CHAPTER 2 – TAXES, TAX LAWS, AND TAX 3.

REVENUE MEMORANDUM RULINGS – ruling,

ADMINISTATION opinion, and interpretations of CIR with respect to
the provision of the Tax Code and other Tax laws as
TAXATION LAWS – refers to any that arises from the applied to a specific set of facts , with or without
exercise of the taxation power of the state established precedents, and which on the CIR may
issue from time to time for the purpose of providing
TYPES OF TAXATION LAWS
taxpayers guidance on the consequences in specific
1. TAX LAWS – laws that provide for the assessment situations.
and collection of taxes.  BIR rulings, therefore, cannot contravene duly
 Ex: issued RMRs; otherwise, Rulings are null and
void ab initio.
o The National Internal Revenue Code
(NIRC) 4. REVENUE MEMORANDUM CIRCULARS – issuances
o The Tariff and Customs Code that publish pertinent applicable portions as well as
o The Local Tax Code amplification of laws, rules, regulations, and
o The Real Property Tax Code precedent issued by the BIR and other
2. TAX EXEMPTION LAWS – laws that grant certain agencies/offices.
immunity from taxation.
 Ex: 5. REVENUE BULLETINS – refer to periodic issuances,
o The minimum wage law notices, and official announcements of the
o The Omnibus Investment Code of 1987 Commissioner of Internal Revenue that consolidate
o Barangay Micro-Business Enterprise the Bureau of the Internal Revenue’s position on
Law certain issuances of law or administration in
o Cooperative Development Act relation to the provision of the Tax Code, relevant
Tax laws, and other issuances for the guidance of
SOURCES OF TAXATION LAW the public.
1. Constitution
2. Statutes and Presidential Decrees 6. BIR RULINGS – official position of the Bureau to
3. Judicial Decisions or case laws queries raised by taxpayers and ither stakeholders
4. Executive Orders and Batas Pambansa relative to clarification and interpretation of tax
5. Administrative Issuances laws.
6. Local Ordinances
7. Tax Treaties and Conventions with foreign TYPES OF RULING
countries 1. Value added tax (VAT) Rulings
8. Revenue Regulations 2. International; Tax Affairs Division Rulings
3. BIR Rulings
TYPES OF ADMINISTRATIVES ISSUANCES 4. Delegated Authority Rulings
1. REVENUE REGULATIONS – issuances signed by the
secretary of finance recommendation of the GENERALLY ACCEPTED ACCOUNTING PRINCIPLES VS.
commissioner of Internal Revenue (CIR) that specify TAX LAWS
prescribe or define rules and regulations for the  GAAP
effective enforcement of provisions of the National - Not laws but are mere conventions of financial
Internal Revenue Code (NIRC) and related statues. reporting, benchmarks for the fair and relevant
valuation and recognition of income, expense,
2. REVENUE MEMORANDUM ORDERS – issuances assets, liabilities and equity of a reporting entity
that provide directive instructions; prescribe for general purpose financial reporting and its
guidelines; and outline processes, operation, accounting report are intended to meet the
activities workflow, methods, and procedures common needs of a vast number of users in the
necessary in the implementation of state policies, general public.
goals, objectives, plans, and program of the Bureau
in all areas of operation except auditing.  TAX LAWS
- including rules, regulations and rulings
prescribe the criteria for tax reporting, a special
 form of financial reporting which is intended to
meet specific needs of tax authorities C. AS TO INCIDENCE
 Taxpayers normally follow GAAP in recording 1. Direct tax – when both the impact and
transactions in their books. However, in the incidence of taxation rest upon the same
preparation and filing of tax returns, taxpayers taxpayer.
are mandated to follow the tax law in cases of o Tax is collected from the person
conflict with GAAP. who is intended to pay the same
o Statutory taxpayer is the economic
NATURE OF PHILIPPINE TAX LAWS taxpayer
 Philippine tax laws are civil and not political in 2. Indirect tax – when the tax is paid by any
nature person other than the one who is intended
 Our internal revenue laws are not penal in to pay the same
nature because they do not define crime. Their o This occurs the case of business
penalty provisions are merely intended to taxes where the statutory taxpayer
secure taxpayers’ compliance is not economic taxpayer
 Statutory taxpayer is the person named by law
TAX – enforced proportional contribution levied by the to pay the tax
lawmaking body of the state to raise revenue for public  economic taxpayer is the one who actually pay
purpose. the tax
D. AS TO AMOUNT
ELEMENTS OF A VALID TAX 1. Specific tax – tax of a fixed amount imposed on
1. Tax must be levied by the taxing power having a per unit basis such as per kilo, liter, meter,
jurisdiction over the object of taxation etc.
2. Tax must not violate Constitutional and 2. Ad Valorem – tax of a fixed proportion imposed
inherent limitations. upon the value of the tax object
3. Tax must be uniform and equitable E. AS TO RATE
4. Tax must be for public purpose 1. Proportional tax – flat or fixed rate tax
5. Tax must be proportional in character o Emphasized equality as it subject all
6. Tax is generally payable in money taxpayers with the same rate without
regard to their ability to pay.
CLASSIFICATION OF TAXES
A. AS TO PURPOSE 2. Progressive or Graduated tax – tax imposes
1. Fiscal or revenue tax – a tax imposed for increasing rates as the tax base increases.
general purpose. o Results in equitable taxation because it gets
2. Regulatory – a tax imposed to regulate more tax to those who are more capable.
business, conduct, acts transactions o It aids in lessening the gap between the rich
3. Sumptuary – a tax levied to achieve some and poor.
social or economic objectives
3. Regressive tax – imposing decreasing tax rate
B. AS TO SUBJECT MATTER as the tax base increase
1. Personal, poll or capitation – tax on o Regarded as anti-poor
persons who are residents of a particular o It directly violates the Constitutional
territory. guarantee of progressive taxation
2. Property tax – tax on properties , real or
personal 4. Mixed tax – tax manifest tax rates which is a
3. Excise or privilege tax – tax imposed upon combination of any of the above types of tax.
the performance of an act, enjoyment of a
privilege or engagement in an occupation F. AS TO IMPOSING AUTHORITY
1. NATIONAL TAX – tax imposed by the national
government
 Examples:
a) Income Tax
b) Estate tax
 c) Donor’s tax  Tax draws interest only when taxpayer is
d) Value added tax delinquent,
e) Other percentage tax  Debt draws interest when it is so stipulated by
f) Excise tax contracting parties or when debtor incurs legal
g) Documentary stamp tax delay.
2. LOCAL TAX – tax imposed by municipal or local
government 5. TAX VS SPECIAL ASSESSMENT
 Examples:  Tax is amount imposed by person, properties,
a) Real property tax or privilege
b) Professional tax  Special assessment is levied by the government
c) Business taxes, fees, charges on lands adjacent to compensate the
d) Community tax improvement for a part of the cost of the
e) Tax on banks and other financial institutions improvement.
6. TAX VS TARIFF
DISTINCTION OF TAXES WITH SIMILARITIES  Tax is amount imposed upon person, privilege,
1. TAX VS. REVENUE transaction, or properties.
 Tax – Imposed by government for public  Tariff is amount imposed on imported or
purpose exported commodities.
 Revenue – Income collection of the 7. TAX VS PENALTY
government. Includes taxes, tariff, licenses, toll,  Tax - amount imposed by the support of
penalties and others. government
 the amount imposed is Tax, but the amount o Arise from law
collect is revenue.  Penalty – amount imposed to discourage an act
2. TAX VS LICENSE FEE o may be imposed by government or
 License fee – emanates from police power and private individual
imposed to regulate the exercise of a privilege o may arise both from law or contract
such as the commencement of a business or
profession TAX SYSTEM
 Taxes are imposed after the commencement of - methods or schemes of imposing, assessing,
a business. (POST-ACTIVITY IMPOSITION) and collecting taxes.
 license fee imposed before engagement of - Includes all the tax laws and regulations, the
those activities. (PRE-ACTIVITY IMPOSITION) means of their enforcement, and the
government officials, bureaus and withholding
3. TAX VS TOLL agents
 Tax is a levy of government, it is a demand of - The Philippine tax system is divided into two:
sovereignty i. National tax system
o Tax amount depends upon the needs of ii. Local tax system
the government
 Toll is a charge for the use of other’s property, TYPES OF TAX SYSTEM ACCORDING TO IMPOSITION
it is a demand of ownership. 1. PROGRESSIVE – employed in the taxation of income
o Toll amount is dependent upon the of individuals, and certain local business taxes.
value of the property leased. 2. PROPORTIONAL - employed in taxation of
 Both the government and private entities corporate income and business
impose toll, but private cannot impose taxes. 3. REGRESSIVE - not employed in the Philippines

4. TAX VS DEBT TYPES OF TAX SYSTEM ACCORDING TO IMPACT

 Tax arises from law while debt arises from 1. PROGRESSIVE SYSTEM
private contracts  Emphasizes direct taxes, direct tax cannot be
 Non-payment of tax leads to imprisonment, but shifted
non-payment of debt does not lead to  Encourages economic efficiency as it leaves no
imprisonment other resort to taxpayers than to be efficient.
 Debt can be subject to off-set but tax is not.  This impact more upon the rich
 - Taxpayer shall pay to the government any tax
balance after such credit or claim refund or tax
2. REGRESSIVE SYSTEM credit for excessive tax withheld
 Emphasizes indirect taxes, shifted by businesses
to consumers
 Anti-poor
Constitutional guarantee of a progressive taxation,
Philippine has a dominantly regressive tax system due D. Assessment or enforcement system
to prevalence of business taxes. - the government identifies non-compliant
taxpayers, assesses their tax dues including
TAX COLLECTION SYSTEM penalties, demand for taxpayers’ compliance
A. WITHHOLDING SYSTEM ON INCOME TAX
- The payor if the income withholds or deducts PRINCIPLES OF A SOUND TAX SYSTEM
the tax on the income before releasing the - government should adhere to the ff principles
same payee and remits the same to the or canons to evolve a sound tax system
government 1. Fiscal Adequacy
1. Creditable withholding tax - sources of government funds must be sufficient
a. Withholding tax on compensation to cover government cost.
o estimated tax required by the - Taxes should increase in response to increase in
government to be withheld (deducted) government spending.
by employers against the compensation 2. Theoretical Justice
income to their employees - Taxation should consider the taxpayer ability to
b. Expanded withholding tax pay
o estimated tax required by the - Exercise of tax should not be unjust, oppressive
government to be deducted on certain 3. Administrative Feasibility
income payments made by taxpayers - Tax laws should be capable of efficient and
engaged in business effective administration to encourage
2. final withholding tax - a system of tax collection compliance
wherein payors are required to deduct the full tax - Government should make easy for the taxpayer
on certain income payments to comply by avoiding administrative
bottlenecks and reducing compliance costs
SIMILARITIES OF FINAL TAX AND CREDITABLE
WITHHOLDING TAX TAX ADMINISTRATION
a. In both cases, the income payor withholds a fraction - refers to the management of the tax system
of the income and remit the same to the - Tax administration of the national tax system in
government. the Philippines is entrusted to the Bureau of
b. By collecting at the moment cash is available, both Internal Revenue which is under the
serve to minimize cash flow problems to the supervision and administration of the
taxpayer and collection problems to the Department of Finance.
government.
CHIEF OFFICIALS OF THE BUREAU OF INTERNAL
B. WITHHOLDING SYSTEM ON BUSINESS TAX REVENUE
- When the national government agencies and 1. Commissioner (1)
instrumentalities including government-owned 2. Deputy Commissioners (4), each to be
and controlled corporations (GOCCs) purchased designated to the following
goods or services from private suppliers, the a. Operations group
law required withholding of the relevant b. Legal enforcement group
business tax (i.e. VAT) c. Information Systems Group
d. Resource Management Group
C. VOLUNTARY COMPLIANCE SYSTEM
- Self-assessment method POWERS OF THE BUREAU OF INTERNAL REVENUE
1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties and fines
and judgments in all cases decided in its favor by NON-DELEGATED POWER OF THE CIR
the courts. 1. The power to recommend the promulgation of rules
3. Giving effect to and administering the supervisory and regulations to the Secretary of Finance.
and police powers conferred to it by the NIRC and 2. The power to issue rulings of first impression or to
other laws. reverse, revoke or modify any existing rulings of the
4. Assignment of internal revenue officers and other Bureau.
employees to other duties 3. The power to compromise or abate any tax liability
5. Provision and distribution of forms, receipts, (Note: to be discussed in tax remedies)
certificates, stamps, etc. to proper officials  Exception: Compromise by Regional Evaluation
6. Issuance of receipts and clearances Boards under the following requisites:
7. Submission of annual report, pertinent information a. assessments are issued by the regional
to Congress and reports to the Congressional offices involving basic deficiency tax of
Oversight Committee in matters of taxation. P500,000.00, and
b. involves minor criminal violations as may be
POWERS OF THE COMMSSIONER OF INTERNAL determined by rules and regulations to be
REVENUE promulgated by the Secretary of Finance,
1. To interpret the provisions of the NIRC (subject to upon recommendation of the CIR,
review by the Secretary of Finance) discovered by regional and district officials
2. To decide tax cases (subject to the exclusive 4. The power to assign and reassign internal revenue
appellate jurisdiction of the Court of Tax Appeals) officers to establishment where articles subject to
3. To obtain information and to summon, examine and excise tax are produced or kept. Revenue officers
take testimony of persons to effect tax collection assigned to any such establishments shall in no case
4. To make assessment and prescribe additional stay in his assignment for more than 2years.
requirement for tax administration and
enforcement RULES IN ASSIGNMENTS OF REVENUE OFFICERS TO
5. To examine tax returns and determine tax due OTHER DUTIES
thereon; 1. Revenue officers assigned to an assignment where
6. To conduct inventory surveillance excisable articles are kept shall in no case stay there
7. To prescribe presumptive gross sales or receipts for more than 2 years.
8. To terminate tax period 2. Revenue officers assigned to perform assessment
9. To prescribe real estate values and collection function shall not remain in the same
- The CIR is authorized to divide the Philippines assignment for more than 3 years.
into zones or areas and determine the fair 3. Assignment of internal revenue officers and
market value of the real properties located in employee of the Bureau to special duties shall not
each zones or area. exceed 1 year.
10. To compromise a tax liabilities of taxpayers
11. To inquire into bank deposits under certain cases AGENTS AND DEPUTIES FOR COLLECTION OF
12. To accredit tax agents NATIONAL INTERNAL REVENUE TAXES
- Individuals or general professional partnerships 1. The Commissioner of Customs and his subordinates
who have been denied their accreditation may with respect to collection of national internal
appeal to the Secretary of Finance who shall act revenue taxes on imported goods.
on the appeal within 60 days from the receipt of 2. The head of appropriate government offices and his
such appeal. subordinates with respect to the collection of
- Failure by him to rule on the appeal within the energy tax.
prescribed period shall be deemed approval of 3. Banks duly accredited by the Commissioner with
the application for accreditation. respect to receipts of payments of internal revenue
13. To refund or credit internal revenue taxes taxes authorized to the made thru banks.
14. To abate or cancel tax liabilities in certain cases
15. To prescribe additional procedures or documentary OTHER AGENCIES TASKED WITH TAX COLLECTIONS OR
requirements TAX INCENTIVES RELATED FUNCTIONS
16. To delegate his powers to any subordinate officer 1. Bureau of Customs (BOC)
with rank equivalent to a division chief of an office
 - Tasked to administer collection of tariffs on a. Value Added Tax – At least P200,000 per
imported articles and collection of the VAT on quarter for the preceding year
importation. b. Excise Tax – At least P1,000,000 tax paid for the
- Under the supervision of the department of preceding year.
finance c. Income Tax – At least P1,000,000 annual
- Headed by the customs commissioners and is income tax paid for the preceding year
assisted by 5 deputy commissioners and 14 d. Withholding Tax – At least P1,000,000 annual
district collectors withholding tax payments or remittances from
2. Board of Investments (BOI) all types of withholding taxes
- Tasked to lead the promotion of investment in e. Percentage tax – At least P200,000 percentage
the Philippines by assisting Filipinos and foreign tax paid or payable per quarter for the
investors to venture and prosper in desirable preceding year
areas of economic activities f. Documentary stamp tax – At least P1,000,000
- Supervises the grant of tax incentives under the aggregate amount per year
omnibus investment code
- Attached agency of the department of trade 2. As to financial conditions and results of operations
and industry (DTI) a. Gross receipts or sales – P1,000,000,000 total
- Composed of 5 full-time governors, excluding annual gross sales or receipts
the DTI secretary as its chairman. b. Net worth – P300,000,000 total net worth at
- President of the Philippines shall appoint a vice the close of each calendar or fiscal year
chairman of the board who shall act as the BOIs c. Gross purchases – P800,000,000 total annual
managing head purchases for the preceding year
3. Philippine Economic Zone Authority (PEZA) d. Top corporate taxpayer listed and published by
- Created to promote investment in export- the Securities and Exchange Commission
oriented manufacturing industries in the
Philippines AUTOMATIC CLASSIFICATION OF TAXPAYERS AS LARGE
- PEZA registered enterprises enjoy tax holiday TAXPAYERS
for certain years, exemption from import and 1. All branches of taxpayers under the Large
export tax including local tax Taxpayer’s Service
- PEZA is an attached agency to DTI 2. Subsidiaries, affiliates, and entities of
4. Local Government Tax Collecting Units conglomerates or group of companies of a large
- Provinces, municipalities, cities and barangays taxpayer.
also imposed and collect various local taxes, 3. Surviving company in case of merger or
fees and charges to rationalize their fiscal consolidation of a large taxpayer.
autonomy. 4. A corporation that absorbs the operation or
5. Fiscal Incentive Review Board (FIRB) business in case of spin-off of any large taxpayer.
- Oversight function on the administration and 5. Corporation with an authorized capitalization of at
grant tax incentives by the investment least P300,000,000 registered with the SEC.
promotion agencies and other government 6. Multinational enterprises with an authorized
agencies administering tax incentives. capitalization or assigned capital of at least
P300,000,000
TAXPAYER CLASSIFICATION FOR PURPOSES OF TAX 7. Publicly listed corporations
ADMINISTRATION 8. Universal, commercial and foreign banks (the
1. Large taxpayers – under the supervision of the regular business unit and foreign currency deposit
Large Taxpayer Service (LTS of the BIR National unit shall be considered one taxpayer for purposes
Office. of classifying them as large taxpayer)
2. Non-Large taxpayers – under the supervision of 9. Corporate taxpayers with at least P100,000,000
the respective Revenue District Offices (RDOs) authorized capital in banking, insurance,
where the business, trade or profession of the telecommunication, utilities, petroleum, tobacco,
taxpayer is situated. and alcohol industries
10. Corporate taxpayers engaged in the production of
CRITERIA FOR LARGE TAXPAYERS: metallic minerals.
1. As to payment: