2.

Ad valorem – a tax of a fixed proportion

LESSON 2: imposed upon the value of the tax object.
TAXES, TAX LAWS, AND TAX
E. AS TO RATE
ADMINISTRATION 1. Proportional tax – This is a flat or fixed
rate tax. The use of proportional tax
TAX emphasizes equality as it subjects all
- Tax is an enforced proportional contribution taxpayers with the same rate without regard
levied by the law-making body of the State to to their ability to pay.
raise revenue for public purpose. 2. Progressive or graduated tax – Tax is a tax
which imposes increasing rates as the tax
ELEMENTS OF A VALID TAX base increase. The use of progressive tax
1. Tax must be levied by the taxing power having rates results in equitable taxation because it
jurisdiction over the object of taxation. gets more tax to those who are more
2. Tax must not violate constitutional and inherent capable. It aids in lessening the gap between
limitations. the rich and the poor.
3. Tax must be uniform and equitable. 3. Regressive tax – This tax imposes
4. Tax must be for public purpose. decreasing tax rates as the tax base increase
5. Tax must be proportional in character. this is the total reverse of progressive tax.
6. Tax is generally payable in money. Regressive tax is regarded as anti-poor. It
directly violates the Constitutional guarantee
CLASSIFICATION OF TAXES of progressive taxation.
A. AS TO PURPOSE 4. Mixed tax – This tax manifest tax rates
1. Fiscal or revenue tax – a tax imposed for which is a combination of any the above
general purpose types of tax.
2. Regulatory – a tax imposed to regulate
business, conduct, acts or transactions F. AS TO IMPOSING AUTHORITY
3. Sumptuary – a tax levied to achieve some 1. National tax – tax imposed by the national
social or economic objectives. government
Examples:
B. AS TO SUBJECT MATTER a) Income tax – tax on annual income,
1. Personal, poll or capitation – a tax on gains or profits
persons who are residents of a particular b) Estate tax – tax on gratuitous
territory. transfer of properties by a decedent
2. Property tax – a tax on properties, real or upon death
personal c) Donor's tax – tax on gratuitous
3. Excise or privilege tax – a tax imposed transfer of properties by a living
upon the performance of an act, enjoyment donor
of a privilege or engagement in an d) Value Added Tax – consumption
occupation tax collected by VAT business
taxpayers
C. AS TO INCIDENCE e) Other percentage tax –
1. Direct tax – When both the impact and consumption tax collected by non-
incidence of taxation rest upon the same VAT business taxpayers
taxpayer, the tax is said to be direct. The tax f) Excise tax – tax on sin pay products
is collected from the person who is intended and non-essential commodities such
to pay the same. The statutory taxpayer is as alcohol, cigarettes and metallic
the economic taxpayer. minerals. This should be
2. Indirect tax – When the tax is paid by any differentiated with the privilege tax
person other than the one who is intended to which is also called excise tax.
pay the same, the tax said to be indirect. g) Documentary stamp tax – a tax on
This occurs in the case of business taxes documents, instruments, loan
where the statutory tax payer is not the agreements and papers evidencing
economic taxpayer. The statutory taxpayer is the acceptance, assignment, sale or
the person named by law to pay the tax. An transfer of an obligation, right or
economic taxpayer is the one who actually property incident thereto.
pays the tax. 2. Local tax – tax imposed by the municipal or
local government
D. AS TO AMOUNT Examples:
1. Specific tax – a tax of a fixed amount a) Real property tax
imposed on a per unit basis such as per kilo, b) Professional tax
liter or meter, etc. c) Business taxes, fees, and charges
d) Community tax
 e) Tax on banks and other financial may arise both from law or co whereas tax arises
institutions from law.

DISTINCTION ON TAXES WITH SIMILAR TAXATION LAW

ITEMS - Taxation law refers to any law that arises from
the exercise of the taxation power of the State.
TAX vs. REVENUE
- Tax refers to the amount imposed by the TYPES OF TAXATION LAWS
government for public purpose. Revenue refers 1. Tax laws
to all income collections of the government - These are laws that provide for the assessment
which includes taxes, tariff, licenses, toll, and collection of taxes.
penalties and others. The amount imposed is tax Examples:
but the amount collected is revenue. a) The National Internal Revenue Code
(NIRC)
TAX vs. LICENSE FEE b) The Tariff and Customs Code
- Taxes are imposed after the commencement of a c) The Local Tax Code
business or profession whereas license fee is d) The Real Property Tax Code
imposed before engagement to those activities.
In other word, tax is post-activity imposition 2. Tax exemption laws
whereas license is a pre-activity imposition. - These are laws that grant immunity from
taxation.
TAX vs. TOLL Examples:
- Tax is levy of government: hence, it is a demand a) The Minimum Wage Law
of sovereignty. Toll is a charge for the use of b) The Omnibus Investment Code of
other's property; hence, it is a demand of 1987 (E.Ο. 226)
ownership. c) Barangay Micro-Business Enterprise
- Both the government and private entities impose (BMBE) Law
toll, but private entities cannot impose taxes. d) Cooperative Development Act

TAX vs. DEBT SOURCE OF TAXATION LAWS

- Tax arises from law while debt arises from 1. Constitution
private contracts. Non-payment of tax leads to 2. Statutes and Presidential Decrees
imprisonment, but non-payment of debt does not 3. Judicial Decisions
lead to imprisonment. Debt can be subject to set- 4. Executive Orders
off but tax is not. Debt can be paid in kind 5. Administrative Issuance
(dacion en pago) but tax is generally payable in 6. Local Tax Ordinances
money. 7. Tax Treaties and conventions with foreign
- Tax draws interest only when the taxpayer is countries
delinquent. Debt draws interest when it is so
stipulated by the contracting parties or when the TYPES OF ADMINISTRATIVE ISSUANCES
debtor incurs a legal delay. 1. Revenue Regulations
2. Revenue Memorandum Orders
TAX vs. SPECIAL ASSESSMENT 3. Revenue Memorandum Rulings
- Tax is an amount imposed upon persons, 4. Revenue Memorandum Circulars
properties, or privileges. Special assessment 5. Revenue Bulletins
levied by the government on lands adjacent to a 6. BIR Rulings.
public improvement. It is imposed on adjacent to
a public improvement. It is imposed on land TYPES OF RULINGS
only and is intended to compensate government 1. Value Added Tax (VAT) rulings
for a part of the cost of the improvement. 2. International Tax Affairs Division (ITAD)
rulings
TAX vs. TARIFF 3. BIR rulings
- Tax is broader than tariff. Tax is an amount 4. Delegated Authority (DA) rulings
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. Penalty may be imposed by
both the government and private individuals. It
TAX SYSTEMS B. Withholding system on business tax – when
- The tax system refers to the methods or schemes the national government agencies and
of imposing, assessing, and collecting taxes. The instrumentalities including government-owned
Philippine tax system is divided into two: the and controlled corporations (GOCCs) purchase
national tax system and the local tax system. goods or services from private suppliers, the law
requires withholding of the relevant business tax
TYPES OF TAX SYSTEMS ACCORDING TO (i.e. VAT or percentage tax).
IMPOSITION
1. Progressive – employed in the taxation of C. Voluntary compliance system – Under this
income of individuals, and transfers of collection system, the taxpayer himself
properties by the individuals determines his income, reports the same through
2. Proportional – employed in taxation of income tax returns and pays the tax to the
corporate income and business government. This system is also referred to as
3. Regressive – not employed in the Philippines the "self-assessment method".
The tax due payable herein may have been
TYPES OF TAX SYSTEMS ACCORDING TO withheld under the withholding system, such as:
IMPACT 1. Withholding tax on compensation
1. Progressive system – A progressive tax system earners
is one that emphasizes direct taxes. It 2. Expanded withholding tax by taxpayer
encourages economic efficiency as it leaves no engaged in business or exercise of
other resort to taxpayers than to be efficient. profession
This type of tax system impacts more upon the
rich. D. Assessment or enforcement system - Under
2. Regressive system – A regressive tax system is this collection system, the government identifies
one that emphasizes indirect taxes. Indirect taxes non-compliant taxpayers, assesses their tax dues
are shifted by businesses to consumers; hence, and penalties, and enforces collections by
the impact of taxation rests upon the bottom end coercive means such as summary proceedings or
of the society. In effect, a regressive tax system judicial proceedings when necessary.
is anti-poor.
It is widely believed that despite the Constitutional PRINCIPLES OF A SOUND TAX SYSTEM
guarantee of a progressive taxation, the Philippines 1. Fiscal adequacy – The sources of revenues, as a
has a dominantly regressive tax system due to the whole, should provide enough funds to meet the
prevalence of business taxes. expanding expenditures of the government.
2. Theoretical justice – Taxes must be based on
TAX COLLECTION SYSTEMS the taxpayers' ability to pay.
A. Withholding system on income tax - Under 3. Administrative feasibility – The tax must be
this collection system, the payor of the income clear to the taxpayer, not unduly burdensome
withholds or deducts the tax on the income and discouraging to business, convenient as to
before releasing the same to the payee and time and manner of payment, and capable of
remits the same to the government. The enforcement by competent public officials.
following are the withholding taxes collected
under this system: TAX ADMINISTRATION
1. Creditable withholding tax - Tax Administration refers to the management of
a. Withholding tax on compensation – an the tax system. Tax administration of the
estimated tax required by the national tax system in the Philippines is
government to be withheld (i.e. entrusted to the Bureau of Internal Revenue
deducted) by employers against the which is under the supervision and
compensation income to their administration of the Department of Finance.
employees.
b. Expanded withholding tax – an CHIEF OFFICIALS OF THE INTERNATIONAL
estimated tax required by the BUREAU OF INTERNATIONAL REVENUE
government to be deducted on certain 1. 1 Commissioner
income payments made by taxpayers 2. 4 Deputy Commissioners, each to be designated
engaged in business. to the following:
2. Final withholding tax – a system of tax a) Operations group
collection wherein payors are required b) Legal Enforcement group
to deduct full tax on certain income c) Information Systems Group
payments. It is intended for the d) Resource Management Group
collection of taxes from income with
high risk of non-compliance.
POWER AND DUTIES OF BIR
• Assessment and collection of taxes.
• Enforcement of all forfeitures, penalties and
fines, and judgments in all cases decided in its
favor by the courts.
• Giving effect to, and administering the
supervisory and police powers conferred to it by
the NIRC and other laws.
• Assignment of internal revenue officers and
other employees to other duties.
• Issuance of receipts and clearances.
• Provision and distribution of forms, receipts
certificates, stamps, etc. to proper officials.
• Submission of annual report, pertinent
information to Congress Oversight Committee
in matter of taxation.