PAYMENT OF - Pay as you file

INCOME - EFPS = pay through online or internet
TAXES BASIC COMPARISON OF FILLING AND PAYMENT SYSTEM
  Manual e-BIR forms eFPS
Data entry Manual electronic electronic
Filing/Submission Manual electronic electronic
Tax payment Manual Manual electronic
PENALTIES FOR LATE FILING OR PAYMENT OF TAX
  Penalty Note
a. 25% - basic tax for
Surcharge failure before the receipt of such notice
non-filling, received a notice from
  b. 50% - willful neglect BIR
     
12% interest per annum
Interest (2018) Legal interest = 6%
2017 = 20%
based on actual days Leap year: 4 with a whole
  divided by 365 days number
If the amount of tax unpaid
Exceeds but not exceeds Compromise is
Compromise P20k 50k 10k
Penalty 50k 100k 15k
 100k 500k 20k

Example, interest penalties

Taxpayer amount = 100k

Period (day na nalate siya)

Period Days
April (15-30) 15
May 31
June 30
July 31
Aug 3
110

Interest penalty = 100k x 12% (penalty rate) x 110/365 = 3,287.67

Note: Calendar year shall not exceed 25k

FINAL INCOME Features

TAXATION 1. Final tax
2. Tax withholding at source
3. Territorial imposition
4. Imposed on certain

- Generally irregular in timing and amount (di sure kung Kaylan matatanggap
natin)
- Kaya tinawag na final tax, kung ano mismo natanggap mo itatax agad

Is Your Relative Playing w/ Dota Strike

  RC/RA/NRC NRA-ETB NRA-NETBs NRFC
Interest (Short term)
20% 20% 25% 30%
Yield
Royalties
Prizes
Winnings
Dividends
Share in Net Income
Partnership
10% 20%
Association
Joint Account
Joint Venture

INTEREST INCOME OR YIELD

INDIVIDUA CORPORATIO
Source of interest income L N
Short term deposits (less than 5 years) 20% 20%
Long term deposits (not less than 5
years) Exempt* 20%

PRE-TERMINATION OF LONG-TERM DEPOSIT OF

INVIDUAL TAXPAYER (NOT CORP)
Holding period FINAL TAX
less than 3 years 20%
3 years to less than 4 years 12%
4 years to less than 5 years 5%
5 years or more 0%

FOREIGN CURRENCY DEPOSIT WITH FOREIGN CURRENCY DEPOSITARY BANK

Taxpayer INDVIDUAL CORPORATION
Resident* 15% 15%
Non-Resident exempt Exempt
Note:
- Resident = Resident Citizen, Resident Alien, Domestic Corp and Resident Foreign Corp
- Non-Resident = Non-resident Alien, Non-resident citizen and NRFC

JOINT ACCOUNT ON FOREX DEPOSITS

taxpayer Portion taxable Final Tax
Non-resident and resident 50% 15%

DIVIDEND TAX RULES

Source of dividends Individuals Corporation
Domestic Corporation 10% FT Exempt
Foreign corporation RT RT
NRA-ETB 20%  
NRA-NETB 25%  
NRFC 30%  
Note: Exempt dividend; (10%
1. Inter-corporate dividends
2. Dividends from coop

ENTITES TAXABLE AS CORPORATION ARE SUBJECT TO

1. Real estate investment trust
2. Business partnership
10
3. Taxable Association
%
4. Taxable joint ventures, joint acc or consortia
5. Taxable co-ownership
Note: Share in net income

ROYALTIES
Individual Corporatio NRA_ETB
Source of passive income s n s
Books, literary work, and musical
10% 20%  
compositions'
Other sources 20% 20%  
Cinematographic films and similar     25%
Note;
10% = printed literature
20% = sold on e-copies or e-book
Royalties from applications program = regular tax

PRIZE
Amount of taxable prize Individual Corporation
Prizes exceeding 10k 20% FT RT
Prizes not exceeding 10k RT RT
Note: prizes from foreign = Regular Tax

WINNINGS
INDIVIDUA
Types of winnings L CORPORATION
PSCO/Lotto winnings not exceeding 10K exempt exempt
PSCO/Lotto winnings exceeding 10K 20% FT 20% FT
Other winnings, in general 20% FT RT
TAX INFORMER"S REWARD

Amount of cash reward

10% revenues, surcharges, or fees, fine imposed and
10%
collected
1M

TAX-FREE CORPORATE COVENANT BONDS

Bond investor
INDVIDUA CORPORATIO
  L N
Tax on interest income on tax-free corporate covenants
bonds 30% FT RT

EXECEPTION TO THE GENERAL FINAL TAX ON NON-RESIDENT PERSONS NOT ENGAGED IN TRADEOR
BUSINESS IN THE PH
  NRA-NETB NRFC
General FT 25% 30%
Exceptions:    
1. Capital gain on sale of domestic stocks directly 15% capital
to buyers gain tax 15% CGT
2. Rentals on cinematographic films and similar
works 25% rentals 25% rentals
3. Rental of vessels 25% rentals 4.5% rentals
4. Rentals of aircrafts, machineries, and other
equip 25% rentals 7.5% rentals
5. Interest income under Foreign Currency Deposit
System EXEMPT EXEMPT
6. Interest on foreign loans N/A 20%
15% if tax sparing rule its
7. Dividend income 25% applicable
8. Tax on corporate bonds 30% 30%

MONTLY DEADLINE FOR eFPS Filing

days following the end of the
  month
Group A 15
Group B 14
Group C 13
Group D 12
 Group E 11

QUARTERLY FILLING
on or before the last day of the month after each
quarter

Other Application of the Final Tax on Interest

1. Deposit substitute
2. Government securities
3. Money market participant
4. Trust funds
5. Other investments evidenced (BSP)

Interest income subject to regular tax

1. Lending activities
2. Investment in bonds
3. Promissory note
4. Foreign sources, whether bank or non-bank

Entities exempt from final income tax

1. Foreign governments and foreign government-owned and controlled

2. International Missions or Organizations with tax immunity
3. General professional partnership
4. Qualified employee trust fund

Withheld = binawas na yung final tax