General Principles of Taxation

“Our new Constitution is now established and has an appearance that promises permanency; but in
this world nothing can be said to be certain, except death and taxes.”- BENJAMIN FRANKLIN
Taxation Defined
Taxation is the process or means by which the sovereign, through its law-making body, imposes
burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry
out the legitimate objects of government.
In simple terms, it is the act of levying a tax to apportion the cost of government among those who, in
some measure, are privileged to enjoy its benefits and must therefore bear its burdens.
THE THREE INHERENT POWERS OF THE STATE
1. Police Power - It is the power of the state for promoting public welfare by restraining and
regulating the use of liberty and property.
2. Power of Eminent Domain - It is the power of the State to acquire private property for public
purpose upon payment of just compensation.
3. Power of Taxation - It is the power by which the State raises revenue to defray the necessary
expenses of the government.
Similarities among the Three (3) Inherent Powers of the State
1. They are inherent in the state.
2. They exist independently of the constitution although the conditions for their exercise may be
prescribed by the constitution.
3. Ways by which the State interferes with private rights and property.
4. Legislative in nature and character.
5. Presuppose an equivalent compensation received, directly or indirectly, by the persons
affected.
Differences between Power of Taxation, Police Power, and Eminent Domain
As to Taxation Police Power Eminent Domain
Purpose To raise revenue To promote public welfare To take private property
through regulations for public use.
Authority Government or its Government or its political May be granted to public
political subdivisions only. subdivisions only. service companies or
public utilities, if the
power is granted by the
law.
Persons Community or a class of Community or a class of Owner of private
affected individuals individuals property.
Amount of No limits as government Limited to the cost of license. No amount imposed
imposition needs are unlimited against the private
owner.
Effect Tax collection becomes No transfer of property or tile; There is transfer of the
part of public funds at most there is restraint in right of property whether
the injurious use of property. it be of ownership or a
lesser right or
possession.
Benefits It is assumed that the The person affected received Negotiated sale:
received individual receives the no direct and immediate Current Market Value
equivalent of the tax in benefits but only such as may among others
the form of protection and arise from the maintenance of
benefits from the a healthy economic standard Expropriation: BIR
government of society. zonal value among
others
Relation to Inferior to Impairment Superior to Impairment Superior to Impairment
Impairment Clause Clause Clause
Clause
PURPOSES OF TAXATION
1. Primary: Revenue or Fiscal Purpose
The primary purpose of taxation on the part of the government is to provide funds or property with
which to promote the general welfare and the protection of its citizens and to enable it to finance its
multifarious activities.
2. Secondary: Regulatory Purpose (or Sumptuary/Compensatory)
While the primary purpose of taxation is to raise revenue for the support of the government, taxation
is often employed as a devise for regulation or control (implementation of State’s police power) by
means of which certain effects or conditions envisioned by the government may be achieved such as:
a. Promotion of General Welfare
b. Reduction of Social Inequality
c. Economic Growth
THEORY AND BASIS OF TAXATION
1. Theory (Authority): LIFEBLOOD THEORY or NECESSITY THEORY
2. BASIS of Taxation: BENEFITS RECEIVED or RECIPROCITY THEORY
MANIFESTATION OF THE LIFEBLOOD THEORY:
a. Rule of “No Estoppel against the Government.”
b. Collection of taxes cannot be enjoined (stopped) by injunction.
c. Taxes could not be the subject of compensation or set-off.
d. Right to select objects (subjects) of taxation
e. A valid tax may result in the destruction of the taxpayer’s property. (power to destroy)
• In McCulloch v. Maryland Chief Justice Marshall declared that the power to tax involves the power
to destroy. This maxim only means that the power to tax includes the power to regulate even to the
extent of prohibition or destruction of businesses. The reason is that the legislature has the inherent
power to determine who to tax, what to tax and how much tax is to be imposed. Pursuant to the
regulatory purpose of taxation, the legislature may impose tax in order to discourage or prohibit things
or enterprises inimical to the public welfare.
SCOPE of the Power of Taxation
a. Comprehensive– as it covers persons, businesses, activities, professions, rights and
privileges.
b. Unlimited– In the absence of limitations prescribed by law or the constitution, the power to tax
is unlimited and comprehensive. Its force is so searching to the extent that the courts scarcely
venture to declare that it is subject to any restrictions.
c. Plenary– as it is complete; BIR may avail of certain remedies to ensure collection of taxes.
d. Supreme- in so far as the selection of the subject of taxation.
ESSENTIAL CHARACTERISTICS OF TAXATION (JPIALEM)
1. Levied by the State which has Jurisdiction over the persons or property.
2. Levied and collected for Public Purpose/e.
3. Commonly required to be paid at regular periods or Intervals.
4. Assessed in accordance with some reasonable rule of Apportionment.
5. Levied pursuant to Legislative authority.
6. An Enforced contribution.
7. Pecuniary burden payable in Money.
NATURE/CHARACTERISTICS of the State’s Power to Tax
1. It is inherent in sovereignty.
2. It is legislative in character.
CLASSIFICATION OF TAXES
1. As to scope:
a. National –Tax imposed by the state itself and is effective within the entire jurisdiction thereof.
b. Local – It refers to the tax imposed by a political subdivision of the state and is effective only
within the territorial boundaries thereof
2. As to subject matter or object:
a. Personal – There is a fixed amount upon all persons residing within a specified territory with
no regards to their property or occupation.
b. Property – This refers to one assessed on all properties located within a certain territory on a
specified date in proportion to its value. (e.g. Real Estate Tax)
c. Excise – This tax embraces any form of burden not laid upon person or property (e.g. VAT)
3. As to who bears the burden:
a. Direct – One demanded from an individual who tends to buy or purchase a good or sevice.
(e.g. Income Tax)
b. Indirect – Tax paid primarily a person who can shift the burden upon someone else. (e.g.
Valueadded tax)
4. As to determination of amount:
a. Specific – Tax fixed or determinate sum imposed by the head or number of some standard of
weight and measurement, and requires no assessment beyond listing and classification.
b. Ad valorem – Fixed proportionate with the value of the property and required the intervention
of assessors before the amount due from each taxpayer.
5. As to purpose:
a. Primary, Fiscal, or Revenue imposed solely for the general
b. Secondary, Regulatory, Special or Sumptuary Purpose
6. As to graduation or rate:
a. Proportional – Means that the government takes an amount of money from a person which is
in proportion to his/her income
b. Progressive or graduated – Means that the government takes a larger percentage of a
person’s salary for tax due to his high salary.
c. Regressive - Means that the government takes a larger percentage of a person’s income for
tax while he is receiving a lower income
7. As to taxing authority:
a. National
b. Local
ELEMENTS OF SOUND TAX SYSTEM
• Fiscal Adequacy – This means that the sources of revenue taken as a whole should be
sufficient to meet the expanding expenditures of the government.
• Theoretical Justice of Equity – It means that taxes levied must be based upon the ability of
the citizen to pay.
• Administrative Feasibility – It means that taxes should be clear and plain to tax payers.
LIMITATIONS ON THE STATE’S POWER TO TAX
• Inherent Limitations
• Constitutional Limitations
INHERENT LIMITATIONS
1. Situs or territoriality of taxation
2. Public purpose
3. International comity
 4. Non-delegability of the taxing power
5. Exemption of the Government
SITUS OF TAXATION
• Commonly known as “place of taxation.”
It is the place or authority that has the right to impose and collect taxes.
Rule: A State may not tax property lying outside its borders or lay an excise or privilege tax upon the
exercise or enjoyment of a right to privilege derived from the laws of another State and therein
exercised or enjoyed.
FACTORS THAT DETERMINE SITUS
1. Subject matter (person, property, or activity)
2. Nature of the tax
3. Citizenship
4. Residence of the taxpayer
5. Source of income
6. Place of excise, business or occupation being taxed
PUBLIC PURPOSE
• does NOT only pertain to those purposes traditionally viewed as essentially governmental
functions, but also includes those purposes designed to promote social justice (Planters v
Fertiphil 2008).
Who may determine “public purpose”?
• This is a legislative prerogative, hence such power resides in Congress. However, this does
not prevent the court from questioning the propriety of a statute on the ground that the law is
not for public purpose.
INTERNATIONAL COMITY
• The Philippines adopts the generally accepted principles of international law as part of the law
of the land, and adheres to the policy of peace, equality, justice, freedom, cooperation, and
amity with all nations. (Sec. 2, Art. II of the 1987 Constitution)
• It is based on the principle of “par en parem non habet imperium (equals have no sovereign
over each other).”
• This is a limitation which is founded on reciprocity designed to maintain a harmonious and
productive relationships among the various states. Under international comity, a state must
recognize the generally accepted tenets of international law, among which are the principles of
sovereign equality among states and of their freedom from suit without their consent, that limit
the authority of a government to effectively impose taxes on a sovereign state and its
instrumentalities, as well as on its property held, and activities undertaken in that capacity.
NON-DELEGABILITY OF THE TAXING POWER
• The power to tax is exclusively vested in the legislative body.
• Matters that cannot be delegated:
1. Selection of property or transaction to be taxed;
2. Determination of purposes
3. Rate of taxation; and
4. Rules of taxation.
• Exceptions: (PAL)
1. Delegation to the President of tariff powers under the flexible tariff clause.
2. Delegation to Administrative agencies, such as authority to fix rates within the limits specified by
law.
3. Delegation to LGUs as local governments are granted the autonomous authority to create their
own sources of revenue.
EXEMPTION OF THE GOVERNMENT
1. Government entities- Refers to corporate governmental entity through which the functions of
the government are exercised throughout the Philippines.
Reason: Properties of the national government as well as those of the LGU are NOT subject to tax,
otherwise, it will result in an absurd situation where the government is taking money from one pocket
and putting it in another.
2. Government agencies- Refers to various units of the government, including a department,
bureau, office, instrumentality, or GOCC, or LGU.
Taxability:
a. Agencies performing governmental functions are exempt from tax unless expressly taxed;
b. Agencies performing proprietary functions are subject to tax unless expressly exempted.
3. Government Instrumentality- Refers to any agency in the National Government, not
integrated within the department framework, vested with special functions or jurisdiction by
law.
Reasons for exemption:
a. So that functions of government shall NOT be unduly impeded
b. To reduce the amount of money that has to be handled by the government in the course of its
operations.
GOCC’s are generally subject to tax, except:
a. GSIS SSS
b. PHIC
c. LWD
d. PCSO (as amended by RA10026 TRAIN LAW)
CONSTITUTIONAL LIMITATIONS
• Provisions indirectly affecting taxation
(Art. III, 1987 Constitution)
1. Due process (Sec. 1)
2. Equal protection (Sec. 1)
3. Freedom of the press (Sec. 4)
4. Religious freedom (Sec. 5)
5. Non-impairment of obligations of contracts (Sec. 10)
CONSTITUTIONAL LIMITATIONS
• Provisions directly affecting taxation
1. Prohibition against imprisonment for non-payment of poll tax (Art. III, Sec. 20)
2. Uniformity and equality of taxation (Art. VI, Sec. 28)
3. Grant by Congress of authority to the President to impose tariff rates (Art. VI , Sec. 28)
4. Prohibition against taxation of religious, charitable entities, and educational entities (Art. VI,
Sec. 28)
5. Prohibition against taxation of non-stock, non-profit educational institutions (Art. IX, Sec. 4)
6. Majority vote of Congress for grant of tax exemption (Art. VI, Sec. 28)
7. Prohibition on use of tax levied for special purpose (Art. VI, Sec. 29)
Provisions directly affecting taxation
8. President’s veto power on appropriation, revenue, tariff bills (Art. VI, Sec. 27)
9. Non-impairment of jurisdiction of the Supreme Court (Art. VI, Sec. 30)
10. Grant of power to the LGUs to create its own sources of revenue (Art. IX, Sec. 5)
11. Origin of Revenue and Tariff Bills (Art. VI, Sec. 24)
 12. No appropriation or use of public money for religious purposes (Art. VI, Sec. 28)
TAX DISTINGUISHED FROM OTHER FORMS 0F EXACTION – Debt
TAX DEBTS
As to basis
Obligation based on law Obligation based on contract or judgement
As to effect of Non-Payment
Failure to pay tax (other than poll tax) may result No imprisonment for non-payment of debt.
in imprisonment.
As to Assignability
Not assignable Assignable
As to Payment
Generally, not subject to compensation or set-off May be subject to compensation or set-off.
As to Drawing of Interest
Tax does not draw interest except in case of Debts draw interest if stipulated or if the debtor
delinquency incurs legal delay.
As to Imposing Authority
Imposed by public Imposed by private individuals
As to prescription
Determined by NIRC Determined by the Civil Code.

TAX DISTINGUISHED FROM OTHER FORMS 0F EXACTION - Toll

TAX TOLL FEES
As to definition
Enforced proportional contribution from persons A consideration which is paid for the use of a
or property. property which is of a public nature.
As to basis
Demand of sovereignty A demand of proprietorship
As to purpose
Taxes are levied for the support of the `tolls are compensation for the cost and
government maintenance of the property used
As to determination of amount
The amount of tax is determined by the The amount of the toll is determined by the cost
legislature. of the property or of the improvement.
As to who may impose
May only be imposed by the State Imposed by the government or private individuals

TAX DISTINGUISHED FROM OTHER FORMS OF EXACTION – Special Assessment

TAX SPECIAL ASSESSMENT
As to Definition
Enforced proportional contribution from persons Enforced proportional contributions from owners
or property of lands especially or peculiarly benefited by
public improvements.
As to Subject
Taxes are levied on persons, property (which Levied only on land.
includes land), income, business, etc.
 As to liability
Personal liability of the taxpayer Cannot be made a personal liability of the person
assessed.
As to basis
Based on necessity and partially on benefits Based solely on benefits
As to Application
General application Special application only as to particular time and
place.

TAX DISTINGUISHED FROM OTHER FORMS OF EXACTION – Penalties

TAX PENALTIES
As to definition
Enforced proportional contribution from persons Sanction imposed as a punishment for violation of
and property law or acts deemed injurious; violation of tax laws
may give rise to imposition of penalty,
As to nature of burden
Tax is civil liability. A person is criminally liable in It is a punishment for the commission of a crim.
taxation only when he fails to satisfy his civil
obligation to pay taxed
Intended to raise revenue Designed to regulate conduct
Imposing Authority
May be imposed only by the government May be imposed by the
1. Government; or
2. Private individual or entities

TAX DISTINGUISHED FROM OTHER FORMS 0F

EXACTION – Tariff; Compromise Penalties; Subsidies; Revenues
TAX TARIFF
All embracing term to include various kinds of A kind of tax imposed on articles which are traded
enforced contributions from persons for the internationally/
attainment of public purpose.
TAX COMPROMISE PENALTIES
Basic imposition on persons, property, and Collected as a compromise in cases involving
excises. violations of the tax laws, rules or regulation
TAX SUBSIDIES
Levied by the law-making body of the state for A legislative grant of money in aid of a private
the support of government and for public needs enterprise deemed to promote the public welfare.
TAX REVENUE
A source of revenue of the government A broad term that includes no only taxes but
income from other sources as well.
DOUBLE TAXATION
• In its strict sense, double taxation referred to is DIRECT DUPLICATE TAXATION. In its broad
sense, double taxation is referred to as indirect double taxation.
Direct double taxation means taxing twice:
• By the same taxing authority;
• For the same purpose;
 • In the same year or taxing period;
• Same subject or object; and
• Same kind/character of the tax
MEANS OF AVOIDING OR MINIMIZING THE BURDEN OF TAXATION
1. Shifting- the transfer of the burden of tax by the original payer or the one on whom the tax
was assessed or imposed to another or someone else without violating the law.
2. Transformation– the manufacturer or producer upon whom the tax has been imposed, fearing
for the loss of his market share if he should add the tax to the price, pays the tax and
endeavors to recoup himself by improving his process of production , thereby turning out his
units at a lower cost.
3. Evasion - is a scheme where the taxpayer uses illegal or fraudulent means to defeat or lessen
payment of a tax.
Kinds of Exemption
As to basis:
1. Constitutional. Immunities from taxation which originate from the constitution.
2. Statutory. Immunities from taxation which emanates from legislation.
As to form:
1. Express. Exemptions expressly granted by statute.
2. Implied. When particular persons, property, or rights are deemed exempt as they fall outside
the scope of the taxing provision itself.
As to extent:
1. Total. Connotes absolute immunity.
2. Partial. One where a collection of a part of the tax is dispensed with.
PRINCIPLES GOVERNING TAX EXEMPTIONS
• Exemptions from taxation are highly disfavored in law.
• He who claims an exemption must be able to justify his claim by the clearest grant of organic
or statute law because tax exemptions are not presumed.
• If ambiguous, there is no tax exemption.
• He who claims exemption should convincingly prove that he is exempted. Therefore, tax
exemption must be strictly construed.
• No law granting any tax exemption shall be passed without the concurrence of majority of all
members of Congress.
SOURCES OF TAXATION LAWS
1. Constitution
2. National Internal Revenue Code/TRAIN Law/CREATE Law
3. Tariff and Customs Code
4. Local Government Code (Book II)
5. Local tax ordinances/ City or municipal tax codes
6. Tax treaties and international agreements - A tax treaty is one of the sources of our law on
taxation. The Philippine Government usually enters into tax treaties in order to avoid or
minimize the effects of double taxation. A treaty has the force and effect of law.
7. Special laws
8. Decisions of the Supreme Court and the Court of Tax Appeals
9. Revenue rules and regulations and administrative rulings and opinions
TAX COLLECTION SYSTEM
Withholding system on income tax – The payor of the income withholds or deducts the tax on the
income before the release of the same to the payee and remits the same to the government.
The timing of withholding of tax has been simplified under the Ease of Payment Taxes Law (RA
11976) with the introduction of a new provision under the Tax Code [Section 58 (C)] which states that
the obligation to deduct and withhold tax arises at the time the income has become payable.
Another significant change under the EoPT law is the repeal of Section 34(K) of the Tax Code on the
requirement to withhold taxes as a requisite to claim deductions from gross income.
The new law took effect on 22 January 2024.
Creditable Withholding Tax
1. Withholding Tax Compensation – Tax withheld by employers against the compensation
income to their employees
2. Expanded withholding tax – an estimated tax required by government to be deducted on
certain income payments made by taxpayers engaged in business.
• Final Withholding Tax – a system of tax collection wherein payors are required to deduct the
full tax on certain income payments.
B. Withholding system on business tax – when national government agencies and
instrumentalities including GOCCs purchase goods or services from private suppliers, the law
requires withholding of the relevant business tax.
C. Voluntary compliance system – Under this collection system, the taxpayer himself
determines his income, reports the same through income tax returns and pays the tax to the
government. It is also referred to as “self-assessment method.”
• It will be reduced by:
a. The withholding tax on compensation withheld by employers
b. Expanded withholding taxes withheld by suppliers of goods or services.
D. Assessment or enforcement system – The government identifies non-compliant taxpayers,
assesses their tax dues including penalties, demands for taxpayer’s voluntary compliance or enforces
collections by coercive means such as summary proceeding or judicial proceedings when necessary.
STAGES OF TAXATION
1. Levy or imposition – involves the enactment of a tax law by Congress and is called impact of
taxation.
2. Assessment and Collection – Implementation involves assessment or the determination of
the tax liabilities of taxpayers and collection. This stage is referred to as incidence of taxation
or the administrative act of taxation.
3. Payment – This involves the act of compliance by the taxpayer in contributing his share to pay
the expenses of the Government
4. Refund – This is a proves of claiming for tax illegally collected or mistakenly paid.
Direct tax – when both the impact and incidence of taxation rest upon the same taxpayer, the tax is
said to be direct. The tax is collected form the person who is intended to pay the same. The statutory
taxpayer is the economic taxpayer. (e.g. income tax, real property tax)
Indirect tax – when the tax is paid by any person other than the one who is intended to pay the
same, the tax is said to be indirect. This occurs in the case of business taxes where the statutory
taxpayer is not the economic taxpayer.

Tax administration
• It refers to the management of the tax system. Tax administration of the national tax system in the
Philippines is entrusted to the Bureau of Internal Revenue which is under the supervision and
administration of the Department of Finance.
POWERS OF THE BUREAU OF INTERNAL REVENUE
• Assessment and collection of taxes
• Enforcement of all forfeitures, penalties, and fines, and judgments in all cases decided in its
favor by the courts
• Giving effect to and administering the supervisory and police powers conferred to it by the
NIRC and other laws.
 • Assignment of internal revenue officers and other employees to other duties.
• Provision and distribution of forms, receipts, certificates, stamps, etc. to proper officials
• Issuance of receipts and clearances
• Submission of annual report, pertinent information to Congress and reports to the
Congressional Oversight Committee in matters of taxation
POWERS OF COMMISSION OF INTERNAL REVENUE
1. To decide disputed assessments, refunds of internal revenue taxes, fees, charges and
penalties in relation thereto or other matters related to it subject to the exclusive appellate
jurisdiction of the CTA;
2. To obtain information and to summon, examine, and take testimony of persons to effect tax
collection;
3. To terminate tax period;
4. To examine tax returns and determine tax due thereon;
5. To prescribe real property values
6. To compromise tax liabilities of taxpayers
7. To accredit and register tax agents
8. To refund or credit internal revenue taxes
9. To abate or cancel tax liabilities in certain cases.
10. To prescribe additional procedures or documentary requirements
Non-delegated powers of the CIR:
1. Power to recommend the promulgation of rules and regulations to the Secretary of Finance
2. Power to issue rulings of first impression or to reverse, revoke or modify any existing rulings of
the Bureau
3. Power to compromise or abate any tax liability
4. Power to assign and reassign internal revenue officers to establishments where articles
subject to excise tax are produced or kept.
OTHER AGENCIES TASKED WITH COLLECTIONS OR TAX INCENTIVES- RELATED
FUNCTIONS
1. Bureau of Customs
2. Board of Investments
3. Philippine Economic Zone Authority
4. Local Government Tax Collecting Unit
Other Agencies Tasked with Tax Collections or Tax Incentive-related Functions
1. Bureau of Customs – administers collection on tariffs on imported articles and collection of
the VAT on importation.
2. Bureau of Investments – leads the promotion of investments in the Philippines by assisting
Filipinos and foreign investors to venture and proper in desirable areas of economic activities.
3. Philippine Economic Zone Authority – promotes investments in export-oriented
manufacturing industries in the Philippines and among other myriads of functions, supervise
the grant of both fiscal and non-fiscal incentives.
4. Local Government Tax Collecting Units – Provinces, municipalities, cities and barangays
also imposed and collect various taxes to rationalize their fiscal autonomy.
TAXPAYERS CLASSIFICATION FOR PURPOSES OF TAX ADMINISTRATION
The Revenue Regulations implements Section 21(b) of the Tax Code of 1997, as amended by
Republic Act No. 11976 (Ease of Paying Taxes Act), on the classification of taxpayers. Taxpayers
shall be classified, and be covered by these Regulations, as follows:
1. Micro Taxpayer – shall refer to a taxpayer whose gross sales for a taxable year is less than
Three Million Pesos (P3,000,000.00)
2. Small Taxpayer – shall refer to a taxpayer whose gross sales for a taxable year is Three
Million Pesos (P3,000,000.00) to less than Twenty Million Pesos (P20,000,000.00).
3. Medium Taxpayer – shall refer to a taxpayer whose gross sales for a taxable year is Twenty
Million Pesos (P20,000,000.00) to less than One Billion Pesos (P1,000,000,000.00).
4. Large Taxpayer – shall refer to a taxpayer whose gross sales for a Taxable year is One Billion
Pesos (P1,000,000,000.00) and above.
▪ For purposes of classification of taxpayers under these Regulations, gross sales shall refer to
total sales revenue, net of VAT, if applicable, during the taxable year, without any other
deductions.
▪ Taxpayers who will register to engage in business o practice of profession upon the effectivity
of the Regulations shall initially be classified based on its declaration in the Registration forms
starting from the year they registered and shall remain as such unless reclassified.
▪ The concerned taxpayer shall be reclassified in accordance with the threshold values as stated
under Section 2 of the Regulations and shall be duly notified by the BIR of their classification
or reclassification, as may be applicable, in a manner or procedure to be prescribed in a
revenue issuance to be issued separately.
▪ Taxpayers registered in 2022 and prior years shall be classified based on gross sales for
taxable year 2022. For taxpayers registered in 2022 and prior years but without any submitted
information on their gross sales for taxable year 2022, and taxpayers registered in 2023 or in
2024 before the effectivity of the Regulations, shall initially be classified as MICRO, except
VAT-registered taxpayers, who shall be classified as SMALL.
▪ Large taxpayers – under the Supervision of the Large Taxpayer Service of the BIR
▪ Non-large taxpayers – under the supervision of the respective Revenue District Offices
(RDOs) where the business, trade or profession of the taxpayer is located
▪ This classification applies only to business income derived from trade, business activities, or
professional practice, and does not include:
1. Income from employment under an employee-employer relationship;
2. Passive income as defined in Sections 23, 25, 27, and 28 of the Tax Code, as amended;
3. Income excluded under Section 32(B) of the Tax Code, as amended