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167 views20 pagesTAX 3 - Banggawan
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© © All Rights Reserved
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/ 20
Chapter 2 - Taxes, Tax Laws and Tax Administration
Differences between FWT and CWT.
Final Withholding Creditable Withholding Tax
‘, Tax ive a
Income tax withheld Full Only a portion
Coverage of Certain passive income | Certain passive and active
withholding x _income
Who remits the actual Income payor | Income payor-forthe CWT and
cox "the taxpayer for the balance
Necessity of income tax Not required Required
return for taxpayer
B, Withholding system on (business tax)- when the national government
agencies and instrumentalities including government-owned and controlled
corporations (GOCCs) purchase goods or s ‘es from private suppliers, the
law requires withholding of the relevant business tax (i.e. VAT or percentage
tax). Business taxation is discussed under Business and Transfer Taxation by
the same author.
C. Voluntary compliance system - 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
The tax ined under this system will be reduced by:
a. Withholding tax on compensation withheld by employers
b. Expanded withholding taxes withheld by suppliers of goods or services
The taxpayer shall pay to the government any tax balance after such credit or
claim refund or tax credit for excessive tax withheld.
D. Assessment or enforcement system - Under this collection system, the
government identifies non-compliant taxpayers, assesses their tax dues
including penalties, ands for taxpayer’s voluntary compliance or enforces
collections by coer means such a: mma) roceeding or judicial
COMECHONS DY. 6 SUN ra! BOF)
proceedings when necessary.
PRINCIPLES OF A SOUND TAX SYSTEM
According to Adam Smith, governments should adhere to the following principles
or canons to evolve a sound tax system:
1, Fiscal adequacy
2. Theoretical justice
3. Administrative feasibility
43 | ——
tration
Chapter 2 - Taxes, Tax Laws and Tax Adminis!
pment funds must be sufficient
not incur a deficit. A budget
he essential public services to
rease in government
Fiscal adequa oat
Pee ecaaiE requires that the sources a 5
to cover government.costs..The governm eaere
deficit paralyzes the government's ability 006 ing
the people. Hence, taxes should increase in resP'
spending:
Theoretical justice HEqui ider the taxpayer's
Theoretical justice or equity suggests that taxation ste sao TAbuldi not be
ability to pay. It also suggests that the exercise 0!
oppressive, Unjust, or confiscatory.
istrative feasibility hould be capable of efficient and
i ibili at tax laws sl
trathee easily ees jliance, Government should make it
“effecti inistrati e com)
effective administration to encouragt i “|ministrative bottlenecks and
easy for the taxpayer to comply by avoiding a
reducing compliance costs.
The following are applications of the principle of ‘administrative feasibility:
1. E-filing and e-payment of taxes
2. Substituted filing system for employees ;
3. Final withholding tax on non-resident aliens or corporations
4. 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.
Chief Officials of the Bureau of Internal Revenue
1. 1Commissioner
2. _4 Deputy Commissioners, each to be designated to the following:
/ a. Operations group
“ b, Legal Enforcement group
‘ ¢. Information Systems Group
d. Resource Management Group
POWERS OF THE BUREAU OF INTERNAL REVENUE
1. Assessment and collection of taxes
2. Enforcement of all forfeitures, it " :
decided in its favor by the courte ns nd fines: and judgments in all cases
44 Chapter 2 - Taxes, Tax Laws and Tax Administration
Giving effect to, and administering the supe’
conferred to it by the NIRC and other laws fee
Assignment of internal revenue officers and other employees to other ste fs
Provision and distribution of forms, receipts, certificates, stamps, €'c-
proper officials
6, Issuance of receipts and clearances
Submission of annual report, pertinent information to Congress and reports to
the Congressional Oversight Committee in matters of taxation
rvisory and police” powers
2.
POWERS OF THE COMMISSIONER OF INTERNAL REVENUE
1, To interpret the provisions of the NIRC, subject to review by the Secretary of
Finance
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
N
Purpose: For the 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
¢. 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 ty
4. To make assessment and
administration and enforcement - a
0
inistration ,
Chapter 2 - Taxes, Tax Laws and Tax Adm! i”
due thereon p
; determine tax abit ehaminata |
5 tax returns and uthorize the nm ?!
To examine ta duly authorized representatives My of tax. Failure to file |
The CIR or his duly f the corr ‘
ent O} fi ination.
a return shall not prevel d demand by the CIR or a
Tax or deficiency assessments are due upon notice an t
his representatives. hall not be withdrawn but may be
Returns, statements or declarations shal ithin 3 years from the date 4
ied by the taxpayer ve
udit or investigation has been actually
modified, changed and amend!
of filing, except when a notice for al
served upon the taxpayer.
e cumente he prescribed deadline or
false, incomplete or
basis of best evidence
When a return shall not be forthcoming within tl Ms
when there is a reason to believe that the oe
verses, the CIR shall assess the proper tax on LE
available. nee
In case a person fails to file a required return oF other a Rae ee
prescribed by law or willfully files a false or fraudulent 1 ied
documents, the CIR shall make or amend the return from his own kno’ ge
and from such information obtained from testimony. The return shall be
presumed prima facie correct and sufficient for all legal purposes.
6. Toconduct 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.
‘The presumptive gross sales or receipt shall be derived from the performance
of similar business under similar circumstances adjusted for other relevant
information.
8. To terminate tax period when the taxpayer is:
a. Retiring from business
b. ene leave the Philippines
c. Intending to remove, hide, or conceal his
i , Property
a sone es perform any act tending to obstruct the proceedii
n of the tax or render the same ineffective ne
The termination of the taxable
A able period shall be communi i
we apne together witha request for na inicated through a notice
reable late payment. Taxes shall be
46 inistration
Chapter 2 - Taxes, Tax Laws and Tax Adm
se or abate any tax liability
Boards may compromise tax liabilities
3. The power to comprom!
onal Evaluation
Exceptionally, the Regi
under the following: :
egi
a, assessments are issued uae regi :
tax of P500,000 or less, am feelin
b. aie criminal violations discovered by res
ional Evaluation Board
ional offices involving basic deficiency
district officials
Composition of the Reg
a. Regional Director as chairman
b. Assistant Regional Director Division
ment and Collection i
c. Heads of the Legal, Assess cole over the taxpayer
d. Revenue District Officer having juris
stablishment
4, The power to assign and reassign internal revenue ite to e ts
where articles subject to excise tax are produced or kep'
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.
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 r i
of national internal revenue taxes on imported goods, Sam
2. The head of appropriate government office i i i
patie ae neay ae es and his subordinates with respect
3. Banks duly accredited by the Commissi i
payments f internal revenue tates authorized to be trade thre bac oe
are referred to as i i eee ad
authorized government depositary banks (AGDB).
OTHER AGENCIES TASKED WIT,
RELATED FUNCTIONS 'H TAX COLLECTIONS OR TAX INCENTIVES
1, Bureau of Customs
Board of Investments
Philippine Economic Zo} ‘
itbeal Co ne Authori
vernment Tax Collecting Unit
az ©
2.
3°
a Chapter 2 - Taxes, Tax Laws and Tax Administration
ners 5 ep) :
dyer) a
Bureau of Customs (BoC) ~ ““” ay
Aside from its Racket aa the bureau of Customs is tasked i St
collectian of tariffs on imported articles and collection of the Value Adde« a
importation. Together with the BIR, the BOC is under the supervision
Department of Finance,
The urea of Customs ig headed by the Customs Commissioner and is assisted by
five Deputy Commissioners and 14 District Collectors.
Board of Investments (BOI) ~ VI! <“""N) (hoirman) ;Vicu then 9 ii
The BOI is tasked to lead the promotion of investments in the Philippines by
assisting Filipinos and foreign investors to venture and prosper in desirable areas
of economic activities. It supervi: rant of tax incentives mi
In The BOI is an attached agency of the Department of Trade and
plachediagenic a
Investment Code,
Industry (DTI).
The BOI is composed of five full-time governors, excluding the DTI secretary as its
chairman. The President of the Philippines shall appoint a vice chairman of the
board who shall act as the BOI’s managing head.
dredoe gnu +9 deputy ATP
Philippine Economic Zone Authority (PEZA) ~
The PEZA, is. reared to- promote investments in export-oriented manufacturing
ilippines and, among other myriads of functions, supervise the
industries in the
gant ofboth iscal and non-fiscal incentives.
PEZA registered enterprises enjoy tax holidays for certain years, exemption from
import and export faxes including local taxes. The PEZA is also an attached agency
of the DTI.
The PEZA is headed by a director general and is assisted by three deputy
directors.
Local Government Tax Collecting Units
Provinces, municipalities, cities and barangays also imposed and collect various
taxes to rationalize their fiscal autonomy.
The special tax treatments of BOl-registered or PEZA-registered enterprises
including the local taxes imposed by local governments will be discussed under
Local & Preferential Taxation by the same author. ‘Administration
F TAX ADMINISTRATION
taxpayers are classifieg
Chapter 2 - Taxes, Tax Laws and Tax
Ol
TAXPAYER CLASSIFICATION FOR PURPOSES Fe
administration,
For purposes of effective and efficient tax
into:
1. Large taxpayers ~ under the supervision of the Large T:
of the BIR National Office.
2. Non-large taxpayers - under the st
District Offices (RDOs) where the business, tra
is situated
‘axpayer Service (LT)
of the respective Revenue
ion
he) ube Ne ion of the taxpayer
de or profess
Criteria for Large Taxpayers:
A. As to payment
1. Value Added Tax At least P200,000-pet quarter oe eu ore
falue Added aor ie
2, Excise Tax- At least P1,000,000 tax paid for the Preset TE AT ng
3. Income Tax - At least P1,000,000 annual income
year :
4. Withholding Tax - At least P1,000,000 annual withholding 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
As to financial conditions 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
The following taxpayers shall be automatically classified as large taxpa)
> following ers upon
notice in writing by the CIR: ii eae
1, All branches of taxpayers under the Large Taxpayer's Service
2. Subsidiaries, affiliates, and entities of conglomerates or i
bree tsayer ie! group of companies of a
3. Surviving company in case of merger or consolidation of
a large taxpayer
4. A corporation that absorb: i i if
ee on s the operation or business in case of spin-off of any
5. Corporation with an authori: itali:
Metsna orized capitalization of at least 300,000,000 registere¢
50 ws and Tax Administration
Chapter ‘axes, Tax Lal
s
CHAPTER 2: SEL! ‘TEST EXERCISE
Discussion Questions ealaye
Distinguish tax law from tax mer
Enumerate the sources of tax la
Discuss the nature of Philippine an
Distinguish tax laws, revenue reat 7
Det ee nest Enumerate and provide exam ples for each
What are the classifications © ?
classification. ;
7. Compare tax with revenue,
penalty. , ‘
i its types?
8. Whatis a tax system? What are I ae
9. Enumerate the principles of a sound tax system. Explai
10. Enumerate the powers of the BIR.
11, Enumerate the non-delegated powers of the CIR.
id rulings.
open
jicense, toll, debt, special assessment, tariff, ang
Exercise Drill No. 1 aes
Identify the type of tax that is described by the following:
rw Penconane day
T._Aconsumption tax collected by non-VAT businesses E
_/-2._ Tax on gratuitous transfer of property by a living donor Doves F04
3. Tax that decreases in rates as the amount or value of the | reareccive fay:
tax object increases
4. Tax collected upon persons who are not the statutory direct toe
taxpayers
5. Tax that is imposed based on the value of the tax object Ad yalocemn
6. Tax for general purpose Fiscal / penvonuc fa
7._Tax imposed by the national government Nofional Tax
_-8._A tax on sin products or non-essential commodities xd Fay
9.__Imposed on the gratuitous transfer of property upon death | Ea) 46%
10. Tax on residents of acountry _ persoalll tay
11. Tax that remains at flat rate regardless of the value of the
tax object Proportional SO)
12. Tax which is collected on a per unit basis 5
1 A Taxis collected upon the statutory taxpayer Peau toy
14. Tax imposed to regulate businesses or professions
15. er eg performance of an act or enjoyment ofa |
=. 52 sctration
Tax Laws and Tax Administratio’
Chapter 2 - Taxes:
«an indirect tax?
23. Which is an indirect c, Income tax
@ vale ate tax 4. Real property ©*
. Donor
so tax?
24. Which is not an ad valorem income tax
@) Re rty tax
.) Real propel f
b. Excise taxon cigar d. Donor's tax
x thi it or per head basis
isi based on per unit or P d
25. A tax that is imposed |! ;
yal tax 4
OL Umreeee
is known as
26. Tax as to rates excludes c
(a) Specific tax c. Mixed tax re
b. Progressive tax d. Proportional tax :
tion to the government amounting to 80,000. ang is
leaving the country, he entered into a contract with Mr. B wherein se aul pay
the P80,000 tax in his behalf. On due date, Mr. B failed to pay the tax. The sent
a letter of demand to Mr. A which he refused to pay.
Which of the following statements is correct? " !
a. The government cannot enforce collection charges against Mr. A since he has
validly transferred his obligations to B under the contract.
b. The government can no longer run after Mr. A because he is already outside
gi
the Philippine territory.
é) The government should wait until Mr. B becomes solvent again.
27. Mr. A has a tax obliga
The government should force Mr. A to pay because taxes are non-assignable.
28. Philippine tax laws are, by nature,
a political. c. political and civil.
civil. d. penal and civil,
29, Motor vehicles tax is an example of
Property tax c. Income tax
.) Privilege tax d. Indirect tax
30. Which of the following statements is correct?
7 ane Marshall Doctrine is not used in Practice since it
. €X post facto tax law violates the Constitution,
fc. A tax bill personally drafte
approval by congress, rafted by the president shall become a law afte
It is in the public intere: t errors of public o| icials shi in
st that f public offi id bind th
ils shoul
it is unconstitutional.
56 Chapter 2 - Taxes, Tax Laws and Tax Administration
5, What distinguishes tax from license?
a, Tax is a regulatory measu
b. Taxis ademand of own
Tax arises from contract.
(4) Tax is a post-activity imposition.
6. Which of the following distinguishes license from tax?
Itis imposed under taxation power, /
Itisa charge for other's property.
Non-compliance to it will render businesses illegal.
a Itis generally payable in money.
7. The amount imposed is based on the value of the property
a. Eminent domain c. Toll
b. License CASpecial assessment
Which is intended to regulate conduct?
Penalty ¢. Police power
License d. Toll
9. Toll exhibits all of the following characteristics, except one. Which is the
exception?
a. Demand of ownership
b. Compensation for the use of another's property
Maybe imposed by private individuals
& @ kevies for the support of the government
0. Which of the following is incorrect?
iE The collected tax is referred to as revenue.
Tax is the sole source of government revenue. 1
License is imposed before commencement of a business or profession,
4. Debt can be subject to compensation or set-off.
Om ately
11. Debt as compared to tax ddqulbmbwone axe
a. Itisademand of ownership. aiqed \blvods foley
b. , It isnot assignable. fod 2yinuonbliorle noting
It will not cause imprisonment when notpaid. =
It is generally payable in money. corre Beat
rt a4 3 aplo orf is.bative
12, Select the incorrec statement, il ace
a. Tax may be unlimited in amou —
chapter 2- Taxes, Tax Laws and Tax Administration
g, Which of the following is not an application of the lifeblood doctrine?
© g, The government has the right to select the object of taxation.
p, Taxation is the rule; exemption is the exception.
_ Claim for exemption is strictly construed against the taxpayer.
ne of these
'
hich one of the following is the BIR not empowered to do?
‘Assess national taxes
A Collect income, business and transfer taxes
‘Assess and collect local taxes
Enforce forfeitures, penalties and fines
principle demands that ax should be just, reasonable, and fair?
jeoretical justice c. Administrative feasibility
d. Economic consistency
mvnly
jong the following powers of the Commissioner of Internal Revenue can
2
‘power to conduct inventory surveillance iil
power to recommend promulgation of revenue regulations.
power to issue rulings of first impression.
rr to reverse a ruling, amend or modify an existing rulin;
\ ih i
er of Internal Revenue is notempoweredto - po
ke or amend a tax return for and in behalf of the taxpayer. Cieee
n information and to summon, examine, and take testimony of persons
z coup Batti a
AT RE and Tax Admin istration
Chapter 2 Fares TO es ‘oo tax amnesty and condonation,
ne incorrect statement regarding (3% oo he shoo
16, select the © tors are requires ortich bridoned!! che! tax
al inte 2 NE ‘unpaid portion of ie tate co Daye,
he rem aid.
. wa for refund for the Ee se * wrely available.
a ates as a ae balance of the assessed tax; hence, thy
¢ Taxamnesty opel ;
operates on t ane ofthe taX-
@) Tax condonation
® taxpayer can ask for refund fOr the
issione!
wing is a power of the Commiss!
ion of taxes
‘Assessment and collection of ae!
Enforcement of all forfeitures, ee fines
isions of the .
aoadttl rvisory and police powers
al
a
) Interpretation of the soft
@ Giving effect to and administering the supe
conferred by the NIRC and other laws
The Commissioner of Internal Revenue can deleg
3) refund or credit internal revenue tax. 3
e Secretary of Finance.
c
d
paid port
T of Internal Revenue?
17. Which of the follo
ate the power to
)
Se recommend rules and regulations to th 4
assign and re-assign revenue officer to establishments of excisable articles.
compromise or abate tax liability.
19. The BIR is under the supervision of
the Department of Finance.
a. the Bureau of Customs.
b. the President.
d. Congress.
20. Who is nota large taxpayer?
a. Mining companies
b. Listed companies None of these
. Banks with P120M authorized capital
21. In terms of financial m i i
eee ee naan nee, which of the following threshold for qualification
a. Gross receipts exceeding P1B
b. Net worth exceeding P300M :
Gross purchases exceeding P800M
(a) Gross sales exceeding P1.5B
22. As to tax payments me:
0 tax p ‘asures, which i
poitt as large taxpayer is nate ne a
2 4 nual income tax Payments of PIM t
b ae ianeatded tax payments of PIM
*y rerly percentage tax 5