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General Course for Revenue Officers TMDGPT 210 Slide 1
Topic 210INTRODUCTION TO
PUBLIC FINANCE &GENERAL PRINCIPLES
OF TAXATION
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General Course for Revenue Officers TMDGPT 210 Slide 2
TOPIC OUTLINE
Public Finance (an Overview)
Fundamental Concepts of Taxation Theory and Basis of Taxation
Purpose of Taxation
Essential Characteristics of Taxes Basic Principles of a Sound Tax System
Definition, Similarities & Differences of Various
Taxation Terms
Classification of Taxes
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General Course for Revenue Officers TMDGPT 210 Slide 3
TOPIC OUTLINE
Powers of Taxation
Nature, Construction & Sources of Tax Laws Situs, Scope & Aspects of Taxation
Tax Exemptions
Organizational Framework of the BIR Functions of the BIR
Powers & Duties of the CIR
Definition, Classification, Nature, Payment& Effect of Assessment
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General Course for Revenue Officers TMDGPT 210 Slide 4
Differentiate taxation from taxes;
Enumerate the purposes of taxation; Identify the theory and basis of taxation;
Identify the essential characteristics and classification
of taxes;
Distinguish taxes from other taxation terms;
Distinguish the similarities and differences among
taxation, eminent domain and police power;
Analyze the basic principles of a sound tax system;
TOPIC OBJECTIVES
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General Course for Revenue Officers TMDGPT 210 Slide 5
Differentiate inherent from constitutional limitations on thepower of taxation;
Identify the different situs of taxation and clarify conceptsof double taxation;
Identify the nature, construction, application and sourcesof tax laws;
Enumerate the nature, rationale, grounds and sources oftax exemptions;
Know the scope of taxation;
Identify the different aspects of taxation; and
Differentiate tax evasion and tax avoidance.
TOPIC OBJECTIVES
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General Course for Revenue Officers TMDGPT 210 Slide 6
Public Finance (An Overview)
Public Finance is a branch ofeconomics that deals with therevenues and expenditures of
government and their impact onthe economy
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General Course for Revenue Officers TMDGPT 210 Slide 7
Public Finance (An Overview)
PUBLIC FINANCE is the raising of
revenues through the imposition of
taxes.
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General Course for Revenue Officers TMDGPT 210 Slide 8
Components of Fiscal Policy
Government revenue policy - how the
government gets its funds;
Government expenditures policy -
how it allocates its revenue amongdifferent uses; and
Debt management policy - how itmanages the public debt.
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General Course for Revenue Officers TMDGPT 210 Slide 9
Revenues
Tax revenues - whether direct or indirect tax
Capital revenues - proceeds from sales of fixed capitalasset or scraps like sales of public bonds, building andother structures.
Extraordinary income - repayment of loans and
advances made by government corporation and localgovernments.
Public borrowing - proceeds of repayable obligations
generally with interest from domestic and foreign creditors
of government.
Grants - voluntary contributions and aids given to thegovernment for its operation on specific purpose.
Sources of Government Revenues
& Expenditures
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General Course for Revenue Officers TMDGPT 210 Slide 10
Expenditures
Recurrent expenditures - refer to the day-to-daycost of running the government.
Development expenditures - pertain to cost ofcapital projects.
Sources of Government Revenues
& Expenditures
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General Course for Revenue Officers TMDGPT 210 Slide 11
Objectives of Fiscal Policy
To keep the public sector lean and trim so as to freemore manpower and financial resources for the
private sector;
To finance total operating and developmentexpenditures from operating revenue;
To focus government expenditures in areas whichyield lasting returns, i.e., Education, health care,
infrastructure and housing;
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General Course for Revenue Officers TMDGPT 210 Slide 12
Objectives of Fiscal Policy
To promote desirable level of employment;
To promote desirable level of output;
To promote a desirable level of income and its
proper distribution; and
To promote desirable level of prices.
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General Course for Revenue Officers TMDGPT 210 Slide 13
Tax Policy
Tax policy is an integral part of fiscal policy.
Taxes not only provide government with themeans to raise the revenue needed to fundits activities but also to provide the
government with tax means to redistributelimited resources, maintain economic
stability, promote growth and achievespecific social objectives.
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General Course for Revenue Officers TMDGPT 210 Slide 14
BIR Share in National Government
Tax Revenues ( CY 2004 )
BIR
78.29%BOC
20.47%
Other Agencies
1.23%
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General Course for Revenue Officers TMDGPT 210 Slide 15
BIR Tax Effort ( CY 1994 - 2004 )
11.07 11.112.01
13.0012.6511.47
10.9110.589.969.91 9.67
0
2
4
6
8
10
12
14
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
TAX
EFFORT (%)
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General Course for Revenue Officers TMDGPT 210 Slide 16
Percent Distribution of BIR Collection by
Major Type of Tax CY 2004
4.72%
17.14%
12.71%59.44%
5.99%Percentage Taxes
Other Taxes
VAT
Excise Taxes
Income Taxes
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General Course for Revenue Officers TMDGPT 210 Slide 17
Percent Distribution of Collection by
Manner of Payment CY 2004
99.77%
Voluntary
Payments
0.17%
Preliminary/Final
Assessment
0.06%
Delinguent
Accounts
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General Course for Revenue Officers TMDGPT 210 Slide 18
Comparative Collection by Manner of
Payment (CY 2004 VS 2003)
0
100
200
300
400
468.5
4
424.8
0
0.817
1.45
0.272 0.2
62
Voluntary Payments Preliminary/Final
Assessments
Delinquent
Accounts
In
Billion
Pesos
CY 2004 CY 2003
CY 2004 CY 2003 CY 2004 CY 2003
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General Course for Revenue Officers TMDGPT 210 Slide 19
Definition of Taxation
It is the act of levying a tax, or theprocess or means by which thesovereign, through its law-making body,
raises revenue to defray the necessaryexpenses of the government.
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General Course for Revenue Officers TMDGPT 210 Slide 20
Definition of Taxes
Taxes are the enforced proportionalcontributions levied by the law-making bodyof the state by virtue of its sovereignty upon
the persons or properties within itsjurisdiction for the support of the governmentand all its public needs.
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General Course for Revenue Officers TMDGPT 210 Slide 21
The power of taxation is
comprehensive, plenary, unlimitedand supreme. It is essentiallylegislative in character and isinherent in the state.
Nature and Scope of the
Power of Taxation
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General Course for Revenue Officers TMDGPT 210 Slide 22
Theory and Basis of Taxation
The power of taxation proceeds upon the theory thatthe existence of government is a necessity, that the
government cannot exist without the means to pay itsexpenses and for these means, it has the right tocompel its citizens and properties within its limit tocontribute.
The basis of taxation is found on the reciprocal dutiesof protection and support between the state and itsinhabitants. The state collects taxes from the subjects
of taxation , the citizen pays taxes in order that hemay be secured in the enjoyment of the benefits ofan organized society.
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General Course for Revenue Officers TMDGPT 210 Slide 23
PRIMARY
PURPOSE OF TAXATION
Provide funds or property with which topromote the general welfare and
protection of its citizens.
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General Course for Revenue Officers TMDGPT 210 Slide 24
SECONDARY OR NON-REVENUE
PURPOSES OF TAXATION
To reduce excessive inequalities of wealth and meansby using the progressive scheme of income taxation and
imposing estate taxes to equalize wealth.
To protect local industries against foreign competitors byimposing protective tariff on imported goods.
To encourage the growth of home industries through theproper use of tax exemptions and tax incentives.
To implement the police power of the state in promotingthe general welfare.
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General Course for Revenue Officers TMDGPT 210 Slide 25
To use taxes on imported goods as a bargaining tool
in trade negotiations with other countries.
To curb spending power and halt inflation byincreasing taxes in periods of prosperity and expand
business and ward-off depression by lowering taxes inperiods of slump.
To promote science and invention or to finance activities or
to improve efficiency of military or local police forces in themaintenance of peace and order through the grant ofsubsidies.
SECONDARY OR NON-REVENUE
PURPOSES OF TAXATION (cont.)
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General Course for Revenue Officers TMDGPT 210 Slide 26
Other Aspects of Taxation or
Taxation System
Levying or imposition of the tax- this refers to theprocess of determining the persons or property to be
taxed; the purpose of the tax as long as it is a publicpurpose; the sum/s to be raised; the rate thereof; andthe manner, means and agencies of collection of the tax.
It is legislative act with powers vested in Congress.
Collection of the tax- this refers to the manner ofenforcing the tax obligation on the part of those required topay the tax. It is essentially administrative in character
with powers vested in the Department of Financeespecially the Bureau of Internal Revenue and the local
government units.
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General Course for Revenue Officers TMDGPT 210 Slide 27
Essential Characteristics of Tax
It is enforced contribution.
It is levied pursuant to legislative authority.
It is proportionate in character.
It is generally payable in money.
It is levied by the state which has jurisdiction
over the persons or property.
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General Course for Revenue Officers TMDGPT 210 Slide 28
Essential Characteristics of Tax
It is levied and collected for public purposeor purposes.
It is commonly required to be paid at regularperiods or intervals.
It partakes of an involuntary contribution andrevenue to the government for publicpurpose.
It is a compulsory government exaction orlevy on persons, property, income andbusiness.
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General Course for Revenue Officers TMDGPT 210 Slide 29
Basic Principles of a Sound Tax System
Fiscal Adequacy - the sources of revenues should besufficient to meet expenditures of government
regardless of business conditions.
Equality or theoretical justice - that taxes must be
imposed with equity, certainty, convenience, and by
considering the taxpayers ability to pay.
Administrative feasibility and compliance - law mustbe capable of reasonable and convenient enforcement,
just and effective administration, and taxpayers shouldfind it easy and reasonable to comply.
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General Course for Revenue Officers TMDGPT 210 Slide 30
Basic Principles of a Sound Tax System
Consistency or compatibility with economic
objectives or goals - the economic effects oftaxation extend far beyond the matter of incidence,
the allocation of resources to the public sector, andredistribution of income.
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General Course for Revenue Officers TMDGPT 210 Slide 31
Definition of Taxation, Eminent
Domain, and Police PowerTaxation- refers to the power by which the sovereign raises
revenue to defray the necessary expenses of thegovernment.
Eminent Domain- refers to 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 tobe ascertained according to law. It is sometimes calledexpropriation.
Police Power- refers to the power of the state to enact laws
in relation to persons and property, that may promote publichealth, public morals, public safety, and the general welfareand prosperity of its inhabitants.
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General Course for Revenue Officers TMDGPT 210 Slide 32
Similarities among Taxation,
Eminent Domain & Police Power
They all rest upon necessity because there can be no
effective government without them.
They all underlie and exist independently with theconstitution although the conditions for their exercise may
be prescribed by the Constitution and by law.
There are ways by which the state interferes with privaterights and property.
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General Course for Revenue Officers TMDGPT 210 Slide 33
Similarities among Taxation,
Eminent Domain & Police Power
They are legislative in nature andcharacter although the actual exerciseof the powers is given to the executiveauthorities, national or local.
They all presupposes an equivalentcompensation received, directly orindirectly, by the persons affected by
the exercise of these powers by thegovernment.
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General Course for Revenue Officers TMDGPT 210 Slide 34
Taxation Distinguished from
Police Power and Eminent Domain
Taxation Police Eminent
Power Domain
The person affectedreceives no direct
and immediatebenefits but onlysuch as may arisefrom the mainte-nance of a healthyeconomic standardof society.
The personaffected
receives themarket valueof the propertytaken from him.
It is assumed thatthe individual
receives theequivalent of thetax in the form ofprotection andbenefits receivedfrom the govern-ment.
As tocompensation
or benefitsreceived
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General Course for Revenue Officers TMDGPT 210 Slide 35
Taxation Distinguished from
Police Power and Eminent Domain
Directed to
the public
Directed to a
particular personor property
Directed to
the public
As to whom
directed
Taxation Police Eminent
Power Domain
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General Course for Revenue Officers TMDGPT 210 Slide 36
Taxation Distinguished from
Police Power and Eminent Domain
As to nature of
compensation
As to how property
is taken
It providesbetter social
& economic
standards.
Property istaken or
destroyedfor public
welfare.
It requiresjust
compensation.
Property istaken for
public use.
It presumed
protection orbenefits.
Property is
taken to
support thegovernment.
Taxation Police Eminent
Power Domain
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General Course for Revenue Officers TMDGPT 210 Slide 37
Taxation Distinguished from
Police Power and Eminent Domain
As to relation toimpairment
clause
It issuperior to
impairmentclause.
It issuperior to
impairmentclause.
It isinferior to
impairmentclause.
Taxation Police Eminent
Power Domain
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General Course for Revenue Officers TMDGPT 210 Slide 38
Taxation Distinguished from
Police Power and Eminent Domain
The use of propertyis regulated for the
purpose ofpromoting thegeneral welfare;hence, it is not
compensable.
The property istaken for public
use; hence, itmust becompensable.
The property istaken from the
taxpayer tosupport thegovernment.
As topurpose
Taxation Police Eminent
Power Domain
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General Course for Revenue Officers TMDGPT 210 Slide 39
Taxation Distinguished from
Police Power and Eminent Domain
It operates onthe individualas the owner ofa particularproperty.
It operates
upon acommunity ora class ofindividuals.
As to person
involvedor affected
It operates
upon acommunity ora class ofindividuals.
Taxation Police Eminent
Power Domain
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General Course for Revenue Officers TMDGPT 210 Slide 40
Taxation Distinguished from
Police Power and Eminent Domain
There is transferof the right of
propertywhether it be ofownership or alesser right or
possession.
The moneycontributed in
the concept oftaxes becomespart of thepublic funds.
As to effect There is no transferof title; at most,
there is restraint inthe injurious use ofproperty.
Taxation Police Eminent
Power Domain
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General Course for Revenue Officers TMDGPT 210 Slide 41
Taxation Distinguished from
Police Power and Eminent Domain
It is also inferior to the
impairment prohibitionso that the governmentcannot expropriate
property which undera contract it had
previously bounditself to purchasefrom othercontracting party.
It is subject tocertain constitu-
tional limitationsincluding theprohibitionagainst theimpairment of the
obligations ofcontracts.
As to
relationship
to theConstitution
It is relativelyfree from cons-
titutional limita-tions and issuperior to theimpairmentprovisions.
Taxation Police Eminent
Power Domain
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General Course for Revenue Officers TMDGPT 210 Slide 42
Taxation Distinguished from
Police Power and Eminent Domain
It may begranted to
public servicecompanies orpublic utilities, ifthe power is
granted by thelaw.
It may beexercised
only by thegovernment orits politicalsubdivisions.
As to
authority
whichexercises
thepower
It may beexercised
only by thegovernment orits politicalsubdivisions.
Taxation Police Eminent
Power Domain
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General Course for Revenue Officers TMDGPT 210 Slide 43
Taxation Distinguished from
Police Power and Eminent Domain
There is
no amountimposed.
There isgenerally no
limit to theamount of taxthat may beimposed.
As to
amount
imposition
The amount imposedis limited to the cost
of the license and thenecessary expensesof police surveillance,inspection,examination,
or regulation.
Taxation Police Eminent
Power Domain
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General Course for Revenue Officers TMDGPT 210 Slide 44
Classifications of Taxes
As to Subject Matter or Object
Kinds of Taxes on Persons
1. Individual Income Tax - is the tax or imposition on:
The Gross Compensation Income of aperson based on a graduated scale. The
income tax is based on the grosscompensation income less personal
exemptions and premium on health and/orhospital insurance as the case maybe.
The net income from the exercise of aprofession or other income derived frombusiness.
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General Course for Revenue Officers TMDGPT 210 Slide 45
Classifications of Taxes
2. Poll or Residence Tax - refers to as per capita or
Poll Tax. Ex.Community Tax
3. Privilege or Professional Tax - is a tax levied in the
practice of profession. All professionals like lawyers,
CPAs, doctors, etc. are required to pay their
Professional Tax before they can practice their
profession.
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General Course for Revenue Officers TMDGPT 210 Slide 46
Classifications of Taxes
Kinds of Taxes on Property
1. Transfer Tax - vary depending on the manner in whichproperty may be transferred. At present, there are two
kinds of Transfer Tax under NIRC, namely:
Estate Tax - tax levied on property transferred by way
of succession. It is based on the gross value of the
state of a deceased person. Donor's Tax - refers to the gratuitous transfer of
property by one person to another during the former'slifetime. This is called "donation intervivos" which
means that the terms of the donation will take effectduring the lifetime of the donor.
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General Course for Revenue OfficersTMD
GPT 210 Slide 47
Classifications of Taxes
2. Taxes on Real Property
Real Property Tax - is the tax imposed on a
property owner based on the assessedvalue of his property. The percentage tax
varies depending on the classification of theproperty whether it is classified as
commercial or residential. It is also basedon the current Fair Market Value or Zonal
Value of the property whichever is higher.
Capital Gains Tax - a property owner who
sells his real property must pay his CGTwhich is based on the selling price or zonalvalue, whichever is higher.
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General Course for Revenue OfficersTMD
GPT 210 Slide 48
Classifications of Taxes
Kinds of Business Taxes
1. Sales Tax - tax levied on the sale of real or personalproperty.
2. 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, orany 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.
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General Course for Revenue Officers
TMDGPT 210 Slide 49
Classifications of Taxes
As to who bears the burden
Direct - a tax which is demanded from persons who also
shoulder the burden of the tax for which the taxpayer isdirectly liable or for which he cannot shift to another.
Indirect - a tax is demanded from one person in theexpectation and intention that he shall indemnify himself
at the expense of another, and the burden of such taxfalling finally upon the ultimate purchaser or consumer.
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General Course for Revenue Officers
TMDGPT 210 Slide 50
Classifications of Taxes
As to determination of amount
Specific a tax of fixed amount that is imposed based
on physical unit of measurements, as by head or number,weight, or length or volume.
Ad valorem - a tax of a fixed proportion to the value ofproperty with respect to which the tax is assessed.
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General Course for Revenue Officers
TMDGPT 210 Slide 51
Classifications of Taxes
As to purpose
General, fiscal or revenue a tax imposed for the
general purposes of the government to raise revenues forgovernment needs.
Special or regulatory - a tax imposed for a specialpurpose regardless of whether revenue is raised or not,
and is intended to achieve some social or economic end.
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General Course for Revenue Officers
TMDGPT 210 Slide 52
Classifications of Taxes
As to scope or authority imposing the tax
National a tax imposed by the National Government.
Municipal or local - a tax imposed by municipal or local
government.
Cl ifi i f T
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General Course for Revenue Officers
TMDGPT 210 Slide 53
Classifications of Taxes
As to graduation or rate
Proportional a tax based on a fixed percentage of theamount of property, receipts, or other basis to be taxed.
Progressive or graduated - a tax the rate of which
increases as the tax base or bracket increases.
Regressive a tax the rate of which decreases as the
tax base or bracket increases.
Degressive a tax where the increases of rates is notproportionate to the increase of tax base.
Tax as Distinguished from
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General Course for Revenue Officers
TMDGPT 210 Slide 54
From license or permit fee
Tax - an enforced contribution assessed by sovereign authority
to defray public expenses; it is imposed for revenue purposes;it involves exercise of taxing power; it has generally nomaximum amount to be imposed; it is imposed on persons,property and right to exercise privilege; its non-payment does
not make a business or act illegal.
License - legal compensation or reward of an officer forspecific services; it is imposed for regulatory purposes; itinvolves exercise of police power; its amount is limited to cost
of issuing the license and reasonable police surveillance; it isimposed only on right to exercise privilege; its non-paymentmakes the act or business illegal.
Tax as Distinguished from
Other Terms
Tax as Distinguished from
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General Course for Revenue Officers
TMDGPT 210 Slide 55
From toll
Tax - a demand of sovereignty imposed exclusively bythe State or Government; it is for the support ofgovernment; its amount is regulated by necessities of
government.
Toll - a demand of proprietorship; it is imposed by private
persons and also by government; it is a compensation foruse of anothers property; its amount is determined by
cost of property.
a as st gu s ed o
Other Terms
Tax as Distinguished from
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General Course for Revenue Officers
TMDGPT 210 Slide 56
From penalty
Tax - aimed at raising revenue; it is imposed only by thegovernment.
Penalty - designated to regulate conduct; it is imposedby the government and also by private entities.
g
Other Terms
Tax as Distinguished from
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General Course for Revenue Officers
TMDGPT 210 Slide 57
From special assessment
Tax - levied on persons, property, or exercise of privilege; it ca
be made a personal liability of the person assessed; it is basedon governments necessity without any special benefit accruingto taxpayer; it is of general application. Not exceptional as totime and locality.
Special Assessment - levied only on land; it is not a personalliability of person assessed; it is based on special benefitsresulting to property assessed and not on necessity; it isexceptional both as the time and place and not of general
application.
g
Other Terms
Tax as Distinguished from
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General Course for Revenue Officers
TMDGPT 210 Slide 58
From revenue
Tax - refers to the income derived from the regular system of
taxation, and as such, accrues more or less regularly everyyear.
Revenue - refers to the aggregate total of all funds or income
derived by the government from taxes or from whatever sourceor whatever means. It is broader in scope.
g
Other Terms
Tax as Distinguished from
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General Course for Revenue Officers
TMDGPT 210 Slide 59
From custom duties
Tax - broader than custom duties on tariff because tax refers to
an exaction by the government and therefore includes tariff andcustom duties.
Custom duties - refers to a kind of tax imposed on articles
that are traded internationally, particularly impositions onimported or exported goods.
Other Terms
Tax as Distinguished from
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General Course for Revenue Officers
TMDGPT 210 Slide 60
From debt
Tax - based on law; it cannot generally be assigned; it isgenerally payable in money; it cannot be a subject of set-off orcompensation; imprisonment is sanctioned for the non-payment of tax; it is governed by special prescriptive periodsunder the Tax Code; it does not draw interest except only whendelinquent.
Debt - generally based on expressed or implied contracts; itmay be paid in kind; it may be a subject of set-off orcompensation; it can be assigned; a person cannot be
imprisoned for non-payment thereof except when it arises froma crime; it is governed by prescriptive periods under the CivilCode and other special laws.
Other Terms
Tax as Distinguished from
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General Course for Revenue Officers
TMDGPT 210 Slide 61
From subsidy
A subsidy is a pecuniary aid directly granted by thegovernment to an individual or private commercialenterprise deemed beneficial to the public. It is not a taxalthough a tax may have to be imposed to pay it.
Other Terms
Limitations on the Power of Taxation
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General Course for Revenue Officers
TMDGPT 210 Slide 62
Limitations on the Power of Taxation
Inherent Limitations( Those restrictions not embodied in the Constitution)
Requirement of public purpose
Limitation of territorial jurisdiction
Prohibition against delegation of taxing power
Limitation on international comity
Exemption from taxation of government agencies orinstrumentalities
No double taxation
No excessive taxation
Limitations on the Power of Taxation
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General Course for Revenue Officers
TMDGPT 210 Slide 63
Limitations on the Power of Taxation
Constitutional Limitations:
(Those restrictions expressly provided in the Constitution)
Requirement of due process of law Requirement of equal protection of the laws
Prohibition against imprisonment for non- payment of poll tax
Prohibition against impairment of the obligation of contracts
Requirement of uniformity and equity in taxation
Non-diversification of tax collection
Delegation of the power of taxation
The Supreme Courts power to review
Limitations on the Power of Taxation
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General Course for Revenue Officers
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Limitations on the Power of Taxation
Constitutional requirements in granting tax exemptions
Prohibition against infringement of religious freedom
Prohibition against appropriation for religious purposes
Prohibition against taxation of religious, charitable and
educational entities, etc.
Prohibition against taxation of non-stock, non-profiteducational institution.
Other Constitutional limitations such as the granting of
exemptions; veto of appropriate revenue or tariff bills bythe President; and non-impairment of the jurisdiction of theSupreme Court
Nature of Internal Revenue Law
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General Course for Revenue Officers
TMDGPT 210 Slide 65
Nature of Internal Revenue Law
Internal revenue laws are not political in
nature. They are deemed to be the laws ofthe occupied territory and not of theoccupying enemy.
Taxes are civil and not penal in nature
although there are penalties provided for
their violation.
Construction of Tax Laws
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General Course for Revenue Officers
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Construction of Tax Laws
Provisions intended for the security of the citizen ortaxpayer or to ensure equality or uniformity of taxation are
mandatory.Provisions that are designed to inform administrative
officers on tax matters are generally directory.
If the intent or meaning of the tax statute is not clear, or isdoubtful as to whether a taxpayer is covered by the taxobligation, the tax law shall be construed against the
government because revenue laws impose special
burdens.
Construction of Tax Laws
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General Course for Revenue Officers
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Co st uct o o a a s
Where the intent to tax is clear and the taxpayer claims that
he is exempt from the tax obligation, the tax shall beconstrued against the taxpayer and in favor of the
government because the power of taxation is necessary tothe existence of such government.
Rules on the interpretation of custom and tariff laws do not
apply to trade agreements, the former rules beingpromulgated in the exercise of the power of taxation while
trade agreements are entered into the exercise of the policepower.
If the tax law is repealed, taxes assessed before repeal ofthe law may still be collected unless the repealing law ismade retroactive.
Construction of Tax Laws
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General Course for Revenue Officers
TMDGPT 210 Slide 68
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 clearlegislative intent in that regard. It has been held that tax
laws shall have prospective effect only unless there is aclear provision to the contrary. If the retroactive effect wouldbe harsh or oppressive, the same transgresses theconstitutional limitations of due process.
Sources of Tax Laws
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General Course for Revenue Officers
TMDGPT 210 Slide 69
Pertinent provisions of the Constitution
Legislation or statutes, including Presidential
Decrees and Executive Orders on taxation, and tax
ordinances.
Administrative regulations and rulings or opinions
of tax officials, including opinions of the Secretaryof Justice.
Judicial decisions
Tax treaties or agreements entered into by thePhilippines with other countries.
Definition of Situs of Taxation
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General Course for Revenue Officers
TMDGPT 210 Slide 70
e t o o S tus o a at o
It literally means place of taxation. The basic ruleis that the state where the subject to be taxed has asitus may rightfully levy and collect the tax; and thesitus is necessarily in the state which has
jurisdiction or which exercises dominion over thesubject in question. Thus, the person may besubject to taxation in several taxing jurisdictions.
Situs or Subjects of Taxation
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General Course for Revenue Officers
TMDGPT 210 Slide 71
j
Persons
Real propertyPersonal Property
Tangible personal property
Intangible personal property
Income
Business, occupation, and transaction
Gratuitous transfer of property
Definition of double taxation
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General Course for Revenue Officers
TMDGPT 210 Slide 72
In its strict sense, it is also referred to as direct doubletaxation which means being taxed twice by the sametaxing authority within the same jurisdiction or taxingdistrict for the same purpose in the same year or taxingperiod some of the property in the territory.
In its broad sense, it is also referred to as indirectdouble taxation or taxation other than direct duplicate; itextends to all cases in which there is a burden of two or
more pecuniary impositions.
Meaning of exemption from taxation
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General Course for Revenue Officers
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This is a grant of immunity, express or implied, toparticular persons or corporations, or to persons or
corporations of a particular class, from a tax whichpersons and corporations generally within the samestate or taxing district, are obliged to pay. It is animmunity or a privilege; it is a freedom from afinancial charge or burden to which others aresubjected.
Grounds for grant of exemption
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General Course for Revenue OfficersTMD
GPT 210 Slide 74
g p
Tax exemption may be based on contract.
Tax exemption may be based on some
ground of public policy.
Tax exemption may be created in a treaty
on grounds of reciprocity.
Nature of tax exemption
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General Course for Revenue OfficersTMD
GPT 210 Slide 75
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.
Kinds of tax exemptions
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General Course for Revenue OfficersTMD
GPT 210 Slide 76
As to manner of creation
Express or affirmative - occurs when certainpersons, property, or transactions are, by expressprovisions, exempted from all or certain taxes, eitherentirely or in part.
Implied exemption or exemption by omission -occurs when a tax is levied on certain classes ofpersons, properties, or transaction without
mentioning the other classes.
Kinds of tax exemptions
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General Course for Revenue OfficersTMD
GPT 210 Slide 77
As to scope or extent
Total exemption - when certain persons, property ortransactions 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.
Kinds of tax exemptions
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General Course for Revenue OfficersTMD
GPT 210 Slide 78
As to object
Personal - those granted directly in favor of suchpersons are within the contemplation of the lawgranting the exemption.
Impersonal - those granted directly in favor of acertain class of property.
Sources of tax exemptions
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General Course for Revenue OfficersTMD
GPT 210 Slide 79
Exemptions provided for in theTax Code
Exemptions provided for under
special laws
Construction of tax exemption statutes
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General Course for Revenue OfficersTMD
GPT 210 Slide 80
Tax exemptions are liberally construed in the following cases:
When the law itself expressly provides for a literal construction
then in case of doubt, it shall be resolved in favor of theexemption.
When the exemption is in favor of the government itself or itsagencies, or of charitable, religious, and educational
institutions because the general rule is that they are exemptedfrom tax.
When there is an express mention or the taxpayer falls within
the purview of the exemption by clear legislative intent.
Principles Governing Tax Exemption
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General Course for Revenue OfficersTMD
GPT 210 Slide 81
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 statute law. He who claims an exemption from his share of common
burden in taxation must justify his claim by showing thatthe legislative intended to exempt him by words too
plain to be mistaken.
It is a well-settled rule that he who claims exemptionshould prove that he is exempted.
Principles Governing Tax Exemption
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General Course for Revenue OfficersTMD
GPT 210 Slide 82
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 distinctlyshow 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-exemptdoes not need a legislative enactment to put it intoeffect.
BIR Mission
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General Course for Revenue OfficersTMD
GPT 210 Slide 83
Our mission is to raise revenues for thegovernment through effective andefficient collection of taxes, quality
service to taxpayers, and impartial anduniform enforcement of tax laws.
Our Vision of the New BIR
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General Course for Revenue OfficersTMD
GPT 210 Slide 84
Taxpayers satisfied with BIR services
An agency that is taxpayer-focused, efficient andtransparent
An organization that is streamlined, productive and hasfiscal and administrative flexibility
A workforce that is professional, competent, morallyupright and motivated
A model of good governance in the public sector
Functions of the BIR
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General Course for Revenue OfficersTMD
GPT 210 Slide 85
Assessment and collection of all national internal
taxes, fees and charges;
Execution of judgments decided in its favor by theSupreme Court, the Court of Tax Appeals, and the
ordinary courts;
Enforcement of penalties and fines as well asforfeitures; and
Exercise power administrative and supervisory powers
over taxpayers including promulgation of pertinent
rulings.
Powers of the Commissioner ofInternal Revenue
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General Course for Revenue OfficersTMD
GPT 210 Slide 86
Interpret tax laws and decide tax cases.
Obtain information, summon, examine, and take
testimony of persons for purposes of ascertainingthe correctness of any return, or in making a returnwhen none has been made, or in evaluating taxcompliance.
Make assessments and prescribe additionalrequirements for tax administration andenforcement.
Compromise, abate, refund or credit taxes.
Powers of the Commissioner ofInternal Revenue
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General Course for Revenue OfficersTMD
GPT 210 Slide 87
Make arrests and seizures for violation of any penallaw, rules and regulations administered by the BIR.
Assign internal Revenue Officers involved in excisetax functions to establishments where articles subjectto excise tax are produced or kept.
Assign or reassign Revenue Officers and employeesof the BIR to other special duties connected with theenforcement or administration of revenue laws as theexigencies of the service may require, subject to the
rules and promulgated by the Civil ServiceCommission and the Secretary of Finance.
Powers of the Commissioner ofInternal Revenue
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General Course for Revenue OfficersTMD
GPT 210 Slide 88
Suspend business operations and temporarilyclose the business establishments of any person
for violations of certain provisions of the Tax Code. Enter any house, building, or place where articles
subject to tax are produced or kept, or are believedto be carrying articles on which excise tax has notbeen paid.
Detain any package containing or supposed tocontain articles subject to excise tax that are
believed to be illegally removed from place ofproduction or customs custody.
Powers of the Commissioner ofInternal Revenue
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General Course for Revenue OfficersTMD
GPT 210 Slide 89
dminister oath and take testimony related to theinvestigation conducted in matters within the jurisdictionof the BIR.
Enforce civil remedies and statutory penalties for thecollection of delinquent taxes.
Recommend to the Secretary of Finance thepromulgation of rules and regulations for the effectiveenforcement of the provisions of the tax laws.
Delegate powers to subordinate officials with the rank
equivalent to a Division Chief or higher subject to suchlimitations to be promulgated by the Secretary of Finance,upon recommendation of the CIR .
Duties of the Commissioner
of Internal Revenue
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General Course for Revenue OfficersTMD
GPT 210 Slide 90
Ensures the provision and distribution of forms,receipts, certificates and appliances andacknowledgment of payment of taxes.
Divide the Philippines into such number of revenuedistricts as may from time to time be required foradministrative purposes, subject for approval of the
Secretary of Finance.
Prepares Annual Report containing detailed statementsof the collections of the BIR with specifications of the
sources of revenue by tax type, by manner of payment,by revenue region, and by industry group, and itsdisbursements by classes of expenditures.
Duties of the Commissioner
of Internal Revenue
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General Course for Revenue OfficersTMD
GPT 210 Slide 91
Furnishes appropriate Committee of Congress, inaid of legislation, pertinent information such as
industry audits, collection performance data, statusreports in criminal actions initiated against persons,and taxpayers return.
Submits pertinent information report required byCongressional Oversight Committee every six (6)months of each calendar year.
Definition of Assessment
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General Course for Revenue OfficersTMD
GPT 210 Slide 92
Assessment is the official action of an authorized internalrevenue officer in ascertaining the amount of tax due from a
taxpayer, or it may be a notice to the effect that the amountstated therein is due from the taxpayer as a tax with ademand for payment of the tax or deficiency stated therein .The action necessarily involves:
Determination and computation of the sum due; Giving of notice to that effect to the taxpayer; and
Issuance of a demand notice (simultaneously with orsometimes after, the deficiency notice).
Assessment may be classified
as follows:
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Self - Assessment
Deficiency Assessment
Illegal and Void Assessment
Erroneous Assessment
Principles Governing Tax Assessment
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GPT 210 Slide 94
Assessments are prima facie presumed correct andmade in good faith.
Assessment should not be based on presumptions nomatter how logical the presumptions might be.
Assessment is discretionary on the part of the
Commissioner. The authority vested in the CIR to assess taxes may
be delegated.
Assessment must be directed to the right party.
Means Employed in the Assessment
of Taxes
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General Course for Revenue OfficersTMD
GPT 210 Slide 95
Examination of returns and determination of tax due;
Use of best evidence obtainable;
Authority to conduct inventory- taking, surveillance andprescribe 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 documentaryrequirements.
Prescriptive Periods for the
Right to Assess
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General Course for Revenue OfficersTMD
GPT 210 Slide 96
General rule- Internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law forthe filing of the return, and no proceeding in court withoutassessment for the collection of such taxes shall begin afterthe expiration of such period. However, in case where a
return is filed beyond the period prescribed by law, thethree-year period shall be counted from the day the return
was filed. A return filed before the last day prescribed bylaw for the filing thereof, is considered as filed on such lastday.
Considerations on the prescription ofgovernments right to assess taxes
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GPT 210 Slide 97
Date of Filing Tax Returns
Effect of Filing An Amended Return
Effect of Filing A Wrong Return
Period Applicable when the Law does not Requirethe Filing of any Return
Applicable Prescriptive Period if Taxpayer Fails toFile a Return
Prescriptive Period of Assessment when there isFraud
Determination of Deficiency TaxAssessment
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GPT 210 Slide 98
Audit of Tax Returns
Basis of Audit of Returns
Frequency of Audit
Submission of Audit Report
Prescription of Government's Right to
Collect Taxes
L i i ti f ll ti
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GPT 210 Slide 99
Law governing prescription of collection.
When does the five (5) years prescription period forcollection start to run.
When tax is deemed collected for purposes of theprescriptive period.
May there be a judicial action to collect a tax liabilityeven if there is no previous assessment.
Prescription of the governments right to recover an
erroneously refunded tax.
Waiver of the Statute of Limitations Extension of theprescriptive period.
Mode of Procedures in theIssuance of Assessment Notice
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General Course for Revenue OfficersTMD
GPT 210 Slide 100
Post-Reporting Notice- sent to the taxpayer by the RevenueOfficer or by the Division Chief concerned (in the case of
the BIR National Office) of the discrepancy or discrepanciesin the taxpayers payment of his internal revenue taxes foran informal conference in order to afford the taxpayer with
an opportunity to present his side of the case before
forwarding the report to higher authorities for approval.
Mode of Procedures in theIssuance of Assessment Notice
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General Course for Revenue OfficersTMD
GPT 210 Slide 101
Pre- Assessment Notice (PAN)-if after review and evaluationby 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, atleast 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.
Mode of Procedures in theIssuance of Assessment Notice
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General Course for Revenue OfficersTMD
GPT 210 Slide 102
Final Assessment Notice (FAN) -the formal letter of
demand and assessment notice shall be issued by theCommissioner or his duly authorized representative.
The letter of demand calling for the payment of thetaxpayers deficiency taxes shall state the facts, the law,
rules and regulations or jurisprudence on which theassessment is based. The same shall be sent to the
taxpayer only by registered mail or by personal delivery.
Protest to Assessment
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General Course for Revenue OfficersTMD
GPT 210 Slide 103
Administrative Protest of AssessmentRequest for reconsideration
Request for reinvestigation
Judicial protestAppeal to the Court of Tax AppealsAppeal to the Court of AppealsAppeal to the Supreme Court
Writ of execution of judgment