ESTATE TAX

Transfer tax those imposed upon the gratuitous disposition of private

property.
Kinds of Death taxes:
1. Estate tax tax on the right of the deceased person to transmit his
estate to his lawful shares or beneficiaries and certain transfer by the
decedent during his lifetime which are made by the law the equivalent
of testamentary dispositions.
2. Inheritance tax tax on the right of the heirs or beneficiaries to receive
the estate of the deceased person.
Nature of estate tax:
1. Not a direct tax on property, nor a capitation tax
2. A tax on the privilege of the decedent to transmit his estate (an excise
tax)
Net Estate mean gross estate less allowable deductions and specific
exemptions.
Tax Imposed on net estate the estate tax is imposed upon the basis of the
net estate considered as a unit. The first P200,000 of the net estate is
exempt. Where the decedent was married, the net share (1/2) of the
surviving spouse shall also be deducted from the net estate of the decedent
for purposes of imposing the estate tax.
Rules on rates and computation of estate tax
1. Only the ordinary deductions are deducted from the conjugal or
community property from which as diminished, shall be taken the
share of the surviving spouse.
2. The taxable net estate is the difference between the gross estate and
the sum of:
a. The total (ordinary and special) deductions including exemptions:
b. The share of the surviving spouse.
Gross estate total value of all property, whether real or personal, tangible
or intangible, belonging to the decedent at the time of his death, situated
within or outside the Philippines, where such decedent was a resident or
citizen of the Philippines. In the case of a non-resident alien, it shall include
only property situated in the Philippines.
Property included in gross estate:
The general rule is that all property owned by the decedent has to be
included in the gross estate, to the extent of the value of his interest in such
property at the time of his death. Thus, if he owns only a proportionate share
in the property, or is entitled only to its use, it is only the value of such share
or such use that has to be included.
Determination of value of estate
1. Usufruct. To determine the value of the right of usufruct, there shall be
taken into account the probable life of the beneficiary in accordance
with the Basic Standard Mortality Table.
2. Properties. The estate shall be appraised at its fair market value as of
the time of death, whichever is the higher of:
a. Fair market value as determined by the Commissioner

b. Fair market value as shown in the schedule of values fixed by the

Provincial and City Assessors
Deductions from the gross estate
1. Allowable deductions. Consist of the amounts permitted by law to be
deducted from the value of the gross estate.
a. Ordinary deductions
1. Funeral expenses the amount deductible is the lower between:
(a) actual funeral expense or (b) 5% of the gross estate. Note:
expenses incurred after the interment are not deductible. Any
portion of the funeral expenses borne or defrayed by relatives
and friends of the deceased are not deductible. The expenses
must be duly supported by receipts or invoices.
2. Judicial expenses expenses incurred during the settlement of
the estate, including extrajudicial settlements.
3. Claims against the estate they are sourced either from
contract, tort or by operation of law. Claims are debts or
demands of a pecuniary nature which could have been enforced
against the decedent in his lifetime and could have been reduced
to simple money judgments.
4. Claims against insolvent persons judicial declaration of
insolvency is not necessary. It is enough that the debtors
liabilities exceeded his assets.
5. Unpaid mortgages the mortgage indebtedness was contracted
in good faith and for an adequate and full consideration in money
or moneys worth
6. Unpaid taxes taxes which have become payable before the
decedents death
7. Casualty loss the loss must arise from fire, storm, shipwreck or
other casualties, or robbery, theft or embezzlement, AND NOT
compensated by insurance
2. Special deductions
a. Vanishing deductions (property previously taxed) deduction
allowed from the gross estate of citizens, resident aliens and nonresident aliens for properties which were previously subject to
donors or estate tax.
b. Transfer for public use the disposition must be in a last will, to take
effect after death, in favor of the government or any political
subdivision thereof, for exclusive public purpose, and the property is
included in the gross estate.
c. Family home the dwelling house, including the land where it is
situated where the married person or an unmarried head of the
family and his family resides.
d. Standard deduction equivalent to P1,000,000 without need of any
substantiation
e. Medical expenses expenses incurred within one (1) year prior to
the death of the decedent and shall not exceed P 500,000 whether
paid or unpaid.
f. Retirement benefits received by the heirs under R.A. No. 4917 the
amount received is a consequence of the death of the decedentemployee, and is included in the gross estate of the decedent.

3. Share of the surviving spouse. This refers to the net share of the
surviving spouse in the conjugal or community property after
deducting the ordinary obligations properly chargeable to the property.
EXCLUSION FROM ESTATE:
1. Benefits received by members from the GSIS
2. Amount received from the Philippine and US governments for damages
suffered during the last war
3. Benefits received y beneficiaries residing in the Philippines under laws
administered by the US Veterans Administration
4. Bequests, legacies or donations mortis causa to social welfare, cultural
or charitable organizations, but bequests to religious and educations
are not exempt
5. Grants and donations to the Intramuros Administration
FILING OF RETURN AND PAYMENT OF TAX
1. By whom filed by the
a. Executor- person or trust company named in the will by the testator
to carry out its provisions
b. Administrator person or trust company appointed by a court to
administer and distribute the decedent if there is no will or if no
executor is named in the will or if the named executor does not act
c. Legal heirs
2. When the return shall be filed within six (6) months from the
decedents death. The tax shall be paid at the time the return is filed
by the executor, administrator or heir. However, the period of payment
may be extended to a period: (a) not to exceed five (5) years in case
the estate is settled through the courts, or (b) two (2) years in case the
estate is settled extrajudicially.
3. Where return shall be filed with an authorized or accredited agent
bank or the Revenue District Officer, revenue collection officer or duly
authorized treasurer of the city or municipality where the decedent
was domiciled at the time of his death
DONORS TAX
Donation an act of liberality whereby a person disposes gratuitously of a
thing or right in favor of another who accepts it.
Kinds of Donation:
1. Inter vivos, if made between living persons to take effect during the
lifetime of the donor. Subject to donors tax.
2. Mortis causa, if made in the nature of a testamentary disposition, that
is, it shall take effect upon the death of the donor. Subject to estate
tax.
Gift tax tax imposed on the transfer without consideration of property
between two or more persons who are living at the time the transfer is made.
Requisites of a taxable gift.
1. Capacity of the donor to make the donation
2. Donative intent or intent on the part of the donor to make a gift
3. Delivery, whether actual or constructive, of the gift
4. Acceptance of the gift by the donee

Transfers subject to donors tax

1. The donors tax applies whether the transfer is in trust or otherwise,
the gift is direct or indirect, and whether the property is real or
personal, tangible or intangible.
2. Where property other than real property classified as capital asset is
transferred for less than an adequate and full consideration in money
or moneys worth, then the amount by which the fair market value of
the property exceeded the value of the property exceeded the value of
the consideration shall, for the purpose of the tax be deemed a gift
where the transaction does not appear to be bona fide and the intent
to donate is apparent
Distinction between donors tax and estate tax
1. The first is a tax on the privilege to transmit property during life, while
the second, on the privilege to transmit property upon ones death
2. In the first, the tax rates are lower
3. In the first, the exemption if only P100,000, while in the second, it is
P200,000
4. In the first, notice of donation is not required, while in the second,
notice of death is required
5. In the first, the extension of payment is not provided, while in the
second, an extension may be granted by the Commissioner of Internal
Revenue
Gross Gift all property, real or personal, tangible or intangible, that was
given by the donor to the done by way of gift, without the benefit of any
deduction.
Net Gift means the total amounts of gifts less the allowable deductions and
specific exemptions.
1. The donors tax is computed upon the basis of the total net gifts made
during the calendar years. Net gifts of the amount of P100,000 or less,
however, are exempt.
2. The donors tax is computed on a cumulative basis over a period of
one (1) calendar year.
3. When the donee or beneficiary is a stranger, the tax payable by the
donor shall be 30% of the net gift. A stranger is a person who is not a
brother, sister (whether by whole or half blood), spouse, ancestor and
lineal descendant or a relative by consanguinity in the collateral line
not within the fourth degree of relationship. A legally adopted child is
considered a legitimate child for purposes of the donors tax.
Exemptions of gifts from Donors tax:
1. Encumbrances on the property donated, if assumed by the done
2. Amount specifically provided by the donor as a diminution of the
property donated.
Donations for political campaign purposes

1. Any contribution in cash or in kind to any candidate, political party or

coalition of parties for campaign purposes, reported to COMELEC shall
not be subject to payment of any gift tax.
Filing of Return and payment of tax
1. When the return shall be filed within 30 days after the date the gift is
made. The tax is paid at the time the return is filed within said period.
2. Where except in cases where the Commissioner of Internal Revenue
otherwise permits, the return shall be filed with an authorized or
accredited agent bank (AAB), or the revenue district officer, Revenue
collection officer or duly authorized treasurer of the city or municipality
where the donor was domiciled at the time of the transfer
VALUE ADDED TAX
VAT a uniform tax (0% or 12%) imposed on each sale, barter, exchange or
lease of goods, properties or services in the course of trade or business as
they pass along the production and distribution chain. It is also levied on
every importation of goods, whether or not in the course of trade or
business.
In the course of trade or business means the regular conduct or pursuit of
commercial or an economic activity, including transactions incidental
thereto, by any person. If not in the course of trade or business, then the
transaction is not subject to VAT.
Nature of VAT
1. It is a privilege tax.
2. It is a percentage tax.
3. It is an indirect tax as the amount of tax may be shifted or passed on
to buyer, transferee or lessee of goods, properties or services.
Taxable transactions under the VAT Law
- Taxable transactions are those transactions which are subject to VAT
either at the rate of 12% or 0%, and the seller shall be entitled to tax
credit for the VAT paid on purchases and leases of goods, properties or
services.
VAT-registered person refers to any person who is registered as a VAT
taxpayer or a person who opted to be registered as a VAT taxpayer.
Who are the persons required to register for VAT?
- Every person who in the course of trade or business, sells, barters or
exchanges goods or properties, or engages in the sale or exchange of
goods, services, subject to VAT if:
1. The gross sale or gross receipts HAVE EXCEEDED P 1.5 million; or
2. There are reasonable grounds to believe that his gross receipts or
gross sales in the next 12 months shall exceed P 1.5 million.
Zero-rated sales taxable transactions for purposes of the VAT where the
seller is not liable to pay output tax, but is allowed to credit or deduct his
input tax from his other tax liability.
Exempt sale not subject to tax and the seller is not allowed tax credit for
input tax.

1. Sale or importation of agricultural, marine and forest food products in

their original state
2. Services rendered by persons subject to other percentage taxes
3. Medical, dental, hospital and veterinary services
4. Services performed by employees or workers for an employer,
5. Sales and/or services performed by persons whose annual gross sales
or receipts do not exceed P 1.5 million.
Input tax means the value-added tax due from or paid by a VAT-registered
person in the course of his trade or business on importation of goods,
properties or local purchases of goods or services.
Output tax means the value-added tax due on the sale or lease of taxable
goods, properties or services by a VAT-registered person or person required
to register under the law.
VAT payable excess of the output tax on sale of goods, properties or
services over the input tax on importation and local purchases.
If the input tax exceeds the output tax, the excess shall, at the option of the
taxpayer, be refunded, or credited against any internal revenue taxes, or
refunded in part and credited for the balance.
REGISTRATIONOF VAT taxpayers
1. Where. With the Revenue District Office which has jurisdiction over the
place where his main or head office is located
2. Pay an annual registration fee of P500.00 for every separate and
distinct establishment or place of business on or before the last day of
January
3. A person engaged in specified activities EXEMPTED from VAT may
apply for registration.

OTHER PERCENTAGE TAXES

-

Taxes measured by a certain percentage of the gross selling price or

gross value in money or goods sold, bartered, exchanged or imported,
or gross receipts or earnings derived by any person engaged in the
sale of services.
The tax is based on gross receipts except where the basis of tax is the
total premium collected
TAX ADMINISTRATION
Refers to the manner and procedure of assessing and collecting or
enforcing tax liabilities. It involves two (2) functions: assessment and
collection.
THE BUREAU OF INTERNAL REVENUE

It is the administrative agency charged with the primary function of

administration of the national internal revenue laws and regulations.

The bureau is under the executive supervision and control of the

Department of Finance which oversees the administration of national
taxes in the Philippines.
Presently, the Bureau is under one chief and four assistant chiefs
known respectively as the Commissioner of Internal Revenue and
Deputy Commissioners of Internal Revenue.
The Commissioner is the chief executive officer of the Bureau. He is
appointed by the President upon recommendation of the Secretary of
Finance. He formulates the policies and administers the activities of the
Brueau. He is given full authority in matters of discipline and
appointment of internal revenue personnel.
With the approval of the Secretary of Finance, he may make the
necessary rules and regulations as may be needed to delineate the
authority and the responsibility of the various groups and services of
the Bureau.