Chapter 2 - Taxes, Tax Laws and Administration

Chapter 2 – Taxes, Tax Laws and Administration
What are the sources of Taxation Laws?

Correct
1. Constitution – although taxation is inherent in the state, the Philippine Constitution provides the grants of taxing power to the state as well as to the
local government units.
2. Statutes and Presidential Decrees – laws that are enacted by congress the latest law on taxation of which is the Tax Reform for Acceleration and
Inclusion (TRAIN) Law or Republic Act No. 10963.
3. Judicial Decisions or Case Laws – Decisions of the Supreme Court on Tax Cases which are already final and executory (15 days after the decision
has been handed down).
4. Executive Orders and Batas Pambansa – During the time of assumption of power Pres. Cory Aquino when there was no legislative department yet,
the President was allowed to exercise both the Executive and Legislative Powers, hence, the first VAT Law is an Executive Order. During the time of
President Marcos, the legislative department was exercised by one Batasang Pambansa, ( instead of the House of Representative and Senate), hence
the laws which were enacted by the Batasang Pambansa are called Batas Pambansa or BP, some of which are still effective today.
5. Administrative Issuances by the BIR :

a. Revenue Memorandum Orders (RMOs) – prescribed guidelines and outline processes . . .
b. Revenue Memorandum Rulings (RMRs) – issued by the Commissioner of Internal Revenue. The basis in rendering BIR rulings.
c. Revenue Memorandum Circulars (RMCs) – issuances that publish pertinent and applicable portions as well as amplifications of laws, rules,
regulations and precedents issued by the BIR and other agencies/offices.
d. Revenue Bulletins – periodic issuances, notices and official announcements of the Commissioner of Internal Revenue.
e. BIR Rulings – official positions of the BIR to questions raised by taxpayers which may be reversed by the BIR anytime.
6. Local Ordinances for taxation of the local government units
7. Tax Treaties and conventions with foreign countries
8. Revenue Regulations issued by the Secretary of Finance which specify, prescribed or define rules and regulations for effective enforcement of the
NIRC and related statutes
What will prevail in case of conflict between the Generally Accepted Accounting Principles (GAAP) and the Tax Laws?
Correct
The Tax Laws shall prevail for taxation purposes.
Example : Bad debts can be claimed as a deduction under GAAP, but not for taxation purposes. Only those Bad Debts which are actually written off
can be claimed as a deduction for taxation purposes.
What are the classification of taxes as to purpose and what are their differences?
Correct
1. Fiscal or revenue tax – for the general purpose of the government, the proceeds will go to the general funds of the government.
2. Regulatory – to regulate business, conduct, act or transactions. Like the customs duties in order to protect the local industries.
3. Sumptuary - refers to an excise or ad valorem tax applied to goods and services that support a habit viewed by society as undesirable, like the SIN
taxes on alcoholic drinks and cigarettes
What are the classification of taxes as to subject matter and who are liable for the payment of the tax?
Correct
1. Personal, poll or capitation – tax on persons who are residents of a place. The taxpayers who are residents of the community shall be liable to pay
this tax which is called as the Basic Community Tax. Even foreigners are subject to this tax, as long as they are residents of the Philippines.
2. Property Tax – The owner of the property shall pay the tax in the place where the property is located as long as it is within the Philippines only.
3. Excise or privilege tax – a tax on the performance of an act, enjoyment of a privilege or engagement in an occupation. Income Earners shall pay
this tax in the place where the income is earned.
What is the difference between Direct Tax and Indirect Tax?

Correct
In Direct Tax, the statutory taxpayer is also the economic taxpayer, that is the person upon whom the tax is levied (impact of taxation) is the same
person who should pay the same (incidence of taxation). Most taxes in the Philippines are Direct Taxes.
If the tax is Indirect, the statutory taxpayer is not the economic taxpayer, that is the person upon whom the tax is levied is not the one who will pay
the tax, but the burden is shifted to another. An example of this tax is the VAT.
What is the difference between the specific tax and ad valorem tax?
Correct
A specific tax is based on some mode of measurement, like most of the excise taxes on manufactured goods such as cigarettes (taxed per pack), beer
(tax per liter), asphalts, (tax per kilo), etc. You will study this in Tax 2 pohon.
Ad Valorem Tax is a fixed rate which is based upon the value of the thing or activity which is being taxed, like the VAT of 12% of gross sales.
What are the Tax Collection Systems?

Correct
1. Withholding system on income tax

a. Creditable withholding tax on compensation (the employer will withhold a portion of the salary) and Expanded Withholding tax for business
b. Final Withholding tax for some passive income (the tax is already final)
2. Withholding system on business tax – the government will automatically withhold as tax a portion of the purchase price that the government is
supposed to pay to its suppliers or creditors. (ag government namalit ani)
3. Voluntary compliance system – the taxpayer will determine his income and pay the withholding tax to the government. This is the SELF-
ASSESSMENT METHOD.
4. Assessment or enforcement system – the government will assess the non – compliant taxpayers and enforce the correct tax liability.
What are the principles of a sound tax system?

Correct
1. Fiscal adequacy – the revenue derived from taxation must approximate the needed government expenditures. The revenue should not be more and
should not be less, it should only approximate. (Di mo subra, di pud mo kuwang sa mga gastohonon sa government)
2. Theoritical justice – violation of this principle will necessarily make the tax law invalid and unconstitutional for being oppressive, unjust or
confiscatory.
3. Administrative feasibility – the tax law must be easy to implement and least burdensome on the part of the taxpayers. Example : A tax law
requiring farmers to pay sacks of rice as payment for their taxes violates this principle.
Even if the principle of Fiscal adequacy and Administrative feasibility is violated, the tax law is still valid, however, the tax law is not sound.
Who are the officers of the Bureau of Internal Revenue?

Correct
1 Commissioner and 4 Deputy commissioners each for Operations, Legal Enforcement, Information Systems and Resource Management.
When will the tax be paid if the taxable period is terminated?

Correct
Immediately
What is the composition of the Bureau of Customs (BOC)?

Correct
1 commissioner and 5 Deputy Commissioners with 14 District Collectors.

What is the composition of the Board of Investments (BOI) and what is its function?
Correct
5 full – time governors, excluding the DTI secretary as its chairman.
The BOI leads the promotion of Investments by Filipinos and Foreigners in the Philippines and is an attached agency to the DTI, for which reason
that the DTI secretary is its chairman.
What is the composition of the Philippine Economic Zone Authority (PEZA)?

Correct
1 Director general and assisted by 3 deputy directors.
The function is to promote export-oriented manufacturing industries. An attached agency of DTI.
What are the classification of taxpayers for purposes of Tax Administration?

Correct
1. Large taxpayers (LTS) - under supervision of the BIR National Office in Quezon City
2. Non-large taxpayers – under supervision of the Revenue District Offices. Bohol us under RDO 84 (only 1 revenue district for Bohol)

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Chapter 2 – Taxes, Tax Laws and Administration

What are the sources of Taxation Laws?

5. Administrative Issuances by the BIR :

6. Local Ordinances for taxation of the local government units

7. Tax Treaties and conventions with foreign countries

The Tax Laws shall prevail for taxation purposes.

What is the difference between Direct Tax and Indirect Tax?

What are the Tax Collection Systems?

1. Withholding system on income tax

What are the principles of a sound tax system?

Who are the officers of the Bureau of Internal Revenue?

When will the tax be paid if the taxable period is terminated?

What is the composition of the Bureau of Customs (BOC)?

1 commissioner and 5 Deputy Commissioners with 14 District Collectors.

5 full – time governors, excluding the DTI secretary as its chairman.

What is the composition of the Philippine Economic Zone Authority (PEZA)?

1 Director general and assisted by 3 deputy directors.

The function is to promote export-oriented manufacturing industries. An attached agency of DTI.

What are the classification of taxpayers for purposes of Tax Administration?

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