ASIA PACIFIC COLLEGE OF ADVANCED STUDIES

COLLEGE DEPARTMENT

Taxation Law
Taxation law refers to any law that arises from the exercise of taxation power of the
State.
Types of Taxation Law
1. Tax Laws – These are laws that provide for the assessment and collection of taxes
Example:
A. The National Internal Revenue Code
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
C. Barangay Micro-Business Enterprise (BMBE)
D. Cooperative Development Act

Sources of Taxation Laws

1. Constitution
2. Statutes and Presidential Decrees
3. Judicial decisions and case laws
4. Executive Orders and Batas Pambansa
5. Administrative Issuances
6. Local Ordinances
7. Tax treaties and conventions with foreign countries
8. Revenue Regulations
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COLLEGE DEPARTMENT

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

Revenue Regulations – are issuances signed by the Secretary of Finance upon

recommendation of Commissioner of Internal Revenue (CIR) that specify, prescribe, or
define rules and regulations for the effective enforcement of the provisions of the
National Internal Revenue Code (NIRC) and related statutes.
Revenue Memorandum Orders are issuances that provide directives or instructions;
prescribe guidelines, and outline processes, operations, activities, workflows, methods,
and procedures necessary in the implementation of stated policies, goals, objectives,
plans, and programs of the Bureau in all areas of operations except auditing.
Revenue Memorandum Rulings – are rulings, opinions, and interpretations of the CIR
with respect to the provisions of the Tax code and other tax laws as applied to a specific
set of facts, with or without established precedents, and which the CIR may issue from
time to time for the purpose of providing taxpayers guidance on the tax consequences in
specific situations.
Revenue Memorandum Circulars – are issuances that publish pertinent and applicable
portions as well as amplifications of laws, rules, regulations, and precedents issued by
the BIR and other agencies/offices.
Revenue Bulletins refer to periodic issuances, notices, and official announcements of the
CIR that consolidate the BIR’s position on certain specific issues of law or
administration in relation to the provisions of the Tax Code, relevant tax laws, and other
issuances for the guidance of the public.
BIR Rulings are official positions of the BIR to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws.
Types of Rulings:
1. Value Added Tax (VAT) Rulings
2. Internal Tax Affairs Division (ITAD) rulings
3. BIR Rulings
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COLLEGE DEPARTMENT

4. Delegated Authority (DA) Rulings

Generally Accepted Accounting Principles (GAAP) vs. Tax Laws

Taxpayers normally follow GAAP in recording transactions in their books. However, in
the preparations and filing of tax returns, taxpayers are mandated to follow the tax law in
case of conflict with GAAP
Nature of Philippine Tax Laws
Philippine tax laws are 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 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
6. Tax is generally payable in money

Classification of taxes
A. As to purpose
1. Fiscal or revenue tax - tax imposed for general purpose
2. Regulatory – tax imposed to regulate businesses, conduct, acts, or transactions
3. Sumptuary – tax levied to achieve some social or economic objectives
B. As to subject matter
1. Personal, poll or capitation – tax on persons who are residents of a particular territory
2. Property tax – a tax on properties, real or personal
3. Excise or privilege tax – tax imposed upon the performance of an act, enjoyment of a
privilege or engagement in an occupation
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COLLEGE DEPARTMENT

C. As to incidence
1. Direct tax – When both the impact and incidence of taxation rest upon the same
taxpayer, the tax is said to be direct.
2. Indirect tax – When the tax is paid by any person other than the one who is intended to
pay the same, the tax is said to be indirect.
The statutory taxpayer is the person named by the law to pay the tax. An economic
taxpayer is the one who actually pays the tax.
D. As to amount
1. Specific Tax – tax of a fixed amount imposed on a per unit basis such as per kilo, liter
or meter, etc.
2. Ad valorem – a tax of a fixed proportion imposed upon the value of the tax object
E. As to rate
1. Proportional Tax – This is flat or fixed rate
2. Progressive or graduated tax – this is a tax which imposes increasing tax rates as the
tax base increases.
3. Regressive Tax – This tax imposes decreasing tax rates as the tax base increase
4. Mixed tax – This tax manifest tax rates which is a combination of any of the above
types of tax
F. As to imposing authority
1. National Tax – tax imposed by the national government
Examples:
A. Income tax
B. Estate tax
C. Donor’s tax
D. Value Added Tax
E. Other percentage tax
F. Excise tax
G. Documentary stamp tax
2. Local tax - tax imposed by the municipal or local government
Examples:
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COLLEGE DEPARTMENT

A. Real Property Tax

B. Professional Tax
C. Business taxes, fess, and charges
D. Community tax
E. Tax on banks and other financial institutions
Distinction of taxes with similar items
Tax vs. Revenue
Tax refers to the amount imposed by the government for public purpose. Revenue refers
to all income collections of the government.
Tax vs. License Fee
Tax emanates from taxation power and is imposed upon any object such as persons,
properties, or privileges to raise revenue.
License fee emanates from police power and is imposed to regulate the exercise of a
privilege such as the commencement of a business or a profession.
Tax vs. Toll
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.
Tax vs. Debt
Tax arises from law while debt arises from private contracts.
Tax vs. Special Assessment
Tax is an amount imposed upon persons, properties, or privileges. Special assessment is
levied by the government on lands adjacent to a public improvement.
Tax vs. Tariff
Tax is an amount imposed upon persons, privilege, transactions, or properties. Tariff is
the amount imposed on imported or exported commodities.
Tax vs. Penalty
Tax is an amount imposed for the support of the government. Penalty is an amount
imposed to discourage an act.
Tax system
Tax system refers to the methods or schemes of imposing, assessing, and collecting
taxes.
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COLLEGE DEPARTMENT

Types of tax systems according to imposition

1. Progressive – employed in the taxation of income of individuals, and transfers of
properties by individuals
2. Proportional – employed in taxation of corporate income and businesses
3. Regressive – not employed in the Philippines
Types of tax system according to impact
1. Progressive system
A progressive tax system is one that emphasizes direct taxes. A direct tax cannot be
shifted. Hence, it encourages economic efficiency as it leaves no other resort to taxpayers
than to be efficient.
2. Regressive system
A regressive system is one that emphasizes indirect taxes. Indirect taxes are shifted by
businesses to consumers; hence, the impact of taxation rests upon the bottom end of the
society. In effect, a regressive tax system is anti-poor.
Tax Collection Systems
A. Withholding system on income tax – under this collection system, the payor of the
income withholds or deducts the tax on the income before releasing the same to the
payee and remits the same to the government.
1. Creditable withholding tax – an estimated tax required by the government to be
withheld by employers against the compensation income to their employees
A. Withholding tax on compensation – an estimated tax required to be withheld by the
government to be deducted on certain income payments made by taxpayers engaged in
business
B. Expanded withholding tax
2. Final Withholding Tax – a system of tax collection wherein payors are required to
deduct the full tax on certain income payments
Differences between FWT and CWT
Final Withholding Tax Creditable Withholding
Tax
Income tax withheld Full Portion
Coverage of withholding Certain passive income Certain passive income
and active income
Who remits the actual tax Income payor Income payor for the CWT
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COLLEGE DEPARTMENT

and the taxpayer for the

balance
Necessity for 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 services from private suppliers, the law requires withholding of the
relevant business tax
C. Voluntary compliance system – the taxpayer himself determines his income, reports
the same through income tax returns and pays the tax to the government. This is also
referred to as “Self-assessment method”.
The tax due determined 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
D. Assessment or enforcement system – the government identifies non-compliant
taxpayers, assesses their tax dues including penalties, demands for taxpayer’s voluntary
compliance or enforces collections by coercive means.
Principles of a sound tax system
1. Fiscal Adequacy – requires that sources of government funds must be sufficient to
cover government costs.
2. Theoretical justice – suggest that taxation should consider the taxpayer’s ability to pay
3. Administrative feasibility – suggest that tax laws should be capable of efficient and
effective administration to encourage compliance.
The following are applications of the principle of administrative feasibility:
1. E-filing and e-payment of taxes
2. Substituted filing 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 refers to the management of the tax system.
Chief Officials of the Bureau of Internal Revenue
1. 1 commissioner
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COLLEGE DEPARTMENT

2. 4 Deputy commissioners
a. Operations group
b. Legal enforcement group
c. 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, 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
Congress Oversight Committee in manners of taxation
POWERS OF THE COMMISSIONERS OF INTERNAL REVENUE
1. To interpret provision of the NIRC, subject to review by the Secretary of Finance

2. To decide tax cases to subject to the exclusive appellate jurisdiction of the Court
of tax Appeals, such as:
a. Disrupted 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 affect tax collection
Purpose: For the CIR to ascertain:
a. The correctness of any tax return or in making a return when none has
been made by taxpayers
b. The tax liability of any persons for any internal revenue tax or in
correcting any such liability
c. Tax compliance of the taxpayers
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COLLEGE DEPARTMENT

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 to give testimony
d. To take testimony of the person concerned, under oath, as may be
relevant or material to inquiry
e. To cause revenue officers and employees to make canvass any revenue
district

4. To make assessment and prescribe additional requirement for tax administration

and enforcement

5. To examine tax returns and determine tax due thereon

The CIR or his duly authorized representatives may authorize the
examination of the taxpayers and the assessment of the correct amount of tax.
Failure to file a return shall not prevent the CIR from authorizing the
examination.
Tax or deficiency assessment are due upon notice and demand by CIR and
his representatives.
Returns, statement or declaration shall not be withdrawn but may be
modified, changed and amended by the taxpayers within 3 years from the due of
filling, except when a notice from audit or investigation has been actually served
upon the taxpayers
When a return shall not be forthcoming within the prescribed deadline and
when there is a reason to believe that the return is false, incomplete on erroneous,
the CIR shall asses the basis of the evidence available.
In case a person fails to file a required return or the other documents at the
time prescribed by law or wilfully files a false or fraudulent return or other
documents, CIR shall make or amend the return from his own knowledge and
from such information obtained from testimony. The return shall be presumed
prima facie correct and sufficient for all legal purpose.

6. To conduct inventory or surveillance

7. To prescribe presumptive gross sales and receipts for taxpayers when:

a. The tax payer failed to issue receipts; or
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COLLEGE DEPARTMENT

b. The CIR believes that the books or other records of the taxpayers 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. Intending to leave the Philippines
c. Intending to remove, hid, or conceal his property
d. Intending to perform any act tending to obstruct the proceedings for the
collection of the tax render the same ineffective
The termination of the taxable period shall be communicated through a notice
to the taxpayers together with a request for immediate payment. Taxes shall
be due and payable immediately.
9. To prescribe real property values
The CIR is authorized to divide the Philippines into zones and prescribe
real property values after consultation with competent appraiser. The values
prescribed are referred to as a zonal value.
For purpose of internal revenue taxes, fair values of real property shall
mean whichever is higher of:
a. Zonal value prescribed by the Commissioner
b. Fair market values as shown in the schedule of market values of the
Provincial And City Assessor’s Office.
The NIRC previously used the assesses values which is merely a fraction of the
fair market value. Assessed value is the basis of the real tax in local taxation. The
value to use now is the full fair value of the property.
10. To compromise tax liabilities of taxpayers
11. To inquire into bank deposits, only under the following instances:
a. Determine of the gross estate of decedent
b. To substantiate the taxpayers claim of financial incapacity to pay tax in an
application for tax compromise
In cases of financial incapacity, inquiry can proceed only if the taxpayer
waives his privilege under the Bank Deposit Secrecy Act.
12. To accredit and register tax agents
The denial by the CIR of application of accreditation is appealable to the
Department of Finance. The failure of the Secretary of Finance to act on the
appeal within 60 days is deemed and approval.
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COLLEGE DEPARTMENT

13. To refund 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 of office

Non- delegate power of the CIR

The following powers of the Commissioner shall not be delegated
1. The power to recommend the promulgation of rules and regulation to the
Secretary of Finance.

2. The power to issue rulings of first impression or to reverse, revoke or modify any
exiting rulings of the Bureau.

3. The power to compromise or abate any tax liability

Exceptionally, the Regional Evaluation Boards may compromise tax liabilities
under the following:
a. Assessments are issued by the regional offices involving basic deficiency tax
of P500,00 or less and
b. Minor criminal violations discovered by regional and district officials
Composition of the Regional Evaluation Board
a. Regional Director as chairman
b. Assistant Regional Director
c. Heads of the Legal, Assessment and Collection Division
d. Revenue District Officer having jurisdiction over taxpayer

4. The power to assign and reassign internal revenue officers to establishments

where articles subject to excise tax are produced or kept.
Rules is assignments of revenue officers to other duties
1. Revenue officers assigned to an establishment where excisable articles and kept
shall in no case stay there for more than 2 years.
2. Revenue officers assigned to perform assessment and collection function should
not remain in the same assignment for more than 3 years.
3. Assignment of internal revenue officers anf employees of the Bureau is special
duties shall not exceed 1 year.
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COLLEGE DEPARTMENT

Agents and Deputies for Collection Internal Revenue Taxes

The following are constituted agents for collection of internal revenue taxes
1. The Commissioner of Customs and his subordinated 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 duty accredited by the Commissioner with the respect to receipts of

payments of internal revenue taxes authorized to be made thru banks. There are
referred to as authorized government depositary banks (AGBD).

THEIR 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 Collection Unit

Bureau of Customs (BOC)

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 BIR, the BOC is under the supervision of the Department of
Finance.
The Bureau of Custom is headed by the Customs Commissioner and assisted by five
Deputy Commissioners and 14 District Collectors.

Board of Investments (BOI)

The BOI is tasked to lead the promotion of investments in the Philippines b assisting
Filipinos and foreign investors to venture and prosper in desirable areas of economic
activities. It supervises the grant of tax incentives under the Omnibus Investment Code.
The BOI is an attached agency of the Department of Trade and 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.
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COLLEGE DEPARTMENT

Philippine Economic Zone Authority (PEZA)

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 incentive.
PEZA registered enterprise enjoy tax holidays for certain years, exemption from import
and export taxes including local taxes. The PEZA is also an attached agency of the DTI.
The PEZA is headed by the director general and is assisted by the 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 BOI-registered or PEZA-registered enterprises including
the local taxes imposed by the local governments will be discussed under Local &
Preferential Taxation by the same author.

TAXPAYER CALSSIFIVATION FOR PURPOSES OF TAX ADMINISTRATION

For purposes of effective and efficient tax administration, taxpayers are classified into:
1. Large taxpayers – under the supervision of the Large Taxpayers Service (LTS) of the
BIR National Office.
2. Non-large taxpayers – under the supervision of the respective Revenue District Office
(RDOs) where the business, trade or profession of the taxpayer is situated.
Criteria for Large Taxpayer:
A. As to payment
1. Value Added Tax – At least P200, 000 per quarter for the preceding year.
2. Excise Tax – At least P1, 000, 000 tax paid for the preceding year.
3. Income Tax – At least P1, 000, 000 annual income tax for the preceding 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.
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COLLEGE DEPARTMENT

B. 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 taxpayers upon notice
in writing by the CIR:
1. All branches of taxpayers under the Large Taxpayer’s Service
2. Subsidiaries affiliates, and entities of conglomerates or group of companies of the
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 a and large
taxpayer
5. Corporation with an authorized capitalization of at least P300, 000, 000 registered with
the SEC
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 taxpayer with at least P100, 000, 000 authorized capital in banking,
insurance, telecommunication, utilities, and petroleum, tobacco, and alcohol industries.
10. Corporate taxpayers engaged in the production of metallic minerals