Intro To Public Finance and General Principle of Taxation

General Course for Revenue Officers
TMD
GPT 210 Slide 1
Topic 210
INTRODUCTION TO
PUBLIC FINANCE &
GENERAL PRINCIPLES
OF TAXATION
TMD
GPT 210 Slide 2
TOPIC OUTLINE
E Public Finance (an Overview)
E Fundamental Concepts of Taxation
E Theory and Basis of Taxation
E Purpose of Taxation
E Essential Characteristics of Taxes
E Basic Principles of a Sound Tax System
E Definition, Similarities & Differences of Various
Taxation Terms
E Classification of Taxes
TMD
GPT 210 Slide 3
TOPIC OUTLINE
E Powers of Taxation
E Nature, Construction & Sources of Tax Laws
E Situs, Scope & Aspects of Taxation
E Tax Exemptions
E Organizational Framework of the BIR
E Functions of the BIR
E Powers & Duties of the CIR
E Definition, Classification, Nature, Payment
& Effect of Assessment
TMD
GPT 210 Slide 4
Differentiate taxation from taxes;
Enumerate the purposes of taxation;
Identify the theory and basis of taxation;
Identify the essential characteristics and classification
of taxes;
Distinguish taxes from other taxation terms;
Distinguish the similarities and differences among
taxation, eminent domain and police power;
Analyze the basic principles of a sound tax system;
TOPIC OBJECTIVES
TMD
GPT 210 Slide 5
Differentiate inherent from constitutional limitations on the
power of taxation;
Identify the different situs of taxation and clarify concepts
of double taxation;
Identify the nature, construction, application and sources
of tax laws;
Enumerate the nature, rationale, grounds and sources of
tax exemptions;
Know the scope of taxation;
Identify the different aspects of taxation; and
Differentiate tax evasion and tax avoidance.
TOPIC OBJECTIVES
TMD
GPT 210 Slide 6
Public Finance (An Overview)
Public Finance is a branch of
economics that deals with the
revenues and expenditures of
government and their impact on
the economy
TMD
GPT 210 Slide 7
Public Finance (An Overview)
PUBLIC FINANCE is the raising of
revenues through the imposition of
taxes.
TMD
GPT 210 Slide 8
Components of Fiscal Policy
Government revenue policy - how the
government gets its funds;
Government expenditures policy -
how it allocates its revenue among
different uses; and
Debt management policy - how it
manages the public debt.
TMD
GPT 210 Slide 9
Revenues
Tax revenues - whether direct or indirect tax
Capital revenues - proceeds from sales of fixed capital
asset or scraps like sales of public bonds, building and
other structures.
Extraordinary income - repayment of loans and
advances made by government corporation and local
governments.
Public borrowing - proceeds of repayable obligations
generally with interest from domestic and foreign creditors
of government.
Grants - voluntary contributions and aids given to the
government for its operation on specific purpose.
Sources of Government Revenues
& Expenditures
TMD
GPT 210 Slide 10
Expenditures
Recurrent expenditures - refer to the day-to-day
cost of running the government.
Development expenditures - pertain to cost of
capital projects.
Sources of Government Revenues
& Expenditures
TMD
GPT 210 Slide 11
Objectives of Fiscal Policy
- To keep the public sector lean and trim so as to free
more manpower and financial resources for the
private sector;
- To finance total operating and development
expenditures from operating revenue;
- To focus government expenditures in areas which
yield lasting returns, i.e., Education, health care,
infrastructure and housing;
TMD
GPT 210 Slide 12
Objectives of Fiscal Policy
- To promote desirable level of employment;
- To promote desirable level of output;
- To promote a desirable level of income and its
proper distribution; and
- To promote desirable level of prices.
TMD
GPT 210 Slide 13
Tax Policy
Tax policy is an integral part of fiscal policy.
Taxes not only provide government with the
means to raise the revenue needed to fund
its activities but also to provide the
government with tax means to redistribute
limited resources, maintain economic
stability, promote growth and achieve
specific social objectives.
TMD
GPT 210 Slide 14
BIR Share in National Government
Tax Revenues ( CY 2004 )
BIR
78.29%
BOC
20.47%
Other Agencies
1.23%
TMD
GPT 210 Slide 15
BIR Tax Effort ( CY 1994 - 2004 )
11.07
11.1
12.01
13.00
12.65
11.47
10.91
10.58
9.96
9.91
9.67
0
2
4
6
8
10
12
14
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
TAX
EFFORT (%)
TMD
GPT 210 Slide 16
Percent Distribution of BIR Collection by
Major Type of Tax CY 2004
4.72%
17.14%
12.71%
59.44%
5.99%
Percentage Taxes
Other Taxes
VAT
Excise Taxes
Income Taxes
TMD
GPT 210 Slide 17
Percent Distribution of Collection by
Manner of Payment CY 2004
99.77%
Voluntary
Payments
0.17%
Preliminary/
Final
Assessment
0.06%
Delinguent
Accounts
TMD
GPT 210 Slide 18
Comparative Collection by Manner of
Payment (CY 2004 VS 2003)
0
100
200
300
400
4
6
8
.
5
4
4
2
4
.
8
0
0
.
8
1
7
1
.
4
5
0
.
2
7
2
0
.
2
6
2
Voluntary Payments
Preliminary/Final
Assessments
Delinquent
Accounts
I
n

B
i
l
l
i
o
n

P
e
s
o
s
CY 2004 CY 2003
CY 2004 CY 2003 CY 2004 CY 2003
TMD
GPT 210 Slide 19
Definition of Taxation
It is the act of levying a tax, or the
process or means by which the
sovereign, through its law-making body,
raises revenue to defray the necessary
expenses of the government.
TMD
GPT 210 Slide 20
Definition of Taxes
Taxes are the enforced proportional
contributions levied by the law-making body
of the state by virtue of its sovereignty upon
the persons or properties within its
jurisdiction for the support of the government
and all its public needs.
TMD
GPT 210 Slide 21
The power of taxation is
comprehensive, plenary, unlimited
and supreme. It is essentially
legislative in character and is
inherent in the state.
Nature and Scope of the
Power of Taxation
TMD
GPT 210 Slide 22
Theory and Basis of Taxation
The power of taxation proceeds upon the theory that
the existence of government is a necessity, that the
government cannot exist without the means to pay its
expenses and for these means, it has the right to
compel its citizens and properties within its limit to
contribute.
The basis of taxation is found on the reciprocal duties
of protection and support between the state and its
inhabitants. The state collects taxes from the subjects
of taxation , the citizen pays taxes in order that he
may be secured in the enjoyment of the benefits of
an organized society.
TMD
GPT 210 Slide 23
PRIMARY
PURPOSE OF TAXATION
Provide funds or property with which to
promote the general welfare and
protection of its citizens.
TMD
GPT 210 Slide 24
SECONDARY OR NON-REVENUE
PURPOSES OF TAXATION
To reduce excessive inequalities of wealth and means
by using the progressive scheme of income taxation and
imposing estate taxes to equalize wealth.
To protect local industries against foreign competitors by
imposing protective tariff on imported goods.
To encourage the growth of home industries through the
proper use of tax exemptions and tax incentives.
To implement the police power of the state in promoting
the general welfare.
TMD
GPT 210 Slide 25
To use taxes on imported goods as a bargaining tool
in trade negotiations with other countries.
To curb spending power and halt inflation by
increasing taxes in periods of prosperity and expand
business and ward-off depression by lowering taxes in
periods of slump.
To promote science and invention or to finance activities or
to improve efficiency of military or local police forces in the
maintenance of peace and order through the grant of
subsidies.
SECONDARY OR NON-REVENUE
PURPOSES OF TAXATION (cont.)
TMD
GPT 210 Slide 26
Other Aspects of Taxation or
Taxation System
Levying or imposition of the tax- this refers to the
process of determining the persons or property to be
taxed; the purpose of the tax as long as it is a public
purpose; the sum/s to be raised; the rate thereof; and
the manner, means and agencies of collection of the tax.
It is legislative act with powers vested in Congress.
Collection of the tax- this refers to the manner of
enforcing the tax obligation on the part of those required to
pay the tax. It is essentially administrative in character
with powers vested in the Department of Finance
especially the Bureau of Internal Revenue and the local
government units.
TMD
GPT 210 Slide 27
Essential Characteristics of Tax
- It is enforced contribution.
- It is levied pursuant to legislative authority.
- It is proportionate in character.
- It is generally payable in money.
- It is levied by the state which has jurisdiction
over the persons or property.
TMD
GPT 210 Slide 28
Essential Characteristics of Tax
- It is levied and collected for public purpose
or purposes.
- It is commonly required to be paid at regular
periods or intervals.
- It partakes of an involuntary contribution and
revenue to the government for public
purpose.
- It is a compulsory government exaction or
levy on persons, property, income and
business.
TMD
GPT 210 Slide 29
Basic Principles of a Sound Tax System
+ Fiscal Adequacy - the sources of revenues should be
sufficient to meet expenditures of government
regardless of business conditions.
+ Equality or theoretical justice - that taxes must be
imposed with equity, certainty, convenience, and by
considering the taxpayers ability to pay.
+ Administrative feasibility and compliance - law must
be capable of reasonable and convenient enforcement,
just and effective administration, and taxpayers should
find it easy and reasonable to comply.
TMD
GPT 210 Slide 30
Basic Principles of a Sound Tax System
+ Consistency or compatibility with economic
objectives or goals - the economic effects of
taxation extend far beyond the matter of incidence,
the allocation of resources to the public sector, and
redistribution of income.
TMD
GPT 210 Slide 31
Definition of Taxation, Eminent
Domain, and Police Power
Taxation - refers to the power by which the sovereign raises
revenue to defray the necessary expenses of the
government.
Eminent Domain - refers to the power of the state or those
to whom the power has been delegated to take private
property for public use upon payment of just compensation to
be ascertained according to law. It is sometimes called
expropriation.
Police Power - refers to the power of the state to enact laws
in relation to persons and property, that may promote public
health, public morals, public safety, and the general welfare
and prosperity of its inhabitants.
TMD
GPT 210 Slide 32
Similarities among Taxation,
Eminent Domain & Police Power
> They all rest upon necessity because there can be no
effective government without them.
> They all underlie and exist independently with the
constitution although the conditions for their exercise may
be prescribed by the Constitution and by law.
> There are ways by which the state interferes with private
rights and property.
TMD
GPT 210 Slide 33
Similarities among Taxation,
Eminent Domain & Police Power
> They are legislative in nature and
character although the actual exercise
of the powers is given to the executive
authorities, national or local.
> They all presupposes an equivalent
compensation received, directly or
indirectly, by the persons affected by
the exercise of these powers by the
government.
TMD
GPT 210 Slide 34
Taxation Distinguished from
Police Power and Eminent Domain
Taxation Police Eminent
Power Domain
The person affected
receives no direct
and immediate
benefits but only
such as may arise
from the mainte-
nance of a healthy
economic standard
of society.
The person
affected
receives the
market value
of the property
taken from him.
It is assumed that
the individual
receives the
equivalent of the
tax in the form of
protection and
benefits received
from the govern-
ment.
As to
compensation
or benefits
received
TMD
GPT 210 Slide 35
Directed to
the public
Directed to a
particular person
or property
Directed to
the public
As to whom
directed
Power Domain
TMD
GPT 210 Slide 36
As to nature of
compensation
As to how property
is taken
It provides
better social
& economic
standards.
Property is
taken or
destroyed
for public
welfare.
It requires
just
compensation.
Property is
taken for
public use.
It presumed
protection or
benefits.
Property is
taken to
support the
government.
Power Domain
TMD
GPT 210 Slide 37
As to relation to
impairment
clause
It is
superior to
impairment
clause.
It is
superior to
impairment
clause.
It is
inferior to
impairment
clause.
Power Domain
TMD
GPT 210 Slide 38
The use of property
is regulated for the
purpose of
promoting the
general welfare;
hence, it is not
compensable.
The property is
taken for public
use; hence, it
must be
compensable.
The property is
taken from the
taxpayer to
support the
government.
As to
purpose
Power Domain
TMD
GPT 210 Slide 39
It operates on
the individual
as the owner of
a particular
property.
It operates
upon a
community or
a class of
individuals.
As to person
involved
or affected
It operates
upon a
community or
a class of
individuals.
Power Domain
TMD
GPT 210 Slide 40
There is transfer
of the right of
property
whether it be of
ownership or a
lesser right or
possession.
The money
contributed in
the concept of
taxes becomes
part of the
public funds.
As to effect There is no transfer
of title; at most,
there is restraint in
the injurious use of
property.
Power Domain
TMD
GPT 210 Slide 41
It is also inferior to the
impairment prohibition
so that the government
cannot expropriate
property which under
a contract it had
previously bound
itself to purchase
from other
contracting party.
It is subject to
certain constitu-
tional limitations
including the
prohibition
against the
impairment of the
obligations of
contracts.
As to
relationship
to the
Constitution
It is relatively
free from cons-
titutional limita-
tions and is
superior to the
impairment
provisions.
Power Domain
TMD
GPT 210 Slide 42
It may be
granted to
public service
companies or
public utilities, if
the power is
granted by the
law.
It may be
exercised
only by the
government or
its political
subdivisions.
As to
authority
which
exercises
the
power
It may be
exercised
only by the
government or
its political
subdivisions.
Power Domain
TMD
GPT 210 Slide 43
There is
no amount
imposed.
There is
generally no
limit to the
amount of tax
that may be
imposed.
As to
amount
imposition
The amount imposed
is limited to the cost
of the license and the
necessary expenses
of police surveillance,
inspection,
examination,
or regulation.
Power Domain
TMD
GPT 210 Slide 44
Classifications of Taxes
As to Subject Matter or Object
Kinds of Taxes on Persons
1. Individual Income Tax - is the tax or imposition on:
The Gross Compensation Income of a
person based on a graduated scale. The
income tax is based on the gross
compensation income less personal
exemptions and premium on health and/or
hospital insurance as the case maybe.
The net income from the exercise of a
profession or other income derived from
business.
TMD
GPT 210 Slide 45
2. Poll or Residence Tax - refers to as per capita or
Poll Tax. Ex.Community Tax
3. Privilege or Professional Tax - is a tax levied in the
practice of profession. All professionals like lawyers,
CPAs, doctors, etc. are required to pay their
Professional Tax before they can practice their
profession.
TMD
GPT 210 Slide 46
Kinds of Taxes on Property
1. Transfer Tax - vary depending on the manner in which
property may be transferred. At present, there are two
kinds of Transfer Tax under NIRC, namely:
Estate Tax - tax levied on property transferred by way
of succession. It is based on the gross value of the
state of a deceased person.
Donor's Tax - refers to the gratuitous transfer of
property by one person to another during the former's
lifetime. This is called "donation intervivos" which
means that the terms of the donation will take effect
during the lifetime of the donor.
TMD
GPT 210 Slide 47
2. Taxes on Real Property
Real Property Tax - is the tax imposed on a
property owner based on the assessed
value of his property. The percentage tax
varies depending on the classification of the
property whether it is classified as
commercial or residential. It is also based
on the current Fair Market Value or Zonal
Value of the property whichever is higher.
Capital Gains Tax - a property owner who
sells his real property must pay his CGT
which is based on the selling price or zonal
value, whichever is higher.
TMD
GPT 210 Slide 48
Kinds of Business Taxes
1. Sales Tax - tax levied on the sale of real or personal
property.
2. Excise Tax - an internal tax imposed on the manufacture,
sale or consumption of an item within a country, or paid for a
license to carry on certain callings or occupations.
Two (2) most common kinds of excise tax
Specific Tax - based on weight or volume, capacity, or
any other physical unit of measurement of the subject
goods.
Ad Valorem Tax - based on the selling price or on other
specified value of the goods.
TMD
GPT 210 Slide 49
As to who bears the burden
Direct - a tax which is demanded from persons who also
shoulder the burden of the tax for which the taxpayer is
directly liable or for which he cannot shift to another.
Indirect - a tax is demanded from one person in the
expectation and intention that he shall indemnify himself
at the expense of another, and the burden of such tax
falling finally upon the ultimate purchaser or consumer.
TMD
GPT 210 Slide 50
As to determination of amount
Specific a tax of fixed amount that is imposed based
on physical unit of measurements, as by head or number,
weight, or length or volume.
Ad valorem - a tax of a fixed proportion to the value of
property with respect to which the tax is assessed.
TMD
GPT 210 Slide 51
As to purpose
General, fiscal or revenue a tax imposed for the
general purposes of the government to raise revenues for
government needs.
Special or regulatory - a tax imposed for a special
purpose regardless of whether revenue is raised or not,
and is intended to achieve some social or economic end.
TMD
GPT 210 Slide 52
As to scope or authority imposing the tax
National a tax imposed by the National Government.
Municipal or local - a tax imposed by municipal or local
government.
TMD
GPT 210 Slide 53
As to graduation or rate
Proportional a tax based on a fixed percentage of the
amount of property, receipts, or other basis to be taxed.
Progressive or graduated - a tax the rate of which
increases as the tax base or bracket increases.
Regressive a tax the rate of which decreases as the
tax base or bracket increases.
Degressive a tax where the increases of rates is not
proportionate to the increase of tax base.
TMD
GPT 210 Slide 54
From license or permit fee
Tax - an enforced contribution assessed by sovereign authority
to defray public expenses; it is imposed for revenue purposes;
it involves exercise of taxing power; it has generally no
maximum amount to be imposed; it is imposed on persons,
property and right to exercise privilege; its non-payment does
not make a business or act illegal.
License - legal compensation or reward of an officer for
specific services; it is imposed for regulatory purposes; it
involves exercise of police power; its amount is limited to cost
of issuing the license and reasonable police surveillance; it is
imposed only on right to exercise privilege; its non-payment
makes the act or business illegal.
Tax as Distinguished from
Other Terms
TMD
GPT 210 Slide 55
From toll
Tax - a demand of sovereignty imposed exclusively by
the State or Government; it is for the support of
government; its amount is regulated by necessities of
government.
Toll - a demand of proprietorship; it is imposed by private
persons and also by government; it is a compensation for
use of anothers property; its amount is determined by
cost of property.
Other Terms
TMD
GPT 210 Slide 56
From penalty
Tax - aimed at raising revenue; it is imposed only by the
government.
Penalty - designated to regulate conduct; it is imposed
by the government and also by private entities.
Other Terms
TMD
GPT 210 Slide 57
From special assessment
Tax - levied on persons, property, or exercise of privilege; it ca
be made a personal liability of the person assessed; it is based
on governments necessity without any special benefit accruing
to taxpayer; it is of general application. Not exceptional as to
time and locality.
Special Assessment - levied only on land; it is not a personal
liability of person assessed; it is based on special benefits
resulting to property assessed and not on necessity; it is
exceptional both as the time and place and not of general
application.
Other Terms
TMD
GPT 210 Slide 58
From revenue
Tax - refers to the income derived from the regular system of
taxation, and as such, accrues more or less regularly every
year.
Revenue - refers to the aggregate total of all funds or income
derived by the government from taxes or from whatever source
or whatever means. It is broader in scope.
Other Terms
TMD
GPT 210 Slide 59
From custom duties
Tax - broader than custom duties on tariff because tax refers to
an exaction by the government and therefore includes tariff and
custom duties.
Custom duties - refers to a kind of tax imposed on articles
that are traded internationally, particularly impositions on
imported or exported goods.
Other Terms
TMD
GPT 210 Slide 60
From debt
Tax - based on law; it cannot generally be assigned; it is
generally payable in money; it cannot be a subject of set-off or
compensation; imprisonment is sanctioned for the non-
payment of tax; it is governed by special prescriptive periods
under the Tax Code; it does not draw interest except only when
delinquent.
Debt - generally based on expressed or implied contracts; it
may be paid in kind; it may be a subject of set-off or
compensation; it can be assigned; a person cannot be
imprisoned for non-payment thereof except when it arises from
a crime; it is governed by prescriptive periods under the Civil
Code and other special laws.
Other Terms
TMD
GPT 210 Slide 61
From subsidy
A subsidy is a pecuniary aid directly granted by the
government to an individual or private commercial
enterprise deemed beneficial to the public. It is not a tax
although a tax may have to be imposed to pay it.
Other Terms
TMD
GPT 210 Slide 62
Limitations on the Power of Taxation
Inherent Limitations
( Those restrictions not embodied in the Constitution)
Requirement of public purpose
Limitation of territorial jurisdiction
Prohibition against delegation of taxing power
Limitation on international comity
Exemption from taxation of government agencies or
instrumentalities
No double taxation
No excessive taxation
TMD
GPT 210 Slide 63
Constitutional Limitations:
(Those restrictions expressly provided in the Constitution)
Requirement of due process of law
Requirement of equal protection of the laws
Prohibition against imprisonment for non- payment of poll tax
Prohibition against impairment of the obligation of contracts
Requirement of uniformity and equity in taxation
Non-diversification of tax collection
Delegation of the power of taxation
The Supreme Courts power to review
TMD
GPT 210 Slide 64
Constitutional requirements in granting tax exemptions
Prohibition against infringement of religious freedom
Prohibition against appropriation for religious purposes
Prohibition against taxation of religious, charitable and
educational entities, etc.
Prohibition against taxation of non-stock, non-profit
educational institution.
Other Constitutional limitations such as the granting of
exemptions; veto of appropriate revenue or tariff bills by
the President; and non-impairment of the jurisdiction of the
Supreme Court
TMD
GPT 210 Slide 65
Nature of Internal Revenue Law
-Internal revenue laws are not political in
nature. They are deemed to be the laws of
the occupied territory and not of the
occupying enemy.
-Taxes are civil and not penal in nature
although there are penalties provided for
their violation.
TMD
GPT 210 Slide 66
Construction of Tax Laws
Provisions intended for the security of the citizen or
taxpayer or to ensure equality or uniformity of taxation are
mandatory.
Provisions that are designed to inform administrative
officers on tax matters are generally directory.
If the intent or meaning of the tax statute is not clear, or is
doubtful as to whether a taxpayer is covered by the tax
obligation, the tax law shall be construed against the
government because revenue laws impose special
burdens.
TMD
GPT 210 Slide 67
Where the intent to tax is clear and the taxpayer claims that
he is exempt from the tax obligation, the tax shall be
construed against the taxpayer and in favor of the
government because the power of taxation is necessary to
the existence of such government.
Rules on the interpretation of custom and tariff laws do not
apply to trade agreements, the former rules being
promulgated in the exercise of the power of taxation while
trade agreements are entered into the exercise of the police
power.
If the tax law is repealed, taxes assessed before repeal of
the law may still be collected unless the repealing law is
made retroactive.
TMD
GPT 210 Slide 68
Tax exemptions are strictly construed except:
-If the law provides for liberal construction.
-In case of special laws applying to special cases.
-If the exemptions refer to public property.
-In case of exemptions granted to entities organized
for charitable, religious or educational purposes.
Tax laws are given retroactive effect if there is a clear
legislative intent in that regard. It has been held that tax
laws shall have prospective effect only unless there is a
clear provision to the contrary. If the retroactive effect would
be harsh or oppressive, the same transgresses the
constitutional limitations of due process.
TMD
GPT 210 Slide 69
Sources of Tax Laws
Pertinent provisions of the Constitution
Legislation or statutes, including Presidential
Decrees and Executive Orders on taxation, and tax
ordinances.
Administrative regulations and rulings or opinions
of tax officials, including opinions of the Secretary
of Justice.
Judicial decisions
Tax treaties or agreements entered into by the
Philippines with other countries.
TMD
GPT 210 Slide 70
Definition of Situs of Taxation
It literally means place of taxation. The basic rule
is that the state where the subject to be taxed has a
situs may rightfully levy and collect the tax; and the
situs is necessarily in the state which has
jurisdiction or which exercises dominion over the
subject in question. Thus, the person may be
subject to taxation in several taxing jurisdictions.
TMD
GPT 210 Slide 71
Situs or Subjects of Taxation
Persons
Real property
Personal Property
Tangible personal property
Intangible personal property
Income
Business, occupation, and transaction
Gratuitous transfer of property
TMD
GPT 210 Slide 72
Definition of double taxation
In its strict sense, it is also referred to as direct double
taxation which means being taxed twice by the same
taxing authority within the same jurisdiction or taxing
district for the same purpose in the same year or taxing
period some of the property in the territory.
In its broad sense, it is also referred to as indirect
double taxation or taxation other than direct duplicate; it
extends to all cases in which there is a burden of two or
more pecuniary impositions.
TMD
GPT 210 Slide 73
Meaning of exemption from taxation
This is a grant of immunity, express or implied, to
particular persons or corporations, or to persons or
corporations of a particular class, from a tax which
persons and corporations generally within the same
state or taxing district, are obliged to pay. It is an
immunity or a privilege; it is a freedom from a
financial charge or burden to which others are
subjected.
TMD
GPT 210 Slide 74
Grounds for grant of exemption
Tax exemption may be based on contract.
Tax exemption may be based on some
ground of public policy.
Tax exemption may be created in a treaty
on grounds of reciprocity.
TMD
GPT 210 Slide 75
Nature of tax exemption
An exemption from taxation is a mere personal
privilege of the grantee.
Tax exemption is generally revocable by the
government.
Tax exemption implies a waiver.
Tax exemption is not necessarily discriminatory.
TMD
GPT 210 Slide 76
Kinds of tax exemptions
As to manner of creation
Express or affirmative - occurs when certain
persons, property, or transactions are, by express
provisions, exempted from all or certain taxes, either
entirely or in part.
Implied exemption or exemption by omission -
occurs when a tax is levied on certain classes of
persons, properties, or transaction without
mentioning the other classes.
TMD
GPT 210 Slide 77
As to scope or extent
Total exemption - when certain persons, property or
transactions are exempted, expressly or implied,
from all taxes.
Partial exemption - when certain persons, property,
or transactions are exempted, expressly or implied,
from certain taxes, either entirely or in part.
TMD
GPT 210 Slide 78
As to object
Personal - those granted directly in favor of such
persons are within the contemplation of the law
granting the exemption.
Impersonal - those granted directly in favor of a
certain class of property.
TMD
GPT 210 Slide 79
Sources of tax exemptions
Exemptions provided for in the
Tax Code
Exemptions provided for under
special laws
TMD
GPT 210 Slide 80
Construction of tax exemption statutes
Tax exemptions are liberally construed in the following cases:
When the law itself expressly provides for a literal construction
then in case of doubt, it shall be resolved in favor of the
exemption.
When the exemption is in favor of the government itself or its
agencies, or of charitable, religious, and educational
institutions because the general rule is that they are exempted
from tax.
When there is an express mention or the taxpayer falls within
the purview of the exemption by clear legislative intent.
TMD
GPT 210 Slide 81
Principles Governing Tax Exemption
Exemptions from taxation are highly disfavored in law,
and he who claims an exemption must be able to justify
his claim by the clearest grant of organic or statute law.
He who claims an exemption from his share of common
burden in taxation must justify his claim by showing that
the legislative intended to exempt him by words too
plain to be mistaken.
It is a well-settled rule that he who claims exemption
should prove that he is exempted.
TMD
GPT 210 Slide 82
Principles Governing Tax Exemption
Tax exemptions must be strictly construed such that the
exemption will not be held to be conferred unless the
terms under which it is granted clearly and distinctly
show that such was the intention of the parties.
Constitutional grant of tax-exemptions are self-
executing. The reason for this is that a constitutional
provision declaring certain properties as tax-exempt
does not need a legislative enactment to put it into
effect.
TMD
GPT 210 Slide 83
BIR Mission
Our mission is to raise revenues for the
government through effective and
efficient collection of taxes, quality
service to taxpayers, and impartial and
uniform enforcement of tax laws.
TMD
GPT 210 Slide 84
Our Vision of the New BIR
Taxpayers satisfied with BIR services
An agency that is taxpayer-focused, efficient and
transparent
An organization that is streamlined, productive and has
fiscal and administrative flexibility
A workforce that is professional, competent, morally
upright and motivated
A model of good governance in the public sector

TMD
GPT 210 Slide 85
Functions of the BIR
+ Assessment and collection of all national internal
taxes, fees and charges;
+ Execution of judgments decided in its favor by the
Supreme Court, the Court of Tax Appeals, and the
ordinary courts;
+ Enforcement of penalties and fines as well as
forfeitures; and
+ Exercise power administrative and supervisory powers
over taxpayers including promulgation of pertinent
rulings.
TMD
GPT 210 Slide 86
Powers of the Commissioner of
Internal Revenue
Interpret tax laws and decide tax cases.
Obtain information, summon, examine, and take
testimony of persons for purposes of ascertaining
the correctness of any return, or in making a return
when none has been made, or in evaluating tax
compliance.
Make assessments and prescribe additional
requirements for tax administration and
enforcement.
Compromise, abate, refund or credit taxes.
TMD
GPT 210 Slide 87
Make arrests and seizures for violation of any penal
law, rules and regulations administered by the BIR.
Assign internal Revenue Officers involved in excise
tax functions to establishments where articles subject
to excise tax are produced or kept.
Assign or reassign Revenue Officers and employees
of the BIR to other special duties connected with the
enforcement or administration of revenue laws as the
exigencies of the service may require, subject to the
rules and promulgated by the Civil Service
Commission and the Secretary of Finance.
Internal Revenue
TMD
GPT 210 Slide 88
Suspend business operations and temporarily
close the business establishments of any person
for violations of certain provisions of the Tax Code.
Enter any house, building, or place where articles
subject to tax are produced or kept, or are believed
to be carrying articles on which excise tax has not
been paid.
Detain any package containing or supposed to
contain articles subject to excise tax that are
believed to be illegally removed from place of
production or customs custody.
Internal Revenue
TMD
GPT 210 Slide 89
dminister oath and take testimony related to the
investigation conducted in matters within the jurisdiction
of the BIR.
Enforce civil remedies and statutory penalties for the
collection of delinquent taxes.
Recommend to the Secretary of Finance the
promulgation of rules and regulations for the effective
enforcement of the provisions of the tax laws.
Delegate powers to subordinate officials with the rank
equivalent to a Division Chief or higher subject to such
limitations to be promulgated by the Secretary of Finance,
upon recommendation of the CIR .
Internal Revenue
TMD
GPT 210 Slide 90
+ Ensures the provision and distribution of forms,
receipts, certificates and appliances and
acknowledgment of payment of taxes.
+ Divide the Philippines into such number of revenue
districts as may from time to time be required for
administrative purposes, subject for approval of the
Secretary of Finance.
+ Prepares Annual Report containing detailed statements
of the collections of the BIR with specifications of the
sources of revenue by tax type, by manner of payment,
by revenue region, and by industry group, and its
disbursements by classes of expenditures.
Duties of the Commissioner
of Internal Revenue
TMD
GPT 210 Slide 91
+Furnishes appropriate Committee of Congress, in
aid of legislation, pertinent information such as
industry audits, collection performance data, status
reports in criminal actions initiated against persons,
and taxpayers return.
+Submits pertinent information report required by
Congressional Oversight Committee every six (6)
months of each calendar year.
Duties of the Commissioner
of Internal Revenue
TMD
GPT 210 Slide 92
Definition of Assessment
Assessment is the official action of an authorized internal
revenue officer in ascertaining the amount of tax due from a
taxpayer, or it may be a notice to the effect that the amount
stated therein is due from the taxpayer as a tax with a
demand for payment of the tax or deficiency stated therein .
The action necessarily involves:
Determination and computation of the sum due;
Giving of notice to that effect to the taxpayer; and
Issuance of a demand notice (simultaneously with or
sometimes after, the deficiency notice).
TMD
GPT 210 Slide 93
Assessment may be classified
as follows:
-Self - Assessment
- Deficiency Assessment
- Illegal and Void Assessment
- Erroneous Assessment
TMD
GPT 210 Slide 94
Principles Governing Tax Assessment
Assessments are prima facie presumed correct and
made in good faith.
Assessment should not be based on presumptions no
matter how logical the presumptions might be.
Assessment is discretionary on the part of the
Commissioner.
The authority vested in the CIR to assess taxes may
be delegated.
Assessment must be directed to the right party.
TMD
GPT 210 Slide 95
Means Employed in the Assessment
of Taxes
-Examination of returns and determination of tax due;
-Use of best evidence obtainable;
-Authority to conduct inventory- taking, surveillance and
prescribe presumptive gross sales and receipts;
-Authority to terminate taxable period;
-Authority to prescribe real property values;
-Authority to inquire into bank deposit accounts;
-Authority to accredit and register tax agents; and
-Authority to prescribe additional procedural or documentary
requirements.
TMD
GPT 210 Slide 96
Prescriptive Periods for the
Right to Assess
General rule- Internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for
the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall begin after
the expiration of such period. However, in case where a
return is filed beyond the period prescribed by law, the
three-year period shall be counted from the day the return
was filed. A return filed before the last day prescribed by
law for the filing thereof, is considered as filed on such last
day.
TMD
GPT 210 Slide 97
Considerations on the prescription of
governments right to assess taxes
Q Date of Filing Tax Returns
Q Effect of Filing An Amended Return
Q Effect of Filing A Wrong Return
Q Period Applicable when the Law does not Require
the Filing of any Return
Q Applicable Prescriptive Period if Taxpayer Fails to
File a Return
Q Prescriptive Period of Assessment when there is
Fraud
TMD
GPT 210 Slide 98
Determination of Deficiency Tax
Assessment
Audit of Tax Returns
Basis of Audit of Returns
Frequency of Audit
Submission of Audit Report
TMD
GPT 210 Slide 99
Prescription of Government's Right to
Collect Taxes
Law governing prescription of collection.
When does the five (5) years prescription period for
collection start to run.
When tax is deemed collected for purposes of the
prescriptive period.
May there be a judicial action to collect a tax liability
even if there is no previous assessment.
Prescription of the governments right to recover an
erroneously refunded tax.
Waiver of the Statute of Limitations Extension of the
prescriptive period.
TMD
GPT 210 Slide 100
Mode of Procedures in the
Issuance of Assessment Notice
Post-Reporting Notice- sent to the taxpayer by the Revenue
Officer or by the Division Chief concerned (in the case of
the BIR National Office) of the discrepancy or discrepancies
in the taxpayers payment of his internal revenue taxes for
an informal conference in order to afford the taxpayer with
an opportunity to present his side of the case before
forwarding the report to higher authorities for approval.
TMD
GPT 210 Slide 101
Pre- Assessment Notice (PAN)-if after review and evaluation
by the proper authorities, as the case maybe, it is determined
that there exists sufficient basis to assess the taxpayer for any
deficiency taxes, the said office shall issue to the taxpayer, at
least by REGISTERED MAIL, a PAN for the proposed
assessment showing in details the following:
Facts and the law;
Rules and regulations; or
Jurisprudence on which the proposed assessment
is based.
TMD
GPT 210 Slide 102
Final Assessment Notice (FAN) -the formal letter of
demand and assessment notice shall be issued by the
Commissioner or his duly authorized representative.
The letter of demand calling for the payment of the
taxpayers deficiency taxes shall state the facts, the law,
rules and regulations or jurisprudence on which the
assessment is based. The same shall be sent to the
taxpayer only by registered mail or by personal delivery.
TMD
GPT 210 Slide 103
Protest to Assessment
Administrative Protest of Assessment
Request for reconsideration
Request for reinvestigation
Judicial protest
Appeal to the Court of Tax Appeals
Appeal to the Court of Appeals
Appeal to the Supreme Court
Writ of execution of judgment

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