Taxation Law refers to any law that arises from the exercise of the taxation

power of the State.

Nature of Internal Revenue Tax Laws
Philippine tax laws are civil and not political on nature. They are effective even
during periods of enemy occupation. They are laws of the occupied territory
and not by the occupying enemy. Tax payments made during occupations of
foreign enemies are valid.

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 Laws are civil and not penal in nature, although there are penalties
provided for their violation. The purpose of tax laws in imposing penalties for
delinquencies is to compel the timely payment of taxes or to punish evasion or
neglect of duty in respect thereof.
Types of Taxation Laws
1. Tax Laws – tax laws that provide for the assessment and collection of
taxes.
Examples:
The National Internal Revenue Code (NIRC)/Tax Code/TRAIN LAW
(income tax, estate tax, donor’s tax, VAT etc.)
The Tariff and Customs Code (import duties, export duties)
The Local Tax Code
The Real Property Tax Code
Special Laws
-Motor Vehicle Law-motor vehicle fees
-Private Motor Vehicle – private motor vehicle tax
-Phil. Immigration Act of 1990- immigration tax
-Travel Tax Law – travel tax
 2. Tax Exemption Laws – laws that grant immunity from taxation.
Examples:
The Minimum Wage Law
The Omnibus Investment Code of 1987 (E.O. 226)
Barangay Micro-Business Enterprise (BMBE ) LAW
Cooperative Development Act

Sources of Tax Laws

1. Constitution
2. Tax Treaty and Conventions with Foreign Countries
3. The Tax Code (RA NO. 8424- National Internal Revenue Code as amended,
Tariff and Customs Code and portion of the Local Government Code
4. Statutes and laws like RA 10963 (TRAIN LAW), RA 1125 ( an Act creating
the Court of Appeals), RA 7716 (E-VAT Law, RA 8424 (Tax Reform Act of
1997
5. Presidential Decrees
6. Executive Orders
7. Court Decisions
8. Revenue regulations promulgated by the Department of Finance
9. Administrative issuance of the BIR like Revenue Memorandum Circulars,
and those of the Bureau of Customs like Customs Memorandum Orders.
10.BIR Rulings
11.Local Tax Ordinances
Types of Administrative Issuances
1. Revenue regulations -issuances signed by the Secretary of finance upon
the 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 Revenue Code and related
statutes.
Revenue regulations are formal pronouncements intended to clarify or
explain the tax law and carry into effects 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.

2. Revenue Memorandum Orders - 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, programs of
the Bureau in all areas of operations except auditing.

3. Revenue Memorandum Rulings – are ruling, opinions and interpretations

of the Commissioner of Internal Revenue with respect to the provisions of
Tax Code.

Tax is an enforced proportional contribution levied by the lawmaking body of

the State to raise revenue for public purpose.
Tax, in general sense, is any contribution imposed by the government upon
individuals for the use and service of the State, whether under the name of toll,
tribute, tallage, gabel, duty, custom, excise, subsidy, aid, supply.

Tax is not a debt.

Elements of a Valid Tax
1. Tax must be levied by the taxing power having jurisdiction over the object
of taxation.
2. Tax is an enforced contribution.
3. Tax must not violate constitutional and inherent limitations.
4. Tax must be uniform and equitable.
5. Tax must raise revenue for the government.
6. Tax must be for public purpose.
7. Tax must be proportionate in character.
8. Tax is generally payable in money.
Classification of Taxes
1. According to Subject Matter
- Personal, Poll or Capitation Tax - tax of a fixed amount imposed upon
individual, whether citizens or not, residing within specified territory
without regard to their property or the occupation I which he may be
engaged (e.g. basic community tax)
- Property Tax- tax imposed on property, whether real or personal, in
proportion either to its value or in accordance with some other
reasonable method of apportionment (e.g. real estate tax).
- Excise Tax – any tax which does not all within the classification of a
poll or property tax. This is a tax on the exercise of certain rights and
privileges (e.g. income taxes, estate tax, donor’s tax)
-
2. According to Who Bears the Burden/As to Incidence
- Direct Tax (e.g. income tax, estate tax, donor’s tax)
-Imposed on the person obliged to pay the same and this burden
cannot be shifted or passed on to another.
-A tax in which the taxpayer who pays the tax is directly liable
therefor, that is, the burden of paying the tax falls directly on the
person paying the tax.
-Demanded from the very person who, as intended, should pay the tax
which he cannot shift to another.
- Indirect Tax (e.g. VAT, excise tax on sin products)
- Payment is demanded from a person who is allowed to transfer
the burden of taxation is to another

- A tax is paid by a person who is not directly liable therefor, and

who may therefor shift or pass the tax to another person or entity,
which ultimately assumes the tax burden
-Is 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
3. According to Determination of Amount
- Specific Tax – this is a fixed amount based on volume, weight or
quantity of goods as measured by tools, instrument or standards.
A tax of a fixed amount fixed imposed on a per unit basis such as per
kilo, liter, meter (e.g. excise tax on cigars and liquors)

- Ad Valorem Tax – this imposition is based on the value of the property

subject to tax.
(e.g. VAT, income tax, donor’s tax and estate tax)
4. According to Purpose
- Fiscal/General/Revenue Tax – levied without a specific or pre-
determined purpose; tax imposed for general purpose (e.g. income tax,
donor’s tax and estate tax

-Sumptuary Tax – those intended to achieve some

social or economic goals;
-Regulatory Tax - a tax imposed to regulate business, conduct,
acts or transactions
(e.g. tariff and certain duties on imports)

5. According to Jurisdiction/Scope of Authority

- National Tax – imposed by the National Government
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 property by a living donor
d. Value Added Tax -consumption tax collected by non-Vat business
taxpayers
e. other percentage tax – consumption tax collected by VAT business
taxpayers
f. excise tax - tax on sin products and non-essential commodities such
as alcohol, cigarettes and metallic minerals.
 g. documentary tax – a tax on documents, instruments, loan
agreement and papers evidencing the acceptance, assignment, sale
or transfer of an obligation . right or property incident thereto

- Local Tax – imposed by municipal corporations (e.g. real estate tax)

a. real property tax
b. professional tax
c. business taxes, fees and charges, community tax
d. tax on banks and other financial institutions

9. According to Graduation or Rate

- Proportional/Flat Rate Tax – unitary or single rate (e.g. Vat)
- Progressive/Graduated Tax – as the tax base grows the tax rate
increases. (e.g. income tax on individuals, estates, trusts, estate tax,
donor’s tax)
- Regressive Tax – the tax rate decreases as the tax base increases.
- Mixed Tax – this tax manifest tax rates which is a combination of any
of the above types of tax.

DISTINCTIONS 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 broader subject than license. Tax emanates from the taxation power
and imposed upon any object/subject as persons, properties or privileges to
raise revenues.

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

(post activity imposition)

License fee is imposed before engagement in those activities. (pre-activity

Imposition)

Tax vs Toll
Tax is a levy of government; a demand of sovereignty.
Toll is a charge for the use of other’s property ; a demand of ownership.

Tax amount depends upon the needs of the government.

Toll amount is dependent upon the value of the property leased.

Toll amount can be imposed by both the private entities and the government.
Tax amount can only be imposed by the government.

Tax vs Debt
Tax arises from the law.
Debt arises from private contracts.

Non-payment of tax leads to imprisonment.

Non payment of debt does not lead to imprisonment.

Tax cannot be subject to set-off.

Debt can be subject to set-off

Tax is generally payable in money.

Debt can be paid in kind and 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.

Tax vs. Tariff

Tax is an amount imposed upon persons , privileges, transactions or properties.
Tariff is an amount imposed on imported or exported commodities.

Tax vs Penalty
Tax is an mount imposed for the support of the government.
Penalty is an amount imposed to discourage an act.

Tax arises from law.

Penalty may arise from law and contract and be imposed by both the
government and private individuals.

Tax vs Special Assessment

Tax is an amount imposed upon persons, properties or pribileges.

Special Assessment is levied by the government on lands, adjacent to a public
improvement; imposed on land only and is intended to compensate the
government for a part of the cost of the improvement

Special Assessment is based on the benefit in terms of the appreciation in land

value caused by the public improvement
Tax is levied without expectation of a direct proximate benefit.

Special Assessment attaches to the land it will not become a personal

obligation of the land owner; non-payment of special assessment will not result
to imprisonment of the owner.
Non-payment of tax will result to imprisonment of the taxpayer.

TAX SYSTEM

Tax system 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 the withholding agents
which are part of the machineries of the government in tax collection. The Phil.
Tax system is divided in tow: 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 individuals
2. Proportional – employed in taxation of corporate income and business
3. Regressive = not employed on the Phil.

Types of Tax system According to Impact

1. Progressive 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 type of tax system
impacts more upon the rich.

2. Regressive 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. Despite the constitutional guarantee of a progressive
taxation the Phil has dominantly regressive tax system due to the
prevailing business tax.

TAX COLLECTION SYSTEMS

1. Withholding system – the payor of the income tax 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.
Expanded withholding tax - a withholding tax prescribed on certain
income payments and is creditable against the income tax due of the
payee for the taxable quarter in which the particular income was
earned.
 b. Final withholding tax – a kind of withholding tax which is prescribed on
certain income payments and is not creditable against any oncome tax
due of the payee for the taxable year.
c. Withholding tax on government payments - the tax withheld by the
national government agencies and instrumentalities including
government- owned and controlled corporation on their payments to
taxpayers, suppliers or payees.

2. Voluntary compliance system – the taxpayer himself determines his

income, reports through income tax returns and pays the tax to the
government. This system is also referred to as the self - assessment
method. A portion of the tax due payable herein may have been withheld
under the withholding system such as:
a. Withholding tax on compensation by 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 – the government identifies non-

compliant taxpayers, assess their tax duties and penalties and enforces
collections by coercive means such as summary proceeding or judicial
proceedings when necessary.

PRINCIPLES OF SOUND TAX SYSTEM

1. Fiscal Adequacy – the sources of revenue are sufficient to meet
government expenditures. The government must not incur deficit. A
budget deficit paralyzes the government’s ability to deliver the essential
public services to the people. Hence, taxes should increase in response to
increase in government spending.
 2. Administrative Feasibility - the tax laws must be capable of convenient,
just and effective administration to encourage compliance. Government
should make it easy for the taxpayer to comply by avoiding administrative
bottlenecks and reducing compliance costs.
The following are applications of the principle of administrative
feasibility:

a. E-filing and e-payment of taxes

b. Substituted filing system for employees
c. Final withholding tax on non-resident aliens or corporations
d. Accreditation of authorized agent banks in the filing and payment of
taxes

3. Theoretical Justice or Equality - the tax imposed must be proportionate

to taxpayer’s ability to pay. It also suggests that the exercise of taxation
should not be oppressive, unjust or confiscatory.

TAX ADMINISTRATION
Tax administration refers to the management of the tax system. Tax
administration of the national tax system in the Phil. 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 designate to the following:
a. Operational Group
b. Legal Enforcement Group
c. Information Systems Group
d. Resource Management Group
Powers o f the Bureau of Internal Revenue
1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties and fine and judgments in all
cases
3. Giving effect to and administering the supervisory and police power
conferred to it by the NIRC and other laws
4. Assignment of internal revenue officer 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 of 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
6. To conduct inventory taking and 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
8. To terminate tax period is:
a. Retiring from busines
b. Intending to leave the Phil.
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 demandable immediately.

9. To prescribe real property values

 The CIR is authorized to divide the Phi. 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 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 case 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

13. To refund or credit internal revenue taxes
To abate or cancel tax liabilities in certain cases
14. To prescribe additional procedures or documentary requirements

15.To delegate his powers to any subordinate officer with a rank equivalent
to a division chief of an office

Non-delegated powers 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
Exceptionally, the Regional Evaluation Board 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 Division
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 to assignment 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 subordinate with respect to the
collection of national internal revenue taxes on imported goods.
2. The head of appropriated government officer and his subordinates with
respect to the collection of energy tax.
3. Banks duly accredited by the Commissioner with respect to the receipts
of payments of internal revenue taxes authorized to be made thru banks.
These are referred to as authorized government depositary banks (AGDB).
Other Agencies Tasked With Tax Collections or Tax Incentives Related to
Functions
1. Bureau of Customs (BOC)
Aside from its regulatory functions, the BOC is tasked to administer
Collections 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.
The BOC is headed by the Customs Commissioner and is assisted by 5
Deputy Commissioners and 14 District Collectors

2. Board of Invesments (BOI)

The BOI is tasked to lead the promotion of investments in the Phil. 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 Phil. shall appoint a vice-
chairman of the board who shall act as the BOI’s managing head.

3. Philippine Economic Zone Authority (PEZA)

The PEZA is created to promote investments in export-oriented
manufacturing industries in the Phil. 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,
exemption from import and export taxes. The PEZA is also an authorized
agency of the DTI.
The PEZA is headed by a Director General and is assisted by three Deputy
Directors.

4. Local Government Tax Collecting Units

Provinces, municipalities, cities and barangays also impose and collect
Various taxes to rationalize their fiscal autonomy.
Taxpayers Classification for Purposes of Tax Administration
 1. Large taxpayers -taxpayers who have been classified as such in
accordance with the criteria under Revenue Regulations no. 1-1998
and has been duly notified by the CIR.
Criteria for determining large taxpayers
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 P1,000,000 annual income tax
payments or remittances from all types of withholding taxes
5. Percentage tax – at least P200,000 percentage tax paid or
payable per quarter for the preceding year
6. Documentary stamp tax – at least P1,000,000 aggregate amount
per year
b. As to financial condition 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
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 off 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 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 taxpayers)
9. Corporate taxpayers with at least P100,000,000 authorized
capital in banking, insurance, telecommunications, utilities,
petroleum, tobacco and alcohol industries
10.Corporate taxpayers engaged in the production of metallic
minerals (PASAR)
2. Non-Large taxpayers -taxpayers whose tax payments and financial.
Conditions do not satisfy the set criteria as per Revenue Regulation No. 1-98 or
any amendatory regulations and/or have not been classified and notified as a
Large Taxpayer by the CIR