TAXATION CHAPTER 2 exempt from certain taxes, helping them grow without the

burden of heavy taxation.

TAXATION LAW - Taxation law is the rules governing how the
government collects money (taxes) from people and businesses. 4. Cooperative Development Act: Cooperatives, which are
These laws were created because the government had the power to member-owned businesses (like agricultural cooperatives
tax, and the money collected was used to provide services and run the or credit unions), may be exempt from certain taxes to
country. encourage their development and support community-based
economic activities.
Types of taxation laws
Sources of Taxation Laws are where the rules for taxes come from.
1. Tax laws are the rules that explain how the government
calculates and collects taxes from individuals, businesses, 1. Constitution: The main law of the country that gives the
and other entities. These laws guide how much tax needs to government the power to collect taxes.
be paid and when.
2. Statutes and Presidential Decrees: These are laws made
Examples of tax laws include: by Congress or special orders from the President that tell us
what taxes to pay.
1. National Internal Revenue Code (NIRC): Covers taxes
on income, sales, and businesses. 3. Judicial Decisions (Case Laws): When courts make
decisions about taxes, these rulings guide how tax laws are
2. Tariff and Customs Code: Governs taxes on imported applied.
goods.
4. Executive Orders and Batas Pambansa: Orders from the
3. Local Tax Code: Sets rules for taxes collected by local President or old laws passed by a national government that
governments, like city or municipality taxes. affect tax rules.
4. Real Property Tax Code: This relates to taxes on land and 5. Administrative Issuances: These are guidelines from
buildings you own. government agencies, like the Bureau of Internal Revenue
(BIR), that explain how to follow tax laws.

6. Local Ordinances: Local governments (like cities or

 National Internal Revenue Code (NIRC): If you're running a towns) create their own tax rules, such as property taxes or
business in the Philippines, this law ensures you're paying taxes on business permits.
the income your business generates, such as corporate income tax or
VAT (value-added tax) on goods and services you sell. 7. Tax Treaties with Foreign Countries: Agreements
between countries that make sure you don’t pay the same
 Tariff and Customs Code: If you import products from other tax twice in two countries.
countries, this law ensures you pay taxes (customs duties) when the
goods enter the country. For example, if a company imports 8. Revenue Regulations: Detailed rules from tax authorities
electronic goods from China, they will be taxed based on this code. (like BIR) that tell you how to calculate and pay taxes
properly.
 Local Tax Code: Suppose you own a small restaurant in a city or
municipality. This code sets the rules for paying local taxes, such as Types of Administrative Issuances
business permit fees or local sales taxes, that support the local
government's budget.  Revenue Regulations: These are the rules that tell you how to
follow the tax laws.
 Real Property Tax Code: If you own land or a building, this law
makes sure you pay the appropriate property taxes every year. For  Imagine you own a small business. Revenue Regulations
example, homeowners must pay real property taxes to their local would provide detailed rules on how to calculate and pay
government for owning a house. your business taxes, like VAT or income tax.

2. Tax exemption laws are rules that provide a break or  Revenue Memorandum Orders: These are instructions that tell
immunity from paying certain taxes. These laws apply to you what to do in certain tax situations.
specific individuals, businesses, or sectors to promote
fairness or support economic growth.  If the BIR decides to implement a new procedure for filing
tax returns, RMOs would give clear instructions on how to
Examples of tax exemption laws: follow this new procedure, such as new forms to fill out or
deadlines to meet.
1. Minimum Wage Law: Under this law, workers who earn
minimum wage are exempt from paying income tax. This  Revenue Memorandum Rulings: These are decisions that explain
helps low-income workers keep their full earnings without how tax laws should be applied to specific cases.
having taxes deducted.
 Suppose you’re unsure if a certain expense can be deducted
2. Omnibus Investment Code of 1987 (EO 226): This law from your taxes. An RMR would provide a decision on
provides tax incentives to businesses that invest in priority whether that expense is tax-deductible based on your
industries or sectors, such as agriculture or manufacturing. specific situation.
For example, a company that invests in renewable energy
might get tax breaks to encourage investment in that sector.  Revenue Memorandum Circulars: These are announcements that
explain parts of the tax laws in simpler terms.
3. Barangay Micro-Business Enterprise (BMBE) Law:
Small businesses classified as micro-enterprises, like a  If there’s a new tax rule that affects everyone, like a change
small neighborhood store or a home-based business, can be in tax rates, an RMC would explain this change in simple
terms so you understand how it impacts your tax filings.
 Revenue Bulletins: These provide updates or information about GAAP provides guidelines for financial reporting, while tax laws
changes in tax laws or new policies that taxpayers need to know. dictate how to report financial information specifically for calculating
taxes.
 If the government makes changes to tax laws, Revenue
Bulletins will update you about these changes and explain
what you need to do differently in your next tax return.
NATURE OF PHILIPPINE TAX LAWS
 BIR Rulings: These are answers from the BIR to questions about
how to follow the tax laws. Ang mga batas sa buwis sa Pilipinas ay sibil at hindi pampulitika.
Ibig sabihin, ang mga ito ay para sa pamamahala ng buwis at hindi sa
 If you have a specific question about your taxes, such as pagpaparusa sa mga krimen. Nananatili itong umiiral kahit sa
how a new tax law applies to your unique business panahon ng pananakop ng mga banyaga, at ang mga pagbabayad ng
situation, you can ask the BIR for a ruling. They’ll provide buwis sa mga ganitong panahon ay valid pa rin. Ang mga parusa sa
a clear answer on how to handle your taxes in that situation. batas na ito ay para lamang siguraduhin na sinusunod ng mga tao ang
mga alituntunin, hindi para parusahan sila sa pagkakaroon ng krimen.
Types of rulings
Tax is a required payment set by the government to collect money for
 Value Added Tax (VAT) Rulings: Explain how to handle VAT, public services and projects.
like whether you need to add VAT to a product you sell.
Elements of a Valid Tax
 International Tax Affairs Division (ITAD) Rulings: Deal with tax
rules for business done with other countries, like how to manage  Only the right government body can impose the tax.
taxes on money earned abroad.
The tax must follow constitutional rules.
 BIR Rulings: Provide answers from the BIR on specific tax
questions or problems you might have.  The tax should be applied equally and fairly.

 Delegated Authority (DA) Rulings: Decisions made by specific  The money from the tax should be used for community benefits.
BIR officials on tax matters because they have been given special
 The amount of tax should match what people can afford.
permission to do so.
 Taxes are usually paid in cash.

Classification of Taxes
Generally Accepted Accounting Principles (GAAP) vs. Tax Laws
 As to purpose:
 GAAP: These are guidelines for preparing financial
reports. They help businesses present their financial Fiscal (Revenue) Tax: Money collected to run the government.
situation (like income, expenses, and assets) clearly and
fairly. GAAP is used for general financial reporting to  Regulatory Tax: Money collected to control certain
provide useful information to investors, creditors, and the activities or businesses.
public.
 Sumptuary Tax: Money collected to influence behaviors
 Tax Laws: These are rules set by the government for how or achieve social goals.
to report income and expenses when filing taxes. They are
designed to ensure that tax reporting meets the needs of tax  As to the Subject Matter:
authorities.
 Personal Tax: Charged to people living in a certain area.
Key Differences:
 Property Tax: Charged on things you own, like land or
1. Purpose: buildings.

o GAAP: To provide a consistent and clear view of  Excise or Privilege Tax: Charged for doing something
a company's financial health for general special or having certain rights.
reporting.
 As to Incidence:
o Tax Laws: To determine how much tax a
 Direct Tax: Paid directly by the person who is supposed to
company or individual owes.
pay it (e.g., income tax).
2. Application:
 Indirect Tax: Paid by someone else, like when a business
o GAAP: Used for regular financial reporting. adds tax to the price of goods (e.g., sales tax).

o Tax Laws: Used specifically for preparing tax  As to Amount:

returns and calculating tax payments.  Specific Tax: A fixed amount of tax per unit, like per kilo
3. In Case of Conflict: or liter.

o GAAP: Taxpayers follow GAAP for their  Ad Valorem Tax: A percentage of the value of the item
being taxed.
financial records.
 As to Rate:
o Tax Laws: When there is a conflict between
GAAP and tax laws, taxpayers must follow the  Proportional Tax: A flat tax rate that is the same for
tax laws for their tax returns. everyone (e.g., everyone pays 10%).
  Progressive (Graduated) Tax: The tax rate increases as 3. Tax versus SPECIAL ASSESSMENT
income or value increases (e.g., higher income means
higher tax rate).  Tax: A regular payment everyone makes to fund general
government services. It’s not linked to specific benefits you
 Regressive Tax: The tax rate decreases as income or value receive.
increases (e.g., lower income means a higher percentage of
tax).  Special Assessment: A fee you pay only if your property
benefits from a specific public improvement, like a new
 Mixed Tax: A combination of the above types of tax rates. road or park. This fee helps pay for that improvement.

 As to Imposing Authority: Characteristics of Special Assessment:

 National Tax: Collected by the national government, 1. Only for Property Owners: Only people with property are
including: charged.

o Income Tax: Tax on earnings. 2. Tied to Property: The fee is connected to the property, not
the person.
o Estate Tax: Tax on property left behind after
someone dies. 3. Based on Benefits: You pay based on how much you
benefit from the improvement.
o Donor’s Tax: Tax on gifts or property given
while still alive. 4. Limited to Specific Projects: It’s used only for the specific
project or improvement.
o Value Added Tax (VAT): Tax on consumption
collected by businesses.
4. Tax vs. Revenue:
o Other Percentage Tax: Tax on consumption
collected by businesses not using VAT.  Tax: Money that people are required to pay to the
government to fund public services.
o Excise Tax: Tax on specific products like alcohol
and cigarettes.  Revenue: All types of income the government receives,
including taxes, fees, and other sources.
o Documentary Stamp Tax: Tax on certain
documents and agreements. 56Tax vs. Subsidy:
 Local Tax: Collected by local or municipal governments,  Tax: A payment required by law to fund government
including: services.
o Real Property Tax: Tax on property like land  Subsidy: Financial aid given by the government to support
and buildings. individuals or businesses, often to encourage public
benefits. This aid might be funded by taxes.
o Professional Tax: Tax on individuals working in
certain professions. 6.Tax vs. Permit or License Fee:

o Business Taxes, Fees, and Charges: Taxes and  Tax: A general payment to the government for public
fees for running a business. (business permit services.
fees).
 Permit or License Fee: A charge you pay to get permission
o Community Tax: Tax for community services. to do something (like start a business) or to comply with
regulations. It’s more about regulation than funding general
o Tax on Banks and Financial Institutions: Tax government activities.
on financial services.

TAX DISTINGUISHED FROM OTHER TERMS OR IMPOSTS

Tax Debt
1. Tax versus TOLL Based on law. It’s a required Based on a contract. It’s money
payment set by the government owed as agreed between
 Tax: A required payment made to the government to fund public to fund public services. parties.
services and projects. It’s used for a wide range of purposes and is not Generally paid in money. It Can sometimes be paid in kind
directly linked to the use of a specific service. cannot be paid for goods or (with goods or services).
services.
 Toll: A fee paid specifically for using certain public facilities, like
Generally, not assignable or Assignable or subject to set-
roads or bridges. It’s a direct payment for access to these facilities.
subject to set-off/compensation. off/compensation. It can be
2. Tax versus PENALTY You cannot transfer it to transferred or used to settle
someone else or use it to settle other obligations.
 Tax: A required payment to the government used to fund public other debts.
services. It’s not a punishment but a regular obligation. Non-payment can lead to legal Failure to pay does not usually
penalties or imprisonment lead to imprisonment unless it’s
 Penalty: A punishment imposed for breaking a law or rule. In the (except for poll tax). related to a crime.
context of taxes, penalties are added if you don’t follow tax rules or Does not draw interest except Draws interest when stipulated
deadlines (Late Payment Penalty: Charged if you don’t pay your when overdue. Interest is only or when defaulted. Interest is
taxes by the due date). charged if the tax payment is applied as agreed in the
delayed. contract or in case of default.

7.Tax vs. Custom Duties:

 Tax: This is a payment you make to the government to help

fund things like public services and infrastructure. It’s a
broad term that covers many types of payments to the
government.

 Custom Duties: This is a specific type of tax you pay

when you bring goods into or send goods out of a country.
It’s used to control and regulate international trade.

8.Tax vs. Tariff:

 Tariff has three meanings:

1. Rate Book: A document that lists different goods

and the amount of tax you need to pay on each
type.

2. Duties on Goods: The actual tax you pay on

imported or exported goods.

3. System or Principle: The overall rules or

method for charging taxes on goods that cross
international borders.