ACCT101 Notes
ACCT101 Notes
ACCT101 Notes
• In fixing tax situs, the following criteria are Implication of the Lifeblood Doctrine in
generally observed: Taxation
➢ Property Tax 3.) The government reserves the right to choose the
objects of taxation
Real Property is subject to taxation in the state or
country where it is located, regardless of whether 4.) The courts aren't allowed to interfere with the
the owner is a resident or a non-resident collection of taxes
the situs is wherever it was actually kept or located, a.) Income received in advance is taxable upon
was held to be at the domicile of its owner, receipt
following the age-old doctrine of mobilia sequuntur b.) Deduction for capital expenditures and
personam (movables follow the person) prepayments is not allowed and effectively defers
➢ Excise taxes the collection of income tax
Where the privilege is exercised c.) A higher tax base is preferred when the tax
object has multiple tax bases
Where the taxpayer is a national
Where he has his residence
Inherent Powers Of The State
• The government’s basic needs and rights which
Theories of Cost Allocation coexist with its creation
1.) Benefit Received Theory
1.) Taxation Power
➢ presupposes that the more benefit one
receives from the government the more • The power of the state to enforce proportional
taxes he should pay contribution from its subjects to sustain itself
• it is an attribute of sovereignty that is exercised
2.) Ability to Pay Theory by a jurisdiction whose interest should be served,
➢ Those who have more should be taxed more enhanced, and protected.
even if they benefit less from the
government. Those who have less shall 2.) Police Power
contribute less even if they receive more of • The general power of the state to enact laws to
the benefits from the government. protect the well-being of the people
Purposes Of Taxation
• The primary purpose of taxation is to raise 5.) Non-delegation of the Taxing Power
revenues by collecting funds or property for the • the legislative taxing power is vested exclusively
support of the government in promoting the in congress and is not delegable pursuant to the
general welfare and protecting its inhabitants. doctrine of separation of the branches of
• Secondary or non-revenue purposes government.
a.) Income Taxation - Resident citizens and • Taxpayers under dissimilar circumstances should
domestic corporations are taxable on income not be taxed the same. Taxpayers should be
derived both within and outside the Philippines classified according to the commonality in
attributes, and the tax classification to be adopted 16.) The delegation of taxing power to local
should be based on a substantial distinction. government units
4.) Non-impairment of obligations and
contracts
Stages of the Exercise of Taxation Power
• State should set an example of good faith among
its constituents. It should not set aside its 1.) Levy or Imposition
obligation from contract by the exercise of its • It involves the passage of tax laws or ordinances
taxation power. Exemptions granted under contract through the legislature. The tax laws to be passed
with the authors and should not be done collateral shall be determining the nature of taxes, those to be
government action taxed, how much is to be collected, and how taxes
5.) Progressive System of Allocation are to be implemented. (impact of taxation)
• Under the progressive system tax rate increase as 2.) Assessment and Collection
the tax base increases. The constitution favors • assessment and determination of tax liabilities
progressive tax as it is consistent with the and collection. (incidence of taxation)
taxpayer's ability to pay. Moreover, the progressive
system aids in an equitable distribution of wealth
and society by taxing the rich more than the poor. Situs of Taxation
6.) Non- imprisonment for nonpayment or • The place of taxation. Situs rules serve as frames
debt or poll tax or reference in gauging whether the tax object is
• No one shall be imprisoned because of his poverty within or outside the tax jurisdiction of the taxing
and no one shall be imprisoned for mere inability to authority
pay debt.
• debt acquired in good faith = applicable Examples of Situs Rules
• debt acquired in bad faith = estafa (can be 1.) Business Tax Situs
imprisoned)
• Businesses are subject to tax in the place where
• Non-payment of tax (public interest) ≠ non the business is conducted
payment of debt (private interest)
2.) Income Tax Situs on Services
• Service fees are subject to tax where they are
7.) Free Worship Rule rendered
• Philippine government adopts free exercise of 3.) Income Tax Situs on Sale of Goods
religion and does not subject its exercise to
taxation. This, however, does not extend to income • the gain on sale is subject to tax in the place of
from properties are activities of religious sale.
institutions that are proprietary or commercial in
4.) Property Tax Situs
nature.
• Properties are taxable in their location
8.) Exemption from property taxation of
religious, charitable, or educational entities, 5.) Personal Tax Situs
nonprofit cemeteries, churches and
mosques, lands, buildings, and • persons are taxable in their place of residence
improvements
• Exemption from property tax applies for Doctrines in Taxation
properties actually, directly, and exclusively used
for charitable, religious, and educational purposes 1.) Marshall Doctrine
9.) Majority of all the members of congress • Power to tax includes the power to destroy
required granting tax exemption
• Therefore, it should be exercised with caution to
10.) No public money shall be appropriated minimize injury to the proprietary rights of the
for religious purposes taxpayer. It must be exercised fairly, equally, and
uniformly
11.) Non-diversification of tax collections
• While tax power is so extensive that it seems it can
12.) Non-delegation of the power of taxation destroy, it does not include the power to destroy if it
13.) Exemption from taxes of the revenues is used solely for the purpose of raising revenue.
and assets of non-profit, non-stock 2.) Holme’s Doctrine
educational institutions
• Taxation power is not the power to destroy while
14.) Non-impairment of the jurisdiction of the court sits.
the supreme court to review cases
• Taxation power may be used to build or encourage
15.) The requirement that appropriations, beneficial activities or industries by the grant of tax
revenue, or tariff bills should originate incentives.
exclusively in the house of representatives
3.) Prospectivity of Tax Laws 2.) by the same taxing authority;
• states that a tax bill must only be applicable and 3.) Within the same jurisdiction or taxing district;
operative after becoming law. Thus, the
effectiveness of the tax law commences upon its 4.) for the same purpose;
approval and its scope would only cover the present 5.) in the same year or taxing period;
and future transactions.
6.) some of the property in the territory
4.) Non-compensation or Set-off
• Taxes are not subject to automatic set-off or
compensation Elements of Double Taxation
• Taxpayer cannot delay payment pending the 1.) Primary element: Same object
resolution of his claim 2.) Secondary elements:
5.) Non-assignment of Taxes a. Same type of tax
• Tax obligations cannot be assigned or transferred b. Same purpose of tax
to another entity by contract c. Same taxing jurisdiction
d. Same tax period
6.) Imprescribility in Taxation
• Prescription- lapsing of a right due to the passage
of time. Types of Double Taxation
• The rule on tax imprescriptibility states that 1.) Direct Double Taxation
unless otherwise provided by the tax law itself, • Occurs when all the elements of double taxation
taxes, in general, are not cancellable. exist for both imposition
7.) Doctrine of Estoppel 2.) Indirect Double Taxation
• Misrepresentation made by one party toward • Occurs when at least one of the secondary
another relying on upon in good faith will be elements of double taxation is not common for both
deemed true and blinding against the person imposition
making the misrepresentation
How to Minimize Double Taxation
• The government is not subject to estoppel. An
error by any government employee does not bind a.) Provision of tax exemption
the government.
b.) Allowing foreign tax credit
8.) Judicial Non-interference
c.) Allowing reciprocal tax treatment
• Generally, courts are not allowed to issue
d.) Entering into treaties or bilateral agreements
injunctions against government pursuit to collect
taxes. This would unnecessarily defer tax collection.
9.) Strict Construction of Tax Laws Escapes from Taxation
• when the language of the law is clear and • are the means available to the taxpayer to limit or
categorical, there is no room for interpretation. avoid the impact of taxation
There is only room for application.
Categories:
• When tax rules are vague, the doctrine of strict
legal construction is observed: A.) Those that result to loss of government
revenue
➢ vague tax laws - construed against the
government and in favor of the taxpayers 1.) Tax Evasion (tax dodging)
➢ vague exemption laws - construed against • under this method, the taxpayer uses unlawful
the taxpayers and in favor of the means to evade or lessen the payment of tax. This
government form of tax dodging is prohibited and therefore
subject to civil and criminal penalties.
Double Taxation
• means an act of the sovereign by taxing twice for
the same purpose in the same year upon the same 2.) Tax Avoidance (tax minimization)
property or activity of the same person, when it
should be taxed once, for the same purpose, and • It is reducing or totally escaping payment of taxes
with the same kind or character of tax. through legally permissible means.
• double taxation in the strict sense and double 3.) Tax Exemption (tax holiday)
taxation in the broad sense
• Immunity or privilege or freedom from being
• in its strict sense, referred to as direct duplicate subject to a tax that others are subject to.
taxation, double taxation means:
1.) Taxing twice
B.) Those that do not result to loss of 1.) Tax Laws
government revenue
• These are laws that provide for the assessment
1.) Shifting - The process of transferring tax and collection of taxes
burden to other taxpayers
Examples:
Forms:
a. The National Internal Revenue Code (NIRC)
a.) Forward Shifting b. The Tariff and Customs Code
c. The Local Tax Code
• shifting of tax which follows the normal flow of d. The Real Property Tax Code
distribution: from the manufacturer, wholesaler,
and retailer to consumers 2.) Tax Exemption Laws
b.) Backward Shifting • these are laws that grant certain immunity from
• use of substitute products taxation
• refers to tax shifting in the distribution channels a. The Minimum Wage Law
that exhibits forward or backward shifting b. The Omnibus Investment Code of 1987
(E.O. 226)
c. Barangay Micro-Business Enterprise
2.) Capitalization (BMBE) Law
d. Cooperative Development Act
• adjustment of the value of an asset caused by the
changes in tax rates.
3.) Transformation Sources of Taxation Laws
• eliminates wastes or losses by the taxpayer to 1. Constitution
form savings to compensate for tax imposition or
increases in taxes. 2. Statues and Presidential Decrees
5.) tax must be proportional in character • tax of fixed amount imposed by the head or
number, or by some standard of weight or
6.) tax is generally payable in money measurement. It requires no assessment other than
a listing or classification of the subjects to be taxed
(e.g., excise tax on cigar, cigarettes and liquors)
Classification of Taxes
2.) Ad Valorem
A.) As to Purpose
• tax of a fixed proportion of the value of the
1.) General/Fiscal/Revenue Tax property with respect to which the tax is assessed.
It requires the intervention of assessors or other resort to taxpayers than to be efficient.
appraisers to estimate the value of such property Impacts more upon the rich.
before the amount due from each taxpayer can be
determined (e.g., VAT, Income Tax, Donor’s Tax, • Regressive System - Emphasizes indirect taxes.
and estate tax) The impact of taxation rest upon the bottom end of
the society, it is anti-poor
E.) As to Rate
1.) Proportional Tax
Tax Collection Systems
• tax based on a fixed percentage of the amount of
the property, receipts, or other bases to be taxed A.) Withholding System on Income Tax
(e.g., VAT, other percentage taxes) • The payor of the income withholds or deducts the
2.) Progressive Tax tax on the income before releasing the same to the
payee and remits the same to the government
• the rate of which increases as the tax base or
bracket increases (e.g. income tax, estate tax, and 1.) Creditable Withholding Tax
donor’s tax) • Intended to support the self-assessment method
3.) Regressive Tax to lessen the burden of lump-sum tax payment of
taxpayer
• the rate of which decreases as the tax base or
bracket increases a.) Withholding Tax on Compensation
• An estimated tax required by the government to
be withheld by employers against the compensation
F.) As to Imposing Authority/Scope income to their employees
1.) National
• imposed by the National Government (e.g., b.) Expanded Withholding Tax
income tax, estate tax, donor’s tax, value added tax,
other percentage taxes, documentary stamp tax) • Estimated tax required by the government to be
deducted on certain income payments made by
2.) Local or Municipal taxpayers engaged in business
• imposed by municipal corporations (e.g. real
estate tax, community tax)
2.) Final Withholding Tax
Distinction of Taxes with Similar Items
• payors are required to deduct the full tax on
certain income payments
• Intended for the collection of taxes from income
with a high risk of non-compliance
Tax System
B.) Withholding System on Business Tax
• Methods or schemes of imposing, assessing, and
collecting taxes • When the national government agencies and
instrumentalities including government-owned and
Types: controlled corporations (GOCCs) purchase goods or
1.) According to Imposition services from private suppliers the law requires
withholding of the relevant tax.
• Progressive - Employed in the taxation of
income of individuals and certain local business C.) Voluntary Compliance
taxes System/Self-Assessment Method
• The government identifies non-compliant 1.) Large Taxpayers - under the supervision of
taxpayers, assesses their taxes including penalties the Large Taxpayer Service of the BIR National
demands for taxpayer's voluntary compliance, or Office
enforces collection by coercive means such as a 2.) Non-Large Taxpayers - Under the
summary proceeding or judicial proceedings when supervision of the respective Revenue District
necessary Offices (RDO) where the business, trade, or
profession of a taxpayer is situated
• Requires that the sources of government funds 1.) VAT - At least 200k/quarter for the preceding
must be sufficient to cover government costs. year
• the government must not incur a deficit. A 2.) Excise Tax - At least 1M tax paid for the
budget deficit paralyzes the government's ability to preceding year
deliver essential public services to the people 3.) Income Tax - At least 1M annual income tax
• It is desirable that the government shall adopt paid for the preceding year
effective measures to collect taxes efficiently and 4.) Withholding Tax- At least 1M annual
reduce its expenditures to obtain a balance and withholding tax payments or remittances from all
adequate fiscal budget. types of withholding taxes
2.) Equality or Theoretical Justice 5.) Percentage Tax - At least 200k percentage tax
• This principle states that the tax burden must be paid or payable per quarter for the preceding year
proportionate to the taxpayer’s ability to pay. It also 6.) Documentary Stamp Tax - At least 1M aggregate
suggests that the exercise of taxation should not be amount/year
oppressive, unjust, or confiscatory
B.) As to financial conditions and results of
3.) Administrative Feasibility operations
• Suggest that tax laws should be capable of 1.) Gross Receipts or Sales - 1B of total annual gross
efficient and effective administration to encourage sales or receipts
compliance.
2.) Net Worth - 300M total net worth at the close of
each calendar/fiscal year
Tax Administration 3.) Gross Purchases - 800M total annual purchases
• Refers to the management of the tax system. It is for the preceding year
entrusted to the BIR which is under the 4.) Top corporate Taxpayer listed and published by
supervision and administration of the Department the SEC
of Finance
Chief Officials of the BIR
CHAPTER 3: INTRODUCTION TO INCOME
• 1 commissioner TAXATION
• 4 deputy commissioners, each to be assigned to: Income
a.) Operations Group • all wealth that flows into the taxpayer other than
b.) Legal Enforcement Group as a mere return of capital.
Another Entity
• Gains/Income from Separate Entities = taxable
• Gains/Income from Same Entity= not taxable
Capital Items deemed with Infinite Value: Benefits in Absence of Transfer (Unrealized
Life, Health & Human Reputation gain/holding gains)
• Incapable of monetary valuation. anything
received as compensation for their loss is deemed a • increase in wealth of the taxpayer in the form of
return of capital appreciation or increase in the value of his
Recovery of Lost Capital vs. Recovery of Lost properties or decrease in the value of his obligation
Profits in the absence of a sale or barter transaction is not
taxable
• Situs of Income - Place of taxation of income. It D.) Manufacturing Income - Earned where the
is the jurisdiction that has the authority to impose a goods are manufactured and sold
tax upon the income
• Source of Income - Activity or property that
produces the income