CHAPTER 2 – TAXES, TAX LAWS, AND TAX
REVENUE MEMORANDUM RULINGS – ruling,
ADMINISTATION
TAXATION LAWS – refers to any that arises from the
exercise of the taxation power of the state
TYPES OF TAXATION LAWS
1. TAX LAWS – laws that provide for the assessment
and collection of taxes.
 Ex:
o The National Internal Revenue Code
(NIRC)
o The Tariff and Customs Code
o The Local Tax Code
o The Real Property Tax Code
2. TAX EXEMPTION LAWS – laws that grant certain
immunity from taxation.
 Ex:
o The minimum wage law
o The Omnibus Investment Code of 1987
o Barangay Micro-Business Enterprise
Law
o Cooperative Development Act
SOURCES OF TAXATION LAW
1. Constitution
2. Statutes and Presidential Decrees
3. Judicial Decisions or case laws
4. Executive Orders and Batas Pambansa
5. Administrative Issuances
6. Local Ordinances
7. Tax Treaties and Conventions with foreign
countries
8. Revenue Regulations
TYPES OF ADMINISTRATIVES ISSUANCES
1. REVENUE REGULATIONS – issuances signed by the
secretary of finance recommendation of the
commissioner of Internal Revenue (CIR) that specify
prescribe or define rules and regulations for the
effective enforcement of provisions of the National
Internal Revenue Code (NIRC) and related statues.
2. REVENUE MEMORANDUM ORDERS – issuances
that provide directive instructions; prescribe
guidelines; and outline processes, operation,
activities workflow, methods, and procedures
necessary in the implementation of state policies,
goals, objectives, plans, and program of the Bureau
in all areas of operation except auditing.
3.
opinion, and interpretations of CIR with respect to
the provision of the Tax Code and other Tax laws as
applied to a specific set of facts , with or without
established precedents, and which on the CIR may
issue from time to time for the purpose of providing
taxpayers guidance on the consequences in specific
situations.
 BIR rulings, therefore, cannot contravene duly
issued RMRs; otherwise, Rulings are null and
void ab initio.
4. REVENUE MEMORANDUM CIRCULARS – issuances
that publish pertinent applicable portions as well as
amplification of laws, rules, regulations, and
precedent issued by the BIR and other
agencies/offices.
5. REVENUE BULLETINS – refer to periodic issuances,
notices, and official announcements of the
Commissioner of Internal Revenue that consolidate
the Bureau of the Internal Revenue’s position on
certain issuances of law or administration in
relation to the provision of the Tax Code, relevant
Tax laws, and other issuances for the guidance of
the public.
6. BIR RULINGS – official position of the Bureau to
queries raised by taxpayers and ither stakeholders
relative to clarification and interpretation of tax
laws.
TYPES OF RULING
1. Value added tax (VAT) Rulings
2. International; Tax Affairs Division Rulings
3. BIR Rulings
4. Delegated Authority Rulings
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES VS.
TAX LAWS
 GAAP
- Not laws but are mere conventions of financial
reporting, benchmarks for the fair and relevant
valuation and recognition of income, expense,
assets, liabilities and equity of a reporting entity
for general purpose financial reporting and its
accounting report are intended to meet the
common needs of a vast number of users in the
general public.
 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 – 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 transactions
3. Sumptuary – a tax levied to achieve some
social or economic objectives
B. AS TO SUBJECT MATTER
1. Personal, poll or capitation – tax on
persons who are residents of a particular
territory.
2. Property tax – tax on properties , real or
personal
3. Excise or privilege tax – 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.
o Tax is collected from the person
who is intended to pay the same
o 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
o This occurs the case of business
taxes where the statutory taxpayer
is not economic taxpayer
 Statutory taxpayer is the person named by law
to pay the tax
 economic taxpayer is the one who actually pay
the tax
D. AS TO AMOUNT
1. Specific tax – tax of a fixed amount imposed on
a per unit basis such as per kilo, liter, meter,
etc.
2. Ad Valorem – tax of a fixed proportion imposed
upon the value of the tax object
E. AS TO RATE
1. Proportional tax – flat or fixed rate tax
o Emphasized equality as it subject all
taxpayers with the same rate without
regard to their ability to pay.
2. Progressive or Graduated tax – tax imposes
increasing rates as the tax base increases.
o Results in equitable taxation because it gets
more tax to those who are more capable.
o It aids in lessening the gap between the rich
and poor.
3. Regressive tax – imposing decreasing tax rate
as the tax base increase
o Regarded as anti-poor
o It directly violates the Constitutional
guarantee of progressive taxation
4. Mixed tax – tax manifest tax rates which is a
combination of any of the above types of tax.
F. AS TO IMPOSING AUTHORITY
1. NATIONAL TAX – tax imposed by the national
government
 Examples:
a) Income Tax
b) Estate tax
 c) Donor’s tax
d) Value added tax
e) Other percentage tax
f) Excise tax
g) Documentary stamp tax
2. LOCAL TAX – tax imposed by municipal or local
government
 Examples:
a) Real property tax
b) Professional tax
c) Business taxes, fees, charges
d) Community tax
e) Tax on banks and other financial institutions
DISTINCTION OF TAXES WITH SIMILARITIES
1. TAX VS. REVENUE
 Tax – Imposed by government for public
purpose
 Revenue – Income collection of the
government. Includes taxes, tariff, licenses, toll,
penalties and others.
 the amount imposed is Tax, but the amount
collect is revenue.
2. TAX VS LICENSE FEE
 License fee – emanates from police power and
imposed to regulate the exercise of a privilege
such as the commencement of a business or
profession
 Taxes are imposed after the commencement of
a business. (POST-ACTIVITY IMPOSITION)
 license fee imposed before engagement of
those activities. (PRE-ACTIVITY IMPOSITION)
3. TAX VS TOLL
 Tax is a levy of government, it is a demand of
sovereignty
o Tax amount depends upon the needs of
the government
 Toll is a charge for the use of other’s property,
it is a demand of ownership.
o Toll amount is dependent upon the
value of the property leased.
 Both the government and private entities
impose toll, but private cannot impose taxes.
4. 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 off-set but tax is not.
 Tax draws interest only when taxpayer is
delinquent,
 Debt draws interest when it is so stipulated by
contracting parties or when debtor incurs legal
delay.
5. TAX VS SPECIAL ASSESSMENT
 Tax is amount imposed by person, properties,
or privilege
 Special assessment is levied by the government
on lands adjacent to compensate the
improvement for a part of the cost of the
improvement.
6. TAX VS TARIFF
 Tax is amount imposed upon person, privilege,
transaction, or properties.
 Tariff is amount imposed on imported or
exported commodities.
7. TAX VS PENALTY
 Tax - amount imposed by the support of
government
o Arise from law
 Penalty – amount imposed to discourage an act
o may be imposed by government or
private individual
o may arise both from law or contract
TAX SYSTEM
- methods or schemes of imposing, assessing,
and collecting taxes.
- Includes all the tax laws and regulations, the
means of their enforcement, and the
government officials, bureaus and withholding
agents
- The Philippine tax system is divided into two:
i. National tax system
ii. Local tax system
TYPES OF TAX SYSTEM ACCORDING TO IMPOSITION
1. PROGRESSIVE – employed in the taxation of income
of individuals, and certain local business taxes.
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
 Emphasizes direct taxes, direct tax cannot be
shifted
 Encourages economic efficiency as it leaves no
other resort to taxpayers than to be efficient.
 This impact more upon the rich

2. REGRESSIVE SYSTEM
 Emphasizes indirect taxes, shifted by businesses
to consumers
 Anti-poor
Constitutional guarantee of a progressive taxation,
Philippine has a dominantly regressive tax system due
to prevalence of business taxes.
TAX COLLECTION SYSTEM
A. WITHHOLDING SYSTEM ON INCOME TAX
- The payor if the income withholds or deducts
the tax on the income before releasing the
same payee and remits the same to the
government
1. Creditable withholding tax
a. Withholding tax on compensation
o estimated tax required by the
government to be withheld (deducted)
by employers against the compensation
income to their employees
b. Expanded withholding tax
o estimated tax required by the
government to be deducted on certain
income payments made by taxpayers
engaged in business
2. final withholding tax - a system of tax collection
wherein payors are required to deduct the full tax
on certain income payments
SIMILARITIES OF FINAL TAX AND CREDITABLE
WITHHOLDING TAX
a. In both cases, the income payor withholds a fraction
of the income and remit 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.
B. WITHHOLDING SYSTEM ON BUSINESS TAX
- When the national government agencies and
instrumentalities including government-owned
and controlled corporations (GOCCs) purchased
goods or services from private suppliers, the
law required withholding of the relevant
business tax (i.e. VAT)
C. VOLUNTARY COMPLIANCE SYSTEM
- Self-assessment method
- Taxpayer shall pay to the government any tax
balance after such credit or claim refund or tax
credit for excessive tax withheld
D. Assessment or enforcement system
- the government identifies non-compliant
taxpayers, assesses their tax dues including
penalties, demand for taxpayers’ compliance
PRINCIPLES OF A SOUND TAX SYSTEM
- government should adhere to the ff principles
or canons to evolve a sound tax system
1. Fiscal Adequacy
- sources of government funds must be sufficient
to cover government cost.
- Taxes should increase in response to increase in
government spending.
2. Theoretical Justice
- Taxation should consider the taxpayer ability to
pay
- Exercise of tax should not be unjust, oppressive
3. Administrative Feasibility
- Tax laws should be capable of efficient and
effective administration to encourage
compliance
- Government should make easy for the taxpayer
to comply by avoiding administrative
bottlenecks and reducing compliance costs
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. Commissioner (1)
2. Deputy Commissioners (4), 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 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 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 COMMSSIONER 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)
3. To obtain information and to summon, examine and
take testimony of persons to effect tax collection
4. To make assessment and prescribe additional
requirement for tax administration and
enforcement
5. To examine tax returns and determine tax due
thereon;
6. To conduct inventory surveillance
7. To prescribe presumptive gross sales or receipts
8. To terminate tax period
9. To prescribe real estate values
- The CIR is authorized to divide the Philippines
into zones or areas and determine the fair
market value of the real properties located in
each zones or area.
10. To compromise a tax liabilities of taxpayers
11. To inquire into bank deposits under certain cases
12. To accredit tax agents
- Individuals or general professional partnerships
who have been denied their accreditation may
appeal to the Secretary of Finance who shall act
on the appeal within 60 days from the receipt of
such appeal.
- Failure by him to rule on the appeal within the
prescribed period shall be deemed approval of
the application for accreditation.
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 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
(Note: to be discussed in tax remedies)
 Exception: Compromise by Regional Evaluation
Boards under the following requisites:
a. assessments are issued by the regional
offices involving basic deficiency tax of
P500,000.00, and
b. involves minor criminal violations as may be
determined by rules and regulations to be
promulgated by the Secretary of Finance,
upon recommendation of the CIR,
discovered by regional and district officials
4. The power to assign and reassign internal revenue
officers to establishment where articles subject to
excise tax are produced or kept. Revenue officers
assigned to any such establishments shall in no case
stay in his assignment for more than 2years.
RULES IN ASSIGNMENTS OF REVENUE OFFICERS TO
OTHER DUTIES
1. Revenue officers assigned to an assignment 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
employee 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 of payments of internal revenue
taxes authorized to the made thru banks.
OTHER AGENCIES TASKED WITH TAX COLLECTIONS OR
TAX INCENTIVES RELATED FUNCTIONS
1. Bureau of Customs (BOC)
 - Tasked to administer collection of tariffs on
imported articles and collection of the VAT on
importation.
- Under the supervision of the department of
finance
- Headed by the customs commissioners and is
assisted by 5 deputy commissioners and 14
district collectors
2. Board of Investments (BOI)
- Tasked to lead the promotion of investment in
the Philippines by assisting Filipinos and foreign
investors to venture and prosper in desirable
areas of economic activities
- Supervises the grant of tax incentives under the
omnibus investment code
- Attached agency of the department of trade
and industry (DTI)
- Composed of 5 full-time governors, excluding
the DTI secretary as its chairman.
- President of the Philippines shall appoint a vice
chairman of the board who shall act as the BOIs
managing head
3. Philippine Economic Zone Authority (PEZA)
- Created to promote investment in export-
oriented manufacturing industries in the
Philippines
- PEZA registered enterprises enjoy tax holiday
for certain years, exemption from import and
export tax including local tax
- PEZA is an attached agency to DTI
4. Local Government Tax Collecting Units
- Provinces, municipalities, cities and barangays
also imposed and collect various local taxes,
fees and charges to rationalize their fiscal
autonomy.
5. Fiscal Incentive Review Board (FIRB)
- Oversight function on the administration and
grant tax incentives by the investment
promotion agencies and other government
agencies administering tax incentives.
TAXPAYER CLASSIFICATION FOR PURPOSES OF TAX
ADMINISTRATION
1. Large taxpayers – under the supervision of the
Large Taxpayer Service (LTS of the BIR National
Office.
2. Non-Large taxpayers – under the supervision of
the respective Revenue District Offices (RDOs)
where the business, trade or profession of the
taxpayer is situated.
CRITERIA FOR LARGE TAXPAYERS:
1. As to payment:
a. Value Added Tax – At least P200,000 per
quarter for the preceding year
b. Excise Tax – At least P1,000,000 tax paid for the
preceding year.
c. Income Tax – At least P1,000,000 annual
income tax paid for the preceding year
d. Withholding Tax – At least P1,000,000 annual
withholding tax payments or remittances from
all types of withholding taxes
e. Percentage tax – At least P200,000 percentage
tax paid or payable per quarter for the
preceding year
f. Documentary stamp tax – At least P1,000,000
aggregate amount per year
2. As to financial conditions and results of operations
a. Gross receipts or sales – P1,000,000,000 total
annual gross sales or receipts
b. Net worth – P300,000,000 total net worth at
the close of each calendar or fiscal year
c. Gross purchases – P800,000,000 total annual
purchases for the preceding year
d. Top corporate taxpayer listed and published by
the Securities and Exchange Commission
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 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 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.