General Course On Revenue Officers

Topic 210
Introduction to
Public Finance
and General
Principles of
Taxation
General Course for Revenue Officers
GPT 210 Slide –
VER 2.0 – August 2018
Topic Outline
Public Finance (an overview)
Fundamental Concepts of Taxation
Theory and Basis of Taxation
Purposes of Taxation
Essential Characteristics of Taxes
Basic Principles of a Sound Tax System
Definition, Similarities & Distinctions of Taxation,
Eminent Domain and Police Power
General Course for Revenue Officers 2
GPT 210 Slide –
Topic Outline
Classification of Taxes
Nature, Construction, Application & Sources of Tax Laws
Situs of Taxation and Double Taxation
Exemption from Taxation
Functions of the BIR
Powers & Duties of the Commissioner
Definition, Classification, Nature, Principles
& Effect of Assessment
GPT 210 Slide –
Topic Objectives
Define Public Finance;
Identify the concepts of taxation;
Identify the theory, basis and purposes of taxation;
Identify the essential characteristics and classifications
of taxes;
Distinguish taxes from other taxation terms;
Identify the similarities and distinctions between
taxation, eminent domain and police power;
Analyze the basic principles of a sound tax system;
GPT 210 Slide –
Topic Objectives
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;
Determine the scope of taxation; and
Identify the different aspects of taxation.

GPT 210 Slide –
Government Activities
Construction and maintenance of:
1. Roads and bridges
2. Communication and power facilities
3. Educational and health services
4. Peace and order
Government has to raise revenue through taxes to

finance these activities

GPT 210 Slide –
Public Finance (an overview)
Public Finance is a branch of economics
that deals with the revenues and
expenditures patterns of the
government and their impact
on the economy. It is the study of
the economic aspects that arise
in the operations of the public budget.

GPT 210 Slide –
Basic Principles of Public Finance
Horizontal Equity
Asserts that those with equal ability to pay should
pay equal taxes.
Vertical Equity
• Suggests that those with greater needs should
receive more from government (expenditure side)
and those with greater “ability to pay” should pay
more (taxation side)
• Gauges the relationship between income and
effective rates. (Regressive or Progressive)
GPT 210 Slide –
Efficiency
• Suggests that programs should avoid making
someone better off if they will result in making
someone else worse off (efficiency loss).
• Some are better off but there are no losers.
Individual Equity
Holds that individuals are entitled to the product of
their labor and to a fair return on their savings.
GPT 210 Slide –
Simplicity
Requires that policy and its implementation
should be simple for those complying and those
administering.
Revenue Raising
Requires that taxes be collected to provide
revenues sooner or later to pay for the costs of
government.
GPT 210 Slide –
Competing Principles, Tensions, and
Considerations
1. Efficiency vs. Equity
2. Economic Growth vs. Quality of Life
3. Long-term vs. Short-term
4. General Interest vs. Particular Interests
5. Security/Stability vs.
Dynamism/Change/Innovation

GPT 210 Slide –
Fiscal Policy
• Refers to measures employed by
governments to stabilize the economy,
specifically by manipulating the levels and
allocations of taxes and government
expenditures.”
• Fiscal Policy = structure of taxation + level and
composition of public expenditure

GPT 210 Slide –
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.

GPT 210 Slide –
Sources of Government Revenues
• Tax revenues are either direct or indirect tax.
• Capital revenues cover proceeds from sales of
fixed capital asset or scraps like sales of public
bonds, buildings and other structures.
• Extraordinary income are re-payment of loans
and advances made by government corporations
and local governments.

GPT 210 Slide –
Sources of Government Revenues
• Public borrowing covers proceeds of re-payable
obligations generally with interest from domestic
and foreign creditors of government.
• Domestic borrowings are government issued
bonds.
• Grants cover voluntary contributions and aids
given to the government for its operation on
specific purpose.

GPT 210 Slide –
Sources of Government Expenditures
• Re-current expenditures - refer to the day-
to-day cost of running the government.
• Development expenditures –
pertain to cost of capital projects.

GPT 210 Slide –
Objectives of Fiscal Policy
• Keep the public sector lean and trim so as to free
more manpower and financial resources for the
private sector;
• Finance total operating and development
expenditures from operating revenue, i.e.,
maintaining a balanced budget; and
• Focus government expenditures in areas which
yield lasting returns, i.e., education, healthcare,
infrastructure and housing.
GPT 210 Slide –
Objectives of Fiscal Policy
One of the fiscal policy goals of

government expenditures is to
promote a desirable level of
employment, output, income (and
its proper distribution) and prices.

GPT 210 Slide –
Tax Policy
• Refers to the measures employed by
government that set what taxes to be levied, in
what amounts and on whom.
• Nature of the tax structure (i.e., how regressive
or progressive and how this affects individuals
(tax incidence).

GPT 210 Slide –
Goal of Tax Policy
“The primary goal of taxation is to transfer control
of resources from one group in the society to
another and to do so in ways that do not
jeopardize, and may even facilitate, the attainment
of other economic goals”
(George Break and Joseph Pechman, 1975)

GPT 210 Slide –
Tax Policy
• Integral part of fiscal policy
• Taxes provide government with
the means to raise the revenue
fund its activities
• Taxes provide government with
the means
redistribute limited resources;
maintain economic stability;
promote growth and
achieve specific social objectives

GPT 210 Slide –
Tax Policy Theories
Taxes as a Means of Financing Government
• Tax policy is viewed mainly as a mechanism
for financing government
• Stresses horizontal equity and efficiency
• Income Tax Reformers and Consumption Tax
Reformers

GPT 210 Slide –
Tax Policy Theories
Taxes as an Instrument of Economic Policy
• Keynesians – government could increase expenditures
or reduce taxes to help an underemployed or
depressed economy, even if higher deficits result
(Pump Priming or Demand Stimulus)
• Supply- side Theorists – economic growth can be most
effectively created by lowering taxes and decreasing
regulations
• Capital Formation Reformers – special attention to
lowering the tax rates on capital income but less
concerned with rates on labor
GPT 210 Slide –
Tax Policy Theories
Taxes as an Instrument of Social Policy
• Taxes as a means to a social goal such as
reduction of poverty, protection and
development of children, support for the aged
and establishment of good health system.
• The Progressives – tax systems associated with
the number of welfare recipients and its
redistributive component

GPT 210 Slide –
Optimal Taxation
An optimal tax policy should raise sufficient

revenue while minimizing the cost of collection,
subject to distributional concerns (Slemrod, 1989).

GPT 210 Slide –
Defining a Tax System
A set of rules, regulations, and procedures that:
1. Defines what events or states of the world that
trigger tax liability (tax bases and rates).
2. Specifies who or what entity must remit the tax and
when (remittance rules).
3. Details procedures for ensuring compliance,
including information-reporting requirements and
the consequences (including penalties) of not
remitting the legal liability (enforcement rules).
GPT 210 Slide –
Tax Reform
According to Roger Porter:
1. Broader base lower rates – creates simpler and
more equitable tax code by ending preferential
tax treatment for certain economic tax activities
2. Eliminate tax expenditure – could lead to
spectacular reductions in income tax rates and
fuel economic growth
3. Clean the stables – get rid of complicated,
costly and confusing tax policies.
GPT 210 Slide –
Summary
• Policymakers should recognize the
interrelationship among tax rates, tax bases,
enforcement, and administration.
• There are many alternative ways to raise

revenue, and many types of costs, some that
show up in government budgets but most of
which do not.

GPT 210 Slide –
Summary
• The costs of using one tax instrument often
depends on the setting of the others.
• Recognizing that tax policy is really tax-system

policy can ward off substantial policy errors,
such as foregoing tax increases because the
existing base is too narrow or too poorly
enforced.

GPT 210 Slide –
Comparative BIR Collections and
Goals (CY 2016 and CY 2017)

GPT 210 Slide –
BIR Share in National Government Tax
Revenues (CY 2017)
The bureau contributed

78.75% of the 2.25T
National Government Tax
Revenue

GPT 210 Slide –
BIR Tax Effort (CY 2008-2017)

GPT 210 Slide –
Percent Distribution of BIR Collection
by Major Type of Tax (CY 2017)
Income Taxes had the

highest contribution to the
Bureau’s CY 2017
collection, amounting to
P1.03T or 57.76%

GPT 210 Slide –
Percent Distribution of Collection
by Manner of Payment (CY 2017)
The largest proportion

97.58% of the Bureau’s CY
2017 collection was
collected through
Voluntary Payments

GPT 210 Slide –
Definition of Taxation
The act of levying a tax; the process or means
by which the sovereign, through its law-making
body, raises
revenue to defray
the necessary
expenses of the
government.

GPT 210 Slide –
Definition of Taxes
Enforced proportional contributions levied by
the state’s law-making body by virtue of its
sovereignty upon the persons or
properties within its
jurisdiction for the support
of the government and
all its public needs.

GPT 210 Slide –
Nature and Scope of the
Power of Taxation
The power of taxation is comprehensive,

plenary, unlimited and
supreme. It is essentially
legislative in character
and is inherent in the state.

GPT 210 Slide –
Theories of Taxation
1. Lifeblood Theory
Taxes are what we pay for civilized society.
Without taxes, the government would be
paralyzed for lack of the motive power to activate
and operate it. Hence, despite the natural
reluctance to surrender part of one's hard-earned
income to the taxing authorities, every person who
is able to must contribute his share in the running
of the government. (CIR v. Algue, Inc.)
GPT 210 Slide –
2. Necessity Theory
The power to tax is an attribute of sovereignty
emanating from necessity. It is a necessary burden to
preserve the State's sovereignty and a means to give
the citizenry an army to resist an aggression, a navy to
defend its shores from invasion, a corps of civil
servants to serve, public improvements designed for
the enjoyment of the citizenry and those which come
within the State's territory, and facilities and protection
which a government is supposed to provide. (Phil.
Guaranty Co., Inc. v. CIR)
GPT 210 Slide –
3. Benefits-Protection / Reciprocity Theory
Taxation is described as a symbiotic relationship
whereby in exchange of the benefits and
protection that the citizens get from the
Government, taxes are paid. (CIR v. Algue, Inc.)

GPT 210 Slide –
Primary Purpose of Taxation
Generate funds or property with which to
promote the general welfare and afford
protection to its citizens.

GPT 210 Slide –
Secondary or Non-Revenue
• Reduce excessive inequalities in the distribution of
wealth and means by using the progressive scheme
of income taxation and imposing estate taxes to
equalize wealth;
• Protect local industries against foreign competitors
by imposing protective tariff on imported goods;
• Encourage the growth of home industries through the
proper use of tax exemptions and tax incentives;
• Implement the police power of the state in promoting
the general welfare;
GPT 210 Slide –
Secondary or Non-revenue
• Use as bargaining tool in trade negotiations with
other countries;
• Curb spending power and halt inflation by increasing
taxes in periods of prosperity and expand business.
It also wards-off depression by lowering taxes in
periods of slump.
• Promote science and invention; and
• Finance activities to improve efficiency of military or
local police forces in the maintenance of peace and
order through the grant of subsidies.
GPT 210 Slide –
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, manner, means and agencies of tax collection.
It is a 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 BIR, Bureau of
Customs (BOC) and local government units.

GPT 210 Slide –
Essential Characteristics of Tax
An enforced contribution
Levied pursuant to legislative authority
Proportionate in character
Generally payable in money
Levied by the state which has jurisdiction over
the persons or property

GPT 210 Slide –
Essential Characteristics of Tax
Levied and collected for public purpose/s
Commonly required to be paid at regular periods
or intervals
An involuntary contribution and revenue to the
government for public purpose
Compulsory government exaction or levy on
persons, property, income and business

GPT 210 Slide –
Fiscal Adequacy – sources of revenues should be

sufficient to meet expenditures of government
regardless of business conditions.
Equality or theoretical justice – taxes must be

imposed with equity, certainty, convenience, and
consideration of the taxpayer’s ability to pay.

GPT 210 Slide –
Administrative feasibility and compliance –
the law must reasonable, just and effective
administration. Moreover, taxpayers should
find it easy and convenient to comply.
Consistency or compatibility with economic
objectives or goals – economic effects of
taxation extend far beyond the matter of
incidence, allocation of resources to the public
sector and re-distribution of income.

GPT 210 Slide –
Definition of Taxation, Eminent
Domain, and Police Power
Taxation – the power by which the sovereign raises revenue to
defray the necessary expenses of the government.
Eminent Domain – 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 the power of expropriation.
Police Power – the power of the state to enact laws, in relation to
persons and property, that may promote public health, morals,
safety and the general welfare and prosperity of its inhabitants.

GPT 210 Slide –
Similarities among Taxation,
Eminent Domain & Police Power
Rest upon necessity because there can be no
effective government without them.
Underlie and exist independently under the
Constitution although the conditions for their
exercise may be prescribed by the statutes or
laws.
The state lawfully interferes with private rights
and property.
GPT 210 Slide –
Similarities among Taxation,
Eminent Domain & Police Power
Exercise of the powers is given to the executive
authorities (national or local) although legislative
in nature and character.
Presuppose an equivalent compensation

received, directly or indirectly, by the persons
affected in the exercise of these governmental
powers.

GPT 210 Slide –
Differences between Taxation,
Police Power and Eminent Domain
Eminent
Taxation Police Power
Domain
As to It is assumed that The person affected The person
compensation the individual receives no direct affected
or benefits receives the and immediate receives the
received equivalent of the benefits but only market value
tax in the form of such as may arise of the property
protection and from the taken from him.
benefits from the maintenance of
government. public safety, health
and welfare of the
public
GPT 210 Slide –
Eminent
Domain
As to whom To the To the To a particular
directed public public person or
property
As to nature of Presumes Provides Requires
compensation protection or better social payment of
benefits. & economic just
standards. compensation.

GPT 210 Slide –
Eminent
Domain
As to why To support For public For public use
property is the welfare
taken government

GPT 210 Slide –
Eminent
Domain
As to Inferior to Superior to Inferior to
relation to non-impairment non-impairment non-
impairment clause of the clause of the impairment
clause constitution constitution clause of the
constitution

GPT 210 Slide –
Eminent
Domain
As to The property is The use of The property
purpose taken from the property is
taxpayer to is regulated for taken for
support the the public
government. purpose of use; hence, it
promoting the must be
general welfare; compensable.
hence, it is not
compensable.
GPT 210 Slide –
Eminent
Domain
As to person A community or A community or a Individual as
involved a class of class of the owner of
or affected individuals. individuals. a particular
property.

GPT 210 Slide –
Eminent
Domain
As to effect The money There is no There is transfer
becomes transfer of the right of
part of the of title; at most, property
public funds. there is restraint whether it be of
in ownership or a
the injurious use lesser right or
of possession.
property.

GPT 210 Slide –
Taxation Police Power Eminent Domain
As to Subject to Relatively Inferior to the
relationship certain free from impairment clause.
to the constitutional constitutional The government
Constitution limitations limitations and is cannot expropriate
including the superior to the property which is
non-impairment impairment previously bound by
of the obligations provisions. contract to purchase
and contracts from other
contracting party.

GPT 210 Slide –
As to May be May be May be exercised
authority exercised exercised by entity engaged
which only by the only by the in public service or
exercises government or government or public utilities, if
the its political its political the power is
power subdivisions subdivisions. granted by the
law.

GPT 210 Slide –
As to No limit to Limited to the Not fixed
amount the cost of the license because the
imposition amount of and the necessary basis of
tax expenses computing is the
that may be of police property’s fair
imposed. surveillance, market value or
inspection, finally
examination, determined by
or regulation. the court.
GPT 210 Slide –
Classifications of Taxes
As to Subject Matter or Object
1. Kinds of Taxes on Persons
Individual Income Tax – is the tax or imposition on:
The Gross Compensation Income of a person based
on a graduated scale. 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.

GPT 210 Slide –
• Poll or Residence Tax – refers to per capita or
poll tax.
• Privilege or Professional Tax – levied in the
practice of profession. All professionals like
lawyers, CPAs, doctors are required to pay their
Professional Tax before they can practice.

GPT 210 Slide –
2. Kinds of Taxes on Property
• Transfer Tax – vary depending on the manner in which
property may be transferred. Kinds of Transfer Tax under the
NIRC:
Estate Tax – levied on property transferred by way of
succession. It is based on the gross value of the estate 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.
GPT 210 Slide –
Taxes on Real Property
Real Property Tax – imposed on a property owner
based on the assessed value of his property.
Percentage tax varies depending on the classification of
the property whether 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 (CGT) – a property owner who sells,
exchanges or transfers his real property must pay this
CGT based on the selling price; fair market or zonal
value, whichever is higher.
GPT 210 Slide –
3. Kinds of Business Taxes:
• Value-Added Tax (VAT) – is a business tax imposed and
collected from the seller in the course of trade or business
on every sale of properties (real or personal), lease of goods
or properties (real or personal) or vendors of services. It is an
indirect tax, thus, it can be passed on to the buyer.
• Percentage Tax – is a business tax imposed on persons or
entities who sell or lease goods, properties or services in
the course of trade or business with gross annual sales or
receipts that do not exceed P3,000,000 and are not VAT-
registered.
GPT 210 Slide –
• 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.
GPT 210 Slide –
As to who bears the burden
• Direct – demanded from persons who shoulder the
burden of the tax which the taxpayer is directly
liable, for which he cannot shift to another.
• Indirect – 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.
GPT 210 Slide –
As to determination of amount
• Specific – fixed amount that is imposed based on

physical unit of measurement, as by head or
number, weight or length or volume.
• Ad valorem – fixed amount in proportion to the

value of property with respect to which the tax is
assessed.

GPT 210 Slide –
As to purpose
• General, fiscal or revenue – imposed for the
general purposes of the government to raise
revenues for government needs.
• Special or regulatory – imposed for a special
purpose, regardless of whether revenue is raised or
not, and is intended to achieve some social or
economic end.

GPT 210 Slide –
As to scope or authority imposing the tax
• National – imposed by the national government.
• Municipal or local – imposed by municipal or

local government.

GPT 210 Slide –
As to graduation or rate
• Proportional – based on a fixed percentage of the
amount of property, receipts, or other basis to be taxed.
• Progressive or graduated – the rate increases as the tax
base or bracket increases.
• Regressive – the rate decreases as the tax base or
bracket increases.
• Degressive – the increase in rates is not proportionate to
the increase of tax base.
GPT 210 Slide –
Tax as Distinguished from Other Terms
1. From license or permit fee
Tax – an enforced contribution assessed by sovereign authority
to defray public expenses; imposed for revenue purposes on
persons, property and right to exercise privilege; involves
exercise of taxing power; generally has no maximum amount
imposed; non-payment does not make a business or act illegal.
License – legal compensation or reward of an officer for specific
services; imposed for regulatory purposes; involves exercise of
police power; amount is limited to cost of issuing the license and
reasonable police surveillance; imposed only on right to exercise
privilege; non-payment makes the act or business illegal.
GPT 210 Slide –
2. From toll
Tax – a demand of sovereignty imposed exclusively
by the state or government; it is for the support of
government; the amount is regulated by the
government to support it.
Toll – a demand of proprietorship; imposed by private
persons and also by government; a compensation for
use of another’s property; the amount is determined
by cost of property.

GPT 210 Slide –
3. From penalty
Tax – aimed at raising revenue; imposed

only by the government.
Penalty – imprisonment or fine to regulate

conduct; imposed by the government and
also by private entities.

GPT 210 Slide –
4. From special assessment
Tax – levied on persons, property, or exercise of privilege;
can be made a personal liability of the person assessed;
based on government’s necessity without any special
benefit accruing to taxpayer; applied in general application;
not exceptional as to time and locality.
Special Assessment – levied only on land; based on special
benefits resulting to property assessed and not on necessity;
exceptional both as the time and place and not applied
generally; not a personal liability of person assessed.

GPT 210 Slide –
5. 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 of all
funds or income derived by the government
from taxes or from whatever sources or
whatever means. It is broader in scope.

GPT 210 Slide –
6. From custom duties

Tax – broader than custom duties on tariff
because tax refers to an exaction by the
government including 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.

GPT 210 Slide –
7. From debt
Tax – based on law; generally payable in money; cannot be a
subject of set-off or compensation; governed by special
prescriptive periods under the NIRC; imprisonment is
sanctioned for the non-payment of tax; cannot generally be
assigned; does not draw interest except when delinquent.
Debt – generally based on expressed or implied contracts;
may be paid in kind and be a subject of set-off or
compensation; governed by prescriptive periods under the
Civil Code and other special laws; a person cannot be
imprisoned for non-payment thereof except when it arises
from a crime.
GPT 210 Slide –
From subsidy
Subsidy – a pecuniary aid granted directly 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.

GPT 210 Slide –
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.

GPT 210 Slide –
Construction of Tax Laws
• Public purpose is always presumed.
• If the law is clear, apply the law in accordance to
its plain and simple tenor.
• A statute will not be construed as imposing a tax
unless it does so clearly, expressly and
unambiguously.
• In case of doubt, it is construed most strongly
against the Government, and liberally in favor of
the taxpayer.
GPT 210 Slide –
• Provisions of a taxing act are not to be extended
by implication.
• Tax laws operate prospectively unless the
purpose of the legislature to give retrospective
effect is expressly declared or may be implied
from the language used.
• Tax laws are special laws and prevail over a
general law.

GPT 210 Slide –
• 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.

GPT 210 Slide –
• 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. Customs and tariff laws are 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.
GPT 210 Slide –
• 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.
GPT 210 Slide –
Inherent Limitations
1. Territoriality or Situs of taxation
2. Public purpose of taxes
3. International comity
4. Non-delegability of the taxing power
5. Tax Exemption of the government

GPT 210 Slide –
Constitutional Limitations
A. General or Indirect Constitutional Limitations
1. Due Process Clause
(Art. III, Sec. 1, 1987 Constitution)
2. Equal Protection Clause
3. Freedom Of Speech And Of The Press

GPT 210 Slide –
General or Indirect Constitutional Limitations
4. Non-Infringement Of Religious Freedom And
Worship (Art. III, Sec. 5, 1987 Constitution)
5. Non-Impairment Of Contracts
6. Presidential power to grant reprieves, commutations
and pardons and remit fines and forfeitures after
conviction
(ART. VII, SEC. 19, 1987 Constitution)

GPT 210 Slide –
B. Specific or Direct Constitutional Limitations
1. Non-Imprisonment For Debt Or Non-Payment
Of Poll Tax (Art. III, Sec. 20, 1987 Constitution)
2. Rule Requiring That Appropriations, Revenue
And Tariff Bills Shall Originate Exclusively From
The House Of Representatives (Art. VI, Sec. 24,
1987 Constitution)
3. Uniformity, Equitability And Progressivity Of
Taxation (Art. VI, Sec. 28(1), 1987 Constitution)
GPT 210 Slide –
4. Limitations On The Congressional Power To
Delegate To The President The Authority To Fix
Tariff Rates, Import And Export Quotas, Etc. (Art.
VI, Sec. 28(2), 1987 Constitution)
5. Tax Exemption Of Properties Actually, Directly
And Exclusively Used For Religious, Charitable
And Educational Purposes. (Art. VI, Sec. 28(3) 7,
1987 Constitution)
GPT 210 Slide –
6. Voting Requirement In Connection With The
Legislative Grant Of Tax Exemption (Art. VI, Sec. 28(4),
1987 Constitution)
7. Non-Impairment Of The Jurisdiction Of The Supreme
Court In Tax Cases (Art. VIII, Sec. 2 And 5(2)(B), 1987
Constitution)
8. Exemption From Taxes Of The Revenues And Assets
Of Educational Institutions, Including Grants,
Endowments, Donations And Contributions (Art. XIV,
Sec. 4(3) And (4), 1987 Constitution)
GPT 210 Slide –
C. Other Specific Tax Provisions in the Constitution
1. Power of the President to veto any particular

item or items in an appropriation, revenue, or
tariff bill. (Art VI, Sec. 27(2), 1987 Constitution)
2. Necessity of an appropriation before money

may be paid out of the public treasury. (Art. VI,
Sec. 29 (1), 1987 Constitution)

GPT 210 Slide –
C. Other Specific Tax Provisions in the Constitution
3. Non-appropriation of public money or property
for the use, benefit, or support of any sect,
church, or system of religion. (Art. VI, Sec. 29 (2),
1987 Constitution)
4. Treatment of taxes levied for a special purpose.
(Art. VI, Sec. 29 (3), 1987 Constitution)
5. Internal revenue allotments to local government
units. (Art. X, Sec. 6, 1987 Constitution)
GPT 210 Slide –
Definition of Situs of Taxation
It literally means place of taxation. The basic rule
is that the state where the subject property or
where the owner of the property to be taxed is
situated or may be found has a situs, may
rightfully levy and collect the tax. 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.

GPT 210 Slide –
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
GPT 210 Slide –
Definition of Double Taxation
In its strict sense, it 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, double taxation is sometimes

known as “duplicate taxation.” Duplicate
taxation may be direct or indirect.
GPT 210 Slide –
Forms of Escape from Taxation
1. Shifting– the process by which the tax burden
is transferred from the statutory taxpayer
(impact of taxation) to another (incident of
taxation) without violating the law.
2. Capitalization– a mere increase in the value of

the property is not income but merely an
unrealized increase in capital. No income until
after the actual sale or other disposition of the
property in excess of its original cost.
GPT 210 Slide –
3. Transformation– the manufacturer or producer
upon whom the tax has been imposed, fearing the
loss of his market if he should add the tax to the
price, pays the tax and endeavors to recoup
himself by improving his process of production,
thereby turning out his units at a lower cost.

GPT 210 Slide –
4. Tax Avoidance– the exploitation by the taxpayer
of legally permissible alternative tax rates or
methods of assessing taxable property or
income, in order to avoid or reduce tax liability.
5. Tax Evasion–use by the taxpayer of illegal or

fraudulent means to defeat or lessen the
payment of the tax.
6. Tax Amnesty
GPT 210 Slide –
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; a freedom from a financial charge or
burden to which others are subjected.

GPT 210 Slide –
Grounds for Grant of Exemptions
Contract – the public represented by the government is
supposed to receive the full equivalent; the provisions of
the contract of exemption from taxation are contained in
the charter of the corporation.
Public policy – to encourage new and necessary industries;
foster charitable and other benevolent institutions or at
least make the public at large interested in the class or
interest in whose behalf the exemption is made.
Treaty on grounds of reciprocity – to lessen the rigors of
international double or multiple taxation of income and
intangible personal property.
GPT 210 Slide –
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.

GPT 210 Slide –
Kinds of Tax Exemptions
As to manner of creation
• Express or affirmative – 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 –
when a tax is levied on certain classes of persons,
properties, or transaction without mentioning the
other classes.
GPT 210 Slide –
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.

GPT 210 Slide –
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.

GPT 210 Slide –
Sources of Tax Laws
• Statutes • Revenue Regulations
• Presidential Decrees • Administrative Issuances
• Executive Orders • BIR Rulings
• Constitution • Local Tax Ordinance
• Court Decisions • Tax treaties and
Conventions
• Tax Codes

GPT 210 Slide –
Construction of Tax Exemption Statutes
Tax exemptions are liberally construed when:
the law itself expressly provides for a liberal
construction then in case of doubt, it shall be resolved
in favor of the exemption.
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.
there is an express mention or the taxpayer falls
within the purview of the exemption by clear
legislative intent.
GPT 210 Slide –
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
statutory 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.
GPT 210 Slide –
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 show distinctly 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.
GPT 210 Slide –
BIR Mission
We collect taxes through just

enforcement of tax laws for nation-
building and the upliftment of the
lives of Filipinos.

GPT 210 Slide –
BIR Vision
The Bureau of Internal Revenue is

an institution of service excellence
and integrity.

GPT 210 Slide –
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 courts of jurisdiction;
• Enforcement of penalties and fines as well as forfeitures; and
• Exercise administrative and supervisory powers over
taxpayers including promulgation of pertinent rulings.
[Sec. 2, NIRC]

GPT 210 Slide –
Powers of the Commissioner of
Internal Revenue
• Interpret tax laws and decide tax cases.
• Obtain information, summon, examine, and take testimony of
persons in ascertaining the correctness of any return, or in
making a return when none has been made, or in determining
the liability of any person for any internal revenue tax, or in
collecting any such liability, or in evaluating tax compliance.
• Make assessments and prescribe additional requirements for
tax administration and enforcement.
• Compromise, abate and refund or credit taxes.
• Make arrests and seizures for violation of any penal law, rules
and regulations administered by the BIR.
GPT 210 Slide –
Internal Revenue
• Assign internal revenue officers to establishments where articles subject
to excise tax are produced or kept.
• Assign or re-assign revenue officers and employees of the BIR to other or
special duties connected with the enforcement or administration of
revenue laws as the exigencies of the service may require, subject to the
rules promulgated by the Civil Service Commission and the Secretary of
Finance.
• Suspend business operations and temporarily close the business
establishments of any person for violations of certain provisions of the
NIRC.
• 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.
GPT 210 Slide –
Internal Revenue
• 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.
• Administer 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.
GPT 210 Slide –
Internal Revenue
• 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, except the
following:
- Power to recommend and implement rules and regulations by
the Secretary of Finance.
- Power to issue rulings of first impressions or to reverse and
revoke, or modify any existing ruling of the BIR.
- Power to compromise or abate any tax liability except assessments
issued by regional offices involving deficiency taxes of Five
Hundred Thousand Pesos (P500,000) or less, criminal case for
violations of the NIRC or a finding of prima facie fraud discovered
by the regional and district offices.
GPT 210 Slide –
Duties of the Commissioner
of Internal Revenue
• Ensure the provision and distribution of forms, receipts, certificates and
applications and acknowledgment of payment of taxes.
• Prescribe, provide, and distribute to the proper officials the requisite
licenses, internal revenue stamps, labels, all other forms, certificates,
bonds, records, invoices, books, receipts, instruments, applications, and
apparatus used in tax administration.
• Acknowledge receipt of payment of any tax made expressing the
amount paid and the particular account for which such payment was
made.
• 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.
GPT 210 Slide –
Duties of the Commissioner
of Internal Revenue
• Prepare Annual Report containing detailed statements of the
collections of the BIR with specifications of the sources of
revenue by tax type, manner of payment, revenue region, and
industry group, and its disbursements by classes of
expenditures.
• Furnish 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 taxpayer’s return.
• Submit pertinent information report required by
Congressional Oversight Committee every six (6) months of
each calendar year.
GPT 210 Slide –
Definition of Assessment
Assessment is the official action of an authorized internal
revenue officer in ascertaining the amount of tax due
from a taxpayer. 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;
• Notification to the taxpayer; and
• Issuance of a demand notice (simultaneously with
or sometimes after, the tax deficiency notice).

GPT 210 Slide –
Assessment may be Classified as Follows:
1. Self - Assessment
2. Deficiency Assessment
3. Illegal and Void Assessment
4. Erroneous Assessment
5. Disputed Assessment

GPT 210 Slide –
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 Commissioner to assess
taxes may be delegated.
• Assessment must be directed to the right party.
GPT 210 Slide –
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.
GPT 210 Slide –
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.
GPT 210 Slide –
Considerations on the Prescription of
Government’s Right to Assess Taxes
• Date of filing tax returns
• Effect of filing an amended return
• Effect of filing a wrong return
• Period applicable when the law does not require the
filing of any return
• Applicable prescriptive period if taxpayer fails to file a
return
• Prescriptive period of assessment when there is fraud
GPT 210 Slide –
Determination of Deficiency Tax
Assessment
• Audit of Tax Returns
• Basis of Audit of Returns
• Frequency of Audit

GPT 210 Slide –
Prescription of Government's Right to
Collect Taxes
• Law governing prescription of collection
• When the five-year prescription period for collection start to run
• When tax is deemed collected for purposes of the prescriptive
period
• Judicial action to collect a tax liability even if there is no previous
assessment
• Prescription of the government’s right to recover an erroneously
refunded tax
• Waiver of the Statute of Limitations – extension of the prescriptive
period
GPT 210 Slide –
Mode of Procedures in the
Issuance of Assessment Notice
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
GPT 210 Slide –
Mode of Procedures in the
Issuance of Assessment Notice
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 taxpayer’s 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.
GPT 210 Slide –
Protest to Assessment
Administrative Protest
Type of Protest Law
Motion for Reconsideration Section 228 of the Tax Code in relation to
Motion for Reinvestigation RR 18-2013
Judicial Protest
Venue Law
Court of Tax Appeals Republic Act No. 1125, as amended and
the Revised Rules of CTA
Supreme Court Article VIII of the 1987 Constitution and
the Revised Rules of Court
Enforcement of Judgment
Writ of Execution of Judgment GPT 210 Slide – 130
Rule 39 of the Revised Rules of Court

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Topic 210

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Government has to raise revenue through taxes to

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One of the fiscal policy goals of

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(George Break and Joseph Pechman, 1975)

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An optimal tax policy should raise sufficient

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• There are many alternative ways to raise

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• Recognizing that tax policy is really tax-system

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The bureau contributed

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Income Taxes had the

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The largest proportion

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The power of taxation is comprehensive,

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Fiscal Adequacy – sources of revenues should be

Equality or theoretical justice – taxes must be

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Presuppose an equivalent compensation

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