BAINCTAX

Income Taxation
1TAY2022

Fundamental Principles

Tax Policies
 TAXES
Taxes are the enforced proportional contributions from persons and property levied by the law-making body of the State by
virtue of its sovereignty for the support of the government and all public needs.

Essential Elements
The following are the essential elements of taxes.

1. It is an enforced contribution.
2. It is generally payable in money.
3. It is proportionate in character.
4. It is levied on persons, property, or the exercise of a right or privilege.
5. It is levied by the State which has jurisdiction over the subject or object of taxation.
6. It must be uniform and equitable.
7. It must not violate constitutional and inherent limitations.
8. It is levied by the law-making body of the State.
9. It is levied for public purpose or purposes.

Classifications
Taxes may be classified as to different categories.

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 Fiscal or Revenue A tax imposed on general purpose
As to
Regulatory A tax imposed to regulate business, conduct, acts or transactions
Purpose
Sumptuary A tax levied to achieve some social or economic objectives
Personal or Poll or
A tax on persons who are residents of a particular territory
As to Capitation
Subject Property Tax A tax on properties whether real or personal
Matter Excise or Privilege A tax imposed upon the performance of an act, enjoyment of a privilege or engagement in
Tax an occupation
As to Direct Tax A tax where the statutory and economic taxpayer are the same person
Incidence Indirect Tax A tax where the statutory and economic taxpayers are not the same person
As to Specific Tax A tax of a fixed amount imposed on a per unit basis such as per kilo, liter, meter, etc.
Amount Ad Valorem A tax of a fixed proportion upon the value of the tax object
Proportional Tax This is a flat or fixed rate tax
Progressive This is a tax which imposes increasing rates as the tax base increases
As to Rate
Regressive Tax This is a tax which imposes decreasing rates as the tax base increases
Mixed Tax This is manifest tax rates which is a combination of any of the above types of tax

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 As to National Tax Tax imposed by the national government
Authority Local Tax Tax imposed by local government units

Statutory vs. Economic Taxpayer

The statutory taxpayer is the one named by the law to pay the tax levied. On the other hand, the economic taxpayer is the one
who actually pays and carries the burden of the tax. These two taxpayers may not necessarily be the same person. This depends
on the kind of tax being paid.

Other Government Collection Terms

Tax refers to the amount imposed by the government for public purposes. Revenue refers to all income
collections of the government which include taxes, tariff, licenses, toll, penalties and others. The
Tax vs. Revenue
amount imposed is tax but the amount collected is revenue. All taxes are revenue but not all revenues
are taxes.
Tax has a broader subject than license. Tax emanates from taxation power and is imposed upon any
subject to raise revenue. License fees emanate from police power and is imposed to regulate exercise
Tax vs. License Fee of such privilege such as the commencement of a business or profession. Taxes are imposed after the
commencement of a business or profession whereas license fee is imposed before engagement in those
activities. In other words, tax is a post-activity imposition whereas license is pre-activity imposition

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 Tax is a 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
Tax vs. Toll
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 arises from law while debt arises from private contracts. Non-payment of tax leads to
Tax vs. Debt 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 but tax is generally payable in money.
Tax is an amount imposed upon persons, properties or privileges. Special assessment is levied by the
Tax vs. Special government on lands adjacent to a public improvement. It is imposed on land only and is intended to
Assessment 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.
Tax is broader than tariff. Tax is an amount imposed upon persons, properties and privileges. Tariff
Tax vs. Tariff
is the amount imposed on imported or exported commodities.
Tax is an amount imposed for the support of the government. Penalty is an amount imposed to
Tax vs. Penalty 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.

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 TAX LAWS
Taxation law refers to any law that arises from the exercise of the taxation power of the State.

Types
Tax laws can be classified into two categories depending on their effect on both the government and the taxpayer.

These are laws that provide for the assessment and collection of taxes.
Examples:
1. The National Internal Revenue Code (NIRC)
Tax Laws
2. The Tariff and Customs Code
3. The Local Tax Code
4. The Real Property Tax Code
These are laws that grant immunity from taxation.
Examples:
1. The Minimum Wage Law
Tax Exemption Laws
2. The Omnibus Investment Code of 1987 (E.O. 226)
3. Barangay Micro-Business Enterprise (BMBE) Law
4. Cooperative Development Act

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 Nature
The Philippine Internal Revenue laws are generally civil in nature; they are neither political nor penal in nature.

Although tax laws deal with the fundamental symbiotic relationship of people with the government, basically they are not
political in nature. They remain effective even if foreign invaders occupy our country. They are deemed to be the laws of the
occupied territory and not of the occupying enemy. Hence, it is valid and legal that income tax returns shall be filed and paid
by the inhabitants even if foreign invaders occupy our country. Even if there are some penalties provided for violation of tax
laws, they are not penal in nature because they do not define crimes and provide for their punishment. The internal revenue
law provides for some penalties for tax delinquencies only to effect timely payments of taxes or punishes tax evasion for neglect
of duty by those subjects of taxation.

Revenue laws are not remedial laws. They do not include procedures to protect rights; and prevent or rectify wrong doings.

The Tax Code are special laws which prevail over general laws such as Civil Code or Rules of Court. Accordingly, the provisions
of the NIRC on prescription arc given priority over the provisions of Civil Code on prescriptions.

Sources
With the exercise of the power of taxation, tax laws provide guidance on its scope. The following are the common sources of tax
statutes.

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 The term Constitution refers to that body of rules and maxims in accordance with which the powers
of sovereignty are habitually exercised. It is often referred to as the Supreme or Fundamental Law of
Constitution of the the land because all other laws must conform to it. It is the basis in determining the legality of all-
Philippines governmental actions and decisions. A constitutional provision regarding taxation is primarily
intended to limit and regulate the exercise of taxation power. The State can exercise the power to tax
even if the Constitution is completely silent about taxation.
Statutes are laws enacted and established by the will of the legislative department of the government.
The present tax statutes of the Philippines are embodied in the Republic Act No. 8424, which is now
Statutes
the prevailing NIRC effective January 1, 1998, which was amended by various republic acts and
revenue regulations.
These refer to the decisions for application made concerning tax issues by the proper courts exercising
judicial authority of competent jurisdiction. These courts may be the Supreme Court and the Court of
Tax Appeals. Their decisions on tax laws comprise the greater portion of tax jurisprudence. They form
Judicial Decisions
part of the legal system of the Philippines. By the nature of its jurisdiction, the decisions of the Court
of Tax Appeals are still appealable to the Supreme Court. The decision of the Supreme Court on any
matter is final and executory.

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 Executive orders are regulations issued by the President or some administrative authority under his
Executive Orders direction for the purpose of interpreting, implementing, or giving administrative effect to a provision
of the Constitution or of some law or treaty.
Tax Treaties and These refer to the treaties or international agreements with foreign countries regarding tax
Conventions enforcement and exemptions. They have the force and effect of law.
These are tax ordinances issued by the Province, City, Municipality and Barrio subject to such
Local Tax Ordinances
limitations as provided by the Local Government Code and the Real Property Tax Code.

Interpretation of Tax Laws

Though the power of taxation may be broad, tax laws and tax exemptions may be vague that the application of which may be
difficult to determine. If such is the case, proper interpretation of said laws should be done with consideration of the original
intent of the lawmakers at the time such law is drafted and approved.

The maxim, strictissimi juris, indicates that he, who a tax statute is construed against, bears the burden of proving relation to
said statute. Taxation is the rule, exemption is the exception.

Ambiguous Tax Laws are construed against the government and in favor of the taxpayer. This is so
Vague Tax Laws
because the state is the one imposing a burden to its subjects, thus, it is the taxpayer who has the right

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 to question the applicability of said tax law to himself. Moreover, a vague tax law means no tax law.
Obligation arising from law is not presumed. This is also in conjunction with the uniformity and equal
protection clause granted by the Constitution. Considering also that it is the State that drafts tax laws,
it should be drafted properly that the approved law should be clear and concise.
In the construction of tax statutes, exemptions are construed against the taxpayer and in favor of the
government. The fundamental theory is that all taxable property should bear its share in the cost and
Vague Tax Exemptions expense of the government. A vague exemption law means no exemption law. The claim for
exemption is construed against the taxpayer in accordance with the lifeblood doctrine. It is, therefore,
the responsibility of the taxpayer that he/she is within the context of said tax exemption.

Administrative Issuances
To facilitate the administrative act of taxation, the Bureau of Internal Revenue as a body under the Department of Finance,
releases revenue issuances. The following would be the differences of the issuances.

These 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
Revenue Regulations (RRs)
effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related
statutes.

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 These are issuances that provide directives or instructions; prescribe guidelines; and outline
Revenue Memorandum processes, operations, activities, workflows, methods and procedures necessary in the
Orders (RMOs) implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas
of operations, except auditing.
These are ruling, opinions and interpretations of the CIR with respect to the provisions of the Tax
Revenue Memorandum Code and other tax laws as applied to specific sets of facts, with or without established precedents,
Rulings (RMRs) and which the CIR may issue from time to time for the purpose of providing taxpayers guidance
on the consequences in specific situations.
Revenue Memorandum These are issuances that publish pertinent and applicable portions, as well as amplifications, of
Circulars (RMCs) laws, rules, regulations and precedents issued by the BIR and other agencies/offices.
These are issuances that cover subject matters dealing strictly with the permanent administrative
Revenue Administrative set-up of the Bureau, more specifically, the organizational structure, statements of functions
Orders (RAOs) and/or responsibilities of BIR offices, definitions and delegations of authority, staffing and
personnel requirements and standards of performance.
Revenue Delegation of These refer to functions delegated by the Commissioner to revenue officials in accordance with
Authority Orders (RDAOs) law.

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Revenue Bulletins (RB)
BIR Rulings
These refer to the period issuance, notices and official announcement of the CIR that consolidate
the BIR’s position on certain specific issues of law or administration on relation to the provisions
of the tax code, relevant tax laws, and other issuances for the guidance of the public.
These are official positions of the BIR to queries raised by taxpayers and other stakeholders relative
to clarification and interpretation of tax laws.

TAX SYSTEM
The 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 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
This is employed in the taxation of income of individuals, and transfers of properties by
Progressive
According to individuals.
Imposition Proportional This is employed in taxation of corporate income and business.
Regressive This is not employed in the Philippines.

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 A progressive tax system is one that emphasizes direct taxes. A direct tax cannot be
Progressive System 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.
According to A regressive tax system is one that emphasizes indirect taxes. Indirect taxes are shifted by
Impact businesses to consumers; hence, the impact of taxation rests upon the bottom end of the
Regressive System 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
The government requires taxpayers to withhold (i.e. deduct) taxes on their income payments (i.e.
expenses). These withheld taxes are called "withholding tax." These are not tax to the taxpayer but to
Withholding System the recipient of the income payments. The taxpayer must deduct the withholding tax on his income
on Income Tax payments, file a withholding tax return, and remit the withheld tax to the government. Non-
compliance to the withholding tax rules shall expose the taxpayer to penalties and fines aside from
the disallowance of the expense as deductions against income.

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 Creditable Withholding Tax
These are taxes withheld on certain passive and active income where can be credited against income
tax due. Examples are withholding tax on compensation and expanded withholding tax.
Final Withholding Tax
A kind of withholding tax which is prescribed on certain income payments and is not creditable
against any income tax due of the payee for the taxable year.
Withholding System This is the tax withheld by the national government agencies and instrumentalities including
on Business Tax government-owned and controlled corporations on their payments to taxpayers, suppliers, or payees.
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." In preparing their tax return, taxpayers declare their income and expenses, and
personally determine the tax due thereon. The government relies on the good faith of taxpayers in the
Voluntary Compliance
preparation of their tax returns but employs detective techniques to ascertain non-compliance or
System
under-compliance. These returns will be further discussed in succeeding modules. A portion of the
tax due payable herein may have been withheld under the withholding system which are then 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.

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 Under this collection system, the government identifies non-compliant taxpayers, assesses their tax
Assessment or
dues and penalties, and enforces collections by coercive means such as summary proceeding or
Enforcement System
judicial proceedings when necessary.

Principles of Sound Tax System

According to Adam Smith, governments should adhere to certain principles or canons to evolve a sound tax system.

The sources (proceeds) of tax revenue should coincide with and approximate needs of government
expenditures. The sources of revenue should be sufficient and elastic to meet the demands of public
Fiscal Adequacy expenditures. The government must not incur a 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.
The tax system should be fair to the average taxpayer and based upon his ability to pay. It also suggests
Theoretical Justice
that the exercise of taxation should not be oppressive, unjust, or confiscatory.
The tax system should be capable of being properly and efficiently administered by the government
Administrative
and enforced with the least inconvenience to the taxpayer. The following are applications of the
Feasibility
principle of administrative feasibility: E-filing and e-payment of taxes, Substituted filing system for

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 employees, Final withholding tax on non-resident aliens or corporations and accreditation of
authorized agent banks in the filing and payment of taxes

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.

BIR Officials
Commissioner of This is the head of the whole bureau. The duties and powers of this office will be further discussed in
Internal Revenue (CIR) the succeeding pages.
Deputy Four Deputy Commissioners are assigned to the following: (1) Operations Group, (2) Legal
Commissioners Enforcement Group, (3) Information Systems Group and (4) Resource Management Group.
Assistant
Thirteen assistant commissioners are designated to each of the service divisions.
Commissioners
Head Revenue
Thirteen head revenue executive assistants are designated to each of the service divisions.
Executive Assistants
They are the heads of each revenue region which administers and enforces internal revenue laws
Regional Directors
including the assessment and collection of all internal revenue taxes, charges and fees from taxpayers

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 within the region's jurisdiction, as well as ensures proper and effective implementation of National
Office's policies and programs within the Regional Office.
Revenue District They are the heads of the 123 revenue district offices which mainly provide frontline assistance and
Officers service to taxpayers.

Powers of the BIR

The following are the powers of the Bureau of Internal Revenue as vested by law.

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 CIR

The Commissioner of Internal Revenue is given the following powers to fulfill the duties and responsibilities of its office.

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 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 taking or 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 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 proceedings for the collection of the tax or render the same
ineffective
9. To prescribe real property values
10. To compromise tax liabilities of taxpayers
11. To inquire into bank deposits, only under the following instances:

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 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
12. To accredit and register tax agents
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
4. The power to assign and reassign internal revenue officers 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 no case stay there for more than
2 years.
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 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).

Other Revenue-Related Government Bodies

Aside from its regulatory 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,
Bureau of Customs the 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.

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 Common IPAs include the Board of Investments and Philippine Economic Zone Authority. The BOI
is tasked to lead the promotion of investments in the Philippines by assisting Filipinos and foreign
Investment Promotion investors to venture and prosper in desirable areas of economic activities. It supervises the grant of
Agencies tax incentives under the Omnibus Investment Code. 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.
Local Government Tax Provinces, municipalities, cities and barangays also imposed and collect various taxes to rationalize
Collecting Units their fiscal autonomy.

Taxpayer Classification
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:

Value Added Tax At least P200,000 per quarter for the preceding year
As to payment
Excise Tax At least P1,000,000 tax paid for the preceding year

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 Income Tax At least P1,000,000 annual income tax paid for the preceding year
At least P1,000,000 annual withholding tax payments or remittances from all
Withholding Tax
types of withholding taxes
At least P200,000 percentage tax paid or payable per quarter for the
Percentage tax
preceding year
Documentary stamp tax At least P1,000,000 aggregate amount per year
As to financial Gross receipts or sales P1,000,000,000 total annual gross sales or receipts
conditions and Net worth P300,000,000 total net worth at the close of each calendar or fiscal year
results of operations Gross purchases P800,000,000 total annual purchases for the preceding year

Top corporate taxpayer listed and published by the Securities and Exchange Commission shall also be under LTS.

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
Automatic
3. Surviving company in case of merger or consolidation of a large taxpayer
classification
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

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 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

References:
Banggawan, R. (2019). Income Taxation. Pasay City: Real Excellence Publishing.
Valencia, G. & Roxas, E. (2016). Income Taxation. Baguio City: Valencia Educational Supply.
Reyes, V. (2019). Income Tax Law and Accounting under the TRAIN Law. Manila: GIC Enterprises & Co., Inc.
Ampongan O. (2018). Income Taxation. Mandaluyong City: Millennium Books, Inc.

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 Self-Check!
Basing on your readings, answer the following questions.
1. What are taxes and how can they be classified?
2. Differentiate taxes from other government collections.
3. What are tax laws and its types?
4. Describe the nature of tax laws.
5. If tax laws are vague, how are they interpreted?
6. When is a tax system considered sound?
7. How are taxes collected?
8. Who are the chief officials of the BIR?
9. What are the powers of the BIR?
10. What are the powers of the CIR? Can it be delegated?
11. What are the other revenue-related government bodies? What are their mandates?

Exercise 2.1 TRUE OR FALSE

Determine whether the following statements are true or false.
1. In case of discrepancies of GAAP and tax laws, the provisions of tax laws should be followed in terms of tax reporting.

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 2. The presence of a graduated tax table for personal income tax in the Philippines suggests the employment of a
progressive tax system.
3. Tax is a broader term as compared to revenue and tariff.
4. Sources of tax laws are only from the legislative and executive branch of the government.
5. Even though the community/poll tax is a local tax, the certificate still bears the BIR logo.
6. Tax laws must originate exclusively from the House of Representatives.
7. The presence of penalties for late filing and payment of taxes suggests that tax laws are penal in nature.
8. Tax exemption laws which are vague as to its provisions must be construed against the government as this should
have been deliberated well when it was still in the legislative process.
9. One characteristic of a sound tax system is that taxes are generally paid in cash since liquidity is important for the use
government funds.
10. All of the powers of the Commissioner of Internal Revenue cannot be delegated.

Exercise 2.2 IDENTIFICATION

Identify the terminologies best described by the following statements.
1. A tax system where the tax rate decreases as the tax base increases
2. A tax levied to achieve some social or economic objectives

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 3. Official positions of the BIR to queries raised by taxpayers and other stakeholders relative to clarification and
interpretation of tax laws
4. A kind of tax whose amount is dependent on a physical measure
5. Amount levied by government on land adjacent to a public improvement
6. A tax where the statutory and economic taxpayers are not the same
7. Tax withheld on certain income payments which are not creditable against any income tax due
8. The highest official position under the Philippine Economic Zone Authority
9. A tax collection system which is also referred to as self-assessment method
10. This is the amount imposed for transactions involving international trade

Exercise 2.3 MULTIPLE CHOICE

Choose the best answer from the choices provided.
1. When the economic burden of a tax already paid is transferred to another, the tax is most likely a/n ________________.
a. Direct Tax
b. Indirect Tax
c. Personal Tax
d. Specific Tax

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 2. Which is not a characteristic of tax?
a. It is an enforced contribution.
b. It is generally payable in money.
c. It is subject to assignment.
d. It is levied by the law-making body of the State.
3. Which issues revenue regulations?
a. Commissioner of Internal Revenue
b. Bureau of Internal Revenue
c. Department of Finance
d. Secretary of Finance
4. Philippine Tax laws, by nature, are
a. penal
b. civil
c. remedial
d. political
5. Which of the following do not relate to tax?
a. does not render business illegal when not paid

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 b. arises from law rather than from contracts
c. intended to cover cost of regulations
d. intended for public purpose

Exercise 2.4 TAX TYPES

Determine the tax type best described by each of the following statements.
1. The value-added tax was previously 10% when it was expanded to 12%
2. The TRAIN Law removed the use of a graduated tax table for estate tax
3. The excise tax on distilled spirits during 2017 was 20% of the net retail price and P21.63 per proof liter
4. Legislative officials are pushing for taxes on junk foods to fund health efforts against the pandemic
5. Excise taxes are mostly capitalized as cost of the merchandise
6. In efforts to reduce plastic consumption, an LGU imposed a plastic tax

Exercise 2.5 LARGE TAXPAYERS

Determine whether the following taxpayers are to be supervised under the Large Taxpayer Service. Write LTS if yes and RDO if not.
1. With an excise tax rate of 30% on selling price on its automobiles, Vroom Company sold five units at P1,500,000 each on
the preceding year

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 2. Batty Company paid a total of P200,000 on value-added tax during the preceding year
3. The 2019 Balance Sheet of Cappy Company showed assets of P900 million and liabilities of P550 million
4. The 2019 Income Statement of Netty Company reported a taxable income of P4,000,000
5. Fristy Company had its initial public offering on June 19, 2019

Case Study 2.1 GOING LOCO ON LOCAL

The Municipality of Santo Cristo, claiming that it can impose taxes under the Local Government Code, imposed a tax on
common carriers in addition to the 3% common carrier’s tax imposed in the National Internal Revenue Code. The common
carriers in the municipality objected on this ordinance stating that the power of taxation cannot be delegated and that this
constitutes double taxation.
Is their contention tenable?

Case Study 2.2 IS THE COMPROMISE COMPROMISED?

Due to the government budget crunch due to the pandemic, the economic manager of the country looked into tax compromises
and abatements done during the year. Upon evaluation, it discovered a tax liability of P400,000 which was compromised by the
Regional Evaluation Board. The economic manager stated that the tax compromise is not valid since it is the CIR’s power for
the tax compromise to take effect. He also adds that this power cannot be delegated.

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 Is his contention tenable?

Case Study 2.3 THE SOUND OF A SOUND TAX SYSTEM

Assume the same scenario on Case Study 1.2. Instead of spending time on the tax liability at hand, the economic manager
proposed that small-time online sellers should just be sought after by tax authorities as many have not been reporting their
income. With the influx of transactions via the online media, the economic manager estimates that potential government
revenues are higher than the amount in Case Study 1.2. He also contends that the tax collections would help achieve the fiscal
adequacy principle of a sound tax system.

Various individuals and bodies have expressed their frustrations on this idea. Some have stated that this proposition is anti-
poor and violates the theoretical justice principle of a sound tax system. It also adds non-financial burden to the liable taxpayers
as this would require additional registration processes and tax filings for them, which they say is also against the administrative
feasibility principle.
Whose contention is more tenable?

Fundamental Principles Tax Policies page 29

 Case Study 2.4 PRESIDENT AT PRESSURE
Being sympathetic to the online selling industry, President Jack A. Moon issued an executive order granting exemption of
small-time online sellers from payment of income and percentage tax. However, to offset the revenue foregone on this
exemption granted, a specific provision was included in the executive order that online selling platforms shall be imposed with
a 5% digital tax on every sale transaction facilitated.
Comment on the substance and form of the executive order.

Fundamental Principles Tax Policies page 30