Chapter 2 - Taxes, Tax Laws and Tax Administration CHAPTER 2 TAXES, TAX LAWS, AND TAX ADMINISTRATION Chapter Overview and Objectives This Chapter discusses tax laws, taxes, and their distinction from similar items, and the administration of the tax system. After this chapter, readers are expected to comprehend and demonstrate knowledge on the following: The type of taxation laws Distinction among tax laws, revenue regulations, and rulings Tax, its elements, and classifications Distinction of tax from similar items Tax system and its types The principles of a sound tax system How tax is administered The powers of the Bureau of Internal Revenue (BIR) and the Commissioner of Internal Revenue (CIR) and the non-delegated powers of the CIR 9, The criteria for selection of large taxpayers SNe ene TAXATION LAW Taxation law refers to any law that arises from the exercise of the taxation power of the State. Types of taxation laws 1. Tax laws - These are laws that pr‘ taxes. Examples: a. The National Internal Revenue Code (NIRC) b. The Tariff and Customs Code c. The Local Tax Code d._ The Real Property Tax Code 2. Tax exemption laws - These are laws taxation. Examples: a. The Minimum Wage Law b. The Omnibus Investment Code o! c. Barangay Micro-Business Enterpri d. Cooperative Development Act covide for the assessment and collection of that grant certain immunity from 1987 (E.0. 226) se (BMBE) Law 35id Tax Chapter 2 - Taxes, tax Laws an urces of ‘axall on Laws onstitution Ci nen hi Statul ela Judicial De Executive Administra! Local Ordinances ventions wil 1 Tax ‘Treaties and Con) . Tay nd Con 8. Revenue Regulation i es S of Administrative Issuance regulations Revenue memorandum cee Revenue memorandum ru! ing Revenue memorandum circulars Revenue bulletins BIR rulings in rees 1 IS A sions OF cast 3 ns ‘ cio d Batas pamba| 4. yrders ane e ; S| ict tive Issuan “ pn foreig? countries Type Revenue aneene ed by the Secretary of Finance f Internal Revenue (CIR) that 5; for the effective enforcement ¢ de (NIRC) and related statutes. are issuances sign recommendation of the Commissioner 0! prescribe, or define rules and regulations provisions of the National Internal Revenue Cos Revenue Regulations Revenue regulations are formal pronouncements intended to clarify or explaint a and carry into effect its general provisions by providing details of administ: am procedure, Revenue regulation has the force and effect of a law, but: tended to expand or limit the application of the law; otherwise, it is void. Revenue Memorandum Orde ! 2 lers_ (RMO: i instructions; prescribe wideincg on dine pro seca ee aoe woriows, methods, and raat puiin® -Procesaesy\ operstions Policies, goals, objecti eer Aa Ae except auditing. Jectives, plans, and programs of the Cena i areas 0! Revenue Memo randum Ruli CIR wi ulings R with respect to the a oe are rulings, opini i visions of the Tax Cod, pinions and interpretatio" ith ode and other tax laws as aPP out establi Stablished Precedents, and which the ; with or wi Ssue from time to time for the Purpose o TOV f pr ™ Circulars RMC Well a: 's) are j e BIR S amplificati issua i and other agencies of laws ruta that publish pet, Ces, »Tules, regulations, and?"Chapter 2 - Taxes, Tax Laws and Tax Administration official announcements hat consolidate the Bureau of Internal flaw or administration in relation to the ‘and other issuances for the guidance of Revenue Bulletins (RB) refer to periodic issuances, notices, and of the Commissioner of Internal Revenue Revenue's position on certain specific issues 0! provisions of the Tax Code, relevant tax laws, the public. s of the Bureau to queries raised by taxpayers and BIR Rulings ave official position: tation of tax laws. other stakeholders relative to clarification and interpr service to the taxpayer such that Rulings are merely advisory or a sort of information d may be reversed by the BIR at none of them is binding except to the addressee ani anytime. Types of rulings 1. Value Added Tax (VAT) rulings 2. International Tax Affairs Division (ITAD) rulings 3. BIRrulings 4, Delegated Authority (DA) rulings Generally Accepted Accounting Principles (GAAP) vs. Tax Laws Generally accepted accounting principles or GAAP are not laws, but are mere conventions of financial reporting. They are benchmarks for the fair and relevant valuation and recognition of income, expense, assets, liabilities, and equity of a reporting entity for general purpose financial reporting. GAAP accounting reports are intended to meet the common needs of a vast number of users in the general public. Tax laws including rules, regulations, and rulings prescribe the criteria for tax reporting, a special form of financial reporting which is intended to meet specific needs of tax authorities. Taxpayers normally follow GAAP in recording transactions in their books. However, in the preparation and filing of tax returns, taxpayers are mandated to follow the tax law in cases of conflict with GAAP. NATURE OF PHILIPPINE TAX LAWS Philippine tax laws are civil and not political in nature. They are effective even during periods of enemy occupation. They are laws of the occupied territory and not by the occupying enemy. Tax payments made during occupations of foreign enemies are valid. Our internal revenue laws are not penal in nature because they do not define crime. Their penalty provisions are merely intended to secure tax) Ts 7 : payers’ 37the lawmaking body ote, TAX orced P' , qax is an ent vent jurisdiction over the Objea state to raise Fe Jimitations. Classification of Taxes AL Asto purpose 1 revenue tax - 3 atory - a tax imp ed for genera’ purpose f 1 tax impos ; sed to regulate business, conduct, tax levied to achieve some social or economic objectives i : A B Asto subject matter ! i sonal, poll or capitation - a tax on persons who are residents of; articular territory ty tax ~ a tax on properties, real or personal or privilege tax - a tax imposed upon the performance of an a nent of a privilege or engagement in an occupation C As to incidence | 1. Direct tax - When both the impact and incidence of taxation rest upon ayer, the tax is said to be direct. The tax is collected fromt who is intended conomic taxpayer. to pay the same. The statutory taxpayer ist 2. Indirect tax - When th i rt fe tax is paid br is intended to us any Pony oo | the case of busiens ded the tax is said to be mnaireee Tee I economic taxpayer, *S where the Statutory taxpayer is not The Statutory ta; ! x) economic taxpayer j a : He named ann one who actually Pe a vw , e tax. 1 Specific tax - a tax of per kilo, liter of meter ent 7 @tc, Payer is the per: amount i ' ™Posed on a Per unit basis sucht 38Chapter 2 - Taxes, Tax Laws and Tax Administration e tax 2, Ad valorem - a tax of a fixed proportion imposed upon the value of th object E. Astorate 1. Proportional tax - This is a flat or fi s! tax emphasizes equality as it subjects all taxpayers with without regard to their ability to pay. 2. Progressive or graduated tax - This is a tax whi as the tax base increase. The use of progre equitable taxation because it gets more tax to those wl Itaids in lessening the gap between the rich and the poor. 3. Regressive tax - This tax imposes decreasing tax rates as the tax base increase. This is the total reverse of progressive tax. Regressive tax 1s regarded as anti-poor. It directly violates the Constitutional guarantee of progressive taxation. 4, Mixed tax - This tax manifest tax rates which is a combination of any of the above types of tax. ixed rate tax. The use of proportional the same rate ich imposes increasing rates ssive tax rates results in ho are more capable. F. As to imposing authority 1. National tax - tax imposed by the national government Examples: a. Income tax - tax on annual income, gains or profits b. Estate tax - tax on gratuitous transfer of properties by a decedent upon death c. Donor’s tax - tax on gratuitous transfer of properties by a living donor q d. Value Added Tax - consumption tax collected by VAT business taxpayers e. Other percentage tax - consumption tax collected by non-VAT business taxpayers f. Excise tax - tax on sin products and non-essential commodities such as alcohol, cigarettes and metallic minerals. This should be differentiated with the privilege tax which is also called excise tax. g. Documentary stamp tax - a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. 2. Local tax - tax imposed by the municipal or local government 5 Examples: a. Real property tax b. Professional tax c. Business taxes, fees, and charges 39pinistration Chapter 2 - Taxes, Tax Laws and Tax Adm C ity tax al institutions da ea ean other financial institu e-Tax on banks r R ITEMS DISTINCTION OF TAXES WITH SIMILAI xs Revere ernment for public purpose i “ vs. Rev he amount imposed by the aa Ie Purpose, Re rears toa income collections of the gover mament which fe leew os tl penalties and others. The amount imp collected is revenue, Tax vs. License fee ; Tax emanates from taxat; Tax has a broader subject than license. Tax Sm fon 7 imposed upon any object such as persons, properties, or revenue, Lice e emanates from police power and is imposed to regulate the exercig a privilege such as the commencement of a business or a prof ion, Taxes are imposed after the commencement of a business o: license fee is imposed before engagement in those @ post-activity imposition wher T profession whey activities. In other Words, eas license is a pre-activity imposition, Tax vs. Toll Tax isa levy of government; hence, it for the use of other's Property; hence, i a demand of Sovereignty, Toll is ac isa demand of ownership, Pon the needs of the ‘nt upon the value of the p The amount of t el toll is depende, 80vernment, but the amou! Toperty leased, and private entities impose toll, but private entities while debt arises from i ayment O bu — Private contracts, Non-paymen! ea BE tent OF debt does noe lead to imprison? ‘ax is not, vat ci lly payable in money, Debt can be Paid in kind (da Crest only yy i so sti hen the ta lege ee lay, Plated by the ting * letinquent. Debt draws it ar a 1s or when the debtor it 40Chapter 2 - Taxes, Tax Laws and Tax Administration Tax vs. Special Asses: Tax asse pent an amount imposed upon persons, propertic ° ment is levied by the government on lands adjacent to a public improvement. It is imposed on land only and is intended to compensate the government for a part of the cost of the improvement. The basis of special 3 nent is the benefit in te of the appreciation in land value caused by the public improvement, On the other hand, tax is levied without expectation of a direct proximate benefit. or privileges. Special Unlike taxes, spe ssment attaches to the land. It will not become a personal obligation of the land owner, Therefore, the non-payment of special assessment will not result to imprisonment of the owner (unlike in non-payment of taxes). Tax vs. Tariff Tax is broader than ta transactions, commoditie x is an amount imposed upon persons, privilege, or properties, Tariff is the amount imposed on imported or exported Tax vs. Penalty Tax is an amount imposed for the support of the government. Penalty is an amount imposed to discourage an act. Penalty may be imposed by both the government and private individuals. It may arise both from law or contract whereas tax arises from law. TAX SYSTEM The tax system refers to the methods or schemes of imposing, assessing, and collecting taxes. It includes all the tax laws and regulations, the means of their enforcement, and the government offices, bureaus and withholding agents which are part of the machineries of the government in tax collection. The Philippine tax system is divided into two: the national tax system and the local tax system. Types of Tax Systems According to Imposition 1. Progressive - employed in the taxation of income of individuals, and certain local business taxes 2. Proportional - employed in taxation of corporate income and business 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. This type of tax system impacts more upon the rich. 41istration Laws and 78% Adm | Chapter 2 - Taxes, TAX izes indirect taxes. Indj i mphasizes indirect indir 2, Regressive 95 is one that © Ee hence, the impact of taxat A regressive tax S) consum s} ; a are shifted by businesses © ciety. In effect, a regressive tax system upon the bottom end of the _ ional guarantee of Ry Constitutiona ee of a pro is widely bel at despite the g i i i wily ines has a dominantly regressive tax system due wo faxation, prevalence ‘of business taxes: TAX COLLECTION SYSTEMS A. Withholding syste} x - Under this collection system, the pay olds or deducts the tax on the income before releasingg same to the payee and remits the same to the government. The following the withholding taxes collected under this system: 1. Creditable withholding tax | a. Withholding tax on compensation - an estimated tax required byt government to be withheld (ie. deducted) by employers against compensation income to their employees | b. Expanded withholding tax - an estimated tax required by t government to be deducted on certain income pai ments made! taxpayers engaged in business poy m on income ta of the income withh a . - ; aa The creditable withholding tax is intended to support the self-assessmé ssen the burden of lump sum tax payment of taxpayer also provides fora i ‘ 5 taxpayers. possible third-party check for the BIR of non-complié 2. Final withholdin ig tax - a syste { required to deduct the full re noteiore en where a me payments The final withholding tax is income with high tiskofnoh oom net for the collection of taxe ft ompliance, Similarities of final taxand i a. Inboth cases, the income pays aoe withhold the same to the fovernnee o withholds ahah Sa hi c ion of the incom! andChapter 2 - Taxes, Tax Laws and Tax Administration Differences between FWT and CWT Final Withholding | Creditable Withholding Tax Tax Income tax withheld Full Only a portion Coverage of Certain passive income Certain passive and active withholding income Who remits the actual Income payor Income payor for the CWT and tax : 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 services 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 "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 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, demands for taxpayer's voluntary compliance or enforces collections by coercive means such as a summary proceeding or judicial 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administration Chapter 2 - Taxes, Tax Laws and Tax of government funds my, ‘ent must not incur a den Oy deliver the essential pub 4K ‘esponse to increase jC%q in mn res i jequacy the sou Freed adequacy requtes asye govern is to cover gO Fe er ‘1 sab ode the people. spending. tion should consid ; justice sts that taxat 1 = ; tw ea tS e exercise of taxation ta ity to pay: sets | aoressve, unjust, or confisc trative feasibility Admnimserative feast at tax laws should be capable of gp Administrative compliance. Government sho, i courag' effective adminis! rhe taxpal easy for the ta reducing compliance costs. ‘The following are applications of the principl i f taxes - gefiling and e-payment o fi Substituted filing system for employees roan apart 3, Final withholding tax on non-resident aliens or corp: 4. Accreditation of authoriz! ply by avoi TAX ADMINISTRATION Tax administration refer: istration to eM iding administrative bottlene ey, le of administrative feasibity, Chapter 2 - Taxes, Tas Li ¥ 4 5. 6. a Giving effect to, ; conferred to it by t Assignment of int Provision and dis proper officials Issuance of receip Submission of ani the Congressiona POWERS OF THE CO L 2K To interpret the Finance To decide tax ci of Tax Appeals, . Disputed b. Refunds of c. Penalties i d. Other NIR 3. To obtain in ed agent banks for the filing and Payment oft, s to the management of the tax systq administration of the national tax system in the Philippines is entrust) Bureau of Internal Revenue which is under the supervision and administa 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 I 1. Assessment and i ollecti 2. Enforcement of al ues orcen I forfeitures decided in its favor by the courts INTERNAL REVENUE . i Penalties and fines, and judgments , persons to eff Purpose: For a. The corr been ma b. The tax any suc c. Tax con Authorized a. Toexa b. To obt the pe c. To su empl accou or ot d. To t reley Toc dist °Chapter 2 - Taxes, Tax Laws and Tax Administration 3, Giving effect to, and administering the supervisory and police powers conferred to it by the NIRC and oth 4, Assignment of internal revenue office 5. Provision and distribution of forms, receipts, certific proper officials 6. Issuance of receipts and clearances 7. Submission of annual report, pertinent information to Congress and reports to the Congressional Oversight Committee in matters of taxation nd other employees to other duties 5, stamps, etc, to POWERS OF THE COMMISSIONER OF INTERNAL REVENUE 4, To interpret the provisions of the NIRC, subject to review by the Secretary of Finance 2. To decide tax cases, subject to the exclusive appellate jurisdiction of the Court of 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 Purpose: For the CIR to ascertain: a. The correctness of any tax return or in making a rett been made by the taxpayer b.. The tax liability of any person for any inte any such liability c. Tax compliance of the taxpayer urn when none has rnal revenue tax or in correcting 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 4. To take testimony of the person conce relevant or material to the inquiry e. To cause revenue officers and employees to make canvass of any revenue district med, under oath, as may be | | | 45Administ er s and 12) F ~ Taxes, Tax Law’ ; iti . Chapter 2 Taxe’ rescribe additional equi -qaxes, T Le nd P re er 2 assessment 2" te, Chapt an en! . 4. " er and enforce mine tax due thereon intending to Pe adminis! |. ms and deter collection of the . ru ; ; 5, To examine tax ret esentatives May authorize y i oe ination of . thorized reP f the correct "*% termina The CIR or his duly A the assessment © authorization, Ate ache taxpayer toss er jring the pri of able im of any taxpay™ ny law requiring 9 que and pay’ 1 an 7 return shall tn, ju notwithstanding ality. Failure to file a not Prev rescribe real P ae thoriing the examination. g. Top from auth The CIR is authori: essments are due upon notice and demangy ty values aft asst t 7 his representatives. ; Pp statements or declarations shall not be withdrawn tw, Zonal values are § Returns. ‘changed and amended by the taxpayer within 3 years fog, rales and regulati ee when a notice for audit or investigation has beer, Philippine val g ; e valid ul oe srevanee, city OF When a return shall not be forthcoming within the prescribed ees posted in the p when there is a reason to believe that the return is false, inc; conspicuous pub erroneous, the CIR shall assess the proper tax on the basis of bes: including the rec available. the inquiry of any For purposes of i whichever is high a. Zonal value p b. Fair market Provincial an In case a person fails to file a required return or other documentsat prescribed by law or willfully files a false or fraudulent retune documents, the CIR shall make or amend the return from his ows! and from such information obtained from testimony. The retw™* presumed prima facie correct and sufficient for all legal purposes: The NIRC previo 6 To conduct inventory taking or surveillance fair market valu 4 ion. 7 re Prescribe presumptive gross sales and receipts for a taxpayer wi he va 5 He ‘arpaver failed to issue receipts; or : 10. To compromise | . The i 3 ofl correctly ee that the books or other records of the "11. To inquire into t oa ct the declaration in the return. / a. Determinati of sim ee £'0ss Sales or receipt shall be derived from the oe b. To substant information. "SS S*4er similar circumstances adjusted for application ae mn, mstances adjuste! In cases of fin: 5 ‘erminate tax per waives his pri a. Retiring from ened hen the taxpaye P privi Intending to leave ks al 2. To accredit and ave the Philinn; ® Intending to remove, hg PBines 0 ; "conceal his propertyTax Laws and Tax Administration ‘m any act tending to obstruct the pr me ineffective h a notice icated throug! mie ment. TAXES shall be os for the er 2 - Taxes, oceeding Chapt qd. Intending to perfor’ collection of the tax or render the sal ‘The termination of the taxable period shall be aan ment to the taxpayer together with a request for immedia' pi due and payable immediately. 9. To prescribe real property values The CIR is authorized to divide the Philippines into property values after consultation with competent ap| prescribed are referred to as zonal value. prescribe real zones and he values thus praisers. T Zonal values are subject to automatic adjustment once every 3 years through rules and regulations issued by the Secretary of Finance based on the current Philippine valuation standards. However, no adjustment in zonal valuation shall be valid unless published in a newspaper of general circulation in the province, city or municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in 2 other conspicuous public places therein. Furthermore, the basis of any valuation, including the records of consultations done, shall be public records open to the inquiry of any taxpayer. For purposes of internal revenue taxes, fair value of real property shall mean whichever is higher of: a Zonal value prescribed by the Commissioner . Fair_market value as shown in the scl Provincial and City Assessor's Office Se ai ‘The NIRC previously used the assessed value which i: ; ‘ich is merely a fraction fair market value. Assessed value is the basis of the real ra tax Ae taxation. The value to use now is the full fair value of the property. “ 10. To compromise tax liabilities of taxpayers A4-Td'tnaut i To inquire into bank deposits, only under the following instances: a. Determination of the gross estate of a decedent b. To substantiate the taxpayer's claim of financial incapacity to pay tax in an in cases of financial incapacity, inquiry proceed only if the taxpayer Pe ‘pay can ly 12. it To accredit and register tax agents 47Chapter 2 - Taxes, Tax Laws and Tax Administration icati accreditation is ape; 7 the CIR of application for neers ANON IS appealay pee Finance. The failure of the Secretary of Finance to ant appeal within 60 days is deemed an approval. 8 13. 14, 15. 1 To refund or credit internal revenue taxes To abate or cancel tax liabilities in certain cases To prescribe additional procedures or documentary requirements a To delegate his powers to any subordinate officer with a rank CqUivale, division chief of an office Non-delegated power of the CIR ‘The following powers of the Commissioner shall not be delegated: The power to recommend the promulgation of rules and regulations b Secretary of Finance, The power to issue rulings of first impression or to reverse, revoke orn, any existing rulings of the Bureau. ‘The power to compromise or abate any tax liability Exceptionally, the Regional Evaluation Boards may compromise tay list under the following: a. Assessments are issued by the regional offices involving basic defi: tax of P500,000 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 © Heads of the Legal, Assessment and Revenue District Officer having juri; The power to assi ig where articles subj Collection Division sdiction over the taxpayer in and reassign internal revenue officers to establis” ject to excise tax are Produced or kept. re than 2 years, jot Revenue officers assigned to Perform assessment and collection fut not remain in the same assignment for more than 3 years. 48Chapter 2 - Taxes, Tax Laws and Tax Administration ; ‘0 3, Assignment of internal revenue officers and employees of the Bureau t special duties shall not exceed 1 year. al Revenue Taxes internal revenue taxes: ith respect to collection Agents and Deputies for Collection of National Intern: ‘The following are constituted agents for the collection of i 4. The Commissioner of Customs and his subordinates wi of national internal revenue taxes on imported goods. 2.. The head of appropriate government offices and his sul to the collection of energy tax. 3. Banks duly accredited by the Commissioner with respect to receipts of payments of internal revenue taxes authorized to be made thru banks. These are referred to as authorized government depositary banks (AGDB). bordinates with respect OTHER AGENCIES TASKED WITH TAX COLLECTIONS OR TAX INCENTIVES RELATED FUNCTIONS 1. Bureau of Customs 2. Board of Investments 3, Philippine Economic Zone Authority 4, Local Government Tax Collecting Unit 5. Fiscal Incentives Review Board 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 the BIR, the BOC is under the supervision of the Department of Finance. The Bureau of Customs is headed by the Customs Commissioner and is 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 by 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 BO!’s managing head. 49Chapter 2 - Taxes, Tax Laws and Tax Administration Philippine Economic Zone Authority (PEZA)_ The PEZA is created to promote investments in export-orienteq industries in the Philippines and, among other myriads of functio grant of both fiscal and non-fiscal incentives. PEZA registered enterprises enjoy tax holidays for certain years, exempg import and export taxes including local taxes. The PEZA is also an attaches" of the DTI. a Manus. MS, Supe The PEZA is headed by a director general and is assisted by thras directors. & Local Government Tax Collecting Units Provinces, municipalities, cities and barangays also imposed and Collect local taxes, fees and charges to rationalize their fiscal autonomy, : The special tax treatments of BOl-registered or PEZA-registered eNtery including the local taxes imposed by local governments will be discussed » Local & Preferential Taxation by the same author. 7 Fiscal Incentive Review Board (FIRB) FIRB has oversight function on the administration and grant of tax incenty the Investment Promotion Agencies and other government agencies admins tax Incentives, It approves or disapproves grant of tax incentives to 7 entities and tax subsidies to government-owned and controlled corport government instrumentalities, government commissaries, state universite colleges. TAXPAYER CLASSIFICATION FOR PURPOSES OF TAX ADMINISTRATION For purposes of effective and efficient tax administration, taxpayers are &® into; 1. Large taxpayers ~ under the supervision of the Large Taxpayer Se" of the BIR National Office. Non-large taxpayers - under the supervision of the respect District Offices (RDOs) where the business, trade or profession of ® is situated 2 he Criteria for Large Taxpayers: A. Asto payment J Value Added Tax - At least P200,000 per quarter for the pree®? & year 2. Excise Tax - At least P1,000,000 tax paid for the preceding ¥°* 50Chapter 2 - Taxes, Tax Laws and Tax Administration 3. Income Tax - At least P1,000,000 annual income tax paid 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 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 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 P300,000,000 registered with the SEC Multinational enterprises with an authorized capitalization or assigned capital of at least P300,000,000 7. Publicly listed corporations 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 taxpayers with at least P100,000,000 authorized capital in banking, insurance, telecommunication, utilities, petroleum, tobacco, and alcohol industries 10. Corporate taxpayers engaged in the production of metallic minerals