CHAPTER 2: Tax, Tax Laws, and Tax Administration

Question 1

______ refers to any law that arises from the exercise of the taxation power of the State.

Answer 1

Taxation law

Question 2

Types of taxation laws

Answer 2

1. Tax laws
2. Tax exemption laws

Question 3

These are laws that provide for the assessment and collection of taxes.

Answer 3

Tax laws

Question 4

Examples of Tax Laws

Answer 4

a. The National Internal Revenue Code (NIRC)
b. The Tariff and Customs Code.
c. The Local Tax Code
d. The Real Property Tax Code

Question 5

These are laws that grant certain immunity from taxation.

Answer 5

Tax exemption laws

Question 6

Examples of Tax exemption laws

Answer 6

a. The Minimum Wage Law
b. The Omnibus Investment Code of 1987 (E.O. 226)
c. Barangay Micro-Business Enterprise (BMBE) Law
d. Cooperative Development Act

Question 7

Sources of Taxation Laws

Answer 7

1. Constitution
2. Statutes and Presidential Decrees
3. Judicial Decisions or case laws
4. Executive Orders and Batas Pambansa
5. Administrative Issuances
6. Local Ordinances
7. Tax Treaties and Conventions with foreign countries
8. Revenue Regulations

Question 8

Types of Administrative Issuances

Answer 8

1. Revenue regulations
2. Revenue memorandum orders
3. Revenue memorandum rulings
4. Revenue memorandum circulars
5. Revenue bulletins
6. BIR rulings

Question 9

______ are issuances signed by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue (CIR) that specify, prescribe, or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes.

Answer 9

Revenue Regulations

Question 10

______ are formal pronouncements intended to clarify or explain the tax law and carry into effect its general provisions by providing details of administration and procedure. It has the force and effect of a law, but is not intended to expand or limit the application of the law; otherwise, it is void.

Answer 10

Revenue regulations

Question 11

______ are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods, and procedures necessary in the implementation of stated policies, goals, objectives, plans, and programs of the Bureau in all areas of operation except auditing.

Answer 11

Revenue Memorandum Orders (RMOs)

Question 12

______ are rulings, opinions and interpretations of the CRI with respect to the provisions of the Tax Code and other tax laws as applied to specific set of facts, with or without established precedents, and which the CRI may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations.

Answer 12

Revenue Memorandum Rulings (RMRs)

Question 13

______ are issuances that publish pertinent and applicable portions as well as amplifications of laws, rules, regulations, and precedent issued by the BIR and other agencies/offices.

Answer 13

Revenue Memorandum Circulars (RMCs)

Question 14

______ refer to periodic issuances, notices, and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue’s position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws, and other issuances for the guidance of the public.

Answer 14

Revenue Bulletins (RB)

Question 15

______ are official positions of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.

Answer 15

BIR Rulings

Question 16

______ are merely advisory or a sort of information service to the taxpayer such that none of them is binding except to the addressee and may be reversed by the BIR at anytime.

Answer 16

Rulings

Question 17

Types of rulings

Answer 17

1. Value Added Tax (VAT) rulings
2. International Tax Affairs Division (ITAD) rulings
3. BIR rulings
4. Delegated Authority (DA) rulings

Question 18

______ or ______ are not laws, but are mere conventions of hnancial reporting. They are benchmarks for the fair and relevant valuation and recognition of income, expense, assets, liabilities, and equity of a reporting entity for general purpose financial reporting. ______ accounting reports are intended to meet the common needs of a vast number of users in the general public.

Answer 18

Generally accepted accounting principles, GAAP, GAAP

Question 19

Philippine tax laws are ______ and not political in nature. They are effective even during periods of enemy occupation. They are laws of the occupied territory and not by the occupying enemy. Tax payments made during occupations of foreign enemies are valid.

Answer 19

civil

Question 20

Our internal revenue laws are not ______ in nature because they do not define crime. Their penalty provisions are merely intended to secure taxpayers compliance.

Answer 20

penal

Question 21

______ is an enforced proportional contribution levied by the lawmaking body of the State to raise revenue for public purpose.

Answer 21

Tax

Question 22

Elements of a Valid Tax

Answer 22

1. Tax must be levied by the taxing power having jurisdiction over the object of taxation.
2. Tax must not violate Constitutional and inherent limitations.
3. Tax must be uniform and equitable.
4. Tax must be for public purpose.
5. Tax must be proportional in character.
6. Tax is generally payable in money.

Question 23

Classification of Taxes

Answer 23

1) as to purpose: Fiscal or revenue tax, regulatory, sumptuary
2) as to subject matter: personal, poll or capitation, property tax, excise tax
3) as to incidence: direct tax, indirect tax
4) as to amount: specific, ad valorem
5) as to rate: proportional, progressive or graduated, regressive, mixed
6) as to imposing authority: national, local

Question 24

a tax imposed for general purpose

Answer 24

Fiscal or revenue tax

Question 25

a tax imposed to regulate business, conduct, acts or transactions

Answer 25

Regulatory

Question 26

a tax levied to achieve some social or economic objectives

Answer 26

Sumptuary

Question 27

a tax on persons who are residents of a particular territory

Answer 27

Personal, poll or capitation

Question 28

a tax on properties, real or personal

Answer 28

Property tax

Question 29

a tax imposed upon the performance of an act, enjoyment of a privilege or engagement in an occupation

Answer 29

Excise or privilege tax

Question 30

When both the impact and incidence of taxation rest upon the same taxpayer, the tax is said to be direct. The tax is collected from the person who is intended to pay the same. The statutory taxpayer is the economic taxpayer.

Answer 30

Direct tax

Question 31

When the tax is paid by any person other than the one who is intended to pay the same, the tax is said to be indirect. This occurs in the case of business taxes where the statutory taxpayer is not the economic taxpayer. The statutory taxpayer is the person named by law to pay the tax. An economic taxpayer is the one who actually pays the tax.

Answer 31

Indirect tax

Question 32

a tax of a fixed amount imposed on a per unit basis such a per kilo, liter or meter, etc.

Answer 32

Specific tax

Question 33

a tax of a fixed proportion imposed upon the value of the tax object

Answer 33

Ad valorem

Question 34

This is a flat or fixed rate tax. The use of this emphasizes equality as it subjects all taxpayers with the same rate without regard to their ability to pay.

Answer 34

Proportional tax

Question 35

This is a tax which imposes increasing rates as the tax base increase. The use of this rates results in equitable taxation because it gets more tax to those who are more capable. It aids in lessening the gap between the rich and the poor.

Answer 35

Progressive or graduated tax

Question 36

This tax imposes decreasing tax rates as the tax base increase. This is the total reverse of progressive tax. It is regarded as anti-poor. It directly violates the Constitutional guarantee of progressive taxation.

Answer 36

Regressive tax

Question 37

This tax manifest tax rates which is a combination of any of the above types of tax.

Answer 37

Mixed tax

Question 38

tax imposed by the national government

Answer 38

National tax

Question 39

Examples of National tax

Answer 39

a. Income tax b. Estate tax c. Donor's tax d. Value Added Tax e. Other percentage tax f. Excise tax g. Documentary stamp tax

Question 40

tax on annual income, gains or profits

Answer 40

Income tax

Question 41

tax on gratuitous transfer of properties by a decedent upon death

Answer 41

Estate tax

Question 42

tax on gratuitous transfer of properties by a living donor

Answer 42

Donor's tax

Question 43

consumption tax collected by VAT business taxpayers

Answer 43

Value Added Tax

Question 44

consumption tax collected by non-VAT business taxpayers

Answer 44

Other percentage tax

Question 45

tax on sin products and non-essential commodities such as alcohol, cigarettes and metallic minerals

Answer 45

Excise tax

Question 46

a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto

Answer 46

Documentary stamp tax

Question 47

tax imposed by the municipal or local government

Answer 47

Local tax

Question 48

Examples of Local tax

Answer 48

a. Real property tax b. Professional tax c. Business taxes, fees, and charges d. Community tax e. Tax on banks and other financial institutions

Question 49

______ refers to the amount imposed by the government for public purpose. ______ refers to all income collections of the government which includes taxes, tariffs, licenses, toll, penalties and others. The amount imposed is ______ but the amount collected is ______.

Answer 49

Tax, Revenue, tax, revenue

Question 50

______ has a broader subject than ______. ______ emanates from taxation power and is imposed upon any object such as persons, properties, or privileges to raise revenue. ______ emanates from police power and is imposed to regulate the exercise of a privilege such as the commencement of a business or a profession.

Answer 50

Tax, license, Tax, License fee

Question 51

______ are imposed after the commencement of a business or profession whereas ______ is imposed before engagement in those activities. In other words, ______ is a post-activity imposition whereas ______ is a pre-activity imposition.

Answer 51

Taxes, license fee, tax, license

Question 52

______ is a levy of government; hence, it is a demand of sovereignty. ______ is a charge for the use of other's property; hence, it is a demand of ownership.

Answer 52

Tax, Toll

Question 53

The amount of ______ depends upon the needs of the government, but the amount of ______ is dependent upon the value of the property leased.

Answer 53

tax, toll

Question 54

Both the government and private entities impose ______, but private entities cannot impose taxes.

Answer 54

toll

Question 55

______ arises from law while ______ arises from private contracts. Non-payment of ______ leads to imprisonment, but non-payment of ______ does not lead to imprisonment.

Answer 55

Tax, debt, tax, debt

Question 56

______ can be subject to set-off but tax is not.

Answer 56

Debt

Question 57

______ can be paid in kind (dacion et pago) but ______ is generally payable in money.

Answer 57

Debt, tax

Question 58

______ draws interest only when the taxpayer si delinquent. ______ draws interest when it is so stipulated by the contracting parties or when the debtor incurs a legal delay.

Answer 58

Tax, Debt

Question 59

______ is an amount imposed upon persons, properties, or privileges. ______ is levied by the government on lands adjacent to a public improvement. It is imposed on land only and is intended to compensate the government for a part of the cost of the improvement.

Answer 59

Tax, Special assessment

Question 60

The basis of ______ is the benefit ni terms of the appreciation in land value caused by the public improvement. On the other hand, ______ is levied without expectation of a direct proximate benefit.

Answer 60

special assessment, tax

Question 61

Unlike taxes, ______ attaches to the land. It wil not become a personal obligation of the land owner. Therefore, the non-payment of ______ will not result to imprisonment of the owner (unlike in non-payment of taxes).

Answer 61

special assessment, special assessment

Question 62

______ is broader than ______. ______ is an amount imposed upon persons, privilege, transactions, or properties. ______ is the amount imposed on imported or exported commodities.

Answer 62

Tax, tariff, Tax, Tariff

Question 63

______ is an amount imposed for the support of the government. ______ is an amount imposed to discourage an act. ______ may be imposed by both the government and private individuals. It may arise both from law or contract whereas tax arises from law.

Answer 63

Tax, Penalty, Penalty

Question 64

The ______ refers to the methods or schemes of imposing, assessing, and collecting taxes. It includes all the tax laws and regulations, the means of their enforcement, and the government offices, bureaus and withholding agents which are part of the machineries of the government in tax collection.

Answer 64

tax system

Question 65

The Philippine tax system is divided into two: the ______ and the ______.

Answer 65

national tax system, local tax system

Question 66

Types of Tax Systems According to Imposition

Answer 66

1. Progressive 2. Proportional 3. Regressive

Question 67

employed in the taxation of income of individuals, and certain local business taxes

Answer 67

Progressive

Question 68

employed in taxation of corporate income and business

Answer 68

Proportional

Question 69

not employed in the Philippines

Answer 69

Regressive

Question 70

Types of Tax System According to Impact

Answer 70

1. Progressive system 2. Regressive system

Question 71

A ______ tax system is one that emphasizes direct taxes. A direct tax cannot be shifted. Hence, it encourages economic efficiency as it leaves no other resort to taxpayers than to be efficient. This type of tax system impacts more upon the rich.

Answer 71

progressive

Question 72

A ______ tax system si one that emphasizes indirect taxes. Indirect atxes are shifted by businesses to consumers; hence, the impact of taxation rests upon the botom end of the society. In effect, a regressive tax system is anti-poor.

Answer 72

regressive

Question 73

It is widely believed that despite the Constitutional guarantee of a progressive taxation, the Philippines has a dominantly regressive tax system due ot the prevalence of ______.

Answer 73

business taxes

Question 74

TAX COLLECTION SYSTEMS

Answer 74

A. Withholding system on income tax B. Withholding system on business tax C. Voluntary compliance system D. Assessment or enforcement system

Question 75

Types of Withholding system on income tax

Answer 75

1. Creditable withholding tax a. Withholding tax on compensation b. Expanded withholding tax 2. Final withholding tax

Question 76

Under this collection system, the payor of the income withholds or deducts the tax on the income before releasing the same to the payee and remits the same to the government.

Answer 76

Withholding system on income tax

Question 77

an estimated tax required by the government to be withheld (i.e. deducted) by employers against the compensation income to their employees

Answer 77

Withholding tax on compensation

Question 78

an estimated tax required by the government to be deducted on certain income payments made by taxpayers engaged in business

Answer 78

Expanded withholding tax

Question 79

The ______ is intended to support the self-assessment method to lessen the burden of lump sum tax payment of taxpayer and also provides for a possible third-party check for the BIR of non-compliant taxpayers.

Answer 79

creditable withholding tax

Question 80

a system of tax collection wherein payors are required to deduct the full tax on certain income payments

Answer 80

Final withholding tax

Question 81

The ______ is intended for the collection of taxes from income with high risk of non-compliance.

Answer 81

final withholding tax

Question 82

when the national government agencies and instrumentalities including government-owned and controlled corporations (GOCCs) purchase goods or services from private suppliers, the law requires withholding of the relevant business tax (i.e. VAT or percentage tax). Business taxation is discussed under Business and Transfer Taxation by the same author.

Answer 82

Withholding system on business tax

Question 83

Under this collection system, the taxpayer himself determines his income, reports the same through income tax returns and pays the tax to the government. This system is also referred to as the "Self-assessment method."

Answer 83

Voluntary compliance system

Question 84

Under this collection system, the government identifies non-compliant taxpayers, assesses their tax dues including penalties, demands for taxpayer's voluntary compliance or enforces collections by coercive means such as a summary proceeding or judicial proceedings when necessary.

Answer 84

Assessment or enforcement system

Question 85

PRINCIPLES OF A SOUND TAX SYSTEM

Answer 85

1. Fiscal adequacy 2. Theoretical justice 3. Administrative feasibility

Question 86

______ requires that the sources of government funds must be sufficient to cover government costs. The government must not incur a deficit. A budget deficit paralyzes the government's ability to deliver the essential public services to the people. Hence, taxes should increase in response to increase in government spending.

Answer 86

Fiscal adequacy

Question 87

______ or ______ suggests that taxation should consider the taxpayers ability to pay. It also suggests that the exercise of taxation should not be oppressive, unjust, or confiscatory.

Answer 87

Theoretical justice, equity

Question 88

______ suggests that tax laws should be capable of efficient and effective administration to encourage compliance. Government should make it easy for the taxpayer to comply by avoiding administrative bottlenecks and reducing compliance costs.

Answer 88

Administrative feasibility

Question 89

______ refers to the management of the tax system. ______ of the national tax system in the Philippines is entrusted to the Bureau of Internal Revenue which is under the supervision and administration of the Department of Finance.

Answer 89

Tax administration

Question 90

Chief Officials of the Bureau of Internal Revenue

Answer 90

1. 1 Commissioner 2. 4 Deputy Commissioners, each to be designated to the following: a. Operations group b. Legal Enforcement group c. Information Systems Group d. Resource Management Group

Question 91

OTHER AGENCIES TASKED WITH TAX COLLECTIONS OR TAX INCENTIVES RELATED FUNCTIONS

Answer 91

1. Bureau of Customs 2. Board of Investments 3. Philippine Economic Zone Authority 4. Local Government Tax Collecting Unit 5. Fiscal Incentives Review Board