CHAPTER 2

TAXES,TAX LAWS
AND
TAX AMINISTRATION
TAXATION LAWS
-refers to any law that arises
from the exercise of the taxat
ion power of the state.
 TYPES OF TAXATION LAWS
1.Tax Laws- law that provide for the assessment and
collection of taxes.
ex: The Nati9nal Internal Revenue Code, The tariff an
d Customs Code, The Local Tax Code, The Real prop
erty tax code.
2.Tax exemption laws-laws that grant certain immun
ity from taxation.
ex. The Minimum Wage Law, The Omnibus Investme
nt code of 1987(
E.O 226),Baraga Micro-Business Enterprise (BMBE) la
w, Cooperative Development Act.
 Sources of Taxation Laws
1. Constitution
2. Statutes and Presidential Decrees
3. Juridical Decisions or case laws
4. Executive orders and Batas Pambansa
5. Administrative Issuances
6. Local Ordinances
7. Tax Treaties and conventions with foreign coun
tries
8. Revenue Regulations
Types of Administrative Iss
uances
1. Revenue regulations
2. Revenue memorandum orders
3. Revenue memorandum rulings
4. Revenue memorandum circulars
5. Revenue bulletins
6. BIR rulings
Revenue Regulations- are issuances signed by the Secretary of
Finance upon recommendation of the Commissioner of Interna
l Revenue(CIR) that specific prescribe or define rules and regul
ations for the effective enforcement of the provisions of the Nat
ional Internal Revenue Code (NIRC) and related statues.
-provide directives instructions; prescribe guidelines; and outli
ne processes, operation, activities, workflows, method and proc
edures necessary in the implementation of states policies goals
objective plans and programs of the Bureau in all areas of oper
ation except auditing.
Revenue Memorandum Rulings(RMRs)-are rulings, opinions
and interpretations of the CIR with respect to the provisions of
the tax code and other taxes law applied to specific set of facts
with or without established precedents and which the CIR issu
e from time to time for the purpose of providing guidance on t
he consequences in the specific situations.
Revenue Memorandum Circular (RMCs)- are issuance
s that publish pertinent and applicable portions as well
as amplifications of laws, rules, regulations, and preced
ent issued by the BIR and the other agencies /offices.
Revenue Bulletins(RB)-refer to the periodic issuances,
notices, and official announcements of the Commission
er of Internal Revenue that consolidate the bureau of In
ternal Revenue's position on certain specific issuances o
f law or administration in relation to the provisions of t
he Tax Code, relevant tax laws, and other issuances for
the guidance of the public.
BIR Rulings-are official positions of the bureau to quarr
ies reused by taxpayers and other stakeholders relative
to clarification and interpretation of tax laws.
 TYPES OF RULINGS
1. Value Added Tax(VAT)rulings
2. International Tax Affairs Divisio
n (ITAD)rulings
3. BIR rulings
4. Delegated Authority (DA)rulings
Generally accepted acvounting Principles(GAAP) vs.
Tax laws

Generally accepted Tax laws

accounting
Principles(GAAP)
-not laws, but mere convention of -Including rules regulations and
financial reporting rulings prescribe the criteria for tax
-benchmark for the fair and reporting, a special form of
relevant valuation and recognition financial reporting which intended
of income, expense, assets, to meet specific needs of tax
liabilities and equity of a reporting authorities.
entity for general purpose .
-meet the common needs of a vast
number of users in the general
public.
 NATURE OF PHILIPPINES TAXES
-not political in nature
-Effective during periods of enemy occupation.
-Tax enemies are valid.
-Internal revenue laws are not penal in nature because they do
not define crime.
-Secure taxpayers' compliance.

TAX
- an enforced proportional contribution
levied by the State to raise revenue for public
purpose.
 Elements of A Valid Tax
Tax must be levied by the taxing power having jurisdiction over the o
bject taxation.
Tax must not violate constitutional and inherent limitations
Tax must be uniform and equitable.
Tax must be proportional in character.
Tax is generally payable in money.

CLASSSIFICATION OF TAXES
A.As to purpose
1. Fiscal or revenue tax- a tax imposed for general purpose
2. Regulatory-to regulate business, conduct, acts of transactions.
3. Sumptuary-a tax levied to achieve some social or economic objectives.
B.As to subject matter
4. Personal, poll or capitation-who are resident of particular territory
5. Property tax-a tax on properties, real or personal
6. Excise or privilege tax- upon the performance of an enjoyment of a
privilege or engagement in an occupation.
C.As to incidence
1. Direct tax-impact and incidence of taxation rest upon
the same taxpayer,the tax is said to be direct.
-intended to pay the same.The statutory taxpayer i
s the economic tacpayer.
2. Indirect-paid by any person other tha the one when is
intended to pay the same .
-business taxes where the statutory taxpayer is not the ec
onomic taxpayer.
D.As to amount
2. Specific tax- fixed amount imposed on per unit basis .

3. Ad valorem- fixed proportion imoosed upon the valu

e of the tax object.
E.As to rate
1. Proportional tax-flat or fixed rate tax. The use of pro
portional tax emphasizes equality as it subjects all ta
xpayers with the same rate without regard to their a
bility to pay.
2. Progressive or graduated tax-impose increasing rate
as the tax base increase. Use of progressive tax rates
result in equitable taxation because it gets more tax t
o those who are more capable. Lessening the gap be
tween the rich and poor.
3. Regressive tax- decreasing tax rates as the tax base i
ncrease. Total reverse of progressive tax.
4. Mix tax combination of any of the above types of tax
.
F. As to imposing authority
1. National tax- imposed by the national governme
nt.
Ex. Income tax, Estate tax, Donor tax etc.
2. Local tax- imposed by the municipal or local go
vernment
Ex. Real property tax, Professional tax, Business taxes,
fees and charges etc.
DISTINCTION OF TAXES WITH SIMILAR ITEMS
Tax
Vs.
-Imposed by the
government for public
purposes.
-amount imposed.
Tax
vs.
-Emanates from taxation
power and imposed upon
any object such as
persons, properties, or
privileges to raise
revenue.
-Imposed after the
commencement of a
business or profession.
-post activity imposition
Revenue
-All income collections of
the government.
-Amount collected.
License fee
-Emanates from police
power and is imposed
to regulate the exercise
a privileges to raise
commencement of a
business or profession.
-Impose before
engagement in those
activities.
-Pre activity
imposition
Tax
-Levy of government; hence it is a
demand of sovereignty.
-depends upon the needs of
government
-private entities can
Both the government and private
entities impose toll.
Tax
-arises from law
-leads to imprisonment
-generally payable in money.
-tax draws interest only when the tax
payer is delinquent.
Tax
-an amount imposed upon persons,
properties, or privileges.
-Levied without expectation of a
direct proximate benefit
vs. Toll
-a charge for the use of other's
property; hence, I t is demand of
ownership.
-dependant upon the value of the
property leased.
-Both the government and private
entities impose toll.
vs. Debt
-arises from private contacts
-not lead to imprisonment
-subject to set-off
-paid in kind
-draws interest when it is so stipulated
by the contracting parties or when the
debtor incurs a legal delay.
vs. Special Assessment
levied by the government on lands
adjacent to a public improvement.
-benefit in terms of the appreciation
in land value caused by the public
improvement.
-special assessment will not result to
Tax vs. Tariff
-Imposed upon persons, privilege, - Imposed on imported or exported
t ransactions or properties commodities
Tariff

Tax vs. Penalty

-an amount imposed for the
support of the government
-Both from law or contract
whereas tax arises from law.
-Penalty may be imposed by both
government and private individuals.
-Both from law or contract whereas
tax arises from law.

TAX SYSTEM
-methods or schemes of imposing, assessing, and
collecting taxes.
Philippine tax divided into two:
1. NATIONAL TAX SYSTEM
2. LOCAL TAX SYSTEM
TYPES OF TAX SYSTEM ACVORDIMG TO IMPOSITI
ON
1. Progressive-taxation of income of individuals and t
ransfers of properties by individual
2. Proportional-employed in taxation of corporate inc
ome and business
3. Regressive-not employed in the Philippines
TYPES OF TAX SYSTEM ACCORDING TO IMPACT
1. Progressive system-is one that emphasizes direct
taxes. It cannot be shifted.
2. Regressive system-is one that emphasizes indirect
taxes .Shifted by business to consumer. Anti-poor
 TAX COLLECTION SYSTEM
A. Withholding system on income tax -income withhol
ds or deducts the tax on the income before releasing the
same to the payee and remits the same to the governme
nt.
1. Creditable withholding tax

a. Withholding tax on compensation-an estimated t

ax required by the government to be withheld by emplo
yees against.
b.Expanded withholding tax- certain income paym
ents made by yaxpaywrs engagwd in business.
2. Final withholding tax - wherein payors are require
d to deduct the full tax on certain income payments.
Similarities of final and creditable w
ithholding tax
1. Income payor withholds a fraction of the income and r
emit the same to the government.
2. Both serve to minimize case flow problems to the taxp
ayer and collection problems to the government.
DIFFERENCES BETWEEN FWT AND CWT
Final withholding tax Creditable Withholding
Tax
Income tax withheld Full Only a portion
Coverage of withholding Certain passive income Certain passive and
active income
Who remits the actual tax Income payor Income payor for the
CWT and the taxpayer
foe the balance
Necessity of income tax Not required Required
return for taxpayer
B.Withholding system on business tax -the law requires withho
lding of the relevant business tax.
C.Voluntary compliance system- the taxpayer himself determin
es his income,reports the same through income tax returns and p
ays the tax to the government.'Self assessment method'.
The tax due determined under this system will be reduced by:
a. .Withholding tax on compensation withheld by employers.
b. .Expanded withholding taxes witheld by suppliers of good a
nd services.
The taxpayer shall pay to the government any tax balance after
such credit or claim refund or tax credit for excessive tax withel
d.
D. Assessment or enforcement system -identifies non compliant
taxpayers voluntary compliance or enforces collections by coerci
ve meana such as summary proceeding or juriducal proceedings
when necessary.
PRINCIPLES OF A SOUND TAX SYSTEM
According to Adam Smith, government should adhere to the following principles
or canons to evolve a sound tax system.
1. Fiscal adequency
2. Theoritical justice
3. Administrative feasibility

Fiscal adequacy- requires that the sources of government funds must be suffiencie
nt to cover government cost.
Theoritical justice-that the exercise of taxation should consider the taxpayer abilit
y to pay .It also suggests that the exercise of taxation should not be oppresive ,unju
st , confiscatory.
Administrative feasibilty -should be capable of efficient and effective asministrati
on to encourage compliance.
The following are applications of the principle of administrative feasibility.
4. E-filing and e payment of taxes
5. Substituted filing symtem for employees
6. Final withholding tax on non resident aliens or corporations
7. Accreditation of authorized agent banks in the filing and payment and payme
nt of taxes.
TAX ADMINISTRATION- The
management of the tax system.
Chief officials of the Bureau of Inte
rnal Revenue
1. 1 Commissioner
2. 4 Deputy Commissioners, each to be designed to the
following.
a.Operation group
b.Legal Enforcement Enfor
c.Information syscInformati
d. Resource Management group
 POWERS OF THE BUREAU OF INTERNAL REV
ENUE
1. Assesment and collection of taxes
2. Emforcement of all forfeitures,penalties and fines, and judge
ments in all case decided in its favor by the court.
3. Giving effect to,and administering the supervisory and the
police powers confered to it by the NIRC and other Laws.
4. Assignment of internal revenue offivers and other employee
s to other duties.
5. Provision and distribution of forms,receipts ,certificates,sta
mps etc. to proper officials.
6. Issuance of receipts and clearances
7. Submission of annual report pertinent information to congre
ss and reports to the Vongressional Oversight Commitee in
matters of taxation.
 POWERS OF THE COMMISSIONER OF INTERN
AL REVENUE
1. To interpret the provisions of the NIRC, subject to review by tye secretary of Finance
2. To decide tax cases,subject to the exclusive appellate jurisdiction of the Tax Appeals,
such as:
• a. Disputes Assessment
• b.Refunds of internal revenue taxes,fees, or other charges
• c.Penalties imposed
• d. Other NIRC and special law matters administered by the BIR
3. To obtain information and to summon,examine,and take testimony of persons to effe
ct tax collection.
Purpose:For the CIR to ascertain:
• The correctness of any tac return oor in makong a return when none has been made
by the taxpayer
• The tax loability of any person for any internal revenue tax or on correcting any such
liability
• Tax compliance of the taxpayer.
4.To make assessement and prescribd additional requirment 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 taxpa
yer when:
• a.The taxpayer failed to issue receipts;or
• b. The CIR believes that the books or other records of the ta
xpayer 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 phillipines
• c. Intending to remove,hide or conceal hus property.
• d. Intending to perform any act tending to obstruct the proc
eedings for the collection of the tax or render the same in eff
ective.
9. To prescribe real property values
Zonal values-values prescribe.
For purpose of internal revenue taxes,fair value of real propertt shall mean whic
hever is higher of:
• a.Zonal value prescribed by the Commissioner
• b. Fair market value as shown in the schedule of market values of the Provinc
ial and City Assessors Office.
Assessed value -a fraction of the fair maket value.Assessed value is the basus of r
eal property tax tax in local taxation.The value to use noe is the full fair value of t
he property.
10.To comprise tax liabilities of taxpayer
11. To inquire into bank deposits,only under the following instances;
a Determination of the gross state of a decedent
b. To substantiate the taxpayer's claim of financial incapacity to pay tax in an app
lication for tax compromise.
12. To accredit and register tax agents
13.To refund or credit internal revenue taxes
14.To prescribe additional procedures or documentary requirments
15.To delegate his powers to any subordinate officer with a rank equivalent to a
division chef.
Non-delegated power of the C
IRthe Commissioners shall not
The following powers of
be delegated.
1. The power to recommend the promulgation of rule
s and regulation to the Secrvreta of Finance
2. The power to issue rulings of first impression or to
reverse,revoke or modify any existing rulings of th
e bureau.
3. The power to comprise or abate any tax liability
4. The power to assign and reassign internal revenue
officers to establishments where articles subject to
excise tax are produce or kept.
Rules in assignments of revenue officers to ot
her duties
1. Revenue officers assigned to an establishment where excisable articles ar
e kept shall in no case stay there foe 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. Assiggnment of internal revenue officers and employees of the Bureau s
pecial duties shall not exceed 1 year.

Agents and Duputies for collection of National In

ternal Revenue Taxes
1. The Commissioner of Cuatoms and his subordinates with respect
to the collection of national internal revenue taxes on imported
goods .
2. The head of appropriate governmewn offdice and his
subordinates with respect to the collection of energy tax.
3. Banks duly accredited by the Commisioner with respect to
receipts payments of internal revenue taxes authorized to be
OTHER AGENCIES TASKED WITH TAX COLECTIONS OR TAX INCENTI
VES RELATED FUNCTION
1. Bureau of Customs
2. Board of Investment
3. Philippine Economoc Zone Authority
4. Local Goverment Tax Collecting Unit

Bureau of Customs(BOC)
-tasked to administer vollection of tariffs on important articles and collection of the
Value Added Taxon importation.
Board of Investment
-tasked to lead the promotion of investments in the Philippines by assistong Filipin
os and foreign investors to venture and prisper in desirable areas of economic activi
ties.
Philippine Economic Zone Authority
-created to promote investment in export-oriented manufacturing industries in the
Phillipines and,among other myriads of function,supervise the grant of both fusval
and non fiscal incentives.
Local Government Tax Collecting Units
-
TAXPAYER CLASSIFICATION FOR PURPOSES OF TAX ADMI
NISTRATION
1. Large taxpayer- under the supervision of the Large Taxpayer Service
of the BIR national Office
2. Non-large taxpayers -under the supervision of the respective Revenue
District Offices where the business,trade or profession of the taxcpaye
e is situated.

Criteria for large Taxpayers:

A.As to payment
1. Value Added Tax -Atleast P200000 per quarter for the preceding
year
2. Excise Tax-At least P1000000 tax paid for the preceding year.
3. Income Tax- At least P1000000 annual income tax paid for the
preceding year
4. .Withholding Tax- At least P1000000 annual withholding tax
payments of remittances from all types of witholding taxes
5. Percentage Tax -At least percentage tax paid or payable per quarter
for the perceding year
6. Documentary stamp tax-At least P1000000 aggregate amount per
B.As to Financial conditions and results of operati
ons
1. Gross receipts or sales- P1000000000 total gros
s sales or receipt
2. Net worth -P300000000 total net worth at the cl
ose of each calendar fiscal year
3. Gross Purchases- P800000000 total annual Purc
hases for the preceding year
4. Top corporate tacpayer listed and published b
y the Securities and Exchange Commision.
Automatic classification of taxpayer as l
arge taxpayer
The following taxpayers shall be automatically classified
as large taxpayers upob notice in writing by the CIR:
1. All branches of tacpayers under the Large Taxpayer's
Service
2. Subsidiaries,affiliates, and entities of conglomerates or
group of companies of large taxpayer
3. Surviving company in case of merger or consolidation
of a large taxpayer
4. A codporation that absorbs the operation or business i
n casr of spin off of an large taxpayer
5. Corporation with an authorized capitalization of atlea
st P300000000 registered with the SEC
6.Multinational enterprises with an authorized capit
alization or assigbed capital of at least P300000000
7. Publicly listed corporations
8.Universal,commercial, and foreign banks(the regu
lar business unit and foreign currency deposit shall
be considered one taxpayer for purposes of classify
ing them ad large taxpayer)
9.Corporate taxpayer with at least P100000000 auth
orized capital in banking,insurance,telecommunicat
ion,utilities,petroluem,tibacco,and alcohol industrie
s
10. Corporate taxpayer engaged in the production o
f metallic minerals
THANK
YOU!!!