Tax Administration Types of Administrative Issuances

1. Revenue regulations
TAXATION LAW 2. Revenue memorandum orders
Taxation law refers to any law that arises from 3. Revenue memorandum rulings
the exercise of the taxation power of the State. 4. Revenue memorandum circulars
5. Revenue bulletins
Types of taxation laws 6. BIR rulings

1. Tax laws - These are laws that provide for the Types of rulings
assessment and collection of taxes. 1. Value Added Tax (VAT) rulings
Examples: 2. International Tax Affairs Division (ITAD)
a. The National Internal Revenue Code (NIRC) rulings
b. The Tariff and Customs Code 3. BIR rulings
c. The Real Property Tax Code 4. Delegated Authority (DA) rulings

2. Tax exemption laws - These are laws that Generally accepted accounting principles
grant immunity from taxation. (GAAP)
Examples: vs. Tax Laws
a. The Minimum Wage Law
b. The Omnibus Investment Code of 1987 (E.O. Generally accepted accounting principles or
226) GAAP are not laws, but are mere conventions of
c. Barangay Micro-Business Enterprise (BMBE) financial reporting. They are benchmarks for the
Law fair and relevant valuation and recognition of
d. Cooperative Development Act income, expense, assets, liabilities, and equity of
a reporting entity for general purpose financial
Sources of Taxation Laws reporting. GAAP accounting reports are
1. Constitution intended to meet the common needs of a vast
2. States and Presidential Decrees number of users in the general public.
3. Judical Decisions or case laws
4. Executive Orders and Batas Pambansa Tax laws including rules, regulations, and
6. Local Ordinances rulings prescribe the criteria of tax reporting, a
7. Tax Treaties and conventions with foreign special form of financial reporting which is
countries intended to meet specific needs of tax
8. Revenue Regulations authorities.

Types of Administrative Issuances Taxpayers normally follow GAAP in recording

1. Revenue regulations transactions in their
2. Revenue memorandum orders books. However, in the preparation and filing tax
3. Revenue memorandum rulings returns, taxpayers are mandated to follow the tax
4. Revenue memorandum circulars law in cases of conflict with GAAP.
5. Revenue bulletins
6. BIR rulings
NATURE OF PHILIPPINE TAX LAWS B. As to subject matter
​ 1. Personal, poll or capitation – a tax on
Philippine tax laws are civil and not political in persons who are residents of a particular
nature. They are effective even during periods of territory.
enemy occupation. They are laws of the 2. Property tax – a tax on properties, real or
occupied territory and not by occupying personal.
enemies. Tax payments made during occupations 3. Excise or privilege tax – a tax imposed upon
of foreign enemies are valid. the performance of an act enjoyment of a
privilege or engagement in an occupation.
Our internal revenue laws are not penal in nature
because they do not define crime. Their penalty C. As to incidence
provisions are merely intended to secure 1. Direct tax – When both the impact and
taxpayers’ compliance. incidence of taxation
rest upon the same taxpayers, the tax is said to
TAX be direct. The tax is collected from the person
who is intended to pay the
Tax is an enforced proportional contribution same. The statutory taxpayer is the economic
levied by the lawmaking body of the State to taxpayer:
raise revenue for public purpose. 2. Indirect tax – When the tax is paid by any
person other than the one who is intended to pay
Elements of a Valid Tax the same, the tax is said to be indirect. This
1. Tax must be levied by the taxing power occurs in the case of business taxes where a
having jurisdiction over the object of taxation. statutory taxpayer is not an economic taxpayer.
2. Tax must not violate constitutional and
inherent limitations. The statutory taxpayer is the person named by
3. Tax must be informed and equitable. law to pay the tax. An economic taxpayer is the
4. Tax must be for public purposes. one who actually pays the tax.
5. Tax must be proportional in character. D. As to amount
6. Tax is generally payable in money. 1. Specific tax – a tax of a fixed amount
imposed on a per unit basis such as per kilo, liter
Classification of Taxes or meter, etc.
2. Ad valorem – a tax of a fixed proportion
A. As to purpose imposed upon the value of the tax object
1. Fiscal or revenue tax – a tax imposed for
general purpose. E. As to rate
2. Regulatory – a tax imposed to regulate 1. Proportional tax – This is a flat or fixed rate
business, conduct, acts or transactions. tax. The use of proportional tax emphasizes
3. Sumptuary – a tax levied to achieve some equality as it subjects all taxpayers with the
social or economic same rate without regard to their ability to pay.
objectives. 2. Progressive or graduated tax – This is a tax
which imposes increasing rates as the tax base
increases. The use of progressive tax rates
results in equitable taxation because it gets more
tax to those who are more capable. It aids in DISTINCTION OF TAXES WITH SIMILAR
lessening the gap between the rich and the poor. ITEMS
3. Regressive tax – This is a tax which imposes
decreasing tax rates as Tax vs. Revenue
the tax rates as the tax base increases. This is the Tax refers to the amount imposed by the
total reverse of progressive tax. Regressive tax is government for public purposes. Revenues
regarded as anti-poor. It directly violates the refers to all income collections of the
Constitutional guarantee of progressive taxation. government which includes taxes, tariff,
4. Mixed tax – This manifest tax rates which is licenses, toll, penalties and others. The amount
a combination of any of imposed is tax but the amount collected is
the above types of tax. revenue.

F. As to imposing authority Tax vs. License fee

1. National tax – tax imposed by the national Tax has a broader subject than license. Tax
government. emanates from taxation power and is imposed
Examples: upon any object such as persons, properties, or
a. Income tax – tax on annual income, gains or privileges to raise revenue.
profits. License fee emanates from police power and is
b. Estate tax – tax on gratuitous transfer of imposed to regulate the exercise of a privilege
properties by a decedent upon death. such as the commencement of a business or a
c. Donor’s tax – tax on gratuitous transfer of profession.
properties by a living donor.
d. Value Added Tax – consumption tax Tax vs. Toll
collected by VAT business taxpayers. Tax is a levy of government; hence, it is a
e. Other percentage tax – consumption tax demand of sovereignty. Toll is a charge for the
collected by non-VAT business use of other’s property; hence, it is a demand of
taxpayers. ownership.
f. Excise tax – tax on sin products and The amount of tax depends upon the needs of
non-essential commodities such as alcohol, the government, but the amount of toll is
cigarettes and metallic minerals. This should be dependent upon upon the value of the
differentiated with the privileged tax which is property leased.
also called excise tax. Both the government and private entities impose
toll, but private
2. Local tax – tax imposed by the municipal or entities cannot impose taxes.
local government.
Examples: Tax vs. Debt
a. Real property tax Tax arises from law while debt arises from
b. Professional tax private contacts. Non payment of tax leads to
c. Business taxes, fees and charges imprisonment, but non-payment of debt
d. Community tax does not lead to imprisonment. Debt can be
e. Tax on banks and other financial institutions subject to set off but tax is not. Debt can be paid
in kind (dacion en pago) but tax is generally
payable in money.
Tax vs. Special Assessment 2. Proportional - employed in taxation of
Tax is an amount imposed upon persons, corporate income and business.
properties, or privileges. Special assessment 3. Regressive – not employed in the Philippines.
levied by the government on lands adjacent to a Types of Tax System According to Impact
public improvement. Is it imposed on land only 1. Progressive system - A progressive system is
and is intended to compensate the government one that emphasizes direct taxes. A direct tax
for part of the cost of the cannot be shifted. Hence, it encourages
improvement. economic efficiency as it leaves no other resort
The basis of special assessment is the benefit in to taxpayers than to be efficient. This type of tax
terms of the appreciation in land value. system impacts more upon the rich.
Special assessment will not result in 2. Regressive system - A regressive tax system
imprisonment of the owner (unlike in is one that emphasizes indirect taxes.
non-payment of taxes). Indirect taxes are shifted by businesses to
consumers; hence , the impact of taxation rests
Tax vs. Tariff upon the bottom end of society. In effect, a
Tax is broader than tariff. Tax is an amount regressive tax system is anti-poor.
imposed upon persons, privilege, transactions, or It is widely believed that despite the
properties. Tariff is the amount imposed on Constitutional guarantee of a progressive
imported or exported commodities. taxation, the Philippines has a dominantly
regressive tax system due to the prevalence of
Tax vs. Penalty business taxes.
Tax is an amount imposed for the support of the
government. Penalty is an amount imposed to TAX COLLECTION SYSTEMS
discourage an act. Penalty may be imposed by
both the government and private individuals. It 1. Withholding system – Under this collection
may arise both from law or contract whereas tax system the payer of income withholds or deducts
arises from law. the tax on the income before releasing the same
to the payee and remits the same to the
TAX SYSTEM government. The following are withholding
The tax system refers to the method or schemes taxes collected under this system:
of imposing, assessing, and collecting taxes. It a. Withholding tax on compensation – a tax
includes all the tax laws and regulations, the withheld by the employer from payments of
means of their enforcement, and the government compensation income to employees.
offices, bureaus and withholding agents which b. Expanded withholding tax – a withholding
are part of the machinery of the government in tax prescribed on certain income payments and
tax collection. The Philippine tax system is is creditable against the income tax due of the
divided into two: the national tax system and the payee for the taxable quarter of year in which
local tax system. the
particular income was earned.
Types of Tax Systems According to c. Final withholding tax – a kind of
Impositions withholding tax which is prescribed on certain
1. Progressive – employed in the taxation of income payments and is not creditable against
income of individuals, and transfers of any income tax due of the payee for the taxable
properties by individuals. year
d. Withholding on government payments – the government costs. The government must not
tax withheld by the national government incur a deficit. A budget deficit paralyzes the
agencies and instrumentalities including government’s ability to deliver
government-owned and controlled corporations essential public services to the people. Hence
on their payments to taxpayers, suppliers, or taxes should increase in response to increase in
payees. government spending.

2. Voluntary compliance system – under this Theoretical justice

collection system, the taxpayers himself Theoretical justice or equity suggests that
determines his income, reports the same through taxation should consider the taxpayer’s ability to
income tax return and pays the pay. It also suggests that the exercise of taxation
tax to the government. This system is also should not be oppressive, unjust, or confiscatory.
referred to as the “self assessment method”. A
portion of the tax due payable here in may Administrative feasibility
have been withheld under the withholding Administrative feasibility suggests that tax laws
system, such as: should be capable of efficient and effective
a. Withholding tax on compensation by administration to encourage compliance.
compensation earners. Government should make it easy for the
b. Expanded withholding tax by tax payer taxpayer to comply by avoiding administrative
engaged in business or exercise of profession. bottlenecks and reducing compliance costs.
The following are applications of the principle
The taxes withheld are treated as tax credit of Administrative
(deduction) against the tax due of the taxpayer in feasibility:
the income tax return. The taxpayer shall pay 1. E-filling and e-payment of taxes
any balance due after such credit or claim refund 2. Substituted filing system for employees
or tax credit for excess tax withheld. 3. Final withholding on non-resident aliens or
corporations
3. Assessment of enforcement system – under 4. Accreditation of authorized agent banks in the
this collection system, the government identifies fillings payment of
non compliant taxpayers, assesses their tax dues taxes
and penalties , and enforces collections by
coercive means such as summary proceedings or TAX ADMINISTRATION
judicial proceedings when necessary. Tax administration refers to the management of
PRINCIPLES OF A SOUND TAX SYSTEM the tax system. Tax administration of the
According to Adam Smith, governments should national tax system in the Philippines is
adhere to certain principles or canons to evolve a entrusted to the Bureau of Internal Revenue
sound tax system: which is under the supervision and
1. Fiscal adequacy administration of the Department of Finance.
2. Theoretical justice
3. Administrative feasibility

Fiscal adequacy
Fiscal adequacy requires that the sources of
government funds must be sufficient to cover
Chief of Officials of the Bureau of Internal d. Other NIRC and special law matters
Revenue administered by the BIR
1. 1 Commissioner
2. 4 Deputy Commissioners, each to be 3. To obtain information and summon, examine,
designated to the following: and take testimony of person to affect tax
a. Operations group collection Purpose: For the CIR to ascertain:
b. Legal Enforcement group
c. Information Systems group a. The correctness of any tax return or in making
d. Resource Management Group>> a return when none has been made by the
taxpayer
POWERS OF THE BUREAU INTERNAL b. The tax liability of any person for any internal
REVENUE revenue tax or in correcting any such liability
1. Assessment and collection of taxes c. Tax compliance of the taxpayer
2. Enforcement of all forfeitures, penalties and
fines, judgments in all cases decided in each Authorized acts:
favor by the courts a. To examine any book , paper, record or other
3. Giving effect to, and administering the data relevant to such inquiry
supervisory and police powers conferred to it by b. To obtain on a regular basis any information
the NIRC and other laws from any person other than the person whose
4. Assignment of Internal revenue officers and internal revenue tax liability is subject to audit
other employees to other duties c. To summon the person liable for tax or
5. Provision and distribution of forms, receipts, required to file a return, his employees, or any
and certificates, stamps, etc to proper officials person having possession and custody of his
6. Issuance of receipts and clearances books of accounts and accounting records to
7. Submission of annual report, pertinent produce such books, papers, records or other
information to Congress and reports to the data and to give testimony
Congressional Oversight Committee in matters d. To take testimony of the person concern,
of Taxation under oath, as maybe relevant or material
inquiry
POWERS OF THE COMMISSIONER OF e. To cause revenue officers and employees to
INTERNAL REVENUE make canvass of any revenue district
4. To make assessment and prescribe additional
1. To interpret the provisions of the NIRC, requirement for tax
subject to review by the Secretary of Finance administration and enforcement

2. To decide tax cases, subject to the exclusive 5. To examine tax returns and determine tax due
appellate jurisdiction of the Court of Tax thereon The CIR or his duty authorized
Appeals, such as: representatives may authorize the examine
of any taxpayer and the assessment of the
a. Disputed assessments correct amount of tax. Failure to file a return
b. Refunds of internal revenue taxes, fees, or shall not prevent the CIR from authorizing the
other charges examination.
c. Penalties imposed
Tax or deficiency assessment are due upon The prescribed are referred to as zonal value.
notice and demand by the CIR
or his representatives. For purposes of internal revenue taxes, fair value
of real property shall mean whichever is higher
Returns , statements or declaration shall not be of :
withdrawn but maybe modified, changed and
amended by the taxpayer within 3 years from the a. Zonal Value prescribed by the Commissioner
date of filing, except when a notice for audit or b. Assessed value per the Provincial and City
investigations has been Assessor’s Office
actually served upon the taxpayer.
For purposes of local taxes, fair value of real
6. To conduct inventory taking or surveillance property pertains to the assessed value.

7. To prescribe presumptive gross sales and 10. To compromised tax liabilities of taxpayers
receipts for a taxpayer when:
11. To inquire into bank deposits, only under the
a. The taxpayer failed to issue receipts; or following instances:
b. The CIR believes that the books or other
records of the taxpayer do not correctly reflect a. Determination of the gross estate of a
the declaration in the return. decedent.
The presumptive gross sales or receipt shall be b. To substantiate the taxpayer’s claim of
derived from the performance of similar financial incapacity to pay tax in an application
business under similar circumstances adjusted for tax compromise
for other relevant information.
In cases of financial incapacity, inquiry can
8. To terminate tax period when the taxpayer is; proceed only if the taxpayer waives his privilege
a. Retiring from business under the Bank Deposit Secretary Act
b. Intending to leave the Philippines
c. Intending to remove, hide, or conceal his 12. To accredit and register tax agents
property
d. Intending to perform any act ending to The denial by the CIR of application for
obstruct the proceedings for the collection of the accreditation is appealable to the Department of
tax or rendered the same ineffective Finance. The failure of the Secretary of Finance
to act on the appeal within 60-days is deemed an
The determination of taxable period shall be approval.
communicated through a notice to the taxpayer
together with a request for immediate payment. 13. To refund or credit internal revenue taxes
Taxes shall be due and payable immediately.
14. To abate or cancel tax liabilities in certain
9. To prescribe real property values The CIR is cases
authorized to divide the Philippine into zones
and prescribe real property values after 15. To prescribe additional procedures or
consultation with competent appraisers. documentary requirements
16. To delegate his powers to any subordinate are kept shall in no case stay there for more than
officer with a rank equivalent 2 years.
to a division chief of an office. 2. Revenue Officers assigned to perform
assessment and collection functions shall not
Non-delegated power of the CIR remain in the same assignment for more than 3
years.
The following powers of the Commissioner shall 3. Assignment of internal revenue officers and
not be delegated: employees of the Bureau to the special duties
shall not exceed 1 year.
1. The power to recommend the promulgation of
the rules and regulations Agents and Deputies for Collection of
to the Secretary of Finance. National Internal Revenue Taxes
2. The power to issue rulings of first impression
or to reverse, revoke or modify any existing The following are constituted agents for the
rulings of the Bureau collection of internal revenue taxes:
3. The power to compromise or abate any tax
liability 1. The Commissioner of Customs and his
subordinates with respect to collection of
Exceptionally, the Regional Evaluation Boards national internal revenue taxes on imported
may compromise tax goods.
liabilities under following: 2. The appropriate government offices and his
subordinates with respect to the collection of
a. Assessment are issued by the regional offices energy tax.
involving basis deficiency tax of P 500,000 or 3. Banks duly accredited but the Commissioner
less, and with respect to receipts of
b. Minor criminal violations discovered by payments of Internal revenue taxes = authorized
regional and district officials to be made thru banks.
These are referred to as Authorized Government
Composition of the Regional Evaluation Depository Banks (AGDB).
Board
a. Regional Director as chairman OTHER AGENCIES TASKED WITH TAX
b. Assistant Regional Director COLLECTIONS OR TAX INCENTIVES
c. Heads of the Legal, Assessment and RELATED FUNCTIONS.
Collection Division
d. Revenue District Officer having jurisdiction 1. Bureau of Customs
over the taxpayer 2. Board of Investments
4. The power to assign and reassign internal 3. Philippine Economic Zone Authority
revenue officers to establishments where articles 4. Local Government Tax Collecting Unit
subject to excise tax are produced or kept.
Bureau of Customs (BOC)
Rules in assignment of revenue officers to Aside from its regulatory functions, the Bureau
other duties of Customs is tasked to administer collection of
1. Revenue Officers assigned to an tariffs on imported articles and collections of the
establishment where excisable articles Value Added Tax on importation. Together with
the BIR, the BOC is under the supervision of the various taxes to rationalize their fiscal
Department of Finance. autonomy. These will be discussed
under Business and Transfer Taxation by the
The Bureau of Customs is headed by the author.
Customs Commissioner and is assisted by five
Deputy Commissioners and 14 District TAXPAYER CLASSIFICATION FOR
Collectors. PURPOSES OF TAX ADMINISTRATION
For purposes of effective and efficient tax
Board of Investments (BOI) administration, taxpayers are classified into large
The BOI is tasked to lead promotion of and non-large. Large taxpayers are under the
investments in the Philippines by assisting provisions of the Large Taxpayer Service (LTS)
Filipinos and foreign investors to venture and of the BIR. Non-large taxpayers are under the
prosper in desirable areas of economic activities. supervision of the respective Revenue District
It supervises of the grant of tax Offices (RDOs) where the business , trade or
incentives under the Omnibus Investment Code. profession of the taxpayer is situated.
The BOI is an attached agency of the
Department of Trade and Industry (DTI).
The following are the criteria for determining
The BOI composed of five full-time governors , large taxpayers:
excluding the DTI secretary
as its chairman . The President of the Philippines A. As to payment
shall appoint a vice 1. Value Added Tax – At least P 200,000 per
chairman of the board who shall act as the BOI’s quarter for the preceding
managing head. year
2. Excise Tax – At least P 1,000,000 tax paid for
Philippine Economic Zone Authority (PEZA) the preceding year
The PEZA is created to promote investments in 3. Income Tax – At least P 1,000,000 annual
export-oriented manufacturing industries in the income tax paid for the preceding year
Philippines and, among other myriads of 4. Withholding Tax - At least P 1,000,000
functions, supervise the grant of both fiscal and annual withholding tax payments or remittances
non-fiscal incentives. from all types of withholding taxes.
5. Percentage Tax – At least P 200,000
PEZA registered enterprises enjoy tax holidays percentage tax paid or payable per
for certain years, exemption from import to quarter for the preceding year
export taxes including local taxes. The PEZA is 6. Documentary Stamp Tax - At least P
also an attached agency of DTI. 1,000,000 aggregate amount per year

The PEZA is headed by a director general and is B. As to financial conditions and results of
assisted by three deputy directors. operations
1. Gross receipts or sales – P1,000,000,000
Local Government Tax Collecting Unit total annual gross sales or receipts
Provinces, municipalities, cities and barangays 2. Net worth – P 300,000,000 total net worth at
also imposed and collect the close of each calendar or fiscal year
3. Gross purchases – P 800,000,000 total
annual purchases for the preceding year Components of financial statements
4. Top corporate taxpayer listed and
published by the Securities and Exchange A complete set of financial statements comprises
Commissions. the following components:
1.Statement of financial position
Automatic classification of taxpayers as large 2.Income statement
taxpayers 3.Statement of comprehensive income
4.Statement of changes in equity
The following taxpayers shall be automatically 5.Statement of cash flows
classified as large taxpayers 6.Notes, comprising a summary of significant
upon notice in writing by the CIR: accounting policies
and other explanatory information
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
3. Surviving company in case of merger or
consolidation of a large taxpayer
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 P 300,000,000
registered with taxpayer
6. Multinational enterprises with an authorized
capitalized or assigned
capital of at least P 300,000
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 the as
large taxpayer )
9. Corporate taxpayers with at least P
100,000,000 authorized capital in banking
insurance, telecommunication, utilities,
petroleum, tobacco, and alcohol industries
10. Corporate taxpayers engaged in the
production of metallic minerals.