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13 viewsIncome-Tax-Chap-2
INCOME TAX
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Ivy Claire chicoCopyright
© © All Rights Reserved
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/ 17
Chapter 2 - Taxes, Tax Laws and Tax Administration
CHAPTER 2
TAXES, TAX LAWS, AND TAX ADMINISTRATION
Chapter Overview and Objectives
This Chapter di: es 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 sele: of large taxpayers
TAXATION LAW
Taxation law refers to any law that arises from the exercise of the taxation power
of the State.
PNAAARWNe
Types of taxation laws
1. Tax laws - These are laws that provide for the assessment and collection of
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
Tax exemption laws - These are laws that grant certain immunity from
taxation.
Examples:
a. The Minimum Wage Law
b. The Omnibus Investment Code of 1987 (E.0. 226)
c. Barangay Micro-Business Enterprise (BMBE) Law
d. Cooperative Development Act
35 Chapter 2 - Taxes, Tax Laws and Tax Administration
Sources of Taxation Laws
Constitution :
Statutes and Presidential Decrees
Judicial Decisions or case laws
Executive Orders and Batas Pambansa
Administrative Issuances
Local Ordinances . . 7
Tax Treaties and Conventions with foreign countries
Revenue Regulations
ON ANARWNP
g
es of Administrative Issuances
Revenue regulations
Revenue memorandum orders
Revenue memorandum rulings
Revenue memorandum circulars
Revenue bulletins
BIR rulings
oa eene
Revenue Regulations are issuances signed by the Secretary of Finance upa
recommendation of the Commissioner of Internal Revenue (CIR) that specify
Prescribe, or define rules and regulations for the effective enforcement of th
Provisions of the National Internal Revenue Code (NIRC) and related statutes.
Revenue regulations are formal pronouncements intended to clarify or explain the ta
law and carry into effect its general provisions by providing details of administration
and procedure. Revenue regulation has the force and effect of a law, but is no
intended to expand or limit the application of the law; otherwise, it is void.
Revenue Memorandum Orders (RMOs)
instructions; prescribe guidelines;
workflows,
are issuances that provide directives &
and outline processes, operations, activities
methods, and procedures necessary in the implementation of statet
Policies, goals, objectives, plans, and programs of the Bureau in all areas of operation’
except auditing.
Revenue Memorandum Rulings (RMRs) are rulings,
CIR with respect to the provisions of the Tax Cod,
specific set of facts, with or without established
issue from time to time for the purpose of pro
consequences in specific situations. BIR Rulin,
issued RMRs; otherwise, the Rulings are null an
opinions and interpretations of tt
le and other tax laws as applied to!
Precedents, and which the CIR mé
viding taxpayers guidance on the
igs, therefore, cannot contravene dul!
id void ab initio,
Revenue Memorandum Circulars (RMCs) are issuances
applicable portions as well as amplifications of
issued by the BIR and other agencies/offices.
that pul
ish pertinent at
laws, rules, regulatio
ms, and preceden®
36 Chapter 2 - Taxes, Tax Laws and Tax Administration
Revenue Bulletins (RB) refer to periodic issuances, notices, and official announcements
of the Commissioner of Internal Revenue that consolidate the Bureau of Internal
Revenue'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.
of the Bureau to queries raised by taxpayers and
BIR Rulings are official positions 4
fication and interpretation of tax laws.
other stakeholders relative to clari
‘ort of information service to the taxpayer such that
Rulings are merely advisory or a S
the addressee and may be reversed by the BIR at
none of them is binding except to
anytime.
Types of rulings
1. Value Added Tax (VAT) rulings
2. International Tax Affairs Division (ITAD) rulings
3. BIR rulings
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.
e they do not define
Our internal revenue laws are not penal in nature becaus
re taxpayers’
crime. Their penalty provisions are merely intended to secu
compliance.
37 Chapter 2 - Taxes, Tax Laws and Tax Administration
TAX
Tax is an enforced proportional contribution levied by the lawmaking body of the
State to raise revenue for public purpose.
Elements of a Valid Tax
Tax must be levied by the taxing power having jurisdiction over the object of
taxation.
Tax must not violate Constitutional and inherent limitations.
Tax must be uniform and equitable.
Tax must be for public purpose.
Tax must be proportional in character.
Tax is generally payable in money.
yp wp
Classification of Taxes
A. As to purpose
1. Fiscal or revenue tax - a tax imposed for general purpose
2. Regulatory - a tax imposed to regulate business, conduct, acts or
transactions
3. Sumptuary - a tax levied to achieve some social or economic objectives
B. As to subject matter
1. Personal, poll or capitation - a 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 - a tax imposed upon the performance of an act,
enjoyment of a privilege or engagement in an occupation
CAs 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. The tax is collected from the
person who is intended to pay the same. The statutory taxpayer is the
economic taxpayer.
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. This occurs it
the case of business taxes where the statutory taxpayer is not th
economic taxpayer.
The statutory taxpayer is the person named by law to pay the tax. A!
economic taxpayer is the one who actually pays the tax.
D. As to amount
1. Specific tax - a tax of a fixed amount imposed on a per unit basis such #
per kilo, liter or meter, etc.
38 Chapter 2 - Taxes, Tax Laws and Tax Administration
2. Ad valorem - a tax of a fixed proportion imposed upon the value of the tax
object
E. Astorate
1. Proportional tax - This is a flat or fixed rate tax. The use of proportional
tax emphasizes equality as it subjects all taxpayers with the same rate
without regard to their ability to pay.
2. Progressive or graduated tax - This is a tax which imposes increasing rates
as the tax base increase. The use of progressive tax rates results in
equitable taxation because it gets more tax to those who are more capable.
It aids 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 is
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.
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
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
Examples;
a. Real property tax
b. Professional tax
¢. Business taxes, fees, and charges
39 Chapter 2 - Taxes, Tax Laws and Tax Administration
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 which includes taxes, tariff
licenses, toll, penalties and others. The amount imposed is tax but the amount
collected is revenue.
Tax vs. License fee
Tax has a broader subject than license. 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.
Taxes are imposed after the commencement of a business or profession whereas
license fee is imposed before engagement in those activities. In other words, taxis
a post-activity imposition whereas license is a pre-activity imposition.
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.
The amount of tax depends upon the needs of the government, but the amount d
toll is dependent upon the value of the property leased.
Both the government and private entities impose toll, but private entities canno
impose taxes.
Tax vs. Debt
Tax arises from law while debt arises from private contracts. Non-payment of
leads to imprisonment, but non-payment of debt does not lead to imprisonment.
Debt can be subject to set-off but tax is not. Debt can be paid in kind (dacion #
pago) but tax is generally payable in money.
Tax draws interest only when the taxpayer is delinquent. Debt draws intere*
when it is so stipulated by the contracting parties or when the debtor incurs?
legal delay.
40 Chapter 2 - Taxes, Tax Laws and Tax Administration
Tax vs. Special Assessment i
Tax is an amount imposed upon persons, pro ‘"
assessment is levied by the government on
improvement. It is imposed on land only and is
government for a part of the cost of the improvement.
The basis of special assessment is the benefit in terms of the appreciation in land
is levied without
value caused by the public improvement. On the other hand, tax i:
expectation of a direct proximate benefit.
perties, Or privileges. Specia
lands adjacent to a public
intended to compensate the
‘o the land. It will not become a personal
he non-payment of special assessment
ayment of taxes).
Unlike taxes, special assessment attaches t
obligation of the land owner. Therefore, tl
will not result to imprisonment of the owner (unlike in non-p:
Tax vs. Tariff
Tax is broader than tariff. Tax is an amount
transactions, or properties. Tariff is the amoun'
commodities.
t imposed upon persons, privilege,
t 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 di
5 : ire i
cannot be shifted. Hence, it encourages economic efficiency