CHAPTER 1: GENERAL PRINCIPLES h.

All appropriation, revenue or

OF TAXATION tariff bills shall originate
exclusively in the House of
Taxation – the exercise of the sovereign
Representatives.
power to raise revenues for the expenses
i. The Congress may, by law,
of the government.
authorize the President to fix
1. Levying or Imposition of the within specified limits.
Tax – passage of tax laws which is j. The Supreme Court shall
generally a legislative act. have the power to review all
2. Assessment – process of cases involving the legality of
determining the correct amount of any tax, impost, assessment,
tax due or toll, or any penalty
3. Collection and Payment – act of imposed in relation thereto.
compliance with the tax by the k. All revenues and assets of
taxpayer non-stock, non-profit
educational institutions used
3 INHERENT POWERS OF A STATE:
shall be exempt from taxes
Power to Tax – regarded as supreme, and duties.
plenary, unlimited and comprehensive. l. The President shall have the
power to veto any particular
Police Power – inherent power of a item.
sovereign state to legislate for the m. All money collected or any
protection of the health, general welfare, tax levied for a special
safety, and morals of the public. purpose shall be treated as a
Power of Eminent Domain – inherent special fund and paid out for
power of a sovereign state to take private such purpose only.
property for a public purpose. 2. Inherent Limitations.
a. The levy must apply within
LIMITATIONS ON THE POWER TO TAX: territorial limits.
1. Constitutional Limitations. b. Tax must be for public
a. No person shall be deprived purpose.
without due process, nor c. Exemption from taxation of
shall any person be denied the government.
the equal protection of the d. Taxing power of the
laws. legislature may not be
b. The rule of taxation shall be delegated.
uniform and equitable. e. Internation Comity.
c. No person shall be f. Double Taxation.
imprisoned for debt or non- i. Direct Double Taxation:
payment of a poll tax. 1. The same thing is
d. Charitable institutions, taxed twice;
Churches, and Parsonages 2. By the same taxing
shall be exempt from authority;
taxation. 3. Within the same
e. No law granting any tax jurisdiction;
exemption shall be passed 4. During the same
without the concurrence of a taxing period; and
majority of all the members 5. Covering the same
of Congress. kind or character of
f. No law impairing the tax.
obligation of contracts shall ii. indirect double
be passed. taxation: lack one or
g. No law shall be made more of the elements
respecting an establishment There is no constitutional problem
of a religion or prohibiting the against double taxation, though it is not
free exercise thereof. favored.
BASIC PRINCIPLES OF A SOUND TAX  According to Purpose
SYSTEM o General or Revenue Tax –
levied without a specific
1. Fiscal Adequacy – sources of
purpose.
revenue should be sufficient to
o Special Tax – levied for a
meet the demands of the public.
special purpose.
2. Equality or Theoretical Justice –
 According to the Rate Applied
the tax imposed should be
o Proportional – fixed
proportionate to the taxpayer’s
ability to pay. percentage.
3. Administrative Feasibility – tax o Progressive – tax rate
laws should be convenient, just, increases as the tax base
and have effective administration. increases.
o Regressive – tax rate
decreases as the tax base
increases.
 According to measurement of the
THEORY OR BASIS OF TAXATION amount due.
o Specific – measured by
1. Life-blood Theory. Without taxes,
no government can function. number.
2. Benefits Protection Theory. o Ad Valorem – based on the
Without taxes government will be value of the property.
paralyzed. FORMS OF ESCAPE FROM TAXATION
ESSENTIAL ELEMENTS OR 1. Shifting the burden of the tax.
CHARACTERISTICS OF A TAX 2. Capitalization
1. Enforced Contribution. 3. Transformation
2. Exacted Pursuant to legislative 4. Tax Exemption
authority. 5. Tax Avoidance
3. For raising revenue for public 6. Tax Evasion
needs. Tax Administration – is a system
4. Proportionate in character or involving assessment, collection, and
uniform. enforcement of taxes, including the
5. Payable in money. execution of judgment in all tax cases
6. Imposed within the state’s decided in favor of the Bureau of Internal
jurisdiction. Revenue by the courts
7. Personal to taxpayer.
CHAPTER 2: INTRODUCTION TO
CLASSIFICATION OF TAXES INCOME TAX
 According to scope Income – means all wealth which flows
o National Tax – imposed by into the taxpayer other than a mere
National Government return of capital. The flow, the service,
o Municipal or Local Tax – the fruit.
imposed by LGUs
 According to subject matter Capital – a fund, wealth, the tree.
o Personal, Capitation, or Poll Income Tax – direct tax upon the thing
Tax – imposed upon persons called income.
of a certain class.
o Property Tax – imposed on Purpose of Income Tax – 1. To raise
property. revenue, 2. To mitigate the evils arising
o Excise Tax – imposed upon from the inequalities of wealth.
the performance of an act. CHARACTERISTICS OF PHILIPPINE
 According to who bears the burden INCOME TAX
of the tax
o Direct Tax – same taxpayer. 1. A National Tax
2. A General Tax
o Indirect Tax – shifted to
3. An Excise Tax
another.
 4. A Direct Tax b. NETB – less than or equal to
5. A Progressive Tax for Individual 180 days.
Taxpayers. 6. Special Individual Taxpayers
6. The Income Tax System is a 7. MWEs – workers, who is paid not
Comprehensive System. more than statutory minimum
7. Semi-Global or Semi-Schedular wage.
System.
WITHHOLDING TAX ON INCOME
REQUISITES FOR TAXABILITY OF PAYMENTS
INCOME
Final Withholding Tax
1. There must be a gain or profit.
 FTs on passive income
2. The gain must be realized or
 CGT on sale of domestic shares,
received.
and sale of real property classified
3. The gain must not be excluded by
as capital asset.
law or international treaty from
taxation. Creditable Withholding Tax
No income tax shall be imposed:  On compensation income
 On certain income payments (EWT)
1. Stock dividends;
2. Mere increase in the value of CHAPTER 3: FRINGE BENEFIT TAX
property.
Fringe Benefit – any good, service, or
TYPES OF TAXABLE INCOME benefit other than the regular salary and
allowances received by an employee and
1. Returnable Income – subjected to
which may be furnished or granted in
ITR, Graduated Rates of the Tax
cash or in kind by any employer to an
table; a.) Compensation income
employee.
from being an employee; b.)
Income from trade, business, or Fringe Benefit Tax – given or furnished
profession; c.) Gain from sale of only to managerial or supervisory
ordinary assets; d.) Net capital gain employees, and not to the rank and file.
from the sale of “other capital
RATE OF TAX AND TAX BASE
assets” e.) Other taxable income
not subject to FT or CGT. Tax Rate = Final Tax of 35%
2. Passive Income – subject to Final
Tax; earned without any further Tax Base = Grossed up Monetary Value
action on the part of the tax payer. of the benefit.
3. Capital Gains – subject to CGT; 1.) GUMV = Monetary Value (MV) of the FBs
Real Property in the Philippines, 2.) ÷ 65%
Shares of Domestic Corporations.
TAXABLE FBs
GENERAL CATEGORIES OF
INDIVIDUAL TAXPAYERS A. Housing Privileges
B. Expense Accounts
1. Resident Citizen – naturalized and a. Incurred by the employee
residence is within the Philippines. which are paid by his
2. Non-Resident Citizen – citizen who employer.
left for abroad either as an b. Paid for by the employee but
immigrant or for employment. reimbursed by his employer.
3. OCW C. Motor Vehicle of Any Kind
a. Citizen working from abroad. D. Household Expense
Registered with the POEA. a. Salaries of household help,
b. Seaman who is a citizen personal driver or other.
4. Resident Alien – not a citizen but b. Similar expenses like
whose residence is within the payment for HOA dues,
Philippines. garbage dues, etc.
5. Non-Resident Alien E. Interest on Loans at Less Than
a. ETB – greater than 180 days. Market Rate
 a. Employer lends money to his  The use of aircraft or helicopters
employee free of interest or owned and maintained by the
at a rate lower than 12%. employer shall be treated as a
b. The benchmark rate of 12% business use.
shall remain in effect until
NOT SUBJECT TO FBTs (FOREIGN
revised by a subsequent
TRAVEL)
regulation.
F. Social and Athletic Club Fees.  Island travel expenses
G. Expenses for Foreign Travel  Cost of lodging in a hotel
a. 30% cost of first-class amounting to an average of US
airplane tickets; $300 or less per day
b. Lodging cost in a hotel in  Cost of economy and business
excess of US $300 per day. class airplane tickets.
c. Travelling expenses paid by  70% of the cost of first-class
the employer for the travel of airplane tickets.
the family members of the
NOT SUBJECT TO FBTs (EDUCATIONAL
employee.
ASSISTANCE)
d. When there is no
documentary evidence  The education involved is directly
showing that the employee’s connected with the employer’s
travel abroad was in business.
connection with business  There is a written contract that the
meetings. employee under obligation is to
H. Holiday and Vacation Expenses remain employed for a period of
I. Educational Assistance time mutually agreed upon.
a. Cost of education assistance  When assistance is provided
to the employee borne by the through a competitive scheme
employer. under a scholarship program.
b. Cost of educational
assistance extended by an NOT SUBJECT TO FBTs (COST OF
employer to the dependents INSURANCE)
of an employee.  Contributions of the employer for
J. Cost of Insurance the benefit of the employee
a. Cost of Life or health pursuant to the provisions of
insurance and non-life existing laws.
insurance premiums borne by  The cost of premiums borne by the
the employer for his employer for the group insurance
employees. of his employees.
K. Stock Options
OTHER FBs NOT SUBJECT TO FBT
NOT SUBJECT TO FBTs (HOUSING
BENEFITS) A. Fringe benefits which are exempted
from income tax under the tax
 Housing privilege of military official code or under special law.
of the AFP, Philippine Navy, B. Contributions of the employer for
Philippine Air Force. the benefit of the employee to
 Housing unit situated inside the retirement, insurance, and
premise of a business or factory. hospitalization plans.
Considered adjacent if it is located C. Benefits given to rank and file.
within the maximum fifty (50) D. If the grant of FBs is required by
meters from the perimeter of the nature or necessary to the
business premises. business.
 Temporary housing for an E. If the grant of FBs is for the
employee who stays in a housing convenience or advantage of the
unit for three (3) months or less. employer.
NOT SUBJECT TO FBTs (MOTOR F. “De minimis” Benefits
VEHICLES) a. Monetized unused vacation
leave credits (Private Sector)
 b. Monetized value of vacation 2. Estate not under judicial
and sick leave credits paid to administration.
government officials and
TO WHOM INCOME OF ESTATE SHALL
employees.
BE TAXED
c. Medical cash allowance to
the dependents of employees 1. Generally, the income of the estate
not exceeding ₱1,500 per shall be taxable to the fiduciary or
semester, or ₱250 per month. trust (executor or administrator)
d. Rice subsidy of ₱2,000 or one 2. When the estate is not under
sack of 50kg rice. judicial administration and there is
e. Uniform and clothing no executor or administrator, the
allowances not exceeding income shall be taxed to their heirs
₱6,000 per annum. and beneficiaries.
f. Actual medical assistance not
Special deduction of Estates – the
exceeding ₱10,000 per
income distributed to beneficiaries of an
annum.
estate is subject to a 15% CWT to be
g. Laundry allowance of ₱300
withheld by the estate.
per month.
h. Employee achievement COMPUTATION OF TAX
awards. To be exempt – 1.
Tangible personal property, 2.  Accounting Period - Calendar year
Annual monetary value must  Tax Base - (a) Taxable net income
not exceed ₱10,000 and 3. or (b) Gross sales/receipts + non-
Award must be given under operating income, if 8% income tax
an established written plan. rate is availed of.
G. Gifts given during Christmas and  Rate of Tax - (a) Graduated rates or
major celebrations not exceeding (b) 8% Income tax rate (if qualified
₱5,000 per employee per annum. and elected)
H. Daily meal allowance for overtime
work and graveyard shifts not
exceeding (25%) of the basic FORMULA TO DETERMINE THE
minimum wage. ALLOCATION OF TAX TO BE PAID BY
I. Benefits received by an employee EACH TRUSTEE
by virtue of a collective bargaining Taxable Income of Trust
agreement (CBA). ×Tax on consolidated taxable i
Consolidated Taxable Income
CHAPTER 4: ESTATES AND TRUSTS = Tax allocated or to be paid by trustee

Estates – refers to the mas of all RATES OF TAX

property, rights and obligations of a An estate shall thus have the following
person which are not extinguished by his tax rates:
death.
A) If the estate's gross
 Decedent – person whose property sales/receipts plus other non-operating
is transmitted through succession, income exceeds the VAT threshold of
whether or not he left a will. P3,000,000 as provided in Section
 Heir – person called to the 109(BB) of the Tax Code, it shall be taxed
succession either by the provision on its net taxable income using the
of a will or by operation of law. graduated rates under Section 24(A)(2)
 Devisee – person to whom a gift of (a) of the Tax Code.
real property is given by virtue of
will. (B) If such estate's gross sales/receipts
 Legatee – person to whom a gift of plus other non-operating income does
personal property is given by virtue not exceed the VAT threshold of
of a will. P3,000,000, the estate's
executor/administrator shall have the
CLASSIFICATION OF ESTATES option for the estate to be taxed at:
1. Estate under judicial administration
(1) Eight percent (8%) of gross sales b. Contributions are made to
or gross receipts, plus other non- the trust by such employer,
operating income in excess of Two or employee, or both;
Hundred Fifty Thousand Pesos c. The contributions are made
(P250,000); for the purpose of
distributing the earnings and
Note: This 8% tax on gross
principal of the fund
sales/receipts plus other non-operating
accumulated by the trust.
income shall be in lieu of (a) the
d. Under the trust instrument, it
progressive income tax rates under
is impossible, for any part of
Section 24(A)(2)(a) of the Tax Code, and
the corpus or income to be
(b) the 3% Other Percentage Tax ("OPT")
used for, or diverted to,
under Section 116 of the Tax Code. OR
purposes other than the
(2) The graduated (progressive) exclusive benefits for his
rates under Section 24(A)(2)(a) of the employees.
Tax Code.
TAXABILITY OF INCOME TRUST
Trust – is a right of property, real or
1. Income of Trust Taxed to
personal, held by one party (trustee) for
Trustee
the benefit of another (beneficiary).
a. Is to be accumulated or held
 Trustor or Grantor – person who for future distribution, must
establishes a trust. be returned by and will be
 Trustee or Fiduciary – one in whom taxed to the trustee.
confidence is reposed as regards b. Whether created by will or
the property for the benefit of deed shall be taxed to the
another person. trustee.
 Beneficiary – person for whose c. Where under the terms of a
benefit the trust has been created. will or deed, the trustee may,
in his discretion, distribute
Fiduciary – any person or corporation
the income or accumulate it.
that holds in trust an estate of another
2. Income of Trust Taxed to
person or persons.
Beneficiaries – is subject to a
CWT of 15% to be withheld by
trust.
3. Income of Trust Taxed Directly
CLASSIFICATION OF TRUSTS to the Grantor
a. In case of a revocable trust,
1. Ordinary Trust – the income and income may be revoked by
corpus of the trust do not revert to the grantor or revested in the
the grantor. grantor.
2. Revocable Trust – the power to b. In the case of a trust the
revest in the grantor title to any income of which, in the whole
part of the corpus of the trust is or in part, may be held or
vested in the grantor himself or distributed for the benefit of
any person not having any the grantor.
substantial adverse interest in the c. Such part of the income of
trust corpus. trust which may be applied to
3. Employee’s Trusts – income tax the payment of premiums
shall not apply to employee’s trust upon policies of insurance
which forms part of a pension, shall be included in
stock bonus, or profit-sharing plan computing the taxable
for the benefit of the employees. income of the grantor.
Requisites:
a. The employee’s trust must Determination of the Tax – shall be
form part of the computed upon the taxable income of
aforementioned benefits. the trust/estate and shall be paid by the
fiduciary.
 1. Taxable Income of Estate – shall 3. The amount of income of the trust
be computed in the same manner for the taxable year which is
as a self-employed individual. properly paid or credited to any
2. Taxable Income of Trusts – shall beneficiary.
be computed in the same manner
as an individual.
Gross Income of Trusts – the items of
gross income taxable to individuals are
also the same items of gross income
which are taxable to trusts.
SPECIAL DEDUCTION OF TRUSTS
1. The amount of the income of the
trust for the taxable year which is
to be distributed currently to the
beneficiaries.
2. The amount of income collected by
a guardian of an infant which is to
be held or distributed as the court
may direct.
FORMULAE
CHAPTER 1
Sales
COGS
OPEX
GI
OSD
AD
ID
Ind. TTB
NI
Corp. CITR 20%

CHAPTER 2
[subject to CGT] Sale of Real Property based in the Phil. – 6%
Capital Sale of Stock Domestic Corporations – 15%
Asset not […] – OI Tax Table
Graduated Rates
Progressive Rates
CHAPTER 3
Example:
GI 450,000 432,000
Deduction - 18,000 - 400,000 [refer to table; row 3]
Taxable Inc. 432,000 32,000
X 25% […]
TTD 38,000 8,000
TWH - 35,000 + 30,000 […]
ITP 3,000 38,000
Example:
100,000
X 4% Value of Benefit
X 8/12 Months
2,667 Monetary Value

CHAPTER 4

*25%: Children
50% Counted as: 1: Legitimate
Surviving Spouse ½: Illegitimate
1: Legally adopted
25% 25%
Children* Free
Portion