General Principles

Characteristics of taxation

• Inherent power• Exclusively lodged with legislature• Subject to inherent, constitutional and

contractual limitations

Nature of taxation

• Plenary• Comprehensive• Power to destroy

Characteristic of tax

• Forced charged• Generally payable in money• Exclusively levied by the legislature• Assessed with reasonable rule of

apportionment• Imposed on jurisdiction• For public purpose

Objective of taxation

• Raise revenue• Promotion of general welfare• Regulation• Reduce social inequality• Encourage economic growth• Protectionism

Bases of taxation

• Lifeblood – (to have a civilized society)• Necessity – (Means of the state)• Benefits – Protection theory – (symbiotic)

Court interference

• Constitutionality• Limited to interpretation

Tip: True or falseSupreme court: to ask if the new tax is constitutionalFunction of court: to interpret tax laws

Principles of a sound tax system

• Fiscal adequacy• Administrative feasibility• Theoretical justice – should apply to all• Consistent with economic goals

Class of tax

• Subject– Personal– Property– Excise– Custom

• Burden – Direct (i.e. income tax)– Indirect (i.e. excise tax, VAT)

Distinction between taxation, police power and eminent domain

• Purpose– Taxation: for public use– Police Power:– Eminent Domain: for public use

• Amount– Taxation; limited amount– ED: just compensation

• Benefits received• Nonimpairment

– Taxation: not superior sa nonimpairment loss– PP: superior to nonimpairment loss, can overrule– ED: not superior to nonimpairment loss

• Scope– Taxation: lahat– Police Power: lahat– Eminent Domain: property only

Sources of tax laws

• Statute• Presidential decree• Executive order• Court decisions• Revenue regulations

Composition of the BIR

• 1 commissioner• 4 deputy commissioner (political appointee)– Under NIRC, 4 only– Currently there are 6 deputy commissioners

• Regional Revenue Director• Revenue District Officer• Revenue OfficerTrue or False: The alter ego of the commissioner is the revenue district officer (False)Should be: deputy commissioner

Powers of the commissioner

• Power to interpret tax law/decide case• Power to obtain information, summon,

examine and take testimony• Power to make assessments…

Refer to NIRC Section 6

• Exception on power to delegate authority– Recommend promulgation of rules • (commissioner recommends rules of DOF, signs the

regulation)

– Rulings f first impression on reverse, modify, revoke existing rules • (CIR should recommend for approval of revenue

regulations)

– Power compromise or abate an tax liability– Assign or reassign R.O.

Business taxes• Subject to OPT

– Persons exempt from VAT– Domestic carriers– International carriers– Franchise holders of water, gas, telephone and radio companies– Overseas communications – Banks and non-bank financial intermediaries– Finance companies– Life insurance companies– Agents of foreign insurance companies

• (withholding – yung magbabayad yung nagbabayad..)

– Amusement places • (30%)

– Winnings from racehorse• Deduct ticket costs (net of ticket costs)

– Sale of shares of stock traded thru local stock exchange• If not traded thru local stock exchenge: subject to capital gains tax, therefore not subject to business

tax

Excise

• Specific – by measurement• Ad valorem – by price

Persons liable• Domestic

– Manufacturer (may machine)– Producer (nagtatanim ng tobacco)– Owner/possession– First buyer

• Export– Owner– Lessee– Concessionaire– Operator of mining claim

• Imported articles– Owner– Importer– Possession– Non-exempt entity

Some rulings

• Cigar, cigarettes, distilled spirits– Ung mga dadalhin sa SDMA, subject to excise tax – TRUE–

• Customs territory transfers – Free zone to free zone: not subject to excise tax

• Credit back of excise not applicable for mineral products– Mineral product, excise tax cannot be refunded (credit back)

• Less than a liter, taxed as a liter• 1 liter above follow rounding rule

– 1.5 L and above round up = 2 L– 1.49 L and below round down = 1 L

• Net retail price/ wholesale price

VAT – deemed sale transaction

• Transfer, use, consumption not in the course of business of goods originally intended for sale

• Distribution to shareholders as share in the profits

• Distribution to creditors as payment of debt• Consignment of goods if actual sale not made

within 60 days• Retirement or cessation of business with

respect to inventories

Zero-rated transaction• Sale of goods

– FCDS– Export– VAT exempt under special law– Zero-rated transactions

• Services– Processing, manufacturing or repacking of goods for other persons doing

business outside the Philippines, paid for in foreign – Services rendered to person covered by special laws– Rendered to persons engaged in international shipping of air transport operation– Subcontractors or contractors in processing, converting or manufacturing goods

for export– Transport of passengers and cargo by domestic air or sea carriers from the

Philippines to a foreign country– Sale of power or fuel generated through renewable sources of energy

Export sale – zero rated• Sale and actual shipment of gods from Philippines• Sale of raw mat or packaging to export oriented enterprise• Sale of gold to BSP

– (not precious metals)• Export as defined by Omnibus Investment code• Sale of goods, supplies, equipment and fuel to persons engaged in

international shipping or international air transport operations

Notes: Applies to:1. Export company2. Export oriented enterprise – more than 70% actually exported (local sales subject to VAT)

Special Law

• ADB, IRRI, PEZA, CDA, SBMA – sale to them is effectively zero-rated

VAT refund

• Decision period is 120 days after submission of complete documents

• 30 days after 120 days to appeal• Should fall within 2 years

Trivia:Letters of authority – expires after 120 days

Review

• Allocation of input VAT• Transitional Input VAT – 2%

– Whichever is higher• Presumptive Input VAT – 4%

– Primary purchases no input tax (i.e. noodles)• Creditable Input VAT

– Refund– Carryover– Tax Credit

• VAT Exempt Transactions• Invoicing requirements

THINGS TO REMEMBER!!

• Date:October 20, 2010• Time: 1pm• Type:Multiple Choice (100 items, 1 point each) • Topics:– Remedies, Estate, Percentage, VAT, Donors (marami)– DST, Excise, General Principles (konti)– Rates (konti) - i.e. Basketball 15%, cockpits 18%– 95 and above in Finals (midterms will not be

considered – uno na agad!)