XIII.

TAX SYSTEMS

XIII.1. DEFINITION

• Methods or schemes of imposing, assessing, and collecting taxes.

• 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.

XIII.2. TAX COLLECTION SYSTEMS

A. Withholding system on income tax

The payor of the withholds or deducts the tax on the income before releasing the same to the payes and
remits the same to the government

Types of withholding taxes collected under this system:

1. Creditable withholding tax

a. Withholding tax on compensation-an estimated tax required by the government to be withheld

by employers against the compensation income of their employees

b. Expanded withholding tax-an estimated tax required by the government to be deducted on

certain income payments made by taxpayers engaged in business

2. 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 government agencies purchase goods or services, the law requires withholding of the relevant
business tax

C. Voluntary Compliance System

Taxpayer himself determines his income, reports the same through income tax returns and pays the tax
himself This system is also referred to as "Self-assessment Method"

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

XIII.3.TAX ADMINISTRATION

• Refers to the management of the tax system

• In the PH, the administration of the national tax system is entrusted to the Bureau of Internal Revenue
which is under the supervision and administration of the Department of Finance

XIII.3.A. CHIEF OFFICIALS OF THE BIR

1 Commissioner-chief of the BIR Romeo D. Lumagui, Jr.

4 Deputy Commissioners, each to be designated to the following

a Operations Group Maridur V. Rosario (OIC)

b Legal Enforcement Group Marissa O. Cabreros

c Information Systems Group: Ma. Rosario Charo G. Enriquez-Curiba

d Resource Management Group Teresita M. Angeles

XIII.3.B. POWERS OF THE BIR

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, ctamps, 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

XIII.3.b. Powers and Authority of the Commissioner of Internal Revenue

4. To make an assessment and prescribe additional requirement for tax administration and enforcement

5. To examine tax returns and 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 taxpayers.

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 division chief of an office.

XIII.3.b. Powers and Authority of the Commissioner of Internal Revenue

• The power to the promulgation of rules and regulations to the Secretary of Finance

• The power to issue rulings of first impression or to reverse, revoke or modify any existing rulings of the
Bureau •The power to compromise or abate any tax liability the Regional Evaluation Boards may
compromise tax liabilities under the following:

a. Assessments are issued by the regional offices involving basic deficiency tax of P500,000 or less, and

b.Minor criminal violations discovered by regional and district officials

• The power to assign and reassign internal revenue officers to establishments where articles subject to
excise tax are produced or kept.

WHAT IS INCOME TAX

It is a tax on a person's income, emoluments, profits arising from property, practice of profession,
conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of
1997, as amended, less the deductions and/or personal and additional exemptions, if any, authorized for
such types of income, by the Tax Code, as amended, or other special laws.

Income subject to tax

a. Ordinary or Regular Income - subject to basic or normal tax

b. Certain Passive Income, subject specifically to final withholding tax

c. Certain capital gains, subject specifically to capital gains tax d. Special income subject to special rates

Income that are tax exempt

1.1. DEFINITION

• Individual Taxpayers- natural persons with income earned within the territorial of a taxing authority

1.2. Classification

•Resident Citizens

•Nonresident Citizens

•Resident Aliens

oEngaged in trade or business

o Not engaged in or business

1.4. NON-RESIDENT CITIZEN

1) Submit proof to the CIR:

• Fact of physical presence abroad w/ definite intention to reside there

2) PH citizen who leaves the PH

• as immigrant

• for employment permanently

• works abroad and physically present abroad most of the time

3) PH citizen who stayed outside the PH for 183 days or more by the end of the year (aggregate)

*Previous NRC and arrived in PH to reside permanently (to become a RC -treated as NRC regarding his
income abroad until the date of his arrival in the Philippines.

Includes Overseas Contract Workers / Overseas Filipino Workers and Filipino Seamen who received
compensation for services rendered abroad

OCWS/OFWs must be:

•Duly registered with Philippine Overseas Employment Administration (POEA)

• With valid Overseas Employment Certificate (OEC)

Filipino Seamen/ Seafarers must be:

• Duly registered with POEA

• With valid OEC

• With Seafarers Identification Record Book (SIRB) or Seaman's Book issued by the Maritime Industry
Authority (MARINA)

1.5.ALIEN

• not Filipinos.

1) Resident alien

2) Non-resident alien doing business in the Philippines.

3) Non-resident alien not doing business in the Philippines.

1.6. RESIDENT ALIEN

Residence: Philippines

Citizen: Abroad

1) Alien who is not mere transient or sojourner

2) Allen who lives in PH with no definite intention as to his stay

3) Alien with definite purpose which in its nature would require an extended stay & home is temporarily
in PH (even if w/ intention to return abroad)

4) Alien with residence in PH until he departs from PH

1.7 NON-RESIDENT ALIEN

Residence: Abroad

Citizen: Abroad

1) Alien w/ definite purpose but promptly accomplished

2) Mere transients or sojourners

"NRA engaged in trade or business"

• If his aggregate stay in PH > 180 days, and or

• Have business income in PH

"NRA not engaged in trade or business"

• If his aggregate stay in PH < 180 days

1.8.THE GENERAL CLASSIFICATION RULE FOR INDIVIDUALS

1. INTENTION-submit documentary proof to the CIR

2. In the absence of documentary proof, LENGTH OF STAY of the taxpayer is comedored

• A Resident Citizen who abroad for more than 183 days → NRC

• An Alien who stayed in the Philippines for 1 year or more → RA

• An Alien who stayed in the Philippines for not more than I year but more than 180 days→ NRA-ETB

• An Alien who stayed in the Philippines for 180 days or less → NRA-NETB