July 10, 2017

CHAPTER 1 INTRODUCTION TO
INTERNAL REVENUE TAXES

1. SOURCES OF REVENUE FROM INTERNAL REVENUE TAX

Internal Revenue Taxes are provided by R.A. 8424, the National Internal Revenue
Code of 1997.
These taxes are commonly called excise taxes or privilege taxes because they are
imposed on the enjoyment of a privilege, performance of an act, or engagement to an
occupation.
A. NIRC Section 21. Sources of Revenue. The following taxes, fees and charges are
deemed to be national internal revenue taxes:
a) Income tax;
b) Estate and donors taxes;
c) Value-added tax;
d) Other percentage taxes;
e) Excise taxes;
f) Documentary stamp taxes;
g) Such other taxes as are or hereafter may be imposed and collected by the
Bureau of Internal Revenue.
B. NIRC Section 2. Powers and duties of the Bureau of Internal Revenue (BIR).
The Bureau of Internal Revenue shall be under the supervision and control of the
Department of Finance and its powers and duties shall comprehend the
assessment and collection of all national internal revenue taxes, fees and charges,
and the enforcement of all forfeitures, penalties, and fines connected therewith,
including the execution of judgments in all cases decided in its favor by the Court
of Tax Appeals and the ordinary courts. The Bureau shall give effect to and
administer the supervisory and police powers conferred to it by the Code or other
laws.

2. DISTINCTION OF INTERNAL REVENUE TAXES

A. Income taxes is a tax imposed on taxpayers earnings. As a rule, there is no
imposable tax if a taxpayer incurred a break-even or loss.
Practically, all income taxes are direct taxes because the taxpayer cannot shift its
burden to another. In general, it is not allowed to be deducted from gross business
income. It is directly imposed on the wealth of the taxpayer; hence a direct tax.
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Income taxes imposed on earnings would depend on the classification of income
earned by the taxpayer.
Classifications of income taxes, generally:
a) Regular Income taxes if income is derived from trade, profession, or
occupation, the taxable amount of this tax is the taxpayers net income. This
kind of income is subject to regular or normal taxes such as:

For individual taxpayers from 5% to 32%

For corporate taxpayers 30% of the net taxable income or MCIT = 2%
of gross income, whichever is higher.
b) Final Income Taxes There are some earnings that are not covered with
regular taxes but subject to final taxes. These earnings are:

Capital gains:
Sale of shares of stock classified as capital asset 5% on the first
P100,000 capital gains, and 10% on the excess of the first P100,000
capital gains.
Sale of real property classified as capital asset 6% based on the
selling price or zonal value, whichever is higher.
Passive income:
Interest income earned from the bank in general 20% of gross
earnings.