Contents

Taxation laws and tax exemption laws............................................................................................1

Sources of Tax Laws..........................................................................................................................1
Elements of Tax.....................................................................................................................................2
Classification of Taxes............................................................................................................................2
Principles of a Sound Tax System (FAT).................................................................................................3

Taxation laws and tax exemption laws

Tax laws must be construed reasonably to carry out the purpose, intent and the
objective of the law. As a rule, if the tax law is clear and free of ambiguity, it will be
applied in its literal import. If there is doubt as to its validity or if it is ambiguous, the
law will be construed strictly against the Government and liberally in favor of the
taxpayer. Tax Exemptions; deductions and refund: in case of ambiguity, the law will
be construed strictly against the taxpayer and liberally in favor of the government

Sources of Tax Laws

1. Constitution

2. Statutes passed by Congress

 National Internal Revenue Code of 1997

3. Administrative Rulings and Regulations

Revenue Regulations (RR) are issuances signed by the Secretary of Finance, upon

recommendation of the Commissioner of Internal Revenue, 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 Memorandum Circular (RMCs) are 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 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 programs of the Bureau in all areas of
operations, except auditing. (www.bir.gov.ph)

Rulings of first impression. - These refer to the rulings, opinions and

interpretations of the Commissioner of Internal Revenue with respect to the
provisions of the Tax Code and other tax laws without established precedent, and
which are issued in response to the specific request for ruling filed by a taxpayer with
the Bureau of Internal Revenue. Provided, however, that the term shall include
reversal, modification or revocation of any existing ruling. (RAO No. 01-03)

4. Judicial decisions
 Decisions by the Supreme Court and Court of Tax Appeals

Elements of 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. Kinds of Taxes

1. As to Object

a) Personal tax – also known as “capitalization” or “poll taxes”. These are taxes of
fixed amount upon all persons of a certain class within the jurisdiction of the
taxing power without regard to the amount of their property or their occupations
or businesses in which they may be engaged.

b) Property tax – taxes assessed on all property or all property of a certain class
within the jurisdiction of the taxing power.

c) Privilege tax – imposed on the performance of an act, the engaging in an

occupation, or the enjoyment of a privilege. (Black’s law, 6th ed.)

2. As to Burden or Incidence

a) Direct tax – demanded from the very person who, as intended, should pay the
tax which he cannot shift to another. (e.g. income tax, estate tax, donor’s tax)

b) Indirect tax – demanded in the first instance from one person with the
expectation that he can shift the burden to someone else, not as a tax but as part
of the purchase price. (e.g. VAT)(from Maceda vs. Macaraeg, 223 SCRA 217)

3. As to Tax Rates

a) Specific tax – imposed and based on a physical unit of measurement, as by

head or number, weight, or length or volume (i.e. Taxes on distilled spirits and
wines, see Tan vs. Mun of Pagbilao, G.R. L-14264).
b) Ad Valorem Tax – imposed on a fixed portion of the value of property with
respect to which the tax is assessed; Needs an independent appraiser to
determine its value.

c) Mixed –partially specific and partly ad valorem. An example would be the excise
tax on fermented liquors which has a separate specific tax rate based on the
selling price of the article.

4. As to Purposes

a) General tax – levied for ordinary or general purpose of the government, to raise
revenue for governmental needs. (ex: motor vehicle registration fees (PAL vs.
Edu, G.R. No. 4138, 15 August 1988).

b) Special tax – levied for a special purpose, to achieve some social or economic
ends (i.e. for regulation or the exercise of police power), irrespective of whether
revenue is actually raised. E.g. Margin Fees, which is a form of exchange control
or restriction designed to discourage imports and encourage exports (ESSO Std
Eastern vs. CIR, G.R. No. 28608-9, July 1989), and Oil Price Stabilization Fund
(Lozano vs. ERB, G.R. No. 95119-21, December 1990).

5. As to Scope or Authority to Impose

(i) National -Levied by the National Government (e.g.: internal revenue taxes)

(ii) Local -Levied by the Local Government (e.g.: real property tax, municipal tax,
business tax)

6. As to Graduation

a) Progressive - whereby the rate or amount of tax increases as the amount of the
income or earning to be taxed increases.

b) Regressive- whereby the tax rate decreases as the amount of income or earning
to be taxed increases.

Proportionate - Tax rate is based on a fixed percentage of the amount of the fixed
percentage of the amount of the property, receipts or other bases to be taxe

Principles of a Sound Tax System (FAT)

1. Fiscal Adequacy – revenue raised must be sufficient to meet government/public
expenditures and other public needs. (Chavez vs. Ongpin; GR No. 76778; June 6,
1990)

2. Administrative Feasibility – tax laws must be clear and concise; capable of

effective and efficient enforcement; convenient as to time and manner of payment,
must not obstruct business growth and economic development. The VAT law cannot
be considered as violative of the Administrative Feasibility principle because it is
principally aimed to rationalize the system on taxes of goods and services. Thus,
simplifying tax administration and making the system more equitable to enable the
country to attain economic recovery. (Kapatiran ng Mga Naglilingkod sa Pamahalaan
v. Tan; June 30, 1988)

3. Theoretical Justice – must take into consideration the taxpayer’s ability to pay
(Ability to Pay Theory). Art. VI, Sec. 28(1) of the 1987 Constitution mandates that the
rule on taxation must be uniform and equitable and that the State evolve a
progressive system of taxation.

Powers of the CIR and the BIR

a. Powers and duties of the Bureau of Internal Revenue

 The assessment and collection of all internal revenue taxes, fees, and charges;
 The enforcement of all forfeitures, penalties, and fines connected therewith;
 The execution of judgments in all cases in its favor by the CTA and ordinary
courts;
 Effecting and administering the supervisory and police powers conferred to it by
the Tax Code or other laws. (Sec. 2, NIRC)

b. Power of the Commissioner to interpret tax laws and to decide tax cases

 The CIR shall have the exclusive and original jurisdiction to interpret the
provisions of the Tax Code and other special tax laws, subject to review by the
Secretary of Finance.
 The CIR shall also have the power to decide the following tax cases but subject
to the exclusive appellate jurisdiction of the CTA:
i. Disputed assessments,
ii. Refunds of internal revenue taxes, fees or other charges,
iii. The penalties imposed in relation thereto, or
iv. Other matters arising under the Tax Code, other tax laws or portions thereof
administered by the BIR. (Sec. 4, NIRC)