Taxation Pre-week Lecture Notes - October 2025

Flashcards covering general principles, specific tax rates, entity classifications, and administrative remedies based on the October 2025 Taxation Pre-week Lecture.

Power of taxation

The power to demand proportionate contribution from persons and property to defray the necessary expenses of the government.

Inherent limitations of taxation

Includes public purpose, international comity, and exemption of the government.

Constitutional limitations of taxation

Includes due process of law, equal protection of law, and the free worship clause.

Characteristics of Tax

Generally payable in money, proportionate in character, based on the taxpayer’s ability to pay, and exclusively levied by the legislature.

Sources of tax laws

Includes court decisions, BIR rulings, and local tax ordinances.

Final Withholding Tax (FWT) on Bank Deposits

Interest income derived within the Philippines from bank deposits, deposit substitutes, and trust funds are taxed at $20\%$ for all individual taxpayers except for NRA-NETB.

FWT on Royalties

Royalties from books, literary works, and musical compositions are taxed at $10\%$ for all individual taxpayers except for NRA-NETB.

FWT on Prizes

Prizes amounting to $P10,000$ or less are taxed at $10\%$ for all individual taxpayers except for NRA-NETB.

FWT on PCSO and Lotto Winnings

Winnings over $P10,000$ are taxed at $20\%$ for all individual taxpayers except for NRA-NETB.

Capital gains tax on sale of real property

A $6\%$ tax based on the gross selling price or current fair market value of the real property, whichever is higher.

Corporations (Tax Definition)

Includes One Person Corporations, ordinary partnerships, joint stock companies, joint accounts, associations, insurance companies, mutual fund companies, and regional operating headquarters of multinational corporations.

Minimum Corporate Income Tax (MCIT)

A $2\%$ tax of gross income imposed upon domestic and resident foreign corporations beginning on the 4th taxable year following commencement of business, whenever the corporation has zero/negative taxable income or when MCIT exceeds normal income tax.

Non-resident cinematographic film owner

Subject to a $25\%$ corporate income tax as a lessor or distributor.

Non-resident owners of vessels

Rentals and charter fees payable to non-resident owners of vessels chartered by Philippine nationals are subject to $4.5\%$ corporate income tax.

OBUs and FCDUs

Offshore Banking Units and foreign currency deposit units of depository banks are subject to $25\%$ corporate income tax on income.

Exempt Corporations

Includes cemetery companies for member benefit, non-profit civic leagues for social welfare, and agricultural organizations not organized for profit.

Proprietary educational institutions

Exempt on net income if gross income from unrelated trade, business, and other activities does not exceed $50\%$ of total gross income from all sources.

Co-ownership

Arises when two or more heirs/beneficiaries inherit an undivided property from a decedent, or when a donor gifts undivided property to two or more donees.

Estate

A mass of all property, rights, and obligations not extinguished by death, existing at the time of death and accruing since the opening of succession.

Trust

A right of property, real or personal, held by one person for the benefit of another.

Income

All wealth which flows into the taxpayer other than mere return of capital, including gains from the sale or disposition of capital assets.

Exclusions from Gross Income (Section 32(B))

Includes life insurance, return of premium, gifts/bequests, compensation for injuries/sickness, treaty-exempt income, and retirement benefits/pensions.

Deductions from Gross Income (Section 34)

Includes ordinary expenses, interest, taxes, losses, bad debts, depreciation, depletion, charitable contributions, research and development, and pension trust contributions.

Fringe Benefit

Any goods, service, or other benefit furnished by an employer in cash or kind in addition to basic salaries to a managerial or supervisory employee.

Capital Asset

Includes property held by the taxpayer but excludes stock in trade, property for sale to customers, and real property used in trade or business.

Selling Price

The total amount or price of the sale including cash/property received and all notes or mortgages assumed by the buyer.

Forgiveness of debt

An indebtedness cancelled without service rendered by the debtor in favor of the creditor, resulting in a taxable indirect donation.

Estate tax accrual

Occurs from the moment of death of the decedent.

VAT-registrable person

Any person who is required to register under the provisions of the Tax Code but failed to register.

Presumptive input VAT

A rate of $4\%$ based on purchases of primary agricultural products used as inputs by processors of sardines, mackerel, milk, refined sugar, cooking oil, and packed noodles.

Transitional input VAT

A rate of $2\%$ applying to taxpayers who become liable to VAT for the first time.

Common carrier's tax

A $3\%$ tax on gross sales from the transport of passengers by land.

Barangay Micro Business Enterprise (BMBE)

Any business enterprise engaged in production, processing, or services with total assets of not more than $P3,000,000$, excluding the land on which the plant is located.

PEZA

Philippine Economic Zone Authority; the agency tasked to promote investments and grant incentives to export-oriented manufacturing and service facilities.

BOI

Board of Investments; an agency under the Department of Trade and Industry (DTI) providing incentives like income tax holidays and duty exemptions.

Administrative Protest Period

An assessment becomes final if not protested within $30$ days from receipt.

Fraud Surcharge

A $50\%$ surcharge is imposed for filing a false and fraudulent tax return.