TAX LAWS
Internal Revenue Laws
• Revenue law is a law passed for the purpose of authorizing the levy and collection of
taxes in some form to raise revenue. A revenue law is said to be a national revenue law
when it is applicable all over the country.
• Internal revenue laws are neither political nor penal in nature although there are
penalties in case of violations. Tax laws are civil in nature.
Philippine Tax Laws and Taxes
1. National Internal Revenue Code of 1997 (P.D. 1158, as amended);
a) income taxes (individual and corporate);
b) estate and donor's taxes;
c) value-added tax;
d) other percentage taxes;
e) excise tax; and
f) documentary stamp tax.
2. Tariff and Customs Code of 1978 (P.D. 1464, as amended);
a) import duties; and
b) export duties.
3. Local Government Code of 1991 (R.A. 7160);
a) real property tax;
b) business taxes, fees and charges;
c) professional tax;
d) community tax; and
e) tax on banks and other financial institutions
4. Special Laws
a) Motor Vehicle Law (R.A. 4136) - motor vehicle fees;
b) Private Motor Vehicle Tax Law (P.D. 1958) - private motor vehicle tax;
c) Philippine Immigration Act of 1940 (C.A. 613, as amended) - immigration tax; and
d) Travel Tax Law (P.D. 1183, as amended) - travel tax.
The Bureau of Internal Revenue
The Bureau of Internal Revenue (BIR) functions under the supervision and control of the Department of
Finance (DOF). The Bureau was created by Commonwealth Act 466, approved by the National Assembly
on June 15, 1939, effective July 1, 1939, which revised and codified the then internal revenue laws of the
Philippines.
The mission of the BIR is "to collect taxes efficiently and effectively, for and at the least cost to the
government, through impartial and consistent enforcement of internal revenue laws, and convenient and
honest service to taxpayers.
BIR collection accounts for more than 50% of the national government's total revenues. The BIR carries
the bulk of the burden of solving the country's budget deficit problem.
BIR Issuances and Rulings Defined
Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective
enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes.
Revenue Memorandum Circulars (RMCs) are issuances that publish pertinent and applicable portions, as
well as amplifications, of laws, rules, regulations and precedents issued by the BI and other
agencies/offices.
Revenue Memorandum Orders (MOs) are issuances that provide directives orinstructions; prescribe
guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary
in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas
of operations, except auditing.
Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of
Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific
set of facts, with or without established precedents, and which the Commissioner•may issue from time
to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations.
BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab
initio.
BIR Rulings are official positions of the BIR on inquiries of taxpayers, who request clarification on certain
provisions of the Tax Code, other tax laws, or their implementing regulations, usually for seeking tax
exemptions. Rulings are based on particular facts and circumstances presented and are interpretations of
the law at a specific point in time. Tax rulings cannot be cited as precedent, but can provide useful
information on how the BIR may treat a similar transaction. They are also issued to answer questions of
individuals and juridical entities regarding their status as taxpayers, and the effect of their transactions
for taxation purposes.
Revenue Bulletins (RBs) refer to periodic issuances, notices and official announcements
Commissioner of Internal Revenue that consolidate the Bureau of internal
Revenue's position on certain specific issues of law or administration in relation to the
provisions of the Tax Code, relevant to tax laws and other issuances for the guidance of
the public.
The BIR also issues Revenue Audit Memorandum Orders (RAMOs).
Revenue Regulations 5-2012 was published on April 4, 2012. Then, the Commissioner,
thru MC 22-2012, clarified that:
1. All BIR rulings issued prior to Jan. 1, 1998 (the effectivity date of R.A, 8424)
a) Are not be used as precedent by any taxpayer as a basis to secure rulings for themselves for
current business transaction/s or in support of their position against any assessment;
b) Are not to be used by any BIR action lawyer in issuing new rulings for request for rulings involving
current business transaction/s.
2. BIR rulings issued prior to Jan. 1, 1998 remain valid but only:
a) To the taxpayer who was issued the ruling: and
b) Covering the specific transaction/s which is the subject of the same ruling.
3. BIR rulings issued prior to Jan. 1, 1998 shall remain valid as mentioned above, unless expressly notified
of its revocation or unless the legal basis in law for such issuance has already been repealed/amended in
the current Tax Code.
A BIR issuance cannot be applied retroactively if it will prejudice the interest of taxpayers (COL Financial
Group, Inc. vs. Commissioner of Internal Revenue, CA (3rd Division) Case 8454 Apr. 15, 2014).
Powers and Duties of the Bureau of Internal Revenue
The chief officials of the Bureau are the Commissioner and seven (7) Deputy Commissioners. The Deputy
Commissioners are tasked to handle particular groups within the Bureau such as information systems,
legal and inspection, operations, resource management, tax reforms administration, special concerns and
large taxpayers. Its powers and duties follow:
1. Assessment and collection of all national internal revenue taxes, fees and charges;
2. Enforcement of all forfeitures, penalties, and fines;
3. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals
and ordinary courts; and
4. Administration of supervisory and police powers conferred to it.
Powers of the commissioner
1. Interpret tax laws and decide tax cases;
2. Obtain information, and to summon, examine, and take testimony of persons;
3. Make assessments and prescribe additional requirement for tax administration and enforcement.
4. Delegate powers vested in him by the Code to any subordinate officer with rank equivalent to a
division chief or higher.
5. Suspend business operations of a taxpayer.
6. Compromise, abate and refund or credit taxes.
Tax incentives
An example of a law that grants tax incentives is the Adopt-a-School Act of 1998 /IRA 8525).
Revenue Regulations 10-2003 implements the tax incentive provisions of said law. A pre-qualified
adopting private entity which enters into an agreement with a public school shall be entitled to the
following tax incentives:
• Deduction from gross income of the amount of contribution/donation that were actually,
directly and exclusively incurred for the Program, subject to limitations, plus an additional
amount equivalent to 50% of such contribution/donation;
• Exemption of the Assistance made by the donor from payment of donor's tax. Donation
and donor's tax are covered in another text, Transfer and Business Taxation by the same
book team.
Section 19 of R.A. 10028, the Expanded Breastfeeding Promotion Act of 2009, states that "The expenses
incurred by a private health and non-health facility, establishment of institution, in complying with the
provisions of this Act, shall be deductible expenses for income tax purposes up to twice the actual amount
incurred: Provided, That the deduction shall apply for the taxable period when the expenses were incurred:
Provided, further, That all health and non-health facilities, establishments and institutions shall comply
with the provisions of this Act within six (6) months after its approval: Provided, finally, That such facilities,
establishments or institutions shall secure a "Working Mother-Baby-Friendly Certificate" from the
Department of Health to be filed with the Bureau of Internal Revenue, before they can avail of the
incentive."
Per Republic Act 9999 or the Free Legal Assistance Act of 2010, a lawyer or professional partnerships
rendering actual free legal services, as defined by the Supreme Court, shall be entitled to an allowable
deduction from the gross income, the amount that could have been collected for the actual free legal
services rendered or up to 10% of the gross income derived from the actual performance of the legal
profession, whichever is lower: Provided, That the actual free legal services herein contemplated shall be
exclusive of the minimum 60 hours mandatory legal aid services rendered to indigent litigants as required
under the Rule on Mandatory Legal Aid Services for Practicing Lawyers under BAR Matter 2012, issued by
the Supreme Court.
Republic Act 9282
R.A. 9282 expanded the jurisdiction of the Court of Tax Appeals (CTA). This law took effect on Apr. 22,
2004. It amended R.A. 1125-the law creating the CTA. Some salient features of R.A. 9282 follow:
• The CA shall be of the same level as the Court of Appeals (CA).
• It shall be composed of a presiding justice and five associate justices. For en banc sessions,
four justices shall constitute a quorum. The affirmative vote of four members shall be
necessary to render a decision or resolution.
• There shall be two divisions (with three members each); the chairmen shall be the
presiding justice and the most senior associate. Two justices constitute a quorum for
sessions of a division. In order to render a decision/resolution, the affirmative vote of two
members of a division is necessary.
The CA has exclusive original jurisdiction over all criminal offenses arising from violations of the NIRC and
other laws administered by the BIR where the principal amount of taxes and fees (exclusive of charges
and penalties) claimed is P1 million and above. For the same amount of claim, the CTA has exclusive
original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees,
charges and penalties.
The CA has the exclusive jurisdiction to review on appeal decisions of the Commissioner of Internal
Revenue (CIR) in cases involving disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties, or other matters. In case of inaction by the BIR where the NIRC provides a specific
period of action, the inaction shall be deemed a denial and the CTA has the jurisdiction to review the same.
The Supreme Court has ruled that while the Revised Rules of the CTA confers on the CTA jurisdiction to
resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is
challenged (British American Tobacco vs. Jose Isidro Camacho, et. al., G.R. 163583). The regular courts
have jurisdiction to pass upon the validity of a law, or a rule or regulation issued by an administrative
agency in the performance of its quasi legislative function.
Interpretation and Construction of Tax Statutes
The recognized rules in statutory construction also apply to tax statutes. As in other statutes, the
legislative intent is the primary concern. However, where there is doubt in determining the legislative
intent, the doubt must be resolved liberally in favor of taxpayers and strictly against the taxing authority.
Exemptions in taxation are highly disfavored in law; they are not to be presumed nor implied but must be
clearly expressed. A tax exemption, when granted, shall be strictly construed against the grantee. Thus,
he who claims the tax exemption must be able to justify his claim or right. As decided by the Supreme
Court: "The exception contained in the tax statutes must be strictly construed against the one claiming
the exemption because the law does not look with favor on tax exemptions and that he who would seek
to be, thus, privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted." (Commissioner of internal Revenue vs. J. kiener Company, Ltd., 65 SCRA 143)
Tax laws Versus GAAP and GAAS
All returns required to be filed by the Tax Code shall be prepared always in conformity with the provisions
of the Tax Code, and the rules and regulations issued implementing said Tax Code. Taxability of income
and deductibility of expenses shall be determined strictly in accordance with the provisions of the Tax
Code and the rules and regulations issued implementing the said Tax Code. In case of difference between
the provisions of the Tax Code and the rules and regulations implementing the Tax Code, on one hand,
and the generally accepted accounting principles (GAP) and the generally accepted auditing standards
(GAS) on the other hand, the provisions of the Tax Code and the rules and regulations issued implementing
the said Tax Code shall prevail /Revenue Memorandum Circular 22-04, Apr. 12, 2004).
Income defined and distinguished from capital
Income, in its broad sense, means all wealth, which flows into the taxpayer other than a mere return of
capital. It is the return in money from one's business, labor, or capita invested, e.g., gains, profits, salary
and wages. The words 'income from any source whatever disclose a legislative policy to include all income
not expressly exempted from the class of taxable income under our laws (Commissioner vs. BOA, L-65773,
Apr. 30, 1987, citing Madrigal vs. Rafferty, 38 Phil. 14).
Income is also defined as the amount of money coming to a person or corporation within a specified time,
whether as payment for services, interest or profit from investment. Unless otherwise specified, it means
cash or its equivalent. Income may also be thought of as a flow of the fruits of one's labor.
Capital is a fund or property existing at one distinct point of time. Income, on the other hand, denotes a
flow of wealth during a definite period of time. While capital is wealth, income is the service of wealth. In
the Madrigal case, the Supreme Court made an essential distinction between capital and income: capital
is a fund, while income is a flow; capital is wealth, while income is the service of wealth; capital is a "tree"
and income is the "fruit"
Income tax defined, Base and Nature
Income tax is a tax on all yearly profits arising from property, profession, trade or business, or is a tax on
a person's income, emoluments, profits and the like. Income tax is generally regarded as an excise
(privilege) tax. It is not levied upon persons, property, funds, or profits as such but upon the right of a
person to receive income or profits. Income tax is based on income, either gross or net, realized in one
taxable year.
