TAXATION – the power by which the sovereign, through its law-making body, raises revenue to defray the necessary

expenses of government
Taxes – enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the
support of government and for public needs (Cooley); are what we pay for civilized society
– Are important because they are the lifeblood of the Government (CIR v. Algue, L-128896, 1988), the primary purpose of which is “to
generate funds for the State to finance the needs of the citizenry and to advance the common weal.
– Due process of law under the Constitution does not require judicial proceedings in tax cases.
– A tax creates a civil liability on the part of a delinquent taxpayer, although the non-payment thereof (whether it be on account of the
taxpayer’s failure or refusal to pay it) creates a criminal liability, which could be the subject of criminal prosecution under existing laws. [It
is one’s civil liability to pay taxes that gives rise to criminal liability, not the other way around as in criminal cases where criminal liability
gives rise to a civil liability (Republic v. Patanao, L-22356, 1967).]
– It is inherent in the State, “unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it (Mactan Cebu International
Airport Authority v. Marcos, G.R. No. 120082, 1996)”
– General Rule: Any claim for exemption from tax statutes should be construed strictly against the taxpayer.
– The power to tax is subject to inherent and constitutional limitations.
GENERAL RULE (Taxes are personal to taxpayers.) EXCEPTIONS
A corporation’s tax delinquency cannot be enforced against its Stockholders may be liable for the unpaid taxes of a dissolved
stockholders (Sunio v. NLRC, G.R. No. 57767, 1984) corporation if it appears that the corporate assets have passed into
their hands (Tan Tiong v. CIR, L-15778, 1962), or when stockholders
have unpaid subscriptions to the capital of the corporation.
Estate taxes are obligations that must be paid by the If prior to the payment of the estate tax due on the transfer of
executor/administrator out of the net estate, before delivery to any decedent’s estate, the properties of the deceased are distributed to
beneficiary of his distributive share. any beneficiary, then such beneficiary shall be subsidiarily liable for
the payment of such portion of the estate tax as his distributive share
bears to the total value of the net estate (Section 91[C], NIRC of 1997
[hereafter, 1997 NIRC]).
Characteristics of Taxes:
1. A tax is a forced charge, imposition or contribution and as such it operates in invitum, which means that it is in no way dependent on the
will or contractual assent, express or implied, of the person taxed. They are not contracts, either expressed or implied, but positive acts of
government (Rochester v. Bloss)
2. It is a pecuniary burden payable in money, such that a tax is not necessarily confined to those payable in money, as in the case, for
instance, of backpay certificates which under R.A. 304 could be used as payment of taxes (De Borja v. Gella, L-18330, 1963). The SC
held that backpay certificates under R.A. 304 may be used to pay real estate taxes (Tirona v. City Treasurer of Manila, L-24607, 1968).
3. It is levied by the legislative body of the State because the taxing power is peculiarly and exclusively legislative in character. Taxes are
obligations created by law (Vera v. Fernandez, L-31364, 1979).
4. It is assessed in accordance with some reasonable rule of apportionment, which means that conformably with the constitutional mandate
or progressivity of a taxing system (Section 28[1], Art. VI, 1987 Constitution), taxes must be based on ability to pay.
“The Constitution does not really prohibit the imposition of INDIRECT TAXES which, like the VAT, are regressive. Resort to indirect
taxes should be minimized but not avoided entirely. (PAL v. Secretary of Finance, G.R. No. 115852, 1995)”
5. It is imposed by the State on persons, property or services within its jurisdiction.
6. A tax is levied for a public purpose as taxation itself involves a burden to provide revenue for public purposes of a general nature.
Symbiotic Relationship – in exchange for the protection that the citizens get from the Government, taxes are paid (CIR v. Algue, L-128896, 1988)

“If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standards against itself XXX. No
one, not even the State, should enrich itself at the expense of another. XXX (BPI-Family Savings Bank, Inc. v. CA, G.R. No. 122480, 2000)”

PURPOSES AND OBJECTIVES OF TAXATION:

1. Revenue – the purpose of taxation is to provide funds or property with which the State promotes the general welfare and protection of its
citizens
2. Regulation – EXAMPLES:
a. in the case of taxes levied on excises or privileges like those imposed on tobacco and alcoholic products, or amusement places like
night clubs, cabarets, cockpits, etc.
b. for instance, in the rehabilitation and stabilization of a threatened industry which is affected with public interest, like the oil industry
(Caltex v. COA, G.R. No. 92585, 1992)
3. Promotion of General Welfare – Taxation may be used as an implement of the police power in order to promote the general welfare of the
people. EXAMPLES: 11 of 295
a.

Briefly explain the following doctrines: lifeblood doctrine; necessity theory; benefits received principle; and doctrine of symbiotic
relationship. (5%) (2016 BAR)
SUGGESTED ANSWER: The following doctrines, explained:
a. Lifeblood Doctrine – 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. (CIR v. Algue, Inc., G.R. No. L-28896, February 17, 1988,
158 SCRA 9)
b. Necessity Theory – The exercise of the power to tax emanates from necessity, because without taxes, government cannot fulfill its mandate
of promoting the general welfare and well being of the people. (CIR v. Bank of Philippine Islads, G.R. No. 134062, April 17, 2007, 521 SCRA
373)
c. Benefits received principle – Taxpayers receive benefits from taxes through the protection the State affords to them. For the protection they
get arises their obligation to support the government through payment of taxes. (CIR v. Algue, Inc., G.R. No. L-28896, February 17, 1988, 158
SCRA 9)
d. Doctrine of symbiotic relationship - Taxation arises because of reciprocal relation of protection and support between the State and
taxpayers. The State gives protection and for it to continue giving protection, it must be supported by the taxpayers in the form of taxes. (CIR v.
Algue, Inc., G.R. No. L-28896, February 17, 1988, 158 SCRA 9)

Under the law, a property is either an ordinary asset or a capital asset.

ORDINARY ASSETS CAPITAL ASSETS
those that are used for business purposes real properties other than those categorized as ordinary assets
Under the Philippine Tax Code, ordinary assets refer to the following: may or may not be connected with the taxpayer’s trade or business
1. Stock in trade
2. Real property included in the taxpayer’s inventory and on
hand at the close of the taxable year
3. Real property for sale in the ordinary course of trade or
 business
4. Real property used for trade or business subject to the
depreciation allowance under Section 34(F) of the Tax Code
5. Other real property used in trade or business
Tax Rate Imposed On Their Sale (National Internal Revenue Code)
Sale of an Ordinary Asset – subject to a creditable withholding tax Sale of a Capital Asset – Subject to a capital gains tax of 6% of the
ranging from 1.5% to 6%, 12% value-added tax (VAT), and 1.5% gross selling price or the current fair market value of the property,
documentary stamp tax (DST). (General Rule) whichever is higher. Capital gains tax is not subject to VAT,
EXCEPTION – based on Revenue Regulations No. 8-2021, the sale is regardless of the amount.
exempted from VAT if:
– The property is a residential house and lot with a selling price of The sale is also subject to a DST of 1.5% of the actual consideration
Php3,199,200 or less. for the sale. Legal fees and other miscellaneous expenses must also
– The property is a condominium with a selling price of Php3,199,200 be paid on top of the taxes.
or less.
If you fail to file the required return and settle the tax due on or before
the deadline, you will be penalized with a surcharge of 25% of the
basic tax due. In case of a fraudulent return or willful neglect to file the
return, the penalty is 50% of the tax due.
Meanwhile, under the Tax Reform for Acceleration and Inclusion
(TRAIN) Law, a 12% interest rate shall be charged for each year the
capital gains tax remains unpaid.

Ordinary Assets in Real Estate

Based on Revenue Regulations No. 7-2003 issued by the BIR, all real properties held by a taxpayer engaged in real estate business are ordinary
assets, even if they sit idle or are abandoned.
For taxpayers engaged in the real estate business, the following qualify as ordinary assets:
 Real property acquired by a real estate dealer
 Real property acquired by a real estate developer, whether developed or underdeveloped
 Real property for sale or lease in the ordinary course of trade or business
 Real property included in the taxpayer’s inventory (the property should be on hand at the close of the taxable year)
 Real property used in trade or business, whether a building, land, or other improvements
 Real property acquired by a real estate lessor—whether land or improvements—which is for lease or rent or being offered for lease or
rent
 Real property acquired in the course of trade or business by a taxpayer habitually engaged in the sale of real estate properties
 Real property for use or being used in trade or business
When and How to File Capital Gains Tax Return: BIR Form 1706
The Bureau of Internal Revenue (BIR) requires that a Capital Gains Tax Return — or BIR Form 1706— be filed within 30 days following the sale.
The seller or transferor must file the return with any authorized agent bank or Revenue Collection Officer of the Revenue District Office (RDO) that
has jurisdiction over the sold property’s location. The tax amount must likewise be paid within the said period.
Alternatively, filing may be done using the BIR’s eFiling and Payment System. BIR accepts payments through GCash, credit cards, debit cards, or
prepaid cards.
Documentary Requirements in Filing BIR Form 1706
Here are the primary documentary requirements that must be submitted along with BIR Form 1706 (Final Capital Gains Tax Return for Onerous
Transfer of Real Property Classified as Capital Assets – Taxable and Exempt):
 Original copy and two photocopies of the TIN IDs of the seller and buyer
 Original copy and two photocopies of the notarized Deed of Absolute Sale or Deed of Transfer
 Original copy and two certified true copies of the Tax Declaration issued by the Local Assessor’s Office for land and improvements at the
time or nearest to the date of the transaction
 Original copy and two certified true copies of the Original, Transfer, or Condominium Certificate of Title
 Original copy and two photocopies of notarized Special Power of Attorney from the transacting party, if the person signing is not one of
the parties to the Deed of Transfer
 Original copy and two photocopies of Sworn Declaration of No Improvement by at least one of the transferees or Certificate of No
Improvement issued by the Assessor’s Office, if applicable
 Original copy and two photocopies of the official receipt or deposit slip and duly validated return as proofs of payment of taxes
 Original copy and two photocopies of the Secretary’s Certificate or Board Resolution approving the sale or transfer of the real property,
indicating the name and position of the authorized signatory to the Deed of Sale or Assignment, if the seller or transferor is a corporation
The additional requirements include the following:
 Original copy and two photocopies of a Special Power of Attorney, if the person processing the transfer is not a party to the transaction
 Original copy and two photocopies of a certification from the Philippine Consulate or Hague Apostille Convention, if executed abroad
 Original copy and two photocopies of a location plan or vicinity map, if the zonal value cannot be readily determined from the documents
submitted
 Original copy and two photocopies of a Certificate of Exemption or BIR Ruling issued by the Commissioner of Internal Revenue or their
authorized representative, if tax-exempt
 Original copy and two photocopies of other documents as may be required by law, rulings, or regulations
Meanwhile, for ante-dated sales, the requirement shall be the original copy and two certified true copies of the Deed of Sale, Assignment, or
Exchange. Depending on where the notary public is registered, this document may be issued by the Clerk of Court of the city or municipality or
Regional Trial Court. The Office of the Executive Judge of the city or municipality may also issue the document.
Alternatively, a certification of notarization from the National Archives Office may be submitted.
Documentary Requirements in Processing Electronic Certificate Authorizing Registration (eCAR) for Sale of Real Property
The following are the requirements for the issuance of an eCAR where the tax paid is based on the approved One-Time Transaction (ONETT)
Computation Sheet:
 Original copy and two photocopies of tax returns filed with proof of payment—such as Revenue Official Receipt or duly validated bank
deposit slip with certification from the authorized agent bank that received the tax payment—or Certificate of Tax Exemption
 Original copy and two photocopies of ONETT Computation Sheet of Tax Due approved by the authorized Revenue Officer
If the person processing the eCAR is not a party to the transaction, any of the following documents must be submitted in original copy and two
photocopies:
 Notarized Special Power of Attorney
 Secretary’s Certificate or Board Resolution
 Certification from the Philippine Consulate or Hague Apostille Convention, if executed abroad
Navigating the Real Estate Selling Process
The sale of real estate property in the Philippines is taxed, and the seller must promptly file a tax return with the BIR after the sale. The tax rate —
which is one significant difference between capital assets vs. ordinary assets — is based on the property’s classification.
The tax rate computation can make real estate selling and tax return filing complex. When technicalities complicate the process, you can always
reach out to a real estate broker like RE/MAX Gold, a trusted real estate broker in the Philippines.