Philippine Taxation Basics

• Taxation is the inherent power of a state to demand contributions to fund public needs
• A tax is an enforced contribution by law on persons, properties, and transactions
• Persons can be natural (humans) or juridical (corporations, trusts, etc.)
• Properties are tangible or intangible, real or personal assets
• Transactions include sale, import, earnings (e.g., interests, winnings), and rights

Branches of Government

• The legislative branch makes laws
• The executive branch enforces laws
• The judicial branch interprets laws

Theories of Taxation

• The benefit-received theory states that those who pay taxes should receive services in return
• The ability-to-pay theory states that higher income earners should pay higher taxes

Philippine Tax Laws

• The National Internal Revenue Code (NIRC) or RA 8424 covers national taxes like income, VAT, and excise taxes
• The Tariff & Customs Code (PD 1464) covers import and export duties
• The Local Government Code (RA 7160) covers local taxes like RPT, cedula, and business taxes
• Special laws cover travel tax, SEF tax, narcotics tax, and motor vehicle fees

Types of Taxes

• Income tax is levied on personal and corporate income
• Estate tax is levied on transferred wealth after death
• Donor's tax is levied on gifts and donations
• Documentary Stamp Tax (DST) is levied on documents and transactions
• Excise tax is levied on specific goods like alcohol and tobacco
• Value Added Tax (VAT) is 12% on goods and services
• Percentage tax is 3% on non-VAT businesses
• Professional tax is levied on licensed professionals
• Real Property Tax (RPT) is levied on land and buildings by Local Government Units (LGU)
• Community Tax (Cedula) is an annual personal/business tax
• Business taxes are local/national taxes on enterprises
• Travel tax is for outbound Filipino travelers
• Special Education Fund (SEF) tax is 1% for local education
• Motor vehicle fee is for registration and operation charges
• Narcotics tax is levied on legal controlled drugs

Nature of Taxation

• Taxation is inherent to the state
• Taxation needs a law to be imposed
• Taxation serves a public purpose, for funding the government
• Taxation is territorial, within the state's jurisdiction
• Taxation is the strongest power of the state, essential to its survival

Inherent Powers of the State

• Taxation is used to raise revenue
• Police power is used to regulate and protect public welfare
• Eminent domain is used to take private property with compensation

Constitutional Limitations

• Due process ensures fair procedures before imposing taxes or penalties
• Equal protection of the law means tax laws must apply equally to all in similar circumstances
• No imprisonment for non-payment of poll tax: individuals cannot be jailed solely for failure to pay community tax (cedula)
• Uniform and equitable taxation rules taxes should be fairly applied, and higher incomes taxed at higher rates
• Non-appropriation of money for religious or private purposes: government funds must not support religious institutions or private interests
• Tax exemption for charitable and religious institutions for properties used purely for religious, educational, or charitable purposes
• Concurrence of Congress to Grant Tax Exemptions requires approval by a majority vote in Congress
• Non-impairment of Supreme Court Jurisdiction on Tax Cases: only the Supreme Court can rule on the constitutionality of tax-related matters
• Presidential Veto Power gives the President the power to reject specific items (line-item veto) without rejecting the entire bill
• Tax Collection as a Special or General Fund: special taxes (like SEF) must be used solely for their intended purpose; any unused funds revert to the general fund

Situs of Taxation

• The situs of taxation is the location where tax is imposed, based on jurisdiction

Escape from Taxation

• Tax avoidance is the legal minimization of tax
• Tax evasion is the illegal avoidance of tax
• Tax exemption is privileged non-payment
• Tax shifting is passing the tax burden to another
• Tax transformation is absorbing tax internally
• Tax capitalization is adding tax into product cost