INCOME TAXATION 1

• Lifeblood Doctrine
• It provides that the existence of the
government is a necessity;
• That government cannot continue
without means to pay its expenses;
• And that means that the government
has a right to compel its citizens and
property within its limit to contribute.
Then he said to them, “So give back to Caesar
what is Caesar’s, and to God what is God’s.
Matthew 22:15-22
• Matthew
• An apostle and a tax-collector for
the Roman government.
• Patron saint of tax collectors and • Department of Finance
accountants • Secretary Carlos G. Dominguez
• Zacchaeus • Attached Agencies to department of
• A chief tax collector who climbed finance:
a sycamore-fig tree to see Jesus. • Bureau of Customs
There were only two things certain in life: death • Bureau of Internal Revenue
and taxes. • Bureau of Local Government Finance
Benjamin Franklin • Bureau of the Treasury
• Statement of Former Presidents of U.S.A. • Central Board of Assessment Appeal
• TAXES, AFTER ALL, ARE DUES THAT WE • Cooperative Development Authority
PAY FOR THE PRIVILEGES OF • Insurance Commission
MEMBERSHIP IN AN ORGANIZED • National Tax Research Center
SOCIETY.” • Privatization and Management Office
— FRANKLIN D. ROOSEVELT • Philippine Deposit Insurance
• WHAT PEOPLE REALLY WANT IS Corporation
FAIRNESS. THEY WANT PEOPLE PAYING • Philippine Export-Import Credit Agency
THEIR FAIR SHARE OF TAXES.” • Securities and Exchange Commission
— BARACK OBAMA • Fiscal Incentives Review Board
• MAKE SURE YOU PAY YOUR TAXES; • BIR – Bureau of Internal Revenue
OTHERWISE YOU CAN GET IN A LOT OF • BIR CHIEF: Commissioner Caesar R.
TROUBLE.” Dulay
— RICHARD M. NIXON • ORGANIZATION AND FUNCTION OF
• COLLECTING MORE TAXES THAN IS THE BUREAU OF INTERNAL REVENUE
ABSOLUTELY NECESSARY IS LEGALIZED • Republic Act No. 8424
ROBBERY.” • Tax Reform Act of 1997
— CALVIN COOLIDGE • Section 1. Title of the Code.
Pay before you complain. • This Code shall be known as the
– Former BIR Commissioner Kim National Internal Revenue Code of
Henares 1997.
• Section 2. Powers and duties of the • Section 5. Power of the Commissioner
Bureau of Internal Revenue to Obtain Information, and to
• The Bureau of Internal Revenue shall be Summon, Examine, and Take
under the supervision and control of the Testimony of Persons.
Department of Finance • The Commissioner is authorized:
• Its powers and duties shall comprehend • To examine any book, paper,
the assessment and collection of the ff: record, or other data which may
• all national internal revenue taxes, be relevant or material to such
• fees, and charges, inquiry;
• and the enforcement of all • To Obtain on a regular basis from
forfeitures, any person other than the person
• penalties, and fines connected whose internal revenue tax
therewith, liability is subject to audit or
• including the execution of investigation, or from any office
judgments in all cases decided in or officer of the national and local
its favor by the Court of Tax governments, government
Appeals and the ordinary courts. agencies and instrumentalities,
• Section 3. Chief Officials of the including the Bangko Sentral ng
Bureau of Internal Revenue Pilipinas and government-owned
• The Bureau of Internal Revenue shall or -controlled corporations, any
have a chief known as Commissioner of information such as, but not
Internal Revenue, referred to as the limited to:
Commissioner; • costs and volume of
• and four (4) assistant chiefs to be known production,
as Deputy Commissioners. • receipts or sales and gross
• Section 4. Power of the Commissioner incomes of taxpayers,
to Interpret Tax Laws and to Decide • and the names,
Tax Cases • addresses, and
• Under the exclusive and original • financial statements of
jurisdiction of the Commissioner, corporations,
subject to review by the Secretary of • mutual fund companies,
Finance • insurance companies,
• The power to interpret the • regional operating
provisions of this Code and other headquarters of
tax laws multinational companies,
• Commissioner, subject to the exclusive • joint accounts,
appellate jurisdiction of the Court of Tax associations,
Appeals • joint ventures of consortia
• The power to decide disputed • and registered
assessments, refunds of internal partnerships, and their
revenue taxes, fees or other members;
charges, penalties imposed in • The Commissioner is authorized:
relation thereto, or other matters • To summon the person liable for
arising under this Code or other tax or required to file a return, or
laws or portions any officer or employee of such
 person, or any person having • (B) Failure to Submit Required Returns,
possession, custody, or care of Statements, Reports and other
the books of accounts and other Documents
accounting records containing - When a report required by law as a basis for
entries relating to the business of the assessment of any national internal revenue
the person liable for tax, or any tax shall not be forthcoming within the time
other person, to appear before fixed by laws or rules and regulations or when
the Commissioner or his duly there is reason to believe that any such report
authorized representative at a is false, incomplete or erroneous, the
time and place specified in the Commissioner shall assess the proper tax on
summons and to produce such the best evidence obtainable.
books, papers, records, or other • (C) Authority to Conduct Inventory
data, and to give testimony; -Taking surveillance and to Prescribe
• To take such testimony of the Presumptive Gross Sales and Receipts. - The
person concerned, under oath, as Commissioner may, at any time during the
may be relevant or material to taxable year, order inventory-taking of goods
such inquiry; and of any taxpayer as a basis for determining his
• To cause revenue officers and internal revenue tax liabilities, or may place the
employees to make a canvass business operations of any person, natural or
from time to time of any revenue juridical, under observation or surveillance if
district or region and inquire after there is reason to believe that such person is
and concerning all persons not declaring his correct income, sales or
therein who may be liable to pay receipts for internal revenue tax purposes. The
any internal revenue tax, and all findings may be used as the basis for assessing
persons owning or having the the taxes for the other months or quarters of
care, management or possession the same or different taxable years and such
of any object with respect to assessment shall be deemed prima facie
which a tax is imposed. correct.
• Section 6. Power of the Commissioner • (D) Authority to Terminate Taxable
to Make assessments and Prescribe Period
additional Requirements for Tax -When it shall come to the knowledge of
Administration and Enforcement. the Commissioner that a taxpayer is retiring
• (A) Examination of Returns and from business subject to tax, or is intending to
Determination of Tax Due leave the Philippines or to remove his property
- After a return has been filed as therefrom or to hide or conceal his property, or
required under the provisions of this Code, the is performing any act tending to obstruct the
Commissioner or his duly authorized proceedings for the collection of the tax for the
representative may authorize the examination past or current quarter or year or to render the
of any taxpayer and the assessment of the same totally or partly ineffective unless such
correct amount of tax: Provided, however; That proceedings are begun immediately, the
failure to file a return shall not prevent the Commissioner shall declare the tax period of
Commissioner from authorizing the such taxpayer terminated at any time and shall
examination of any taxpayer. send the taxpayer a notice of such decision,
together with a request for the immediate
payment of the tax for the period so declared
terminated and the tax for the preceding year individuals and general professional
or quarter, or such portion thereof as may be partnerships and their representatives who
unpaid, and said taxes shall be due and prepare and file tax returns, statements,
payable immediately and shall be subject to all reports, protests, and other papers with or who
the penalties hereafter prescribed, unless paid appear before, the Bureau for taxpayers. Within
within the time fixed in the demand made by one hundred twenty (120) days from January 1,
the Commissioner. 1998, the Commissioner shall create national
• (E) Authority of the Commissioner to and regional accreditation boards, the
Prescribe Real Property Values. members of which shall serve for three (3)
- The Commissioner is hereby years, and shall designate from among the
authorized to divide the Philippines into senior officials of the Bureau, one (1) chairman
different zones or areas and shall, upon and two (2) members for each board, subject to
consultation with competent appraisers both such rules and regulations as the Secretary of
from the private and public sectors, determine Finance shall promulgate upon the
the fair market value of real properties located recommendation of the Commissioner.
in each zone or area. For purposes of • (H) Authority of the Commissioner to
computing any internal revenue tax, the value Prescribe Additional Procedural or
of the property shall be, whichever is the higher Documentary Requirements.
of; - The Commissioner may prescribe the
• (1) the fair market value as manner of compliance with any documentary
determined by the Commissioner, or procedural requirement in connection with
or the submission or preparation of financial
• (2) the fair market value as shown statements accompanying the tax returns.
in the schedule of values of the • Section 7. Authority of the
Provincial and City Assessors. Commissioner to Delegate Power
• (F) Authority of the Commissioner to • The Commissioner may delegate the
inquire into Bank Deposit Accounts. powers vested in him under the
- Notwithstanding any contrary pertinent provisions of this Code to any
provision of Republic Act No. 1405 and other or such subordinate officials with the
general or special laws, the Commissioner is rank equivalent to a division chief or
hereby authorized to inquire into the bank higher, subject to such limitations and
deposits of: restrictions as may be imposed under
• (1) a decedent to determine his rules and regulations to be promulgated
gross estate; and by the Secretary of finance, upon
• (2) any taxpayer who has filed an recommendation of the Commissioner:
application for compromise of his Provided, However, That the following
tax liability under Sec. 204 (A) (2) powers of the Commissioner shall not
of this Code by reason of be delegated:
financial incapacity to pay his tax (a) The power to recommend the promulgation
liability. of rules and regulations by the Secretary of
• (G) Authority to Accredit and Register Tax Finance;
Agents. (b) The power to issue rulings of first
- The Commissioner shall accredit and impression or to reverse, revoke or modify any
register, based on their professional existing ruling of the Bureau;
competence, integrity and moral fitness,
(c) The power to compromise or abate, under manner and form as prescribed by the
Sec. 204 (A) and (B) of this Code, any tax Commissioner, upon approval of the Secretary
liability: Provided, however, That assessments of Finance.
issued by the regional offices involving basic • (B) Receipts for Payment Made.
deficiency taxes of Five hundred thousand - It shall be the duty of the Commissioner or
pesos (P500,000) or less, and minor criminal his duly authorized representative or an
violations, as may be determined by rules and authorized agent bank to whom any payment
regulations to be promulgated by the Secretary of any tax is made under the provision of this
of finance, upon recommendation of the Code to acknowledge the payment of such tax,
Commissioner, discovered by regional and expressing the amount paid and the particular
district officials, may be compromised by a account for which such payment was made in a
regional evaluation board which shall be form and manner prescribed therefor by the
composed of the Regional Director as Commissioner.
Chairman, the Assistant Regional Director, the • Section 9. Internal Revenue Districts
heads of the Legal, Assessment and Collection • With the approval of the Secretary of
Divisions and the Revenue District Officer Finance, the Commissioner shall divide
having jurisdiction over the taxpayer, as the Philippines into such number of
members; and revenue districts as may form time to
(d) The power to assign or reassign internal time be required for administrative
revenue officers to establishments where purposes. Each of these districts shall be
articles subject to excise tax are produced or under the supervision of a Revenue
kept. District Officer.
• Section 8. Duty of the Commissioner • Section 10. Revenue Regional Director
to Ensure the Provision and • Under rules and regulations, policies and
Distribution of forms, Receipts, standards formulated by the
Certificates, and Appliances, and the Commissioner, with the approval of the
Acknowledgment of Payment of Taxes Secretary of Finance, the Revenue
• (A) Provision and Distribution to Proper Regional director shall, within the region
Officials. and district offices under his jurisdiction,
- It shall be the duty of the among others:
Commissioner, among other things, to (a) Implement laws, policies, plans, programs,
prescribe, provide, and distribute to the proper rules and regulations of the department or
officials the requisite licenses internal revenue agencies in the regional area;
stamps, labels all other forms, certificates, (b) Administer and enforce internal revenue
bonds, records, invoices, books, receipts, laws, and rules and regulations, including the
instruments, appliances and apparatus used in assessment and collection of all internal
administering the laws falling within the revenue taxes, charges and fees.
jurisdiction of the Bureau. For this purpose, (c) Issue Letters of authority for the
internal revenue stamps, strip stamps and examination of taxpayers within the region;
labels shall be caused by the Commissioner to (d) Provide economical, efficient and effective
be printed with adequate security features. service to the people in the area;
- Internal revenue stamps, whether of a (e) Coordinate with regional offices or other
bar code or fuson design, shall be firmly and departments, bureaus and agencies in the area;
conspicuously affixed on each pack of cigars (f) Coordinate with local government units in
and cigarettes subject to excise tax in the the area;
(g) Exercise control and supervision over the payments internal revenue taxes authorized to
officers and employees within the region; and be made thru bank.
(h) Perform such other functions as may be • Any officer or employee of an
provided by law and as may be delegated by authorized agent bank assigned to
the Commissioner. receive internal revenue tax payments
• Section 11. Duties of Revenue District and transmit tax returns or documents
Officers and Other Internal Revenue to the Bureau of Internal Revenue shall
Officers be subject to the same sanctions and
• It shall be the duty of every Revenue penalties prescribed in Sections 269 and
District Officer or other internal revenue 270 of this Code.
officers and employees to ensure that all • Section 13. Authority of a Revenue
laws, and rules and regulations affecting Offices
national internal revenue are faithfully • Subject to the rules and regulations to
executed and complied with, and to aid be prescribed by the Secretary of
in the prevention, detection and Finance, upon recommendation of the
punishment of frauds of delinquencies Commissioner, a Revenue Officer
in connection therewith. assigned to perform assessment
• It shall be the duty of every Revenue functions in any district may, pursuant to
District Officer to examine the efficiency a Letter of Authority issued by the
of all officers and employees of the Revenue Regional Director, examine
Bureau of Internal Revenue under his taxpayers within the jurisdiction of the
supervision, and to report in writing to district in order to collect the correct
the Commissioner, through the Regional amount of tax, or to recommend the
Director, any neglect of duty, assessment of any deficiency tax due in
incompetency, delinquency, or the same manner that the said acts
malfeasance in office of any internal could have been performed by the
revenue officer of which he may obtain Revenue Regional Director himself.
knowledge, with a statement of all the • Section 14. Authority of Officers to
facts and any evidence sustaining each Administer Oaths and Take Testimony
case. • The Commissioner, Deputy
• Section 12. Agents and Deputies for Commissioners, Service Chiefs, Assistant
Collection of National Internal Service Chiefs, Revenue Regional
Revenue Taxes Directors, Assistant Revenue Regional
• The following are hereby constituted Directors, Chiefs and Assistant Chiefs of
agents of the Commissioner: Divisions, Revenue District Officers,
(a) The Commissioner of Customs and special deputies of the Commissioner,
his subordinates with respect to the collection internal revenue officers and any other
of national internal revenue taxes on imported employee of the Bureau thereunto
goods; especially deputized by the
(b) The head of the appropriate Commissioner shall have the power to
government office and his subordinates with administer oaths and to take testimony
respect to the collection of energy tax; and in any official matter or investigation
(c) Banks duly accredited by the conducted by them regarding matters
Commissioner with respect to receipt of within the jurisdiction of the Bureau.
• Section 15. Authority of Internal their official rank and salary, to other or
Revenue Officers to Make Arrests and special duties connected with the
Seizures enforcement or administration of the
• The Commissioner, the Deputy revenue laws as the exigencies of the
Commissioners, the Revenue Regional service may require: Provided, That
Directors, the Revenue District Officers internal revenue officers assigned to
and other internal revenue officers shall perform assessment or collection
have authority to make arrests and function shall not remain in the same
seizures for the violation of any penal assignment for more than three (3)
law, rule or regulation administered by years; Provided, further, That assignment
the Bureau of Internal Revenue. Any of internal revenue officers and
person so arrested shall be forthwith employees of the Bureau to special
brought before a court, there to be dealt duties shall not exceed one (1) year.
with according to law. • Section 18. Reports of violation of
• Section 16. Assignment of Internal Laws
Revenue Officers Involved in Excise • When an internal revenue officer
Tax Functions to Establishments discovers evidence of a violation of this
Where Articles subject to Excise Tax Code or of any law, rule or regulations
are Produced or Kept administered by the Bureau of Internal
• The Commissioner shall employ, assign, Revenue of such character as to warrant
or reassign internal revenue officers the institution of criminal proceedings,
involved in excise tax functions, as often he shall immediately report the facts to
as the exigencies of the revenue service the Commissioner through his
may require, to establishments or places immediate superior, giving the name
where articles subject to excise tax are and address of the offender and the
produced or kept: Provided, That an names of the witnesses if possible:
internal revenue officer assigned to any Provided, That in urgent cases, the
such establishment shall in no case stay Revenue Regional director or Revenue
in his assignment for more than two (2) District Officer, as the case may be, may
years, subject to rules and regulations to send the report to the corresponding
be prescribed by the Secretary of prosecuting officer in the latter case, a
Finance, upon recommendation of the copy of his report shall be sent to the
Commissioner. Commissioner.
• Section 17. Assignment of Internal • Section 19. Contents of
Revenue Officers and Other Commissioner's Annual Report.
Employees to Other Duties • The annual Report of the Commissioner
• The Commissioner may, subject to the shall contain detailed statements of the
provisions of Section 16 and the laws on collections of the Bureau with
civil service, as well as the rules and specifications of the sources of revenue
regulations to be prescribed by the by type of tax, by manner of payment,
Secretary of Finance upon the by revenue region and by industry
recommendation of the Commissioner, group and its disbursements by classes
assign or reassign internal revenue of expenditures.
officers and employees of the Bureau of • In case the actual collection exceeds or
Internal Revenue, without change in falls short of target as set in the annual
 national budget by fifteen percent (15%) (g) Such other taxes as are or hereafter may
or more, the Commissioner shall explain be imposed and collected by the Bureau of
the reason for such excess or shortfall. Internal Revenue.
• Section 20. Submission of Report and • BIR FORMS (Tax 01)
Pertinent Information by the • 1700
Commissioner. • For individuals earning purely
• (A) Submission of Pertinent Information compensation income
to Congress. • 1701
- The provision of Section 270 of this • For self employed individuals, estates
Code to the contrary notwithstanding, the and trusts
Commissioner shall, upon request of Congress • 1702-RT
and in aid of legislation, furnish its appropriate • For Corporation, Partnership, Other
Committee pertinent information including but Non-Individual Taxpayer Subject only to
not limited to: industry audits, collection Regular Income Tax Rate
performance data, status reports in criminal • 1702-EX
actions initiated against persons and taxpayer's • For Use Only by Corporation,
returns: Provided, however, That any return or Partnership, Other Non-Individual
return information which can be associated Taxpayer Exempt under the Tax Code
with, or otherwise identify, directly or indirectly, • BIR FORMS (Tax 01)
a particular taxpayer shall be furnished the • 2316
appropriate Committee of Congress only when • Certificate of Compensation
sitting in Executive Session Unless such Payment/Tax Withheld
taxpayer otherwise consents in writing to such • 2307
disclosure. • Certificate of Creditable Tax Withheld at
• (B) Report to Oversight Committee. Source
- The Commissioner shall, with reference • 2306
to Section 204 of this Code, submit to the • Certificate of Final Income Tax Withheld
Oversight Committee referred to in Section 290
hereof, through the Chairmen of the
Committee on Ways and Means of the Senate
and House of Representatives, a report on the
exercise of his powers pursuant to the said • BIR FORMS (TAX 02)
section, every six (6) months of each calendar • 1800
year. • Donor’s Tax Return
• Section 21. Sources of Revenue • 1801
• The following taxes, fees and charges • Estate Tax Return
are deemed to be national internal • 2550M/2550Q
revenue taxes: • Monthly VAT Declaration/ Quarterly VAT
(a) Income tax; return
(b) Estate and donor's taxes; • 2551M/2551Q
(c) Value-added tax; • Monthly Percentage Tax
(d) Other percentage taxes; Return/Quarterly Percentage Tax Return
(e) Excise taxes; • VETO MESSAGE ON TRAIN
(f) Documentary stamp taxes; and • Earmarking of incremental tobacco
taxes.
 • Veto in lines 20 to 29 of Section • Veto in line 2 of Section 38 of the
82, which said that “The law, which said that “Beginning
incremental revenues from the January 1, 2019, self-employed
Tobacco taxes under this act shall and professionals with total
be subject to Section 3 of annual gross sales and/or gross
Republic Act No. 1717 (An Act to receipts not exceeding P500,000.”
Promote the Development of the • Duterte said that proposed
Farmer in the Virginia Tobacco exemption from percentage tax
Producing Provinces) and Section will result in “unnecessary erosion
8 of the National Internal of revenues and would lead to
Revenue Code. abuse and leakages.”
• According to Duterte, the • “The subject taxpayers under this
provision “effectively amends provision are already exempted
Republic Act 10351 or the Sin Tax from VAT (value added tax), thus,
Law, which provides for the lower three percent
guaranteed funds for universal percentage tax on gross sales or
health care.” gross receipts is considered as
• “The provision will effectively their fair share in contributing to
diminish the share of the health the revenue base of the country.
sector in the proposed • Zero-rating of sales of goods and
allocation,” the veto message services to separate customs territory
said. and tourism enterprise zones.
• Exemption of various petroleum Veto in Sections 31 and 33 of the law.
products from excise tax when used • The President said the provisions
as input, feedstock, or as raw material go against the principle of
in the manufacturing of limiting the VAT zero-rating to
petrochemical products, or in the direct exporters. The proliferation
refining of petroleum products, or as of separate customs territories,
replacement fuel for natural gas fired which include buildings, creates
combined cycle power plants. significant leakages in the tax
• Veto in line 25 of Section 43 of system, making it “highly
the law. inequitable and significantly
• “The provision runs the risk of reduces the revenues that could
being too general covering all be better used for the poor.”
types of petroleum products, • Reduced income tax rate of
which may be subject to abuse by employees of Regional Headquarters,
taxpayers, and thus lead to Regional Operating Headquarters,
massive revenue erosion. At any Offshore Banking Units and
rate, the tax code already Petroleum Service Contractors and
identifies which petroleum Subcontractors.
products can be exempted,” the • Veto in Section 6 of the law that
President said. effectively maintains the special
• Exemption from percentage tax of tax rate of 15 percent of gross
gross sales/receipts not exceeding income for the said employees.
P500,000.
• “The provision is violative of the
Equal Protection Clause under
Section 1, Article III of the 1987
Constitution, as well as the rule of
equity and uniformity in the
application of the burden of
taxation,” Duterte said.
• “Given the significant reduction in
the personal income tax, the
employees of these firms should
follow the regular tax rates
applicable to other individual
taxpayers,” he added.