BAC 103: TAXATION 4.

Mixed tax – this tax manifest tax rates which is a

MODULE 2: Taxes, Tax Laws & Tax Administration combination of any of the above types of tax.
Types of taxation
1. Tax laws: These are laws that provide for the D. As to imposing authority
assessment and collection of taxes. 1. National tax – tax imposed by the national government
Examples: Examples:
a.The National Internal Revenue Code (NIRC) (RA8424) a. Income tax – tax on annual income, gains or profits
(amendment: RA10963) b. Estate tax – tax on gratuitous transfer of properties by
b.The Tariff and Customs Code the decedent upon death
c.The Local Tax Code c. Donor’s tax – tax on gratuitous transfer of properties by
d. The Real Property Tax Code a living donor
d. Value added tax – consumption tax collected by VAT
2. Tax exemption laws: These are laws that grant business taxpayers
immunity from taxation. e. Other percentage tax – consumption tax collected by
Examples: non-VAT taxpayers
a. The Minimum Wage Law f. Excise tax – tax on sin products and non-essential
b. The Omnibus Investment Code of 1987 (E.O. 226) commodities such as alcohol, cigarettes and metallic
c. Barangay Micro-Business Enterprise (BMBE) Law minerals. This should be differentiated with the privilege
d. Cooperative development Act (RA9520) tax which is also called excise tax.
g. Documentary stamp tax – a tax on documents,
Distinction among tax laws, revenue regulations, & rulings instruments, loan agreements and papers evidencing the
 Revenue regulations are issuances signed by the acceptance, assignment, sale or transfer of an obligation,
Secretary of Finance upon recommendation of the right or property incident thereto.
Commissioner of internal Revenue (CIR) that specify
prescribe, or define rules and regulations for the 2. Local tax – tax imposed by the municipal or local
effective enforcement of the provisions of the National government
Internal Revenue Code (NIRC) and related statutes. Examples:
 BIR Rulings are official positions of the Bureau to a. Real property tax
queries raised by taxpayers and other stakeholder’s b. Professional tax
relative to clarification and interpretation of tax laws. c. Business taxes, fees, and charges
d. Community tax
Tax, its elements, and classifications e. Tax on banks and other financial institutions
“Tax is an enforced proportional contribution levied by the
lawmaking body of the State to raise revenue for public Distinction of tax from similar items
purpose’’ Tax vs. Revenue
Elements of a Valid Tax  Tax refers to the amount imposed by the
1. Tax must be levied by the taxing power having government for public purpose.
jurisdiction over the object of taxation.  Revenue refers to all income collections of the
2. Tax must not violate constitutional and inherent government which includes taxes, tariff, licenses, toll,
limitations. penalties, and others. The amount imposed is tax but
3. Tax must be uniform and equitable. the amount collected is revenue.
4. Tax must be for public purpose.
5. Tax must be proportional in character. Tax vs. License fee
6. Tax is generally payable in money.  Tax has a broader subject than license. Tax emanates
from taxation power and is imposed upon any
Classification of Taxes subject such a persons, properties, or privileges to
A. As to purpose raise revenue.
1. Fiscal or revenue tax – a tax imposed for general  License fee emanates from police power and is
purpose. imposed to regulate exercise of a privilege such as
2. Regulatory – a tax imposed to regulate business, the commencement of a business or a profession.
conduct, acts or transactions ‘’Taxes are imposed after the commencement of a
3. Sumptuary – a tax levied to achieve some social or business or profession whereas license fee is imposed
economic objectives before engagement in those activities. In other words, tax
is a post-activity imposition whereas license is a pre-
B. As to subject matter activity imposition.”
1. Personal, poll or capitation – a tax on persons who are
residents of a particular territory Tax vs. Toll
2. Property tax – a tax on properties, real or personal  Tax is a levy of government; hence, it is a demand of
3. Excise or privilege tax – a tax imposed upon the sovereignty.
performance of an act, enjoyment of a privilege or  Toll is a charge for the use of other’s property; hence,
engagement in an occupation. it is a demand of ownership.
‘’The amount of tax depends upon the needs of the
C. As to rate government, but the amount of toll is dependent upon the
1. Proportional tax – this is a flat or fixed rate tax. The use value of the property leased. Both the government and
of proportional tax emphasizes equality as its subjects all private entities imposed toll, but private entities cannot
taxpayers with the same rate without regard to their impose taxes.’’
ability to pay.
2. Progressive or graduated tax – this is a tax which Tax vs. Debt
imposes increasing rates as the tax base increase. The use  Tax arises from law while debt arises from private
of progressive tax rates results in equitable taxation contracts. Non-payment of tax leads to imprisonment,
because it gets more tax to those who are more capable. but non-payment of debt does not lead to
It aids in lessening the gap between the rich and the poor. imprisonment.
3. Regressive tax – this tax imposes decreasing tax rates  Debt can be subject to set-off but tax is not. Debt can
as the tax base increase. This is a total reverse of be paid in kind (dacion en pago) but tax is generally
progressive tax. Regressive tax is regarded as anti-poor. It payable in money.
directly violates the Constitutional guarantee of ‘’Tax draws interest only when the taxpayer is delinquent.
progressive taxation. Debt draws interest when it is so stipulated by the
contracting parties or when the debtor incurs a legal reports the same through income tax returns and pays
delay.’’ the tax to the government. This system also referred as to
the “Self-assessment method.” A portion of the tax due
Tax vs. Special Assessment payable herein may have been withheld under the
 Tax is an amount imposed upon persons, properties, withholding system, such as:
or privileges.
 Special assessment is levied by the government on a. Withholding tax on compensation by compensation
land adjacent to a public improvement. It is imposed earners
on land only and is intended to compensate the b. Expanded withholding tax by taxpayer engaged in
government for a part of the cost of the business or exercise of profession
improvement. ‘’The taxes withheld are treated as tax credit (deduction)
‘’The basis of special assessment is the benefits in terms of against the tax due of the taxpayer in the income tax
the appreciation in land value caused by the public return. The taxpayer hall pay any balance still due after
improvement. On the other hand, tax is levied without such credit or claims refund or tax credit for excess tax
expectation of a direct proximate benefit.’’ withheld. ‘’
‘’Unlike taxes, special assessment attaches to the land. It
will not become a personal obligation of the land owner. 3. Assessment or enforcement system – Under this
Therefore, the non-payment of special assessment will no collection system, the government identifies non-
result to imprisonment of the owner (unlike in non- complaint taxpayers, assesses their tax dues and penalties,
payment of taxes).’’ and enforces collections by coercive means such as
summary proceeding or judicial proceeding when
Tax vs. Tariff necessary.
 Tax is broader than tariff. Tax is an amount imposed
upon persons, privilege, transaction, or properties. 4. Assessment or enforcement system – Under this
 Tariff is the amount imposed on imported or collection system, the government identifies non-
exported commodities. complaint taxpayers, assesses their tax dues and penalties,
and enforces collections by coercive means such as
Tax vs. Penalty summary proceeding or judicial proceeding when
 Tax is an amount imposed for the support of the necessary.
government.
 Penalty is an amount imposed to discourage an act. Principles of a sound tax system
Penalty may be imposed by both the government and According to Adam Smith, government should adhere to
private individuals. It may arise both from law or certain principles or canons to evolve a sound tax system:
contract whereas tax arises from law.
Fiscal adequacy requires that the sources of government
Tax system funds must be sufficient to over government costs. The
The tax system refers to the methods or schemes of government must not incur a deficit. A budget deficit
imposing, assessing and collecting taxes. It includes all the paralyzes the government’s ability to deliver the essential
tax law and regulations, the means of their enforcement, public services to the people. Hence, taxes should
and the government offices, bureaus and withholding increase in response to increase in government spending.
agents which a part of the machineries of the government
in tax collection. The Philippine tax system is divided into Theoretical justice or equity suggests that taxation should
two: the national tax system and the local tax system. consider the taxpayer’s ability to pay. It also suggests that
the exercise of taxation should not be oppressive, unjust,
Types of Tax Systems According to Imposition or confiscatory.
1. Progressive – employed in the taxation of income of
individuals, and transfers of properties of individuals. Administrative feasibility suggests that tax law should be
2. Proportional – employed in taxation of corporate capable of efficient and effective administration to
income or business encourage compliance. Government should make it easy
3. Regressive – not employed in the Philippines for the taxpayer to comply by avoiding administrative
bottlenecks and reducing complaints costs.
Tax collection systems
1. Withholding system – under this collection system, the The following are applications of the principle of
payor of the income withholds or deducts the tax on the administrative feasibility:
income before releasing the same to the payee and remits 1. E-filling and e-payments of tax
the same to the government. The following are the 2. Substituted filling system for employees
withholding taxes collected under this system: 3. Final withholding tax on non-resident aliens or
a. Withholding tax on compensation – a tax withheld by corporations
the employer from payments of compensation income to 4. Accreditation of authorized agent banks in the filling
employees and payments of taxes
b. Expanded withholding tax – a withholding tax 5. TRAIN LAW
prescribed on certain income payments and a creditable
against the income tax due of the payee for the taxable Tax administration
quarter on year in which the particular income was Tax administration refers to the management of the tax
earned. system. Tax administration of the national tax system in
c. Final withholding tax – a kind of withholding tax which the Philippines is entrusted to the Bureau of Internal
is prescribed on certain income payments and is not Revenue which is under the supervision and
charitable against any income tax due of the payee for the administration of Department of Finance
taxable year.
d. Withholding tax on government payments – the tax Powers of the bureau of internal revenue
withheld by the national government agencies and 1. Assessment and collection of taxes
instrumentalities including government-owned and 2. Enforcement of all forfeitures, penalties and fines, and
controlled corporations on their payments to taxpayers, judgment in all cases decided in its favor by the courts
suppliers, and payees. 3. Giving effect to, and administering the supervisory and
police powers conferred to it by the NICR and other laws
2. Voluntary compliance system – under this collection 4. Assignment of internal revenue officers and other
system, the taxpayers himself determines his income, employees to other duties
5. Provision and distribution of forms, receipts, 2. Net worth – P300, 000, 000 total bet worth at the close
certificates, stamps, etc. to proper official of each calendar or fiscal year
6. Issuance of receipts and clearances 3. Gross purchases – P800, 000, 000 total annual
7. Submission of annual report, pertinent information to purchases for the preceding year
Congress and reports to the Congressional Oversight 4. Top corporate taxpayer listed and published by the
Committee in matters of taxation Securities and Exchange Commission

Powers of the commisioner of internal revenue Learning activity 1: Create in 2 column table form 8
1. To interpret the provisions of the NICR, subject to categorical distinction of taxes with their similar items.
review by the Secretary of Finance
2. To decide tax cases, subject to the exclusive appellate Learning activity 2: Reflection on Learning
jurisdiction of the Court of Tax Appeals, such as: 1. What is train law?
a. Disputed assessments 2. What are the 3 important changes made in the train
b. Refunds on internal revenue taxes, fees, or other law relative to income taxation.
charges Reference: Philippine Train Law: Implementing RA 10963
c. Penalties imposed YouTube · Sprout HR Tech 28 Jan 2018.
d. Other NICR and special law matters administered by
the BIR
3. To obtain information and to summon, examine, and
take testimony of persons to effect tax collection

Non-delegating power of the CIR

The following powers of the Commissioner shall not be
delegated:
1. The power to recommend the promulgation of rules
and regulations to the Secretary of Finance
2. The power to issue ruling of first impression or to
reverse, to revoke or modify any existing rulings of the
Bureau.
3. The power to compromise or abate any tax liability

Exceptionally, 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

Composition of the Regional Evaluation Board

a. Regional Director as chairman
b. Assistant Regional Director
c. Head of the Legal, Assessment and Collection Division

4. The power to assign and reassign internal revenue

officers to establishments where articles subject to excise
tax are produced or kept.

Taxpayer classification for purposes of tax administration

For purposes of effective and efficient tax administration,
taxpayers are classified into large and non-large. Large
taxpayers are under the supervision of the Large Taxpayer
Service (LTS) of the BIR. Non-large taxpayers are under
the supervision of the respective Revenue District Offices
(RDOs) where the business, trade or profession of the
taxpayer is suitable.
The following are the criteria for determining large
taxpayers:

As to payment
1. Value Added Tax – At least P200, 000 per quarter for
the preceding year
2. Excise tax – At least P1, 000, 000 tax paid for the
preceding year
3. Income tax – At least P1, 000, 000 annual income tax
paid for preceding year
4. Withholding tax – At least P1, 000, 000 annual
withholding tax payments or remittances from all types of
withholding taxes
5. Percentage tax – At least P200, 000 percentage tax paid
or payable per quarter for the preceding year
6.Documentary stamp tax – At least P1, 000, 000
aggregate amount per year

As to financial conditions and results of operation

1. Gross receipts or sales – P1, 000, 000, 000 total annual
gross sales or receipts