Chapter 2: Taxes, Tax Laws and Tax Administration

TAXATION LAW
Taxation law refers to any law that arises from exercise of the taxation power of the
state.

Types of taxation laws

1. Tax laws – these are the laws that provide for the assessment and collection of taxes.
2. Tax exemption laws – these are laws that rant certain immunity from taxation.

Sources of Taxation Laws

1. Constitution
2. Statutes and Presidential Decrees
3. Judicial decisions and case laws
4. Executive orders and Batasang Pambansa
5. Administrative issuance
6. Local ordinance
7. Tax treaties and conventions with foreign countries
8. Revenue regulations

NATURE OF PHILIPPINE TAX LAWS

Philippine tax laws are civil and not political in nature.

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, act or transaction.
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 in particular territory.
2. Property tax – a tax on properties, real or personal
3. Excise or privilege tax – a tax imposed upon the performance of the enjoyment of a
privilege or engagement in occupation.
C. As to incidence
1. Direct tax – The tax is collected from the person who is intended to pay the same.
2. Indirect tax – tax is paid by any person other than the one is intended to pay the
same, the tax is said to be indirect.
Note: The statutory taxpayer is the person named by the law to pay the tax. The economic tax payer is the only one
who actually pays for it.

D. As to amount
1. Specific tax – A 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 a flat or fixed - rate.
 2. Progressive or graduated tax – a tax which imposes increasing rates as the tax base
increase.
3. Regressive tax – imposes decreasing tax rates as the tax base increase.
4. Mixed tax – a combination of any of the above types of tax.
F. As to imposing authority
1. National Tax – Tax imposed by the national government.
 Income tax – tax on annual income, gains or profits.
 Estate tax – tax on gratuitous transfer of properties by a decedent upon death
 Donor’s tax – tax on gratuitous of properties of a living donor
 Value added tax – consumption tax collected by VAT business taxpayers.
 Other percentage tax – consumption tax collected by non-VAT business taxpayers.
 Excise tax – tax on sin products and non-commodities such as alcohol, cigarettes and
metallic minerals.

2. Local tax – tax imposed by the municipal or local government.

 Real property tax
 Professional tax
 Business taxes fees and charges
 Community tax
 Tax on banks & other financial institutions
DISTINCTION OF TAXES WITH SIMILAR ITEMS

Tax vs. Revenue – The amount imposed as tax but the amount collected is revenue
Tax vs. License fee – Tax is a post-activity imposition whereas license is a pre-activity
imposition.
Tax vs. Toll – Tax is a levy of government, hence demand of sovereignty. Toll is a charge for
the use of other’s properties, hence demand of ownership.
Tax vs. Debt – Tax arises from law while debt arises from private contracts. Non-payment of tax
leads to imprisonment, but non-payment of debt does not lead to imprisonment.
Tax vs. Special Assessment. – 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
The tax system refers to the methods or schemes of imposing assessing and collecting
taxes.

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 business.
3. Regressive – not employed in the Philippines.
Types of tax systems according to impact
1. Progressive system – one that emphasizes direct tax. A direct tax cannot be shifted.
2. Regressive system – one that emphasizes indirect taxes. An indirect tax is shifted by
business to consumers.
TAX COLLECTION SYSTEMS
A. Withholding system on income tax – under this collection system, the payor of the
income withholds or deduct the tax on the income before releasing.
1. Creditable withholding tax
 Withholding tax on compensation – an estimated tax required by the government to
be withheld by employers against the compensation income to their employees.
 Expanded withholding tax – an estimated tax required by the government to be
deducted on certain income payments made by taxpayers engaged in business.

2. Final withholding tax – a system of tax collection wherein payors are required to
deduct the full tax on certain income payments.

B. Withholding system on business tax – when the national government agencies and
instrumentalities including 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 system is
also referred to as the self-assessment method.
D. Assessment or enforcement system – the government identifies non-compliant tax
payers, assesses their taxes dues including penalties, demands for taxpayer’s voluntary
compliance or enforces collections by coercive means such as summary proceeding or
judicial proceedings when necessary.

OTHER AGENCIES TASKED WITH TAX COLLECTIONS OR TAX INCENTIVES RELATED

FUNCTIONS
1. Bureau of Customs – tasked to administer collection of tariffs on imported articles and
collections of the Value Added Tax on importation. The BOC is headed by the customs
commissioner and is assisted by five deputy commissioners and 14 district collectors.
2. Board of Investments – 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.
3. Philippine Economic Zone Authority – created to promote investments in export-
oriented manufacturing industries in the Philippines

TAXPAYER CLASSIFICATION FOR PURPOSE OF TAX ADMINISTRATION

1. Large taxpayers – under the supervision of LTS and BIR national office
2. Non-large taxpayers – under the supervision of the RDO

CRITERIA FOR LARGE TAXPAYERS:

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 paid for the preceding year.
4. Withholding Tax - At least P1,000,000 annual withholding tax payments remittances
from all types of withholding taxes.
5. Percentage Tax - At least P200,000 percentage tax paid or payable 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 – P1billion total annual gross sales.
2. Net worth – P300M total net worth at the close of each calendar year
3. Gross purchases – P800M total annual purchases for the preceding year