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LIFE BLOOD DOCTRINE

Taxes are the lifeblood of the nation Without revenue raised from taxation, the
government will not survive, resulting in detriment to society. Without taxes, the
government would be paralyzed for lack of motive power to activate and operate it.

PRINCIPLE OF NECESSITY
The existence of the government is a necessity; the main source of revenue of the
government is taxes. These are the life-blood of the government. The primary purpose of
taxation is to generate funds for the State to finance the needs of the citizenry and to
advance the common wealth. The government chiefly relies on taxation to obtain the
means to carry on its operation.

BENEFIT RECEIVED PRINCIPLE


A principle of taxation which states that the burden of tax on an economic entity should
be directly proportional to amount of benefits it receives from the use of public goods or
services provided by government. In other words, consumers and businesses should pay
to the government, the value of the public goods and services they have benefited from
as if they were buying those goods and services.

DOCTRINE OF SYMBIOTIC RELATIONSHIP

This doctrine is enunciated in CIR v. Algue, Inc. [158 SCRA 9], which states that “Taxes
are what we pay for civilized society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to the taxing authorities, every
person who is able must contribute his share in the burden of running the government.
The government for its part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance their material and moral
values.”

PRINCIPLES OF A SOUND TAX SYSTEM


FISCAL ADEQUACY
This requires that sources of government funds must be sufficient to cover government
cost. Taxes should increase in response to increase in government spending. In other
words, the government should collect the right amount of taxes to be used in its day to
day operations.
THEORETICAL JUSTICE
This principle states that taxation should consider the taxpayer’s ability to pay. Taxes
should not be oppressive, unjust or confiscatory. As the old saying goes, you should not
kill the hen that lays the golden egg. Using the progressive tax system is a way of following
theoretical justice.
ADMINISTRATIVE FEASIBILITY
Tax laws should be capable of efficient and effective administration to encourage
compliance. Easy for taxpayers to comply, avoids administrative bottlenecks and
reducing compliance cost. Using the EFPS provided by the BIR is a way of further
improving administrative feasibility.

DE MINIMIS BENEFITS
The De Minimis benefits are those benefits of relatively small values given by employers
to their employee on top of the compensation and these benefits are not subject to
withholding.

 10 days monetized unused vacation leave credits;


 medical cash allowance to dependents of employees not exceeding P750 per semester or
P125 per month;
 rice subsidy of P1,000.00 or one-sack of rice per month;
 uniforms and clothing allowance not exceeding P3,000.00 per year;
 medical benefits not exceeding P10,000.00;
 laundry allowance of P300 per month;
 employee achievement awards in the form of tangible personal property other than cash or gift
certificate, with an annual monetary value not exceeding P10,000 received by the employee
under an established written plan;
 flowers, fruits, books or similar items given to employees under special circumstances, e.g. on
account of illness, marriage, birth of a baby, etc.; and
 daily meal allowance for overtime work not exceeding 25% of the basic minimum wage.

DIRECT AND INDIRECT TAXES


DIRECT TAXES
Are paid in entirety by a taxpayer directly to the government. It is also defined as
the tax where the liability as well as the burden to pay it resides on the same individual.
Direct taxes are collected by the central government as well as state governments
according to the type of tax levied. Major types of direct tax include:
Income Tax: Levied on and paid by the same person according to tax brackets as defined
by the income tax department.
Corporate Tax: Paid by companies and corporations on their profits.
Wealth Tax: Levied on the value of property that a person holds.
Estate Tax: Paid by an individual in case of inheritance.
Gift Tax: An individual receiving the taxable gift pays tax to the government.
Fringe Benefit Tax: Paid by an employer that provides fringe benefits to employees, and
is collected by the state government.

INDIRECT TAX
include those taxes where the liability to pay the tax lies on a person who then shifts the
tax burden to another individual.
Some types of indirect taxes are:
Excise Tax: Payable by the manufacturer who shifts the tax burden to retailers and
wholesalers.
Sales Tax: Paid by a shopkeeper or retailer, who then shifts the tax burden to customers
by charging sales tax on goods and services.
Custom Tax: Import duties levied on goods from outside the country, ultimately paid for
by consumers and retailers.
Entertainment Tax: Liability is on the cinema owners, who transfer the burden to
cinemagoers.
Service Tax: Charged on services rendered to consumers, such as food bill in a
restaurant.

INHERENT LIMITATION OF TAXATION

1. Purpose. Taxes may be levied only for public purpose;


2. Territoriality. The State may tax persons and properties under its jurisdiction;
3. International Comity. the property of a foreign State may not be taxed by another.
4. Exemption. Government agencies performing governmental functions are
exempt from taxation
5. Non-delegation. The power to tax being legislative in nature may not be
delegated. (subject to exceptions)
II.

1. A debt need not necessarily be bad in the strict sense as described in paragraph
26. The question of whether a debt is bad is a matter of judgment having regard to
all the relevant facts. Guidelines for deciding when a debt is bad are at paragraphs
31-32. Generally, provided a bona fide commercial decision is taken by a taxpayer
as to the likelihood of non-recovery of a debt, it will be accepted that the debt is
bad for section 63 purposes. The debt, however, must not be merely doubtful.
To obtain a bad debt deduction under section 63 of the Act, a debt must exist
before it can be written off as bad. A debt exists for the purposes of section 63
where a taxpayer is entitled to receive a sum of money from another either at law
or in equity. The bad debt has to be written off in the year of income before a bad
debt deduction is allowable under section 63. The writing-off of a bad debt does
not necessarily require highly technical accounting entries. It is sufficient that some
form of written record is kept to evidence the decision of the taxpayer to write off
the debt from the accounts.
Subsection 63(1) provides that:
'Debts which are bad debts and are written off as such during the year of income,
and;
(a) have been brought to account as assessable income of any year; or
(b) are in respect of money lent in the ordinary course of the business of the lending
of money by a taxpayer who carries on that business,
shall be allowable deductions.'

Four conditions must be satisfied in order to qualify for a bad debt deduction.
First , a debt must exist.
Second , the debt must be bad.
Third , the debt must be written off as a bad debt during the year of income in which
the deduction is claimed.
Fourth , the debt must have been brought to account as assessable income in any
year or, in the case of a money lender, the debt must be in respect of money lent
in the ordinary course of the business of lending of money by a taxpayer who
carries on that business.
A. The liability must represent a personal obligation of the deceased at the time of
death; the obligation was contracted in good faith & for adequate and full
consideration; the claim must be a debt or claim which is valid in law and
enforceable in court; and the claim must not have been condoned by the creditor
during the lifetime of the decedent.

B. Medical expenses incurred by the decedent within one year prior to his death which
shall be duly substantiated with official receipts. Provided, that in no case shall the
deductible medical expenses exceed P500,000.

2. No. The claim for refund will not prosper. While the law gives the taxpayer an option
to whether carry-over or claim as refund the excess tax credits shown on its final
adjustment return, once the option to carry-over has been made, such option shall
be considered irrevocable for that taxable period and no application for cash refund
or issuance of a tax credit certificate shall be allowed.

3. No. The BIR is wrong in disallowing the deductions claimed by Atty. Gambino. It
appears that the general professional partnership (GPP) claimed itemized
deductions from its gross revenues in arriving at its distributable net income. The
share of a partner in the net income of the GPP must be reported by him as part
of his gross income from practice of profession and he is allowed to claim further
deductions which are reasonable, ordinary and necessary in the practice of
profession and were not claimed by the partnership in computing its net income.

4. No. The proceeds of life insurance policies paid to the heirs of beneficiaries upon
the death of the insured are not included as part of the gross income of the
recipient. There is no income realized because nothing flows to Noel’s parents
other than a mere return of capital, the capital being the life of the insured.

Yes. The premiums paid are ordinary and necessary business expenses of the
company. They are allowed as a deduction from gross income so long as the
employer is not a direct or indirect beneficiary under the policy of insurance. Since
the parents of the employee were made the beneficiaries, the prohibition for their
deduction does not exist.

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