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Questions and Answers
What classification will Mamoud Jibril have for the year 2021 based on his stay in the Philippines?
What classification will Mamoud Jibril have for the year 2021 based on his stay in the Philippines?
What is the primary reason Daniel Aresmendi was considered an NRA-NETB in 2021?
What is the primary reason Daniel Aresmendi was considered an NRA-NETB in 2021?
How does Juan Miguel's classification change from 2020 to 2021?
How does Juan Miguel's classification change from 2020 to 2021?
What defines the entity of an estate as mentioned in the content?
What defines the entity of an estate as mentioned in the content?
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In the context provided, what is the role of a trustee in a trust arrangement?
In the context provided, what is the role of a trustee in a trust arrangement?
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What is the primary purpose of a tax?
What is the primary purpose of a tax?
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Which tax system emphasizes economic activity and impacts more on wealthier individuals?
Which tax system emphasizes economic activity and impacts more on wealthier individuals?
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Which of the following describes a tariff?
Which of the following describes a tariff?
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What defines a penalty in tax contexts?
What defines a penalty in tax contexts?
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What is a characteristic of a withholding system on income tax?
What is a characteristic of a withholding system on income tax?
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Which of the following best describes a regressive tax?
Which of the following best describes a regressive tax?
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In which system are taxes based on voluntary compliance?
In which system are taxes based on voluntary compliance?
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What aspect does the Philippine tax system not use?
What aspect does the Philippine tax system not use?
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What is the primary purpose of taxation?
What is the primary purpose of taxation?
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Which of the following best describes the inherent power of taxation?
Which of the following best describes the inherent power of taxation?
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In what way does taxation differ from eminent domain?
In what way does taxation differ from eminent domain?
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Which statement accurately represents the role of police power in relation to taxation?
Which statement accurately represents the role of police power in relation to taxation?
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Which of the following is NOT a characteristic of taxation?
Which of the following is NOT a characteristic of taxation?
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How does taxation help in managing public goods?
How does taxation help in managing public goods?
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Which of the following does NOT occur through the act of taxation?
Which of the following does NOT occur through the act of taxation?
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Which outcome is expected from taxation as per its primary purpose?
Which outcome is expected from taxation as per its primary purpose?
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What is the primary difference between tax amnesty and tax condonation?
What is the primary difference between tax amnesty and tax condonation?
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In the context of fiscal adequacy, what should taxes respond to?
In the context of fiscal adequacy, what should taxes respond to?
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Which principle ensures that tax laws are easy to administer?
Which principle ensures that tax laws are easy to administer?
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Which statement is true about tax condonation?
Which statement is true about tax condonation?
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What does the principle of theoretical justice in taxation focus on?
What does the principle of theoretical justice in taxation focus on?
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Which component contributes to creating a sound tax system?
Which component contributes to creating a sound tax system?
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What is one potential consequence of not adhering to fiscal adequacy?
What is one potential consequence of not adhering to fiscal adequacy?
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Which of the following best defines tax amnesty?
Which of the following best defines tax amnesty?
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What amount constitutes a taxable de minimis benefit for rank and file employees?
What amount constitutes a taxable de minimis benefit for rank and file employees?
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How is the excess de minimis benefit treated for managerial or supervisory employees?
How is the excess de minimis benefit treated for managerial or supervisory employees?
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Which of the following is NOT included in the definition of fringe benefits for employees?
Which of the following is NOT included in the definition of fringe benefits for employees?
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Which of the following types of leaves can be monetized for employees?
Which of the following types of leaves can be monetized for employees?
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What are the implications of fringe benefits for rank and file employees?
What are the implications of fringe benefits for rank and file employees?
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What is the tax treatment of other fringe benefits that are not included in compensation income for managerial employees?
What is the tax treatment of other fringe benefits that are not included in compensation income for managerial employees?
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Which of the following is classified as a taxable de minimis benefit?
Which of the following is classified as a taxable de minimis benefit?
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Which type of benefit is generally not taxable for the employee?
Which type of benefit is generally not taxable for the employee?
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What is the rental payment obligation for a lessee under the standard lease contract of Escalante Corporation?
What is the rental payment obligation for a lessee under the standard lease contract of Escalante Corporation?
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Which type of income is the security deposit considered under the lease contract?
Which type of income is the security deposit considered under the lease contract?
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Which royalty income is subject to final income tax?
Which royalty income is subject to final income tax?
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How much of the royalty income from RT Designs is subject to regular income tax?
How much of the royalty income from RT Designs is subject to regular income tax?
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What amount of royalties from books published abroad is subject to regular income tax?
What amount of royalties from books published abroad is subject to regular income tax?
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What excess amount of annuity payments over the premium paid is considered taxable income?
What excess amount of annuity payments over the premium paid is considered taxable income?
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What is the total royalty income from Mang Donald's mining properties and books published in the Philippines that is subject to final income tax?
What is the total royalty income from Mang Donald's mining properties and books published in the Philippines that is subject to final income tax?
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What is the nature of the royalty income earned by RT Designs?
What is the nature of the royalty income earned by RT Designs?
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Study Notes
Principles of Taxation
- Taxation is a principal attribute of sovereignty.
- The taxing power of the state comes from its existence.
- The state is responsible for promoting public interest and good.
- A state is a community of people, with a permanent territory, and an independent government.
Elements of State
- People: The inhabitants of the state.
- Territory: The physical area under the state's jurisdiction.
- Government: The instrumentality through which the state's will is expressed and realized.
- Sovereignty: The supreme and uncontrollable power inherent in a state, making it independent.
Inherent Powers of the State
- Police Power: Regulates liberty and property to promote general welfare.
- Power of Eminent Domain: Forcibly acquires private property with just compensation for public use.
- Taxation: Demands proportionate contributions from society members for government maintenance.
Power of Taxation
- Process of imposing a charge by government authority on property, individuals, and transactions to raise public funds.
- Inherent power of the government to impose a charge on people, properties, for the support of the government.
- Act of levying taxes: The state, through its lawmaking body, raises income for essential expenditures.
Similarities and Differences
- Both police power and taxation involve the state interfering with private rights.
- Police power regulates both liberty and property while eminent domain and taxation affect only property rights.
- Both police power and taxation are inherent powers of the government
- Eminent domain can be exercised by private entities.
Definition: Purpose
- Primary purpose: To provide funds for promoting general welfare, financing projects, and enabling government activities.
- Taxes redistribute income and wealth in society.
- Progressive taxation: Higher tax rates for higher incomes to reduce inequality.
- Taxes on luxury goods discourage consumption and raise revenue, such as tobacco and alcohol.
Secondary Purpose
- To protect local industries against foreign competition through high custom duties on imported goods.
- Resource mobilization for economic development through taxation, for example, taxing undeveloped or rural areas less than urban areas.
Legislation of Tax Laws
- Initiated in the House of Representatives, reviewed by the Committee on Ways and Means, and then sent to the Senate for concurrence.
- A separate version of the bill is prepared by the Senate, with public hearings.
- The Bicameral Committee reconciles the House and Senate bills and all provisions.
- The bill is adopted on the third reading.
- The President signs the bill to become law.
Constitutional Limitations on Taxation
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Observance of due process: No one can be deprived of life, liberty, or property without due process of law
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Equal protection of the laws: Taxpayers should be treated equally.
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Rule of uniformity and equity: Taxpayers in similar circumstances should be taxed similarly.
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Progressive system of taxation: Tax rates increase with tax bases.
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Non-imprisonment: Non-payment of debt or poll tax; applies if debtor is in good faith;
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Non-impairment of contracts
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Free worship
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Exemption of religious or charitable entities.
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Non-profit cemeteries, churches and mosques
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Non-appropriation of public funds; exemptions.
Situs of Taxation
- Place of taxation: The tax jurisdiction that has the power to tax an entity. Rules for determining if an object of taxation is within or outside jurisdiction.
- Examples of situs include: The place where the business is conducted for business tax, the place where services are rendered for income tax on services, location of properties for property tax and place of residence for personal income tax.
Double Taxation
- When the same taxpayer is taxed twice by the same jurisdiction on the same thing.
- Elements of double taxation include same type of tax, same taxing jurisdiction, same tax period and same purpose, for the same thing.
- Direct double taxation describes all elements of double taxation.
- Indirect double taxation when one or more elements are not common for both impositions.
Minimizing Double Taxation
- Provision of tax exemptions applying to the same tax object, or in some cases allowing foreign tax credits.
- Treaty arrangements between countries can mandate lower tax rates for joint transactions.
Categories of Escapes from Taxation
- Results in loss of government revenue
- Tax evasion (or dodging): any act or trick done illegally to reduce or avoid tax.
- Tax Avoidance (or minimization): reduce or avoid tax through legal means.
- Tax exemption (or tax holiday): immunity, privilege, or freedom from taxes others must pay.
Theories of Cost Allocation
- Benefit Received Theory: Higher benefit = higher taxes.
- Ability to pay theory: Taxpayers pay based on their capacity to contribute.
Other Fundamental Doctrines in Taxation
- Marshall Doctrine: The power to tax includes the power to destroy.
- Holmes Doctrine: Taxation is not a power to destroy.
Nature, Scope and Scope, Classification, of Taxation
- Nature of Tax Laws: Philippine tax laws are civil (not political), effective during enemy occupation, based on principles of the occupied territory, and valid against occupants. Penalty provisions address taxpayer compliance.
- Scope of Taxation: National taxes are under the National Internal Revenue Code of 1997, and local taxes are under the Local Government Code of 1991.
Aspects of Ability to Pay Theory
- Vertical Equity: Extent of taxpayer's ability to pay is directly proportional to the level of his tax base.
- Horizontal Equity: Requires consideration of the taxpayer's particular circumstances.
Tax Administration
- Management entrusted to the Bureau of Internal Revenue of the Department of Finance.
- Bureau includes: Commissioner, Deputy Commissioners, Operations Group, Legal Enforcement Group, Information Systems, and, Resource Management Group.
Powers of the Bureau of Internal Revenue
- Assessment and collection of taxes.
- Enforcement of forfeitures, penalties, and judgments.
- Exercising administrative and police powers with the authority granted by law,
- Assigning internal revenue officers and employees to other duties.
Powers of the Commissioner
- Interprets NIRC provisions.
- Decides tax cases subject to the Court of Tax Appeals jurisdiction.
- Obtains information and testimonies from people to enable tax collection.
- Prescribes additional tax administration & enforcement requirements;
- Examines tax returns to determine tax due;
- Conducts inventory-taking or surveillance
- Prescribes real property values;
- Compromises tax liabilities of taxpayers.
- Inquires into bank deposits;
- Accredits/registers tax agents;
- Refunds/credits internal revenue taxes;
- Abates/cancels tax liabilities under certain conditions;
- Prescribes additional procedures/documentary requirements.
- Delegate powers to subordinates.
Non-delegated powers of the CIR
- Recommend rules and regulations to the DOF Secretary.
- Issue rulings of first impression or to reverse, revoke, or modify existing rulings.
- Compromise or abate liabilities.
- Assign and reassign internal revenue officers to establishments.
Tax Collection Systems
- Withholding system on income and business taxes.
- Voluntary compliance system.
- Assessment or enforcement system.
- E-filing and e-payment of taxes.
- Substituted filing.
- Final withholding.
Kinds of Taxes
- General classifications of taxes;
- Direct, such as Income Tax, Estate Tax & Donors Taxes.
- Indirect, such as VAT, Excise Taxes, and Documentary Stamp Taxes.
Gross Income, Net Income, Taxable Income
- Gross Income: All income from various sources like services, trade, business dealings, property (interests, rents, royalties, dividends, annuities), prizes, and pensions.
- Net Income: Gross income minus allowable deductions and expenses.
- Taxable Income: Income subject to income tax, • Sources of income subject to taxes.
Classification of Income Taxpayers
- Individuals can be classified based on their citizenship: Resident citizen, Nonresident citizen, Resident alien, Nonresident alien
- Corporations can be classified based on origin: Domestic, Foreign, and Special corporations;
- One person corporation, partnership, joint venture, and co-ownership are also considered corporate taxpayers.
Situs of Income
- Place of taxation: The jurisdiction with authority to impose tax on the income.
- Rules for different types of income exist to determine situs (location and residence): Interest income, Royalties, Rent income, Service income
Other Income Tax Situs Rules
- Gain on Sale of Properties
- Dividend Income (pre-dominance test)
- Merchandising Income
- Manufacturing Income
- Other sources of income.
Three ways that taxes affect the economy
- By altering demand for goods and services.
- By changing incentives to work, save, and invest.
- The effect on raising and lowering budget deficits.
Legislation of Tax Laws
Tax Remedies of the Government and Taxpayers
- General Remedies
- Power of the Commissioner to Compromise, Abate, and Refund.
- Remedies of the Government
- Remedies of the Taxpayer
- Legal remedies such as Letter of Authority under investigation, Notice for Informal Conference or Notice of Discrepancy, and Pre-assessment Notice or Preliminary assessment notice (PAN)
- Legal procedures for contesting assessment such as issuing an Assessment, and recourse such as protest, claim for tax credit certificate, and action to contest forfeiture/chattel.
Additional Notes
- The documents appear to be lecture notes for a course in taxation, with various aspects of the topic covered.
- There is considerable detail on specific types of income and related rules for taxing.
- Note the presence of numerous illustrations, examples, and other details to increase comprehension and explain the points.
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