CHAPTER 2
Taxes, Tax Laws and Tax
Administration
TAXATION LAW - any law that arises
from the exercise of the
taxation power.
Type of taxation laws
1. Taw laws - laws that provide
for the assessment and
collection of taxes.
2. Tax exemption laws - laws
that grant certain
immunity from taxation.
Sources of Taxation Laws
1.
2.
3.
4.
5.
6.
7.
8.
Constitution
Statutes and Presidential Decrees
Judicial Decisions or case laws
Executive Orders and Batas
Pambansa
Administrative Issuances
Local Ordinances
Tax Treaties and Conventions with
foreign countries
Revenue Regulations
Types of Administrative Issuances
1.
2.
3.
4.
5.
6.
Revenue Regulations
Revenue Memorandum Orders
Revenue Memorandum Rulings
Revenue memorandum Circulars
Revenue Bulletins
BIR Rulings
Types of Rulings
1. VAT rulings
2. International Tax Affairs
Division rulings
3. BIR rulings
4. Delegated Authority rulings
Generally Accepted Accounting
Principles (GAAP) vs. Tax Laws
GAAP are not laws, but are intended to meet
the common need of a vas number of users in the
general public
Tax laws includes rules, regulations, and
rulings considered to be the criteria for tax reporting
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 laws in cases of conflict
with GAAP.
TAX -
an enforced proportional contribution
levied by the lawmaking body of the
State to raise revenue for public
purpose.
Elements of a Valid Tax
1. must be levied by the taxing power having
jurisdiction over the object to be tax.
2. must not violated constitutional and inherent
limitations
3. must be uniform and equitable
4. must be for public purpose
5. must be proportional in character.
6. generally payable in money.
Classifications of Taxes
A. As to Purpose
1. Fiscal or revenue tax
2. Regulatory
3. Sumptuary
B. As to Subject matter
1. Personal, poll or capitation
2. Property tax
3. Excise or privilege tax
C. As to Incidence
1. Direct tax
2. Indirect tax
Classifications of Taxes
D. As to amount
1. Specific tax
2. Ad valorem tax
E. As to rate
1. Proportional tax
2. Progressive or graduated tax
3. Regressive tax
4. Mixed tax
Classifications of Taxes
F. As to imposing authority
1. National tax
a. Income tax
b. Estate tax
c. Donor’s tax
d. Value Added Tax
e. Other percentage taxes
f. Excise tax
g. Documentation stamp tax
Classifications of Taxes
F. As to imposing authority
2. Local tax
a. Real property tax
b. Professional tax
c. Business taxes, fees, and charges
d. Community tax
e. Tax on banks and other financial
institutions.
Distinction of Taxes with Similar Items
Tax vs. Revenue
The amount imposed is tax. The amount
collected by the government is revenue.
Tax vs. License fee
Tax emanates from taxation power while
license fee emanates from police power. Taxes
are imposed after the commencement of a
business while license fee is imposed before
engaging in business activities.
Distinction of Taxes with Similar Items
Tax vs. Toll
Tax is a levy of government. Toll is a
charge for the use of other’s property. Tax is a
demand of sovereignty, while toll is a demand of
ownership.
Tax vs. Debt
Tax arises from law, while debt arises from
contracts. Non-payment of tax leads to
imprisonment, but non-payment of debt does
not lead to imprisonment. Tax is payable in
money, while debt can be paid in kind.
Distinction of Taxes with Similar Items
Tax vs. Special Assessment
Tax is imposed upon persons, properties,
or privileges, while special assessment is
imposed on land only.
Tax vs. Tariff
Tax is imposed upon persons, privilege,
transactions, or property. Tariff is imposed on
imported or exported commodities.
Tax vs. Penalty
Tax is imposed to support government,
while penalty is imposed to discourage an act.
TAX SYSTEM -
refers to the methods or
schemes of imposing, assessing, and collecting
taxes. It is divided into two systems: 1) the
national tax system and the local tax system.
Types of Tax System 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 business.
3. Regressive - not employed in the Philippines
Tax Collection Systems
1. Withholding system on income tax
a. Creditable withholding tax
a.1 Withholding tax on
compensation
a.2 Expanded withholding tax
b. Final withholding tax
2. Withholding system on business tax
3. Voluntary compliance system
4. Assessment or enforcement system
Principles of a Sound Tax System
1. Fiscal Adequacy - requires that the
sources of government funds must be
sufficient to cover government costs.
2. Theoretical Justice - or equity suggests
that taxation should consider the
taxpayer ability to pay.
3. Administrative Feasibility - suggests that
tax laws should be capable of efficient
and effective administration to
encourage compliance.
Tax Administration -
refers to the
management of the tax system. It is entrusted to
the Bureau of Internal Revenue which is under
the supervision and administration of the
Department of Finance.
Chief Officials of the Bureau of Internal Revenue
1. 1 Commissioner
2. 4 Deputy Commissioners
a. Operations group
b. Legal Enforcement group
c. Information System group
d. Resource Management group
Other Agencies Tasked with Tax Collections
or Tax incentives Related Functions
1. Bureau of Customs – importation and
exportations.
2. Board of Investment – promotion of
investments in the Philippines
3. Philippine Economic Zone Authority
(PEZA) - promote investments in
export-oriented manufacturing
industries in the Philippines.
4. Local Government Tax Collecting Units
impose tax and collection locally.