Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

TAX.3301-2 NARANJO/SIAPIAN/GUDANI
CLASSIFICATION OF TAXES OCTOBER 2022

LECTURE NOTES
CLASSIFICATION OF TAXES
A. As to authority (who imposes the tax)
1. National tax – imposed by the National Government. National internal revenue taxes (DIVE-PESO)
a. donor’s tax
b. income taxes
c. value-added tax
d. estate tax
e. other percentage taxes
f. excise tax
g. documentary stamp tax
h. other taxes as may be imposed

2. Local tax – tax imposed by local governments (provincial/city/municipal/barangay)

Examples:
a. real property tax
b. professional tax
c. business taxes, fees and charges
d. community tax

B. As to purpose (P-FRS)
1. Fiscal – general, fiscal or revenue- tax imposed for the general purpose of the government or to raise revenue
for government needs, e.g. income tax, transfer taxes (estate/donor’s taxes)
2. Regulatory – for purposes of regulation (exercise of police power), e.g. PRC and driver’s licenses
3. Special or sumptuary – tax imposed for a special purpose or to achieve some social or economic ends, e.g.
Special Education Fund under Local Government Code to be used exclusively for education; Php 500 million
collected from Tax Amnesty shall be used exclusively for purposes of establishing tax database and any
excess shall be allocated to augment appropriations for the social mitigating measures and the Build, Build,
Build Infrastructure projects.

C. As to subject matter or object (SM-PPPE)

1. Personal, poll or capitation – tax of a fixed amount imposed on individuals residing within a specified
territory e.g. community tax certificate/cedula
2. Property tax – tax imposed on property, whether real or personal e.g. real property tax / factory machinery
3. Excise tax – tax on commodities/excisable articles e.g. sin products
(alcohol/cigarettes/automobiles/minerals/jewelries/non-essential services)
4. Privilege tax – tax imposed upon the performance of an act, the enjoyment of a privilege or the engaging
in an occupation, e.g. Professional tax (issued PTR); estate and donor’s tax on the privilege to transmit
property from one person to another.

D. As to who bears the burden of paying the tax / incidence (I-DI)

1. Direct –
- is one which the taxpayer who pays the tax is directly liable therefor
- the burden of paying the tax falls directly on the person paying the tax
- the tax is demanded from one person who is intended to pay it
Examples: income tax (taxpayer himself to pay), estate tax (estate to pay), donor’s tax (donor to pay)
2. Indirect –
- one paid by a person who is not directly liable therefor, and who may therefore shift or pass on the tax
to another person or entity, which ultimately assumes the tax burden
- the tax is demanded from one person who can shift the burden of paying the tax to another person
Example: Value-Added Tax

E. As to determination of amount (A-SA)

1. Specific tax – a tax of a fixed amount imposed by the head or number e.g. excise tax on wines or distilled
spirits, cigars, etc.
2. Ad valorem – tax is imposed for a fixed proportion of the amount or value of the property to which the tax
is assessed e.g. income tax, transfer taxes (estate and donor’s), VAT

F. As to rate (MR-PP)
1. Proportional or flat rate – the tax is based on a fixed percentage of the amount of the property, income
or other basis to be taxed.
Examples:

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a. Preferential Income Tax of 8% for Self-Employed individuals or mixed income earners on their
business/professional income
b. VAT (12%) and percentage taxes.
c. Regular corporate income tax (from 30% to 25% under CREATE Law)
d. Under TRAIN: Donor’s tax and Estate tax (6%)
e. Capital gains tax on sale of real property classified as capital asset or creditable withholding tax on
sale of ordinary asset (6%)
f. Capital gains tax on sale of shares of stocks not listed in Stock Exchange (15%)
2. Progressive or graduated tax – the tax rate increases as the tax base increases.
Example: Income tax for individual taxpayers (retained under TRAIN) (taxpayer did not avail 8%)
3. Regressive tax – the tax the rate of which decreases as the tax base increases. The Philippines has no
regressive tax.
4. Mixed tax- mixture of proportional, progressive or regressive.
Examples:
a. Income tax for individuals (progressive/graduated) and for corporation (proportional/flat)
b. Income tax for Mixed Income Earners who opted 8% on his business income while the compensation
income is subject to graduated tax rate

DISTINCTION OF TAX WITH SIMILAR ITEMS

TAX VS. REVENUE
Tax Revenue
Definition Refers to the amount imposed Refers to the amount collected
Scope Only one of the sources of The product of taxation. It refers
government revenues to the funds derived by the
government whether from tax or
from other sources

TAX VS. LICENSE

Tax License
Purpose For revenue For regulation
Amount No limit Limited
Time of payment Generally paid after start of Generally paid before the
business commencement of business
Subject/Object of Person, properties, business Required for the commencement
Imposition rights, interests, privilege, acts of a business profession
and transactions
Effect of non-compliance Does not necessarily make the act, Makes the business illegal
business or profession illegal
Revocability Has a nature of permanence Always revocable
Scope The power to tax includes the Power to license does not include
power to license the power to tax
When imposed Post-activity Pre-activity
Basis of imposition Current data Preceding year or quarter date. If
new business, based on
capitalization
Basis/Sources of Power Power of taxation Police power

TAX VS. TOLL

Tax Toll
Definition Enforced contribution Sum of money paid for use of road
or bridge
Basis Demand of sovereignty Demand of ownership
Purpose One’s support for the government Compensation for the use of
somebody else’s property (road or
bridge and the like)
Authority Imposed only by the government May be imposed by the
government or by private
individuals
Amount Based on government needs (no Determined by the cost of the
limit as to the amount of tax) property or improvements thereon

TAX VS. DEBT

Tax Debt
Basis Law Contract or judgment
Effect of non-compliance Taxpayer may be imprisoned for No imprisonment
non-payment (except for poll tax)
Assignable? No Yes
Mode of settlement Generally payable in money Money, property or service
Subject to Set-off? Generally, not subject to set-off Subject to set-off

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Interest Does not earn interest except Draws interest when stipulated or
when delinquent when in default
Authority Imposed by the State Can be imposed by private
individuals
Prescription Provided under the NIRC Provided under the Civil Code

TAX VS. SPECIAL ASSESSMENT

Tax Special Assessment
Definition Enforced proportional Enforced proportional contribution
contribution from persons or from owners of lands benefited by
properties public improvements
Subject of the imposition business, interests, transactions, Land only
rights, persons, properties or
privileges
Effect on the person Personal liability of the person Cannot be made the personal
liable or the one owning assessed liability of the person assessed,
the subject because it is the land that answers
for the liability
Basis of Imposition Necessity (with no hope of direct Entirely on benefits received
or immediate benefit to the
taxpayer)
Coverage of application General application Exceptional both as to the time and
place

TAX VS. TARIFF

Tariff refers to a book of rates containing names of merchandises with corresponding duties to be paid for the same.
Tariff refers to the duties payable on goods imported or exported. It is a system or principle of imposing duties on
the importation or exportation of goods.

TAX VS. PENALTY

Tax Penalty
Definition Enforced proportionate Sanction imposed as punishment
contribution for violation of a law or acts deem
injurious
to regulate conduct through
Purpose to raise revenue punishment and suppression of
injurious act
Exercising authority the government the government or by private
individuals
Source Law Law or contract
Mode of settlement in money in money or in kind

Notes:
• Payment of tax is compulsory to those who are covered by imposition
• Taxes are important because they are the lifeblood of the government.
• Taxes are personal. The burden of taxation cannot be transferred from one person to the other by private
agreement as this is determined by law
• While the power of taxation includes the power to destroy, it is not absolute. It is subject to limitation or
restrictions.
END

End of TAX.3301-2

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