CHAPTER 2 TAXES, TAX LAWS AND TAX ADMINISTRATION

be valid, it must meet certain

criteria:
CHAPTER 2 QUESTIONS
a) Taxes must be levied by the
taxing authority having
1) Tax laws govern the assessment and jurisdiction over the object of
collection of taxes, whereas tax taxation.
exemption laws give specific b) Taxes must not violate
individuals immunity from paying constitutional and inherent
taxes. limitations.
c) Taxes must be uniform and
2) Eight sources are used to create tax equitable.
laws: the constitution, statutes and d) Taxes must be for public
presidential orders, court rulings or purposes.
case laws, executive orders and e) Taxes must be proportional in
Batas Pambansa, administrative character.
issuances, local ordinances, tax f) Tax is generally payable in
treaties and conventions with other money.
nations, and finally revenue
regulations. 6) As to Purpose
a) Fiscal or Revenue Tax – A tax
3) The tax rules in the Philippines are imposed for general purpose.
civil, not political. They are As to subject matter
applicable even during the b) Personal, poll or capitation –
occupation of an enemy nation. Our A tax on persons who are
internal revenue laws do not have a residents of a particular
punitive component and only aim to territory.
ensure taxpayer compliance. As to Incidence
c.) Direct Tax – when both
4) Tax laws allow for the assessment the impact and incidence of
and collection of various taxes, taxation rest upon the
including those outlined in the taxpayer, the tax is said to be
National Internal Revenue Code direct.
(NIRC), the tariff and customs code, As to Amount
the local tax code, and the real d.) Specific Tax – A tax of
property tax code. fixed amount imposed on a
per unit basis such as per kilo,
5) Taxes are compulsory payments liter or metered.
imposed by the government to raise As to Rate
revenue for public use. For a tax to
 CHAPTER 2 TAXES, TAX LAWS AND TAX ADMINISTRATION

e.) Proportional Tax – This is a be paid in kind, while taxes

flat or fixed rate tax. The use are generally paid in money
of proportional emphasizes and cannot be set off.
equality as it subjects all Tax vs Special Assessment
taxpayers with the same rate e.) A tax is an amount
without regards to their ability imposed on individuals,
to pay. properties, or privileges. The
As to Imposing Authority government levies a special
f.) National tax – tax imposed assessment on lands
by the national government. adjacent to a public
improvement, which is only
7) Tax vs Revenue imposed on land and
a) Taxes are money charged by intended to compensate the
the government for public government for part of the
use, while revenue is all improvement's cost.
money collected by the Tax vs Tariff
government, including taxes f). Taxes and tariffs are
and other fees. different. Taxes are imposed
Tax vs License Fee on people, transactions, or
b.) Taxes are levied after properties, while tariffs are
starting a business, while a imposed on imported or
license fee is paid before exported goods.
engaging in activities. A tax is Tax vs Penalty
imposed after, while a license g.) Tax is the amount
is imposed before. imposed by the government
Tax vs Toll to support its operations. A
c.) The tax amount is based penalty is imposed to
on government needs, while discourage an act and can
tolls depend on leased be enforced by the
property value. Private government or a private
entities may impose tolls, but entity. It may arise from law
not taxes. or contract, whereas tax
Tax vs Debt arises from law
d.) Taxes are a result of the
law, while debt comes from 8) The Philippine tax system comprises
private contracts. Failing to all the laws, regulations, government
pay taxes can lead to bureaus, and withholding agents
imprisonment, but failing to involved in the import, assessment,
pay debt does not. Debt can
 CHAPTER 2 TAXES, TAX LAWS AND TAX ADMINISTRATION

and collection of taxes. It is divided

into national and local tax systems. 9) Fiscal Adequacy
● The tax revenue sources
TYPES OF TAX SYSTEM ACCORDING should align with and match
TO IMPOSITION the government's expenses.
Progressive Revenue should be flexible to
● Employed in the taxation of adjust to public expenditures.
income of individuals and Administrative Feasibility
certain local business taxes. ● Tax laws should be easy to
Proportional administer, uniformly
● Employed in taxation of enforced, and not
corporate income and burdensome to businesses. A
business. tax system should be easily
Regressive enforced with minimal
● Not employed in the inconvenience to taxpayers.
Philippines. Even if a tax seems
burdensome, it is not invalid
TYPES OF TAX SYSTEM ACCORDING unless it violates the law or
TO IMPACT the Constitution. (G.R. No.
Progressive System 193007)
● A progressive tax system is Theoretical Justice or Equality
one that emphasizes direct ● The ability to pay principle
taxes. the direct tax cannot states that the tax burden
be shifted. Hence, it should be proportional to the
encourages economic taxpayer's ability to pay while
efficiency as it leaves no also maintaining uniformity
other resort to taxpayers than and equity in taxation.
to be efficient. This type of
tax system impacts the rich. 10) Powers of BIR
Regressive System ● Assessment and collection of
● A regressive tax system is one tax
that emphasizes indirect ● Enforcement of all forfeitures
taxes. Indirect taxes are penalties and fines and in
shifted by businesses to judgment in all cases
consumers; hence, the decided in its favor by the
impact of taxation leads courts
upon the bottom end of ● Giving effect to and
society. In effect, a regressive administering the supervisory
tax system is and poor and police power conferred
 CHAPTER 2 TAXES, TAX LAWS AND TAX ADMINISTRATION

to eat by the NIRC and other DirectorHead of the Legal, Assessment and
loss Collection Division Revenue District Officer
● Assignment of internal having jurisdiction over the taxpayer
revenue officers and other
● Generally Accepted Accounting
employees to other duties
Principles (GAAP)
● Provision and contribution of
● Value Added Tax (VAT)
forms receipt certificate
● Philippine Economic Zone Authority
stamp etc to proper official
(PEZA)
● Issuance of receipt and
● Fiscal Incentive Review Board (FIRB)
clearances
● Government owned and Controlled
● Submission of annual report,
Corporations (GOCC)
pertinent information to
● Zonal Value is the value placed on
congress and reports to
real estate properties for taxation
congressional oversight
purposes
committee matters of
● Board of Investment (BOI)
taxation
● Revenue District Offices (RDO)
● Department of Trade and Industry
11) The power to recommend the
(DTI)
promulgation of rules and
regulations to the Secretary of
finance. TAXATION LAW

● TAX LAWS - laws that provide the

The power to issue rulings of first
assessment and collection of taxes
impression or to reverse, revoke or
● TAX EXEMPTION LAWS - laws that
modify any existing rulings of the
grant certain immunity from taxation
bureau.

The power to compromise or abate TYPES OF RULINGS

any tax liability.Exceptionally, the
regional evaluation boards may ● VALUE ADDED TAX

compromise tax liabilities under the ● INTERNATIONAL TAX AFFAIRS

following: DIVISION

Assessments are issued by the regional ● BIR RULINGS

offices involving basic deficiency tax of ● DELEGATED AUTHORITY

P500,000 or less and

CLASSIFICATION OF TAXES
Minor criminal violations discovered by
regional and district officials.Compositions of AS TO PURPOSE
the Regional Evaluation BoardRegional ● Fiscal Tax - impose for general
Director as ChairmanAssistant Regional purpose
 CHAPTER 2 TAXES, TAX LAWS AND TAX ADMINISTRATION

● Regulatory Tax - imposed to regulate ● Excise Tax - non essential

business such cigarette etc
AS TO SUBJECT MATTER 2. Local Tax - imposed by local gov /
● Personal Poll or Capitation - tax on municipal
persons who are residents of a
particular territory
DISTINCTION OF TAXES WITH SIMILAR ITEMS
● Property Tax - tax on properties
● Excise or privilege tax - is a fee
● TAX VS REVENUE - the amount
charged for carrying out an act,
imposed is tax but the amount
enjoying a privilege, or engaging in
collected is revenue
a profession.
● TAX VS LICENSE FEE - tax emanates
AS TO AMOUNT
from taxation and license fee
● Specific Tax - tax per unit such liter or
emanates from police power
kilo
● TAX VS TOLL - tax is a demand of
● Ad Valorem - imposed upon the
sovereignty hence toll is a demand
value of tax
of ownership
AS TO INCIDENCE
● TAX VS DEBT - tax arises from law
● Direct tax - same taxpayer
while debt arises from private
● Indirect tax - any person other than
contracts
the one who is intended to pay
● TAX VS SPECIAL ASSESSMENT - tax
imposed upon person, properties
AS TO RATE
while Special Assessment imposed
● Proportional Tax - fixed rate
on land only for the public
● Progressive Tax - increase rate
improvement
● Regressive Tax - decrease rate
● TAX VS TARIFF - tax is an amount
● Mixed Tax - tax rates which is
imposed upon person while tariff is
combination of the 3
the amount imposed on imported
AS TO IMPOSING AUTHORITY
and exported commodities
1. National Tax - imposed by national
● TAX VS PENALTY - tax is imposed for
government
the support of the government while
● Estate Tax - transfer of
penalty is imposed to discourage an
property upon death
act.
● Donor Tax -transfer property
by living donor
● Value Added Tax - collected TAX SYSTEMS
VAT by business
● Other Percentage Tax - non ● refers to the methods or schemes of
VAT business imposing, assessing and collecting
taxes.
 CHAPTER 2 TAXES, TAX LAWS AND TAX ADMINISTRATION

Final withholding tax - a system of tax

TYPES OF TAX SYSTEM ACCORDING TO
IMPOSITION collection where in payors are required to
deduct the full tax on certain income
payments
● Progressive - employed in the tax of
income of individuals
A. Withholding system on business tax -
● Proportional - employed in taxation
when the national government
of corporate income
agency including government
● Regressive - NOT employed
owned and controlled corporations
purchase goods or services from
TYPES OF TAX SYSTEM ACCORDING TO private suppliers the law requires
IMPACT withholding on the relevant business
tax.
● Progressive System - is one that B. Voluntary compliance system -
emphasizes direct taxes and this under this the taxpayer himself
cannot be shifted determines he can report the same
● Regressive System - is one that through income tax return and pay
emphasizes indirect taxes that can the tax to the government this
be shifted by business to consumers system is also referred to as
etc.. self-assessment method.
C. Assessment or enforcement system -
the government identifies
TAX COLLECTION SYSTEMS
non-compliant taxpayers. It
determines their tax obligations,
Withholding system or income tax - under
including penalties, and makes
this collection system, the payor of the
demands for taxpayers' voluntary
income withholds or deducts the tax on the
compliance and encourages
income before giving it to the payee.
collection, or uses other appropriate
methods.
Creditable Withholding Tax
Withholding tax on compensation - an
estimated tax required by the government PRINCIPLES OF A SOUND TAX SYSTEM
to be withheld By employers against the
compensation income to their employees Fiscal Adequacy - It requires that the source
of government funds must be sufficient to
Expanded withholding tax - an estimated cover government funds.
tax required by the government to be
deducted on certain income payments
made by the taxpayer engage in business
 CHAPTER 2 TAXES, TAX LAWS AND TAX ADMINISTRATION

Theoretical Justice - this suggests that government owned and controlled

taxation should consider the taxpayer’s corporation government government
ability to pay. commission state universities and college.

Administrative Feasibility - this suggests that

tax laws should be efficient and effective.
TAXPAYERS CLASSIFICATION FOR
PURPOSES OF TAX ADMINISTRATION
Tax Administration - refers to the
management of tax administration of the
Large Taxpayer - under the supervision of
national tax system in the philippines is
the large taxpayer service LTS of the BIR
entrusted to the bureau of internal revenue
national office
which is under the supervision and
administration of the department of finance
Non large taxpayer - under the supervision
of the respective revenue district office or
Rdo where the business trade or profession
Other agencies tasked with TAX collection of the taxpayer is situated.
or tax incentives related function

Bureau of customs - it is this task to the

AS TO PAYMENT CRITERIA
collection of tariffs and collection of VAT
Value Added Tax 200,00
Board of investments - it is task to lead the
Excise Tax 1,000,000
promotion of investment in the philippines
by assisting investors to venture and prosper Income Tax 1,000,000
in desirable areas of economic activities
Withholding Tax 1,000,000

Philippines economic zone authority - it is Percentage Tax 200,000

created to promote investments in explore
manufacturing industries in the philippines Documentary Stamp Tax 1,000,000

AS TO CONDITIONS CRITERIA
Local government tax collecting unit -
province municipalities cities and barangay Gross Receipts and Sales 1,000,000,000 B
also imposed and collected local taxes fees
Net Worth 300,000,000
and charges to rationalize their fiscal
autonomy Gross Purchases 800,000,000

Fiscal incentive review board - approve or

disapprove of tax incentives to private
entities and tax substance subsidies to