LOPEZ, ELLA MARIE P.

FIN95

Self-Check
Basing on your readings, answer the following questions.

1. What are taxes and how can they be classified?

Taxes are the enforced proportional contributions from persons and property levied by the
lawmaking body of the State by virtue of its sovereignty for the support of the government and
all public needs. It may be classified as to:
 As to Purpose- Fiscal or Revenue, Regulatory, Sumptuary
 As to Subject Matter- Personal or Poll or Capitation, Property Tax, Excise or Privilege
Tax
 As to Incidence- Direct Tax, Indirect Tax

2. Differentiate taxes from other government collections.

 Tax vs. Toll
A toll is a demand of proprietorship, is paid for the use of another’s property and may be
imposed by the government or private individuals or entities; while a tax is a demand of
sovereignty, is paid for the support of the government and may be imposed only by the State.
 Tax vs. Penalty
A penalty is designed to regulate conduct and may be imposed by the government or private
individuals or entities. Tax, on the other hand, is primarily aimed at raising revenue and may be
imposed only by the government.
 Tax vs. Special Assessment
Special Assessment is levied only on land, is not a personal liability of the person assessed, is
based wholly on benefits and is exceptional both as to time and place. Tax is levied on persons,
property, or exercise of privilege, which may be made a personal liability of the person assessed,
is based on necessity and is of general application.
 Tax vs. Permit or License Fee
License fee is imposed for regulation and involves the exercise of police power while tax is
levied for revenue and involves the exercise of the taxing power. Failure to pay a license gee
makes an act or a business illegal, while failure to pay a tax does not necessarily make an act or
a business illegal.
 Tax vs. Debt
Debt is generally based on contract, is assignable and may be paid in kind while a tax is based
on law, cannot generally be assigned and is generally payable in money. A person cannot be
imprisoned for non-payment of debt while he can be for non-payment of tax except poll tax.
 Tax vs. Revenue
Revenue is broader that tax since it refers to all funds or income derived by the government
taxes included. Other sources of revenues are government services, income from public
enterprises and foreign loans.
 Tax vs. Tariff
Tariff or Custom duties are taxes imposed on goods exported from or imported to a country.
Custom duties are actually taxes but the latter is broader in scope.

3. What are tax laws and its types?

Taxation law refers to any law that arises from the exercise of the taxation power of the State. It
can be classified into two categories depending on their effect on both the government and the
taxpayer.
 Tax Laws
These are laws that provide for the assessment and collection of taxes.
1. The National Internal Revenue Code (NIRC)
2. The Tariff and Customs Code
3. The Local Tax Code
4. The Real Property Tax Code
 Tax Exemption Laws
These are laws that grant immunity from taxation.
1. The Minimum Wage Law
2. The Omnibus Investment Code of 1987 (E.O. 226)
3. Barangay Micro-Business Enterprise (BMBE) Law
4. Cooperative Development Act
4. Describe the nature of tax laws.
 Philippine Internal Revenue laws- generally civil in nature. They are neither political
nor penal in nature. Although tax laws deal with the fundamental symbiotic relationship
of people with the government, basically they are not political in nature. They remain
effective even if foreign invaders occupy our country. They are deemed to be the laws of
the occupied territory and not of the occupying enemy. Hence, it is valid and legal that
income tax returns shall be filed and paid by the inhabitants even if foreign invaders
occupy our country. Even if there are some penalties provided for violation of tax laws,
they are not penal in nature because they do not define crimes and provide for their
punishment. The internal revenue law provides for some penalties for tax delinquencies
only to effect timely payments of taxes or punishes tax evasion for neglect of duty by
those subjects of taxation.

 Revenue laws- are not remedial laws. They do not include procedures to protect rights;
and prevent or rectify wrong doings.

 Tax Code- are special laws which prevail over general laws such as Civil Code or Rules
of Court. Accordingly, the provisions of the NIRC on prescription arc given priority over
the provisions of Civil Code on prescriptions.

5. Where do tax laws originate and how do they take effect?

Tax laws came from different sources:
 Constitution of the Philippines
 Statutes
 Judicial Decisions
 Executive Orders
 Tax Treaties and Conventions
 Local Tax Ordinances
Before a tax law takes into effect, it should follow the steps of legislation:
1. A tax bill is introduced in the House of Representatives and is referred to the House
Committee on Ways and Means.
2. The proposal is considered by the Committee on Ways and Means. Committee hearings
as well as public hearings are held If there are several bills of the same nature or
purpose, they shall all be consolidated in the conduct of the hearings.
 3. The tax bill is voted on by the Committee and if approved, there’ll be a second reading in
the House.
4. If passed by the House, the bill is transmitted to the Senate for consideration by the
Senate Committee on Ways and Means and public hearings are held.
5. The Senate and the House versions are sent to the Bicameral Conference Committee
consisting of representatives of the House and of the Senate upon the approval.
6. The two versions are generally dissimilar. Thus, the conflict is reconciled in the
Bicameral Conference Committee.
7. A final bill as approved by the Bicameral Conference Committee, is then resubmitted to
the House and Senate for approval. This is known as the third reading.
8. If the Bicameral Conference Committee bill is approved by the House and Senate, it is
sent to the President for approval or veto. This is known as the "enrolled bill."
9. If the President approves the bill, he shall sign it and the bill becomes a law. When the
President vetoes it, both Houses may override the veto by two-thirds vote of all the
members of each house. If the required measure is met, the bill is converted into law over
the President's objections. Moreover, the bill may become a law when the President does
not act upon the measure within thirty days after it shall have been presented to him.

6. If tax laws are vague, how are they interpreted?

When tax laws are vague such when tax laws and tax exemption are difficult to determine; the
proper interpretation of said laws should be done with consideration of the original intent of the
lawmakers at the time such law is drafted and approved.

7. What are the documents issued to facilitate the administrative act of taxation?
 Revenue Regulations (RRs)
 Revenue Memorandum Orders (RMOs)
 Revenue Memorandum Rulings (RMRs)
 Revenue Memorandum Circulars (RMCs)
 Revenue Administrative Orders (RAOs)
 Revenue Delegation of Authority Orders (RDAOs)
 Revenue Bulletins (RB)
 BIR Rulings

8. When is a tax system considered sound?

According to Adam Smith, the governments should adhere to certain principles to have a sound
tax system:
• Fiscal Adequacy -The sources (proceeds) of tax revenue should coincide with and
approximate needs of government expenditures. The sources of revenue should be sufficient and
elastic to meet the demands of public expenditures.
• Theoretical Justice- The tax system should be fair to the average taxpayer and based
upon his ability to pay. It also suggests that the exercise of taxation should not be oppressive,
unjust, or confiscatory.
• Administrative Feasibility- The tax system should be capable of being properly and
efficiently administered by the government and enforced with the least inconvenience to the
taxpayer.

9. How are taxes collected?

 Withholding system; (W)
The taxpayer must deduct the withholding tax on his income payments, file a withholding tax
return, and remit the withheld tax to the government.
 Assessment or enforcement system; (A)
The government identifies non-compliant taxpayers, assesses their tax dues and penalties, and
enforces collections by coercive means such as summary proceeding or judicial proceedings
when necessary.
 Self – assessment system; (S)
The taxpayer himself determines his income, reports the same through income tax returns and
pays the tax to the government. In preparing their tax return, taxpayers declare their income and
expenses, and personally determine the tax due thereon.

10. Who are the chief officials of the BIR?

 Commissioner of Internal Revenue (CIR)- This is the head of the whole bureau.
 Deputy Commissioners- Four Deputy Commissioners are assigned to the following:
Operations Group, Legal Enforcement Group, Information Systems Group and Resource
Management Group.
 Assistant Commissioners- Thirteen assistant commissioners are designated to each of the
service divisions.
 Head Revenue Executive Assistants- Thirteen head revenue executive assistants are
designated to each of the service divisions.
 Regional Directors- They are the heads of each revenue region which administers and
enforces internal revenue laws.
 Revenue District Officers- They are the heads of the 123 revenue district offices which
mainly provide frontline assistance and service to taxpayers.
11. What are the powers of the BIR?
 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

12. What are the powers of the CIR? Can it be delegated?

The following are the power of the CIR given to fulfill all the duties:
 To interpret the provisions of the NIRC, subject to review by the Secretary of Finance 2.
 To decide tax cases, subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals
 To obtain information and to summon, examine, and take testimony of persons to effect
tax collection
 To make assessment and prescribe additional requirement for tax administration and
enforcement
 To examine tax returns and determine tax due thereon
 To conduct inventory taking or surveillance
 To prescribe presumptive gross sales and receipts for a taxpayer when:
a. The taxpayer failed to issue receipts; or
b. The CIR believes that the books or other records of the taxpayer do not correctly
reflect the declaration in the return.
 To terminate tax period when the taxpayer is:
a. Retiring from business
b. Intending to leave the Philippines
 c. Intending to remove, hide, or conceal his property
d. Intending to perform any act tending to obstruct the proceedings for the collection of
the tax or render the same ineffective
 To prescribe real property values
 To compromise tax liabilities of taxpayers
 To inquire into bank deposits, only under the following instances:
a. Determination of the gross estate of a decedent
b. To substantiate the taxpayer's claim of financial incapacity to pay tax in an
application for tax compromise
 To accredit and register tax agents
 To refund or credit internal revenue taxes
 To abate or cancel tax liabilities in certain cases
 To prescribe additional procedures or documentary requirements
 To delegate his powers to any subordinate officer with a rank equivalent to a division
chief of an office

While, the following the power of CIR to delegate except:

 Power to recommend;
 Power to issue rulings, reverse, revoke or modify any existing ruling;
 Power to compromise or abate except when the deficiency taxes is P 500,000 or less;
 Power to assign or reassign officers (excise taxes).

13. What are the other revenue-related government bodies? What are their mandates?
 Bureau of Customs (BOC)- They are tasked to administer collection of tariffs on
imported articles and collection of the Value Added Tax on importation. Together with
the BIR, the BOC is under the supervision of the Department of Finance.

 Board of Investments (BOI)- is tasked to lead the promotion of investments in the

Philippines by assisting Filipinos and foreign investors to venture and prosper in
desirable areas of economic activities. It supervises the grant of tax incentives under the
Omnibus Investment Code. The BOI is an attached agency of the Department of Trade
and Industry (DTI).
  Philippine Economic Zone Authority (PEZA)- The PEZA is created to promote
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.

 Local Government Tax Collecting Units- Provinces, municipalities, cities and barangays
also imposed and collect various taxes to rationalize their fiscal autonomy.

Exercise 2.1 TRUE OR FALSE

Determine whether the following statements are true or false.
___TRUE __1. Tax laws must originate exclusively from the House of Representatives.
__FALSE __2. The presence of penalties for late filing and payment of taxes suggests that tax
laws are penal in nature.
__FALSE __3. Tax exemption laws which are vague as to its provisions must be construed
against the government as this should have been deliberated well when it was still in the
legislative process.
___TRUE __4. One characteristic of a sound tax system is that taxes are generally paid in cash
since liquidity is important for the use government funds.
__FALSE __5. All of the powers of the Commissioner of Internal Revenue cannot be delegated.
___________6. In case of discrepancies of GAAP and tax laws, the provisions of tax laws
should be followed in terms of tax reporting.
___________7. The presence of a graduated tax table for personal income tax in the Philippines
suggests the employment of a progressive tax system.
__FALSE __8. Tax is a broader term as compared to revenue and tariff.
__FALSE __9. Sources of tax laws are only from the legislative and executive branch of the
government.
___TRUE __10. Even though the community/poll tax is a local tax, the certificate still bears the
BIR logo.

Exercise 2.2 IDENTIFICATION

Identify the terminologies best described by the following statements.
__Regressive Tax__ 1. A tax system where the tax rate decreases as the tax base increases
Special Assessment 2. A tax levied to achieve some social or economic objectives
___________3. Official positions of the BIR to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws
___________4. Amount levied by government on land adjacent to a public improvement
___________5. A tax where the statutory and economic taxpayers are not the same
___________6. Tax withheld on certain income payments which are not creditable against any
income tax due
___________7. The highest official position under the Philippine Economic Zone Authority
___________8. A tax collection system which is also referred to as self-assessment method
___________9. Debt that can be paid in kind
___________10. This is the amount imposed for transactions involving international trade

Exercise 2.3 MULTIPLE CHOICE

Choose the best answer from the choices provided.
______1. When the economic burden of a tax already paid is transferred to another, the tax is
most likely a/n ________________.
a. Direct Tax
b. Indirect Tax
c. Personal Tax
d. Specific Tax

______2. Which is not a characteristic of tax?

a. It is an enforced contribution.
b. It is generally payable in money.
c. It is subject to assignment.
d. It is levied by the law-making body of the State.

______3. Which issues revenue regulations?

a. Commissioner of Internal Revenue
b. Bureau of Internal Revenue
c. Department of Finance
d. Secretary of Finance

______4. Philippine Tax laws, by nature, are

a. penal
b. civil
c. remedial
d. political

______5. Which of the following do not relate to tax?

a. does not render business illegal when not paid
b. arises from law rather than from contracts
c. intended to cover cost of regulations
d. intended for public purpose

Exercise 2.4 TAX TYPES

Determine the tax type best described by each of the following statements.
___________1. The value-added tax was previously 10% when it was expanded to 12%
___________2. The TRAIN Law removed the use of a graduated tax table for estate tax
___________3. The excise tax on distilled spirits during 2017 was 20% of the net retail price and
P21.63 per proof liter
___________4. Legislative officials are pushing for taxes on junk foods to fund health efforts
against the pandemic
___________5. Excise taxes are mostly capitalized as cost of the merchandise
___________6. In efforts to reduce plastic consumption, an LGU imposed a plastic tax

Exercise 2.5 LARGE TAXPAYERS

Determine whether the following taxpayers are to be supervised under the Large Taxpayer
Service. Write LTS if yes and RDO if not.
_____1. With an excise tax rate of 30% on selling price on its automobiles, Vroom Company
sold five units at P1,500,000 each on the preceding year
_____2. Batty Company paid a total of P200,000 on value-added tax during the preceding year
_____3. The 2019 Balance Sheet of Cappy Company showed assets of P900 million and
liabilities of P550 million
_____4. The 2019 Income Statement of Netty Company reported a taxable income of P4,000,000
_____5. Fristy Company had its initial public offering on June 19, 2019

Case Study 2.1 GOING LOCO ON LOCAL

The Municipality of Santo Cristo, claiming that it can impose taxes under the Local Government
Code, imposed a tax on common carriers in addition to the 3% common carrier’s tax imposed in
the National Internal Revenue Code. The common carriers in the municipality objected on this
ordinance stating that the power of taxation cannot be delegated and that this constitutes double
taxation.

Is their contention tenable?

Case Study 2.2 IS THE COMPROMISE COMPROMISED?

Due to the government budget crunch due to the pandemic, the economic manager of the country
looked into tax compromises and abatements done during the year. Upon evaluation, it
discovered a tax liability of P400,000 which was compromised by the Regional Evaluation
Board. The economic manager stated that the tax compromise is not valid since it is the CIR’s
power for the tax compromise to take effect. He also adds that this power cannot be delegated.

Is his contention tenable?

Case Study 2.3 THE SOUND OF A SOUND TAX SYSTEM
Assume the same scenario on Case Study 1.2.
Instead of spending time on the tax liability at hand, the economic manager proposed that small-
time online sellers should just be sought after by tax authorities as many have not been reporting
their income. With the influx of transactions via the online media, the economic manager
estimates that potential government revenues are higher than the amount in Case Study 1.2. He
also contends that the tax collections would help achieve the fiscal adequacy principle of a sound
tax system.

Various individuals and bodies have expressed their frustrations on this idea. Some have stated
that this proposition is anti-poor and violates the theoretical justice principle of a sound tax
system. It also adds non-financial burden to the liable taxpayers as this would require additional
registration processes and tax filings for them, which they say is also against the administrative
feasibility principle.

Whose contention is more tenable?