Intro to Public Finance and General Principle of Taxation

7/31/2019 Intro to Public Finance and General Principle of Taxation

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General Course for Revenue Officers TMDGPT 210 Slide 1

Topic 210INTRODUCTION TO

PUBLIC FINANCE &GENERAL PRINCIPLES

OF TAXATION


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TOPIC OUTLINE

Public Finance (an Overview)

Fundamental Concepts of Taxation Theory and Basis of Taxation

Purpose of Taxation

Essential Characteristics of Taxes Basic Principles of a Sound Tax System

Definition, Similarities & Differences of Various

Taxation Terms

Classification of Taxes


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TOPIC OUTLINE

Powers of Taxation

Nature, Construction & Sources of Tax Laws Situs, Scope & Aspects of Taxation

Tax Exemptions

Organizational Framework of the BIR Functions of the BIR

Powers & Duties of the CIR

Definition, Classification, Nature, Payment& Effect of Assessment


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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


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Differentiate inherent from constitutional limitations on thepower of taxation;

Identify the different situs of taxation and clarify conceptsof double taxation;

Identify the nature, construction, application and sourcesof tax laws;

Enumerate the nature, rationale, grounds and sources oftax exemptions;

Know the scope of taxation;

Identify the different aspects of taxation; and

Differentiate tax evasion and tax avoidance.

TOPIC OBJECTIVES


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Public Finance (An Overview)

Public Finance is a branch ofeconomics that deals with therevenues and expenditures of

government and their impact onthe economy


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Public Finance (An Overview)

PUBLIC FINANCE is the raising of

revenues through the imposition of

taxes.


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Components of Fiscal Policy

Government revenue policy - how the

government gets its funds;

Government expenditures policy -

how it allocates its revenue amongdifferent uses; and

Debt management policy - how itmanages the public debt.


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Revenues

Tax revenues - whether direct or indirect tax

Capital revenues - proceeds from sales of fixed capitalasset or scraps like sales of public bonds, building andother structures.

Extraordinary income - repayment of loans and

advances made by government corporation and localgovernments.

Public borrowing - proceeds of repayable obligations

generally with interest from domestic and foreign creditors

of government.

Grants - voluntary contributions and aids given to thegovernment for its operation on specific purpose.

Sources of Government Revenues

& Expenditures


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Expenditures

Recurrent expenditures - refer to the day-to-daycost of running the government.

Development expenditures - pertain to cost ofcapital projects.

Sources of Government Revenues

& Expenditures


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Objectives of Fiscal Policy

To keep the public sector lean and trim so as to freemore manpower and financial resources for the

private sector;

To finance total operating and developmentexpenditures from operating revenue;

To focus government expenditures in areas whichyield lasting returns, i.e., Education, health care,

infrastructure and housing;


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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.


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Tax Policy

Tax policy is an integral part of fiscal policy.

Taxes not only provide government with themeans to raise the revenue needed to fundits activities but also to provide the

government with tax means to redistributelimited resources, maintain economic

stability, promote growth and achievespecific social objectives.


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BIR Share in National Government

Tax Revenues ( CY 2004 )

BIR

78.29%BOC

20.47%

Other Agencies

1.23%


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BIR Tax Effort ( CY 1994 - 2004 )

11.07 11.112.01

13.0012.6511.47

10.9110.589.969.91 9.67

0

2

4

6

8

10

12

14

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

TAX

EFFORT (%)


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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


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Percent Distribution of Collection by

Manner of Payment CY 2004

99.77%

Voluntary

Payments

0.17%

Preliminary/Final

Assessment

0.06%

Delinguent

Accounts


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Comparative Collection by Manner of

Payment (CY 2004 VS 2003)

0

100

200

300

400

468.5

4

424.8

0

0.817

1.45

0.272 0.2

62

Voluntary Payments Preliminary/Final

Assessments

Delinquent

Accounts

In

Billion

Pesos

CY 2004 CY 2003

CY 2004 CY 2003 CY 2004 CY 2003


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Definition of Taxation

It is the act of levying a tax, or theprocess or means by which thesovereign, through its law-making body,

raises revenue to defray the necessaryexpenses of the government.


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Definition of Taxes

Taxes are the enforced proportionalcontributions levied by the law-making bodyof the state by virtue of its sovereignty upon

the persons or properties within itsjurisdiction for the support of the governmentand all its public needs.


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The power of taxation is

comprehensive, plenary, unlimitedand supreme. It is essentiallylegislative in character and isinherent in the state.

Nature and Scope of the

Power of Taxation


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Theory and Basis of Taxation

The power of taxation proceeds upon the theory thatthe existence of government is a necessity, that the

government cannot exist without the means to pay itsexpenses and for these means, it has the right tocompel its citizens and properties within its limit tocontribute.

The basis of taxation is found on the reciprocal dutiesof protection and support between the state and itsinhabitants. The state collects taxes from the subjects

of taxation , the citizen pays taxes in order that hemay be secured in the enjoyment of the benefits ofan organized society.


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PRIMARY

PURPOSE OF TAXATION

Provide funds or property with which topromote the general welfare and

protection of its citizens.


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SECONDARY OR NON-REVENUE

PURPOSES OF TAXATION

To reduce excessive inequalities of wealth and meansby using the progressive scheme of income taxation and

imposing estate taxes to equalize wealth.

To protect local industries against foreign competitors byimposing protective tariff on imported goods.

To encourage the growth of home industries through theproper use of tax exemptions and tax incentives.

To implement the police power of the state in promotingthe general welfare.


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To use taxes on imported goods as a bargaining tool

in trade negotiations with other countries.

To curb spending power and halt inflation byincreasing taxes in periods of prosperity and expand

business and ward-off depression by lowering taxes inperiods of slump.

To promote science and invention or to finance activities or

to improve efficiency of military or local police forces in themaintenance of peace and order through the grant ofsubsidies.

SECONDARY OR NON-REVENUE

PURPOSES OF TAXATION (cont.)


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Other Aspects of Taxation or

Taxation System

Levying or imposition of the tax- this refers to theprocess of determining the persons or property to be

taxed; the purpose of the tax as long as it is a publicpurpose; the sum/s to be raised; the rate thereof; andthe 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 ofenforcing the tax obligation on the part of those required topay the tax. It is essentially administrative in character

with powers vested in the Department of Financeespecially the Bureau of Internal Revenue and the local

government units.


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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.


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Essential Characteristics of Tax

It is levied and collected for public purposeor purposes.

It is commonly required to be paid at regularperiods or intervals.

It partakes of an involuntary contribution andrevenue to the government for publicpurpose.

It is a compulsory government exaction orlevy on persons, property, income andbusiness.


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Basic Principles of a Sound Tax System

Fiscal Adequacy - the sources of revenues should besufficient 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 mustbe capable of reasonable and convenient enforcement,

just and effective administration, and taxpayers shouldfind it easy and reasonable to comply.


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Basic Principles of a Sound Tax System

Consistency or compatibility with economic

objectives or goals - the economic effects oftaxation extend far beyond the matter of incidence,

the allocation of resources to the public sector, andredistribution of income.


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Definition of Taxation, Eminent

Domain, and Police PowerTaxation- refers to the power by which the sovereign raises

revenue to defray the necessary expenses of thegovernment.

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 tobe ascertained according to law. It is sometimes calledexpropriation.

Police Power- refers to the power of the state to enact laws

in relation to persons and property, that may promote publichealth, public morals, public safety, and the general welfareand prosperity of its inhabitants.


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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 theconstitution although the conditions for their exercise may

be prescribed by the Constitution and by law.

There are ways by which the state interferes with privaterights and property.


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Similarities among Taxation,

Eminent Domain & Police Power

They are legislative in nature andcharacter although the actual exerciseof the powers is given to the executiveauthorities, national or local.

They all presupposes an equivalentcompensation received, directly orindirectly, by the persons affected by

the exercise of these powers by thegovernment.


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Taxation Distinguished from

Police Power and Eminent Domain

Taxation Police Eminent

Power Domain

The person affectedreceives no direct

and immediatebenefits but onlysuch as may arisefrom the mainte-nance of a healthyeconomic standardof society.

The personaffected

receives themarket valueof the propertytaken from him.

It is assumed thatthe individual

receives theequivalent of thetax in the form ofprotection andbenefits receivedfrom the govern-ment.

As tocompensation

or benefitsreceived


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Directed to

the public

Directed to a

particular personor property

Directed to

the public

As to whom

directed


Power Domain


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As to nature of

compensation

As to how property

is taken

It providesbetter social

& economic

standards.

Property istaken or

destroyedfor public

welfare.

It requiresjust

compensation.

Property istaken for

public use.

It presumed

protection orbenefits.

Property is

taken to

support thegovernment.


Power Domain


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As to relation toimpairment

clause

It issuperior to

impairmentclause.

It issuperior to

impairmentclause.

It isinferior to

impairmentclause.


Power Domain


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The use of propertyis regulated for the

purpose ofpromoting thegeneral welfare;hence, it is not

compensable.

The property istaken for public

use; hence, itmust becompensable.

The property istaken from the

taxpayer tosupport thegovernment.

As topurpose


Power Domain


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It operates onthe individualas the owner ofa particularproperty.

It operates

upon acommunity ora class ofindividuals.

As to person

involvedor affected

It operates

upon acommunity ora class ofindividuals.


Power Domain


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There is transferof the right of

propertywhether it be ofownership or alesser right or

possession.

The moneycontributed in

the concept oftaxes becomespart of thepublic funds.

As to effect There is no transferof title; at most,

there is restraint inthe injurious use ofproperty.


Power Domain


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It is also inferior to the

impairment prohibitionso that the governmentcannot expropriate

property which undera contract it had

previously bounditself to purchasefrom othercontracting party.

It is subject tocertain constitu-

tional limitationsincluding theprohibitionagainst theimpairment of the

obligations ofcontracts.

As to

relationship

to theConstitution

It is relativelyfree from cons-

titutional limita-tions and issuperior to theimpairmentprovisions.


Power Domain


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It may begranted to

public servicecompanies orpublic utilities, ifthe power is

granted by thelaw.

It may beexercised

only by thegovernment orits politicalsubdivisions.

As to

authority

whichexercises

thepower

It may beexercised

only by thegovernment orits politicalsubdivisions.


Power Domain


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There is

no amountimposed.

There isgenerally no

limit to theamount of taxthat may beimposed.

As to

amount

imposition

The amount imposedis limited to the cost

of the license and thenecessary expensesof police surveillance,inspection,examination,

or regulation.


Power Domain


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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 aperson based on a graduated scale. The

income tax is based on the grosscompensation income less personal

exemptions and premium on health and/orhospital insurance as the case maybe.

The net income from the exercise of aprofession or other income derived frombusiness.


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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.


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Kinds of Taxes on Property

1. Transfer Tax - vary depending on the manner in whichproperty 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'slifetime. This is called "donation intervivos" which

means that the terms of the donation will take effectduring the lifetime of the donor.


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General Course for Revenue OfficersTMD

GPT 210 Slide 47


2. Taxes on Real Property

Real Property Tax - is the tax imposed on a

property owner based on the assessedvalue of his property. The percentage tax

varies depending on the classification of theproperty whether it is classified as

commercial or residential. It is also basedon 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 CGTwhich is based on the selling price or zonalvalue, whichever is higher.


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GPT 210 Slide 48


Kinds of Business Taxes

1. Sales Tax - tax levied on the sale of real or personalproperty.

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, orany 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.


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General Course for Revenue Officers

TMDGPT 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 isdirectly liable or for which he cannot shift to another.

Indirect - a tax is demanded from one person in theexpectation and intention that he shall indemnify himself

at the expense of another, and the burden of such taxfalling finally upon the ultimate purchaser or consumer.


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TMDGPT 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 ofproperty with respect to which the tax is assessed.


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TMDGPT 210 Slide 51


As to purpose

General, fiscal or revenue a tax imposed for the

general purposes of the government to raise revenues forgovernment needs.

Special or regulatory - a tax imposed for a specialpurpose regardless of whether revenue is raised or not,

and is intended to achieve some social or economic end.


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TMDGPT 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.

Cl ifi i f T


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TMDGPT 210 Slide 53


As to graduation or rate

Proportional a tax based on a fixed percentage of theamount 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 notproportionate to the increase of tax base.

Tax as Distinguished from


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TMDGPT 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 nomaximum 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 forspecific services; it is imposed for regulatory purposes; itinvolves exercise of police power; its amount is limited to cost

of issuing the license and reasonable police surveillance; it isimposed only on right to exercise privilege; its non-paymentmakes the act or business illegal.


Other Terms



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TMDGPT 210 Slide 55

From toll

Tax - a demand of sovereignty imposed exclusively bythe State or Government; it is for the support ofgovernment; 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 foruse of anothers property; its amount is determined by

cost of property.

a as st gu s ed o

Other Terms



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TMDGPT 210 Slide 56

From penalty

Tax - aimed at raising revenue; it is imposed only by thegovernment.

Penalty - designated to regulate conduct; it is imposedby the government and also by private entities.

g

Other Terms



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TMDGPT 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 basedon governments necessity without any special benefit accruingto taxpayer; it is of general application. Not exceptional as totime and locality.

Special Assessment - levied only on land; it is not a personalliability of person assessed; it is based on special benefitsresulting to property assessed and not on necessity; it isexceptional both as the time and place and not of general

application.

g

Other Terms



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TMDGPT 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 everyyear.

Revenue - refers to the aggregate total of all funds or income

derived by the government from taxes or from whatever sourceor whatever means. It is broader in scope.

g

Other Terms



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TMDGPT 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 andcustom duties.

Custom duties - refers to a kind of tax imposed on articles

that are traded internationally, particularly impositions onimported or exported goods.

Other Terms



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TMDGPT 210 Slide 60

From debt

Tax - based on law; it cannot generally be assigned; it isgenerally payable in money; it cannot be a subject of set-off orcompensation; imprisonment is sanctioned for the non-payment of tax; it is governed by special prescriptive periodsunder the Tax Code; it does not draw interest except only whendelinquent.

Debt - generally based on expressed or implied contracts; itmay be paid in kind; it may be a subject of set-off orcompensation; it can be assigned; a person cannot be

imprisoned for non-payment thereof except when it arises froma crime; it is governed by prescriptive periods under the CivilCode and other special laws.

Other Terms



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TMDGPT 210 Slide 61

From subsidy

A subsidy is a pecuniary aid directly granted by thegovernment to an individual or private commercialenterprise deemed beneficial to the public. It is not a taxalthough a tax may have to be imposed to pay it.

Other Terms

Limitations on the Power of Taxation


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TMDGPT 210 Slide 62


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 orinstrumentalities

No double taxation

No excessive taxation



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TMDGPT 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



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TMDGPT 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-profiteducational institution.

Other Constitutional limitations such as the granting of

exemptions; veto of appropriate revenue or tariff bills bythe President; and non-impairment of the jurisdiction of theSupreme Court

Nature of Internal Revenue Law


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TMDGPT 210 Slide 65

Nature of Internal Revenue Law

Internal revenue laws are not political in

nature. They are deemed to be the laws ofthe occupied territory and not of theoccupying enemy.

Taxes are civil and not penal in nature

although there are penalties provided for

their violation.

Construction of Tax Laws


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TMDGPT 210 Slide 66


Provisions intended for the security of the citizen ortaxpayer 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 isdoubtful as to whether a taxpayer is covered by the taxobligation, the tax law shall be construed against the

government because revenue laws impose special

burdens.



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TMDGPT 210 Slide 67

Co st uct o o a a s

Where the intent to tax is clear and the taxpayer claims that

he is exempt from the tax obligation, the tax shall beconstrued against the taxpayer and in favor of the

government because the power of taxation is necessary tothe existence of such government.

Rules on the interpretation of custom and tariff laws do not

apply to trade agreements, the former rules beingpromulgated in the exercise of the power of taxation while

trade agreements are entered into the exercise of the policepower.

If the tax law is repealed, taxes assessed before repeal ofthe law may still be collected unless the repealing law ismade retroactive.



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TMDGPT 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 clearlegislative intent in that regard. It has been held that tax

laws shall have prospective effect only unless there is aclear provision to the contrary. If the retroactive effect wouldbe harsh or oppressive, the same transgresses theconstitutional limitations of due process.

Sources of Tax Laws


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TMDGPT 210 Slide 69

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 Secretaryof Justice.

Judicial decisions

Tax treaties or agreements entered into by thePhilippines with other countries.

Definition of Situs of Taxation


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TMDGPT 210 Slide 70

e t o o S tus o a at o

It literally means place of taxation. The basic ruleis that the state where the subject to be taxed has asitus may rightfully levy and collect the tax; and thesitus is necessarily in the state which has

jurisdiction or which exercises dominion over thesubject in question. Thus, the person may besubject to taxation in several taxing jurisdictions.

Situs or Subjects of Taxation


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TMDGPT 210 Slide 71

j

Persons

Real propertyPersonal Property

Tangible personal property

Intangible personal property

Income

Business, occupation, and transaction

Gratuitous transfer of property

Definition of double taxation


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TMDGPT 210 Slide 72

In its strict sense, it is also referred to as direct doubletaxation which means being taxed twice by the sametaxing authority within the same jurisdiction or taxingdistrict for the same purpose in the same year or taxingperiod some of the property in the territory.

In its broad sense, it is also referred to as indirectdouble taxation or taxation other than direct duplicate; itextends to all cases in which there is a burden of two or

more pecuniary impositions.

Meaning of exemption from taxation


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TMDGPT 210 Slide 73

This is a grant of immunity, express or implied, toparticular persons or corporations, or to persons or

corporations of a particular class, from a tax whichpersons and corporations generally within the samestate or taxing district, are obliged to pay. It is animmunity or a privilege; it is a freedom from afinancial charge or burden to which others aresubjected.

Grounds for grant of exemption


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GPT 210 Slide 74

g p

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.

Nature of tax exemption


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GPT 210 Slide 75

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.

Kinds of tax exemptions


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GPT 210 Slide 76

As to manner of creation

Express or affirmative - occurs when certainpersons, property, or transactions are, by expressprovisions, exempted from all or certain taxes, eitherentirely or in part.

Implied exemption or exemption by omission -occurs when a tax is levied on certain classes ofpersons, properties, or transaction without

mentioning the other classes.



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GPT 210 Slide 77

As to scope or extent

Total exemption - when certain persons, property ortransactions 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.



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GPT 210 Slide 78

As to object

Personal - those granted directly in favor of suchpersons are within the contemplation of the lawgranting the exemption.

Impersonal - those granted directly in favor of acertain class of property.

Sources of tax exemptions


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GPT 210 Slide 79

Exemptions provided for in theTax Code

Exemptions provided for under

special laws

Construction of tax exemption statutes


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GPT 210 Slide 80

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 theexemption.

When the exemption is in favor of the government itself or itsagencies, or of charitable, religious, and educational

institutions because the general rule is that they are exemptedfrom tax.

When there is an express mention or the taxpayer falls within

the purview of the exemption by clear legislative intent.

Principles Governing Tax Exemption


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GPT 210 Slide 81

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 thatthe legislative intended to exempt him by words too

plain to be mistaken.

It is a well-settled rule that he who claims exemptionshould prove that he is exempted.

Principles Governing Tax Exemption


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GPT 210 Slide 82

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 distinctlyshow 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-exemptdoes not need a legislative enactment to put it intoeffect.

BIR Mission


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GPT 210 Slide 83

Our mission is to raise revenues for thegovernment through effective andefficient collection of taxes, quality

service to taxpayers, and impartial anduniform enforcement of tax laws.

Our Vision of the New BIR


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GPT 210 Slide 84

Taxpayers satisfied with BIR services

An agency that is taxpayer-focused, efficient andtransparent

An organization that is streamlined, productive and hasfiscal and administrative flexibility

A workforce that is professional, competent, morallyupright and motivated

A model of good governance in the public sector

Functions of the BIR


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GPT 210 Slide 85

Assessment and collection of all national internal

taxes, fees and charges;

Execution of judgments decided in its favor by theSupreme Court, the Court of Tax Appeals, and the

ordinary courts;

Enforcement of penalties and fines as well asforfeitures; and

Exercise power administrative and supervisory powers

over taxpayers including promulgation of pertinent

rulings.

Powers of the Commissioner ofInternal Revenue


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GPT 210 Slide 86

Interpret tax laws and decide tax cases.

Obtain information, summon, examine, and take

testimony of persons for purposes of ascertainingthe correctness of any return, or in making a returnwhen none has been made, or in evaluating taxcompliance.

Make assessments and prescribe additionalrequirements for tax administration andenforcement.

Compromise, abate, refund or credit taxes.



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GPT 210 Slide 87

Make arrests and seizures for violation of any penallaw, rules and regulations administered by the BIR.

Assign internal Revenue Officers involved in excisetax functions to establishments where articles subjectto excise tax are produced or kept.

Assign or reassign Revenue Officers and employeesof the BIR to other special duties connected with theenforcement or administration of revenue laws as theexigencies of the service may require, subject to the

rules and promulgated by the Civil ServiceCommission and the Secretary of Finance.



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GPT 210 Slide 88

Suspend business operations and temporarilyclose 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 believedto be carrying articles on which excise tax has notbeen paid.

Detain any package containing or supposed tocontain articles subject to excise tax that are

believed to be illegally removed from place ofproduction or customs custody.



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GPT 210 Slide 89

dminister oath and take testimony related to theinvestigation conducted in matters within the jurisdictionof the BIR.

Enforce civil remedies and statutory penalties for thecollection of delinquent taxes.

Recommend to the Secretary of Finance thepromulgation of rules and regulations for the effectiveenforcement of the provisions of the tax laws.

Delegate powers to subordinate officials with the rank

equivalent to a Division Chief or higher subject to suchlimitations to be promulgated by the Secretary of Finance,upon recommendation of the CIR .

Duties of the Commissioner

of Internal Revenue


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GPT 210 Slide 90

Ensures the provision and distribution of forms,receipts, certificates and appliances andacknowledgment of payment of taxes.

Divide the Philippines into such number of revenuedistricts as may from time to time be required foradministrative purposes, subject for approval of the

Secretary of Finance.

Prepares Annual Report containing detailed statementsof 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 itsdisbursements by classes of expenditures.

Duties of the Commissioner

of Internal Revenue


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GPT 210 Slide 91

Furnishes appropriate Committee of Congress, inaid of legislation, pertinent information such as

industry audits, collection performance data, statusreports in criminal actions initiated against persons,and taxpayers return.

Submits pertinent information report required byCongressional Oversight Committee every six (6)months of each calendar year.

Definition of Assessment


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GPT 210 Slide 92

Assessment is the official action of an authorized internalrevenue officer in ascertaining the amount of tax due from a

taxpayer, or it may be a notice to the effect that the amountstated therein is due from the taxpayer as a tax with ademand 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 orsometimes after, the deficiency notice).

Assessment may be classified

as follows:


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GPT 210 Slide 93

Self - Assessment

Deficiency Assessment

Illegal and Void Assessment

Erroneous Assessment

Principles Governing Tax Assessment


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GPT 210 Slide 94

Assessments are prima facie presumed correct andmade in good faith.

Assessment should not be based on presumptions nomatter 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.

Means Employed in the Assessment

of Taxes


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GPT 210 Slide 95

Examination of returns and determination of tax due;

Use of best evidence obtainable;

Authority to conduct inventory- taking, surveillance andprescribe 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 documentaryrequirements.

Prescriptive Periods for the

Right to Assess


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GPT 210 Slide 96

General rule- Internal revenue taxes shall be assessed

within three (3) years after the last day prescribed by law forthe filing of the return, and no proceeding in court withoutassessment for the collection of such taxes shall begin afterthe expiration of such period. However, in case where a

return is filed beyond the period prescribed by law, thethree-year period shall be counted from the day the return

was filed. A return filed before the last day prescribed bylaw for the filing thereof, is considered as filed on such lastday.

Considerations on the prescription ofgovernments right to assess taxes


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GPT 210 Slide 97

Date of Filing Tax Returns

Effect of Filing An Amended Return

Effect of Filing A Wrong Return

Period Applicable when the Law does not Requirethe Filing of any Return

Applicable Prescriptive Period if Taxpayer Fails toFile a Return

Prescriptive Period of Assessment when there isFraud

Determination of Deficiency TaxAssessment


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GPT 210 Slide 98

Audit of Tax Returns

Basis of Audit of Returns

Frequency of Audit

Submission of Audit Report

Prescription of Government's Right to

Collect Taxes

L i i ti f ll ti


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GPT 210 Slide 99

Law governing prescription of collection.

When does the five (5) years prescription period forcollection start to run.

When tax is deemed collected for purposes of theprescriptive period.

May there be a judicial action to collect a tax liabilityeven 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 theprescriptive period.

Mode of Procedures in theIssuance of Assessment Notice


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GPT 210 Slide 100

Post-Reporting Notice- sent to the taxpayer by the RevenueOfficer or by the Division Chief concerned (in the case of

the BIR National Office) of the discrepancy or discrepanciesin the taxpayers payment of his internal revenue taxes foran 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.



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GPT 210 Slide 101

Pre- Assessment Notice (PAN)-if after review and evaluationby 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, atleast 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.



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GPT 210 Slide 102

Final Assessment Notice (FAN) -the formal letter of

demand and assessment notice shall be issued by theCommissioner or his duly authorized representative.

The letter of demand calling for the payment of thetaxpayers deficiency taxes shall state the facts, the law,

rules and regulations or jurisprudence on which theassessment is based. The same shall be sent to the

taxpayer only by registered mail or by personal delivery.

Protest to Assessment


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GPT 210 Slide 103

Administrative Protest of AssessmentRequest for reconsideration

Request for reinvestigation

Judicial protestAppeal to the Court of Tax AppealsAppeal to the Court of AppealsAppeal to the Supreme Court

Writ of execution of judgment

Documents

Intro to Public Finance and General Principle of Taxation