Course Code and Title: BACR 5 – INCOME TAXATION

Lesson Number : 2

Topics : Tax, Laws, Systems and Administration

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LEARNING OBJECTIVES

At the end of this lesson, the student should be able to:

1. Identify the type of taxation laws;

2. Classify taxes as to different criterion and differentiate them as to other government

revenues;

3. Define tax laws and its types, sources and nature;

4. Explain the rules on the interpretation of vague tax laws;

5. Differentiate the relevant issuances related to the administration of tax laws;

6. Describe the characteristics of a sound tax system;

7. Differentiate the various tax collection systems;

8. Enumerate the powers of the BIR & CIR

PRE-ASSESSMENT
Match Column A with Column B.
Column A Column B
Toll - 1 A – most likely similar with proportional tax
CIR - 2 B – sources of funds must be sufficient to cover costs
Fiscal Adequacy - 3 C – the highest official of the Bureau of Internal Revenue
Progressive – 4 D – a charge for the use of others’ property
Ad valorem - 5 E – an agency tasked for collection of tariffs
BOC- 6 F – tax rates increase as the tax base increase
Revenue Issuances - 7 G – a source of tax law from the BIR

LESSON PRESENTATION

TAXES
Taxes are the enforced proportional contributions from persons and property levied
by the law- making body of the State by virtue of its sovereignty for the support of
the government and all public needs.

Essential Elements
The following are the essential elements of taxes.

1. It is an enforced contribution.
2. It is generally payable in money.
3. It is proportionate in character.
4. It is levied on persons, property, or the exercise of a right or privilege.
5. It is levied by the State which has jurisdiction over the subject or object of
taxation.
6. It must be uniform and equitablIt must not violate constitutional and inherent
limitations.
7. It is levied by the law-making body of the State.
8. It is levied for public purpose or purposes.

Classifications of Taxes
Taxes may be classified as to different categories.

Fiscal or Revenue A tax imposed on general purpose

A tax imposed to regulate business, conduct, acts
As to Regulatory or
Purpose Transactions
A tax levied to achieve some social or economic
Sumptuary
Objectives
 Personal or Poll A tax on persons who are residents of a particular
or Territory
As to Capitation
Subject Property Tax A tax on properties whether real or personal
Matter A tax imposed upon the performance of an act,
Excise or
enjoyment of a privilege or engagement in an
Privilege Tax
occupation

A tax where the statutory and economic taxpayer

Direct Tax
As to are
Incidence the same person
A tax where the statutory and economic taxpayers
Indirect Tax
are
not the same person

S tatutory vs. Economic Taxpayer

The statutory taxpayer is the one named by the law to pay the tax levied. On the other
hand, the economic taxpayer is the one who actually pays and carries the burden of
the tax. These two taxpayers may not necessarily be the same person. This depends
on the kind of tax being paid.

A tax of a fixed amount imposed on a per unit

As to Specific Tax basis
Amoun such as per kilo, liter, meter, etc.
t A tax of a fixed proportion upon the value of the
Ad Valorem tax Object

Proportional Tax This is a flat or fixed rate tax

Progressive or This is a tax which imposes increasing rates as
graduated tax the tax
As to Rate
base increases
This is a tax which imposes decreasing rates as
Regressive Tax the tax
base increases
This is manifest tax rates which is a
Mixed Tax combination of any
of the above types of tax
 As to National Tax Tax imposed by the national government
Authorit Local Tax Tax imposed by local government units
y
Other Government Collection Terms
T ax vs. Revenue
Tax refers to the amount imposed by the government for public purposes. Revenue
refers to all income collections of the government which include taxes, tariff, licenses,
toll, penalties and others. The amount imposed is tax but the amount collected is
revenue. All taxes are revenue but not all revenues are taxes.

T ax vs. License Fee

Tax has a broader subject than license. Tax emanates from taxation power and is
imposed upon any subject to raise revenue. License fees emanate from police power
and is imposed to regulate exercise of such privilege such as the commencement of a
business or profession. Taxes are imposed after the commencement of a business or
profession whereas license fee is imposed before engagement in those activities. In
other words, tax is a post-activity imposition whereas license is pre-activity imposition.

T ax vs. Toll
Tax is a levy of government; hence, it is a demand of sovereignty. Toll is a charge for
the use of other’s property; hence, it is a demand of ownership. The amount of tax
depends upon the needs of the government, but the amount of toll is dependent upon
the value of the property leased. Both the government and private entities impose toll,
but private entities cannot impose taxes.

T ax vs. Debt
Tax arises from law while debt arises from private contracts. Non-payment of tax leads
to imprisonment, but non-payment of debt does not lead to imprisonment. Debt can be
subject to set-off but tax is not. Debt can be paid in kind but tax is generally payable in
money.

T ax vs. Special Assessment

Tax is an amount imposed upon persons, properties or privileges. Special assessment
is levied by the government on lands adjacent to a public improvement. It is imposed on
land only and is intended to compensate the government for a part of the cost of the
improvement. The basis of special assessment is the benefit in terms of the
appreciation in land value caused by the public improvement.

T ax vs. Tariff
Tax is broader than tariff. Tax is an amount imposed upon persons, properties and
privileges. Tariff is the amount imposed on imported or exported commodities.
T ax vs. Penalty
Tax is an amount imposed for the support of the government. Penalty is an amount
imposed to discourage an act. Penalty may be imposed by both the government and
private individuals. It may arise both from law or contract whereas tax arises from law.

TAX LAWS
Taxation law refers to any law that arises from the exercise of the taxation power of the
State.

Types
Tax laws can be classified into two categories depending on their effect on both the
government and the taxpayer.

T ax Laws
These are laws that provide for the assessment and collection of taxes.

Examples:
1. The National Internal Revenue Code (NIRC)
2. The Tariff and Customs Code
3. The Local Tax Code
4. The Real Property Tax Code

T ax Exemption Laws
These are laws that grant immunity from taxation.

Examples:
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

Nature
The Philippine Internal Revenue laws are 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 n ot remedial laws. They do not include procedures to protect
rights; and prevent or rectify wrong doings.

The 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.

Sources
With the exercise of the power of taxation, tax laws provide guidance on its
scope. The following are the common sources of tax statutes.

C onstitution of the Philippines

The term Constitution refers to that body of rules and maxims in accordance with
which the powers of sovereignty are habitually exercised. It is often referred to as
the Supreme or Fundamental Law of the land because all other laws must
conform to it. It is the basis in determining the legality of all-governmental
actions and decisions. A constitutional provision regarding taxation is primarily
intended to limit and regulate the exercise of taxation power. The State can
exercise the power to tax even if the Constitution is completely silent about
taxation.

S tatutes
Statutes are laws enacted and established by the will of the legislative department
of the government. The present tax statutes of the Philippines are embodied in
the Republic Act No. 8424, which is now the prevailing NIRC effective January 1,
1998, which was amended by various republic acts and revenue regulations.

J udicial Decisions
These refer to the decisions for application made concerning tax issues by the
proper courts exercising judicial authority of competent jurisdiction. These courts
may be the Supreme Court and the Court of Tax Appeals. Their decisions on tax
laws comprise the greater portion of tax jurisprudence. They form part of the legal
system of the Philippines. By the nature of its jurisdiction, the decisions of the
Court of Tax Appeals are still appealable to the Supreme Court. The decision of
the Supreme Court on any matter is final and executory.
E xecutive Orders
Executive orders are regulations issued by the President or some administrative
authority under his direction for the purpose of interpreting, implementing, or
giving administrative effect to a provision of the Constitution or of some law or
treaty.

T ax Treaties and Conventions

These refer to the treaties or international agreements with foreign countries
regarding tax enforcement and exemptions. They have the force and effect of law.

L ocal Tax Ordinances

These are tax ordinances issued by the Province, City, Municipality and Barrio subject
to such limitations as provided by the Local Government Code and the Real Property
Tax Code.

Steps in the Legislative Process

Under the 1987 Philippine Constitution, all revenue and tariff bills shall originate
from the House of Representatives. A revenue bill is one that levies taxes and
raises funds for the government while a tariff bill specifies the rates or duties to
be imposed on imported article.

Often, major tax proposals are initiated by the Executive Department thru the
President upon the recommendation of the Department of Finance based on the
latter's study or proposal, and then introduced into Congress by the allies of the
President.

The steps in the legislative process are as follows:

1. A tax bill is introduced in the House of Representatives and is referred

to the House Committee on Ways and Means. This is known as the first
reading. The first reading involves only a reading of the number and
title of the measure. All appropriation revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives
but the Senate may propose or concur with amendments.
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. Moreover, the
committee may introduce amendments or propose substitute bill.
3. The tax bill is voted on by the Committee and if approved, is
reported out to the House of Representatives for a vote.
Deliberations, interpellations and even amendment by the members
 of the House are held. This is known as the 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. This is known
as the second reading in the senate. The bill undergoes the same legislative
process in the Senate.
5. Upon approval by the Senate, both the Senate and the House versions
are sent to the Bicameral Conference Committee consisting of
representatives of the House and of the Senate.
6. The two versions are generally dissimilar. Thus, the conflict is
reconciled in the Bicameral Conference Committee. This process
of ironing out the differences generally involves substantial
compromise.
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. Generally, it shall only be the reading of title. No
deliberations will be allowed.
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.

Interpretation of Tax Laws

Though the power of taxation may be broad, tax laws and tax exemptions may be
vague that the application of which may be difficult to determine. If such is the
case, 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.

The maxim, strictissimi juris, indicates that he, who a tax statute is construed
against, bears the burden of proving relation to said statute. Taxation is the
rule, exemption is the exception.

V ague Tax Laws

Ambiguous Tax Laws are c onstrued against the government and in favor of the
taxpayer. This is so because the state is the one imposing a burden to its
subjects, thus, it is the taxpayer who has the right to question the applicability of
said tax law to himself. Moreover, a vague tax law means no tax law. Obligation
arising from law is not presumed. This is also in conjunction with the uniformity
and equal protection clause granted by the Constitution. Considering also that it
is the State that drafts tax laws, it should be drafted properly that the approved
law should be clear and concise.
V ague Tax Exemptions
In the construction of tax statutes, exemptions are construed against the taxpayer and in
favor
o f the government. The fundamental theory is that all taxable property should bear its
share in the cost and expense of the government. A vague exemption law means no
exemption law. The claim for exemption is construed against the taxpayer in
accordance with the lifeblood doctrine. It is, therefore, the responsibility of the taxpayer
that he/she is within the context of said tax exemption.

Administrative Issuances
To facilitate the administrative act of taxation, the Bureau of Internal Revenue as a
body under the Department of Finance, releases revenue issuances. The following
would be the differences of the issuances.

R evenue Regulations (RRs)

These are issuances signed by the Secretary of Finance, upon recommendation of
the Commissioner of Internal Revenue, that specify, prescribe or define rules and
regulations for the effective enforcement of the provisions of the National Internal
Revenue Code (NIRC) and related statutes.

R evenue Memorandum Orders (RMOs)

These are issuances that provide directives or instructions; prescribe guidelines; and
outline processes, operations, activities, workflows, methods and procedures necessary
in the implementation of stated policies, goals, objectives, plans and programs of the
Bureau in all areas of operations, except auditing.

R evenue Memorandum Rulings (RMRs)

These are ruling, opinions and interpretations of the CIR with respect to the provisions
of the Tax Code and other tax laws as applied to specific sets of facts, with or without
established precedents, and which the CIR may issue from time to time for the purpose
of providing taxpayers guidance on the consequences in specific situations.

R evenue Memorandum Circulars (RMCs)

These are issuances that publish pertinent and applicable portions, as well as
amplifications, of laws, rules, regulations and precedents issued by the BIR and other
agencies/offices.

R evenue Administrative Orders (RAOs)

These are issuances that cover subject matters dealing strictly with the permanent
administrative set-up of the Bureau, more specifically, the organizational structure,
statements of functions and/or responsibilities of BIR offices, definitions and
delegations of authority, staffing and personnel requirements and standards of
performance.
R evenue Delegation of Authority Orders (RDAOs)
These refer to functions delegated by the Commissioner to revenue officials in
accordance with law.

R evenue Bulletins (RB)

These refer to the period issuance, notices and official announcement of the CIR that
consolidate the BIR’s position on certain specific issues of law or administration on
relation to the provisions of the tax code, relevant tax laws, and other issuances for the
guidance of the public.

B IR Rulings
These are official positions of the BIR to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws.

TAX SYSTEM

The tax system refers to the methods or schemes of imposing, assessing, and collecting
taxes. It includes all the tax laws and regulations, the means of their enforcement, and
the government offices, bureaus and withholding agents which are part of the
machineries of the government in tax collection. The Philippine tax system is divided
into two: the national tax system and the local tax system.
Types According to Imposition
P rogressive
This is employed in the taxation of income of individuals, and transfers of properties by
individuals.

P roportional
This is employed in taxation of corporate income and business.
R egressive
This is not employed in the Philippines.
Types According to Impact
P rogressive System
A progressive tax system is one that emphasizes direct taxes. A direct tax cannot
be shifted. Hence, it encourages economic efficiency as it leaves no other resort to
taxpayers than to be efficient. This type of tax system impacts more upon the rich.

R egressive System
A regressive tax system is one that emphasizes indirect taxes. Indirect taxes are shifted
by businesses to consumers; hence, the impact of taxation rests upon the bottom end of
the society.
In effect, a regressive tax system is anti-poor. It is widely believed that despite
the Constitutional guarantee of a progressive taxation, the Philippines has a
dominantly regressive tax system due to the prevalence of business taxes.

Tax Collection Systems

W ithholding System on Income Tax
The government requires taxpayers to withhold (i.e. deduct) taxes on their
income payments (i.e. expenses). These withheld taxes are called "withholding
tax." These are not tax to the taxpayer but to the recipient of the income
payments. The taxpayer must deduct the withholding tax on his income
payments, file a withholding tax return, and remit the withheld tax to the
government.

Non-compliance to the withholding tax rules shall expose the taxpayer to penalties and fines
aside from the disallowance of the expense as deductions against income.

Creditable Withholding Tax

These are taxes withheld on certain passive and active income where can be
credited against income tax due.

Withholding tax The tax is withheld by the employer from payments of

on compensation income to employees
compensation
A withholding tax prescribed on certain income payments
Expanded and is
withholding creditable against the income tax due of the payee for the
tax taxable quarter or year in which the particular income was
earned
Final Withholding Tax
A kind of withholding tax which is prescribed on certain income
Final withholding tax payments and is not creditable against any income tax due of the
payee for the taxable year
W ithholding System on Business Tax
This is the tax withheld by the national government agencies and
instrumentalities including government-owned and controlled corporations on
their payments to taxpayers, suppliers, or payees.

V oluntary 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. This system is also referred to as the "Self-assessment method." In
preparing their tax return, taxpayers declare their income and expenses, and
personally determine the tax due thereon. The government relies on the good
faith of taxpayers in the preparation of their tax returns but employs detective
techniques to ascertain non-compliance or under-compliance. These returns will
be further discussed in
succeeding modules. A portion of the tax due payable herein may have been
withheld under the withholding system, such as:

a. Withholding tax on compensation by compensation earners

b. Expanded withholding tax by taxpayer engaged in business or exercise of
profession

The taxes withheld are treated as tax credit (deduction) against the tax due of
the taxpayer in the income tax return. The taxpayer shall pay any balance still
due after such credit or claim refund or tax credit for excess tax withheld.

A ssessment or Enforcement System

Under this collection system, 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.

Principles of Sound Tax System

According to Adam Smith, governments should adhere to certain principles or
canons to evolve a sound tax system:

F iscal 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. The government must
not incur a deficit. A budget deficit paralyzes the government's ability to deliver
the essential public services to the people. Hence, taxes should increase in
response to increase in government spending.

T heoretical 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.

A dministrative 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.

The following are applications of the principle of administrative feasibility:

1. E-filing and e-payment of taxes
2. Substituted filing system for employees
3. Final withholding tax on non-resident aliens or corporations
4. Accreditation of authorized agent banks in the filing and payment of taxes
TAX ADMINISTRATION
Tax administration 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.

BIR Officials
C ommissioner of Internal Revenue (CIR)
This is the head of the whole bureau. The duties and powers of this office will be
further discussed in the succeeding pages.

D eputy Commissioners
Four Deputy Commissioners are assigned to the following: (1) Operations Group, (2)
Legal Enforcement Group, (3) Information Systems Group and (4) Resource
Management Group.

A ssistant Commissioners
Thirteen assistant commissioners are designated to each of the service divisions.

H ead Revenue Executive Assistants

Thirteen head revenue executive assistants are designated to each of the service
divisions.

R egional Directors
They are the heads of each revenue region which administers and enforces
internal revenue laws including the assessment and collection of all internal
revenue taxes, charges and fees from taxpayers within the region's jurisdiction,
as well as ensures proper and effective implementation of National Office's
policies and programs within the Regional Office.

R evenue District Officers

They are the heads of the 123 revenue district offices which mainly provide
frontline assistance and service to taxpayers.

Powers of the BIR

The following are the powers of the Bureau of Internal Revenue as vested by law.

1. Assessment and collection of taxes

2. Enforcement of all forfeitures, penalties and fines and judgments in all
cases decided in its favor by the courts
3. Giving effect to, and administering the supervisory and police powers
conferred to it by the NIRC and other laws
4. Assignment of internal revenue officers and other employees to other duties
5. Provision and distribution of forms, receipts, certificates, stamps, etc. to proper
officials
6. Issuance of receipts and clearances
 7. Submission of annual report, pertinent information to Congress and
reports to the Congressional Oversight Committee in matters of
taxation

Powers of the CIR

The Commissioner of Internal Revenue is given the following powers to fulfill the
duties and responsibilities of its office.

1. To interpret the provisions of the NIRC, subject to review by the Secretary of

Finance
2. 2. To decide tax cases, subject to the exclusive appellate jurisdiction of
the Court of Tax Appeals
3. To obtain information and to summon, examine, and take testimony of
persons to effect tax collection
4. To make assessment and prescribe additional requirement for tax
administration and enforcement
5. To examine tax returns and determine tax due thereon
6. To conduct inventory taking or surveillance
7. 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.
8. 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
9. To prescribe real property values
10. To compromise tax liabilities of taxpayers
11. 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
12. To accredit and register tax agents
13. To refund or credit internal revenue taxes
14. To abate or cancel tax liabilities in certain cases
15. To prescribe additional procedures or documentary requirements
16. To delegate his powers to any subordinate officer with a rank equivalent
to a division chief of an office
Non-delegated Power of the CIR
The following powers of the Commissioner shall not be delegated:

1. The power to recommend the promulgation of rules and regulations to the

Secretary of Finance.
2. The power to issue rulings of first impression or to reverse, revoke
or modify any existing rulings of the Bureau.
3. The power to compromise or abate any tax liability
4. The power to assign and reassign internal revenue officers to
establishments where articles subject to excise tax are produced or
kept.

Rules in assignments of revenue officers to other duties

1. Revenue officers assigned to an establishment where excisable articles
are kept shall in no case stay there for more than 2 years.
2. Revenue officers assigned to perform assessment and collection
function shall not remain in the same assignment for more than 3
years.
3. Assignment of internal revenue officers and employees of the Bureau to
special duties shall not exceed 1 year.

Agents and Deputies for Collection of National Internal Revenue Taxes

The following are constituted agents for the collection of internal revenue taxes:

1. The Commissioner of Customs and his subordinates with respect to

collection of national internal revenue taxes on imported goods.
2. The head of appropriate government offices and his subordinates with
respect to the collection of energy tax.
3. Banks duly accredited by the Commissioner with respect to receipts of
payments of internal revenue taxes authorized to be made thru banks.
These are referred to as authorized government depositary banks
(AGDB).

Other Revenue-Related Government Bodies

B ureau of Customs (BOC)
Aside from its regulatory functions, the Bureau of Customs is 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.

The Bureau of Customs is headed by the Customs Commissioner and is assisted by

five Deputy Commissioners and 14 District Collectors.
B oard of Investments (BOI)
The 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).

The BOI is composed of five full-time governors, excluding the DTI secretary as
its chairman. The President of the Philippines shall appoint a vice chairman of the
board who shall act as the BOI's managing head.

P hilippine 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.

PEZA-registered enterprises enjoy tax holidays for certain years, exemption from
import and export taxes including local taxes. The PEZA is also an attached
agency of the DTI.

The PEZA is headed by a director general and is assisted by three deputy directors.

L ocal Government Tax Collecting Units

Provinces, municipalities, cities and barangays also imposed and collect various
taxes to rationalize their fiscal autonomy.

Taxpayer Classification
For purposes of effective and efficient tax administration, taxpayers are classified
into large and non-large. Large taxpayers are under the supervision of the Large
Taxpayer Service (LTS) of the BIR. Non-large taxpayers are under the supervision
of the respective Revenue District Offices (RDOs) where the business, trade or
profession of the taxpayer is situated. The following are the criteria for
determining large taxpayers:
 Value Added Tax At least P200,000 per quarter for the preceding
year
Excise Tax At least P1,000,000 tax paid for the preceding
year
As to At least P1,000,000 annual income tax paid for
Income Tax the
payme
nt preceding year
At least P1,000,000 annual withholding tax
Withholding Tax payments or
remittances from all types of withholding taxes
At least P200,000 percentage tax paid or
Percentage tax payable per
quarter for the preceding year
Documentary
At least P1,000,000 aggregate amount per year
stamp tax
 Gross receipts
As to or P1,000,000,000 total annual gross sales or
financial receipts
Sales
conditions P300,000,000 total net worth at the close of each
Net worth
and results calendar or fiscal year
of P800,000,000 total annual purchases for the
Gross preceding
operations purchases
year

Top corporate taxpayer listed and published by the Securities and Exchange
Commission shall also be under LTS.

1. All branches of taxpayers under the Large Taxpayer's Service

2. Subsidiaries, affiliates, and entities of conglomerates or group
of
companies of a large taxpayer
3. Surviving company in case of merger or consolidation of a
large
Taxpayer
4. A corporation that absorbs the operation or business in case
Automatic of spin-off
classificati of any large taxpayer
5. Corporation with an authorized capitalization of at least
on
P300,000,000
registered with the SEC
6. Multinational enterprises with an authorized capitalization or
assigned
capital of at least P300,000,000
7. Publicly listed corporations
8. Universal, commercial, and foreign banks (the regular
business unit and foreign currency deposit unit shall be
considered one taxpayer for
purposes of classifying them as large taxpayer)
9. Corporate taxpayers with at least P100,000,000 authorized
capital in
banking, insurance, telecommunication, utilities,
petroleum, tobacco, and alcohol industries
10. Corporate taxpayers engaged in the production of metallic
minerals
GENERALIZATION:

This module discusses tax laws, taxes and their distinction from similar items and the
administration of the tax system

APPLICATION:

Case Study GOING LOCO ON LOCAL

2.1
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 IS THE COMPROMISE COMPROMISED?

2.2
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?

EVALUATION:
TRUE OR FALSE: Write True on the blank provided if the
statement is correct and False if the statement is incorrect:

1. Tax laws must originate exclusively from the House of

Representatives.
2. The presence of penalties for late filing and payment of taxes
suggests that tax laws are penal in nature.
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.
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.
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.
8. Tax is a broader term as compared to revenue and tariff.
9. Sources of tax laws are only from the legislative and executive
branch of the government.
10. Even though the community/poll tax is a local tax, the certificate
still bears
the BIR logo.
REINFORCEMENT:

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

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

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
REFERENCES:

 Income Taxation with Special Topics and Properly Filled BIR Forms, 2020
Edition - Enrico D. Tabag, CPA, MBA & Earl Jimson R. Garcia, CPA, MBA

 Reviewer in Taxation Updated TRAIN-Book 1 2018 Edition- Asser S.

Tamayo, CPA, MBA

 Income Taxation-Laws, Principles and Applications- Rex B. Banggawan,

CPA, MBA

 National Internal Revenue Code of 1997

 Bureau of Internal Revenue Regulations

 Bureau of Internal Revenue Memorandum Circulars

 Supreme Court Jurisprudence on Tax Cases