H02 - Taxes, Tax Laws and Tax Administration

Page 1 of 10 | TAX 02
TAXATION
REX B. BANGGAWAN, CPA, MBA
TAXES, TAX LAWS & TAX ADMINISTRATION

TAX
An enforced proportionate contribution imposed upon persons, properties, businesses, rights, interests, privileges,
transactions and acts within the territorial jurisdiction of the taxing authority exercise by the legislature for a public purpose
and generally payable in money.
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Elements of a Valid Tax
1. must not violate the constitutional, inherent and or contractual limitation of the power of taxation
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2. must be uniform and equitable, not unjust, excessive, oppressive, confiscatory or discriminatory
3. must be for a public purpose
4. must be levied by the taxing power (legislature) having jurisdiction over the object of taxation
5. must be proportionate in character
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6. generally payable in money, at regular interval (not regular in payment)
Classification of Taxes
A. As to purpose
1. Fiscal – general, fiscal or revenue
2. Regulatory – special or sumptuary
B. As to subject matter
1. Personal, poll or capitation
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2. Property tax
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3. Excise tax or privilege tax
C. As to incidence
1. Direct –
2. Indirect –
D. As to amount
1. Specific tax –
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2. Ad valorem –
E. As to rate
1. Proportional or flat rate –
2. Progressive or graduated tax –
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3. Regressive tax –
4. Mixed tax
F. As to imposing authority
1. National tax – imposed by the National Government.
2. Local tax – tax imposed municipal or local governments.
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DISTINCTION OF TAX WITH SIMILAR ITEMS
TAX VS. REVENUE

Tax Revenue
REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW
(074) 665 6774 0916 840 0661 support@reocpareview.ph OCTOBER 2022 CPA REVIEW SEASON

TAX VS. LICENSE*

Point of distinction Tax License
Purpose
Amount
Subject of Imposition
Effect of non-compliance
Revocability
Scope
When imposed
Basis of imposition
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Sources of Power
TAX VS. TOLL*
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Tax Toll
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TAX VS. DEBT*
Tax Debt
Basis
Effect of non-compliance
Assignable?
Mode of settlement
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Set-off?
Interest
TAX VS. SPECIAL ASSESSMENT*

Tax Special Assessment
Subject of the imposition
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Effect on the person owning

the subject
Basis of Imposition
Coverage of application
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TAX VS. TARIFF

Tariff refers to a book of rates containing names of merchandises with corresponding duties to be paid for the same. Tariff
refers to the duties payable on goods imported or exported. It is a system or principle of imposing duties on the importation
or exportation of goods. *Customs duties and tariffs are used interchangeably
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TAX VS. PENALTY

Tax Penalty
Purpose
Exercising authority
Source
Mode of settlement


TAX LAW
Any law that provides for the assessment and collection of taxes for the support of the government and other public
purposes
Sources of Tax Laws:

1. Constitution 5. Administrative Issuances or BIR Rulings
2. Statutes and Presidential Decrees 6. Judicial Decisions
3. Executive Orders and Batas Pambansa 7. Local Ordinances
4. Tax Treaties and conventions with foreign countries 8. Revenue Regulation of by the DoF
NATURE OF PHILIPPINES TAX LAWS
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Philippine Tax Laws are civil and nature and character. They remain effective even in times of war. They are not penal in
nature although penalties are provided for their violation because they do not define crimes and provide for their punishment.
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TAX ADMINISTRATION
The Bureau of Internal Revenue

The Bureau of Internal Revenue is tasked with tax administration function of the government. Together with the Bureau of
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Customs, they are under the supervision and control of the Department of Finance.
Chief Officials of the Bureau

1. 1 chief officer: The Commissioner of Internal Revenue
2. 4 assistant chiefs: Deputy Commissioners
Powers of the Bureau

1. Assessment and collection of taxes
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2. Enforcement of all forfeitures, penalties, and fines and judgments in all cases decided in its favor by the courts
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3. Giving effects to and administering the supervisory and police powers conferred to it by the NIRC and or other laws
4. Assignment of internal revenue officers and other employees to other duties
5. Provisions and distribution to proper officials of forms, receipts, certificates, stamps; etc
6. Issuances of receipts and clearances
7. Submit annual report, pertinent information to Congress and reports to the Congressional Oversight Committee in
matters of taxation
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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)
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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 make or amend a return for and in behalf of a taxpayer; or to disregard one filed by the taxpayer
6. To change a tax period
7. To compromise a tax liabilities of taxpayers
8. To conduct inventory surveillance
9. To prescribe presumptive gross sales or receipts
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10. 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.
11. 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.
12. To inquire into bank deposits under certain cases
13. To prescribe additional procedures or documentary requirements


14. To delegate his powers to any subordinate officer with rank equivalent to a division chief of an office
15. To refund or credit internal revenue taxes
16. To abate or cancel tax liabilities in certain cases
17. To examine tax returns and determine tax due thereon;
18. To cause revenue officers and employees to make a canvass from time to time of any revenue district or region
concerning taxpayers.
Powers of the CIR that cannot 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 (Note: to be discussed in tax remedies)
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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
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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
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more than 2 years.
THE PRINCIPLES OF A SOUND TAX SYSTEM

a. Fiscal Adequacy –
b. Administrative Feasibility -
c. Theoretical Justice-
TAXATION AND ECONOMIC EFFICIENCY

a. Income Effect –
b. Substitution Effect –
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FUNDAMENTAL DOCTRINES IN TAXATION
1. Marshall Dictum –
2. Holmes Doctrine –
3. Doctrine of Judicial Non-interference
4. Imprescriptibility in Taxation –
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5. Prospectivity of Tax Laws –

6. Principle of “Strictissimi Juris”
7. Doctrine of Equitable Recoupment
8. Non-compensation or Set-off Rule
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9. Doctrine of Estoppel
Illustrations
1. Which is an element of a valid tax?
a. Must be levied by the taxing authority having jurisdiction
b. May not be solely for public purpose
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c. Must be a proportional imposition to the value of the object

d. Must be unlimited in amount
2. Income tax is not a/an

a. National tax c. Specific tax
b. Excise tax d. Revenue tax
3. Real property tax is not a/an

a. Ad valorem c. National tax
b. Excise or privilege tax d. Local tax


4. Not a nature of business taxes

a. They are either national tax or local tax.
b. They are imposed for general purpose.
c. They are either ad valorem or specific.
d. They are indirect taxes.
5. Tax classified as to object does not include

a. Poll c. Excise
b. Property d. Direct
6. Which is a general characteristic of tax?
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a. Based on contract c. Payable in money
b. Assignable d. Optional
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7. Which is a national tax?
a. Stock transaction tax c. Professional tax
b. Road user’s tax d. Peddler’s tax
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8. Which is correct regarding taxes?
a. It is unlimited as to the amount to be imposed.
b. It emanates out of a mutual contract between the taxpayer and the government.
c. Its amount varies depending on whether the object of is useful or non-useful.
9. Which statement is correct?

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d. Non-payment of taxes will cause a business or activity illegal.
a. Tax laws must not violate the Constitution and established revenue regulations.
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b. The people may directly enact a tax law by referendum or assembly.
c. Tax laws may violate contractual limitations.
d. Rulings must be consistent with laws and revenue regulations.
10.Revenue regulations (RRs) are:

a. Issuances signed by the Secretary of Finance, upon recommendation of the CIR, that specify, prescribe or define
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rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC)
and related statutes.
b. 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.
c. Issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities,
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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.
d. None of the above.
11.Revenue Memorandum Circulars (RMCs) are:

a. Issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue,
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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.


12. Revenue Memorandum Orders (RMOs) are:

a. 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.
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13.The following are the powers of the CIR except:
a. After a return has been filed or when no return is filed, the CIR may authorize the examination of any taxpayer, and
the assessment of the correct amount of tax.
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b. The CIR has the power to issue Summons or Subpoena Duces Tecum to a taxpayer, an officer or employee of a
taxpayer, or to any person having possession of records relating to the business of a taxpayer.
c. The CIR has the power to take the testimony of a person, under oath, that may be relevant or material to the inquiry.
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d. The CIR has the power to inquire into a taxpayer's bank deposits in all instances.
14.When there appears to be a conflict between a revenue regulations and the law, which one must be followed in practice?
a. The law must be followed being superior to any administrative issuances.
b. Follow which best benefit the taxpayer or client.
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c. Follow which favors the government consistent with the lifeblood doctrine.
d. Follow the regulations in the absence of a court decision declaring it as illegal because regulations are presumed
valid interpretation of the law unless challenged and reversed before the court.
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15.Which is incorrect?
a. The tax code shall prevail over generally accepted accounting standards/PFRs.
b. Tax treaties can prevail over the tax code.
c. Obligation arising from law is not presumed. There should be clear and express constitutional grant of power
before taxation, police power and eminent domain could be exercised.
d. A tax system which is dominantly characterized by indirect taxes is referred to as a regressive tax system.
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16.Which is not a principle of sound tax system?

a. It should be capable of being effectively enforced.
b. Progressive tax should be levied.
c. Taxes must be sufficient to meet government expenditures and public needs.
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d. It should be exercised to promote public welfare.
17.Which of the following powers of the Commissioner of Internal Revenue cannot be delegated?
a. The examination of tax return and tax due thereon
b. To refund or credit tax liabilities in certain cases
c. The power to compromise or abate any tax liability involving basic deficiency tax of P500,000 and minor criminal
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violations
d. The power to reverse or modify a ruling
18.Which is not a source of tax law?
a. Judicial decisions c. BIR Rulings
b. Local ordinance d. Opinions of tax reviewers of CPA review schools
19.The collection of the VAT on importation is a primary responsibility of

a. Bureau of Internal Revenue c. Secretary of Finance
b. Department of Finance d. Bureau of Customs


20.The power to interpret provision of the NIRC is under the exclusive and original jurisdiction of the CIR subject to review
by
a. The secretary of justice c. The Court of Tax Appeals
b. The secretary of finance d. the President of the Philippines
21.Decisions of the CIR on tax matters is subject to review by the

a. the local courts. c. Secretary of Finance
b. the Regional Trial Court. d. Court of Tax Appeals
22.Formal pronouncement intended to clarify or explain the tax law and carry into effect its general provisions by providing
details of administration and procedure.
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a. BIR Ruling c. Opinions of the Secretary of Finance
b. Revenue regulation d. Revenue Memorandum Circular
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23.The CIR may terminate the accounting period of the taxpayer when
a. The taxpayer is intending to leave the Philippines.
b. The taxpayer is removing his properties in the usual place of business.
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c. The taxpayer is intending to do an act that will obstruct collection of taxes.
d. All of these
24.Statement 1: Bank account inquiry is disallowed unless the taxpayer is dead.

Statement 2: Bank account inquiry on foreign deposits could be made through a foreign government.
Which is true?
a. Statement 1 and 3
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Statement 3: Bank account inquiry could be allowed if consented by the taxpayer.
c. Statement 1 and 2
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b. Statement 2 and 3 d. Statement 1, 2 and 3
25.An order imposed by the Commissioner of Internal Revenue upon persons to produce certain documents
a. Subpoena duces tecum c. Closure order
b. Jeopardy assessment d. Oplan kalikot
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26.An authorization issued by the Bureau of Internal Revenue to a BIR officer to conduct examination of the taxpayer’s book
a. Final Assessment Notice c. Letter Notice
b. Pre-Collection Letter d. Letter of Authority
27.A certain taxpayer had the following tax assessment which he could not settle due to financial incapacity:
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Tax due P 400,000

Surcharge 100,000
Interest 120,000
Total P 620,000
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What is the minimum compromise offer and the proper approving body?
a. P 40,000; Regional Evaluation Board c. P 62,000; National Evaluation Board
b. P 40,000; Office of the Commissioner d. P 62,000; Office of the Commissioner
28.In the forgoing problem, if the taxpayer offers only P20,000 as settlement of the liability, the compromise offer shall be
approved by
a. The Commissioner of Internal Revenue c. The National Evaluation Board
b. The Regional Evaluation Board d. The RDO having jurisdiction over the taxpayer


29.The Commissioner is authorized to inquire into bank accounts relative to

a. the evaluation of the decedent’s estate tax.
b. the evaluation of the merit of his request for compromise.
c. the verification of the truthfulness of his no payment return.
d. A, B and C
30.Which is wrong with respect to the minimum compromise amount?

a. Refundable if the compromise is rejected by the government
b. Non-refundable but treated as tax credit when the compromise is rejected by the government
c. Considered full payment of the tax liability when the compromise is accepted by the government
d. The government may adjust the amount above the minimum amounts
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31.Which is not a basis for compromise?
a. A reasonable doubt as to the validity of the claim against the taxpayer exists
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b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax
c. The tax or any portion thereof appears to be unjustly or excessively assessed
d. None of these
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32.Which is not a basis for abatement or cancellation of tax liability?
a. The tax or any portion thereof appears to be unjustly or excessively assessed
b. The administration and collection costs involved do not justify the collection of the amount due
c. A reasonable doubt as to the validity of the claim against the taxpayer exists
d. None of these
33.Which is a constitutional mandate?

a. Fiscal adequacy
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c. Theoretical justice
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b. Administrative feasibility d. All of these
34.Which is wrong on taxes and nation building?

a. Budget deficits are financed by the government by the sale of treasury securities.
b. Taxes should not be increased to service government debts.
c. Keynesian economics presupposes increased public spending during time of economic crisis.
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d. Public monies may be used to extend financing on private corporations.
35.Government assets were P100T. Government debts were P80T. For the upcoming year, the government is expected to
raise P40T from taxes with a projected government expenditure of P50T. The government must not
a. increase tax rates c. accelerate public spending
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b. utilize public-private partnership d. privatize government assets.
36.Holding other factors constant in the preceding problem, public debt is expected to
a. increase by P20T. c. decrease by P20T.
b. increase by P10T. d. decrease by P10T.
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37.Which is not a public purpose?

a. Defense spending c. Aid to banks during economic crisis
b. Housing program d. Accelerated disbursement funds of legislators
38.The following relates to the Philippine government’s expenditure and tax collection profile in 2014 and 2020:
Particulars 2014 2020

Tax expenditure per Pilipino P 18,084 P 25,942
Tax payment per Pilipino P 11,373 P 18,303


What is the taxpayer’s benefit in 2020?

a. P 0 c. P 7,639
b. P 6,711 d. P 7,858
39.Which statement is correct relating to tax compliance?

a. Anything that is considered legal is ethical.
b. Tax penalties come from non-compliance with legal requirements but not ethical considerations.
c. Tax non-compliance is both illegal and unethical.
d. Tax practitioners should focus only on legal considerations in tax compliance.
40.Which is legally acceptable in tax assessments or tax compliance?
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a. Inflating tax assessments on taxpayers to boost government collections
b. Receiving assistance from tax examiners in reducing tax liabilities in exchange for a tip.
c. Under-declaration of income by not more than 30%.
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d. Paying taxes that is more than what is due.
41.Which statement is correct?
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Statement 1: The BIR is under the supervision and control of the Department of Finance.
Statement 2: The BIR has 4 deputy commissioners for operations group, legal group, information systems group and
resource management group.
Statement 3: The CIR has the power to interpret tax laws and decide disputed assessments and refunds of internal
revenue taxes.
a. True; True; True

b. True; True; False
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c. False; False; True
d. False; True; False
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42.Which is wrong regarding the BOC?
a. The Commissioner of Customs is assisted by 6 deputy commissioners and an assistant commissioner.
b. Each port of entry is headed and supervised by a district collector assisted by as many numbers of deputies as
necessary.
c. The Commissioner of Customs act as agents of the BIR in the collection of the VAT on importation.
d. None of these
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43.Which is not a local government tax collecting unit?

a. Provincial treasurer c. Regional treasurer
b. City or municipal treasurer d. Barangay treasurer
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44.Which is wrong regarding the Board of Investments?

a. It is an attached agency of the Department of Finance.
b. It is an attached agency of the Department of Trade and Industry.
c. It is mandated to develop industries through investment promotions.
d. It is composed of 7 governors.
45.Which is wrong regarding the Philippine Economic Zone Authority?

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a. It is attached to the Department of Trade and Industry.

b. It is led by a director general assisted by 3 deputy director generals.
c. The PEZA Board is composed of at least 13 members.
d. The secretary of the DTI shall act as chairman of the PEZA.
46.In May 2, 2019, the BIR discovered that a certain taxpayer did not pay taxes on the sale of property in 2001. Can the
BIR issue an assessment for the unpaid taxes?
a. Yes, the BIR can render an assessment up to May 2, 2029.
b. Yes, the government’s right to collect taxes never prescribe.


c. No, the BIR’s right to assessment already prescribed beyond the 10-year prescriptive period.
d. No, any BIR assessment should have been made within 3 years from the 2001 sale.
47.In April 15, 2019, the BIR discovered that the tax paid by the taxpayer on a transaction in 2011 is deficient due to an
apparent error. Can the BIR issue an assessment for the deficiency tax?
a. No, no assessment can be rendered beyond the 3-year prescriptive period.
b. No, because the BIR’s right to assess already prescribed.
c. Yes, the government’s right to taxes never prescribes.
d. Yes, the transaction in question is within the 10-year prescriptive period.
48.A client consulted you to advise him of his tax assessment. The assessment arose out of a new BIR interpretation which
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is not conforming with established rulings or regulations. What is the best course of action?
a. Dispute the assessment
b. Compromise with the government
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c. Settle the assessment
d. File a petition for review before the CTA
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49.In 2020, a client asked you whether or not to make an amendment of an income tax return filed for Year 2015. Which
one is the best recommendation?
a. Wait for a BIR assessment.
b. Amend the return.
c. Forget about amendment.
d. Inform the BIR of the potential deficiency tax.
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--- END OF HANDOUTS ---
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Page 1 of 10 | TAX 02

TAXES, TAX LAWS & TAX ADMINISTRATION

DISTINCTION OF TAX WITH SIMILAR ITEMS

TAX VS. REVENUE

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA, MBA

TAX VS. LICENSE*

TAX VS. TOLL*

TAX VS. SPECIAL ASSESSMENT*

Effect on the person owning

TAX VS. TARIFF

TAX VS. PENALTY

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA, MBA

Sources of Tax Laws:

NATURE OF PHILIPPINES TAX LAWS

The Bureau of Internal Revenue

Chief Officials of the Bureau

Powers of the Bureau

Powers of the Commissioner of Internal Revenue*

10. To prescribe real estate values

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA, MBA

Powers of the CIR that cannot be delegated*

THE PRINCIPLES OF A SOUND TAX SYSTEM

TAXATION AND ECONOMIC EFFICIENCY

5. Prospectivity of Tax Laws –

c. Must be a proportional imposition to the value of the object

2. Income tax is not a/an

3. Real property tax is not a/an

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA, MBA

4. Not a nature of business taxes

5. Tax classified as to object does not include

6. Which is a general characteristic of tax?

9. Which statement is correct?

10.Revenue regulations (RRs) are:

11.Revenue Memorandum Circulars (RMCs) are:

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA, MBA

12. Revenue Memorandum Orders (RMOs) are:

16.Which is not a principle of sound tax system?

d. It should be exercised to promote public welfare.

19.The collection of the VAT on importation is a primary responsibility of

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA, MBA

21.Decisions of the CIR on tax matters is subject to review by the

24.Statement 1: Bank account inquiry is disallowed unless the taxpayer is dead.

Tax due P 400,000

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA, MBA

29.The Commissioner is authorized to inquire into bank accounts relative to

30.Which is wrong with respect to the minimum compromise amount?

33.Which is a constitutional mandate?

34.Which is wrong on taxes and nation building?

d. Public monies may be used to extend financing on private corporations.

b. utilize public-private partnership d. privatize government assets.

37.Which is not a public purpose?

Particulars 2014 2020

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA, MBA

What is the taxpayer’s benefit in 2020?

39.Which statement is correct relating to tax compliance?

40.Which is legally acceptable in tax assessments or tax compliance?