Chapter 2: Taxes, Tax Laws and Tax Administration PDF

Chapter 2: Taxes, Tax Laws and Tax Administration TAXATION LAW Taxation Taxa law refers to any law that arises from exercise of the taxation power of the tion law state. Types 1. of Taxtaxation laws are the laws laws – these laws that provi...

Chapter 2: Taxes, Tax Laws and Tax Administration TAXATION LAW Taxation Taxa law refers to any law that arises from exercise of the taxation power of the tion law state. Types 1. of Taxtaxation laws are the laws laws – these laws that provi provide de for the assessment assessment and co collection llection ooff taxes. 2. Tax exe exemption mption la laws ws – these these are laws that that rant certain certain immunity immunity fro from m taxat taxation. ion. Sources of Taxation Laws 1. Co Cons nsti titu tuti tion on 2. Stat Statutes utes and Preside Presidentia ntiall D Decre ecrees es 3. Jud Judici icial al de decis cision ionss and cas case e laws laws 4. Exe Executi cutive ve orders orders and Batasan Batasang g Pamban Pambansa sa 5. Ad Admin minististrat rative ive issua issuanc nce e 6. Loca Locall ordi ordinanannce 7. Tax tre treati aties es and conve conventio ntions ns with foreig foreign n countries countries 8. Re Reve venu nue e re regu gula lati tion ons s NATURE OF PHILIPPINE TAX LAWS Philippine tax laws are civil and not political in nature. Classification of Taxes A. As to pupurp rpos ose e 1. Fisc Fiscal al or revenu revenue e tax – a ttax ax imposed imposed for ge genera nerall purpose purpose 2. Regulat Regulatory ory – a tax imposed imposed to regulate business, conduct, conduct, act o orr transac transaction. tion. 3. Sumptua Sumptuary ry – a tax levied ttoo ach achieve ieve so some me social social or economic objective objectives s B. As to sub subjec jectt mat matter ter 1. Persona Personall poll or capitation – a taxtax on persons who are residents in particu particular lar territo territory. ry. 2. Prop Property erty ttax ax – a tax tax on propert properties, ies, rreal eal or perso personal nal 3. Exci Excise se or privilege privilege tax tax – a tax imposed imposed upon upon the performa performance nce of the the enjo enjoymen ymentt of a privilege or engagement in occupation. C. As to in inci cide denc nce e 1. Direct tax – The tax is collected collected from the person who who is inten intended ded to ppay ay the sa same. me. 2. Ind Indire irect ct tax – tax is paid paid by any per perso son n other other than the on onee is inten intende dedd to pay pay the same, the tax is said to be indirect. Note: The statutory taxpayer is the person named by the law to pay the tax. The economic tax payer is the only one who actually pays for it. D. As to am amouountnt 1. Sp Spececif ific ic tax tax – A ttax ax of a fixed amount imposed on a per unit basis such as per kilo, liter or meter, etc. 2. Ad valore valorem m – a tax of a fixed proportion proportion imposed upon th the e value o off the tax object. E. As to rate rate 1. Prop Proporti ortiona onall tax – This is a flat or fixed fixed - rate. rate.  2. Progressiv Progressive e or grad graduated uated tax tax – a tax which which imposes imposes increasin increasing g rates as the tax base increase. 3. Regressiv Regressive e tax – imposes decreasing decreasing tax rates rates as the ta tax x base increase. 4. Mixe Mixedd tax – a ccombi ombinati nation on of a any ny of the the abo above ve types types of ta tax. x. F. As to imp impos osing ing au autho thorit rity y 1. Nati Nationa onall Tax – Tax imp imposed osed by by the na nation tional al gov governm ernment. ent.  Income tax – tax on annual income, gains or profits.   Estate Donor’stax –– tax tax taxonongratuitous gratuitoustransfer of properties of properties by adonor of a living decedent upon death  Value added tax – consumption tax collected by VAT business taxpayers.  Other percentage tax – consumption tax collected by non-VAT business taxpayers.  Excise tax – tax on sin products and non-commodities such as alcohol, cigarettes and metallic minerals. 2. Loc Local al tax – tax impose imposed d by the mu munici nicipal pal or local local governm government. ent.  Real property tax  Professional Profession al tax  Business taxes fees and charges  Community tax  Tax on banks & other financial institutions DISTINCTION OF TAXES WITH SIMILAR ITEMS Tax vs. Revenue – The amount imposed as tax but the amount collected is revenue Tax Tax vs. vs. Lic Licen ense se fee – Ta Tax is is a post-activi ty impos post-activity impositi ition on wher wherea eass licen license se is a pre-activity imposition. Tax vs. Toll Toll – Tax is a levy of government, hence demand of sovereignty. Toll is a charge for the use of other’s properties, hence demand of ownership. Tax vs. Deb Debtt – Tax arises from law while debt arises from private contracts. Non-payment of tax leads to imprisonment, but non-payment of debt does not lead to imprisonment. Tax vs. vs. Special Assessment. – Special assessment is levied by the government on lands adjacent to a public improvement. Tax vs. Tariff – Tax is an amount imposed upon persons, privilege, transactions or properties. Tariff is the amount imposed on imported or exported commodities. Tax vs. Penalty – Tax is an amount imposed for the support of the government. Penalty is an amount imposed to discourage an act. TAX SYSTEM The tax system refers to the methods or schemes of imposing assessing and collecting taxes. Types of tax systems according to imposition 1. Pr Prog ogre ress ssiv ive e – emempl ploy oyed ed in th thee ta taxa xati tion on of inco income me of indi indivi vidu dual als, s, and and trtran ansf sfer erss of properties by individuals. 2. Proportion Proportionalal – employe employed d in taxation of corporate corporate income and b business. usiness. 3. Reg Regressi ressive ve – not not emp employe loyedd in the the Philipp Philippines ines.. Types of tax systems according to impact 1. Progressiv Progressive e system – one that emphasizes emphasizes direct tax. tax. A direct direct tax cannot be shifte shifted. d. 2. Reg Regressi ressive ve system – one that that emphasize emphasizes s indire indirect ct taxes. An ind indirec irectt tax is shif shifted ted by business to consumers. TAX COLLECTION SYSTEMS A. Wit Withho hholdi lding ng system system on in inco come me tax – under this collection system, the payor of the income withholds or deduct the tax on the income before releasing. 1. Creditable withholding tax Withholding Withhold ing tax on compensa tion – an estimated tax required by the government to compensation be withheld by employers against the compensation income to their employees. Expand Expandeded with withholding tax – an estimated tax required by the governme holding government nt to be deducted on certain income payments made by taxpayers engaged in business. business. 2. Final withholding tax – a system of tax collection wherein payors are required to deduct the full tax on certain income payments. B. Wit Withho hholdi lding ng syste systemm on busine business ss tax – when the national government agencies and instrumentalities including GOCCs purchase goods or services from private suppliers, the law requires withholding of the relevant business tax. C. Vo Volun luntar tary y complia compliancncee syst system em – 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. D. As Asse sess ssme ment nt or enforc enforcemement ent syste systemm – the government identifies non-compliant tax payers, assesses their taxes dues including penalties, penalties, demands for taxpayer’s taxpayer’s voluntary compliance or enforces collections by coercive means such as summary proceeding or judicial proceedings proceedings w when hen necessary. OTHER AGENCIES TASKED WITH TAX COLLECTIONS OR TAX INCENTIVES RELATED FUNCTIONS 1. Bureau of Customs – tasked to administer collection of tariffs on imported articles and collections of the Value Added Tax on importation. The BOC is headed by the customs commissioner and is assisted by five deputy commissioners and 14 district collectors. 2. Board of Investments – tasked to lead the promotion of investments in the Philippines by assisting Filipinos and foreign investors to venture and prosper in desirable areas of economic activities. 3. Phil Philippi ippine ne Economic Economic Zone Auth Authorit ority y – created to promote investments in export- oriented manufacturing industries in the Philippines TAXPAYER CLASSIFICATION FOR PURPOSE OF TAX ADMINISTRATION 1. Large taxpayers – under the supervision of LTS and BIR national office 2. Non-large taxpayers – under the supervision of the RDO CRITERIA FOR LARGE TAXPAYERS: A. As to pa paym ymen entt 1. Value added tax – At least P200,00 P200,000 0 per quarter quarter for the preceding preceding year. 2. Excise Tax – At least P1,000,000 tax paid for the preceding year. 3. Income Tax – At least P1,000,000 annual income tax paid for the preceding year. 4. Withholding Tax - At least P1,000,00 P1,000,000 0 annual withholding withholding tax paymen paymentsts remittance remittances s from all types of withholding taxes. 5. Percentage Tax - At least P200,000 percentage tax paid or payable quarter for the preceding year. 6. Documentary stamp tax - At least P1,000,000 aggregate amount per year B. As to financial financial conditions conditions and rresults esults of operations operations 1. Gro Grossss re rece ceipt ipts soorr sale sales s – P1billion total annual gross sales. 2. Net w woorth – P300M total net worth at the close of each calendar year 3. Gr Gros osss purc purcha hase ses s – P800M total annual purchases for the preceding year