You are on page 1of 268

I.

General Principles

A. Definition and Concept of Taxation

As a process, it is a means by which the sovereign, through its law-making body,
raises revenue to defray the necessary expenses of the government. It is merely a way
of apportioning the costs of government among those who in some measures are
privileged to enjoy its benefits and must bear its burdens.

As a power, taxation refers to the inherent power of the state to demand
enforced contributions for public purpose or purposes.

Taxation is a symbiotic relationship, whereby in exchange for the protection that
the citizens get from the government, taxes are paid.1

B. Nature of Taxation

1. It is an inherent attribute of sovereignty
2. It is legislative in character

C. Characteristics of Taxation

1. The power of taxation is an incident of sovereignty as it is inherent in the
State, belonging as a matter of right to every independent government. It does need
constitutional conferment. Constitutional provisions do not give rise to the power to tax
but merely impose limitations on what would otherwise be an invincible power. No
attribute of sovereignty is more pervading, and at no point does the power of
government affect more constantly and intimately all the relations of life than through
the exactions made under it.2

2. The power to tax is inherent in the State, and the State is free to select the
object of taxation, such power being exclusively vested in the legislature, except where
the Constitution provides otherwise.3

The Congress may by law authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the Government.

1
Commissioner of Internal Revenue vs. Allegre, Inc., et al., L-28896, Feb. 17, 1988
2
Churchill and Tait v. Concepcion, 34 Phil 969
3
Art. VI, Sec, 28 (2); Art. X, Sec. 5; Art. VI, Sec. 28. par. 2.

1

Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and limitations
as the Congress may provide, consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the local governments.4
3. It is subject to Constitutional and inherent limitations; hence, it is not an
absolute power that can be exercised by the legislature anyway it pleases.

D. Power of Taxation Compared With Other Powers

1. Police Power
2. Power of Eminent Domain

Taxation Police Power Eminent Domain
Purpose

Raising revenue Promote public welfare Taking of property for
thru regulations public use

Amount of exaction

No limit Limited to the cost of No exaction,
regulations, issuance of compensation paid by
the license or the government
surveillance
Benefits received

No special or direct benefits No direct benefits but a Direct benefit results in
received but the enjoyment of healthy economic the form of just
the privileges of living in an standard of society or compensation
organized society “damnum absque
injuria” is attained

Non-impairment of contracts

The impairment rule subsist Contracts may be Contracts may be
impaired impaired

Transfer of property rights

4
Art. X, Sec. 5

2

Taxes paid become part of public No transfer but only Property is taken by the
funds restraint on the exercise gov’t upon payment of
of property right exists just compensation

Scope

Affects all persons, property and Affects all persons, Affects only the
excise property, privileges, and particular property
even rights comprehended

Basis

Public necessity Public necessity and the Public necessity, private
right of the state and the property is taken for
public to self-protection public use
and self-preservation

Authority which exercises the power

Only by the government or Only by the government or May be granted to public
its political subdivisions its political subdivisions service, companies, or
public utilities

E. Purpose of Taxation

1. Revenue-raising

To provide funds or property with which the State promotes the general welfare
and protection of its citizens.

2. Non-revenue/special or regulatory

Promotion of General Taxation may be used as an implement of police power
Welfare in order to promote the general welfare of the people.5

5
see Lutz vs. Araneta, 98 Phil 148 and Osmeňa vs. Orbos, G.R. No. 99886, Mar. 31, 1993

3

Regulation As in the case of taxes levied on excises and privileges
like those imposed in tobacco or alcoholic products or
amusement places like night clubs, cabarets, cockpits,
etc.6

Reduction of Social Inequality This is made possible through the progressive system of
taxation where the objective is to prevent the under-
concentration of wealth in the hands of few individuals.

Encourage Economic Growth In the realm of tax exemptions and tax reliefs, for
instance, the purpose is to grant incentives or
exemptions in order to encourage investments and
thereby promote the country’s economic growth.

e. Protectionism In some important sectors of the economy, as in the
case of foreign importations, taxes sometimes provide
protection to local industries like protective tariffs and
customs

F. Principles of Sound Tax System

1. Fiscal Adequacy

The sources of tax revenue should coincide with, and approximate the needs of
government expenditure. Neither an excess nor a deficiency of revenue vis-à-vis the
needs of government would be in keeping with the principle.

2. Administrative Feasibility

Tax laws should be capable of convenient, just and effective administration

3. Theoretical Justice

6
In the case of Caltex Phils. Inc. vs. COA (G.R. No. 92585, May 8, 1992), it was held that taxes may also be
imposed for a regulatory purpose as, for instance, in the rehabilitation and stabilization of a threatened
industry which is affected with public industry like the oil industry.

4

The tax burden should be in proportion to the taxpayer’s ability to pay 7. The
1987 Constitution requires taxation to be equitable and uniform.

G. Theory and Basis of Taxation

1. Lifeblood Theory

Taxes are the lifeblood of the government, being such, their prompt and certain
availability is an imperious need.8 Without taxes, the government would be paralyzed
for lack of motive power to activate and operate it.

2. Necessity Theory

Taxes proceed upon the theory that the existence of the government is a
necessity; that it cannot continue without the means to pay its expenses; and that for
those means, it has the right to compel all citizens and properties within its limits to
contribute. 9
3. Benefits-Protection Theory10

The basis of taxation is the reciprocal duty of protection between the state and
its inhabitants. In return for the contributions, the taxpayer receives the general
advantages and protection which the government affords the taxpayer and his property.

4. Jurisdiction over subject and objects

Rules:

a) Tax laws cannot operate beyond a State’s territorial limits.
b) The government cannot tax a particular object of taxation which is not within
its territorial jurisdiction.

c) Property outside ones jurisdiction does not receive any protection of the
State.

7
ability-to-pay principle
8
Collector of Internal Revenue vs. Goodrich International Rubber Co., Sept. 6, 1965
9
In a case, the Supreme Court held that:
Taxation is a power emanating from necessity. It is a necessary burden to preserve the State’s
sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend its shores
from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the
citizenry and those which come with the State’s territory and facilities, and protection which a
government is supposed to provide (Phil. Guaranty Co., Inc. vs Commissioner of Internal Revenue, 13 SCRA
775)
10
Symbiotic Relationship

5

some of the property in the territory 11 Example: NIRC provides for statutes of limitation in the assessment and collection of taxes therein imposed. (CIR vs CA. Feb. the exceptions to the law on prescription be strictly construed. Imprescriptibility General Rule Exception Taxes are imprescriptible.R. by the same taxing authority. 104171. 6. being a remedial measure. for the same purpose. Strict sense Referred to as direct duplicate taxation. 1999) 6 . H. it means: 1.11 3. Prospectivity of tax laws General Rule Exception Taxes must only be imposed prospectively. Doctrines in Taxation 1. 2. 2. 24. Double taxation a. The language of the statute clearly demands or express that it shall have a retroactive effect. Taxing twice. 4. in the same year or taxing period. 5. The law on prescription. it must always see to it that the object or subject of taxation is within the territorial jurisdiction of the taxing authority. When provided otherwise by the tax law itself. 3. No. d) If a law is passed by Congress. G. within the same jurisdiction or taxing district. should be liberally construed to afford protection as a corollary.

12 d. be avoided and prevented. while it is not forbidden. the treaties make it incumbent upon the state of residence to allow relief on order to avoid double taxation. Broad sense Referred to as indirect double taxation. c. And where the statute or ordinance in question. 7 . an exclusive right to tax is conferred on one of the contracting states. In some cases. Such taxation should. However. or activity by both the State and a political subdivision thereof. both states are given the right to tax. Constitutionality of double taxation Unlike in the United States Constitution. b. however. it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard to certain classes of income or capital. In addition. there is no infringement of the rule on equality (City of Baguio v. it is taxation other than direct duplicate taxation. In this case. although the amount of tax that may be imposed by the state of source is limited. De Leon. there may be a violation of the constitutional precepts of equal protection and uniformity in taxation. Modes of eliminating double taxation Two (2) methods of relief:13 Exemption method The income or capital which is taxable at the state of 12 The argument against double taxation may not be invoked where one tax is imposed by the State and the other is imposed by the city. for other items of income or capital. whenever possible. it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation. The second method for the elimination of double taxation applies whenever the state of source is given a full or limited right to tax together with the state of residence. where there is direct double taxation. It extends to all cases in which there is a burden of two or more impositions. our Constitution does not prohibit double taxation. calling. First. it is something not favored. 25 SCRA 938) 13 A tax treaty resorts to several methods.

the tax paid in the former is credited against the tax levied in the latter. What is transferred is not the payment of the tax. The basic difference between the two methods is that in the exemption method. the focus is on the income or capital. source or situs is exempted at the state of residence. whereas the credit method focuses upon the tax. but the burden of the tax 8 . 4. Shifting of tax burden14 1) Ways of shifting the tax burden 14 The transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to someone else. although in some instances it may be taken into account in determining the rate of tax applicable to the taxpayer’s remaining income or capital Credit method Although the income or capital which is taxed in the state of source is still taxable in the state of residence. Escape from taxation a. Process by which such tax burden is transferred from statutory taxpayer to another without violating the law.

16 c. Backward shifting When the burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factors of production. a transfer from the seller to the purchaser involves one shift. and if the tax is transferred again to the purchaser by the retailer.a. In so far as the law is concerned. we have three shifts in all. 18 e. from the producer to the wholesaler. and from the latter to the wholesaler. 3) Meaning of impact and incidence of taxation Impact of taxation Incidence of taxation The point on which a tax is originally The point on which the tax burden finally imposed. Forward shifting When the burden of the tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer. It takes place when 15 Example: Manufacturer or producer may shift tax assessed to wholesaler.g. VAT 19 e. rests or settle down. who in turn shifts it to the retailer.18 direct taxes19 cannot be shifted.g. who also shifts it to the final purchaser or consumer 16 Example: Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced.15 b. Onward shifting When the tax is shifted two or more times either forward or backward. then to retailer. we have two shifts.17 2) Taxes that can be shifted Only indirect taxes may be shifted. Income tax 9 . or finally to the manufacturer or producer 17 Example: Thus.

He is also statutory taxpayer to another. Tax avoidance20 The exploitation of the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liabilit c. Exemption from taxation a.the taxpayer is the person who must pay shifting has been effected from the the tax to the government. i. or 2. it is not punished by law 21 also known as “tax dodging”. An accompanying state of mind which is described as being “evil”. it is punishable by law Elements of tax evasion: 1. Failure to declare for taxation purposes true and actual income derived from business for two (2) consecutive years. 13 SCRA 638) 10 . payment of less than that known by the taxpayer to be legally due. (Republic vs. Gonzales. termed as the statutory taxpayer-the one on whom the tax is formally assessed. “in bad faith”. The end to be achieved. Tax evasion21 The use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax. He is the subject of the tax.e. Substantial under declaration of income tax returns of the taxpayer for four (4) consecutive years coupled with unintentional overstatement of deductions Evidence to prove tax evasion: Since fraud is a state of mind. A course of action (or failure of action) which is unlawful Indicia of fraud in tax evasion: 1. Meaning of exemption from taxation 20 also known as “tax minimization”. “willful”. or “deliberate” and not “accidental” 3. 5. it need not be proved by direct evidence but may be proved from the circumstances of the case. or paying no tax when it is shown that tax is due 2. b. Failure of the taxpayer to declare for taxation purposes his true and actual income derived from his business for two (2) consecutive years is an indication of his fraudulent intent to cheat the government of its due taxes.

exemption is the rule and taxation is the exemption. property or transactions are. 2) Implied24 When a tax is levied on certain classes of persons. It is an immunity or privilege. 4) It is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis. 22 b. 11 . It is not necessarily discriminatory as long as there is a reasonable foundation or rational basis. It is the grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. and so is prejudicial thereto. 2) It is generally revocable by the government unless the exemption is founded on a contract which is contract which is protected from impairment. Nature of tax exemption 1) It is a mere personal privilege of the grantee. c. Exemptions are not presumed. but when public property is involved.25 3) Contractual 22 Exemption is allowed only if there is a clear provision therefor. properties. or transactions without mentioning the other classes. Kinds of tax exemption 1) Express23 When certain persons. 23 or affirmative exemption 24 or exemption by omission No tax exemption by implication It must be expressed in clear and unmistakable language 25 Every tax statute makes exemptions because of omissions. 5) It is not transferable except if the law expressly provides so. either entirely or in part. by express provision. exempted from all certain taxes. 3) It implies a waiver on the part of the government of its right to collect what otherwise would be due to it. it is freedom from a financial charge or burden to which others are subjected.

. It is not based on the reciprocity or to lessen the rigors of idea of lessening the burden of the individual international double or multiple owners of property. 29 Mactan Cebu International Airport Authority vs. Here. 27 i.29 26 In such a case.28 e. Revocation of tax exemption It is an act of liberality which could be taken back by the government unless there are restrictions. Agreed to by the taxing authority in contracts lawfully entered into by them under enabling laws. Marcos. 28 Equity is not a ground for tax exemption. charter of a corporation. 261 SCRA 667.27 The theory behind the grant of tax exemptions is that such act will benefit the 3) May be based on grounds of body of the people. Rationale/grounds for exemption Rationale for granting tax exemptions Grounds for granting tax exemptions Its avowed purpose is some public benefit or 1) May be based on contract.26 interests which the lawmaking body considers sufficient to offset the monetary 2) May be based on some ground of loss entailed in the grant of the exemption. the public.e. Since taxation is the rule and taxation therefrom is the exception. the government need not receive any consideration in return for the tax exemption.e. the exemption may be withdrawn by the taxing authority. public policy.. Exemption is allowed only if there is a clear provision therefor. 12 . which is represented by the government is supposed to receive a full equivalent therefor. to encourage new industries or to foster charitable institutions. taxation. i. d.

32 debts are due to the government in its corporate capacity. while taxes are due to the government in its sovereign capacity. by reciprocal concessions. Those already filed in court b. 2. except: a. New Civil Code Requisites: 1. Compensation and Set-off30 General Rule Exception Taxes are not subject to set-off or legal Where both the claims of the government compensation. 294 SCRA 687. 1963) 31 Philex Mining Corp. 6 SCRA 622 32 see Domingo vs. 2. The government and the and the taxpayer against each other have taxpayer are not creditors and debtors or already become due and demandable as each other. Criminal violations.. 13 . There must be an offer by taxpayer or CIR. There must be acceptance of the offer in settlement of the original claim. When taxes may be compromised: 1. avoid litigation or put an end to one already commenced.31 7. vs. The tax assessed and the claim against the government is due and demandable. Obligations in the nature of well as fully liquated. Mambulao Lumber Co. The tax assessed and the claim against the government be fully liquidated. Definition A general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue to collect what otherwise would be due it and. Those involving fraud. 2028. L-18904. A reasonable doubt as to the validity if the claim against the taxpayer exists. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. supra 33 Art. The government had already appropriated funds for the payment of the claim (Domingo v. of an amount to be paid by taxpayer. 6. prejudicial thereto. 3.33 8. in this sense. CIR. Taxpayer must have a tax liability. 2.34 30 Requisites of Compensation in taxation 1. Garlitos. Tax amnesty a. Compromise A contract whereby the parties. 3. Republic vs. and 3. Garlitos. June 29.

in this sense. prejudicial thereto. government. 34 Tax amnesty. b. civil and Immunity from civil liability only administrative liabilities arising from non- payment of taxes Applies only to past tax periods. hence Prospective application retroactive application There is revenue loss since there was None. The terms of the amnesty or exemption must be strictly construed against the taxpayer and liberally in favor of the government. is never favored nor presumed in law and if granted by statute must be construed strictly against the taxpayer. Never favored nor presumed in law. and is granted by statute. because there was no actual taxes actually due as the person or transaction is taxes due but collection was waived by the protected by tax exemption. The government is never estopped by mistakes or errors by its agents. Distinguished from tax exemption Tax amnesty Tax exemption Partakes of an absolute forgiveness or The grant of immunity to particular waiver by the Government of its right to persons or corporations of a particular collect what otherwise would be due it class from a tax of which persons and and. corporations generally within the same particularly to tax evaders who wish to state or taxing district are obliged to pay. Immunity from all criminal. who must show compliance with the law. like tax exemption. relent and are willing to reform are given a chance to do so and therefore become a part of the society with a clean slate. 14 . The government is not estopped from questioning the tax liability even if amnesty tax payments were already received Erroneous application and enforcement of the law by public officers do not block subsequent correct application of the statute.

The law itself expressly provides for a exemptions are not favored and are liberal construction thereof. 9.35 b. construed strictissimi juris against the taxpayer. The rule on strict interpretation does not apply in the case of exemptions in favor of a political subdivision or instrumentality of the government [Maceda v. charitable and educational in the cost and expense of the institutions or to the government or its government. He from tax. agencies or to public property because the general rule is that they are exempted Taxation is the rule and exemption. Tax exemption and exclusion General Rule Exceptions In the construction of tax statutes. who claims exemption must be able to justify his claim or right thereto by a grant express in terms “too plain to be mistaken 35 Reason: Lifeblood doctrine 36 Strict interpretation does not apply to the government and its agencies Petitioner cannot invoke the rule of strictissimi juris with respect to the interpretation of statutes granting tax exemptions to the NPC. 1. Macaraig] 15 . Tax laws General Rule Exception Tax laws are liberally interpreted in favor Liberal interpretation does not apply to tax of the taxpayer and strictly against the exemptions which should be construed in government.36 The fundamental theory is that 2. strictissimi juris against the taxpayer. Construction and Interpretation of: a. In cases of exemptions granted to all taxable property should bear its share religious.

although there are penalties provided for their violation.” If not expressly mentioned in the law.and too categorical to be misinterpreted. Non-retroactive application to taxpayers 1) Exceptions A statute may operate retroactively provided it is expressly declared or is clearly the legislative intent. e. c.37 d. Penal provisions of tax laws Tax laws are civil and not penal in nature. Tax rules and regulations 1) General rule only They shall not be given retroactive application if the revocation. But a tax law should not be given retroactive application when it would be harsh and oppressive. Inherent Limitations 37 Sec. 246 16 . Scope and Limitation of Taxation 1. modification or reversal will be prejudicial to the taxpayers. it must be at least within its purview by clear legislative intent. I. The purpose of tax laws in imposing penalties for delinquencies is to compel the timely payment of taxes or to punish evasion or neglect of duty in respect thereof.

Public Purpose38 The tax must be used: 1) for the support of the state or 2) for some recognized objects of governments or 3) directly to promote the welfare of the community39 b. A tax levied for a private purpose constitutes a taking of property without due process of law. but the character of the purpose for which it is expended. a purpose affecting the inhabitants of the state or taxing district as a community and not merely as individuals. the tax would still be valid provided such benefit is only incidental. Promotion of General Welfare Test – whether the law providing the tax directly promotes the welfare of the community in equal measure. 2) Exceptions a) Delegation to local governments40 The power of local government units to impose taxes and fees is always subject to the limitations which the Congress may provide. public purpose is presumed. The term “public purpose” is synonymous with “governmental purpose”. however. X. The test is not as to who receives the money. 5 41 Basco v. consistent 17 . the former having no inherent power to tax. The purposes to be accomplished by taxation need not be exclusively public. This limitation arises from the doctrine of separation of powers among the three branches of government. it may be exercised by local legislative bodies.42 Article X of 38 Test in determining Public Purposes in tax: a. as a government. Although private individuals are directly benefited.41 The power to tax is primarily vested in the Congress. Inherently Legislative 1) General Rule Taxation is purely legislative. a. In the imposition of taxes. Congress cannot delegate the power to others. b. Sec. PAGCOR 42 Each local government unit shall have the power to create its own sources of revenues and to levy taxes. fees and charges subject to such guidelines and limitations as the Congress may provide. no longer merely by virtue of a valid delegation but pursuant to direct authority conferred by Section 5. not the immediate result of the expenditure but rather the ultimate. in our jurisdiction. 39 taxation as an implement of police power 40 Art. Duty Test – whether the thing to be threatened by the appropriation of public revenue is something which is the duty of the State.

28(2) 45 Garcia vs. there really is no delegation.R.. Executive Secretary. Marcos.the1987 Constitution. tariff rates and other duties and imposts include tariffs rates even for revenue purposes only. al. Customs duties which are assessed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue-raising and regulatory purposes. No. Property which is wholly and exclusively within the jurisdiction of another state receives none of the protection for which a tax is supposed to be compensation. 47 “It is an inherent mandate that taxation shall only be exercised on persons. A person may be taxed. even if he is outside the taxing state. July 3. Territorial 1) Situs of Taxation47 a) Meaning Literally means “the place of taxation.VI. 18 . 261 SCRA 667 44 Art.” The place or the authority that has the right to impose and collect taxes. 1992 46 Example: assessment and collection Certain aspects of the taxing process that are not really legislative in nature are vested in administrative agencies. where there is between him and the taxing state. properties. and charges shall accrue exclusively to the local governments.48 It is premised upon the symbiotic relation between the taxpayer and the State.43 b) Delegation to the President44 The power granted to Congress under this constitutional provision to authorize the President to fix within specified limits and subject to such limitations and restrictions as it may impose. the law must be complete in itself and must set forth sufficient standards.46 c. to wit: a) power to value property b) power to assess and collect taxes c) power to perform details of computation. Tax laws do not operate beyond a country’s territorial limit. G. In these cases. 101273. Such taxes. appraisement or adjustments. a privity of relationship justifying the levy. Sec. For the delegation to be constitutionally valid. et. fees. 2. However. subject to guidelines and limitations which Congress may provide which must be consistent with the basic policy of local autonomy. and excise within the territory of the taxing power because: 1.45 c) Delegation to administrative agencies With respect to aspects of taxation not legislative in character. 43 MCIAA v. with the basic policy of local autonomy. the fundamental basis of the right to tax is the capacity of the government to provide benefits and protection to the object of the tax.

52 51 Am Jur. 467 53 movables follow the owner or domicile of the owner Exceptions: 19 . losses or other deductions which cannot definitely be allocated to some items or classes of gross income. No. 50 For the purpose of computing the taxable income therefrom. The although the owner resides in another applicable concept is mobilia sequuntur jurisdiction.R. shall be included in full as taxable income from sources within the Philippines. Marubeni. 2001 49 Sec. The applicable concept is lex situs or lex rei sitae. Nationality theory . where items of gross income are separately allocated to sources within the Philippines. if any. losses and other deductions properly apportioned or allocated thereto. Dec.50 c) Situs of Property Taxes (1) Taxes on Real Property The place where the property is located.49 3) Income partly within and partly without the Philippines Allocated or apportioned to sources within or without the Philippines.18. and (b) a ratable part of other expenses.the country which is the source of the income or where the activity that produced the income took place is the situs of taxation.the location where the income earner resides is the situs of taxation 2. 51 We can only impose property tax on the properties of a person whose residence is in the Philippines.52 personam. 137377.53 48 Commissioner vs. G. The remainder.the country where the income earner is a citizen is the situs of taxation 3.51 (2) Taxes on Personal Property Tangible personal property Intangible personal property Where the property is physically located The place where the owner is located. b) Situs of Income Tax 1) From sources within the Philippines 2) From sources without the Philippines Determined by the nationality. there shall be deducted: (a) the expenses. Domicillary theory . 42 Theories: 1. Source rule . residence of the taxpayer and source of income.

54 (1) Sale of Real Property The place or location of the real property. of Customs) 55 So.55 (2) Sale of Personal Property 1. When the property has acquired a business situs in another jurisdiction. 20 . if the property sold is situated within the Phils. but depends upon the place on which the act is performed or occupation engaged in. d) Situs of Excise Tax (1) Estate Tax (2) Donor’s Tax Determined by the nationality and residence of the taxpayer and the place where the property is located. Thus. the gauge of taxability does not depend on the location of the office.. 54 where the transaction is performed because it is that place that gives protection The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the exercise. but attaches upon the place where the respective transaction is perfected and consummated (Hopewell vs. nor upon the physical location of the property or in connection with the act or occupation taxed. When an express provision of the statute provide for another rule. Com. 2. e) Situs of Business Tax The place where the act or business is performed or occupation is engaged in. the income derived from such sale is considered as income within.

reciprocity among states 58 The exemption applies only to governmental entities through which the government immediately and directly exercises its sovereign powers. property or services are destined. 57 The grounds for the above are: 1.57 f. sovereign equality among states 2. d. Tax exemption of property owned by the Republic of the Philippines refers to the property owned by the government and its agencies which do not have separate and distinct personality (NDC vs. Constitutional Limitations a. 2. there is an implied understanding that the power does not intend to degrade its dignity by placing itself under the jurisdiction of the latter 3. (3) VAT Where the goods. foreign government may not be sued without its consent so that it is useless to assess the tax since it cannot be collected 4.tax exempt58 ii.subject to tax. Cebu City) Those created by special charter (incorporated agencies) are not covered by the exemption 21 . Agencies performing proprietary functions . and Instrumentalities i. Agencies. usage among states that when one enter into the territory of another. Exemption of Government Entities. International Comity56 The property of a foreign state or government may not be taxed by another. used or consumed. Agencies performing governmental functions . Provisions Directly Affecting Taxation 56 Comity is the respect accorded to other sovereign nations. The place of sale.

59 2) Uniformity and equality of taxation The rule of taxation shall be uniform and equitable. 28(1). authorize the President to fix tariff rates. 28 (2).61 4) Prohibition against taxation of religious.60 3) Grant by Congress of authority to the President to impose tariff rates The Congress may. charitable entities. VI 22 . 161. A tax is uniform when the same force and effect in every place where the subject of it is found. 164 SCRA 27) The rule of uniformity does not call for perfect uniformity or perfect equality. reasonable and proportionate to one’s ability to pay. 1) Prohibition against imprisonment for non-payment of poll tax No person shall be imprisoned for debt or non-payment of poll tax. (see Commissioner vs. Art. just. (Sec. import and export quotas. The Congress shall evolve a progressive system of taxation. all grants. Thus. LGC) The prohibition is against “imprisonment” for “non-payment of poll tax”. tonnage and wharfage dues. 60 Sec. Equitable means fair. endowments. a person is subject to imprisonment for violation of the community tax law other than for non-payment of the tax and for non- payment of other taxes as prescribed by law. III The only penalty for delinquency in payment is the payment of surcharge in the form of interest at the rate of 24% per annum which shall be added to the unpaid amount from due date until it is paid. 20. and other duties or imposts within the framework of the national development program of the government. directly and exclusively for educational purposes shall be exempt from tax. but not to other violations like falsification of community tax certificate or non-payment of other taxes. Progressive system of Taxation places stress on direct rather than indirect taxes. and educational entities Subject to the conditions prescribed by law. The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge. donations or contributions used actually. Art. Art. or on the taxpayers’ ability to pay Inequality which results in singling out one particular class for taxation or exemption infringes no constitutional limitation. Lingayen Gulf Electric. VI Uniformity (equality or equal protection of the laws) means all taxable articles or kinds or property of the same class shall be taxed at the same rate.62 59 Sec. by law. 61 Art. because this is hardly attainable.

65 Sec.D. Their tax exemption is not self-executing. non-profit institutions All revenues and assets of non-stock.” the constitutional mandate is not violated. directly and exclusively for educational purpose. it is subject to income tax but at the preferential rate of ten percent (10%) 64 Sec. 1993) 23 . the revenue. and improvements actually. 1956 to stabilize the prices of imported crude oil. if any. No. The exemption granted to non-stock. remains as a special fund subject to COA audit (Osmeňa vs Orbos. Paul Hospital of Iloilo vs. 5) Prohibition against taxation of non-stock. In the case or religious and charitable entities and non-profit cemeteries. directly. 4 (3). this special fund is transferred from the general fund to a “trust liability account. G.R. CIR) Where the educational institution is private and non-profit (but a stock corporation). of proprietary (for profit) educational institutions require prior legislative implementation. In a decide case. 31. property. To be exempt from tax or duty. 29(3). VI An example is the Oil Price Stabilization Fund created under P. XIV Proceeds of the sale of real property by the Roman Catholic church is exempt from income tax because the transaction was an isolated one (Manila Polo Club vs. and exclusively for educational purposes shall be exempt from taxes and duties. 99886. but of all members of the Congress. and donor’s taxes. 4(4). and custom duties. whether the educational institution is proprietary or non-profit 63 Sec. The OPSF. however. according to the court. Art.64 7) Prohibition on use of tax levied for special purpose All money collected or any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. non-profit educational institution covers income.. not of attendees constituting a quorum. property or donation must be used actually. If the purpose for which a special fund was created has been fulfilled or abandoned the balance. directly.65 62 Sec. non-profit educational institutions used actually. Art. non-profit educational institution is self-executing. dormitory and canteen was exempt from income tax because the operation of those entities was merely incidental to the primary purpose of the exempt corporation (St.63 6) Majority vote of Congress for grant of tax exemption No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the Congress. CTA) Income derived from the hospital pharmacy. Tax exemptions. Art. Mar. Buildings. shall be transferred to the general funds of the government. and exclusively used for educational purposed are exempt from property tax. et al. Lands. The said constitutional provision granting tax exemption to non-stock. 28(4). XIV. it was held that where under an executive order of the President. VI The provision requires the concurrence of a majority. assets. the exemption is limited to property tax. Art.

revenue. as the law or the Rules of Court may provide. ordinance. X Local government units have no power to further delegate said constitutional grant to raise revenue. c. order. 3. Such temporary assignment shall not exceed six months without the consent of the judge concerned. All cases in which the constitutionality or validity of any treaty. The power of local government units to impose taxes and fees is always subject to the limitations which Congress may provide. other public ministers and consuls. All cases in which the jurisdiction of any lower court is in issue. international or executive agreement. prohibition. b. 27(2). impost. quo warranto. law. the integrated bar. 8) President’s veto power on appropriation. Rules of procedure of special courts and quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court. (Art. presidential decree. Review. Revenue or Tariff bill but the veto shall not affect the item or items to which he does not object. revise. or modify substantive rights. and habeas corpus. instruction. Assign temporarily judges of lower courts to other stations as public interest may require. and apportion the jurisdiction of the various courts but may not deprive the Supreme Court of its jurisdiction over cases enumerated in Sec. All cases in which only an error or question of law is involved. 567 hereof. Art. 4. shall be uniform for all courts of the same grade. VIII) 68 Sec 5. VI 67 The Supreme Court shall have the following powers: 1. practice. the admission to the practice of law. fees and charges subject to such guidelines and limitations as the Congress may provide. and shall not diminish. or any penalty imposed in relation thereto. pleading. 6.68 66 Sec. assessment. 10) Grant of power to the local government units to create its own sources of revenue Each local government unit has the power to create its own revenue and to levy taxes. the former having no inherent power to tax. d.66 9) Non-impairment of jurisdiction of the Supreme Court The Congress shall have the power to define. increase. proclamation. 2. mandamus. it is the administrative implementation. 5. or toll. and procedure in all courts. because what is delegated is not the enactment or the imposition of a tax. modify. 24 . Promulgate rules concerning the protection and enforcement of constitutional rights. Exercise original jurisdiction over cases affecting ambassadors. All cases involving the legality of any tax. prescribe. Order a change of venue or place of trial to avoid a miscarriage of justice. Such rules shall provide a simplified and inexpensive procedure for the speedy disposition of cases. Art. and over petitions for certiorari. final judgments and orders of lower courts in: a. Appoint all officials and employees of the Judiciary in accordance with the Civil Service Law. All criminal cases in which the penalty imposed is reclusion perpetua or higher. tariff bills The President shall have the power to veto any particular item or items in an Appropriation. and legal assistance to the under-privileged. e. or affirm on appeal or certiorari. reverse. or regulation is in question.

reduce or remove existing protective rates of import duty. churches and parsonages or convents appurtenant thereto. 11) Flexible tariff clause This clause provides the authority given to the President to adjust tariff rates under Section 40169 of the Tariff and Customs Code. provided that the increase should not be higher than 100% ad valorem 2) To establish import quota or to ban imports of any commodity 3) To impose additional duty on all imports not exceeding 10% ad valorem. building.. Executive Secretary.71 13) No appropriation or use of public money for religious purposes No public money or property shall be appropriated. (Sec. sectarian institution. NIRC) The constitutional tax exemptions refer only to real property that are actually. or system of religion or of any priest. 298 SCRA 83) 72 Sec. 28(3). the President upon the recommendation of the National Economic and Development Authority is empowered: 1) To increase. The word “exclusively” means “primarily’. VI Lest of the tax exemption: the use and not ownership of the property To be tax-exempt. charitable or educational purposes. The exemption is not limited to property actually indispensable but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. directly or indirectly for the use. and all lands. directly and exclusively used for the purposes mentioned. or other religious teacher or dignitary as such except when such priest. preacher. VI 25 . Court of Appeals. mosques. July 3. support of any sect. PAGCOR) 69 In the interest of national economy. 101273. denomination. applied. Congress therefore has the power to control over local government units. 29(2). directly and exclusively used for educational purposes. Art. directly and exclusively used for religious. No. 101(9)(3). non-stock educational institutions which are actually. However. it can also provide for exemptions or even take back the power (Basco vs. preacher.72 Municipal corporations are mere creatures of Congress which has the power to create and abolish municipal corporations. If Congress can grant to a municipal corporation the power to tax certain matters. benefit. The constitutional exemption applies only to property tax. and that the only constitutionally recognized exemption from taxation of revenues are those earned by non-profit.70 12) Exemption from real property taxes Charitable institutions. 70 Garcia v. 1992) 71 Sec. minister. minister or dignitary is assigned to the armed forces or to any penal institution. non-profit cemeteries. (Commissioner of Internal Revenue v. paid or employed. the property must be actually. G. general welfare and/or national security. or government orphanage or leprosarium. et al.R. gifts made in favor or religious charitable and educational organizations would nevertheless qualify for donor’s gift tax exemption. and improvements actually. church. it would seem that under existing law. Art. charitable or educational purposes shall be exempt from taxation. directly and exclusively used for religious.

the Constitution or the Free Exercise of Religion clause does not prohibit imposing a generally applicable sales and use tax on the sale of religious materials by a religious organization. (see Tolentino vs Secretary of Finance. However. The free exercise and enjoyment of religious profession and worship. 1. liberty or property without due process of law73 x x x. III A law which changes the terms of the contract by making new conditions. Congress is without power to appropriate funds for a private purpose. III License fees/taxes would constitute a restraint on the freedom of worship as they are actually in the nature of a condition or permit of the exercise of the right. alteration or repeal by the Congress when the public interest so requires. Public property may be leased to a religious group provided that the lease will be totally under the same conditions as that to private persons (amount of rent). or dispenses with those expressed. impairs the obligation. or changing those in the contract. 2) Equal protection xxx nor shall any person be denied the equal protection of the laws. does not apply to public utility franchise since a franchise is subject to amendment. The non-impairment rule. the due date thereof and the time and manner of levying and collecting taxes. III 74 Ibid. 26 . 235 SCRA 630) 76 Sec. Art. Art. b. however. 5 Art. Provisions Indirectly Affecting Taxation 1) Due process No person shall be deprived of life. 10. property or excises to be taxed. Stages of Taxation 1. 75 Sec. shall be forever allowed. the sum or sums to be raised. 73 Sec. without discrimination or preference. 75 4) Non-impairment of obligations of contracts No law impairing the obligation of contract shall be passed.74 3) Religious freedom No law shall be made respecting an establishment of religion or prohibiting the free exercise thereof.76 J. Levy Determination of the persons.

the obligation to pay taxes is a statutory liability. It is generally payable in money. or of any penalty claimed to have been collected without authority. Payment The act of compliance by the taxpayer. Accordingly. 2. express or implied. Definition. Nature They are not arbitrary exactions but contributions levied by authority of law. including such options. Taxes are not contracts but positive acts of the government. schemes or remedies as may be legally available. 4.79 3. or in any manner wrongfully collected. It is not dependent on the will or contractual assent.80 77 This includes payment by the taxpayer and is referred to as tax administration 78 The power to tax is a legislative power which under the Constitution only Congress can exercise through the enactment of laws. and Characteristics of Taxes Definition Taxes are the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of government and for public needs.78 2. or of any sum alleged to have been excessively. Refund The recovery of any tax alleged to have been erroneously or illegally assessed or collected. and by some rule of proportion which is intended to ensure uniformity of contribution and a just apportionment of the burdens of government. Assessment and Collection The manner of enforcement of the obligation on the part of those who are taxed. 27 . It is an enforced contribution.” 3. Characteristics 1.77 The two processes together constitute the “taxation system. It is levied by the law-making body of the State. K. Nature. 79 A tax is not a voluntary payment or donation. of the person taxed.

Tax as distinguished from other forms of exactions 1. such as R. 4.83 7. rights or privileges. 83 Taxation involves. 230 28 .D. Tariff May be used in three (3) senses: a.A. Duties payable on goods imported or exported. 85 Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. No. It is levied on persons or property. 81 It is ordinarily based on the taxpayer’s ability to pay.86 80 Tax is a pecuniary burden – an exaction to be discharged alone in the form of money which must be in legal tender. 304 which allows backpay certificates as payment of taxes.82 6.81 5. It is levied by the State which has jurisdiction over the persons or property. and a tax constitutes. a burden to provide income for public purposes.84 L. But their collection should not be tainted with arbitrariness 86 P.85 M. Requisites of a valid tax 1) It should be for a public purpose 2) The rule of taxation should be uniform 3) Either the person or property taxed be within the jurisdiction of the taxing authority 4) The assessment and collection be in consonance with the due process clause 5) The tax must not infringe on the inherent and constitutional limitations of the power of taxation. property or service to be taxed must be subject to the jurisdiction of the taxing state. unless qualified by law. It is levied for public purpose or purposes. transactions. It is proportionate in character. 82 A tax may also be imposed on acts. 84 The persons. b. 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 same.

Tax Toll Demand of sovereignty Demand of proprietorship Paid for the support of the government Paid for the use of another’s property Generally. the fact that incidentally revenue is also obtained does not make the imposition of a tax. c. License fee A charge imposed under the police power for the purposes of regulation. (see American Mail Line vs City of Butuan. 2. The general rule is that the imposition is a tax if its primary purpose is to generate revenue and regulation is merely incidental. and that exemption from taxes may not include exemption from license fees. Some limitations apply only to one and not to the other.87 Tax License/Permit Fee 87 Three kinds of licenses are recognized in the law: 1. 5. Licenses for the regulation of useful occupations. Toll Sum of money for the use of something. however. 172 SCRA 629) 29 . An extraction. 4. The power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes. of a public nature. 1967 and related cases) 3. Licenses for the regulation or restriction of non-useful occupations or enterprises 3. bridge of the like. But a tax may have only a regulatory purpose. 2. Licenses for revenue only Importance of the distinctions between tax and license fee: 1. (see Progressive Development Corp. maybe considered both a tax and a license fee. L-12647. vs Quezon City. no limit as to amount imposed Amount depends on the cost of construction or maintenance of the public improvement used Imposed only by the government Imposed by the government or private individuals or entities 3. but if regulation is the primary purpose. The system or principle of imposing duties on the importation/exportation of goods. generally applied to the consideration which is paid for the use of a road. 2. May 31.

Art. 234 of the Local Government Code. i. 28(3). Special assessment An enforced proportional contribution from owners of lands especially or peculiarly benefited by public improvements. in view of the exempting proviso in Sec.e. 30 . it follows that the exemption under Sec.88 Tax Special Assessment Imposed on persons. VI of the Constitution does not apply to special assessments. directly and exclusively used for religious. However. (see Aban) The general rule is that an exemption from taxation does not include exemption from special assessment. charitable and educational purposes are not exactly exempt from real property taxes but are exempt from the imposition of special assessments as well. his liability is limited only to the land involved Based on necessity as well as on benefits Based wholly on benefits received 88 Since special assessments are not taxes within the constitutional or statutory provisions on tax exemptions. properties which are actually.Enforced contribution assessed by Legal compensation or reward of an officer sovereign authority to defray public for specific purposes expenses For revenue purposes For regulation purposes An exercise of the taxing power An exercise of the police power Generally no limit in the amount of tax to Amount is limited to the necessary be paid expenses of inspection and regulation Imposed also on persons and property Imposed on the right to exercise privilege 4. property and excise Levied only on land Personal liability of the person assessed Not a personal liability of the person assessed.

General application89 Exceptional both as time and place 5.No imprisonment for non-payment of debt payment of tax except poll tax Governed by special prescriptive periods Governed by the ordinary periods of provided for in the Tax Code prescriptions Does not draw interest except only when Draws interest when so stipulated. cannot be assigned Assignable Generally payable in money May be paid in kind Generally not subject to set-off or May be subject to set-off or compensation compensation Imprisonment is a sanction for non. Tax Debt Based on law Based on contracts. Debt Debt is based upon juridical tie. created by law. contracts. delicts or quasi-delicts between parties for their private interest or resulting from their own acts or omissions. or in delinquent case of default 89 see Apostolic Prefect vs Treas. 71 Phil 547 31 . express or implied Generally. Of Baguio.

without regard to other reasonable method occupation. their property or the of apportionment.90 2. or poll Property tax Privilege tax tax Tax of a fixed amount Tax imposed on property. It is a tax expectation and intention that he or she which the taxpayer is directly or primarily shall indemnify himself or herself at the liable and which he or she cannot shift to expense of another. occupation or business in which they may be engaged. A charge imposed upon the imposed on persons real or personal. community tax. 90 i. capitation. or territory. Kinds of Taxes 1. A tax which the taxpayer can shift to another.e. whether citizens accordance with some the engaging in an or not. As to burden or incidence Direct Indirect Demanded from the person who also Demanded from a person in the shoulders the burden of the tax. falling finally upon the another. ultimate purchaser or consumer. As to object Personal. the residing within a specified proportion to its value or in enjoyment of privilege. in performance of an act. 32 . N.

municipal tax Imposed by the National Government. useful or non-useful occupation or enterprises and secondarily only for the purpose of raising public funds. As to graduation Progressive Regressive Proportionate Rate or amount of tax Tax rate decreases as the Tax based on a fixed increases as the amount of amount of income to be percentage of the amount the income or earning to be taxed increases. As to tax rates Specific Ad valorem Mixed The computation of the tax Tax upon the value of the Tax rates are partly or the rates of the tax is article or thing subject to progressive and partly already provided for by law. 4. 6. As to purposes General or fiscal Special. the intervention regressive. of another party is needed for the computation of the tax. of the property receipts or 33 . 3. taxation. 5. regulatory. or sumptuary Imposed for the purpose of raising public Imposed primarily for the regulation of funds for the service of the government. As to scope or authority to impose National – internal revenue taxes Local – real property tax. Imposed by the municipal corporations or local government units.

the allowable deductions shall likewise vary for each type of income. Since these types of income are treated separately. are subjected to tax at a fixed rate. Income Taxation 1. business or professional income 34 . National Internal Revenue Code of 1997 as amended (NIRC) A. and after deducting therefrom expenses and other allowable deductions. 92 compensation. Income Tax Systems a. other basis to be taxed.91 II. Schedular system Global system 91 Example: real estate tax. Global Tax System All income received by the taxpayer are grouped together.taxed increases. without any distinction as to the type or nature of the income. Schedular Tax System The various types or items of income92 are classified accordingly and are accorded different tax treatments. b. in accordance with schedules characterized by graduated tax rates.

in the main. business base increases. as well as personal and additional exemptions. etc. is progressive in nature 35 . in the case of corporations. individuals c. Usually used in the income taxation of Usually applied to corporations. increase as the tax Income tax law person. and other income.There are different tax rates There is a single tax rate There are different categories of taxable There is no need for classification as all income taxpayers are subjected to a single tax rate. In adopted the so- income. final taxes “comprehensive tax them. of certain cases. Features of the Philippine Income Tax Law Direct tax Progressive Comprehensive Semi-schedular or semi-global tax system94 One assessed upon The tax rates The Philippine the property. and other income are added together to arrive at the gross income. capital gain and passive income not subject to final tax.95 comprehensive in the sense that it practically applies 93 approach used in the Philippines 94 supra 95 The individual income tax system. in the case of individual taxpayers. 2. and after deducting the sum of allowable deductions from business or professional income. the taxable income is subjected to one set of graduated tax rates. Semi-schedular or semi-global tax system93 A system where the compensation. capital gain and passive income not subject to final tax. method of taxation under the law. business or professional income. called those who pay however. are imposed on situs” – passive income.

a income. as a whole. 3. Thus. 96 such as dividend. or royalty 36 . Criteria in Imposing Philippine Income Tax Citizenship Principle Residence Principle Source Principle A citizen of the Philippines A resident alien is liable to An alien is subject to is subject to Philippine pay income tax on his Philippine income tax income tax income from sources within because he derives income the Philippines but exempt from sources within the (a) on his worldwide from tax on his income Philippines. or Philippines. with a superimposed applied to the resulting personal tax on the income total income. if he resides in the from sources outside the nonresident alien is liable Philippines. in the Philippines. if he qualifies fact that he has not set foot as nonresident citizen. Types of Philippine Income Tax Presumptive Income Tax Composite Tax Unitary Income Tax A scale of income taxes is A tax consisting of a series Incomes are arranged imposed in relation to a of separate quasi-personal according to source. assessed on the separate items are added expenditure and the particular source of income together and the rate presumed income. rent. interest. The group of person’s actual taxes. all possible rules of tax situs. to pay Philippine income tax on his income from (b) only on his income from sources within the sources within the Philippines 96 despite the Philippines. 4.

Feb. 5. Taxable Period Calendar Period Fiscal Period Short Period A period of twelve (12) An accounting period of 12 A period of less than twelve months commencing from months ending on the last (12) months..e. Individual Taxpayers 1) Citizens a) Resident citizens98 97 ex. 1 to Jan.97 6. net) income 37 . Kinds of Taxpayers a. January 1 and ending day of any month other December 31. 31 98 Taxable for income derived from all sources based on taxable (i. than December.

(Rev. 101 Sec. becomes a 38 . however. One who comes to the Philippines for a definite purpose which in its very nature would require an extended stay. Thus: a. for 183 days or more by the end of the year..e. One who comes to the Philippines for a definite purpose which in its very nature may be promptly accomplished is not a resident citizen. A seaman who is a Filipino citizen and who receives compensation for services rendered abroad as member of the complement of a vessel engaged exclusively in international trade is treated as an overseas contract worker. If physical presence is established. A citizen who shall have stayed outside the Phils. either as immigrant or for employment or on permanent basis. 9-73. at any time during the taxable year to reside permanently in the country. and to that end. net) income 100 He shall be considered a NRC for the taxable year in which he arrives in the Phils. 3. His presence abroad.100 5. need not be continuous. No. 1973) An overseas contract worker is taxable only on income from sources within the Philippines. 2. makes his home temporarily in the Philippines. A citizen who has been previously considered as non-resident citizen and who arrives in the Phils. [RR1-79] 102 What makes an alien a resident or non-resident alien is his intention with regard to the length and nature of his stay.101 2) Aliens102 99 Taxable for income derived within the Philippines based on taxable (i. b. A citizen of the Philippines who shall have stayed outside the Philippines for 183 days or more by the end of the year is a non-resident citizen. A citizen of the Phils. such physical presence for the calendar year is not interrupted by reasons of travels to the Phils. A citizen of the Phils. (Sec. who leaves the country during the taxable year to reside abroad. Length of stay is indicative of intention. 23 (c). Regs. 4. November 26. b) Non-resident citizens99 1. with respect to his income derived from sources abroad until the date of his arrival in the Phils. 22 (E) The continuity of residence abroad is not essential. who works and derives from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. A citizen of the Philippines who establishes to the satisfaction of the Commissioner of Internal Revenue (CIR) the fact of his physical presence abroad with a definite intention to reside therein. Citizens of the Philippines who are residing therein.

(Mamalateo) 103 Sec. RR 2) Length of stay is indicative of intention. 39 . Property used in the trade or business which is subject to the allowance for depreciation (example: Office Equipment) actually engages in trade or business therein.106 (2) Not engaged in trade or business An alien who stays in the Philippines for 180 days or less. or other property of a kind which would properly be included in an inventory of a taxpayer if on hand at the end of the taxable year (example: Raw Materials Inventory. 105 Sec. id. Office Supplies Inventory) 2. makes his home temporarily in the Phils. An alien who lives in the Phils. An alien who shall have stayed in the Philippines for more than one (1) year by the end of the taxable year is a resident alien An alien who shall come to the Philippines and stay for an aggregate period of more than one hundred eighty (180) days during a calendar year shall be considered a non-resident alien in business. Work in Process Inventory. NIRC A mere floating intention. though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned. [Sec. 25 [B]. 5. for more than 12 months from the date of his arrival in the Phils. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business (example: Merchandise Inventory) 3. and who are not citizens thereof.107 resident. An alien who stay within the Phils. or in the practice of profession. a resident alien is. 22 (G). 104 A “non-resident alien” individual who came to the Phils. with no definite intention to stay as a resident. he shall be deemed a non-resident alien not doing business in the Philippines. 2. 1. in the Philippines.105 (1) Engaged in trade or business An alien who stays in the Philippines for more than 180 days. a) Resident aliens Those whose residence are within the Philippines but who are not citizens thereof. if an alien stays in the Philippines for 180 days or less during the calendar year. to return to another country is not sufficient to constitute him a transient. 22 [F]. indefinite as to time. 25(A)(1)] Thus. for definite purposes which in its very nature would require an extended stay and to that end. NIRC 107 Sec. 106 Sec. 3. 25 [A]. One who comes in the Phils. id. For tax purposes. (Sec. and stayed therein for an aggregate period of more than 180 days during any calendar year shall be deemed a NRA doing business in the Phils.103 b) Non-resident alien104 Those not residing in the Phils. regardless of whether he owns 1. Stock in trade of the taxpayer.

109 b) Corporations110 1) Domestic corporations Created or organized in the Phils.A. joint stock companies. vs. further. but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum. geothermal and other energy operations pursuant to operating or consortium agreement under a service contract with the government.A. overtime pay. (2) Non-resident It is the length of stay in the Philippines that determines whether or not he is engaged in trade or business.” 110 The term shall include partnership. 9504. 9504 109 They are not required to file an income tax return Thus: “xxx. id) 111 liable for income from sources within and without the Philippines (Sec 22[C]. coal. as amended by R. organized or existing under any laws other than those of the Phils. or insurance companies. that the holiday pay. British Overseas Airways Corporation – BOAC case 149 SCRA 395) 40 . 22 (HH). night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax. id. That minimum wage earners shall be exempt from the payment of income tax on their taxable income: Provided. (3) Special Class of Individual Employees a) Minimum wage earner A worker in the private sector paid the statutory minimum wage. or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned. minimum wage earners are exempted from the payment of the net income tax. 24(b). or under its laws. (1) Resident Engaged in trade or business112 within the Phils. 108 Sec. no matter how created or organized. (Sec. joint accounts.108 By virtue of the passage of R.111 2) Foreign corporations Created. id. the performance of acts or works or the exercise of some of the functions normally insistent to and in the progressive prosecution of commercial gain or for the purpose and the object of the business organization (Comm.) 112 The term implies a continuity of commercial dealings and arrangements and contemplates to that extent. The number of transaction he entered into is immaterial.

are subject to income tax generally as mere co-ownership. What are taxable unregistered partnerships? The SC in Evangelista v. Estates not under judicial settlement . c. property. 2. Partners are considered stockholders and. Estates and Trusts Estate Trust The mass of property. 116 Estates may be classified as follows: 1. 117 principal 41 . rights and An arrangement created by will or co- obligations left behind by the decedent agreement under which title to property is upon his death. 22 (b) e. Estates under judicial settlement . Law firm General professional partnerships are not taxable but partners are taxed on their share of partnership profits actually or constructively paid during the year. 114 Partnerships. executor. Thus. profits distributed to them by the partnership are considered as dividends.Income received during the settlement of the estate is taxable to the fiduciary (guardian. Partnerships113 Partnership is a contract whereby two or more persons bind themselves to contribute money. . .114 d. trustee. no matter how created or organized. 115 e.The return should be filed by executor or administrator of the trust. 24 covered unregistered partnerships and even associations or joint accounts which have no legal personalities apart from their individual members. Accordingly. and administrator). CA. g.The tax liability on income of the co-ownership levied directly on the co-owners. including joint ventures or consortiums. or industry to a common fund with the intention of dividing the profits among themselves. 302 SCRA 1] 115 Sec. a pool of individual real property owners dealing in real estate business was considered a corporation for tax purposes [Afisco Insurance Corporation v. no part of the income of which is derived from engaging in any trade & business.are subject to income tax in the same manner as individual.116 passed to another for conservation or investment with the income therefrom and ultimately the corpus117 to be distributed in accordance with the directions of the 113 An ordinary business partnership is considered as a corporation and is thus subject to tax as such. held that Sec. General Professional Partnerships Formed by persons for the role purpose of exercising their common profession. therefore. are taxable. Not engaged in trade or business within the Phils. Phil 140. the heirs shall include in their respective returns their distributive shares of the net income of the estate. CIR 102. .

the implication is that they will engage in business for profit (Evangelista Doctrine). or (b) in any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom. 118 Two (2) Kinds of Trust : 1. Irrevocable Trust . 2. funds or profits but on the privilege of receiving said income or profit. Filing of return: The owners shall report and include in their respective personal income tax returns their shares of the net income of the co-ownership. (1) When the income of the co-ownership is invested by the co-owners in other income-producing properties or income-producing activities. Trinidad. Test to determine whether co-ownership is a taxable unregistered partnership: Find out whether the heirs have made substantial improvements on the inherited property. Definition A tax on all yearly profits arising from property. The tax shall be imposed on taxable income of the grantor.120 b.is one where at anytime the power to revest the title to any part of the corpus of the trust is vested: (a) in the grantor (creator of the trust) either alone or in conjunction with any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom. Revocable Trust . If that happens. profession. Exceptions: (When co-ownership is subject to tax). emoluments. 20. 120 Fisher v. Tax liability of co-owners: The co-owners in exempt co-ownership shall be liable for income tax only in their separate and individual capacity. 1922 42 . If so. creator as expressed in the governing instrument. Co-ownerships119 It is created whenever the ownership of an undivided thing or right belongs to different persons. profits and the like. an unregistered partnership is deemed to exist. Income Taxation a. the co- ownership will be taxed as an unregistered partnership. or a tax on person’s income. 7. and (2) When there is no attempt to divide inherited property for more than ten (10) years and the said property was not under any administration proceedings nor held in trust. It is not levied upon persons. GR L-19030. 119 General rule: Co-ownership is exempt from income tax because the activities of the co-owners are usually limited to the “preservation” of the properties owned in common and the collection of the income therefrom. Nature It is generally regarded as an excise tax. Oct.118 f.is considered as a separate taxpayer. property. trade or business.

8. 43 Phil 973) Income is not merely increase in value of property. 43 . General principles 1. 2. that a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker. a profit in excess of capital as a result of exchange transactions. An alien individual. Trinidad. is taxable only on income derived from sources within the Philippines. c. 5. is taxable only on income derived from sources within the Philippines. including gain from sale or conversion of capital assets. 4. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. Nature 121 It denotes the amount of money or property received by a person or corporation within a specified time. An individual citizen of the Philippines. interests. Definition It means cash or its equivalent coming to a person within a specified period. A non-resident citizen is taxable only on income derived from sources within the Philippines. It covers gain derived from capital. 3. A domestic corporation is taxable on all income derived from sources within and without the Philippines. is taxable only on income derived from sources within the Philippines. whether as payment for services. or from both combined. whether as payment for services. whether or not a resident of the Philippines.121 b. A foreign corporation. who is working and deriving income from abroad as an overseas contract worker. Income a. from labor. Provided. 6. but a gain. whether engaged or not in trade or business in the Philippines. interest or profit from investment. or profits from investments (Fisher vs.

It is an amount of money coming to a person/corporation within a specified time. reduction or cancellation of T’s indebtedness. 183 SCRA 402). without consensual recognition. An exchange has taken place. CIR 44 . lawfully or unlawfully acquired. Income can also be thought of as a flow of the fruits of one's labor.122 Income includes earnings. Tours Specialist. When income is taxable 1) Existence of income There must be gain – a value received in the form of cash or its equivalent as a result of rendition of service or earnings in excess of capital invested.124 b) Actual vis-à-vis Constructive receipt Actual receipt Constructive receipt Income may be actual receipt or physical When money consideration or its 122 Conwi v. interest or profit from investment. Revenue is generally recognized when both conditions are met: a. Inc. of an obligation to repay and without restriction as their disposition. then there is no taxable income. c. whether as payment for services. 124 Manila Mandarin Hotels. Unless otherwise specified. Court of Tax Appeals 123 A mere expectation of profits is not an income A transaction whereby nothing of exchangeable value comes to or is received by the taxpayer does not give rise to or create taxable income.123 2) Realization of income a) Tests of Realization Unless income is deemed realized. and b. it means cash or its equivalent. or gain from exchange of property. The earning process is complete or virtually complete. All wealth which flows to the taxpayer other than a mere return of capital. express or implied. It may be in form of payment. Gain need not be necessarily in cash. Items or amounts received which do not add to the taxpayer’s net worth or redound to his benefits such as amounts merely deposited or entrusted to him are not considered as gains (CIR vs. v.

126 income when earned whether received or not. you recognize the income when you actually receive the cash payment for the sale. Transfer of the amounts retained by the payor to the account of the contractor d. equivalent is placed at the control of the person who rendered the service without restriction by the payor. RR 16-2005 Examples of income constructively received: a. The income gain or profit is not exempt from income tax 4) Methods of accounting a) Cash method vis-à-vis Accrual method Cash method Accrual method Recognition of income and expense Gains and profits are included in gross dependent on inflow or outflow of cash. gain or profit b. Deposit in banks which are made available to the seller of services without restrictions b. Undistributed share of a partner in the profits of a general partnership 126 meaning. Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered c. The income. and expenses are allowed as deductions when incurred. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income b) Installment payment vis-à-vis Deferred payment vis-àvis Percentage completion 127 Installment payment Deferred payment Percentage completion 125 Sec. and you recognize the expense when you actually pay cash for the expense 127 in long term contracts 45 .receipt. Interest coupons that have matured and are payable but have not been encashed e.125 3) Recognition of income a. gain or profit is received or realized during the taxable year c. 4.108-A. although not yet paid. There is income.

128 2) Claim of right doctrine or Doctrine of ownership. the realization of the income by him who exercises it. d. taxable in the month of sale. or control A taxable gain is conditioned upon the presence of a claim of right to the alleged gain and the absence of a definite unconditional obligation to return or repay.g. 3) Economic benefit test.. command. The power to dispose of income is the equivalent of ownership of it. Tests in determining whether income is earned for tax purposes 1) Realization test No taxable income until there is a separation from capital of something of exchangeable value. thereby supplying the realization or transmutation which would result in the receipt of income. selling price completion. The dominant purpose of the revenue laws is the taxation of income to those who earn or otherwise create the right to receive it and enjoy the benefit of it when paid.Appropriate when Initial payments exceed Persons whose gross collections extend over 25% of the gross selling income is derived from relatively long periods of price and such transaction long-term contracts shall time and there is a strong shall be treated as cash sale report such income upon possibility that full which makes the entire the basis of percentage of collection will not be made. sale of asset) 46 . The exercise of that power to procure the payment of income to another is the enjoyment and hence. Doctrine of proprietary interest 128 There must be separation from capital of something of exchangeable value (e.

No. 4. 3. among others: 1. Rents 129 Eisner vs. Cancellation of the taxpayer’ indebtedness. Gross Income a. 47 . 2. 252 US 189 130 CIR vs. if its basis is unchangeable. Gross income derived from the conduct of trade or business or the exercise of a profession. the test does not demand that the amount of income or liability be known absolutely.131 including the following items: 1. Illegal gains. Any economic benefit to the employee that increases his net worth is taxable.R. 2007 131 As such. the test is satisfied where a computation may be unknown. but is not as much as unknowable. 7. Isabela Cultural Corp.130 9. February 12. 5) All events test Requires that the right to income or liability be fixed. Amount received by mistake. 6. 172231. income includes the following. Macomer. only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. Thus. income is not taxable unless separated or severed from the capital or labor that bore it. Receipt of usurious interest. 4) Severance test There is no taxable income until there is a separation from capital of something which is of exchangeable value129 thereby supplying the realization or transmutation which would result in the receipt of income. Treasure found. 5. 2. Bad debt recovery. Income realized is taxable only to the extent that the taxpayer is economically benefited.. The all-events test is satisfied where computation remains uncertain. However. 8. within the taxable year. and the amount of such income or liability be determined with reasonable accuracy. Definition All income derived during a taxable year by a taxpayer from whatever source. Punitive damages representing profit lost. Taxes paid and claimed as deduction subsequently refunded. whether legal or illegal. G.

Compensation Income . personal or mixed. Interests 4. Professional Income . Concept of income from whatever source derived Implies the inclusion of all income under the law. 134 Gutierrez v. manufacturing products. irrespective of the voluntary or involuntary action of the taxpayer in producing the gains. Dividends 9.income derived from rendering of services under an employer-employee relationship. 2. selling merchandise. which includes.134 c. Partner's distributive share from the net income of the general professional partnership. betting.income in which the taxpayer merely waits for the amount to come in. royalty income. including. dividend income. lotteries. the fees of CPAs. lawyers. salaries. Gross Income vis-à-vis Net Income vis-à-vis Taxable Income Gross Income Net Income or Taxable Income 132 The above enumeration can be simplified into five (5) categories: 1. and similar items 6. CTA case 48 . Prizes and winnings 5. CIR. Royalties 8. Passive Income . prizes and winnings. Gains from Dealings in Property – It includes all income derived from the disposition of property whether real. Business Income . extortion and fraud. Gains derived from dealings in property 10. wages.gains or profits derived from rendering services. but not limited to fees. but not limited to interest income. but not limited to. irrespective of the voluntary or involuntary action of the taxpayer in producing the income. 3. 3. which includes. Compensation for services in whatever form paid. commissions. engineers and the like. farming and long-term contracts.133 All income not expressly excluded or exempted from the class of taxable income. 4. Annuities 7.fees derived from engaging in an endeavor requiring special training as professional as a means of livelihood.132 b. Pensions 11. 5. 133 It includes illegal gains arising from gambling.

More administratively feasible Provides equitable releifs in the form of deductions. corporate or otherwise. (A)( 1) 49 . exemptions and tax credit Does away with wastage of manpower and Tax audit minimizes fraud supplies d. to margin of discretion in the grant of allow or disallow deductions. Classification of Income as to Source 1) Gross income and taxable income from sources within the Philippines 1) Interests: a) Interests derived from sources within the Phils. 42. As to deductions Allows no deductions Allows deductions As to exemptions Grants no exemptions Grants exemptions As to tax base Gross Income Net Income Advantages/Disadvantages Simplifies the income tax Confusing and complex system process of filing income tax return Substantial reduction in corruption and tax Vulnerable to corruption on account of evasion as the exercise of discretion.135 2) Dividends: 135 Sec. notes or other interest-bearing obligations of residents. b) Interests on bonds. is dispensed deductions with.

machinery or other apparatus purchased from such nonresident person. (A)(2) 137 Id. patent. and g) The use of. a) From a domestic corporation. or the right or privilege to use in the Phils. e) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to. any such property or right as is mentioned in paragraph (a).136 has been in existence. goodwill. industrial or commercial knowledge or information. any such equipment as is mentioned in paragraph (b) or any such knowledge or information as is mentioned in paragraph (c). any copyright. trade brand or other like property or night. It must be only in an amount which bears the same ratio to such dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to its gross income from all sources. trademark. or the right to use in the Phils. c) The supply of scientific. f) Technical advice. and is furnished as a means of enabling the application or enjoyment of. b) The use of. technical. plan. secret formula or process. venture. design or model. industrial or commercial undertaking. including rentals or royalties for – a) The use of. or the installation or operation of any brand. any industrial. or the right to use: 136 Id. 3) Compensation for labor or personal services performed in the Phils. project or scheme. was derived from sources. (A)(3) 50 . d) The supply of any assistance that is ancillary and subsidiary to. commercial or scientific equipment. or for such part of such period as the corporation within the Phils. assistance or services rendered in connection with technical management or administration of any scientific. and b) From a foreign corporation 50% or more of the gross income of which for the 3-year period ending with the close of the taxable year preceding the declaration of such dividends.137 4) Rentals and Royalties from property located in the Phils. or from any interest in such property.

motion picture films. British Overseas Airways Corporation (BOAC) [149 SCRA 395]. BOAC was an off-line international airline at the time pertinent to this case. 2. In the case of Commissioner vs. Unquestionably the passage documentations in these cases were sold in the Phils. films or video tapes for use in connection with television. regardless of where the shares are sold. 1. and 3. It merely directs that the types of income listed therein be treated as income from sources within the Phils.138 2) Gross income and taxable income from sources without the Philippines 1) Interest other than those derived from sources within the Phils. Admittedly. a. the determination of where and when the title to the goods passes from the seller to the buyer is decisive. and b. Passage of title test: it is the prevailing view that in ascertaining the place of sale. a cursory reading of the section will show that it does not state that it is an all-inclusive enumeration. 2) Dividends other than those derived from sources within the Phils. and the source of an income is that activity xxx which produced the income. 138 Exception to the rule: gain from the sale of shares of stock in a domestic corporation which is treated as derived entirely from sources within the Phils. 50% or more of the gross income of which for the 3-year period preceding the declaration of dividends. and income from sale of personal property. is not determination of the source of income on the situs of income taxation. The test of taxability is the source. Dividends from foreign corporations in general. and that no other kind of income may be so considered xxx” The Supreme Court further held: “xxx The absence of flight operations to and from the Phils. tapes for use in connection with radio broadcasting 5) Gains. and the revenue therefrom was derived from a business activity regularly pursued within the Phils. profits. Enumeration in Section 42 not all-inclusive. Dividends derived from foreign corporations. profits. the Supreme Court held: “xxx Section 37 (now Section 42) by its language. xxx” 51 . 3) Compensation for labor or personal services performed outside the Phils. and income from the sale of real property located in the Phils. treated as derived entirely from the country where it is sold. does not intend the enumeration to be exclusive. and 6) Gains.

profits and income from the sale of personal property located outside the Phils.139 3) Income partly within or partly without the Philippines 1) Income from transportation such as foreign steamship companies whose vessel touch the Phil. or produced by the taxpayer outside and sold within the Phils. 163. Regulations 141 Sec. 164. and 7) Income derived from the purchase of personal property within and its sale outside the Phils. 42 140 Sec. such as foreign corporations carrying on the business of transmission of telegraph and cable messages between points outside the Phils. Sources of income subject to tax 139 Sec.. patents. etc.. 52 . e. 4) Rentals or royalties from property located outside the Phils.141 2) Income from the sale of personal property produced in whole or in part by the taxpayer within and sold outside the Phils. profits and income from the sale of real property located outside the Phils. id. 5) Gains. or from any interest in such property including rentals or royalties for the use of or for the privilege of using outside the Phils. ports140 and other services rendered partly within and partly outside the Phils. 6) Gains.

146 b) Definition Any good. except rank and file employee.78.1. 142 Forms of Compensation a. or For services by a citizen or resident of the Philippines for a foreign gov’t or an int’l organization. 53 . 144 Sec. Meals given to employee. in kind Compensation paid to an employee of a corporation in its stock is to be treated as if the corporation sold the stock for its market value and paid to the employee in cash. RR 2-98 145 Sec. 143 Sec. the value thereof substitutes income. Fringe Benefits of rank and file employees It does not include remuneration paid: For agricultural labor paid entirely in products of the farm where the labor is performed. Bonuses 6. or For casual labor not in the course of the employer's trade or business.143 It includes all remuneration for services rendered by an employee for his employer unless specifically excluded under the NIRC. Commissions 3. including the cash value of all remuneration paid in any medium other than cash. Tips 4. The rental value should be reported as income. Living quarters furnished to the employee in addition to cash salary. 2. 3 – 98 (dated May 21. money b. or For domestic service in a private home. 78(A) It includes: 1. service or other benefit furnished or granted in cash or in kind by an employer to an individual employee. 1998) implementing section 33 of the Tax Code. Salaries and wages 2. 1) Compensation Income142 All remuneration for services performed by an employee for his employer.144 2) Fringe Benefits145 a) Special treatment of fringe benefits Applied to fringe benefits given or furnished to managerial or supervising employees and not to the rank and file. Allowances 5. 33 The fringe benefit covered refers to those enjoyed by managerial and supervisory employees 146 Pursuant to Revenue Regulations No.

5) When the fringe benefit is required by (d) Residential property purchased the nature of. employer on installment basis for the use of employer as his usual place of 4) De minimis benefits. This is to employee at less than employer’s known as Employer’s Convenience Rule. insurance and hospitalization benefit (b) Residential Property owned by plans. which shall include: (a) salaries of household helper (b) personal driver of the employee (c) payment for homeowner assoc. (c) Housing benefit granted to employees on a temporary basis not exceeding three (3) months 54 . employer and assigned to employee as his usual place of residence.. by ER and ownership is transferred to EE business or profession of the employer as his usual place of residence. 3) Benefits given to the rank and file employees. (a) Lease of residential property for the use of the employee as his usual place 2) Contributions of the employer for the of residence. residence. whether granted under a (c) Residential property purchased by collective bargaining agreement or not.147 2) Household Expenses – refer to expenses of the employee paid by the employer for household personnel or other personal expenses. benefit of the employee to retirement. c) Taxable and non-taxable fringe benefits Taxable fringe benefits Non-taxable fringe benefits 1) Fringe benefits which are authorized 1) Housing Privileges and exempted from tax under special laws. or necessary to the trade. 147 Non – taxable Housing Fringe Benefits (a) Housing privilege of military officials of AFP (b) Housing unit. 6) When the fringe benefit is for the (e) Residential property transferred convenience of the employer. which is situated inside or adjacent to the premise of a business or factory.156 acquisition cost. A housing unit is considered adjacent if it is located within the maximum 50 meters from the perimeter of the business premises.

151 These are treated as taxable Fringe Benefits of the employee in full. Likewise. 1998. 150 However. 55 . 149 Travel expenses should be supported by documents proving the actual occurrences of the meetings or conventions.150 5) Membership fees. the entire cost will be considered taxable fringe benefit.etc. if the ticket is a first class one. in social or athletic clubs or other similar organizations.33 [C]. Except: Where the expenses for foreign travel paid by the employer for the employee are for the purpose of attending business meeting or convention. 3) Interest on loan at less than market rate148 4) Expenses for Foreign Travel General rule: Expenses for foreign travel insured by the employee and/or family members of the employee borne by the employer shall be treated as taxable fringe benefits of the employee. RR 3-98 148 If the employer lends money to his employee: Free of interest or at a rate lower than 12% (or prevailing market rate) the interest foregone by the employer or the difference of the interest assumed by the employer and the 12% rate shall be treated as taxable fringe benefit. 2. Sec.151 156 Sec. 30% of the cost of the ticket shall be subject to a fringe benefit tax. Applicable to installment payment or loan with interest rate lower than 12% starting January 1. documents and evidence showing the business purpose of the employees’ travel must be presented otherwise. NIRC.149 and b) Cost of economy or business class airline ticket. dues and other expenses borne by the employer for his employee. 32. The exemption covers only the following expenses: a) Inland travel expenses except lodging cost in hotel averaging US$ 300 or less per day.

the ownership is placed in the name of the employee d) “Portion” of purchased price shouldered by employer e) Fleet of motor vehicle “leased” by the employer 152 such as R. 8291 (GSIS). the ownership is placed in the name of the employee c) Purchase on “Installment” basis.6) Life or Health Insurance - General rule: The cost of life or health insurance and other non – life insurance premiums or similar amounts in excess of what the law allows borne by the employer for his employees shall be treated as taxable fringe benefits. 7) Holidays and Vacation Expense 8) Motor Vehicle a) Motor vehicle purchased by employer in name of employee. 56 . Except: a) Contribution of the employer for the benefits of the employee pursuant to existing laws. 8287 (SSS) or R.A.152 b) The cost of premium borne by the employer for the group insurance of his employees.A. b) “Cash for the purchased provided by the employer.

the fleet of motor vehicles is for the use of the business and the employees. And there is a written contract obligating the EE to remain under the employment for a certain period. delivery service and non-personal use. a) expenses duly receipted for in the name of the employer and b) The expenditures do not partake the nature of personal expenses attributable to the employee. regardless of whether the motor vehicle is used for the personal purpose of the employee and partly for the benefit of his employer.153 9) Expense Account a) Expenses incurred by the employee but paid by his employer. freight. The use of yacht whether owned and maintained or leased by the employer shall be treated as taxable fringe benefit – the value of the benefit shall be measured based on the depreciation of the Yacht at an estimated useful life of 20 yrs.154 10) Educational Assistance General Rule: The cost of the educational assistance to the employee or his dependents which are borne by the employer shall be treated as Taxable Fringe Benefits. The use of aircraft (including helicopters) owned and maintained by the employer shall be treated as “business use” and not subject to FBT. b. 154 Expense account not subject to FBT. They are not treated as Taxable Fringe Benefits but the same are treated as Taxable Compensation Income. business or profession of the ER. the monetary value shall be the entire value of the benefit. c and d. whether or not duly receipted for in the name of the EE. Personal expenses of the employee (like groceries) paid for or reimbursed by the employer are taxable fringe benefits. 2. The value of the benefit shall be the rental payments (e) or the acquisition cost (f) of all motor vehicles not normally used for sales. Exception: a) Education granted to employee155 153 In case of letters a. Representation and Transportation Allowances (RATA) refers to fixed amounts which are regularly received by the employees as part of their monthly compensation income. 57 . 155 Requisites: 1. b) Expenses paid by the employee but reimbursed by his employer. f) Fleet of Motor vehicles owned and maintained by employer. Educational grant whereby the study is directly connected with the trade. Under letters e and f.

3) Professional Income The fees received by a professional from the practice of his profession. Stock in Trade. manufacturing and farming operations. 5) Income from Dealings in Property a) Types of Properties (1) Ordinary assets Properties held by the taxpayer in the pursuit of his profession. iii. Property of a kind which would properly be included in the inventory if on hand at the close of the taxable year. mining. trade or business: i. Property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business. iv. Property used in trade or business which in subject to the allowance for depreciation. and 58 . ii. 4) Income from Business The income derived from merchandising. provided that there is no employer-employee relationship between him and his clients. b) Educational Assistance granted to the dependents of the employee in the nature of educational assistance to the dependents of the employee through a competitive scheme under a scholarship program of the company.

39. 22. Presumption of law that the seller realized gains. whichever is higher.157 (2) Capital assets Properties not specifically included in the statutory definition158 constitutes capital assets. 160 Sec. idle land not used in business operations and residential house. as well as real property (not used in trade or business) such as residential land. all others not enumerated are capital assets. which is taxed at 6% of the selling price or fair market value. appliances and furniture for personal use. b) Types of Gains from dealings in property (1) Ordinary income vis-à-vis Capital gain Ordinary gain Capital gain Any gain from the sale or exchange of Any gain from the sale or exchange of property which is not a capital asset. (2) Actual gain vis-à-vis Presumed gain Actual gain Presumed gain Excess of the cost from a sale of asset.159 The statutory definition of "capital assets" practically excludes from its scope. all property held by the taxpayer if used in connection with his trade or business. 39. (3) Long term capital gain vis-à-vis Short term capital gain 157 Sec. [A] This is an enumeration by exclusion. [A] 158 Include personal property (not used in trade or business) such as movables in one’s residence. personal vehicles. Real property used in trade or business. jewelries etc. 159 Sec. [Z] 59 . the profits or losses on the sale or the exchange of which are treated as capital gains or capital. v.160 property which is a capital asset.

2] 164 Sec. Net capital loss Net Capital gain Net capital Loss The excess of the gains from sales or The excess of the losses from sales or exchange of capital assets over the losses exchanges of capital assets over the gains from such sales or exchanges. 39. one (1) than a specified period. 9th Ed. and the loss shall be the excess of the basis or adjusted basis for determining loss over the amount realized. 40 (A) 166 applicable to both corporations and individuals 167 applicable only to individuals 60 . 162 ibid. one (1) year. The amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property received. usu. (b) Net loss carry-over rule167 161 Black’s Law Dictionary.162 (4) Net capital gain. usu.161 year. [A.164 (5) Computation of the amount of gain or loss The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis or adjusted basis for determining gain. 3] 165 Sec. Long term capital gain Short term capital gain The profit realized from selling or The profit realized from selling or exchanging a capital asset held for more exchanging a capital asset held for less than a specified period.165 (6) Income tax treatment of capital loss (a) Capital loss limitation rule166 Capital losses are deductible only to the extent of capital gains. 163 Sec. 39.163 from such sales or exchanges. [A.

Property used in trade or business subject to depreciation. 3. Real property used in trade or business. 10% 168 other than a corporation 169 Sec.. If any taxpayer168 sustains in any taxable year a net capital loss 1.. 2. whichever is higher. 5% On any amount in excess of P100.. 4. or the current fair market value at the time of the sale.171 (8) Dealings in shares of stock of Philippine corporations (a) Shares listed and traded in the stock exchange Not subject to income tax but to percentage tax of ½ of 1% of the gross selling price. Stock in trade or other property of any kind which would be included in the inventory of the taxpayer if on hand at the end of the taxable year. (b) Shares not listed and traded in the stock exchange A final tax at the rates as follows: Not over P100.. Property primarily held for sale to customers in the ordinary course of trade or business. Such net capital loss cannot be deducted from ordinary income due to the loss limitation rule.000……………. 171 Sec. 24 (D) 61 .on the gross selling price. 2. A capital asset is property held by the taxpayer whether or not connected in his trade or business except: 1.169 (7) Dealings in real property situated in the Philippines170 6% final tax . Such loss could be carried over to the next taxable year as a deduction against net capital gain in an amount not in excess of the taxable income in the year the loss was sustained..000……………………………. Such loss shall be treated as a loss from the sale or exchange of capital assets held for not more than twelve (12) months.. 39 [D] 170 The real property involved must be considered capital asset. and 3..

(9) Sale of principal residence

Not liable for capital gains tax when:

a. Sold or disposed of by natural persons.

b. The proceeds of the sale are fully utilized in acquiring or constructing a new
principal residence within 18 calendar months from the date of sale or disposition.

c. The Commissioner is duly notified by the taxpayer within 30 days from the
date of sale or disposition through a prescribed return of his intention to avail of the tax
exemption.
d. A deposit is made of the 6% capital gain tax otherwise due, in cash or
manager’s check, in an interest-bearing account with an Authorized Agent Bank (AAB),
under an Escrow Agreement between the taxpayer and the Bureau of Internal Revenue
that the same shall be released to the taxpayer when the proceeds of the sale shall have
been utilized as intended.

e. The tax exemption can only be availed of once every 10 years.172
6) Passive Investment Income

a) Interest Income

An earning derived from depositing or lending of money, goods or credits.173

b) Dividend Income174

(1) Cash dividend

A dividend paid in cash and is taxable to the extent of the cash received.

172
Sec. 24 (D)(2)
Conditions for tax exemption of gain from the sale or exchange of principal residence:
1. Proceeds are fully utilized in acquiring or constructing a new principal residence within18 months
from the date of sale or disposition;
2. Historical cost or adjusted basis or the real property sold or disposed shall be carried over to the new
principal residence built or acquired;
3. Notice to the Commissioner of Internal Revenue shall be given within thirty (30) days from the date
of sale or disposition; and
4. If the proceeds of the sale were not fully utilized, the portion of the gain presumed to have been
realized from the sale or disposition shall be subject to capital gains tax
173
General rule: Interest received by a taxpayer, whether usurious or not, is subject to income tax.
Except: When interest income is exempted by law from income tax.
174
Dividends means any distributions made by a stock corporation to its stockholders (SHs)) out of its
earnings or profits and payable to its SHs in money or other property.

62

(2) Stock dividend

A transfer of a portion of retained earnings to capital stock by action of
stockholders. It simply means the capitalization of retained earnings.175

(3) Property dividend

A dividend paid in property176 held by the corporation and to the extent of the
FMV of the property received at the time of the distribution.

(4) Liquidating dividend

A dividend distributed to the shareholders upon dissolution of the corporation.

c) Royalty Income

Compensation or payment for the use of property and is paid to the owner of a
right.

d) Rental Income

(1) Lease of personal property
(2) Lease of real property

Earnings derived from leasing of real estate as well as personal property. 177 It
includes all other obligations assumed to be paid by the lessee to the third party in
behalf of the lessor.

175
General rule: A mere issuance of stock dividends is not subject to income tax, because it merely
represents capital and it does not constitute income to its recipient. Before disposition thereof, stock
dividends are nothing but a representation of interest in the corporate entity.
Exceptions: When stock dividends are subject to tax;
a) These shares are later redeemed for a consideration by the corporation or otherwise conveyed by
the stockholder to the extent of such contribution. Under the NIRC, if a corporation, after the distribution
of a non-taxable stock dividend, proceeds to cancel or redeem its stock at such time and in such manner
as to make the distribution and cancellation or redemption essentially equivalent to the distribution of a
tax of a taxable dividend, the amount received in redemption or cancellation of the stock shall be treated
as a taxable dividend to the extent that it represents a distribution of earnings or profits. (Sec.73 (B),
NIRC). Depending on the circumstances, corporate earnings may be distributed under the guise of initial
capitalization by declaring the stock dividends previously issued and later redeem or cancel said dividends
by paying cash to the stockholder. This process amounts to distribution of taxable dividends which is just
delayed so as to escape the tax. (CIR vs. CA, 301 SCRA 152)
b) The recipient is other than the stockholder. (Bachrach vs. Seifert, 57 PHIL 483)
c) A change in the stockholder’s equity results by virtue of the stock dividend issuance.
176
such as stock investment, bonds or securities

63

(3) Tax treatment of

(a) Leasehold improvements
by lessee

Outright Method Spread Out Method

The fair market value of the building or Allocate the depreciated value over the
improvement shall be reported as remaining term of the lease contract.
additional rent income. Every year, an aliquot part of the
depreciated value
should be reported as additional rent in
addition to the regular rent income.

(b) VAT added to rental/paid
by the lessee

Any additional amount paid, directly or indirectly, by the lessee in consideration
for the lease is considered rental. Therefore, taxes paid by the lessee on leased property
are part of rental income of the landlord.

(c) Advance rental/long term
lease

Advanced rental is a Security Deposit Advance rental is prepaid rental received
which restricts the lessor as to its use without restriction as to its use

The amount shall be “excluded” in the The entire amount is “taxable” in the year
determination of rental income. it is received.

7) Annuities, Proceeds from life insurance or other
types of insurance

Annuities Amounts payable yearly or at other regular
intervals for a certain or uncertain period.
They also represent as installment
payments for life insurance sold by

177
Taxes paid by the tenant (lessee) to or for a lessor for a business property are additional rent and
constitute income taxable to the lessor.

64

insurance companies.178

Proceeds of life insurance Paid by reason of the death of the insured
to his estate or to any beneficiary,179
directly or in trust.

Return of insurance premium180

8) Prizes and awards

Contest prizes and awards received are generally taxable. Such payment
constitutes gain derived from labor.181

9) Pensions, retirement benefit, or separation pay

Pension refers to allowance paid regularly to a person on his retirement or to his
dependents on his death, in consideration of past services, meritorious work, age, loss
or injury.

178
If the part of annuity payments represent “interest” = taxable income.
If the annuity is a mere return of premium = not taxable.
179
Individual, partnership, or corporation, but not a transferee for a valuable consideration.
If the proceeds are retained by the insurer, the interest thereon is taxable;
180
If such amounts (when added to amounts already received before the taxable year under such
contracts) exceed the aggregate premiums or considerations paid (whether or not paid during the taxable
year), then the excess shall be included in the gross income. However, in the case of a transfer for a
valuable consideration, by assignment or otherwise, of a life insurance, endowment or annuity contract,
or any interest therein, only the actual value of such consideration and the amount of the premiums and
other sums subsequently paid by the transferee are exempt from taxation. No loss is realized on
surrender of a life insurance policy for its surrender value.
181
Exceptions:
1. Prizes and awards received in recognition of religious, charitable, scientific, educational, artistic,
literary or civic achievements are exclusions from gross income if:
a. The recipient was selected without any action on his part to enter a contest or proceedings; and
b. The recipient is not required to render substantial future services as a condition to receiving the
prize or award.
2. Prizes and awards granted to athletes in local and int’l sports competitions and tournaments held
in the Philippines and abroad and sanctioned by their national associations shall be exempt from income
tax.

65

Retirement benefits received under RA 7641 and those received by officials and
employees of private firms in accordance with a reasonable private benefit plan
maintained by the employer.182

Any amount received by an employee or by his heirs from the employer as a
consequence of separation of such official or employee from the service of the
employer because of death, sickness, other physical disability or for any cause beyond
the control of the employee.183

The social security benefits, retirement gratuities, pensions and other similar
benefits received by resident or nonresident citizens of the Philippines or aliens who
come to reside permanently in the Philippines from foreign government agencies and
other institutions.

Payments of benefits due or to become due to any person residing in the
Philippines under the laws of the United States administered by the United States
Veterans Administration

Benefits received from or enjoyed under the Social Security System.

Benefits received from the GSIS, including retirement gratuity received by
government officials and employees.

10) Income from any source whatever

All income not expressly excluded or exempted from the class of taxable income,
irrespective of the voluntary or involuntary action of the taxpayer in producing the
income.184

a) Forgiveness of indebtedness

182
Requisites:
1. The retiring employee has been in the service of the same employer for at least 10 years.
2. The retiring employee is not less than 50 years of age at the time of his retirement
3. The benefits shall be availed of by an employee only once.
4. That there be a reasonable private benefit plan as defined below.
183
i.e., the separation of the employee must be involuntary and not initiated by him
184
Gutierrez vs. Collector of Internal Revenue, CTA case no. 65, August 31, 1965.

66

for example. if the taxpayer claimed a credit for such tax in the year it was paid or incurred. a refund of a tax related to the business or the practice of profession is taxable income in the year of receipt to the extent of the income tax benefit of said deduction. 191 i.Final taxes 8.185 2. a capital transaction. however.191 185 If. in consideration thereof cancels the debt. 2) 188 Tax Benefit Rule 189 Sec. tax savings for the company.186 or 3. RR 5-99 190 Tax credit takes place upon the issuance of a tax certificate or tax credit memo. the tax benefit rule applies However. the transaction has the effect of payment of dividends (Sec. Philippine income tax.187 b) Recovery of accounts previously written off To be included as part of the taxpayer’s gross income in the year of such recovery to the extent of the income tax benefit of said deduction. which can be applied against any sum that may be due and collected from the taxpayer.. Taxes assessed against local benefits of a kind tending to increase the value of the property assessed (Special assessments) 5. the following tax refunds are not to be included in the computation of gross income: 1. Fines and penalties due to late payment of tax 7.188 There is an income tax benefit when the deduction of the bad debt in the prior year resulted in lesser income and hence. Capital Gains Tax 67 . 3. Dependent upon the circumstances. a gift.e. a creditor merely desires to benefit a debtor and without any consideration thereof cancels the debt.ValueAddedTax 6. except the fringe benefit tax 2. Rev. the amount of the debt is a gift from the creditor to the debtor and need not be included in the latter’s gross income. an individual performs services for a creditor who.189 c) Receipt of tax refunds or credit190 As a general rule. Reg. income. income to that amount is realized by the debtor as compensation for his service. 4. may amount to: 1. 186 If. Estate and donor’s taxes 4. 50. 187 If a corporation to which a stockholder is indebted forgives the debt. Income tax imposed by authority of any foreign country.

plan. d) Income from any source whatever192 f. 42 68 . 192 supra 193 Sec. 2) Dividends The amount received as dividends: (a) from a domestic corporation. Source rules in determining income from within and without193 Income from sources within the Philippines: 1) Interests Interests derived from sources within the Philippines. 4) Rentals Rentals and royalties from property located in the Philippines or from any interest in such property. design or model. unless less than fifty percent (50%) of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends or for such part of such period as the corporation has been in existence was derived from sources within the Philippines as determined under the provisions of this Section. and (b) from a foreign corporation. corporate or otherwise. including rentals or royalties for - (a) The use of or the right or privilege to use in the Philippines any copyright. and interests on bonds. notes or other interest-bearing obligation of residents. goodwill. but only in an amount which bears the same ration to such dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to its gross income from all sources. secret formula or process. patent. 3) Services Compensation for labor or personal services performed in the Philippines.

technical. any such property or right as is mentioned in paragraph (a). (c) The supply of scientific. (b) The use of. 5) Royalties194 6) Sale of real property Gains. and (g) The use of or the right to use: (i) Motion picture films. trademark. (f) Technical advice. 7) Sale of personal property Gains. industrial or commercial undertaking. industrial or commercial knowledge or information. any such equipment as is mentioned in paragraph (b) or any such knowledge or information as is mentioned in paragraph (c). trade brand or other like property or right. and (iii) Tapes for use in connection with radio broadcasting. profits and income from the sale of personal property 194 See 4) Rentals. (d) The supply of any assistance that is ancillary and subsidiary to. commercial or scientific equipment. machinery or other apparatus purchased from such non- resident person. or the installation or operation of any brand. or the right to use in the Philippines any industrial. and is furnished as a means of enabling the application or enjoyment of. venture. assistance or services rendered in connection with technical management or administration of any scientific. (e) The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to. supra 69 . (ii) Films or video tapes for use in connection with television. profits and income from the sale of real property located in the Philippines. project or scheme.

trade brands. Items of gross income treated as income from sources without the Philippines: (1) Interests other than those derived from sources within the Philippines (2) Dividends other than those derived from sources within the Philippines (3) Compensation for labor or personal services performed without the Philippines. 8) Shares of stock of domestic corporation Gain from the sale of shares of stock in a domestic corporation shall be treated as derived entirely form sources within the Philippines regardless of where the said shares are sold. 32 (B) 197 Exclusions are in the nature of tax exemptions. 70 . Territorial. franchises and other like properties. g. copyrights. and (5) Gains. (4) Rentals or royalties from property located without the Philippines or from any interest in such property including rentals or royalties for the use of or for the privilege of using without the Philippines. profits and income from the sale of real property located without the Philippines. Exclusions from Gross Income196 Income received or earned but is not taxable as income because it is exempted by law or by treaty. goodwill. Represent return of capital.197 1) Rationale for the exclusions They a. secret processes and formulas. supra 196 See Sec. 195 See Inherent Limitations. Situs of Income Taxation195 h. trademarks. thus. Receipts which are not in fact income are also excluded from Gross Income. the claimant must establish them convincingly. patents.

and 198 under the Constitution. whether citizens. Are income. Tax treaty. NIRC 201 M. Holding Corp. vs. aliens. RR No.E. August 17.199 4) Under the Constitution a) Income derived by the government or its political subdivisions from the exercise of any essential governmental function From: 1) any public utility. 6th Ed. 2 200 Secs. gain or profit. c.201 included in the income tax income to arrive at taxable return unless information income. Such tax – subtracted from the tax liability to arrive at the free income is not to be pertinent items of gross total tax liability. 3) Exclusions distinguished from deductions and tax credit Exclusions Deductions Tax credit Income received or earned The items or amounts An amount subtracted from but is not taxable because authorized by law to be an individual’s or entity’s by law or treaty. 71 . estates. or general or a special law. 199 Sec. CTA Case No. Commissioner of Internal Revenue. d. Are not income. gain or profit that are expressly exempt from income tax. 1998 citing Black’s Law Dictionary. Tax Code. 5314. 34 and 35. whether residents or non-residents. Are subject to another kind of internal revenue tax.198 2) Taxpayers who may avail of the exclusions All kinds of taxpayers . b. 61. trusts and corporations. prom.individuals.200 regarding it is specifically called for.

whether in a single sum or otherwise. or annuity contracts. shall be included in gross income.203 b) Return of premium paid Paid by the insured under life insurance. devise or descent The income from such property. 204 Reason for the exclusion: The return of premium is a mere return of capital. 2) the exercise of any essential governmental function. The interest is included in determination of gross income. d) Value of property acquired by gift. where the included in the gross amount received exceed the aggregate premiums paid. the amount pertaining to the premiums he paid are excluded from gross income.202 5) Under the Tax Code a) Proceeds of life insurance policies Paid to the heirs or beneficiaries upon the death of the insured. but the excess shall be considered part of his gross income. while the heirs or beneficiary/ies are not required to pay donee’s tax as the same was already abolished. the excess shall be income 72 .204 c) Amounts received under life insurance. devise. The estate of the testator or the decedent is subject to estate tax. Instances when proceeds from insurance are taxable: a) Where proceeds are held by the insurer under an agreement to pay interest. as well as gift. 203 Reason for exclusion: The contract of insurance is a contract of indemnity. However. the proceeds thereof are considered indemnity rather than a gain or profits. or descent of income from property. and the beneficiary receives the life insurance proceeds. endowment or annuity contracts If the insured dies. bequest. hence. If the insured does not die and survives the designated period. either during the term or at the maturity of the term of the contract or upon surrender. these are not taxable income because they are excluded from gross income. endowment. b) Where the transfer is for valuable consideration. The value of the bequest and/or the devise received by the heirs or beneficiary/ies is 202 Thus. bequest. income from sources other than those mentioned is subject to income tax. in cases of transfers of divided interest.

Is not less than 50 yrs. for the purpose of distributing to such employer the earnings and principal of the fund thus accumulated. whether by suit or agreement.207 g) Retirement benefits. bequest and devises are excluded from gross income. The retiring official or employees has been in service of the same employer for at least ten years. or both. sickness or other physical disability beyond the control of the said official or employer. of age at the time of his retirement and 3.205 e) Amount received through accident or health insurance As compensation for personal injuries or sickness.209 205 Sec. pensions. to the extent required by any treaty obligation binding upon the Government of the Philippines. on the account of such injuries or sickness. stock bonus or profit sharing plan maintained by an employer for the benefit of some or all of his employees – a. a) Retirements benefits received under RA 7641 and those received by officials and employees of private firms in accordance with reasonable private benefit plan. If the award of damages is to compensate loss of property or an award of damages to compensate loss of income / profits. wherein contributions are made by such employer or employees. NIRC 206 Example of damages recovered from personal injuries: Moral damages for personal injuries. Available to official or employee only once. gratuities. any purpose other than for the exclusive benefit of said employee 73 . plus the amounts of any damages received. such is subject to tax. 207 Sec. or be diverted to. 32[B]. and b. 2.not included in the computation of their gross income since gifts. id.206 f) Income exempt under tax treaty Income of any kind. A “reasonable private benefit plan” means a pension. c) Terminal leave and other social security benefits. 208 Requisites: 1. etc.208 b) Any amount received by an official or employees or by his heirs from the employer as a “consequence of separation from service due to death. wherein said plan provides that at no time shall any part of the principal or income of the fund be used for. gratuity. 32[B](5).

b.Filipino citizens on the technical staff of International Rice Research Institutes (IRRI) e) Supplemental allowances per diem. h) Winnings. or civic achievement. The recipient is not required to render substantial future services as a condition in receiving the award. scientific. prizes and awards. artistic. literary.to be excluded. d) Benefits received under the US veterans Administration. c. The recipient was selected without any action on his part to enter the contest or proceeding. 6) Under Special Laws a) Prizes received by winners in charity horse race sweepstakes from PCSO. educational. including those in sports competition 1) Prizes and Awards . b) Back pay benefits c) Income of cooperative marketing association d) Salaries and stipends in dollars received by non . 209 The terminal leave pay of government employees whose employment is co-terminus is exempt since it falls within the meaning of the phrase “for any cause beyond the control of the said official or employees” (BIR Ruling 143-98) 74 . benefits received by officer or employees of the Foreign Service. Prizes and award made primarily in recognition of religious. or abroad and sanctioned by sports associations. 2) Prizes and Awards in Sports Competition – All prizes and award granted to athletes in local and international sports competitions and tournaments whether held in the Phils. e) Benefits received from SSS f) Benefits received from GSIS. f) Income from bonds and securities for sale in the international market. charitable. the following conditions must concur: a.

there is no catch-all provision for deductions. i. if there is an express mention in the law or if the taxpayer falls within the purview of the exemption by clear legislative intent. operation. 211 except standard deduction 212 The evidence must establish the following. However.212 c) Additional requirement relating to withholding The taxpayer must: 1. and/or conduct of the trade. 3. the rule on strict construction against the taxpayer-claimant will not apply. and he must be able to prove that he is entitled to it. Basic Principles Governing Tax Deductions: He who claims it must point to the specific provision of the statute authorizing it. the taxpayer must at least be within the purview of the exemption by clear legislative intent. Point to some specific provisions of the statute authorizing the deduction. Deductions from Gross Income210 1) General rules a) Deductions must be paid or incurred in connection with the taxpayer’s trade. 2. management. Deductions must comply with the substantiation requirement. or taken into account in computing gross income or for which depreciation/amortization may be 210 These are items or amounts authorized by the law to be subtracted from the pertinent items of the gross income to arrive at the taxable income. b) Deductions must be supported by adequate receipts or invoices211 The claimed deduction must be evidenced by official receipts or other adequate records. business or profession of the taxpayer. a) the amount of expenses being deducted b) the direct relation of such to the development. 75 . Able to prove that he is entitled to the deduction authorized or allowed. Any amount paid or payable which is otherwise deductible from. business or profession It must be directly connected with trade or business or profession of the taxpayer. If the exemption is not expressly stated in the law. Unlike gross income.

214 To be taxable.. NIRC 214 e. 2) Return of capital (cost of sales or services) Exempt from income tax. General Professional Partnerships c. Individuals engaged in trade. whether domestic or (resident) foreign b. treaty or law a) Sale of inventory of goods by manufacturers and dealers of properties b) Sale of stock in trade by a real estate dealer and dealer in securities c) Sale of services 3) Itemized deductions215 213 Sec. gain or profit. accrued or realized during the year.213 and 4.g. non-resident alien doing business in the Philippines) d. profession or business (citizen.and it is not exempt from income tax under the Constitution. there must be income.allowed. Estates and trusts engaged in trade or business e. gain is received. Corporations. Deductions for income tax purposes partake of the nature of tax exemptions hence. if tax exemptions are to be strictly construed. tax-free exchange of property 215 The following can claim itemized deductions: a. Proprietary educational institutions and hospitals (non-profit) 76 . shall be allowed as deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the BIR. resident alien. 34. then it follows that deductions must also be strictly construed.

management. 4. but as much as possible. fringe benefit tax on fringe benefits given to managerial and supervisory employees. It must be paid or incurred in carrying on or which are directly attributable to the development. business or profession of the taxpayer 6. It must be substantiated with sufficient evidence. RR 2-98 as amended by Sec. operation and/or conduct of the trade. 7.5. It is not contrary to law. except non-resident aliens. the direct connection or relation of the expense being deducted to the development. 216 Sec.217 (a) Nature: Ordinary and necessary218 f. Government-owned or controlled corporations Only individuals. it will refuse to substitute its judgment for that of the taxpayer on the necessity of an expense. can elect between itemized deductions and optional standard deduction. 3.58. 2. who is constituted as a withholding agent of the government. ordinary. It must be paid or incurred during the taxable year. such as official receipts or other adequate records. showing: i. and ii. business or professional expenses 217 For instance. public policy or morals. 77 . operation and/or conduct of the trade. business or exercise of a profession. A court may decide on when an expense is. 5. the amount of the expense being deducted. 6. a) Expenses216 (1) Requisites for deductibility 1. RR 14-2002) 218 The two conditions must concur. The amount must be reasonable. or is not. It must be ordinary and necessary. etc. 2. ( Sec. management. withholding tax on compensation income paid to employees. The tax required to be withheld on the amount paid or payable must have been paid to the BIR by the taxpayer. 34(A) Only deductions allowable are ordinary and necessary trade.

purpose of realizing a profit or minimizing a loss. business or profession. 78 . transportation expenses from his office to his customer’s place of business and back are deductible. However. while away from home. (b) Paid and incurred during taxable year Paid Incurred The payment is on cash receipt basis. Transportation expenses of an employee from his residence to his office and back are not deductible. 34 (A)(1)(a)(i) 220 For travel expenses. wages and other forms of compensation for personal services actually rendered. expenses are deductible in the year they expenses are deductible in the year they are incurred. whether paid or not. (2) Salaries. in the pursuit of trade. including the grossed-up monetary value of the fringe benefit subjected to fringe benefit tax which tax should have been paid219 (3) Travel/Transportation expenses220 219 Sec. which is Where the expenditure is appropriate or normal in relation to the business of the helpful in the development of taxpayer’s taxpayer and the surrounding business or that the same is proper for the circumstances. Ordinary Necessary When it connotes a payment. are incurred. The payment thereof is on accrual basis. They are personal expenses. While away from home means away from principal place of business If the trip is undertaken for purposes other than business or exercise of profession. here and/or abroad. the transportation expenses are personal expenses and the meals and lodging are living expenses and are not deductible. here and abroad. Include meals and lodging. They are business expenses.

Rev. (4) Cost of materials221 (5) Rentals and/or other payments for use or possession of property222 (6) Repairs and maintenance223 (7)Expenses under lease agreements224 (8) Expenses for professionals (9) Entertainment expenses225 (10) Political campaign expenses (11) Training expenses b) Interest226 (1) Requisites for deductibility a. Ordinary repairs . of property to which the taxpayer has not taken or is not taking title or in which he has no equity other than that of a lessee. B (1)) 79 .. etc. 34. (Sec. d. business or profession. c. 110-2002) 226 The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer's profession. for purposes of the trade. 221 Materials and supplies are deductible only to the amount actually consumed or used in the operation during the taxable year. and expansion to the extent that they arrest deterioration and prolong the life of the property.” (1st par. 222 Required as a condition for the continued use or possession.those made to keep the property ordinarily efficient working condition and do not materially add to the value of the property 224 See 5) Rentals. The interest must be legally due and stipulated in writing. trade or business shall be allowed as deduction from gross income. user or possessor. supra 225 Include “representation expenses and/or depreciation or rental expense relating to entertainment facilities.those in the nature of replacements. 223 Extraordinary repairs . 2. alteration.. There must be a valid and existing indebtedness b. Sec. The indebtedness must be that of the taxpayer. Regs. The interest expense must be paid or incurred during the taxable year.

e. The indebtedness must be connected with the taxpayer's trade, business or
exercise of profession;

f. The interest payment arrangement must not be between related taxpayers;227
g. The interest is not expressly disallowed by law to be deducted from the
taxpayer’s gross income;228 and

h. The amount of interest deducted from gross income does not exceed the limit
set forth in the law.229

(2) Non-deductible interest expense

a. Interest on preferred stock, which in reality is dividend

b. Interest on unpaid salaries and bonuses

c. Interest calculated for cost keeping

d. Interest paid where parties provide no stipulation in writing to pay interest

e. If the indebtedness is incurred to finance petroleum exploration

f. Interest paid on indebtedness between related taxpayers230

g. Interest on indebtedness paid in advance through discount or otherwise and
the taxpayer reports income on cash basis.231

(3) Interest subject to special rules

227
infra
228
e.g., interest on indebtedness to finance petroleum operations
229
In other words, the taxpayer’s otherwise allowable deduction for interest expense shall be reduced by
forty-two percent (42%) of the interest income subjected to final tax beginning November 1, 2005 under
R.A. 9337, and that effective January 1, 2009, the percentage shall be thirty-three percent (33%)
(Sec.34(B)(1)
230
1. Members of the same family, brothers and sisters, whether in full or half blood, spouse, ancestors
and lineal descendants
2. Stockholders and a corporation, when he holds more than 50% in value of its outstanding capital
stock, except in case of distribution in liquidation
3. Corporation and another corporation, with interlocking stockholders
4. Grantor and fiduciary in a trust
5. Fiduciary of a trust and fiduciary in another trust, if the same person is a grantor with respect to
each trust
6. Fiduciary of a trust and beneficiary of such trust
231
Interest is allowed as a deduction in the year the indebtedness is paid, not when the interest was paid
in advance.

80

(a) Interest paid in advance

If the indebtedness is payable in periodic amortizations, the amount of interest
which corresponds to the amount of the principal amortized or paid during the year
shall be allowed as deduction in such taxable year.

(b) Interest periodically
amortized232

(c) Interest expense incurred
to acquire property for
use in
trade/business/professio
n

At the option of the taxpayer, may be allowed as a deduction or treated as a
capital expenditure.233

(d) Reduction of interest
expense/interest
arbitrage

It is a strategy which takes advantage of the difference in tax rates or tax
systems as the basis for profit.

c) Taxes234

(1) Requisites for deductibility

1. It must be paid or incurred within the taxable year.

2. It must be paid or incurred in connection with the taxpayer’s trade,
profession or business.235

232
See a), above
233
Sec. 34 (B)(3)
234
The word ‘taxes’ means taxes proper and no deduction should be allowed for amounts
representing interest, surcharge, or penalties incident to delinquency. (Sec. 80, RR-2)
235
Examples:
1. Import duties
2. Business taxes
3. Occupation taxes
4. Privilege and license taxes
5. Excise taxes
6. Documentary stamp taxes

81

3. It must be imposed directly on the taxpayer.

4. It must not be specifically excluded by law from being deducted from the
taxpayer’s gross income.

(2) Non-deductible taxes

Taxes not allowed as deduction from gross income to arrive at taxable income:

a. Income tax provided under the NIRC
b. Income taxes imposed by authority of any foreign country236

(3)Treatment/of
surcharges/interests/fines/for
delinquency237

(4) Treatment of special
assessment238

Deductible as taxes where these are made for the purpose of:

1. Maintenance or repair of local benefits, if the payment of such assessment is
ordinary and necessary in the conduct of trade, business or profession

2. Constructing local benefits tending to increase the value of the property
assessed, the payments are in the nature of capital expenditures.239

7. Automobile registration fees
8. Real property taxes
Limitation: In the case of a nonresident alien individual engaged in trade or business (NRAETB)
and a resident foreign corporation (RFC), the deductions for taxes shall be allowed only if and to the
extent that they are connected with income from sources within the Philippines.
236
Income tax imposed by a foreign country are deductible only if:
a) the taxpayer is qualified to avail of tax credit;
b) He does not signify in its return his desire to avail of the same.
The right to deduct income taxes paid to a foreign government is given only as an “alternative or
substitute “to his right to claim a tax credit for such foreign income taxes.
Limitation on deduction:
a) non – resident alien engaged in trade or business in the Phils.
b) resident foreign corporation --- the deductions for taxes shall be allowed only if and to the extent
that they are connected with income from “sources within” the Phils.
237
See (F)(3)(a)(2), under Tax Remedies under the NIRC, infra
238
An enforced proportional contribution from owners of lands, especially or peculiarly benefited by
public improvements.
239
The burden is on the taxpayer to show the allocation of the amounts assessed to the different
purposes.

82

(5) Tax credit240 vis-à-vis deduction

Tax Credit Tax deduction

Deducted from Phil. income tax Deducted from the gross income

All taxes are allowed to be deducted with Only foreign income taxes may be claimed
the exception of the taxes expressly as credits
excluded

d) Losses

Losses actually sustained during the taxable year and not compensated for by
insurance or other forms of indemnity.241

(1) Requisites for deductibility242

240
Refers to the taxpayer’s right to deduct from the income tax due, the amount of tax he has paid to
foreign country.
Persons entitled to tax credit
1 .Resident Citizen of the Philippines
2. Domestic Corp. except General Professional Partnership
3. Members of the GPP
4. Beneficiaries of Estates and Trusts.
Persons not entitled to Tax credit
1. Non Resident Citizen
2. Aliens, whether residents or non – residents
3. Foreign Corporation, whether residents or non - residents
241
Sec. 34 D [1]
242
Despite concurrence of requisites, when is loss nonetheless not deductible?

83

a) The loss must be that of the taxpayer.243

b) There must be an actual loss suffered in a closed and completed
transaction.244
c) The loss must be connected with the taxpayer’s trade, business or profession.

d) The loss must not be compensated for by insurance or otherwise.

e) The loss must be actually sustained and charge – off during the taxable
year.245

f) In the case of casualty loss, declaration of loss 246 must be filed within
45 days from the occurrence of the casualty loss.247

g) The loss must not be claimed as deduction for estate tax purposes in the
estate tax return.

(2) Other types of losses

(a) Capital losses

Losses from sale or exchange of capital assets. Deductible to the extent of capital
gains only.

(b) Securities becoming
worthless248

In computing net income, no deductions shall in any case be allowed in respect of losses from
sales or exchanges of property directly or indirectly [between related taxpayers (Sec. 36 (B)
243
The loss is personal to the taxpayer and is not transferable or usable by another. The loss of a
predecessor partnership is not deductible by a successor corporation. The loss of the parent company
may not be deducted by its subsidiary.
244
“Closed transaction “means that taxable year when the amount of loss was finally ascertained.
245
The deduction shall be in full or not at all.
However, if the loss is compensated by insurance or otherwise, the loss is postponed to a subsequent
year in which it appears that no compensation at all can be had, or there is a remaining net loss (or
there is no full compensation). Deduction will be denied if there is a measurable right to compensation for
the loss, with ultimate collection reasonably clear. So where there is reasonable ground for
reimbursement, the taxpayer must seek his redress and may not secure a loss deduction until he
establishes that no recovery may be had. In other words, the taxpayer must first exhaust his remedies
to recover or reduce his loss. (Plaridel Surety and Insurance Co. v. Collector, 21 SCRA 1187)
246
Sworn Declaration of Loss
247
RR 12-77
248
Securities which are capital assets ascertained to be worthless and charged-off within the taxable year.

84

e) Bad debts Debts due to the taxpayer when actually ascertained to be worthless253 and charged-off within the taxable year. if losses from wash sales are claimed by a “dealer” in securities in the ordinary course of business. There has been no substantial change in the ownership of the business or enterprise. The loss resulting therefrom to the taxpayer249 is not considered as a bad debt but as a capital loss. the taxpayer has acquired substantially identical stocks or securities.251 (e) NOLCO252 It is the excess of allowable deductions over gross income of business for any taxable year which had not been previously offset as deduction from gross income. 252 Net Operating Loss Carry – over 253 In general. The determination of worthlessness in a given case must depend upon the 85 . a debt is not worthless simply because it is of doubtful value or difficult to collect. and 2. If there is no gain from the wagering transaction.those in which the outcome is uncertain or those that involve games of chance.254 249 other than a bank or trust company incorporated under the laws of the Phil.250 (d) Wagering losses Deductible only to the extent of the gains from such wagering transaction. 251 Wagering transactions . such losses are deductible. the loss therefrom cannot be deducted from gross income. Worthlessness is not determined by an inflexible formula or slide rule calculation but upon the exercise of sound business judgment. 250 However. The taxpayer was not exempt from income tax in the year of such net operating loss. (c) Losses on wash sales of stocks or securities Not deductible when: 1) A taxpayer who is not a dealer of stocks in trade has disposed shares and 2) Within the period of 60(sixty) days beginning 30 days before the date of such sale and ending 30 days after such date. It shall be carried over as deduction from gross income for the next 3 consecutive years following the year of such loss. Provided that: 1.

258 5) The same must be actually ascertained to be worthless and uncollectible as of the end of the taxable year. business or practice of profession. RR No. The determination of worthlessness in a given case must depend upon the particular facts and circumstances of the case. 70 SCAD 544. vs. 29 SCRA 552. and where there is no showing that the surrounding circumstances differ from those relating to other notes which were charged off in a prior year.5-99 256 A valid and subsisting debt is one the collection of which may be enforced in a court of law. Court of Appeals. vs. Worthlessness is determined upon the exercise of a sound business judgment.260 particular facts and the circumstances of the case.257 4) The same must be actually charged-off the books of accounts of the taxpayer as of the end of the taxable year. 260 Tax Benefit rule 86 . of amounts due to the taxpayer by others. A debt which had prescribed is no longer valid and subsisting. a reasonable possibility of recovery will permit the account to be carried along notwithstanding that the probabilities are that the debt may not be collected at all. Philippine Refining Co. Inc. in whole or in part. While a mere hope probably will not justify postponement of the deduction. A taxpayer may not postpone a bad debt deduction on the basis of a mere hope of ultimate collection or because of a continuance of attempts to collect notes which have long become overdue. arising from money lent or from uncollectible amounts of income from goods sold or services rendered.255 (1) Requisites for deductibility 1) There must be a valid and subsisting debt. a debt is not worthless simply because it is of doubtful value or difficult to collect. 3) The same must not be sustained in a transaction entered into between related parties. 254 Sec.256 2) The same must be connected with the taxpayer’s trade. 256 SCRA 667). 257 infra 258 A partial writing-off of a bad debt is not allowed.259 (2) Effect of recovery of bad debts The taxpayer is obliged to declare as taxable income subsequent recovery of bad debts in the year they were collected to the extent of the tax benefit enjoyed by the taxpayer when the bad debts were written off and claimed as deduction from gross income. it must be charged-off in full or not at all (Fernandez Hermanos. 259 In general.34 [E1] 255 Sec.2 [a]. Commissioner. They refer to those debts resulting from the worthlessness or uncollectibility.

Depreciation may not be accumulated. vs. 1966).. Oct. and normal obsolescence.. Co. Collector. Inc. 1969 263 Connel Bros.261 (1) Requisites for deductibility a) The allowance for depreciation must be reasonable262 b) It must be for property arising out of its use or employment in the business or trade. Comm. 1402. April 30. (2) Methods of computing depreciation allowance (a) Straight-line method265 Spreads the total depreciation over the useful life of the asset and generally results in an equal depreciation per unit of time regardless of the use to which the properties are put. CTA Case No. e) The property must have a limited useful life. 411 & 610. Inc. 261 Basilan Estates. f) Depreciation The gradual diminution in the useful value of tangible property used in trade or business resulting from exhaustion. The term is also applied to amortization of value of intangible assets the use of which in trade or business is definitely limited in duration. 264 The deduction must be made in the year in which the wear & tear occurs. wear and tear. Depreciation is largest in amount the first year and declines in the years thereafter. or out of its not being used temporarily during the year263 c) It must be charged-off during the taxable year. (b) Declining-balance method Uses a rate to the declining book value of the asset. CTA Cases No. 21 SCRA 17 262 Bacolod-Murcia Milling Co. vs. Comm.264 d) A statement on the allowance must be attached to the return. vs. 31. 265 Fixed Percentage Method 87 .

to provide for. Human settlements. Scientific. or to b) Donations to accredited domestic be used in undertaking priority activities corporations or associations organized and in: operated exclusively for: 1. 4. and d) Must be evidenced by adequate records or receipts. reduced by the estimated residual salvage value. b) Must be made within the taxable year. Education. 34 (H) 268 5%/10% 88 . Government or any of its agencies or political subdivision or to any domestic corporations or associations. 3. Health. including fully- purposes. 1. Youth and sports development. Charitable. (c)Sum-of-the-years-digit method Requires the application of a changing fraction to the cost basis of the property. 3.267 (2) Amount that may be deducted Subject to limit268 Deductible in full a) Donations to the Philippine government a) Donations to the government of the or any of its agencies or any political Philippines or to any of its agencies or subdivision thereof exclusively for public political subdivisions. owned government corporations exclusively to finance. g) Charitable and other contributions266 (1) Requisites for deductibility a) Must actually be paid or made to the Phil. 266 Kinds of contributions allowed as deduction: 1) Ordinary or contributions with limit or subject to limitation 2) Special or contributions deductible in full 267 Sec. 2. c) Must not exceed 10% of the individual’s taxable income and 5% of the corporation’s taxable income before deducting the contribution. Religions. 2.

or c) Donations to social welfare institutions commitments entered into by the or to non-government organizations in government of the and the foreign laws or accordance with rules and regulations international organizations or in pursuance promulgated by the Secretary of Finance. a) The amount contributed must no longer be subject to its control or disposition. b) The pension plan is reasonable and actuarially sound. Rehabilitations of veterans. 4) Optional standard deduction 269 Sec. and b) The payment has not therefore been allowed as a deduction. 6. Regs. Youth and sports development. and provided no part of the net income of which inures to the benefit of any private c) Donations to certain accredited non- stockholders or individual. and 5. (i) Deductions under special laws These are deductions usually allowed only for particular business or enterprises and not to others.271 c) It must be funded by the employer.269 government organization. 118..( 2) 271 Sec.270 h) Contributions to pension trusts (1) Requisites for deductibility a) The employer must have established a pension or retirement plan to provide for the payment of reasonable pensions to its employees. or may be allowed for all but are not provided for under the provisions of the NIRC but under special laws. and compliance with agreements. or 6. 5. of special laws. Economic development. Science and culture. treaties. Cultural. 89 . Educational purposes. or for the b) Donations to foreign institutions or international organizations in pursuance or 7. 34 (H)(1) 270 Ibid. 4.

The “cost of sales” or the “cost of services” is not allowed to be deducted for purposes of determining the basis of the OSD inasmuch as the law272 is specific as to the basis thereof which states that for individuals.A. are not allowed to claim OSD on their share of net income because the OSD is a proxy for all items of deductions allowed in arriving at taxable income. 3. If the GPP avails of OSD in computing net income. except non-resident aliens A maximum of forty percent (40%) of gross sales or gross receipts during the taxable year. A taxpayer who is required but fails to file the quarterly income tax return for the first quarter shall be deemed to have elected to avail of itemized deductions for the taxable year. and 5. once the election is made. the same type of deduction must be consistently applied for all succeeding quarters and in the annual income tax return. Reg. 16-2008 274 RR No. the partners may no longer claim further deductions from their net distributive share. 2. whether itemized or OSD. the basis of the 40% OSD shall be the “gross sales” or “gross receipts” and not “gross income. 34 of the NIRC in computing net income.”273 b) Corporations. 2-2010 90 . c) Partnerships 1. 9504. No. 4.274 5) Personal and additional exemption275 272 R. the partners may still claim itemized deductions on their net distributive share that have not been claimed by the GPP. If the GPP avails of itemized deductions under Sec. except non-resident foreign corporations Not exceeding forty percent (40%) of their gross income. a) Individuals. however. The election to claim either the OSD or itemized deductions must be signified in the income tax return filed for the first quarter of the taxable year. The partners. Minimum Wage Earner Law 273 Rev.

is incapable of self-support because of mental or physical defect. unmarried and not gainfully employed or if such dependent. 2. or b. illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age. taxpayer may still claim same exemptions as if the spouse or any of the dependents died.may claim the corresponding BPE in full for such year.276 b) Additional exemptions for taxpayer with dependents Twenty-five thousand pesos (P25. or married.278 c) Status-at-the-end-of-the-year rule 1.000) .may claim corresponding AE in full for such year.000) – each individual taxpayer. 2. 9504 276 Sec. turns 21 years old or becomes gainfully employed. spouse dies. only such spouse shall be allowed the personal exemption. A. 35 (C) 91 . Taxpayer dies during taxable year . 4. regardless of age. id. (ibid) 279 Sec. If during the taxable year a.279 d) Exemptions claimed by non-resident aliens 275 R. Taxpayer marries during taxable year . any of the dependents dies or marries. turned 21 years old or became gainfully employed at the close of such year.each dependent277 not exceeding four (4). In the case of married individual where only one of the spouses is deriving gross income. 4. additional exemptions may be claimed only by the spouse who has custody of the child or children: The total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions herein allowed.his estate may still claim BPE and AE for himself and his dependent(s) as if he died at the close of such year. 277 A legitimate. 278 In the case of legally separated spouses. a) Basic personal exemptions Fifty thousand pesos (P50. Taxpayer should have additional dependent(s) during taxable year .

File an accurate return of their income from all sources within the Philippines on time. business or profession of the taxpayer. 6) Items not deductible a) General rules These items are not related to the trade. c) Amount paid for new buildings or for permanent improvements These are capital expenditures added to the cost of the property and the periodic depreciation is the amount that is considered as deductible expense. They can be entitled to personal and additional exemptions subject to the rule on reciprocity.282 e) Premiums paid on life insurance policy covering life or any other officer or employee financially interested 280 Does not apply to intangible drilling and development cost incurred in petroleum operations. 1. Amount allowable is not to exceed our maximum allowable personal exemption. 281 major repairs 282 such as lands.280 d) Amount expended in restoring property281 They are capital expenditures or those expenditures that result in obtaining benefits of a permanent nature. and 3. living or family expenses These are personal expenses and not related to the conduct of trade or business. b) Personal. 2. Their foreign country allows personal exemptions to citizens of the Philippines not residing therein. buildings and machineries 92 .

36 [A] 284 Sec. spouse. When the taxpayer is directly or indirectly a beneficiary under such policy. trade or not connected with corporation more than fifty business. or debts previously allowed as deduction in the preceding (3) Except in the case of years shall be included as distributions in liquidation.287 or within a taxable year on ascertained to be worthless (2) Except in the case of indebtedness in connection and charged off within the distributions in liquidation. ancestors. debts due to the (1) Between members of a interest paid or incurred taxpayer actually family.285 Recovery of bad individual. directly or indirectly. with respect to the taxable year of the corporation preceding the date of the 283 Sec. with the taxpayer's taxable year except those between an individual and profession.284 profession. bad debts. 93 . 286 is owned. and losses from sales of property between related parties Interest Expense Bad Debts Losses from sales of property between related parties In general. directly or entered into between indirectly.283 f) Interest expense. (E) 287 The family of an individual shall include only his brothers and sisters (whether by the whole or half- blood). and lineal descendants.. 34 (B) 285 supra 286 Id. by or for the same individual if either one of such corporations. trade or percent (50%) in value of business and those the outstanding stock of sustained in a transaction which is owned. by or for such parties. the amount of In general. part of the gross income in between two corporations the year of recovery to the more than fifty percent extent of the income tax (50%) in value of the benefit of said outstanding stock of which deduction.

profession or business. if the loss arises from fires. (4) Between the grantor and a fiduciary of any trust. shipwreck. 2. losses actually sustained during the taxable year and not compensated for by insurance or other forms of indemnity: 1. or (6) Between a fiduciary of a trust and beneficiary of such trust.288 g) Losses from sales or exchange or property In general. or other casualties. a personal holding company or a foreign personal holding company. or from robbery.289 h) Non-deductible interest290 i) Non –deductible taxes291 j) Non-deductible losses 288 Sec. theft or embezzlement. sale of exchange was under the law applicable to such taxable year. 34 (D)(1) 290 supra 291 Ibid. 36 (B) 289 Sec. business or profession. If incurred in trade. storms. or (5) Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust. 94 . Of property connected with the trade.

operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system. 1. the Philippine Charity Sweepstakes Office (PCSO). Losses from illegal transactions 2. (C) A beneficiary society. 3) Others (A) Labor. ii. 95 . agricultural or horticultural organization not organized principally for profit. Losses from sales or exchanges of property between related taxpayers292 – but the gains are taxable k) Losses from wash sales of stock or securities293 j. iii. order or association. and iv. Government Service Insurance System (GSIS). the Social Security System (SSS). and cooperative bank without capital stock organized and operated for mutual purposes and without profit. Exempt Corporations 1) Proprietary educational institutions and hospitals 2) Government owned or controlled corporations i. the Philippine Health Insurance Corporation (PHIC). (B) Mutual savings bank not having a capital stock represented by shares. or mutual aid association or a non-stock corporation organized by employees providing for 292 ibid 293 Ibid.

charitable. (G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare. or other benefits exclusively to the members of such society. accident. mutual or cooperative telephone company. scientific. and Resident Aliens a. organizer. sickness. Non-resident Citizens. mutual ditch or irrigation company. or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales. not organized for profit and no part of the net income of which inures to the benefit of any private stock- holder. less the necessary selling expenses on the basis of the quantity of produce finished by them. (J) Farmers' or other mutual typhoon or fire insurance company. or board of trade. or like organization of a purely local character. real or personal. officer or any specific person. 30 96 . (H) A non-stock and nonprofit educational institution. or from any of their activities conducted for profit regardless of the disposition made of such income. order. shall be subject to tax imposed under this Code. the income of which consists solely of assessments. (E) Non-stock corporation or association organized and operated exclusively for religious. the income of whatever kind and character of the foregoing organizations from any of their properties. or non-stock corporation or their dependents. General rule that resident citizens are taxable on income from all sources within and without the Philippines 294 Sec. athletic. (I) Government educational institution. (D) Cemetery company owned and operated exclusively for the benefit of its members. Notwithstanding the provisions in the preceding paragraphs. or association. or cultural purposes. or individual. and fees collected from members for the sole purpose of meeting its expenses. fruit growers. (F) Business league chamber of commerce. Taxation of Resident Citizens.the payment of life. and (K) Farmers. dues. no part of its net income or asset shall belong to or inures to the benefit of any member. or for the rehabilitation of veterans.294 10.

2. RR 03-98 97 . (4) Director’s fees297 b) Non-monetary compensation (1) Fringe benefit not subject tax298 (1) Fringe benefits which are authorized and exempted from tax under special laws. Taxation on Compensation Income 1) Inclusions a) Monetary compensation (1) Regular salary/wage Compensation income derived from an employer-employee relationship in consideration of services rendered.` b. Retirements benefits may be subject to tax if it does not comply with the provision of Sec.000.296 (3) Bonuses.00).295 (2) Separation pay/retirement benefit not otherwise exempt Separation pay received by an employee who voluntarily resigns is subject to income tax. and other benefits not exempt Amount in excess of Thirty thousand pesos (P30. consolidated with Sec. 295 infra 296 See Reference 297 See (1) Regular salary/wage. 13th month pay. 32 (B)(6)(a).33 (C). except in the case of a minimum wage earner. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. supra 298 Sec. 1) Non-resident citizens Taxable only on his income derived from sources within the Philippines. 33.

and (4) De minimis benefits. (2) Expense account. (6) Membership fees. and (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. but not limited to. (9) Educational assistance to the employee or his dependents. service or other benefit furnished or granted in cash or in kind by an employer to an individual employee301 such as. insurance and hospitalization benefit plans. (4) Household personnel. (3) Vehicle of any kind. (7) Expenses for foreign travel. the following: (1) Housing. (8) Holiday and vacation expenses. such as maid. (3) Benefits given to the rank and file employees. business. (2) Contributions of the employer for the benefit of the employee to retirement. whether granted under a collective bargaining agreement or not. or profession of the employer. (5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. 300 2) Exclusions a) Fringe benefit subject to tax Any good. (6) If the grant of the fringe benefits is for the convenience of the employer.299 (5) If the grant of fringe benefits to the employee is required by the nature of.302 299 infra 300 Convenience of the employer rule 301 except rank and file employees 302 A: If the benefit is not tax-exempt and the recipient is: 98 . or necessary to the trade. driver and others. dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations.

Medical cash allowance to dependents of Not exceeding P750 per employees semester or P125 per month Rice subsidy P1.000 per annum medical benefits Actual medical benefits Not exceeding P10. The fringe benefit tax is instead levied upon the employer who is required to pay. Private employees: of employees a. or efficiency of his employees.500 Uniforms and clothing allowances actual Not exceeding P4. b) De minimis benefits Limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer as a means of promoting the health. They include: Monetized unused vacation leave credits 1. contentment. of days. goodwill. Sick leave – always taxable 2. (Sec. Vacation leave .000 per annum 1.500 or one sack of 50-kg rice per month amounting to not more than P1.exempt up to 10 days b. A rank and file employee – the value of such fringe benefit shall be considered as part of the compensation income of such employee subject to tax payable by the employee. 2. Where the recipient is not a rank and file employee – the value shall not be included in the compensation income of such employee subject to tax. 33) 99 . Government employees: Vacation and sick leave are always tax exempt regardless of the no.

No. 306 under P.A.Laundry allowance Not exceeding P300 per month Employee achievement awards303 In the form of tangible personal property other than cash or gift certificate with an annual monetary value not exceedingP10.000 Gifts given during Christmas and major Not exceeding P5. fruits and books or similar items Reasonable value –depending given to employees under certain on the employer’s capacity circumstances Daily meal allowance for overtime work Not exceeding 25% of the basic minimum wage.305 (b) Benefits received by employees. 851. No.D. 1986 307 such as productivity incentives and Christmas bonus 100 . dated August 13.304 c) 13th month pay and other benefits and payments specifically excluded from taxable compensation income Gross benefits received by officials and employees of public and private entities. as amended by Memorandum Order No.000 per anniversary celebrations employee per annum Flowers. for length of service or safety achievement 304 RR 5-2008 305 under R.g.000) which shall cover: (a) Benefits received by officials and employees of the national and local government. 6686. the total exclusion of which shall not exceed Thirty thousand pesos (P30. 28.306 (c) Benefits received by officials and employees not covered by (b) (d) Other benefits307 303 e.

In the case of legally separated spouses. 35(A). 35 (B). The additional exemption for dependents shall be claimed by only one of the spouses in the case of married individuals.311 (2) Definition of Minimum Wage Earner312 308 Sec. additional exemptions may be claimed only by the spouse who has custody of the child or children: The total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions allowed. 9504 In the case of married individual where only one of the spouses is deriving gross income.308 each dependent not exceeding four (4). 9504 312 See II.A. Kinds of Taxpayers.309 b) Health and hospitalization insurance The amount of premiums not to exceed Two thousand four hundred pesos (P2. (A) (6). 310 Sec. as amended by R. only the spouse claiming the additional exemption for dependents shall be entitled to this deduction.A.400) per family or Two hundred pesos (P200) a month paid during the taxable year taken by the taxpayer for himself. 22. id. 3) Deductions a) Personal exemptions and additional exemptions Basic personal exemption Additional exemption Fifty thousand pesos (P50.000) for each Twenty-five thousand pesos (25. including his family who has a gross income of not more than Two hundred fifty thousand pesos (P250. as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE).000) for individual taxpayer.000) for the taxable year. 34 (M) 311 Sec. as amended by R.310 c) Taxation of compensation income of a minimum wage earner (1) Definition of Statutory Minimum Wage The rate fixed by the Regional Tripartite Wage and Productivity Board. supra 101 . In the case of married taxpayers. only such spouse shall be allowed the personal exemption 309 Sec.

Optional Standard Deductions – 10 % of the gross income.315 b) Royalties Royalties.A. 24(A)(2) as amended by R. d. except on books. May be availed only by individuals314 who are not purely compensation income earners. 9504 314 except non-resident aliens 315 Sec. (3) Income also subject to tax exemption: holiday pay. night shift differential. insurance or mutual fund companies and regional operating headquarters of multinational companies. as well as other literary works and musical compositions –20% Royalties on books literary works and musical compositions – 10% c) Dividends from domestic corporation Cash and or property dividend actually or constructively received from a domestic corporation or from a joint stock company. – 10% 313 Sec. overtime pay. Taxation of Passive Income 1) Passive income subject to final tax a) Interest income i) Treatment of income from long- term deposits Subject to a Final Withholding Tax (FWT) at the rate of twenty percent (20%). and hazard pay313 c. 3(2) of RR 14-2012 102 . This is in lieu of the itemized deductions. Taxation of Business Income/Income from Practice of Profession Optional Standard Deduction (OSD) or Itemized deductions.

Taxation of capital gains 1) Income from sale of shares of stock of a Philippine corporation a) Shares traded and listed in the stock exchange The gains are not subject to income tax.. exchanged or otherwise disposed which shall be paid by the seller or transferor.000…………………………. d) Prizes and other winnings Prizes over P10. deposit substitutes. investment management accounts and other investments evidenced by certificates .317 b) Shares not listed and traded in the stock exchange A final tax as follows:: Not over P100.. derived from sources within the Philippines – 20% 2) Passive income not subject to final tax Interest income from long-term deposit or investment in the form of savings. common or individual trust funds.316 e. except PCSO and Lotto. 127 (A) 318 Sec. 24 (B)(1) 317 Sec.000…………….000 are included in the income tax of the individual subject to the schedular rate of 5% up to P125. Other winnings..000 + 32% of excess of P500.. bartered.000 – 20% Prizes less than P10. 10%318 316 See Sec. 27 (D)(2) 103 . A tax at the rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross value in money of the shares of stock sold. 5% Amount in excess of P100.000.exempt from final tax. The tax applicable will be a business tax known as percentage tax..

including pacto de retro sales and other forms of conditional sales. supra 104 .320 b. on cash and or property dividend actually or constructively received from a domestic corporation or from a joint stock company. or other disposition of other capital assets A final tax of 6% on the gross selling price. including estates and trusts xxx. 11. exchange. upon capital gains presumed to have been realized from the sale. insurance or mutual fund companies and regional operating headquarters of multinational companies. or the current fair market value at the time of the sale. whichever is higher. on taxable income received from all sources within the Philippines. 25 (A)(1)) 321 Id.319 3) Income from the sale. whichever is higher. or other disposition of real property classified as capital assets. 2) Income from the sale of real property situated in the Philippines A final tax of six percent (6%) based on the gross selling price or current fair market value. Senior citizens 319 Sec. Capital gains322 12. exchange. 24 (D) 320 A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a 'nonresident alien doing business in the Philippines (Sec. Taxation of capital gains.. 321 c. by individuals. Individual Taxpayers Exempt from Income Tax a. General rules A nonresident alien individual engaged in trade or business in the Philippines shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual. Cash and/or property dividends 10% final tax. Taxation of Non-resident Aliens Engaged in Trade or Business a. (A)(2) 322 See e.

It is imposable only if such corporation has zero or negative taxable income or whenever the amount of MCIT is greater than the Normal Corporate Income Tax (NCIT) due from such corporation. including those who have retired from both government offices and private enterprises. joint-stock companies. 105 . coal. and shall not exceed the aforementioned amounts. A senior Citizen is: 1. in which such corporation starts its business operation. Exemptions granted under international agreements NRAETB324 may deduct personal exemption325 but only to the extent allowed by his country to Filipinos not residing therein. b.A. has an income of not more than sixty thousand pesos (P60. 2) Minimum corporate income tax (MCIT) a) Imposition of MCIT328 323 supra 324 Non-resident alien engaged in trade or business 325 but not additional exemption 326 The term "corporation" shall include partnerships. joint accounts (cuentas en participacion). Tax payable 1) Regular tax Thirty percent (30%)327 of taxable income. NRANETB cannot claim any personal or additional exemption. 9337) 328 a. or insurance companies. association. 22(B)) 327 beginning January 1. any resident citizen of the Philippines 2. and 3. but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum. 13. b. no matter how created or organized.00) per annum subject to the review of the National Economic Development Authority(NEDA) every three (3) years. Minimum wage earners323 c.000. Taxation of Domestic Corporations326 a. geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government. (Sec. at least sixty (60) years old. It is imposed beginning the fourth (4th) taxable year immediately following the taxable yr. 2009 (R.

Prolonged labor dispute329 b. Proprietary Educational Institution 2. ROHQs of resident foreign corp. Offshore Banking Units 6.g. Non-profit hospitals 3. Force majeure331 d) Corporations exempt from the MCIT 1. e) Applicability of the MCIT where a corporation is governed both under the regular tax system and a special income tax system Only one may be imposed. Two percent (2%) on the gross income. strikes for more than 6 months 330 Ibid. c) Relief from the MCIT under certain conditions The imposition of MCIT may be suspended. International carriers 5. Legitimate business reverses330 c. upon showing that the corporation suffers losses due to any of the following causes: a. b) Carry forward of excess minimum tax Any excess of the minimum corporate income tax (MCIT) over the normal income tax shall be carried forward on an annual basis and credited against the normal income tax for the three (3) immediately succeeding taxable years. war 106 .g. 331 e. 329 e. Depository banks under expended FCDU 4.

. The standard deduction is optional. Allowable deductions 1) Itemized deductions Business334 expenses which are ordinary and necessary in the conduct of business. he can change to itemized deductions in succeeding years. he is considered as having availed of the itemized deductions. 27 (E) and 28 (A)(2) 334 or professional 335 or in the exercise of profession 336 See also (9)(h)(4)(b). Available only to citizens and resident aliens b. supra 337 Section 34(L) Requisites: a. Such election. however. i. in lieu of itemized deductions. c.335 2) Optional standard deduction336 May be taken by an individual. “A minimum corporate income tax of 2% of the gross income xxx is imposed xxx on a corporation332 xxx when the minimum income tax is greater than the (net income tax)”333 b. Taxation of Passive Income 1) Passive income subject to tax a) Interest from deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties338 Twenty percent (20%) final tax. unless the taxpayer signifies in his return his intention to elect this deduction.337 c. when made by the qualified taxpayer. 338 received by domestic corporations derived from sources within the Philippines 107 . is irrevocable for the year in which made.e. b) Capital gains from the sale of shares of stock not traded in the stock exchange On the net capital gain: 332 domestic and resident foreign 333 Secs.

Not over P100.on the gross selling price. exchange. from transactions with depository banks. 2) Passive income not subject to tax341 d. whichever is higher.any income of nonresidents. or disposition of lands and/or buildings Six percent (6%) final tax340. d) Intercorporate dividends Not subject to tax. exchange.000 Final Tax of 5% On any amount in excess of P100. 108 . Taxation of Capital Gains. including branches of foreign banks authorized by the BSP to transact business with foreign currency deposit system units. 340 Tax treatment is the same as that of individuals 341 supra 342 See 10 (e). supra 343 Ibid. Exempt . Taxation of Capital Gains 1) Income from sale of shares of stock342 2) Income from the sale of real property situated in the Philippines343 3) Income from the sale. e) Capital gains realized from the sale.000 plus 10% Final tax on the excess c) Income derived under the expanded foreign currency deposit system339 Ten percent (10%) final tax. or other disposition of other capital assets344 339 by a depository bank with local commercial banks. or the current fair market value at the time of the sale. whether individuals or corporations.

except 1.. as the case may be. agencies or instrumentalities Such rate of tax imposed upon corporations or associations engaged in similar business. Tax on government-owned or controlled corporations. 2. or the Commission on Higher Education (CHED). 109 . or activity. supra 345 A "Proprietary educational institution" is any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education.346 Thirty percent (30%) . except that RFCs are taxed only on income from sources within the Philippines. The Government Service Insurance System (GSIS).if gross income from unrelated trade. or the Technical Education and Skills Development Authority (TESDA). business or other activity' means any trade. Taxation of Resident Foreign Corporations350 a. 346 except on certain passive incomes (Sec. 27 (D)) 347 The term 'unrelated trade. The Philippine Health Insurance Corporation (PHIC). Tax on proprietary educational institutions345 and hospitals Ten percent (10%) on their taxable income. business or other activity347 exceeds fifty percent (50%) of the total gross income derived from all sources. both as to concepts and computations. (C) 350 Income subject to Normal Tax [or] Minimum Corporate Income Tax (MCIT) [or] Gross Income Tax (GIT) under the subheading of domestic corporations is equally applicable to resident foreign corporations. industry. 27 (B) 349 Id. 349 14. Taxation of Capital Gains. 3. General rule Resident foreign corporations are subject to any or some of the following: 344 See (A)(10)(e)(3). the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function. business or other activity. e. The Social Security System (SSS). 348 Sec.348 f. and 4. The Philippine Charity Sweepstakes Office (PCSO). Culture and Sports (DECS). in accordance with existing laws and regulations.

355 ibid. supra 352 ibid. With respect to their income from sources within the Philippines351 c. Capital Gains Tax 351 See Tax Payable under Taxation of Domestic Corporations. Taxation of Non-resident Foreign Corporations a. Minimum corporate income tax352 d. supra 354 ibid. The MCIT is imposed on RFCs under the same conditions as domestic corporations (Sec. Tax on certain income (1) Interest from deposits and yield or any other monetary benefit from deposit substitutes. General rule Non-resident foreign corporations are subject to any or some of the following: 1. 1. trust funds and similar arrangements and royalties353 (2) Income derived under the expanded foreign currency deposit system354 (3) Capital gain from sale of shares of stock not traded in the stock exchange355 (4) Intercorporate dividends356 15. 28(A)(2)) 353 See Taxation of Passive Income under Taxation of Domestic Corporations. 110 . Capital Gains Tax 2. Branch Profit Remittance Tax b. Final Tax on Passive Income 3. 356 ibid. Normal Tax [or] Minimum Corporate Income Tax (MCIT) [or] Gross Income Tax (GIT) 4.

the dividends are subject to the third kind of tax: Final Tax on [Other] Gross Income from sources within the Philippines. Taxation of Partnerships361 Rules: 357 Sec. 28 (B)(5)(2) 358 Sec. 359 See 10 (e)(1)(b). 17. Tax on certain income (1) Interest on foreign loans Twenty percent (20%) final withholding tax.if the country within which the NRFC is domiciled does not allow a tax credit. Thirty percent (30%) withholding tax . Improperly Accumulated Earnings of Corporations Every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation. Final Tax on Passive Income 3.358 (3) Capital gains from sale of shares of stock not traded in the stock exchange359 16. Exemption from tax on corporations360 18. 357 (2) Intercorporate dividends Fifteen percent (15%) . under Taxation of capital gains 360 See Other exempt corporations. by permitting earnings and profits to accumulate instead of being divided or distributed. 28 (B)(5)(b) In other words. 2. Final Tax on [Other] Gross Income from sources within the Philippines b. supra 361 partnerships wherein all or part of their income is derived from the conduct of trade or business 111 .as long as the country in which the nonresident foreign corporation is domiciled allows a tax credit for taxes “deemed paid” in the Philippines equivalent to 15%.

24(B)(2) 365 GPP is not a taxable entity à The partnership is a mere mechanism or a flow-through entity in the generation of income by. Subject to the same rules on corporations. final tax on passive income. in the net income of the partnership.364 19. The partnership must file quarterly and year-end income tax returns. 5. Thus. actually or constructively received. (Mamalateo) 366 RR 2.366 362 capital gains tax. is the distributable net income of the partnership. The payment [to the partners] of such tax-paid profits in another year should no longer be liable to income tax. Commissioner [Oct. the principle of constructive receipt of income or profit is being applied to undistributed profits of GPPs. less the normal corporate income tax thereon. (Tan v. Not subject to income tax. the net income of the GPP shall be computed in the same manner as a corporation. The partners shall only be liable for income tax only in their separate and individual capacities. 4.362 but is not subject to the improperly accumulated earnings tax [IAET]. whether actually distributed or not. the partnership itself is required to file income tax returns for the purpose of furnishing information as to the share in the gains or profits which each partner shall include in his individual return. Each partner shall report as gross income his distributive share.1998) The share of an individual partner in the net profit of a general professional partnership is deemed to have been actually or constructively received by the partner in the same taxable year in which such partnership net income was earned.363 withheld by the partnership. at the graduated income tax ranging from 5% to 32%. and the ultimate mechanism distribution of such income to the individual partners. 2.1998 112 . (RR 2. 73(D) 364 Sec. and shall be taxed to them in their individual capacities. 2. Taxation of General Professional Partnerships365 Rules: 1. The taxable income of the partnership. 1. minimum corporate income tax [MCIT] and gross income tax [GIT] 363 Sec.the share of a partner in the partnership’s distributable net income of a year deemed to have been actually or constructively received by the partners in the same taxable year taxed to them in their individual capacity. whether actually distributed or not. 1994]) But. For purposes of computing the distributive share of the partners. normal tax. 3. 3. 3. Ten percent (10%) final tax . The share of a partner shall be subject to a creditable withholding income tax of 15%.

Hence. Kinds Withholding of final tax of certain income Withholding of creditable tax at source As to income subject of the system 1.Income payments to certain contractors As to whether or not income should be reported as part of the gross income The recipient may not report the said The employee is required to include the income in his gross income because the income in his gross income tax withheld constitutes final and full settlement of the tax liability As to the effect of the tax withheld The tax withheld cannot be claimed as tax The tax withheld can be claimed as a tax credit credit or may be deducted from the tax due or payable 367 also known as “taxation at source” 113 . R. Concept The requirement that taxes imposed or prescribed by the NIRC are to be deducted and withheld by the payor-corporations and/or persons from payments made to payees-corporations and/or persons for the former to pay the same directly to the BIR. the taxes are collected practically at the same time the transaction is made or when the taxable transaction occurs. Rentals 4. Withholding tax367 a. b. It is taxation at source. Fringe benefits 2. Passive incomes 1. Cinematographic film rentals and other payments 5. Professional/talent fees 3. 20. Compensation Income 2.

before making payment on account of each purchase of goods and/or services taxed at twelve percent (12%) VAT. Withholding of VAT (a) The government or any of its political subdivisions. as amended by RR 4-2007 114 . if actual input VAT is less than seven percent (7%) of gross payment. (b) The government or any of its political subdivisions. no need to file an ITR on the part the earner of the earner c. instrumentalities or agencies. 2006. On the other hand. the difference must be closed to expense or account.368 d. individuals. The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller. instrumentalities or agencies. As to filing of ITR If the only source of income is subject to There is a necessity to file on final tax. including GOCCs. including government-owned or controlled corporations(GOCCs). as well as private corporations. whether large or non-large taxpayers. instrumentalities or agencies. and (2) Other services rendered in the Philippines by non-residents. Filing of return and payment of taxes withheld 368 RR 16-2005. the excess may form part of the seller’s expense or cost. deduct and withhold a final VAT due at the rate of five percent (5%) of the gross payment thereof. The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions. with respect to the following payments: (1) Lease or use of properties or property rights owned by non-residents. starting February 1. shall withhold twelve percent (12%) VAT. estates and trusts. in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. including government-owned or controlled corporations (GOCCs) shall. Should actual input VAT attributable to sale to government exceeds seven percent (7%) of gross payments.

submit to the Commissioner an annual information return containing a list of employees. may. 1) Return and payment in case of government employees The return of the amount deducted and withheld upon any wage shall be made by the officer or employee having control of the payment of such wage. respect of the wages of his employees shall. a written statement confirming the wages paid by the employer to such employee during the calendar year. or if his employment is terminated before the close of such calendar year. (B) Annual Every employer required to deduct and withhold the taxes in Information Returns. 82 370 see Sec. on or before January thirty-first (31st) of the succeeding year. 83 115 .370 369 Sec. on or before January thirty-first (31st) of the succeeding year. the total amount of compensation income of each employee. prescribe. the total amount of taxes withheld therefrom during the year. upon the recommendation of the Commissioner. or by any officer or employee duly designated for the purpose. on the same day of which the last payment of wages is made. The statement required to be furnished by this Section in respect of any wage shall contain such other information. accompanied by copies of the statement referred to in the preceding paragraph. and the amount of tax deducted and withheld under this Chapter in respect of such wages. by rules and regulation. and such other information as may be deemed necessary.369 2) Statements and returns (A) Requirements Every employer required to deduct and withhold a tax shall furnish to each such employee in respect of his employment during the calendar year. and shall be furnished at such other time and in such form as the Secretary of Finance.

whichever is higher f.000) monthly374 . Final withholding tax at source371 f. Estate Tax 1. whichever comes first. Timing of withholding It is payable when the obligation becomes due. Basic principles The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. or 2. e. an amount computed in accordance with the regulations. Does not exceed the statutory minimum wages. Five thousand pesos (P5. At the time the income is paid or payable or accrued or recorded as an expense or asset whichever is applicable in the payor’s books. There must be an employer-employee relationship 2. Creditable withholding tax 1) Expanded withholding tax372 2) Withholding tax on compensation Every employer must withhold from compensation paid. 57 (A).000 a year 116 . supra 373 Elements of Withholding on Compensation: 1. Upon the death of the decedent. demandable or legally enforceable. 373 Exception: Where such compensation income of an individual: 1. (B). supra 372 Id. There must be a payroll period 374 P60. 371 Sec. There must be payment of compensation or wages for services rendered 3. B.

succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. b) Redistribution of Wealth Theory A contributing factor to the inequalities in wealth and income. 3. Definition A graduated tax imposed on the privilege of the decedent to transmit property at death and is based on the entire net estate. It is governed by the law in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary. and d) Privilege theory or State Partnership theory 375 Sec. 2. regardless of the number heirs and relations to the decedent. RR 2-2003 117 . Consequently. Nature A tax imposed on the privilege of transmitting property upon the death of the owner. 3. The imposition of death tax reduces the property received by the successor bringing about a more equitable distribution of wealth in society.375 Not a direct tax on the property transmitted or transferred although its amount is based thereon. the state collects the tax. all properties that are included in the taxable estate should be valued at the moment of death of a decedent. Purpose or object a) Benefit-Received Theory For the performance of services rendered by the government in the distribution of the estate of the decedent and other benefits that accrue to the estate and the heirs. The liability for estate tax is generated by death and accrues at the time of death. c) Ability-to pay.theory The receipt of inheritance places assets in the hands of the heirs and beneficiaries thereby creating an ability to pay the tax and thus to contribute to governmental income. 4.

Expenses. as a “passive and silent partner” in the accumulation of property has the right to collect the share which is properly due to it 5. 4. Property previously taxed. 118 . 4917 8. 3. Gross estate vis-à-vis Net estate Gross estate Net estate The total value of all property. situated within or outside the Philippines. Transfers for public use. Inheritance is not a right but a privilege granted by the state and large estates have been acquired only with the protection of the state. decedent. The Family Home 5. it shall include only property situated in the Philippines. Standard Deductions 6. whether Determined by deducting from the value real or personal. The State. Medical Expenses 7. taxes. Classification of decedent a) resident decedent b) non – resident alien decedent 7. tangible or intangible of the gross estate the following items of belonging to the decedent at the time of deductions: his death. In the case of a nonresident alien 2. Net share of the surviving spouse in the 376 The tax should not be construed as a direct tax on the property of the decedent although the tax is based thereon. losses indebtedness.376 6. and resident or citizen of the Philippines. where such decedent was a 1. Amount received by heirs under R. Time and transfer of properties At the time of death.A.

Determination of gross estate and net estate Decedent is a resident or nonresident Decedent is a non-resident alien citizen. 8. or a resident alien Value at the time of death Value at the time of death of all: of all: 1. Composition of gross estate Decedent is a resident or nonresident Decedent is a non-resident alien citizen. intangible personal property is subject to the rule of reciprocity provided for under Section 104 of the NIRC. tangible or Only properties situated in the Philippines intangible. Decedent's interest It includes any interest having value or capable of being valued. 10. Real property wherever situated the Philippines 2. in the Philippines unless exempted on wherever situated the basis of reciprocity 3. Personal property. transferred by the decedent at his death. conjugal partnership or community property. or a resident alien All properties. Intangible personal property with situs intangible. Tangible personal property situated in 1. real or personal. 377 Sec. To the extent of the interest therein of the decedent at the time of his death. provided that. 85 119 .377 9. tangible or 2. Items to be included in gross estate a. wherever situated.

It is not the mere transfer that constitutes a transfer in contemplation of death but the retention of some type of control over the property transferred. or 2. This does not constitute any transfers made by a dying person. Possession. When the decedent has. By the decedent in conjunction with any other person without regard to when 378 Sec. b. The right alone or in conjunction with any other person to designate the person who will possess or enjoy the property or income there from. there is no full transfer of all interests in the property inter vivos. When decedent has. at any time.378 c. 120 . where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power to alter or amend or revoke or terminate such transfer by: a. at any time.b. Transfer in contemplation of death A transfer motivated by the thought of impending death although death may not be imminent: 1. made a transfer in contemplation of or intended to take effect in possession or enjoyment at or after death. In effect. 85[B] The concept of transfer in contemplation of death has a technical meaning. enjoyment or right to income from the property. Revocable transfer A transfer by trust or otherwise. Decedent alone. made a transfer under which he has retained for his life or for a period not ascertainable without reference to his death or any period which does not in fact end before his death: a. or b.

his creditors. in favor of anybody. revoke or terminate. Where the insurance was not taken by the decedent upon his own life and the beneficiary is not the decedent’s estate. A third person. and b. his estate. If the donation contains a provision of reversion to the donor. or administrator provided that the designation is revocable. The estate of the decedent. his executor or administrator regardless of whether the designation is revocable or irrevocable. and b. or creditors of his estate.380 e. Where any such power is relinquished in contemplation of the decedent’s death other than a bone fide sale for an adequate and full consideration in money or money’s worth. to alter. or from what source the decedent acquired such power.381 379 Sec. including himself. Proceeds of life insurance When the beneficiary is: a. or administrator. or if it expressly not exercisable in favor of the decedent.379 d. Proceeds receivable by a beneficiary designated as irrevocable provided that the beneficiary is not the decedent’s estate. executor and administrator. Property passing under general power The right to designate the person who will appointment succeed to the property of the prior decedent. his creditors. or c. amend. this is similar to a revocable transfer. 85(C)(1) 380 A power is not general (specific) if it can be exercised only in favor of one or more designated person or classes of persons exclusive of the decedent. (Section 85(E) 121 . executor. or the creditors of his estate. his estate. executor. other than the decedent’s estate. his creditors and creditors of his estate. his estate. 381 Not part of the gross estate when: a.

non. arising existing. trusts. rights. but in no case to exceed P200. interests. 382 Sec.are transfers inter vivos which are considered part of gross estate. b) Expenses paid by the relatives and friends. 11. Must be incurred by the decedent within one (1) year prior to his death 122 . that the following requisites are met: a. created. and e) Expenses during the wake The following cannot be deducted under funeral expenses: a) Cash advances of the surviving spouse and the heirs. c. tombstone.f. c) Mourning clothing of the surviving spouse and the unmarried minor children. d) Costs of obituary notices. Funeral expenses include: a) Costs of coffin. Transfers of insufficient consideration383 Only the excess of the fair market value of the property at the time of the decedent’s death over the consideration received shall be included in the gross estate. estates. exercised or relinquished before or after the effectivity of the Tax Code. Prior interests All transfers. Funeral Expenses384 extended to a non-resident alien decedent with respect to his estates situated in the b. and c) Expenses after the burial. b) Funeral parlor fees.properties not physically in the estate (these have already been transferred during the lifetime of the decedent but are still subject to payment of estate tax) . 000. Decedent is a nonresident alien resident citizen. 385 Provided. 384 The amount deductible is equal to 5% of the gross estate or the amount of the actual funeral expenses whichever is lower. d and g . and burial lot.85 383 b.Deductions from estate Decedent is a resident citizen. mausoleum. powers and relinquishment of powers made. Medical expenses385 Philippines at the time of his death. or resident alien Ordinary deductions: The deductions allowed to citizens or residents of the Philippines are also a.382 g. “Actual funeral expenses” are those which were actually incurred in connection with the interment or burial of the deceased and paid for from the estate of said deceased.

Unpaid Taxes391 b. and b. legatees. 389 Requisites for deductibility: a. Unpaid mortgages indebtedness 389 Philippines. c) They must be legally enforceable obligations of the decedent and ought to be enforced by the claimants. 390 They include all losses incurred during the settlement of the estate arising from fires. 387 Debts or obligations of the decedent that is enforceable against the estate provided that the following requisites are met: a) They were contracted in good faith and for an adequate and full consideration in money or money’s worth. 388 Requisites for deductibility: a) The amount of said claims has been initially included as part of the gross estate. Must not exceed P500. 000. The mortgage indebtedness was contracted in good faith and for an adequate and full consideration in money or money’s worth. or devisees are not allowed as deductions. d) court fees. Judicial expenses of the testamentary or In case of deductions for expenses. and All other expense related to the administration of the estate. and. Expenses not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs. Claims against the decedent’s estate 387 proportion of such deductions with the value of such part of his gross estate which e. c) accountant’s fees. Losses not compensated by an insurance or otherwise. the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan. b. is situated in the f. intestate proceedings. Must be duly substantiated by receipts. Provided. and c. b) They must be existing against the estate. and b) The incapacity of the debtors to pay their obligations is proven and not merely alleged. the debt instrument was duly notarized and if the loan was contracted within three (3) years before the death of the decedent. b) attorney’s fees. 386 Include “administration expenses” to those actually incurred in the administration of the estate Examples: a) fees of the executor or administrator.00. the amount of the allowable deduction is limited only to the d. that the following requisites are met: a. bears to the value of his entire gross estate wherever situated. e) salaries of employees. losses. The fair market value of the property mortgaged without deducting the mortgage indebtedness has been initially included as part of his gross estate.396 g. 123 . Casualty Losses 390 h. Losses not have been claimed as a deduction for income tax purposes. and c.386 indebtedness and taxes. Losses incurred not later than the last day for payment of the estate tax (6 months from death). Claims against insolvent persons388 at the time of his death. storms.c. d) They must be reasonably certain in amount. e) At the time the indebtedness was incurred. theft or embezzlement. shipwreck or other casualties or from robbery.

the excess shall be subject to estate tax. Two (2) factors necessary in vanishing deduction. c. a. 393 Requisites: a. Family home394 l. The second decedent dies within five (5) years after the death of the prior decedent or in the case of gifts the decedent – donee dies within the same period after the date of the gift. and real property taxes. 86 (B) 392 Property – previously taxed An amount allowed to reduce the taxable estate of a decedent where the property: a. To take effect after death. b. transferred to him by gift. b. 395 does not include the P 200.000. or property taxes not accrued before his death. or an unmarried person who is the head of the family and members of their immediate family resides as certified by the Barangay Captain of the locality.i. There are two (2) deceased persons and the first is the donor. Transfer for public use393 k.000.00 exemption 124 . Standard deduction equivalent to P1. 000. In favor of the government of the Philippines. Exclusively for public purpose. Income taxes upon income received after the death of the decedent. The allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate not exceeding P1. where the husband and wife. received by him from prior decedent by gift.00. 394 Refers to the dwelling house. c. bequest. Vanishing deduction392 j.000. and b. The total value of the family home must be included in the gross estate of the decedent. devise or inheritance. a person may constitute only one family home. 000. 4917 from the decedent’s employer as a consequence of the death of the decedent –employee provided that such 391 Unpaid income tax on income due or received before death of the decedent. 000. or any estate tax cannot be deducted because they are chargeable to the income of the estate.00395 m.. these are.A. The family home must be the actual residential home of the decedent and his family at the time of his death as certified by the barangay Captain of the locality where the family is situated.00. including the land on which it is situated. 396 Sec. Requisites to be deductible: a. or b. It is so-called a vanishing deduction because the rate of deduction gradually diminishes and entirely vanishes depending upon the time interval between the two (2) successive transfers. Amounts received by heirs under R. or any political subdivision thereof.000. The disposition must be testamentary in character. No. has been the object of previous transfer deduction. d. For the purpose of availing of a family home deduction to the extent provided by law. which have accrued prior to the death of the decedent (real property taxes accrued at the beginning of the year but may be paid before or at the end of each quarter) are deductible. The amount deductible is equivalent to the current fair market value of the decedent’s family home if said current fair market value exceeds P1.

c) Proceeds of insurance policies issued by the GSIS to government officials and employees.amount is included in the gross estate of the decedent.f are proceeds of insurance not includible in the gross estate of the decedent 125 . 12. 398 Items a . Exclusions from estate The following properties are excluded from gross estate:397 a) Amount receivable by any beneficiary irrevocably designated in the policy of insurance by the insured. o. b) Proceeds of a group insurance policy taken out by a company for its employees. What regime of property relations shall govern the spouses? Under the Civil Code. separate or exclusive property either of the deceased or of the surviving spouse.398 g) Separate property of the surviving spouse. d) Benefits accruing under the Social Security Act. 13. e) Proceeds of life insurance payable to the heirs of deceased members of the military personnel of the United States Army or Philippine Army under laws administered by the United State veterans Administration. the husband and wife who got married before August 3. n. Tax credit for estate taxes paid in a foreign country 397 In the determination of the gross estate. Tax credit for estate tax paid to a foreign country. while those who got married on or after August 3. the nature of the property. 1988 are governed by the Absolute Community of Property. unless a different regime was agreed upon in the marriage settlement. 1988 are governed by the Conjugal Partnership of Gains. f) Accident insurance proceeds. becomes of vital importance. Net share of the surviving spouse in the conjugal partnership or community property. whether common property of the spouses.

cultural and charitable institutions. shall be used by such institution for administration purposes. administrator. The estate tax imposed by the tax code shall be credited with the amount of any estate tax paid to a foreign country. h. 89 126 . The first P200. Intangible personal property of non-resident aliens under the principle of reciprocity.00 value of the estate.000 399 Sec. or donee in favor of another beneficiary in accordance with the desire of the predecessor. 15. devises. 14.401 16. Grants and donations to the Intramuros administration. 84 400 or within like period after the executor or administrator qualifies as such 401 Sec. f. e. etc. The transmission from the first heir. legacies or transfers to social welfare. legatee. Filing of notice of death Within two (2) months after the decedent’s death400 to the Commissioner of Internal Revenue where the gross value of the estate exceeds twenty thousand pesos (P 20. Amount received for war damages. g. no part of the net income of which inured to the benefit of any individual and provided that not more than 30% of the said bequest. In cases of: 1. or any of the legal heirs.00). Where gross value of estate exceeds P200. Transfers subject to tax 2. All bequest. Retirement benefits of employees of private firms from private pension plans approved by the BIR. Exemption of certain acquisitions and transmissions a. d. c. 000. The merger of the usufruct in the owner of the naked title.399 b. Estate tax return To be filed by the executor.000.

98 404 estate tax 127 . Definition A tax on the privilege of transmitting one’s property or property rights to another or others without adequate and full valuable consideration. Prevent avoidance of income tax throughthe device of splitting income among 402 Sec. 2. 90 (A) 403 Sec. 3. Purpose or object To: a. Donor’s Tax 1. of the property by gift inter vivos. regardless of Amount. 4. Where estate consists of registered or registrable property. resident or non-resident. Raise revenues b. tangible or intangible. tangible or intangible. Basic principles It is levied. whether the gift is direct or indirect. Nature It is an excise tax on the privilege of the donor to give or on the transfer of property by way of gift inter vivos. It applies whether the transfer is in trust or otherwise. Discourage inter vivos transfers of property which could reduce mortis causa transfers on which a higher tax404 can be collected d. Tax the wealthy and to reduce certain other excise taxes c. and whether the property is real or personal. assessed. 3. collected and paid upon the transfer of any person. It is not a property tax.402 C. A “gift” is merely subjected to donor’s tax.403 Donor’s tax shall be imposed whether the transfer is in trust or otherwise. whether the gift is direct or indirect and whether the property is real or personal.

not always essential to constitute a gift. Transfers which may be constituted as donation a. either actual or constructive d. If inter vivos transfer is proven fictitious Total value of the property at the time of death included in the gross estate. If the gift is indirectly taking place by way of sale. There must be an intent to donate406 c. 407 Transfers that are not bona fide sales of property for an adequate and full consideration in money or money’s worth 408 Sec. 100.numerous donees who are usually members of a family or into many trusts. If not a bona fide sale The excess of the fair market value at the time of death over the value of the consideration received by the decedent shall form part of his gross estate. 85 (G) 128 . NIRC). There must be delivery. Sale/exchange/transfer of property for insufficient consideration407 If bona fide sale No value shall be included in the gross estate. The donee must accept the donation 6. Requisites of valid donation a. 737.408 b. The donor must have capacity to donate405 b. NCC) 406 Donative intent is necessary only in cases of direct gift. Condonation/remission of debt 405 The donor’s capacity shall be determined as of the time of the making of the donation (Art. with the donor thereby escaping the effect of the progressive rates of income taxation 5. exchange or other transfer of property as contemplated in cases of transfers for less than adequate and full consideration (Sec.

Transfer for less than adequate and full consideration The amount by which the fair market value of the property exceeded the value of the consideration shall be deemed a gift.409 8. without the benefit of any deduction. On account of debtor’s services to the creditor the same is in taxable income to the debtor. real or personal. Classification of donor Taxable within and outside Philippines Taxable only within the Philippines a. that was given by the donor to the donee by way of gift.410 10. and Non-resident alien resident alien a. 7. Determination of gross gift All property. Real property situated within the 409 Sec. Real property wherever situated. Foreign corporation c. non-resident citizen. tangible or intangible. and shall be included in computing the amount of gifts made during the calendar year. 100 410 Sec. Non-resident aliens b. 2. 104 129 . Resident alien d. it is taxable gift and not a taxable income. Composition of gross gift Resident citizen. If no services were rendered but the creditor simply condones the debt. Non-resident citizen b. Domestic corporation 9. Resident citizen a. a. If the creditor condones the indebtedness of the debtor the following rules apply: 1.

Donation for political campaign purposes414 2. and 130 . or adopted children to the extent of the first Ten thousand pesos (P10. recognized natural. Valuation of gifts made in property Personal property Real property The fair market value of the property given The fair market value at the time of at the time of the gift. or to any political subdivision of the said Government.411 11. 101(C) 414 Sec. b. 104) 412 Sec. 102.412 12.000): (2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit. Tangible property situated within the Philippines ii. tangible or intangible. 413 Sec. Personal property: i. Certain gifts made by residents415 411 Where the decedent or donor was a nonresident alien at the time of his death or donation. Tax credit for donor’s taxes paid in a foreign country The tax imposed upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor's tax of any character and description imposed by the authority of a foreign country. donation or the value fixed by the assessor. 413 13. 99[C] 415 (1) Dowries or gifts made on account of marriage and before its celebration or within one (1) year thereafter by parents to each of their legitimate. Intangible personal property with situs in the Philippines unless exempted on the basis of reciprocity. Philippines. Exemptions of gifts from donor’s tax 1. his real and personal property so transferred but which are situated outside the Philippines shall not be included as part of his "gross estate" or "gross gift (see Sec. b. Personal property wherever situated. whichever is higher.

paying no dividends. institution. sanctioned by their respective sports association. held in the Philippines or abroad. religious. subsidies or other forms of philanthropy. (2) Gifts in favor of an educational and/or charitable. help. if not more than 30% of the donation shall be used by the done for administration purposes 7. Donation to Ramon Magsaysay Award Foundation 3. 8525) 420 1. or to any political subdivision of the said Government. foundation. Donation of intangibles subject to reciprocity417 5.A. Donation for athlete’s prizes and awards418 6. computer and science laboratories and food and nutrition (R. 7549) 419 Any aid. but not limited to infrastructure. support. cultural or charitable institution. and skills development. whether elementary. trust or philanthropic organization and/or research institution or organization' is a school. Exemption under other special laws. Not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes (Sec. institution. 1.101[B]) 417 Sec.A. (Sec. 104 418 1. accredited nongovernment organization. Donation to the Development Academy of the Philippines 6. religious. accredited nongovernment organization. trust or philanthropic organization or research institution or organization. incorporated as a non-stock entity. secondary or tertiary are exempt from donor’s taxes. Donation to International Rice Research Institute (IRRI) 2. cultural or social welfare corporation. institution. Donation to social welfare. 3. learning. governed by trustees who receive no compensation. 416 (1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit.420 (3) Gifts in favor of an educational and/or charitable. and 3. Donation to Integrated Bar of the Philippines (IBP) 5. Donation to Aquaculture Department of the Southeast Asian Fisheries Development Center of the Philippines 8. Donation to Philippines Inventors Convention (PIC) 4. Not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes (Sec. trust or philanthropic organization and/or research institution or organization. to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. teaching. Donation to the National Library 131 . college or university and/or charitable corporation. Certain gifts made by non-residents416 4. The assistance may be in the form of. cultural or social welfare corporation. and devoting all its income. Donation under the “Adopt-a-School Program”419 7. The donation must be prizes and awards given to athletes in local and international tournaments and competitions. no part of the net income of which inures to the benefit of any individual. donation. accredited nongovernment organization. whether students' fees or gifts. 2. Donation to the National Museum 9. a 'non-profit educational and/or charitable corporation. contribution or donation provided by an adopting private entity to a government school. R. trust or philanthropic organization or research institution or organization.101[A]) For the purpose of the exemption.

It is a business tax levied on certain transactions involving a wide range of goods. such tax being payable by the seller. or in the importation of goods. Donation to the Philippine American Cultural Foundation 12. and services.called because it is imposed on the value not previously subjected to VAT. Concept VAT is a percentage tax imposed at every stage of the distribution process on the sale. or a tax on the privilege of engaging in the business of selling goods or services. Tax basis The total net gifts made during the calendar year. and on the performance of service in the course of trade or business. The taxpayer423 determines his tax liability by computing the tax on the gross selling price or gross receipt424 and subtracting or crediting the earlier VAT on the 10. is required for every donation to accomplish under oath a donor’s tax return in duplicate. or lease of goods or properties.” 2000 edition 423 seller 424 output tax 132 . and services 421 Sec. Person liable Any person. 14. materials. resident or nonresident. barter. Donation to Task Force on Human Settlement on the donation of equipment.422 It is also an excise tax. whether for business or non-business purposes. Value-Added Tax (VAT) 1. or on the importation of goods. The tax is so. lessor. of the property transferred by gift. or transferor. 15. 99 (A) 422 De Leon. “The National Internal Revenue Code Annotated. properties. or exchange. Donation to the National Social Action Council 11.421 D. Any person making a donation unless the donation is specifically exempted under NIRC or other special laws.

Characteristics It is an indirect tax. The Constitution mandate to “evolve a progressive system of taxation” simply means that direct taxes are to be preferred as much as possible. to avoid them. It is imposed on the value-added in each stage of distribution c. 105 This rule shall likewise apply to existing contracts of sale or lease of goods. Impact of tax428 425 input tax 426 Sec. 2. indirect taxes should be minimized… but not avoided entirely because it is difficult. What it simply provides is that Congress shall “evolve a progressive system of taxation. It is a credit-invoice method value-added tax d. Power producers are now exempt from paying franchise tax.426 It is equitable: The law is equipped with a threshold margin (P1. transferee. VAT. He is the subject of the tax 133 . by its very nature. the Court said that direct taxes are to be preferred. or lessee of the goods. Also.A.) 428 The point on which a tax is originally imposed. Percentage tax on domestic carriers was removed. right or privilege to use patent. It is consumption-based b. In so far as the law is concerned. and indirect taxes should be minimized. properties or services.purchase or importation of goods or on the sale of service425 against the tax due on his own sale. Congress also provided for mitigating measures to cushion the impact of the imposition of the tax on those previously exempt. properties or services at the time of the effectivity of R. Resort to indirect taxes should be minimized but not avoided entirely. No. the taxpayer is the person who must pay the tax to the government. and as much as possible. But the Constitution does not really prohibit the imposition of indirect taxes which is essentially regressive. 9337 (RR 16-2005) 427 In Tolentino v. 3. Excise taxes on petroleum products and natural gas were reduced. Sec.”427 Other Characteristics: a. The transactions which are subject to VAT are those which involve goods and services which are used or availed of mainly by higher income groups (Real properties held primarily for sale to customers. copyright. basic marine and agricultural products in their original state are still not subject to tax. It is not a cascading tax. the regressive effects are corrected by the zero rating of certain transactions and through the exemptions. Also. is regressive.5M). the amount of which may be shifted to or passed on the buyer. if not impossible. of Finance. He is also termed as the statutory taxpayer-the one on whom the tax is formally assessed.

Destination principle434 Under this doctrine. exports are zero-rated. 429 manufacturer 430 That point on which the tax burden finally rests or settle down. The tax is shifted to the buyer of the goods. any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes. properties. the input taxes exceed the output taxes. Seagate Technology Philippines. the place at which the tax comes to rest. 2005 citing various cases and authorities 434 or the “Cross Border Doctrine 134 . The seller429 upon whom the tax has been imposed. Ermita. G. while imports are taxed.) v. This method relies on invoices. Tax credit method431 The input tax shifted by the seller to the buyer is credited against the buyer’s output taxes when he in turn sells the taxable goods. February 11.432 If at the end of a taxable period. G. an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases. No. Abakada Guro Party List (etc. 2005 citing various cases and authorities. 153866. Should the input taxes result from zero-rated or effectively zero- rated transactions or from acquisition of capital goods. 5. 4. R. 153866. 2005 and companion cases) 433 Commissioner of Internal Revenue v.. no payment is required. inputs and imports. properties or services. etc. R. No. R. No VAT shall be imposed to form part of the cost of goods destined outside the territorial border of the taxing authority. 168056. February 11. September 1.433 6. No. the excess shall be carried over to the succeeding quarter or quarters. Thus.. et al. It takes place when shifting has been effected from the statutory taxpayer to another 431 also called “invoice method” 432 Commissioner of Internal Revenue v. It is when the output taxes exceed the input taxes that the excess has to be paid. Incidence of tax430 It is on the final consumer. the output taxes charged by a seller are equal to the input taxes passed on by the suppliers. G. Actual shipment of the goods from the Philippines to a foreign country is a precondition of an export sale following the destination principle being adhered to by our VAT system. Seagate Technology (Philippines). goods and services are taxed only in the country where they are consumed. or services. If however.

Magsaysay Lines Inc. barter or exchange of goods or services not in the course of trade or business is not subject to VAT.439 8. barters." Hence. whether an individual or corporation and whether or not made in the course of his trade or business. 2. (RR 16-2005) 439 Commissioner v. There is an actual or deemed sale. 2006 135 . imports taxable. those destined for use or consumption within the Philippines shall be imposed the twelve percent (12%) VAT. Requisites of taxability of sale of goods or properties: 1. G. Exports exempt. barter or exchange of goods or personal properties for valuable consideration. including transactions incidental thereto. 105) 438 The importer. in the regular course of trade or business437 1) sells. Any person who.00 gross sale or gross receipt to become liable for value-added tax.R. "paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. or government entity (Sec. VAT on sale of goods or properties a. Persons liable436 A. Exception to the destination principle: A zero percent VAT rate for services that are performed in the Philippines.500. by any person regardless of whether or not the person engaged therein is a non-stock. VAT is imposed in the country in which the products or services are actually consumed or used. actual or constructive export of goods and services from the Philippines to a foreign country must be zero-rated for VAT. 436 whether or not in the regular course of business (Sec.. while. July 28. 105) Present law requires a threshold amount of P1. 3) renders services. 146984.000. nonprofit organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests).435 7.438 Consequently. No. any sale. exchanges goods or properties. 2) leases goods or properties. and 4) any person who imports goods. 435 Situs: country of Consumption. 437 The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity. shall be liable to pay VAT. The sale is in the course of trade or business or exercise of profession in the Philippines.

Export Sales441 b.440 9. NIRC). The goods or properties are located in the Philippines and are for use or consumption therein. international agreement binding upon the government of the Philippines. See Reference 442 id. 3. 136 . However. percentage taxes may apply (Section 116. and effectively zero- rated sales of goods or properties The gross selling price of goods or properties is multiplied by 0% VAT rate. 106 (B) The transactions are “deemed sale” because in reality there is no sale. The sale is not exempt from VAT under Section 109 of NIRC. but still the law provides that the following transactions are considered as sale and are thus subject to VAT. Foreign Currency Denominated Sale442 c. 441 as provided in Section 106(A)(2)(a). Zero-rated sales of goods by a VAT-registered person: a. Zero- rated sale of goods or properties by a VAT-registered person is a taxable transaction for VAT purposes but the sale does not result in any output tax. properties or services related to such zero-rated sale shall be available as tax credit or refund. the input tax on the purchases of goods. Transactions deemed sale445 440 Absence of any of the above requisites exempts the transaction from VAT. However. Zero-rated sales of goods or properties. (A)(2)(c) 444 as provided in Section 108(B) 445 Sec. and 4. special law. Sale to persons or entities which is VAT exempt under special laws or international agreements to which the Philippines is a signatory443 d. (A)(2)(b) 443 id. Transactions subject to zero-rated (0%)444 10.

b. when a VAT-registered person withdraws goods from his business for his personal use.g. 1. investors or creditors 1.447 d. Examples are change of ownership of the business448 and dissolution of a partnership and creation of a new partnership which takes over the business. or 2. whichever is applicable. or the proprietor sells his entire business 449 RR 16-2005 137 . whether or not the business is continued by the new owner or successor. Distribution or transfer to shareholders.g. e. Shareholders or investors as share in the profits of the VAT-registered persons.446 c. Consignment of goods if actual sale not made within 60 days from date of consignment Consigned goods returned by the consignee within the 60-day period are not deemed sold. 1996 and distributed by the company to its shareholders shall be subject to VAT based on the zonal value or FMV at the time of the distribution. Creditors in payment of debt. use or consumption not in the course of business of goods/properties originally intended for sale or use in the course of business.449 11. a. Change or cessation of status as VAT-registered person 446 Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared out of retained earnings on or after Jan. ( RR 16-2005) 447 RR 16-2005 448 e. Transfer. Retirement from or cessation of business with respect to inventories on hand As of the date of such retirement or cessation. when a sole proprietorship incorporates.

Not subject to VAT 1) Change of control of a corporation By the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders. 2) Change in the trade or corporate name Change in the trade or corporate name of the business. 109 (2) 138 . as of the date of merger or consolidation. VAT shall apply to goods disposed of or existing as of a certain date if under the circumstances. Subject to VAT Subject to output tax . a. 450 from the time of registration by a person who voluntarily registered despite being exempt under Sec. shall be absorbed by the surviving or new corp. However. exchange of property by corporation acquiring control for the shares of stocks of the target corporation is subject to VAT. 3) Merger or consolidation of corporations The unused input tax of the dissolved corporation. The goods or properties used in the business or those comprising the stock-in trade of the corporation will not be considered sold. the status of a person as a VAT-registered person changes or is terminated. bartered or exchanged despite the change in the ownership interest.applicable to goods/properties originally intended for sale or use in business and capital goods which are existing as of the occurrence of the following: 1) Change of business activity from VAT taxable status to VAT-exempt status 2) Approval of request for cancellation of a registration due to reversion to exempt status 3) Approval of request for cancellation of registration due to desire to revert to exempt status after lapse of 3 consecutive years450 b.

Requisites for taxability 1. special law or international agreement. The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods. Transfer of goods by tax exempt persons The subsequent purchasers. (B) 139 . There is a sale or exchange of service or lease or use of property enumerated in the law or other similar services. The service is for a valuable consideration actually or constructively received. The service is performed or to be performed in the Philippines. transferees or recipients of such imported goods shall be considered as importers who shall be liable for the tax on importation. The service is in the course of trade of taxpayer’s trade or business or profession. 2. 4. whether or not goods are for use in business. The service is not exempt under the Tax Code.452 14. a. irrespective of the possessor thereof.451 13. VAT on sale of service and use or lease of properties a. and 5. 3. 453 Ibid. 12. VAT on importation of goods VAT shall be assessed and collected upon goods brought into the Philippines. 107 (B) 452 Absence of any of the requisites renders the transaction exempt from VAT but may be subject to other percentage tax under Title V of the Tax Code. Zero-rated sale of services453 451 Sec.

in general 454 Ibid. to another place in the Phil.454 Provided. where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. goods or cargoes from one place in the Phil. and other emerging energy sources using technologies such as fuel cells and hydrogen fuels. manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported. 3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate. wind. VAT exempt transactions a. including leases of property for use thereof.456 Zero-rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy. the same being subject to 12% VAT under Sec. but not limited to. 455 supra 456 Ibid. the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. VAT exempt transactions. 4) Services rendered to persons engaged in international shipping or international air transport operations. 140 . ocean energy. biomass. 108. 2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed.. 1) Processing.455 5) Services performed by subcontractors and/or contractors in processing. of manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production. and shall not extend to the sale of services related to the maintenance or operation of plants generating said power. geothermal. however. 6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country and. that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers. 15. solar.. hydropower. 7) Sale of power or fuel generated through renewable sources of energy such as. converting.

Sale/ import of fertilizers.459 8. 2. 458 Livestock or poultry does not include fighting cocks. broiling. enumerated 1. and other similar packaging methods (RR 16-2005) Original state even if they have undergone the simple processes of preparation or preservation for the market. b. and those rendered by government educational institutions. and copra shall be considered in their original state. [RR 16-2005] 141 . 5. such as freezing.457 of livestock and poultry. CHED. fish. Import of personal and household effects of Phil resident returning from abroad and nonresident citizens coming to resettle in the Philippines 4. seeds. Services by agricultural contract growers and milling for others of palay into rice.458 Polished and/or husked rice. Import of professional instruments and implements. ordinary salt. without regard to the tax status of the party to the transaction. zoo animals and other animals generally considered as pets 459 Ibid Laboratory services are exempted. raw cane sugar and molasses. vacuum packing. and personal household effects belonging to persons coming to settle in the Philippines. the sale of drugs and medicine is subject to VAT. TESDA. prawn. Services subject to percentage tax. drying. Exempt transactions. duly accredited by DEPED. 7. such as shrink wrapping in plastics. smoking or stripping. domestic animals. dental. hospital and veterinary services except those rendered by professionals. 6. marine food products in original state. Educational services rendered by private educational institutions. wearing apparel. corn grits. 3. roasting. are specifically listed in and expressly exempted from VAT under the Tax Code. 457 Original state –including preservation using advanced technological means of packaging. tetra-pack. corn into grits and sugar cane into raw sugar. livestock and poultry feeds. barter or exchange. It involves goods or services which. If the hospital or clinic operates a pharmacy or drug store. race horses. salting. by their nature. for their own use and not for sale. 9. Sale/ import of agricultural. Services rendered by individuals pursuant to an employer-employee relationship. seedlings and fingerlings. Medical.

liberated terms on interest payments. No. No. sales are exempt: a. undertaken by the Government or private developers. including spare parts thereof. Sale of real properties utilized for low-cost housing461 c.A. except those under P. "Socialized housing" shall also refer to projects intended for the underprivileged 142 . Blg. 957 or any other similar law. 529. Exemption includes importation of direct farm inputs. 462 "Socialized housing" refers to housing programs and projects covering houses and lots or home lots only undertaken by the Government or the private sector for the underprivileged and homeless citizens which shall include sites and services development.D.A. 7279 and RA No. 7279.00 under R.462 460 Petroleum Exploration Concessionaires under the Petroleum Act of 1949 461 “Low-cost housing" refers to housing projects intended for homeless low-income family beneficiaries. 10. Sales by non-agricultural. communications and coordinating centers for their affiliates. No.A.000. 7835 and RA No. Sale of real properties – the ff. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority. Sale of real properties NOT primarily held for sale to customers or held for lease in the ordinary course of trade or business.D. 220.electric and non-credit cooperatives duly registered with the Cooperative Development Authority are exempt but their importation of machineries and equipment. P. Sale of real properties utilized for socialized housing. Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce. machineries and equipment. which may either be a subdivision or a condominium registered and licensed by the Housing and Land Use Regulatory Board/Housing (HLURB) under B. Export sales by persons who are not VAT. 7835 and R. and other laws.P. Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory. 13. subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines. 8763. including spare parts thereof. to be used directly and exclusively in the production and/or processing of their produce.registered.460 12. and such other benefits in accordance with the provisions of RA No. to be used by them are subject to vat. 14. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws. wherein the unit selling price is within the selling price ceiling per unit of P750. long-term financing. non. No. 15. such as R. 16. 8763. No. 11. b.

d. Sale of residential lot valued at P1.5M and below, or house & lot and
other residential dwellings valued at P2.5M and below, where the instrument of
sale/transfer/disposition was executed on or after July 1, 2005.463

17. Lease of residential units with a monthly rental per unit not exceeding
P10K, regardless of the amount of aggregate rentals received by the lessor during
the year. Lease of residential units where the monthly rental per unit exceeds P10K
but the aggregate of such rentals of the lessor during the year do not exceed One
Million Five Hundred Pesos (P1.5M) shall likewise be exempt from VAT, however,
the same shall be subjected to three percent (3%) percentage tax.

In cases where a lessor has several residential units464 for lease, some are
leased out for a monthly rental per unit of not exceeding P10K while others are leased
out for more than P10K per unit, his tax liability will be as follows:

a. The gross receipts from rentals not exceeding P10K per month per unit
shall be exempt from VAT regardless of the aggregate annual gross receipts.

b. The gross receipts from rentals exceeding P10K per month per unit
shall be subject to VAT if the aggregate annual gross receipts from said units
only465 exceeds P1.5M. Otherwise, the gross receipts will be subject to the 3%
tax.

18. Sale, importation, printing or publication of books and any newspaper,
magazine review or bulletin which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the publication of paid
advertisements;

and homeless wherein the housing package selling price is within the lowest interest rates under the
Unified Home Lending Program (UHLP) or any equivalent housing program of the Government, the private
sector or non-government organizations
463
To be adjusted every 3 years from Jan 31, 2009
If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the purpose of
utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the aggregate value of the
lots does not exceed P1.5M. Adjacent residential lots, although covered by separate titles and/or
separate tax declarations, when sold or disposed to one and the same buyer, whether covered by one or
separate Deed of Conveyance, shall be presumed as a sale of one residential lot (RR 16-2005)
464
The term 'residential units' shall refer to apartments and houses & lots used for residential purposes,
and buildings or parts or units thereof used solely as dwelling places (e.g., dormitories, rooms and bed
spaces) except motels, motel rooms, hotels and hotel rooms.
The term 'unit' shall mean an apartment unit in the case of apartments, house in the case of
residential houses; per person in the case of dormitories, boarding houses and bed spaces; and per room
in case of rooms for rent. [RR 16-2005]
465
not including the gross receipts from units leased for not more than P10K

143

19. Sale, importation or lease of passenger or cargo vessels and aircraft,
including engine, equipment and spare parts thereof for domestic or international
transport operations.

20. Importation of fuel, goods, and supplies by persons engaged in international
shipping or air transport operations.

21. Services of banks, non-bank financial intermediaries performing quasi-
banking functions and other non-bank financial intermediaries; and

22. Sale or lease of goods or properties or the performance of services other
than the transactions mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of P1,500,0000.466

16. Input tax and output tax, defined

Input tax Output tax

The VAT due from or paid by a VAT- The VAT due on the sale or lease of taxable
registered person in the course of his trade goods or properties or services by any
or business on importation of goods person registered or required to register
or local purchase of goods or services, under Section 236470 of the Code.
including lease or use of property, from a
VAT-registered person. It includes the
transitional input tax determined in
accordance with Section 111467 of this
Code.

It includes input taxes which can be
directly attributed to transactions subject
to the VAT plus a ratable portion of any
input tax which cannot be directly
attributed to either the taxable or exempt
activity. Input tax must be evidenced by a
VAT invoice or official receipt issued by a
VAT- registered person in accordance with
Secs. 113 and 237468 of the Tax Code.469

466
Sec. 109
467
Ibid.
468
Ibid.
469
RR 16-2005
470
See Reference

144

17. Sources of input tax

a. Purchase or importation of goods471

b. Purchase of real properties for which a VAT has actually
been paid

c. Purchase of services in which VAT has actually been paid

d. Transactions deemed sale472

e. Presumptive input

The gross value of the purchases of primary agricultural products used as inputs to
production by persons or firms engaged in the processing of sardines, mackerel and
milk, and in manufacturing refined sugar, cooking oil and packed noodle-based instant
meals.

e. Transitional input

The value of the beginning inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher.

18. Persons who can avail of input tax credit

(a) Purchaser - upon consummation of sale and on importation of goods or
properties;473 and

471
(i) For sale; or
(ii) For conversion into or intended to form part of a finished product for sale including packaging
materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for depreciation or amortization is allowed under
this Code, except automobiles, aircraft and yachts. (Sec. 110 (A)(1)
472
supra
473
In the case of purchase of services, lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.

145

(b) Importer - upon payment of the value-added tax prior to the release of the
goods from the custody of the Bureau of Customs.

However, in the case of purchase of services, lease or use of properties, the
input tax shall be creditable to the purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or fee.474

19. Determination of output/input tax; VAT payable; Excess input
tax credits

a. Determination of output tax

Sellers of goods or properties:

Gross selling price (X) VAT rate

Sellers of service:

Gross receipts (X) VAT rate

b. Determination of input tax creditable

The sum of the excess input tax carried over from the preceding month or
quarter and the input tax creditable to a VAT-registered person during the taxable
month or quarter shall be reduced by the amount of claim for refund or tax credit for
value-added tax and other adjustments, such as purchase returns or allowances and
input tax attributable to exempt sale.

The claim for tax credit shall include not only those filed with the Bureau of
Internal Revenue but also those filed with other government agencies.475

c. Allocation of input tax on mixed transactions

A VAT-registered person who is also engaged in transactions not subject to Vat
shall be allowed to recognize input tax credit on transactions subject to Vat as follows:

1. All the input taxes that can be directly attributed to transactions subject to
VAT may be recognized for input tax credit. Input taxes that can be directly attributable
to VAT taxable sales of goods and services to the Government or any of its political

474
Sec. 110 (A)(2)
475
such as the Board of Investments or the Bureau of Customs (Sec. 110 (C))

146

subdivisions, instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall not be credited against output taxes arising from sales to
non-Government entities; and

2. If any input tax cannot be directly attributed to either a VAT taxable or VAT-
exempt transaction, the input tax shall be pro-rated to the VAT taxable and VAT-exempt
transactions and only the ratable portion pertaining to transactions subject to VAT may
be recognized for input tax credit.476

d. Determination of the output tax and VAT payable and
computation of VAT payable or excess tax credits

Output tax
Less: Input tax
VAT payable/ excess tax credits

20. Substantiation of input tax credits477

Transactions Required Support

Input taxes on domestic purchases of VAT invoice
goods or properties made in the course of
trade or
business

Input tax on purchases of real property

a. Cash/deferred basis Public instrument478 together with the VAT
invoice for the entire selling price and
non-VAT Official Receipt for the initial and
succeeding payments.

b. Installment basis Public instrument and VAT Official Receipt
for every payment

476
Input tax attributable to VAT-exempt sales shall not be allowed as credit against the output tax but
should be treated as part of cost of goods sold.
For persons engaged in both zero-rated sales and nonzero rated sales, the aggregate input taxes shall
be allocated ratably between the zero-rated and non-zero rated sales.
477
RR 16-2005
478
i.e., deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc.

147

Advance VAT on sugar Payment order showing payment of the advance VAT 479 such as for services. rentals.Input tax on domestic purchases of VAT Official Receipt service Input tax on importation of goods Import entry or other equivalent document showing actual payment of VAT on the imported goods Transitional input tax Inventory of goods as shown in a detailed list to be submitted to the BIR Input tax on “deemed sale transaction” Required invoices Input tax from payments made to non. or royalties 480 BIR Form 1600 148 .Monthly Remittance Return of Value residents479 Added Tax Withheld480 filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due which was withheld by the payor.

(E) 483 See also (D)(7). c. Destination principle or Cross-border doctrine483 Destination principle Cross border doctrine Goods and services are taxed only in the Mandates that no VAT shall be imposed to country where these are consumed form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority. 21. Commission on audit. Invoicing requirements in general For every sale. subject to post audit by the Commission on Audit.482 d. except transitional input tax.481 b. a VAT-registered person shall issue an invoice or receipt. 112 (A) 482 Id. to the extent that such input tax has not been applied against output tax. Who may claim for refund/apply for issuance of tax credit certificate (TCC) Any VAT-registered person. 22. whose sales are zero-rated or effectively zero-rated may apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. Aside from the information required under Section 237. supra 484 See Reference 149 . Manner of giving refund Upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of being countersigned by the Chairman.Refund or tax credit of excess input tax a.484 the following information shall be indicated in the invoice or receipt: 481 Sec. Period to file claim/apply for issuance of TCC Within two (2) years after the close of the taxable quarter when the sales were made. Invoicing requirements a.

113 (B)485 is not made within 60 days Retirement from or cessation of An inventory shall be prepared and business with respect to all goods in submitted to the RDO who has jurisdiction hand over the taxpayer’s principal place of business not later than 30 days after retirement or cessation from the business. 485 Ibid. which shall be the basis of the entry into the subsidiary sales journal. An invoice shall be prepared for the entire inventory. The invoice need not enumerate the specific items appearing in the inventory regarding the description of the goods. Invoicing and recording deemed sale transactions Transaction Invoicing Requirement Transfer. use or consumption not in Memorandum entry in the subsidiary the course of business of goods or sales journal to record withdrawal of properties originally intended for goods for personal use sale or for use in the course of business Distribution or transfer to shareholders/investors or creditors Invoice. If the business is to be continued by the new owners or successors. at the time of the transaction. followed by his taxpayer's identification number (TIN). which should include all the info Consignment of goods if actual sale prescribed in Sec. 150 . and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. b. the entire amount of output tax on the amount deemed sold shall be allowed as input taxes. (1) A statement that the seller is a VAT-registered person.

payment of percentage tax if applicable. b. Every person or entity who in the course of trade or business. In case of VAT-registered who issues a VAT invoice/official receipt for a VAT – exempt sale without the words “VAT Exempt Sale” shall be held liable to pay 12% VAT. sells or leases goods. 113 (D) 151 . the purchaser shall be allowed to recognize an input tax credit provided that the invoice/official receipt contains the required information. A person required to register as VAT taxpayer but failed to register 3.5 million for any twelve month period 2. In case of non-VAT registered person who issues a VAT invoice/receipt shall be held liable to: a. if the aggregate amount of actual gross sales or receipts exceed P1. 50% surcharge on tax due.Filing of return and payment Every person liable to pay the VAT shall file a quarterly return of the amount of his gross sales or receipts within 25 days following the close of each taxable quarter prescribed for each taxpayer. properties. and d. Any person who imports goods 486 Sec. payment of VAT without input tax. c. Required to file VAT return: 1. and services subject to VAT. Consequences of issuing erroneous VAT invoice or VAT official receipt 1. c.486 23. 2.

Withholding of final VAT on sales to government The Government or any of its political subdivisions.490 487 Services of Professional Practitioners are subject to: VAT if the gross professional fees exceed P1. 490 The following are not considered assessments: 152 . in lieu of the actual Input VAT directly attributable or ratably apportioned to such sales. before making payment on account of its purchase of goods and/or services taxed at 12% shall deduct and withhold a final VAT of 5% of the gross payment. or 3% percentage tax if the gross professional fees does not exceed P1. Assessment 1) Concept of assessment The notice that the amount therein stated is due as a tax.488 E. 24. 114 (C) The five percent (5%) final VAT withholding rate shall represent the net VAT payable to the seller The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions. Professional practitioners. instrumentalities or agencies including GOCCs. It also signals the time when penalties and interests begin to accrue.487 VAT-registered shall pay the VAT on a monthly basis. Taxpayer’s Remedies a. instrumentalities or agencies.5 million for a 12-month period.5 million for a 12-month period (RR 16-2005) 488 Sec. including government owned or controlled corporations (GOCCs) shall. 489 A notice of assessment contains not only a computation of tax liabilities but also a demand for the payment within a prescribed period. with a demand for payment within a stated period of time. the excess may form part of the seller’s expense or cost If actual input VAT attributable to sale to government is less than 7% of gross payment. the difference must be closed to expense or cost. Should actual input VAT attributable to sale to government exceed seven percent (7%) of gross payments. 4. Tax Remedies under the NIRC 1.489 The official action of the administrative officer in determining the tax due from a taxpayer. The monthly return shall be filed not later than the 20th day following the end of each month.

A letter-notice that did not provide. and 3. A preliminary collection letter. A letter containing a computation of supposed liabilities. 3. b. 2. The following may be considered assessments: 1. a) Requisites for valid assessment The assessment must: 1. prior year’s audit results.491 b) Constructive methods of income determination 1. 4. 2. Percentage method The computed amount of revenues based on the percentage computation is compared to the amount of revenues reflected on the return. giving the taxpayer an opportunity to show the incorrectness of the findings. Be in writing and signed by the BIR. to the establishment of tax liens. 2. in estimating the revenues that may be collected by the government in the coming year. A deficiency assessment outside the scope of the letter of authority (a nullity). if it declares the tax to be payable and demands the settlement thereof. or third parties. A letter from the Commissioner demanding the amount of a rubber check previously paid by a taxpayer. and if it can be proven that the taxpayer did not receive any assessment notice. and no follow up letter was sent nor was a preliminary conference arranged. reasons why deficiency taxes were being collected 3. to apply the statute of limitations. or urging the taxpayer to produce his books or records for verification. A pre-assessment notice signed by a revenue official. if it was the initial notice received by the taxpayer regarding his internal revenue tax liabilities. Contain a demand for payment within the prescribed period. The percentages used may be obtained from the taxpayer. even in a general way. as an essential step towards the initiation of administrative proceeding or judicial action to collect taxes. An affidavit by a revenue officer stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion. 5. 5. to enforce taxpayer liabilities and matters relating to it (imposition of surcharges and interest). 4. 228 153 . An assessment is relevant: 1. Contain the law and the facts on which the assessment is made. 491 Sec. The comparison will provide an indication on the possibility of revenue being understated. a. industry publication. or to present his side. 2. 1.

Any increase in net worth is presumed to be income not declared for tax purposes.492 The bank records of the taxpayer are 3. Net worth method A method of reconstructing income which is based on the theory that if the taxpayer’s net worth has increased in a given year in an amount larger than his reported income. 154 . This method stands on the premise that deposits represent taxable income unless otherwise explained as being non-taxable items. Bank deposit method analyzed and the BIR estimates income on the basis of the total bank deposits after eliminating non-income items. Unit and value method receipts may be computed by applying price and profit figures to the known ascertainable quality of business of the taxpayer. and thus. This method may be used only where the BIR has been legally allowed access to the taxpayer’s bank records. Assumes that the excess of a taxpayer’s 4. public or records method private to supply information to the BIR. he has understated his income for that year. The net worth on a fixed starting date is compared with the net worth on a fixed ending date. Cash expenditure method expenditures during the tax period over his reported income for that period is taxable to the extent not disproved otherwise The determination or verification of gross 5. “obtain on a regular basis from 492 The difficulty of establishing the opening net worth of a tax payer has led to the “Cohan Rule” which is the use of estimates or approximations of the amount of cash and other asserts where the taxpayer lacks adequate records. 6.2. Third party information or access to The BIR may require third parties.

any information such as. but not limited to. 495 also called Net Worth Method 496 See table 155 . It is part of the due process rights of a taxpayer. or from any office or officer of the national and local governments. Surveillance and assessment method Revenue to a taxpayer asking him to explain within a period of fifteen (15) days from receipt why he should not be the subject of an assessment notice. 5 (B). addresses. regional operating headquarters or multinational companies. joint ventures or consortia and registered partnerships.”493 A letter sent by the Bureau of Internal 7. mutual fund companies. NIRC of 1997 494 As a general rule. any person other than the person whose internal revenue tax liability is subject to audit or investigation.494 c) Inventory method495 for income determination496 d) Jeopardy assessment A delinquency tax assessment made without the benefit of a complete or partial investigation by a belief that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to: 493 Sec. and financial statements of corporations. costs and volume of production. the BIR could not issue an assessment notice without first issuing a pre-assessment notice because it is part of the due process rights of a taxpayer to be given notice in the form of a pre- assessment notice. insurance companies. and their members. and the names . government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government- owned or –controlled corporations. joint accounts. associations. receipts or sales and gross incomes of taxpayers. and for him to explain why he should not be the subject of an assessment notice.

performing any act tending a.A. Comply with audit and investigation requirements to present his books of accounts and/or pertinent records. 6-2000] 498 The taxpayer did not file a return 499 The taxpayer filed a return but the same was deficient. to hide or conceal his property. Deficiency is the difference between the tax due and the tax paid. Deficiency tax assessed by the BIR taxpayer upon his return is made by the 497 This is issued when the revenue officer finds himself without enough time to conduct an appropriate or thorough examination in view of the impending expiration of the prescriptive period for assessment. a. 8424) Jeopardy assessment is an indication of the doubtful validity of the assessment. No. Instances when jeopardy assessment may be issued: When it shall come to the knowledge of the Commissioner that a taxpayer is: 1. or 2. to leave the Philippines or remove his property therefrom. Self-assessed tax per return filed by the amount shown as tax by the taxpayer taxpayer on the prescribed date was not upon his return. to obstruct the proceedings for the collection of the tax for the past or current quarter or year. 3. 156 . R. intending a. or b. the taxpayer may be required to execute a waiver of the statute of limitations. the collection of such tax is at risk which might result in loss to the government. [Sec. 3. An assessment made demanding immediate payment of the tax due without the usual formalities in instances when the Commissioner believes that if the tax will be collected under normal procedures. or b. 6 (D). to render the same totally or partly ineffective unless such proceedings are begun immediately (Sec. The amount by which the tax imposed payment of taxes when: by law as determined by the CIR or his authorized representative exceeds the a. or b.1 (a). If no amount is shown as tax by the b. or b. Substantiate all or any of the deductions.499 or paid at all498 or only partially paid. retiring from business subject to tax. exemptions or credits claimed in his return. To prevent the issuance of a jeopardy assessment. Rev. hence it may be subject to a compromise. Regs. 497 e) Tax delinquency and tax deficiency Delinquency Tax Deficiency Tax A taxpayer is considered delinquent in the a.

becomes final and executory. and/or judicial action Civil Action The filing of a civil action for the collection The filling of a civil action at the ordinary of the delinquent tax in the ordinary court court for collection during the pendency of is a proper remedy protest may be the subject of a motion to dismiss. interest. taxpayer. Collection Can immediately be collected administratively through the issuance of a warrant of distraint and levy. although subject to penalties such as 25% surcharge. interest and compromise penalty and compromise penalty 2) Power of the Commissioner to make assessments and prescribe additional requirements for tax administration and enforcement 500 as determined by the CIR or his authorized representative 157 . In addition to a motion to dismiss. the taxpayer must file a petition for review with the CTA to toll the running of the prescriptive period Penalties A delinquent tax is subject to A deficiency tax is generally not subject to administrative the 25% surcharge. then the amount by which the tax500 exceeds the amounts previously assessed or collected without assessment as deficiency.

regional operating headquarters of multinational companies. or from any office or officer of the national and local governments. and their members. (D) To take such testimony of the person concerned. custody.502 3) When assessment is made 501 see Reference 502 Sec. joint accounts. (C) To summon the person liable for tax or required to file a return. as may be relevant or material to such inquiry. and to summon/examine. and the names. (B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation. insurance companies. a) Power of the Commissioner to obtain information. associations. or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax. or other data which may be relevant or material to such inquiry. The Commissioner has no authority to inquire into bank deposits other than as provided for in Section 6(F)501 of this Code. and all persons owning or having the care. management or possession of any object with respect to which a tax is imposed. and to give testimony. records. or other data. including the Bangko Sentral ng Pilipinas and government-owned or - controlled corporations. under oath. addresses. and financial statements of corporations. joint ventures of consortia and registered partnerships. to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books. paper. and take testimony of persons The Commissioner is authorized: (A) To examine any book. or any other person. 5 158 . but not limited to. and (E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax. receipts or sales and gross incomes of taxpayers. or any person having possession. record. costs and volume of production. any information such as. government agencies and instrumentalities. or any officer or employee of such person. papers. mutual fund companies.

When it is released. 222 505 A request for reconsideration alone does not suspend the period to assess/collect. 506 proper only for suspension of the period to collect 507 Sec. and non-filing of returns Ten (10) years from the discovery of the falsity.503 a) Prescriptive period for assessment (1) False. 223 159 .R. as the case may be. fraud or omission to file the return.504 b) Suspension of running of statute of limitations 1) Periods suspended: (a) periods for assessment (b) beginning of distraint or levy (c) proceeding in court for collection 2) Grounds for suspension of prescriptive periods: a) Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 60 days thereafter b) Taxpayer requests for Reinvestigation which is granted505 c) Taxpayer cannot be located in the address given in the return filed. 1999 504 Sec. June 29. 128315.507 503 CIR v. except if the taxpayer informs the Commissioner of a change in address the prescriptive period will not be suspended d) When the warrant is duly served upon the taxpayer and no property could be located506 e) When the taxpayer is out of the Phils. mailed or sent by the collector of internal revenue to the taxpayer within the three-year or ten-year period. Pascor. G. fraudulent.

No. or a government owned or controlled corporation.Delinquency interest This kind of interest is imposed in case of failure to pay: a. in the same manner.Deficiency interest Any deficiency in the tax due shall be subject to the interest of 20% per annum. CIR. or b. b. A deficiency tax. The amount of the tax due on any return required to be filed. GR. 247[b]. 249 [B]. 248 and 249 [C]. 508 Hermanos v. 1997 NIRC) such as the 25% surcharge and the 20% interest per annum on the delinquency (Secs. and as part of the tax. or c. 511 General Considerations on the Addition to tax a. or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner. otherwise known as surcharge. the employee thereof responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax prescribed (Sec. The amount of the tax due for which no return is required. or such higher rate as may be prescribed by rules and regulations. it prayed for the collection of taxes. 1997 NIRC) 2. Sept. which shall be assessed and collected from the date prescribed for its payment until the full payment thereof (Sec. c. L-24972. or such higher rate as may be prescribed y rules and regulations. 249 [A]. 1969 509 This is an increment on any unpaid amount of tax. (2) interest either for a deficiency tax or delinquency as to payment510 (3) other civil penalties or administrative fines such as for failure to file certain information returns and violations committed by withholding agents. The amount so added to the tax shall be collected at the same time. from the date prescribed for payment until the amount is fully paid. which may either be 25% or 50 % of the tax depending upon the nature of the violation. assessed at the rate of twenty percent (20%) per annum. Additions to the tax or deficiency tax apply to all taxes. If the withholding agent is the government or any of its agencies. and charges imposed in the Tax Code. 1997 NIRC) 160 . 1997 NIRC) 510 Interest is classified into: 1. fees.30. f) When there is an Answer filed by the BIR to the petition for review in the CTA508 where the court justified this by saying that in the answer filed by the BIR. (Sec. 4) General provisions on additions to the tax a) Civil penalties b) Interest509 Additions to the tax consist of the: (1) civil penalty.511 c) Compromise penalties They are certain amounts of money paid in lieu of criminal prosecution and cannot be imposed in the absence of a showing that the taxpayer consented thereto. political subdivisions or instrumentalities.

or 512 Assessments prima facie correct. c) Issuance of preliminary assessment notice (PAN) Communication issued by the Regional Assessment Division or any other concerned BIR office.81446 August 18. or scrutinizing the books and records of the taxpayer to ascertain the correctness of the tax declared and paid by the taxpayer. 1988. The taxpayer has the duty to prove otherwise. b) Notice of informal conference A written notice informing a taxpayer that the findings of the audit conducted on his books of accounts and accounting records indicate that additional taxes or deficiency assessments have to be paid. the taxpayer shall have 15 days from receipt of the notice of informal conference to explain his side. or (b) A discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. after the culmination of an audit. following the review of these findings. It can only be performed upon a Letter of Authority issued by the Commissioner or Regional Director. If. 5) Assessment process512 a) Tax audit The process of examining. otherwise. going over.) 161 . and should inform the taxpayer of the law and the facts on which the assessment is made. Tax assessments by tax examiners are presumed correct and made in good faith. the assessment is void. informing a taxpayer who has been audited of the findings of the Revenue Officer. (Sy Po v. CTA. this recommendation is communicated by the Bureau to the taxpayer concerned during an informal conference called for this purpose. d) Exceptions to Issuance of PAN (a) The finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return. a Revenue Officer recommends the imposition of deficiency tax assessments. GRN L. The assessment shall be in writing.

Tax period of a taxpayer is terminated (Sec.517 g) Disputed assessment 513 Sec.3. (c) A taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year. has been sold. f) Issuance of formal letter of demand and assessment notice/final assessment notice516 Notice of Assessment is a formal letter of demand where a declaration of deficiency taxes is issued to a taxpayer who fails to respond to a pre-assessment notice within the prescribed period of time. Failure of the taxpayer to file a reply would now enable the RO to issue a FAN. or (e) The article locally purchased or imported by an exempt person. NIRC) 2. traded or transferred to non-exempt persons. or whose reply to the PAN was found to be without merit. but not limited to. 219.515 However no liability for additional or deficiency tax arises from such failure.513 e) Reply514 to PAN Within 15 days. 52 (c). An assessment contains not only a computation of underdeclaration of taxable sales. RR 12-99 514 For purposes of contesting a PAN.1. 6 (d). receipts or income. A formal letter of demand or assessment notice shall be issued by the Assessment Division of the Revenue Regional Office or the Commissioner or his authorized representative. such as. NIRC) 517 This is commonly known as the Final Assessment Notice. NIRC) 4. 3. 515 If fails to respond. or a substantial overstatement of deductions. Deficiency tax liability arising from a tax audit conducted by a BIR (sec 56b. capital equipment. the regulations used the word reply to distinguish it from the written objections to a FAN wherein the generic word protest or specific term request for reconsideration or request for reinvestigation is used. Exceptions: 1. he shall be considered in default. Dissolving Corporation (Sec. or (d) The excise tax due on excisable articles has not been paid. 516 General rule: Taxes are self-assessing and do not require the issuance of an assessment notice in order to establish the tax liability of a taxpayer. NIRC) 3. machineries and spare parts. vehicles. the taxpayer has to file a written reply contesting the proposed assessment if he disagrees with the findings of the PAN. 162 . Tax lien (Sec.

. De la Rama. Coll. 31. It can be used in court in case of administrative remedies have been exhausted. indicates its protest against the delinquent assessment of the RO and requests for reconsideration. 1962) 520 A vital document which is a formal declaration of resistance of the taxpayer. L-16683. a) Protest520 of assessment by taxpayer (1) Protested assessment The taxpayer files an administrative protest against the assessment. the assessment becomes a disputed assessment. Prescriptive period provided by law to make collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer protests the assessment and requests for its cancellation.518 . 18 SCRA 861) Motion for reconsideration suspends the running of the 30 . It is also the formal act of the taxpayer questioning the official actuations of the CIR. Such protest may either be a request for reconsideration or for reinvestigation. 163 . Otherwise.day period of perfecting an appeal. When the taxpayer. Hence. he could not appeal the same to the CTA within 30 days from notice. it becomes final and appeal to the CTA may be taken. This is equivalent to a pleading. 519 6) Protesting assessment It is the act by the taxpayer of questioning the validity of the imposition of the corresponding delinquency increments for internal revenue taxes as shown in the notice of assessment and letter of demand. It is a repository of all arguments. Isabela Cultural Corp. otherwise. 2001 519 But where the taxpayer adversely affected has not received the decision or ruling. Jan. After the request is filed and received by the BIR. it could not become final and executory (Republic vs. it would be merely pro-forma (Roman Catholic Archbishop vs. July 11. j) Administrative decision on a disputed assessment The taxpayer may elevate the protest to the CIR within 30 days from receipt of the decision for a request for reconsideration and that his case is referred to the Bureau’s Appellate Division. GR 135210. (2) When to file a protest 518 CIR v. Must advance new grounds not previously alleged to toll the reglementary period. through a letter..

specifying the newly discovered evidence to be presented. e. CIR. GR 139736. b. Without the waiver the prescriptive period will not be tolled. State the facts. Accompanied by a waiver of the Statute of Limitations in favor of the Government. rules and regulations or jurisprudence on which the protest is based otherwise the protest would be void. It may also involve a may involve a question of fact or law or question of fact or law or both. 2005 164 . In writing. It additional evidence. and 5. 3. Taxable periods covered by the assessment. d. Amount and kind of tax involved and the assessment notice number. It does not toll the statute of statute of limitations. applicable law. Must contain the following: a.521 4. limitations. 2. Addressed to the CIR. (3) Forms of protest Request for reconsideration Request for reinvestigation A claim for re-evaluation of the A claim for re-evaluation of the assessment based on existing records assessment based on newly-discovered or without need of additional evidence. Name of the taxpayer and address for the immediate past 3 taxable years. It tolls the both. Date of receipt of the assessment notice or letter of demand. 17. c. Within thirty (30) days from receipt of assessment. 521 BPI v. (4) Content and validity of protest The protest must be: 1. Nature of the request. Oct.

7) Rendition of decision by Commissioner a) Denial of protest Direct Denial Indirect Denial The decision of the Commissioner or his a. b) Submission of documents within 60 days from filing of protest All relevant documents should be filed. Itemized statement of the finding to which the taxpayer agrees (if any) as basis for the computation of the tax due. Documentary evidence as it may deem necessary and relevant to support its protest to be submitted 60 days from the filing thereof. otherwise the taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer could not produce. f. Itemized schedule of the adjustments to which the taxpayer does not agree. Aug. The relevant supporting documents mentioned in the law refers to such documents which the taxpayer feels would be necessary to support his protest and not what the Commissioner feels should be submitted. 228 Submission of documents within the 60 days period is optional to the taxpayer.523 d) Period provided for the protest to be acted upon Within one hundred eighty (180) days from submission of documents. CTA. Statements of facts or law in support of the protest. and the taxpayer loses his right to contest the assessment. and i. (Standard Chartered Bank v. 5696.522 c) Effect of failure to protest It makes the FAN final and executory. the filing of the protest within 30 days from the receipt of the assessment would be mandatory for the taxpayer to use the other administrative and judicial remedies. 165 . Commissioner did not rule on the duly rep. shall taxpayer’s MR of the assessment – it was only when respondent received summons 522 Sec. Case No. at the administrative and judicial levels. h. g. otherwise assessment becomes final and cannot be appealed. 16. 2001) 523 Thus. which must be paid upon filing of the protest.

a. CIR 166 . Lim Tian Teng Sons 527 CIR vs. RR 12-99 525 CIR vs. rules and on the civil action for the collection of regulations or jurisprudence on which his deficiency income tax that the period to protest is based. that the same is his final decision. in which case the same shall b. (2) Inaction by Commissioner The protest is not acted upon by the Commissioner within 180 days from submission of documents.524 c. Union Shipping Corp. otherwise the protest appeal commenced to run.5. 3. applicable law. 526 Republic vs. Reiterating the demand for immediate payment of the deficiency tax due to taxpayer’s continued refusal to execute waiver527 d. Referral by the Commissioner of request not be considered a decision a disputed for reinvestigation to the Solicitor assessment and General526 b.525 shall be considered void and without force and effect. Ayala Securities Corp 528 United Int’l Pictures vs. Preliminary collection letter may serve as assessment notice528 (1) Commissioner’s actions equivalent to denial of protest (a) Filing of criminal action against taxpayer (b) Issuing a warrant of distraint and levy These actions of the CIR serve as bases for appeal to the CTA.1. state the facts. 8) Remedies of taxpayer to action by Commissioner a) In case of denial of protest Appeal the decision to the Court of Tax Appeals (CTA) within 30 days from receipt of decision denying the protest.529 524 Sec.

Wait for the final decision of the CIR on the disputed assessment and appeal the final decision to the CTA within 30 days from the receipt of the decision. 167 . the taxpayer’s defenses are similar to those of the defendant in a case for the enforcement of a judgment by judicial action. In an action for the collection of the tax by the government. b) In case of inaction by Commissioner within 180 days from submission of documents The taxpayer has two alternative options: 1. c) Effect of failure to appeal 1. 3. Collection 1) Requisites Collection is only allowed when there is already a final assessment made for the determination of the tax due. The assessment is considered correct which may be enforced by summary or judicial remedies. 4. Assessments are deemed final when: 529 If the taxpayer elevates his protest to the CIR within 30 days from date of receipt of the final decision of the CIR’s duly authorized representative. the taxpayer is barred from re-opening the question already decided. such decision will not be final and executory. In a proceeding for collection of tax by judicial action. The decision or assessment becomes final and executory. File a petition for review with the CTA within 30 days after the expiration of the 180-day period. 2. or 2. b. 5. The assessment which has become final and executory cannot be superseded by a new assessment.

530 BPI v. When the amount for the bid property under distraint is not equal to the amount of the tax.222 [a] 168 .531 3) Distraint of personal property including garnishment a) Purchase by the government at sale upon distraint a. fraud or omission. Oct. or sent. 1. 139736. 17. By distraint or levy or by a proceeding in A proceeding in court for the collection of court . CIR.within three (3) years following the such tax may be filed without assessment - assessment released.530 at any time within ten (10) years after the discovery of the falsity. G. The taxpayer failed to file a protest 30 days from receipt of the assessment 2. After 30 days from the receipt of the decision of the CIR the taxpayer fails to appeal. 2005 531 Sec. mailed. 2) Prescriptive periods Assessment was made False or fraudulent return or failure to file a return. After the 180 day period and the CIR has not yet acted on the protest the taxpayer fails to appeal it 3.R.

or is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.in any manner whatever. 212 533 Sec.533 c) Constructive distraint to protect the interest of the government The Commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who. is retiring from any business subject to tax. the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and. leave a copy thereof in the premises where the property distrained is located. When the amount for the bid is very much less than the actual market value of the articles for sale. The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same . after which the said property shall be deemed to have been placed under constructive distraint. in his opinion. in the presence of two (2) witnesses. 206 169 . In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to. The property purchased may be resold by the Commissioner or his deputy. without the express authority of the Commissioner.534 4) Summary remedy of levy on real property a) Advertisement and sale 532 Sec. b. the officer making the same shall make a report of his proceedings in writing to the Commissioner and shall himself preserve a copy of such report as an official record.532 b) Report of sale to Bureau of Internal Revenue (BIR) Within two (2) days after the sale. 211 534 Sec.

be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption. 214 170 . 2. 4. 6. The notice of sale shall: a. 3.536 535 Sec. Excess of the proceeds of the sale shall be delivered to the taxpayer. shall have the right of paying to the Revenue District Officer the amount of the public taxes. Twenty days after levy. or any one for him. the officer conducting the proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and cost of the sale and such advertisement shall be for a period of at least 30 days. together with interest on said purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the date of redemption. penalties. 5 days after the sale. Right of Pre-emption – At any time before the day fixed for the sale. and c. the delinquent taxpayer. The owner shall not. and the Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus been redeemed. the RDO and Revenue Regional Director.535 b) Redemption of property sold Within one (1) year from the date of sale. penalties. Be posted at the main entrance of the municipal building. and interest thereon from the date of delinquency to the date of sale. however. the taxpayer may discontinue all proceedings by paying the taxes. 1. A certificate of sale shall be delivered to the purchaser. and such payment shall entitle the person paying to the delivery of the certificate issued to the purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property. and interest. 213 536 Sec. 5. public and conspicuous place in the barrio or district. be published once a week for three consecutive weeks in a newspaper of general circulation. a return by the distraining or levying officer of the proceedings shall be entered upon the records of the Revenue Collection Officer (RCO). and b. and said property thereafter shall be free from the lien of such taxes and penalties.

execute a deed conveying to the purchaser so much of the property as has been sold. other manufactured products of tobacco.537 5) Forfeiture to government for want of bidder a) Remedy of enforcement of forfeitures (1) Action to contest forfeiture of chattel In case of the seizure of personal property under claim of forfeiture. penalties or costs or in compromise or adjustment of any claim therefore. free from all liens of any kind whatsoever. 216 171 .538 b) Resale of real estate taken for taxes The Commissioner shall have charge of any real estate obtained by the Government of the Philippines in payment or satisfaction of taxes. or after the sale and within six (6) months. In either case. and an accounting of the same shall be rendered to the Chairman of the Commission on Audit. may enjoin the sale. sell and dispose of the same of public auction or dispose of the same at private sale. c) Final deed of purchaser In case the taxpayer shall not redeem the property. the Revenue District Officer shall. distilled spirits. the owner desiring to contest the validity of the forfeiture may. the proceeds of the sale shall be deposited with the National Treasury. at any time before sale or destruction of the property. 202 538 Sec. and all apparatus used in or about the illicit production of such articles may be destroyed by order of the Commissioner. 231 539 Sec. upon the giving of not less than twenty (20) days’ notice. and upon giving proper bond. bring an action against the person seizing the property or having possession thereof to recover the same. cigars. he may bring an action to recover the net proceeds realized at the sale. and the deed shall succinctly recite all the proceedings upon which the validity of the sale depends. liquors.539 c) When property to be sold or destroyed Upon forfeiture. when the sale of the same for 537 Sec. as grantor. cigarettes. and said Commissioner may.

upon forfeiture. with interests. penalties and costs. 225) 541 ibid. avoid litigation or put an end to one already commenced.543 7) Tax lien544 A legal claim or charge on property. be sold or destroyed in the discretion of the Commissioner (Sec. established by law as a security in default of the payment of taxes. 542 Sec. or labels may. 172 . by making reciprocal concessions. 226 543 Sec. 217 Otherwise. costs.541 d) Disposition of funds recovered in legal proceedings or obtained from forfeiture All judgments and monies recovered and received for taxes.540 Forfeited property shall not be destroyed until at least twenty (20) days after seizure. forfeitures. 544 Nature: A lien in favor of the government of the Philippines when a person liable to pay a tax neglects or fails to do so upon demand. fines and penalties shall be paid to the Commissioner or his authorized deputies as the taxes themselves are required to be paid and shall be accounted for and dealt with the same way. either real or personal. a clever taxpayer who is also able to conceal most of the valuable part of his property would escape payment of his tax liability by sacrificing an insignificant portion of his holdings. 545 Contract whereby the parties. including all expenses.542 6) Further distraint or levy The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due. which have been manufactured or removed in violation of the Code.consumption or use would be injurious to public health or prejudicial to the enforcement of the law. Effectivity against third persons: Only when notice of such lien is filed by the CIR in the Register of Deeds concerned. 8) Compromise545 540 All other articles subject to excise tax. Duration: Exists from time assessment is made by the CIR until paid. Extent: Upon all property and rights to property belonging to the taxpayer. as well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purport to be lawful stamps. is collected.

The tax or any portion thereof appears validity of the claim against the taxpayer. 204 (A)(B)) 547 Minimum Compromise Amounts: 1. penalty or sum has been paid under protest or duress (Sec. 548 Not applicable to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas wells & mines. Financial incapacity – 10% of the basic tax assessed. or or 2. 204 (A)(B)) All criminal violations may be compromised except: (a) those already filed in court. 2. The administration and collection costs 2. Where the settlement offered is less than the prescribed minimum rate. to be unjustly or excessively assessed. assessed tax.000 or less. 229) 173 . Minor criminal violations All criminal violations may be compromised except: (a) those already filed in court. or (b) those involving fraud (Sec. Assessments issued by the Regional Offices involving basic tax of P 500. The basic tax involved exceeds one million pesos. statement or return is false/fraudulently made. Other cases – 40% of the basic tax assessed When approval of Evaluation Board necessary: 1.548 c. it cannot be recovered by any suit unless it is proved that the said list. Refund549 546 The power to compromise or abate shall not be delegated by the Commissioner except in the following cases: 1. or (b) those involving fraud (Sec. 2.547 9) Civil and criminal actions a) Suit to recover tax based on false or fraudulent returns If tax is collected under an assessment that the list. a) Authority of the Commissioner to compromise and abate taxes546 Compromise the payment of any internal Abate or cancel a tax liability revenue tax When: When: 1. 2. 549 A suit or proceedings for tax refund may be maintained whether or not such tax. The financial position of the taxpayer involved do not justify the collection of the demonstrates a clear inability to pay the amount due. There is reasonable doubt as to the 1. statement or return was not false nor fraudulent & did not contain any understatement or undervaluation.

c. Penalty is collected without authority. 196 LGC). custom duties (Sec. TCC) 550 Reasons: a. Must be a categorical claim for refund or credit. therefore. b. 2) Requirements for refund as laid down by cases a) Necessity of written claim for refund This requirement is mandatory. 1) Grounds and requisites for refund Grounds Requisites a. a. as it would enable the CIR to correct b. CIR. such payment appears clearly to have been erroneous. the government. 252. under protest is necessary to claim for a. LGC) b. 87 Phil 96) 174 . (Sec. to afford the commissioner an opportunity to correct the action of subordinate officer and b. No suit or proceeding shall be instituted after the expiration of the 2 year period regardless of any supervening cause that may arise after payment. Tax is erroneously or illegally collected. Sum collected is excessive or in any the errors of his subordinate and to notify manner wrongfully collected. real property taxes (Sec.551 Similarly. such notice should then be borne in mind in estimating the revenue available for expenditure (Bermejo vs. Present proof of payment of the tax. to notify the government that the taxes sought to be refunded are under question and that. and d.550 Except: Where on the face of the return upon which payment is made. There must be a written claim with the CIR. payment under protest is not necessary in refund for local taxes. c. 2308. Must be filed within 2 years after the payment of the tax or penalty otherwise no refund or credit could be taken. however.

554 3) Legal basis of tax refunds Legal principle of quasi-contracts or solutio indebiti. 204 and 209 175 . vs.557 b) Necessity of proof for claim or refund 551 Sec. CTA Case No. 1962 554 see Gibbs vs. Fireman’s Fund Insurance Co 557 Secs.. Acetylene Co.556 4) Statutory basis for tax refund under the Tax Code a) Scope of claims for refund The Commissioner may credit or refund taxes: a) Erroneously or illegally assessed or collected internal revenue taxes b) Penalties imposed without authority c) Any sum alleged to have been excessive or in any manner wrongfully collected. 7.553 It refers not only to the “administrative” claim that the taxpayer should file within 2 years from date of payments with the BIR. 229 552 Secs. Commissioner.204 (c) & 229 553 Phil. 2142 & 2154. 107 Phil 232 555 see Art. Nov. Collector of Internal Revenue. Inc. but also the judicial claim or the action for refund the taxpayer should commence with the CTA. b) Claim containing a categorical demand for reimbursement c) Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years from date of payment regardless of any supervening cause552 The requirement is a condition precedent and non-compliance therewith bars recovery. CC 556 CIR vs.555 The Government is within the scope of the principle of solutio indebiti. 1321.

28. e) Tax refund vis-à-vis tax credit560 Tax refund Tax credit Requires a physical return of the sum Generally refers to an amount that is erroneously paid by the taxpayer. Johnson and Sons 559 CIR vs. September 1. including –whenever invest for profit the returned sum. Refund claim partakes of the nature of an exemption which cannot be allowed unless granted in the most explicit and categorical language.2005 176 .Dec. subtracted directly from one’s total tax liability. an applicable – the income tax that is option not proximately available if the determined after applying the taxpayer chooses instead to receive a tax corresponding tax rates to taxable credit. R. G. It must be shown that payment was an independent single act of voluntary payment of a tax believed to be due.561 income.558 Failure to discharge burden of giving proof is fatal to claim. 1963 560 It may be that there is no essential difference between a tax refund and a tax credit since both are moves of recovering taxes erroneously or illegally paid to the government. Central Luzon Drug Corporation.562 558 CIR vs. Li Yao. d) Nature of erroneously paid tax/illegally assessed collected Taxpayer pays under the mistake of fact. or a deduction from what is owned. 2004) 561 Commissioner of Customs v. ibid. as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were made. Philippine Phosphate Fertilizer Corporation. to Reduces the tax due. No. A tax is illegally collected if payments are made under duress. April 15. 562 Commissioner of Internal Revenue v. 144440. G. R. The taxpayer to whom the tax is refunded would have the option. an allowance against the tax itself. (Commissioner of Customs v. become part of the state moneys subject to expenditure and perhaps already spent or appropriated. collectible and accepted by the government. No. 159647. and which therefore. L-11875. among others. Philippine Phosphate Fertilizer Corporation.559 c) Burden of proof for claim of refund Written claim for refund or tax credit filed by the taxpayer with the Commissioner.

or as a person having sufficient legal interest. to bring a suit for refund of taxes. Jr. 29. and 563 Banco Filipino Savings and Mortgage Bank v. The claim is filed with the Commissioner of Internal Revenue within the two- year period from the date of the payment of the tax.” xxx By any reasonable standard. A “person liable for tax” has been held to be a “person subject to tax” and properly considered a “taxpayer. No. R. Court of Appeals. The fact of withholding is established by a copy of a statement duly issued by the payee showing the amount paid and the amount of tax withheld therefrom. 7) Other consideration affecting tax refunds a) Taxpayer may file an action for refund in the CTA even before the Commissioner decides his pending claim in the BIR. G.. Procter and Gamble PMC. 2.563 5) Who may claim/apply for tax refund/tax credit a) Taxpayer/withholding agents of non- resident foreign corporation A withholding agent is subject to and liable for deficiency assessments. there is a pending litigation between the two parties (government and taxpayer) as to the proper tax to be paid and of the proper interpretation of the taxpayer’s charter in relation to the disputed tax.. such a person should be regarded as a party in interest. 1966 177 . f) Essential requisites for claim of refund 1. 155682. Palanca. March 27. L-16626.564 6) Prescriptive period for recovery of tax erroneously or illegally collected Two (2) years from the date of payment of the tax or penalty. 2007 564 CIR vs. Oct. et al. 204 SCRA 377 565 Commissioner of Internal Revenue vs.565 b) Suspension of the 2-year prescriptive period may be had when: i. surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under the law. and 3. It is shown on the return of the recipient that the income payment received was declared as part of the gross income.

105208.R. 103 Phil. G. G.567 d) 2-year prescriptive period for filing of tax refund or credit claim computed from date of payment of tax of penalty except in the following: i. but from the date the final adjusted return is filed after the taxable year. American Life Ins.566 c) Even if the 2-year period has lapsed. supra 570 Gibbs vs.570 iv. Collector of Internal Revenue. TMX Sales. 112 (A) 178 . Withholding Taxes Prescriptive period counted not from the date the tax is withheld and remitted to the BIR. vs.. the same is not jurisdictional and may be suspended for reasons of equity and other special circumstances. Corporations: 2-year prescriptive period for overpaid quarterly income tax is counted not from the date the corporation files its quarterly income tax return.569 iii. Palanca. but from the end of the taxable year.. Jr. 1992 569 CIR vs. Taxes payable in installment: 2-year period is counted form the payment of the last installment. Commissioner of Internal Revenue. Phil. the commissioner in that litigated case agreed to abide by the decision of the Supreme Court as to the collection of taxes relative thereto. Jan.571 e) Interest on Tax Refund: The Government cannot be required to pay interest on taxes refunded to the taxpayer unless: i. No.. Co.83736. No. Inc.. 819 567 CIR vs.R. Inc. 15. 1995 568 Commissioner of Internal Revenue vs. ii. May 29. VAT Registered Person whose sales are zero-rated or effectively zero- rated 2-year period computed from the end of the taxable quarter when the sales transactions were made.568 ii. supra 571 Sec. The Commissioner acted with patent arbitrariness572 566 Panay Electric Co.

Inc. as the case may require. starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2)) 574 supra 575 Ibid. ii. a return of the proceeding is duly made. L-19607. .is the seizure of real property and interest in or rights to such properties for the satisfaction of taxes due from the delinquent taxpayer. Administrative remedies 1) Tax lien574 2) Levy and sale of real property Levy .575 3) Forfeiture of real property to the government for want of bidder576 572 Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs. No bidder for the real property exposed for sale.Within two days thereafter. 179 .573 2. Refund or credit after such time earn interest at the rate of 6% per annum. When available: a. penalties and costs. 576 Effect: Transfer the title to the specific thing from the owner to the government. In case of Income Tax withheld on the wages of employees. Government Remedies a. How enforced: a. civil or criminal. Nov.. 29. In case of real property – by a judgment of condemnation and sale in a legal action or proceeding.1966) 573 Any excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April. If highest bid is for an amount insufficient to pay the taxes. The requisites are the same as that of distraint. b.Victorias Milling Corp. b. In case of personal property – by seizure and sale or destruction of the specific forfeited property.

for recovery of taxes.A. 582 For tax remedy purposes. Includes the idea of not only losing but also having the property transferred to another without the consent of the owner and wrongdoer. penalty or forfeiture. Must be with the approval of the CIR. fee or charge imposed by the Code. Judicial remedies581 Civil Action582 Criminal Action583 577 supra 578 Ibid. at any stage of the proceeding. 579 Sec.579 Exception: Injunction may be issued by the CTA in aid of its appellate jurisdiction. in case of action. may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. 11 of R. Brought in the name of the Government of the Philippines. these are actions instituted by the government to collect internal 180 . 581 Civil and Criminal Actions: 1. 218 580 Under Sec. Conducted by Legal Officer of BIR 3. in consequence of a default or offense. or enforcement of a fine. (as amended by RA 9282) . Implies a divestiture of property without compensation.when in the opinion of the Court the collection may jeopardize the interest of the Government and/or the taxpayer. 1125. 2.580 b. the Court. 4) Further distraint and levy577 5) Suspension of business operation578 6) Non-availability of injunction to restrain collection of tax No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax.

A.RTC and other lower courts 586 If Commissioner files the case. Appeal adverse decision of CIR to CTA Jurisdiction: If case involves collection of assessed principal taxes amounting to 1M or more. MeTC . 181 . Statutory Offenses and Penalties a. provided there is a prima facie showing of willful attempt to evade. when it is the taxpayer who files a petition for review in CTA. exclusive of charges and penalties claimed is P1 million and above.Republic of the Phils. 3. depending on the amount involved When assessment made has become final and executory for failure or taxpayer to: a. is the party plaintiff. the respondent is the Commissioner. By filing a civil case584 to collect Generally resorted to by the BIR when the internal revenue taxes in regular courts585 summary remedies for the collection of taxes have proven ineffective and futile.on criminal offenses arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the BIR and the BOC where the principal amount of taxes and fees.587 2. 9282) 584 within 5 years from the date of the assessment 585 RTC or MTCs. (Sec. 1) Surcharge revenue taxes in the regular courts after assessment by CIR has become final and executory. 583 The criminal charge is filed directly with the Department of Justice with the approval of the CIR. By filing an answer to the petition for review filed by the taxpayer with the Instituted not to demand payment but to CTA586 penalize taxpayer for the violation of the NIRC. Civil penalties They are imposed in addition to the tax required to be paid.on criminal offenses arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the BIR and the BOC where the principal amount of taxes and fees. R. The information should be filed: 1. the filing by the government of claims against the deceased taxpayer with the probate court. RTC. An assessment of a tax deficiency is not necessary to a criminal prosecution for tax evasion. Dispute same by filing protest with CIR b. 7. 587 A direct mode of collection of taxes. exclusive of charges and penalties claimed is less than P1 million. the judgment of which shall not only impose the penalty but also order payment of taxes. It includes. 2.CTA If lower than 1M. MTC. 1. CTA . however.

(C) 182 .589 b) Deficiency interest The interest due on any amount of tax due or installment thereof which is not paid on or before the date prescribed for its payment computed at the rate of 20% per annum.. 249 (A) 590 or such higher rate as may be prescribed by the rules and regulations 591 Id. or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner. or (2) The amount of the tax due for which no return is required.591 d) Interest on extended payment 588 A surcharge added to the main tax is subject to interest. 589 Sec.588 A surcharge added to the main tax is subject to interest. 2) Interest a) In General Assessed and collected on any unpaid amount of tax at the rate of twenty percent (20%) per annum from the date prescribed for payment until the amount is fully paid. or (3) A deficiency tax. It is not a criminal penalty but a civil administrative sanction provided primarily as safeguard for the protection of the State revenue and to reimburse the government for the expenses of investigation and the loss resulting from the taxpayer’s fraud. c) Delinquency interest The interest of 20% per annum required to be paid in case of failure to pay: (1) The amount of the tax due on any return to be filed. A civil penalty imposed by law as an addition to the main tax required to be paid.590 from the date prescribed for its payment until it is fully paid.

or where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof. Compromise and Abatement of taxes593 a. If any person required to pay the tax is qualified and elects to pay the tax on installment but fails to pay the tax or any installment hereof. Compromise Involves a mere reduction of the tax. 592 Id.592 4. or any part of such amount or installment on or before the date prescribed for its payment. there shall be assessed and collected interest at the rate prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid. Abatement A cancelation of the entire liability.. b. (D) 593 supra 183 .

Organization and Function of the Bureau of Internal Revenue 1. (3) The conditions under which and the manner in which goods intended for export. also the books to be kept by Revenue Inspectors and the reports to be made by them in connection with their supervision of such houses. the manner in which the process of denaturing shall be effected. the bonds to be given. brands or marks to be required on goods subject to an excise tax. 244 184 . the reports to be made to the Commissioner. (6) The conditions under which denatured alcohol may be removed and dealt in. the books and records to be kept. (2) The forms of labels. and the manner in which their lists and records of taxable persons and taxable objects shall be made and kept. branded or marked.594 b. the character and quantity of the denaturing material to be used. Specific provisions to be contained in rules and regulations (1) The time and manner in which Revenue Regional Director shall canvass their respective Revenue Regions for the purpose of discovering persons and property liable to national internal revenue taxes. and 594 Sec. shall be labelled. their manner of storage and the method of keeping the entries and records in connection therewith. and the manner in which the labelling. Authority of Secretary of finance to promulgate rules and regulations Upon recommendation of the Commissioner. the entries to be made therein. (4) The conditions to be observed by revenue officers respecting the institutions and conduct of legal actions and proceedings. so as to render the alcohol suitably denatured and unfit for oral intake. G. which if not exported would be subject to an excise tax. branding or marking shall be effected. for the effective enforcement of the provisions of the Code. Rule-making authority of the Secretary of Finance a. (5) The conditions under which goods intended for storage in bonded warehouses shall be conveyed thither.

excise taxes and documentary stamp taxes 596 Sec. value-added tax. except: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue. the mode of cancellation of the same. as well as the manner in which licenses and stamps shall be gathered up and returned after serving their purposes. c. Power of the Commissioner to suspend the business operation of a taxpayer597 595 such as income tax. document or object to which revenue stamps shall be affixed. as well as on gifts and such other rules and regulations which the Commissioner may consider suitable for the enforcement of the said Title III. other percentage taxes. (8) The conditions to be observed by revenue officers respecting the enforcement of Title III imposing a tax on estate of a decedent. including withholding tax. (10) The manner in which internal revenue taxes595 shall be paid through the collection officers of the Bureau of Internal Revenue or through duly authorized agent banks which are hereby deputized to receive payments of such taxes and the returns.the signs to be displayed in the business ort by the person for whom such denaturing is done or by whom.596 2. or (c) Where the taxpayer acted in bad faith. the instrument. (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based. (7) The manner in which revenue shall be collected and paid. Non-retroactivity of rulings If the revocation. estate and donor's taxes. (9) The manner in which tax returns. information and reports shall be prepared and reported and the tax collected and paid. papers and statements that may be filed by the taxpayers in connection with the payment of the tax. 246 185 . the manner in which the proper books. records. modification or reversal will be prejudicial to the taxpayers. and the preparation and publication of tax statistics. as well as the conditions under which evidence of payment shall be furnished the taxpayer. and other transfers mortis causa. such alcohol is dealt in. invoices and other papers shall be kept and entries therein made by the person subject to the tax.

May 5. Taxation shall be uniform600 in each LGU b. No 131359. X of the Constitution (Mactan Ceby Intn’l Airport vs.601 3. Not unjust. charges and other impositions shall be: 1. Prov. G. as amended A. 186 . 597 supra 598 The power to tax which may be exercised by local legislative bodies is no longer merely by nature of a valid delegation as before but pursuant to direct authority conferred by Sec. fees. Fundamental principles599 a. Marcos. Sept 11. or in restraint of trade. 601 Public Purpose – Proceeds obtained are to be used to support the existence of the LGU. 5.R.R. Art. Taxes. 4. No. Local Government Code of 1991.III. national economic policy. 120082. Equitable and based on the taxpayer’s ability to pay. the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax power (MERALCO vs. G. oppressive or confiscatory. 1999 599 also known as the requisites of municipal taxation 600 Uniformity of Taxation – Equality and uniformity of local taxation is that all taxable articles of the same class shall be taxed at the same rate within the same territorial jurisdiction of the taxing authority. Local Government Taxation598 1. 2. 1996) Where there is neither a grant nor a prohibition by statute. Not contrary to law. public policy. For public purpose. excessive. of Laguna.

fees. consistent with the basic policy of local autonomy. fees. Such taxes. 129 604 Sec. d. Grant of local taxing power under the Local Government Code Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes.00) nor more than Five thousand pesos (P5. The collection of local taxes.602 2. The sangguniang barangay may prescribe a fine of not less than One hundred pesos (P100. or both. and charges shall accrue exclusively to the local government units. charges and other impositions shall in no case be Let to any private person.000. and be subject to the disposition by. and e. Authority to prescribe penalties for tax violations The sanggunian of a local government unit is authorized to prescribe fines or other penalties for violation of tax ordinances but in no case shall such fines be less than One thousand pesos (P1. 516 187 . evolve a progressive system of taxation. shall be imposed at the discretion of the court. fees. as far as practicable. fee.00).604 602 Just Taxation – Municipal corporations are allowed a wide range in determining tax rates of imposable taxes and license fees. 603 Sec. charge or other imposition unless otherwise specifically provided herein.00). and charges subject to the provisions herein. nor shall imprisonment be less than one (1) month nor more than six (6) months. Nature and source of taxing power a.000.00) nor more than One thousand pesos (P1. Such fine or other penalty.603 b. the local government unit levying the tax. The revenue collected pursuant to the provisions of the LGC shall Inure solely to the benefit of. Each LGU shall.000. c.

but the adjustment should be made not oftener than once every 5 years but in no case shall the adjustment exceed 10% of the rates fixed under the LGC. are hereby withdrawn upon the effectivity of this Code. except local water districts.606 e. Authority to grant local tax exemptions Local government units may. tax incentives and tax reliefs shall not apply to regulatory fees which are levied under the police power of the LGU. or charge or to generate revenue shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance. 6938. Other applicable laws. 2. whether natural or juridical.607 f.608 g. Authority to adjust local tax rates LGUs are given authority to adjust the tax rates. 193 607 Sec 191 608 Sec. No. Withdrawal of exemptions Tax exemptions or incentives granted to. including government-owned or -controlled corporations.A. 606 Sec.605 d. National Internal Revenue Code. 186 609 Sec. c. 132 188 . Local Government Code. 192 The power to grant tax exemptions. Residual taxing power of local governments LGUs may exercise the power to levy taxes. grant tax exemptions. cooperatives duly registered under R. incentives or reliefs under such terms and conditions as they may deem necessary. or presently enjoyed by all persons.609 3. through ordinances duly approved. Local taxing authority 605 Sec. fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the 1. or 3. non-stock and non-profit hospitals and educational institutions. fee. Authority to issue local tax ordinances The power to impose a tax.

154 612 Sec. Owned. Tools. pier or wharf. Power to create revenues exercised thru LGUs Local governments are authorized to impose and collect the following charges: 1. Fees or Charges for: a.610 2. 155 613 Sec. The matter of veto and overriding the same d. Public Utility Charges if: a. 153 611 Sec. Reasonable fees and charges for services rendered. operated and maintained b. The procedure applicable to local government ordinances in general should be observed. Procedure for approval and effectivity of tax ordinances 1. Necessity of quorum b. 55. Use of public road. 187 614 Secs. and 59 189 . Within their jurisdiction611 3. Submission for approval by the local chief executive c. Publication and effectivity614 610 Sec.613 The following procedural details must be complied with: a. a. Funded and constructed by the local government612 b. 54. ferry or telecommunication system b. waterway bridge.

2. 129 618 Sec. 187 620 Sec. fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the NIRC. as amended. Taxing powers of provinces 1) Tax on transfer of real property621 ownership Transaction taxed Sale. fees. The levy must not be unjust. consistent with the basic policy of local autonomy. or title to. Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes. Such taxes. and charges. In the absence of such newspaper in the province. oppressive.618 c. and machineries intended by the owner of the land or building for an industry or works which may by carried on in a building or on a piece of land and which tend directly to meet the needs of the industry or works. Scope of taxing power a. real property 615 Sec. All local government units are granted general powers to levy taxes.620 5. fees or charges shall be imposed without a public hearing having been held prior to the enactment of the ordinance. 187 616 Sec.619 d. No such taxes. Public hearings are required before any local tax ordinance is enacted. buildings. excessive. Within 10 days after their approval. confiscatory or contrary to a declared national economic policy. city. barter.616 4.617 b. or any other mode of transferring ownership of. and charges shall exclusively accrue to it. Copies of the provincial. and municipal tax ordinances or revenue measures shall be published in full for three consecutive days in a newspaper of local circulation or posted in at least two conspicuous and publicly accessible places. city or municipality. publication in full for 3 consecutive days in a newspaper of general circulation. then the ordinance may be posted in at least two conspicuous and publicly accessible places. 190 . fees. 188 621 Real Property – refers only to lands.615 3. Specific taxing power of local government unit (LGUs) a. or other applicable laws. 188 & 189 617 Sec. 186 619 Sec.

transfer or other disposition of real property pursuant to R. not to exceed 1/20 of 1% of the capital investment Exception The receipts from the printing and/ or publishing of books or other reading materials prescribed by the DECS as school text or references are not subject to the tax imposed 3) Franchise tax624 Franchise Generally refers to a privilege conferred by the government on an individual or corporation. cards.Rate At not more than 50% of 1% total consideration. 624 191 .623 2) Tax on business of printing and publication Transaction taxed Business of printing and publication of books.A. handbills. total consideration or 2.622 Exception from tax The sale. receipts. whichever is higher 623 Comprehensive Agrarian Reform Law 624 Purpose of Franchise Tax – to be in addition to the franchise tax imposed by the national government on business which are holders of franchise except when otherwise prohibited by law. 6657. in the case of newly started business. posters. pamphlets. and other similar nature Tax Rate Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year. which does not belong to the citizens by common 622 Tax base – 1. fair market value. leaflets. certificates.

right

Tax Rate Not exceeding 50% of 1%, if newly started
business, 1/20 of 1 %

Tax base Gross annual receipts of preceding calendar year
based on:

a) Incoming receipts, or
b) Realized within territorial jurisdiction.

4) Tax on sand, gravel and other quarry services625

Tax Rate Not more than 10% of fair market value

Issuance of Permit To permit to extract the sand, gravel and other
quarry resources shall be issued exclusively by
the provincial governor pursuant to the
ordinance of the sangguniang panlalawigan

5) Professional tax626

625
Distribution of the Proceeds – The proceeds of the tax shall be distributed as follows
a. Province – 30%
b. Component city or municipality where the sand, etc are extracted – 30%
c. Barangay where the sand, etc. are extracted – 40%
626
Profession – a calling w/c requires the passing of an appropriate government board or bar
examination, such as the practice of law, medicine, public accounting, engineering, etc.

192

Tax rate In such as Sanggunian may determine and in no
case to exceed P300

When paid On or before Jan. 20

Where Paid on the place where you practice your
profession.627

6) Amusement tax628

Tax Rate Not more than 30% of the gross receipt from
admission fees

Exemption Operas, concerts, dramas, recitals, painting and
art exhibitions, flower shows, musical programs,
literary and oratorical presentation

Exceptions to exemption Pop, rock, or similar concert.

7) Tax on delivery truck/van

Transaction taxed Use of truck, van vehicle in the delivery or
distribution of distilled spirits, fermented liquors,
softdrinks, cigar and cigarettes and other
products, determined by the Sanggunian to sales

Nature of Tax – professional tax applies only to natural or physical persons and not to juridical
entities. Said tax is fixed on the privilege of exercising or engaging in a profession. The tax is not based on
the amount of earnings of the taxpayer.
627
government employees are exempted from paying PT
628
Amusement – pleasurable diversion and entertainment
Amusement Place – includes theaters, cinemas, concert halls, circuses and other places of amusement
where one seeks admission to entertain himself by seeing or viewing the show or performance (Sec 131
(c))

193

outlets or consumers.

Tax rate Not exceeding P500 for every truck, van or any
vehicle used

Exemption Exempt from tax on peddlers.

b. Taxing powers of cities

Cities are authorized specifically to impose taxes, fees and charges that provinces
and municipalities may levy.

Rate: May be above the maximum established for
provinces and municipalities but not exceeding
50% of such maximum rates except the rates of
professional and amusement taxes

c. Taxing powers of municipalities

Municipality may levy taxes, fees and charges not otherwise levied by provinces
and cities

1) Tax on various types of businesses

Rate

Manufacturers, assemblers, repackers of At graduated annual fixed tax based on
liquors, distilled spirits and wines gross sales or receipts for the
preceding calendar year in an amount
not to exceed P6.5 M or more, a rate
not exceeding 37 ½ of 1% is imposed

Wholesalers, distributors or dealers in any Graduated annual fixed rate based on
article of Commerce gross sales or receipts not exceeding
P2M or more, the rate not exceeding
50% of 1%

194

Exporters, manufacturers, millers, Not exceeding ½ of the rates
producers of essential commodities prescribed in (a) and (b)629

Contractors and other independent Graduated annual fixed rate when the
contractors gross receipts exceeds P2M the rate is
not exceeding 50% of 1%

Banks and other financial institutions Not exceeding 50% of 1% on the gross
receipts of preceding calendar year

Peddlers Not exceeding 50% per peddler
annually

Any business not otherwise specified As the Sanggunian may deem proper.
When subject to excise, VAT or
percentage tax, it shall not exceed 2%
of gross receipts of the preceding
calendar year.630

2) Ceiling on business tax impossible on
municipalities within Metro Manila

The municipalities within the Metropolitan Manila Area may levy taxes at rates
which shall not exceed by fifty percent (50%) the maximum rates prescribed in the
preceding Section.631

3) Tax on retirement on business

A business subject to tax shall, upon termination thereof, submit a sworn
statement of its gross sales or receipts for the current year. If the tax paid during the
year be less than the tax due on said gross sales or receipts of the current year, the
difference shall be paid before the business is considered officially retired.

If the tax paid during the year be less than the tax due on said gross sales of
receipts of the current year, the difference shall be paid before the business is
considered officially retired.632

629
supra
630
Sec. 143
631
Sec. 144
632
Sec. 145

195

4) Rules on payment of business tax

a. It shall be payable for every separate or distinct establishment or place where
the business subject to the tax is conducted and one line of business does not become
exempt by being conducted with some other business for which such tax has been paid.

b. The tax on a business must be paid by the person conducting the same.

c. In cases where a person conducts or operates 2 or more of the businesses:

1. subject to the same rate of tax - the tax shall be computed on the
combined total gross sales or receipts of the said 2 or more related businesses.

2. subject to different rates of tax - the gross sales or receipts of each
business shall be separately reported for the purpose of computing the tax due
from each business.

5) Fees and charges for regulation & licensing

The municipality may impose and collect such reasonable fees and charges on
business and occupation except professional taxes reserved for provinces.633

a. Fees for Sealing and Licensing of Weights and Measures634

b. Fishery Rentals, Fees and Charges, including the authority to grant fishery
privileges within municipal waters, as well as issue licenses for the operation of fishing
vessels of three tons or less.

c. The sanggunian may penalize the use of explosives, noxious or poisonous
substances, electricity, muro –ami, and other deleterious methods of fishing and
prescribe a criminal penalty therefore.635

633
Sec. 147
634
Sec. 148
635
Sec. 149

196

plant or principal office: plantation in pursuit of business 1. The sale shall be recorded located in the principal office along with the sales made by said principal office Branch office – a fixed place in a locality which conducts operations of the business as an extension of the principal office. Where there is a factory. Of all sales recorded in the project office. 6) Situs of tax collected Situation Recognition of sale Payment of tax The tax shall be payable to With branch or sales office All sales made in the the city or municipality or warehouse locality where the branch where the same is located. Principal office – head or main office of the business appearing in pertinent documents submitted to the SEC and specifically mentioned in the Articles of Incorporation. city or municipality where office or warehouse said principal office is . 30% taxable to the city or municipality where the 197 . or office or warehouse is located Where there is no branch The municipality where the The tax shall accrue to the or sales sale or transaction is made.

40% to the city or municipality where the plantation is located. principal office is located. etc. 70% taxable to the city or factory is located in the principal office municipality where the factory. may impose reasonable fee. different localities. The 70% (above) shall be If manufacturer. may levy reasonable fees & 198 . has two or more factories. plant. d. project 1. plants or municipality where the plantations located in factory is. etc. For such clearance. 60% to the city or offices. the sangguniang brgy. is located.000 or less in the cities & municipalities Service Fees/ Charges It may collect reasonable fees or charges for services rendered in connection with the regulation or the use of barangay owned property or service facilities Barangay Clearance No city municipality may issue any license/ permit for any business / activity is located. Other fees & charges The brgy. 2. divided as follows: contractor. If plantation is at a place other than where the All sales shall be recorded 2. Taxing powers of barangays Taxes on stores / retailers with fixed Rate: Not exceeding 1% on such gross business establishment with gross sales or sales or receipts receipts of the preceding calendar year of P50.

neon signs and outdoor advertisement e. operated and maintained by them within their jurisdiction. or 636 Sec. signs boards. pier. and c) On billboards. 154 199 . Common revenue raising powers 1) Service fees and charges LGUs may impose and collect such reasonable fees and charges for services rendered.636 2) Public utility charges LGUs may fix the rates for the operation of public utilities owned. charges a) On commercials breeding of fighting cocks & cockpits.637 3) Toll fees or charges The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road. 153 637 Sec. b) On places of recreation w/c charge admission fees.

Corporations - Rate: Annual community tax of P500 and an annual additional tax w/c in no case shall exceed P10. being neither corporations nor individuals.639 Persons liable to tax 1. is essentially a poll or capitalization tax. Does not exceed 3 mos. Individuals – Rate: P5.000. 155 639 Sec. It is of fixed amount imposed upon certain inhabitants of the country without regard to the property/ occupation in which they may be engaged.000 Exemptions from the Community Tax 1. Who are authorized to levy Cities or municipalities may levy a community tax. but the heirs must declare their proportionate shares of their income. Estates of deceased persons. are not subject to the tax. which replaced the residence tax. 638 Sec. as well as the rates & accrual of the proceeds thereof.wharf.00 an annual additional tax of P1.waterway. Diplomatic and consular representatives and 2. 2.638 f.000 income regardless of whether from business. ferry or telecommunication system funded and constructed by the local government unit concerned. bridge. Transient visitors when their stay in the Phil. exercise of profession or from property w/c in no case shall exceed P5. 156 200 . Community tax The community tax.00 for every P1.

municipalities. Income tax642 640 Sec 162 641 Sec 133 642 Exception: banks and other financial institutions 201 .640 6. the exercise of the taxing power of provinces. Common limitations on the taxing powers of LGUs641 Unless otherwise provided herein. cities. It may also be issued to any corporation/person not subject to the community tax. Community Tax Certificate – shall be issued to every person or corporation upon payment of the community tax. and barangays shall not extend to the levy of the following: 1.

Documentary Stamp Tax 3. except wharfage on wharves constructed and maintained by LGU concerned. tonnage dues and all other kinds of customs fees. 9. Tax on estates. Petroleum products 4. or other taxes. and taxes. charges and dues. Taxes. barters or exchanges or similar transactions on goods or services exchanges or similar transactions on goods or services except as otherwise provided herein645 6. 117 of NIRC specifies that the gross receipt of common carriers derived from their incoming and outgoing freight shall not be subjected to local taxes imposed under LGC. Excise taxes on articles enumerated under the NIRC. fees and charges and other Impositions which contravene Existing Government Policies or which are violative of the Fundamental Principles of Taxation. 5. gifts. Mineral products Local governments can tax the selling of these finished products or the raw materials. land or water except as provided by the code. 645 Percentage of taxes – imposed when there is set of ration between the amount of tax and the volume of sales. Alcoholic products 2. 646 Transportation contractors including persons who transport passengers for hire and other domestic carriers by land. Tobacco products 3. 202 .Taxes. the territorial jurisdiction of LGU in the guise of charges for wharfage. Percentage or VAT on sales.644 as amended. registration fees of vessels and wharfage on wharves. legacies and other acquisitions mortis causa643 4. air or water for transport of passengers. Customs duties. 2. fees. Taxes on the gross receipts of transportation of contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air. fees and charges imposed under the Tariff and Customs Code and other Special Laws 8. NIRC) Sec. except owners of bancas and owners of animal drawn two-wheeled vehicle are subject to 3% percentage tax on their gross quarterly receipt (Sec 117. or passing through.646 7. and charges and other impositions upon goods carried into or out of. 10. fees or charges in any form whatever upon such goods or merchandise. Taxes. Miscellaneous articles 5. fees or charges on petroleum products. tolls for bridges or otherwise. 643 Exception: tax on transfer of real property ownership 644 Taxable Articles embodied in the NIRC are: 1. inheritance.

Taxes on business enterprises certified to by the Board of Investment as pioneer or non-pioneer who enjoy tax holidays647 for a period of 6 and 4 years. 18. Taxes. Taxes. Taxes.648 7. fees or charges for registration of motor vehicles. 14. its agencies and instrumentalities and LGU. Taxes. Collection of business tax 647 exemption from income tax only 648 Exception: Tricycles 203 . 16. excepted otherwise provided herein in the LGC. fees. fees or charges of any kind on the National Government. Respectively. Taxes. Taxes. or charges on agricultural and aquatic products when sold by marginal farmers or fishermen. Taxes on premiums paid by way of reinsurance or retrocession. 12. fees or charges on Countryside and Baranggay Business Enterprises and Cooperative duly registered under RA No. respectively from the date of registration 13. 15. fees or other charges on Philippine products actually exported. 11. and charges imposed under special laws. fees. 17. 6810 and RA 6938 otherwise known as the Cooperative Code of the Phil.

the provincial. 170 204 . or their duly authorized deputies. or charges. The provincial. fees.656 649 unless otherwise provided 650 Sec. In case a bond is required for the purpose. and charges shall be collected by the provincial. fees or charges A surcharge not exceeding 27% of the amount of taxes. fees.653 Not exceeding 6 months – in case of extension of payment. 165 651 unless otherwise provided 652 Sec 166 653 unless otherwise provided 654 Sec 167 655 Sec 168 656 Sec. fees or charges and an interest at the rate not exceeding 2% per month until such amount is fully paid.650 b.654 d.652 c. city or municipal treasurer may designate the barangay treasurer as his deputy to collect local taxes. city or municipal government shall pay the premiums thereon in addition to the premiums of bond that may be required under this Code. Time of payment Within the first 20 days of January or of each subsequent quarter.651 New taxes. or barangay treasurer. a. Tax period and manner of payment The calendar year. city. fees or charges or changes accrue on the 1 st day of the quarter next following the effectively of the ordinance imposing such new rates. In no case the total interest on the unpaid amount or portion thereof exceed 36 months655 e. municipal. Authority of treasurer in collection and inspection of books All local taxes. Accrual of tax On the 1st day of January of each year.649 which may be paid in quarterly installments. Penalties on unpaid taxes.

Such certificate shall be made of record in the books of accounts of the taxpayer examined. Taxpayer has 60 days from receipt to file written protest with Treasurer. or association subject to local taxes. examine the books. by himself or through any of his deputies duly authorized in writing. Treasurer has 10 days within which to decide. Taxpayer requests for reinvestigation and executes waiver in writing c. in case of fraud of intent to evade payment b. Protest of assessment a. accounts. Taxpayer out of the country d. Such examination shall be made during regular business hours. and business of the taxpayer whose books. fee. and pertinent records are to be examined.within 10 years. Taxpayer cannot be located 659 Treasurer cancels assessment 205 .within five years from the date they . The provincial. fees or charges658 Assessment Collection . the written authority of the deputy concerned shall specifically state the name. Taxpayer’s remedies a. assess.659 657 Sec. fees and charges in order to ascertain. his deputy or duly authorized representative. the records of the revenue district office of the Bureau of Internal Revenue shall be made available to the local treasurer. For this purpose.657 8.within 5 years from the date of become due. Treasurer legally prevented from the making the assessment or collection b. 171 658 Suspension of the running of the prescriptive Period - a. otherwise it shall become final and executor. assessment by administrative or judicial action . only once for every tax period. corporation. the date and place of such examination. and other pertinent records of any person. Periods of assessment and collection of local taxes. In case the examination herein authorized is made by a duly authorized deputy of the local treasurer. address. or charge. and the procedure to be followed in conducting the same. c. accounts. Assessment made by the local Treasurer b. city. and collect the correct amount of the tax. and shall be certified to by the examining official. municipal or barangay treasurer may. partnership.

or from the date the taxpayer is entitled to a refund or credit 9. charges or encumbrances in favor of any person. Levy upon real property and interest in or rights to real property 2) Judicial action Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of local government unit concerned. c. or charge. b. Superior to all items.Taxpayer has 30 days from the lapse of 60 days to appeal 660 Sec 174 206 . Claim for refund of tax credit for erroneously or illegally collected tax. fees or charges 1.Taxpayer appeals within 30 days after receipt of denial Treasurer does not act within 60 days . Distraint of goods. in general 1) Administrative action 1. fee. fee or charge A written claim for refund or credit is filed with the local Treasurer within 2 years from the date of payment of such tax. Covers not only property or rights subject to the lien but also upon property used in business. enforceable by the administrative of judicial action 2. Civil remedies. Local government’s lien for delinquent taxes. Civil remedies by the LGU for collection of revenues a.660 Treasurer denies protest . chattels or effects and other personal property of whatever character 2.

and e. 207 . Such tax does not impose any condition nor does it place any restriction upon the use of the property taxed. 3. d) The appraisal. c) Real property shall be assessed on the basis of a uniform standard within each local government unit. Imposition of real property tax a. Nature of real property tax Property taxes are assessed on all property.662 In the Philippines. assessment. Power to levy real property tax 661 Sec. and collection of real property tax shall not be let to any private person. or all property of a certain class located within a certain territory on a specified date in proportion to its value or in accordance with some other reasonable method of apportionment. 198 662 The function of a property tax is to raise revenue. a real property tax is an annual ad valorem tax imposed by LGU’s on real property within their jurisdiction. Fundamental principles a) Real property shall be appraised at its current and fair market value. b) Real property shall be classified for assessment purposes on the basis of its actual use.B. Real Property Taxation 1. determined on the basis of a fixed proportion of the value of the property. ) The appraisal and assessment of real property shall be equitable661 2.

232 664 Real properties of review schools are subject to tax (why? Considered an ordinary corporation) Non-stock. building. directly. A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land.665 and v. Rule on appraisal of real property at fair market value 663 Sec. 665 as provided for under R. Appraisal and assessment of real property tax a. 4. mosques. or educational purposes. Machinery and equipment used for pollution control and environmental protection. Hastings. Hernando. and government – owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. All real property owned by duly registered cooperatives. and improvements actually. and exclusively used by local water districts. directly and exclusively used for religious. if property is actually. Proprietary schools (stock and profit) duly accredited by DECS or CHED are exempt. parsonages. iii. and all lands. machinery. or convents appurtenant thereto.663 b. 107 SCRA 104 & other cases). Province of Abra v. 6938 208 . charitable. and other improvement not hereinafter specifically exempted. 5 Phil 701. Charitable institutions. The term “exclusively” under the Constitution does not mean “solely” but only “primarily” (Roman Catholic Church v. nonprofit private schools are exempt. churches. ii. buildings. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted to a taxable person.A. All pieces of machinery and equipment that are actually. Exemption from real property tax664 i. directly and exclusively used for educational purposes. non profit or religious cemeteries. iv.

or anyone having legal interest in the property. Listing of real property in assessment rolls (a) In every province and city. or association shall be listed. The sworn declaration shall be filed once every 3 years before June 30th of the year commencing 1992. for consideration or otherwise. and to assess the property for taxation. within 60 days after the acquisition. Declaration of real property It shall be the responsibility of the owner. Real property shall be listed. (c) The real property of a corporation. the beneficial use of which has been granted. valued and assessed in the name of the estate or of the heirs and devisees without designating them individually. including the municipalities within the Metropolitan Manila Area. devisee. whether taxable or exempt. valued and assessed in the name of one or more co-owners. shall be listed. valued and assessed in the name of the owner or administrator. taxable or exempt. city or municipal assessor an assessment roll wherein shall be listed all real property. shall be appraised at the current and fair market value prevailing in the locality where the property is situated. (b) The undivided real property of a deceased person may be listed. and undivided real property other than that owned by a deceased may be listed. if known. its instrumentalities and political subdivisions. partnership. there shall be prepared and maintained by the provincial. All real property. whether taxable or exempt. valued and assessed in the same manner as that of an individual. under oath. valued and assessed in 666 Sec. The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner. or co-owner shall be liable severally and proportionately for all obligations and the payment of the real property tax with respect to the undivided property. 201 667 Secs.666 b. Such heir. located within the territorial jurisdiction of the local government unit concerned. (d) Real property owned by the Republic of the Philippines.667 c. or against an unknown owner as the case may be. 201-204 209 . to a taxable person. the true value of real property. administrator or their representatives to declare.

670 2) Amendment of schedule of fair market value The provincial. or special in accordance with their zoning ordinances. timberland or special. there shall be prepared a schedule of fair market values by the provincial. industrial. 212 670 Sec. 214 672 Sec. the assessor of the province. The schedule of fair market values shall be published in a newspaper of general circulation in the province. agricultural. city or municipality concerned or in the absence thereof. city or municipal hall and in two other conspicuous public places therein. 205 669 Sec. shall have the power to classify lands as residential. commercial.672 668 Sec. its ownership. act upon the recommendation within ninety (90) days from receipt thereof. administer oaths. commercial. shall be posted in the provincial capitol. Preparation of schedules of fair market value Before any general revision of property assessment is made. agricultural. 215 210 .669 1) Authority of assessor to take evidence For the purpose of obtaining information on which to base the market value of any real property.671 e. real property shall be classified as residential. through their respective sanggunian. mineral. The city or municipality within the Metropolitan Manila Area. 213 671 Sec. industrial. timberland. nature. mineral. city and municipal assessor of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. and value. city or municipal assessor may recommend to the sanggunian concerned amendments to correct errors in valuation in the schedule of fair market values.668 d. by ordinance. and take deposition concerning the property. city or municipality or his deputy may summon the owners of the properties to be affected or persons having legal interest therein and witnesses.the name of the possessor. The sanggunian concerned shall. grantee or of the public entity if such property has been acquired or held for resale or lease. Classes of real property For purposes of assessment. amount.

000.00 30% 1.000. Assessment of real property 1) Assessment levels The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of the sangguniang panlalawigan.000.00 5. 217 211 .000.000.000.000.000. f. Actual use of property as basis of assessment Regardless of where located. whoever owns it.00 2.673 g.000.000.00 750. at the rates not exceeding the following: (a) On Lands: CLASS ASSESSMENT LEVELS Residential 20% Agricultural 40% Commercial 50% Industrial 50% Mineral 50% Timberland 20% (b) On Buildings and Other Structures: (1) Residential Fair market Value Over Not Over Assessment Levels P175.00 0% P175.00 40% 673 Sec.000. sangguniang panlungsod or sangguniang bayan of a municipality within the Metropolitan Manila Area.000.000.00 10% 300.00 25% 750.000.00 35% 2.000.000.00 1. and whoever uses it.000.00 300.00 20% 500.000.00 500.

000.000.00 45% 2.000.000.00 40% 1.000.00 50% (3) Commercial / Industrial Fair Market Value Over Not Over Assessment Levels P300.00 1.000.000.000.000.00 30% 500.000.000.000.000.00 55% 750.000.000.000.00 60% 5.000.00 65% 2.00 70% 212 .00 40% 750.000.00 750.000.000.000.000.000.000.00 2.000.000.00 25% P300.00 50% 1.000.000.000.000.000.5.000.000.00 500.000.00 60% (2) Agricultural Fair Market Value Over Not Over Assessment Levels P300.00 5.000.00 35% 750.000.000.00 70% 5.00 75% 10.000.000.000.000.00 500.000.000.000.00 500.000.000.00 1.000.000.000.000.00 80% (4) Timberland Fair Market Value Over Not Over Assessment Levels P300.00 10.00 10.000.00 35% 500.00 30% P300.000.000.00 750.00 50% 10.00 2.000.00 45% P300.00 2.00 50% 500.00 1.00 60% 2.000.000.00 750.

218 675 Sec. shall be made within ninety (90) 213 . 219 676 The reassessment of real property due to its partial or total destruction.675 3) Date of effectivity of assessment or reassessment Made after the first (1st) day of January of any year . (c) On Machineries Class Assessment Levels Agricultural 40% Residential 50% Commercial 80% Industrial 80% (d) On Special Classes: The assessment levels for all lands buildings. city or municipal assessor shall undertake a general revision of real property assessments.676 674 Sec.shall take effect on the first (1st) day of January of the succeeding year. or to the gross illegality of the assessment when made or to any other abnormal cause. Actual Use Assessment Level Cultural 15% Scientific 15% Hospital 15% Local water districts 10% Government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power 10%674 2) General revisions of assessments and property classification Within two (2) years after the effectivity of this Code and every three (3) years thereafter. or to any great and sudden inflation or deflation of real property values. or to a major change in its actual use. the provincial. machineries and other improvements.

plus charges at the present site. bank and other charges. Collection of real property tax days from the date any such cause or causes occurred. Such taxes shall be computed on the basis of the applicable schedule of values in force during the corresponding period. 677 5) Notification of new or revised assessment When real property is assessed for the first time or when an existing assessment is increased or decreased. arrastre and handling. 214 . 4) Assessment of property subject to back taxes Real property declared for the first time shall be assessed for taxes for the period during which it would have been liable but in no case of more than ten (10) years prior to the date of initial assessment. 679 The cost in foreign currency of imported machinery shall be converted to peso cost on the basis of foreign currency exchange rates as fixed by the Central Bank. the fair market value shall be determined by dividing the remaining economic life of the machinery by its estimated economic life and multiplied by the replacement or reproduction cost. and shall take effect at the beginning of the quarter next following the reassessment. city or municipal assessor shall within thirty (30) days give written notice of such new or revised assessment to the person in whose name the property is declared. 677 Sec. Appraisal and assessment of machinery (a) The fair market value of a brand-new machinery shall be the acquisition cost. h.678 (b) If the machinery is imported.679 5. 222 678 In all other cases. duties and taxes. brokerage. insurance. The notice may be delivered personally or by registered mail or through the assistance of the punong barangay to the last known address of the person to be served. the acquisition cost includes freight. the provincial.

Collection of tax 1) Collecting authority The responsibility of the city or municipal treasurer concerned. whether administrative or judicial. The city or municipal treasurer may deputize the barangay treasurer to collect all taxes on real property located in the barangay: Provided. 215 .682 3) Notice of time for collection of tax On or before the thirty-first (31st) day of January each year or any other date to be prescribed by the sanggunian concerned/ Said notice shall likewise be published in a newspaper of general circulation in the locality once a week for two (2) consecutive weeks. Periods within which to collect real property tax Within five (5) years from the date they become due. Date of accrual of real property tax On the first day of January. 247 682 Sec. an assessment roll containing a list of all persons whose real properties have been newly assessed or reassessed and the values of such properties. 248 683 No action for the collection of the tax.680 b. a. mortgage. shall be instituted after the expiration of such period. on or before the thirty-first (31st) day of December each year.683 Within ten (10) years from discovery . city or municipal assessor shall prepare and submit to the treasurer of the local government unit. c. the barangay treasurer is properly bonded for the purpose and the premium on the bond shall be paid by the city or municipal government concerned.681 2) Duty of assessor to furnish local treasurer with assessment rolls The provincial. or encumbrance of any kind whatsoever.684 680 From that date it shall constitute a lien on the property which shall be superior to any other lien.in case there is fraud or intent to evade payment of the tax. 246) 681 Sec. and shall be extinguished only upon the payment of the delinquent tax (Sec.

686 3) Condonation of real property tax In case of a general failure of crops or substantial decrease in the price of agricultural or agri-based products. interests. d. The owner of the property or the person having legal interest therein requests for reinvestigation and executes a waiver in writing before the expiration of the period within which to collect. the sanggunian concerned. the taxes and interest thereon for the succeeding year or years in the city or municipality affected by the calamity. The owner of the property or the person having legal interest therein is out of the country or otherwise cannot be located 685 Sec. wholly or partially. may condone or reduce. until the delinquent tax shall have been fully paid. The local treasurer is legally prevented from collecting the tax. or calamity in any province. and only after said delinquencies are settled may tax payments be credited for the current period. on or before September Thirty (30). 2. 276 216 . if any. 250 686 Sec. city or municipality. the third installment. In no case shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months. and the last installment on or before December Thirty-first (31st). 255 687 Sec. 687 684 Sec. except the special levy the payment of which shall be governed by ordinance of the sanggunian concerned. and 3. the second installment. Special rules on payment 1) Payment of real property tax in installments The owner of the real property or the person having legal interest therein may pay the basic real property tax and the additional tax for Special Education Fund (SEF) due thereon without interest in four (4) equal installments. the first installment to be due and payable on or before March Thirty-first (31st). on or before June Thirty (30).685 2) Interests on unpaid real property tax Two percent (2%) per month. by ordinance passed prior to the first (1st) day of January of any year and upon recommendation of the Local Disaster Coordinating Council. 270 The period of prescription within which to collect shall be suspended for the time during which: 1. Payments of real property taxes shall first be applied to prior years delinquencies. and penalties.

254) 690 Sec.690 3) Remedies in general The local government unit concerned may avail of the remedies by administrative action thru levy on real property or by judicial action. surcharges and penalties are paid before the expiration of the year for which the tax is due except when the notice of assessment or special levy is contested administratively or judicially. the delinquent real property will be sold at public auction. or municipality. sell and dispose of the real property acquired at public 688 Sec. and may only be extinguished upon payment of the tax and the related interests and expenses. however. subject. when public interest so requires.691 4) Resale of real estate taken for taxes. 277 689 Such notice shall specify the date upon which the tax became delinquent and shall state that personal property may be distrained to effect payment. Remedies of LGUs for collection of real property tax 1) Issuance of notice of delinquency for real property tax payment To be posted at the main hall and in a publicly accessible and conspicuous place in each barangay of the local government unit concerned. It shall likewise state that any time before the distraint of personal property. 256 217 . fees or charges The sanggunian concerned may. enforceable by administrative or judicial action. condone or reduce the real property tax and interest for any year in any province or city or a municipality within the Metropolitan Manila Area. The President of the Philippines may. by ordinance duly approved. to the right of the delinquent owner of the property or any person having legal interest therein to redeem the property within one (1) year from the date of sale (Sec. and unless the tax. and the title to the property will be vested in the purchaser. superior to all liens. charges or encumbrances in favor of any person. city. The notice of delinquency shall also be published once a week for two (2) consecutive weeks. in a newspaper of general circulation in the province. 257 691 Sec. interests and penalties may be made.689 2) Local government’s lien The basic real property tax and any other tax levied constitutes a lien on the property subject to tax. irrespective of the owner or possessor thereof. and upon notice of not less than twenty (20) days. payment of the tax with surcharges.688 e.

694 b. or applied as tax credit against his existing or future tax liability.692 5) Further levy until full payment of amount due Levy may be repeated if necessary until the full amount due. in the case of a municipality within Metropolitan Manila Area. The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial.693 6.auction. the amount or portion of the tax protested shall be refunded to the protestant. city treasurer or municipal treasurer. 265 694 Sec. Payment under protest (a) No protest shall be entertained unless the taxpayer first pays the tax. including all expenses. is collected. who shall decide the protest within sixty (60) days from receipt. 252 218 . (d) In the event that the protest is denied or upon the lapse of the sixty (60) day period prescribed in subparagraph (a). the taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city 692 Sec. There shall be annotated on the tax receipts the words "paid under protest". the taxpayer may appeal. shall be held in trust by the treasurer concerned. Refund or credit of real property tax a. (c) In the event that the protest is finally decided in favor of the taxpayer. (b) The tax or a portion thereof paid under protest. 264 693 Sec. The proceeds of the sale shall accrue to the general fund of the local government unit concerned. Repayment of excessive collections When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted.

The decision of the Central Board shall be final and executory.696 2) Appeal to the Central Board of Assessment Appeals (CBAA) Within thirty (30) days after receipt of the decision of said Board. city or municipal assessor in the assessment of his property may appeal to the Board of Assessment Appeals of the provincial or city by filing a petition under oath in the form prescribed for the purpose. 229 (c).treasurer within two (2) years from the date the taxpayer is entitled to such reduction or adjustment.695 7. Taxpayer’s remedies a. together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. 253 696 Sec. may appeal to the Central Board of Assessment Appeals. the owner of the property or the person having legal interest therein or the assessor who is not satisfied with the decision of the Board.697 3) Effect of payment of tax 695 Sec. The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days from receipt thereof. any owner or person having legal interest in the property who is not satisfied with the action of the provincial. In case the claim for tax refund or credit is denied. Contesting an assessment of value of real property 1) Appeal to the Local Board of Assessment Appeals (LBAA) Within sixty (60) days from the date of receipt of the written notice of assessment. 219 . last par. 226 697 Sec. the taxpayer may appeal.

(6)(a).703 5) Appeal to the SC By filing with the said Court of Appeals a notice of appeal and with the Supreme Court a petition for review. the party adversely affected by said ruling. no decision has as yet been rendered by the Court. Appeal on assessments of real property shall. order or decision. within the aforesaid period. within thirty (30) days from the date he receives notice of the ruling.698 b. under Refund or credit of real property tax. from the expiration of the period fixed by law to act thereon. order or decision may file with said Court a notice of his intention to appeal to the Supreme Court. he fails to perfect his appeal. supra 701 See (a)(2). suspend the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city assessor. supra 702 under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure 703 Sec. the aggrieved party may file directly with the Supreme Court an appeal from said ruling. within thirty (30) days from the filing of said notice of intention to appeal. the said ruling. and if. order or decision. 231 699 See B. order or decision shall become final and conclusive against him. 1125 220 . without prejudice to subsequent adjustment depending upon the final outcome of the appeal. RA No. If. If no decision is rendered by the Court within thirty days from the date a case is submitted for decision. notwithstanding the foregoing provisions of this section. Payment of real property under protest 1) File protest with local treasurer699 2) Appeal to the Local Board of Assessment Appeals700 3) Appeal to the Central Board of Assessment Appeals701 4) Appeal to the CTA By filing a petition for review702 with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction. 11. 698 Sec. in no case. supra 700 See (a)(1).

the Commissioner of Customs. order or decision of the Court of Tax Appeals shall have preference over all other civil proceedings except habeas corpus. the Collector of Internal Revenue.704 IV. B. workmen's compensation and election cases. as amended (TCC) A. or the provincial or city Board of Assessment Appeals concerned may likewise file an appeal therefrom to the Supreme Court in the manner and within the same period as above prescribed for private parties. Tariff and Customs Code of 1978. If any ruling. order or decision of the Court of Tax Appeals be adverse to the Government. General rule: All imported articles are subject to duty. defined Custom duties Tariff Duties which are one charged upon A book of rates. 704 Any proceeding directly affecting any ruling. Tariff and duties. a table or catalogue drawn commodities on their being imported into usually in alphabetical order containing or exported out of a country. the names of several kinds of merchandise with the duties to be paid for the same as settled or agreed upon between several states that holds commerce together. 221 . Importation by the government taxable.

1202 222 . E. and there is unmanifested cargo. 708 Sec. taxes and other charges. All articles when imported from a foreign country including those previously exported from the Philippines are subject to duty unless otherwise specifically provided for in the Tariff and Customs Code or other laws. Requirements of importation 1. D.708 705 Sec.705 C. 401 707 Even if not yet unloaded. general welfare and/or national security upon recommendation of the NEDA (a) to increase. provided the increase should not be higher than 100% ad valorem. taxes and other charges due upon the articles or secured to be paid at a port of entry and the legal permit for withdrawal shall gave been granted or in case said articles are free of duties. (b) to establish import quota or to ban imports of any commodity. in the interest of national economy. Flexible tariff clause A provision in the Tariff and Customs Code. forfeiture may take place because importation has already begun. Importation is deemed terminated upon payment of duties. products from undue competition posed by foreign-made products.706 which implements the constitutionally delegated power to the Congress to further delegate to the President of the Philippines. reduce or remove existing protective rates of import duty. Beginning and ending of importation Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unload707 therein. as well as Phil. 100 706 Sec. among others. until they have legally left the jurisdiction of the customs. and (c) to impose additional duty on all imports not exceeding 10% ad valorem. Purpose for imposition For the protection of consumers and manufacturers.

709 b. Adm. Inc. he is negligent or careless resulting in the commission of excessive discrepancy in the weight of the ship's cargo penalized under the law. pilot. 3. vs.T. 2656. taxes. Commissioner of Customs.. C.A. officer or employee of the vessel. An importer is required to file an import entry. or agent thereof. nonetheless. Declaration of correct weight or value The declaration.A. vs. Inc. if in the exercise or performance of this duty. Inc. Case No.T. Rev. Feb. carelessness or incompetency is. 1977 and cases cited therein. by means of an amendment by the master. 2523 711 See Delgado Shipping Agencies. 1977. Feb.711 Similarly. 274 1. 3rd par. ascertainment or verification of the correct weight of the cargo at the port of loading is the duty or obligation of the master. except after entry of the vessel. 1204 223 . consignee. c. d.712 e. C. Commissioner of Customs. 1228.710 If he omits or disregards this duty and a punishable discrepancy between the declared weight and actual weight of the cargo exists. Macondray & Co. owner. Code 710 Sec. 1977. Import entry It is a declaration to the BOC showing particulars of the imported article that will enable the customs authorities to determine the correct duties. and attached to the original manifest. 2. vs. Macondray & Co. Liability for payment of duties The liability for duties. fees and other charges legally accruing. 2685. fees and other charges attaching on importation constitutes a personal debt due from the importer to the government which can be discharged only by payment in full of all duties. 15. It must be accomplished from disembarking of last cargo from vessel. under oath. January 21. the inevitable conclusion is that he is negligent or careless.. Cargo manifest A cargo manifest shall in no case be changed or altered. It also constitutes a lien upon the articles imported which may be enforced while such articles are in custody or subject to the control of the government. Obligations of importer a. imputable to him. taxes. Case No. C. Case No. Liquidation of duties 709 Sec..A.T. 712 Sec. Commissioner of Customs.

An act of any person who shall: 713 Sec. Keeping of records F. the port from which she arrived. unless the liquidation of the import entry was merely tentative. 1603 716 Sec. the name of the importer. 1604 224 . in the absence of fraud or protest. A daily record must also be kept by the Collector of all additional duties. taxes. be final and conclusive upon all parties. surcharges. where the amount involved is less than five pesos. wharfage and/or other charges paid on entries.713 If to determine the exact amount due under the law. In case of overpayment or underpayment of duties. with subsequent delivery. some future action is required. initiated by the liquidating clerk. 1602 715 Sec. approved by the chief liquidator. and notice shall promptly be sent to the interested parties. and a fraction of a peso amounting to fifty centavos or more shall be considered as one peso. If the Collector shall approve the returns of the appraiser and the report of the weights. Importation in violation of TCC 1. and recorded in the record of liquidations. the liquidation shall be deemed to be tentative as to the item or items affected and shall to that extent be subject to future and final readjustment and settlement. taxes. after the expiration of one year. Smuggling a. wharfage and/or other charges to be paid on entries.715 In determining the total amount of duties. from the date of the final payment of duties. taxes and other charges found upon liquidation. A daily record of all entries liquidated shall be posted in the public corridor of the customhouse. The entry in such case shall be stamped "Tentative liquidation". such entry and passage free of duty or settlement of duties will.714 When articles have been entered and passed free of duty or final adjustment of duties made. stating the name of the vessel or aircraft. the date of her arrival. surcharges. 1601 714 Sec. no refund or collection shall be made. gauge or quantity. the liquidation shall be made on the face of the entry showing the particulars thereof. a fraction of a peso less than fifty centavos shall be disregarded. and the serial number and date of the entry.716 f.

3514 719 Sec. even though previously exported from the Philippines. affidavit. Export contrary to law. be punished by a fine of not less than six hundred pesos nor more than five thousand pesos and by imprisonment for not less than six months nor more than two (2) years. declaration. 101 225 . upon each importation. 3602 720 Sec. Prohibited importation 717 Sec. sell. letter. taxes and other charges accruing from the article or any portion thereof. Classification of goods 1. or 2. conceal or sell such article knowing its illegal importation. shall. affidavit. 1. for each offense. or by means of any false or fraudulent practice whatsoever. conceal.717 4.718 b. written or verbal. Fraudulently import any article contrary to law. or shall be guilty of any willful act or omission by means of whereof the Government might be deprived of the lawful duties. he shall be deported after serving the sentence. Receive. or affected by such act or omission. transport. letter.720 2. will be smuggling. The Philippines is divided into various ports of entry – entry other than port of entry. paper. declaration. or statement.719 G. Taxable importation All articles imported from any foreign country into the Philippines. Assist in so doing. embraced or referred to in such invoice. facilitate. 3601 718 Sec. 2. paper. or by means of any false statement. or 3. except as otherwise specifically provided. buy. Other fraudulent practices Any person who makes or attempts to make any entry of imported or exported article by means of any false or fraudulent invoice. If the offender is an alien.

Written or printed article in any form containing any matter advocating or inciting treason. or in the distribution of money. except when imported by the Government of the Philippines or any person duly authorized by the Collector of Internal Revenue. All other articles the importation of which is prohibited by law. marked cards. Any adulterated or misbranded article of food or any adulterated or misbranded drug in violation of the provisions of the "Food and Drugs Act." i. or any other narcotics or synthetic drugs which are or may hereafter be declared habit forming by the President of the Philippines. insurrection or sedition against the Government of the Philippines. of forcible resistance to any law of the Philippines. for medicinal purposes only. photographs. h. f. gambling outfits. apparatus or mechanical devices used in gambling. Lottery and sweepstakes tickets except those authorized by the Philippine Government. or any printed matter which advertises or describes or gives directly or indirectly information where. loaded dice.721 721 Sec. or containing any threat to take the life of or inflict bodily harm upon any person in the Philippines.1awphil© b. instruments. d. of whatever material. manufactured salt. derivative. except when authorized by law. or alloys thereof. gunpowder. j. Written or printed articles. c. firearm and weapons of war. rebellion. objects. Any article manufactured in whole or in part of gold silver or other precious metal. e. advertisements thereof and lists of drawings therein. opium poppies. machines. intended or adapted for preventing human conception or producing unlawful abortion. how or by whom human conception is prevented or unlawful abortion produced. including jackpot and pinball machines or similar contrivances. Dynamite. paintings. engravings. or preparation thereof. any compound. Roulette wheels. cigars. Opium pipes and parts thereof. drawings or other representation of an obscene or immoral character. Articles. cigarettes or other articles when such distribution is dependent upon chance. Marihuana. k. drugs and substances designed. coca leaves. 102 226 . lithographs. a. g. the stamps brands or marks of which do not indicate the actual fineness or quality of said metals or alloys. ammunitions and other explosives. and detached parts thereof.

3. 5. 722 except buying commissions 227 .722 2. and engineering. apportioned as appropriate. materials consumed in the production of the imported goods. as a condition of sale of the goods to the buyer. b. either directly or indirectly. of the following goods and services: materials. where such goods and services are supplied directly or indirectly by the buyer free of charge or at a reduced cost for use in connection with the production and sale for export of the imported goods. Ad valorem. tools. disposal or use of the imported goods that accrues directly or indirectly to the seller. The value. adjusted by adding: a. whether for labour or materials. development. dies. The cost of packing. design work and plans and sketches undertaken elsewhere than in the Philippines and necessary for the production of imported goods. Classification of duties 1. Cost of containers. The following to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods: 1. Methods of valuation 1) Transaction value The price actually paid or payable for the goods when sold for export to the Philippines. Commissions and brokerage fees. The value of any part of the proceeds of any subsequent resale. Ordinary/Regular duties Imposed on imported articles that enter the country of the Philippines in avoidance with the schedules and classifications provided under the Tariff and Customs Code. a. The amount of royalties and license fees related to the goods being valued that the buyer must pay. parts and similar items incorporated in the imported goods. artwork. components. moulds and similar items used in the production of imported goods. 4. H.

although not alike in all respects. d. amending Sec. 9135. Loading. to persons not related to the persons from whom they buy such goods. "Identical goods" shall mean goods which are the same in all respects. R. The cost of insurance. in the greatest aggregate quantity. "Similar goods" shall mean goods which. the dutiable value shall be the transaction value of identical goods sold for export to the Philippines and exported at or about the same time as the goods being valued. and e. 201 of TCC 724 Sec. The quality of the goods. 1 (B). 228 . subject to deductions for the following: 723 Sec. id. 1 (A). in the same condition as when imported.723 2) Transaction value of identical goods Where the dutiable value cannot be determined under method one.A. including physical characteristics. 725 Sec. 1 (C).725 xxx 4) Deductive value Based on the unit price at which the imported goods or identical or similar imported goods are sold in the Philippines. their reputation and the existence of a trademark shall be among the factors to be considered in determining whether goods are similar. The cost of transport of the imported goods from the port of exportation to the port of entry in the Philippines. unloading and handling charges associated with the transport of the imported goods from the country of exportation to the port of entry in the Philippines. the dutiable value shall be the transaction value of similar goods sold for export to the Philippines and exported at or about the same time as the goods being valued. c. quality and reputation. have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable.724 3) Transaction value of similar goods Where the dutiable value cannot be determined under the preceding method. Id. Minor differences in appearances shall not preclude goods otherwise conforming to the definition from being regarded as identical. at or about the time of the importation of the goods being valued.

insurance fees and other transportation expenses for the importation of the goods.726 xxx 5) Computed value The sum of: (1) The cost or the value of materials and fabrication or other processing employed in producing the imported goods.727 xxx 6) Fallback value If the dutiable value cannot be determined under the preceding methods described above. id. and (3) Where appropriate. the costs and charges referred to in subsection (A) (3). it shall be determined by using other reasonable means and on the basis of data available in the Philippines. (1) Either the commissions usually paid or agreed to be paid or the additions usually made for profit and general expenses in connection with sales in such country of imported goods of the same class or kind. (3) The freight. 1 (E). 1 (D). (4) and (5). 726 Sec. and (5) The cost of containers and packing. id. if their values are not included under paragraph (1) hereof. and (4) The customs duties and other national taxes payable in the Philippines by reason of the importation or sale of the goods. (4) Any assist. the importer shall be informed in writing of the dutiable value determined under Method Six and the method used to determine such value. If the importer so requests. 229 . (2) The usual costs of transport and insurance and associated costs incurred within the Philippines. (2) The amount for profit and general expenses equal to that usually reflected in the sale of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to the Philippines. 727 Sec. if its value is not included under paragraph (1) hereof.

Countervailing duties 728 Sec. Specific Duty based on the dutiable weight of goods number or measurement. 2. a. or (7) Arbitrary or fictitious values. (6) Minimum customs values. Amount of special duty: extent of the underpricing. 230 . upon the recommendation of the Tariff Commission when: a. and national interest. other than computed values. b. No dutiable value shall be determined under Method Six on the basis of: (1) The selling price in the Philippines of goods produced in the Philippines. and b. (4) The cost of production. Special duties Imposed in addition to regular or ordinary duties principally in order to protect local industries against unfair competition from foreign manufacturers or procedures.728 b. that have been determined for identical or similar goods in accordance with Method Five hereof. (3) The price of goods in the domestic market of the country of exportation. (2) A system that provides for the acceptance for customs purposes of the higher of two alternative values. 1 (F). Importation would cause or likely cause and injury to local industries engaged in the manufacture or production of the same or similar articles or prevent their establishment. consumer against possible deceptions. The price of the imported article is deliberately or continually fixed at less than the fair market value or cost of production. id. (5) The price of goods for export to a country other than the Philippines. Dumping duties Imposed by the Secretary of Finance.

Act No. The importation is likely to insure materially established local industries or prevent their establishments. 8800. the importation of which has caused or threatens to cause material injury to a domestic industry or has materially relaided the growth or. The levy of an excise tax or inland tax or local goods of the same or similar class as the article imported or the grant of subsidy to the foreign exporter by his government. 730 Purpose: To prevent possible deception of the consumers. collected by the commissioner. 732 as provided under Rep. July 8. e. prevents the establishment of a domestic industry. Government 729 R. Additional tariffs.732 The DTI Secretary cannot impose the safeguard measures if the Tariff Commission does not favorably recommend its imposition.. including tariffs. G. to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them. the Safeguard Measures Act (SMA) (Southern Cross Cement Corporation v. The Philippine Cement Manufacturers Corp. 729 c. R. 8751 Requisites: 1.A. Marking duties Special duty of five percent (5%) ad valorem imposed or articles properly marked. Remedies 1.731 The CTA is vested with jurisdiction to review decisions of the Secretary of Trade and Industry imposing safeguard measures. et al. 731 Safeguard measures that may be imposed.730 d. Retaliatory/Discriminatory duties Imposed on imported goods whenever it is found as a fact that the country of origin discriminates against the commerce of the Philippines in such a manner as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country. No. I. Special duty imposed on imported articles which are granted any kind or form of subsidy by the government in the country or origin or exportation. and 2. import quotas or banning of imports. Safeguard Safeguard measures are emergency measures. Amount of special duty: Equal to the bounty or subsidy or subvention. 2004) 231 .. 158540. except when such article is exported or destroyed under the customs supervision and prior to final liquidation of the corresponding entry.

port patrol officers and guards of the Bureau of Customs. seizure. Any person especially authorized in writing by the Commissioner.734 It shall be within the power of a customs official or person authorized as aforesaid. assistant collectors. forfeiture. c. articles.733 Persons acting under authority conferred pursuant to subsection (e) may exercise their authority within the limits of the collection district only and in or upon the particular vessel or aircraft. and shall be governed by the same law as other officers exercising police authority in general. and also to arrest any person subject to arrest for violation of any customs and tariff laws. collectors. Officers generally empowered by law to effect arrests and execute processes of courts. b. the following persons are authorized to effect searches. Any person especially authorized by a Collector. 2203 734 Sec. deputy collectors. seizures and arrests conformably with the provisions of said laws: a. and the original shall be filed in the customhouse of the district where made. arrest For the enforcement of the customs and tariff laws. All other persons exercising the powers hereinabove conferred may exercise the same at any place within the jurisdiction of the Bureau of Customs. 2205. to make seizure of any vessel. and it shall be his duty. or in the particular place. All such appointments shall be in writing. cargo. in the exercise thereof. Persons exercising the powers hereinabove conferred shall. Officials of the Bureau of Customs.735 733 Sec. 232 . a. inspectors. Officers of the Philippine Navy when authorized by the Commissioner. animal or other movable property when the same is subject to forfeiture or liable for any fine imposed under customs and tariff laws. have the same authority. or in respect to the particular article specified in the appointment. surveyors. Administrative/Extrajudicial 1) Search. be entitled to the proper protection. subject to restrictions. when acting under direction of the Collector. e. security and secret-service agents. d. 2204 735 Sec. aircraft.

or search any land or enclosure or any warehouse. not being a dwelling house. store or other building. A dwelling house may be entered and searched only upon warrant issued by a judge or justice of the peace. 2209 233 . if demanded. and if it shall appear that any breach or violation of the customs and tariff laws of the Philippines has been committed. and if his authority is derived from special authorization in writing to exhibit the same for inspection. 2207. and to search any person on board the said vessel or aircraft and to this end to hail and stop such vessel or aircraft if under way. bulkhead or other obstruction. or any part thereof. partition. so far as may be necessary to enable the officer to discover whether any dutiable or forfeitable articles may be concealed therein. package. nor will the fact that his family stays there with him alter the case. upon sworn application showing probable case and particularly describing the place to be searched and person or thing to be seized. to make seizure of the same or any part thereof. pass through.737 For the more effective discharge of his official duties. 738 Sec. on board of or imported by such vessel or aircraft. 2206 737 Sec. to use all necessary force to compel compliance. box or envelope on board. whereby or in consequence of which such vessels or aircrafts.738 A warehouse. The power of search shall extend to the removal of any false bottom. search and examine said vessel or aircraft and any trunk.739 It shall be lawful for any official or person exercising police authority under these provisions to go aboard any vessel or aircraft within the limits of any collection district. seizure or arrest which may be lawfully made or attempted by him. and to inspect. 2208. store or other building or enclosure used for the keeping of storage of articles does not become a dwelling house within the meaning hereof merely by reason of the fact that a person employed as watchman lives in the place. upon being questioned at the time of the exercise thereof.736 Any person exercising police authority under the customs and tariff laws may demand assistance of any police officer when such assistance shall be necessary to effect any search. It shall be the duty of any police officer upon whom such requisition is made to give such lawful assistance in the matter as may be required. 736 Sec. It shall be the duty of any person exercising authority as aforesaid. 739 Sec. is liable to forfeiture. or the article. to make known his official character as an officer or official of the Government. any person exercising the powers herein conferred. may at anytime enter.

envelope or other container. 2211 742 Sec. 2210 741 Sec.743 When a seizure is made for any cause. conditioned for the payment of the appraised value of the article and/or any fine. search and examine any vehicle. wherever found where he has reasonable cause to suspect the presence therein of dutiable or prohibited article or articles introduced into the Philippines contrary to law. 2301 744 Sec.744 The Collector shall give the owner or importer of the property or his agent a written notice of the seizure and shall give him an opportunity to be heard in reference to the delinquency which was the occasion of such seizure. The articles the importation of which is prohibited by law shall not be released under bond. 2302 234 .740 It shall also be lawful for a person exercising authority as aforesaid to open and examine any box. expenses and costs which may be adjudged in the case. the Collector of the district wherein the seizure is effected shall immediately make report thereof to the Commissioner and to the Auditor General. Female inspectors may be employed for the examination and search of persons of their own sex. trunk. consignee or person holding the bill of lading shall be deemed to be the "owner" of the article included in the bill. and if the owner or importer desires to secure the release of the property for legitimate use. 2212 743 Sec. For the purpose of giving such notice and of all other proceedings in the matter of such seizure. and likewise to stop. the importer. beast or person reasonably suspected of holding or conveying such article as aforesaid. 740 Sec. the Collector may surrender it upon the filing of a sufficient bond. No proceeding herein shall give rise to any claim for the damage thereby caused to article or vessel or aircraft. the Collector shall issue a warrant for the detention of the property.741 All persons coming into the Philippines from foreign countries shall be liable to detention and search by the customs authorities under such regulations as may be prescribed relative thereto. in an amount to be fixed by him.742 Upon making any seizure.

and all liability which may or might attach to the property by virtue of the offense which was the occasion of the seizure and all liability which might have been incurred under any bond given by the owner or agent in respect to such property shall thereupon be deemed to be discharged. such property shall be forthwith surrendered. to be selected by him for that purpose. in the absence of such officials. no owner or agent can be found or appears before the Collector. 2305 748 supra 749 Sec.749 If. 2303 746 Sec. while the case is yet before the Collector of the district of seizure.750 745 Sec. if the owner or his agent in fact is unknown or cannot be reached.747 If. which list and appraisement shall be properly attested to by such Collector and the persons making the appraisal. the latter shall declare the property forfeited to the government to be sold at auction in accordance with law. within fifteen days after the notification prescribed in section twenty-three hundred and four748 of this Code. if after appeal of the case. in the discretion of the Commissioner. in any seizure case. For the same purpose. shall pay the appraised value of the property. then by two competent and disinterested citizens of the Philippines. by publication in a newspaper or by such other means as he shall consider desirable.745 Notice to an unknown owner shall be effected by posting a notice for fifteen days in the public corridor of the customhouse of the district in which the seizure was made. 2307 235 . and. if there are such officials at or near the place of seizure. or.746 The Collector shall also cause a list and particular description of the property seized to be prepared and an appraisement or classification of the same at its wholesale value in the local market in the usual wholesale quantities to be made by at least two appraising officials. 2304 747 Sec. "agent" shall be deemed to include not only any agent in fact of the owner of the seized property but also any person having responsible possession of the property at the (missing) of the seizure. shall pay the appraised value of the property. pay to such Collector the fine imposed by him or. in case of forfeiture. 750 Sec. the owner or agent shall. or. residing at or near the place of seizure. 2306. Redemption of forfeited property shall not be allowed in any case where the importation is absolutely prohibited or where the surrender of the property to the person offering to redeem the same would be contrary to law. he shall pay to the Commissioner the amount of the fine as finally determined by him. in case of forfeiture.

the party adversely affected may protest such ruling or decision by presenting to the Collector at the time when payment of the amount claimed to be due the Government is made. The scope of a protest shall be limited to the subject matter of a single adjustment or other independent transaction.753 Every protest shall point out the particular decision or ruling of the Collector to which exception is taken or objection made. or within thirty (30) days thereafter. and shall indicate with reasonable precision the particular ground or grounds upon which the protesting party bases his claim for relief. Unless an appeal is made to the Court of Tax Appeals. except as to matters correctible for manifest error. 751 Sec. or other money charge is determined. No protest shall be considered unless payment of the amount due after final liquidation has first been made. except the fixing of fines in seizure cases. Judicial 1) Rules on appeal including jurisdiction The party aggrieved by a ruling of the Commissioner in any matter brought before him upon protest or by his action or ruling in any case of seizure may appeal to the Court of Tax Appeals. shall make a protest. a written protest setting forth his objections to the ruling or decision in question. 2309 236 . the interested party who desires to have the action of the Collector reviewed. 2308 753 Sec. but any number of issues may be raised in a protest with reference to the particular item or items constituting the subject matter of the protest. fees.752 In all cases subject to protest. the action or ruling of the Commissioner shall be final and conclusive. together with the reasons therefor.751 2) Taxpayer a. Protest When a ruling or decision of the Collector is made whereby liability for duties. b. the action of the Collector shall be final and conclusive against him. otherwise. 2402 752 Sec.

2312 757 Sec. modify or reverse the action or decision of the Collector and take such steps and make such orders as may be necessary to give effect to his decision. surcharges or fines incident thereto. importers filing protests involving questions of fact must. in whole or in part. give written notice to the Collector of his desire to have the matter reviewed by the Commissioner.759 b.757 Notice of the decision of the Commissioner shall be given to the party by whom the case was brought before him for review. the Collector.755 When a protest in proper form is presented in a case where protest in required. in the opinion of the department head. shall in writing make a declaration of forfeiture or fix the amount of the fine or take such other action as may be proper. after a hearing.754 If the nature of the articles permit. the Collector shall reexamine the matter thus presented. the latter may order a reliquidation. and if the protest is sustained. In seizure cases.756 The person aggrieved by the decision or action of the Collector in any matter presented upon protest or by his action in any case of seizure may. Such samples shall be verified by the custom official who made the classification against which the protest are filed. he shall enter the appropriate order. upon demand. the department head may require the Commissioner to order a reliquidation. fees. 2310 755 Sec. and in seizure cases such notice shall be effected by personal service if practicable. 2311 756 Sec. supply the Collector with samples of the articles which are the subject matter of the protests. who shall approve. 2314 759 Sec. "Single adjustment" refers to the entire content of one liquidation. and the Commissioner shall be of the opinion that the ruling was erroneous and unfavorable to the Government. the entry reliquidated if necessary. within fifteen (15) days after notification in writing by the Collector of his action or decision. including all duties. be erroneous and unfavorable to the Government. 2313 758 Sec. Thereupon the Collector shall forthwith transmit all the records of the proceedings to the Commissioner. 2315 237 . Abandonment 754 Sec.758 If in any case involving the assessment of duties the importer shall fail to protest the ruling of the Collector. and if the ruling of the Commissioner in any unprotested case should.

when it is made direct to the Collector by the interested party in writing. abandon to the Government all or a part of the articles included in an invoice. within ten (10) days after filing of the import entry. and. The article so abandoned shall be delivered by the owner or importer at such place within the port of arrival as the Collector shall designate. the owner or importer shall be liable for all expenses that may be incurred in connection with the disposition of the articles. The portion so abandoned is not less than ten per cent (10%) of the total invoice and is not less than one package. thereupon. 1801 761 Sec. are paid. reclaim such article provided all legal requirements regarding its importation are complied with and the corresponding duties. An implied abandonment shall not be effective until the article is declared by the Collector to have been abandoned after notice thereof is given to the interested party as in seizure cases. and upon his failure to so comply. at any time before it is sold or otherwise disposed of. he shall be relieved from the payment of duties. Implied – when an intention to abandon can be clearly inferred from the action or omission of the interested party. Any person who abandons an imported article renounces all his interests and property rights therein.761 The owner or importer of an article impliedly abandoned may. taxes and all other charges and expenses due thereon.760 The owner or importer of any articles may. taxes and other charges as well as all expenses incurred as a consequence of the abandonment. Abatement and refund 760 Sec. Nothing shall be construed as relieving such owner or importer from any criminal liability which may arise from any violation of law committed in connection with the importation of the abandoned article. The failure of any interested party to file the import entry within fifteen days or any extension thereof from the discharge of the vessel or aircraft shall be implied abandonment. Express .762 c. 1802 762 Sec. 1803 238 . except in cases of articles imported for personal or family use.

or loss by theft. While in transit under bond from the port of entry to any port in the Philippines. as called for by the invoice shall be found to exist. 1702 765 Sec. and upon the production of proof satisfactory to the Collector showing that the shortage occurred before the arrival of the article in the Philippines. the duty shall be correspondingly abated by him. No abatement of duties shall be made on account of damage incurred or deterioration suffered during the voyage of importation. and may likewise make a corresponding allowance or credit on the entry bond. c. 1705 239 . or of part of the contents thereof. or other document. upon opening any package. such deficiency shall be certified to the Collector by the appraiser. as shown by the return of weighers. cause an examination and report in writing to be made as to any fact discovered during 763 Sec.766 Where it is satisfactorily shown to the Collector that an animal which is the subject of importation dies or suffers injury before arrival. measures. a remission or refund of the duty thereon shall be made if it is shown by proof satisfactory to the Collector that the package or packages in question have not been imported into the Philippines. except in case of loss by theft. abatements or refunds of duties. b. upon satisfactory proof of the injury.765 A Collector may abate or refund the amount of duties accruing or paid. While remaining in customs custody after unlading. a deficiency or absence of any article. While within the limits of any port of entry prior to unlading under customs supervision. and duties will be assessed on the actual quantity imported. 1701 764 Sec. While released under bond to export. examiners or appraisers. 1703 766 Sec.764 If. the proper abatement or refund of the duty shall be made. or while in customs custody. provided the carcass of any dead animal remaining on board or in customs custody be removed in the manner required by the Collector and at the expense of the importer.763 When any package or packages appearing on the manifest or bill of lading are missing. 1704 767 Sec. gaugers.767 The Collector shall in all cases of allowances. fire or other causes of any article as follows: a. destruction. as the case may be. d.

and if found to be correct and in accordance with law. 1707 771 Sec. if such errors be discovered before the payment of duties. shall certify the same to the Commissioner with his recommendation together with all necessary papers and documents. the Collector is authorized to reliquidate entries and collect additional charges. 1708 240 . Upon receipt by the Commissioner of such certified claim he shall cause the same to be paid if found correct. and forwarded to the Collector to whom such duties are paid. measure and gauge.such examination which tends to account for the discrepancy or difference and cause the corresponding adjustment to be made on the import entry. when duly certified to by the surveyor or examining official769 and errors in the distribution of charges on invoices not involving any question of law and certified to by the examining official. 1706 769 when there are such officials at the port 770 Sec.771 768 Sec. or upon statement of error certified by the Collector. may be corrected in the computation of duties. who upon receipt of such claim shall verify the same by the records of his office.768 Manifest clerical errors made in an invoice or entry. For the purpose of correcting the specified errors. if discovered within one year after the final liquidation. upon written request and notice of error from the importer. or to make refunds on statement of error within the statutory time limit. errors in return of weight.770 All claims for refund of duties shall be made in writing. or.

241 . Bureau of Customs. Department of Finance. as amended. Judicial Remedies772 A. 772 Republic Act 1125. Department of Agriculture. National Internal Revenue Code 2. Department of Trade and Industry. These findings are binding upon the Supreme Court and in the absence of strong reasons for the court to delve on facts. and the Revised Rules of the Court of Tax Appeals The Court of Tax Appeals (CTA) is a court of special appellate jurisdiction and a part of our judicial system. The proceedings therein are judicial in nature although the Court is not bound by the technical rules of evidence. (Purakan Plantation Co. 1966) It is a regular court vested with exclusive appellate jurisdiction over cases arising under the: 1. Cases within the jurisdiction of the Court en banc (a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over: (1) Cases arising from administrative agencies – Bureau of Internal Revenue. Jurisdiction of the Court of Tax Appeals 1.V. Domingo L-18571. Exclusive appellate jurisdiction over civil tax cases a. its findings will not be ordinarily be reviewed absent a showing of gross error or abuse on its part. only questions of law are open for determination. Assessment law The CTA is a highly specialized body specially created for the purpose of reviewing tax cases. Tariff and Customs Code 3. vs. 29 Oct.

charges and penalties. and (h) Decisions. fees or other charges. Sec. 773 Rule 4. and (3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original jurisdiction involving final and executory assessments for taxes. (d) Decisions. where the principal amount of taxes and penalties claimed is less than one million pesos.773 b. Cases within the jurisdiction of the Court in divisions (a) Exclusive original or appellate jurisdiction to review by appeal the following: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments. resolutions or orders of the Regional Trial Courts in tax collection cases decided or resolved by them in the exercise of their appellate jurisdiction. (g) Decisions. (c) Decisions. (b) Decisions. 2. fees. resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over tax collection cases. refunds of internal revenue taxes. Revised Rules of the Court Of Tax Appeals 242 . resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs. resolutions or orders of the Regional trial Courts in the exercise of their appellate jurisdiction over criminal offenses mentioned in subparagraph (f). resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in the exercise of their appellate jurisdiction. (f) Decisions. (2) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction. resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding subparagraph. (e) Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals.

resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in the exercise of their original jurisdiction. the Secretary of Trade and Industry. In the case of claims for refund of taxes erroneously or illegally collected. or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. the taxpayer may appeal such final decision to the Court under Section 3(a). penalties in relation thereto. or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. the Secretary of Finance. Should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned. where the National Internal Revenue Code or other applicable law provides a specific period for action. (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments. In case of disputed assessments. or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty (30) days after receipt of a copy of such decision or ruling. seizure. detention or release of property affected. Rule 8775 of these Rules. the taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the taxes. 776 supra 243 . fines. ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes. (4) Decisions of the Commissioner of Customs in cases involving liability for customs duties. fees or other charges. penalties in relation thereto. the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229776 of the National Internal Revenue Code. In case of inaction of the Commissioner of Internal revenue on claims for refund of internal revenue taxes erroneously or illegally collected. or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. (3) Decisions. the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228774 of the National Internal revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case. fees or other money charges. or by a decision or ruling of the Commissioner of Customs. or 774 supra 775 A party adversely affected by a decision. refunds of internal revenue taxes. the Secretary of Agriculture. forfeitures of other penalties in relation thereto.

778 respectively. (5) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs adverse to the Government under Section 2315777 of the Tariff and Customs Code. and (6) Decisions of the Secretary of Trade and Industry. — If in any case involving the assessment of duties the importer shall fail to protest the ruling of the Collector. involving dumping and countervailing duties under Section 301 and 302. 778 supra 244 . exclusive of charges and penalties. and (2) Appellate jurisdiction over appeals from the judgments. where the principal amount of taxes and fees. where the principal amount of taxes and fees. in the case of nonagricultural product. commodity or article. and if the ruling of the Commissioner in any unprotested case should. and the Secretary of Agriculture. be erroneous and unfavorable to the Government. resolutions or orders of the Regional Trial Courts in their original jurisdiction in criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs. exclusive of charges and penalties. to wit: (1) Original jurisdiction in tax collection cases involving final and executory assessments for taxes. (b) Exclusive jurisdiction over cases involving criminal offenses. commodity or article. fees. the latter may order a reliquidation. where the principal amount of taxes and fees. claimed is one 777 Supervisory Authority of Commissioner And of Department Head in Certain Cases. to wit: (1) Original jurisdiction over all criminal offenses arising from violations of the National internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue of the Bureau of Customs. and safeguard measures under Republic Act No. in the opinion of the department head. of the Tariff and Customs Code. other matters arising under the Customs Law or other laws administered by the Bureau of Customs. in the case of agricultural product. claimed is one million pesos or more. claimed is less than one million pesos or where there is no specified amount claimed. (c) Exclusive jurisdiction over tax collections cases. charges and penalties. exclusive of charges and penalties. where either party may appeal the decision to impose or not to impose said duties. the department head may require the Commissioner to order a reliquidation. and the Commissioner shall be of the opinion that the ruling was erroneous and unfavorable to the Government. 8800.

Judicial action for collection of taxes a. Exclusive original jurisdiction Over all criminal cases arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the BIR or the Bureau of Customs Where the principal amount of taxes and fees. resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them within their respective territorial jurisdiction. resolutions or orders of the RTC in tax cases originally decided by them. The criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall. in their respective territorial jurisdiction.the offenses or penalties shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. Revised Rules of the Court Of Tax Appeals 245 . Exclusive appellate jurisdiction in criminal cases Over appeals from the judgments. Municipal Trial Courts. and no right to reserve the filing of such civil action separately from the criminal action will be recognized. 00) or where there is no specified amount claimed . at all times. exclusive of charges and penalties claimed is less than one million pesos (P1. and Municipal Circuit Trial Courts in their respective jurisdiction. b. Internal revenue taxes 779 Rule 4. Over petitions for review of the judgments. and (2) Appellate jurisdiction over appeals from the judgments. be simultaneously instituted with. 3. Sec. Criminal cases a. the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action. 000.779 2. resolutions. and jointly determined in the same proceeding by the CTA. million pesos or more. Judicial Procedures 1.000. or orders of the RTC in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts. B.

or effects. R. Upon the issuance of any ruling. A party adversely affected by a ruling. 2. This remedy shall not be exclusive and shall not preclude the Court from availing of other means under the Rules of Court. 9282 781 See Reference 782 Ibid. Who may appeal. Civil cases a. Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42781 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided. as amended by Sec. A Division of the CTA shall hear the appeal: With respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 43782 of the 1997 Rules of Civil Procedure with the CTA. ruling or inaction of the Commissioner of Internal Revenue. the Secretary of Finance. and the personal property. mode of appeal. orders or decisions filed with the CTA as provided for in Section 7 shall be raffled to its Divisions. order or decision by the CTA favorable to the national government. bank accounts. credits. 9 of RA No. 13. and interests in and rights to personal property and/or levy the real property of such persons in sufficient quantity to satisfy the tax or charge together with any increment thereto incident to delinquency. debts. 1125. effect of appeal Any party adversely affected by a decision. through the Commissioner to seize and distraint any goods.780 b.A. No. from the expiration of the period fixed by law to act thereon. All other cases involving rulings. 246 . Local taxes 1) Prescriptive period Five (5) years from date of assessment. chattels. which shall hear the case en banc. the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein. order or decision of a Division of the CTA may file a motion for reconsideration of 780 Sec. the CTA shall issue an order authorizing the Bureau of Internal Revenue. the Commissioner of Customs. including stocks and other securities.

1125. distraint. 1958) 247 . 784 as amended by Sec. 11 of RA No. or any issue thereof. 11 of R. when the determination of a question of fact arises 783 Sec. id. When in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.” 785 Appeal to the CTA does not automatically suspend collection unless CTA issues suspension order at any stage of proceedings. GR No. March 29. No. the Secretary of Trade and Industry and Secretary of Agriculture. Sec. levy. In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act. 218 of the Tax Code provides that “no court may grant injunction to restrain collection of any tax. 9 of RA No. L- 11295.783 1) Suspension of collection of tax a) Injunction not available to restrain collection Sec. However.A. the general rule applicable in regular Courts on matters of prosecution and appeal shall likewise apply. 2) Taking of evidence The Court may direct that a case. however. and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law. 1125784 grants CTA power to suspend collection of tax if such collection works to serious prejudice of either taxpayer or government. fee or charge imposed by Tax Code. That in criminal cases. as the case may be shall suspend the payment. be assigned to one of its members for the taking of evidence. provincial.new trial before the same Division of the CTA within fifteens (15) days from notice thereof: Provide. city or municipal treasurer or the Secretary of Finance. the Government may directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction. Rodriguez. No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court. 9282 785 The provision in the Tax Code refers to courts other than the CTA (Blaquera vs.

adopting. 788 The Court en banc shall act on the appeal. en banc No civil proceeding involving matter arising under the National Internal Revenue Code.790 "A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial. id. stating his findings and conclusions. c. and thereafter. or when the determination of an issue of fact requires the examination of a long account.) 248 . 4 (b).789 b.786 3) Motion for reconsideration or New trial A party adversely affected by a decision or resolution of a Division of the Court on a motion for reconsideration or new trial may appeal to the Court by filing before it a petition for review within fifteen days from receipt of a copy of the questioned decision or resolution. R. 1125 787 Sec. Revised Rules of the CTA 790 Sec. or when the taking of an account is necessary. Petition for review on certiorari to the Supreme Court A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme Court a verified petition for review on certiorari. or receive further evidence. until and unless an appeal has been previously filed with the CTA and disposed of. 791 pursuant to Rule 45 of the 1997 Rules of Civil Procedure (Sec. 3 (b). Appeal to the CTA. the Court shall render its decisions on the case. 19.A. modifying. 18. or rejecting the report or the Court may recommit it with instructions. may file a petition for review with the CTA en banc. The hearing before such member shall proceed in all respects as though the same had been made before the Court. Revised Rules of the CTA 788 as provided in Rule 43 of the Rules of Court 789 Sec.upon motion or otherwise in any stage of the proceedings.791 786 Sec. Id. 787 An appeal from a decision or resolution of the Court in Division on a motion for reconsideration or new trial shall be taken to the Court by petition for review. 12. Upon proper motion and the payment of the full amount of the docket and other lawful fees and deposit for costs before the expiration of the reglementary period herein fixed. Upon the recommendation of such hearing of such member. the Tariff and Customs Code or the Local Government Code shall be maintained. the Court may grant an additional period not exceeding fifteen days from the expiration of the original period within which to file the petition for review. he shall promptly submit to the Court his report in writing.

Rule 111. Criminal cases a. No right to reserve the filing of such civil action separately from the criminal action shall be allowed or recognized. Appeal and period to appeal 1) Solicitor General as counsel for the People and government officials sued in their official capacity The Solicitor General shall represent the People of the Philippines and government officials sued in their official capacity in all cases brought to the Court in the exercise of its appellate jurisdiction. Petition for review on certiorari to the Supreme Court A party adversely affected by a decision or ruling of the Court en banc may appeal therefrom by filing with the Supreme Court a verified petition for review on certiorari within fifteen (15) days from receipt of a copy of the decision or resolution.792 b. Such duly deputized legal officers shall remain at all times under the direct control and supervision of the Solicitor General.794 If such party has filed a motion for reconsideration or for new trial. sec. id. 1a.795 792 Rule 9.. 3. He may deputized the legal officers of the Bureau of Internal Revenue in cases brought under the National Internal Revenue Code or other laws enforced by the Bureau of Internal Revenue. Rules of Court 793 Sec. Institution and prosecution of criminal actions 1) Institution on civil action in criminal action In cases within the jurisdiction of the Court.793 c. 794 as provided in Rule 45 of the Rules of Court 795 Rule 16. the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall be deemed jointly instituted in the same proceeding. id. id. par. 11. 10. to appear in behalf of the officials of said agencies sued in their official capacity. The filing of the criminal action shall necessarily carry with it the filing of the civil action. 1. Sec. 249 . or the legal officers of the Bureau of Customs in cases brought under the Tariff and Customs Code of the Philippines or other laws enforced by the Bureau of Customs. Sec. the period herein fixed shall run from the party’s receipt of a copy of the resolution denying the motion for reconsideration or for new trial. 1[a]..

February 14. v. Jr.796 b." 798 Abaya v.797 c. That the petitioner seeks to restrain respondents from wasting public funds through the enforcement of an invalid or unconstitutional law. 250 . Guingona) 797 Beauchamp v. of every citizen to interfere and see that a public offence be properly pursued and punished. Inc. 232 SCRA 110 Requisites for a taxpayer’s petition: 1. however…the people are the real parties…It is at least the right. Taxpayer’s suit impugning the validity of tax measures or acts of taxing authorities a. C. and that a public grievance be remedied. No. defined A case where the act complained of directly involves the illegal disbursement of public funds derived from taxation. The Supreme Court has discretion whether or not to entertain taxpayers suit and could brush aside lack of locus standi (Kilos Bayan vs. Requisites for challenging the constitutionality of a tax measure or act of taxing authority 1) Concept of locus standi as applied in taxation It is a party’s personal and substantial interest in the case." With respect to taxpayer’s suits. he is but the mere instrument of the public concern. G. It calls for more than just a generalized grievance. such that the party has sustained or will sustain direct injury as a result of the government act being challenged. Collins: "In matters of mere public right. dissenting in Kilosbayan. 167919. R.. while in the latter. if not the duty. Jordan held that "the right of a citizen and a taxpayer to maintain an action in courts to restrain the unlawful use of public funds to his injury cannot be denied. Distinguished from citizen’s suit The plaintiff in a taxpayer’s suit is in a different category from the plaintiff in a citizen’s suit. That money is being extracted and spent in violation of specific constitutional protections against abuses of legislative power 2. the plaintiff is affected by the expenditure of public funds. Taxpayer’s suit. Terr v. Guingona.799 796 Justice Melo. Silk As held by the New York Supreme Court in People ex rel Case v. 2007 799 Ibid.798 A party need not be a party to the contract to challenge its validity. That public money is being deflected to any improper purpose 3. Ebdane. In the former.

.R. Vitug. 415. Hence. 427-428 (1998). 3) Ripeness for judicial determination In our jurisdiction. the character of the funds or other assets involved in the case. v. Arroyo. Ermita G. House of Representatives. the petitioner must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision of the Court. Court of Appeals. 904 (2000). they have been allowed to sue under the principle of "transcendental importance.801 An alternative road to review similarly taken would be to determine whether an action has already been accomplished or performed by a branch of government before the courts may step in. etc. v. (Francisco vs.. etc. 830. v. 169777 (2006)) 801 Guingona. 171396 (2006) An issue is of transcendental importance because of the following: 1. 802 Francisco. 400 Phil. the lack of any other party with a more direct and specific interest in raising the question. 415 SCRA 44."800 The doctrine applies when paramount public interest is involved.802 To be ripe for judicial adjudication. 354 Phil. a question is ripe for adjudication when the act being challenged has had a direct adverse effect on the individual challenging it. separate opinion 251 . No.R. the issue of ripeness is generally treated in terms of actual injury to the plaintiff. 460 Phil. Senate v. G. Purisima. the presence of a clear disregard of a constitutional or statutory prohibition by an instrumentality of the government. Jr. 2. No. and 3. 901-902 (2003). 803 ABAKADA Guro Party List. House of Representatives. J.803 800 David v. 2) Doctrine of transcendental importance The Court has adopted a rule that even where the petitioners have failed to show direct injury. Secretary of Environment and Natural Resources. citing Cruz v.. Jr.

32 (B)(6)(a) Retirement benefits received under Republic Act No. . gratuity. Reference National Internal Revenue Code of the Phils.804 Sec. wherein contributions are made by 804 R. That the benefits granted under this subparagraph shall be availed of by an official or employee only once. stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees. In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. whether individual or corporate. 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability. his application shall not be considered unless and until he waives in writing his privilege under Republic Act No. 8424. the term 'reasonable private benefit plan' means a pension. 24 Sec. 7641 and those received by officials and employees of private firms. the Commissioner is hereby authorized to inquire into the bank deposits of: (1) a decedent to determine his gross estate. 1405 and other general or special laws. 6. 1405 or under other general or special laws. further.A. Sec. and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer. and (2) any taxpayer who has filed an application for compromise of his tax liability under Sec. For purposes of this Subsection. as amended 252 . That the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement: Provided. in accordance with a reasonable private benefit plan maintained by the employer: Provided.Notwithstanding any contrary provision of Republic Act No. xxx (F) Authority of the Commissioner to inquire into Bank Deposit Accounts.

(2) Contributions of the employer for the benefit of the employee to retirement. (3) Benefits given to the rank and file employees. 1998. - 253 . insurance and hospitalization benefit plans. (9) Educational assistance to the employee or his dependents. thirty- three percent (33%) effective January 1. 1998. the following: (1) Housing.such employer for the officials or employees. That fringe benefit furnished to employees and taxable under Subsections (B). 33. (D). 58. whether an individual or a corporation (unless the fringe benefit is required by the nature of. 1999.For purposes of this Section. (C) Fringe Benefits Not Taxable. The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57 (A) of this Code.. sixty-seven percent (67%) effective January 1. and (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. whether granted under a collective bargaining agreement or not. such as maid. or when the fringe benefit is for the convenience or advantage of the employer). (2) Expenseaccount. SEC. dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations. (8) Holiday and vacation expenses. 2000 and thereafter: Provided. and (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance.A final tax of thirty-four percent (34%) effective January 1. The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by sixty-six percent (66%) effective January 1. and thirty-two percent (32%) effective January 1. the term "fringe benefit" means any good.The following fringe benefits are not taxable under this Section: (1) fringe benefits which are authorized and exempted from tax under special laws. (D) and (E) of Section 25 shall be taxed at the applicable rates imposed thereat: Provided. or be diverted to. 2000 and thereafter. driver and others. (3) Vehicle of any kind. and wherein its is provided in said plan that at no time shall any part of the corpus or income of the fund be used for. Returns and Payment of Taxes Withheld at Source. but not limited to. or both. SEC. Special Treatment of Fringe Benefit. is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees as defined herein) by the employer. further. (4) Household personnel. for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated.. (7) Expenses for foreign travel. (B) Fringe Benefit defined. That the grossed -Up value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) and the applicable rates of income tax under Subsections (B). business or profession of the employer. 1999. and (E) of Section 25. or necessary to the trade. any purpose other than for the exclusive benefit of the said officials and employees. (C). upon recommendation of the Commissioner. . however. service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees as defined herein) such as. and sixty-eight percent (68%) effective January 1. (C). (5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. (6) Membership fees.- (A) Imposition of Tax.

if the income tax collected at source is less than the tax due on his return. a written statement showing the income or other payments made by the withholding agent during such quarter or year. simultaneously upon payment at the request of the payee. the return shall be filed on or before January 31 of the succeeding year. That the Commissioner. grant to any withholding agent a reasonable extension of time to furnish and submit the return required in this Subsection. or not later than March 1 of the following year in the case of individual payee for creditable withholding taxes. shall be sufficient compliance with the requirements of Section 68 of this Title in respect to the income payments. The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the government until paid to the collecting officers. or where the withholding agent is a corporation. For final withholding taxes. and for creditable withholding taxes.No registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner or his duly authorized 254 . (E) Registration with Register of Deeds.Income upon which any creditable tax is required to be withheld at source under Section 57 shall be included in the return of its recipient but the excess of the amount of tax so withheld over the tax due on his return shall be refunded to him subject to the provisions of Section 204. the statement should be given to the payee on or before January 31 of the succeeding year. (B) Statement of Income Payments Made and Taxes Withheld. but not late than the twentieth (20th) day following the close of the quarter in the case of corporate payee. .Taxes deducted and withheld under Section 57 by withholding agents shall be covered by a return and paid to. with the approval of the Secretary of Finance. where the principal office is located. The Commissioner may. All taxes withheld pursuant to the provisions of this Code and its implementing rules and regulations are hereby considered trust funds and shall be maintained in a separate account and not commingled with any other funds of the withholding agent. In the case of final withholding taxes. an authorized Treasurer of the city or municipality where the withholding agent has his legal residence or principal place of business. if made and filed in accordance with the rules and regulations approved by the Secretary of Finance.Every withholding agent required to deduct and withhold taxes under Section 57 shall submit to the Commissioner an annual information return containing the list of payees and income payments. The return for final withholding tax shall be filed and the payment made within twenty-five (25) days from the close of each calendar quarter. upon recommendation of the Commissioner. and the amount of the tax deducted and withheld therefrom. . the difference shall be paid in accordance with the provisions of Section 56. . (A) Quarterly Returns and Payments of Taxes Withheld. .Every withholding agent required to deduct and withhold taxes under Section 57 shall furnish each recipient. amount of taxes withheld from each payee and such other pertinent information as may be required by the Commissioner. This return. in respect to his or its receipts during the calendar quarter or year. while the return for creditable withholding taxes shall be filed and the payment made not later than the last day of the month following the close of the quarter during which withholding was made: Provided. (C) Annual Information Return. except in cases where the Commissioner otherwise permits. (D) Income of Recipient. not later than March 1 of the year following the year for which the annual report is being submitted. by rules and regulations. . may require these withholding agents to pay or deposit the taxes deducted or withheld at more frequent intervals when necessary to protect the interest of the government.

if any. however.The phrase "foreign currency denominated sale" means sale to a nonresident of goods. Declaration of Quarterly Corporate Income Tax. pursuant to a merger. That in cases of transfer of property to a corporation. processing. The tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year. shall be levied. packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). and where the law allows deferred recognition of income in accordance with Section 40. . . That the information as may be required by rules and regulations to be prescribed by the Secretary of Finance. 226. except those mentioned in Sections 149 and 150.. 106 (a) Export Sales. paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax. upon recommendation of the Commissioner. consolidation or reorganization. shall be annotated by the Register of Deeds at the back of the Transfer Certificate of Title or Condominium Certificate of Title of the real property involved: Provided.The term "export sales" means: (1) The sale and actual shipment of goods from the Philippines to a foreign country. That any violation of this provision by the Register of Deeds shall be subject to the penalties imposed under Section 269 of this Code. whether calendar or fiscal year. the information as may be required by rules and regulations to be prescribed by the Secretary of Finance. (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP).representative has certified that such transfer has been reported. (2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing. Sec. collected and paid. (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. finally. shall be annotated by the Register of Deeds in the Transfer Certificate of Title or Condominium Certificate of Title: Provided. further. and other special laws. upon recommendation of the Commissioner. and the capital gains or creditable withholding tax. (3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production. 255 . and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). as provided in Title II of this Code. irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services. . (b) Foreign Currency Denominated Sale. and (5) Those considered export sales under Executive Order NO. has been paid: Provided. otherwise known as the Omnibus Investment Code of 1987. 75. Sec. assembled or manufactured in the Philippines for delivery to a resident in the Philippines.

- (1) Persons or firms engaged in the processing of sardines. Refunds or Tax Credits of Input Tax. 112. creditable against the output tax. SEC. 108 (B) Transactions Subject to Zero Percent (0%) Rate. . As used in this Subsection. - 256 . (1) Processing. . canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition. upon recommendation of the Commissioner. mackerel and milk. the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).Sec. subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of finance.A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall. (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate. equivalent to one and one-half percent (1 1/2%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. (2) Public works contractors shall be allowed a presumptive input tax equivalent to one and one-half percent (1 1/2%) of the contract price with respect to government contracts only in lieu of actual input taxes therefrom.registered persons shall be subject to zero percent (0%) rate. and (5) Services performed by subcontractors and/or contractors in processing. of manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production. Transitional/Presumptive Input Tax Credits. materials and supplies equivalent for eight percent (8%) of the value of such inventory or the actual value-added tax paid on such goods. (B) Presumptive Input Tax Credits.The following services performed in the Philippines by VAT. the term "processing" shall mean pasteurization. and in manufacturing refined sugar and cooking oil. whichever is higher. which shall be creditable against the output tax. 111. ` (4) Services rendered to vessels engaged exclusively in international shipping. shall be allowed a presumptive input tax. materials and supplies. (2) Services other than those mentioned in the preceding paragraph. SEC. where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). converting. be allowed input tax on his beginning inventory of goods. - (A) Transitional Input Tax Credits. manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported.

whose sales are zero-rated or effectively zero-rated may. except transitional input tax.Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of being countersigned by the Chairman. within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period. to the extent that such input taxes have not been applied against output taxes. . 113. Commission on audit. . In addition to the information required under Section 237.any VAT-registered person. and 257 .- (E) Manner of Giving Refund. within two (2) years from the date of cancellation. apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. or due to changes in or cessation of status under Section 106(C) of this Code may. (A) Zero-Rated or Effectively Zero-Rated Sales. . the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided. appeal the decision or the unacted claim with the Court of Tax Appeals.A VAT-registered person shall. however. In case of full or partial denial of the claim for tax refund or tax credit. or the failure on the part of the Commissioner to act on the application within the period prescribed above. (2) and (B) and Section 108 (B)(1) and (2). . and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions. - (A) Invoicing Requirements. .In proper cases. for every sale. (B) Capital Goods. SEC.A person whose registration has been cancelled due to retirement from or cessation of business. That in the case of zero-rated sales under Section 106(A)(2)(a)(1). (D) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. (C) Cancellation of VAT Registration. Invoicing and Accounting Requirements for VAT-Registered Persons. . it shall be allocated proportionately on the basis of the volume of sales. That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services. the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person. followed by his taxpayer's identification number (TIN). That refunds under this paragraph shall be subject to post audit by the Commission on Audit. further. the provisions of the Administrative Code of 1987 to the contrary notwithstanding: Provided. to the extent that such input tax has not been applied against output tax: Provided. apply for the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes. the taxpayer affected may. the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of compete documents in support of the application filed in accordance with Subsections (A) and (B) hereof. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made.A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased. within two (2) years after the close of the taxable quarter when the sales were made. issue an invoice or receipt.

00 or more but less than 200.00 13.00 10.200. in addition to the regular accounting records required. maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded.00 2.000.000.00 or more but less than 500. (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax.000.000.000.000. Tax on Business.000.000.500.000.000.000.000.000.00 30.00 100.100.500.00 3. brewers.000.850.00 6.00 8.00 or more but less than 3. repackers.000.00 or more at a rate not exceeding thirty-seven and a half percent (37½%) of one percent (1%) 258 .00 1.000. in accordance with the following schedule: With gross sales or receipts for the preceding Amount of Tax Per calendar year in the amount of: Annum Less than 10.00 or more but less than 2.000.000.750. .00 3.000. and compounders of liquors.000.00 or more but less than 75.00 or more but less than 300.00 500.000.000.00 5.000. and wines or manufacturers of any article of commerce of whatever kind or nature.00 or more but less than 6.000.00 4.000.00 16.00 750.00 440.00 or more but less than 150.00 75. 143. assemblers. distilled spirits.00 or more but less than 15.375.000.00 300.00 or more but less than 5. processors.000.00 or more but less than 50.00 20.000.00 825.00 or more but less than 40.00 1.000. all persons subject to the value-added tax under Sections 106 and 108 shall.00 220.00 5.650.00 1. (B) Accounting Requirements.00 15.000.000.000.000.00 165.000.00 or more but less than 4.000.00 202.00 660. distillers.00 or more but less than 750. rectifiers. .00 P 10. The subsidiary journals shall contain such information as may be required by the Secretary of Finance.000.000.00 or more but less than 30.00 150.00 23.000.000.00 19.000.000.000.00 50.000.00 2.00 or more but less than 1.000.000.00 40.00 or more but less than 100.750.320.000.The municipality may impose taxes on the following businesses: (a) On manufacturers.500.00 2. Sec.000.00 200.00 or more but less than 20.000.000.000.000.Notwithstanding the provisions of Section 233.000.00 24.

00 or more but less than 2.00 or more but less than 150.00 8.00 660.00 or more but less than 8.00 440.00 1.000.00 or more but less than 10.00 4.00 or more but less than 40.000.00 or more at a rate not exceeding fifty percent (50%) of one percent (1%). (c) On exporters.00 990.000.00 or more but less than 6.00 143. (b) On wholesalers. distributors.000.000.000.000.00 or more but less than 100.00 or more but less than 7.00 30.00 33.000.00 3.000.00 7.000. dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (½) of the rates prescribed under subsection (a).00 2.00 or more but less than 1.00 10. distributors.00 750.000.000.000.000.000.00 or more but less than 750.000.00 or more but less than 50.00 or more but less than 30.000.00 P 1.00 500.000.000.000.00 50.00 75.00 or more but less than 75.000. millers.000.000.000.420.00 18. or dealers in any article of commerce of whatever kind or nature in accordance with the following schedule: With gross sales or receipts for the preceding Amount of Tax Per calendar year in the amount of: Annum Less than 1.000.00 275.00 100.00 10.000.00 1. and on manufacturers .00 20.00 6.00 165.00 or more but less than 5.000.000.00 or more but less than 4. wholesalers.000.000.000.000. 259 .000.00 or more but less than 3.00 3.000.00 or more but less than 500.000.000.000.00 150.00 2.300.00 121.00 330.00 187.00 300.000.000.600. (b) and (d) of this Section: (1) Rice and corn.00 2.00 4.00 or more but less than 15.000.00 or more but less than 300.000.000.000.00 40.00 50.000.00 200.000.000.000.000.000.00 15.00 1.00 or more but less than 200.00 72.00 8.870.00 5. producers.00 6.00 or more but less than 20.400.320.000.00 or more but less than 2.00 220.00 100.000.800.

00 or more but less than 50.000. processed or preserved food.00 or less 2% more than P400.000. in accordance with the following schedule: With gross sales or receipts for the preceding Amount of Tax Per calendar year in the amount of: Annum Less than 5. whether in their original state or not.000.00 275. herbicides and other farm inputs. (7) School supplies. insecticides.00 or more but less than 30. and medicine. detergents. equipment and post-harvest facilities.000. (d) On retailers.00 61. fertilizers.00 20.000.000. dairy products. (6) Poultry feeds and other animal feeds. and (8) Cement.00 or more but less than P 10. With gross sales or receipts for the preceding Rate of Tax Per calendar year in the amount of: Annum P400.00 27.60 10. That barangays shall have the exclusive power to levy taxes. on gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P50.000.000.000.000. (2) Wheat or cassava flour.000. (3) Cooking oil and cooking gas.000.00 or more but less than 15.00) or less. (4) Laundry soap.00 or more but less than 100.000. in the case of cities.00 550.00 50. in the case of municipalities.000. as provided under Section 152 hereof. meat.000.000. (e) On contractors and other independent contractors. (5) Agricultural implements.00 880.50 15.00 40.000.000.50 P 5.00) or less.00 385. pesticides.00 1.000.00 or more but less than 75. salt and other agricultural.00 165. marine. sugar.000. locally manufactured.00 or more but less than 20.00 260 .00 1% Provided. and fresh water products.00 75.320.00 or more but less than 40. however.00 104. and Thirty thousand pesos (P30.000.00 30.

. (h) On any business.00 or more but less than 300.000.00) per peddler annually.00 200. style.00 6.000.00 500.000. The registration shall contain the taxpayer's name.00 11. (g) On peddlers engaged in the sale of any merchandise or article of commerce.00 4.00 10. which the sanggunian concerned may deem proper to tax: Provided.160.000.980.000. or (2) On or before the commencement of business.000.250. at a rate not exceeding fifty percent (50%) of one percent (1%) on the gross receipts of the preceding calendar year derived from interest. 261 .000. income from financial leasing. insurance premium. the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.00 or more but less than 150.000.000.00 150.Every person subject to any internal revenue tax shall register once with the appropriate Revenue District Officer: (1) Within ten (10) days from date of employment.000.00 250.00 1.00 750.000. place of residence.000. 236. SEC.620.000.00 1.00 or more but less than 750. 100.00 or more but less than 2. business and such other information as may be required by the Commissioner in the form prescribed therefor.000.00 or more but less than 250. at a rate not exceeding Fifty pesos (P50.00 or more but less than 500.00 or more but less than 400. dividends. - (A) Requirements.00 400.000.000.500.000.250.000. not otherwise specified in the preceding paragraphs. value- added or percentage tax under the National Internal Revenue Code.000.000.00 or more but less than 1.00 2.00 2. or (4) Upon filing of a return. The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed herein.000. statement or declaration as required in this Code.00 9.00 8.00 or more but less than 200.or (3) Before payment of any tax due. commissions and discounts from lending activities. That on any business subject to the excise. rentals on property and profit from exchange or sale of property.640.000.00 3.250. as amended. Registration Requirements.630.000.00 or more at a rate not exceeding fifty percent (50%) of one percent (1%) (f) On banks and other financial institutions.00 300.

That cooperatives.In case a registered person decides to transfer his place of business or his head office or branches. for administrative reasons. or to the Revenue Collection Officer. or duly authorized Treasurer of the city of municipality where each place of business or branch is registered. (F) Cancellation of Registration. In any case. (H) Persons Becoming Liable to the Value-added Tax. update his registration information with the Revenue District Office where he is registered. (B) Annual Registration Fee.Any person registered in accordance with this Section shall. . and shall updates such registration of any changes in accordance with Subsection (E) hereof. not later than ten (10) days before the beginning of the taxable quarter and shall pay the annual registration fee prescribed in Subsection (B) hereof. specifying therein any change in type and other taxpayer details. . The registration fee shall be paid to an authorized agent bank located within the revenue district. branch or facility shall register with the Revenue District Officer having jurisdiction over the head office. it shall be his duty to update his registration status by filing an application for registration information update in the form prescribed therefor. (C) Registration of Each Type of Internal Revenue Tax. the Commissioner may. (E) Other Updates. and overseas workers are not liable to the registration fee herein imposed. 262 . shall register with the Revenue District Office which has jurisdiction over the head office or branch and shall pay the annual registration fee prescribed in Subsection (B) hereof. .An annual registration fee in the amount of Five hundred pesos (P500) for every separate or distinct establishment or place of business. including facility types where sales transactions occur. (D) Transfer of Registration. (b). the term "facility" may include but not be limited to sales outlets. individuals earning purely compensation income. who opts to register as a VAT taxpayer with respect to his export sales only.Any person. .Any person whose transactions are exempt from value-added tax under Section 109(z) of this Code. shall file a return and shall pay such taxes. whose gross sales or receipts in any 12-month period exceeds the amount prescribed under Subsection 109(z) of this Code for exemption from the value-added tax shall register in accordance with Subsection (A) hereof. places of production. who expects to realize gross sales or receipts subject to value-added tax in excess of the amount prescribed under Section 109(z) of this Code for the next 12- month period from the commencement of the business. . (G) Persons Commencing Business.Every person who is required to register with the Bureau of Internal Revenue under Subsection (A) hereof.A person maintaining a head office. (c). whether locally or abroad. (I) Optional Registration of Exempt Person. warehouses or storage places. whenever applicable. however. brand or facility. . For purposes of this Section. . may update his registration information in accordance with Subsection (E) hereof.The registration of any person who ceases to be liable to a tax type shall be cancelled upon filing with the Revenue District Office where he is registered an application for registration information update in a form prescribed therefor. shall register each type of internal revenue tax for which he is obligated. and (d) of this Code. deny any application for registration including updates prescribed under Subsection (E) hereof. or any person whose transactions are exempt from the value-added tax under Section 109(a). and shall pay the annual registration fee prescribed within ten (10) days after the end of the last month of that period.Any person. shall be paid upon registration and every year thereafter on or before the last day of January: Provided. and shall be liable to the value-added tax commencing from the first day of the month following his registration. .

upon recommendation of the Commissioner. and which he shall indicate in certain documents. (2) Domestic bills of lading. the administrator or executor shall register the estate of the decedent in accordance with Subsection (A) hereof and a new Taxpayer Identification Number (TIN) shall be supplied in accordance with the provisions of this Section. statement or other document shall be supplied with or assigned a Taxpayer Identification Number (TIN) which he shall indicate in such return. All persons subject to an internal revenue tax shall. where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax.Any person required under the authority of this Code to make. refined sugar release order or similar instruments. (5) Documents to be registered with the Securities and Exchange Commission. Any person who shall secure more than one Taxpayer Identification Number shall be criminally liable under the provision of Section 275 on 'Violation of Other Provisions of this Code or Regulations in General'. showing the date of transaction. (6) Building construction permits.00) or more. the executor or administrator of the estate shall register the estate with the Revenue District Office where he is registered: Provided. prepared at least in duplicate. registration of the estate shall be made with the Taxpayer Identification Number (TIN) supplied by the Revenue District Office having jurisdiction over his legal residence. (4) Registration certificate of transportation equipment by land. or where the receipt is issued 263 . Only one Taxpayer identification Number (TIN) shall be assigned to a taxpayer. In the case of a nonresident decedent.For purposes of Title IV of this Code. That in case such executor or administrator is not registered. however. unit cost and description of merchandise or nature of service: Provided. That in the case of sales. (3) Documents to be registered with the Register of Deeds of Assessor's Office. Sec. but not limited to the following: (1) Sugar quedans. issue duly registered receipts or sales or commercial invoices. render or file a return. or other financial intermediaries. statement or document filed with the Bureau of Internal Revenue for his proper identification for tax purposes. receipts or transfers in the amount of One hundred pesos (P100. (7) Application for loan with banks. In cases where a registered taxpayer dies.00) or more. for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25. . (J) Supplying of Taxpayer Identification Number (TIN). (9) Application for business license with the Department of Trade & Industry. or regardless of the amount. any person who has registered value-added tax as a tax type in accordance with the provisions of Subsection (C) hereof shall be referred to as VAT-registered person who shall be assigned only one Taxpayer Identification Number. quantity. such as. (8) Application for mayor's permit. financial institutions. 237. Issuance of Receipts or Sales or Commercial Invoices. sea or air. however. and (10) Such other documents which may hereafter be required under rules and regulations to be promulgated by the Secretary of Finance.

upon recommendation of the Commissioner. further. exempt any person subject to internal revenue tax from compliance with the provisions of this Section.000. receipts or income. - (A) For Violations of the National Internal Revenue Code. finally. commissions. in meritorious cases. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods. 264 . or other public official or employee. customer or client at the time the transaction is effected.Any person. and address of the purchaser. . SEC. receipts or invoices shall be issued which shall show the name. shall constitute prima facie evidence of a false or fraudulent return: Provided. or a substantial overstatement of deductions. customer or client: Provided. whichever is lower. receipts or income or for overstatement of deductions. That should no revenue. and a claim of deductions in an amount exceeding (30%) of actual deductions. also in his place of business. if engaged in business or in the exercise of profession. or in case a false or fraudulent return is willfully made. as determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance. any payment has been made on the basis of such return before the discovery of the falsity or fraud: Provided. shall be rewarded in a sum equivalent to ten percent (10%) of the revenues. surcharges or fees be actually recovered or collected. – xxx (B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations. while the duplicate shall be kept and preserved by the issuer. 248. or the Secretary of Finance or any of his deputies or agents: Provided. such person shall not be entitled to a reward: Provided. That a substantial underdeclaration of taxable sales. shall render the taxpayer liable for substantial underdeclaration of sales. further. the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser. as mentioned herein. business style. The same amount of reward shall also be given to an informer where the offender has offered to compromise the violation of law committed by him and his offer has been accepted by the Commissioner and collected from the offender: Provided. thereby resulting in the recovery of revenues. The original of each receipt or invoice shall be issued to the purchaser. leading to the discovery of frauds upon the internal revenue laws or violations of any of the provisions thereof. receipts or income in an amount exceeding thirty percent (30%) of that declared per return. SEC. or his relative within the sixth degree of consanguinity. who voluntarily gives definite and sworn information. who. in case. further. shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued. in addition to the information herein required. for a like period. agents or examiners. That the information mentioned herein shall not refer to a case already pending or previously investigated or examined by the Commissioner or any of his deputies. That where the purchaser is a VAT-registered person.to cover payment made as rentals. surcharges or fees recovered and/or fine or penalty imposed and collected or One Million Pesos (P1. That failure to report sales. The Commissioner may. That the reward provided herein shall be paid under rules and regulations issued by the Secretary of Finance. if any. not yet in the possession of the Bureau of Internal Revenue. 282. compensations or fees. the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax.000) per case. except an internal revenue official or employee. surcharges and fees and/or the conviction of the guilty party and/or the imposition of any of the fine or penalty. Civil Penalties.

(B) For Discovery and Seizure of Smuggled Goods. — A party desiring to appeal from a decision of the Regional Trial Court rendered in the exercise of its appellate jurisdiction may file a verified petition for review with the Court of Appeals. all public officials. the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review. or different divisions thereof. if there is such other action or proceeding. paying at the same time to the clerk of said court the corresponding docket and other lawful fees. or any other tribunal or agency. Form and contents. How appeal taken. or any other tribunal or agency. depositing the amount of P500. the specification of errors of fact or law. and shall (a) state the full names of the parties to the case. certified correct by the clerk of court of the Regional Trial Court. whether incumbent or retired. time for filing. whichever is lower. The petition shall be filed and served within fifteen (15) days from notice of the decision sought to be reviewed or of the denial of petitioner's motion for new trial or reconsideration filed in due time after judgment. The petitioner shall also submit together with the petition a certification under oath that he has not theretofore commenced any other action involving the same issues in the Supreme Court. and the reasons or arguments relied upon for the allowance of the appeal. and if he should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court. (n) 265 . — The petition shall be filed in seven (7) legible copies. the Court of Appeals. he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days therefrom.To encourage the public to extend full cooperation in eradicating smuggling. (d) be accompanied by clearly legible duplicate originals or true copies of the judgments or final orders of both lower courts.00 for costs. (b) indicate the specific material dates showing that it was filed on time. the Court of Appeals or different divisions thereof. ------------------------------------------------------------------------------------------------------------------- RULES OF COURT RULE 42 Petition for Review From the Regional Trial Courts to the Court of Appeals Section 1. the requisite number of plain copies thereof and of the pleadings and other material portions of the record as would support the allegations of the petition. allegedly committed by the Regional Trial Court. (n) Section 2. and furnishing the Regional Trial Court and the adverse party with a copy of the petition.000. he must state the status of the same. Upon proper motion and the payment of the full amount of the docket and other lawful fees and the deposit for costs before the expiration of the reglementary period. are prohibited from claiming informer's reward. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. shall be given to persons instrumental in the discovery and seizure of such smuggled goods. at a rate of ten percent (10%). or both. (c) set forth concisely a statement of the matters involved. the issues raised. collected as a final withholding tax. who acquired the information in the course of the performance of their duties during their incumbency. The provisions of the foregoing Subsections notwithstanding. a cash reward equivalent to ten percent (10%) of the fair market value of the smuggled and confiscated goods or One Million Pesos (P1.000) per case. with the original copy intended for the court being indicated as such by the petitioner. The cash rewards of informers shall be subject to income tax. without impleading the lower courts or judges thereof either as petitioners or respondents. .

Action on the petition. prosecuted manifestly for delay. R41) (b) Except in civil cases decided under the Rule on Summary Procedure. (n) Section 4. (n) Section 8. — Whenever the Court of Appeals deems it necessary. — If the petition is given due course. not a motion to dismiss. it may accordingly give due course to the petition. Submission for decision. However. accompanied by certified true copies of such material portions of the record referred to therein together with other supporting papers and shall (a) state whether or not he accepts the statement of matters involved in the petition. Contents of comment. and (c) state the reasons why the petition should not be given due course. the Regional Trial Court may issue orders for the protection and preservation of the rights of the parties which do not involve any matter litigated by the appeal. — The Court of Appeals may require the respondent to file a comment on the petition. — (a) Upon the timely filing of a petition for review and the payment of the corresponding docket and other lawful fees. (a) Section 6. Due course. or these Rules shall provide otherwise. the law. (9a. the appeal shall stay the judgment or final order unless the Court of Appeals. it may order the clerk of court of the Regional Trial Court to elevate the original record of the case including the oral and documentary evidence within fifteen (15) days from notice. before the Court of Appeals gives due course to the petition. Elevation of record. the deposit for costs. proof of service of the petition. the appeal is deemed perfected as to the petitioner. Section 3. The case shall be deemed submitted for decision upon the filing of the last pleading or memorandum required by these Rules or by the court itself. within ten (10) days from notice. or dismiss the petition if it finds the same to be patently without merit. order execution pending appeal in accordance with section 2 of Rule 39. or after the expiration of the period for the filing thereof without such comment or pleading having been submitted. (n) Section 5. and allow withdrawal of the appeal. — The failure of the petitioner to comply with any of the foregoing requirements regarding the payment of the docket and other lawful fees. (n) RULE 43 266 . — If upon the filing of the comment or such other pleadings as the court may allow or require. Effect of failure to comply with requirements. (n) Section 7. Perfection of appeal. The Regional Trial Court loses jurisdiction over the case upon the perfection of the appeals filed in due time and the expiration of the time to appeal of the other parties. and the contents of and the documents which should accompany the petition shall be sufficient ground for the dismissal thereof. or that the questions raised therein are too insubstantial to require consideration. permit appeals of indigent litigants. approve compromises. (b) point out such insufficiencies or inaccuracies as he believes exist in petitioner's statement of matters involved but without repetition. — The comment of the respondent shall be filed in seven (7) legible copies. the Court of Appeals may set the case for oral argument or require the parties to submit memoranda within a period of fifteen (15) days from notice. (a) Section 9. the Court of Appeals finds prima facie that the lower court has committed an error of fact or law that will warrant a reversal or modification of the appealed decision. effect thereof. A copy thereof shall be served on the petitioner.

(n) Section 5. Insurance Commission. — The appeal shall be taken within fifteen (15) days from notice of the award. Contents of the petition. Upon the filing of the petition. of law. Energy Regulatory Board. Period of appeal. Only one (1) motion for reconsideration shall be allowed. Securities and Exchange Commission. the petitioner shall pay to the clerk of court of the Court of Appeals the docketing and other lawful fees and deposit the sum of P500. or of the denial of petitioner's motion for new trial or reconsideration duly filed in accordance with the governing law of the court or agency a quo. — The petition for review shall (a) state the full names of the parties to the case. judgment. (n) Section 2. — This Rule shall not apply to judgments or final orders issued under the Labor Code of the Philippines. The petition shall state the specific material dates showing that it was filed within the period fixed herein. Land Registration Authority. How appeal taken. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. The original copy of the petition intended for the Court of Appeals shall be indicated as such by the petitioner. the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review. (b) contain a concise statement of the facts and issues involved and the grounds relied upon for the review. Government Service Insurance System. Upon proper motion and the payment of the full amount of the docket fee before the expiration of the reglementary period. and voluntary arbitrators authorized by law. If the Court of Appeals denies the motion. if publication is required by law for its effectivity. Central Board of Assessment Appeals. Department of Agrarian Reform under Republic Act No. together with certified true copies of such material portions of the record referred to therein and other supporting papers. or mixed questions of fact and law. Where to appeal. judgment. Civil Aeronautics Board. the petitioner shall pay the docketing and other lawful fees and deposit for costs within fifteen (15) days from notice of the denial. Philippine Atomic Energy Commission. Cases not covered. or from the date of its last publication. Bureau of Patents. National Electrification Administration. and (d) contain a sworn certification against forum shopping as provided in the last paragraph of section 2. (c) be accompanied by a clearly legible duplicate original or a certified true copy of the award. final orders or resolutions of or authorized by any quasi- judicial agency in the exercise of its quasi-judicial functions. (2a) 267 . Board of Investments. Agricultural Invention Board. — Appeal shall be taken by filing a verified petition for review in seven (7) legible copies with the Court of Appeals. Exemption from payment of docketing and other lawful fees and the deposit for costs may be granted by the Court of Appeals upon a verified motion setting forth valid grounds therefor.00 for costs. — This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards. 6657. National Telecommunications Commission.Appeals From the Court of Tax Appeals and Quasi-Judicial Agencies to the Court of Appeals Section 1. Social Security Commission. Construction Industry Arbitration Commission. whether the appeal involves questions of fact. Scope. Employees Compensation Commission. — An appeal under this Rule may be taken to the Court of Appeals within the period and in the manner herein provided. (n) Section 4. (n) Section 6. final order or resolution appealed from. judgments. (n) Section 3. with proof of service of a copy thereof on the adverse party and on the court or agency a quo. Among these agencies are the Civil Service Commission. Office of the President. Rule 42. Trademarks and Technology Transfer. without impleading the court or agencies either as petitioners or respondents. final order or resolution.

judgment. the Court of Appeals may set the case for oral argument or require the parties to submit memoranda within a period of fifteen (15) days from notice. (n) Section 11. final order or resolution sought to be reviewed. (n) Section 8. and proof of such service shall be filed with the Court of Appeals. the Court of Appeals may require the court or agency concerned to transmit the original or a legible certified true copy of the entire record of the proceeding under review. Effect of failure to comply with requirements. or that the questions raised therein are too unsubstantial to require consideration. it shall dismiss the same. — The failure of the petitioner to comply with any of the foregoing requirements regarding the payment of the docket and other lawful fees. proof of service of the petition. Due course. The record to be transmitted may be abridged by agreement of all parties to the proceeding. it may give due course to the petition. Submission for decision. or dismiss the petition if it finds the same to be patently without merit. — Within fifteen (15) days from notice that the petition has been given due course. Transmittal of record. Section 7. Action on the petition. The findings of fact of the court or agency concerned. — If upon the filing of the comment or such other pleadings or documents as may be required or allowed by the Court of Appeals or upon the expiration of the period for the filing thereof. Contents of comment. shall be binding on the Court of Appeals. and (b) state the reasons why the petition should be denied or dismissed. — The appeal shall not stay the award. (9a) Section 10. (n) 268 . final order or resolution sought to be reviewed unless the Court of Appeals shall direct otherwise upon such . the deposit for costs. (10a) Section 13. within ten (10) days from notice. when supported by substantial evidence. and on the records the Court of Appeals finds prima facie that the court or agency concerned has committed errors of fact or law that would warrant reversal or modification of the award. — The Court of Appeals may require the respondent to file a comment on the petition not a motion to dismiss. — The comment shall be filed within ten (10) days from notice in seven (7) legible copies and accompanied by clearly legible certified true copies of such material portions of the record referred to therein together with other supporting papers. A copy thereof shall be served on the petitioner. Effect of appeal. — If the petition is given due course. otherwise. and the contents of and the documents which should accompany the petition shall be sufficient ground for the dismissal thereof. judgment.terms as it may deem just. (6a) Section 9. The comment shall (a) point out insufficiencies or inaccuracies in petitioner's statement of facts and issues. prosecuted manifestly for delay. (8a) Section 12. The Court of Appeals may require or permit subsequent correction of or addition to the record. The case shall be deemed submitted for decision upon the filing of the last pleading or memorandum required by these Rules or by the court of Appeals.