Republic of the Philippines

President Ramon Magsaysay State University

College of Accountancy and Business Administration
(Formerly Ramon Magsaysay Technological University)
Iba, Zambales, Philippines
Tel/Fax No.: (047) 811-1683

College/Department College of Accountancy and Business Administration

Course Code BA Core 1

Course Title Income Taxation

Place of the Course in the Program Major Subject

Semester & Academic Year First Semester AY 2020-2021

CHAPTER 1-INTRODUCTION TO TAXATION

Introduction
Income Taxation deals with the laws, principles and applications of income taxation in the Philippines with
emphasis on the changes under the TRAIN Law. It aims to provide understanding and mastery of income taxation by
teaching taxation as a whole body of interconnected concepts. It also discusses the accounting and legal
implications of taxation.

Intended Learning Outcomes

1. Define terms related to Philippine tax system and income taxation;

2. Determine the taxable income and exempt income under each taxation scheme;
3. Compute taxes in accordance with the National Internal Revenue Code (NIRC) and other relevant tax
laws; and
4. Understand taxation as a necessity for the government.

Discussion

WHAT IS TAXATION?
Taxation may be defined as a State power, a legislative process, and a mode of government cost distribution.
1. As a state power
Taxation is an inherent power of the State to enforce proportional contribution from its subjects for public
purpose.
2. As a process
Taxation is a process of levying taxes by the legislature of the State to enforce proportional contributions
from its subjects for public purpose.
3. As a mode of cost distribution
Taxation is a mode by which the State allocates its costs or burden to its subjects who are benefited by its
spending.

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 The Theory of Taxation
Every government provides a vast array of public services including defense, public order and safety,
health, education, and social protection among others.
The government’s necessity for funding is the theory of taxation.
The Basis of Taxation
The government provides benefits to the people in the form of public services, and the people provide the
funds that finance the government. This mutuality of support between the people and the government is
referred to as the basis of taxation.

Receipts of benefits is conclusively presumed

Every citizen and resident of the State directly or indirectly benefit from the public services rendered by the
government. These benefits can be in the form of daily free usage of public infrastructures, access to public
health or educational services, the protection and security of person and property, or simply the comfort of
living in a civilized and peaceful society which is maintained by the government.
While most public services are received indirectly, their realization by every citizen and resident is
undeniable. In taxation, the receipt of these benefits by the people is conclusively presumed. Thus,
taxpayers cannot avoid payment of taxes under the defense of absence of benefit received. The direct
receipt or actual availment of government services is not a precondition to taxation.

THEORIES OF COST ALLOCATION

Taxation is a mode of allocation government costs or burden to the people. In distributing the cost or
burden, the government regards the following general considerations in the exercise of its taxation power:
1. Benefit received theory
2. Ability to pay theory
Benefit to received theory
The benefit received theory presupposes that the more benefit one receives from the government, the more
taxes he should pay.
Ability to pay theory
The ability to pay theory presupposes that taxation should also consider the taxpayer’s ability to pay.
Taxpayers should be required to contribute based on their relative capacity to sacrifice for the support of
the government.
In short, those who have more should be taxed more even if they benefit less from the government. Those
who have less shall contribute less even if they received more benefits from the government.
Aspects of the ability to Pay Theory
1. Vertical equity
Vertical equity proposes that the extent of one’s ability to pay is directly proportional to the level of his tax
base.
For example, A has P200, 000 income while B has P400, 000. In taxing income, the government should tax
B more than A because B has greater income; hence, a greater capacity to contribute.
2. Horizontal equity
Horizontal equity requires consideration of the particular circumstances of the taxpayer.

Vertical equity is a gross concept while horizontal equity is a net concept.

The Lifeblood Doctrine

Taxes are essential and indispensable to the continued subsistence of the government. Without taxes, the
government would be paralyzed or lack of motive power to activate or operate it. (CIR vs. Algue)

Implication of the lifeblood doctrine in taxation:

1. Tax is imposed even in the absence of a Constitutional grant.

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2. Claims for tax exemption are construed against taxpayers.
3. The government reserves the right to choose the objects of taxation.
4. The courts are not allowed to interfere with the collection of taxes.
5. In income taxation:
a. Income received in advance is taxable upon the receipt.
b. Deduction for capital expenditures and prepayments is not allowed as it effectively defers the collection of
income tax.
c. A lower amount of deduction is preferred when a claimable expense is subject to limit.
d. A higher tax base is preferred when the tax object has multiple tax bases.

The Inherent Powers of the State

1. Taxation power is the power of the State to enforce proportional contribution from its subjects to sustain itself.

2. Police power is the general power of the State to enact laws to protect the well-being of the people.

3. Eminent domain is the power of the State to take private property for public use after paying just
compensation.
Comparison of the three powers of the State
Point of Taxation Police Power Eminent
Difference Domain

Exercising Government Government Government and private

Authority utilities
Purpose For the support of the To protect the general For public use
government welfare of the people
Persons Community or class of Community or class of Owner of the property
Affected individuals individuals
Amounts of Unlimited Limited (Imposition is No amount
Imposition (Tax is based on limited to cover cost imposed
government needs.) regulation.) (The government pays
just compensation.)
Importance Most important Most superior Important
Relationship Inferior to the “Non- Superior to the Superior to the
With the Constitution impairment Clause” of Non-impairment Clause” Non-impairment Clause”
the Constitution of the Constitution of the Constitution
Limitation Constitutional and Public interest and due Public purpose and just
inherent limitations process compensation

Similarities of the three powers of the State

1. They are all necessary attributes of sovereignty.
2. They are all inherent to the State.
3. They are all legislative in nature.
4. They are all ways in which the State interferes with the private rights and properties.
5. They all exist independently of the Constitution and are exercisable by the government even without
Constitutional grant. However, the Constitution may impose conditions or limits for their exercise.
6. They are all presuppose an equivalent form of compensation received by the persons affected by the exercise of
the power.
7. The exercise of these powers by the local government units may be limited by the national legislature.

SCOPE OF TAXATION

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The scope of taxation is widely regarded as comprehensive, plenary, unlimited and supreme.
However, despite the seemingly unlimited nature of taxation, it is not absolutely unlimited. Taxation has its own
inherent limitations and limitations imposed by the Constitution.

THE LIMITATIONSOF THE TAXATION POWER

A. Inherent limitations
1. Territoriality of taxation
2. International comity
3. Public purpose
4. Exemption of the government (Philippine Charity Sweepstakes Office (PCSO) is already taxable beginning
January 1, 2018 under R.A. 10963 TRAIN Law)
5. Non-delegation of the taxing power

B. Constitutional Limitations
1. Due process of law
2. Equal protection of the law
3. Uniformity rule in taxation
4. Progressive system of taxation
5. Non-imprisonment for non-payment of debt or poll tax
6. Non-impairment of obligation and contract
7. Free worship rule
8. Exemption of religious or charitable entities, non-profit cemeteries, churches and mosque from property
taxes
9. Non-appropriation of public funds or property for the benefit of any church, sect or system of religion
10. Exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions
11. Concurrence of a majority of all members of Congress for the passage of a law granting tax exemption
12. Non-diversification of tax collections
13. Non-delegation of the power of taxation
14. Non-impairment of the jurisdiction of the Supreme Court to review tax cases
15. The requirement that appropriations, revenue or tariff bills shall originate exclusively in the House of
Representatives
16. The delegation of taxing power to local government units

Basic Principles of a sound tax system

A. Fiscal adequacy
The sources of revenues, as a whole, should provide enough funds to meet the expanding expenditures of
the government.
B. Theoretical justice
Taxes must be based on the taxpayers’ ability to pay.
C. Administrative feasibility
The tax must be clear to the taxpayer, not unduly burdensome and discouraging to business, convenient as
to time and manner of payment, and capable of enforcement by competent public officials.

TAX EVASION VS. TAX AVOIDANCE

1. Tax evasion, also known as tax dodging, refers to any act or trick that tends to illegally reduce or avoid
payment of tax. In income taxation, this can be perpetrated by undue understatement of income,
overstatement of expense or non-declaration of income.

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 2. Tax avoidance, also known as tax minimization, refers to any act or trick that reduces or totally escapes
taxes by any legally permissible means. This may be done by selecting tax options allowed by the law
which minimizes tax liability or by careful tax planning to reduce tax exposure.

Situs of Taxation

Situs is the place of taxation. It is the tax jurisdiction that has the power to levy taxes upon tax object. Situs
rules serve as frames of reference in gauging whether the tax object is within or outside the tax jurisdiction
of the taxing authority.
Examples of Situs Rules
1. Business tax situs: Businesses are subject to tax in the place where the business is conducted.
Illustration
A taxpayer is involved in a car dealership abroad and restaurant operation in the Philippines.
The restaurant business will be subject to business tax in the Philippines since the business is
conducted herein, but the car dealing business is exempt because the business is conducted
abroad.
2. Income tax situs on services: Services fees are subject to tax where they are rendered.
Illustration
A foreign corporation leases a residential space to a non-resident Filipino citizen abroad.
The rent income will be exempt from Philippine taxation as the lasing service is rendered abroad.
3. Income tax situs on sales of goods: the gain on sale is subject to tax in the place of sale.
Illustration
While in China, a non-resident OFW citizen agreed with a Chinese friend to sell his diamond
necklace to the latter. They stipulated that the delivery of the item and the payment will be made
a week later in the Philippines. The sale was consummated as agreed.

The contract of sale is consensual as is perfected by the meeting of the minds of the contracting parties the
perfection of the contract of sale is in China. The situs of taxation is China. The gain on the sale of the
necklace will be taxable abroad and exempt in the Philippines.

1. Property tax situs: Properties are taxable in their location.

Illustration
An overseas Filipino worker has a residential lot in the Philippines.
He will still pay real property tax despite his absence in the Philippines because of is property is located
herein.
2. Personal tax situs: Persons are taxable in their place of residence.
Illustration
Ahmed Lifti is a Sudanese studying medicine in the Philippines.
Ahmed will pay personal tax in the Philippines even he is an alien because he is residing in the Philippines.

DOUBLE TAXATION
Double taxation occurs when the same taxpayer is taxed twice by the same tax jurisdiction for the same
thing.
Elements of double taxation
1. Primary elements: Same object
2. Secondary elements:
a. Same type of tax
b. Same purpose of tax
c. Same taxing jurisdiction
d. Same tax period

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 Types of Double Taxation
1.Direct double taxation
This occurs when all the element of double taxation exists for both impositions.
Examples:
a. An income tax of 10% on monthly sales and a 2% income tax on the annual sales (total of
monthly sales)
b. A 5 % tax on bank reserve deficiency and another 1% penalty per day as a consequences
of such reserve deficiency
2.Indirect double taxation
This occurs when at least one of the secondary elements of double taxation is not common for both
impositions.
Examples:
a.The national government levies business tax on the sales or gross receipts of business while the local
government levies business tax upon the same sales or receipts.
b.The national government collects income tax from a taxpayer of his income while the local government
to collects community tax upon the same income
c.The Philippine government taxes foreign incomes of domestic corporations and resident citizens while a
foreign government also taxes the same income (international double taxation).
Nothing in our law expressly prohibits double taxation. In fact, indirect double taxation is prevalent in
practice. However, direct double taxation is discouraged because it is oppressive and burdensome to
taxpayers. It is also believed to counter the rule of equal protection and uniformity in the Constitution.
How can double taxation be minimized?
The impact of double taxation can be minimized by any one or a combination of the following:
a. Provision of tax exemption
b. Allowing foreign tax credit (deduction for taxes paid abroad)
c. Allowing reciprocal tax treatment between the home country and a foreign country
d. Entering intro treaties or bilateral agreements

TAXATION LAW
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) as amended by Tax Reform for Acceleration and Inclusion
(TRAIN) Law (R.A. 10963)
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.
Examples:
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

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 4. Executive Orders
5. Administrative Issuance
6. Local Tax Ordinances
7. Tax Treaties and convention with foreign countries

Types of Administrative Issuances

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 Internal Revenue (CIR) that specify, prescribe, or define rules and regulations for the
effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes.
Revenue regulations are formal pronouncements intended to clarify or explain the tax law and carry into
effect its general provisions by providing details of administration and procedure. Revenue regulation 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) are issuances that provide directives or instructions: prescribe
guidelines; and outline processes, operations, activities, workflows methods, and procedures necessary in
the implementation of stated policies, goals, objectives, plans, and other programs of the Bureau in all areas
of operations except auditing.
Revenue Memorandum Rulings (RMRs) are rulings, opinion 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 contravene duly
issued RMRs; otherwise, the rulings are null and void ab initio.
Revenue Memorandum Circulars (RMCs) are issuances that publish pertinent and applicable portions as
well amplifications of laws, rules, regulations, and precedents issued by the BIR and other agencies/offices.
Revenue Bulletins (RB) refer to 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 are official positions of the Bureau to queries raised by taxpayers and other stakeholders
relative to clarification and interpretation of at laws.
Rulings are merely advisory or a sort of information service to the taxpayer such that none of the blinding
except to the addressee and may be reversed by the BIR at any time.

Types of Rulings
1. Value Added tax (VAT) rulings
2. International Tax Affairs Division (ITAD) rulings
3. BIR rulings
4. Delegated Authority (DA) rulings
Generally accepted accounting principles (GAAP) vs. Tax Laws
Generally accepted accounting principles or GAAP are not laws, but are mere conventions of financial
reporting. They are benchmarks for the fair and relevant valuation and recognition of income, expenses,
assets, liabilities, and equity of a reporting entity for general purpose financial reporting. GAAP accounting
reports are intended to meet the common needs of a vast number of users in the general public.

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 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.
Taxpayers normally follow GAAP in recording transactions in their books. However, 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
Philippine tax laws are 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
Tax is an enforced proportional contribution levied by the law making 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 incidence
1. Direct tax – When both the impact and incidence of taxation rest upon the same taxpayer, the tax is said
to be direct. The tax is collected from the person who is intended to pay the same. The statutory taxpayer is
the economic taxpayer.

2. Indirect tax – When the tax is paid by any person other than the one who is intended to pay the same, the
tax said to be indirect. This occurs in the case of business taxes where the statutory tax payer is not the
economic taxpayer.

The statutory taxpayer is the person named by law to pay the tax. An economic taxpayer is the one who
actually pays the tax.
D. As to amount
1. Specific tax - a tax of a fixed amount imposed on a per unit basis such as per kilo, liter or meter, etc.
2. Ad valorem – a tax of a fixed proportion imposed upon the value of the tax object.
E. As to rate
1. Proportional tax - This is a flat or fixed rate tax. The use of proportional tax emphasizes equality as it
subjects all taxpayers with the same rate without regard to their ability to pay.
2. Progressive or graduated tax - Tax 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 and the poor.

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3. Regressive tax - This tax imposes decreasing tax rates as the tax base increase this is the total reverse of
progressive tax. Regressive tax is regarded as anti-poor. It directly violates the Constitutional guarantee of
progressive taxation.
4. Mixed tax - This tax manifest tax rates which is a combination of any the above types of tax.
F. As to imposing authority
1. National tax - tax imposed by the national government
Examples:
a. Income tax - tax on 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 pay products and non-essential commodities such as alcohol, cigarettes and
metallic minerals. This should be differentiated with the privilege tax which is also 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 institutions
DISTINCTION OF TAXES WITH SIMILAR ITEMS
Tax vs. Revenue
Tax refers to the amount imposed by the government for public purpose. Revenue refers to all income
collections of the government which includes taxes, tariff, licenses, toll, penalties and others. The amount
imposed is tax but the amount collected is revenue.
Tax vs. License fee
Tax has a broader subject than license. Tax emanates from taxation power and it’s imposed upon any object
such as persons, properties, or privileges to raise revenue.
License fee emanates from police power and is imposed to regulate the exercise of a privilege such as the
commencement of a business or a profession.
Taxes are imposed after the commencement of a business or profession whereas license fee is imposed
before engagement to those activities. In other word, tax is post-activity imposition whereas license is a
pre-activity imposition.

Tax vs. Toll

Tax is levy of government: hence, it is a demand of sovereignty. Toll is a charge for the use of other’s
property; hence, it is a demand of ownership.
The amount of tax depends upon the needs of the government, but the amount of toll is dependent upon the
value of the property leased.
Both the government and private entities impose toll, but private entities cannot impose taxes.
Tax vs. Debt
Tax arises from law while debt arises from private contracts. Non-payment of tax leads to imprisonment,
but non-payment of debt does not lead to imprisonment. Debt can be subject to set-off but tax is not. Debt
can be paid in kind (dacion en pago) but tax is generally payable in money.
Tax draws interest only when the taxpayer is delinquent. Debt draws interest when it is so stipulated by the
contracting parties or when the debtor incurs a legal delay.

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 Tax vs. Special Assessment
Tax is an amount imposed upon persons, properties, or privileges. Special assessment is levied by the
government on lands adjacent to a public improvement. It is imposed on lands adjacent to a public
improvement. It is imposed on land only and is intended to compensate the government for a part of the
cost of the improvement.
The basis of special assessment is the benefit in terms of the appreciation in land value caused by the public
improvement. On the other hand, tax is levied without expectation of a direct proximate benefit.
Unlike taxes, special assessment attaches to the land. It will not become a personal obligation of the land
owner. Therefore, the non0payment of special assessment will result to imprisonment of the owner (unlike
in non-payment of taxes).
Tax vs. Tariff
Tax is broader than tariff. Tax is an amount imposed upon persons, privilege, transactions, or properties.
Tariff is the amount imposed on imported or exported commodities.
Tax vs. Penalty
Tax is an amount imposed for the support of the government. Penalty is an amount imposed to discourage
an act. Penalty is an amount imposed to discourage an act. Penalty may be imposed by both the government
and private individuals. It may arise both from law or contract whereas tax arises from law.

TAX SYSTEM
The tax system refers to the methods or schemes of imposing, assessing, and collecting taxes. It includes all
the tax laws regulations, this 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: the national tax system and the local tax system.
Types of Tax Systems According to Imposition
1. Progressive – employed in the taxation of income of individuals, and transfers of properties by the
individuals
2. Proportional – employed in taxation of corporate income and business
3. Regressive – not employed in the Philippines
Types of Tax System According to Impact
1. Progressive system
A progressive tax system is one that 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 types of
tax system impacts more upon the rich.

2. Regressive system
A regressive tax system is one that emphasizes indirect taxes. Indirect taxes are shifted by businesses to
consumers; 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 has
a dominantly regressive tax system due to the prevalence of business taxes.
TAX COLLECTION SYSTEMS
1. Withholding system – under this collection system, 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:
a. Withholding tax on compensation – a tax withheld by the employer from payments of compensation
income to employees
b. Expanded withholding tax - a withholding tax prescribed on certain income payments and is creditable
against the income tax due of the payee for taxable quarter or year in which the particular income tax due
of the payee for the taxable year.

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c. Final withholding tax - a kind of withholding tax which is prescribed on certain income payments and it
not creditable against any income tax due of the payee for taxable year
d. Withholding tax on government payments – the tax withheld by the national government agencies and
instrumentalities including government-owned and controlled corporations on their payments to taxpayers,
suppliers, or payees.
2. Voluntary compliance system – Under this collection 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”. A portion the tax due payable herein may have been withheld
under the withholding system, such as:
a. Withholding tax on compensation earners
b. Expanded withholding tax by taxpayer engaged in business or exercise of profession
The taxes withheld are treated as tax credit (deduction) against the tax due of the taxpayer in the income tax
return. The taxpayer shall pay any balance still due after such credit or claim refund or tax credit for excess
tax withheld.
3. Assessment or enforcement system – Under this collection system, the government identifies non-
compliant taxpayers, assesses their tax dues and penalties, and enforces collections by coercive means such
as summary proceeding or judicial proceedings when necessary.

TAX ADMINISTRATION
Tax Administration 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 which is under the supervision and
administration of the Department of Finance.
Chief Officials of the Bureau of Internal Revenue
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 taxes
2. Enforcement of all forfeitures, penalties and fines, and judgments 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 or other duties
5. Provision and distribution of forms, receipts, certificates, stamps, etc. To proper officials
6. Issuance of receipts and clearance
7. Submission of annual report, pertinent information to congress and reports to the Congressional oversight
Committee in matters taxation.
POWERS OF THE COMMSIONER OF INTERNAL REVENUE
1. To interpret the provisions of 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

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 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 o other data relevant to such iniquity
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 book, 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 canvas 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 representative 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 or deficiency assessments are due upon notice and demand by the CIR or his representatives.

Returns, statement 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 adult 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 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 delivered 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 proceeding 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.

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 For purpose of internal revenue taxes, fair value of real property shall mean whichever is higher of:
a. A zonal value prescribed by the Commissioner
b. Assessed value per the provincial and City Assessor’s Office
For purposes of local taxes, fair value of real property pertains to the assessed value.
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 an approval.
13. To refund or credit internal revenue taxes
14. To abate or cancel tax liabilities in certain cases
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
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 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
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. Heads of the Legal, Assessment and Collection Divisions
d. Revenue District Officer having jurisdiction over the taxpayer
4. The power to assign and reassign internal revenue offices to establishments where articles subject to excise
tax are produced 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 now 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
The following are constituted agents for the collection of 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 of payments of internal revenue taxes
authorized to be made thru banks. These are referred to as authorized government depositary banks
(AGDB).

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 OTHER AGENCIES TASKED WITH TAX COLLECTION OR TAX INCENTIVES RELATED
FUNCTIONS
1. Bureau of Customs
2. Board of Investments
3. Philippine Economic Zone Authority
4. Local Government Tax Collecting Unit
Bureau of Customs (BOC)

Aside from regulator y functions, the bureau of Customs is tasked to administer collection of tariffs on
imported articles and collection of the Value Added Tax on importation. Together with the BIR, and BOC
is under the supervision of the Department of Finance.
The Bureau of Customs is headed by the Customs Commissioner and is assisted by five Deputy
Commissioners and 14 District Collectors.
Bureau of Investments (BOI)

The is tasked 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. It supervises the grant of tax
incentives under the omnibus Investment Code. The BOI is an attached agency of the Department of Trade
and Industry (DTI).
The BOI is composed of five full-time governors, excluding the 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.
Philippines Economic Zone Authority (PEZA)

The PEZA is created 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.
PEZA registered enterprises enjoy tax holidays for certain years, exception from import and export taxes
including local taxes. The PEZA is also an attached agency of the DTI.
The PEZA is headed by a director general and is assisted by three deputy directors.
Bases Conversion and Development Authority (BCDA)
Mandated to help strengthen the Armed Forces while building great cities, BCDA remains as a major force
in creating economic opportunities in the country—through its establishment of integrated developments,
dynamic business centers and vibrant communities.
BCDA engages in public-private partnerships to push forward vital public infrastructure such as tollways,
airports, seaports, and also major real estate developments. It is one of the key agencies driving “Build
Build Build,” the national government’s most ambitious infrastructure plan in Philippine history. This
infrastructure plan hopes to provide bold solutions that will reduce congestion, create jobs and alleviate
costs in the Philippines.( https://bcda.gov.ph/about-us)
Local Government Tax Collecting Units

Provinces, municipalities, Cities and barangays also imposed collect various taxes to rationalize their fiscal
autonomy. These will be discussed under Business and Transfer Taxation.

TAXPAYER CLASSIFICATION FOR PUPOSE 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 situated.
The following are the criteria for determining large taxpayers:

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 A. 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 the preceding year
4. Withholding Tax – At least P1,000,00 annual withholding tax payments or remittances from all types
of withholding taxes
5. Percentage Tax – At least P200,00 percentage tax paid or payable per quarter for the preceding year
6. Documentary stamp tax – At least P1,000,000 aggregate amount per year
B. As to financial conditions and 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 the Securities and Exchange Commission
Automatic classification of taxpayers as large taxpayers
The following taxpayers shall be automatically classified as large taxpayers upon notice in writing by the
CIR:
1. All branches of taxpayers under the Large Taxpayer’s Service
2. Subsidiaries, affiliates, and entities of conglomerate or group of companies of a 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 or assigned capital of at least P300,000,000 registered with
the SEC.
6. Multinational enterprises with an authorized capitalization or assigned capital of at least P300,000,000
7. Publicly listed corporations
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.

Exercises
Multiple choice.
1. Tax Reform for Acceleration and Inclusion (TRAIN Law) is known as
a. RA 10693
b. RA 19369
c. RA 10963
d. RA 10639
2. Which statement is wrong?
a. The power of taxation may be exercised by the government, its political subdivisions, and public
utilities
b. Generally, there is no limit on the amount of tax that may be imposed
c. The money contributed as tax becomes part of public funds
d. The power to tax is subject to inherent and constitutional limitations
3. They exist independent of the constitution being fundamental power of the state, except
a. Power of taxation
b. Police power
c. Power of eminent domain
d. Power of recall

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4. The power to demand proportionate contribution from persons and property to defray the necessary
expenses of the government
a. Power of taxation
b. Police power
c. Power of eminent domain
d. Power of recall
5. The strongest of all the inherent powers of the government is
a. Power of taxation
b. Police power
c. Power of eminent domain
d. Power of recall
6. The existence of the government is a necessity and that the state has the right to compel all individuals and
property within its limits to contribute
a. Basis of Taxation
b. Situs of taxation
c. Scope of taxation
d. Theory of taxation
7. The Commissioner of Internal revenue is granted certain powers under the Tax Code. Which of the
following is not a power granted to the Commissioner under the Code?
a. Interpret tax laws and decide tax cases
b. Issue summons and subpoena
c. Enact tax laws and make amendments
d. Make assessment and prescribe additional requirements
8. One of the following is not a characteristic or an element of tax
a. It is levied by the legislature
b. It is payable in money or in kind
c. It is proportionate in character
d. It is an enforced contribution
9. Under this basic principle of a sound taxation system, the government should not incur a deficit
a. Theoretical justice
b. Administrative feasibility
c. Fiscal adequacy
d. None of the above
10. The following constitute double taxation, except
a. Both taxes are imposed in the same amount
b. Both taxes are levied for the same purpose
c. Both taxes are imposed by the same taxing authority
d. Both taxes are imposed upon the same person

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