CHAPTER 2: Tax, Tax Laws, and Tax Administration Flashcards
______ refers to any law that arises from the exercise of the taxation power of the State.
Taxation law
Types of taxation laws
- Tax laws
- Tax exemption laws
These are laws that provide for the assessment and collection of taxes.
Tax laws
Examples of Tax Laws
a. The National Internal Revenue Code (NIRC)
b. The Tariff and Customs Code.
c. The Local Tax Code
d. The Real Property Tax Code
These are laws that grant certain immunity from taxation.
Tax exemption laws
Examples of Tax exemption laws
a. The Minimum Wage Law
b. The Omnibus Investment Code of 1987 (E.O. 226)
c. Barangay Micro-Business Enterprise (BMBE) Law
d. Cooperative Development Act
Sources of Taxation Laws
- 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
- Revenue regulations
- Revenue memorandum orders
- Revenue memorandum rulings
- Revenue memorandum circulars
- Revenue bulletins
- BIR rulings
______ are issuances signed by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue (CIR) that specify, prescribe, or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes.
Revenue Regulations
______ are formal pronouncements intended to clarify or explain the tax law and carry into effect its general provisions by providing details of administration and procedure. It has the force and effect of a law, but is not intended to expand or limit the application of the law; otherwise, it is void.
Revenue regulations
______ are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods, and procedures necessary in the implementation of stated policies, goals, objectives, plans, and programs of the Bureau in all areas of operation except auditing.
Revenue Memorandum Orders (RMOs)
______ are rulings, opinions and interpretations of the CRI with respect to the provisions of the Tax Code and other tax laws as applied to specific set of facts, with or without established precedents, and which the CRI may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations.
Revenue Memorandum Rulings (RMRs)
______ are issuances that publish pertinent and applicable portions as well as amplifications of laws, rules, regulations, and precedent issued by the BIR and other agencies/offices.
Revenue Memorandum Circulars (RMCs)
______ 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.
Revenue Bulletins (RB)
______ are official positions of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.
BIR Rulings
______ are merely advisory or a sort of information service to the taxpayer such that none of them is binding except to the addressee and may be reversed by the BIR at anytime.
Rulings
Types of rulings
- Value Added Tax (VAT) rulings
- International Tax Affairs Division (ITAD) rulings
- BIR rulings
- Delegated Authority (DA) rulings
______ or ______ are not laws, but are mere conventions of hnancial 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. ______ accounting reports are intended to meet the common needs of a vast number of users in the general public.
Generally accepted accounting principles, GAAP, GAAP
Philippine tax laws are ______ 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.
civil
Our internal revenue laws are not ______ in nature because they do not define crime. Their penalty provisions are merely intended to secure taxpayers compliance.
penal
______ is an enforced proportional contribution levied by the lawmaking body of the State to raise revenue for public purpose.
Tax
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.
Classification of Taxes
1) as to purpose: Fiscal or revenue tax, regulatory, sumptuary
2) as to subject matter: personal, poll or capitation, property tax, excise tax
3) as to incidence: direct tax, indirect tax
4) as to amount: specific, ad valorem
5) as to rate: proportional, progressive or graduated, regressive, mixed
6) as to imposing authority: national, local
a tax imposed for general purpose
Fiscal or revenue tax
a tax imposed to regulate business, conduct, acts or transactions
Regulatory
a tax levied to achieve some social or economic objectives
Sumptuary
a tax on persons who are residents of a particular territory
Personal, poll or capitation
a tax on properties, real or personal
Property tax
a tax imposed upon the performance of an act, enjoyment of a privilege or engagement in an occupation
Excise or privilege 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.
Direct 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 in the case of business taxes where the statutory taxpayer is not the economic taxpayer.
The statutory taxpayer is the person named by law to pay the tax. An economic taxpayer is the one who actually pays the tax.
Indirect tax
a tax of a fixed amount imposed on a per unit basis such a per kilo, liter or meter, etc.
Specific tax
a tax of a fixed proportion imposed upon the value of the tax object
Ad valorem
This is a flat or fixed rate tax. The use of this emphasizes equality as it subjects all taxpayers with the same rate without regard to their ability to pay.
Proportional tax
This is a tax which imposes increasing rates as the tax base increase. The use of this 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.
Progressive or graduated tax
This tax imposes decreasing tax rates as the tax base increase. This is the total reverse of progressive tax. It is regarded as anti-poor. It directly violates the Constitutional guarantee of progressive taxation.
Regressive tax
This tax manifest tax rates which is a combination of any of the above types of tax.
Mixed tax
tax imposed by the national government
National tax
Examples of National tax
a. Income tax
b. Estate tax
c. Donor’s tax
d. Value Added Tax
e. Other percentage tax
f. Excise tax
g. Documentary stamp tax
tax on annual income, gains or profits
Income tax
tax on gratuitous transfer of properties by a decedent upon death
Estate tax
tax on gratuitous transfer of properties by a living donor
Donor’s tax
consumption tax collected by VAT business taxpayers
Value Added Tax
consumption tax collected by non-VAT business taxpayers
Other percentage tax
tax on sin products and non-essential commodities such as alcohol, cigarettes and metallic minerals
Excise 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
Documentary stamp tax
tax imposed by the municipal or local government
Local tax
Examples of 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
______ refers to the amount imposed by the government for public purpose. ______ refers to all income collections of the government which includes taxes, tariffs, licenses, toll, penalties and others. The amount imposed is ______ but the amount collected is ______.
Tax, Revenue, tax, revenue
______ has a broader subject than ______. ______ emanates from taxation power and is imposed upon any object such as persons, properties, or privileges to raise revenue.
______ emanates from police power and is imposed to regulate the exercise of a privilege such as the commencement of a business or a profession.
Tax, license, Tax, License fee
______ are imposed after the commencement of a business or profession whereas ______ is imposed before engagement in those activities. In other words, ______ is a post-activity imposition whereas ______ is a pre-activity imposition.
Taxes, license fee, tax, license
______ is a levy of government; hence, it is a demand of sovereignty. ______ is a charge for the use of other’s property; hence, it is a demand of ownership.
Tax, Toll
The amount of ______ depends upon the needs of the government, but the amount of ______ is dependent upon the value of the property leased.
tax, toll
Both the government and private entities impose ______, but private entities cannot impose taxes.
toll
______ arises from law while ______ arises from private contracts. Non-payment of ______ leads to imprisonment, but non-payment of ______ does not lead to imprisonment.
Tax, debt, tax, debt
______ can be subject to set-off but tax is not.
Debt
______ can be paid in kind (dacion et pago) but ______ is generally payable in money.
Debt, tax
______ draws interest only when the taxpayer si delinquent. ______ draws interest when it is so stipulated by the contracting parties or when the debtor incurs a legal delay.
Tax, Debt
______ is an amount imposed upon persons, properties, or privileges. ______ is levied by the government on lands adjacent to a public improvement. It is imposed on land only and is intended to compensate the government for a part of the cost of the improvement.
Tax, Special assessment
The basis of ______ is the benefit ni terms of the appreciation in land value caused by the public improvement. On the other hand, ______ is levied without expectation of a direct proximate benefit.
special assessment, tax
Unlike taxes, ______ attaches to the land. It wil not become a personal obligation of the land owner. Therefore, the non-payment of ______ will not result to imprisonment of the owner (unlike in non-payment of taxes).
special assessment, special assessment
______ is broader than ______. ______ is an amount imposed upon persons, privilege, transactions, or properties. ______ is the amount imposed on imported or exported commodities.
Tax, tariff, Tax, Tariff
______ is an amount imposed for the support of the government. ______ is an amount imposed to discourage an act. ______ may be imposed by both the government and private individuals. It may arise both from law or contract whereas tax arises from law.
Tax, Penalty, Penalty
The ______ 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.
tax system
The Philippine tax system is divided into two: the ______ and the ______.
national tax system, local tax system
Types of Tax Systems According to Imposition
- Progressive
- Proportional
- Regressive
employed in the taxation of income of individuals, and certain local business taxes
Progressive
employed in taxation of corporate income and business
Proportional
not employed in the Philippines
Regressive
Types of Tax System According to Impact
- Progressive system
- Regressive system
A ______ tax system is one that emphasizes direct taxes. A direct tax cannot be shifted. Hence, it encourages economic efficiency as it leaves no other resort to taxpayers than to be efficient. This type of tax system impacts more upon the rich.
progressive
A ______ tax system si one that emphasizes indirect taxes. Indirect atxes are shifted by businesses to consumers; hence, the impact of taxation rests upon the botom end of the society. In effect, a regressive tax system is anti-poor.
regressive
It is widely believed that despite the Constitutional guarantee of a progressive taxation, the Philippines has a dominantly regressive tax system due ot the prevalence of ______.
business taxes
TAX COLLECTION SYSTEMS
A. Withholding system on income tax
B. Withholding system on business tax
C. Voluntary compliance system
D. Assessment or enforcement system
Types of Withholding system on income tax
- Creditable withholding tax
a. Withholding tax on compensation
b. Expanded withholding tax - Final withholding tax
Under this collection system, the payor of the income withholds or deducts the tax on the income before releasing the same to the payee and remits the same to the government.
Withholding system on income tax
an estimated tax required by the government to be withheld (i.e. deducted) by employers against the compensation income to their employees
Withholding tax on compensation
an estimated tax required by the government to be deducted on certain income payments made by taxpayers engaged in business
Expanded withholding tax
The ______ is intended to support the self-assessment method to lessen the burden of lump sum tax payment of taxpayer and also provides for a possible third-party check for the BIR of non-compliant taxpayers.
creditable withholding tax
a system of tax collection wherein payors are required to deduct the full tax on certain income payments
Final withholding tax
The ______ is intended for the collection of taxes from income with high risk of non-compliance.
final withholding tax
when the national government agencies and instrumentalities including government-owned and controlled corporations (GOCCs) purchase goods or services from private suppliers, the law requires withholding of the relevant business tax (i.e. VAT or percentage tax). Business taxation is discussed under Business and Transfer Taxation by the same author.
Withholding system on business tax
Under this collection 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.”
Voluntary compliance system
Under this collection system, the government identifies non-compliant taxpayers, assesses their tax dues including penalties, demands for taxpayer’s voluntary compliance or enforces collections by coercive means such as a summary proceeding or judicial proceedings when necessary.
Assessment or enforcement system
PRINCIPLES OF A SOUND TAX SYSTEM
- Fiscal adequacy
- Theoretical justice
- Administrative feasibility
______ requires that the sources of government funds must be sufficient to cover government costs. The government must not incur a deficit. A budget deficit paralyzes the government’s ability to deliver the essential public services to the people. Hence, taxes should increase in response to increase in government spending.
Fiscal adequacy
______ or ______ suggests that taxation should consider the taxpayers ability to pay. It also suggests that the exercise of taxation should not be oppressive, unjust, or confiscatory.
Theoretical justice, equity
______ suggests that tax laws should be capable of efficient and effective administration to encourage compliance. Government should make it easy for the taxpayer to comply by avoiding administrative bottlenecks and reducing compliance costs.
Administrative feasibility
______ refers to the management of the tax system. ______ of the national tax system in the Philippines is entrusted to the Bureau of Internal Revenue which is under the supervision and administration of the Department of Finance.
Tax administration
Chief Officials of the Bureau of Internal Revenue
- 1 Commissioner
- 4 Deputy Commissioners, each to be designated to the following:
a. Operations group
b. Legal Enforcement group
c. Information Systems Group
d. Resource Management Group
OTHER AGENCIES TASKED WITH TAX COLLECTIONS OR TAX INCENTIVES RELATED FUNCTIONS
- Bureau of Customs
- Board of Investments
- Philippine Economic Zone Authority
- Local Government Tax Collecting Unit
- Fiscal Incentives Review Board
