Chapter 4: General Principles in Taxation

Lesson 1
POWER OF TAXATION
TAXATION
It is the inherent power by which the sovereign through its law-making body raises
revenue to defray the necessary expenses of government.
THE CHARACTERISTICS OF TAXATION
A. Inherent power of the sovereign state
B. Exclusively lodged with the legislature
C. Subject to inherent, constitutional and contractual limitations
THE NATURES OF TAXATION
A. Plenary
B. Comprehensive
C. Awesome power that could destroy
TAX
Enforced proportional contributions from the persons and property levied by the law-
making body of the State by virtue of its sovereignty in support of government and for
public needs.
THE CHARACTERISTICS OF TAXES
A. Forced charged
B. Generally payable in money
C. Exclusively levied by the legislature
D. Assessed in accordance with some reasonable rule of apportionment
E. Imposed by the State within its jurisdiction
F. Levied for a public purpose
THE DIFFERENT PURPOSES AND OBJECTIVES OF TAXATION
A. Raise Revenue basically, the purpose of taxation is to provide funds or property
with which the State promotes the general welfare and protection of its citizens.
B. Non-Revenue
1. Promotion of general welfare
2. Regulation
3. Reduction of social inequality
4. Encourage economic growth
5. Protectionism
THE THEORIES AND BASES OF TAXATION
1. Lifeblood Theory (Importance of taxation)
It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of one's hard carned income to
the taxing authorities, every person who is able to must contribute his share in running
of the government.
2. Necessity Theory (Theory of taxation)
The power to tax is an attribute of sovereignty emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a means to give the citizenry
an army to resist an aggression, a navy to defend its shores from invasion, a corps of
civil servants to serve, public improvements designed for the enjoyment of the citizenry
and those which come within the State's territory, and facilities and protection which a
government is supposed to provide.
3. Benefits-Protection Theory (Basis of taxation)
Taxation is described as a symbiotic relationship whereby in exchange of the
benefits and protection that the citizens get from the Government, taxes are paid.

TWO ASPECTS OF TAXATION

A. Levy or imposition of the tax (tax legislation/function of congress).
B. Enforcement or tax administration (tax collection/function of executive e.g.
BIR).

SCOPES OF LEGISLATIVE TAXING POWER

A. Amount or rate of tax
B. Apportionment of the tax
C. Kind of tax
D. Method of collection
E. Purpose/s of its levy, provided it is for public purpose
F. Subject to be taxed, provided it is within its jurisdiction
G. Situs of taxation
MAY THE COURTT INTERFERE WITH TAX LEGISLATION?
As long as the legislature, in imposing a tax, does not violate applicable
constitutional limitations or restrictions, it is not within the province of the courts to
inquire into the wisdom or policy of the exaction, the motives behind it, the amount to be
raised or the persons, property or other privileges to be taxed. The court's power in
taxation is limited only to the application and interpretation of the law.

THE POWER TO TAX THE POWER TO DESTROY

A. "Power to tax is the power to destroy" - refers to the unlimitedness and the
degree or vigor with which the taxing power may be employed to raise revenue.
The financial needs of the State may outrun any human calculation, so the power
to meet those needs by taxation must not be limited even though taxes become
burdensome or confiscatory.
B. Power to tax is not the power to destroy while the Supreme Court sits" - the
power to tax knows no limit except those expressly stated in the Constitution.
Two schools of thought reconciled Although the power to tax is unlimited, it must
not be exercised in an arbitrary manner. If the abuse is so great so as to destroy
the natural and fundamental rights of people, it is the duty of the judiciary to hold
such an act unconstitutional.
BASIC PRINCIPLES OF A SOUND TAX SYSTEM
A. Fiscal Adequacy- sufficiency to meet government expenditures and other public
needs.
B. Administrative Feasibility-capability of being effectively enforced.
C. Theoretical Justice - based on the taxpayer's ability to pay; must be progressive.
D. Consistency with Economic Goals
THE CLASSIFICATIONS OF TAXES
A. As to subject matter:
a. Personal Tax - taxes are of fixed amount upon all persons of a certain class
within the jurisdiction without regard to property, occupation or business in which
they may be engaged e.g. Community Tax Certificate.

b. Property Tax - assessed on property of a certain class

e.g. Real Property Tax.

c. Excise Tax - imposed on the exercise of a privilege

e.g. Income Tax, Donor's and Estate Tax.
d. Custom Duties - duties charged upon the commodities on their being imported
into or exported from a country
e.g. Tariffs.

B. As to burden:
 a. Direct Tax - both the incidence of and liability for the payment of the tax as well
as the impact or burden of the tax falls on the same person.
e.g. Income Tax.
b. Indirect Tax the incidence of or liability for the payment of the tax falls on one
person but the burden thereof can be shifted or passed on to another e.g. VAT.

C. As to purpose:
a. General Tax-levied for the general or ordinary purposes of the Government.
b. Special Tax-levied for special purposes

D. As to measure of application:
a. Specific Tax-imposes a specific sum by the head or number or by some standard
of weight or measurement.
b. Ad Valorem Tax-tax upon the value of the article or thing subject to taxation.

E. As to taxing theory
a. National Tax levied by the National Government.
b. Local Tax-levied by the local government.

F. As to rate:
a. Progressive Tax--rate or amount of tax increases as the amount of income or
earning to be taxed increases.
b. Regressive Tax-tax rate decreases as the amount of income to be taxed
increases.
c. Proportionate Tax-based on a fixed proportion of the value of the property
assessed.
OTHER IMPOSITIONS THAN TAXES
A. Total amount charged for the cost and maintenance of the property used.
B. Penalty-punishment for the commission of a crime.
C. Compromise Penalty-amount collected in lieu of criminal prosecution in cases of
tax violations.
D. Special Assessment-levied only on land based wholly on benefit accruing
thereon as a result of improvements or public works undertaken by government
within the vicinity.
E. License or Fee-regulatory imposition in the exercise of the police power.
F. Margin Fee- exaction designed to stabilize the currency.
G. Debt – a sum of money due upon contract or one which is evidenced by
judgment.
H. Subsidy-a legislative grant of money in aid of a private enterprise deemed to
promote the public welfare.
I. Customs duties and fees-duties charged upon commodities on their being
transported into or exported from the country.
 J. Revenue-a broad term that includes taxes and income from other sources as
well.
K. Impost-in its general sense, it signifies any tax, tribute or duty. In its limited
sense, it means a duty on imported goods and merchandise.
L. TITHE- imposes by a church or sect.
M. TRIBUTE- imposes by a monarch.

THE DISTINCTIONS AMONG THE THREE INHERENT POWER OF TIHE STATE

TAXATION EMINENT DOMAIN POWER POLICE

Inherent power of the Inherent power of the

sovereign state interferes sovereign state to take
with private rights to private property upon
promote general welfare payment of just
compensation for public
use.

A. Purpose
To raise revenue To promote the To facilitate State's need of
general welfare regulations through property for public
use

B. Amount of Exaction

No limit Limited to the cost of No exaction; but private

regulation, issuance of the property is taken by the
license or surveillance state for public purposes

C. Benefits Received
No special or direct benefit No direct benefit is A direct benefit results in
is received by the received; a healthy the form of just
taxpayer; merely general economic standard of compensation to the
benefit of protection society is attained property owner

D. Non-impairment of Contracts
Contracts may not be Contracts may be impaired Contracts may be impaired
impaired

E. Transfer of Property Rights

Taxes paid become part of No transfer but only Transfer is effective in
public funds restraint in its exercise favor of the state

E. Scope
All persons, property, All persons, property rights Only upon a particular
rights and privileges and privileges property

THE DISTINCTIONS BETWEEN TAX AND SPECIAL ASSESSMENT AND LICENSE

FEE

Tax Special Assessment

Imposed on persons, property, rights and Levied only on land

privileges
Personal liability attaches on the person Cannot be made a personal liability of the
assessed in the case of non-payment person assessed
Not based on any special or direct benefit Based wholly on benefit
Levied and paid annually Exceptional both as to time and locality
Exemption granted is applicable (Art. VI, Exemption does not apply. N.B. If
Sec.28(3) 1987 Constitution) property is exempt from Real Property
Tax, it is also exempt from Special
Assessment

Tax Licensed Fee

Based on the power of taxation Emanates from police power

To generate revenue Regulatory

Amount is unlimited Amount is limited to the cost of Amount is

limited to the cost of
(1) issuing the license, and
(2) inspection and surveillance
 Non-payment does not make the Non-payment makes the business illegal
business illegal but maybe a ground for
criminal prosecution

THE DISTINCTIONS BETWEEN TAX AND DEBT

Tax Debt
An obligation imposed by law Created by contract

Due to the government in its sovereign May be due to the government but in its
capacity corporate capacity

Payable in money Payable in money, property or services

Does not draw interest except in case of Draws interest if stipulated or delayed
delinquency
Not assignable Assignable

Not subject to compensation or set-off Subject to compensation or set-off

Non-payment is punished by No imprisonment in case of non-payment

imprisonment except in poll tax (Art. III, sec. 20 1987 Constitution)
Imposed only by public authority Can be imposed by private individual

IS THE DOCTRINE OF EQUITABLE RECOUPMENT FOLLOWED IN THE

PHILIPPINES?
No. A tax presently being assessed against a taxpayer may not be recouped or
set-off against an overpaid tax the refund of which is already barred by prescription.

MAY A TAX BE SUBJECT OF COMPENSATION OR SET-OFF?

No. Taxes cannot be the subject of compensation or set- off. Taxes are not
contractual obligations but arise out of duty to the government. However, set-off may be
allowed if it is for the advantage of Government.
WHAT IS THE DIFFERENCE BETWEEN PUBLIC FINANCE AND TAXATION?
- Public finance refers to the financial operations of all government levels. Such
operations include budgeting, taxing, appropriating, purchasing, borrowing,
disbursing funds, and regulating currency. Taxation is a mere level of public
finance.
 - Taxation is a mere level of public finance.

Lesson 2
LIMITATIONS OF TAXING POWER

THE LIMITATIONS TO THE POWER OF TAXATION

A. Inherent - not embodied in the constitution, these are limitation base on the very
nature of the power of taxation.
B. Constitutional- those expressly found in the Constitution or implied from its
provisions.
C. Contractual - limitations based on contract entered between the state and
another.

TAXPAYER SUIT
A case filed by a bona fide taxpayer impugning the validity, legality or
constitutionality of a tax law or its implementation.

THE DIFFERENT INHERENT LIMITATIONS

A. Public purpose of taxes
B. Non-delegability of the taxing power
C. Territoriality or Situs of taxation
D. Tax Exemption of the government
E. International comity

TESTS IN DETERMINING PUBLIC PURPOSE

- The ends are public benefit and welfare.

1. Duty Test - whether the thing to be furthered by the appropriation of public

revenue is something which is the duty of the State, as a government, to provide.
2. Promotion of General Welfare Test - whether the proceeds of the tax will
directly or indirectly promote the welfare of the community in equal measure.
NON-DELEGABILITY OF THE TAXING POWER
General Rule: The power of taxation is peculiarly and exclusively exercised by
the legislature. For the power emanates from, though, and by the people. Hence, a
delegated authority could no longer be further delegated.
Exceptions to Non-delegability:
1. Authority of the President to fix tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties or imposts. (Art. VI, Sec. 28 (2), 1987
Constitution)
2. Power of local government units to levy taxes, fees, and charges. (Art. X, Sec. 5,
1987 Constitution)
3. Delegation to administrative agencies for implementation and collection.

SITUS OF TAXATION
The power to tax is limited only to persons, property or businesses within the
jurisdiction or territory of the taxing power.

FACTORS THAT DETERMINE TIE SITUS OF TAXATION

1. Kind or classification of the tax being levied
2. Situs of the thing or property taxed
3. Citizenship of the taxpayer
4. Residence of the taxpayer
5. Source of the income tax
6. Situs of the excise, privilege, business or occupation being taxed

APPLICATION OF SITUS OF TAXATION

Kind of Tax Situs

Personal or community tax Residence or domicile of the taxpayer

Real property tax Location of property (Lex rei sitae)

Personal property tax - tangible: where it is physically

located or permanently kept
(Lex rei sitae)
- intangible: subject to Sec.104
of the NIRC and the principle of
mobilia sequuntur personam
Business tax Place of business where occupation is
pursued

Excise or Privilege tax

Sales tax Where the sale is
consummated

Income Tax Consider (1 )citizenship, (2) residence,

and (3) source of income (Sec.42, 1997
NIRC)

Transfer tax Residence or citizenship of the taxpayer

or location of property

Franchise Tax State which granted the franchise

Corporate tax Law on incorporation

NON-TAXABILITY OF THE GOVERNMENT

As a matter of public policy; property of the State and of its municipal
subdivisions devoted to government uses and purposes is deemed to be exempt from
taxation although no express provision in the law is made therefore.
General Rule: The Government is tax exempt.
Exception: It may tax itself by enacting a law.
Rules governing tax immunity of the government:
1. Administrative Agencies
a. Government function- tax exempt unless when the law expressly provides for
tax.
b. Proprietary function-taxable unless exempted by law.
2. GOCCs
General Rule: Income is taxable at the rate imposed upon corporations or
associations engaged in a similar business, industry, or activity.
Exception: GSIS, SSS, PHIC and PCSO are tax exempt (Sec. 27(C), NIRC),
however, PAGCOR exemption was lifted by RA 9337.
3. Government Educational Institutions
 a. Property or real estate tax-property actually, directly and exclusively used for
educational purposes exempt but income of whatever kind and character from
any of their properties, real or personal, regardless of the disposition, is taxable.
b. Incomes received by them as such are exempt from taxes. However, their
income from any of their activities conducted for profit regardless of the
disposition is taxable.

INTERNATIONAL COMITY
These principles limit the authority of the government to effectively impose taxes
on a sovereign state and its instrumentalities, as well as on its property held and
activities undertaken in that capacity. International laws dictates peace and harmony
among states, hence, no state shall assert superiority over the other by imposing
taxation.

THE CONSTITUTIONAL LIMITATIONS

A. Due process clause (Art. lIl, Sec.1, I1987 Constitution)
(Opportunity to be heard/ fair play/substance and form)
Any deprivation of life, liberty or property is with due process if it is done
under the authority of a law (substance) that is valid (not contrary to the
Constitution) and after compliance with fair and reasonable methods of
procedure (form) prescribed.
B. Equal protection clause (Art. III, Sec. 1, 1987 Constitution) All persons subject to
legislation shall be treated alike under the circumstance and conditions both in
the privileges conferred and liabilities imposed.
C. Freedom of speech and of the press (Art. llI, Sec.4, 1987 Constitution)
There is curtailment of press freedom and freedom of thought and
expression if a tax is levied in order to suppress this basic right and impose a
prior restraint.
D. Non-infringement of religious freedom and worship (Art.ll, Sec.5, 1987
Constitution)
A license tax or fee constitutes a curtailment of religious freedom if
imposed as a condition for its exercise.
E. Non-impairment of contracts (Art.lI, Sec.10, 1987 Constitution)
Generally, tax laws must be given prospective application, unless it
benefits the taxpayer.
 F. Rule requiring that appropriations, revenue and tariff bills shall originate
exclusively from the House of Representatives (Art.1I1, Sec. 1, 1987
Constitution)
G. Uniformity, equitability and progressivity of taxation (Art VI, Sec. 28(1), 1987
Constitution)
 Uniformity -all taxable articles or kind of property of the same class are taxed
at the same rate.
 Equitability all the burden falls to those who are more capable to pay.
 Progressivity - rate increases as the tax base increases.
H. Limitations on the congressional power to delegate to the President the authority
to impose tariff rates, import export quotas, etc. (Art. VI, Sec. 28(2), 1987
Constitution)
I. Tax exemption of properties actually, directly and exclusively used for religious,
charitable and educational purposes. (Art. VI, Sec. 28(3), 1987 Constitution)
Before a property may be excuse from payment of a tax it must not only
be actually used for religious, charitable and educational purpose but must be directly
and exclusively used for the same purpose as well.
J. Voting requirement in connection with the legislative grant of tax exemption (Art.
VI, Sec. 28(4), 1987 Constitution)
K. Non-impairment of the jurisdiction of the Supreme Court in tax cases (Art. VIII,
Sec. 2 and 5(2) (b), 1987 Constitution)
L. Exemption from taxes of the revenues and assets of educational institutions,
including grants, endowments, donations and contributions. (Art. XIV, Sec. 4(3)
and (4), 1987 Constitution)
Requisites
1. Non-stock; non-profit organization;
2. No profit will inure to the benefit of any member of the organization;
M. Power of the President to veto any particular item or items in an appropriation,
revenue, or tariff bill. (Art. VI, Sec. 27(2), 1987 Constitution)
N. Necessity of an appropriation before money may be paid Out of the public
treasury. (Art. VI, Sec. 29(1), 1987 Constitution)
O. Non-appropriation of public money or property for the use, benefit, or support of
any sect, church, or system of religion. (Art. VI, Sec. 29(2), 1987 Constitution)
P. Treatment of taxes levied for a special purpose. (Art. V7, Sec. 29 (3), 1987
Constitution)
Q. Internal revenue allotments to local government units. (Art. X, Sec. 6, 1987
Constitution)

THE RULES GOVERNING CONTRACTUAL LIMITATIONS

 A. When the exemption is bilaterally agreed upon between the government and the
taxpayer- it cannot be withdrawn without violating the non-impairment clause.
B. When it is unilaterally granted by law and the same is withdrawn by virtue of
another law.
C. When the exemption is granted under a franchise it may be withdrawn at any
time.

DOUBLE TAXATION
Taxing the same property twice when it should be taxed but once.

THE KINDS OF DOUBLE TAXATION

A. Direct Duplicate Taxation/Obnoxious - double taxation in the objectionable or
prohibited sense.
- This constitutes a violation of substantive due process.
Elements:
1. The same property or subject matter is taxed twice when it should be taxed only
once.
2. Both taxes are levied for the same purpose
3. Imposed by the same taxing authority
4. Within the same jurisdiction
5. During the same taxing period
6. Covering the same kind or character of tax.

B. Indirect Duplicate Taxation - legal/permissible. The absence of one or more of

the above-mentioned elements makes the double taxation indirect.

THE REMEDIES AGAINST DOUBLE TAXATION

a) Tax sparing rule e.g. Section 28(B)(5)(b) NIRC;
b) Tax deductions e.g. vanishing deductions
c) Tax credits
d) Exemptions
e) Treaties with other states
f) Principle of reciprocity e.g. intangible properties of NRA in estate and donor's tax.

THE DIFFERENT FORMS OF ESCAPING TAXATION

 A. SHIFTING - the process by which the tax burden is transferred from the
statutory taxpayer (impact of taxation) to another (incident of taxation) without
violating the law.
 IMPACT OF TAXATION- point on which tax is originally imposed.
 INCIDENTS OF TAXATION - point on which the tax burden finally rests or
settles down.
B. CAPITALIZATION - a mere increase in the value of the property is not income
but merely an unrealized increase in capital. No income until after the actual sale
or other disposition of the property in excess of its original cost.
C. TAX AVOIDANCE - the exploitation by the taxpayer of legally permissible
alternative tax rates or methods of assessing taxable property or income, in order
to avoid or reduce tax liability.
D. TRANSFORMATION - the manufacturer or producer upon whom the tax has
been imposed, fearing the loss of his market if he should add the tax to the price,
pays the tax and endeavors to recoup himself by improving his process of
production, thereby turning out his units at a lower cost.
E. TAX EVASION - the use by the taxpayer of illegal or fraudulent means to defeat
or lessen the payment of the tax.
F. TAX EXEMPTION - a grant of immunity to particular persons or corporations
from the obligation to pay taxes.

THE DIFFERENT KINDS OF TAX EXEMPTION

A. As to basis
a) Constitutional - immunities from the taxation which originate from the constitution.
b) Statutory - those which emanate from legislation.
B. As to form
a) Express- expressly granted by organic or statute law.
b) Implied - when particular persons, property or excises are deemed exempt as
they fall outside the scope of the taxing provision itself.
C. As to extent
a) Total- absolute immunity.
b) Partial - one where a collection of a part of the tax is dispensed with.
D. As to object
a) Personal- granted directly in favor of certain persons.
b) Impersonal- granted directly in favor of a certain class of property.
 Lesson 3
TAX LAWs
TAX LAW
Sets of rules that provide means for the State to raise revenues.

How to make Tax Law?

Generally, all revenue bills (proposal) must originate from the House of
Representatives. After passing 3 readings by a majority vote in technical committee,
deliberation and journals of congress. It shall be elevated to Senate, which needs to
pass the same 3 readings. Normally, the President signs a bill into law for its
implementation.
THE DIFFERENT SOURCES OF TAX LAWS
A. Republic Act/ Statutes/ Tax Code (R.A. 8424)
B. Presidential Decrees
C. Executive Orders
D. Court Decisions
E. Revenue Regulations (least source of tax laws)
THE NATURE OF INTERNAL REVENUE LAWS
Internal revenue laws are not political in nature. In times of war, they are deemed
to be the laws of the occupied territory and not of the occupying enemy. Tax laws are
civil and not penal in nature although there are penalties provided for their violation.

TWO MAJOR CLASSIFICATIONS OF TAX LAWS

 A. Tax Imposition (one that provides a burden)
B. Tax exemption (one that provides immunity)

THE RULES IN CONSTRUCTING TAX IMPOSING LAWS? (Guide to judicial

interpretation)
A. Public purpose is always presumed.
B. Legislative intention must be considered (spirit of the law).
C. Where the language is plain and there is no doubt tax laws must be given their
ordinary meaning.
D. A statute will not be construed as imposing a tax unless it does so clearly,
expressly and unambiguously.
E. In case of doubt, it is construed most strongly against the Government, and
liberally in favor of the taxpayer.
F. Provisions of a taxing act are not to be extended by implication.
G. Tax laws operate prospectively unless the purpose of the legislature to give
retrospective effect is expressly declared or may be implied from the language
used.
H. Tax laws are special laws and prevail over a general law.
I. Tax laws are civil in nature, not political.
J. Neither are tax laws penal in nature. Hence, the rule on retroactive effect of penal
laws finds no application in tax cases.
K. Neither can the Constitutional prohibition against passage of ex post facto laws
be invoked in taxation.
THE DIFFERENT PRINCIPLES GOVERNING TAX EXEMPTIONS
A. Exemptions from taxation are highly disfavored in law and are not presumed.
B. He who claims as exemption must be able to justify his claim by the clearest
grant of organic or statute law by words too plain to be mistaken. If ambiguous,
there is no exemption.
C. He who claims exemption should prove by convincing proof that he is exempted.
D. Taxation is the rule, tax exemption is the exception.
E. Tax exemption must be strictly construed against the taxpayer.
F. Tax exemptions are not presumed.
G. Constitutional grants of tax exemption are self-executing.
H. Tax exemptions are personal.
TAX/REVENUE REGULATIONS
Are interpretations of an administrative body (BIR) intended to clarify or explain
the tax laws and carry into effect its general provisions by providing the details of
administration and procedure. They are deemed necessary to the proper enforcement
and execution of tax laws.
THE REQUISITES OF TAX REGULATIONS
A. It must be reasonable germane to the purpose of the law.
B. Within the authority conferred.
C. Not contrary to law.
D. Must be published.
E. Prospective, unless it is beneficial to the taxpayer, which may be given
retroactive application.
THE AUTHORITY TO PROMULGATE TAX REGULATIONS
It is provided that the Secretary of Finance, upon the recommendation of the
Commissioner of Internal Revenue, shall promulgate all needful rules and regulations of
the tax code (Quasi-legislative function).
BIR RULINGS
- BIR issues a general interpretation of tax laws usually upon a request of a
taxpayer to clarify a provision of law (Quasi- judicial function).

DISTICTICN BETWEEN ADMINISTRATIVE AND JUDICIAL INTERPRETATION

Interpretations at administrative level are given great weight but are not laws,
unlike court's decisions which are considered part of the law of the land.

REVENUE ISSUANCES
- Revenue Regulations (RRs) are issuances signed by the Secretary of Finance,
upon recommendation of the Commissioner of Internal Revenue, 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 Memorandum Orders (RMOs)
- 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 operations, except auditing.
Revenue Memorandum Circulars (RMCs)
- are 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.
Revenue Administrative Orders (RAOs)
 - are issuances that cover subject matters dealing strictly with the permanent
administrative set-up of the Bureau, more specifically, the organizational
structure, statements of functions and/or responsibilities of BIR offices, definitions
and delegations of authority, staffing and personnel, requirements and standards
of performance.
Revenue Delegation of Authority Orders (RDAOs)
- refer to functions delegated by the Commissioner to revenue officials in
accordance with law

Lesson 4
TAX ENFORCEMENT AND COLLECTION

THE DIFFERENT AGENCIES INVOLVED IN TAX ADMINISTRATION

A. Bureau of Internal Revenue - internal revenue taxes (national taxes).
Agents of the BIR:
a. Commissioner of Customs with respect to taxes on imported goods
b. Head of the appropriate government office with the respect to energy tax
c. Banks duly accredited by the Commissioner of Internal Revenue

B. Bureau of Customs - customs law enforcement (International taxes).

C. Provincial, city and municipal assessors and treasurers - local and real property
taxes (Local taxes).

HOW DOES THE ORGANIZATION AND FUNCTION OF THE BUREAU OF

INTERNAL REVENUE (BIR) BELONG?
BIR shall be under the supervision and control of the Department of Finance
(Sec. 2, NIRC) under the office of the President.

WHO COMPOSE THE BIR?

A. One commissioner
B. Six deputy commissioners
C. Regional revenue director
D. Revenue district officer
 E. Revenue officer

THE POWERS AND DUTIES OF THE BIR

A. Assessment and collection of all national internal revenue taxes, fees, and
charges.
B. Enforcement of all forfeitures, penalties, and fines connected therewith.
C. Execution of judgments in all cases decided in its favor by the Court of Tax
Appeals (CTA) and the ordinary courts.
D. Give effect to and administer the supervisory and police powers conferred to it by
the Code or other laws.
WHAT IS AN ASSESSMENT?
- Synonymous to tax audit. A finding by the taxing authority that the taxpayer has
not paid the correct taxes. It is also a written notice to a taxpayer to the effect that
the amount stated therein is due as a tax and containing a demand for the
payment thereof.
THE POWERS AND DUTIES OF THE BIR COMMISSIONER
A. Power to interpret tax law and decide tax cases (Quasi- judicial function)
1. Interpret provisions of this Code and other tax laws subject to review of
the Secretary of Finance;
2. Decide Cases:
a. disputed assessment
b. refunds of internal revenue taxes, fees and charges
c. penalties impose in relation thereto
d. Other matters arising from this Code or other laws or portions
thereof administered by the BIR subject to the exclusive appellate
jurisdiction of the CTA.
B. Power to obtain information, summon, examine and take testimony of persons
1. The Commissioner is authorized:
a. to Examine any relevant Book, paper, record or other data
b. to Obtain any information (costs, volume of production, receipts,
sales, gross income, etc), on a regular basis from:
c. to Summon (subpoena duces decum and ad testificandum)
d. to take the Testimony of the person concerned, under oath as may
be relevant to the inquiry
e. to cause revenue officers and employees to make a Canvass of
any revenue district or region.
Power to make assessments, prescribe additional requirements for tax
administration and enforcement
 1. Examination of returns and determination of tax due, notwithstanding any
law requiring prior approval from government agency.
2. Terminate taxable period;
3. Prescribe Real Property Value;
a. Mandatory consultation
b. Prior notice and publication
c. Adjustment once every 3 years
4. Authority to Inquire into Bank Deposit
5. Notwithstanding R.A. 1405 (Bank Secrecy Law) the Commissioner is
authorized to inquire into the Bank deposits of:
a. a decedent to determine his gross estate;
b. a taxpayer who has filed an application to compromise payment of
tax liability by reason of financial incapacity.
c. Aliens and Foreign Corporations pursuant to Double Taxation
Agreements and Tax information Exchange Agreements known as
"Exchange of Information".
6. Authority to register tax agents.
7. Authority to Prescribe Additional Requirements.

Authority to Delegate Power

1. The Commissioner may delegate the powers vested in him to subordinate
officials with rank equivalent to Division Chief or higher, subject to limitations/
restrictions imposed under the rules and regulations
EXCEPT, (the following powers should NOT be delegated)
a. Power to recommend the promulgation of rules and regulations by
the Sec. of Finance
b. Power to issue rulings of first impression or to Reverse, revoke
modify any existing rule of the BIR
c. Power to compromise or abate any tax liability
d. Power to assign or reassign internal revenue officers to
establishments where articles subject to excise tax are kept.
Other Powers
1. Duty to ensure the provision and distribution of forms, receipts, certificates, and
appliances, and the acknowledgment of payment of taxes.
2. Authority to administer oaths and to take testimony.
3. Authority to make arrests and seizures.
4. Authority to employ, assign or reassign internal revenue officers involved in
excise tax functions to establishments where articles subject to excise tax are
produced or kept.
 5. Authority to assign or reassign internal revenue officers and employees of the
BIR to other or special duties connected with the enforcement or administration
of the revenue laws.

THE DIFFERENT SOURCES OF INTERNAL REVENUE

The following taxes, fees and charges are collected by the BIR
A. Income tax
B. Estate and Donor's taxes
C. Value-added tax
D. Other percentage taxes
E. Excise taxes
F. Documentary stamp taxes

WHAT IS A TAX TREATY RELIEF APPLICATION?

- Pursuant to Double Taxation Agreements entered by the Philippines and other
countries the BIR is EMPOWERED to afford non-resident (aliens) taxpayers
relief (exemptions) from double taxation on income earned within the Philippines,
such income which is taxed in Philippines may also be taxed in the foreign
country which the non-resident may be citizen or resident of.
HOW TO AVAIL TAX TREATY RELIEF?
The following income must be applied before the International Tax Affairs
Division (ITAD) of the BIR:
a) Business Profits
b) Profits from Shipping and Air Transport
c) Capital Gains
d) Income from Services
e) Other income earnings
However, dividends, interest and royalties may outright be taxed under a preferential
treaty rates.
Reference: Quicknotes Taxation 2018 Edition by Atty. Jack L.A. De Vera
(All rights reserved to the author)