INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

1st Sem
Department of Accountancy 2020
INCOME TAXATION

MODULE 1 – GENERAL PRINCIPLES IN TAXATION

TAX
- An enforced proportionate contribution imposed upon persons, properties, businesses,
rights, interests, privileges, transactions and acts within the territorial jurisdiction of the
taxing authority exercise by the legislature for a public purpose and generally payable in
money.
- It is a compulsory contribution to state revenue, levied by the government on workers'
income and business profits or added to the cost of some goods, services, and transactions.
- The enforced proportional contributions from persons and property levied by the lawmaking
body of the State by virtue of its sovereignty for the support of the government and all public
needs:
- It is a sum of money demanded by a government for its support or for specific facilities or
services, levied upon incomes, property, sales, etc.
- An involuntary fee levied on corporations or individuals that is enforced by a level of
government in order to finance government activities.
- A contribution for the support of a government required of persons, groups, or businesses
within the domain of that government.
TAXATION
- It is the process or means by which the sovereign, through its lawmaking body, raises income
to defray the necessary expenses:
- A means by which governments finance their expenditure by imposing charges on citizens
and corporate entities.
- It is the process or means by which the sovereign through its law-making body, imposes
burdens upon subjects or objects within its jurisdiction for the purpose of raising revenues to
carry out the legitimate objects of the government.
- It refers to the act of a taxing authority actually levying tax.
- It is the practice of collecting taxes (money) from citizens based on their earnings and
property.
ELEMENTS OF A VALID TAX
1. must not violate the constitutional, inherent and or contractual limitation of the power of
taxation
2. must be uniform and equitable, not unjust, excessive, oppressive, confiscatory or
discriminatory
3. must be for a public purpose
4. must be levied by the taxing power (legislature) having jurisdiction over the object of
taxation
5. must be proportionate in character
6. generally payable in money
GENERAL PRINCIPLES IN TAXATION
Taxation
1. As a power – refers to the inherent power of the state to demand enforced contribution for
public purpose to support the government.
2. As a process – the legislative act of laying a tax to raise income for the government to defray
its necessary expenses
3. As a mode of cost allocation – taxation is a means of allocating government burden to the
people
PURPOSES OF TAXATION
1. Primary (Fiscal) – to raise revenue
2. Secondary
a. Regulatory

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INCOME TAXATION

b. Compensatory
PRINCIPLES BEHIND THE POWER OF TAXATION
1. Principles of Necessity – the existence of the government is a necessity and it cannot
continue without means to support itself – this is the Theory of Taxation
2. Benefit-Received Theory – the government and the people have the reciprocal and mutual
duties of support and protection – this is the Basis of Taxation
LIFE BLOOD DOCTRINE
Taxes are indispensable to the existence of the state. Without taxation the state cannot raise
revenue to support is operations
INHERENT POWERS OF THE GOVERNMENT
1. Power of Taxation – the power to take property for the support of the government and for
public purpose
2. Police Power – the power to enact laws to promote the general welfare of the people. It is
wider in application because it is the general power to make laws.
3. Power of Eminent Domain – the power to take private property for public use upon payment
of just compensation
Elements:
a. Permanent taking of private property (not temporary)
b. Payment of Just Compensations (Market value / zonal / assessed)
c. Public use

Point of Differences of the Inherent Powers of the State

Point of Difference Taxation Police Power Eminent Domain
Exercising Authority Government Government Government or private
entities (quasi-public
corporations)
Necessity of Delegation is not There must be There must be due
Delegation necessary since it is delegation before delegation before local
inherent local governments government or private
could exercised it party may exercise it
Purpose Revenue and support Protection of well- Property is taken for
of the government being of the people public use
Persons affected Community or class Community or class Operates on the owner
of individuals of individuals of the property

Effect of transfer of Money paid as taxes There is no transfer There is transfer of right
property rights becomes part of the of title, at most to property whether it
public fund there is restraint on be of ownership or
the injurious use of lesser right
property
Amount of Unlimited Sufficient to cover No imposition, the
Imposition the costs of owner is paid the fair
regulation market value of his
property
Importance Most important of Most superior
the three
Relationship with Inferior to the “Non- Superior to the Superior and may
the Constitution Impairment Clause” “Non-Impairment override the “Non-
of the Constitution Clause” of the Impairment Clause”
Constitution because the welfare of
the state is superior to

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private contracts
Limitation Constitutionally and Public interest and Public purpose and just
inherently restricted the requirement of compensation
due process

SIMILARITIES OF THE THREE POWERS

1. All three powers are necessary attributes of sovereignty, resting upon necessity
2. all are inherent powers of the State
3. All are legislative in nature
4. They are ways in which the State interferes with private rights and property
5. They exist independently with the Constitution although the condition for their exercise may
be prescribed or limited by the Constitution
6. They all presuppose an equivalent compensation received by the persons affected by the
exercise of the power, whether directly, indirectly or remote.
7. The exercise of these powers by the local government units may be limited by national
legislature
*Police power can be used to raise revenue for the government (ex: license fee)
**Taxation power can be used as an implement of Police power.
NATURE OR CHARACTERISTICS OF THE POWER OF TAXATION
1. for public purpose
2. inherently legislative in nature
3. subject to international comity or treaty
4. subject to constitutional and inherent limitations)
5. exaction generally payable in money
6. territorial
SCOPE OF THE POWER OF TAXATION
Taxation is:
1. Comprehensive
2. Unlimited
3. Plenary
4. Supreme
DISCRETION OF THE TAXING POWER (Legislative Branch of Government)
1. amount or rate of the tax
2. kinds of tax to be collected (whether income tax, VAT, or documentary stamp tax, etc.)
3. apportionment of the tax (setting aside portion for special use)
4. the person, property, activity and excisable articles to be taxed
5. situs of taxation
6. method of collection (e.g. withholding tax system)
7. purposes for its levy (e.g. sin tax to discourage use or consumption of sin products or use
of collected tax for the purpose of augmenting hospital budget)
OBJECTS OF TAXATION
1. persons (natural or juridical)
2. businesses
3. transactions
4. rights (shares or interests)
5. acts (sale, donation or succession)
6. properties (personal or real)
7. privileges (practice of profession)
ASPECTS OF TAXATION (PHASES/STAGES/PROCESS)
1. Levy or Imposition – legislative
2. Assessment of tax – administrative (BIR)

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3. Collection of the tax – administrative (BIR)

PRINCIPLES OF A SOUND TAX SYSTEM
1. Fiscal Adequacy – sources of revenue should be sufficient to meet the demand for public
expenditure
2. Administrative Feasibility- tax laws must be capable of convenient, just and effective
administration
Examples:
1. Establishment of Revenue District Offices
2. Introduction of electronic Filing (Electronic Filing and Payment System (EFPS) or e-BIR
Forms Package)
3. Accreditation of Authorized Agent Banks
4. Substituted Filing of Qualified Compensation Income Earners
5. Payment of tax thru credit/debit/prepaid cards/G-Cash
6. Electronic Tax Payment System (eTPS)/Land Bank Remittance System (LBRS)
3. Theoretical Justice- considers the taxpayers ability to pay (ability-to-pay principle)
LIMITATIONS OF POWER OF TAXATION
A. Constitutional Limitation
1. observance of due process of law – notice and hearing
2. equal protection of the law –equality among equals
3. uniformity in taxation – taxation of same class
4. progressive scheme of taxation – use of graduated tax table
5. non-imprisonment for non-payment debt or poll tax
6. non-impairment of obligation and contract
7. freedom to exercise religion
8. non-appropriation of public funds or property for the benefit of any church, sect or
system of religion
9. exemption of religious, charitable or educational entities, non-profit cemeteries,
churches and mosque from property taxes
10. exemption from taxes of the revenues and assets of non-profit, non-stock educational
institutions including grants, endowments, donations or contributions for educational
purposes
11. concurrence of a majority of all members of Congress for the passage of a law granting
tax exemption (voting separately)
12. non-impairment of the jurisdiction of the Supreme Court to review tax cases – final
arbiter
13. appropriations, revenue or tariff bills shall originate exclusively in the House of
Representatives but the Senate may propose or concur with amendments
14. each local government unit shall exercise the power to create its own sources of revenue
and shall have a just share in the national taxes

B. Inherent Limitation
1. territoriality of taxation
2. subject to international comity or treaty
3. exemption of the government from taxation
4. tax is for public purpose
5. non-delegation of the power of taxation
Exceptions:
a. power to tax was delegated to the President under the Flexibility Clause of the Tariff
and Customs Code (amended by R.A. 10863 or the Customs Modernization and Tariff
Act)
b. power to tax was delegated to the local government units thru respective Sanggunian

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under the Local Government Code (R.A.7160)

c. matters involving the expedient and effective administration and implementations of
assessment and collection of taxes or certain aspects of taxing process that are not
legislative in character
SITUS OF TAXATION
The place of taxation, or jurisdiction, or source of income.

Factors that determine the situs of taxation

1. nature, kind or classification of the tax
2. subject matter of the tax
3. citizenship of the taxpayer (nationality)
4. residence of the taxpayer (domiciliary)
5. sources of income
6. place of exercise, business or occupation being taxed (service)
7. place where income-producing activity was held or done
8. activity
DOUBLE TAXATION
Taxing the object or subject within the territorial jurisdiction twice, for the same period,
involving the same kind of tax by the same taxing authority

Kinds:
1. Direct Double Taxation/Direct Duplicate/Taxation in Strict Sense –
Elements:
a. Same object/subject (taxpayer)
b. Same type of tax
c. Same purpose
d. Same taxing authority
e. Same period
Note: If one of the elements is missing, then there is Indirect Double Taxation
2. Indirect Double Taxation/Indirect Duplicate/Taxation in Broad Sense –

International Double Taxation –a double taxation caused by two different taxing authorities, one
domestic and one foreign

Remedies Against Double Taxation

1. provision for tax exemption
2. allowance for tax credit
3. allowance for principle of reciprocity
4. tax treaties with or executive agreement with foreign states

Forms of Escape from Taxation

1. Avoidance –tax minimization scheme – the reduction or totally escaping payment of
taxes through legally permissible means
2. Capitalization – e.g. increase in capitalization to avoid payment of Improperly
Accumulated Earnings Tax
3. Evasion – tax dodging – resorting to acts and devices that illegally reduces or totally
escape the payment of taxes
4. Exemption- an immunity, privilege or freedom from payment of tax by virtue of law
5. Shifting –the process of transferring the tax burden from the statutory taxpayer to
another (e.g. VAT)
6. Transformation – the manufacturer absorbs the additional taxes imposed by the

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government without passing it to the buyers for fear of lost of his market. Instead, it
increases quantity of production, thereby turning their units of production at a lower
cost resulting to the transformation of the tax into a gain through the medium of
productions.

Distinction between tax evasion and tax avoidance

Tax Evasion Tax Avoidance
Illegal Legal
It is accomplished by breaking the law Accomplished by legal procedures and do
(criminal in nature) not violate the law (taking advantage of the
loopholes in law)
It connotes fraud, deceit and malice No fraud is involved. Loophole in law is
(intention to evade payment of tax) taken advantage
DISTINCTION BETWEEN TAX AMNESTY AND TAX CONDONATION
Tax Amnesty – a general pardon or intentional overlooking by the state of its authority to impose
penalties on persons otherwise guilty of tax evasion or violation of tax laws. The purpose is to
give the erring taxpayer a chance to reform and become part of the society with a clean slate.

Tax Condonation – means to remit or to desist or refrain form exacting or imposing a tax. It
cannot extend to refund of taxes already paid when obtaining condonation.

Tax Exemption Tax Amnesty

There is no tax liability at all Connotes condonation from payment of existing
tax liability
The grantee need not pay anything The grantee pays a portion
Can be availed of by any qualified taxpayer Not always available
STATUTORY CONSTRUCTION AND INTERPRETATION
Taxation
1. If tax laws are clear, there’s no need for interpretation, only application
2. If tax laws are vague, it shall be interpreted strictly against the taxing authority and in
liberally in favor of the taxpayer

Exemptions/Deductions
3. Exemptions shall be interpreted strictly against the taxpayer and liberally in favor of the
taxing authority
4. Deductions partake the nature of an exemption, hence strictly construed against the
taxpayer

Presumption of Regularity
5. Tax assessment are presumed to be correct and done in good faith i.e. disputable
presumption only which can be overcome by evidence)

Application
6. Tax laws are generally prospective in application.
Exception: If the law so provides (e.g. Tax Amnesty Law)

No compensation or set-off
7. Tax are not subject to compensation or set-off (excess payments can be carried-over and
credit on same tax type, e.g. income tax to income tax and not income tax to VAT. If the
excess payment is converted to Tax Credit Certificate, the taxpayer can use the TCC to pay
internal revenue taxes except withholding taxes (expanded withholding tax

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(EWT)/Withholding Tax on Compensation (WTC)/Final Withholding Taxes (FWT or FT)

CLASSIFICATION OF TAXES
A. As to purpose (P-FRS)
1. Fiscal – general, fiscal or revenue- tax imposed for the general purpose of the
government or to raise revenue for government needs, e.g. income tax
2. Regulatory – for purposes of regulation (exercise of police power), e.g. PRC and driver’s
license
3. Special or sumptuary – tax imposed for a special purpose or to achieve some social or
economic ends, e.g. Road User’s Tax / Special Education Fund

B. As to subject matter (SM-PPE)

1. Personal, poll or capitation – tax of a fixed amount imposed on individuals residing within
a specified territory without regard to their property or the occupation in which they be
engaged in e.g. community tax certificate/cedula
2. Property tax – tax imposed on property, whether real or personal, in proportion, either to
its value or in accordance with some other reasonable method of apportionment e.g. real
property tax / factory machinery
3. Excise tax – tax on commodities/excisable articles e.g. sin products
(alcohol/cigarettes/automobiles/minerals/jewelries/non-essential services)
4. Privilege tax – tax imposed upon the performance of an act, the enjoyment of a privilege
or the engaging in an occupation, e.g. Professional tax (issued PTR)

C. As to incidence (I-DI)
1. Direct – the tax is demanded from one person who is intended to pay it, e.g. income tax
(taxpayer himself to pay), estate tax (estate to pay), donor’s tax (donor to pay)
2. Indirect – the tax is demanded from one person who can shift the burden of paying the
tax to another person, e.g. Value-Added Tax

D. As to amount (ASA)
1. Specific tax – a tax of a fixed amount imposed by the head or number e.g. excise tax on
wines or distilled spirits, cigars
2. Ad valorem – tax is imposed for a fixed proportion of the amount or value of the property
to which the tax is assessed

E. As to rate (MR-PP)
1. Proportional or flat rate – the tax is based on a fixed percentage of the amount of the
property, income or other basis to be taxed.
Examples:
a. Preferential Income Tax of 8% for Self-Employed individuals or mixed income
earners on their business/professional income
b. VAT (12%) and percentage taxes.
c. Regular corporate income tax (30%)
d. Under TRAIN: Donor’s tax and Estate tax (6%)
e. Capital gains tax on sale of real property classified as capital asset or creditable
withholding tax on sale of ordinary asset (6%)
f. Capital gains tax on sale of shares of stocks not listed in Stock Exchange (15%)
2. Progressive or graduated tax – the tax rate increases as the tax base increases.
Example:
a. Income tax for individual taxpayers (retained under TRAIN)
3. Regressive tax – the tax the rate of which decreases as the tax base increases. The
Philippines has no regressive tax.

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4. Mixed tax- mixture of proportional, progressive or regressive.

Example:
a. Income tax for individuals (progressive/graduated) and for corporation
(proportional/flat)
b. Income tax for Mixed Income Earners who opted 8% on his business income while
the compensation income is subject to graduated tax rate

F. As to imposing authority
1. National tax – imposed by the National Government. National internal revenue taxes
(DIVE-PESO)
Examples:
a. income taxes
b. value-added tax
c. other percentage taxes
d. estate tax
e. donor’s tax
f. excise tax
g. documentary stamp tax
h. other taxes

2. Local tax – tax imposed by local governments (provincial/city/municipal)

Examples:
a. real property tax
b. professional tax
c. business taxes, fees and charges
d. community tax

DISTINCTION OF TAX WITH SIMILAR ITEMS

TAX VS. REVENUE
Tax Revenue
Refers to the amount imposed Refers to the amount collected
Only one of the sources of government The product of taxation. It refers to tall the
revenues funds derived by the government whether
from tax or from other sources

TAX VS. LICENSE

Point of distinction Tax License
Purpose For revenue For regulation
Amount No limit Limited
Subject of Imposition Person, properties, business Required for the
rights, interests, privilege, acts commencement of a
and transactions business profession
Effect of non-compliance Does not necessarily make the Makes the business illegal
act, business or profession
illegal
Revocability Has a nature of permanence Always revocable
Scope The power to tax includes the Power to license does not
power to license include the power to tax
When imposed Post-activity Pre-activity

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Basis of imposition Current data Preceding year or quarter

date. If new business, based
on capitalization
Sources of Power Taxing power of the Police power of the
government government

TAX VS. TOLL

Tax Toll
Demand of sovereignty Demand of ownership
One’s support for the government Compensation for the use of somebody else’s
property (road or bridge and the like)
Imposed only by the government May be imposed by the government or by
private individuals
Based on government needs Determined by the cost of the property or
improvements thereon

TAX VS. DEBT

Tax Debt
Basis Law Contract
Effect of non- May involved imprisonment, No imprisonment
compliance except for poll tax
Assignable? No Yes
Mode of settlement Generally money Cash or In kind
Set-off? Generally not subject to set-off Subject to set-off
Interest Does not earn interest except Draws interest when stipulated
when delinquent or when in default

TAX VS. SPECIAL ASSESSMENT

Tax Special Assessment
Subject of the business, interests, transactions, Land
imposition rights, persons, properties or
privileges
Effect on the person May be made a personal liability Cannot be made the personal
owning the subject of the person assessed liability of the person assessed,
because it is the land that
answers for the liability
Basis of Imposition Necessity with no hope of direct Entirely on benefits received
or immediate benefit to the
taxpayer
Coverage of application General application Exceptional in application

TAX VS. TARIFF

Tariff refers to a book of rates containing names of merchandises with corresponding duties to
be paid for the same. Tariff refers to the duties payable on goods imported or exported. It is a
system or principle of imposing duties on the importation or exportation of goods.

TAX VS. PENALTY

Tax Penalty
to regulate conduct through
Purpose to raise revenue punishment and

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suppression of injurious act

Exercising authority the government the government or by
private individuals
Source Law Law or contract
Mode of settlement in money in money or in kind

Note:
• Payment of tax is compulsory to those who are covered by imposition
• Taxes are important because they are the lifeblood of the government.
• Taxes are personal. The burden of taxation cannot be transferred from one person to the
other by private agreement as this is determined by law
• While the power of taxation includes the power to destroy, it is not absolute. It is subject to
limitation or restrictions.
TAX LAW
Any law that provides for the assessment and collection of taxes for the support of the
government and other public purposes

Sources of Tax Laws:

1. Constitution
2. Statutes and Presidential Decrees
3. Executive Orders and Batas Pambansa
4. Tax Treaties and conventions with foreign countries
5. Revenue Regulations issued by the Department of Finance
6. Supreme Court Decisions
7. Local Ordinances (Sangguniang Panlalawigan/Panglungsod/Bayan/Barangay)
NATURE OF PHILIPPINES TAX LAWS
Philippine Tax Laws are civil in nature and character. They remain effective even in times of war.
They are not penal in nature although penalties are provided for their violation because they do
not define crimes and provide for their punishment. (Civil, Not Penal, Not criminal)
OTHER FUNDAMENTAL DOCTRINES IN TAXATION
A. Marshall Doctrine (US Justice John Marshall) – “The power to tax includes the power to
destroy”
- Constitutional if taxation power is used validly as an implement of police power in
discouraging certain acts and enterprises inimical to public welfare.
- Unconstitutional if in raising revenue, taxation is allowed to confiscate or destroy
properties
B. Holmes Doctrine (US Justice Oliver Wendell Holmes) – “Taxation power is the power to
build”, “The power to tax is not the power to destroy while this court sits”
The power to tax should not be the power to destroy. The power to destroy is merely a
consequence of taxation.
C. Doctrine of Judicial Non-interference
General Rule: The courts cannot inquire into the wisdom of a taxing act or the advisability or
expediency of at ax. The impracticability and absurd consequences of a tax law should be
addressed to the legislature and administrative authorities and not the courts. Exception:
Court of Tax Appeals where the collection of tax will cause undue hardship to the
government or taxpayer.
D. Principle of “Strictissimi Juris” – “Taxation is the rule and exemption is the exception”
Tax exemption must be strictly construed against the taxpayer and liberally in favor of the
government.
E. Doctrine of Equitable Recoupment
- Where the refund of taxes is barred by prescription which can no longer be claimed by a

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taxpayer but there is a present tax being assessed against the said taxpayer, such present
tax may be recouped or set-off against the tax, the refund of which has been barred.
- Basis: The government cannot enrich itself at the expense of the taxpayer.
*This doctrine is not applicable in the Philippines as it conflicts with prescription laws.
F. Non-compensation or Set-off Rule
The government and the taxpayer are not creditor and debtor to each other. Taxes are not in
the nature of contracts between the parties but grew out of a duty arising from law; hence,
they cannot be set-off. Exception: Excess payment of same tax type can be credited to
succeeding period or when excess is converted to tax credit certificate, the TCC can be used
to pay other internal revenue taxes except CWT/FWT
G. Doctrine of Estoppel
The State cannot be estopped by the neglect, errors, or mistakes of its agents or officers.
Thus, the erroneous application and enforcement of law by public officials do not block the
subsequent correct application of the statutes. The doctrine of estoppel operates only
against the taxpayer.
TAX ACCOUNTING METHODS
A. Principal Methods
1. Cash Basis Method – income is recorded in the year it is actually or constructively
received; expenses are generally reported in the year it is paid
2. Accrual Method – income is reported in the year it is earned and expenses are deducted
in the year incurred
3. Hybrid method – combination of both cash basis and accrual basis method
B. Deferred Payment Sales
1. Installment method – applicable in the following three cases only:
a. Sale of personal property by a dealer
b. Casual sale of personal property where:
a. selling price is over P1,000.00
b. initial payment does not exceed 25% of the selling price
c. property is of a kind which would be included in the taxpayer’s inventory if on
hand at the close of the taxable year
c. Sale of real property where the initial payment does not exceed 25% of the selling
price
Initial Payment – refers to payments which the seller receives upon the execution of
the instruments of sale and those scheduled to be received in the year of sale or
disposition. It simply means “total first year payments” but do not include receipts of
evidence of indebtedness of the buyer such as notes.
2. Deferred payment basis – applicable when the buyer has issued evidence of obligation
(notes). The notes shall be valued at its market value at the date of receipt. The
difference between the fair value and the face value is reported as interest income in
future taxable period. This is an alternative to delaying tax payments when the
installment method is not available.
C. Long-term Construction Contracts
1. Percentage of completion – this is applicable only to long-term construction contracts
covering a period in excess of one year (Architect or engineer’s certification is required)
2. Completed contract basis – gross income is recognized upon completion of construction
contract
D. Farming income
Crop year basis – applicable only to farmers engaged in the production of crops which takes
more than a year from the time of planting to the process of gathering and disposal.
Expenses paid or incurred are deductible in the year the gross income from the sale of the
crops is realized.

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E. Leasehold improvement
1. Outright method – the value of the leasehold improvement attributable to the lessor is
reported in taxable income at the time of completion of the leasehold
2. Spread-out method – the value of the leasehold improvement attributable to the lessor is
recognized in taxable income over the lease term

Change of Accounting Method

- Prior BIR approval is required
TAX ACCOUNTING PERIODS
Taxable year can be calendar or fiscal year
1. Calendar year – the 12-month period ending December 31 and is applicable to:
a. Individuals
b. taxpayers who do not keep books
c. taxpayers with no annual accounting period
d. taxpayers with accounting periods other than the fiscal year
2. Fiscal period – any 12 months period ending the last day of any month other than December
31st. This is not available to non-corporate taxpayers.

Normally, accounting period are uniformly 12 months, however, short accounting period may
arise in the following cases:
1. death of a taxpayer
2. newly organized business
3. dissolution of a business
4. change in accounting period
TAX ADMINISTRATION
The Bureau of Internal Revenue
The Bureau of Internal Revenue is tasked with tax administration function of the government
and is under the supervision and control of the Department of Finance.

Chief Officials of the Bureau (E.O. 366)

1. 1 chief officer: The Commissioner of Internal Revenue
2. 4 assistant chiefs: LINE Deputy Commissioner
a. Operations Group
b. Legal Group
c. Information Systems Group
d. Resource Management Group
Note: The CIR and Line Deputy Commissioners are members of the National Evaluation Board
(NEB) which handles applications for compromise settlement.
POWERS OF THE BUREAU OF INTERNAL REVENUE
1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties, and fines and judgments in all cases decided in its
favor by the courts
3. Giving effects to and administering the supervisory and police powers conferred to it by the
NIRC and or other laws
POWERS OF THE COMMISSIONER OF INTERNAL REVENUE
1. To interpret the provisions of the NIRC (subject to review by the Secretary of Finance)
2. To decide tax cases (subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals)
3. To obtain information and to summon, examine and take testimony of persons to effect tax
collection
a. Summon:

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i. Sub poena duces tecum (SDT) – compels the taxpayer to produce the
documents
ii. Sub poena ad testificandum – compel the taxpayer to produce documents
and testify why there is a failure to comply with the request to produce
b. Examination (when the BIR makes the audit, it issues notice of audit):
i. Electronic Letter of Authority (e-LOA) – formal document authorizing Revenue
Officers (Assessment) to examine taxpayer records.
ii. Tax Verfication Notice (TVN) – BIR authority to audit taxpayer records but is
lower than eLOA
iii. Letter Notice (LN) – third party information. Result of computerized matching
of income and expense. Not equivalent to eLOA or TVN but has the effect of
barring taxpayer to amend return. If issued, the LN if protested must be
converted to eLOA
Note: If taxpayer is served with notice of audit, taxpayer is barred from
amending returns
4. To make assessment and prescribe additional requirement for tax administration and
enforcement. (Note: The BIR can issue assessment GR: 3 years from date of filing or deadline
whichever is later, Exception: 10 years if there is fraud reckoned from date of discovery). If
already elapsed, the right of the BIR to collect has prescribed)
5. To make or amend a return for and in behalf of a taxpayer; or to disregard one filed by the
taxpayer
6. To change tax accounting period
7. To enter into a compromise of tax liabilities of taxpayers
a. Doubtful validity – 40% of basic tax (the rate may be lower but with prior approval by
the CIR)
b. Financial incapacity – 10% of basic tax (with required documentary requirements)
8. To conduct inventory-stock taking or surveillance (BIR to issue Mission Order (MO)
a. Covert surveillance – secret/posing as taxpayer/not known initially by taxpayer
b. Overt surveillance – known to the taxpayer
Note: The BIR also issues MO during tax mapping operations or Tax Compliance Verification
Drive (TCVD)
9. To prescribe presumptive gross sales or receipts (Benchmarking)
10. To prescribe real estate values (zonal valuation)
The CIR is authorized to divide the Philippines into zones or areas and determine the fair
market value of the real properties located in each zones or area.
TRAIN: In exercising this authority, the following shall be observed:
a. Mandatory consultation with both private and public competent appraisers before
division of the Philippines into zones.
b. Prior notice to affected taxpayers before the determination of fair market values of the
real properties.
c. Publication or posting of adjustments in zonal value in a newspaper of general circulation
in the province, city or municipality concerned.
d. The basis of valuation and records of consultation shall be public records open to the
inquiry of any taxpayer.
e. Zonal valuations shall be automatically adjusted once every three years.

11. To accredit tax agents

Individuals or general professional partnerships who have been denied their accreditation
may appeal to the Secretary of Finance who shall act on the appeal within 60 days from the
receipt of such appeal. Failure by him to rule on the appeal within the prescribed period shall
be deemed approval of the application for accreditation.

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INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
1st Sem
Department of Accountancy 2020
INCOME TAXATION

12. To inquire into bank deposits under certain cases:

a. Estate tax purposes to determine gross estate
b. Application of compromise settlement based on financial incapacity
13. To prescribe additional procedures or documentary requirements
14. To delegate his powers to any subordinate officer with rank equivalent to a division chief of
an office
15. To refund or credit internal revenue taxes
16. To abate or cancel tax liabilities in certain cases
a. Unjustly or excessively assessed (arbitrary, capricious and whimsical)
b. Cost of collection is higher than the amount to be collected (cost-benefit principle)
17. To examine tax returns and determine tax due thereon (must have an eLOA)
18. To cause revenue officers and employees to make a canvass from time to time of any
revenue district or region concerning taxpayers.
19. Assignment of internal revenue officers and other employees to other duties

POWERS OF THE CIR THAT CANNOT BE DELEGATED

1. The power to recommend the promulgation of rules and regulations to the Secretary of
Finance.
2. The power to issue rulings of first impression or to reverse, revoke or modify any existing
rulings of the Bureau.
3. The power to compromise or abate any tax liability
Exceptions: Compromise by Regional Evaluation Boards under the following requisites:
a. assessments are issued by the regional offices involving basic deficiency tax of
P500,000.00, and
b. involves minor criminal violations as may be determined by rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the CIR, discovered
by regional and district officials
4. The power to assign and reassign internal revenue officers to establishment where articles
subject to excise tax are produced or kept. Revenue officers assigned to any such
establishments shall in no case stay in his assignment for more than 2 years.

Rules in assignments to other duties

Revenue officers assigned to perform assessment and collection function shall not remain in the
same assignment for more than 3 years. Assignment of internal revenue officers and employees
of the Bureau to special duties shall not exceed 1 year.

Agents and Deputies for Collection of National Internal Revenue Taxes

1. The Commissioner of Customs and his subordinates with respect to collection of national
internal revenue taxes on imported goods.
2. The head of appropriate government offices and his subordinates with respect to the
collection of energy tax.
3. Banks duly accredited by the Commissioner with respect to receipts of payments of internal
revenue taxes authorized to the made thru banks.
TAX PAYMENTS
PERIOD INDIVIDUAL NON-INDIVIDUAL
st
1 Quarter May 15 60 days after close of quarter
nd
2 Quarter August 15 60 days after close of quarter
3rd Quarter November 15 60 days after close of quarter
Annual April 15 of following year 15th day of the fourth month
following the close of the
taxpayer’s taxable year

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INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
1st Sem
Department of Accountancy 2020
INCOME TAXATION

END

Reference:
1. Income Taxation (2020) – Rex Banggawan

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