Module 2

Module 2: TAXES, TAX
LAWS, AND TAX

ADMINISTRATION
Taxation law
• Refers to any law that arises from the exercise of the taxation power
of the State.
Types of taxation laws
1. Tax laws: these are laws that provide for the assessment and
collection of taxes.
Examples:
a. The National Internal Revenue Code (NIRC)
b. The Tariff and Customs Code
c. The Local Tax Code
d. The Real Property Tax Code
2. Tax exemption laws: these are laws that grant certain immunity from
taxation.
Examples:
a. The Minimum Wage Law
b. The Omnibus Investment Code of 1987 (E.O. 226)
c. Barangay Micro-Business Enterprise (BMBE) Law
d. Cooperative Development Act
Sources of Taxation Laws
1. Constitution
2. Statutes and Presidential Decrees
3. Judicial Decisions
4. Executive Orders and Batas Pambansa
5. Administrative Issuances
6. Local Ordinances
7. Tax Treaties and Conventions with foreign countries
8. Revenue Regulations
Types of Administrative Issuances
1. Revenue regulations
2. Revenue memorandum orders
3. Revenue memorandum rulings
4. Revenue memorandum circulars
5. Revenue bulletins
6. BIR rulings
GAAP v. Tax laws
GAAP Tax laws

• Not laws but are mere • Prescribe the criteria for tax
conventions of financial reporting, a special form of
reporting; financial reporting which is
• They are benchmarks for the fair intended to meet specific needs
and relevant valuation and of tax authorities.
recognition of income, expense,
assets, liabilities, and equity of a
reporting entity for general
purpose financial reporting.
Nature of Philippine Tax Laws
• Civil and not political in nature.
• Our internal revenue laws are not penal in nature because they do
not define crime. Their penalty provisions are merely intended to
secure taxpayers’ compliance.
Elements of a valid tax
1. Tax must be levied by the taxing power having jurisdiction over the
object of taxation;
2. Tax must not violate constitutional and inherent limitations;
3. Tax must be uniform and equitable;
4. Tax must be for public purpose;
5. Tax must be proportional in character; and
6. Tax is generally payable in money.
Classification of taxes
A. As to purpose
1. Fiscal or revenue tax
2. Regulatory
3. Sumptuary
B. As to subject matter
1. Personal, poll or capitation
2. Property tax
3. Excise or privilege tax
C. As to incidence
1.Direct tax
2. Indirect tax
D. As to amount
1. Specific tax
2. Ad valorem
E. As to rate
1. Proportional tax
2. Progressive or graduated tax
3. Regressive tax
4. Mixed tax
F. As to imposing authority
1. National tax
examples: income tax, estate tax, donor’s tax, VAT,
documentary stamp tax
2. Local Tax
examples: real property tax, professional tax, business
taxes, fees, and charges, community tax
Distinction of taxes with similar
items
Tax vs. Revenue
Tax Revenue
• Amount imposed by the • All income collections of the
government for public purpose. government which includes
taxes, tariff, licenses, toll,
penalties and others.
Tax vs. License fee
Tax License fee

• Emanates from taxation power • Emanates from police power and
and is imposed upon any object is imposed to regulate the
such as persons, properties, or exercise of a privilege such as
privileges to raise revenue. the commencement of a
business or a profession.
Tax vs. Toll
Tax Toll
• Is a levy of government, hence, • Is a charge for the use of other’s
it is a demand of sovereignty. property, hence, it is a demand
• The amount of tax depends of ownership.
upon the needs of the • The amount of toll is dependent
government. upon the value of the property
leased
Tax vs. Debt
Tax Debt
• Arises from law • Arises from private contracts
• Non-payment of tax leads to • Non-payment of debt does not
imprisonment lead to imprisonment
• Can not be subject to a set-off • Can be a subject of set-off
• Generally payable in money • Can be paid in kind
Tax vs. Tariff
Tax Tariff
• Is an amount imposed upon • Is the amount imposed on
persons, privilege, transactions, imported or exported
or properties. commodities.
Tax vs. Penalty
Tax Penalty
• Is an amount imposed for the • Is an amount imposed to
support of the government. discourage an act.
Tax System
• It refers to the methods or schemes of imposing,
assessing, and collecting taxes.
• The Philippine tax system is divided into two: the
national tax system and the local tax system.
Types of Tax Systems according to
imposition
1. Progressive
2. Proportional
3. Regressive
Types of Tax System according to impact
1. Progressive system
2. Regressive system
Tax Collection Systems
A. Withholding system on income tax
1. Creditable withholding tax
a. Withholding tax on compensation
b. Expanded withholding tax
2. Final withholding tax

Differences between FWT and CWT
Creditable Withholding
Final Withholding Tax
Tax
Income tax withheld Full Only a portion
Certain passive and

Coverage of withholding Certain passive income
active income
Income payor for the

Who remits the actual
Income payor CWT and the taxpayer
tax
for the balance
Necessity of income tax

Not required Required
return for taxpayer
PRINCIPLES OF A SOUND TAX SYSTEM
1. Fiscal Adequacy
2. Theoretical justice
3. Administrative feasibility
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.
Powers of the Bureau of Internal Revenue
1. Assessment and collection of taxes;
2. Enforcement of all forfeitures, penalties, and fines, and judgments in all
cases decided in its favor by the courts;
3. Giving effect to, and administering the supervisory and police powers
conferred to it by the NIRC and other laws;
4. Assignment of internal revenue officers and other employees to other
duties;
5. Provision and distribution of forms, receipts, certificates, stamps, etc. to
proper officials;
6. Issuance of receipts and clearances; and
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 Appeals;
3. To obtain information and to summon, examine, and take testimony of
persons to effect tax collection;
4. To examine tax returns and determine tax dues;
5. to prescribe real property values;
6. To compromise tax liabilities of taxpayers; and
7. To accredit and register tax agents.
Other Agencies Tasked With Tax
Collections Or Tax Incentives
Related Functions
1. Bureau of Customs
2. Board of Investments
3. Philippine Economic Zone Authority
4. Local Government Tax Collecting Unit
5. Fiscal Incentives Review Board
Taxpayer Classification For Purposes of Tax
Administration
1. Large taxpayers-under the supervision of the Large Taxpayer Service
(LTS) of the BIR National Office.
2. Non-large taxpayers-under the supervision of the respective
Revenue District Offices (RDOs) where the business, trade, or
profession of the taxpayer is situated.

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Module 2: TAXES, TAX

LAWS, AND TAX

GAAP Tax laws

Tax License fee

2. Final withholding tax

Certain passive and

Income payor for the

Necessity of income tax

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