CHAPTER 2

INCOME TAXATION | 1ST SEMESTER | ACADEMIC YEAR 2024 - 2025

TYPES OF RULINGS
TAXATION LAW ● Value Added Tax (VAT) Rulings
● any law that arises from the exercise of ● International Tax Affairs Division (ITAD)
taxation power of the state ● Rulings
TYPES OF TAXATION LAW ● BIR Rulings
● Tax Laws ● Delegated Authority (DA) Rulings
- provide for the assessment and
collections of taxes GENERALLY ACCEPTED ACCOUNTING
● Tax Exemption Laws PRINCIPLES (GAAP) VS. TAX LAWS
- grants certain immunity from
taxation
GAAP TAX LAWS
SOURCES OF TAXATION LAWS
● Constitution -are not laws but -laws, rules, regulations
● Statutes and Presidential Decrees conventions of and rulings
● Judicial decisions financial reporting
● Administrative issuances
● Local ordinances -benchmarks for the -prescribe for the
● Tax treaties and conventions with foreign fair and relevant criteria of tax reporting
countries valuation and (a special form of
● Revenue Regulations recognition for financial reporting
general purpose intended to meet specific
TYPES OF ADMINISTRATIVE ISSUANCES financial reporting needs of tax authorities

Revenue Regulations - intended to meet -taxpayers are

● signed by the Secretary of Finance upon the common needs of mandated to follow tax
recommendation of Commission of Internal the users laws in cases of conflict
Revenue (CIR) with GAAP
● specify, prescribe or define rules and
regulations for the effective enforcement of -used in recording -used in preparation and
National Internal Revenue Code (NIRC) transactions filing of tax returns
provisions and related statutes
● final pronouncement intended to clarify tax
NATURE OF PHILIPPINE TAX LAWS
laws
● civil and not political in nature
● has the force and effect of the law but not
● effective even during enemy occupation
intended to expand or limit the application
● internal revenue laws are not penal in
of it; otherwise, void.
nature because it does not define crime but
Revenue Memorandum Orders
to secure taxpayers’ compliance
● provide directives or instructions; prescribe
guidelines; and outline process necessary in
TAX
the implementation of the state policies and
goals ● an enforced proportional contribution
Revenue Memorandum Rulings levied by the lawmaking body of the state to
raise revenue for public purpose
● rulings, opinions, interpretations of CIR
with respect to the provisions of the Tax
Code and other tax laws ELEMENTS OF A VALID TAX
Revenue Memorandum Circulars ● levied by the taxing power having the
● issuances and publish pertinent and jurisdiction over the object of taxation
appropriate portions issued by the BIR and ● not violate constitutional and inherent
other agencies or offices ● limitations
Revenue Bulletins ● uniform and equitable
● for public purpose
● periodic issuances, notices, and official
● proportional in character
announcements of the CIR
● generally payable in money
● consolidates BIR’s position on certain
specific issues
BIR Rulings CLASSIFICATION OF TAXES
● official positions of the Bureau to queries A.AS TO PURPOSE
raised by taxpayers and other stakeholders ➔ fiscal/revenue tax
relative to clarification and interpretation of - imposed for general purpose
tax laws ➔ regulatory
- to regulate business, conduct, act, or
RULINGS transactions
● are merely advisory or a sort of information ➔ sumptuary
service to the taxpayer - to achieve social or economic objectives

OTADOY, Chleo Reign Hope G.

CHAPTER 2
INCOME TAXATION | 1ST SEMESTER | ACADEMIC YEAR 2024 - 2025
B.AS TO SUBJECT MATTER ➢ documentary stamp tax - a tax on
➔ personal, poll, or capitation documents, instruments, loan agreements,
- tax on a person resident of a particular and papers evidencing the acceptance,
territory assignment, sale or transfer of an
➔ property tax obligation, right or property incident
- tax on property, real, personal thereto.
➔ excise/privilege tax
- tax upon the performance of an act, ➔ local tax
enjoyment of privilege or engagement in an - tax imposed by the municipal or local
occupation government
C.AS TO INCIDENCE Examples:
➔ direct tax ➢ Real property tax
- both impact and incidence of taxation rest ➢ Professional tax
upon the same taxpayer ➢ Business taxes, fees, and charges
- tax is collected from the person who is ➢ Community tax
intended to pay the same ➢ Tax on banks and other financial
- statutory taxpayer is the economic taxpayer institutions
➔ indirect tax
- tax is paid by any person other than who is DISTINCTION OF TAXES WITH SIMILAR TERMS
intended to pay the same
- statutory taxpayer is not the economic TAX VS. REVENUE
taxpayer
NOTE!!! TAX REVENUE

● statutory taxpayer the amount imposed by all income collections

- person named by law to pay the government for of the government
● economic taxpayer public purpose which includes taxes,
- the one who actually pays the tax tariffs, licences, toll,
penalties and others
D.AS TO AMOUNT
➔ specific tax the amount imposed is the amount collected is
- a tax of a fixed amount imposed on a per tax revenue
unit basis such per kilo, liter or meter, etc.
➔ ad valorem
- a tax of a fixed proportion imposed upon TAX VS. LICENSE FEE
the value of the tax object
E.AS TO RATE TAX LICENSE FEE
➔ proportional tax
- a flat or fixed rate tax has a broader subject more specific
- emphasises equality as it subjects all than license
taxpayers with the same rate without
regard to their ability to pay. emanates from taxation emanates from police
➔ progressive or graduated tax power power
- a tax which imposes increasing rates as the
tax base increases imposed upon any imposed to regulate the
- usage results in equitable taxation because object such as persons, exercise of a privilege
it gets more tax to those who are more properties, or such as the
capable privileges to raise commencement of a
- aids in lessening the gap between the rich revenue business or
and the poor. a profession
F.AS TO IMPOSING AUTHORITY
➔ national tax imposed after the imposed before
- tax imposed by the national government commencement of a engagement in those
Examples: business or profession activities
➢ income tax - tax on annual income, gains
or profits a post-activity a pre-activity imposition
➢ estate tax - tax on gratuitous transfer of imposition
properties by a decedent upon death
➢ donor's tax - tax on gratuitous transfer of
properties by a living donor
TAX VS. TOLL
➢ value added tax - consumption tax
collected by VAT business taxpayers
➢ other percentage tax - consumption tax TAX TOLL
collected by non-VAT business taxpayers
➢ excise tax - tax on sin products and a levy of government; a charge for the use of
non-essential commodities hence, it is a demand of other's property;
- should be differentiated with the sovereignty hence, it is a demand of
privilege tax which is also called excise tax. ownership.

OTADOY, Chleo Reign Hope G.

CHAPTER 2
INCOME TAXATION | 1ST SEMESTER | ACADEMIC YEAR 2024 - 2025
TAX VS. TARIFF
the amount of tax the amount of toll is
depends upon the dependent upon the
needs of the value of the property TAX TARIFF
government leased.
broader than tariff the amount imposed on
private entities cannot both the government imported or exported
impose taxes and private entities an amount imposed commodities
impose tol upon persons,
privilege
TAX VS. DEBT
transactions, or
properties
TAX DEBT
TAX VS. PENALTY
arises from law arises from private
contracts
TAX PENALTY
non-payment of tax non-payment of debt
leads to imprisonment does not lead to an amount imposed amount imposed to
imprisonment for the support of the discourage an act
government
cannot be subjected to can be subjected to
set-off set-off arises from law may be imposed by both
the government and
generally payable in can be paid in kind private individuals
money (dacion en pago)
may arise both from law
draws interest only draws interest when it or contract
when the taxpayer is is so stipulated by the
delinquent contracting parties or
when the debtor incurse TAX SYSTEM
legal delay ● methods or schemes of imposing, assessing
and collecting taxes
● includes all the tax laws and regulations,
TAX VS. SPECIAL ASSESSMENT the means of their enforcement, and the
government offices, bureaus and
TAX SPECIAL ASSESSMENT withholding agents
● divided into two: the national tax system and
amount imposed levied by the the local tax system
upon persons, government on lands TYPES OF TAX SYSTEMS
properties, or adjacent to a public
privilege improvement ACCORDING TO IMPOSITION
Progressive
levied without imposed on land only
expectation of a direct and is intended to - employed in the taxation of income of
proximate benefit compensate the individuals, and certain local business taxes
government for a part of Proportional
the cost of the - employed in taxation of corporate income
improvement and business
Regressive
basis is the benefit in - not employed in the Philippine
terms of the ACCORDING TO IMPACT
appreciation in land
value caused by the Progressive
public improvement - one that emphasizes direct taxes
- direct tax cannot be shifted
attaches to the land - encourages economic efficiency as it leaves
taxpayers to be efficient
it will not become a - this type of tax system impacts more upon
personal obligation of the rich
the land owner Regressive
- emphasizes indirect taxes
non-payment of special - indirect are shifted by businesses to
assessment will not consumers; hence, the impact of taxation
result to imprisonment rests upon the bottom end of the society
(unlike in tax) - regressive tax system is anti-poor
- Philippines has a dominantly regressive tax
system due to the prevalence of business
taxes

OTADOY, Chleo Reign Hope G.

CHAPTER 2
INCOME TAXATION | 1ST SEMESTER | ACADEMIC YEAR 2024 - 2025
TAX COLLECTION SYSTEMS B.WITHHOLDING SYSTEM ON BUSINESS TAX
● when the national government agencies and
A.WITHHOLDING SYSTEM ON INCOME TAX instrumentalities including
● the payor of the income withholds or government-owned and controlled
deducts the tax on the income before corporations (GOCC) purchase goods or
releasing the. services from private suppliers, the law
● same to the payee and remits the same to requires withholding of the relevant
the government. business tax.
WITHHOLDING TAXES COLLECTED C. VOLUNTARY COMPLIANCE SYSTEM
Creditable Withholding Tax ● the taxpayer himself determines his
➔ intended to support the self-assessment income, reports the same through income
method to lessen the burden of lump sum tax tax returns and pays the tax to the
payment of taxpayer. government.
● also referred to as the "Self-assessment
➔ provides for a possible third-party check for method"
the BIR of non-compliant taxpayers. The tax due determined under this system
a. Withholding tax on compensation - an will be reduced by:
estimated tax required by the government a. Withholding tax on compensation withheld
to be withheld by employers against the by employers
compensation income to their employees. b. Expanded withholding taxes withheld by
b. Expanded withholding tax - estimated tax suppliers of goods or services
required by the government to be deducted The taxpayer shall pay to the government
on certain income payments made by any tax balance after such credit or claim refund or
taxpayers engaged in business. tax credit for excessive tax withheld.
Final Withholding Tax D. ASSESSMENT OR ENFORCEMENT SYSTEM
➔ a system of tax collection wherein payors are ● the government identifies non-compliant
required to deduct the full tax on certain taxpayers, assesses their tax dues including
income payments. penalties, demands for taxpayer's voluntary
➔ intended for the collection of taxes from compliance or enforces collections by
income with high risk of non-compliance. coercive means such as a summary
proceeding or judicial proceedings when
Similarities of Final Tax and Creditable necessary.
Withholding Tax
➢ Income payor withholds a fraction of the PRINCIPLES OF A SOUND TAX SYSTEM
income and remits the same to the According to Adam Smith, governments
government. should adhere to the following principles or canons
➢ By collecting at the moment cash is available, to evolve a sound tax system:
both serve to minimize cash flow problems to 1. Fiscal adequacy
the taxpayer and collection problems to the 2. Theoretical justice
government. 3. Administrative feasibility

Differences of Final Tax and Creditable PRINCIPLES OR CANONS TO EVOLVE A SOUND

Withholding Tax TAX SYSTEM

FWT CWT FISCAL ADEQUACY

● requires that the sources of government
Internal tax Full Portion funds must be sufficient to cover
withheld government costs
● the government must not incur a deficit
Coverage of Certain passive Certain passive ● a budget deficit paralyzes the government's
withholding income and active ability to deliver the essential public
income services to the people
● taxes should increase in response to
Who remits Income payor Income payor increase in government spending
the actual for CWT and THEORETICAL JUSTICE
tax taxpayer for
● theoretical justice or equity
the
● suggests that taxation should consider the
balance
taxpayer's ability to pay
● suggests that the exercise of taxation
Necessity of Not required Required
should not be oppressive, unjust, or
income tax
confiscatory
return
for taxpayer ADMINISTRATIVE FEASIBILITY
● suggests that tax laws should be capable of
efficient and effective administration to
encourage compliance
● government should make it easy for the
taxpayer to comply by avoiding
administrative bottlenecks and reducing
compliance costs
OTADOY, Chleo Reign Hope G.
CHAPTER 2
INCOME TAXATION | 1ST SEMESTER | ACADEMIC YEAR 2024 - 2025
TAX ADMINISTRATION c. To summon the person liable for tax or
➔ refers to the management of the tax required to file a return, his employees, or
system any person having possession and custody
➔ tax administration of the national tax of his books of accounts and accounting
system in the Philippines is entrusted to the records to produce such books, papers,
Bureau of Internal Revenue which is under records or other data and to give testimony
the supervision and administration of the d. To take testimony of the person concerned,
Department of Finance under oath, as may be relevant or material
to the inquiry
Chief Officials of the Bureau of Internal Revenue e. To cause revenue officers and employees to
make canvass of any revenue district
1. (1) Commissioner
4. To make an assessment and prescribe additional
2. (4) Deputy Commissioners, each to be
requirement for tax administration and
designated to the following:
enforcement.
a. Operations group
5. To examine tax returns and determine tax due
b. Legal Enforcement group
thereon
c. Information Systems Group
➢ The CIR or his duly authorized
d. Resource Management Group
representatives may authorize the
examination of any taxpayer and the
POWERS OF THE BUREAU OF INTERNAL
assessment of the correct amount of tax,
REVENUE
notwithstanding any law requiring the prior
1. Assessment and collection of taxes authorization of any government agency or
2. Enforcement of all forfeitures, penalties instrumentality. Failure to file a return shall
and fines, and judgments in all cases not prevent the CIR from authorizing the
decided in its favor by the courts examination.
3. Giving effect to, and administering the ➢ Tax or deficiency assessments are due
supervisory and police powers conferred to upon notice and demand by the CIR or his
it by the NIRC and other laws representatives.
4. Assignment of internal revenue officers and ➢ Returns, statements or declarations shall
other employees to other duties not be withdrawn but may be modified,
5. Provision and distribution of forms, changed and amended by the taxpayer
receipts, certificates, stamps, etc. to proper within 3 years from the date of filing except
officials when a notice for audit or investigation has
6. Issuance of receipts and clearances been actually served upon the taxpayer.
7. Submission of annual report, pertinent ➢ When a return shall not be forthcoming
information to Congress and reports to the within the prescribed deadline or when
Congressional Oversight Committee in there is a reason to believe that the return is
matters of taxation false, incomplete or erroneous, the CIR shall
POWERS OF THE COMMISSIONER OF INTERNAL assess the proper tax on the basis of best
REVENUE evidence available.
1. To interpret the provisions of the NIRC, ➢ In case a person fails to file a required
subject to review by the Secretary of return or other documents at the time
Finance prescribed by law or willfully files a false or
2. To decide tax cases, subject to the exclusive fraudulent return or other documents, the
appellate jurisdiction of the Court of Tax CIR shall make or amend the return from
Appeals, such as: his own knowledge and from such
A. Disputed assessments information obtained from testimony. The
B. Refunds of internal revenue taxes, return shall be presumed prima facie
fees, or other charges correct and sufficient for all legal purposes.
C. Penalties imposed 6. To conduct inventory taking or surveillance
D. Other NIRC and special law matters 7. To prescribe presumptive gross sales and
administered by the BIR. receipts for a taxpayer when:
3. To obtain information and to summon, a. The taxpayer failed to issue receipts;
examine, and take testimony of persons to b. The CIR believes that the books or other
effect tax collection. records of the taxpayer do correctly reflect
Purpose: For the CIR to ascertain: the declaration in the return.
a. The correctness of any tax return or in
making a return when none has been made
by the taxpayer The presumptive gross sales or receipt shall be
b. The tax liability of any person for any derived from the performance of similar business
internal revenue tax or in correcting any under similar circumstances adjusted for other
such liability relevant information.
c. Tax compliance of the taxpayer 8. To terminate tax period when the taxpayer is:
Authorized acts: a. Retiring from business
a. To examine any book, paper, record or other b. Intending to leave the Philippines
data relevant to such inquiry c. Intending to remove, hide, or conceal his
b. To obtain on a regular basis any property
information from any person other than the d. Intending to perform any act tending to
person whose internal revenue tax liability obstruct the proceedings for the collection
is subject to audit of the tax or render the same ineffective

OTADOY, Chleo Reign Hope G.

CHAPTER 2
INCOME TAXATION | 1ST SEMESTER | ACADEMIC YEAR 2024 - 2025
Termination of the taxable period shall be b. Minor criminal violations discovered by
communicated through a notice to the taxpayer regional and district officials
together with a request for immediate payment. Taxes Composition of the Regional Evaluation Board
shall be due and payable immediately. a. Regional Director as chairman
b. Assistant Regional Director
9. To prescribe real property values c. Heads of the Legal, Assessment and
➢ CIR is authorized to divide the Philippines into Collection Division
zones and prescribe real property values d. Revenue District Officer having jurisdiction
➢ values prescribed are referred to as zonal over the taxpayer
value 4. The power to assign and reassign internal
➢ zonal values are subject to automatic revenue officers to establishments where articles
adjustment once every 3 years through rules subject to excise tax are produced or kept.
and regulations issued by the Secretary of Rules in assignments of revenue officers to other
Finance duties
➢ no adjustment in zonal valuation shall be valid 1. Revenue officers assigned to an
unless published in a newspaper of general establishment where excisable articles are
circulation kept shall in no case stay there for more
➢ basis of any valuation, including the records of than 2 years.
consultations done, shall be public records 2. Revenue officers assigned to perform
open to the inquiry of any taxpayer assessment and collection function shall
➢ For purposes of internal revenue taxes, fair not remain in the same assignment for
value of real property shall mean whichever is more than 3 years.
higher of: 3. Assignment of internal revenue officers and
a. Zonal value prescribed by the Commissioner employees of the Bureau to special duties
b. Fair market value as shown in the schedule shall not exceed 1 year.
of market values of the Provincial and City Agents and Deputies for Collection of National
Assessor's Office Internal Revenue Taxes
Assessed value is the basis of the real property tax in
The following are constituted agents for the
local taxation. The value to use now is the full fair
collection of internal revenue taxes:
value of the property.
1. The Commissioner of Customs and his
10. To compromise tax liabilities of taxpayers
subordinates with respect to collectionof
11. To inquire into bank deposits, only under the
national internal revenue taxes on imported
following instances:
goods.
a. Determination of the gross estate of a
2. The head of appropriate government offices
decedent
and his subordinates with respect to the
b. To substantiate the taxpayer's claim of
collection of energy tax.
financial incapacity to pay tax in an
3. Banks duly accredited by the Commissioner
application for tax compromise
with respect to receipts of payments of
In cases of financial incapacity, inquiry can proceed
internal revenue taxes authorized to be
only if the taxpayer waives his privilege under the
made thru banks. These are referred to as
Bank Deposit Secrecy Act.
authorized government depositary banks
12. To accredit and register tax agents
(AGDB)
The denial by the CIR of application for accreditation is
appealable to theDepartment of Finance. The failure of
OTHER AGENCIES TASKED WITH TAX
the Secretary of Finance to act the appeal within 60
COLLECTIONS OR TAX INCENTIVES RELATED
days is deemed an approval.
FUNCTIONS
13. To refund or credit internal revenue taxes
14. To abate or cancel tax liabilities in certain cases 1. Bureau of Customs
15. To prescribe additional procedures or 2. Board of Investments
documentary requirements 3. Philippine Economic Zone Authority
16.To delegate his powers to any subordinate 4. Local Government Tax Collecting Unit
officer with a rank equivalent to a division chief of 5. Fiscal Incentives Review Board
an office Bureau of Customs (BOC)
● ➔ aside from its regulatory functions, BOC
Non-delegated power of the CIR is tasked to administer collection of tariffs
on imported articles and collection of the
The following powers of the Commissioner shall
Value Added Tax on importation
not be delegated:
● under the supervision of the Department of
1. The power to recommend the promulgation
Finance
of rules and regulations to the Secretary of
● headed by the Customs Commissioner and
Finance.
is assisted by 5 Deputy Commissioners and
2. The power to issue rulings of first
14 District Collectors
impression or to reverse, revoke or modify
any existing rulings of the Bureau.
3. The power to compromise or abate any tax
liability.
Board of Investments (BOI)
Exceptionally, the Regional Evaluation Boards may
compromise tax liabilities under the following: ● tasked to lead the promotion of investments
a. Assessments are issued by the regional in the Philippines
offices involving basic deficiency tax of ● supervises the grant of tax incentives under
P500,000 or less, and the Omnibus Investment Code

OTADOY, Chleo Reign Hope G.

CHAPTER 2
INCOME TAXATION | 1ST SEMESTER | ACADEMIC YEAR 2024 - 2025
● attached agency of the Department of Trade
percentage tax paid or
and Industry (DTI).
payable per quarter for
● composed of 5 full-time governors,
the preceding year
excluding the DTI secretary as its chairman
● President of the Philippines shall appoint a
Documentary Stamp at least P1,000,000
vice chairman of the board who shall act as
Tax aggregate amount per
the BOl's managing head
year
Philippine Economic Zone Authority (PEZA)
● created to promote investments in B. As to financial conditions and results of
export-oriented manufacturing industries operations
in the Philippines
● supervise the grant of both fiscal and
TERM DEFINITION
non-fiscal incentives
● PEZA registered enterprises enjoy tax
Gross Receipts or P1,000,000,000 total
holidays for certain years, exemption from
sales annual gross sales or
import and export taxes including local
receipts
taxes
● attached agency of the DTI Net Worth P300,000,000 total net
● headed by a director general and is assisted worth at the close of each
by three deputy directors calendar or fiscal year
Local Government Tax Collecting Units
● provinces, municipalities, cities and Gross Purchases P800,000,000 total
barangays also imposed and collect various annual purchases for the
local taxes, fees and charges to rationalize preceding year
their fiscal autonomy
Fiscal Incentive Review Board (FIRB) Top corporate listed and published
● has oversight function on the taxpayer by the Securities and
administration and grant of tax incentives Exchange Commission
by the Investment Promotion Agencies and
other government agencies administering
tax incentives NON-LARGE TAXPAYERS
● approves or disapproves grant of tax - under the supervision of the respective
incentives to private entities and tax Revenue District Offices (RDOs) where the
subsidies to government-owned and business, trade or profession of the
controlled corporations, government taxpayer is situated
instrumentalities, government Automatic classification of taxpayers as large
commissaries, state universities and taxpayers
colleges The following taxpayers shall be automatically
classified as large taxpayers upon notice in writing
TAXPAYER CLASSIFICATION FOR PURPOSES OF by the CIR:
TAX ADMINISTRATION 1. All branches of taxpayers under the Large
Taxpayer's Service
LARGE TAXPAYERS 2. Subsidiaries, affiliates, and entities of
conglomerates or group of companies of a
- under the supervision of the Large Taxpayer
large taxpayer
Service (LTS) of the BIR National Office
3. Surviving company in case of merger or
Criteria for Large Taxpayers:
consolidation of a large taxpayer
A. As to Payment
4. A corporation that absorbs the operation or
TERM DEFINITION business in case of spin-off of any large
taxpayer
Value Added Tax at least P200,000 per 5. Corporation with an authorized
quarter for the preceding capitalization of at least P300,000,000
year registered with the SEC
6. Multinational enterprises with an
Exercise Tax at least P1,000,000 tax authorized capitalization or assigned
paid for the preceding capital of at least P300,000,000
year 7. Publicly listed corporations
8. Universal, commercial, and foreign banks
Income Tax at least P1,000,000 9. Corporate taxpayers with at least
annual income tax paid P100,000,000 authorized capital in
for the preceding year banking, insurance, telecommunication,
utilities, petroleum, tobacco, and alcohol
Withholding Tax at least P1,000,000 industries
annual withholding tax 10. Corporate taxpayers engaged in the
payments or remittances production of metallic minerals
from all types of
withholding taxes

Percentage Tax at least P200,000

OTADOY, Chleo Reign Hope G.