TAXATION 102: COMPILATION

TAX ADMINISTRATION
 Department of Finance
 The Department of Finance is the principal fiscal and financial administrative arm of the Philippine
Government. As such, it is responsible for the judicious and effective management of the government’s tax
program and borrowings to achieve national development goals.
 The Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) both of which are under the DOF’s
administrative supervision are the agencies directly concerned with the assessment and collection of national
taxes, duties, fees, and other charges.

 Bureau of Interal Revenue

 Main functions and responsibilities the following:
a. Assessment and collection of all national internal revenue taxes, fees and charges;
b. Enforcement of all forfeitures, penalties and fines connected therewith including the execution of
judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts; and
c. Give effect to and administer the supervisory and police powers conferred to it by the Tax Reform
Act of 1997 and other laws.

 Bureau of Customs
 Main functions and responsibilities :
a. Collect customs duties, taxes, and the corresponding fees, charges and penalties;
b. Account for all customs revenues collected;
c. Exercise police authority for the enforcement of tariff and customs laws;
d. Prevent and suppress smuggling, pilferage and all other economic frauds within all
ports of entry;
e. Supervise and control exports, imports, foreign mails, and the clearance of vessels and aircrafts in
all ports of entry;
f. Administer all legal requirements that are appropriate;
g. Prevent and prosecute smuggling and other illegal activities in all ports under its jurisdiction;
h. Exercise supervision and control over its constituent units; and
i. Perform such other functions as may be provided by law.

 POWERS AND DUTIES OF THE BUREAU OF INTERNAL REVENUE

1. Assessment and collection of all national revenue taxes, fees and charges;
2. Enforcement of all forfeitures, penalties, and fines on internal revenue taxes, fees and charges;
3. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts; and
4. Give effect and administer the supervisory and police powers conferred to it by the Tax Code and other laws. (Sec. 2,
NIRC)

 POWERS OF THE COMMISSIONER ON INTERNAL REVENUE

1. To interpret tax laws and decide tax cases;
2. To obtain information, and to summon, examine and take testimony of persons;
3. To make assessments and prescribe additional requirements for tax administration and enforcement;
4. To conduct inventory - taking, surveillance and to prescribe presumptive gross sales and receipts;
5. To terminate taxable period;
6. To prescribe real property values;
7. To inquire into bank deposit accounts;
8. To accredit and register tax agents;
9. To prescribe additional procedural or documentary requirements; and
10. To delegate power to subordinates. (Sec. 4 to 8, NIRC)
11. To prescribe presumptive gross sales and receipts for a taxpayer.
12. To compromise tax liabilities of taxpayers
13. To refund or credit internal revenue taxes
14. To abate or cancel tax liabilities in certain cases.
 Other Agencies Related to Tax Collections or Tax Incentives
Primary source of Tax Collections:
 National:
Bureau of Internal Revenue
Bureau Of Customs
 Local:
Local Government Tax Collecting unit
  Tax Incentives
Board of Investments (BOI)
Philippine Economic Zone Authority (PEZA)

TAXPAYER CLASIFFICATIONS
 Large Taxpayers – under the supervision of the Large Taxpayer Services (LTS) of the BIR National Office.
 A large taxpayer is a taxpayer, regardless of its location in the country, which has been classified and
notified in writing by the Bureau of Internal Revenue as one that has satisfied the criteria for
determining large taxpayers.
Taxpayer when it satisfies any or a combination of the following:
As to tax payment:
 Value Added Tax – Any taxpayer with net VAT paid or payable of at least P200,000 per quarter for
the preceding year;
 Excise Tax – Any taxpayer with an annual excise tax paid or payable of at least P1 million for the
preceding year;
 Income Tax – Any taxpayer with annual income tax paid or payable for at least P1 million for the
preceding year;
 Withholding Tax – Any taxpayer with annual withholding tax payment/remittance from all types of
withholding taxes of at least P1 million
 Percentage Tax – Any taxpayer with percentage taxes paid or payable of at least P200,000 per quarter
for the preceding year;
 Documentary Stamp Taxes – Any taxpayer with aggregate annual documentary stamp taxes of at
least P1 million;

Taxpayer when it satisfies any or a combination of the following:

As to financial condition and results of operation:
 Gross Sales/Receipts – Any taxpayer with total annual gross sales/receipts of at least P1 billion for
the preceding year;
 Net Worth – Any taxpayer with a total Net Worth at the close of each calendar or fiscal year of at
least P300 million;
 Gross Purchases – Any taxpayer with total annual gross purchases of at least P800 million for the
preceding year;
 Top corporate taxpayers listed and published by the Securities and Exchange Commission
(SEC).

 Non-large taxpayers – under the supervision of the Revenue District Office (RDO)where the taxpayer is
situated.

TAX REMEDIES
Tax Remedies of the Government
 PRIMARY REMEDIES
1. Assessment
2. Collection
 Prescriptive period of Assessment
Within three years from the date of the actual filing of the return or deadline required by law, whichever is
later.

 EXCEPTIONS TO THE 3-YEAR PRESCRIPTIVE

1. Fraudulent Returns
2. Willful neglect to file
3. Waiver of the statutes of limitation by the taxpayer

 STAGES OF ASSESSMENT
1. Selection of the Taxpayer to be audited
 The BIR selects taxpayers to be audited based on its Annual Audit Program. It may also identify
taxpayers for audit through:
a. Tax Compliance verification drive
b. Information furnished by tax informers
c. Pre-audit of tax returns
d. Direct field observations by revenue officers
 2. Audit of taxpayers
 BIR Audit Process
a.Release of Letter of Authority (LA) to the revenue officer
b. Conduct of the audit examination
c. Reporting of the results of examination

A Letter of Authority (LA) is an official document that authorizes a BIR Revenue Officer to examine a taxpayer’s books
or accounts and other accounting records in order to determine the correct tax.
 Who issues and approve LAs

 Requisites of a valid LA
1.The LA must be served to the taxpayer within 30 days from its date of issuance.
2.The LA must be an electronic LA (eLA) printed under BIR from 1966 issued under the BIR Letter of
Authority Monitoring System (LAMS).
 Revalidation
- Can be revalidated ONCE if issued by Regional Office or Revenue District Office
- TWICE if issued by the National office

3. Assessment of taxpayers with unpaid or deficiency tax

 Other BIR notices to taxpayers
1.Tax Verification Notice (TVN) – authorizes the verification of One-time transactions (ONETT) cases
such as estate tax, donor’s tax, and capital gains tax.
2. Letter of Notice (LN) – is a communication from the BIR national office informing the
taxpayer of a finding of significant discrepancy between sales/ purchases reported in his tax return and
information obtained by the BIR from third parties

 Data Matching System

 Discrepancies noted by the matching system are forwarded by the national office to the revenue district office
having jurisdiction over the concerned taxpayer. The revenue district office will serve the LN to the taxpayer.

 Period of investigation
 120 days counted from the date of receipt of the eLA by the taxpayer. After the lapse of such period, the eLA
must be surrendered and may be revalidated when needed.

 Frequency of taxpayer examination

 The taxpayer shall be subject to examination only once in every taxable year, except when:
a. The CIR determined that fraud, irregularities, or mistakes were committed by the taxpayer.
b. The taxpayer requested for re-investigation or re-examination
c. There is a need to verify the taxpayer’s compliance with withholding tax and other internal revenue taxes.
d. The taxpayer’s capital gains tax liabilities must be verified
e. The CIR exercises his power to obtain information relative to the examination of other taxpayers.

 REPORTING ON THE RESULTS OF THE EXAMINATION

After the examination, the revenue officer reports the results of his investigation and recommend the issuance of
assessment to the taxpayer.

Aside from the Tax Deficiency (Tax Due), the BIR will impose the following:
1.Surcharge –
Simple Neglect – 25%
Willful Neglect – 50%
2. Interest – 12% per annum.
3. Compromise Penalty – a settlement for the government not to enforce criminal prosecution
Example: P1,000 per document not filed.
 ASSESSMENT PROCEDURE
1. Pre-Assessment Notice (PAN) – letter issued by the Regional Assessment Division informing the taxpayer of
its tax deficiency.
Taxpayer has 15 days upon receipt to reply to the assessment. Failure to reply makes the assessment final and
demandable.

2. Formal Letter of Demand and Final Assessment Notice (FLD/ FAN) – a final declaration of tax
deficiency issue to taxpayers who:
a. Defaulted by failing to respond to the PAN within 15 days of its receipt
b. Replied to the PAN but is not meritorious

 The FLD/ FAN shall be issued within 15 days from the filing or submission of the taxpayer’s response or within
15 days from the issuance of the PAN in case the taxpayer failed to respond.

 The issuance of an FLD/FAN is equivalent to denial of the taxpayer’s reply to the PAN.

3. Final Decision on Disputed Assessment (FDDA)

The FDDA of the CIR may be communicated to the taxpayer within 180 days from the filing of his protest.
 Resolution of the Protested Assessment:
Resolution Assessment is:
1. Resolved in favor of the taxpayer Cancelled
2. Resolved with reduction of liability Revised
3. Sustained Enforced

 Judicial Appeal
The FDDA of the CIR on a disputed assessment may be judicially protested by the taxpayer by filing a petition for review
with the Court of Tax Appeals (CTA).

Subsequent petition for review on certiorari before the Supreme Court may be filed.

BIR REGISTRATION & DUE DATES

 Tax Compliance & Due Dates
 BIR Registration

 Operations
 Year-end/ periodic compliance