PART 1 : NATIONAL INTERNAL REVENUE CODE (1).

TAX EXEMPTIONS OF VARIOUS INSTITUTIONS

FACTS: Institution occupies real property. Part of the property is leased to KFC.
A. GOVERNMENT AGENCIES (Example: PNP)

General Rule: Government agencies are exempt from payment of taxes as long as
they are directly performing government functions

Exception: If the agency is in the exercise of proprietary functions, it is subject to

tax and treated as an ordinary corporation subject to corporate income tax of
30%.

GOCC‘s are considered as ordinary corporations except SSS, PHIC, PCSO, GSIS.
PAGCOR is already taxable under the new law because it gives some semblance
of legitimacy to gambling.

1.PNP earns money from collection of license fees.

a. Is this income? Yes. 


b. Is this taxable? No. 


2.Rentals paid by KFC

a. Is this income? Yes. 


b. Is this taxable? Yes. 


3.X donates P500,000 to PNP.

a. Is this income on the part of PNP? Yes, but it is not subject to income 
 tax
[Sec 32 (B)(3), NIRC excludes gifts, bequests, devises from gross

 income]. 


b. Is the donation subject to estate/donor’s tax? No. Transfers for public 
 use
are exempt from estate or donor’s tax ( Sections 87 and 101 of 
 the tax
Code) 

c. Can X deduct the donation from his gross income? It depends.

i. If X were a compensation income earner, he cannot deduct. Reason:

There are only 3 allowable kinds of deductions for
compensation income earners (personal exemptions,
additional exemptions & premiums on health/hospitalization
insurance). 
 Donations are not among them. 


ii. If X were an individual engaged in trade or business, the entire


 amount may be deducted. 


iii. If X were a corporation, the entire amount may be deducted. 


4.Should PNP decide to deposit in a bank the funds from license fees, rentals,
and the gift of P 500,000.00, thereby earning interest income of 2% per
annum, is the interest from bank deposit income and taxable?

a. Is it income? YES. 


b. IS IT TAXABLE? YES, last paragraph of Section 30 NIRC states that


 income of whatever kind and character from an activity conducted
for profit shall be subject to income tax; 


5.Payment of Real Estate Tax - government agencies directly performing

government functions are exempt. Under the Local Government Code of
1991, real properties 


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owned by the government and any of its agencies or instrumentalities shall be
exempt from real property tax except when the beneficial use thereof pertains to
non-exempt entity.

NOTE: It is the beneficial use of the property that exempts the government agency
from payment of tax.

B. GOVERNMENT EDUCATIONAL INSTITUTIONS (GEI) such as public elementary

school, public high school, state colleges (Example: PUP)
1.PUP earns money from tuition fees.

a. Is it income? Yes 


b. Is it taxable? No. Sec. 30, NIRC exempts income by the institution when
it is ―realized as such.‖ 


2.Rental fee received from KFC

a. Is it income? Yes. 


b. Is it taxable? Yes. The last paragraph of Sec. 30, NIRC provides that
income from any activity conducted for profit regardless of the
disposition shall be subject to tax. 


3.X donated P500,000 to PUP.

a. Is it income on the part of PUP? Yes, but not subject to income tax.

 (same reason as government agencies). 


b. Is it subject to estate/donor’s tax? No. Section 87/101 of the tax 
 code on

transfer for public use; 


c. Can X deduct the donation from gross income? Same rules as 
 government
agencies. 


4. Should GEI decide to deposit in a bank the funds from tuition fees, rentals,
and the gift of P 500,000.00, thereby earning interest income of 2% per annum,
is the interest from bank deposit income and taxable?

i. Is it income? YES.
 ii. IS IT TAXABLE? YES, last paragraph of Section 30 NIRC

states that

income of whatever kind and character from an activity conducted for profit shall
be subject to income tax;

5. Real Estate Tax (RET) - As long as the property is ACTUALLY, DIRECTLY and
EXCLUSIVELY used for educational purposes, it is exempt from payment of RET.
Under the Local Government Code of 1991, real properties actually, directly and
exclusively used for educational, religious, and charitable purpose shall be
exempt from real property tax. Real properties owned by the government and
any of its agencies or instrumentalities shall be exempt from real property tax
except when the beneficial use thereof pertains to non-exempt entity.

C. NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS

1.Money received as tuition fee a. Is it income? YES
 b. Is it taxable? NO.


 There is an apparent conflict between the Constitutional provision and
Sec. 30 of the NIRC: The Constitutional provision indicates that the basis for
exemption is the use of revenue but under Sec 30, NIRC, the source of
revenue is the basis of the exemption. Solution: Apply the rules of StatCon
- Follow the NIRC because it is considered as a special law as opposed to
the Constitution which is considered to be a general law. Therefore,
exempt from payment of income tax under Section 30. This is considered
as income ― as such‖. 


2.Rental fee received from KFC

a. Is it income? Yes. 


b. Is it taxable? Yes. (last paragraph Sec 30, NIRC)