Relevance and Overview of Philippine Taxation

Sec. 1.1 Relevance of Taxation Chapter 1.0 Relevance of Taxation 1.1 Relevance of Taxation in the Domestic Economy

1. The growth of the domestic economy is dependent upon the productive effort and the spending behavior of both government (public sector) and the private sector. The government and the private sector are interdependent with each other. 2. The productive effort and the spending behavior of government (public sector) are dependent upon the revenues/taxes it generates and the quality of its governance. ll the goods and services provided by government ma!e up the public sector of the economy. The government pays for most of the services with money it collected from taxes" fees and charges" otherwise funds are obtained through local or foreign borrowings.

#. The productive effort and the spending behavior of the private sector are influenced by the availability of the country$s productive resources such as labor" capital" its natural resources" technology and the business environment which includes the quality of leadership both in the public and private sector. %t is also influenced by the policies of the &tate. '. (usiness is primarily influenced by economic forces such as the law of supply and demand" profit" mar!ets" prices" competition" distribution of income and not by taxation. Taxation must be neutral in the sense that it must be the least influencing factor in the decision to venture in business" to sustain or to close it. %nvestment decisions must be based on sound economic grounds and not tax driven.
Tithing Principle

You shall truly tithe all the increase of your grain that the field produces year by year...and the fatherless and the widow who are within your gates may come and eat and be satisfied that the Lord your God may bless you in all the work of your hand which you do. Deuteronomy 14: ! " 1 &ec. 1.1 )elevance of Taxation in the *conomy +. ,ar!et is primarily influenced by the demand of the product or service due to its quality and price in an environment of fair competition" not by taxes. -. (usiness entities will be most productive if time is spent in developing or improving the mar!et of its products/services through better quality and price effectiveness. Time must not be spent" more than what is necessary" in dealing with government intervention including the complexities of the tax system and tax administration. .. /hile taxes are the sources of government funds used in providing basic services to the community" business entities may avail of the effective legitimate tax incentives" tax shelters and tax shields to help propel the economy. Tax avoidance is the legal means of lessening or altogether avoiding taxes by means which the law permits. %t is not

punishable by law. %n contrast" tax evasion is a term that connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. %t is punishable by law. 0. 1evertheless" a business entity must be able to identify the right tax person (within or outside of the taxpayer$s organi2ation) who is competent and trustworthy in dealing with tax matters. &urely" taxes are inevitable.
While there is a legal difference between tax avoidance and tax evasion, both will result in lesser collection efficiency on the part of the tax system and tax administration. To others, there is a very thin line between avoidance and evasion for which reason evasion is oftentimes mistaken as a mere avoidance.

#Let us work as if success depended upon oursel$es alone% but with heartfelt con$iction that we are doing nothing and God e$erything. &aint 'gnatius of Loyola

2 &ec. 1.2 )elevance of Taxation in ttracting %nvestments 1.2 Relevance of National and Local Taxation in Attractin Entreprene"rs and #orei n !nvestors !nvestments from Local

1. /ithout necessarily becoming a tax haven" the 3ocal 4overnment 5nits (345s) or &tate can attract investments or inflow of funds to fuel the growth of the local or domestic economy. This can be done through a tax system and business practices that are competitive among 345s or among countries. . Tax neutrality, not protectionism, helps create a favorable business climate that can attract sustainable investments. !rotectionism on the other hand may result in counter productive or distorted climate of investments. ". #ooperation and collaboration with other countries and appropriate legislation help detect or prevent the ill$effects of transfer pricing, dollar salting or money laundering, and other forms of tax leakages. %. Tax treaties and grant of tax credits help reduce the tax burden on multinational companies that conduct business worldwide.
The State must clearly define its taxable &urisdiction in relation to the outflow of funds in the payment of goods or properties originating from other countries and in the payment of 'offshore( services allegedly rendered beyond its taxable &urisdiction. With e$#ommerce, there is now a need to redefine the tax treatment of payments for certain services, sometimes referred to as 'offshore( services, allegedly performed by non$residents but intended to improve or enhance the interests )business or otherwise* of resident persons or establishments located within the State. Such 'offshore( services include 'offshore( management consultancy services and if payments are made to related parties, such payments might be a scheme of international tax avoidance or evasion committed through remittance of profits by way of payment of 'offshore( services. +fter all, untaxed outflow of funds that may never return to the originating State has more negative effects than untaxed domestic wealth that remains in the local economy.

#(he power to ta) is an attribute of so$ereignty. 't is the strongest of all powers of go$ernment. *& +ustice ,alcolm #

&ec. 1.2 )elevance of Taxation in ttracting %nvestments

While it is the desire of the government to attract investments, it must at the same time take measures to address international tax avoidance and evasion which can be committed through transfer pricing schemes, overpricing of imported goods and under$pricing of exports, back to back loans, thin capitali,ation, overstated expenditures, and remittance of profits by way of interest. Transfer pricing is carried out in most cases through the use of a tax haven country or a fictitious company or insulators to under$price exports and overprice imports or to overstate expenses on payments to a tax haven entity. Thin capitali,ation is practiced through investments that are financed by loans from related parties and inflated payments of interest. -ocally, tax avoidance may appear through inter$company pricing, deferment of income, transfer of assets or capital, among others. .vasion is committed through willful neglect to register as a taxpayer, non$filing of returns, under$declaration of income, overstating expenses, false allocation, use of fictitious transactions, and many more, depending on the risk taking attitude of taxpayers. +s a way of improving tax efficiency, tax authorities worldwide utili,e the following measures in varying degrees/ 1. Taxing income at source )Withholding Tax System*0

2. #. '. +. -. .. 0. <.

*xchange or ccess to Third 6arty %nformation (T6%) including direct access to ban! records and other financial institutions7 &implification of rules and procedures7 6aperless transactions through the use of electronic services (e8&ervices such as *lectronic 9iling and 6ayment &ystem8*96&" etc.)7 4ross taxation scheme or presumptive income taxation for complex or hard to tax group or prescribing reasonable thresholds on revenues or deductions7 *stablishment of %ndustry 6rofile/(enchmar!ing7 (lue )eturn or :1o udit 6rogram; and :&elective udit; for taxpayers who meet certain requirements7 &imultaneous and coordinated tax audits/surveillance7 4enerous reward system to tax collectors and informers7 ' &ec. 1.2 )elevance of Taxation in ttracting %nvestments 1=. 6rosecution of tax evaders7 11. 5se of media to publici2e certain tax cases7 and 12. 4rant of expanded power to the head of the tax agency. The tax system of &pain strives to achieve the principle of neutrality in taxation" allowing the free operation of private enterprise in the creation of wealth. (a) neutrality is achieved when the survival and success of a private enterprise is dependent upon the free forces of mar!et and supply and not because it is taxed less or has greater burden when compared to another economic activity or locality. The indiscriminate grant of exemptions or tax deductions somehow dilutes the neutrality of the tax system. %n >enmar!" with its huge database on third party information" pre8completed tax returns are mailed to approximately 0+? of the taxpayers. Taxpayers audit the information from its tax authority" a reverse from the traditional method where the tax investigators audit the information given by the taxpayers in their return. %n &weden" @anada" and other countries" there is a trend in transforming tax administration from being part of the usual government bureaucracy towards some grant of varying degrees of autonomy by becoming a tax authority with its own governing board. The

governing board is composed of people from the private and public sectors" who represent client base thereby bringing the client$s perspective directly into the day8to8day management of the tax authority. &uch tax organi2ation gains more access for better and more resources" and becomes more effective in performing its mandate. 'srael Demands a -ing .nd &amuel said/ #(his will be the beha$ior of the king who will reign o$er you: he will take the best of your fields/ your $ineyards/ and your oli$e gro$es and gi$e them to his ser$ants. 0e will take a tenth of your grain and your $intage/ and gi$e it to his officers and ser$ants10e will take a tenth of your sheep. &amuel 2:11!13 + &ec. 1.# Averview of Taxation Ather countries automatically allocate approximately 2? to #? of tax collections for the operational needs of their tax authorities. %n the 6hilippines" the (%) wor!s on a budget that passes through @ongress and is less than 1? of its actual collection ma!ing it less responsive and less flexible in meeting the demands of its mandate. s published by the (%) in its :*volution of the (%) (1<=' B 2==');" cost to collect for every 6hp1==.== revenues steadily declined from its highest at 6hp+.=2 in 1<=. to only 6hp=.-< in 2==+ (2==+ (%) nnual )eport). 1.$ 1. %vervie& of Taxation

Taxation is dynamic7 it continuously evolves to be relevant or to be suited to the needs of the changing business environment. 2. Taxation must observe due process upon its legislation and implementation. #. Taxation must be efficient and effective in its two componentsC a. Tax &ystem b. Tax dministration '. Taxation must attempt to be neutral" simple" and easy to administerC a. Apportunities for improper discretion on the part of the taxpayer and the tax administrator in the determination of the correct tax must be reduced if not eliminated7 b. Taxable transactions or events must be easily determinable" measurable and predictable7 c. Taxable trac!ing documents or source documents must be uniform and easy to manage" whether electronically or paper8based.
1. Taxation is the act of laying a tax. +s a power, it refers to the inherent power of the State to raise revenues to defray the expenses of the government. The tax that we pay is the lifeblood of the government.

#*nite the people with their so$ereign in a common aspiration. 0e will win whose officers and men are united in their wishes. &un 4u5s .rt of 4ar &ec. 1.' 6rinciples of Taxation Annotations

@an the government attain its budgetary obDectives by relying on the assumption that" on their own free will" taxpayers will pay the correct taxE The unchanging laws of nature can force involuntary compliance otherwise nature will give bac! inescapable consequences that bring calamities or personal sufferings. ,oral laws solicit voluntary compliance" depending on one$s level of spirituality" upbringing" and beliefs whether reward or punishment comes in different forms during his lifetime or beyond. /hat then can compel taxpayers to comply with the changing tax laws that are man8madeE Tax la&s are 'est complied 'ased on a perception that violations are immediately and easily detected( sanctions or penalties are s&iftly imposed. %f the tax system cannot build and sustain such perception" then the tax administration will have difficulty performing its tas!s in meeting the budgetary needs of the government. Fowever" if such perception exists" then the government can rely on the assumption that there is a high degree of tax compliance among taxpayers. This high level of tax consciousness is even strengthened when government is credible in the way it spends its tax collections" whether such spending is really for the common good or only for the benefit of a favored few. 1.) 1. 2. #. '. *rinciples of Taxation

5niformity in taxation7 @ertain and not arbitrary7 *quitable7 6rogressive and not regressive. Taxation is a tool that can be used in the redistribution of income or wealth7 +. 3evied and collected for public purpose7 -. 1ot unDust" excessive" oppressive or confiscatory7 .. 1ot contrary to law" public policy" national economic policy or in restraint of trade.
#'t is necessary to submit to the authorities/ not only because of possible punishment but also because of conscience. 6omans 17:8

. &ec. 1.+ @haracteristics of a Tax 1.+ 1. 2. #. '. +. -. .. Characteristics of a Tax

%t is an enforced contribution7 %t is generally payable in money7 %t is proportionate in character7 %t is levied on persons" property" or the exercise of a right or privilege7 %t is levied by the &tate" which has Durisdiction over the subDect or obDect of taxation7 %t is levied by the lawma!ing body of the &tate7 and %t is commonly required to be paid at regular periods or intervals.

&ec. 291: of the 1"23 ;hilippine <onstitution provides that #(he rule of ta)ation shall be uniform and e=uitable. (he <ongress shall e$ol$e a progressi$e system of ta)ation. *niformity in ta)ation means that all taxable articles or properties of the same class shall be taxed at the same rate ((an -im $s. <ourt of (a) .ppeal 9<(.: L!12>2>/ .pril / 1"?7) or a valid classification under the equal protection clause ( ;epsi!<ola @ottling <o. $s. <ity of @utuan/ 4 &<6. 32"/ 3"8!"?/ 1"?2). @lassification of obDects or subDects of taxation must have reasonable basis and must not be arbitrary.

>ue to the inequality of economic conditions among its citi2ens" uniformity may result in inequity7 therefore" the 1"23 <onstitution provides that taxation shall be equitable. %t means that taxation must ta!e into consideration taxpayer$s ability to pay or on the basis of the benefits received from such obDect or subDect of taxation. (he Auestion about ;aying (a)es #(ell us/ is it against our Law for us to pay ta)es to the 6oman Bmperor or notC @ut +esus saw through their trick and said to them/ #&how me a sil$er coin/ whose face and name are these on itC #(he Bmperor5s/ they answered. &o +esus said/ #4ell/ then pay to the Bmperor what belongs to the Bmperor/ and pay to God what belongs to God. Luke >: ! 8 0 &ec. 1.+ @haracteristics of a Tax D;rogressi$e system of ta)ation5 means that it must be proportionate in character and shall be used as an instrument to promote social Dustice to achieve social equity and must not be regressive. Taxation is Dregressi$e5 if the low8income group contributes more to the taxes collected by government when compared to the total contribution of the high8income group in the imposition of a particular tax system. 9or example" if basic food commodities widely consumed by the low8income group are taxed at the same rate with that of non8essential or luxury goods acquired only by the high8income group" then more taxes will be collected from the low8income but densely populated group when compared to the total taxes collected from the high8income but sparsely populated group. @onsidering the pervasive effect of taxation on the whole society" it can be utili2ed to redistribute income or wealth or as a means to build or sustain a group li!e the middle class which provides social equilibrium and stability to the country. )edistribution of wealth and opportunities is apparent in the construction of public schools" public hospitals" and other public facilities accessible to the low8income group out of the revenues generated from the *state and >onor$s Tax and other types of taxes usually imposed on the high8income group. Taxes are the enforced proportional contri'"tions from persons and property levied by the &tate by virtue of its sovereignty for the support of government and for all public needs. The de ree of enforcement as applied in the collection of the tax depends on the tax system and the resources available to the tax administration. ,hen the tax system allo&s a vol"ntary or self-assessment method. then de ree of enforcement is someho& red"ced .nd so ' tell you: make friends for yoursel$es with worldly wealth14hoe$er is faithful in small matters will be faithful in large ones%1'f then/ you ha$e not been faithful in handling worldly wealth/ how can you be trusted with true wealthC .nd if you ha$e not been faithful with what belongs to someone else/ who will gi$e you what belongs to youC Luke 1?:"!1 < &ec. 1.+ @haracteristics of a Tax ca"sin the tax administration to 'ecome less efficient or effective.

&ome countries enforce their collection of taxes by not allowing self8assessment since it is the tax authorities that determine the correct tax to be paid by the taxpayers. This is possible if a simple tax system" aided by an advanced information technology" is enforced. %n the absence of a sophisticated technology" coupled with legal barriers in fully exploiting access to third party information" including ban! records" and lac! of resources" a method of self8assessment among taxpayers is allowed in the 6hilippines in the determination of the annual income tax" Galue dded Tax (G T) and other percentage taxes for taxpayers engaged in business. &uch method of self8assessment somehow downgrades the enforcement aspect of taxation since the tax authority is now dependent on the voluntary compliance of taxpayers in the determination of the correct tax. 6ower and water utilities on the other hand strictly enforce their collection by not allowing self8assessment among its customers but through better ways and means li!e an accurate measurement of power or water consumption and an immediate disconnection of service when customers do not pay their bills promptly. 1evertheless" a certain degree of enforcement is applied in the collection of @apital 4ains Tax on the sale of real property" *state and >onor$s Taxes since title to real property is not transferred to the new owner(s) unless proof of tax payment is presented to the )egistry of >eeds. %n its broad sense" 6hilippine taxation is enforced when the tax authority exercises its collection remedies such as distraint" garnishment" and levy. Eactors that 'nfluence &ocial .cceptance of (a)es: 1. (a) simplification% and . 6eduction of formal obligations. &imply/ abo$e factors can be summariFed with this phrase: #Doing better or more with lessG ;ortugal (a) .dministration 1= &ec. 1.- &ources of Tax 3aws s far as the taxpayers are concerned" taxes Dust li!e other outflow of funds are Dustified only by the benefits they will enDoy as a result of the tax payment or payment for such power or other form of services 9<ost!@enefit Doctrine:. /hen individuals and business entities pay taxes" they bear the cost of government activities. (hese costs include not only direct payments made to the go$ernment/ but also costs that are incurred and time consumed in filing returns/ keeping records/ and made subHect to e)amination or audit. (enefits must far outweigh the cost of the public service or utilities including the opportunities that are missed and resources spent for the sa!e of compliance. 9urthermore" the present self8assessment system places the responsibility on individuals and corporate taxpayers to be informed of their obligations and to act accordingly. To sum it up" the taxpayer$s burden is time" expense" and dissatisfaction experienced in complying with the tax laws. /ith such burden" consumers have less resistance paying their power" water" and other utilities$ consumption bills than in their obligation to pay taxes. 1./ a. b. c. d. e. 0o"rces of Tax La&s The 6hilippine @onstitution &tatutes B The 1ational %nternal )evenue @ode (1%)@) )evenue )ules and )egulations dministrative )ulings and Apinions Hudicial >ecisions B 6hilippine @ourts

f. Treaties or %nternational greements g. The 5nited &tates %nternal )evenue cts from which the 6hilippine Tax @ode has been patterned and Hudicial >ecisions" dministrative )ulings and Apinions of the 5.&. @ourts and dministrative Afficials. &ec. 4 of the I'6< of 1""3 provides that the power to interpret its provisions and other tax laws shall be under the exclusive and original Durisdiction of the @ommissioner of %nternal )evenue (@%))" subDect to review by the &ecretary of 9inance ( &ee 6,< 4>! >> ). #4e know that in all things/ God works for good with those who lo$e 0im/ those whom 0e has called according to 0is purpose. 6omans 2: 2 11 &ec. 1.. &ources of Tax %nformation The power to decide disputed assessments" refunds of internal revenue taxes" fees or other charges" penalties imposed in relation thereto" or other matters arising under the current tax code or other laws or portions administered by the (%) is vested in the @%)" subDect to exclusive appellate Durisdiction of the @ourt of Tax ppeals (@T ). 9or an easy guide of (%) issuances" please refer to Annex E List of Relevant1Latest 2!R !ss"ances of this handboo!. 9ull text of these issuances are available at the (%) website www.bir.gov.ph. Taxpayers may also visit the nearest (%) )evenue >istrict Affice ()>A) and secure copies of the (%) issuances useful to them. 9or guidance" contact numbers of selected (%) offices are listed in Annex ! Directory of 2!R %ffices of this handboo!. %f in need of an updated compilation of relevant and latest (%) issuances" contact the author at pinoytaxIyahoo.com and get a copy of 3Taxation 4and'oo5 6 7pdated Compilation of Relevant and Latest 2!R !ss"ances8. 1.9 0o"rces of Tax !nformation

1. (%) /ebsiteC www.bir.gov.ph (%) 6ortal C httpsC//my.bir.gov.ph *mail inquiries toC contactJusIcctr.bir.gov.ph Ar call (%) @ontact @enterC (=2) <0180000 2. (%) district" regional offices" and the Taxpayers$ ssistance &ervice" 1ational Affice" >iliman" Kue2on @ity and other concerned offices at the (%) 1ational Affice #. 1ational %nternal )evenue/3ocal 4overnment @ode/@ustoms and Tariff @ode '. (%) %ssuances" Tax 9orms and @alendars +. Textboo!s and reference boo!s on Taxation -. )egular" special and brief courses/seminars .. %nternal and *xternal Tax 6erson(s) (within and outside of taxpayer$s organi2ation) #.s a rule1he 9or she: who has the most information will ha$e the greatest success in life. Disraeli &ec. 2.1 12 3ocal 4overnment 5nits (345s)

Chapter 2.0 The Tax Authorities in the Philippines

2.1 Local :overnment 7nits ;L:7s<

6epublic .ct 96...: Io. 31?>" otherwise !nown as the 3ocal 4overnment @ode of 1<<1 provides that each 345 shall exercise its power to create its own sources of revenue and to levy taxes" fees" and charges subDect to the provisions of the @ode consistent with the basic policy of local autonomy. &uch taxes" fees" and charges shall accrue exclusively to the 345s. Ather than local taxes" a substantial portion of funds" ranging from 0=? to <=? of the total funds by many 345s" come from the %nternal )evenue llotments or collections from the (%). 345s also generate funds from its share in the proceeds of the utili2ation of natural resources within their respective areas and may incur local or foreign indebtedness to support its needs. *rovinces. - 6rovinces may levy only the taxes" fees" and charges of the followingC 1. Tax on transfer of real property7 2. Tax on business of printing and publication7 #. 9ranchise tax7 '. Tax on sand" gravel and other quarry resources7 +. 6rofessional tax7 -. musement tax7 and .. )eal property tax. ="nicipalities1Cities. - ,unicipalities and @ities may levy only the taxes" fees" and charges of the followingC 1. Tax on business7 2. 9ees and charges on business and occupation7 #. 9ees for sealing and licensing of weights and measures7 '. 9ishery rentals" fees" and charges7 +. Toll fees or charges7 -. @ommunity tax7 and .. )eal property tax. 2aran ays. - The barangays may levy taxes" service fees or charges" and fees on barangay clearance" subDect to certain conditions. 1# &ec. 2.1 3ocal 4overnment 5nits (345s) 2.1a Common Limitations on Local Taxation

The taxing powers of -23s shall not extend to the levy of the following/

a. b. c. d. e. f. g. h. i.

%ncome tax" except when levied on ban!s and other financial institutions7 >ocumentary stamp tax7 Taxes on estates" inheritance" gifts" legacies" and other acquisitions mortis causa" except on certain conditions7 @ustoms duties" registration fees of vessel" wharfage on wharves" tonnage dues" and all other !inds of customs fees" charges and dues except wharfage on wharves constructed and maintained by the 345s concerned7 Taxes" fees" charges" and other impositions upon goods carried into or out of" or passing through the territorial Durisdiction of 345s7 Taxes" fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen7 Taxes on business enterprises certified by the (oard of %nvestments ((A%) as pioneer or non8pioneer for a period of - and ' years respectively from the date of registration7 *xcise taxes7 6ercentage or G T7

D. !. l. m. n.

Taxes" fees or charges for the registration of motor vehicles and for the issuance of all !inds of licenses or permits for and driving thereof" except tricycles7 Taxes" fees or other charges on 6hilippine products actually exported7 Taxes" fees or charges on @ountryside and (arangay (usiness *nterprises and cooperatives duly registered under 6... Io. ?21> and 6... Io. ?"72 otherwise known as the #<ooperati$e <ode of the ;hil.% Taxes" fees or charges of any !ind on the 1ational 4overnment" its agencies and instrumentalities and 345s7 and Gross receipts of common carriers derived from their incoming and outgoing freight (See R.A. No. 9337 Effective: Novem er !" #$$% and Sec. 3.& 'ther (ercentage )a*es of this hand oo+,. 1' &ec. 2.1 3ocal 4overnment 5nits (345s) Annotations

Charges refer to pecuniary liability, as rents or fees against persons or property either as an exercise of a proprietary4commercial activity or as an exercise of an essential governmental function by the -23. Fee means a charge fixed by law or ordinance for the regulation or inspection of a business or activity. Double taxation means taxing twice the same person or property for the same purpose during the same taxable year or taxing period by the same government. 5f authori,ed by law, imposition by the national government and the local government unit of the same tax type )e.g., income tax on banks* is not a case of double taxation. !ublic hearings shall be conducted prior to the approval of local tax ordinances and revenue measures. +ny 6uestion on the constitutionality or legality of taxes ordinances or revenue measures may be raised on appeal within "7 days from the effectivity thereof to the Secretary of 8ustice/ !rovided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance/ !rovided, finally, That within "7 days after receipt of the decision or the lapse of the 97$day period without the Secretary of 8ustice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent &urisdiction.

3ocal taxation is relevant both to the local economy and the national economy. An a local scale" the factors that play in the growth of the national economy vis8L8vis the global economy also influence the growth of the local economy vis8L8vis other local communities within the country. local taxation that provides a conducive business environment attracts investments. &ome 345s are harnessing the efficiency and simplicity of using electric consumption as a way of collecting local taxes. This will wor! to the advantage of both the local government and its constituents if done to gradually replace existing burdensome local taxes rather than to increase what might already be a heavy load of current local tax obligations. Farnessing the efficiency of local utility firms such as power" water" and other forms of services in the use of easily measurable taxable economic consumption as a taxable base may prove effective if existing local taxation based on the voluntary disclosure of financial transactions is gradually replaced. 1+ &ec. 2.1 3ocal 4overnment 5nits (345s) )eliance on the traditional invoice and other internal accounting records and the voluntary manner in which taxpayers are required to disclose financial transactions are indeed burdensome for taxation purposes. /hen such disclosure is subDected to audit or investigation" it becomes even more burdensome since time is diverted to attend to enforcement compliance rather than improving business viability on the part of the taxpayer. &imply stated" when one pays 6hp+="===.== for his electric bill or water bill" he buys peace of mind on that matter after such payment. /hen a taxpayer pays the same amount as tax" he will still be burdened in !eeping his invoices" boo!s of accounts and other accounting records and a >amocles$ sword hangs upon his head in case of audit or investigation during

the period in which the law allows such action to be conducted. 1evertheless" internal accounting records done manually or electronically will always be a necessity for internal purposes if business entities are to ma!e guided business decisions but may not even be necessary to measure taxable events as there are better ways to generate revenues for government. &ince the (%) and 345s adopt different manner of taxation on almost similar if not identical transactions" there are different tax forms" varying tax calendars" and uncoordinated tax audit to be undergone by T6s. %t cannot be avoided that considerable time and resources are spent by business entities in dealing with the national and local tax authorities. To minimi2e such time and resources spent in dealing with government interventions" other countries have unified their local and national collecting agency or body. /ith simpler tax returns or paperless transactions and coordinated tax calendar for local and national taxes" taxpayers are able to spend more time in improving their business. The @anada @ustoms and )evenue gency do more than collect federal income tax. %t also collects provincial income taxes for all but one of its provinces and territories" ma!ing it possible for most @anadians to fill in only one annual tax return. #Discard fi)ed rules and change with changes in the enemy situation1.4in $ictory by modifying your tactics in accordance with the changes in the enemy conditions. &un 4u5s .rt of 4ar 1&ec. 2.2a (ureau of @ustoms ((A@) 2.2 a. b. 2.2a National :overnment ;N:< (ureau of @ustoms ((A@) (ureau of %nternal )evenue ((%)) 2"rea" of C"stoms ;2%C<

Tariff and customs duties are used interchangeably in the Tariff and @ustoms @ode. %t may be used in one of these three (#) sensesC
a. + book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be paid for the same0 or

b. c.

The duties payable on goods imported or exported7 or The system or principle of imposing duties on the importation or exportation of goods. Annotations

The (ureau of @ustoms and other government agencies generate around 21.--? of the total revenues for the national government. The bigger portion of the national government revenues is generated by the (%) and has increased from .=.00? (6hp2-="..'(illion/ 6hp#-."0<'(illion) in 1<<- to .0.#'? (6hp+'2"-<.(illion/ 6hp-<2"..<(illion) in 2==+ as published in the 2==+ (%) nnual )eport. %n the same manner that there is unification or a creation of one collecting office for local and national taxes" same effort to unify the administration of customs and internal taxes are pursued by other countries. &uch unification is even more Dustified if internal revenue taxes are increasing progressively in its contribution to total revenues of government and a corresponding reduction of the share of customs duties to total government revenues is shown through the years.

#Generally/ management of many is the same as management of few. 't is a matter of organiFation. Jne is single. Ei$e make a s=uad1two platoons a company1two brigades an army. Bach is subordinate to the superior and controls the inferior. (hus one may manage a host of million men Hust as he would a few. &un 4u5s (he .rt of 4ar 1. &ec. 2.2b (ureau of %nternal )evenue ((%)) 2.2' 2"rea" of !nternal Reven"e ;2!R<

(oth the (A@ and the (%) are under the supervision and control of the >epartment of 9inance (>A9). The powers and duties of the (%) shall comprehend the assessment and collection of all national internal revenue taxes" fees" and charges" the enforcement of all forfeitures" penalties" and fines connected therewith" including the execution of Dudgments in all cases decided in its favor by the @ourt of Tax ppeals and the ordinary courts. The (%) shall give effect to and administer the supervisory and police powers conferred to it by the Tax @ode and other laws. The (%) shall have a chief to be !nown as @ommissioner of %nternal )evenue (@%)) and assisted by his >eputy @ommissioners. /ith the approval of the &ecretary of 9inance" the @%) shall divide the 6hilippines into a number of revenue districts as may from time to time be required for administrative purposes. *ach of these districts shall be under the supervision of a )evenue >istrict Afficer ()>A). group of district offices shall comprise a regional office headed by a )evenue )egional >irector ())>). Af the two functions of the (%)" assessment and collection" the effectiveness of the collection depends on the quality of the assessment done by the enforcement officers/officials assigned for such duties. ssessment functions can further be subdivided into two maDor activities. These areC 1. Goluntary or &elf8 ssessment 2. *nforced ssessment 9or a better understanding of the administrative processes of these functions" please refer to Annex # >"ic5 :"ide of the 2!R Administrative *rocess of this handboo!. #2>K of the Jutput is attributable to >K of the 'nput. ;areto ;rinciple 2>L >6ule

10 &ec. #.1 %ncome Tax Chapter $.0 The 2!R Tax 0ystem The national internal revenue taxes are as followsC 1. %ncome Tax '. Ather 6ercentage Taxes 2. *state and >onor$s Taxes +. *xcise Taxes on @ertain 4oods #. Galue dded Tax (G T) -. >ocumentary &tamp Tax