Taxation

3 Inherent Powers of State

1.

2.

Police Power - inherent power wherein the state regulate liberty and property in order to promote public welfare -power to monitor people for general welfare Eminent Domain - inherent power wherein the state seizes/ takes properties belonging to private persons in order to convert the same to public use, upon payment of just compensation -power to expropriate private property

3.

Taxation - inherent power wherein the state by virtue of its sovereignty through its law making body imposes charges & burden upon person, properties & rights to support the government & for its use in the performance of appropriate functions -power of government to impose burden upon people to earn revenue

Scope of Taxation
Comprehensive Pervasive Unlimited

Nature of Taxation
Inherent

state Legislative power Attribute of sovereignity

power of

The power to tax is not the power to destroy as long as the S.C. sits It means that the power of taxation is comprehensive, pervasive and unlimited.

3 Principles of Sound Tax System

1.

Fiscal Adequacy

The sources of revenues, as a whole, should provide enough funds to meet the expanding expenditures of the government
Theoretical Justice

2.

Taxes must be based on the taxpayers ability to pay

Administrative Feasibility

3.

The tax should be clear to taxpayer, not unduly burdensome and discouraging to business, convenient as to time and manner of payment, and capable of enforcement by competent public officials

Exemption from Nondelegtability of Power to Tax

1.

2.

Office of the President Article VI Sec.28 Provides that the president maybe authorized by congress, subject to limitations to fix & impose tariff rates, import & export duties, tonnage & wharf age dues & such other duties & imports Local Government Article XII Each unit of the local government subject to limitation as the congress will provide, has the power to create its own source of revenue consistent with the basic policy of local autonomy ex. Realty tax

1. 2. 3. 4.

Limitations on the power of Inherent Constitutional Must be levied for public No law impairing the taxation purpose obligations of contracts shall
1.

5.

6.

Cannot be delagated (Nondelegtability of power to tax) Rule on double taxation Internatinal Comity cannot apply to foreign property Situs of Taxation limited to the territorial jurisdiction of the taxing state Government instrumentalities and agencies through which the government exercises sovereign powers are exempt from tax, in the absence of clear proof contrary intent in law

2.

3. 4.

be passed No person shall be imprisoned for debt or nonpayment of a poll tax The rule on taxation shall be uniform and equitable Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, and nonprofit cemeteries, and all kinds of land, buildings and improvements actually, directly or exclusively used for religious or charitable purposes shall be exempt from taxation

Tax on Individuals
Resident Citizen Non-Resident Citizen Resident Alien In business

Transaction giving rise to Capital Gain Tax Shares of stock

on first 100,000 excess FT 5% 10%

1.

Real property
Interest on foreign currency deposit

FT 6% 7% Exempt 7% Exempt

Passive Income Tax

2. Royalties ( books, musical, literary)

3. Dividend from domestic corp, joint company, insurance, mutual fund

10%

Resident Citizen

Non-Resident Citizen

Resident Alien

In business

4.

Currency bank deposit, yield, monetary benefit , trust fund Winnings & Prizes > 10,000
Time deposit < 5yrs > 5Yrs

20 %
20% Exempt

5.
6.

Tax on Individuals
Resident Citizen

Non-Resident Citizen

Resident Alien

In business

Net Taxable income from within the Philippines Other net taxable income outside Philippines Other interest income within Philippines Gross income from within Philippines

5 % to 32 %

5 % to 32 %

Exempt

FT 20%

Not in business FT 25%

Tax on Corporations Domestic Resident

Sale of real property held as capital asset
Shares of stock not over 100,000 excess 100,000

Non-Resident

FT 6%
FT 5% 10%

Interest on FCDU 7
Currency bank deposit, yield, monetary benefit , trust fund

Exempt

20%

Normal Tax on taxable income MCIT Dividend

30% 2% Exempt

Compensation for services in whatever form paid, including but not limited to, fees, salaries and wages, commissions, and similar items Gross income from the conduct of trade or business or exercise of a profession Gains derived from dealings in property Interest Rents Royalties Dividends Annuities Prizes and winnings Pensions Partners distributive share from the net income of general professional partnership

Gross Income Inclusions

Exclusions Inheritance received

Gift received; donation Lotto winnings PCSO winnings Benefit received from SSS or GSIS Prize won from outstanding achievement Proceeds of life or accident insurance 13th month pay and other benefits but only to first 30k Wage, holiday pay, overtime pay, night shift differential and hazard pay for minimum wage earner

Separation pay of an employee for a cause beyond control of the employee Retirement pay received by an employee under certain conditions GSIS, SSS, Philhealth and Pag-ibig contributions and labor union dues Senior citizens income from compensation, Business and other income during the taxable year which is below poverty level determined by NEDA