TAXES, TAX LAWS AND TAX ADMINISTRATION

TAXATION LAW – refers to any law that arises from the exercise of the taxation power of the State.

Types of taxation laws

1. Tax laws – these are laws that provide for the assessment and collection of taxes.
Examples:
a. The National Internal Revenue Code (NIRC)
b. The Tariff and Customs Code
c. The Local tax Code
d. The Real Property Tax Code

2. Tax exemption laws – these are laws that grant immunity from taxation
a. The Minimum Wage Law
b. The Omnibus Investment Code of 1987 (E.O 226)
c. Barangay Micro-Business Enterprise (BMBE) Law
d. Cooperative Development Act

SOURCES OF TAXATION LAWS

1. Constitution
2. Statutes and Presidential decrees
3. Judicial decisions or case laws
4. Executive orders and Batas Pambansa
5. Administrative Issuances
Types of Administrative Issuances
a. Revenue Regulations
b. Revenue Memorandum Orders
c. Revenue Memorandum Rulings
d. Revenue Memorandum Circulars
e. Revenue Bulletins
f. BIR Rulings
6. Local Ordinances
7. Tax Treaties and conventions with foreign countries
8. Revenue Regulations

Revenue Regulations
 Issued by: Secretary of Finance
 Recommended by: Commissioner of Internal Revenue (CIR) that specify, prescribe, or define
rules and regulations for the effective enforcement of the provisions of the NIRC and related
statutes.
 These are formal pronouncements intended to clarify or explain the tax laws and carry into
effect its general provisions by providing details of administration and procedure.
 It has the force and effect of a law but is NOT intended to expand or limit the application of the
law; otherwise, it is void.

Revenue Memorandum Orders (RMOs)

 Issuances that provide:
o instructions
o prescribe guidelines
 o outline processes, operations, activities, workflows, methods and procedures necessary
in the implementation of stated policies, goals, objectives, plans, and programs of the
Bureau in all areas of operations EXCEPT auditing.

Revenue Memorandum Rulings (RMRs)

 Rulings, opinions and interpretations of the CIR with respect to the provisions of the Tax Code
and other tax laws as applied to a specific set of facts, with or without established precedents
and which the CIR may issue from time to time for the purpose of providing taxpayers
guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot
contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio.

Revenue Memorandum Circulars (RMCs)

 Issuances that publish pertinent and applicable portions as well as amplifications of laws,
rules, regulations and precedents issued by the BIR and other agencies/offices.

Revenue Bulletin (RB)

 Periodic issuances, notices and official announcements of the Commissioner of Internal
Revenue that consolidate the Bureau of Internal Revenue’s position on certain specific issues
of law or administration in relation to the provisions of the Tax Code, relevant tax laws and
other issuances for the guidance of the public.

BIR Rulings
 Official positions of the Bureau to queries raised by taxpayers and other stakeholders relative
to clarification and interpretation of laws.

Rulings are merely advisory or a sort of information service to the taxpayer such that none of them
is binding except to the addressee and may be reversed by the BIR at any time.

Types of rulings
a. Value Added Tax rulings
b. International Tax Affairs Division rulings
c. BIR rulings
d. Delegated Authority rulings

Generally Accepted Accounting Principles VS Tax Laws

 In the preparation and filing of tax returns, taxpayers are mandated to follow the tax law in
cases of conflict with GAAP.

NATURE OF PHILIPPINE TAX LAWS

 Civil and not political in nature
 Our internal revenue laws are not penal in nature because they do not define crime. Their
penalty provisions are merely intended to secure taxpayers’ compliance.

TAX – an enforced proportional contribution levied by the lawmaking body of the State to raise
revenue for public purpose.

Elements of a Valid Tax

1. Tax must be levied by the taxing power having jurisdiction over the object of taxation.
2. Tax must not violate constitutional and inherent limitations.
3. Tax must be uniform and equitable.
4. Tax must be for public purpose.
5. Tax must be proportional in character.
 6. Tax is generally payable in money.

Classification of Taxes
A. As to purpose
1. Fiscal or revenue tax – a tax imposed for general purpose
2. Regulatory – a tax imposed to regulate business, conduct, acts or transactions
3. Sumptuary - a tax levied to achieve some social or economic objectives

B. As to subject matter
1. Personal, poll or capitation – a tax on persons who are residents of a particular territory
2. Property tax - a tax on properties, real or personal
3. Excise or privilege tax – a tax imposed upon the performance of an act, enjoyment of a
privilege or engagement in an occupation.

C. As to who bears the burden

1. Direct tax – tax demanded from persons who are intended or bound by law to pay the
tax.
2. Indirect tax - which the taxpayer can shift to another.

D. As to determination of amount
1. Specific – tax imposed on a physical unit of measurement as by head or number,
weight, or length or volume
2. Ad valorem – tax of a fixed proportion of the value of property; needs an independent
appraiser to determine its value.

E. As to rate

1. Proportional tax – tax based on fixed percentage of the amount of property, income or
other basis to be taxed
2. Progressive or graduated tax – this is a tax which imposes increasing rates as the tax
base increase. The use of progressive tax rates results in equitable taxation because it
gets more tax to those who are more capable. It aids in lessening the gap between the
rich the poor.
3. Regressive tax – tax rate decreases as the tax base increases. It is regarded as anti-
poor. It directly violates the Constitutional guarantee of progressive taxation.
4. Mixed tax – combination of the above mentioned types of tax.

F. As to imposing authority
1. National tax – tax imposed by the national government
Examples:
a. Income tax – tax in annual income, gains or profits
b. Estate tax – tax on gratuitous transfer of properties by a decedent upon death
c. Donor’s tax – tax on gratuitous transfer of properties by a living donor
d. Value added tax – consumption tax collected by VAT business taxpayers
e. Other percentage tax – consumption tax collected by non-VAT business taxpayers
f. Excise tax – tax on sin products and non-essential commodities such as alcohol,
cigarettes and metallic minerals. This should be differentiated with the privilege tax
which is called excise tax.
g. Documentary stamp tax – a tax on documents, instruments, loan agreements and
papers evidencing the acceptance, assignment, sale or transfer of an obligation,
right or property incident thereto.
 2. Local tax – tax imposed by the municipal or local government
Examples:
a. Real property tax
b. Professional tax
c. Business taxes, fees and charges
d. Community tax
e. Tax on banks and other financial institution

DISTINCTION OF TAXES WITH SIMILAR ITEMS

TAX REVENUE
 Amount imposed by the government for  All income collections of the government
public purposes. which includes taxes, tariff, licenses, toll,
 Amount imposed. penalties and others.
 Amount collected.

TAX LICENSE FEE

 Arises from taxation power and is imposed  Arises from police power.
upon any object such as persons,  Imposed to regulate the exercise of a
properties or privileges to raise revenue. privilege such as commencement of a
 Imposed after the commencement of a business or a profession.
business or profession (post-activity  Imposed before the commencement of a
imposition). business or profession (pre-activity
imposition).

TAX TOLL
 Levy of a government, hence demand of  A charge for the use of other’s property
sovereignty. hence a demand of ownership.
 As to amounts, it depends upon the needs  As to amount, it depends upon the value of
of the government. the property leased.
 As to who can impose, only the  As to who can impose, both the
government. government and private entities.

TAX DEBT
 Arises from law.  Arises from private contracts.
 Non-payment of it leads to imprisonment.  Non-payment of it does not lead to
 Cannot be set-off. imprisonment.
 Generally payable in money.  Can be subject to set-off.
 It draws interest only when the taxpayer is  Can be paid in kind.
delinquent.  It draws interest when it is so stipulated by
the contracting parties or when the debtor
incurs legal delay.

TAX SPECIAL ASSESSMENT

 Amount imposed upon persons, properties  Levied by the government on lands
or privileges. adjacent to a public improvement.
 It is levied without expectation of a direct  Imposed on land and is intended to
proximate benefit. compensate the government for a part of
the cost improvement
 Basis: The benefit in terms of the
appreciation in land value caused by the
public improvement.
  It attaches to the land. It will not become a
personal obligation of the land owner.
Therefore non-payment of it will not result
to imprisonment of the owner.

TAX TARIFF
 Broader than tariff  Amount imposed on imported or exported
 Amount imposed upon persons, properties commodities
or privileges.

TAX PENALTY
 Amount imposed for the support of the  Amount imposed to discourage an act.
government.  It may impose by both the government and
 Only imposed by the government. private individuals.
 It only arises from law.  Arises from law or contract.

TAX SYSTEM
This refers to the methods or schemes of imposing, assessing, and collecting taxes. It includes all
the tax laws and regulations, the means of their enforcement, and the government offices, bureaus
and withholding agents which are part of the machineries of the government in tax collection.

The Philippine tax system is divided into two:

1. The national tax system
2. The local tax system

Types of Tax Systems according to impositions

1. Progressive – employed in the taxation of income of individuals.
2. Proportional – employed in taxation of corporate income, business and transfers of
properties by individuals.
3. Regressive – not employed in the Philippines

Types of Tax System According to Impact

1. Progressive system
It emphasizes direct taxes. A direct tax cannot be shifted. Hence, it encourages economic
efficiency as it leaves no other resort to taxpayers than to be efficient. This type of tax
system impacts more upon the rich.

2. Regressive system
This emphasizes indirect taxes. Indirect taxes are shifted by businesses to customers;
hence, the impact of taxation rests upon the bottom end of the society. In effect, a
regressive tax system is anti-poor.

It is widely believed that despite the constitutional guarantee of a progressive taxation, the
Philippines have dominantly regressive tax system due to the prevalence of business
taxes.

TAX COLLECTION SYSTEMS

A. Withholding system on income tax – the payor of the income withholds or deducts the tax
on the income before releasing the same to the payee and remits the same to the government.
The following are the withholding taxes collected under this system:
 1. Creditable withholding tax
a. Withholding tax on compensation – an estimated tax required by the government to
be withheld (i.e. deducted) by employers against the compensation income to their
employees.
b. Expanded withholding tax – an estimated tax required by the government to be
deducted on certain income payments made by taxpayers engaged in business.

The creditable withholding tax is intended to support the self-assessment method to

lessen the burden of lump sum tax payment of taxpayer and also provides for a possible
third-party check for the BIR of non-compliant taxpayer.

2. Final withholding tax – a system of tax collection wherein payors are required to deduct
the full tax on certain income payment

Similarities of final tax and creditable withholding tax

a. In both cases, the income payor withholds a fraction of the income and remits the
same to the government.
b. By collecting at the moment cash is available, both serve to minimize cash flow
problems to the taxpayer and collection problems to the government.

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 for the
balance
Necessity of income tax Not required Required
return for taxpayer

B. Withholding system on business tax – when the national government agencies and
instrumentalities including government-owned and controlled corporations (GOCCs) purchase
goods or services from private suppliers, the law requires withholding of the relevant business
tax (i.e VAT or percentage tax).

C. Voluntary compliance system – the taxpayer himself determines his income, reports the
same through income tax returns and pays the tax to the government. This system is also
referred to as the “Self-assessment method.”

D. Assessment or enforcement system – the government identifies non-compliant taxpayers,

assess their tax dues including penalties, demands for taxpayer’s voluntary compliance or
enforces collections by coercive means such as summary proceeding or judicial proceedings
when necessary.

TAX ADMINISTRATION
It refers to the management of the tax system. Tax administration of the national tax system in the
Philippines is entrusted to the Bureau of Internal revenue (BIR) which is under the supervision and
administration of the Department of Finance.

Chief officials of the BIR

 1. 1 Commissioner
2. 4 Deputy Commissioners, each to be designated to the following:
a. Operations group
b. Legal enforcement group
c. Information systems group
d. Resource Management group

POWERS OF THE BUREAU OF INTERNAL REVENUE

1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties and fines, and adjustment in all cases decided in its
favor by the courts.
3. Giving effect to, and administering the supervisory and police powers conferred to it by the
NIRC and other laws.
4. Assignment of internal revenue officers and other employees to other duties
5. Provision and distribution of forms, receipts, certificates, stamps, etc. to proper officials.
6. Issuance of receipts and clearances
7. Submission of annual report, pertinent information to Congress and reports to the
Congressional Oversight Committee in matters of taxation

POWERS OF THE COMMISSIONER OF INTERNAL REVENUE

1. To interpret the provisions of the NIRC, subject to review by the Secretary of Finance.
2. To decide tax cases, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals,
such as :
a. Disputed assessments
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 effect tax
collection

Purpose: For the CIR to ascertain:

a. The correctness of any tax return or in making a return when none has been made by
the taxpayer
b. The tax liability of any person for any internal revenue tax or in correcting any such
liability
c. Tax compliance of the taxpayer

Authorized acts:
a. To examine any book, paper, record or other data relevant to such inquiry
b. To obtain on a regular basis any information from any person other than the person
whose internal revenue tax liability is subject to audit
c. To summon the person liable for tax or required to file a return, his employees, or any
person having possession and custody of his books of accounts and accounting records
to produce such books, papers, records or other data and to give testimony
d. To take testimony of the person concerned, under oath, as may be relevant or material
to the inquiry
e. To cause revenue officers and employees to make canvass of any revenue district
4. To make assessment and prescribe additional requirement for tax administration and
enforcement
5. To examine tax returns and determine tax due thereon
 The CIR or his duly authorized representatives may authorize the examination of any taxpayer
and the assessment of the correct amount of tax. Failure to file a return shall not prevent the
CIR from authorizing the examination.

Tax deficiency assessments are due upon notice and demand by the CIR or his
representatives.

Returns, statements or declarations shall not be withdrawn but may be modified, changed and
amended by the taxpayer within 3 years from the date of filing, except when a notice for audit
or investigation has been actually served upon the taxpayer.

When a return shall not be forthcoming within the prescribed deadline or when there is a
reason to believe that the return is false, incomplete or erroneous, the CIR shall assess the
proper tax on the basis of best evidence available.

In case a person fails to file a required return or other documents at the time prescribed by law
or willfully files a false or fraudulent return or other documents, the CIR shall make or amend
the return from his own knowledge and from such information obtained from testimony. The
return shall be presumed prima facie correct and sufficient for all legal purposes.
6. To conduct inventory taking or surveillance
7. To prescribe presumptive gross sales and receipts for a taxpayer when:
a. The taxpayer failed to issue receipts; or
b. The CIR believes that the books or other records of the taxpayer do not correctly reflect
the declaration in the return.
The presumptive gross sales or receipt shall be derived from the performance of similar
business under similar circumstances adjusted for other relevant information.
8. To terminate tax period when the taxpayer is:
a. Retiring from business
b. Intending to leave the Philippines
c. Intending to remove, hide or conceal his property
d. Intending to perform any act tending to obstruct the proceedings for the collection of the
tax or render the same ineffective.
The termination of the taxable period shall be communicated through a notice to the
taxpayer together with a request for immediate payment. Taxes shall be due and payable
immediately.
9. To prescribe real property values
The CIR is authorized to divide the Philippines into zones and prescribe real property values
after consultation with competent appraisers. The values prescribed are referred to as zonal
value.

For purposes of internal revenue taxes, fair value of real property shall mean whichever is
higher of:
a. Zonal Value prescribed by the CIR
b. Fair market value as shown in the schedule of market values of the Provincial and City
Assessor’s Office
10. To compromise tax liabilities of taxpayers
11. To inquire into bank deposits, only under the following instances:
a. Determination of the gross estate of a decedent
b. To substantiate the taxpayer’s claim of financial incapacity to pay tax in an application
for tax compromise
In cases of financial incapacity, inquiry can proceed only if the taxpayer waives his privilege
under the Bank Deposit Secrecy Act.
 12. To accredit and register tax agents
The denial by the CIR of application for accreditation is appealable to the Department of
Finance. The failure of the Secretary of Finance to act on the appeal within 60 days is deemed
approved.
13. To refund or credit internal revenue taxes
14. To abate or cancel tax liabilities in certain areas
15. To prescribe additional procedures or documentary requirements
16. To delegate his powers to any subordinate officer with a rank equivalent to a division chief of
an office

Non-delegated power of the CIR

1. The power to recommend the promulgation of rules and regulations to the Secretary of
Finance.
2. The power to issue rulings of first impression or to reverse, revoke or modify any existing
rulings of the Bureau.
3. The power to compromise or abate any tax liability.

Except:
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 – chairman
b. Assistant Regional director
c. Heads of the Legal, Assessment and Collection Division
d. Revenue District Officer having jurisdiction over the taxpayer.
4. The power to assign and reassign internal revenue officers to establishments where articles
subject to excise taxes are produce or kept.

Rules in assignments of revenue officers to other duties

1. Revenue officers assigned to an establishment where excisable articles are kept shall in no
case stay there for 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. Assignment of internal revenue officers and employees of the Bureau to special duties shall
not exceed 1 year.

Agents and Deputies for Collection of National Internal Revenue taxes

1. The Commissioner of Customs and his subordinates with respect to collection of national
internal revenue taxes on imported goods.
2. The head of appropriate government offices and his subordinates with respect to the collection
of energy tax.
3. Banks duly accredited by the Commissioner with respect to receipts payments of internal
revenue taxes authorized to be made thru banks. These are referred to as authorized
government depositary banks. (AGDB)

Other agents tasked with tax collections or tax incentives related functions
1. Bureau of Customs
 Function: To administer collection of tariffs on imported articles and collection of the Value
Added Tax on importation. Together with the BIR, the BOC is under the supervision of the
Department of Finance.

Headed by: Customs Commissioner

Assisted by:
a. 5 deputy Commissioner
b. 14 district Collectors

2. Board of Investments

Function:
o To lead the promotion of investments in the Philippines by assisting Filipinos and
foreign investors to venture and prosper in desirable areas of economic activities.
o It supervises the grant of tax incentives under the Omnibus Investment Code.
o It is an attached agency of the Department of Trade and Industry.

Composition
o 5 full-time governors, excluding DTI Secretary as its chairman. The President of the
Philippines shall appoint a vice chairman of the board who shall act as the BOI’s
managing head.

3. Philippine Economic Zone Authority

Function:
o To promote investments in export-oriented manufacturing industries in the Philippines
and, among other myriads of functions, supervise the grant of both fiscal and non-fiscal
incentives.
o PEZA registered enterprises enjoy tax holidays for certain years, exemption from import
and export taxes including local taxes.
o It is also an attached agency of the DTI
o Composition:
a. Headed by a director general
b. Assisted by 3 deputy directors

4. Local Government Tax Collecting Unit

Taxpayer classification for purposes of Tax Administration

1. Large taxpayers – 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 (RDOs)
where business, trade or profession of the taxpayer is situated.

Criteria for 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 quarter
3. Income tax At least P1,000,000 annual income tax paid for the preceding
year.
4. Withholding tax At least P1,000,000 annual withholding tax payments or
 remittances from all types of withholding taxes.
5. General 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 Results of operations

1. Gross receipts or sales P1,000,000,000 total annual gross sales or receipts
2. Net worth P300,000,000 total net worth at the close of each calendar or
fiscal year
3. Gross purchases P800,000,000 total annual purchases for the preceding year
4. Top corporate taxpayer listed and published by SEC

Automatic classification of taxpayers as large taxpayers

1. All branches of taxpayers 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 corporation that absorbs the operation or business in case of spin-off of any large taxpayer
5. Corporation with an authorized capitalization of at least P300,000,000 registered with SEC.
6. Multinational enterprises with an authorized capitalization or assigned capital of at least
P300,000,000
7. Publicly listed corporation
8. Universal, commercial and foreign banks (the regular business unit and foreign currency
deposit unit shall be considered one taxpayer for purposes of classifying them as large
taxpayer).
9. Corporate taxpayers with at least P100,000,000 authorized capital in banking, insurance,
telecommunication, utilities, petroleum, tobacco and alcohol industries
10. Corporate taxpayers engaged in the production of metallic minerals

Reference:
Income Taxation 2019 edition (TRAIN LAW) by Rex B. Banggawan, CPA, MBA