Taxation 101

Basic Rules and Principles in Philippine

JR Lopez Gonzales
8 August 2011
Taxation
- It is the inherent power
- by which the sovereign state
- imposes financial burden
- upon persons and property
- as a means of raising revenues in order to defray the necessary expenses of the
government ( Tax Digest by Crescencio Co Untian, 2002)
- the imposition of financial charges or other levies
- upon a taxpayer (an individual or legal entity)
- by a state such that failure to pay is punishable by law.
- It is a mode by which government make exactions
- for revenue
- in order to support their existence and carry out their legitimate objectives
(Tax Law and Jurisprudence by Justice Vitug, 2000)
- It is the most pervasive
- and the strongest of all the powers of the government
TAXES
- are the lifeblood of the government
- without which, it cannot subsist.
- The first known system of taxation was in Ancient Egypt
- around 3000 BC - 2800 BC
- in the first dynasty of the Old Kingdom.
- In Biblical times, tax is already prevalent.
- According to Genesis 47:24 But when the crop comes in, give a fifth of it to
Pharaoh. The other four-fifths you may keep as seed for the fields and as food for
yourselves and your households and your children.
History of Taxation
- Earliest taxes in Rome are called as:
PORTORIA
- were customs duties on imports and exports
- Augustus Caesar introduced the
INHERITANCE TAX
- to provide retirement funds for the military
- The tax was five percent on all inheritances
except gifts to children and spouses .
- In England, taxes were first used as emergency measures.

History of Taxation in the Philippines

- The pre-colonial society, being communitarian, did not have taxes.
- During the Spanish Period , new income-generating means were introduced by
the government such as the :
Manila-Acapulco Galleon Trade
Polo Y Servicio (Forced Labor)
Bandala
Encomienda System
Tribute
History of Taxation in the Philippines
9. Manila-Acapulco Galleon Trade was the main source of income for the colony
during its early years. The Galleon trade brought silver from Nueva Castilla and
silk from China by way of Manila . History of Taxation in the Philippines
10. Polo Y Servicio is the forced labor for 40 days , of men ranging from 16 to 60
years of age who were obligated to give personal services to community projects .
One could be exempted from the polo by paying a fee called falla (which was
worth one and a half real) . Bandala is one of the taxes collected from the
Filipinos. It comes from the Tagalog word mandala , which is a round stock of rice
stalks to be threshed. History of Taxation in the Philippines
11. Encomienda are large tracts of land given to a person as reward for a
meritorious act. The encomenderos were given full authority to manage the
encomienda by collecting tribute from the inhabitants and govern people living on
it. Tribute was the residence tax during the Spanish times. It may be paid in cash
or kind, partly, or wholly. But in 1884, the tribute was replaced by the cedula
personal or personal identity paper, equivalent to the present community tax
certificate. History of Taxation in the Philippines
12. That in the 19th century, the cedula served as an identification card that
had to be carried at all times. A person who could not present his or her cedula to
a guardia civil could then be detained for being indocumentado. Andres
Bonifacio and other Katipuneros tore their cedulas in August 1896, signaling the
start of the Philippine Revolution . Did you know?
13. The cdula was imposed by the Americans on January 1, 1940, when
Commonwealth Act No. 465 went into effect, mandating the imposition of a base
residence tax of fifty centavos and an additional tax of one peso based on factors
such as income and real estate holdings. The payment of this tax would merit the
issue of a residence certificate. Corporations were also subject to the residence
tax. The Development of the Community Tax
14. A sample cedula in the 1920s.
15. Also known as a residence certificate, is a legal identity document in the
Philippines. Issued by cities and municipalities to all persons that have reached
the age of majority and upon payment of a community tax, it is considered as a
primary form of identification in the Philippines and is one of the closest single
documents the Philippines has to a national system of identification, akin to a
driver's license and a passport. What is a cedula?
16. A person is required to present a cedula when he or she acknowledges a
document before a notary public ; takes an oath of office upon election or
appointment to a government position; receives a license , certificate or permit
from a public authority ; pays a tax or fee ; receives money from a public fund ;

transacts official business ; or receives salary from a person or corporation . Why

is cedula important?
17. Taxation has four main purposes or effects: 1. Revenue 2. Redistribution 3.
Repricing 4. Representation The Four Rs of Taxation
18. Revenue The taxes raise money to spend on armies, roads, schools and
hospitals, and on more indirect government functions like market regulation or
legal systems. The Four Rs of Taxation
19. Redistribution This refers to the transferring wealth from the richer sections of
society to poorer sections. Repricing Taxes are levied to address externalities; for
example, tobacco is taxed to discourage smoking, and a carbon tax discourages
use of carbon-based fuels. The Four Rs of Taxation
20. Representation As what goes with the slogan "no taxation without
representation" , it implies that: rulers tax citizens, and citizens demand
accountability from their rulers as the other part of this bargain. What is a
cedula?
21. The main purpose of taxation is to accumulate funds for the functioning of the
government machineries . No government in the world can run its administrative
office without funds and it has no such system incorporated in itself to generate
profit from its functioning. The governments ability to serve the people depends
upon the taxes that are collected . Taxes are indispensable in the government
operation and without it, the government will be paralyzed . Why Tax?
22. Tax law in the Philippines covers national and local taxes. National taxes refer
to national internal revenue taxes imposed and collected by the national
government through the Bureau of Internal Revenue (BIR) and local taxes refer to
those imposed and collected by the local government. The 1987 Philippine
Constitution sets limitations on the exercise of the power to tax. The rule of
taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation. (Article VI, Section 28, Paragraph 1). The Philippine Tax
System
23. Tax evasion happens when there is fraud through pretension and the use of
other illegal devices to lessen ones taxes, there is tax evasion, under-declaration
of income, and non-declaration of income and other items subject to tax, Underappraisal of goods subject to tariff , and over-declaration of deductions What is
Tax Evasion?
24. The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the
Government (Article VI, Section 28, Paragraph 2). The Branches of Government
vis--vis the Tax Law
25. The President shall have the power to veto any particular item or items in an
appropriation , revenue, or tariff bill , but the veto shall not affect the item or
items to which he does not object (Article VI, Section 27, Paragraph 2). The
Supreme Court has the power to: review, revise, reverse, modify, or affirm on
appeal or certiorari , as the law or the Rules of Court may provide, final judgments
and orders of lower courts in all cases involving the legality of any tax , impost,
assessment, or toll, or any penalty imposed in relation thereto (Article VIII,
Section 5, Paragraph 2b). The Branches vis--vis the Tax Law

26. A) Personal, capitation or poll taxes These are taxes of fixed amount upon
residents or persons of a certain class without regard to their property or business
B) Property taxes 1. Real Property Tax - an annual tax that may be imposed by a
province or city or a municipality on real property such as land, building,
machinery and other improvements affixed or attached to real property. The
Forms of Taxes Imposed on Persons and Property
27. 2. Estate Tax (Inheritance Tax) - a tax on the right of transmitting property at
the time of death and on the privilege that a person is given in controlling to a
certain extent the disposition of his property to take effect upon death. 3. Gift or
Donors Tax - a tax on the privilege of transmitting ones property or property
rights to another or others without adequate and full valuable consideration. The
Forms of Taxes Imposed on Persons and Property
28. 4. Capital Gains Tax - tax imposed on the sale or exchange of property . Those
imposed are presumed to have been realized by the seller for the sale, exchange
or other disposition of real property located in the Philippines, classified as capital
assets. C. Income Taxes - Taxes imposed on the income of the taxpayers from
whatever sources it is derived. Tax on all yearly profits arising form property,
possessions, trades or offices. The Forms of Taxes Imposed on Persons and
Property
29. D. Excise or License Taxes - Taxes imposed on the privilege, occupation or
business not falling within the classification of poll taxes or property taxes. These
are imposed on alcohol products; on tobacco products ; on petroleum products
like lubricating oils, grease, processed gas etc; on mineral products such as coal
and coke and quarry resources; on miscellaneous articles such as automobiles.
The Forms of Taxes Imposed on Persons and Property
30. Under these lies two other taxes: 1.Documentary Stamp Tax - a tax imposed
upon documents, instruments, loan agreements and papers and upon acceptance
of assignments, sales and transfers of obligation and etc. 2. Value added tax - is
imposed on any person who, in the course of trade or business sells, barters,
exchanges, leases, goods or properties, renders services, or engages in similar
transactions. The Branches of Government vis--vis the Tax Law
31. Products like Papawash have value-added taxes, too.
32.
Individuals
a. Resident Citizen
b. Non-resident Citizen
c. Resident Aliens
d. Non-resident Aliens
2. Corporations
a. Domestic Corporations
b. Foreign Corporations
3. Estate under judicial settlement
4. Trusts irrevocable both as to the trust property and as to the income.
Who Should Pay Taxes?
33. The Constitution expressly grants tax exemption on certain
entities/institutions such as: 1. Charitable institutions, churches , parsonages or
convents appurtenant thereto, mosques , and nonprofit cemeteries and all lands,
buildings and improvements actually, directly and exclusively used for religious,

charitable or educational purposes (Article VI, Section 28, Paragraph 3). Who (or
What) are those exempted in paying taxes?
34. Who (or What) are those exempted in paying taxes?
2. Non-stock non-profit educational institutions used actually, directly, and
exclusively for educational purposes. (Article XVI, Section 4 (3)).
Exempted to tax as stated in the Article 283 of Rules and Regulations
Implementing Local Government Code of 1991 (RA 7160):
Local water districts
Cooperatives duly registered under RA 6938, otherwise known as the Cooperative
Code of the Philippines
Non-stock and non-profit hospitals and educational institutions
Printer and/or publisher of books or other reading materials prescribed by DECS
(now DepEd) as school texts or references, insofar as receipts from the printing
and / or publishing thereof are concerned.

About the Seminar

Overview
Business taxation is extremely important but the lack of training on this subject
has made most people avoid giving it the proper attention. Most leave the matter
to the accountants but ultimately the person in charge will be liable regardless of
his/her ignorance.
The seminar-workshop presents the procedures and computations in a simplified
manner so as to enable the participant to have a good basic knowledge of
business taxation after completing the seminar.
Objectives
To learn what business taxation is.
To understand the fundamental laws relevant to business taxation.
To be familiar with the registration procedures and guidelines and reportorial
requirements by the taxpayer and his trade, business and profession.
To be familiar with the types of taxes, BIR forms used in filing the return, deadlines
of filing and payments and the computation of amount that should be reflected in
the returns.
To be aware of the possible remedies in case of tax assessment.
Who Should Participate
Professionals
Businessmen
Bookkeepers
Accounting staff
Key Topics

I. Fundamentals of taxation (What is business taxation?)

a. Taxation and taxes definitions
b. Types of Internal Revenue Taxes and persons liable to pay
c. Types of Taxpayer
II. Certificate of Registration (COR)
III. Taxpayers registration guidelines and procedures
IV. Update, transfer and cancellation of registration
V. Annual registration fee
VI. Registration of invoices and receipts
VII. Registration and keeping of books of accounts, manual and computerized
VIII. Tax returns, forms, deadlines of filing and payments and procedures for fillingup
IX. Business Taxes
1. Value Added Tax (VAT)
a. Persons and transactions subject to VAT
b. VAT rates and computation
c. Exempt transactions
d. Zero rated transactions
e. Withholding on VAT
2. Other Percentage Tax
a. Tax on persons exempt from VAT
X. Withholding Tax System
a. Expanded Withholding Tax
b. Withholding tax on wages
c. Final Withholding Tax
XI. Income taxation
a. Corporate Income Tax
b. Individual Income Tax
XII. Basic taxpayers remedies in case of tax assessments.
XIII. Question and Answer
XIV. Workshop please bring a calculator
BIR forms to be used in the seminar
1. BIR Form 1901 Application for Registration for Self-Employed and Mixed

Income Individuals, Estates/Trusts

2. BIR Form 1902 Application for Registration for Individuals Earning Purely
Compensation Income, and Non-Resident Citizens/OCWs/Seamen Earning Purely
Foreign-Sourced Income
3. BIR Form 1903 Application for Registration for Corporations/ Partnerships
(Taxable/Non-Taxable)
4. BIR Form 1904 Application for Registration for One-Time Taxpayer and Persons
Registering under E.O. 98
5. BIR Form 1905 Application for Registration Information Update for Updating /
Cancellation of Registration / Cancellation of TIN / New Copy of TIN card / New
copy of Certificate of Registration
6. BIR Form 1906 Application for Authority to Print Receipts and Invoices
7. BIR Form 1907 Application for Permit to Use Cash Register machines/Point-ofSale Machine
8. BIR Form 1601C Monthly Remittance Return of Income Taxes Withheld on
Compensation
9. BIR Form 1601E Monthly Remittance Return of Creditable Income Taxes
Withheld (Expanded)
10. BIR Form 1604CF Annual Information Return of Income Tax Withheld on
Compensation and Final Withholding Taxes
11. BIR Form 2316 Certificate of Compensation Payment / Tax Withheld For
Compensation Payment With or Without Tax Withheld
12. BIR Form 2550M Monthly Value-Added Tax Declaration
13. BIR Form 2550Q Quarterly Value-Added Tax Return
14. BIR Form 2551M Monthly Percentage Tax Return (Except Transactions
Involving Shares of Stock Listed and Traded Through the Local Stock Exchange,
and Percentage Tax Payable Under Special Laws)
15. BIR Form 1701 Annual Income Tax Return for Self-Employed Individuals,
Estates and Trusts (Including those with both Business and Compensation Income)
16. BIR Form 1702 Annual Income Tax Return for Corporation, Partnership and
Other Non-Individual Taxpayer
17. BIR Form 1701Q Quarterly Income Tax Return for Self-employed Individuals,
Estates, and Trusts (Including those with both Business and Compensation
Income)
18. BIR Form 1702Q Quarterly Income Tax Return for Corporations and
Partnerships
19. BIR Form 1600 Monthly Remittance Return of Value-Added Tax and Other
Percentage Taxes Withheld
20. BIR Form 2303 Certificate of Registration