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 benefts 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.
axation is a symbiotic relationship, whereby in exchange for
the protection that the citi!ens get from the government, taxes are
paid.
"
2. Nature of Taxation
1. It is an inherent attribute of sovereignty
2. It is legislative in character
3. Characteristics of Taxation
1. he power of taxation is an incident of sovereignty as it is
inherent in the #tate, belonging as a matter of right to every
independent government. It does need constitutional conferment.
$onstitutional provisions do not give rise to the power to tax but
merely impose limitations on what would otherwise be an invincible
power. %o attribute of sovereignty is more pervading, and at no point
does the power of government a&ect more constantly and intimately
all the relations of life than through the exactions made under it.
'

2. he power to tax is inherent in the #tate, and the #tate is free
to select the object of taxation, such power being exclusively vested in
the legislature, except where the $onstitution provides otherwise.
(

he $ongress may by law authori!e the )resident to fx within
specifed limits, and subject to such limitations and restrictions as it
may impose, tari& rates, import and export *uotas, tonnage and
wharfage dues, and other duties or imposts within the framework of
the national development program of the +overnment.
,ach 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 $ongress may provide,
consistent with the basic policy of local autonomy. #uch taxes, fees,
and charges shall accrue exclusively to the local governments.
-
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. ; Art. VI, Sec. 28. !"r. 2.
4 Art. X, Sec.
1
(. It is subject to $onstitutional and inherent limitations. hence,
it is not an absolute power that can be exercised by the legislature
anyway it pleases.
4. Power of Taxation Compared With Other Powers
1. )olice )ower
2. )ower of ,minent /omain
axation )olice )ower
,minent
/omain
)urpose
0aising revenue
)romote public
welfare
aking of property
for
thru regulations public use
Amount of exaction
%o limit
1
2
e
n
e
f
i
t
s

r
e
c
e
i
v
e
d
%o
exaction,
compens
ation
paid by
the
governm
ent
%o special or direct
b %/irec
t
bene
ft
results
in the
form
of
just
comp
ensat
ion
he impairment rule
subsist
ransfer of
property
rights
axes paid
b co
pe
)rop
erty
is
ta
ke
n
by
th
e
gov3t upon
payment of
just
com
pens
atio
n
A&ects all persons,
property and A&ects all persons,
A&ects only the
particular
excise
property, privileges,
and
property
comprehended
even rights
2
2asis
)ublic necessity
)ublic necessity and
the
right of the state and
the
public to self-
protection
and self-preservation
)ublic necessity,
private property is
taken for public use
Authority which exercises the power
4nly by the
government or its
political subdivisions
4nly by the
governmen
t or its
political
subdivisi
ons
5ay be
granted
to
public
service,
compani
es, or
public
utilities
E.
Pur
pos
e of
Tax
ation
"
raising
o
provide
funds or
propert
y with
which
the
#tate
prom
otes
the
gener
al
welfa
re
and
prote
ction
of its
citi!e
ns.
'. %on-
revenue6sp
eci
al
or
reg
ula
tor
y
)romotion
of +eneral
7elfare
0egulation
0eduction
of #ocial
Ine*uality
,nc
our
age
,co
nom
ic
+ro
wth
axati
on
may
be
used
as an
imple
ment
of
police
power
in
order
to
pro
mot
e
the
gen
eral
welf
are
of
the
peo
ple.
8
As
in
the
cas
e of
tax
es
levi
ed
on
exc
ise
s
and
pri
vile
ges
like
thos
e
imp
ose
d in
toba
cco
or
alco
holi
c
pro
duct
s or
amu
sem
ent places like
night clubs,
cabarets,
cockpits, etc.
9
his 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
indi
vidu
als.
In
the
real
m of
tax
exe
mpt
ions
and
tax
reli
efs,
for
instance,
the
purpose
is to
grant
incentive
s or
exemptio
ns in
order to
encourag
e
investme
nts and
thereby
promote
5 #ee
Lutz vs.
Araneta,
98 Phil
14
8
"$
%
Os
me
a vs.
Orbo
s,
&.'.
()
.
99
88
6,
*
"r
.
3
1,
19
93
6
I$
the c"#e )+
Calte !hils.
Inc. vs. COA
(&.'. ().
92
8
,
*"
, 8,
1992),
it -"#
hel%
th"t t".e# /",
"l#) be
i/!)#e% +)r "
re01l"t)r,
!1r!)#e
"#, +)r
i$#t"$ce,
i$
the
reh
"bilit"
ti)$
"$%
#t"
bili2
"ti)
$
)+
"
thre
"te
$e%
i$%1#tr, -hich
i# "3ecte% -ith
!1blic i$%1#tr,
li4e
the
)il
i$%1#tr,.
3
the country3s economic growth.
e. )rotectionism
In some important sectors of the economy, as
in the case
of foreign importations, taxes sometimes
provide
protection to local industries like protective
tari&s and
customs
F. Principles of Sound Tax Sstem
". :iscal Ade*uacy
he sources of tax revenue should coincide with, and
approximate the needs of government expenditure. %either an excess
nor a defciency of revenue vis-;-vis the needs of government would
be in keeping with the principle.
'. Administrative :easibility
ax laws should be capable of convenient, just and e&ective
administration
(. heoretical <ustice
he tax burden should be in proportion to the taxpayer3s ability
to pay
=
. he ">?= $onstitution re*uires taxation to be e*uitable and
uniform.
!. Theor and "asis of Taxation
". 1ifeblood heory
axes are the lifeblood of the government, being such, their
prompt and certain availability is an imperious need.
?
7ithout taxes,
the government would be paraly!ed for lack of motive power to
activate and operate it.
'. %ecessity heory
axes proceed upon the theory that the existence of the
government is a necessity. that it cannot continue without the means
to pay its expenses. and that for those means, it has the right to
compel all citi!ens and properties within its limits to contribute.
>
7 "bilit,-t)-!", !ri$ci!le
196
9 I$ " c"#e, the S1!re/e 5)1rt hel% th"t6
10 7"."ti)$ i# " !)-er e/"$"ti$0 +r)/ $ece##it,. It i# " $ece##"r, b1r%e$ t)
!re#er8e the St"te9#
#)8erei0$t, "$% " /e"$# t) 0i8e the citi2e$r, "$ "r/, t) re#i#t "00re##i)$, " $"8, t)
%e+e$% it# #h)re# +r)/ i$8"#i)$, " c)r!# )+ ci8il #er8"$t# t) #er8e, !1blic
i/!r)8e/e$t# %e#i0$e% +)r the e$:),/e$t )+ the citi2e$r, "$% th)#e -hich c)/e
-ith the St"te9# territ)r, "$% +"cilitie#, "$% !r)tecti)$ -hich "
4
(. 2enefts-)rotection heory
"@
he 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 a&ords the taxpayer and his property.
-. <urisdiction over subject and objects
0ulesA
1) ax laws cannot operate beyond a #tate3s territorial limits.
2) he government cannot tax a particular object of taxation
which is not within its territorial jurisdiction.
3) )roperty outside ones jurisdiction does not receive any
protection of the #tate.
4) If a law is passed by $ongress, it must always see to it that
the object or subject of taxation is within the territorial jurisdiction of
the taxing authority.
8. Doctrines in Taxation
1. )rospectivity of tax laws
+eneral 0uleA
axes must only be imposed
prospectively. ,xceptionA
he language of the statute clearly demands or express
that it shall have a retroactive e&ect.
'. Imprescriptibility
+eneral 0uleA
axes are imprescriptible.
,xceptionA
7hen provided otherwise by the tax law itself.
""
0)8er$/e$t i# #1!!)#e% t) !r)8i%e (!hil. "uarant# Co., Inc. vs Commissioner of
Internal Revenue, $% &CRA ''()
10 S,/bi)tic 'el"ti)$#hi!
11 ;."/!le6 (I'5 !r)8i%e# +)r #t"t1te# )+ li/it"ti)$ i$ the "##e##/e$t "$%
c)llecti)$ )+ t".e# therei$ i/!)#e%.

3. /ouble taxation
a. #trict sense
0eferred to as direct duplicate taxation, it meansA
1. axing twice.
2. by the same taxing authority.
3. within the same jurisdiction or taxing district.
4. for the same purpose.
5. in the same year or taxing period.
6. some of the property in the
territory b.
2road
sense
0eferred to as indirect double taxation, it is taxation other than
direct duplicate taxation. It extends to all cases in which there is a
burden of two or more impositions.
c. $onstitutionality of double taxation
Bnlike in the Bnited #tates $onstitution, our $onstitution does
not prohibit double taxation.
Cowever, while it is not forbidden, it is something not favored.
#uch taxation should, whenever possible, be avoided and prevented.
In addition, where there is direct double taxation, there may be
a violation of the constitutional precepts of e*ual protection and
uniformity in taxation.
"'
7he l"- )$ !re#cri!ti)$, bei$0 " re/e%i"l /e"#1re, #h)1l% be liber"ll, c)$#tr1e% t)
"3)r% !r)tecti)$ "# " c)r)ll"r,, the e.ce!ti)$# t) the l"- )$ !re#cri!ti)$ be #trictl,
c)$#tr1e%. (CIR vs CA. &.'. (). 1<4171, Feb. 24, 1999)
12
7he "r01/e$t "0"i$#t %)1ble t"."ti)$ /", $)t be i$8)4e% -here )$e t". i#
i/!)#e% b, the St"te "$% the )ther i# i/!)#e% b, the cit,, it bei$0 -i%el, rec)0$i2e%
th"t there i# $)thi$0 i$here$tl, )b$).i)1# i$ the re=1ire/e$t th"t lice$#e +ee# )r
t".e# be e."cte% -ith re#!ect t) the #"/e )cc1!"ti)$, c"lli$0, )r "cti8it, b, b)th the
St"te "$% " !)litic"l #1b%i8i#i)$ there)+. A$% -here the #t"t1te )r )r%i$"$ce i$
=1e#ti)$, there i# $) i$+ri$0e/e$t )+ the r1le )$ e=1"lit, (Cit# of *aguio v. +e Leon,
2 S5'A 938)
6
d. 5odes of eliminating double taxation
wo D'E methods of reliefA
"(
,xemption method
he income or capital which is taxable at the
state of source or
situs is exempted at the state of residence,
although in some
instances it may be taken into account in
determining the rate
of tax applicable to the taxpayer3s remaining
income or capital
$redit method
Although the income or capital which is taxed in
the state of
source is still taxable in the state of residence,
the tax paid in
the former is credited against the tax levied in
the latter. he
basic di&erence between the two methods is
that in the
exemption method, the focus is on the income or
capital,
whereas the credit method focuses upon the tax.
13
A t". tre"t, re#)rt# t) #e8er"l /eth)%#. Fir#t, it #et# )1t the re#!ecti8e ri0ht# t) t".
)+ the #t"te )+ #)1rce )r #it1# "$% )+ the #t"te )+ re#i%e$ce -ith re0"r% t) cert"i$
cl"##e# )+ i$c)/e )r c"!it"l. I$ #)/e c"#e#, "$ e.cl1#i8e ri0ht t) t". i# c)$+erre% )$
)$e )+ the c)$tr"cti$0 #t"te#; h)-e8er, +)r )ther ite/# )+ i$c)/e )r c"!it"l, b)th
#t"te# "re 0i8e$ the ri0ht t) t"., "lth)10h the "/)1$t )+ t". th"t /", be i/!)#e% b,
the #t"te )+ #)1rce i# li/ite%. 7he #ec)$% /eth)% +)r the eli/i$"ti)$ )+ %)1ble
t"."ti)$ "!!lie# -he$e8er the #t"te )+ #)1rce i# 0i8e$ " +1ll )r li/ite% ri0ht t) t".
t)0ether -ith the #t"te )+ re#i%e$ce. I$ thi# c"#e, the tre"tie# /"4e it i$c1/be$t
1!)$ the #t"te )+ re#i%e$ce t) "ll)- relie+ )$ )r%er t) "8)i% %)1ble t"."ti)$.
7
4. ,scape from taxation
a. #hifting of tax burden
"-

1) 7ays of shifting the tax burden
a. :orward shifting
7hen the burden of the tax is transferred from a
factor of
production through the factors of distribution
until it fnally
settles on the ultimate purchaser or consumer.
"8
b. 2ackward shifting
7hen the burden of the tax is transferred from
the consumer
or purchaser through the factors of distribution
to the factors
of production.
"9
c. 4nward shifting
7hen the tax is shifted two or more times either
forward or
backward.
"=
'E axes that can be shifted
4nly indirect taxes may be shifted.
"?
direct taxes
">
cannot be
shifted.
14 7he tr"$#+er )+ the b1r%e$ )+ " t". b, the )ri0i$"l !",er )r the )$e )$ -h)/
the t". -"# "##e##e% )r i/!)#e% t) #)/e)$e el#e.
15 Pr)ce## b, -hich #1ch t". b1r%e$ i# tr"$#+erre% +r)/ #t"t1t)r, t".!",er t)
"$)ther -ith)1t 8i)l"ti$0 the l"-.
>h"t i# tr"$#+erre%i# $)t the !",/e$t )+ the t"., b1t the b1r%e$ )+ the t".
16 ;."/!le6
17 *"$1+"ct1rer )r !r)%1cer /", #hi+t t". "##e##e% t) -h)le#"ler, -h) i$ t1r$
#hi+t# it t) the ret"iler, -h)
"l#) #hi+t# it t) the ?$"l !1rch"#er )r
c)$#1/er
16
;."/!le6
5)$#1/er )r !1rch"#er /", #hi+t t". i/!)#e% )$ hi/ t) ret"iler b, !1rch"#i$0 )$l,
"+ter the !rice i# re%1ce%, "$% +r)/ the l"tter t) the -h)le#"ler, )r ?$"ll, t) the
/"$1+"ct1rer )r !r)%1cer
17 ;."/!le6
7h1#, " tr"$#+er +r)/ the #eller t) the !1rch"#er i$8)l8e# )$e #hi+t; +r)/ the
!r)%1cer t) the
-h)le#"ler, the$ t) ret"iler, -e h"8e t-) #hi+t#; "$% i+ the t". i# tr"$#+erre% "0"i$ t)
the !1rch"#er b, the ret"iler, -e h"8e three #hi+t# i$ "ll.
18 e.0. VA7
19 e.0. I$c)/e t".
8
(E 5eaning of impact and incidence of
taxation
Impact of taxation Incidence of taxation
he point on which a tax is
originally imposed. In so far as the
law is concerned, the taxpayer is the
person who must pay the tax to the
government. Ce is also termed as
the statutory taxpayer-the one on
whom the tax is formally assessed.
Ce is the subject of the tax.
he point on
which the tax
burden fnally
rests or settle
down. It takes
place when
shifting has
been e&ected
from the
statutory
taxpayer to
another.
b
.

a
x

a
v
o
i
d
a
n
c
e
'
@
he 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. ax
evasion
he
use by the
taxpayer
of illegal
or
fraudulent
means to
defeat or
lessen the
payment of
tax.
20 "l#)
4$)-$ "#
@t".
/i$i/i2"ti)
$A; it i# $)t
!1$i#he%
b, l"-
1 "l#)4$)-$"#@t".%)%0i$0A;iti#!1$i#h"bleb,l"-;le/e$t#)+t".e8"#i)$6
1. 7he e$%
t) be
"chie8e%, i.e.
!",/e$t )+
le## th"$
th"t 4$)-$
b, the
t".!",er t)
be le0"ll,
%1e, )r
!",i$0 $)
t". -he$ it i#
#h)-$ th"t
t". i# %1e
2. A$
"cc)/!"$,i$
0 #t"te )+
/i$% -hich
i# %e#cribe%
"# bei$0
@e8ilA, @i$
b"% +"ithA,
@-ill+1lA, )r
@%eliber"teA
"$% $)t
@"cci%e$t"lA
3. A c)1r#e
)+ "cti)$ ()r +"il1re )+
"cti)$) -hich i# 1$l"-+1l
I$%ici" )+ +r"1% i$ t".
e8"#i)$6
1. F"il1re t) %ecl"re +)r
t"."ti)$ !1r!)#e# tr1e "$%
"ct1"l i$c)/e %eri8e% +r)/
b1#i$e## +)r t-) (2)
c)$#ec1ti8e ,e"r#; )r
2. S1b#t"$ti"l 1$%er
%ecl"r"ti)$ )+ i$c)/e t".
ret1r$# )+ the t".!",er +)r
+)1r (4) c)$#ec1ti8e ,e"r#
c)1!le% -ith 1$i$te$ti)$"l
)8er#t"te/e$t )+ %e%1cti)$#
;8i%e$ce t) !r)8e t".
e8"#i)$6
Si$ce +r"1% i# " #t"te )+
/i$%, it $ee% $)t be !r)8e%
b, %irect e8i%e$ce b1t /",
be !r)8e% +r)/ the
circ1/#t"$ce# )+ the c"#e.
F"il1re )+ the t".!",er t)
%ecl"re +)r t"."ti)$
!1r!)#e# hi# tr1e "$% "ct1"l
i$c)/e %eri8e% +r)/ hi#
b1#i$e## +)r t-) (2)
c)$#ec1ti8e ,e"r# i# "$
i$%ic"ti)$ )+ hi# +r"1%1le$t
i$te$t t) che"t the
0)8er$/e$t )+ it# %1e t".e#.
('e!1blic 8#. &)$2"le#, 13
S5'A 638)
9
8. ,xemption from taxation
a. 5eaning of exemption from taxation
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. It is an immunity or privilege. it is freedom
from a fnancial charge or burden to which others are subjected.
''
2. %ature of tax exemption
1) It is a mere personal privilege of the grantee.
2) It is generally revocable by the government unless the
exemption is founded on a contract which is contract which is
protected from impairment.
3) It implies a waiver on the part of the government of its right
to collect what otherwise would be due to it, and so is prejudicial
thereto.
4) It is not necessarily discriminatory so long as the exemption
has a reasonable foundation or rational basis.
5) It is not transferable except if the law expressly provides so.
3. Finds of tax exemption
1) ,xpress
'(

7hen certain persons, property or transactions are, by express
provision, exempted from all certain taxes, either entirely or in part.
'E Implied
'-
7hen a tax is levied on certain classes of persons, properties, or
transactions without mentioning the other classes.
'8
22
;.e/!ti)$ i# "ll)-e% )$l, i+ there i# " cle"r !r)8i#i)$ there+)r.
It i# $)t $ece##"ril, %i#cri/i$"t)r, "# l)$0 "# there i# " re"#)$"ble +)1$%"ti)$ )r
r"ti)$"l b"#i#. ;.e/!ti)$# "re $)t !re#1/e%, b1t -he$ !1blic !r)!ert, i# i$8)l8e%,
e.e/!ti)$ i# the r1le "$% t"."ti)$
i# the e.e/!ti)$.
23 )r "Br/"ti8e e.e/!ti)$
24 )r e.e/!ti)$ b, )/i##i)$
25 () t". e.e/!ti)$ b, i/!lic"ti)$
It /1#t be e.!re##e% i$ cle"r "$% 1$/i#t"4"ble l"$01"0e
26 ;8er, t". #t"t1te /"4e# e.e/!ti)$# bec"1#e )+ )/i##i)$#.
1
<
(E $ontractual
Agreed to by the taxing authority in contracts lawfully entered
into by them under enabling laws.
d. 0ationale6grounds for exemption
0ationale for granting tax
exemptions
Its avowed purpose is some public
beneft or interests which the
lawmaking body considers
su&icient to o&set the monetary
loss entailed in the grant of the
exemption.
he theory behind the grant of tax
exemptions is that such act will
beneft the body of the people. It is
not based on the idea of lessening
the burden of the individual
owners of property.
+rounds for
granting tax
exemptions
1) 5ay be based
on contract.
'9

2) 5ay be based
on some ground
of public policy.
'=

3) 5ay be based
on grounds of
reciprocity or to
lessen the rigors
of international
double or
multiple
taxation.
'?

e
.

0
e
v
o
c
a
t
i
o
n

o
f

t
a
x exemption
It is
an act of
liberality
which
could be
taken back
by the
governmen
t unless
there are
restrictions
. #ince
taxation is
the rule
and
taxation
therefrom
is the
exception
, the
exemptio
n may be
withdraw
n by the
taxing
authority.
'>
26 I$ #1ch " c"#e, the
!1blic, -hich i# re!re#e$te%
b, the 0)8er$/e$t i#
#1!!)#e% t) recei8e " +1ll
e=1i8"le$t there+)r, i.e.
ch"rter )+ " c)r!)r"ti)$.
27 i.e., t) e$c)1r"0e
$e- i$%1#trie# )r t) +)#ter
ch"rit"ble i$#tit1ti)$#. Cere,
the 0)8er$/e$t $ee% $)t
recei8e "$, c)$#i%er"ti)$ i$
ret1r$ +)r the t".
e.e/!ti)$. +)r t". e.e/!ti)$. ;.e/!ti)$ i# "ll)-e% )$l, i+ there i# " cle"r !r)8i#i)$ there+)r.
29 ,actan Cebu
International Airport
Authorit# vs., ,arcos, 261
S5'A 667.
11
9. $ompensation and #et-o&
(@
+eneral 0uleA
axes are not subject to set-o& or legal compensation. he
government and the taxpayer are not creditors and debtors or each
other. 4bligations in the nature of debts are due to the government in
its corporate capacity, while taxes are due to the government in its
sovereign capacity.
("
,xceptionA
7here both the claims of the government and the taxpayer
against each other have already become due and demandable as well
as fully li*uated.
('
=. $ompromise
A contract whereby the parties, by reciprocal concessions, avoid
litigation or put an end to one already commenced.
((
8. ax amnesty
a. /efnition
A general pardon or intentional overlooking by the #tate of its
authority to impose penalties on persons otherwise guilty of evasion
or violation of a revenue to collect what otherwise would be due it
and, in this sense, prejudicial thereto.
(-
30 'e=1i#ite# )+ 5)/!e$#"ti)$ i$ t"."ti)$
1. 7he t". "##e##e% "$% the cl"i/ "0"i$#t the 0)8er$/e$t be +1ll, li=1i%"te%.
2. 7he t". "##e##e% "$% the cl"i/ "0"i$#t the 0)8er$/e$t i# %1e "$% %e/"$%"ble,
"$%
3. 7he 0)8er$/e$t h"% "lre"%, "!!r)!ri"te% +1$%# +)r the !",/e$t )+ the cl"i/
(+omingo v. "arlitos,
L-189<4, D1$e 29, 1963)
31 !hile ,ining Corp. vs. CIR, 294 S5'A 687; Republic vs. ,ambulao Lumber
Co., 6 S5'A 622
32 #ee +omingo vs. "arlitos, #1!r"
5i8il 5)%e 'e=1i#ite#6
1. 7".!",er /1#t h"8e " t". li"bilit,.
2. 7here /1#t be "$ )3er b, t".!",er )r 5I', )+ "$ "/)1$t t) be !"i% b, t".!",er.
3. 7here /1#t be "cce!t"$ce )+ the )3er i$ #ettle/e$t )+ the )ri0i$"l cl"i/.
>he$ t".e# /", be c)/!r)/i#e%6
1. A re"#)$"ble %)1bt "# t) the 8"li%it, i+ the cl"i/ "0"i$#t the t".!",er e.i#t#;
2. 7he ?$"$ci"l !)#iti)$ )+ the t".!",er %e/)$#tr"te# " cle"r i$"bilit, t) !", the
"##e##e% t"..
3. 5ri/i$"l 8i)l"ti)$#, e.ce!t6
1.7h)#e "lre"%, ?le% i$ c)1rt
2. 7h)#e i$8)l8i$0 +r"1%.
34
7". "/$e#t,, li4e t". e.e/!ti)$, i# $e8er +"8)re% $)r !re#1/e% i$ l"- "$% i+
0r"$te% b, #t"t1te /1#t be c)$#tr1e% #trictl, "0"i$#t the t".!",er, -h) /1#t #h)-
c)/!li"$ce -ith the l"-.
7he 0)8er$/e$t i# $)t estopped +r)/ =1e#ti)$i$0 the t". li"bilit, e8e$ i+ "/$e#t,
t". !",/e$t# -ere "lre"%, recei8e%
12
b. /istinguished from tax exemption
ax amnesty ax exemption
)artakes of an absolute forgiveness
or waiver
he grant of immunity to particular
persons
by the +overnment of its right to
collect
or corporations of a particular
class from a
what otherwise would be due it
and, in this
tax of which persons and
corporations
sense, prejudicial thereto,
particularly to tax
generally within the same state or
taxing
evaders who wish to relent and are
willing to district are obliged to pay.
reform are given a chance to do so
and
therefore become a part of the
society with a
clean slate.
Immunity from all criminal, civil
and Immunity from civil liability only
administrative liabilities arising
from non-
payment of taxes
Applies only to past tax periods,
hence )rospective application
retroactive application
here is revenue loss since there
was actually taxes due but collection
was waived by the government.
%one, because
there was no
actual taxes due
as the person or
transaction is
protected by tax
exemption.
%ever favored nor
presumed in law, and is
granted by statute. he
terms of the amnesty or
exemption must be
strictly construed
against the taxpayer
and
liberally in
favor of
the
governme
nt.
;rr)$e)1# "!!lic"ti)$ "$%
e$+)rce/e$t )+ the l"- b,
!1blic )Bcer# %) $)t bl)c4
#1b#e=1e$t c)rrect
"!!lic"ti)$ )+ the #t"t1te.
7he 0)8er$/e$t i# $e8er
estopped b, /i#t"4e# )r
err)r# b, it# "0e$t#.
13
9. $onstruction and
Interpretation ofA a.
ax laws
1) +eneral 0ule
ax laws are liberally interpreted in favor of the taxpayer and
strictly against the government.
'E ,xception
1iberal interpretation does not apply to tax exemptions which
should be construed in strictissimi juris against the taxpayer.
(8
2. ax exemption and exclusion
1) +eneral 0ule
In the construction of tax statutes, exemptions are not favored
and are construed strictissimi juris against the taxpayer.
(9
he
fundamental theory is that all taxable property should bear its share
in the cost and expense of the government.
axation is the rule and exemption. Ce who claims exemption
must be able to justify his claim or right thereto by a grant express in
terms Gtoo plain to be mistaken and too categorical to be
misinterpreted.H If not expressly mentioned in the law, it must be at
least within its purview by clear legislative intent.
2) ,xceptions
1. he law itself expressly provides for a liberal construction
thereof.
2. In cases of exemptions granted to religious, charitable and
educational institutions or to the government or its agencies or to
public property because the general rule is that they are exempted
from tax.
35 'e"#)$6 Li+ebl))% %)ctri$e
36 Strict i$ter!ret"ti)$ %)e#$)t "!!l, t) the 0)8er$/e$t "$% it# "0e$cie#
37 Petiti)$er c"$$)t i$8)4e the r1le )+ strictissimi -uris -ith re#!ect t) the
i$ter!ret"ti)$ )+ #t"t1te#
0r"$ti$0 t". e.e/!ti)$# t) the (P5. 7he r1le )$ #trict i$ter!ret"ti)$ %)e# $)t "!!l,
i$ the c"#e )+ e.e/!ti)$# i$ +"8)r )+ " !)litic"l #1b%i8i#i)$ )r i$#tr1/e$t"lit, )+ the
0)8er$/e$t E,aceda v. ,acaraigF
14
3. ax rules and regulations
1) +eneral rule only
hey shall not be given retroactive application if the revocation,
modifcation or reversal will be prejudicial to the taxpayers.
(=
d. )enal provisions of tax laws
ax laws are civil and not penal in nature, although there are
penalties provided for their violation.
he purpose of tax laws in imposing penalties for delin*uencies
is to compel the timely payment of taxes or to punish evasion or
neglect of duty in respect thereof.
5. %on-retroactive application to taxpayers
1) ,xceptions
A statute may operate retroactively provided it is expressly
declared or is clearly the legislative intent. 2ut a tax law should not be
given retroactive application when it would be harsh and oppressive.
9. Scope and #imitation of Taxation
1. Inherent
1imitations a.
)ublic
)urpose
(?

he tax must be usedA
1) for the support of the state or
2) for some recogni!ed objects of governments or
3) directly to promote the welfare of the community
(>

37 Sec. 246
38 7e#t i$ %eter/i$i$0 P1blic P1r!)#e# i$ t".6
1. G1t, 7e#t H -hether the thi$0 t) be thre"te$e% b, the "!!r)!ri"ti)$ )+ !1blic
re8e$1e i# #)/ethi$0 -hich i# the %1t, )+ the St"te, "# " 0)8er$/e$t.
2. Pr)/)ti)$ )+ &e$er"l >el+"re 7e#t H -hether the l"- !r)8i%i$0 the t". %irectl,
!r)/)te# the -el+"re )+ the c)//1$it, i$ e=1"l /e"#1re.
7he ter/ @!1blic !1r!)#eA i# #,$)$,/)1# -ith @0)8er$/e$t"l !1r!)#eA; " !1r!)#e
"3ecti$0 the i$h"bit"$t# )+ the #t"te )r t".i$0 %i#trict "# " c)//1$it, "$% $)t
/erel, "# i$%i8i%1"l#.
A t". le8ie% +)r " !ri8"te !1r!)#e c)$#tit1te# " t"4i$0 )+ !r)!ert, -ith)1t %1e
!r)ce## )+ l"-.
7he !1r!)#e# t) be "cc)/!li#he% b, t"."ti)$ $ee% $)t be e.cl1#i8el, !1blic.
Alth)10h !ri8"te i$%i8i%1"l# "re %irectl, be$e?te%, the t". -)1l% #till be 8"li%
!r)8i%e% #1ch be$e?t i# )$l, i$ci%e$t"l.
1
2. Inherently 1egislative
1) +eneral 0ule
axation is purely legislative, $ongress cannot delegate the
power to others. his limitation arises from the doctrine of separation
of powers among the three branches of government.
2) ,xceptions
1)/elegation to local
governments
-@

he power of local government units to impose taxes and fees is
always subject to the limitations which the $ongress may provide, the
former having no inherent power to tax.
-"
he power to tax is primarily vested in the $ongress, however,
in our jurisdiction, it may be exercised by local legislative bodies, no
longer merely by virtue of a valid delegation but pursuant to direct
authority conferred by #ection 8,
-'
Article I of the">?= $onstitution,
subject to guidelines and limitations which $ongress may provide
which must be consistent with the basic policy of local autonomy.
-(
bE /elegation to the )resident
--
he power granted to $ongress under this constitutional
provision to authori!e the )resident to fx within specifed limits and
subject to such limitations and restrictions as it may impose, tari&
rates and other duties and imposts include tari&s rates even for
revenue purposes only. $ustoms duties which are assessed at the
prescribed tari& rates are very much like taxes which are fre*uently
imposed for both revenue-raising and regulatory purposes.
-8
cE /elegation to administrative
agencies
7ith respect to aspects of taxation not legislative in character.
46
7he te#t i# $)t "# t) -h) recei8e# the /)$e,, b1t the ch"r"cter )+ the !1r!)#e +)r
-hich it i# e.!e$%e%; $)t the i//e%i"te re#1lt )+ the e.!e$%it1re b1t r"ther the
1lti/"te.
I$ the i/!)#iti)$ )+ t".e#, !1blic !1r!)#e i# !re#1/e%.
39 t"."ti)$ "# "$ i/!le/e$t )+ !)lice !)-er
40 Art. X. Sec.
41 *asco v. !A"COR
42 ;"ch l)c"l 0)8er$/e$t 1$it #h"ll h"8e the !)-er t) cre"te it# )-$ #)1rce# )+
re8e$1e# "$% t) le8, t".e#, +ee# "$% ch"r0e# #1b:ect t) #1ch 01i%eli$e# "$%
li/it"ti)$# "# the 5)$0re## /", !r)8i%e, c)$#i#te$t -ith the b"#ic !)lic, )+ l)c"l
"1t)$)/,. S1ch t".e#, +ee#, "$% ch"r0e# #h"ll "ccr1e e.cl1#i8el, t) the l)c"l
0)8er$/e$t#.
43 ,CIAA v. ,arcos, 261 S5'A 667
44 Art.VI, Sec. 28(2) 45 "arcia vs. .ecutive &ecretar#, et. "l., &.'. (). 1<1273, D1l, 3, 1992
46 ;."/!le6 "##e##/e$t "$% c)llecti)$
1
6
3. erritorial
1) #itus of axation
-=

1) 5eaning
1iterally means Gthe place of taxation.H
he place or the authority that has the right to impose and
collect taxes.
-?
It is premised upon the symbiotic relation between the
taxpayer and the #tate.
bE #itus of Income ax
"E :rom sources within the
)hilippines
'E :rom sources without the
)hilippines
/etermined by the nationality, residence of the taxpayer and
source of income.
->
(E Income partly within and
partly without the
)hilippines
Allocated or apportioned to sources within or without the
)hilippines.
8@
5ert"i$ "#!ect# )+ the t".i$0 !r)ce## th"t "re $)t re"ll, le0i#l"ti8e i$ $"t1re "re
8e#te% i$ "%/i$i#tr"ti8e "0e$cie#. I$ the#e c"#e#, there re"ll, i# $) %ele0"ti)$, t) -it6
1) !)-er t) 8"l1e !r)!ert,
2)!)-er t) "##e## "$% c)llect t".e#
3) !)-er t) !er+)r/ %et"il# )+ c)/!1t"ti)$, "!!r"i#e/e$t )r "%:1#t/e$t#.
F)r the %ele0"ti)$ t) be c)$#tit1ti)$"ll, 8"li%, the l"- /1#t be c)/!lete i$ it#el+
"$% /1#t #et +)rth #1Bcie$t #t"$%"r%#.
47 @It i# "$ i$here$t /"$%"te th"t t"."ti)$ #h"ll )$l, be e.erci#e% )$ !er#)$#,
!r)!ertie#, "$% e.ci#e -ithi$ the territ)r, )+ the t".i$0 !)-er bec"1#e6
1. 7". l"-# %) $)t )!er"te be,)$% " c)1$tr,9# territ)ri"l li/it.
2. Pr)!ert, -hich i# -h)ll, "$% e.cl1#i8el, -ithi$ the :1ri#%icti)$ )+ "$)ther #t"te
recei8e# $)$e )+ the !r)tecti)$ +)r -hich " t". i# #1!!)#e% t) be c)/!e$#"ti)$.
C)-e8er, the +1$%"/e$t"l b"#i# )+ the ri0ht t) t". i# the c"!"cit, )+ the
0)8er$/e$t t) !r)8i%e be$e?t# "$% !r)tecti)$ t) the )b:ect )+ the t".. A !er#)$ /",
be t".e%, e8e$ i+ he i# )1t#i%e the t".i$0 #t"te, -here there i# bet-ee$ hi/ "$% the
t".i$0 #t"te, " !ri8it, )+ rel"ti)$#hi! :1#ti+,i$0 the le8,.
48 Commissioner vs. ,arubeni, &.'. (). 137377, Gec.18, 2<<1
ec. 42 7he)rie #6
1. G)/icill"r, the)r, - the l)c"ti)$ -here the i$c)/e e"r$er re#i%e# i# the #it1# )+
t"."ti)$
2. ("ti)$"lit, the)r, - the c)1$tr, -here the i$c)/e e"r$er i# " citi2e$ i# the #it1#
)+ t"."ti)$
3. S)1rce r1le - the c)1$tr, -hich i# the #)1rce )+ the i$c)/e )r -here the "cti8it,
th"t !r)%1ce% the i$c)/e t))4 !l"ce i# the #it1# )+ t"."ti)$.
50 F)r the !1r!)#e )+ c)/!1ti$0 the t"."ble i$c)/e there+r)/, -here ite/# )+
0r)## i$c)/e "re #e!"r"tel, "ll)c"te% t) #)1rce# -ithi$ the Phili!!i$e#, there #h"ll be
%e%1cte%6
(1) the e.!e$#e#, l)##e# "$% )ther %e%1cti)$# !r)!erl, "!!)rti)$e% )r "ll)c"te%
theret), "$%
17
cE #itus of )roperty axes
D"E axes on 0eal )roperty
he place where the property is located. he applicable concept
is lex situs or lex rei
sitae.
8"
D'E axes on )ersonal
)roperty
angible personal property Intangible personal property
7here the property is physically
located although the owner resides
in another jurisdiction.
8'
he place where
the owner is
located. he
applicable
concept is
mobilia
sequuntur
personam.
8(
dE
#itus
of
,xcis
e ax
D"E
,stat
e ax
D'E /onor3s ax
/etermined by the
nationality and
residence
of the
taxpayer
and the
place
where the
property is
located.
(b) "
r"t"ble !"rt
)+ )ther
e.!e$#e#,
l)##e# )r
)ther
%e%1cti)$#
-hich c"$$)t
%e?$itel, be "ll)c"te% t)
#)/e ite/# )r cl"##e# )+
0r)## i$c)/e. 7he
re/"i$%er, i+ "$,, #h"ll be
i$cl1%e% i$ +1ll "# t"."ble
i$c)/e +r)/ #)1rce# -ithi$
the Phili!!i$e#.
51 >e c"$ )$l, i/!)#e
!r)!ert, t". )$ the
!r)!ertie# )+ " !er#)$
-h)#e re#i%e$ce i# i$ the
Phili!!i$e#.
52 1 A/ D1r. 467 3 /)8"ble#+)ll)-the)-$er)r%)/icile)+the)-$er;.ce!ti)$#6
1. >he$ the !r)!ert, h"#
"c=1ire% " b1#i$e##
#it1# i$ "$)ther
:1ri#%icti)$;
2. >he$ "$ e.!re##
!r)8i#i)$ )+ the #t"t1te
!r)8i%e +)r "$)ther r1le.
18
eE #itus of 2usiness ax
he place where the act or business is performed or occupation
is engaged in.
8-
D"E #ale of 0eal )roperty
he place or location of the real property.
88
D'E #ale of )ersonal )roperty
he place of sale.
D(E JA
7here the goods, property or services are destined,
used or consumed. d. International
$omity
89
he property of a foreign state or government may not be taxed
by another.
8=
4
-here the tr"$#"cti)$i# !er+)r/e% bec"1#e it i# th"t !l"ce th"t 0i8e# !r)tecti)$
7he !)-er t) le8, "$ e.ci#e 1!)$ the !er+)r/"$ce )+ "$ "ct )r the e$0"0i$0 i$ "$
)cc1!"ti)$ %)e# $)t %e!e$% 1!)$ the %)/icile )+ the !er#)$ #1b:ect t) the e.erci#e,
$)r 1!)$ the !h,#ic"l l)c"ti)$ )+ the !r)!ert, )r i$ c)$$ecti)$ -ith the "ct )r
)cc1!"ti)$ t".e%, b1t %e!e$%# 1!)$ the !l"ce )$ -hich the "ct i# !er+)r/e% )r
)cc1!"ti)$ e$0"0e% i$.
7h1#, the 0"10e )+ t"."bilit, %)e# $)t %e!e$% )$ the l)c"ti)$ )+ the )Bce, b1t
"tt"che# 1!)$ the !l"ce -here the re#!ecti8e tr"$#"cti)$ i# !er+ecte% "$%
c)$#1//"te% (/ope0ell vs. Com. of Customs)
55 S), i+ the !r)!ert, #)l% i# #it1"te% -ithi$ the Phil#., the i$c)/e %eri8e% +r)/
#1ch #"le i# c)$#i%ere% "# i$c)/e -ithi$.
56 5)/it, i# the re#!ect"cc)r%e% t) )ther #)8erei0$ $"ti)$#.
57 7he 0r)1$%# +)r the "b)8e "re6
1.#)8erei0$ e=1"lit, "/)$0 #t"te#
2. 1#"0e "/)$0 #t"te# th"t -he$ )$e e$ter i$t) the territ)r, )+ "$)ther, there i#
"$ i/!lie% 1$%er#t"$%i$0 th"t the !)-er %)e# $)t i$te$% t) %e0r"%e it# %i0$it, b,
!l"ci$0 it#el+ 1$%er the :1ri#%icti)$ )+ the l"tter
3.+)rei0$ 0)8er$/e$t /", $)t be #1e% -ith)1t it# c)$#e$t #) th"t it i# 1#ele## t)
"##e## the t". #i$ce it c"$$)t be c)llecte%
4.reci!r)cit, "/)$0 #t"te#
19
5. ,xemption of +overnment ,ntities,
Agencies, and Instrumentalities
1. Agencies performing governmental functions - tax exempt
8?

2. Agencies performing proprietary functions - subject to tax.
2. $onstitutional 1imitations
a. )rovisions /irectly A&ecting axation
"E )rohibition against imprisonment for non-
payment of poll tax
%o person shall be imprisoned for debt or non-payment of poll
tax.
8>
'E Bniformity and e*uality of taxation
he rule of taxation shall be uniform and e*uitable. he
$ongress shall evolve a progressive system of taxation.
9@
58 7he e.e/!ti)$ "!!lie# )$l, t) 0)8er$/e$t"l e$titie# thr)10h -hich the
0)8er$/e$t i//e%i"tel, "$% %irectl, e.erci#e# it# #)8erei0$ !)-er#.
59 7". e.e/!ti)$ )+ !r)!ert, )-$e% b, the 'e!1blic )+ the Phili!!i$e# re+er# t)
the !r)!ert, )-$e% b, the 0)8er$/e$t "$% it# "0e$cie# -hich %) $)t h"8e #e!"r"te
"$% %i#ti$ct !er#)$"lit, (1+C vs. Cebu Cit#) 7h)#e cre"te% b, #!eci"l ch"rter
(i$c)r!)r"te% "0e$cie#) "re $)t c)8ere% b, the e.e/!ti)$
60 Sec. 2<, Art. III
61 7he )$l, !e$"lt, +)r %eli$=1e$c, i$ !",/e$t i# the !",/e$t )+ #1rch"r0e i$
the +)r/ )+ i$tere#t "t the
r"te )+ 24I !er "$$1/ -hich #h"ll be "%%e% t) the 1$!"i% "/)1$t +r)/ %1e %"te
1$til it i# !"i%. (Sec. 161, L&5)
7he !r)hibiti)$ i# "0"i$#t @i/!ri#)$/e$tA +)r @$)$-!",/e$t )+ !)ll t".A. 7h1#, "
!er#)$ i# #1b:ect t) i/!ri#)$/e$t +)r 8i)l"ti)$ )+ the c)//1$it, t". l"- )ther th"$
+)r $)$-!",/e$t )+ the t". "$% +)r $)$-!",/e$t )+ )ther t".e# "# !re#cribe% b, l"-.
7he $)$ -i/!ri#)$/e$t r1le "!!lie# t) $)$-!",/e$t )+ !)ll t". -hich i# !1$i#h"ble
)$l, b, " #1rch"r0e, b1t $)t t) )ther 8i)l"ti)$# li4e +"l#i?c"ti)$ )+ c)//1$it, t".
certi?c"te )r $)$-!",/e$t )+ )ther t".e#.
6<
Sec. 28(1), Art. VI
J$i+)r/it, (e=1"lit, )r e=1"l !r)tecti)$ )+ the l"-#) /e"$# "ll t"."ble "rticle# )r
4i$%# )r !r)!ert, )+ the #"/e cl"## #h"ll be t".e% "t the #"/e r"te. A t". i# 1$i+)r/
-he$ the #"/e +)rce "$% e3ect i$ e8er, !l"ce -here the #1b:ect )+ it i# +)1$%.
;=1it"ble /e"$# +"ir, :1#t, re"#)$"ble "$% !r)!)rti)$"te t) )$e9# "bilit, t) !",.
Pr)0re##i8e #,#te/ )+ 7"."ti)$ !l"ce# #tre## )$ %irect r"ther th"$ i$%irect t".e#, )r
)$ the t".!",er#9 "bilit, t) !",
I$e=1"lit, -hich re#1lt# i$ #i$0li$0 )1t )$e !"rtic1l"r cl"## +)r t"."ti)$ )r
e.e/!ti)$ i$+ri$0e# $) c)$#tit1ti)$"l li/it"ti)$. (#ee Commissioner vs. Linga#en "ulf
.lectric,164 S5'A 27)
7he r1le )+ 1$i+)r/it, %)e# $)t c"ll +)r !er+ect 1$i+)r/it, )r !er+ect e=1"lit,,
bec"1#e thi# i# h"r%l, "tt"i$"ble.
2<
3) +rant by $ongress of authority to the
)resident to impose tari& rates
he $ongress may, by law, authori!e the )resident to fx tari&
rates, import and export *uotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the national
development program of the government.
9"
-E )rohibition against taxation of religious,
charitable entities, and educational entities
#ubject to the conditions prescribed by law, all grants,
endowments, donations or contributions used actually, directly and
exclusively for educational purposes shall be exempt from tax.
9'
5) )rohibition against taxation of non-stock,
non-proft institutions
All revenues and assets of non-stock, non-proft educational
institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties.
9(
9E 5ajority vote of $ongress for grant of tax
exemption
%o law granting any tax exemption shall be passed without the
concurrence of a majority of all the members of the $ongress.
9-
61 Art. 28 (2), Art. VI
62 Sec. 4(4), Art. XIV.
63 7he e.e/!ti)$ 0r"$te% t) $)$-#t)c4, $)$-!r)?t e%1c"ti)$"l i$#tit1ti)$ c)8er#
i$c)/e, !r)!ert,, "$%
%)$)r9# t".e#, "$% c1#t)/ %1tie#.
7) be e.e/!t +r)/ t". )r %1t,, the re8e$1e, "##et#, !r)!ert, )r %)$"ti)$ /1#t be
1#e% "ct1"ll,, %irectl, "$% e.cl1#i8el, +)r e%1c"ti)$"l !1r!)#e.
I$ the c"#e )r reli0i)1# "$% ch"rit"ble e$titie# "$% $)$-!r)?t ce/eterie#, the
e.e/!ti)$ i# li/ite% t) !r)!ert, t"..
7he #"i% c)$#tit1ti)$"l !r)8i#i)$ 0r"$ti$0 t". e.e/!ti)$ t) $)$-#t)c4, $)$-!r)?t
e%1c"ti)$"l i$#tit1ti)$ i# #el+-e.ec1ti$0.
7". e.e/!ti)$#, h)-e8er, )+ !r)!riet"r, (+)r !r)?t) e%1c"ti)$"l i$#tit1ti)$# re=1ire
!ri)r le0i#l"ti8e i/!le/e$t"ti)$. 7heir t". e.e/!ti)$ i# $)t #el+-e.ec1ti$0.
L"$%#, K1il%i$0#, "$% i/!r)8e/e$t# "ct1"ll,, %irectl,, "$% e.cl1#i8el, 1#e% +)r
e%1c"ti)$"l !1r!)#e% "re e.e/!t +r)/ !r)!ert, t"., -hether the e%1c"ti)$"l
i$#tit1ti)$ i# !r)!riet"r, )r $)$-!r)?t
63
Sec. 4 (3), Art. XIV
Pr)cee%# )+ the #"le )+ re"l !r)!ert, b, the ')/"$ 5"th)lic ch1rch i# e.e/!t +r)/
i$c)/e t". bec"1#e the tr"$#"cti)$ -"# "$ i#)l"te% )$e (,anila !olo Club vs. CTA)
I$c)/e %eri8e% +r)/ the h)#!it"l !h"r/"c,, %)r/it)r, "$% c"$tee$ -"# e.e/!t
+r)/ i$c)/e t". bec"1#e the )!er"ti)$ )+ th)#e e$titie# -"# /erel, i$ci%e$t"l t) the
!ri/"r, !1r!)#e )+ the e.e/!t c)r!)r"ti)$ (&t. !aul /ospital of Iloilo vs. CIR)
>here the e%1c"ti)$"l i$#tit1ti)$ i# !ri8"te "$% $)$-!r)?t (b1t " #t)c4
c)r!)r"ti)$), it i# #1b:ect t) i$c)/e t". b1t "t the !re+ere$ti"l r"te )+ te$ !erce$t
(1<I)
64
Sec. 28(4), Art. VI
7he !r)8i#i)$ re=1ire# the c)$c1rre$ce )+ " /":)rit,, $)t )+ "tte$%ee# c)$#tit1ti$0
" =1)r1/, b1t )+ "ll /e/ber# )+ the 5)$0re##.
21
=E )rohibition 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. If the
purpose for which a special fund was created has been fulflled or
abandoned the balance, if any, shall be transferred to the general
funds of the government.
98
8) )resident3s veto power on appropriation,
revenue, tari& bills
he )resident shall have the power to veto any particular item
or items in an Appropriation, 0evenue or ari& bill but the veto shall
not a&ect the item or items to which he does not object.
99
>E %on-impairment of jurisdiction of the
#upreme $ourt
he $ongress shall have the power to defne, prescribe, and
apportion the jurisdiction of the various courts but may not deprive
the #upreme $ourt of its jurisdiction over cases enumerated in #ec.
8
9=
hereof.
6
Sec. 29(3), Art. VI
A$ e."/!le i# the Lil Price St"bili2"ti)$ F1$% cre"te% 1$%er P.G. 196 t) #t"bili2e
the !rice# )+ i/!)rte% cr1%e )il. I$ " %eci%e c"#e, it -"# hel% th"t -here 1$%er "$
e.ec1ti8e )r%er )+ the Pre#i%e$t, thi# #!eci"l +1$% i# tr"$#+erre% +r)/ the 0e$er"l +1$%
t) " @tr1#t li"bilit, "cc)1$t,A the c)$#tit1ti)$"l /"$%"te i# $)t 8i)l"te%. 7he LPSF,
"cc)r%i$0 t) the c)1rt, re/"i$# "# " #!eci"l +1$% #1b:ect t) 5LA "1%it (Osmea vs
Orbos, et "l., &.'. (). 99886, *"r. 31, 1993)
66 Sec. 27(2), Art. VI
67 7he S1!re/e 5)1rt #h"ll h"8e the +)ll)-i$0 !)-er#6
1. ;.erci#e )ri0i$"l :1ri#%icti)$ )8er c"#e# "3ecti$0 "/b"##"%)r#, )ther !1blic
/i$i#ter# "$% c)$#1l#, "$% )8er !etiti)$# +)r certi)r"ri, !r)hibiti)$, /"$%"/1#, =1)
-"rr"$t), "$% h"be"# c)r!1#.
2.'e8ie-, re8i#e, re8er#e, /)%i+,, )r "Br/ )$ "!!e"l )r certi)r"ri, "# the l"- )r the
'1le# )+ 5)1rt /", !r)8i%e, ?$"l :1%0/e$t# "$% )r%er# )+ l)-er c)1rt# i$6
1. All c"#e# i$ -hich the c)$#tit1ti)$"lit, )r 8"li%it, )+ "$, tre"t,, i$ter$"ti)$"l )r
e.ec1ti8e "0ree/e$t, l"-, !re#i%e$ti"l %ecree, !r)cl"/"ti)$, )r%er, i$#tr1cti)$,
)r%i$"$ce, )r re01l"ti)$ i# i$ =1e#ti)$.
2. All c"#e# i$8)l8i$0 the le0"lit, )+ "$, t"., i/!)#t, "##e##/e$t, )r t)ll, )r "$,
!e$"lt, i/!)#e% i$ rel"ti)$ theret).
3. All c"#e# i$ -hich the :1ri#%icti)$ )+ "$, l)-er c)1rt i# i$ i##1e.
4.All cri/i$"l c"#e# i$ -hich the !e$"lt, i/!)#e% i# recl1#i)$ !er!et1" )r hi0her.
5.All c"#e# i$ -hich )$l, "$ err)r )r =1e#ti)$ )+ l"- i# i$8)l8e%.
3. A##i0$ te/!)r"ril, :1%0e# )+ l)-er c)1rt# t) )ther #t"ti)$# "# !1blic i$tere#t /",
re=1ire. S1ch te/!)r"r, "##i0$/e$t #h"ll $)t e.cee% #i. /)$th# -ith)1t the c)$#e$t
)+ the :1%0e c)$cer$e%.
4.Lr%er " ch"$0e )+ 8e$1e )r !l"ce )+ tri"l t) "8)i% " /i#c"rri"0e )+ :1#tice.
5. Pr)/1l0"te r1le# c)$cer$i$0 the !r)tecti)$ "$% e$+)rce/e$t )+ c)$#tit1ti)$"l
ri0ht#, !le"%i$0, !r"ctice, "$% !r)ce%1re i$ "ll c)1rt#, the "%/i##i)$ t) the !r"ctice )+
l"-, the i$te0r"te% b"r, "$% le0"l "##i#t"$ce t) the 1$%er-!ri8ile0e%. S1ch r1le# #h"ll
!r)8i%e " #i/!li?e% "$% i$e.!e$#i8e !r)ce%1re +)r the #!ee%, %i#!)#iti)$ )+ c"#e#,
#h"ll be 1$i+)r/ +)r "ll c)1rt# )+ the #"/e 0r"%e, "$% #h"ll $)t %i/i$i#h, i$cre"#e, )r
/)%i+, #1b#t"$ti8e ri0ht#. '1le# )+ !r)ce%1re )+ #!eci"l c)1rt# "$% =1"#i-:1%ici"l
b)%ie# #h"ll re/"i$ e3ecti8e 1$le## %i#"!!r)8e% b, the S1!re/e 5)1rt.
22
10) +rant of power to the local government
units to create its own sources of revenue
,ach local government unit has the power to create its own
revenue and to levy taxes, fees and charges subject to such guidelines
and limitations as the $ongress may provide.
9?
""E :lexible tari& clause
his clause provides the authority given to the )resident to
adjust tari& rates under #ection -@"
9>
of the ari& and $ustoms
$ode.
=@
"'E ,xemption from real property taxes
$haritable institutions, churches and parsonages or convents
appurtenant thereto, mos*ues, non-proft cemeteries, and all lands,
building, and improvements actually, directly and exclusively used for
religious, charitable or educational purposes shall be exempt from
taxation.
="
6. A!!)i$t "ll )Bci"l# "$% e/!l),ee# )+ the D1%ici"r, i$ "cc)r%"$ce -ith the 5i8il
Ser8ice L"-. (Art. VIII)
68
Sec , Art. X
L)c"l 0)8er$/e$t 1$it# h"8e $) !)-er t) +1rther %ele0"te #"i% c)$#tit1ti)$"l 0r"$t
t) r"i#e re8e$1e, bec"1#e -h"t i# %ele0"te% i# $)t the e$"ct/e$t )r the i/!)#iti)$
)+ " t"., it i# the "%/i$i#tr"ti8e i/!le/e$t"ti)$.
7he !)-er )+ l)c"l 0)8er$/e$t 1$it# t) i/!)#e t".e# "$% +ee# i# "l-",# #1b:ect t)
the li/it"ti)$# -hich 5)$0re## /", !r)8i%e, the +)r/er h"8i$0 $) i$here$t !)-er t)
t"..
*1$ici!"l c)r!)r"ti)$# "re /ere cre"t1re# )+ 5)$0re## -hich h"# the !)-er t)
cre"te "$% "b)li#h /1$ici!"l c)r!)r"ti)$#. 5)$0re## there+)re h"# the !)-er t)
c)$tr)l )8er l)c"l 0)8er$/e$t 1$it#. I+ 5)$0re## c"$ 0r"$t t) " /1$ici!"l c)r!)r"ti)$
the !)-er t) t". cert"i$ /"tter#, it c"$ "l#) !r)8i%e +)r e.e/!ti)$# )r e8e$ t"4e
b"c4 the !)-er (*asco vs. !A"COR)
the Pre#i%e$t 1!)$ the rec)//e$%"ti)$ )+ the ("ti)$"l ;c)$)/ic "$% Ge8el)!/e$t A1th)rit, i# e/!)-ere%6
1) 7) i$cre"#e, re%1ce )r re/)8e e.i#ti$0 !r)tecti8e r"te# )+ i/!)rt %1t,,
!r)8i%e% th"t the i$cre"#e #h)1l% $)t be hi0her th"$ 1<<I "% 8"l)re/
2) 7) e#t"bli#h i/!)rt =1)t" )r t) b"$ i/!)rt# )+ "$, c)//)%it,
3) 7) i/!)#e "%%iti)$"l %1t, )$ "ll i/!)rt# $)t e.cee%i$0 1<I "% 8"l)re/.
70 "arcia v. .ecutive &ecretar#, &.'. (). 1<1273, D1l, 3, 1992)
71 Sec. 28(3), Art. VI
Le#t )+ the t". e.e/!ti)$6 the 1#e "$% $)t )-$er#hi! )+ the !r)!ert,
7) be t".-e.e/!t, the !r)!ert, /1#t be "ct1"ll,, %irectl, "$% e.cl1#i8el, 1#e% +)r
the !1r!)#e# /e$ti)$e%.
7he -)r% @e.cl1#i8el,A /e"$# @!ri/"ril,9.
7he e.e/!ti)$ i# $)t li/ite% t) !r)!ert, "ct1"ll, i$%i#!e$#"ble b1t e.te$%# t)
+"cilitie# -hich "re i$ci%e$t"l t) "$% re"#)$"bl, $ece##"r, +)r the "cc)/!li#h/e$t )+
#"i% !1r!)#e#.
7he c)$#tit1ti)$"l e.e/!ti)$ "!!lie# )$l, t) !r)!ert, t"..
C)-e8er, it -)1l% #ee/ th"t 1$%er e.i#ti$0 l"-, 0i+t# /"%e i$ +"8)r )r reli0i)1#
ch"rit"ble "$% e%1c"ti)$"l )r0"$i2"ti)$# -)1l% $e8erthele## =1"li+, +)r %)$)r9# 0i+t
t". e.e/!ti)$. (Sec. 1<1(9)(3), (I'5)
7he c)$#tit1ti)$"l t". e.e/!ti)$# re+er )$l, t) re"l !r)!ert, th"t "re "ct1"ll,,
%irectl, "$% e.cl1#i8el, 1#e% +)r reli0i)1#, ch"rit"ble )r e%1c"ti)$"l !1r!)#e#, "$%
th"t the )$l, c)$#tit1ti)$"ll, rec)0$i2e% e.e/!ti)$ +r)/ t"."ti)$ )+ re8e$1e# "re
th)#e e"r$e% b, $)$-!r)?t, $)$-#t)c4 e%1c"ti)$"l i$#tit1ti)$#
23
13) %o appropriation or use of public money
for religious purposes
%o public money or property shall be appropriated, applied,
paid or employed, directly or indirectly for the use, beneft, support of
any sect, church, denomination, sectarian institution, or system of
religion or of any priest, preacher, minister, or other religious teacher
or dignitary as such except when such priest, preacher, minister or
dignitary is assigned to the armed forces or to any penal institution,
or government orphanage or leprosarium.
='
2. )rovisions Indirectly A&ecting axation
1) /ue process
%o person shall be deprived of life, liberty or property without
due process of law
=(
x x x.
2) ,*ual protection
30 nor shall any person be denied the e*ual protection of the
laws.
=-

3) 0eligious freedom
%o law shall be made respecting an establishment of religion or
prohibiting the free exercise thereof. he free exercise and enjoyment
of religious profession and worship, without discrimination or
preference, shall be forever allowed.
=8
-E %on-impairment of obligations of contracts
%o law impairing the obligation of contract shall be passed.
=9
-hich "re "ct1"ll,, %irectl, "$% e.cl1#i8el, 1#e% +)r e%1c"ti)$"l !1r!)#e#.
(Commissioner of Internal Revenue v. Court of Appeals, et "l., 298 S5'A 83)
72
Sec. 29(2), Art. VI
P1blic !r)!ert, /", be le"#e% t) " reli0i)1# 0r)1! !r)8i%e% th"t the le"#e -ill be
t)t"ll, 1$%er the #"/e c)$%iti)$# "# th"t t) !ri8"te !er#)$# ("/)1$t )+ re$t).
5)$0re## i# -ith)1t !)-er t) "!!r)!ri"te +1$%# +)r " !ri8"te !1r!)#e.
73 Sec. 1, Art. III
74 Ibi%.
75 Sec. Art. III
Lice$#e +ee#Mt".e# -)1l% c)$#tit1te " re#tr"i$t )$ the +ree%)/ )+ -)r#hi! "# the,
"re "ct1"ll, i$ the $"t1re )+ " c)$%iti)$ )r !er/it )+ the e.erci#e )+ the ri0ht.
C)-e8er, the 5)$#tit1ti)$ )r the Free ;.erci#e )+ 'eli0i)$ cl"1#e %)e# $)t !r)hibit
i/!)#i$0 " 0e$er"ll, "!!lic"ble #"le# "$% 1#e t". )$ the #"le )+ reli0i)1# /"teri"l#
b, " reli0i)1# )r0"$i2"ti)$. (#ee Tolentino vs &ecretar# of 2inance, 23 S5'A 63<)
76 Sec. 1<, Art. III
77 A l"- -hich ch"$0e# the ter/# )+ the c)$tr"ct b, /"4i$0 $e- c)$%iti)$#, )r
ch"$0i$0 th)#e i$ the
c)$tr"ct, )r %i#!e$#e# -ith th)#e e.!re##e%, i/!"ir# the )bli0"ti)$.
7he $)$-i/!"ir/e$t r1le, h)-e8er, %)e# $)t "!!l, t) !1blic 1tilit, +r"$chi#e #i$ce
" +r"$chi#e i# #1b:ect t) "/e$%/e$t, "lter"ti)$ )r re!e"l b, the 5)$0re## -he$ the
!1blic i$tere#t #) re=1ire#.
24
10. Sta$es of Taxation
1. 1evy
/etermination of the persons, property or excises to be taxed,
the sum or sums to be raised, the due date thereof and the time and
manner of levying and collecting taxes.
'. Assessment and $ollection
he manner of enforcement of the obligation on the part of those
who are taxed.
==
he two processes together constitute the
Gtaxation system.H (. )ayment
he act of compliance by the taxpayer, including such options,
schemes or remedies as may be legally available.
-. 0efund
he recovery of any tax alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been
excessively, or in any manner wrongfully collected.
%. Definition& Nature& and Characteristics of Taxes
/efnition
axes are the enforced proportional
contributions from
persons and property levied by the law-
making body of the
#tate by virtue of its sovereignty for the
support of
government and for public needs.
%ature
$haracteristics

h
e
y
ar
e
n
ot
ar
bi
tr
ar
y exactions but
contributions
levied by authority
of law, and by some
rule of proportion
which is intended
to ensure
uniformity of
contribution and a
just apportionment
of the burdens of
government.
1. It is levied by the law-making body
of the #tate.
=?

2. It is an enforced contribution.
=>

3. I
t

is generally
payable in
money.
?@

77 7hi# i$cl1%e# !",/e$t
b, the t".!",er "$% i#
re+erre% t) "# t".
"
%
87he!)-ert)t".i#"le0i#l"ti8e!)-er-hich1$%erthe5)$#tit1ti)$)$l,5)$0re##c"$e.erci#ethr)10hthee$"ct/e$t)+l"-#.Acc)r%i$0l,,the)bli0"ti)$t)!",t".e#i#"#t"t1t)r,li"bilit,.
7
8)l1$t"r,
!",/e$t )r
%)$"ti)$. It
i# $)t
%e!e$%e$t
)$ the -ill )r
c)$tr"ct1"l "##e$t, e.!re##
)r i/!lie%, )+ the !er#)$
t".e%. 7".e# "re $)t
c)$tr"ct# b1t !)#iti8e "ct# )+
the 0)8er$/e$t.
2
4. It is proportionate in character.
?"

5. It is levied on persons or property.
?'

6. It is levied for public purpose or
purposes.
?(

7. It is levied by the #tate which has
jurisdiction over the persons or property.
?-

12. 'e(uisites of a )alid tax
1) It should be for a public purpose
2) he rule of taxation should be uniform
3) ,ither the person or property taxed be within the jurisdiction
of the taxing authority
4) he assessment and collection be in consonance with the due
process clause
5) he tax must not infringe on the inherent and constitutional
limitations of the power of taxation.
?8

13. Tax as distin$uished from other forms of exactions
1. ari&
5ay be used in three D(E sensesA
1. 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.
2. /uties payable on goods imported or exported.
?9

3. he system or principle of imposing duties on the
importation6exportation of
goods.
80 7". i# " !ec1$i"r, b1r%e$ H "$ e."cti)$ t) be %i#ch"r0e% "l)$e i$ the +)r/ )+
/)$e, -hich /1#t be i$ le0"l te$%er, 1$le## =1"li?e% b, l"-, #1ch "# 'A 3<4 -hich
"ll)-# b"c4!", certi?c"te# "# !",/e$t )+ t".e#.
81 It i# )r%i$"ril, b"#e% )$ the t".!",er9# "bilit, t) !",.
82 A t". /", "l#) be i/!)#e% )$ "ct#, tr"$#"cti)$#, ri0ht# )r !ri8ile0e#.
83 7"."ti)$ i$8)l8e#, "$% " t". c)$#tit1te#, " b1r%e$ t) !r)8i%e i$c)/e +)r !1blic
!1r!)#e#.
84 7he !er#)$#, !r)!ert, )r #er8ice t) be t".e% /1#t be #1b:ect t) the
:1ri#%icti)$ )+ the t".i$0 #t"te.
85 7".e# "re the li+ebl))% )+ the 0)8er$/e$t "$% #h)1l% be c)llecte% -ith)1t
1$$ece##"r, hi$%r"$ce. K1t their c)llecti)$ #h)1l% $)t be t"i$te% -ith "rbitr"ri$e##
86 P.G. (). 23<
2
6
'. oll
#um of money for the use of something, generally applied to the
consideration which is paid for the use of a road, bridge of the like, of
a public nature.
ax
/emand of sovereignty
)aid for the support of the
government
+enerally, no limit as to amount
imposed
Imposed only by the government
(. 1icense fee
o
ll
/emand of
proprietorship
)aid for the
use of
another3s
property
Amount
depends on
the cost of
construction
or
maintenance
of the public
improvement
used
Imposed by the
government or
private
individuals or
entities
A charge
imposed under
the police
power for the
purposes of
regulation.
?=
ax 1icense6)ermit :ee
,nforced
contribution
assessed by
sovereign
autho
rity to
defra
y
public
expen
ses
1egal
compensation or
reward of an
o&icer for
specifc
purpos
es
:or revenue purposes
87 7hree
4i$%# )+
lice$#e# "re
rec)0$i2e% i$
the l"-6
1.Lice$#e# +)r
the
re01l"ti)$
)+ 1#e+1l
)cc1!"ti)$
#.
2.Lice$#e# +)r
the
re01l"ti)$
)r
re#tricti)$
)+ $)$-
1#e+1l
)cc1!"ti)$
# )r
e$ter!ri#e#
3.Lice$#e# +)r
re8e$1e
)
$
l
,

I
/
!
)r
t"
$c
e
)+
th
e
%i
#t
i$
ct
i)
$#
b
et
-
e
e
$
t"
.
"$
%
lic
e$
#e
+e
e6
1.
S
)/
e
li/i
t"ti
)$#
"!
!l,
)$l
,
t)
)$
e
"$
%
$)t
t)
the
)ther, "$% th"t
e.e/!ti)$
+r)/ t".e#
/", $)t
i$cl1%e
e.e/!ti)$
+r)/ lice$#e
+ee#.
2. 7he !)-er
t) re01l"te "#
"$ e.erci#e )+
!)lice !)-er
%)e# $)t
i$cl1%e the
!)-er t)
i/!)#e +ee#
+)r re8e$1e
!1r!)#e#. (#ee
American ,ail
Line vs Cit# of
*utuan, L-
12647, *",
31, 1967 "$%
rel"te% c"#e#)
3.A$
e.tr"cti)$,
h)-e8er,
/
"
,
b
e
c)
$#
i%
er
e
%
b
)t
h
"
t"
.
"
$
%
"
lic
e
$#
e
+e
e.
4. K
1t
"
t"
.
/
",
h
"8
e
)
$l
,
"
re
0
1l
"t
)r
,
!
1r
!
)#
e.
5. 7
he
0e$e
r"l r1le i# th"t
the i/!)#iti)$
i# " t". i+ it#
!ri/"r,
!1r!)#e i# t)
0e$er"te
re8e$1e "$%
re01l"ti)$ i#
/erel,
i$ci%e$t"l; b1t
i+ re01l"ti)$ i#
the !ri/"r,
!1r!)#e, the
+"ct th"t
i$ci%e$t"ll,
re8e$1e i# "l#)
)bt"i$e% %)e#
$)t /"4e the
i/!)#iti)$ )+ "
t".. (#ee
!rogressive
+evelopment
Corp. vs
3uezon Cit#,
172 S5'A 629)
27
An exercise of the taxing power
+enerally no limit in the amount
of tax to be paid
Imposed also on persons and
property
-. #pecial
assessment
An exercise of the police power
Amount is limited to the
necessary expenses of inspection
and regulation
Imposed on the right to exercise
privilege
An enforced proportional contribution
from owners of
lands especially
or peculiarly
benefted by
public improvements.
??
ax
Imposed
on
persons,
property
and excise
)ersonal
liability of
the
person
assessed
2ased on
necessity
as well as
on
benefts
received
#pecial
Assessment
1evied only on land
%ot a personal liability
of the person assessed,
i.e. his liability is
limited only to the land
involved
2ased
wholly on
benefts
+eneral application
88 S
i$ce
#!eci"l
"##e##
/e$t#
"re $)t
t".e#
-ithi$
the
c)$#tit
1ti)$"l
)r
#t"t1t)
r,
!r)8i#i
)$# )$
t".
e.e/!
ti)$#, it +)ll)-#
th"t the
e.e/!ti)$ 1$%er
Sec. 28(3), Art. VI
)+ the 5)$#tit1ti)$
%)e# $)t "!!l, t)
#!eci"l
"##e##/e$t#.
89 C)-e8er, i$
8ie- )+ the
e.e/!ti$0 !r)8i#)
i$ Sec. 234 )+ the
L)c"l &)8er$/e$t
5)%e, !r)!ertie#
-hich "re "ct1"ll,,
%irectl
, "$%
e.cl1#i
8el,
1#e%
+)r
reli0i)
1#,
ch"rit"
ble
"$%
e%1c"t
i)$"l
!1r!)#
e# "re
$)t
e."ctl,
e.e/!
t +r)/
re"l
!r)!er
t,
t".e#
b1t "re
e.e/!
t +r)/
the
i/!)#i
ti)$ )+
#!eci"l
"##e##/e$t# "#
-ell. (#ee Ab"$)
7he 0e$er"l r1le
i# th"t "$
e.e/!ti)$ +r)/
t"."ti)$ %)e# $)t
i$cl1%e e.e/!ti)$
+r)/ #!eci"l
"##e##/e$t.
90 #ee Apostolic
!refect vs Treas.
Of *aguio, 71 Phil
47
28
8. /ebt
/ebt is based upon juridical tie, created by law, contracts,
delicts or *uasi-delicts between parties for their private interest or
resulting from their own acts or omissions.
ax
2ased on law
/ebt
2ase
d on
contracts,
express or
implied
+enerally, cannot be assigned Assignable
+enerally payable in money 5ay be paid in kind
+enerally not subject to set-o& or
5ay be subject to set-o& or
compensation
compensation
Imprisonment is a sanction for
non-payment
%o imprisonment for non-payment
of debt
of tax except poll tax
+overned by
special
prescriptive
periods provided
for in the ax
$ode
/oes not draw
i d
e
l
i
n
*
u
e
n
t +overn
ed by
the
ordinar
y
periods
of
prescri
ptions
/raws
interest
when
so
stipulat
ed, or
in case
of
default
14. %i
nd
s
of
Taxes
1. As to object
a. )ersonal,
ax
imposed on
property, real
or personal, in
proportion to
its
value
or in
accor
dance
with
some
other
reaso
nable
method of
apportionmen
t.
9<
i.e. c)//1$it,
t"..
2
c. )rivilege tax
A charge imposed upon the performance of an act, the
enjoyment of privilege, or the engaging in an occupation.
'. As to burden or incidence
a. /irect
/emanded from the person who also shoulders the burden of
the tax. It is a tax which the taxpayer is directly or primarily liable and
which he or she cannot shift to another.
b. Indirect
/emanded from a person in the expectation and intention that
he or she shall indemnify himself or herself at the expense of another,
falling fnally upon the ultimate purchaser or consumer. A tax which
the taxpayer can shift to another.
(. As to tax rates
a. #pecifc
he computation of the tax or the rates of the tax is already
provided for by law. b. Ad valorem
ax upon the value of the article or thing subject to taxation. the
intervention of another party is needed for the computation of the tax.
c. 5ixed
ax rates are partly progressive and partly regressive.
-. As to purposes
a. +eneral or fscal
Imposed for the purpose of raising public funds for the service
of the government.
b. #pecial, regulatory, or sumptuary
Imposed primarily for the regulation of useful or non-useful
occupation or enterprises and secondarily only for the purpose of
raising public funds.
3
<
5. As to scope or authority to impose
1. %ational K internal
revenue taxes Imposed by the %ational
+overnment.
2. 1ocal K real property tax,
municipal tax Imposed by the municipal
corporations or local government units.
6. As to graduation
1. )rogressive
0ate or amount of tax increases as the amount of the income or
earning to be taxed increases.
b. 0egressive
ax rate decreases as the amount of income to be taxed
increases.
b. )roportionate
ax based on a fxed percentage of the amount of the property
receipts or other basis to be taxed.
>"
91
;."/!le6 re"l e#t"te t"..
31
II. National Internal Revenue Code of 1997 as amended (NIRC)
1. *ncome Taxation
1. Income ax #ystems
a. +lobal ax #ystem
All income received by the taxpayer are grouped together,
without any distinction as to the type or nature of the income, and
after deducting therefrom expenses and other allowable deductions,
are subjected to tax at a fxed rate.
b. #chedular ax #ystem
he various types or items of income
>'
are classifed accordingly
and are accorded di&erent tax treatments, in accordance with
schedules characteri!ed by graduated tax rates. #ince these types of
income are treated separately, the allowable deductions shall likewise
vary for each type of income.
#chedular system
here are di&erent tax rates
+lobal
system
here is a
single tax
rate
here are di&erent
categories of taxable
inco
me
he
re is
no need for
classifcati
on as all
taxpayers
are
subjected
to a single
tax rate.
Bsually
used in
the
income
taxatio
n of
Bsually
applied
to
corpora
tions.
individ
uals
c.
#emi-schedular or
semi-global tax
system
A
s
y
st
e
m
w
h
e
r
e
t
h
e
c
o
m
p
e
n
s
a
ti
o
n,
b
u
si
n
e
s
s
o
r
professi
onal
income,
capital
gain
and
passive
income
not
subject
to fnal
tax, and
other
income
are
added
togethe
r to
arrive
at the
gross
income,
and
after
deducti
ng the
sum of
allowab
le
deducti
ons
from
busines
s or
professi
onal
income,
capital
gain and passive
income not
subject to fnal
tax, and other
income, in the
case of
corporations, as
well as personal
and additional
exemptions, in
the case of
individual
taxpayers, the
taxable income is
subjected to one
set of graduated
tax rates. method
of taxation under
the law.
9
2 c
)/!e$#
"ti)$,
b1#i$e#
# )r
!r)+e##i
)$"l
i$c)/e
93 "!!r)"ch 1#e%
i$ the Phili!!i$e#
3 2
2. :eatures of the )hilippine
Income ax 1aw a. /irect
tax
4ne assessed upon the property, person, business income, etc.
of those who pay
them.
b. )rogressive
he tax rates increase as the tax base increases. In certain
cases, however, fnal taxes are imposed on passive income.
>-
c. $omprehensive
he )hilippine Income tax law adopted the so-called
Gcomprehensive tax situsH K comprehensive in the sense that it
practically applies all possible rules of tax situs.
4. #emi-schedular or semi-global tax system
>8

3. $riteria in Imposing )hilippine Income ax
1. $iti!enship )rinciple
A citi!en of the )hilippines is subject to )hilippine income tax
(1)on his worldwide income, if he resides in the )hilippines, or
(2) only on his income from sources within the )hilippines, if he
*ualifes as nonresident citi!en.
2. 0esidence )rinciple
A resident alien is liable to pay income tax on his income from
sources within the )hilippines but exempt from tax on his income
from sources outside the )hilippines.
c. #ource )rinciple
An alien is subject to )hilippine income tax because he derives
income from sources within the )hilippines. hus, a nonresident alien
is liable to pay )hilippine income tax on his income from sources
within the )hilippines
>9
despite the fact that he has not set foot in the
)hilippines.
94 7he i$%i8i%1"l i$c)/e t". #,#te/, i$ the /"i$, i# !r)0re##i8e i$ $"t1re
95 #1!r"
96 #1ch "# %i8i%e$%, i$tere#t, re$t, )r r),"lt,
3
3
4. ypes of )hilippine Income ax
1. )resumptive Income ax K A scale of income taxes is
imposed in relation to a group of person3s actual expenditure and
the presumed income.
2. $omposite ax K A tax consisting of a series of separate *uasi-
personal taxes, assessed on the particular source of income with a
superimposed personal tax on the income as a whole.
3. Bnitary Income ax K Incomes are arranged according to
source. he separate items are added together and the rate applied to
the resulting total income.
5. axable )eriod
a. $alendar )eriod
A period of twelve D"'E months commencing from <anuary " and
ending /ecember
(".
b. :iscal )eriod
An accounting period of "' months ending on the last day of any
month other than /ecember.
>=
c. #hort
)eriod A period of less than
twelve D"'E months.
97
e.. Feb. 1 t) D"$. 31
34
6. Finds of axpayers
a. Individual axpayers
1) $iti!ens
1)0esident citi!ens
>?

$iti!ens of the )hilippines who are residing therein.
bE %on-resident citi!ens
>>
1. A citi!en of the )hilippines who establishes to the satisfaction
of the $ommissioner of Internal 0evenue D$I0E the fact of his physical
presence abroad with a defnite intention to reside therein.
2. A citi!en of the )hils. who leaves the country during the
taxable year to reside abroad, either as immigrant or for employment
or on permanent basis.
3. A citi!en of the )hils. who works and derives from abroad and
whose employment thereat re*uires him to be physically present
abroad most of the time during the taxable year.
4. A citi!en who has been previously considered as non-resident
citi!en and who arrives in the )hils. at any time during the taxable
year to reside permanently in the country.
"@@

5. A citi!en who shall have stayed outside the )hils. for "?( days
or more by the end of the year.
"@"

i$c)/e
99 7"."ble +)r i$c)/e %eri8e% -ithi$ the Phili!!i$e# b"#e% )$ t"."ble (i.e., $et)
i$c)/e
100 Ce #h"ll be c)$#i%ere% " ('5 +)r the t"."ble ,e"r i$ -hich he "rri8e# i$ the Phil#.
-ith re#!ect t) hi#
i$c)/e %eri8e% +r)/ #)1rce# "br)"% 1$til the %"te )+ hi#
"rri8"l i$ the Phil#.
1<1
Sec. 22 (;)
7he c)$ti$1it, )+ re#i%e$ce "br)"% i# $)t e##e$ti"l. I+ !h,#ic"l !re#e$ce i#
e#t"bli#he%, #1ch !h,#ic"l !re#e$ce +)r the c"le$%"r ,e"r i# $)t i$terr1!te% b,
re"#)$# )+ tr"8el# t) the Phil#. ('e8. 'e0#. (). 9-73, ()8e/ber 26, 1973)
A$ )8er#e"# c)$tr"ct -)r4er i# t"."ble )$l, )$ i$c)/e +r)/ #)1rce# -ithi$ the
Phili!!i$e#. (Sec. 23 (c).
A #e"/"$ -h) i# " Fili!i$) citi2e$ "$% -h) recei8e# c)/!e$#"ti)$ +)r #er8ice#
re$%ere% "br)"% "# /e/ber )+ the c)/!le/e$t )+ " 8e##el e$0"0e% e.cl1#i8el, i$
i$ter$"ti)$"l tr"%e i# tre"te% "# "$ )8er#e"# c)$tr"ct -)r4er.
Le$0th )+ #t", i# i$%ic"ti8e )+ i$te$ti)$. A citi2e$ )+ the Phili!!i$e# -h) #h"ll h"8e
#t",e% )1t#i%e the Phili!!i$e# +)r 183 %",# )r /)re b, the e$% )+ the ,e"r i# " $)$-
re#i%e$t citi2e$. Ci# !re#e$ce "br)"%, h)-e8er, $ee% $)t be c)$ti$1)1#. E''1-79F
3
2) Aliens
"@'

1)0esident aliens
hose whose residence are within the )hilippines but who are
not citi!ensthereof.
"@(
bE %on-resident alien
"@-
hose not residing in the )hils. and who are not
citi!ensthereof.
"@8
D"E ,ngaged in trade or
business An alien who stays in the )hilippines for
more than "?@ days.
"@9
1<2
>h"t /"4e# "$ "lie$ " re#i%e$t )r $)$-re#i%e$t "lie$ i#
hi# i$te$ti)$ -ith
re0"r
%
t) the le$0th
"$%
$"t1re )+ hi# #t",. 7h1#6
". L$e -h) c)/e# t) the Phili!!i$e# +)r " %e?$ite !1r!)#e -hich i$ it# 8er, $"t1re
/",
be !r)/!tl, "cc)/!li#he% i# $)t " re#i%e$t citi2e$.
b. L$e -h) c)/e# t) the Phili!!i$e# +)r " %e?$ite
!1r!)#e
-hic
h i$ it#
8er, $"t1re
-)1l%
re=1ire "$ e.te$%e% #t",, "$% t) th"t e$%, /"4e# hi# h)/e te/!)r"ril, i$ the
Phili!!i$e#, bec)/e# " re#i%e$t, th)10h it /", be hi# i$te$ti)$ "t "ll ti/e# t) ret1r$
t) hi# %)/icile "br)"% -he$ the !1r!)#e +)r -hich he c"/e h"# bee$ c)$#1//"te%
)r "b"$%)$e%. (Sec. , '' 2)
Le$0th )+ #t", i# i$%ic"ti8e )+ i$te$ti)$.
A$ "lie$ -h) #h"ll h"8e #t",e% i$ the Phili!!i$e# +)r /)re th"$ )$e (1) ,e"r b, the
e$% )+ the t"."ble ,e"r i# " re#i%e$t "lie$
A$ "lie$ -h) #h"ll c)/e t) the Phili!!i$e# "$% #t", +)r "$ "00re0"te !eri)% )+
/)re th"$ )$e h1$%re% ei0ht, (18<) %",# %1ri$0 " c"le$%"r ,e"r #h"ll be c)$#i%ere%
" $)$ -re#i%e$t "lie$ i$ b1#i$e##, )r i$ the !r"ctice )+ !r)+e##i)$, i$ the Phili!!i$e#.
ESec. 2(A)(1)F 7h1#, i+ "$ "lie$ #t",# i$ the Phili!!i$e# +)r 18< %",# )r le## %1ri$0 the
c"le$%"r ,e"r, he #h"ll be %ee/e% " $)$-re#i%e$t "lie$ $)t %)i$0 b1#i$e## i$ the
Phili!!i$e#, re0"r%le## )+ -hether he )-$#
1. St)c4 i$ tr"%e )+ the t".!",er, )r )ther !r)!ert, )+ " 4i$% -hich -)1l% !r)!erl, be
i$cl1%e% i$ "$ i$8e$t)r, )+ " t".!",er i+ )$ h"$% "t the e$% )+ the t"."ble ,e"r (e."/!le6
'"- *"teri"l# I$8e$t)r,, >)r4
i$ Pr)ce## I$8e$t)r,, LBce S1!!lie#
I$8e$t)r,)
2.
Pr)!ert, hel% b, the t".!",er !ri/"ril,
+)r #"le t)
c1#t)/er#
i$
th
e
)r%i$"r, c)1r#e )+ hi#
tr"%e
)r b1#i$e## (e."/!le6 *erch"$%i#e
I$8e$t)r,)
3.
Pr)!ert, 1#e% i$ the tr"%e )r b1#i$e##
-hich i# #1b:ect t) the
"ll)-"$ce +)r
%e!reci"ti)$
(e."/!le6 LBce ;=1i!/e$t) "ct1"ll, e$0"0e# i$ tr"%e )r b1#i$e## therei$.
(*"/"l"te))
103 Sec. 22 EFF, (I'5
104 A /ere N)"ti$0 i$te$ti)$, i$%e?$ite "# t) ti/e, t) ret1r$ t) "$)ther c)1$tr, i#
$)t #1Bcie$t t)
c)$#tit1tehi/ " tr"$#ie$t.
F)r t". !1r!)#e#, " re#i%e$t "lie$ i#;
1. A$ "lie$ -h) li8e# i$ the Phil#. -ith $) %e?$ite i$te$ti)$ t) #t", "# " re#i%e$t.
2. L$e -h) c)/e# i$ the Phil#. +)r %e?$ite !1r!)#e# -hich i$ it# 8er, $"t1re -)1l%
re=1ire "$ e.te$%e% #t", "$% t) th"t e$%, /"4e# hi# h)/e te/!)r"ril, i$ the Phil#.
3.A$ "lie$ -h) #t", -ithi$ the Phil#. +)r /)re th"$ 12 /)$th# +r)/ the %"te )+ hi#
"rri8"l i$ the Phil#.
1<4
A @$)$-re#i%e$t "lie$A i$%i8i%1"l -h) c"/e t) the Phil#. "$%
#t",e% therei$ +)r "$ "00re0"te !eri)% )+
/)re th"$ 18< %",# %1ri$0 "$, c"le$%"r ,e"r #h"ll be %ee/e% " ('A %)i$0 b1#i$e##
i$ the Phil#.
105 Sec. 22 (&), i%.
106 Sec. 2 EAF, (I'5
3
6
D'E %ot engaged in trade or business
An alien who stays in the )hilippines for "?@ days or less.
"@=
(3) #pecial $lass of Individual ,mployees
1)5inimum 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 he6she is assigned.
"@?
2y virtue of the passage of 0.A. >8@-, minimum wage earners
are exempted from the payment of the net income tax.
"@>
bE $orporations
""@
"E /omestic corporations
$reated or organi!ed in the )hils. or under its laws.
"""
'E :oreign corporations
$reated, organi!ed or existing under any laws other than those
of the )hils.
D"E 0esident
,ngaged in trade or business
""'
within the )hils.
1<7
Sec. 2 EKF, i%.
It i# the le$0th )+ #t", i$ the Phili!!i$e# th"t %eter/i$e# -hether )r $)t he i#
e$0"0e% i$ tr"%e )r b1#i$e##. 7he $1/ber )+ tr"$#"cti)$ he e$tere% i$t) i#
i//"teri"l.
108 Sec. 22 (CC),i%. "# "/e$%e% b, '.A. 9<4
109 7he, "re $)t re=1ire% t) ?le "$ i$c)/e t". ret1r$
7h1#6 @..., 7h"t /i$i/1/ -"0e e"r$er# #h"ll be e.e/!t +r)/ the !",/e$t )+
i$c)/e t". )$ their t"."ble i$c)/e6 Pr)8i%e%, +1rther, th"t the h)li%", !",, )8erti/e
!",, $i0ht #hi+t %i3ere$ti"l !", "$% h"2"r% !", recei8e% b, #1ch /i$i/1/ -"0e
e"r$er# #h"ll li4e-i#e be e.e/!t +r)/ i$c)/e t"..A
#t)c4 c)/!"$ie#, :)i$t "cc)1$t#, )r i$#1r"$ce c)/!"$ie#, b1t %)e# $)t i$cl1%e 0e$er"l !r)+e##i)$"l !"rt$er#hi!# "$% " :)i$t 8e$t1re )r c)$#)rti1/ +)r/e% +)r the !1r!)#e )+ 1$%ert"4i$0 c)$#tr1cti)$ !r):ect# )r e$0"0i$0 i$ !etr)le1/, c)"l, 0e)ther/"l "$% )ther e$er0, )!er"ti)$# !1r#1"$t t) )!er"ti$0 )r c)$#)rti1/ "0ree/e$t 1$%er " #er8ice c)$tr"ct -ith the 0)8er$/e$t. (Sec. 24(b), i%)
111 li"ble +)r i$c)/e +r)/ #)1rce# -ithi$ "$% -ith)1t the Phili!!i$e# (Sec 22E5F, i%.)
112 7he ter/ i/!lie# " c)$ti$1it, )+ c)//erci"l %e"li$0# "$% "rr"$0e/e$t# "$%
c)$te/!l"te# t) th"t e.te$t, the !er+)r/"$ce )+ "ct# )r -)r4# )r the e.erci#e )+
#)/e )+ the +1$cti)$# $)r/"ll, i$#i#te$t t) "$% i$ the !r)0re##i8e !r)#ec1ti)$ )+
c)//erci"l 0"i$ )r +)r the !1r!)#e "$% the )b:ect )+ the b1#i$e## )r0"$i2"ti)$
(Comm. vs. *ritish Overseas Air0a#s Corporation H KLA5 c"#e 149 S5'A39)
3
7
D'E %on-resident
%ot engaged in trade or business within the )hils.
c. )artnerships
""(
)artnership is a contract whereby two or more persons bind
themselves to contribute money, property, or industry to a common
fund with the intention of dividing the profts among themselves.
""-
d. +eneral )rofessional )artnerships
:ormed by persons for the role purpose of exercising their
common profession, no part of the income of which is derived from
engaging in any trade L business.
""8
e. ,statesand rusts
,state rust
he mass of property, rights and
obligations left behind by the
decedent upon his death.
""9
An arrangement
created by will
or co-agreement
under which title
to property is
passed to
another for
conservation or
investment with
the income
therefrom and
ultimately the
corpus
""=
to be
distributed in
accordance with
the directions of
the creator as
expressed in the
governing
instrument.
""?
113 A$ )r%i$"r, b1#i$e##
!"rt$er#hi! i# c)$#i%ere% "# "
c)r!)r"ti)$ "$% i# th1# #1b:ect
t) t". "# #1ch. P"rt$er# "re
c)$#i%ere% #t)c4h)l%er# "$%,
there+)re, !r)?t# %i#trib1te% t)
the/ b, the !"rt$er#hi! "re
c)$#i%ere% "# %i8i%e$%#.
114 P"rt$er#hi!#, $) /"tterh)- cre"te% )r )r0"$i2e%, i$cl1%i$0 :)i$t 8e$t1re# )r c)$#)rti1/#, "re t"."ble. >h"t "re t"."ble 1$re0i#tere% !"rt$er#hi!#O
7he S5 i$ .vangelista v. CIR
$45, Phil 14<, hel% th"t
Sec. 24 c)8ere%
1$re0i#tere% !"rt$er#hi!#
"$% e8e$
"##)ci"ti)$# )r :)i$t "cc)1$t#
-hich h"8e $) le0"l
!er#)$"litie# "!"rt +r)/ their
i$%i8i%1"l /e/ber#.
Acc)r%i$0l,, " !))l )+
i$%i8i%1"l re"l !r)!ert,
)-$er#
%e"li$0 i$
re"l e#t"te
b1#i$e## -"#
c)$#i%ere% "
c
)
r
!
)
r
"
t
i
)
$

+
)
r

t
"
.

!
1
r
!
)
#
e
#

E
A
f
i
s
c
o

I
n
s
u
r
a
n
c
e

C
o
r
porat
ion v.
CA,3
<2
S5'A
1F
11
Sec. 22 (b)
e. 0. L"- ?r/
&e$er"l !r)+e##i)$"l
!"rt$er#hi!# "re $)t t"."ble
b1t !"rt$er# "re t".e% )$
their #h"re )+ !"rt$er#hi!
!r)?t# "ct1"ll, )r
c)$#tr1cti8el, !"i% %1ri$0
the ,e"r.
cl"##i?e% "# +)ll)-#6
1. ;#t"te# $)t 1$%er
:1%ici"l #ettle/e$t -
"re #1b:ect t) i$c)/e
t". 0e$er"ll, "# /ere
c)-)-$er#hi!.
1- 7he t". li"bilit, )$
i$c)/e )+ the c)-)-$er#hi!
le8ie% %irectl, )$ the c)-
)-$er#. 7h1#, the heir# #h"ll
i$cl1%e i$ their re#!ecti8e
ret1r$# their %i#trib1ti8e
#h"re# )+ the $et i$c)/e )+
the e#t"te.
2. ;#t"te# 1$%er :1%ici"l
#ettle/e$t - "re #1b:ect
t) i$c)/e t". i$ the
#"/e
/"$$er
"#
i$%i8i%1"l
.
2- I$c)/
e recei8e%
%1ri$0 the
#ettle/e$t )+
the e#t"te i#
t"."ble t)
the ?%1ci"r,
(01"r%i"$,
e.ec1t)r,
tr1#tee, "$% "%/i$i#tr"t)r).
3- 7he ret1r$ #h)1l% be
?le% b, e.ec1t)r )r
"%/i$i#tr"t)r )+ the
tr1#t.
117 !ri$ci!"l
118 7-) (2) Pi$%# )+ 7r1#t 6
38
f. $o-ownerships
"">
It is created whenever the ownership of an undivided thing or
right belongs to di&erent persons.
7. Income
axation
a.
/efnitio
n
A tax on all yearly profts arising from property, profession,
trade or business, or a tax on person3s income, emoluments, profts
and the like.
"'@
b. %ature
It is generally regarded as an excise tax. It is not levied upon
persons, property, funds or profts but on the privilege of receiving
said income or proft.
1. Irre8)c"ble 7r1#t - i# c)$#i%ere% "# " #e!"r"te t".!",er.
2.'e8)c"ble 7r1#t - i# )$e -here "t "$,ti/e the !)-er t) re8e#t the title t) "$,
!"rt )+ the corpus )+
the tr1#t i# 8e#te%6
(1) i$ the 0r"$t)r (cre"t)r )+ the tr1#t) either "l)$e )r i$ c)$:1$cti)$ -ith "$,
!er#)$ $)t h"8i$0 " #1b#t"$ti"l "%8er#e i$tere#t i$ the %i#!)#iti)$ )+ #1ch !"rt )+ the
c)r!1# )r the i$c)/e there+r)/; )r
(2) i$ "$, !er#)$ $)t h"8i$0 " #1b#t"$ti"l "%8er#e i$tere#t i$ the %i#!)#iti)$ )+
#1ch !"rt )+ the c)r!1# )r the i$c)/e there+r)/.
7he t". #h"ll be i/!)#e% )$ t"."ble i$c)/e )+ the 0r"$t)r.
119
&e$er"l r1le6 5)-)-$er#hi! i# e.e/!t +r)/ i$c)/e t". bec"1#e the "cti8itie# )+
the c)-)-$er# "re
1#1"ll, li/ite% t) the @!re#er8"ti)$A )+ the !r)!ertie# )-$e% i$ c)//)$ "$% the
c)llecti)$ )+ the i$c)/e there+r)/.
;.ce!ti)$#6 (>he$ c)-)-$er#hi! i# #1b:ect t) t".).
(1) >he$ the i$c)/e )+ the c)-)-$er#hi! i# i$8e#te% b, the c)-)-$er# i$ )ther
i$c)/e-!r)%1ci$0 !r)!ertie# )r i$c)/e-!r)%1ci$0 "cti8itie#, "$%
(2) >he$ there i# $) "tte/!t t) %i8i%e i$herite% !r)!ert, +)r /)re th"$ te$ (1<)
,e"r# "$% the #"i% !r)!ert, -"# $)t 1$%er "$, "%/i$i#tr"ti)$ !r)cee%i$0# $)r hel% i$
tr1#t, "$ 1$re0i#tere% !"rt$er#hi! i# %ee/e% t) e.i#t.
7". li"bilit, )+ c)-)-$er#6
7he c)-)-$er# i$ e.e/!t c)-)-$er#hi! #h"ll be li"ble +)r i$c)/e t". )$l, i$ their
#e!"r"te "$% i$%i8i%1"l c"!"cit,.
Fili$0 )+ ret1r$6
7he )-$er# #h"ll re!)rt "$% i$cl1%e i$ their re#!ecti8e !er#)$"l i$c)/e t".
ret1r$# their #h"re# )+ the $et i$c)/e )+ the c)-)-$er#hi!.
7e#t t) %eter/i$e -hether c)-)-$er#hi! i# " t"."ble 1$re0i#tere% !"rt$er#hi!6
Fi$% )1t -hether the heir# h"8e /"%e #1b#t"$ti"l i/!r)8e/e$t# )$ the i$herite%
!r)!ert,. I+ #), the i/!lic"ti)$ i# th"t the, -ill e$0"0e i$ b1#i$e## +)r !r)?t
(;8"$0eli#t" G)ctri$e). I+ th"t h"!!e$#, the c)-)-$er#hi! -ill be t".e% "# "$
1$re0i#tere% !"rt$er#hi!.
12<
2isher v. Trinidad, &' L-19<3<, Lct. 2<, 1922
3
9
3. +eneral principles
1. A citi!en of the )hilippines residing therein is taxable on all
income derived from sources within and without the )hilippines.
2. A non-resident citi!en is taxable only on income derived from
sources within the )hilippines.
3. An individual citi!en of the )hilippines, who is working and
deriving income from abroad as an overseas contract worker, is
taxable only on income derived from sources within the )hilippines.
)rovided, that a seaman who is a citi!en of the )hilippines 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.
4. An alien individual, whether or not a resident of the
)hilippines, is taxable only on income derived from sources within the
)hilippines.
5. A domestic corporation is taxable on all income derived from
sources within and without the )hilippines.
6. A foreign corporation, whether engaged or not in trade or
business in the )hilippines, is taxable only on income derived from
sources within the )hilippines.
8. Income
1. /efnition
It means cash or its e*uivalent coming to a person within a
specifed period, whether as payment for services, interest or proft
from investment. It covers gain derived from capital, from labor, or
from both combined, including gain from sale or conversion of capital
assets.
"'"
b. %ature
All wealth which Mows to the taxpayer other than a mere return
of capital.
It is an amount of money coming to a person6corporation within
a specifed time, whether as payment for services, interest or proft
from investment. Bnless otherwise specifed, it means cash or its
e*uivalent. Income can also be thought of as a Mow of the fruits of
oneNs labor.
"''
121
It %e$)te# the "/)1$t )+ /)$e, )r !r)!ert, recei8e% b, " !er#)$ )r c)r!)r"ti)$
-ithi$ " #!eci?e% ti/e, -hether "# !",/e$t +)r #er8ice#, i$tere#t#, )r !r)?t# +r)/
i$8e#t/e$t# (2isher vs. Trinidad, 43 Phil 973)
I$c)/e i# $)t /erel, i$cre"#e i$ 8"l1e )+ !r)!ert,; b1t " 0"i$, " !r)?t i$ e.ce## )+
c"!it"l "# " re#1lt )+ e.ch"$0e tr"$#"cti)$#.
122
Con0i v. Court of Ta Appeals
4<
Income includes earnings, lawfully or unlawfully ac*uired,
without consensual recognition, express or implied, of an obligation to
repay and without restriction as their disposition.
3. 7hen income is taxable
1) ,xistence of income
here must be gain K a value received in the form of cash or its
e*uivalent as a result of rendition of service or earnings in excess of
capital invested.
"'(
2) 0eali!ation of income
1)ests of 0eali!ation
Bnless income is deemed reali!ed, then there is no taxable
income.
0evenue is generally recogni!ed when both conditions are metA
1. he earning process is complete or virtually complete. and
2. An exchange has taken place.
"'-

2) Actual vis-;-vis $onstructive
receipt
Actual receipt
Income may be actual receipt or
physical receipt.
$onstructi
ve receipt
7hen money
consideration or
its e*uivalent
isplaced at the
control of the
person who
rendered the
service without
restriction
by the payor.
"'8
123
A /ere e.!ect"ti)$ )+
!r)?t# i# $)t "$ i$c)/e
A tr"$#"cti)$ -hereb,
$)thi$0 )+ e.ch"$0e"ble
8"l1e c)/e# t) )r i#
recei8e% b, the t".!",er
%)e# $)t 0i8e ri#e t) )r
cre"te t"."ble i$c)/e.
Ite/# )r "/)1$t#
recei8e% -hich %) $)t "%%
t) the t".!",er9# $et -)rth
)r re%)1$% t) hi# be$e?t#
#1ch "# "/)1$t# /erel,
%e!)#ite% )r e$tr1#te% t)
hi/ "re $)t c)$#i%ere% "#
0"i$# (CIR vs. Tours
&pecialist,
183 S5'A
4<2).
&"i$ $ee%
$)t be
$ece##"ril,
i$ c"#h. It
/", be i$
+)r/ )+
!",/e$t,
re%1cti)$ )r
c"$cell"ti)$
)+ 79#
i$%ebte%$e#
#, )r 0"i$
+r)/
e.ch"$0e )+
!r)!ert,.
124 ,anila
,andarin
/otels, Inc.
v. CIR
125 Sec.
4.1<8-A,
''16-2<<
;."/!le#
)+ i$c)/e
c)$#tr1cti
8el,
recei8e%6
1. Ge!)#it
i$
b"$4#
-hich
"re
/"%e
"8"il"bl
e t) the
#eller )+
#er8ice
#
-ith)1t re#tricti)$#
2. I##1"$ce b, the
%ebt)r )+ " $)tice t)
)3#et "$, %ebt )r
)bli0"ti)$ "$%
"cce!t"$ce there)+ b,
the #eller "# !",/e$t +)r
#er8ice# re$%ere%
3.7r"$#+er )+ the
"/)1$t# ret"i$e% b,
the !",)r t) the
"cc)1$t )+ the
c)$tr"ct)r
4. I$tere#t c)1!)$# th"t
h"8e /"t1re% "$% "re
!","ble b1t h"8e $)t
bee$ e$c"#he%
5. J$%i#trib1te% #h"re )+
" !"rt$er i$ the !r)?t# )+ " 0e$er"l !"rt$er#hi!
41
3) 0ecognition of income
1. here is income, gain or proft
2. he income, gain or proft is received or reali!ed during the
taxable year
3. he income gain or proft is not exempt from income tax
4) 5ethods of accounting
1)$ash method vis-;-vis Accrual
method
$ash method Accrual method
0ecognition of income and expense
dependent on inMow or outMow of
cash.
"'9
+ains and
profts are
included in
gross income
when earned
whether
received or not,
and expenses
are allowed as
deductions when
incurred,
although not yet
paid. It is the
right to receive
and not the
actual receipt
that determines
the inclusion of
the amount in
gross income
bE
Installment
payment /eferred payment
)ercentage
completion
Appropriate when
collections extend
over relatively
long periods of
time and there is
a strong
possibility that
full collection will
not be made.
Initial
paymen
ts
exceed
'8O of
the
gross
selling
price
and
such
transac
tion
shall be
treated
as cash
sale
which
makes
the
entire
selling
price
taxable
in the
month
of sale. )ers
ons
who
se
gros
s
inco
me
is
deri
ved
from
long-
ter
m
con
trac
ts
shal
l
rep
ort
suc
h
inco
me
upon
the
basi
s of
perc
enta
ge of
com
pleti
on.
126 /e"$i$0,
,)1 rec)0$i2e the
i$c)/e -he$ ,)1
"ct1"ll, recei8e the
c"#h !",/e$t +)r
the
#"le,
"$%
,)1
rec)
0$i2
e
the
e.!
e$#
e
-he
$
,)1
"ct1
"ll, !", c"#h +)r
the e.!e$#e
127 i$ l)$0
ter/ c)$tr"ct#
42
4. ests in determining whether income is
earned for tax purposes
1) 0eali!ation test
%o taxable income until there is a separation from capital of
something of exchangeable value, thereby supplying the reali!ation or
transmutation which would result in the receipt of income.
"'?
2) $laim of right doctrine or /octrine of
ownership, command, or control
A taxable gain is conditioned upon the presence of a claim of
right to the alleged gain and the absence of a defnite unconditional
obligation to return or repay.
he power to dispose of income is the e*uivalent of ownership
of it. he exercise of that power to procure the payment of income to
another is the enjoyment and hence, the reali!ation of the income by
him who exercises it. he dominant purpose of the revenue laws is the
taxation of income to those who earn or otherwise create the right to
receive it and enjoy the beneft of it when paid.
3) ,conomic beneft test, /octrine of
proprietary interest
Income reali!ed is taxable only to the extent that the taxpayer is
economically benefted.
Any economic beneft to the employee that increases his net
worth is taxable.
-E #everance test
here is no taxable income until there is a separation from
capital of something which is of exchangeable value
"'>
thereby
supplying the reali!ation or transmutation which would result in the
receipt of income. hus, income is not taxable unless separated or
severed from the capital or labor that bore it.
128 7here /1#t be #e!"r"ti)$ +r)/ c"!it"l )+ #)/ethi$0 )+ e.ch"$0e"ble 8"l1e (e.0., #"le )+ "##et)
129 .isner vs. ,acomer, 22 JS 189
4
3
9. +ross Income
a.
/efnitio
n
All income derived during a taxable year by a taxpayer from
whatever source, whether legal or illegal,
"(@
including the following
itemsA
1. +ross income derived from the conduct of trade or business
or the exercise of a
profession.
2. 0ents
3. Interests
4. )ri!es and winnings
8.
$ompensation for services in whatever form paid, including,
but not limited
to
fees, salaries, wages, commissions, and similar items
6. Annuities
7. 0oyalties
8. /ividends
9. +ains derived from dealings in property
10. )ensions
11. )artnerNs distributive share from the net income of the
general professional partnership.
"("

130 A# #1ch, i$c)/e i$cl1%e# the +)ll)-i$0, "/)$0 )ther#6
1. 7re"#1re +)1$%;
2. P1$iti8e%"/"0e# re!re#e$ti$0 !r)?t l)#t;
3. A/)1$t recei8e% b, /i#t"4e;
4. 5"$cell"ti)$ )+ the t".!",er9 i$%ebte%$e##;
5. 'ecei!t )+ 1#1ri)1# i$tere#t;
6. Ille0"l 0"i$#;
7. 7".e# !"i% "$% cl"i/e% "# %e%1cti)$ #1b#e=1e$tl, re+1$%e%;
8. K"% %ebt rec)8er,.
131 7he "b)8e e$1/er"ti)$ c"$ be #i/!li?e% i$t) ?8e () c"te0)rie#6
1. 5)/!e$#"ti)$ I$c)/e - i$c)/e %eri8e% +r)/ re$%eri$0 )+ #er8ice# 1$%er "$
e/!l),er-e/!l),ee rel"ti)$#hi!.
2. Pr)+e##i)$"l I$c)/e - +ee# %eri8e% +r)/ e$0"0i$0 i$ "$ e$%e"8)r re=1iri$0
#!eci"l tr"i$i$0 "# !r)+e##i)$"l "# " /e"$# )+ li8elih))%, -hich i$cl1%e#, b1t $)t
li/ite% t), the +ee# )+ 5PA#, l"-,er#, e$0i$eer# "$% the li4e.
3. K1#i$e## I$c)/e - 0"i$# )r !r)?t# %eri8e% +r)/ re$%eri$0 #er8ice#, #elli$0
/erch"$%i#e, /"$1+"ct1ri$0 !r)%1ct#, +"r/i$0 "$% l)$0-ter/ c)$tr"ct#.
4. P"##i8e I$c)/e - i$c)/e i$ -hich the t".!",er /erel, -"it# +)r the "/)1$t t)
c)/e i$, -hich i$cl1%e#, b1t $)t li/ite% t) i$tere#t i$c)/e, r),"lt, i$c)/e, %i8i%e$%
i$c)/e, !ri2e# "$%
44
b. $oncept of income from whatever source
derived
Implies the inclusion of all income under the law, irrespective of
the voluntary or involuntary action of the taxpayer in producing the
gains.
"('
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.
"((
c. +ross Income vis-;-vis %et Income vis-;-vis
axable
Income
+ross
Income %et Income or axable Income
As to deductions
Allows no
deductions Allows deductions
As to exemptions
+rants no
exemptions +rants exemptions
As to
tax base
+ross Income %et Income
Advantages6/isadvantages
#implifes the income
tax system
#ubstantial reduction in corruption
and tax evasion as the exercise of
discretion, to allow or disallow
deductions, is dispensed with.
5ore administratively feasible
/oes away with wastage of
manpower and supplies
$
o
n
f
u
s
i
n
g

a
n
d

c
o
m
p
l
e
x

p
r
o
c
e
s
s

o
f
fling income tax
return
Julnerable to corruption on
account of margin of discretion in
the grant of deductions
)rovides
e*uitable
releifs in the
form of
deductions,
exemptions
and tax
credit
ax audit
minimi!es fraud
-i$$i$0#.
. &"i$# +r)/ Ge"li$0# i$
Pr)!ert, H It i$cl1%e# "ll
i$c)/e
%eri8e% +r)/
the
%i#!)#iti)$ )+
!r)!ert,
-hether re"l,
!er#)$"l )r
/i.e%.
132 It
i$cl1%e# ille0"l 0"i$# "ri#i$0
+r)/ 0"/bli$0, betti$0,
l)tterie#,e.t)rti)$ "$% +r"1%.
133 &1tierre2 8. 5I', 57A
c"#e
4
4. $lassifcation of Income as to #ource
1) +ross income and taxable income
from sources within the )hilippines
1) InterestsA
1) Interests derived from sources within the )hils.
2) Interests on bonds, notes or other interest-bearing
obligations of residents, corporate or otherwise.
"(-

2) /ividendsA
1):rom a domestic corporation, and
2) :rom a foreign corporation 8@O or more of the gross
income of which for the (-year period ending with the close
of the taxable year preceding the declaration of such
dividends, or for such part of such period as the corporation
within the )hils.
"(8
has been in existence, was derived from
sources. 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
)hilippines bears to its gross income from all sources.
3) $ompensation for labor or personal services performed in the
)hils.
"(9

4) 0entals and 0oyalties from property located in the )hils. or
from any interest in such property, including rentals or royalties for K
1) he use of, or the right or privilege to use in the )hils.
any copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property
or night.
2) he use of, or the right to use in the )hils. any
industrial, commercial or scientifc e*uipment.
3) he supply of scientifc, technical, industrial or
commercial knowledge or information.
4) he supply of any assistance that is ancillary and
subsidiary to, and is furnished as a means of enabling the
application or enjoyment of, any such property or right as is
mentioned in paragraph DaE, any such e*uipment as is
mentioned in paragraph DbE or any such knowledge or
information as is mentioned in paragraph DcE.
134 Sec. 42, (A)( 1)
135 I%. (A)(2)
136 I%. (A)(3)
4
6
5) he supply of services by a nonresident person or his
employee in connection with the use of property or rights
belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such nonresident
person.
6) echnical advice, assistance or services rendered in
connection with technical management or administration of any
scientifc, industrial or commercial undertaking, venture,
project or scheme. and
7) he use of, or the right to useA
1. motion picture flms.
2. flms or video tapes for use in connection with
television. and
3. tapes for use in connection with radio
broadcasting
5) +ains, profts, and income from the sale of real property
located in the )hils. and
6) +ains, profts, and income from sale of personal property,
treated as derived entirely from the country where it is sold.
"(=

2) +ross income and taxable income
from sources without the )hilippines
1) Interest other than those derived from sources within the
)hils.
2) /ividends other than those derived from sources
within the )hils. a. /ividends from foreign
corporations in general. and
137
;.ce!ti)$ t) the r1le6 0"i$ +r)/ the #"le )+ #h"re# )+ #t)c4 i$ " %)/e#tic
c)r!)r"ti)$ -hich i# tre"te% "# %eri8e% e$tirel, +r)/ #)1rce# -ithi$ the Phil#.
re0"r%le## )+ -here the #h"re# "re #)l%.
P"##"0e )+ title te#t6 it i# the !re8"ili$0 8ie- th"t i$ "#cert"i$i$0 the !l"ce )+ #"le,
the %eter/i$"ti)$ )+ -here "$% -he$ the title t) the 0))%# !"##e# +r)/ the #eller t)
the b1,er i# %eci#i8e.
;$1/er"ti)$ i$ Secti)$ 42 $)t "ll-i$cl1#i8e.
I$ the c"#e )+ 5)//i##i)$er 8#. Kriti#h L8er#e"# Air-",# 5)r!)r"ti)$ (KLA5) E149
S5'A 39F, the S1!re/e 5)1rt hel%6
@... Secti)$ 37 ($)- Secti)$ 42) b, it# l"$01"0e, %)e# $)t i$te$% the e$1/er"ti)$
t) be e.cl1#i8e. It /erel, %irect# th"t the t,!e# )+ i$c)/e li#te% therei$ be tre"te% "#
i$c)/e +r)/ #)1rce# -ithi$ the Phil#. " c1r#)r, re"%i$0 )+ the #ecti)$ -ill #h)- th"t it
%)e# $)t #t"te th"t it i# "$ "ll-i$cl1#i8e e$1/er"ti)$, "$% th"t $) )ther 4i$% )+
i$c)/e /", be #) c)$#i%ere% ...A
7he S1!re/e 5)1rt +1rther hel%6
@... 7he "b#e$ce )+ Ni0ht )!er"ti)$# t) "$% +r)/ the Phil#. i# $)t %eter/i$"ti)$ )+
the #)1rce )+ i$c)/e )$ the #it1# )+ i$c)/e t"."ti)$. A%/itte%l,, KLA5 -"# "$ )3-
li$e i$ter$"ti)$"l "irli$e "t the ti/e !erti$e$t t) thi# c"#e. 7he te#t )+ t"."bilit, i# the
#)1rce, "$% the #)1rce )+ "$ i$c)/e i# th"t "cti8it, ... -hich !r)%1ce% the i$c)/e.
J$=1e#ti)$"bl, the !"##"0e %)c1/e$t"ti)$# i$ the#e c"#e# -ere #)l% i$ the Phil#.
"$% the re8e$1e there+r)/ -"# %eri8e% +r)/ " b1#i$e## "cti8it, re01l"rl, !1r#1e%
-ithi$ the Phil#. ...A
47
2. /ividends derived from foreign corporations, 8@O or more
of the gross income of which for the (-year period
preceding the declaration of dividends.
3) $ompensation for labor or personal services performed
outside the )hils.
4) 0entals or royalties from property located outside the )hils.
or from any interest in such property including rentals or royalties for
the use of or for the privilege of using outside the )hils., patents, etc.
5) +ains, profts and income from the sale of real property
located outside the )hils.
6) +ains, profts and income from the sale of personal property
located outside the
)hils., and
7) Income derived from the purchase of personal property
within and its sale outside the )hils.
"(?

3) Income partly within or partly without
the )hilippines
1) Income from transportation such as foreign steamship
companies whose vessel touch the )hil. ports
"(>
and other services
rendered partly within and partly outside the )hils. such as foreign
corporations carrying on the business of transmission of telegraph
and cable messages between points outside the )hils.
"-@

2) Income from the sale of personal property produced in whole
or in part by the taxpayer within and sold outside the )hils. or
produced by the taxpayer outside and sold within the )hils.
138 Sec. 42
139 Sec. 163, 'e01l"ti)$#
140 Sec. 164, i%.
4
8
5. #ources of income subject to tax
1) $ompensation Income
"-"

All remuneration for services performed by an employee for his
employer, including the cash value of all remuneration paid in any
medium other than cash.
"-'
It includes all remuneration for services rendered by an
employee for his employer unless specifcally excluded under the
%I0$.
"-(
2) :ringe 2enefts
"--

1)#pecial treatment of fringe
benefts
Applied to fringe benefts given or furnished to managerial or
supervising employees and not to the rank and fle.
"-8
bE /efnition
Any good, service or other beneft furnished or granted in cash
or in kind by an employer to an individual employee, except rank and
fle employee.
141 F)r/# )+ 5)/!e$#"ti)$
1. /)$e,
2. i$ 4i$%
5)/!e$#"ti)$ !"i% t) "$ e/!l),ee )+ " c)r!)r"ti)$ i$ it# #t)c4 i# t) be tre"te% "#
i+ the c)r!)r"ti)$ #)l% the #t)c4 +)r it# /"r4et 8"l1e "$% !"i% t) the e/!l),ee i$
c"#h.
Li8i$0 =1"rter# +1r$i#he% t) the e/!l),ee i$ "%%iti)$ t) c"#h #"l"r,. 7he re$t"l
8"l1e #h)1l% be re!)rte% "# i$c)/e.
*e"l#0i8e$ t) e/!l),ee, the 8"l1e there)+ #1b#tit1te# i$c)/e.
78(A) It i$cl1%e#6
1. S"l"rie# "$% -"0e#
2. 5)//i##i)$#
3. 7i!#
4. All)-"$ce#
5. K)$1#e#
6. Fri$0e Ke$e?t# )+ r"$4 "$% ?le
e/!l),ee# It %)e# $)t i$cl1%e
re/1$er"ti)$ !"i%6
F)r "0ric1lt1r"l l"b)r !"i% e$tirel, i$ !r)%1ct# )+ the +"r/ -here the l"b)r
i# !er+)r/e%, )r F)r %)/e#tic #er8ice i$ " !ri8"te h)/e, )r
F)r c"#1"l l"b)r $)t i$ the c)1r#e )+ the e/!l),erQ# tr"%e )r b1#i$e##, )r
F)r #er8ice# b, " citi2e$ )r re#i%e$t )+ the Phili!!i$e# +)r " +)rei0$ 0)89t )r "$ i$t9l
)r0"$i2"ti)$.
143 Sec. 2.78.1, '' 2-98
144 Sec. 33
145 7he +ri$0e be$e?t c)8ere% re+er# t) th)#e e$:),e% b, /"$"0eri"l "$%
#1!er8i#)r, e/!l),ee#
146 P1r#1"$t t) 'e8e$1e 'e01l"ti)$# (). 3 H 98 (%"te% *", 21, 1998) i/!le/e$ti$0
#ecti)$ 33 )+ the 7". 5)%e.
4
9
cE axable and non-taxable fringe
benefts
axable fringe benefts %on-taxable fringe benefts
"E Cousing )rivileges
"E :ringe benefts which are
authori!ed and
exempted from tax under special
laws.
DaE 1ease of residential property for
the use of the employee as his
usual place of
'E $ontributions of the employer
for the
residen
ce.
beneft of the employee to
retirement,
DbE 0esidential )roperty owned by
insurance and hospitali!ation
beneft plans.
employer and assigned to
employee as his
(E 2enefts given to the rank and
fle
usual place of residence.
employees, whether granted under
a
DcE 0esidential property purchased
by
collective bargaining agreement or
not.
-E De minimis benefts.
employer on installment basis for
the use of
employ
er
as his usual place of
residence.
8E 7hen the fringe beneft is
re*uired by the
nature of, or necessary to the
trade, business
DdE 0esidential property purchased
by or profession of the employer
,0 and ownership is transferred to
,, as
his usual place of residence.
9E 7hen the fringe beneft is for
the
convenience of the employer. his
is known
DeE 0esidential property transferred
to
as ,mployer3s $onvenience
0ule.
"88
employee at less than employer3s
ac*uisition
cost.
"-9
'E Cousehold ,xpenses K refer to
expenses
of the employee paid by the
employer for
household personnel or other
personal
expenses, which shall includeA
Da
E
salaries of household
helper
DbE personal driver of the
employee
Dc
E
payment for homeowner
assoc.,
etc.
(E Interest on loan at less than
market rate
"-=
146 ()$ H t"."ble C)1#i$0 Fri$0e Ke$e?t#
(1) C)1#i$0 !ri8ile0e )+ /ilit"r, )Bci"l# )+ AFP
(2) C)1#i$0 1$it, -hich i# #it1"te% i$#i%e )r "%:"ce$t t) the !re/i#e )+ "
b1#i$e## )r +"ct)r,. A h)1#i$0 1$it i# c)$#i%ere% "%:"ce$t i+ it i# l)c"te% -ithi$ the
/".i/1/ < /eter# +r)/ the !eri/eter )+ the b1#i$e## !re/i#e#.
(3) C)1#i$0 be$e?t 0r"$te% t) e/!l),ee# )$ " te/!)r"r, b"#i# $)t e.cee%i$0
three (3) /)$th#
147 I+ the e/!l),er le$%# /)$e, t) hi# e/!l),ee6

<
-E ,xpenses for :oreign ravel
+eneral ruleA
,xpenses for foreign travel
insured by the employee and6or
family members of the employee
borne by the employer shall be
treated as taxable fringe benefts
of the employee.
,xceptA
7here the expenses for foreign
travel paid by the employer for
the employee are for the purpose
of attending business meeting or
convention. he exemption covers
only the following expensesA
1) Inland travel expenses
except lodging cost in hotel
averaging B#P (@@ or less per
day.
"-?
and
2) $ost of economy or
business class airline ticket.
"->

5) 5embership fees, dues and
other expenses borne by the
employer for his employee, in
social or athletic clubs or other
similar organi!ations.
15

6) 1ife or Cealth Insurance -
+eneral ruleA
he cost of life or health
insurance and other non K life
insurance premiums or similar
amounts in excess of what the law
Free )+ i$tere#t )r "t " r"te l)-er th"$ 12I ()r !re8"ili$0 /"r4et r"te) the i$tere#t
+)re0)$e b, the e/!l),er )r the %i3ere$ce )+ the i$tere#t "##1/e% b, the e/!l),er
"$% the 12I r"te #h"ll be tre"te% "# t"."ble +ri$0e be$e?t.
A!!lic"ble t) i$#t"ll/e$t !",/e$t )r l)"$ -ith i$tere#t r"te l)-er th"$ 12I
#t"rti$0 D"$1"r, 1, 1998.
1
Sec. 32, (I'5; Sec. 2.33 E5F, '' 3-98
the /eeti$0# )r c)$8e$ti)$#. Li4e-i#e, %)c1/e$t# "$% e8i%e$ce #h)-i$0 the b1#i$e## !1r!)#e )+ the e/!l),ee#9 tr"8el /1#t be !re#e$te% )ther-i#e, the e$tire c)#t -ill be c)$#i%ere% t"."ble +ri$0e be$e?t.
149 C)-e8er, i+ the tic4et i# " ?r#t cl"## )$e, 3<I )+ the c)#t )+ the tic4et #h"ll be #1b:ect
t) " +ri$0e be$e?t t"..
150 7he#e "re tre"te% "# t"."ble Fri$0e Ke$e?t# )+ the e/!l),ee i$ +1ll.

1
allows borne by the employer for
his employees shall be treated as
taxable fringe benefts.
,xceptA
1) $ontribution of the
employer for the benefts of the
employee pursuant to existing
laws.
"8"

2) he cost of premium borne
by the employer for the group
insurance of his employees.
7) Colidays and Jacation ,xpense
8) 5otor Jehicle
1) 5otor vehicle purchased
by employer in name of employee.
2) G$ash for the purchased
provided by the employer, the
ownership is placed in the name
of the employee
3) )urchase on GInstallmentH
basis, the ownership is placed in
the name of the employee
4) G)ortionH of purchased
price shouldered by employer
5) :leet of motor vehicle
GleasedH by the employer
6) :leet of 5otor vehicles
owned and maintained by
employer.
"8'

151 #1ch "# '.A. 8287 (SSS) )r '.A. 8291 (&SIS).
152 I$ c"#e )Netter# ", b, c "$% %, re0"r%le## )+ -hether the /)t)r 8ehicle i# 1#e% +)r the
!er#)$"l !1r!)#e )+ the e/!l),ee "$% !"rtl, +)r the be$e?t )+ hi# e/!l),er, the /)$et"r,
8"l1e #h"ll be the e$tire 8"l1e )+ the be$e?t.
153 J$%er letter# e "$% +, the Neet )+ /)t)r 8ehicle# i# +)r the 1#e )+ the b1#i$e##
"$% the e/!l),ee#. 7he 8"l1e )+ the be$e?t #h"ll be the re$t"l !",/e$t# (e) )r the
"c=1i#iti)$ c)#t (+) )+ "ll /)t)r 8ehicle# $)t $)r/"ll, 1#e% +)r #"le#, +rei0ht, %eli8er,
#er8ice "$% $)$-!er#)$"l 1#e.
7he 1#e )+ ,"cht -hether )-$e% "$% /"i$t"i$e% )r le"#e% b, the e/!l),er #h"ll
be tre"te% "# t"."ble +ri$0e be$e?t H the 8"l1e )+ the be$e?t #h"ll be /e"#1re%
b"#e% )$ the %e!reci"ti)$ )+ the R"cht "t "$ e#ti/"te% 1#e+1l li+e )+ 2< ,r#.
2
9) ,xpense Account
1) ,xpenses incurred by the
employee but paid by his
employer.
2) ,xpenses paid by the
employee but reimbursed by his
employer.
"8(

10) ,ducational Assistance
+eneral 0uleA he cost of the
educational assistance to the
employee or his dependents
which are borne by the employer
shall be treated as axable :ringe
2enefts.
,xceptionA
1) ,ducation granted to employee
14

2) ,ducational 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.
7he 1#e )+ "ircr"+t (i$cl1%i$0 helic)!ter#) )-$e% "$% /"i$t"i$e% b, the e/!l),er
#h"ll be tre"te% "# @b1#i$e## 1#eA "$% $)t #1b:ect t) FK7.
153 ;.!e$#e "cc)1$t $)t #1b:ect t) FK7.
1)e.!e$#e# %1l, recei!te% +)r i$ the $"/e )+ the e/!l),er "$%
2)7he e.!e$%it1re# %) $)t !"rt"4e the $"t1re )+ !er#)$"l e.!e$#e# "ttrib1t"ble t)
the e/!l),ee.
Per#)$"l e.!e$#e# )+ the e/!l),ee (li4e 0r)cerie#) !"i% +)r )r rei/b1r#e% b, the
e/!l),er "re t"."ble +ri$0e be$e?t#, -hether )r $)t %1l, recei!te% +)r i$ the $"/e
)+ the ;;.
'e!re#e$t"ti)$ "$% 7r"$#!)rt"ti)$ All)-"$ce# ('A7A) re+er# t) ?.e% "/)1$t#
-hich "re re01l"rl, recei8e% b, the e/!l),ee# "# !"rt )+ their /)$thl, c)/!e$#"ti)$
i$c)/e. 7he, "re $)t tre"te% "# 7"."ble Fri$0e Ke$e?t# b1t the #"/e "retre"te% "#
7"."ble 5)/!e$#"ti)$ I$c)/e.
154 'e=1i#ite#6
1. ;%1c"ti)$"l 0r"$t -hereb, the #t1%, i# %irectl, c)$$ecte% -ith the tr"%e,
b1#i$e## )r !r)+e##i)$ )+ the ;'.
2. A$% there i# " -ritte$ c)$tr"ct )bli0"ti$0 the ;; t) re/"i$ 1$%er the
e/!l),/e$t +)r " cert"i$
!eri)%.
3
(E )rofessional Income
he fees received by a professional from the practice of his
profession, provided that there is no employer-employee relationship
between him and his clients.
-E Income from 2usiness
he income derived from merchandising, mining, manufacturing
and farming operations.
5) Income from /ealings in )roperty
1)ypes of )roperties
(1) 4rdinary assets
)roperties held by the taxpayer in the pursuit of his profession,
trade or businessA
1. #tock in rade.
2. )roperty of a kind which would properly be included in the
inventory if on hand at the close of the taxable year.
3. )roperty held by the taxpayer primarily for sale to
customers in the ordinary course of trade or business.
4. )roperty used in trade or business which in subject to the
allowance for depreciation. and
5. 0eal property used in trade or business.
"89

(2) $apital assets
)roperties not specifcally included in the statutory defnition
"8=
constitutes capital assets, the profts or losses on the sale or the
exchange of which are treated as capital gains or capital.
"8?
he statutory defnition of Qcapital assetsQ practically excludes
from its scope, all property held by the taxpayer if used in connection
with his trade or business.
156 Sec. 39, EAF
157 I$cl1%e !er#)$"l !r)!ert, ($)t 1#e% i$ tr"%e )r b1#i$e##) #1ch "# /)8"ble# i$ )$e9#
re#i%e$ce, !er#)$"l 8ehicle#, "!!li"$ce# "$% +1r$it1re +)r !er#)$"l 1#e, :e-elrie# etc. "# -ell "#
re"l !r)!ert, ($)t 1#e% i$ tr"%e )r b1#i$e##) #1ch "# re#i%e$ti"l l"$%, i%le l"$% $)t 1#e% i$
b1#i$e## )!er"ti)$# "$% re#i%e$ti"l
h)1#e.
158 Sec. 39, EAF
159 7hi# i# "$ e$1/er"ti)$ b, e.cl1#i)$, "ll )ther# $)t e$1/er"te% "re c"!it"l
"##et#.
4
2) ypes of +ains from dealings in
property
(1) 4rdinary income vis-;-vis
$apital gain
4rdinary gain $apital gain
Any gain from the sale or exchange
property which is not a capital
asset.
"8>
of Any gain from
the sale or
exchange of
property
which is a
capital asset.
Actual gain
,xcess of the cost from
a sale of asset.
(2) A
c
t
u
a
l

g
a
i
n

v
i
s
-
;
-
v
i
s

)
r
e
s
u
m
e
d
g
a
i
n
)
r
e
s
u
m
e
d

g
a
i
n
)resumpt
ion of law
that the
seller
reali!ed
gains,
which
is taxed
at 9O
of the
selling
price
or fair
market
value,
whiche
ver is
higher.
D(E
1o
ng
te
r
m
ca
pit
al
ga
in
vi
s-
;
-
v
i
s
#
h
o
r
t
t
e
r
m

c
a
p
it
a
l
g
a
i
n
1ong term capital gain
#hort term capital
gain
he proft reali!ed from selling or he proft reali!ed from selling or
exchanging a capital asset held for
more than
exchanging a capital asset held for
less than a
a specifed period, usu. one D"E
year.
"9@
specifed period, usu. one D"E
year.
"9"
%et $apital
gain D-E
%et
capit
al
gai
n,
%et
capi
tal
loss
%et capital
1 s
he excess
of the gains
from sales
or exchange
of
cap
ital
ass
ets
ove
r
the
loss
es
fr
o
m
su
c
h
sal
es
or
ex
changes.
"9'
from
such
sales
or
exch
ange
s.
"9(
ESF
160 Kl"c49#
L"-
Gicti)$"r,,
9
th
;%.
161 ibi%. 162 Sec. 39, EA, 2F
163 Sec. 39,
EA, 3F

D8E $omputation of the

amount of gain or loss
he gain from the sale or other disposition of property shall be
the excess of the amount reali!ed therefrom over the basis or adjusted
basis for determining gain, and the loss shall be the excess of the
basis or adjusted basis for determining loss over the amount reali!ed.
he amount reali!ed from the sale or other disposition of property
shall be the sum of money received plus the fair market value of the
property received.
"9-
Ac*uired by purchase
Ac*uired by inheritance
Ac*uired by gift
Ac*uired for less than an ade*uate
consideration
DaE
$
os
t
or
b
as
is
of
th
e
pr
o
p
er
ty
so
ld
he cost of the
property
he fair
market price
or value as of
the date of
ac*uisition.
he same as if
it would be in
the hands of
the donor or
the last
preceding
owner by
whom it was
not ac*uired by
gift.
he amount
paid by the
transferee for
the property.
"98
DbE
$o
st
or
ba
sis
of
th
e
pr
op
er
ty
ex
ch
an
ge
d
in
co
rp
or
ate readjustment
D"E 5erger
D'E
$onsolidat
ion
A merger or
consolidation has
income tax
conse*uences to the
corporation which is a
party to the merger or
consolidation, to its
stockholders, and to its
security holders. o the
corporation, or to its
stockhold
ers, or to
its
security
holders,
loss is not
recogni!e
d from
the
merger or
consolidat
ion.
"99
+ain
will be
recogni!e
d only if,
on the
exchange
under the
merger or
consolidat
ion, the taxpayer
received cash or
property. he gain to
be recogni!ed should
not exceed the sum of
money and the fair
market value of the
property received.
164 Sec. 4< (A)
165 I%., (K)
166 I%., (5)
6
D(E ransfer to a
controlled
corporation
"9
=
7hen a taxpayer transfers property to a corporation, in
consideration of stock received for the transfer, as a result of which
transfer, the taxpayer
"9?
gains control of the corporation, no loss is
recogni!ed on the transfer of property.
"9>
DcE 0ecognition of gain
or loss in exchange
of property
D"E +eneral rule
Bpon the sale or exchange or property, the entire amount of the
gain or loss, as the case may be, shall be recogni!ed.
"=@
DaE 7here
no gain or
loss shall
be
recogni!ed
1),xchange solely in kind
"="
in legitimate mergers or
consolidations.
1) A corporation which is a party to a merger or
consolidation exchanges property solely for stock in a
corporation which is a party to the merger or consolidation.
2) A corporation which is a party to a merger or
consolidation receives in exchange for property not only stock of
another corporation but also money and6or other property and
distributes it in pursuance of the plan of merger or
consolidation.
3) A shareholder exchanges stock in a corporation which is
a party to the merger or consolidation solely for the stock of
another corporation, also a party to the merger or consolidation.
167 t".-+ree e.ch"$0e#
168 "l)$e )r t)0ether -ith )ther# $)t e.cee%i$0 +)1r E)r " t)t"l )+ ?8eF
169 I%., (5)(2)(c), l"#t !"r.
S1!!)#e the tr"$#+er re#1lte% i$ " 0"i$ t) the tr"$#+er)r, -ill the 0"i$ be
rec)0$i2e%O &"i$ -ill be rec)0$i2e% )$l, i+ )$ the tr"$#+er, the t".!",er recei8e%
c"#h )r !r)!ert, i$ "%%iti)$ t) the #h"re# recei8e%. 7he 0"i$ t) be rec)0$i2e% #h"ll
$)t e.cee% the #1/ )+ /)$e, "$% +"ir /"r4et 8"l1e )+ the !r)!ert, recei8e%.
I+ be+)re the tr"$#+er t) the c)r!)r"ti)$, the tr"$#+er)r "lre"%, h"% c)$tr)l )8er the
c)r!)r"ti)$, the 0"i$ )r l)## )$ the tr"$#+er -ill be rec)0$i2e%
170 I%., (5) (1)
171 e.ch"$0e )+ !r)!ert, #)lel, +)r #t)c4#

7
-E A security holder of a corporation which is a party to
the merger or consolidation exchanges his securities in such
corporation solely for stock or securities in another corporation,
a party to the merger or consolidation.
bE ransfer or exchange of property for stock resulting in
ac*uisition of corporate control.
"='
D'E ,xceptions
DaE
5eaning of
merger,
consolidati
on, control
securities
Q5ergerQ or Qconsolidation meansA
1. the ordinary merger or consolidation, or
2. the ac*uisition by one corporation of all or substantially
all the properties of another corporation solely for stock.
"=(

Q$ontrolH means ownership of stocks in a corporation
possessing at least ffty-one percent D8"OE of the total voting power of
all classes of stocks entitled to vote.
"=-
DbE
ransfer of
a
controlled
corporation
"=8
172 A !er#)$ e.ch"$0e# hi# !r)!ert, +)r #t)c4 )r 1$it )+ !"rtici!"ti)$ i$ " c)r!)r"ti)$ )+
-hich "# " re#1lt )+ #1ch e.ch"$0e #"i% !er#)$, "l)$e )r t)0ether -ith )ther#, $)t e.cee%i$0
+)1r !er#)$#, 0"i$# c)$tr)l )+ #"i% c)r!)r"ti)$
@5)$tr)lA /e"$# )-$er#hi! )+ #t)c4# i$ " c)r!)r"ti)$ !)##e##i$0 "t le"#t 1I )+
the t)t"l 8)ti$0 !)-er )+ "ll cl"##e# )+ #t)c4 e$title% t) 8)te.
7he ite/# e$1/er"te% "b)8e "re "l#) c"lle% @t".-e.e/!t e.ch"$0e#.A
173 Pr)8i%e%6
1. It /1#t be 1$%ert"4e$ +)r " b)$" ?%e b1#i$e## !1r!)#e "$% $)t #)lel, +)r the
!1r!)#e )+ e#c"!i$0 the b1r%e$ )+ t"."ti)$
2. I$ %eter/i$i$0 -hether " b)$" ?%e b1#i$e## !1r!)#e e.i#t#, e"ch "$% e8er,
#te! )+ the tr"$#"cti)$ #h"ll be c)$#i%ere% "$% the -h)le tr"$#"cti)$ )r #erie# )+
tr"$#"cti)$ #h"ll be tre"te% "# " #i$0le 1$it.
3. I$ %eter/i$i$0 -hether the !r)!ert, tr"$#+erre% c)$#tit1te# " #1b#t"$ti"l !)rti)$
)+ the !r)!ert, )+ the tr"$#+er)r, the ter/ Q!r)!ert,Q #h"ll be t"4e$ t) i$cl1%e the
c"#h "##et# )+ the tr"$#+er)r.
174 I%., (5)(6)
175 #1!r"

8
D9E Income tax treatment of
capital loss
DaE $apital loss
limitation rule
"=9
$apital losses are deductible only to the extent of capital gains.
DbE %et loss carry-over
rule
"==
If any taxpayer
"=?
sustains in any taxable year a net capital loss
1. #uch net capital loss cannot be deducted from ordinary
income due to the loss limitation rule.
2. #uch 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. and
3. #uch loss shall be treated as a loss from the sale or exchange
of capital assets held for not more than twelve D"'E months.
"=>

(7) /ealings in real property
situated in the
)hilippines
"?@

9O fnal tax - on the gross selling price, or the current fair
market value at the time of the sale, whichever is higher.
"?"
D?E /ealings in shares of
stock of )hilippine
corporations
DaE #hares listed and
traded in the stock
exchange
%ot subject to income tax but to percentage tax of R of "O of
the gross selling
price.
176 "!!lic"ble t) b)th c)r!)r"ti)$# "$% i$%i8i%1"l#
177 "!!lic"ble )$l, t) i$%i8i%1"l#
178 )ther th"$ " c)r!)r"ti)$
179 Sec. 39 EGF
180 7he re"l !r)!ert, i$8)l8e% /1#t be c)$#i%ere% c"!it"l "##et. A c"!it"l "##et i#
!r)!ert, hel% b, the t".!",er -hether )r $)t c)$$ecte% i$ hi# tr"%e )r b1#i$e##
e.ce!t6
1. St)c4 i$ tr"%e )r )ther !r)!ert, )+ "$, 4i$% -hich -)1l% be i$cl1%e% i$ the
i$8e$t)r, )+ the t".!",er i+ )$ h"$% "t the e$% )+ the t"."ble ,e"r.
2.Pr)!ert, !ri/"ril, hel% +)r #"le t) c1#t)/er# i$ the )r%i$"r, c)1r#e )+ tr"%e )r
b1#i$e##.
3.Pr)!ert, 1#e% i$ tr"%e )r b1#i$e## #1b:ect t) %e!reci"ti)$.
4.'e"l !r)!ert, 1#e% i$ tr"%e )r b1#i$e##.
181 Sec. 24 (G)

9
DbE #hares not listed
and traded in the
stock exchange
A fnal tax at the rates as followsA
%ot over )"@@,@@@SSSSSSSSSSS........ 8O
4n any amount in excess of )"@@,@@@SSSSS. "@O
D>E #ale of principal
residence
%ot liable for capital gains tax whenA
1. #old or disposed of by natural persons.
2. he proceeds of the sale are fully utili!ed in ac*uiring or
constructing a new principal residence within "? calendar months
from the date of sale or disposition.
3. he $ommissioner is duly notifed by the taxpayer within (@
days from the date of sale or disposition through a prescribed return
of his intention to avail of the tax exemption.
4. A deposit is made of the 9O capital gain tax otherwise due, in
cash or manager3s check, in an interest-bearing account with an
Authori!ed Agent 2ank DAA2E, under an ,scrow Agreement between
the taxpayer and the 2ureau of Internal 0evenue that the same shall
be released to the taxpayer when the proceeds of the sale shall have
been utili!ed as intended.
5. he tax exemption can only be availed of once every "@
years.
"?'

6) )assive Investment Income
1)Interest Income
An earning derived from depositing or lending of money, goods
or credits.
"?(
182 Sec. 24 (G)(2)
5)$%iti)$# +)r t". e.e/!ti)$ )+ 0"i$ +r)/ the #"le )r e.ch"$0e )+ !ri$ci!"l
re#i%e$ce6
1. Pr)cee%# "re +1ll, 1tili2e% i$ "c=1iri$0 )r c)$#tr1cti$0 " $e- !ri$ci!"l re#i%e$ce
-ithi$18 /)$th# +r)/ the %"te )+ #"le )r %i#!)#iti)$;
2.Ci#t)ric"lc)#t )r "%:1#te% b"#i# )r the re"l !r)!ert, #)l% )r %i#!)#e% #h"ll be
c"rrie% )8er t) the $e- !ri$ci!"l re#i%e$ce b1ilt )r "c=1ire%;
3. ()tice t) the 5)//i##i)$er )+ I$ter$"l 'e8e$1e #h"ll be 0i8e$ -ithi$ thirt, (3<)
%",# +r)/ the %"te )+ #"le )r %i#!)#iti)$; "$%
4. I+ the !r)cee%# )+ the #"le -ere $)t +1ll, 1tili2e%, the !)rti)$ )+ the 0"i$
!re#1/e% t) h"8e bee$ re"li2e% +r)/ the #"le )r %i#!)#iti)$ #h"ll be #1b:ect t)
c"!it"l 0"i$# t".
183 &e$er"l r1le6 I$tere#t recei8e% b, " t".!",er, -hether 1#1ri)1# )r $)t, i#
#1b:ect t) i$c)/e t".. ;.ce!t6 >he$ i$tere#t i$c)/e i# e.e/!te% b, l"- +r)/
i$c)/e t"..
6
<
bE /ividend Income
"?-
D"E $ash dividend
1 dividend paid in cash and is taxable to the extent of the cash
received.
(2) #tock dividend
A transfer of a portion of retained earnings to capital stock by
action of stockholders. It simply means the capitali!ation of retained
earnings.
"?8
D(E )roperty dividend
A dividend paid in property
"?9
held by the corporation and to
the extent of the :5J of the property received at the time of the
distribution.
D-E 1i*uidating dividend
A dividend distributed to the shareholders upon dissolution of
the corporation.
cE 0oyalty Income
$ompensation or payment for the use of property and is paid to
the owner of a
right.
184 Gi8i%e$%# /e"$# "$, %i#trib1ti)$# /"%e b, " #t)c4 c)r!)r"ti)$ t) it#
#t)c4h)l%er# (SC#)) )1t )+ it# e"r$i$0# )r !r)?t# "$% !","ble t) it# SC#i$ /)$e, )r
)ther !r)!ert,.
185 "e$er"l r1le6 A /ere i##1"$ce )+ #t)c4 %i8i%e$%# i# $)t #1b:ect t) i$c)/e t".,
bec"1#e it /erel, re!re#e$t# c"!it"l "$% it %)e# $)t c)$#tit1te i$c)/e t) it#
reci!ie$t. Ke+)re %i#!)#iti)$ there)+, #t)c4 %i8i%e$%# "re $)thi$0 b1t " re!re#e$t"ti)$
)+ i$tere#t i$ the c)r!)r"te e$tit,.
186 ;.ce!ti)$#6 >he$ #t)c4 %i8i%e$%# "re #1b:ect t) t".;
1)7he#e #h"re# "re l"ter re%ee/e% +)r " c)$#i%er"ti)$ b, the c)r!)r"ti)$ )r
)ther-i#e c)$8e,e% b, the #t)c4h)l%er t) the e.te$t )+ #1ch c)$trib1ti)$. J$%er the
(I'5, i+ " c)r!)r"ti)$, "+ter the %i#trib1ti)$ )+ " $)$-t"."ble #t)c4 %i8i%e$%, !r)cee%#
t) c"$cel )r re%ee/ it# #t)c4 "t #1ch ti/e "$% i$ #1ch /"$$er "# t) /"4e the
%i#trib1ti)$ "$% c"$cell"ti)$ )r re%e/!ti)$ e##e$ti"ll, e=1i8"le$t t) the %i#trib1ti)$
)+ " t". )+ " t"."ble %i8i%e$%, the "/)1$t recei8e% i$ re%e/!ti)$ )r c"$cell"ti)$ )+
the #t)c4 #h"ll be tre"te% "# " t"."ble %i8i%e$% t) the e.te$t th"t it re!re#e$t# "
%i#trib1ti)$ )+ e"r$i$0# )r !r)?t#. 7&ec.'% 7*),
1IRC). Ge!e$%i$0 )$ the circ1/#t"$ce#, c)r!)r"te e"r$i$0# /", be %i#trib1te%
1$%er the 01i#e )+ i$iti"l c"!it"li2"ti)$ b, %ecl"ri$0 the #t)c4 %i8i%e$%# !re8i)1#l,
i##1e% "$% l"ter re%ee/ )r c"$cel #"i% %i8i%e$%# b, !",i$0 c"#h t) the #t)c4h)l%er.
7hi# !r)ce## "/)1$t# t) %i#trib1ti)$ )+ t"."ble %i8i%e$%# -hich i# :1#t %el",e% #) "#
t) e#c"!e the t".. 7CIR vs. CA, %4$ &CRA $(5)
2)7he reci!ie$t i# )ther th"$ the #t)c4h)l%er. (*achrach vs. &eifert, (' !/IL 89%)
3) A ch"$0e i$ the #t)c4h)l%er9# e=1it, re#1lt# b, 8irt1e )+ the
#t)c4 %i8i%e$% i##1"$ce.
186
#1ch "# #t)c4 i$8e#t/e$t, b)$%# )r
#ec1ritie#
61
dE 0ental Income
D"E 1ease of personal property
D'E 1ease of real property
,arnings derived from leasing of real estate as well as personal
property.
"?=
It includes all other obligations assumed to be paid by the
lessee to the third party in behalf of the lessor.
D(E ax treatment of
DaE 1easehold
improvements by
lessee
4utright 5ethod #pread 4ut 5ethod
he fair market value of the building
or improvement shall be reported as
additional rent income.
Allocate the
depreciated
value over the
remaining term
of the lease
contract. ,very
year, anali*uot
part of the
depreciated
value should be
reported as
additional rent
in addition to
the regular rent
income.
(2) JA

a
d
d
e
d
to
re
nt
al
6p
ai
d
by
th
e
le
ss
ee
Any additional
amount paid, directly or
indirectly, by the lessee
in
considerati
on for the
lease is
considered
rental.
herefore,
taxes paid
by the lessee on leased
property are part of
rental income of the
landlord.
Advanced rental
is a #ecurity
/eposit which
restrict
s the
lessor
as to its
use
he
amount
shall be
Gexclud
edH in
the
determi
nation
of rental income. (3)
r
e
n
t
a
l
6lon
g
ter
m
leas
Advanc
e rental
is
prepaid
rental
receive
d without
restriction as to
its use
he entire
amount
is
Gtaxabl
eH in
the
year it
is
receive
d.
187

7".e# !"i% b, the
te$"$t (le##ee)
t) )r +)r " le##)r
+)r " b1#i$e##
!r)!ert
, "re
"%%iti)
$"l re$t
"$%
c)$#tit
1te
i$c)/e
t"."ble t) the
le##)r.
62
=E Annuities, )roceeds from life insurance or other
types of insurance
Annuities
Amounts payable yearly or at other
regular
intervals for a certain or uncertain
period.
hey also represent as installment
payments
for life insurance sold by insurance
companies.
"??
)roceeds of life insurance
0eturn of insurance premium
">@
)aid by
reason
of the
death of
the
insured
to his estate
or to any
benefciary,
"?>
directly or in
trust.
?E
)ri!e
s
and
awar
ds
$ontest pri!es and
awards received are
generally taxable. #uch
payment constitutes
gain derived from
labor.
">"
8 I +th e!" rt )+ "$ $1i t, !" ,/ e$ t# re !r e# e$ t@i$ ter e#t ATt". "bl ei$c )/ e. I+ th e"$ $1i t, i# "/e re ret 1r $)+ !r e/ i1 /T$) tt". "bl e.
!"rt$er#hi!, )r c)r!)r"ti)$, b1t $)t " tr"$#+eree +)r " 8"l1"ble c)$#i%er"ti)$. I+ the !r)cee%# "re ret"i$e% b, the i$#1rer, the i$tere#t there)$ i# t"."ble;
190 I+ #1ch "/)1$t# (-he$
"%%e
% t)
"/)
1$t#
"lre"
%,
recei
8e%
be+)
re
the
t"."
ble
,e"r
1$%e
r
#1ch
c)$t
r"ct#
)
e.ce
e%
the
"00r
e0"t
e
!re
/i1
/#
)r
c)$#
i%er
"ti)$
#
!"i%
(-he
ther )r
$)t !"i%
%1ri$0
the
t"."ble
,e"r),
the$ the
e.ce##
#h"ll be
i$cl1%e%
i$ the
0r)##
i$c)/e.
C)-e8er
, i$ the
c"#e )+ "
tr"$#+er
+)r "
8"l1"ble
c)$#i%er
"ti)$, b,
"##i0$/
e$t )r
)ther-i#
e, )+ "
li+e
i$#1r"$c
e,
e$%)-/
e$t )r
"$$1it,
c)$tr"ct,
)r "$,
i$tere#t
therei$,
)$l, the
"ct1"l 8"l1e )+ #1ch
c)$#i%er"ti)$ "$% the
"/)1$t )+ the !re/i1/# "$%
)ther #1/# #1b#e=1e$tl,
!"i% b, the tr"$#+eree "re
e.e/!t +r)/ t"."ti)$. ()
l)## i# re"li2e% )$ #1rre$%er
)+ " li+e i$#1r"$ce !)lic, +)r
it# #1rre$%er 8"l1e.
191 ;.ce!ti)$#6
1. Pri2e# "$% "-"r%#
recei8e% i$ rec)0$iti)$ )+
reli0i)1#, ch"rit"ble,
#cie$ti?c, e%1c"ti)$"l,
"rti#tic, liter"r, )r ci8ic
"chie8e/e$t# "re e.cl1#i)$#
+r)/ 0r)## i$c)/e i+6
1.7he reci!ie$t -"#
#electe% -ith)1t "$,
"cti)$ )$ hi# !"rt t)
e$ter " c)$te#t )r
!r)cee%i$0#; "$%
2. 7he reci!ie$t i# $)t
re=1ire% t) re$%er
#1b#t"$ti"l +1t1re #er8ice#
"# " c)$%iti)$ t) recei8i$0
the !ri2e )r "-"r%.
2. Pri2e# "$% "-"r%#
0r"$te% t) "thlete# i$ l)c"l
"$% i$t9l #!)rt# c)/!etiti)$#
"$% t)1r$"/e$t# hel% i$ the
Phili!!i$e# "$% "br)"% "$%
#"$cti)$e% b, their $"ti)$"l
"##)ci"ti)$# #h"ll be e.e/!t
+r)/ i$c)/e t"..
63
>E )ensions, retirement beneft, or
separation pay
)ension 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.
0etirement benefts received under 0A =9-" and those received
by o&icials and employees of private frms in accordance with a
reasonable private beneft plan maintained by the employer.
">'
Any amount received by an employee or by his heirs from the
employer as a conse*uence of separation of such o&icial 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.
">(
he social security benefts, retirement gratuities, pensions and
other similar benefts received by resident or nonresident citi!ens of
the )hilippines or aliens who come to reside permanently in the
)hilippines from foreign government agencies and other institutions.
)ayments of benefts due or to become due to any person
residing in the )hilippines under the laws of the Bnited #tates
administered by the Bnited #tates Jeterans Administration
2enefts received from or enjoyed under the #ocial #ecurity
#ystem.
2enefts received from the +#I#, including retirement gratuity
received by government o&icials and employees.
"@E 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.
">-
192 'e=1i#ite#6
1. 7he retiri$0 e/!l),ee h"# bee$ i$ the #er8ice )+ the #"/e e/!l),er +)r "t le"#t
1< ,e"r#.
2. 7heretiri$0 e/!l),ee i# $)t le## th"$ < ,e"r# )+ "0e "t the ti/e )+ hi#
retire/e$t
3. 7he be$e?t# #h"ll be "8"ile% )+ b, "$ e/!l),ee )$l, )$ce.
4. 7h"t there be " re"#)$"ble !ri8"te be$e?t !l"$ "# %e?$e% bel)-.
193 i.e., the #e!"r"ti)$ )+ the e/!l),ee /1#t be i$8)l1$t"r, "$% $)t i$iti"te% b, hi/
194 "utierrez vs. Collector of Internal Revenue, 57A c"#e $). 6, A101#t 31, 196.
6
4
aE :orgiveness of indebtedness
/ependent upon the circumstances, may amount toA
1. income.
">8

2. a gift.
">9
or
3. a capital transaction.
">=

bE 0ecovery of accounts previously
written o&
o be included as part of the taxpayer3s gross income in the year
of such recovery to the extent of the income tax beneft of said
deduction.
">?
here is an income tax beneft when the deduction of the
bad debt in the prior year resulted in lesser income and hence, tax
savings for the company.
">>
cE 0eceipt of tax refunds or
credit
'@@
As a general rule, 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 beneft of said deduction.
'@"
dE Income from any source
whatever
'@'
195 I+, +)r e."/!le, "$ i$%i8i%1"l !er+)r/# #er8ice# +)r " cre%it)r -h), i$ c)$#i%er"ti)$
there)+ c"$cel# the %ebt, i$c)/e t) th"t "/)1$t i# re"li2e% b, the %ebt)r "# c)/!e$#"ti)$ +)r
hi# #er8ice.
196 I+, h)-e8er, " cre%it)r /erel, %e#ire# t) be$e?t " %ebt)r "$% -ith)1t "$,
c)$#i%er"ti)$ there)+ c"$cel# the %ebt, the "/)1$t )+ the %ebt i# " 0i+t +r)/ the
cre%it)r t) the %ebt)r "$% $ee% $)t be i$cl1%e% i$ the l"tter9# 0r)## i$c)/e.
197 I+ " c)r!)r"ti)$ t) -hich " #t)c4h)l%er i# i$%ebte% +)r0i8e# the %ebt, the tr"$#"cti)$
h"# the e3ect )+ !",/e$t )+ %i8i%e$%# (Sec. <, 'e8. 'e0. 2)
198 7". Ke$e?t '1le
199 Sec. 4, '' -99
-hich c"$ be "!!lie% "0"i$#t "$, #1/ th"t /", be %1e "$% c)llecte% +r)/ the t".!",er.
201 i.e., the t". be$e?t r1le "!!lie#
C)-e8er, the +)ll)-i$0 t". re+1$%# "re $)t t) be i$cl1%e% i$ the c)/!1t"ti)$ )+
0r)## i$c)/e6
1. Phili!!i$e i$c)/e t"., e.ce!t the +ri$0e be$e?t t".
2. I$c)/e t". i/!)#e% b, "1th)rit, )+ "$, +)rei0$ c)1$tr,, i+ the t".!",er cl"i/e%
" cre%it +)r #1ch t". i$ the ,e"r it -"# !"i% )r i$c1rre%.
3. ;#t"te "$% %)$)r9# t".e#
4.7".e# "##e##e% "0"i$#t l)c"l be$e?t# )+ " 4i$% te$%i$0 t) i$cre"#e the 8"l1e )+
the !r)!ert, "##e##e% (S!eci"l "##e##/e$t#)
.V"l1eA%%e%7".
6. Fi$e# "$% !e$"ltie# %1e t) l"te
!",/e$t )+ t". 7.Fi$"l t".e#
8. 5"!it"l &"i$# 7".
2<2
#1!r"
6
6. #ource rules in determining income from
within and without
'@(

Income from sources within the )hilippinesA
"E Interests
Interests derived from sources within the )hilippines, and
interests on bonds, notes or other interest-bearing obligation of
residents, corporate or otherwise.
'E /ividends
he amount received as dividendsA
(1)from a domestic corporation. and
(2) from a foreign corporation, unless less than ffty
percent D8@OE 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 )hilippines as determined
under the provisions of this #ection. 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 )hilippines bears to its gross income from all sources.
3) #ervices
$ompensation for labor or personal services performed in
the )hilippines.
-E 0entals
0entals and royalties from property located in the
)hilippines or from any interest in such property, including
rentals or royalties for -
(1)he use of or the right or privilege to use in the
)hilippines any copyright, patent, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other
like property or right.
(2) he use of, or the right to use in the )hilippines any
industrial, commercial or scientifc e*uipment.
(3) he supply of scientifc, technical, industrial or
commercial knowledge or information.
2<3
Sec. 42
66
(4) he supply of any assistance that is ancillary and
subsidiary to, and is furnished as a means of enabling the
application or enjoyment of, any such property or right as is
mentioned in paragraph DaE, any such e*uipment as is
mentioned in paragraph DbE or any such knowledge or
information as is mentioned in paragraph DcE.
(5) he supply of services by a non-resident person or his
employee in connection with the use of property or rights
belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such non-resident
person.
(6) echnical advice, assistance or services rendered in
connection with technical management or administration of any
scientifc, industrial or commercial undertaking, venture,
project or scheme. and
(7)he use of or the right to useA
(1) 5otion picture flms.
(2) :ilms or video tapes for use in connection with
television. and
(3) apes for use in connection with radio
broadcasting.
5) 0oyalties
'@-

6) #ale of real property
+ains, profts and income from the sale of real property
located in the )hilippines.
=E #ale of personal
property +ains, profts and income from the
sale of personal property
Items of gross income treated as income from sources
without the )hilippinesA
(1) Interests other than those derived from sources within
the )hilippines
(2) /ividends other than those derived from sources within
the )hilippines
(3) $ompensation for labor or personal services performed
without the
)hilippines.
(4) 0entals or royalties from property located without the
)hilippines or from any interest in such property including
rentals or royalties for the use of or for
2<4
See 4) 'e$t"l#, #1!r"
67
the privilege of using without the )hilippines, patents,
copyrights, secret processes and formulas, goodwill,
trademarks, trade brands, franchises and other like properties.
and
D8E +ains, profts and income from the sale of real
property located without the )hilippines.
?E #hares of stock of domestic
corporation
+ain from the sale of shares of stock in a domestic corporation
shall be treated as derived entirely form sources within the
)hilippines regardless of where the said shares are sold.
7. #itus of Income axation
'@8

8. ,xclusions from +ross Income
'@9

Income received or earned but is not taxable as income because
it is exempted by law or by treaty. 0eceipts which are not in fact
income are also excluded from +ross Income.
'@=
"E 0ationale for the exclusions
hey
1. 0epresent return of capital.
2. Are not income, gain or proft.
3. Are subject to another kind of internal revenue tax.
4. Are income, gain or proft that are expressly exempt from
income tax.
'@?

'E axpayers who may avail of the
exclusions
All kinds of taxpayers - individuals, estates, trusts and
corporations, whether citi!ens, aliens, whether residents or non-
residents.
205 See I$here$t Li/it"ti)$#, 7errit)ri"l, #1!r"
206 See Sec. 32 (K)
207 ;.cl1#i)$# "re i$ the $"t1re )+ t". e.e/!ti)$#, th1#, the cl"i/"$t /1#t e#t"bli#h the/
c)$8i$ci$0l,.
208 1$%er the 5)$#tit1ti)$, 7". tre"t,, 7". 5)%e, )r 0e$er"l )r " #!eci"l l"-.
6
8
3) ,xclusions distinguished from
deductions and tax credit
,xclusions
/eductio
ns ax credit
Income received or
earned he items or amounts
An amount subtracted
from
but is not taxable
because by
authori!ed by law to
be
an individual3s or
entity3s tax
law or treaty. #uch tax
K free
subtracte
d from the
liability to arrive at the
total
income is not to be
included
pertinent
items of gross tax liability.
'""
in the income tax
return
income to arrive at
taxable
unless information
regarding income.
'"@
it is specifcally called
for.
'@>
4) Bnder the $onstitution
1) Income derived by the
government or its political
subdivisions from the exercise of
any essential governmental
function
:romA
1) any public utility. and
2) the exercise of any essential governmental function.
'"'

5) Bnder the ax $ode
1))roceeds of life insurance policies
)aid to the heirs or benefciaries upon the death of the insured,
whether in a single sum or otherwise.
'"(
bE 0eturn of premium paid
)aid by the insured under life insurance, endowment, or
annuity contracts, either during the term or at the maturity of the
term of the contract or upon surrender.
'"-
209 Sec. 61, 'e8. 'e0#. (). 2
210 Sec#. 34 "$% 3, (I'5
211 ,... /olding Corp. vs. Commissioner of Internal Revenue, 57A 5"#e (). 314, !r)/.
A101#t 17, 1998
citi$0 Kl"c49# L"- Gicti)$"r,, 6
th
;%.
212 7h1#, i$c)/e +r)/ #)1rce# )ther th"$ th)#e /e$ti)$e% i# #1b:ect t) i$c)/e t"..
!r)cee%# there)+ "re c)$#i%ere% i$%e/$it, r"ther th"$ " 0"i$ )r !r)?t#.
I$#t"$ce# -he$ !r)cee%# +r)/ i$#1r"$ce "re t"."ble6
1) >here !r)cee%# "re hel% b, the i$#1rer 1$%er "$ "0ree/e$t t) !", i$tere#t.
7he i$tere#t i# i$cl1%e% i$ %eter/i$"ti)$ )+ 0r)## i$c)/e.
2)>here the tr"$#+er i# +)r 8"l1"ble c)$#i%er"ti)$.
69
cE Amounts received under life
insurance, endowment or
annuity contracts
If the insured dies, and the benefciary receives the life
insurance proceeds, these are not taxable income because they are
excluded from gross income.
If the insured does not die and survives the designated period,
the amount pertaining to the premiums he paid are excluded from
gross income, but the excess shall be considered part of his gross
income.
dE Jalue of property ac*uired by
gift, be*uest, devise or descent
he income from such property, as well as gift, be*uest, devise,
or descent of income from property, in cases of transfers of divided
interest, shall be included in gross income.
he estate of the testator or the decedent is subject to estate
tax, while the heirs or benefciary6ies are not re*uired to pay donee3s
tax as the same was already abolished. he value of the be*uest
and6or the devise received by the heirs or benefciary6ies is not
included in the computation of their gross income since gifts, be*uest
and devises are excluded from gross income.
'"8
eE Amount received through
accident or health insurance
As compensation for personal injuries or sickness, plus the
amounts of any damages received, whether by suit or agreement, on
the account of such injuries or sickness.
'"9
fE Income exempt under tax treaty
Income of any kind, to the extent re*uired by any treaty
obligation binding upon the +overnment of the )hilippines.
'"=
214 'e"#)$ +)r the e.cl1#i)$6 7he ret1r$ )+ !re/i1/ i# " /ere ret1r$ )+ c"!it"l.
C)-e8er, -here the i$cl1%e% i$ the 0r)## "/)1$t recei8e% e.cee% the "00re0"te
!re/i1/# !"i%, the e.ce## #h"ll be i$c)/e
215 Sec. 32EKF, (I'5
216 ;."/!le )+ %"/"0e# rec)8ere% +r)/ !er#)$"l i$:1rie#6 *)r"l %"/"0e# +)r !er#)$"l
i$:1rie#.
I+ the "-"r% )+ %"/"0e# i# t) c)/!e$#"te l)## )+ !r)!ert, )r "$ "-"r% )+
%"/"0e# t) c)/!e$#"te l)## )+ i$c)/e M !r)?t#, #1ch i# #1b:ect t) t"..
217
Sec. 32EKF(),i%.
7<
gE 0etirement benefts, pensions,
gratuities, etc.
1) 0etirements benefts received under 0A =9-" and those
received by o&icials and employees of private frms in accordance
with reasonable private beneft plan.
'"?

2) Any amount received by an o&icial or employees or by his
heirs from the employer as a Gconse*uence of separation from service
due to death, sickness or other physical disability beyond the control
of the said o&icial or employer.
3) erminal leave and other social security benefts.
'">

4) 2enefts received under the B# veterans Administration.
5) 2enefts received from ###
6) 2enefts received from +#I#.
8) 7innings, pri!es and awards,
including those in sports
competition
1) )ri!es and Awards - to be excluded, the following conditions
must concurA
1. )ri!es and award made primarily in recognition of
religious, charitable, scientifc, educational, artistic, literary,
or civic achievement.
2. he recipient was selected without any action on his
part to enter the contest or proceeding.
3. he recipient is not re*uired to render substantial
future services as a condition in receiving the award.
2) )ri!es and Awardsin #ports $ompetition K
All pri!es and award granted to athletes in local and
international sports competitions and tournaments whether
held in the )hils. or abroad and sanctioned by sports
associations.
218 'e=1i#ite#6
1.7he retiri$0 )Bci"l )r e/!l),ee# h"# bee$ i$ #er8ice )+ the #"/e e/!l),er +)r
"t le"#t te$ ,e"r#.
2.I# $)t le## th"$ < ,r#. )+ "0e "t the ti/e )+ hi# retire/e$t "$%
3.A8"il"ble t) )Bci"l )r e/!l),ee )$l, )$ce.
A @re"#)$"ble !ri8"te be$e?t !l"$A /e"$# " !e$#i)$; 0r"t1it,, #t)c4 b)$1# )r
!r)?t #h"ri$0 !l"$ /"i$t"i$e% b, "$ e/!l),er +)r the be$e?t )+ #)/e )r "ll )+ hi#
e/!l),ee# H
1. -herei$ c)$trib1ti)$# "re /"%e b, #1ch e/!l),er )r e/!l),ee#, )r b)th, +)r
the !1r!)#e )+ %i#trib1ti$0 t) #1ch e/!l),er the e"r$i$0# "$% !ri$ci!"l )+ the +1$%
th1# "cc1/1l"te%; "$%
2. -herei$ #"i% !l"$ !r)8i%e# th"t "t $) ti/e #h"ll "$, !"rt )+ the !ri$ci!"l )r
i$c)/e )+ the +1$% be 1#e% +)r, )r be %i8erte% t), "$, !1r!)#e )ther th"$ +)r the
e.cl1#i8e be$e?t )+ #"i% e/!l),ee
219
7he ter/i$"l le"8e !", )+ 0)8er$/e$t e/!l),ee# -h)#e e/!l),/e$t i# c)-
ter/i$1# i# e.e/!t #i$ce it
+"ll# -ithi$ the /e"$i$0 )+ the !hr"#e @+)r "$, c"1#e be,)$% the c)$tr)l )+ the #"i%
)Bci"l )r e/!l),ee#A (KI' '1li$0 143-98)
71
9E Bnder a ax reaty
o the extent re*uired by any treaty obligation binding upon the
)hilippine government.
7) Bnder #pecial 1aws
1) )ri!es received by winners in charity horse race sweepstakes
from )$#4.
2) 2ack pay benefts
3) Income of cooperative marketing association
4) #alaries and stipends in dollars received by non - :ilipino
citi!ens on the technical sta& of International 0ice 0esearch Institutes
DI00IE
5) #upplemental allowances per diem, benefts received by
o&icer or employees of the :oreign #ervice.
6) Income from bonds and securities for sale in the international
market.
7
2
1. /eductions from +ross Income
''@

1) +eneral rules
1) /eductions must be paid or
incurred in connection with the
taxpayer3s trade, business or
profession
It must be directly connected with trade or business or
profession of the taxpayer.
bE /eductions must be supported
by ade*uate receipts or
invoices
''"
he claimed deduction must be evidenced by o&icial receipts or
other ade*uate records.
'''
2) 0eturn of capital
''(

1) #ale of inventory of goods by
manufacturers and dealers of
properties
2) #ale of stock in trade by a real
estate dealer and dealer in
securities
3) #ale of services
22<
7he#e "re ite/# )r "/)1$t# "1th)ri2e% b, the l"- t) be #1btr"cte% +r)/ the
!erti$e$t ite/# )+ the 0r)## i$c)/e t) "rri8e "t the t"."ble i$c)/e.
K"#ic Pri$ci!le# &)8er$i$0 7". Ge%1cti)$#6
Ce -h) cl"i/# it /1#t !)i$t t) the #!eci?c !r)8i#i)$ )+ the #t"t1te "1th)ri2i$0 it,
"$% he /1#t be "ble t) !r)8e th"t he i# e$title% t) it.
I+ the e.e/!ti)$ i# $)t e.!re##l, #t"te% i$ the l"-, the t".!",er /1#t "t le"#t be
-ithi$ the !1r8ie- )+ the e.e/!ti)$ b, cle"r le0i#l"ti8e i$te$t. C)-e8er, i+ there i#
"$ e.!re## /e$ti)$ i$ the l"- )r i+ the t".!",er +"ll# -ithi$ the !1r8ie- )+ the
e.e/!ti)$ b, cle"r le0i#l"ti8e i$te$t, the r1le )$ #trict c)$#tr1cti)$ "0"i$#t the
t".!",er-cl"i/"$t -ill $)t "!!l,.
J$li4e 0r)## i$c)/e, there i# $) c"tch-"ll !r)8i#i)$ +)r %e%1cti)$#. Ge%1cti)$#
/1#t c)/!l, -ith the #1b#t"$ti"ti)$ re=1ire/e$t.
221 e.ce!t #t"$%"r% %e%1cti)$
222 7he e8i%e$ce /1#t e#t"bli#h the +)ll)-i$0;
1) the "/)1$t )+ e.!e$#e# bei$0 %e%1cte%
2) the %irect rel"ti)$ )+ #1ch t) the %e8el)!/e$t, /"$"0e/e$t, )!er"ti)$, "$%M)r
c)$%1ct )+ the tr"%e, b1#i$e## )r !r)+e##i)$ )+ the t".!",er.
223 c)#t )+ #"le# )r #er8ice#
7
3
3) Itemi!ed deductions
''-

1),xpenses
''8

(1) 0e*uisites for
deductibility
1. It must be ordinary and necessary.
2. It must be paid or incurred during the taxable year.
3. It must be paid or incurred in carrying on or which are
directly attributable to the
development, management, operation and6or conduct of the trade,
business or exercise of
1 profession.
4. he amount must be reasonable.
5. It must be substantiated with su&icient evidence, such as
o&icial receipts or other ade*uate records, showingA
1. the amount of the expense being deducted, and
2. the direct connection or relation of the expense being
deducted to the development, management, operation
and6or conduct of the trade, business or profession of the
taxpayer
6. It is not contrary to law, public policy or morals.
7. he tax re*uired to be withheld on the amount paid or payable
must have been paid to the 2I0 by the taxpayer, who is constituted as
a withholding agent of the government.
''9

224
7he +)ll)-i$0 c"$ cl"i/ ite/i2e% %e%1cti)$#6
1. 5)r!)r"ti)$#, -hether %)/e#tic )r (re#i%e$t) +)rei0$
2. &e$er"l Pr)+e##i)$"l P"rt$er#hi!#
c.
I$%i8i%1"l#
e$0"0e%
i$
tr"%e, !r)+e##i)$ )r b1#i$e## (citi2e$, re#i%e$t "lie$, $)$-
re#i%e$t "lie$
%)i$0 b1#i$e## i$ the Phili!!i$e#)
%. ;#t"te# "$% tr1#t# e$0"0e% i$ tr"%e )r b1#i$e##
e.
Pr)!riet"r,
e%1c"ti)$"
l i$#tit1ti)$# "$% h)#!it"l# ($)$-!r)?t)
+. &)8er$/e$t-)-$e% )r c)$tr)lle% c)r!)r"ti)$#
L$l, i$%i8i%1"l#, e.ce!t $)$-re#i%e$t "lie$#, c"$ elect bet-ee$ ite/i2e%
%e%1cti)$# "$% )!ti)$"l #t"$%"r% %e%1cti)$.
22
Sec. 34(A)
L$l, %e%1cti)$# "ll)-"ble "re )r%i$"r, "$% $ece##"r, tr"%e, b1#i$e## )r
!r)+e##i)$"l e.!e$#e#
226
F)r i$#t"$ce, -ithh)l%i$0 t". )$ c)/!e$#"ti)$ i$c)/e !"i% t) e/!l),ee#, +ri$0e
be$e?t t". )$ +ri$0e be$e?t# 0i8e$ t) /"$"0eri"l "$% #1!er8i#)r, e/!l),ee#, etc.
( Sec. 2.8., '' 2-98 "# "/e$%e% b, Sec. 6, '' 14-2<<2)
74
DaE %atureA 4rdinary
and
necessary
''=
4rdinary %ecessary
7hen it connotes a payment, which
is normal in relation to the
business of the taxpayer and the
surrounding circumstances.
7here the
expenditure is
appropriate or
helpful in the
development of
taxpayer3s
business or that
the same is
proper for the
purpose of
reali!ing a
proft or
minimi!ing a
loss.
(2) )a
i
d
a
n
d
i
n
c
u
rr
e
d
d
u
ri
n
g
t
a
x
a
bl
e
y
e
a
r
)aid Incurred
he payment is
on cash receipt
basis, expenses
are deductible in
the year they are
incurred.
he
paymen
t
thereof
is on
accrual
basis,
expens
es are
deducti
ble in
the
year
they
are
incurre
d,
whethe
r paid
or not.
(2) #a
lar
ies
,
wa
ge
s
an
d
ot
he
r
for
ms
of
co
mpensati
on for
personal
services
actually
rendered,
including
the
grossed-
up
monetary
value of
the fringe
beneft
subjected
to fringe
beneft
tax which
tax should
have been
pa
id
'
'?

(3)
r
a
v
e
l
6

r
a
n
s
p
o
r
t
a
t
i
o
n

e
x
p
e
n
s
e
s
'
'
>

227
7he t-)
c)$%iti)$# /1#t
c)$c1r. A c)1rt
/", %eci%e )$
-he$ "$
e.!e$#e i#, )r i#
$)t, )r%i$"r,,
b1t "# /1ch "#
!)##ible, it -ill
re+1#e t)
#1b#tit1te it#
:1%0/e$t +)r
th"t )+
the
t".!",
er )$
the
$ece##
it, )+
"$
e.!e$#
e.
228 S
ec.
34
(A)
(1)(")
(i)
229 F
)r
tr"8el
e.!e$#
e#,
here
"$%
"br)"%
, -hile
"-",
+r)/
h)/e,
i$ the
!1r#1it
)+
tr"%e,
b1#i$e
## )r
!r)+e##
i)$.
230 I
$cl1%
e /e"l# "$%
l)%0i$0, here
"$%M)r "br)"%.
>hile "-",
+r)/ h)/e
/e"$# "-",
+r)/ !ri$ci!"l
!l"ce )+
b1#i$e##
I+ the tri! i#
1$%ert"4e$ +)r
!1r!)#e# )ther
th"$ b1#i$e## )r
e.erci#e )+
!r)+e##i)$, the
tr"$#!)rt"ti)$
e.!e$#
e# "re
!er#)$
"l
e.!e$#
e# "$%
the
/e"l#
"$%
l)%0i$
0 "re
li8i$0
e.!e$#
e# "$%
"re $)t
%e%1ct
ible.
7r"$
#!)rt"t
i)$
e.!e$#
e# )+
"$
e/!l),
ee
+r)/
hi#
re#i%e$
ce t)
hi#
)Bce "$% b"c4
"re $)t
%e%1ctible. 7he,
"re !er#)$"l
e.!e$#e#.
C)-e8er,
tr"$#!)rt"ti)$
e.!e$#e# +r)/
hi# )Bce t) hi#
c1#t)/er9# !l"ce
)+ b1#i$e## "$%
b"c4 "re
%e%1ctible. 7he,
"re b1#i$e##
e.!e$#e#.
7
D-E $ost of materials
5aterials and supplies are deductible only to the amount
actually consumed or used in the operation during the taxable year.
D8E 0entals and6or other
payments for use or
possession of property
'(@
D9E 0epairs and
maintenance
'("
D=E,xpenses under lease
agreements
'('
D?E ,xpenses for
professionals
D>E ,ntertainment
expenses
'((
D"@E )olitical campaign
expenses
D""E raining expenses
bE Interest
'(-
D"E 0e*uisites for
deductibility
1. here must be a valid and existing indebtedness
2. he indebtedness must be that of the taxpayer.
3. he interest must be legally due and stipulated in writing.
4. he interest expense must be paid or incurred during the
taxable year.
5. he indebtedness must be connected with the taxpayerNs
trade, business or exercise of profession.
6. he interest payment arrangement must not be between
related taxpayers.
'(8

230 'e=1ire% "# " c)$%iti)$ +)r the c)$ti$1e% 1#e )r !)##e##i)$, +)r !1r!)#e# )+
the tr"%e, b1#i$e## )r !r)+e##i)$, )+ !r)!ert, t) -hich the t".!",er h"# $)t t"4e$ )r
i# $)t t"4i$0 title )r i$ -hich he h"# $) e=1it, )ther th"$ th"t )+ " le##ee, 1#er )r
!)##e##)r.
e.!"$#i)$ t) the e.te$t th"t the, "rre#t %eteri)r"ti)$ "$% !r)l)$0 the li+e )+ the !r)!ert,.
Lr%i$"r, re!"ir# - th)#e /"%e t) 4ee! the !r)!ert, )r%i$"ril, eBcie$t -)r4i$0
c)$%iti)$ "$% %) $)t /"teri"ll, "%% t) the 8"l1e )+ the !r)!ert,
232 See ) 'e$t"l#, etc., #1!r"
233 I$cl1%e @re!re#e$t"ti)$ e.!e$#e# "$%M)r %e!reci"ti)$ )r re$t"l e.!e$#e
rel"ti$0 t) e$tert"i$/e$t +"cilitie#.A (1#t !"r., Sec. 2, 'e8. 'e0#. 11<-2<<2)
234 7he "/)1$t )+ i$tere#t !"i% )r i$c1rre% -ithi$ " t"."ble ,e"r )$ i$%ebte%$e##
i$ c)$$ecti)$ -ith the
t".!",erQ# !r)+e##i)$, tr"%e )r b1#i$e## #h"ll be "ll)-e% "# %e%1cti)$ +r)/ 0r)##
i$c)/e. (Sec. 34,
K (1))
23

i$+r"
76
7. he interest is not expressly disallowed by law to be deducted
from the taxpayer3s gross income.
'(9
and
8. he amount of interest deducted from gross income does not
exceed the limit set forth in the law.
'(=

D'E %on-deductible interest
expense
1. Interest on preferred stock, which in reality is dividend
2. Interest on unpaid salaries and bonuses
3. Interest calculated for cost keeping
4. Interest paid where parties provide no stipulation in writing to
pay interest
5. If the indebtedness is incurred to fnance petroleum
exploration
6. Interest paid on indebtedness between related
taxpayers
'(?

7. Interest on indebtedness paid in advance through discount or
otherwise and the taxpayer reports income on cash basis.
'(>

(3) Interest subject to special
rules
(1)Interest paid in
advance
If the indebtedness is payable in periodic amorti!ations, the
amount of interest which corresponds to the amount of the principal
amorti!ed or paid during the year shall be allowed as deduction in
such taxable year.
236 e.0., i$tere#t )$ i$%ebte%$e## t) ?$"$ce !etr)le1/ )!er"ti)$#
237 I$ )ther -)r%#, the t".!",er9# )ther-i#e "ll)-"ble %e%1cti)$ +)r i$tere#t e.!e$#e #h"ll
be re%1ce% b, +)rt,-t-) !erce$t (42I) )+ the i$tere#t i$c)/e #1b:ecte% t) ?$"l t". be0i$$i$0
()8e/ber 1, 2<< 1$%er '.A. 9337, "$% th"t e3ecti8e D"$1"r, 1, 2<<9, the !erce$t"0e #h"ll be
thirt,-three !erce$t (33I) (Sec.34(K)(1)
238 1. *e/ber# )+ the #"/e +"/il,, br)ther# "$% #i#ter#, -hether i$ +1ll )r h"l+ bl))%, #!)1#e, "$ce#t)r# "$% li$e"l %e#ce$%"$t#
2. St)c4h)l%er# "$% " c)r!)r"ti)$, -he$ he h)l%# /)re th"$ <I i$ 8"l1e )+ it#
)1t#t"$%i$0 c"!it"l #t)c4, e.ce!t i$ c"#e )+ %i#trib1ti)$ i$ li=1i%"ti)$
3. 5)r!)r"ti)$ "$% "$)ther c)r!)r"ti)$, -ith i$terl)c4i$0 #t)c4h)l%er#
4. &r"$t)r "$% ?%1ci"r, i$ " tr1#t
5. Fi%1ci"r, )+ " tr1#t "$% ?%1ci"r, i$ "$)ther tr1#t, i+ the #"/e !er#)$ i# " 0r"$t)r
-ith re#!ect t) e"ch tr1#t
6. Fi%1ci"r, )+ " tr1#t "$% be$e?ci"r, )+ #1ch tr1#t
239 I$tere#t i# "ll)-e% "# " %e%1cti)$ i$ the ,e"r the i$%ebte%$e## i# !"i%, $)t -he$ the
i$tere#t -"# !"i% i$ "%8"$ce.
7
7
DbE Interest
periodically
amorti!ed
'-@
DcE Interest expense
incurred to ac*uire
property for use in
trade6business6profe
ssion
At the option of the taxpayer, may be allowed as a deduction or
treated as a capital expenditure.
'-"
cE axes
'-'
D"E 0e*uisites for deductibility
"
.
It must be paid or incurred within the
taxable year.
'
. It
mus
t be
paid or incurred in connection with the
taxpayer3s trade,
profession or
business.
'-(
(. It must be imposed directly on the taxpayer.
-
. It must not
be specifcally excluded by law from being
deducted from the
taxpayer3s gross income.
240 See "), "b)8e
241 Sec. 34 (K)(3)
242 7he -)r% Ut".e#9 /e"$# t".e# !r)!er "$% $) %e%1cti)$ #h)1l% be "ll)-e% +)r
"/)1$t# re!re#e$ti$0 i$tere#t, #1rch"r0e, )r !e$"ltie# i$ci%e$t t) %eli$=1e$c,. (Sec.
8<, ''-2)
243 ;."/!le#6
1. I/!)rt %1tie#
2. K1#i$e## t".e#
3. Lcc1!"ti)$ t".e#
4. Pri8ile0e "$% lice$#e t".e#
5. ;.ci#e t".e#
6. G)c1/e$t"r, #t"/! t".e#
7. A1t)/)bile re0i#tr"ti)$ +ee#
8. 'e"l !r)!ert, t".e#
Li/it"ti)$6 I$ the c"#e )+ " $)$re#i%e$t "lie$ i$%i8i%1"l e$0"0e% i$ tr"%e )r
b1#i$e## (('A;7K) "$% " re#i%e$t +)rei0$ c)r!)r"ti)$ ('F5), the %e%1cti)$# +)r t".e#
#h"ll be "ll)-e% )$l, i+ "$% t) the e.te$t th"t the, "re c)$$ecte% -ith i$c)/e +r)/
#)1rce# -ithi$ the Phili!!i$e#.
78
D'E %on-deductible taxes
axes not allowed as deduction from gross income to arrive at
taxable incomeA
1. Income tax provided under the %I0$
2. Income taxes imposed by authority of any foreign country
'--

D(Ereatment6of
surcharges6interests6fn
es6for delin*uency
'-8
D-E reatment of special
assessment
'-9
/eductible as taxes where these are made for the purpose ofA
1. 5aintenance or repair of local benefts, if the payment of such
assessment is ordinary and necessary in the conduct of trade,
business or profession
2. $onstructing local benefts tending to increase the value of
the property assessed, the payments are in the nature of capital
expenditures.
'-=

244 I$c)/e t". i/!)#e% b, " +)rei0$ c)1$tr, "re %e%1ctible )$l, i+6
1)the t".!",er i# =1"li?e% t) "8"il )+ t". cre%it;
2)Ce %)e# $)t #i0$i+, i$ it# ret1r$ hi# %e#ire t) "8"il )+ the #"/e.
7he ri0ht t) %e%1ct i$c)/e t".e# !"i% t) " +)rei0$ 0)8er$/e$t i# 0i8e$ )$l, "# "$
@"lter$"ti8e )r #1b#tit1te @t) hi# ri0ht t) cl"i/ " t". cre%it +)r #1ch +)rei0$ i$c)/e
t".e#.
Li/it"ti)$ )$ %e%1cti)$6
1)$)$ H re#i%e$t "lie$ e$0"0e% i$ tr"%e )r b1#i$e## i$ the Phil#.
2) re#i%e$t +)rei0$ c)r!)r"ti)$ --- the %e%1cti)$# +)r t".e# #h"ll be "ll)-e% )$l, i+
"$% t) the e.te$t th"t the, "re c)$$ecte% -ith i$c)/e +r)/ @#)1rce# -ithi$A the
Phil#.
24
See (F)(3)(")(2), 1$%er 7". 'e/e%ie# 1$%er the (I'5, i$+r"
246
A$ e$+)rce% !r)!)rti)$"l c)$trib1ti)$ +r)/ )-$er# )+ l"$%#, e#!eci"ll, )r
!ec1li"rl, be$e?te% b,
!1blic i/!r)8e/e$t#.
247
7he b1r%e$ i# )$ the t".!",er t) #h)- the "ll)c"ti)$ )+ the "/)1$t# "##e##e% t)
the %i3ere$t !1r!)#e#.
79
ax $redit
/educted from )hil.
income tax
D8E ax credit
'-?
vis-;-vis
deduction
ax deduction
/educted from the gross income
All taxes
are
allowed
to be
deducted
with the
exception of
the taxes
expressly
excluded
4nly foreign
income taxes
may be claimed
as credits
dE 1osses
1
osse
s
actu
ally
sust
aine
d
duri
ng
the
taxa
ble
year
and
not
com
pen
sate
d
for
by
insura
nce or
other
forms
of
indem
nity.
'->
D"E 0e*uisites for deductibility
1)
h
e

l
o
s
s

m
u
s
t
b
e

t
h
at
of
th
e
ta
x
p
a
y
er
.
'
8"
2)
h
er
e
m
u
st
b
e
a
n
a
ct
u
al
lo
ss
s
u
&
er
e
d
in
a
cl
os
e
d
a
n
d
c
o
m
pl
et
e
d
tr
a
n
sa
ct
io
n.
'8
'

3) he loss must
be connected
with the
taxpayer3s
trade,
business or
profession.
4) he loss must
not be
compensated
for by
insurance or
otherwise.
5) he loss must
be actually
sustained and
charge K o&
during the
taxable year.
'8(

248
'e+er# t) the t".!",er9#
ri0ht t) %e%1ct +r)/ the
i$c)/e t". %1e, the "/)1$t
)+ t". he h"# !"i% t) +)rei0$
c)1$tr,.
Per#)$# e$title% t) t".
cr
e%
it
1
.
'
e
#i
%
e
$
t
5
it
i2
e
$
)
+
t
h
e
P
hi
li
!
!i
$
e
#
2.G
)
/
e#
tic
5)
r!.
e.
ce
!t
&
e$
er
"l
Pr
)+
e#
#i
)$
"l
P"
rt
$e
r#
hi
!
3.*
e
/
ber# )+
the
&PP
4.Ke$e?c
i"rie#
)+
;#t"te#
"$%
7r1#t#.
Per#)$#
$)t
e$title% t)
7". cre%it
1.()$
'e#i%e
$t
5iti2e$
2.Alie$#,
-hethe
r
re#i%e$
t# )r
$)$ H
re#i%e$
t#
3
.
F
)
r
e
i
0
$

5
)
r
!
)
r
"
t
i
)
$
,

-
h
e
t
h
e
r

r
e
#
i
%
e
$
t
#

)
r

$
)
$

-

r
e
#
i
%
e
$
t
#

2
4
9

S
e
c
.

3
4

G

E
1
F

2<
Ge#!ite
c)$c1rre$ce )+ re=1i#ite#, -he$ i# l)## $)$ethele## $)t %e%1ctibleO
I$
c)/!1ti$0 $et i$c)/e, $) %e%1cti)$# #h"ll i$ "$, c"#e be "ll)-e% i$ re#!ect )+
l)##e# +r)/
#"le
#
)r e.ch"$0e#
)+
!r)!ert, %irectl, )r i$%irectl, Ebet-ee$ rel"te% t".!",er# (Sec.
36 (K)
251 7he l)## i# !er#)$"l t) the t".!",er "$% i# $)t tr"$#+er"ble )r 1#"ble b, "$)ther. 7he l)## )+ " !re%ece##)r !"rt$er#hi! i# $)t %e%1ctible b, " #1cce##)r c)r!)r"ti)$. 7he l)## )+ the !"re$t c)/!"$, /", $)t be %e%1cte% b, it# #1b#i%i"r,.
252 @5l)#e% tr"$#"cti)$
@/e"$# th"t t"."ble ,e"r
-he$ the "/)1$t )+ l)##
-"# ?$"ll, "#cert"i$e%. 253 7he %e%1cti)$ #h"ll
be i$ +1ll )r $)t "t "ll.
8<
fE
In
the case of casualty loss, declaration
of loss
'8-
must be
fled
within
-8
days fromthe occurrence of the casualty loss.
'88
gE he loss must not be claimed as deduction for estate tax purposes
in the estate tax
return.
D'E 4ther types of losses
DaE $apital losses
1osses from sale or exchange of capital assets. /eductible to the
extent of capital
gains
only.
Db
E #ecurities
becomin
g
worthless
'
89
he loss resulting therefrom to the taxpayer
'8=
is not considered
as a bad debt but as a capital loss.
DcE 1osses on wash
sales of stocks or
securities
%ot deductible whenA
1) A taxpayer who is not a dealer of stocks in trade has disposed
shares and
2) 7ithin the period of 9@DsixtyE days beginning (@ days before
the date of such sale and ending (@ days after such date, the taxpayer
has ac*uired substantially identical stocks or securities.
'8?

(4) 7agering losses
/eductible only to the extent of the gains from such wagering
transaction. If there is no gain from the wagering transaction, the loss
therefrom cannot be deducted from gross income.
'8>
C)-e8er, i+ the l)## i# c)/!e$#"te% b, i$#1r"$ce )r )ther-i#e, the l)## i#
!)#t!)$e% t) " #1b#e=1e$t ,e"r i$ -hich it "!!e"r# th"t $) c)/!e$#"ti)$ "t "ll c"$
be h"%, )r there i# " re/"i$i$0 $et l)## ()r there i# $) +1ll c)/!e$#"ti)$). Ge%1cti)$
-ill be %e$ie% i+ there i# " /e"#1r"ble ri0ht t) c)/!e$#"ti)$ +)r
the l)##, -ith
1lti/"te c)llecti)$ re"#)$"bl, cle"r. S) -here there i# re"#)$"ble
0r)1$% +)r
rei/b1r#e/e
$t,
the t".!",er /1#t #ee4 hi# re%re## "$% /", $)t #ec1re " l)## %e%1cti)$
1$til he
e#t"bli#he#
th"t
$) rec)8er, /", be h"%. I$ )ther -)r%#, the t".!",er /1#t ?r#t
e.h"1#t hi# re/e%ie#
t) rec)8er )r re%1ce hi# l)##. (!laridel &uret# and Insurance Co. v. Collector, 21 S5'A
1187)
254 S-)r$ Gecl"r"ti)$ )+ L)##
255 '' 12-77
256 Sec1ritie# -hich "re c"!it"l "##et# "#cert"i$e% t) be -)rthle## "$% ch"r0e%-)3 -ithi$
the t"."ble ,e"r.
257 )ther th"$ " b"$4 )r tr1#t c)/!"$, i$c)r!)r"te% 1$%er the l"-# )+ the Phil.
258 C)-e8er, i+ l)##e# +r)/ -"#h #"le# "re cl"i/e% b, " @%e"lerA i$ #ec1ritie# i$
the )r%i$"r, c)1r#e )+ b1#i$e##, #1ch l)##e# "re %e%1ctible.
259 >"0eri$0 tr"$#"cti)$# - th)#e i$ -hich the )1tc)/e i# 1$cert"i$ )r th)#e th"t
i$8)l8e 0"/e# )+ ch"$ce.
8
1
DeE %41$4
'9@
It is the excess of allowable deductions over gross income of
business for any taxable year which had not been previously o&set as
deduction from gross income.
It shall be carried over as deduction from gross income for the
next ( consecutive years following the year of such loss. )rovided
thatA
1. he taxpayer was not exempt from income tax in the year of
such net operating
loss. and
2. here has been no substantial change in the ownership of the
business or
enterprise.
5) 2ad debts
/ebts due to the taxpayer when actually ascertained to be
worthless
'9"
and charged-o& within the taxable year.
'9'
hey refer to those debts resulting from the worthlessness or
uncollectibility, in whole or in part, of amounts due to the taxpayer by
others, arising from money lent or from uncollectible amounts of
income from goods sold or services rendered.
'9(
D"E 0e*uisites for
deductibility
1) here must be a valid and subsisting debt.
'9-

2) he same must be connected with the taxpayer3s trade,
business or practice of
profession.
3) he same must not be sustained in a transaction entered into
between related
parties.
'98

260 (et L!er"ti$0 L)## 5"rr, H )8er
261 I$ 0e$er"l, " %ebt i# $)t -)rthle## #i/!l, bec"1#e it i# )+ %)1bt+1l 8"l1e )r %iBc1lt t) c)llect. >)rthle##$e## i# $)t %eter/i$e% b, "$ i$Ne.ible +)r/1l" )r #li%e r1le c"lc1l"ti)$ b1t 1!)$ the e.erci#e )+ #)1$% b1#i$e## :1%0/e$t. 7he %eter/i$"ti)$ )+ -)rthle##$e## i$ " 0i8e$ c"#e /1#t %e!e$% 1!)$ the !"rtic1l"r +"ct# "$% the circ1/#t"$ce# )+ the c"#e. A t".!",er /", $)t !)#t!)$e " b"% %ebt %e%1cti)$ )$ the b"#i# )+ " /ere h)!e )+ 1lti/"te c)llecti)$ )r bec"1#e )+ " c)$ti$1"$ce )+ "tte/!t# t) c)llect $)te# -hich h"8e l)$0 bec)/e )8er%1e, "$% -here there i# $) #h)-i$0 th"t the #1rr)1$%i$0 circ1/#t"$ce# %i3er +r)/ th)#e rel"ti$0 t) )ther $)te# -hich -ere ch"r0e% )3 i$ " !ri)r ,e"r. >hile " /ere h)!e !r)b"bl, -ill $)t :1#ti+, !)#t!)$e/e$t )+ the %e%1cti)$, " re"#)$"ble !)##ibilit, )+ rec)8er, -ill !er/it the "cc)1$t t) be c"rrie% "l)$0 $)t-ith#t"$%i$0 th"t the !r)b"bilitie# "re th"t the %ebt /", $)t be c)llecte% "t "ll.
262 Sec.34 E;1F
263 Sec.2 E"F, 'e8. 'e0#. ().-99
264 A 8"li% "$% #1b#i#ti$0 %ebt i# )$e the c)llecti)$ )+ -hich /", be e$+)rce% i$ "
c)1rt )+ l"-. A %ebt
-hich h"% !re#cribe% i# $) l)$0er 8"li% "$%
#1b#i#ti$0.
26
i$+r"
82
4) he same must be actually charged-o& the books of accounts
of the taxpayer as of the end of the taxable year.
'99

5) he same must be actually ascertained to be worthless and
uncollectible as of the end of the taxable year.
'9=

6) /epreciation
he gradual diminution in the useful value of tangible property
used in trade or business resulting from exhaustion, wear and tear,
and normal obsolescence.
he term is also applied to amorti!ation of value of intangible
assets the use of which in trade or business is defnitely limited in
duration.
'9?
D"E 0e*uisites for
deductibility
1) he allowance for depreciation must be reasonable
'9>

2) It must be for property arising out of its use or employment
in the business or trade, or out of its not being used
temporarily during the year
'=@

3) It must be charged-o& during the taxable year.
'="

4) A statement on the allowance must be attached to the return.
5) he property must have a limited useful life.
(2) 5ethods of computing
depreciation allowance
(1)#traight-line
method
'='

#preads the total depreciation over the useful life of the asset
and generally results in an e*ual depreciation per unit of time
regardless of the use to which the properties are put.
266
A !"rti"l -riti$0-)3 )+ " b"% %ebt i# $)t "ll)-e%; it /1#t be ch"r0e%-)3 i$ +1ll )r
$)t "t "ll (2ernandez /ermanos, Inc. vs. Commissioner, 29 S5'A 2; !hilippine
Re:ning Co. vs. Court of Appeals, 7< S5AG 44, 26 S5'A 667).
267 I$ 0e$er"l, " %ebt i# $)t -)rthle## #i/!l, bec"1#e it i# )+ %)1bt+1l 8"l1e )r
%iBc1lt t) c)llect. >)rthle##$e## i# %eter/i$e% 1!)$ the e.erci#e )+ " #)1$%
b1#i$e## :1%0/e$t. 7he %eter/i$"ti)$ )+ -)rthle##$e## i$ " 0i8e$ c"#e /1#t %e!e$%
1!)$ the !"rtic1l"r +"ct# "$% circ1/#t"$ce# )+ the c"#e.
268 *asilan .states, Inc. vs. Comm., 21 S5'A 17
269 *acolod;,urcia ,illing Co. Inc. vs. Comm., 57A 5"#e (). 14<2, Lct. 31, 1969
270 Connel *ros. Co. vs. Collector, 57A 5"#e# (). 411 V 61<, A!ril 3<, 1966).
Ge!reci"ti)$ /", $)t be "cc1/1l"te%.
272 Fi.e% Perce$t"0e *eth)%
8
3
DbE /eclining-balance
method
Bses a rate to the declining book value of the asset.
/epreciation is largest in amount the frst year and declines in the
years thereafter.
DcE#um-of-the-
years-digit
method
0e*uires the application of a changing fraction to the cost basis
of the property, reduced by the estimated residual salvage value.
gE $haritable and other
contributions
'=(
D"E 0e*uisites for deductibility
1) 5ust actually be paid or made to the )hil. +overnment or any
of its agencies or political subdivision or to any domestic corporations
or associations.
2) 5ust be made within the taxable year.
3) 5ust not exceed "@O of the individual3s taxable income and
8O of the corporation3s taxable income before deducting the
contribution. and
4) 5ust be evidenced by ade*uate records or receipts.
274

(2) Amount that may be
deducted
#ubject to limit
'=8
/eductible in full
aE /onations to the )hilippine
government
aE /onations to the government of
the
or any of its agencies or any
political
)hilippines or to any of its
agencies or
subdivision thereof exclusively for
public
political subdivisions, including
fully-owned
purposes.
government corporations
exclusively to
fnance, to provide for, or to be
used in
bE /onations to accredited
domestic undertaking priority activities inA
corporations or associations
organi!ed and
operated exclusively forA ". ,ducation.
". 0eligions.
'. Cealth.
(.
Touth and sports
development.
'. $haritable.
-. Cuman settlements.
(. #cientifc.
273 Pi$%# )+ c)$trib1ti)$# "ll)-e% "# %e%1cti)$6
1)Lr%i$"r, )r c)$trib1ti)$# -ith li/it )r #1b:ect t) li/it"ti)$
2)S!eci"l )r c)$trib1ti)$# %e%1ctible i$ +1ll
274 Sec. 34 (C)
275 IM1<I
8
4
-.
Touth and sports
development. 8.
#cience and culture.
and
8. $ultural. or 9.
,conomic
development.
9.
,ducational purposes. or
for the
bE /onations to foreign institutions
or
=. 0ehabilitations of
veterans. and
internatio
nal
organi!ati
ons
in
pursuanc
e or
compliance with agreements,
treaties, or
cE /onations to social welfare
institutions or
commitme
nts entered into by the
to
non-
government
organi!atio
ns in
government of the and the foreign
laws or
accordance with rules and
regulations
international organi!ations or in
pursuance
promulgated by the #ecretary of
:inance, of special laws, and
provided no part of the net income
of which
inures to the beneft of any private
cE /onations to certain accredited
non-
stockholders or individual.
'=9
government
organi!ation.
'==
hE $ontributions to pension trusts
D"E 0e*uisites for deductibility
1) he employer must have established a pension or retirement
plan to provide for the payment of reasonable pensions to its
employees.
2) he pension plan is reasonable and actuarially sound.
'=?

3) It must be funded by the employer.
1) he amount contributed must no longer be subject to its
control or disposition. and
2) he payment has not therefore been allowed as a deduction.
4) 4ptional standard deduction
1)Individuals, except non-resident
aliens
A maximum of forty percent D-@OE of gross sales or gross
receipts during the taxable
year.
he Gcost of salesH or the Gcost of servicesH is not allowed to be
deducted for purposes of determining the basis of the 4#/ inasmuch
as the law
'=>
is specifc as to the
276 Sec. 34 (C)(1)
277 Ibi%.,( 2)
278 Sec. 118, 'e0#.
279 '.A. 9<4, *i$i/1/ >"0e ;"r$er L"-
8

basis thereof which states that for individuals, the basis of the -@O
4#/ shall be the Ggross salesH or Ggross receiptsH and not Ggross
income.H
'?@
bE $orporations, except non-
resident foreign corporations
%ot exceeding forty percent D-@OE of their gross income.
5) )ersonal and additional exemption
'?"

1)2asic personal exemptions
:ifty thousand pesos D)8@,@@@E K each individual taxpayer.
'?'
bE Additional exemptions for
taxpayer with dependents
wenty-fve thousand pesos D)'8,@@@E - each dependent
'?(
not
exceeding four D-E.
'?-
cE #tatus-at-the-end-of-the-year
rule
1. axpayer marries during taxable year - may claim the
corresponding 2), in full for such year
.

2. axpayer should have additional dependentDsE during taxable
year - may claim corresponding A, in full for such year.
2. axpayer dies during taxable year - his estate may still claim
2), and A, for himself and his dependentDsE as if he died at
the close of such year.
4. If during the taxable year
1. spouse dies, or
2. any of the dependents dies or marries, turns '" years
old or becomes gainfully employed, taxpayer may still claim
same exemptions as if the spouse or any
280 'e8. 'e0. (). 16-2<<8
281 '. A. 9<4
282 Sec. 4, i%.
283 I$ the c"#e )+ /"rrie% i$%i8i%1"l -here )$l, )$e )+ the #!)1#e# i# %eri8i$0
0r)## i$c)/e, )$l, #1ch
#!)1#e #h"ll be "ll)-e% the !er#)$"l e.e/!ti)$.
283 Ale0iti/"te, ille0iti/"te )r le0"ll, "%)!te% chil% chieN, %e!e$%e$t 1!)$ "$% li8i$0 -ith the t".!",er i+ #1ch %e!e$%e$t i# $)t /)re th"$ t-e$t,-)$e (21) ,e"r# )+ "0e, 1$/"rrie% "$% $)t 0"i$+1ll, e/!l),e% )r i+ #1ch %e!e$%e$t, re0"r%le## )+ "0e, i# i$c"!"ble )+ #el+-#1!!)rt bec"1#e )+ /e$t"l )r !h,#ic"l %e+ect.
284 I$ the c"#e )+ le0"ll, #e!"r"te% #!)1#e#, "%%iti)$"l e.e/!ti)$# /", be
cl"i/e% )$l, b, the #!)1#e -h) h"# c1#t)%, )+ the chil% )r chil%re$6
285 7he t)t"l "/)1$t )+ "%%iti)$"l e.e/!ti)$# th"t /", be cl"i/e% b, b)th #h"ll
$)t e.cee% the /".i/1/ "%%iti)$"l e.e/!ti)$# herei$ "ll)-e%. (ibi%)
86
of the dependents died, or married, turned '" years old or
became gainfully employed at the close of such year.
'?8
6) Items not deductible
1)+eneral rules
hese items are not related to the trade, business or profession
of the taxpayer.
bE )ersonal, living or family
expenses
hese are personal expenses and not related to the conduct of
trade or business.
cE Amount paid for new buildings
or for permanent improvements
hese are capital expenditures added to the cost of the
property and the periodic depreciation is the amount that is
considered as deductible expense.
'?9
dE Amount expended in restoring
property
'?=
hey are capital expenditures or those expenditures that result
in obtaining benefts of a permanent nature.
'??
eE )remiums paid on life insurance
policy covering life or any other
o&icer or employee fnancially
interested
7hen the taxpayer is directly or indirectly a benefciary under
such policy.
'?>
285 Sec. 3 (5)
286 G)e# $)t "!!l, t) i$t"$0ible %rilli$0 "$% %e8el)!/e$t c)#t i$c1rre% i$ !etr)le1/
)!er"ti)$#.
287 /":)r re!"ir# 288 #1ch "# l"$%#, b1il%i$0# "$% /"chi$erie#
289 Sec. 36 EAF
8
7
fE Interest expense, bad debts, and
losses from
sales of property between related
parties
Interest
,xpense
2ad
/ebts 1osses from sales of
propert
y
betwee
n
relate
d
parties
In general, the amount
of
In general, debts due
to the
D"E 2etween members
of a
inter
est paid or incurred
taxpay
er
actually
ascertained
family.
'>(
or
within a taxable year
on
to be worthless and
charged
D'E ,xcept in the case
of
indebtedn
ess
in
connection
o& within the taxable
year
distributi
ons
i
n
li*uidatio
n,
with the taxpayerNs
except those
not
connect
ed
betwee
n
a
n
individ
ual and
profession
, trade or
wit
h
professio
n,
trad
e or
corporati
on
more
than ffty
business.
'>
@
business and those
sustained
percent D8@OE in value
of the
in a transaction
entered into
outstanding stock of
which is
betwe
en
parties.
'>"
0ecover
y
owned, directly or
indirectly,
of
ba
d debts
previous
ly
by or for such
individual. or
allowed as deduction
in the
preceding
years
shal
l be
D(E ,xcept in the case
of
included as part of the
gross
distributi
ons
i
n
li*uidatio
n,
income in the year of
betwee
n two
corporatio
ns
recovery to the extent
of the
more
than ffty
perce
nt
income tax beneft of
said D8@OE in value of the
deduction.
'>'
outstanding stock of
which is
owned, directly or
indirectly,
by or for the same
individual
if either one of such
corporations, with
respect to
the taxable year of the
corporati
on
precedi
ng the
date of the sale of
exchange
was under the law
applicable
to such taxable year, a
personal holding
company or
a
foreign
person
al
holdin
g
compa
ny.
D-E 2etween the
grantor and
a fduciary of any
trust. or
D8E 2etween the
fduciary of
and the
fduciary of a
trus
t
290 Sec. 34 (K)
291 #1!r"
292 I%., (;)
293 7he +"/il, )+ "$ i$%i8i%1"l #h"ll i$cl1%e )$l, hi# br)ther# "$% #i#ter# (-hether b,
the -h)le )r h"l+-bl))%), #!)1#e, "$ce#t)r#, "$% li$e"l %e#ce$%"$t#;
8
8
and the fduciary of
another trust if the
same person is a
grantor with respect
to each trust. or
D9E 2etween a
fduciary of a trust
and benefciary of
such trust.
'>-
gE 1osses from sales or exchange
or property
In general, losses actually sustained during the taxable year and
not compensated for by insurance or other forms of indemnityA
1. If incurred in trade, profession or business.
2. 4f property connected with the trade, business or profession, if
the loss arises from fres, storms, shipwreck, or other casualties, or from
robbery, theft or embe!!lement.
'>8

8) %on-deductible interest
'>9

9) %on Kdeductible taxes
'>=

10) %on-deductible losses
1. 1osses from illegal transactions
2. 1osses from sales or exchanges of property between related
taxpayers
'>?
K but the gains are taxable
11) 1osses from wash sales of stock
or securities
'>>

294 Sec. 36 (K)
295 Sec. 34 (G)(1)
296 #1!r"
297 Ibi%. 298 ibi%
299 Ibi%.
8
9
10. ,xempt $orporations
1. +eneral )rofessional )artnerships
(@@

2. <oint Jenture under a service contract with the government
(@"

3. +overnment-owned or controlled corporationsA
1. +overnment #ervice Insurance #ystem D+#I#E,
2. the #ocial #ecurity #ystem D###E,
3. the )hilippine Cealth Insurance $orporation D)CI$E,
4. the )hilippine $harity #weepstakes 4&ice D)$#4E and
5. the )hilippine Amusement and +aming $orporation
D)A+$40E
4ther exempt corporationsA
he following organi!ations shall not be taxed in respect to
income received by them as suchA
DAE 1abor, agricultural or horticultural organi!ation not
organi!ed principally for
proft.
(2) 5utual savings bank not having a capital stock represented
by shares, and cooperative bank without capital stock organi!ed and
operated for mutual purposes and without proft.
(3) A benefciary society, order or association, operating for the
exclusive beneft of the members such as a fraternal organi!ation
operating under the lodge system, or mutual aid association or a non-
stock corporation organi!ed by employees providing for the payment
of life, sickness, accident, or other benefts exclusively to the
members of such society, order, or association, or non-stock
corporation or their dependents.
(4) $emetery company owned and operated exclusively for the
beneft of its
members.
300 A$, )ther !"rt$er#hi! i# li"ble +)r c)r!)r"te
i$c)/e t".. 7-) (2) re=1i#ite# t) be e.e/!t +r)/
c)r!)r"te i$c)/e t".6
1.It i# +)r/e% b, !er#)$# +)r the #)le !1r!)#e )+ e.erci#i$0 their c)//)$
!r)+e##i)$; "$%
2.() !"rt )+ the i$c)/e )+ -hich i# %eri8e% +r)/ e$0"0i$0 i$ "$, tr"%e )r
b1#i$e##.
301 A /er0er )+ t-) (2) )r /)re c)r!)r"ti)$# +)r the !1r!)#e )+ e$0"0i$0 i$
c)$#tr1cti)$ !r):ect# )r e$er0, )!er"ti)$# !1r#1"$t t) " c)$#)rti1/ "0ree/e$t )r "
#er8ice c)$tr"ct -ith the 0)8er$/e$t. 7he c)r!)r"ti)$# c)/!ri#i$0 the :)i$t 8e$t1re
)r c)$#)rti1/ /1#t be e$0"0e% i$ the #"/e li$e )+ b1#i$e##.
302 It i# )$l, the :)i$t 8e$t1re )r c)$#)rti1/ it#el+ -hich i# e.e/!t +r)/ c)r!)r"te
i$c)/e t"., $)t the i$c)/e )+ e"ch c)r!)r"ti)$ +r)/ the :)i$t 8e$t1re c)$#)rti1/.
7h1#, e"ch c)r!)r"ti)$ c)/!ri#i$0 )+ the :)i$t 8e$t1re )r c)$#)rti1/ i# li"ble +)r
c)r!)r"te i$c)/e t". (K"t"$0"# L"$% 7r"$#!)rt"ti)$ 5). 8#. 5)llect)r, 1<2 Phil. 822)
9<
(5) %on-stock corporation or association organi!ed and operated
exclusively for religious, charitable, scientifc, athletic, or cultural
purposes, or for the rehabilitation of veterans, no part of its net
income or asset shall belong to or inures to the beneft of any member,
organi!er, o&icer or any specifc person.
(6) 2usiness league chamber of commerce, or board of trade,
not organi!ed for proft and no part of the net income of which inures
to the beneft of any private stock-holder, or individual.
(7) $ivic league or organi!ation not organi!ed for proft but
operated exclusively for the promotion of social welfare.
(8) A non-stock and nonproft educational institution.
(9) +overnment educational institution.
(10) :armersN or other mutual typhoon or fre insurance
company, mutual ditch or irrigation company, mutual or cooperative
telephone company, or like organi!ation of a purely local character,
the income of which consists solely of assessments, dues, and fees
collected from members for the sole purpose of meeting its expenses.
and
(11) :armers, fruit growers, or like association organi!ed 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, less the
necessary selling expenses on the basis of the *uantity of produce
fnished by them.
%otwithstanding the provisions in the preceding paragraphs,
the income of whatever kind and character of the foregoing
organi!ations from any of their properties, real or personal, or from
any of their activities conducted for proft regardless of the disposition
made of such income, shall be subject to tax imposed under this
$ode.
(@'
3<2
Sec. 3<
91
10. axation of 0esident $iti!ens, %on-resident $iti!ens,
and 0esident Aliens
1. +eneral rule that resident citi!ens are
taxable on income from all sources within
and without the )hilippines
A citi!en of the )hilippines residing therein is taxable on
all income derived from sources within and without the
)hilippines.
2. axation on $ompensation Income
1) Inclusions
1)5onetary compensation
(1) 0egular salary6wage
$ompensation income derived from an employer-employee
relationship in consideration of services rendered, except in the case
of a minimum wage earner.
(@(
D'E #eparation
pay6retirement beneft not
otherwise exempt
#eparation pay received by an employee who voluntarily resigns
is subject to income tax. 0etirements benefts may be subject to tax if
it does not comply with the provision of #ec. (' D2ED9EDaE.
(@-
D(E 2onuses, "(th month pay,
and other benefts not
exempt
Amount in excess of hirty thousand pesos D)(@,@@@.@@E.
D-E /irector3s fees
(@8
bE %on-monetary compensation
D"E :ringe beneft not subject
tax
(@9
(1) :ringe benefts which are authori!ed and exempted from tax
under special laws.
(2) $ontributions of the employer for the beneft of the
employee to retirement, insurance and hospitali!ation beneft plans.
303 i$+r"
304 See 'e+ere$ce
305 See (1) 'e01l"r #"l"r,M-"0e, #1!r"
306 Sec. 33, c)$#)li%"te% -ith Sec. 2.33 (5), '' <3-98
9
2
(3) 2enefts given to the rank and fle employees, whether
granted under a collective bargaining agreement or not. and
(4) De minimis benefts.
(@=

(5) If the grant of fringe benefts to the employee is re*uired by
the nature of, or necessary to the trade, business, or profession of the
employer.
(6) If the grant of the fringe benefts is for the convenience of
the employer.
(@?

2) ,xclusions
1):ringe beneft subject to tax
Any good, service or other beneft furnished or granted in cash
or in kind by an employer to an individual employee
(@>
such as, but
not limited to, the followingA
(1) Cousing.
(2) ,xpense account.
(3) Jehicle of any kind.
(4) Cousehold personnel, such as maid, driver and others.
(5) Interest on loan at less than market rate to the extent of the
di&erence between the market rate and actual rate granted.
(6) 5embership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs or other similar
organi!ations.
(7) ,xpenses for foreign travel.
(8) Coliday and vacation expenses.
(9) ,ducational assistance to the employee or his dependents.
and
(10) 1ife or health insurance and other non-life insurance
premiums or similar amounts in excess of what the law allows.
("@

307 i$+r"
308 5)$8e$ie$ce )+ the e/!l),er r1le
309 e.ce!t r"$4 "$% ?le e/!l),ee#
310 A6 I+ the be$e?t i# $)t t".-e.e/!t "$% the reci!ie$t i#6
1. A r"$4 "$% ?le e/!l),ee H the 8"l1e )+ #1ch +ri$0e be$e?t #h"ll be c)$#i%ere% "#
!"rt )+ the c)/!e$#"ti)$ i$c)/e )+ #1ch e/!l),ee #1b:ect t) t". !","ble b, the
e/!l),ee.
2. >here the reci!ie$t i# $)t " r"$4 "$% ?le e/!l),ee H the 8"l1e #h"ll $)t be
i$cl1%e% i$ the c)/!e$#"ti)$ i$c)/e )+ #1ch e/!l),ee #1b:ect t) t".. 7he +ri$0e
be$e?t t". i# i$#te"% le8ie% 1!)$ the e/!l),er -h) i# re=1ire% t) !",. (Sec. 33)
93
bE De minimis benefts
1imited to facilities or privileges furnished or o&ered by an
employer to his employees that are of relatively small value and are
o&ered or furnished by the employer as a means of promoting the
health, goodwill, contentment, or e&iciency of his employees.
hey includeA
5oneti!ed unused vacation leave
credits of employees
5edical cash allowance to
dependents of employees
1. )rivate
employeesA
1
.
J
aca
tion
leav
e -
exe
mpt
up
to
"@
day
s
2. #ick leave
K always
taxable
2. +overnment
employeesA
Jacation and
sick leave are
always tax
exempt
regardless of
the no. of
days.
%ot
exc
eed
ing
)=
8@
per
se
me
ste
r or
)"
'8
per
mo
nth
0ice subsidy
)",8@@ or one sack of 8@-kg rice
per month
amounting to not more than
)",8@@
Bniforms and clothing
allowances
actu
al %ot exceeding )-,@@@ per annum
medical benefts
Actual medical
benefts
1aundry
allowance
,mployee
achiev
ement
awards
(""
%ot
exceed
ing
)"@,@@
@ per
annum
%ot
exceed
ing )(@@ per
month
In the form of
tangible personal
property other
than cash or gift
certifcate with
an annual
m
o
n
et
ar
y
va
lu
e
not
exce
edin
g)"
@,@@
@
311
e.0.
+)r le$0th )+ #er8ice
)r #"+et,
"
c
hie8
e/e
$t
94
+ifts given during $hristmas and
major %ot exceeding )8,@@@ per
anniversary
celebrations employee per annum
:lowers, fruits and books or
similar items 0easonable value Kdepending
given to
employe
es under
certai
n on the employer3s capacity
circumsta
nces
/aily meal allowance for overtime
work
%ot exceeding '8O of the basic
minimum
wage.
("'
cE "(th month pay and other
benefts and
payments specifcally excluded
from
taxable compensation income
+ross benefts received by o&icials and employees of public
and private entities, the total exclusion of which shall not exceed
hirty thousand pesos D)(@,@@@E which shall coverA
(1) 2enefts received by o&icials and employees of the national
and local government.
("(

(2) 2enefts received by employees.
("-

(3)2enefts received by o&icials and employees not covered by
DbE
(4) 4ther benefts
("8

3) /eductions
1) )ersonal exemptions and
additional exemptions
2asic personal
exemption Additional exemption
:ifty thousand pesos D)8@,@@@E for
each
wenty-fve thousand pesos
D'8,@@@E for
individual taxpayer.
("9
each dependent not exceeding four
D-E.
("=
312 '' -2<<8
313 1$%er '.A. (). 6686;
314 1$%er P.G. (). 81, "# "/e$%e% b, *e/)r"$%1/ Lr%er (). 28, %"te% A101#t 13, 1986
315 #1ch "# !r)%1cti8it, i$ce$ti8e# "$% 5hri#t/"# b)$1#
316 Sec. 3(A), "# "/e$%e% b, '.A. 9<4
I$ the c"#e )+ /"rrie% i$%i8i%1"l -here )$l, )$e )+ the #!)1#e# i# %eri8i$0 0r)##
i$c)/e, )$l, #1ch
#!)1#e #h"ll be "ll)-e% the
!er#)$"l e.e/!ti)$
317
Sec. 3 (K),
i%.
9
bE Cealth and hospitali!ation
insurance
he amount of premiums not to exceed wo thousand four
hundred pesos D)',-@@E per family or wo hundred pesos D)'@@E a
month paid during the taxable year taken by the taxpayer for himself,
including his family who has a gross income of not more than wo
hundred ffty thousand pesos D)'8@,@@@E for the taxable year.
In the case of married taxpayers, only the spouse claiming the
additional exemption for dependents shall be entitled to this
deduction.
("?
cE axation of compensation
income of a minimum wage
earner
D"E /efnition of #tatutory
5inimum
7age
he rate fxed by the 0egional ripartite 7age and )roductivity
2oard, as defned by the 2ureau of 1abor and ,mployment #tatistics
D21,#E of the /epartment of 1abor and ,mployment D/41,E.
(">
D'E /efnition of 5inimum
7age ,arner
('@
D(E Income also subject to
tax exemptionA holiday
pay, overtime pay, night
shift di&erential, and
ha!ard pay
('"
3. axation of 2usiness Income6Income from
)ractice of )rofession
4ptional #tandard /eduction D4#/E or Itemi!ed deductions.
4ptional #tandard /eductions K "@ O of the gross income. 5ay
be availed only by individuals
(''
who are not purely compensation
income earners. his is in lieu of the itemi!ed deductions.
7he "%%iti)$"l e.e/!ti)$ +)r %e!e$%e$t# #h"ll be cl"i/e% b, )$l, )$e )+ the
#!)1#e# i$ the c"#e )+ /"rrie% i$%i8i%1"l#.
I$ the c"#e )+ le0"ll, #e!"r"te% #!)1#e#, "%%iti)$"l e.e/!ti)$# /", be cl"i/e%
)$l, b, the #!)1#e -h) h"# c1#t)%, )+ the chil% )r chil%re$6
7he t)t"l "/)1$t )+ "%%iti)$"l e.e/!ti)$# th"t /", be cl"i/e% b, b)th #h"ll $)t
e.cee% the /".i/1/ "%%iti)$"l e.e/!ti)$#"ll)-e%.
318 Sec. 34 (*)
319 Sec. 22, "# "/e$%e% b, '.A. 9<4
320 See II. (A) (6), Pi$%# )+ 7".!",er#, #1!r"
321 Sec. 24(A)(2) "# "/e$%e% b, '.A. 9<4
322 e.ce!t $)$-re#i%e$t "lie$#
9
6
4. axation of )assive Income
1) )assive income subject to fnal tax
1)Interest income
Interest income derived by a resident individual
('(
from a
depositary bank under the expanded foreign service deposit system K
=.8O.
Interest income from long term deposit or investment evidenced
by certifcates prescribed by 2#)A
1),xempt, if investment is held for more than 8 years
2) If investment is pre-terminated, interest income on such
investment shall be subject to the following ratesA
'@O - If pre-terminated in less than ( years
"'O - If pre-terminated after ( years to
less than - years 8O - If pre-terminated
after - years to less than 8 years
bE 0oyalties
0oyalties, except on books, as well as other literary works and
musical compositions
K'@O
0oyalties on books literary works and musical compositions K
"@O
cE /ividends from domestic
corporation
$ash and or property dividend actually or constructively
received from a domestic corporation or from a joint stock company,
insurance or mutual fund companies and regional operating
head*uarters of multinational companies. K "@O
dE )ri!es and other winnings
)ri!es over )"@,@@@ K '@O
)ri!es less than )"@,@@@ are included in the income tax of the
individual subject to the schedular rate of 8O up to )"'8,@@@ U ('O
of excess of )8@@,@@@.
4ther winnings, except )$#4 and 1otto, derived from sources
within the )hilippines K '@O
323
$)$-re#i%e$t citi2e$ $)t i$cl1%e%
97
'E )assive income not subject to fnal tax
Interest income from long-term deposit or investment in the
form of savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments evidenced
by certifcates - exempt from fnal tax.
('-
5. axation of capital gains
1) Income from sale of shares of stock of
a )hilippine corporation
aE #hares traded and listed in the
stock exchange
he gains are not subject to income tax. he tax applicable will
be a business tax known as percentage tax.
A tax at the rate of one-half of one percent D"6' of "OE of the
gross selling price or gross value in money of the shares of stock sold,
bartered, exchanged or otherwise disposed which shall be paid by the
seller or transferor.
('8
bE #hares not listed and traded in
the stock exchange
A fnal tax as followsAA
%ot over )"@@,@@@SSSSSSSSSS..... 8O
Amount in excess of )"@@,@@@SSSSS.. "@O
('9
2) Income from the sale of real property
situated in the )hilippines
A fnal tax of six percent D9OE based on the gross selling price or
current fair market value, whichever is higher, upon capital gains
presumed to have been reali!ed from the sale, exchange, or other
disposition of real property classifed as capital assets, including
pacto de retro sales and other forms of conditional sales, by
individuals, including estates and trusts xxx.
('=
3) Income from the sale, exchange, or
other disposition of other capital
assets
A fnal tax of 9O on the gross selling price, or the current fair
market value at the time of the sale, whichever is higher.
324 See Sec. 24 (K)(1)
325 Sec. 127 (A)
326 Sec. 27 (G)(2)
327 Sec. 24 (G)
9
8
11. axation of %on-resident Aliens ,ngaged in
rade or 2usiness a. +eneral rules
A nonresident alien individual engaged in trade or business in
the )hilippines shall be subject to an income tax in the same manner
as an individual citi!en and a resident alien individual, on taxable
income received from all sources within the )hilippines.
('?
b. $ash and6or property dividends
"@O fnal tax, on cash and or property dividend actually or
constructively received from a domestic corporation or from a joint
stock company, insurance or mutual fund companies and regional
operating head*uarters of multinational companies.
('>
3. $apital gains
((@

12. Individual axpayers ,xempt from Income ax
1. #enior citi!ens
A senior $iti!en isA
1. any resident citi!en of the )hilippines
2. at least sixty D9@E years old, including those who have retired
from both government o&ices and private enterprises, and
3. has an income of not more than sixty thousand pesos
D)9@,@@@.@@E per annum subject to the review of the %ational
,conomic /evelopment AuthorityD%,/AE every three
(3) years.
2. ,xemptions granted under international
agreements
%0A,2
(("
may deduct personal exemption
(('
but only to the
extent allowed by his country to :ilipinos not residing therein, and
shall not exceed the aforementioned amounts. %0A%,2 cannot claim
any personal or additional exemption.
328 A $)$re#i%e$t "lie$ i$%i8i%1"l -h) #h"ll c)/e t) the Phili!!i$e# "$% #t",
therei$ +)r "$ "00re0"te !eri)% )+ /)re th"$ )$e h1$%re% ei0ht, (18<) %",# %1ri$0
"$, c"le$%"r ,e"r #h"ll be %ee/e% " Q$)$re#i%e$t "lie$ %)i$0 b1#i$e## i$ the
Phili!!i$e# (Sec. 2 (A)(1))
329 I%., (A)(2)
330 See e. 7"."ti)$ )+ c"!it"l 0"i$#, #1!r"
331 ()$-re#i%e$t "lie$ e$0"0e% i$ tr"%e )r b1#i$e##
332 b1t $)t "%%iti)$"l e.e/!ti)$
9
9
13. axation of /omestic
$orporations
(((
a. ax
payable
1) 0egular tax
hirty percent D(@OE
((-
of taxable income.
2) 5inimum corporate income tax D5$IE
1)Imposition of 5$I
((8

wo percent D'OE on the gross income.
bE $arry forward of excess
minimum tax
Any excess of the minimum corporate income tax D5$IE over
the normal income tax shall be carried forward on an annual basis and
credited against the normal income tax for the three D(E immediately
succeeding taxable years.
cE 0elief from the 5$I under
certain conditions
he imposition of 5$I may be suspended, upon showing that
the corporation su&ers losses due to any of the following causesA
1. )rolonged labor dispute
((9

2. 1egitimate business reverses
((=

3. :orce majeure
((?

333
7he ter/ Wc)r!)r"ti)$W #h"ll i$cl1%e !"rt$er#hi!#, $) /"tter h)- cre"te% )r
)r0"$i2e%, :)i$t-#t)c4 c)/!"$ie#, :)i$t "cc)1$t# (cuentas en participacion),
"##)ci"ti)$, )r i$#1r"$ce c)/!"$ie#, b1t %)e# $)t i$cl1%e 0e$er"l !r)+e##i)$"l
!"rt$er#hi!# "$% " :)i$t 8e$t1re )r c)$#)rti1/ +)r/e% +)r the !1r!)#e )+ 1$%ert"4i$0
c)$#tr1cti)$ !r):ect# )r e$0"0i$0 i$ !etr)le1/, c)"l, 0e)ther/"l "$% )ther e$er0,
)!er"ti)$# !1r#1"$t t) "$ )!er"ti$0 c)$#)rti1/ "0ree/e$t 1$%er " #er8ice c)$tr"ct
-ith the &)8er$/e$t. (Sec. 22(K))
334 be0i$$i$0 D"$1"r, 1, 2<<9 ('.A. 9337)
335 ". It i# i/!)#e% be0i$$i$0 the +)1rth (4th) t"."ble ,e"r i//e%i"tel, +)ll)-i$0 the
t"."ble ,r. i$ -hich #1ch c)r!)r"ti)$ #t"rt# it# b1#i$e## )!er"ti)$.
336 b. It i# i/!)#"ble )$l, i+ #1ch c)r!)r"ti)$ h"# 2er) )r $e0"ti8e t"."ble i$c)/e
)r -he$e8er the "/)1$t )+ *5I7 i# 0re"ter th"$ the ()r/"l 5)r!)r"te I$c)/e 7".
((5I7) %1e +r)/ #1ch c)r!)r"ti)$.
337 e.0. #tri4e# +)r /)re th"$ 6 /)$th# 338 Ibi%.
339 e.0. -"r
1<
<
dE $orporations exempt from the
5$I
1. )roprietary ,ducational Institution
2. %on-proft hospitals
3. /epository banks under expended :$/B
4. International carriers
5. 4&shore 2anking Bnits
6. 04CVs of resident foreign corp.
5) Applicability of the 5$I where
a corporation is governed both
under the regular tax system
and a special income tax system
4nly one may be imposed.
GA minimum corporate income tax of 'O of the gross income xxx
is imposed xxx on a corporation
((>
xxx when the minimum income tax
is greater than the Dnet income taxEH
(-@
2. Allowable deductions
1) Itemi!ed deductions
2usiness
(-"
expenses which are ordinary and necessary in the
conduct of business.
(-'
'E 4ptional standard deduction
(-(
5ay be taken by an individual, in lieu of itemi!ed deductions.
(--
339 %)/e#tic "$% re#i%e$t +)rei0$
340 Sec#. 27 (;) "$% 28 (A)(2)
341 )r !r)+e##i)$"l
342 )r i$ the e.erci#e )+ !r)+e##i)$
343 See "l#) (9)(h)(4)(b), #1!r" $ 34(L) 'e=1i#ite#6
1.A8"il"ble )$l, t) citi2e$# "$% re#i%e$t "lie$#
2. 7he #t"$%"r% %e%1cti)$ i# )!ti)$"l; i.e., 1$le## the t".!",er #i0$i?e# i$ hi# ret1r$
hi# i$te$ti)$ t) elect thi# %e%1cti)$, he i# c)$#i%ere% "# h"8i$0 "8"ile% )+ the
ite/i2e% %e%1cti)$#.
c. S1ch electi)$, -he$ /"%e b, the =1"li?e% t".!",er, i# irre8)c"ble +)r the ,e"r i$
-hich /"%e; h)-e8er, he c"$ ch"$0e t) ite/i2e% %e%1cti)$# i$ #1ccee%i$0 ,e"r#.
1<1
3. axation of )assive Income
1) )assive income subject to tax
1) Interest from deposits and yield
or any other monetary beneft
from deposit substitutes and
from trust funds and similar
arrangements and royalties
(-8

wenty percent D'@OE fnal tax.
bE $apital gains from the sale of
shares of stock not traded in the
stock exchange
4n the net capital gainA
%ot over )"@@,@@@
:inal ax of 8O
4n any amount in excess of
)"@@,@@@ plus "@O :inal tax
on the excess
cE Income derived under the
expanded foreign currency
deposit system
(-9
en percent D"@OE fnal tax.
,xempt - any income of nonresidents, whether individuals or
corporations, from transactions with depository banks.
dE Intercorporate dividends
%ot subject to tax.
eE $apital gains reali!ed from the
sale, exchange, or disposition of
lands and6or buildings
#ix percent D9OE fnal tax
(-=
- on the gross selling price, or the
current fair market value at the time of the sale, whichever is higher.
345 recei8e% b, %)/e#tic c)r!)r"ti)$# %eri8e% +r)/ #)1rce# -ithi$ the Phili!!i$e#
b"$4# "1th)ri2e% b, the KSP t) tr"$#"ct b1#i$e## -ith +)rei0$ c1rre$c, %e!)#it #,#te/ 1$it#.
347 7". tre"t/e$t i# the #"/e "# th"t )+ i$%i8i%1"l#
1<
2
2) )assive income not subject to tax
(-?

4. axation of $apital +ains
1) Income from sale of shares of stock
(->

2) Income from the sale of real property
situated in the )hilippines
(8@

3) Income from the sale, exchange, or
other disposition of other capital
assets
(8"

5. ax on proprietary educational
institutions
(8'
and hospitals en percent D"@OE on their taxable
income.
(8(

hirty percent D(@OE - if gross income from unrelated trade,
business or other activity
(8-
exceeds ffty percent D8@OE of the total
gross income derived from all sources.
(88
6. ax on government-owned or controlled
corporations, agencies or instrumentalities
#uch rate of tax imposed upon corporations or associations
engaged in similar business, industry, or activity, except
1. he +overnment #ervice Insurance #ystem D+#I#E,
2. he #ocial #ecurity #ystem D###E,
3. he )hilippine Cealth Insurance $orporation D)CI$E,
4. he )hilippine $harity #weepstakes 4&ice D)$#4E and
5. he )hilippine Amusement and +aming $orporation
D)A+$40E
(89

348 #1!r"
349 See 1< (e), 7"."ti)$ )+ 5"!it"l &"i$#, #1!r"
350 Ibi%.
351 See (A)(1<)(e)(3), 7"."ti)$ )+ 5"!it"l &"i$#, #1!r"
352 A WPr)!riet"r, e%1c"ti)$"l i$#tit1ti)$W i# "$, !ri8"te #ch))l /"i$t"i$e% "$%
"%/i$i#tere% b, !ri8"te i$%i8i%1"l# )r 0r)1!# -ith "$ i##1e% !er/it t) )!er"te +r)/ the
Ge!"rt/e$t )+ ;%1c"ti)$, 51lt1re "$% S!)rt# (G;5S), )r the 5)//i##i)$ )$ Ci0her
;%1c"ti)$ (5C;G), )r the 7ech$ic"l ;%1c"ti)$ "$% S4ill# Ge8el)!/e$t A1th)rit, (7;SGA),
"# the c"#e /", be, i$ "cc)r%"$ce -ith e.i#ti$0 l"-# "$% re01l"ti)$#.
353 e.ce!t )$ cert"i$ !"##i8e i$c)/e# (Sec. 27 (G))
354 7he ter/ Q1$rel"te% tr"%e, b1#i$e## )r )ther "cti8it,Q /e"$# "$, tr"%e, b1#i$e## )r
)ther "cti8it,, the c)$%1ct )+ -hich i# $)t #1b#t"$ti"ll, rel"te% t) the e.erci#e )r
!er+)r/"$ce b, #1ch e%1c"ti)$"l
i$#tit1ti)$ )r h)#!it"l )+ it# !ri/"r, !1r!)#e )r +1$cti)$. 355 Sec. 27 (K)
356 I%., (5)
1<
3
14. axation of 0esident :oreign
$orporations
(8=
a. +eneral rule
0esident foreign corporations are subject to any or some of the
followingA
1. $apital +ainsax
2. :inal ax on )assive Income
3. %ormal ax WorX 5inimum $orporate Income ax
D5$IE WorX +ross Income ax D+IE
4. 2ranch )roft 0emittance ax
2. 7ith respect to their income from sources
within the )hilippines
(8?

3. 5inimum corporate income tax
(8>

4. ax on certain income
(1) Interest from deposits and yield or
any other monetary beneft from
deposit substitutes, trust funds and
similar arrangements and royalties
(9@

(2) Income derived under the expanded
foreign currency deposit system
(9"

(3) $apital gain from sale of shares of
stock not traded in the stock
exchange
(9'

(4) Intercorporate dividends
(9(

357 I$c)/e #1b:ect t) ()r/"l 7". E)rF *i$i/1/ 5)r!)r"te I$c)/e 7". (*5I7) E)rF &r)##
I$c)/e 7". (&I7) 1$%er the #1bhe"%i$0 )+ %)/e#tic c)r!)r"ti)$# i# e=1"ll, "!!lic"ble t)
re#i%e$t +)rei0$ c)r!)r"ti)$#, b)th "# t) c)$ce!t# "$% c)/!1t"ti)$#, e.ce!t th"t 'F5# "re
t".e% )$l, )$ i$c)/e +r)/ #)1rce# -ithi$ the Phili!!i$e#.
358 See 7". P","ble 1$%er 7"."ti)$ )+ G)/e#tic 5)r!)r"ti)$#, #1!r" 359 ibi%.
7he *5I7 i# i/!)#e% )$ 'F5# 1$%er the #"/e c)$%iti)$# "# %)/e#tic c)r!)r"ti)$#
(Sec. 28(A)(2))
360 See 7"."ti)$ )+ P"##i8e I$c)/e1$%er 7"."ti)$ )+ G)/e#tic 5)r!)r"ti)$#, #1!r"
361 ibi%. 362 ibi%.
363 ibi%.
1<
4
15. axation of %on-resident :oreign
$orporations a. +eneral rule
%on-resident foreign corporations are subject to any or some of
the followingA
1. $apital +ains ax
2. :inal ax on )assive Income
3. :inal ax on W4therX +ross Income from sources
within the )hilippines b. ax on certain
income
(1) Interest on foreign loans
wenty percent D'@OE fnal withholding tax.
(9-
D'E Intercorporate dividends
:ifteen percent D"8OE - as long as the country in which the
nonresident foreign corporation is domiciled allows a tax credit for
taxes Gdeemed paidH in the )hilippines e*uivalent to "8O.
hirty percent D(@OE withholding tax - if the country within
which the %0:$ is domiciled does not allow a tax credit.
(98
(3) $apital gains from sale of shares of
stock not traded in the stock
exchange
(99

16. Improperly Accumulated ,arnings of
$orporations
,very corporation formed or availed for the purpose of avoiding
the income tax with respect to its shareholders or the shareholders of
any other corporation, by permitting earnings and profts to
accumulate instead of being divided or distributed.
364 Sec. 28 (K)()(2)
365 Sec. 28 (K)()(b)
I$ )ther -)r%#, the %i8i%e$%# "re #1b:ect t) the thir% 4i$% )+ t".6 Fi$"l 7". )$
ELtherF &r)## I$c)/e +r)/ #)1rce# -ithi$ the Phili!!i$e#.
366
See 1< (e)(1)(b), 1$%er 7"."ti)$ )+ c"!it"l 0"i$#
1<
17. ,xemption from tax on corporations
(9=

18. axation of )artnerships
(9?

0ulesA
1. #ubject to the same rules on corporations,
(9>
but is not subject
to the improperly accumulated earnings tax WIA,X. he partnership
must fle *uarterly and year-end income tax returns.
2. he taxable income of the partnership, less the normal
corporate income tax thereon, is the distributable net income of the
partnership.
3. en percent D"@OE fnal tax - the share of a partner in the
partnership3s
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,
(=@
withheld by the partnership.
(="
">. axation of +eneral )rofessional )artnerships
(='
0ulesA
1. %ot subject to income tax.
2. he partners shall only be liable for income tax only in their
separate and individual capacities.
3. :or purposes of computing the distributive share of the
partners, the net income of the +)) shall be computed in the same
manner as a corporation.
367 See Lther e.e/!t c)r!)r"ti)$#, #1!r"
368 !"rt$er#hi!# -herei$ "ll )r !"rt )+ their i$c)/e i# %eri8e% +r)/ the c)$%1ct )+ tr"%e )r
b1#i$e## i$c)/e t". E*5I7F "$% 0r)## i$c)/e t". E&I7F
370 Sec. 73(G)
371 Sec. 24(K)(2)
372 &PP i# $)t " t"."ble e$tit, X 7he !"rt$er#hi! i# " /ere /ech"$i#/ )r " N)--
thr)10h e$tit, i$ the 0e$er"ti)$ )+ i$c)/e b,, "$% the 1lti/"te /ech"$i#/
%i#trib1ti)$ )+ #1ch i$c)/e t) the i$%i8i%1"l !"rt$er#. (Tan v. Commissioner ELct. 3,
1994F) K1t, the !"rt$er#hi! it#el+ i# re=1ire% t) ?le i$c)/e t".
ret1r$# +)r the !1r!)#e )+ +1r$i#hi$0 i$+)r/"ti)$ "# t) the #h"re i$ the 0"i$# )r
!r)?t# -hich e"ch !"rt$er #h"ll i$cl1%e i$ hi# i$%i8i%1"l ret1r$. ('' 2- 1998)
7he #h"re )+ "$ i$%i8i%1"l !"rt$er i$ the $et !r)?t )+ " 0e$er"l !r)+e##i)$"l
!"rt$er#hi! i# %ee/e% t) h"8e bee$ "ct1"ll, )r c)$#tr1cti8el, recei8e% b, the
!"rt$er i$ the #"/e t"."ble ,e"r i$ -hich #1ch !"rt$er#hi! $et i$c)/e -"# e"r$e%,
"$% #h"ll be t".e% t) the/ i$ their i$%i8i%1"l c"!"citie#, -hether "ct1"ll, %i#trib1te%
)r $)t, "t the 0r"%1"te% i$c)/e t". r"$0i$0 +r)/ I t) 32I. 7h1#, the !ri$ci!le )+
c)$#tr1cti8e recei!t )+ i$c)/e )r !r)?t i# bei$0 "!!lie% t) 1$%i#trib1te% !r)?t# )+
&PP#. 7he !",/e$t Et) the !"rt$er#F )+ #1ch t".-!"i% !r)?t# i$ "$)ther ,e"r #h)1l%
$) l)$0er be li"ble t) i$c)/e t".. (*"/"l"te))
1<6
-. ,ach partner shall report as gross income his distributive
share, actually or constructively received, in the net income of the
partnership.
8. he share of a partner shall be subject to a creditable
withholding income tax of
"8O.
(=(
20. axation on ,states and rusts
1)Application
he tax imposed upon individuals shall apply to the income of
estates or of any kind of property held in trust, includingA
". Income accumulated in trust for the beneft of unborn or
unascertained person or persons with contingent interests, and
income accumulated or held for future distribution under the terms of
the will or trust.
2. Income which is to be distributed currently by the fduciary to
the benefciaries, and income collected by a guardian of an infant
which is to be held or distributed as the court may direct.
3. Income received by estates of deceased persons during the
period of administration or settlement of the estate. and
4. Income which, in the discretion of the fduciary, may be either
distributed to the benefciaries or accumulated.
bE ,xception
he tax
shall not apply to employeeNs trust which forms
part of
a
pension,
stock
bonus
o
r
proft-sharing plan of an employer for the
beneft of some
or all of
his
employee
sA
". If contributions are made to the trust by such employer, or
employees, or both for the purpose of distributing to such employees
the earnings and principal of the fund accumulated by the trust in
accordance with such plan, and
'. If under the trust instrument it is impossible, at any time
prior to the satisfaction of all liabilities with respect to employees
under the trust, for any part of the corpus or income to be used for, or
diverted to, purposes other than for the exclusive beneft of his
employees.
(=-
373 '' 2- 1998
374 A$, "/)1$t "ct1"ll, %i#trib1te% t) "$, e/!l),ee )r %i#trib1tee #h"ll be t"."ble t)
hi/ i$ the ,e"r i$
-hich #) %i#trib1te% t) the e.te$t th"t it e.cee%# the "/)1$t c)$trib1te% b, #1ch
e/!l),ee )r %i#trib1tee.
1<7
3) /etermination of tax
1) $onsolidation of income of two or
more trusts
7here the creator of the trust in each instance is the same
person, and the benefciary in each instance is the same, the taxable
income of all the trusts shall be consolidated and the tax computed on
such consolidated income, and such proportion of said tax shall be
assessed and collected from each trustee which the taxable income of
the trust administered by him bears to the consolidated income of the
several trusts
'E axable income
(=8
+eneral ruleA
Any amount actually distributed to any employee or distributee
shall be taxable to him in the year in which so distributed to the
extent that it exceeds the amount contributed by such employee or
distributee.
(E 0evocable trusts
7here at any time the power to revest in the grantor title to any
part of the corpus of the trust is vestedA
1. in the grantor 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, or
2. in any person not having a substantial adverse interest in the
disposition of such part of the corpus or the income therefrom, the
income of such part of the trust shall be included in computing the
taxable income of the grantor.
(=9

37
7he t"."ble i$c)/e )+ the e#t"te )r tr1#t #h"ll be c)/!1te% i$ the #"/e /"$$er
"$% )$ the #"/e b"#i# "# i$ the c"#e )+ "$ i$%i8i%1"l, e.ce!t th"t6
(A) 7here #h"ll be "ll)-e% "# " %e%1cti)$ i$ c)/!1ti$0 the t"."ble i$c)/e )+ the
e#t"te )r tr1#t the "/)1$t )+ the i$c)/e )+ the e#t"te )r tr1#t +)r the t"."ble ,e"r
-hich i# t) be %i#trib1te% c1rre$tl, b, the ?%1ci"r, t) the be$e?ci"rie#, "$% the
"/)1$t )+ the i$c)/e c)llecte% b, " 01"r%i"$ )+ "$ i$+"$t -hich i# t) be hel% )r
%i#trib1te% "# the c)1rt /", %irect, b1t the "/)1$t #) "ll)-e% "# " %e%1cti)$ #h"ll
be i$cl1%e% i$ c)/!1ti$0 the t"."ble i$c)/e )+ the be$e?ci"rie#, -hether %i#trib1te%
t) the/ )r $)t. A$, "/)1$t "ll)-e% "# " %e%1cti)$ 1$%er thi# S1b#ecti)$ #h"ll $)t be
"ll)-e% "# " %e%1cti)$ 1$%er S1b#ecti)$ (K) )+ thi# Secti)$ i$ the #"/e )r "$,
#1ccee%i$0 t"."ble ,e"r.
(K) I$ the c"#e )+ i$c)/e recei8e% b, e#t"te# )+ %ece"#e% !er#)$# %1ri$0 the
!eri)% )+ "%/i$i#tr"ti)$ )r #ettle/e$t )+ the e#t"te, "$% i$ the c"#e )+ i$c)/e -hich,
i$ the %i#creti)$ )+ the ?%1ci"r,, /", be either %i#trib1te% t) the be$e?ci"r, )r
"cc1/1l"te%, there #h"ll be "ll)-e% "# "$ "%%iti)$"l %e%1cti)$ the "/)1$t )+ the
i$c)/e )+ the e#t"te )r tr1#t +)r it# t"."ble ,e"r, -hich i# !r)!erl, !"i% )r cre%ite%
%1ri$0 #1ch ,e"r t) "$, le0"tee, heir )r be$e?ci"r, b1t the "/)1$t #) "ll)-e% "# "
%e%1cti)$ #h"ll be i$cl1%e% i$ c)/!1ti$0 the t"."ble i$c)/e )+ the le0"tee, heir )r
be$e?ci"r,.
(3)I$ the c"#e )+ " tr1#t "%/i$i#tere% i$ " +)rei0$ c)1$tr,, the %e%1cti)$#
/e$ti)$e% i$ S1b#ecti)$#
(1)"$% (K) )+ thi# Secti)$ #h"ll $)t be "ll)-e%6 Pr)8i%e%, 7h"t the "/)1$t )+ "$,
i$c)/e i$cl1%e% i$ the ret1r$ )+ #"i% tr1#t #h"ll $)t be i$cl1%e% i$ c)/!1ti$0 the
i$c)/e )+ the be$e?ci"rie#. (Sec. 61)
1<8
-E Income for beneft of grantor
7here any part of the income of a trust
a. is, or in the discretion of the grantor or of any person not
having a substantial adverse interest in the disposition of such part of
the income may be held or accumulated for future distribution to the
grantor, or
b. may, or in the discretion of the grantor or of any person not
having a substantial adverse interest in the disposition of such part of
the income, be distributed to the grantor, or
c. is, or in the discretion of the grantor or of any person not
having a substantial adverse interest in the disposition of such part of
the income may be applied to the payment of premiums upon policies
of insurance on the life of the grantor, such part of the income of the
trust shall be included in computing the taxable income of the
grantor.
(==
8E 5eaning of Qin the discretion of the
grantorQ
,ither alone or in conjunction with any person not having a
substantial adverse interest in the disposition of the part of the
income in *uestion.
21. 7ithholding
tax
(=?
a.
$oncept
he re*uirement that taxes imposed or prescribed by the %I0$
are to be deducted and withheld by the payor-corporations and6or
persons from payments made to payees-corporations and6or persons
for the former to pay the same directly to the 2I0. 0. Cence, the taxes
are collected practically at the same time the transaction is made or
when the taxable transaction occurs. It is taxation at source.
376 ;.ce!ti)$
377 ibi%
378 "l#) 4$)-$ "# @t"."ti)$ "t #)1rceA
1<
9
b. Finds
7ithholding of fnal tax of certain
income
7ithholding of creditable tax at
source
As to
income subject of the system
". )assive incomes
"
. $ompensation Income
'. :ringe benefts
'
. )rofessional6talent fees
(
. 0entals
-. $inematographic flm
rentals and other payments
8.Income payments to certain
contractors
As to whether or not income should be
reported as part of the gross
income
he recipient may not report the
said income in his gross income
because the tax withheld
constitutes fnal and full settlement
of the tax
liability
he employee is
re*uired to
include the
income in his
gross income
As to the e&ect of the tax
withheld
he tax withheld
cannot be claimed as
tax
credit
he tax
withheld
can be
claimed
as a tax
credit
or may
be
deducted
from the
tax due
or
payable
As to fling of I0
If the only source of income is
subject to here is a necessity to fle on
fnal tax, no need to fle an I0 on
the part the earner
of the earner
11<
3. 7ithholding on wages
1) 0e*uirement for withholding
%o withholding of a tax where the total compensation income of
an individual
does not exceed the statutory
minimum wage, or fve
thousan
d
pes
os
D)8,@@@.@@E per month, whichever is
higher.
(=>
'E ax paid by recipient
If the employer fails to deduct and withhold the tax as re*uired,
and thereafter the tax against which such tax may be credited is paid,
the tax so re*uired to be deducted and withheld shall not be collected
from the employer. but in no case relieve the employer from liability
for any penalty or addition to the tax otherwise applicable in respect
of such failure to deduct and withhold.
(?@
(E 0efunds or credits
(1),mployer
(2) ,mployees
7
amount of
such
overpayme
nt was not
deducted
and
withheld
by the
employer.
he
amount
deducted
and
withheld
during any
calendar
year shall
be allowed
as a credit
to the
recipient
of such
income
against the
tax imposed under #ection'
Any excess of the
taxes withheld over the
tax due from the
taxpayer shall be
returned or credited
within three D(E
months from the
ffteenth D"8thE day of
April. 0efunds or
c
-E Tear-end adjustment
4
fro
m
ea
ch
em
plo
ye
e
on
tax
abl
e compensation income
for the entire taxable
year. he di&erence
between the tax due
from the employee for
the entire year and the
sum of taxes withheld
379 Sec. 79 (A)
380 I%. (K) 381 See 'e+ere$ce
382 I%. (5)
11 1
from <anuary to %ovember shall either be withheld from his salary in
/ecember of the current calendar year or refunded to the employee
not later than <anuary '8 of the succeeding year.
(?(
8E 1iability for tax
he employer shall be liable for the withholding and remittance
of the correct amount of tax re*uired to be deducted and withheld.
(?-
4. 7ithholding of JA
(1) he government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or
controlled corporations D+4$$sE shall, before making payment on
account of each purchase of goods and6or services taxed at twelve
percent D"'OE JA, deduct and withhold a fnal JA due at the rate of
fve percent D8OE of the gross payment thereof.
he fve percent D8OE fnal JA withholding rate shall represent
the net JA payable of the seller. he remaining seven percent D=OE
e&ectively accounts for the standard input JA for sales of goods or
services to government or any of its political subdivisions,
instrumentalities or agencies, including +4$$s, in lieu of the actual
input JA directly attributable or ratably apportioned to such sales.
#hould actual input JA attributable to sale to government exceeds
seven percent D=OE of gross payments, the excess may form part of
the seller3s expense or cost. 4n the other hand, if actual input JA is
less than seven percent D=OE of gross payment, the di&erence must be
closed to expense or account.
DbE he government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or
controlled corporationsD+4$$sE, as well as private corporations,
individuals, estates and trusts, whether large or non-large taxpayers,
shall withhold twelve percent D"'OE JA, starting :ebruary ", '@@9,
with respect to the following paymentsA
(1) 1ease or use of properties or property rights owned by non-
residents. and
(2) 4ther services rendered in the )hilippines by non-
residents.
(?8

383 I%. (C)
384 SeeSec. 8<
385 '' 16-2<<, "# "/e$%e% b, '' 4-2<<7
11
2
e. :iling of return and payment of taxes
withheld
1) 0eturn and payment in case of
government employees
he return of the amount deducted and withheld upon any wage
shall be made by the o&icer or employee having control of the
payment of such wage, or by any o&icer or employee duly designated
for the purpose.
(?9
'E #tatements and returns
DA
E 0e*uirements
,very employer re*uired to deduct and withhold a
tax shall furnish
to each such employee in respect of his employment
during the
calendar year, on or before <anuary thirty-frst D("stE
of the
succeeding year, or if his employment is terminated
before the close
of such calendar year, on the same day of which the
last payment of
wages is made, a written statement confrming the
wages paid by the
employer to such employee during the calendar year,
and the
amount of tax deducted and withheld under this
$hapter in respect
of such wages. he statement re*uired to be
furnished by this
#ection in respect of any wage shall contain such
other information,
and shall be furnished at such other time and in such
form as the
#ecretary of :inance, upon the recommendation of
the
$ommissioner, may, by rules and regulation,
prescribe.
D2
E
Annua
l
,very employer re*uired to deduct and withhold the
taxes in respect
Information
0eturns.
of the wages of his employees shall, on or before
<anuary thirty-frst
D("stE of the succeeding year, submit to the
$ommissioner an annual
information return containing a list of employees,
the total amount
of compensation income of each employee, the total
amount of
taxes withheld therefrom during the year,
accompanied by copies of
the statement referred to in the preceding
paragraph, and such other
information as may be deemed necessary.
(?=
386 Sec. 82
387 #ee Sec. 83
11
3
6. :inal withholding tax at source
(??

7. $reditable withholding tax
1) ,xpanded withholding tax
(?>

2) 7ithholding tax on compensation
,very employer must withhold from compensation paid, an
amount computed in accordance with the regulations.
(>@
,xceptionA
7here such compensation income of an individualA
1. /oes not exceed the statutory minimum wages. or
2. :ive thousand pesos D)8,@@@E monthly
(>"
- whichever is
higher
h. :ringe beneft tax
:inal tax of thirty-two percent D('OE - on the grossed-up
monetary value of fringe beneft furnished or granted to the
employee
(>'
by the employer, whether an individual or a corporation,
unless the fringe beneft is re*uiredA
". by the nature of, or necessary to the trade, business or
profession of the employer,
or
'. when the fringe beneft is for the convenience or advantage of
the employer.
(>(
388 Sec. 7 (A), #1!r"
389 I%. (K), #1!r"
390 ;le/e$t# )+ >ithh)l%i$0 )$ 5)/!e$#"ti)$6
1.7here /1#t be "$ e/!l),er-e/!l),ee rel"ti)$#hi!
2.7here /1#t be !",/e$t )+
c)/!e$#"ti)$ )r -"0e# +)r #er8ice#
re$%ere%
3.7here /1#t be " !",r)ll !eri)%
391 P6<,<<< " ,e"r 392 e.ce!t r"$4 "$% ?le e/!l),ee#
393 Sec. 33 (A)
11
4
2. Estate Tax
1. 2asic principles
he 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. Bpon
the death of the decedent, succession takes place and the right of the
#tate to tax the privilege to transmit the estate vests instantly upon
death.
(>-
%ot a direct tax on the property transmitted or transferred
although its amount is based thereon.
'. /efnition
A graduated tax imposed on the privilege of the decedent to
transmit property at death and is based on the entire net estate,
regardless of the number heirs and relations to the decedent.
(. %ature
A tax imposed on the privilege of transmitting property upon the
death of the owner. he liability for estate tax is generated by death
and accrues at the time of death. 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 benefciary.
$onse*uently, all properties that are included in the taxable estate
should be valued at the moment of death of a decedent.
4. )urpose or object
1) 2eneft-0eceived heory
:or the performance of services rendered by the government in
the distribution of the estate of the decedent and other benefts that
accrue to the estate and the heirs, the state collects the tax.
bE 0edistribution of 7ealth heory
A contributing factor to the ine*ualities in wealth and income.
he imposition of death tax reduces the property received by the
successor bringing about a more e*uitable distribution of wealth in
society.
cE Ability-to pay- theory
he receipt of inheritance places assets in the hands of the heirs
and benefciaries thereby creating an ability to pay the tax and thus to
contribute to governmental income. and
394
Sec. 3, '' 2-2<<3
11
dE )rivilege theory or #tate )artnership theory
Inheritance is not a right but a privilege granted by the state
and large estates have been ac*uired only with the protection of the
state. he #tate, as a Gpassive and silent partnerH in the accumulation
of property has the right to collect the share which is properly due to
it
5. ime and transfer of
properties At the time of death.
(>8

6. $lassifcation of decedent
5. resident decedent
6. non K resident alien decedent
1. +ross estate vis-;-vis %et estate
+ross estate %et estate
he total value of all property,
whether real
/etermined by deducting from the
value of
or personal, tangible or intangible
belonging
the gross estate the following
items of
to the decedent at the time of his
death, deductionsA
situated within or outside the
)hilippines,
where such decedent was a
resident or
"
.
,xpenses, losses indebtedness,
and taxes.
citi!en of the )hilippines. '
. )roperty previously taxed. In the case of a nonresident alien
decedent, it
shall include only property situated
in the
(
. ransfers for public use.
)hilippines. -
. he :amily Come
8
. #tandard /eductions
9
. 5edical ,xpenses
=
.
Amount received by heirs under
0.A.
->"=
?
.
%et share of the surviving
spouse in the
conjugal partnership or community
property.
39
7he t". #h)1l% $)t be c)$#tr1e% "# " %irect t". )$ the !r)!ert, )+ the %ece%e$t
"lth)10h the t". i# b"#e% there)$.
116
?. /etermination of gross estate
and net estate
/ecedent is
a resident
or
nonresident
citi!en, or a
resident
alien
All
propertie
s, real or
personal,
tangible
or
intangibl
e,
wherever
situated.
/ecede
nt is a
non-
residen
t alien
4nly
properties
situated in
the
)hilippines
provided
that,
intangible
personal
property is
subject to
the rule of
reciprocity
provided
for under
#ection
"@- of the
%I0$.
(>9
>.
$ompositi
on of
gross
estate
/eced
ent is
a
reside
nt or
nonre
sident
citi!e
n,
/ece
dent is a
non-resident
alien or a
resident
alien
J
a
l
u
e

a
t

t
h
e

t
i
m
e

o
f

d
e
a
t
h

o
f

a
l
l
A
1. 0
ea
l
pr
o
p
er
ty
w
h
er
ev
er
si
tuated
2. )erso
nal
propert
y,
tangibl
e or
intangi
ble,
wherev
er
situate
d
3. o the
exte
nt
of
the
inte
rest
ther
ein
of
the
dec
ede
nt
at
the
tim
e of
his
dea
th.
Jalu
e at
the
time
of
deat
h of
allA
1. a
ngi
ble
per
son
al
pro
per
ty
sit
ua
te
d
in
th
e
)h
ilippine
s
2. Intang
ible
personal
property
with
situs in
the
)hil
ippi
nes
unl
ess
exe
mpt
ed
on
the
bas
is
of
reci
pro
city
396

Sec.
8
117
"@. Items to be included in
gross estate
1. /eced
entNs
intere
st
2. ransf
er in
conte
mplati
on of
death
c.
0evocab
le
transfer
It
inclu
des
any
inter
est
havin
g
value
or
capa
ble of
being
value
d,
trans
ferre
d by
the
dece
dent
at his
death
.
A
tran
sfer
moti
vate
d by
the
thou
ght
of
imp
endi
ng
deat
h
alth
ough
death
may
not be
immin
entA
1. 7
he
n
th
e
de
ce
de
nt
ha
s,
at
an
y
ti
m
e,
m
ad
e
a
tr
an
sf
er
in
co
nt
e
m
pl
ati
on
of
or
int
en
de
d to
tak
e
e&e
ct
in
pos
ses
sio
n
or
enj
oy
me
nt
at
or
afte
r
dea
th.
or
2. 7he
n
deced
ent
has,
at any
time,
made
a
transf
er
under
which
he
has
retain
ed for
his
life or
for a
perio
d not
ascert
ainabl
e
wit
ho
ut
ref
ere
nc
e
to
his
de
ath
or
an
y
per
iod
wh
ich
do
es
not
in
fac
t
en
d
bef
ore
his
de
ath
A
1
.
)
os
se
ss
io
n,
e
nj
oy
m
e
nt
or
rig
ht
to
inc
om
e
fro
m
the
pro
per
ty.
or
2
.

he
righ
t
alo
ne
or
in
conj
unc
tion
wit
h
any
oth
er
per
son
to
desi
gna
te
t
h
e
p
e
rs
on
w
ho
wi
ll
po
ss
es
s
or
en
jo
y
th
e
pr
op
er
ty
or
in
co
m
e
th
e
r
e

f
r
o
m
.
(
>
=

A
trans
fer
by
trust
or
other
wise,
wher
e the
enjoy
ment
there
of
was
subject
at the
date of
his
death
to any
change
throug
h the
exercis
e of a
power
to alter
or
amend
or
revoke
or
termin
ate
such
transfe
r byA
a.
/ec
ede
nt
alo
ne.
397

Sec.
8EKF
7he
c)$ce
!t )+
tr"$#+
er i$
c)$te
/!l"t
i)$ )+
%e"th
h"# "
tech$i
c"l
/e"$i
$
0.
7
hi
#
%
)
e
#
$
)t
c
)
$
#t
it
1t
e
"$
,
tr"
$#+
er#
/"
%e
b,
"
%,i
$0
!er
#)
$.
It
i#
$)t the /ere
tr"$#+er th"t
c)$#tit1te# "
tr"$#+er i$
c)$te/!l"ti)$
)+ %e"th b1t
the rete$ti)$
)+ #)/e t,!e
)+ c)$tr)l )8er
the !r)!ert,
tr"$#+erre%. I$
e3ect, there i#
$) +1ll tr"$#+er
)+ "ll i$tere#t#
i$ the
!r)!ert, inter
vivos.
118
d. )roperty
passing
under
general
power
appointment
2. 2y the
decedent in
conjunction
with any
other person
without
regard to
when or from
what source
the decedent
ac*uired
such power,
to alter,
amend,
revoke or
terminate. or
3. 7here
any such
power is
relin*uished
in
contemplatio
n of the
decedent3s
death other
than a bone
fde sale for
an ade*uate
and full
consideration
in money
or money3s
worth.
(>?

he right to
designate the
person who
will succeed
to the
property of
the prior
decedent, in
favor of
anybody,
including
himself, his
estate, his
creditors, or
the creditors
of his estate.
If the
donation
contains a
provision of
reversion to
the donor,
this is similar
to a
revocable
transfer.
(>>
e.
)roce
eds of
life
insura
nce
f.
)rior
intere
sts
7hen
the
benef
ciary
isA
1. he
estate
of the
deced
ent,
his
execu
tor or
admin
istrat
or
regar
dless
of
wheth
er the
desig
nation
is
revoc
able
or
irrevo
cable.
and
2. A
third
perso
n,
other
t i
n
i
s
t
r
a
t
o
r
p
r
o
v
i
d
e
d
t
h
a
t
t
h
e
d
e
s
i
g
n
a
ti
o
n
i
s
revoc
able.
-
@@

All
trans
fers,
trust
s,
estat
es,
inter
ests,
right
s,
powe
rs
and
relin
*uish
ment
of
powe
rs
made
,
Sec. 8 (5 )(1 )
A !)-e r i# $)t 0e$e r"l (#!ec i?c) i+ it c"$ be e.erc i#e% )$l, i$ +"8)r )+ )$e )r /)re %e#i0 $"te % !er# )$)r cl"## e# )+ !er# )$# e.cl1 #i8e )+ the %ece %e$t, hi# e#t"t e, hi# cre%i t)r# "$% cre%i t)r# )+ hi# e#t"t e, )r i+ it e.!r e##l, $)t e.erc i#"bl e i$ +"8)r )+ the %ece %e$t, hi# e#t"t e, hi# cre%i t)r#, )r cre%i t)r# )+ hi# e#t"t e.
400
()t
!"
rt
)+
th
e
0r
)#
#
e#
t"
te
-
he
$6
1
.
P
r)
ce
e%
#
r
e
)-$ li+e
"$% the
be$e?ci"r,
i# $)t the
%ece%e$t9#
e#t"te,
e.ec1t)r,
)r
"%/i$i#tr"t
)r. (Secti)$
8(;)
1
created, arising existing, exercised
or
relin*uished before or after the
e&ectivity of
the ax $ode.
-@"
g. ransfers of insu&icient
consideration
-@'
4nly the excess of the fair market
value of
the property at the time of the
decedent3s
death over the consideration
received shall
be included in the gross estate.
""./eductions from estate
/ecedent is a resident citi!en, non-
resident /ecedent is a nonresident alien
citi!en, or resident alien
4rdinary deductionsA
he deductions allowed to citi!ens
or
a. :uneral ,xpenses
-@(
residents of the )hilippines are
also extended
to a non-resident alien decedent
with respect
b. 5edical expenses
-@-
to his estates situated in the
)hilippines at
the time of his death.
c. <udicial expenses of the
testamentary or
In case of deductions for expenses,
losses,
intestate proceedings.
-@8
indebtedness and taxes, the
amount of the
401 Sec.8
402 b, c, % "$% 0 - !r)!ertie# $)t
!h,#ic"ll, i$ the e#t"te (the#e h"8e
"lre"%, bee$ tr"$#+erre% %1ri$0
the li+eti/e )+ the %ece%e$t b1t
"re #till #1b:ect t) !",/e$t )+
e#t"te t".) - "re tr"$#+er#
intervivos -hich "re c)$#i%ere%
!"rt )+ 0r)## e#t"te.
4<3
7he "/)1$t %e%1ctible i#
e=1"l t) I )+ the 0r)## e#t"te
)r the "/)1$t )+ the "ct1"l
+1$er"l e.!e$#e# -hiche8er i#
l)-er, b1t i$ $) c"#e t) e.cee%
P2<<, <<<.
@Act1"l +1$er"l e.!e$#e#A "re
th)#e -hich -ere "ct1"ll,
i$c1rre% i$ c)$$ecti)$ -ith the
i$ter/e$t )r b1ri"l )+ the
%ece"#e% "$% !"i% +)r +r)/ the
e#t"te )+ #"i% %ece"#e%.
F1$er"l e.!e$#e# i$cl1%e6
1) 5)#t# )+ c)B$, t)/b#t)$e,
/"1#)le1/, "$% b1ri"l l)t;
2)F1$er"l !"rl)r +ee#;
3) *)1r$i$0 cl)thi$0 )+ the
#1r8i8i$0 #!)1#e "$% the
1$/"rrie% /i$)r chil%re$;
4)5)#t# )+ )bit1"r, $)tice#; "$%
5);.!e$#e# %1ri$0 the -"4e
7he +)ll)-i$0 c"$$)t be
%e%1cte% 1$%er +1$er"l
e.!e$#e#6
1) 5"#h "%8"$ce# )+ the
#1r8i8i$0 #!)1#e "$% the
heir#;
2);.!e$#e# !"i% b, the
rel"ti8e# "$% +rie$%#; "$%
3) ;.!e$#e# "+ter the b1ri"l.
404 Pr)8i%e%, th"t the +)ll)-i$0
re=1i#ite# "re /et6
1.*1#t be i$c1rre% b, the
%ece%e$t -ithi$ )$e (1) ,e"r
!ri)r t) hi# %e"th
2.*1#t be %1l, #1b#t"$ti"te% b,
recei!t#; "$%
3. *1#t $)t e.cee% P<<,
<<<.<<.
405 I$cl1%e @"%/i$i#tr"ti)$
e.!e$#e#A t) th)#e "ct1"ll,
i$c1rre% i$ the
"%/i$i#tr"ti)$ )+ the e#t"te
;."/!le#6
") +ee# )+ the e.ec1t)r )r
"%/i$i#tr"t)r;
12<
4. $laims
against
the
decedent
3s estate
-@9

5. $laims
against
insolvent
persons
-
@=

6. Bnpai
d
mortgages
indebtedne
ss
-@?

7. $asualty
1osses
-@>

8. Bnpaid
axes
-"@

9. Janish
ing
deductio
n
411

allowable
deduction is
limited only
to the
proportion
of such
deductions
with the
value of
such part of
his gross
estate which
at the time
of his death,
is situated
in the
)hilippines,
bears to the
value of his
entire gross
estate
wherever
situated.
-"8
2)"
t
t
)
r
$
e
,
9
#

+
e
e
#
;

3)
"c
c
)
1
$
t
"
$
t
9#
+
e
e
#;
4)c
)
1
rt
+
e
e
#
;
5)#
"
l
"
ri
e
#
)
+
e
/
!
l
)
,
ee#; "$%
All )ther
e.!e$#e
rel"te% t) the
"%/i$i#tr"ti)$
)+ the e#t"te.
;.!e$#e# $)t
e##e$ti"l t) the
!r)!er
#ettle/e$t )+ the
e#t"te b1t
i$c1rre% +)r the
i$%i8i%1"l be$e?t
)+ the heir#,
le0"tee#, )r
%e8i#ee# "re $)t
"ll)-e% "#
%e%1cti)$#.
406 Gebt# )r
)bli0"ti)$# )+ the
%ece%e$t th"t i#
e$+)rce"ble
"0"i$#t the e#t"te
!r)8i%e% th"t the
+)ll)-i$0 re=1i#ite#
"re /et6
1) 7he, -ere
c)$tr"cte% i$
0))% +"ith "$%
+)r "$ "%e=1"te
"$%
+1ll
c)$#
i%er
"ti)
$ i$
/)$
e,
)r
/)$
e,9#
-)rt
h.
2)7
h
e
,

/
1
#
t
b
e

e
.
i
#
t
i
$
0

"
0
"
i
$
#
t
t
h
e

e
#
t
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t
e
.
3) 7
he,
/1#
t be
le0"l
l,
e$+)
rce"
ble
)bli0
"ti)$
# )+
the
%ece
%e$t
"$%
)10ht
t) be
e$+)r
ce%
b,
the
cl"i/
"$t#.
4) 7
h
e
,
/
1
#t
b
e
re
"
#
)
$
"
bl
,
c
e
rt
"i
$
i$
"
/
)
1
$
t;
"
$
%;
5) A
t the
ti/e
the
i$%eb
te%$e
##
-"#
i$c1rr
e%,
the %ebt
i$#tr1/e$t -"#
%1l, $)t"ri2e%
"$% i+ the l)"$
-"# c)$tr"cte%
-ithi$ three (3)
,e"r# be+)re the
%e"th )+ the
%ece%e$t, the
"%/i$i#tr"t)r )r
e.ec1t)r #h"ll
#1b/it "
#t"te/e$t
#h)-i$0 the
%i#!)#iti)$ )+ the
!r)cee%# )+ the
l)"$.
407 'e=1i#ite#
+)r %e%1ctibilit,6
1) 7he
"/)1$t )+
#"i% cl"i/#
h"# bee$
i$iti"ll,
i$cl1%e% "#
!"rt )+ the
0r)## e#t"te;
"$%
2)7he
i$c"!"cit, )+
the %ebt)r#
t) !", their
)bli0"ti)$# i#
!r)8e$ "$%
$)t /erel,
"lle0e%.
408 'e=1i#ite#
+)r %e%1ctibilit,6
1.7he +"ir
/"r4et 8"l1e )+
the !r)!ert,
/)rt0"0e%
-ith)1t
%e%1cti$0 the
/)rt0"0e
i$%ebte%$e## h"#
bee$ i$iti"ll,
i$cl1%e% "# !"rt
)+ hi# 0r)##
e#t"te; "$%
2. 7he
/)rt0"0e
i$%ebte%$e##
-"# c)$tr"cte% i$
0))% +"ith "$%
+)r "$ "%e=1"te
"$% +1ll
c)$#i%er"ti)$ i$
/)$e, )r
/)$e,9# -)rth.
4<9
7he, i$cl1%e
"ll l)##e# i$c1rre%
%1ri$0 the
#ettle/e$t )+ the
e#t"
te
"ri#i
$0
+r)/
?re#,
#t)r
/#,
#h
i
!
-
r
e
c
4

)
r

)
t
h
e
r

c
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#
1
"
l
t
i
e
#

)
r

+
r
)
/

r
)
b
b
e
r
,
,

t
h
e
+
t

)
r

e
/
b
e
2
2
l
e
/
e
$
t
.

P
r
)
8
i
%
e
%
,

t
h
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t

t
h
e

+
)
l
l
)
-
i
$
0

r
e
=
1
i
#
i
t
e
#

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r
e

/
e
t
6
1.L)##e# $)t
c)/!e$#"te%
b, "$
i$#1r"$ce )r
)ther-i#e;
2.L)##e# $)t
h"8e bee$
cl"i/e% "# "
%e%1cti)$ +)r
i$c)/e t".
!1r!)#e#;
"$%
3. L)##e#
i$c1rre% $)t
l"ter th"$ the
l"#t %", +)r
!",/e$t )+
the e#t"te
t". (6
/)$th# +r)/
%e"th).
410 J$!"i% i$c)/e t". )$ i$c)/e %1e )r recei8e% be+)re %e"th )+ the %ece%e$t, "$% re"l !r)!ert, t".e#, -hich h"8e "ccr1e% !ri)r t) the %e"th )+ the %ece%e$t (re"l !r)!ert, t".e# "ccr1e% "t the be0i$$i$0 )+ the ,e"r b1t /", be !"i% be+)re )r "t the e$% )+ e"ch =1"rter) "re %e%1ctible.
I$c)/e t".e#
1!)$ i$c)/e
recei8e% "+ter
the %e"th )+ the
%ece%e$t, )r
!r)!ert, t".e#
$)t "ccr1e%
be+)re hi# %e"th,
)r "$, e#t"te t".
c"$$)t be
%e%1cte%
bec"1#e the, "re
ch"r0e"ble t) the
i$c)/e )+ the
e#t"te.
411 Pr)!ert, H
!re8i)1#l, t".e%
121
10. ransfer for public use
412

11. :amily home
-"(

12. #tandard deduction
e*uivalent to )", @@@,@@@.@@
-"-

13. Amounts received by heirs
under 0.A. %o. ->"= from the
decedent3s employer as a
conse*uence of the death of the
decedent K employee provided
that such amount is included in
the gross estate of the decedent.
14. %et share of the surviving
spouse in the conjugal
partnership or community
property.
15. ax credit for estate tax
paid to a foreign country.
A$ "/)1$t "ll)-e% t) re%1ce the t"."ble e#t"te )+ " %ece%e$t -here the !r)!ert,6
1.recei8e% b, hi/ +r)/ !ri)r %ece%e$t b, 0i+t, be=1e#t, %e8i#e )r i$herit"$ce, )r
2.tr"$#+erre% t) hi/ b, 0i+t, h"# bee$ the )b:ect )+ !re8i)1# tr"$#+er %e%1cti)$.
It i# #)-c"lle% " 8"$i#hi$0 %e%1cti)$ bec"1#e the r"te )+ %e%1cti)$ 0r"%1"ll,
%i/i$i#he# "$% e$tirel, 8"$i#he# %e!e$%i$0 1!)$ the ti/e i$ter8"l bet-ee$ the t-)
(2) #1cce##i8e tr"$#+er#.
7-) (2) +"ct)r# $ece##"r, i$ 8"$i#hi$0 %e%1cti)$, the#e "re;
1.7here "re t-) (2) %ece"#e% !er#)$# "$% the ?r#t i# the %)$)r; "$%
2. 7he #ec)$% %ece%e$t %ie# -ithi$ ?8e () ,e"r# "+ter the %e"th )+ the !ri)r
%ece%e$t )r i$ the c"#e
)+ 0i+t# the %ece%e$t H %)$ee %ie# -ithi$ the #"/e !eri)% "+ter the
%"te )+ the 0i+t.
41
Sec. 86 (K)
412 'e=1i#ite#6
1.7he %i#!)#iti)$ /1#t be te#t"/e$t"r, i$ ch"r"cter.
2.7) t"4e e3ect "+ter %e"th.
3. I$ +"8)r )+ the 0)8er$/e$t )+ the Phili!!i$e#, )r "$, !)litic"l #1b%i8i#i)$
there)+.
4.;.cl1#i8el, +)r !1blic !1r!)#e.
413 'e+er# t) the %-elli$0 h)1#e, i$cl1%i$0 the l"$% )$ -hich it i# #it1"te%, -here the h1#b"$% "$% -i+e, )r "$ 1$/"rrie% !er#)$ -h) i# the he"% )+ the +"/il, "$% /e/ber# )+ their i//e%i"te +"/il, re#i%e# "# certi?e% b, the K"r"$0", 5"!t"i$ )+ the l)c"lit,.
F)r the !1r!)#e )+ "8"ili$0 )+ " +"/il, h)/e %e%1cti)$ t) the e.te$t !r)8i%e% b,
l"-, " !er#)$ /", c)$#tit1te )$l, )$e +"/il, h)/e.
7he "/)1$t %e%1ctible i# e=1i8"le$t t) the c1rre$t +"ir /"r4et 8"l1e )+ the
%ece%e$t9# +"/il, h)/e i+ #"i% c1rre$t +"ir /"r4et 8"l1e e.cee%# P1, <<<,<<<.<<.,
the e.ce## #h"ll be #1b:ect t) e#t"te t"..
'e=1i#ite# t) be %e%1ctible6
1. 7he +"/il, h)/e /1#t be the "ct1"l re#i%e$ti"l h)/e )+ the %ece%e$t "$% hi#
+"/il, "t the ti/e )+ hi# %e"th "# certi?e% b, the b"r"$0", 5"!t"i$ )+ the l)c"lit,
-here the +"/il, i# #it1"te%.
2. 7he t)t"l 8"l1e )+ the +"/il, h)/e /1#t be i$cl1%e% i$ the 0r)## e#t"te )+ the
%ece%e$t.
3. 7he "ll)-"ble %e%1cti)$ /1#t be i$ "$ "/)1$t e=1i8"le$t t) the c1rre$t +"ir
/"r4et 8"l1e )+ the +"/il, h)/e "# %ecl"re% )r i$cl1%e% i$ the 0r)## e#t"te $)t
e.cee%i$0 P1, <<<,<<<.<<.
414 %)e# $)t i$cl1%e the P 2<<,<<<.<< e.e/!ti)$
12
2
"'. ,xclusions from estate
he following properties are excluded from gross estateA
-"9
1) Amount receivable by any benefciary irrevocably designated
in the policy of insurance by the insured.
2) )roceeds of a group insurance policy taken out by a company
for its employees.
3) )roceeds of insurance policies issued by the +#I# to
government o&icials and
employees.
4) 2enefts accruing under the #ocial #ecurity Act.
5) )roceeds of life insurance payable to the heirs of deceased
members of the military personnel of the Bnited #tates Army or
)hilippine Army under laws administered by the Bnited #tate
veterans Administration.
6) Accident insurance proceeds.
-"=

7) #eparate property of the surviving spouse.
"(. ax credit for estate taxes paid in a foreign
country
he estate tax imposed by the tax code shall be credited with
the amount of any estate tax paid to a foreign country.
"-. ,xemption of certain ac*uisitions and
transmissions
a. he frst )'@@, @@@.@@ value of the estate.
-"?
2. he merger of the usufruct in the owner of the naked title.
3. he transmission from the frst heir, legatee, or donee in favor
of another benefciary in accordance with the desire of the
predecessor.
4. All be*uest, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of which
inured to the beneft of any individual and provided that not more
than (@O of the said be*uest, etc. shall be used by such institution for
administration purposes.
!r)!ert, )+ the #!)1#e#, #e!"r"te )r e.cl1#i8e !r)!ert, either )+ the %ece"#e% )r )+ the #1r8i8i$0 #!)1#e, bec)/e# )+ 8it"l i/!)rt"$ce. >h"t re0i/e )+ !r)!ert, rel"ti)$# #h"ll 0)8er$ the #!)1#e#O
J$%er the 5i8il 5)%e, the h1#b"$% "$% -i+e -h) 0)t /"rrie% be+)re A101#t 3, 1988
"re 0)8er$e% b, the 5)$:10"l P"rt$er#hi! )+ &"i$#, -hile th)#e -h) 0)t /"rrie% )$ )r
"+ter A101#t 3, 1988 "re 0)8er$e% b, the Ab#)l1te 5)//1$it, )+ Pr)!ert,, 1$le## "
%i3ere$t re0i/e -"# "0ree% 1!)$ i$ the /"rri"0e #ettle/e$t.
417 Ite/# " - + "re !r)cee%# )+ i$#1r"$ce $)t i$cl1%ible i$ the 0r)## e#t"te )+ the %ece%e$t
418 Sec. 84
12
3
5. Intangible personal property of non-resident aliens under the
principle of reciprocity.
6. 0etirement benefts of employees of private frms from private
pension plans approved by the 2I0.
7. Amount received for war damages.
8. +rants and donations to the Intramuros administration.
15. :iling of notice of death
7ithin two D'E months after the decedent3s death
-">
to the
$ommissioner of Internal 0evenue where the gross value of the estate
exceeds twenty thousand pesos D) '@,@@@.@@E.
-'@
"9. ,state tax return
o be fled by the executor, administrator, or any of the legal
heirs.
In cases ofA
1. ransfers subject to tax
2. 7here gross value of estate exceeds )'@@,@@@
3. 7here estate consists of registered or registrable
property, regardless of Amount.
-'"

419 )r -ithi$ li4e !eri)% "+ter the e.ec1t)r )r "%/i$i#tr"t)r =1"li?e# "# #1ch
420 Sec. 89
421 Sec. 9< (A)
12
4
3. Donor+s Tax
1. 2asic principles
It is levied, assessed, collected and paid upon the transfer of any
person, resident or non-resident, of the property by gift inter vivos. It
applies whether the transfer is in trust or otherwise, whether the gift
is direct or indirect, and whether the property is real or personal,
tangible or intangible.
-''
/onor3s 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, tangible or intangible.
A GgiftH is merely subjected to donor3s tax.
'. /efnition
A tax on the privilege of transmitting one3s property or property
rights to another or others without ade*uate and full valuable
consideration.
(. %ature
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 is not a property tax.
-. )urpose or object
oA
1. 0aise revenues
2. ax the wealthy and to reduce certain other excise taxes
3. /iscourage inter vivos transfers of property which could
reduce mortis causa transfers on which a higher tax
-'(
can be
collected
4. )revent avoidance of income tax throughthe device of splitting
income among numerous donees who are usually members of a family
or into many trusts, with the donor thereby escaping the e&ect of the
progressive rates of income taxation
422 Sec. 98
423 e#t"te t".
12

5. 0e*uisites of valid donation

1. he donor must have capacity to donate
-'-

2. here must be an intent to donate
-'8

3. here must be delivery, either actual or constructive
4. he donee must accept the donation
6. ransfers which may be constituted as donation
a. #ale6exchange6transfer of property for
insu&icient consideration
-'9

If bona fde sale
If not a bona fde sale
%
o
va
lu
e
sh
all
be
in
cl
ud
ed
in
th
e
gr
os
s
estate.
he excess
of the fair
market
value at
the time of
death over
the value
of the
considerati
on
received
by the
decedent
shall form
part of his
gross
estate.
If inter vivos transfer is proven
fctitious
b.
$on
don
atio
n6re
miss
ion
of
debt
If
the
credi
tor
cond
ones
the
inde
bted
ness
of
the
debt
or
the
foll
ow
ing
rul
es
ap
ply
A
1
.
4
n account of
debtor3s services to
the creditor the
same is in taxable
income to the
debtor.
2. If no
services were
rendered but the
creditor simply
condones the debt,
it is taxable gift and
not a taxable
income.
c"!"cit, #h"ll be %eter/i$e% "# )+ the ti/e )+ the /"4i$0 )+ the %)$"ti)$ (Art. 737, (55)
425 G)$"ti8e i$te$t i# $ece##"r, )$l, i$ c"#e# )+ %irect 0i+t. I+ the 0i+t i# i$%irectl, t"4i$0 !l"ce b, -", )+ #"le, e.ch"$0e )r )ther tr"$#+er )+ !r)!ert, "# c)$te/!l"te% i$ c"#e# )+ tr"$#+er# +)r le## th"$ "%e=1"te "$% +1ll c)$#i%er"ti)$ (Sec. 1<<, (I'5), $)t "l-",# e##e$ti"l t) c)$#tit1te " 0i+t.
426 7r"$#+er# th"t "re
$)t b)$" ?%e #"le# )+
!r)!ert, +)r "$
"%e=1"te "$% +1ll
c)$#i%er"ti)$ i$
/
/
)
$
e
,
9
#

-
)
r
t
h

4
2
7

S
e
c
.

8

(
&
)
1
=. ransfer for less than ade*uate and full
consideration
he amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed a gift, and
shall be included in computing the amount of gifts made during the
calendar year.
-'?
?. $lassifcation of donor
axable within and outside
)hilippines
1. 0esident citi!en
2. %on-resident citi!en
3. 0esident alien
4. /omestic
corporatio
n
axable only
within the
)hilippines
1. %on-
resident
aliens
2. :oreign
corporation
>.
/eter
minati
on of
gross
gift
All property, real
or
person
al,
tangibl
e or
intangi
ble,
that
was
given
by the
donor
to the
donee
by way
of gift,
without the beneft of
any deduction.
-'>
"@.
$omp
ositio
n of
gross
gift
0esident citi!en,
non-resident
citi!en, and
resident alien
1. 0eal property
wherever
situated.
2. )ersonal
property
wherever
situa
ted,
tang
ible
or
inta
ngib
le.
%o
n-
re
sid
en
t
ali
en
1. 0
eal
prop
erty situated
within the
)hilippines.
2. )ersonal
propertyA
i. angible
property situated
within the
)hilippines
ii. Intangible
persona
l
propert
y with
situs in
the
)hilippi
nes
unless
exempt
ed on
the
basis of
recipro
city.
-(@
428 Sec. 1<<
429 Sec. 1<4
430 >here the
%ec
e%e
$t
)r
%)$
)r
-"#
"
$)$
re#i
%e$t "lie$ "t the
ti/e )+ hi# %e"th
)r %)$"ti)$, hi#
re"l "$% !er#)$"l
!r)!ert, #)
tr"$#+er
re% b1t
-hich
"re
#it1"te
%
)1t#i%e
the
Phili!!i
$e#
#h"ll $)t be
i$cl1%e% "# !"rt
)+ hi# W0r)##
e#t"teW )r W0r)##
0i+t (#ee Sec. 1<4)
12 7
"". Jaluation of gifts made in property
)ersonal property 0eal property
he fair market value of the
property given at the time of the
gift.
he fair market
value at the time
of donation or
the value fxed
by the assessor,
whichever is
higher.
-("
"'.
ax
credit
for
donor3
s taxes
paid in
a
foreig
n
countr
y
he tax imposed
upon a donor who was a
citi!en or a resident at
the time of donation
shall be credited with
the amount of any
donorNs tax of any
character and
description imposed by
the authority of a
foreign country.
-('
13. ,xe
mpt
ions
of
gift
s
fro
m
don
or3s
tax
1. /o
nat
ion
for
pol
itic
al
ca
mp
aig
n
pur
pos
es
-
((

2. $e
rta
in
gift
s
ma
de
by
res
ide
nts
-(-

3. $e
rta
in
gift
s
ma
de
by
no
n-
res
ide
nts
-(8

431 Sec.
1<2.
432 Sec.
1<1(5)
433 Sec.
99E5F 434 (1) G)-rie# )r 0i+t# /"%e )$ "cc)1$t )+ /"rri"0e "$% be+)re it# celebr"ti)$ )r -ithi$ )$e (1) ,e"r there"+ter b, !"re$t# t) e"ch )+ their le0iti/"te, rec)0$i2e% $"t1r"l, )r "%)!te% chil%re$ t) the e.te$t )+ the ?r#t 7e$ th)1#"$% !e#)# (P1<,<<<)6
(2) &i+t#
/"%e t) )r
+)r the 1#e )+
the ("ti)$"l
&)8er$/e$t
)r "$, e$tit,
cre"te% b,
"$, )+ it#
"0e$cie#
-hich i# $)t
c)$%1cte%
+)r !r)?t, )r
t) "$,
!)litic"l
#1b%i8i#i)$
)+ the #"i%
&)8er$/e$t;
"$%
(3) &i+t# i$
+"8)r )+ "$
e%1c"ti)$"l
"$%M)r
ch"rit"ble,
reli0i)1#,
c1lt1r"l )r
#)ci"l
-el+"re
c)r!)r"ti)$,
i$#tit1ti)$,
"ccre%ite%
$)$0)8er$/
e$t
)r0"$i2"ti)$,
tr1#t )r
!hil"$thr)!ic
)r0"$i2"ti)$
)r re#e"rch
i$#tit1ti)$ )r )r0"$i2"ti)$.
()t /)re th"$ thirt, !erce$t
(3<I) )+ #"i% 0i+t# #h"ll be
1#e% b, #1ch %)$ee +)r
"%/i$i#tr"ti)$
!1r!)#e#(Sec.1<1EAF)
F)r the !1r!)#e )+ the
e.e/!ti)$, " Q$)$-!r)?t
e%1c"ti)$"l "$%M)r
ch"rit"ble c)r!)r"ti)$,
i$#tit1ti)$, "ccre%ite%
$)$0)8er$/e$t
)r0"$i2"ti)$, tr1#t )r
!hil"$thr)!ic )r0"$i2"ti)$
"$%M)r re#e"rch i$#tit1ti)$ )r
)r0"$i2"ti)$Q i# " #ch))l,
c)lle0e )r 1$i8er#it, "$%M)r
ch"rit"ble c)r!)r"ti)$,
"ccre%ite% $)$0)8er$/e$t
)r0"$i2"ti)$, tr1#t )r
!hil"$thr)!ic )r0"$i2"ti)$
"$%M)r re#e"rch i$#tit1ti)$ )r
)r0"$i2"ti)$, i$c)r!)r"te%
"# " $)$-#t)c4 e$tit,, !",i$0
$) %i8i%e$%#, 0)8er$e% b,
tr1#tee# -h) recei8e $)
c)/!e$#"ti)$, "$% %e8)ti$0
"ll it# i$c)/e, -hether
#t1%e$t#Q +ee# )r 0i+t#,
%)$"ti)$, #1b#i%ie# )r )ther
+)r/# )+ !hil"$thr)!,, t) the
"cc)/!li#h/e$t "$%
!r)/)ti)$ )+ the !1r!)#e#
e$1/er"te% i$ it# Article# )+
I$c)r!)r"ti)$.
43
(1) &i+t# /"%e t) )r +)r
the 1#e )+ the ("ti)$"l
&)8er$/e$t )r "$, e$tit,
cre"te% b, "$, )+ it#
"0e$cie# -hich i# $)t
c)$%1cte% +)r !r)?t, )r t)
"$, !)litic"l #1b%i8i#i)$ )+
the #"i% &)8er$/e$t.
(2) &i+t# i$ +"8)r )+ "$
e%1c"ti)$"l "$%M)r
ch"rit"ble, reli0i)1#, c1lt1r"l
)r #)ci"l -el+"re c)r!)r"ti)$,
i$#tit1ti)$, +)1$%"ti)$, tr1#t
)r !hil"$thr)!ic )r0"$i2"ti)$
)r re#e"rch i$#tit1ti)$ )r
)r0"$i2"ti)$. ()t /)re th"$
thirt,
!erce$t
(3<I) )+ #"i%
0i+t# #h"ll be
1#e% b, #1ch
%)$ee +)r
"%/i$i#tr"ti)$ !1r!)#e#
(Sec.1<1EKF)
128
4. /onation of intangibles subject to reciprocity
-(9

5. /onation for athlete3s pri!es and awards
-(=

6. /onation under the GAdopt-a-#chool )rogramH
-(?

7. ,xemption under otherspecial laws.
-(>

"-. )erson liable
Any person, resident or nonresident, of the property transferred
by gift.
Any person making a donation unless the donation is specifcally
exempted under %I0$ or other special laws, is re*uired for every
donation to accomplish under oath a donor3s tax return in duplicate.
"8. ax basis
he total net gifts made during the calendar year.
--@
436 Sec. 1<4
i$ter$"ti)$"l t)1r$"/e$t# "$% c)/!etiti)$#;
2. hel% i$ the Phili!!i$e# )r "br)"%; "$%
3. #"$cti)$e% b, their re#!ecti8e #!)rt# "##)ci"ti)$. (Sec. 1, '.A. 749)
t) " 0)8er$/e$t #ch))l, -hether ele/e$t"r,, #ec)$%"r, )r terti"r, "re e.e/!t +r)/ %)$)r9# t".e#. 7he "##i#t"$ce /", be i$ the +)r/ )+, b1t $)t li/ite% t) i$+r"#tr1ct1re, te"chi$0, "$% #4ill# %e8el)!/e$t, le"r$i$0, #1!!)rt, c)/!1ter "$% #cie$ce l"b)r"t)rie# "$% +))% "$% $1triti)$ ('.A. 82)
439 1. G)$"ti)$ t) I$ter$"ti)$"l 'ice 'e#e"rch I$#tit1te (I''I)
2. G)$"ti)$ t) '"/)$ *"0#",#", A-"r% F)1$%"ti)$
3. G)$"ti)$ t) Phili!!i$e# I$8e$t)r# 5)$8e$ti)$ (PI5)
4. G)$"ti)$ t) I$te0r"te% K"r )+ the Phili!!i$e# (IKP)
5. G)$"ti)$ t) the Ge8el)!/e$t Ac"%e/, )+ the Phili!!i$e#
6. G)$"ti)$ t) #)ci"l -el+"re, c1lt1r"l )r ch"rit"ble i$#tit1ti)$, $) !"rt )+ the $et
i$c)/e )+ -hich i$1re# t) the be$e?t )+ "$, i$%i8i%1"l, i+ $)t /)re th"$ 3<I )+ the
%)$"ti)$ #h"ll be 1#e% b, the %)$e +)r "%/i$i#tr"ti)$ !1r!)#e#
7. G)$"ti)$ t) A=1"c1lt1re Ge!"rt/e$t )+ the S)1the"#t A#i"$ Fi#herie#
Ge8el)!/e$t 5e$ter )+ the Phili!!i$e#
8.G)$"ti)$ t) the ("ti)$"l *1#e1/
9.G)$"ti)$ t) the ("ti)$"l Libr"r,
10. G)$"ti)$ t) the ("ti)$"l S)ci"l Acti)$ 5)1$cil
11.G)$"ti)$ t) the Phili!!i$e A/eric"$ 51lt1r"l F)1$%"ti)$
12. G)$"ti)$ t) 7"#4 F)rce )$ C1/"$ Settle/e$t )$ the %)$"ti)$ )+ e=1i!/e$t,
/"teri"l#, "$% #er8ice#
440 Sec. 99 (A)
12
9
4. ,alue-Added Tax DJAE
1. $oncept
JA is a percentage tax imposed at every stage of the
distribution process on the sale, barter, or exchange, or lease of goods
or properties, and on the performance of service in the course of
trade or business, or on the importation of goods, whether for
business or non-business purposes.
It is a business tax levied on certain transactions involving a
wide range of goods, properties, and services, such tax being payable
by the seller, lessor, or transferor. he tax is so- called because it is
imposed on the value not previously subjected to JA.
--"
It is also an excise tax, or a tax on the privilege of engaging in
the business of selling goods or services, or in the importation of
goods.
he taxpayer
--'
determines his tax liability by computing the tax
on the gross selling price or gross receipt
--(
and subtracting or
crediting the earlier JA on the purchase or importation of goods or
on the sale of service
---
against the tax due on his own sale.
'. $haracteristics
It is an indirect tax, the amount of which may be shifted to or
passed on the buyer, transferee, or lessee of the goods, properties or
services.
--8
It is e*uitableA he law is e*uipped with a threshold margin
D)".85E. Also, basic marine and agricultural products in their original
state are still not subject to tax. $ongress also provided for mitigating
measures to cushion the impact of the imposition of the tax on those
previously exempt. ,xcise taxes on petroleum products and natural
gas were reduced. )ercentage tax on domestic carriers was removed.
)ower producers are now exempt from paying franchise tax.
JA, by its very nature, is regressive. 2ut the $onstitution does
not really prohibit the imposition of indirect taxes which is essentially
regressive. 7hat it simply provides is that $ongress shall Gevolve a
progressive system of taxation.H
--9
441
Ge Le)$, @7he ("ti)$"l I$ter$"l 'e8e$1e 5)%e A$$)t"te%,A 2<<< e%iti)$
442 #eller
443 )1t!1t t".
444 i$!1t t".
445 Sec. 1<
7hi# r1le #h"ll li4e-i#e "!!l, t) e.i#ti$0 c)$tr"ct# )+ #"le )r le"#e )+ 0))%#,
!r)!ertie# )r #er8ice# "t the ti/e )+ the e3ecti8it, )+ '.A. (). 9337 ('' 16-2<<)
446
I$ Tolentino v. &ec. of 2inance, the 5)1rt #"i% th"t %irect t".e# "re t) be !re+erre%,
"$% "# /1ch "# !)##ible, i$%irect t".e# #h)1l% be /i$i/i2e%Y b1t $)t "8)i%e%
e$tirel, bec"1#e it i# %iBc1lt, i+ $)t i/!)##ible, t) "8)i% the/.
7he 5)$#tit1ti)$ /"$%"te t) @e8)l8e " !r)0re##i8e #,#te/ )+ t"."ti)$A #i/!l,
/e"$# th"t %irect t".e# "re t) be !re+erre% "# /1ch "# !)##ible, "$% i$%irect t".e#
#h)1l% be /i$i/i2e%. 'e#)rt t) i$%irect t".e# #h)1l% be /i$i/i2e% b1t $)t "8)i%e%
e$tirel,. Al#), the re0re##i8e e3ect# "re c)rrecte% b, the 2er) r"ti$0
13<
4ther $haracteristicsA
1. It is consumption-based
2. It is imposed on the value-added in each stage of distribution
3. It is a credit-invoice method value-added tax
4. It is not a cascading tax.
(. Impact of tax
--=
he seller
--?
upon whom the tax has been imposed.
-. Incidence of tax
-->
It is on the fnal consumer, the place at which the tax comes to
rest. he tax is shifted to the buyer of the goods, properties, or
services.
8. ax credit method
-8@
he input tax shifted by the seller to the buyer is credited
against the buyer3s output taxes when he in turn sells the taxable
goods, properties or services.
his method relies on invoices, an entity can credit against or
subtract from the JA charged on its sales or outputs the JA paid on
its purchases, inputs and imports.
-8"
If at the end of a taxable period, the output taxes charged by a
seller are e*ual to the input taxes passed on by the suppliers, no
payment is re*uired. It is when the output taxes exceed the input
taxes that the excess has to be paid. If however, the input taxes
exceed the output taxes, the excess shall be carried over to the
succeeding *uarter or *uarters. #hould the input taxes result from
!ero-rated or e&ectively !ero-rated transactions or from
)+ cert"i$ tr"$#"cti)$# "$% thr)10h the e.e/!ti)$#. 7he tr"$#"cti)$# -hich "re
#1b:ect t) VA7 "re th)#e -hich i$8)l8e 0))%# "$% #er8ice# -hich "re 1#e% )r "8"ile%
)+ /"i$l, b, hi0her i$c)/e 0r)1!# ('e"l !r)!ertie# hel% !ri/"ril, +)r #"le t)
c1#t)/er#, ri0ht )r !ri8ile0e t) 1#e !"te$t, c)!,ri0ht.)
the t".!",er i# the !er#)$ -h) /1#t !", the t". t) the 0)8er$/e$t. Ce i# "l#) ter/e% "# the #t"t1t)r, t".!",er-the )$e )$ -h)/ the t". i# +)r/"ll, "##e##e%. Ce i# the #1b:ect )+ the t".
448 /"$1+"ct1rer
449 7h"t !)i$t )$ -hich the t". b1r%e$ ?$"ll, re#t# )r #ettle %)-$. It t"4e# !l"ce -he$
#hi+ti$0 h"# bee$ e3ecte% +r)/ the #t"t1t)r, t".!",er t) "$)ther
450 "l#) c"lle% @i$8)ice /eth)%A
451 Commissioner of Internal Revenue v. &eagate Technolog# !hilippines, &. '. ().
13866, Febr1"r, 11, 2<< citi$0 8"ri)1# c"#e# "$% "1th)ritie#; Aba<ada "uro !art# List
7etc.) v. .rmita, etc., et "l., &. '. ().
168<6, Se!te/ber 1, 2<< "$% c)/!"$i)$ c"#e#)
131
ac*uisition of capital goods, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other internal
revenue taxes.
-8'
9. /estination principle
-8(
Bnder this doctrine, goods and services are taxed only in the
country where they are consumed. %o JA shall be imposed to form
part of the cost of goods destined outside the territorial border of the
taxing authority. hus, exports are !ero-rated, while
imports are taxed.
Actual shipment of the goods from the )hilippines to a foreign
country is a precondition of an export sale following the destination
principle being adhered to by our JA system.
JA is imposed in the country in which the products or services
are actually consumed or used. ,xports exempt, imports taxable.
-8-
7. )ersons liable
-88

A. Any person who, in the regular course of trade or business
-89

1) sells, barters, exchanges goods or properties,
2) leases goods or properties,
3) renders services. and
4) any person who imports goods.
-8=

13866, Febr1"r, 11, 2<< citi$0 8"ri)1# c"#e# "$% "1th)ritie#
453 )r the @5r)## K)r%er G)ctri$e
454 Sit1#6 c)1$tr, )+ 5)$#1/!ti)$.
;.ce!ti)$ t) the %e#ti$"ti)$ !ri$ci!le6
A 2er) !erce$t VA7 r"te +)r #er8ice# th"t "re !er+)r/e% i$ the Phili!!i$e#, W!"i%
+)r i$ "cce!t"ble +)rei0$ c1rre$c,"$% "cc)1$te% +)r i$ "cc)r%"$ce -ith the r1le# "$%
re01l"ti)$# )+ the KSP.W
Ce$ce, "ct1"l )r c)$#tr1cti8e e.!)rt )+ 0))%# "$% #er8ice# +r)/ the Phili!!i$e# t)
" +)rei0$ c)1$tr, /1#t be 2er)-r"te% +)r VA7; -hile, th)#e %e#ti$e% +)r 1#e )r
c)$#1/!ti)$ -ithi$ the Phili!!i$e# #h"ll be i/!)#e% the t-el8e !erce$t (12I) VA7.
4
-hether )r $)t i$ the re01l"r c)1r#e)+ b1#i$e##(Sec. 1<)
Pre#e$t l"- re=1ire# " thre#h)l% "/)1$t )+ P1,<<,<<<.<< 0r)## #"le )r 0r)##
recei!t t) bec)/e li"ble +)r 8"l1e-"%%e% t"..
456 7he !hr"#e @i$ the c)1r#e )+ tr"%e )r b1#i$e##A /e"$# the re01l"r c)$%1ct )r !1r#1it )+ " c)//erci"l )r "$ ec)$)/ic "cti8it,, i$cl1%i$0 tr"$#"cti)$# i$ci%e$t"l theret), b, "$, !er#)$ re0"r%le## )+ -hether )r $)t the !er#)$ e$0"0e% therei$ i# " $)$-#t)c4, $)$!r)?t )r0"$i2"ti)$ (irre#!ecti8e )+ the %i#!)#iti)$ )+ it# $et i$c)/e "$% -hether )r $)t it #ell# e.cl1#i8el, t) /e/ber# )r their 01e#t#), )r 0)8er$/e$t e$tit, (Sec. 1<)
457 7he i/!)rter, -hether "$ i$%i8i%1"l )r c)r!)r"ti)$ "$% -hether )r $)t /"%e i$ the
c)1r#e )+ hi# tr"%e )r b1#i$e##, #h"ll be li"ble t) !", VA7. ('' 16-2<<)
13
2
$onse*uently, any sale, barter or exchange of goods or services
not in the course of trade or business is not subject to JA.
-8?
8. JA on sale of goods or properties
1. 0e*uisites of taxability of sale of goods or
propertiesA
1. here is an actual or deemed sale, barter or exchange of
goods or personal properties for valuable consideration.
2. he sale is in the course of trade or business or exercise of
profession in the )hilippines.
3. he goods or properties are located in the )hilippines and are
for use or consumption therein. and
4. he sale is not exempt from JA under #ection "@> of %I0$,
special law, international agreement binding upon the government of
the )hilippines.
-8>

9. Yero-rated sales of goods or properties, and
e&ectively !ero-rated sales of goods or properties
he gross selling price of goods or properties is multiplied by
@O JA rate. Yero-rated sale of goods or properties by a JA-
registered person is a taxable transaction for JA purposes but the
sale does not result in any output tax.
Cowever, the input tax on the purchases of goods, properties or
services related to such !ero-rated sale shall be available as tax credit
or refund.
Yero-rated sales of goods by a JA-registered personA
1. ,xport #ales
-9@

2. :oreign $urrency /enominated #ale
-9"

3. #ale to persons or entities which is JA exempt under special
laws or international agreements to which the )hilippines is
a signatory
-9'

4. ransactions subject to !ero-rated D@OE
-9(

458 Commissioner v. ,agsa#sa# Lines Inc., &.'. (). 146984, D1l, 28, 2<<6
459 Ab#e$ce )+"$, )+ the "b)8e re=1i#ite# e.e/!t# the tr"$#"cti)$ +r)/ VA7.
C)-e8er, !erce$t"0e t".e# /", "!!l, (Secti)$ 116, (I'5).
460 "# !r)8i%e% i$ Secti)$ 1<6(A)(2)("), See 'e+ere$ce
461 i%. (A)(2)(b)
462 i%. (A)(2)(c)
463 "# !r)8i%e% i$ Secti)$ 1<8(K)
13
3
10. ransactions deemed sale
-9-

a. ransfer, use or consumption not in the
course of business of goods6properties
originally intended for sale or use in the
course of business.
e.g. when a JA-registered person withdraws goods from his
business for his personal use.
2. /istribution or transfer to shareholders,
investors or creditors
1. #hareholders or investors as share in the profts of the JA-
registered persons.
or
2. $reditors in payment of debt.
-98

3. $onsignment of goods if actual sale not
made within 9@ days from date of
consignment
$onsigned goods returned by the consignee within the 9@-day
period are not deemed
sold.
-99
4. 0etirement from or cessation of business
with respect to inventories on hand
As of the date of such retirement or cessation, whether or not
the business is continued by the new owner or successor. ,xamples
are change of ownership of the business
-9=
and dissolution of a
partnership and creation of a new partnership which takes over the
business.
-9?
464 Sec. 1<6 (K)
7he tr"$#"cti)$# "re @%ee/e% #"leA bec"1#e i$ re"lit, there i# $) #"le, b1t #till the
l"- !r)8i%e# th"t
the +)ll)-i$0 tr"$#"cti)$# "re c)$#i%ere% "# #"le "$% "re th1# #1b:ect t) VA7.
46
Pr)!ert, %i8i%e$%# -hich c)$#tit1te #t)c4# i$ tr"%e )r !r)!ertie# !ri/"ril, hel% +)r
#"le )r le"#e %ecl"re% )1t )+ ret"i$e% e"r$i$0# )$ )r "+ter D"$. 1, 1996 "$% %i#trib1te%
b, the c)/!"$, t) it# #h"reh)l%er# #h"ll be #1b:ect t) VA7 b"#e% )$ the 2)$"l 8"l1e
)r F*V "t the ti/e )+ the %i#trib1ti)$,
-hiche8er i# "!!lic"ble. ( ''
16-2<<)
466
'' 16-2<<
467
e.0. -he$ " #)le !r)!riet)r#hi! i$c)r!)r"te#, )r the !r)!riet)r #ell# hi#
e$tire b1#i$e##
468
'' 16-2<<
134
"". $hange or cessation of status as JA-registered
person
JA shall apply to goods disposed of or existing as of a certain
date if under the circumstances, the status of a person as a JA-
registered person changes or is terminated.
a. #ubject to JA
#ubject to output tax - applicable to goods6properties originally
intended for sale or use in business and capital goods which are
existing as of the occurrence of the followingA
1) $hange of business activity from JA
taxable status to JA-exempt status
2) Approval of re*uest for cancellation
of a registration due to reversion to
exempt status
3) Approval of re*uest for cancellation of
registration due to desire to revert to
exempt status after lapse of (
consecutive years
-9>

b. %ot subject to JA
1) $hange of control of a corporation
2y the ac*uisition of the controlling interest of such corporation
by another stockholder or group of stockholders.
he goods or properties used in the business or those
comprising the stock -in trade of the corporation will not be
considered sold, bartered or exchanged despite the change in the
ownership interest. Cowever, exchange of property by corporation
ac*uiring control for the shares of stocks of the target corporation is
subject to JA.
'E $hange in the trade or corporate
name
$hange in the trade or corporate name of the business.
(E 5erger or consolidation of
corporations
he unused input tax of the dissolved corporation, as of the date
of merger or consolidation, shall be absorbed by the surviving or new
corp.
469
+r)/ the ti/e )+ re0i#tr"ti)$ b, " !er#)$ -h) 8)l1$t"ril, re0i#tere% %e#!ite bei$0
e.e/!t 1$%er Sec. 1<9(2)
13
"'. JA on importation of goods
JA shall be assessed and collected upon goods brought into the
)hilippines, whether or not goods are for use in business.
a. ransfer of goods by tax exempt persons
he subse*uent purchasers, transferees or recipients of such
imported goods shall be considered as importers who shall be liable
for the tax on importation.
he tax due on such importation shall constitute a lien on the
goods superior to all charges or liens on the goods, irrespective of the
possessor thereof.
-=@
13. JA on sale of service and use or lease
of properties a. 0e*uisites for
taxability
1. here is a sale or exchange of service or lease or use of
property enumerated in the law or other similar services.
2. he service is performed or to be performed in the
)hilippines.
3. he service is in the course of trade of taxpayer3s trade or
business or profession.
4. he service is for a valuable consideration actually or
constructively received. and
5. he service is not exempt under the ax $ode, special law or
international agreement.
-="

14. Yero-rated sale of services
-='

1) )rocessing, manufacturing or repacking goods for other
persons doing business outside the )hilippines which goods are
subse*uently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the 2#).
2) #ervices other than those mentioned in the preceding
paragraph rendered to a person engaged in business conducted
outside the )hilippines or to a nonresident person not engaged in
business who is outside the )hilippines when the services are
performed, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the 2#).
470 Sec. 1<7 (K)
471 Ab#e$ce )+ "$, )+ the re=1i#ite# re$%er# the tr"$#"cti)$ e.e/!t +r)/ VA7 b1t /", be
#1b:ect t) )ther
!erce$t"0e t". 1$%er 7itle V )+ the
7". 5)%e.
472
Ibi%. (K)
136
3) #ervices rendered to persons or entities whose exemption
under special laws or international agreements to which the
)hilippines is a signatory e&ectively subjects the supply of such
services to !ero percent D@OE rate.
4) #ervices rendered to persons engaged in international
shipping or international air transport operations, including leases of
property for use thereof.
-=(
)rovided, however, 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, goods or
cargoes from one place in the )hil. to another place in the )hil., the
same being subject to "'O JA under #ec. "@?.
-=-

5) #ervices performed by subcontractors and6or contractors in
processing, converting, of manufacturing goods for an enterprise
whose export sales exceed seventy percent D=@OE of total annual
production.
6) ransport of passengers and cargo by air or sea vessels from
the )hilippines to a foreign country and.
7) #ale of power or fuel generated through renewable sources of
energy such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels.
-=8
Yero-rating shall
apply strictly to the sale of power or fuel generated through
renewable sources of energy, and shall not extend to the sale of
services related to the maintenance or operation of plants generating
said power.
15. JA exempt transactions
a. JA exempt transactions, in general
It involves goods or services which, by their nature, are
specifcally listed in and expressly exempted from JA under the ax
$ode, without regard to the tax status of the party to the transaction.
473 Ibi%..
474 #1!r"
475 Ibi%.
13
7
2. ,xempt transactions, enumerated
1. #ale6 import of agricultural, marine food products in original
state.
-=9
of livestock and poultry.
-==

)olished and6or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt, and copra shall be considered in their original
state.
2. #ale6 import of fertili!ers. seeds, seedlings and fngerlings.
fsh, prawn, livestock and poultry feeds.
3. Import of personal and household e&ects of )hil resident
returning from abroad and nonresident citi!ens coming to resettle in
the )hilippines
4. Import of professional instruments and implements, wearing
apparel, domestic animals, and personal household e&ects belonging
to persons coming to settle in the
)hilippines, for their own use and not for sale, barter or exchange.
5. #ervices subject to percentage tax.
6. #ervices by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into raw
sugar.
7. 5edical, dental, hospital and veterinary services except those
rendered by professionals.
-=?

?.
,ducational services rendered by private
educational
institution
s, duly
accredi
ted
by /,),/, $C,/, ,#/A, and those rendered by government
educational
institutions.
9. #ervices rendered by individuals pursuant to an employer-
employee relationship.
10. #ervices rendered by regional or area head*uarters
established in the )hilippines
by multinational corporations which act as supervisory,
communications and coordinating centers for their a&iliates,
subsidiaries or branches in the Asia-)acifc 0egion and do not earn or
derive income from the )hilippines.
"". ransactions which are exempt under international
agreements to which the )hilippines is a signatory or under special
laws, except those under )./. %o. 8'>.
-=>
!"c4"0i$0, #1ch "# #hri$4 -r"!!i$0 i$ !l"#tic#, 8"c11/ !"c4i$0, tetr"-!"c4, "$% )ther #i/il"r !"c4"0i$0 /eth)%# ('' 16-2<<)
Lri0i$"l #t"te e8e$ i+ the, h"8e 1$%er0)$e the #i/!le !r)ce##e# )+ !re!"r"ti)$ )r
!re#er8"ti)$ +)r the /"r4et, #1ch "# +ree2i$0, %r,i$0, #"lti$0, br)ili$0, r)"#ti$0,
#/)4i$0 )r #tri!!i$0.
477 Li8e#t)c4 )r !)1ltr, %)e# $)t i$cl1%e ?0hti$0 c)c4#, r"ce h)r#e#, 2)) "$i/"l# "$%
)ther "$i/"l#
0e$er"ll, c)$#i%ere%
"# !et#
478
Ibi%
L"b)r"t)r, #er8ice# "re e.e/!te%. I+ the h)#!it"l )r cli$ic )!er"te# " !h"r/"c, )r
%r10 #t)re, the #"le )+ %r10# "$% /e%ici$e i# #1b:ect t) VA7. E'' 16-2<<F
479
Petr)le1/ ;.!l)r"ti)$ 5)$ce##i)$"ire# 1$%er the Petr)le1/ Act )+ 1949
138
12. #ales by agricultural cooperatives duly registered with the
$ooperative /evelopment Authority to their members as well as sale
of their produce. ,xemption includes importation of direct farm
inputs, machineries and e*uipment, including spare parts thereof, to
be used directly and exclusively in the production and6or processing
of their produce.
13. +ross receipts from lending activities by credit or multi-
purpose cooperatives duly registered with the $ooperative
/evelopment Authority.
14. #ales by non-agricultural, non- electric and non-credit
cooperatives duly registered with the $ooperative /evelopment
Authority are exempt but their importation of machineries and
e*uipment, including spare parts thereof, to be used by them are
subject to vat.
15. ,xport sales by persons who are not JA- registered.
16. #ale of real properties K the &. sales are exemptA
1. #ale of real properties %4 primarily held for sale to
customers or held for lease in the ordinary course of trade or
business.
2. #ale of real properties utili!ed for low-cost housing
-?@

3. #ale of real properties utili!ed for sociali!ed housing.
-?"

4. #ale of residential lot valued at )".85 and below, or
house L lot and other residential dwellings valued at )'.85 and
below, where the instrument of sale6transfer6disposition was
executed on or after <uly ", '@@8.
-?'

be$e?ci"rie#, 1$%ert"4e$ b, the &)8er$/e$t )r !ri8"te %e8el)!er#, -hich /", either be " #1b%i8i#i)$ )r " c)$%)/i$i1/ re0i#tere% "$% lice$#e% b, the C)1#i$0 "$% L"$% J#e 'e01l"t)r, K)"r%MC)1#i$0 (CLJ'K) 1$%er K.P. Kl0. 22<, P.G. (). 97 )r "$, )ther #i/il"r l"-, -herei$ the 1$it #elli$0 !rice i# -ithi$ the #elli$0 !rice ceili$0 !er 1$it )+ P7<,<<<.<< 1$%er '.A. (). 7279, "$% )ther l"-#, #1ch "# '.A. (). 783 "$% '.A. (). 8763.
481 WS)ci"li2e% h)1#i$0W re+er# t) h)1#i$0 !r)0r"/# "$% !r):ect# c)8eri$0 h)1#e# "$%
l)t# )r h)/e l)t# )$l, 1$%ert"4e$ b, the &)8er$/e$t )r the !ri8"te #ect)r +)r the
1$%er!ri8ile0e% "$% h)/ele## citi2e$# -hich #h"ll i$cl1%e #ite# "$% #er8ice#
%e8el)!/e$t, l)$0-ter/ ?$"$ci$0, liber"te% ter/# )$ i$tere#t !",/e$t#, "$% #1ch )ther
be$e?t# i$ "cc)r%"$ce -ith the !r)8i#i)$# )+ 'A (). 7279 "$% 'A (). 783
"$% 'A (). 8763. WS)ci"li2e% h)1#i$0W #h"ll "l#) re+er t) !r):ect#
i$te$%e%
+)r the
1$%er!ri8ile0e%
"$% h)/ele## -herei$ the h)1#i$0 !"c4"0e #elli$0 !rice i#
-ithi$ the l)-e#t
i$tere#t r"te# 1$%er
the
J$i?e% C)/e Le$%i$0 Pr)0r"/ (JCLP) )r "$, e=1i8"le$t h)1#i$0 !r)0r"/ )+ the
&)8er$/e$t, the !ri8"te #ect)r )r $)$-0)8er$/e$t )r0"$i2"ti)$#
482
7) be "%:1#te% e8er, 3 ,e"r# +r)/ D"$ 31, 2<<9
I+ t-) )r /)re "%:"ce$t re#i%e$ti"l l)t# "re #)l% )r %i#!)#e% i$ +"8)r )+ )$e b1,er,
+)r the !1r!)#e )+ 1tili2i$0 the l)t# "# )$e re#i%e$ti"l l)t, the #"le #h"ll be e.e/!t
+r)/ VA7 )$l, i+ the "00re0"te 8"l1e )+ the l)t# %)e# $)t e.cee% P1.*. A%:"ce$t
re#i%e$ti"l l)t#, "lth)10h c)8ere% b, #e!"r"te title# "$%M)r #e!"r"te t". %ecl"r"ti)$#,
-he$ #)l% )r %i#!)#e% t) )$e "$% the #"/e b1,er, -hether c)8ere% b, )$e )r
#e!"r"te Gee% )+ 5)$8e,"$ce, #h"ll be !re#1/e% "# " #"le )+ )$e re#i%e$ti"l l)t (''
16-2<<)
139
"=. 1ease of residential units with a
monthly rental per unit not
exceeding
)"@F,
regardless of the amount of aggregate rentals
received by
the
lessor
durin
g
the
year.
1ease of residential units where the monthly
rental per unit exceeds )"@F but the
aggregate of such rentals of the lessor during the year do not exceed
4ne 5illion :ive
Cundre
d
)es
os
D)".8
5E
shall
likewise
be exempt from JA, however, the
same shall
be subjected
t
o
thre
e
percen
t
D(OE percentage
tax.
In
case
s
wher
e
a
lessor
ha
s
several residential units
-?(
for lease,
some are
leased out for a monthly rental per unit of not exceeding )"@F while
others are leased out for more than )"@F per unit, his tax liability will
be as followsA
1. he gross receipts from rentals not exceeding )"@F per
month per unit shall be exempt from JA regardless of the
aggregate annual gross receipts.
2. he gross receipts from rentals exceeding )"@F per
month per unit shall
be subject to JA if the aggregate annual gross receipts from
said units only
-?-
exceeds )".85. 4therwise, the gross receipts
will be subject to the (O tax.
"?. #ale, importation, printing or publication of books and any
newspaper, maga!ine review or bulletin which appears at regular
intervals with fxed prices for subscription and sale and which is not
devoted principally to the publication of paid advertisements.
">. #ale, importation or lease of passenger or cargo vessels and
aircraft, including engine, e*uipment 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. #ervices of banks, non-bank fnancial intermediaries
performing *uasi-banking functions and other non-bank fnancial
intermediaries. and
22. #ale or lease of goods or properties or the performance of
services other than the
transactions mentioned in the preceding paragraphs, the gross annual
sales and6or receipts do not exceed the amount of )",8@@,@@@@.
-?8
"9. Input tax and output tax, defned
483 7he ter/ Qre#i%e$ti"l 1$it#Q #h"ll re+er t) "!"rt/e$t# "$% h)1#e# V l)t# 1#e% +)r re#i%e$ti"l !1r!)#e#, "$% b1il%i$0# )r !"rt# )r 1$it# there)+ 1#e% #)lel, "# %-elli$0 !l"ce# (e.0., %)r/it)rie#, r))/# "$% be% #!"ce#) e.ce!t /)tel#, /)tel r))/#, h)tel# "$% h)tel r))/#.
7he ter/ Q1$itQ #h"ll /e"$ "$ "!"rt/e$t 1$it i$ the c"#e )+ "!"rt/e$t#, h)1#e i$
the c"#e )+ re#i%e$ti"l h)1#e#; !er !er#)$ i$ the c"#e )+ %)r/it)rie#, b)"r%i$0 h)1#e#
"$% be% #!"ce#; "$% !er r))/ i$ c"#e )+ r))/# +)r re$t. E'' 16-2<<F
484 $)t i$cl1%i$0 the 0r)## recei!t# +r)/ 1$it# le"#e% +)r $)t /)re th"$ P1<P
485 Sec. 1<9
14
<
Input tax 4utput tax
he JA due from or paid by a JA-
registered person in the course of
his trade
or business on importation of
goods or
local purchase of goods or
services, including
lease or use of property, from a
JA-
registered person. It includes the
transitional
input tax determined in
accordance with
#ection """
-?9
of this $ode.
It includes input taxes which can
be directly
attributed to transactions subject
to the JA
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 JA invoice or
o&icial
receipt issued by a JA- registered
person in
accordance with #ecs. ""( and
'(=
-?=
of the
ax $ode.
-??
17. #
o
u
rc
e
s
of
in
p
ut
ta
x
1.
a
s
e
o
r
i
m
p
o
r
t
a
t
i
o
n

o
f
g
o
o
d
s
-
>
@
2. )
u
rc
h
a
s
e
of
r
e
al
p
r
o
p
e
rt
3.
4.
5.
i
n
p
u
t
t
a
x
-
>
'
486 Ibi%.
487 Ibi%. 488 '' 16-2<<
489 See 'e+ere$ce
490 (i) F)r #"le; )r
(2)F)r c)$8er#i)$ i$t) )r
i$te$%e% t) +)r/ !"rt )+ "
?$i#he% !r)%1ct +)r #"le
i$cl1%i$0 !"c4"0i$0 /"teri"l#;
)r
(3)F)r 1#e "# #1!!lie# i$ the
c)1r#e )+ b1#i$e##; )r
(4)F)r 1#e "# /"teri"l#
#1!!lie% i$ the #"le )+
#er8ice; )r
(5) F)r 1#e i$ tr"%e )r
b1#i$e## +)r -hich
%e%1cti)$ +)r %e!reci"ti)$
)r "/)rti2"ti)$ i# "ll)-e%
1$%er
thi# 5)%e, e.ce!t "1t)/)bile#,
"ircr"+t "$% ,"cht#. (Sec. 11<
(A)(1)
491 #1!r"
492 See i$!1t t"., #1!r"
141
It is an input tax credit allowed to person who becomes liable to
value -added tax or any person who elects to be a JA-registered
person. he allowed input tax shall be whichever is higher betweenA
1. 'O of the value of the taxpayer3s beginning inventory
of goods, materials and supplies. or
2. he actual value-added tax paid on
such goods.
->(
f.
)resumptive input tax
It is an input tax credit allowed to persons or frms engaged in
theA
1. processing ofA
1. sardines
2. mackerel
3. milk
2. manufacturing ofA
1. refned sugar
2. cooking oil
3. packed noodle based instant meals
he allowed input tax shall be e*uivalent to four percent D-OE of
the gross value in money of their purchases of primary agricultural
products which are used as inputs to their production.
->-
7. ransitional input tax credits allowed under
the transitory and other provisions of the
regulations
->8

A person who becomes liable to value-added tax or any person
who elects to be a JA-registered person shall be allowed input tax on
his beginning inventory of goods, materials and supplies e*uivalent to
two percent D'OE of the value of such inventory or the actual value-
added tax paid on such goods, materials and supplies, whichever is
higher, which shall be creditable against the output tax.
->9
493 Sec.111 (A)
494 7he ter/ W!r)ce##i$0W #h"ll /e"$ !"#te1ri2"ti)$, c"$$i$0 "$% "cti8itie# -hich thr)10h !h,#ic"l )r che/ic"l !r)ce## "lter the e.teri)r te.t1re )r +)r/ )r i$$er #1b#t"$ce )+ " !r)%1ct i$ #1ch /"$$er "# t) !re!"re it +)r #!eci"l 1#e t) -hich it c)1l% $)t h"8e bee$ !1t i$ it# )ri0i$"l +)r/ )r c)$%iti)$ (I%. (K))
495 See e) 7r"$#iti)$"l i$!1t t"., #1!r"
496 Sec. 111 (A)
14
2
18. )ersons who can avail of input tax credit
(1) )urchaser - upon consummation of sale and on importation
of goods or properties.
->=
and
(2) Importer - upon payment of the value-added tax prior to the
release of the goods from the custody of the 2ureau of $ustoms.
Cowever, 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.
->?
19. /etermination of output6input tax. JA payable.
,xcess input tax credits
1. /etermination of output tax
#ellers of goods or propertiesA
+ross selling price DIE JA rate
#ellers of serviceA
+ross receipts DIE JA rate
b. /etermination of input tax creditable
he sum of the excess input tax carried over from the preceding
month or *uarter and the input tax creditable to a JA-registered
person during the taxable month or *uarter 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.
he claim for tax credit shall include not only those fled with
the 2ureau of Internal 0evenue but also those fled with other
government agencies.
->>
497 I$ the c"#e )+ !1rch"#e )+ #er8ice#, le"#e )r 1#e )+ !r)!ertie#, the i$!1t t". #h"ll be
cre%it"ble t) the !1rch"#er, le##ee )r lice$#ee 1!)$ !",/e$t )+ the c)/!e$#"ti)$, re$t"l,
r),"lt, )r +ee.
498 Sec. 11< (A)(2)
499 #1ch "# the K)"r% )+ I$8e#t/e$t# )r the K1re"1 )+ 51#t)/# (Sec. 11< (5))
14
3
c. Allocation of input tax on mixed transactions
A JA-registered person who is also engaged in transactions not
subject to Jat shall be allowed to recogni!e input tax credit on
transactions subject to Jat as followsA
1. All the input taxes that can be directly attributed to
transactions subject to JA may be recogni!ed for input tax credit.
Input taxes that can be directly attributable to JA taxable sales of
goods and services to the +overnment or any of its political
subdivisions, instrumentalities or agencies, including government-
owned or controlled corporations D+4$$sE shall not be credited
against output taxes arising from sales to non-+overnment entities.
and
2. If any input tax cannot be directly attributed to either a JA
taxable or JA-exempt transaction, the input tax shall be pro-rated to
the JA taxable and JA-exempt transactions and only the ratable
portion pertaining to transactions subject to JA may be recogni!ed
for input tax credit.
8@@

4. /etermination of the output tax and JA
payable and computation of JA payable or
excess tax credits
4utput tax
1essA Input tax
JA payable6 excess tax credits
'@. #ubstantiation of input tax credits
8@"
ransactions 0e*uired #upport
Input taxes on domestic purchases
of goods JA invoice
or properties made in the course of
trade or
business
Input tax on purchases of real
property
a. $ash6deferred basis
)ublic instrument
8@'
together with
the JA
invoice for the entire selling price
and
non-JA 4&icial 0eceipt for the
initial and
succeeding payments.
<<
I$!1t t". "ttrib1t"ble t) VA7-e.e/!t #"le# #h"ll $)t be "ll)-e% "# cre%it
"0"i$#t the )1t!1t t". b1t #h)1l% be tre"te% "# !"rt )+ c)#t )+ 0))%# #)l%.
F)r !er#)$# e$0"0e% i$ b)th 2er)-r"te% #"le# "$% $)$2er) r"te% #"le#, the
"00re0"te i$!1t t".e# #h"ll be "ll)c"te% r"t"bl, bet-ee$ the 2er)-r"te% "$% $)$-
2er) r"te% #"le#.
501 '' 16-2<<
502 i.e., %ee% )+ "b#)l1te #"le, %ee% )+ c)$%iti)$"l #"le, c)$tr"ctM"0ree/e$t t) #ell, etc.
14
4
b. Installment basis
Input tax on domestic purchases of
service
Input tax on importation of goods
ransitional input tax
Input tax on Gdeemed sale
transactionH
Input tax from payments made to
non-residents
8@(
)ublic instrument and JA 4&icial
0eceipt for every payment
JA 4&icial 0eceipt
Import entry or other e*uivalent
document showing actual payment
of JA on the imported goods
Inventory of goods
as shown in a
detailed list to be
submitted to the
2I0
0e*uired invoices
5onthly 0emittance 0eturn of
Jalue Added ax 7ithheld
8@-
fled
by the resident payor in behalf of
the non-resident evidencing
remittance of JA due which was
withheld by the payor.
Advance JA on sugar
503 #1ch "# +)r #er8ice#, re$t"l#, )r r),"ltie#
504 KI' F)r/ 16<<
14
'".0efund or tax credit of excess input tax
1. 7ho may claim for refund6apply for issuance
of tax credit certifcate D$$E
Any JA-registered person, whose sales are !ero -rated or
e&ectively !ero-rated may apply for the issuance of a tax credit
certifcate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input
tax has not been applied against output tax.
8@8
b. )eriod to fle claim6apply for issuance of $$
7ithin two D'E years after the close of the taxable *uarter when
the sales were made.
c. 5anner of giving refund
Bpon warrants drawn by the $ommissioner or by his duly
authori!ed representative without the necessity of being
countersigned by the $hairman, $ommission on audit, subject to post
audit by the $ommission on Audit.
8@9
d. /estination principle or $ross-border
doctrine
8@=
/estination principle $ross border doctrine
+oods and services are taxed only in
the country where these are
consumed
5andates that
no JA shall be
imposed to form
part of the cost
of the goods
destined for
consumption
outside the
territorial
border of the
taxing authority.
22. Inv
oici
ng
re*
uire
me
nts
a
.
I
n
v
oicing
re*uirement
s in general
:or
ever
y
sale,
a
JA-
regis
tere
d
pers
on
shall
issue
an
invoi
ce or
recei
pt.
Asid
e from the
informatio
n re*uired
under
#ection
'(=,
8@?
the
following information
shall be indicated in the
invoice or receiptA
D"E A statement
that the seller is a JA-
registered person,
followed by his
taxpayerNs
identifcation number
DI%E. and
505 Sec. 112 (A)
506 I%. (;)
507 See "l#) (G)(7), #1!r" 508 See 'e+ere$ce
146
D'E he 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. Invoicing and recording deemed sale
transactions
ransaction Invoicing 0e*uirement
ransfer, use or consumption not in 5emorandum entry in the
subsidiary sales the course of business of goods or journal to
record withdrawal of goods for properties originally intended for
sale personal use
or for use in the course of business
/istribution or transfer to
shareholders6investors or creditors
$onsignment of goods if actual sale
is not made within 9@ days
Invoice, at the
time of the
transaction,
which should
include all the
info prescribed
in #ec. ""( D2E
8@>
0etirement from or cessation of
business with respect to all goods
in
hand
<9
Ibi%.
147
3. $onse*uences of issuing erroneous JA
invoice or JA o&icial receipt
1. In case of non-JA registered person who issues a JA
invoice6receipt shall be held liable toA
1. payment of percentage tax if applicable.
2. payment of JA without input tax.
3. 8@O surcharge on tax due. and
4. the purchaser shall be allowed to recogni!e an input tax
credit provided that the invoice6o&icial receipt contains the re*uired
information.
'. In case of JA-registered who issues a JA invoice6o&icial
receipt for a JA K exempt sale without the words GJA ,xempt #aleH
shall be held liable to pay"'O JA.
8"@
'(.:iling of return and payment
,very person liable to pay the JA shall fle a *uarterly return of
the amount of his gross sales or receipts within '8 days following the
close of each taxable *uarter prescribed for each taxpayer.
0e*uired to fle JA returnA
1. ,very person or entity who in the course of trade or business,
sells or leases goods, properties, and services subject to JA, if the
aggregate amount of actual gross sales or receipts exceed )".8
million for any twelve month period
2. A person re*uired to register as JA taxpayer but failed to
register
3. Any person who imports goods
4. )rofessional practitioners.
8""

JA-registered shall pay the JA on a monthly basis. he
monthly return shall be fled not later than the '@th day following the
end of each month.
510 Sec. 113 (G)
511 Ser8ice# )+ Pr)+e##i)$"l Pr"ctiti)$er# "re #1b:ect t)6
VA7 i+ the 0r)## !r)+e##i)$"l +ee# e.cee% P1. /illi)$ +)r " 12-/)$th !eri)%; )r
3I !erce$t"0e t". i+ the 0r)## !r)+e##i)$"l +ee# %)e# $)t e.cee% P1. /illi)$ +)r
" 12-/)$th !eri)% ('' 16-2<<)
148
'-. 7ithholding of fnal JA on sales to government
he +overnment or any of its political subdivisions,
instrumentalities or agencies, including government owned or
controlled corporations D+4$$sE shall, before making payment on
account of its purchase of goods and6or services taxed at "'O shall
deduct and withhold a fnal JA of 8O of the gross payment.
8"'
12
Sec. 114(5)
7he ?8e !erce$t (I) ?$"l VA7 -ithh)l%i$0 r"te #h"ll re!re#e$t the $et VA7
!","ble t) the #eller 7he re/"i$i$0 #e8e$ !erce$t (7I) e3ecti8el, "cc)1$t# +)r
the #t"$%"r% i$!1t VA7 +)r #"le# )+ 0))%# )r
#er8ice# t) 0)8er$/e$t )r "$, )+ it# !)litic"l #1b%i8i#i)$#, i$#tr1/e$t"litie# )r
"0e$cie# i$cl1%i$0 &L55#, i$ lie1 )+ the "ct1"l I$!1t VA7 %irectl, "ttrib1t"ble )r
r"t"bl, "!!)rti)$e% t) #1ch #"le#.
Sh)1l% "ct1"l i$!1t VA7 "ttrib1t"ble t) #"le t) 0)8er$/e$t e.cee% #e8e$ !erce$t
(7I) )+ 0r)## !",/e$t#, the e.ce## /", +)r/ !"rt )+ the #eller9# e.!e$#e )r c)#t
I+ "ct1"l i$!1t VA7 "ttrib1t"ble t) #"le t) 0)8er$/e$t i# le## th"$ 7I )+ 0r)##
!",/e$t, the %i3ere$ce /1#t be cl)#e% t) e.!e$#e )r c)#t.
149
5. Compliance 'e(uirements .*nternal 'e)enue Taxes/
1. Administrative re*uirements
a. 0egistration re*uirements
1) Annual registration fee
:ive hundred pesos D)8@@E - upon registration and every year
thereafter on or before the last day of <anuary for every separate or
distinct establishment or place of business.
8"(
'E 0egistration of each type of internal
revenue tax
,very person who is re*uired to register with the 2ureau of
Internal 0evenue shall register each type of internal revenue tax for
which he is obligated, shall fle a return and shall pay such taxes, and
shall update such registration of any changes.
8"-
(E ransfer of registration
In case a registered person decides to transfer his place of
business or his head o&ice or branches, it shall be his duty to update
his registration status by fling an application for registration
information update in the form prescribed therefor.
8"8
-E 4ther updates
Any person registered shall, whenever applicable, update his
registration information with the 0evenue /istrict 4&ice where he is
registered, specifying therein any change in type and other taxpayer
details.
8"9
8E $ancellation of registration
he registration of any person who ceases to be liable to a tax
type shall be cancelled upon fling with the 0evenue /istrict 4&ice
where he is registered an application for registration information
update in a form prescribed therefor.
8"=
513 5))!er"ti8e#, i$%i8i%1"l# e"r$i$0 !1rel, c)/!e$#"ti)$ i$c)/e, -hether
l)c"ll, )r "br)"%, "$% )8er#e"# -)r4er# "re $)t li"ble t) the re0i#tr"ti)$ +ee herei$
i/!)#e%.
514 7he re0i#tr"ti)$ +ee #h"ll be !"i% t) "$ "1th)ri2e% "0e$t b"$4 l)c"te%
-ithi$ the re8e$1e %i#trict, )r t) the 'e8e$1e 5)llecti)$ LBcer, )r %1l, "1th)ri2e%
7re"#1rer )+ the cit, )+ /1$ici!"lit, -here e"ch !l"ce )+ b1#i$e## )r br"$ch i#
re0i#tere%.
Sec. 236 (K)
515 i$ "cc)r%"$ce -ith S1b#ecti)$ (;), I%., (5)
516 I%., (G)
517 I%., (;)
518 I%., (F)
519 Lther i$#t"$ce# -here " VA7 re0i#tere% !er#)$ /", "!!l, +)r c"$cell"ti)$ )+
'e0i#tr"ti)$6
1.A ch"$0e )+)-$er#hi!, i$ c"#e )+ " #i$0le!r)!riet)r#hi!
2.Gi##)l1ti)$ )+ " !"rt$er#hi! )r c)r!)r"ti)$
1<
254 )ower of the $ommissioner to
suspend the business operations of
any person who fails to register
he temporary closure of the establishment shall be for the
duration of not less than fve D8E days and shall be lifted only upon
compliance with whatever re*uirements prescribed by the
$ommissioner in the closure order.
8"?
2. )ersons re*uired to register for JA
1) 4ptional registration for JA of
exempt person
Any person who is not re*uired to register for JA
8">
may elect
to register for JA by registering with the 0/4 that has jurisdiction
over the head o&ice of that person, and paying the annual registration
fee.
8'@
'E $ancellation of JA registration
0e*uirementsA
1. he JA-registered person makes written application and
demonstrates to the $ommissioner3s satisfaction that his gross sales
or receipts for the following "' months, other than those that are
exempt,
8'"
will not exceed )".8 million.
2. Ce has ceased to carry on his trade or business and does not
expect to recommence any trade or business within the next "'
months.
8''

(E $hanges in or cessation of status of a
JA-registered person
8'(
c. #upplying taxpayer identifcation number
DI%E
A taxpayer must have only one I%. Any person who secures
more than one I% shall be criminally liable.
8'-
3. *er0er )r c)$#)li%"ti)$ -ith re#!ect t) the %i##)l8e% c)r!)r"ti)$
4. A !er#)$ -h) h"# re0i#tere% !ri)r t) c)//e$ce/e$t )+ " !l"$$e% b1#i$e##, b1t
+"ile% t) "ct1"ll,
#t"rt hi# b1#i$e##
518 Sec. 11
519 1$%er S1b#ecti)$ &
520 Sec. 236 (C)
521 1$%er Sec. 1<9 1A t) J
522 Sec. 236 (F2) 523 #1!r"
524 Sec. 236
1
1
d. Issuance of receipts or sales or commercial
invoices
All persons subject to an internal revenue tax shall, for each sale
or transfer of merchandise or for services rendered valued at '8 pesos
or more, issue duly registered receipts or sales or commercial
invoices, prepared at least in duplicate, showing the date of
transaction, *uantity, unit cost and description of merchandise or
nature of service.
8'8
"E )rinting of receipts or sales or
commercial invoices
0eceipts must be serially numbered and shall show the name,
style, I% and the business address of the person.
8'9
2) Invoicing re*uirements for JA
1) Information contained in the JA
invoice or JA o&icial receipt
1. A statement that the seller is a JA-registered person,
followed by his taxpayerNs identifcation number DI%E. and
2. he 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.
1. he amount of the tax shall be shown as a separate item
in the invoice or
receipt.
2. If the sale is exempt from value-added tax, the term
QJA-exempt saleQ shall be written or printed prominently on the
invoice or receipt.
3. If the sale is subject to !ero percent D@OE value-added
tax, the term Q!ero-rated saleQ shall be written or printed
prominently on the invoice or receipt.
4. If the sale involves goods, properties or services some of
which are subject to and some of which are JA !ero-rated or
JA exempt, the invoice or receipt shall clearly indicate the
breakdown of the sale price between its taxable, exempt and
!ero rated components, and the calculation of the value added
tax on each portion of the sale shall be shown on the invoice or
receipt. he seller may issue separate invoices or receipts for
the taxable, exempt, and !ero rated components of the sale.
3. he date of transaction, *uantity, unit cost and description of
the goods or properties or nature of the service. and
4. In the case of sales in the amount of one thousand pesos D)",
@@@E or more where the sale or transfer is made to a JA registered
person, the name, business style, if any, address and taxpayer
identifcation number DI%E of the purchaser, customer or client.
8'=

525 Sec. 237
526 Sec. 238
1
2
bE $onse*uences of issuing
erroneous JA invoice or
o&icial receipts
8'?
e. ,xhibition of certifcate of payment at place
of business
he certifcate or receipts showing payment of taxes issued to a
person engaged in a business subject to an annual registration fee
shall be kept conspicuously exhibited in plain view in or at the place
where the business is conducted. )eddlers are re*uired to show the
certifcate upon demand.
8'>
f. $ontinuation of business of deceased person
he person interested in the estate should submit to the 2I0
inventories of goods and stocks had at the time of such death, transfer
or change of name. %o additional payment shall be re*uired for the
residue of the term of which the tax was paid.
8(@
g. 0emoval of business to other location
Any business for which the annual registration fee has been
paid may be removed and continued in any other place without the
payment of additional tax during the term for which the payment was
made.
8("
527 Sec. 113 (K)
528 #1!r"
529 Sec. 241 530 Sec. 242
531 Sec. 243
1
3
'. ax returns
A tax return is a report made by the taxpayer to the 2I0 on all
gross income received during the taxable year, the allowable
deduction including exemptions, the net taxable income, the income
tax rate, the income tax due, the income tax withheld, if any, and the
income tax still to be paid or refundable.
1. Income ax 0eturns
1) Individual ax 0eturns
1):iling of individual tax returns
(1) 7ho are re*uired to fle
0esident citi!ens receiving income from a. Individuals deriving
compensation income sources within or outside the )hilippines from
' or more employers, concurrently or successively at anytime during
the taxable
year.
b. ,mployees deriving
compensation income regardless
of the amount, whether from a
single or several employers
during the calendar year, the
income tax of which has not been
withheld correctly resulting to
collectible or refundable return.
c.,mployees whose monthly gross
compensation income does not
exceed 8,@@@ or the statutory
minimum wage, whichever is
higher, and opted for non-
withholding of tax on said income.
d. Individuals deriving non
-business, non-professional
related income in addition to
compensation income not
otherwise subject to a fnal tax.
e. Individuals receiving purely
compensation income from a
single employer, although the
income of which has been
correctly withheld, but whose
spouse is not entitled to
substituted fling.
%on -resident citi!ens receiving
income from sources within the
)hilippines.
1
4
$iti!ens working abroad receiving
income from sources within the
)hilippines.
Aliens, whether resident or not,
receiving income from sources
within the )hilippines.
DaE 0eturn of husband
and wife
5arried individuals, whether citi!ens, resident or nonresident
aliens, who do not derive income purely from compensation, shall fle
a return for the taxable year to include the income of both spouses.
7here it is impracticable for the spouses to fle one return, each
spouse may fle a separate return of income but the returns so fled
shall be consolidated by the 2ureau for purposes of verifcation for the
taxable year.
8('
DbE 0eturn of parent to
include income of
children
he income of unmarried minors derived from property received
from a living parent shall be included in the return of the parent,
except
(1) when the donorNs tax has been paid on such property, or
(2) when the transfer of such property is exempt from donorNs
tax.
8((

(3) 0eturn of persons
under disability
5ay be made by his duly authori!ed agent or representative or
by the guardian or other person charged with the care of his person
or property, the principal and his representative or guardian assuming
the responsibility of making the return and incurring penalties
provided for erroneous, false or fraudulent returns.
8(-
532 I%., (G)
533 I%., (;)
534 I%., (F)
1

D'E 7ho are not re*uired to

fle
(1) An individual whose gross income does not exceed his total
personal and additional exemptions for dependents.
8(8

(2) An individual with respect to pure compensation income
8(9
derived from sources within the )hilippines, the income tax on which
has been correctly withheld.
8(=

(3) An individual whose sole income has been subjected to fnal
withholding tax.
8(?

and
(4) A minimum wage earner or an individual who is exempt from
income tax.
39

2) 7here to fle
7ith an authori!ed agent bank, 0evenue /istrict 4&icer,
$ollection Agent or duly authori!ed reasurer of the city or
municipality in which such person has his legal residence or principal
place of business in the )hilippines.
If there be no legal residence or place of business in the
)hilippines, with the 4&ice of the $ommissioner.
8-@
cE 7hen to fle
4n or before the ffteenth D"8thE day of April of each year
covering income for the preceding taxable year.
Cowever, individuals who are self-employed or in practice of a
profession are re*uired to fle and pay estimated income tax every
*uarter as followsA
1. :irst Vuarter - April "8
2. #econd Vuarter - August "8
3
1$%er Sec. 3,#1!r"
A citi2e$ )+ the Phili!!i$e# "$% "$, "lie$ i$%i8i%1"l e$0"0e% i$ b1#i$e## )r
!r"ctice )+ !r)+e##i)$ -ithi$ the Phili!!i$e #h"ll ?le "$ i$c)/e t". ret1r$, re0"r%le##
)+ the "/)1$t )+ 0r)## i$c)/e.
+ee#, #"l"rie#, -"0e#, c)//i##i)$#, "$% #i/il"r ite/#.
537 1$%er the !r)8i#i)$# )+ Sec. 79, #1!r"
A$ i$%i8i%1"l %eri8i$0 c)/!e$#"ti)$ c)$c1rre$tl, +r)/ t-) )r /)re e/!l),er# "t
"$, ti/e %1ri$0 the t"."ble ,e"r #h"ll ?le "$ i$c)/e t". ret1r$.
A$ i$%i8i%1"l -h)#e c)/!e$#"ti)$ i$c)/e %eri8e% +r)/ #)1rce# -ithi$ the
Phili!!i$e# e.cee%# Si.t, th)1#"$% !e#)# (P6<,<<<) #h"ll "l#) ?le "$ i$c)/e t".
ret1r$;
538 !1r#1"$t t) Sec. 7(A), #1!r"
539 I%., (A)(2)
I$%i8i%1"l# $)t re=1ire% t) ?le "$ i$c)/e t". ret1r$ /", $e8erthele## be re=1ire%
t) ?le "$ i$+)r/"ti)$ ret1r$. J$%er '.A. 9<4, /i$i/1/ -"0e e"r$er# "re 0r"$te%
+1ll t". e.e/!ti)$ +r)/ !",i$0
i$c)/e
t"..
4<

I%., (K)
16
3. hird Vuarter - %ovember "8
4. :inal Vuarter - April "8 of the following year
8-"

2) $orporate 0eturns
1)0e*uirement for fling returns
,very corporation subject to tax under the %I0$ shall fle a
corporate tax return, except foreign corporations not engaged in
trade or business in the )hilippines.
8-'
D"E /eclaration of *uarterly
corporate income tax
,very corporation shall fle in duplicate a *uarterly summary
declaration of its gross income and deductions on a cumulative basis
for the preceding *uarter or *uarters upon which the income tax shall
be levied, collected and paid. he tax so computed shall be decreased
by the amount of tax previously paid or assessed during the preceding
*uarters and shall be paid not later than sixty D9@E days from the close
of each of the frst three D(E *uarters of the taxable year, whether
calendar or fscal year.
8-(
DaE )lace of fling
7ith the authori!ed agent banks or 0evenue /istrict 4&icer or
$ollection Agent or duly authori!ed reasurer of the city or
municipality having jurisdiction over the location of the principal
o&ice of the corporation fling the return or place where its main
books of accounts and other data from which the return is prepared
are kept.
8--
DbE ime of Ming
7ithin sixty D9@E days following the close of each of the frst
three D(E *uarters of the taxable year.
D'E :inal adjustment return
It is a return that covers the total taxable income of a
corporation for the preceding calendar or fscal year. he *uarterly
tax payments are in the nature of advances or portions of the annual
income tax due. hey have to be adjusted at the end of the calendar or
fscal year through the :inal Adjustment return.
541 I$%i8i%1"l# #1b:ect t) t". )$ c"!it"l 0"i$#;
(1) S"le )r e.ch"$0e )+ #h"re# )+ #t)c4 $)t tr"%e% thr1 " l)c"l #t)c4 e.ch"$0e -
-ithi$ thirt, (3<) %",# "+ter e"ch tr"$#"cti)$ "$% " ?$"l c)$#)li%"te% ret1r$ )$ )r
be+)re A!ril 1 )+ e"ch ,e"r c)8eri$0 "ll #t)c4 tr"$#"cti)$# )+ the !rece%i$0 t"."ble
,e"r; "$%
(2) S"le )r %i#!)#iti)$ )+ re"l !r)!ert, - -ithi$ thirt, (3<) %",# +)ll)-i$0 e"ch #"le
)r )ther %i#!)#iti)$.
(Sec. 2)
542 Ibi%. 543 Sec. 7
544 Sec. 77 (A)
1
7
DaE )lace of fling
8-8
DbE ime of fling
4n or before the ffteenth D"8thE day of April, or on or before the
ffteenth D"8thE day of the fourth D-thE month following the close of the
fscal year, as the case may be.
8-9
D(E axable year of
corporations
A corporation may employ either calendar year or fscal year as
a basis for fling its annual income tax return.
he corporation shall not change the accounting period
employed without prior approval from the $ommissioner.
8-=
D-E,xtension of time to fle
return
he $ommissioner may, in meritorious cases, grant a reasonable
extension of time for fling returns of income.
8-?
bE 0eturn of corporation
contemplating dissolution or
reorgani!ation
7ithin thirty D(@E days after the adoption by the corporation of a
resolution or plan for its dissolution, or for the li*uidation of the whole
or any part of its capital stock, including a corporation which has been
notifed of possible involuntary dissolution by the #ecurities and
,xchange $ommission, or for its reorgani!ation.
8->
cE 0eturn on capital gains reali!ed
from sale of shares of stock not
traded in the local stock
exchange
7ithin thirty D(@E days after each transactions and a fnal
consolidated return of all transactions during the taxable year on or
before the ffteenth D"8thE day of the fourth D-thE month following the
close of the taxable year.
3) 0eturns of receivers, trustees in
bankruptcy or assignees
In the same manner and form as the corporation whose
properties and businesses they operate is re*uired to make returns,
and any tax due on the income as returned by receivers, trustees or
assignees shall be assessed and collected in the same manner as if
545 See Sec. 77 (A), #1!r"
546 I%., (K)
547 i$ "cc)r%"$ce -ith the !r)8i#i)$# )+ Sec. 47 (See 'e+ere$ce)( Sec. 2 (K)) 548 )r ?$"l "$% "%:1#t/e$t ret1r$# i$ c"#e )+ c)r!)r"ti)$#, #1b:ect t) the !r)8i#i)$# )+ Secti)$ 6 (Sec. 3)
549 Sec. 2 (5)
1
8
assessed directly against the organi!ations of whose businesses or
properties they have custody or control.
88@
-E 0eturns of general partnerships
In duplicate, setting forth the items of gross income and of
deductions allowed, and the names, axpayer Identifcation %umbers
DI%E, addresses and shares of each of the partners.
88"
8E :iduciary returns
In duplicate, a return of the income of the person, trust or
estate for whom or which the fduciary act, which apply to individuals
in case such person, estate or trust has a gross income of wenty
thousand pesos D)'@,@@@E or over during the taxable year.
88'
2. ,state ax 0eturns
1) %otice of death to be fled
1. In all cases of transfers subject to tax. or
2. ,ven if exempt from tax, if gross value of estate exceeds
wenty thousand pesos D)'@,@@@E.
88(

2) ,state tax returns
1)0e*uirements
An estate tax return is re*uiredA
1. In all cases of transfers subject to tax.
2. ,ven though exempt, where gross value of estate exceeds
)'@@,@@@.
3. 7hen the gross estate consists of registered or
registrable property, regardless of amount.
88-

550 Sec. 4
551 Sec.
552 Sec. 6 553 Sec. 89
554 Sec. 9< (A)
1
9
bE ime of fling and extension of
time
7ithin six D9E months after the decedentNs death.
he $ommissioner shall have authority to grant, in meritorious
cases, a reasonable extension not exceeding thirty D(@E days for fling
the return.
888
cE )lace of fling
0esident /ecedent %on-0esident /ecedent
". Authori!ed Agent 2ank DAA2E or
"
. 4&ice of the $I0
'
. 0evenue /istrict 4&icer D0/4E,
'
. 0evenue /istrict 4&icer or
$ollection 4&icer, or
(
.
)hilippine ,mbassy or $onsulate
in the
(
.
/uly authori!ed reasurer of the
city or
country where decedent is residing
at the
municipality in which the decedent
was time of his6her death
domiciled at the time of his death,
or
-
.
Any other place where the $I0
permits
-
.
Any other place where the $I0
permits the estate tax return to be fled.
the estate tax return to be fled.
889
3) /ischarge of executor or
administrator from personal liability
he executor or administrator mustA
1. :ile a written application to the $ommissioner for the
determination of the amount of the estate tax and further stating his
desire to be absolved or to be discharged from the liability.
2. he $ommissioner must notify the executor or administrator K
0eturn wasfled
7ithin one D"E year after the return is
fled
%o
retu
rn
fled
7ithin one D"E
year after the
making of such
application.
88=
(. he executor or
administrator, upon
payment
of the
amount of
which he
is notifed, shall be
discharged from
personal liability for any
defciency in the tax
thereafter found to be
due and shall be
entitled to a receipt or
writing
showing
such
discharg
e.
88?
555 i%.,(K)
(5)
(G)
557 K1t
$)t "+ter the e.!ir"ti)$ )+ the
!eri)% !re#cribe% +)r the
"##e##/e$t )+ the t". i$
Secti)$ 2<3.
558 Sec.92
16<
aE /efnition of defciency
(1) he amount by which the estate tax imposed exceeds the
amount shown as the tax by the executor, administrator or any of the
heirs upon his return. or
(2) If no amount is shown as the tax by the executor,
administrator or any of the heirs upon his return, or if no return is
made by the executor, administrator, or any heir, then the amount by
which the tax exceeds the amounts previously assessed
88>
as a
defciency.
89@

3. /onor3s ax 0eturns
1) 0e*uirements
%otice of donation is not re*uired.
,xceptA
1. /onation to %+4 worth at least )8@, @@@, provided, not more
than (@O of which will be used for administration purposes.
2. /onation to any candidate, political party, or coalition of
parties
2) ime and place of fling
7ithin thirty D(@E days after the date the gift is made.
he return must be fled withA
1. AA2, 0/4, 0$4, or duly authori!ed treasurer of the $ity or
municipality where the donor was domiciled at the time of the
transfer.
2. If there is no legal residence in the )hilippines,
with the o&ice of the $ommissioner.
3. :or gifts made by non-residents, with the )hil embassy or
$onsulate in the country where he is domiciled at the time of the
transfer or directly with the o&ice of the $ommissioner.
89"

559 Ibi%.
560 Sec. 93
561 Ge?cie$c, )cc1r# -he$ )$e ?le# " ret1r$ "$% !", the t". b1t the t". !"i% i#
le## th"$ the "/)1$t )+
t". %1e, )r i+ " ret1r$ i# ?le% b1t the t".!",er %i% $)t !", the t"., )r -he$ )$e %i%
$)t ?le the ret1r$ $)r
!"i% the
t"..
61

Sec.1<3 (K)
161
4. JA 0eturns
1) In general
A *uarterly return of the amount of a taxpayer3s gross sales or
receipts fled within twenty-fve D'8E days following the close of each
taxable *uarter. JA-registered persons shall pay the value-added tax
on a monthly basis.
Any person, whose registration has been cancelled shall fle a
return and pay the tax due thereon within twenty-fve D'8E days from
the date of cancellation of registration. 4nly one consolidated return
shall be fled by the taxpayer for his principal place of business or
head o&ice and all branches.
89'
'E 7here to fle the return
7ith an authori!ed agent bank, 0evenue $ollection 4&icer or
duly authori!ed city or municipal reasurer in the )hilippines located
within the revenue district where the taxpayer is registered or
re*uired to register.
89(
5. 7ithholding ax 0eturns
1) Vuarterly returns and payments of
taxes withheld
axes deducted and withheld shall be covered by a return and
paid to an authori!ed reasurer of the city or municipality where the
withholding agent has his legal residence or principal place of
business, or where the withholding agent is a corporation, where the
principal o&ice is located.
he taxes deducted and withheld shall be held as a special fund
in trust for the government until paid to the collecting o&icers.
89-
'E Annual information return
$ontaining the list of payees and income payments, amount of
taxes withheld from each payee and such other pertinent information
as may be re*uired.
In the case of fnal withholding taxes, the return shall be fled on
or before <anuary (" of the succeeding year, and for creditable
withholding taxes, not later than 5arch " of the year following the
year for which the annual report is being submitted.
898
562 Sec. 114 (A)
563 I%., (K)
64
7he ret1r$ +)r ?$"l -ithh)l%i$0 t". #h"ll be ?le% "$% the !",/e$t /"%e -ithi$
t-e$t,-?8e (2) %",# +r)/ the cl)#e )+ e"ch c"le$%"r =1"rter, -hile the ret1r$ +)r
cre%it"ble -ithh)l%i$0 t".e# #h"ll be ?le% "$% the !",/e$t /"%e $)t l"ter th"$ the
l"#t %", )+ the /)$th +)ll)-i$0 the cl)#e )+ the =1"rter %1ri$0 -hich -ithh)l%i$0 -"#
/"%e (Sec. 8)
6
Sec. 144(5)
162
3. ax payments
a. Income axes
1) )ayment, in general. time
of payment
)ay-as-you-fle system.
he total amount of income tax imposed shall be paid by the
person subject thereto at the time the return is fled.
In the case of tramp vessels, the shipping agents and6or the
husbanding agents, and in their absence, the captains thereof are
re*uired to fle the return and pay the tax due thereon before their
departure. Bpon failure of the said agents or captains to fle the
return and pay the tax, the 2ureau of $ustoms is authori!ed to hold
the vessel and prevent its departure until proof of payment of the tax
is presented or a su&icient bond is fled to answer for the tax due.
899
'E Installment payment
7hen the tax due is in excess of wo thousand pesos D)',@@@E,
the taxpayer
89=
may elect to pay the tax in two D'E e*ual installments,
the frst installment to be paid at the time the return is fled and the
second installment, on or before <uly "8 following the close of the
calendar year.
If any installment is not paid on or before the date fxed for its
payment, the whole amount of the tax unpaid becomes due and
payable, together with the delin*uency penalties.
89?
(E )ayment of capital gains
tax
4n the date the return is fled by the person liable thereto.
89>
566 Sec. 6 (A)(1)
567 )ther th"$ " c)r!)r"ti)$
568 Sec. 6(A)(2)
569 Sec.6 EAF E3F
I+ the #eller #1b/it# !r))+ )+ hi# i$te$ti)$ t) "8"il hi/#el+ )+ the be$e?t )+
e.e/!ti)$ )+ c"!it"l 0"i$# 1$%er e.i#ti$0 #!eci"l l"-#, $) #1ch !",/e$t #h"ll be
re=1ire%.
I$ c"#e )+ +"il1re t) =1"li+, +)r e.e/!ti)$, the t". %1e )$ the 0"i$# re"li2e% +r)/
the )ri0i$"l tr"$#"cti)$ #h"ll i//e%i"tel, bec)/e %1e "$% !","ble, "$% #1b:ect t)
the !e$"ltie# !re#cribe% 1$%er the r1le# "$% the (I'5.
I+ the #eller, h"8i$0 !"i% the t"., #1b/it# #1ch !r))+ )+ i$te$t -ithi$ 6 /)$th# +r)/
the re0i#tr"ti)$ )+ the %)c1/e$t tr"$#+erri$0 the re"l !r)!ert,, he #h"ll be e$title% t)
" re+1$% )+ #1ch t". 1!)$ 8eri?c"ti)$ )+ hi# c)/!li"$ce -ith the re=1ire/e$t# +)r
#1ch e.e/!ti)$.
I$ c"#e the t".!",er elect# "$% i# =1"li?e% t) re!)rt the 0"i$ b, i$#t"ll/e$t#
(1$%er Sec. 249), the t". %1e +r)/ e"ch i$#t"ll/e$t #h"ll be !"i% -ithi$ 3< %",# +r)/
recei!t )+ #1ch !",/e$t#.
16
3
b. ,state axes
"E ime of payment
At the time the return is fled and before delivery to any heir or
benefciary, of his distributive share of the estate.
8=@
aE ,xtension of time
An extension for the payment of the estate tax may be granted
by the $ommissioner on meritorious cases.
8="
<udicial settlement of estate
%ot exceeding fve D8E years
,xtra K
judicial
settlem
ent of
estate
%ot
exceeding
two D'E
years.
8='
'E 1iability for
payment
aE /ischarge of
bE /efnition of
defciency
7<

Sec.
(91)
(A)
Phil
i!!i
$e#
i/
!le
/e
$t
the
@P"
,
"#
,)1
?le
A
#,#
te
/.
71

7here
c"$ be
$)
e.te$#i
)$ )+
the
!eri)%
)+
!",/e
$t i+
there i#
$e0li0e
$ce,
i$te$ti)
$"l
%i#re0"
r% )+
r1le#
"$%
re01l"ti
)$# )r
+r"1%.
7he
"/)1$t
#h"ll be
!"i% )$ )r be+)re e.!ir"ti)$
)+ the e.te$#i)$ "$% r1$$i$0
)+ the #t"t1te )+ li/it"ti)$#
+)r "##e##/e$t#h"ll be
#1#!e$%e% +)r the !eri)% )+
"$,
)+ #1ch e.te$#i)$.
7he 5I' /", re=1ire "
b)$% $)t e.cee%i$0 %)1ble
the "/)1$t )+ the t". "$%
-ith #1ch #1retie# "# the 5I'
%ee/# $ece##"r, -he$ the
e.te$#i)$ )+ !",/e$t i#
0r"$te%.
A$, "/)1$t !"i% "+ter
the #t"t1t)r, %1e %"te )+ the
t"., b1t -ithi$ the e.te$#i)$
!eri)%, #h"ll be #1b:ect t)
i$tere#t b1t $)t t)
#1rch"r0e.
572 Sec.91 EKF 573 #1!r"
574 Ibi%.
164
(E )ayment before delivery
by executor or
administrator
%o judge shall authori!e the executor or judicial administrator
to deliver a distributive share to any party interested in the estate
unless a certifcation from the $ommissioner that the estate tax has
been paid is shown.
8=8
aE )ayment of tax
antecedent to the
transfer of shares,
bonds or rights
A certifcation from the $ommissioner that the taxes due
thereon have been paid must be shown before any transfer to any new
owner in the books of any corporation, sociedad anonima,
partnership, business, or industry organi!ed or established in the
)hilippines of any share, obligation, bond or right by way of gift inter
vivos or mortis causa, legacy or inheritance.
8=9
-E /uties of certain o&icers
and debtors
0egisters of /eeds shall not register in the 0egistry of )roperty
any document transferring real property or real rights therein or any
chattel mortgage, by way of gifts inter vivos or mortis causa, legacy or
inheritance, unless a certifcation from the $ommissioner that the tax
actually due thereon had been paid is shown, and they shall
immediately notify the $ommissioner, 0egional /irector, 0evenue
/istrict 4&icer, or 0evenue $ollection 4&icer or reasurer of the city
or municipality where their o&ices are located, of the non-payment of
the tax discovered by them.
Any lawyer, notary public, or any government o&icer who, by
reason of his o&icial duties, intervenes in the preparation or
acknowledgment of documents regarding partition or disposal of
donation inter vivos or mortis causa, legacy or inheritance, shall have
the duty of furnishing the $ommissioner, 0egional /irector, 0evenue
/istrict 4&icer or 0evenue $ollection 4&icer of the place where he
may have his principal o&ice, with copies of such documents and any
information whatsoever which may facilitate the collection of the
aforementioned tax.
%either shall a debtor of the deceased pay his debts to the heirs,
legatee, executor or administrator of his creditor, unless the
certifcation of the $ommissioner that the tax fxed in this $hapter
had been paid is shown. but he may pay the executor or judicial
administrator without said certifcation if the credit is included in the
inventory of the estate of the deceased.
8==
575 Sec. 94
576 Sec. 97
577 Sec. 9
16

8E 0estitution of tax upon

satisfaction of outstanding
obligations
If after the payment of the estate tax, new obligations of the
decedent shall appear, and the persons interested shall have satisfed
them by order of the court, they shall have a right to the restitution of
the proportional part of the tax paid.
8=?
c. /onor3s axes
"E ime and place of
payment
/onor3s tax is paid at the time the return is fled since the
)hilippine ax system observes the G)ay as you fleH system.
/onor3s tax is paid with the
1. Authori!ed agent bank, 0evenue district o&icer, 0evenue
$ollection 4&icer, or duly authori!ed treasurer of the $ity or
municipality where the donor was domiciled at the time of the
transfer.
2. If there is no legal residence in the )hilippines, with the o&ice
of the $ommissioner.
3. :or gifts made by non-residents, with the )hil embassy or
$onsulate in the country where he is domiciled at the time of the
transfer or directly with the o&ice of the $ommissioner.
8=>

4. JA
1) )ayment of JA
8?@

2) 7here to pay the JA
7ith an authori!ed agent bank, 0evenue $ollection 4&icer or
duly authori!ed city or municipal reasurer in the )hilippines located
within the revenue district where the taxpayer is registered or
re*uired to register.
8?"
578 Sec. 96
579 Sec. 1<3 (K) 580 #1!r"
581 Sec. 114 (K)
16
6
6. ax 0emedies under the %I0$
1. axpayer3s
0emedies
a.
Assessment
1) $oncept of assessment
he notice that the amount therein stated is due as a tax, with a
demand for payment within a stated period of time.
8?'
he o&icial action of the administrative o&icer in determining
the tax due from a taxpayer.
8?(
aE 0e*uisites for valid assessment
he assessment mustA
1. 2e in writing and signed by the 2I0.
2. $ontain the law and the facts on which the assessment is
made. and
3. $ontain a demand for payment within the prescribed
period.
8?-

582 A $)tice )+ "##e##/e$t c)$t"i$# $)t )$l, " c)/!1t"ti)$ )+ t". li"bilitie# b1t
"l#) " %e/"$% +)r the !",/e$t -ithi$ " !re#cribe% !eri)%. It "l#) #i0$"l# the ti/e
-he$ !e$"ltie# "$% i$tere#t# be0i$ t) "ccr1e.
583 7he +)ll)-i$0 "re $)t c)$#i%ere% "##e##/e$t#6
1. A letter c)$t"i$i$0 " c)/!1t"ti)$ )+ #1!!)#e% li"bilitie#, 0i8i$0 the t".!",er "$
)!!)rt1$it, t) #h)- the i$c)rrect$e## )+ the ?$%i$0#, )r 1r0i$0 the t".!",er t)
!r)%1ce hi# b))4# )r rec)r%# +)r 8eri?c"ti)$, )r t) !re#e$t hi# #i%e.
2.Aletter-$)tice th"t %i% $)t !r)8i%e, e8e$ i$ " 0e$er"l -",, re"#)$# -h,
%e?cie$c, t".e# -ere bei$0 c)llecte%
3. A$ "B%"8it b, " re8e$1e )Bcer #t"ti$0 the t". li"bilitie# )+ " t".!",er "$%
"tt"che% t) " cri/i$"l c)/!l"i$t +)r t". e8"#i)$.
4. A !re-"##e##/e$t $)tice #i0$e% b, " re8e$1e )Bci"l.
5. A %e?cie$c, "##e##/e$t )1t#i%e the #c)!e )+ the letter )+ "1th)rit, (" $1llit,).
7he +)ll)-i$0 /", be c)$#i%ere% "##e##/e$t#6
1. A letter +r)/ the 5)//i##i)$er %e/"$%i$0 the "/)1$t )+ " r1bber chec4
!re8i)1#l, !"i% b, " t".!",er, i+ it %ecl"re# the t". t) be !","ble "$% %e/"$%# the
#ettle/e$t there)+.
2. A !reli/i$"r, c)llecti)$ letter, i+ it -"# the i$iti"l $)tice recei8e% b, the
t".!",er re0"r%i$0 hi# i$ter$"l re8e$1et". li"bilitie#,
1."$% i+ it c"$ be !r)8e$ th"t the t".!",er %i% $)t recei8e "$, "##e##/e$t
$)tice,
2."$% $) +)ll)- 1! letter -"# #e$t $)r -"# " !reli/i$"r, c)$+ere$ce "rr"$0e%.
A$ "##e##/e$t i# rele8"$t6
1. "# "$ e##e$ti"l #te! t)-"r%# the i$iti"ti)$ )+ "%/i$i#tr"ti8e !r)cee%i$0 )r
:1%ici"l "cti)$ t) c)llect
t".e#,
2. t) e$+)rce t".!",er li"bilitie# "$% /"tter# rel"ti$0 t) it (i/!)#iti)$ )+ #1rch"r0e#
"$% i$tere#t),
3. t) "!!l, the #t"t1te )+ li/it"ti)$#,
4. t) the e#t"bli#h/e$t )+ t". lie$#,
5. i$ e#ti/"ti$0 the re8e$1e# th"t /", be c)llecte% b, the 0)8er$/e$t i$ the
c)/i$0 ,e"r.
84
Sec. 228
167
". )ercentage method
'. %et worth method
(. 2ank deposit
method
-. $ash expenditure method
2) $onstructive
methods of
income
determination
he computed
amount of revenues
based on the
percentage
computation is
compared to the
amount of revenues
reMected on the
return. he
percentages used
may be obtained
from the taxpayer,
industry publication,
prior year3s audit
results, or third
parties. he
comparison will
provide an
indication on the
possibility of
revenue being
understated.
A method of
reconstructing
income which is
based on the theory
that if the taxpayer3s net worth
has increased in a given year in
an amount larger than his
reported income, he has
understated his income for that
year. he net worth on a fxed
starting date is compared with the
net worth on a fxed ending date.
Any increase in net worth is
presumed to be income not
declared for tax purposes.
8?8
he bank records of the taxpayer
are analy!ed and the 2I0
estimates income on the basis of
the total bank deposits after
eliminating non-income items.
his method stands on the
premise that deposits represent
taxable income unless otherwise
explained as being non-taxable
items. his method may be used
only where the 2I0 has been
legally allowed access to the
taxpayer3s bank records.
Assumes that the excess of a
taxpayer3s expenditures during
the tax period over his reported
income for that period is taxable
to the extent not disproved
otherwise
8
7he
%iBc1lt,
)+ e#t"bli#hi$0
the )!e$i$0 $et
-)rth )+ " t".
!",er h"# le% t)
the@5)h"$ '1leA -hichi# the 1#e )+
e#ti/"te# )r "!!r).i/"ti)$# )+ the
"/)1$t )+ c"#h "$% )ther "##ert# -here
the t".!",er l"c4# "%e=1"te rec)r%#.
168
8. Bnit and value method
he determination or verifcation
of gross
receipts may be computed by
applying price
and proft fgures to the known
ascertainable
*uality of business of the taxpayer.
9. hird party information or access to he 2I0 may re*uire third
parties, public or records method private to supply
information to the 2I0, and thus, Gobtain on a regular basis from
any person other than the person whose internal revenue tax
liability is subject to audit or investigation, or from any o&ice or
o&icer of the national and local governments, government agencies
and instrumentalities including the Bango !entral ng "ilipinas and
government-owned or Kcontrolled corporations, any information
such as, but not limited to, costs and volume of production, receipts
or sales and gross incomes of taxpayers, and the names , addresses,
and fnancial statements of corporations, mutual fund companies,
insurance companies, regional operating head*uarters or
multinational companies, joint accounts, associations, joint ventures
or consortia and registered partnerships, and
their members.H
8?9
=. #urveillance and assessment
method
A letter sent by the 2ureau of
Internal
0evenue to a taxpayer asking him
to explain
within a period of ffteen D"8E days
from
receipt why he should not be the
subject of
an assessment notice. It is part of
the due
process rights of a taxpayer.
8?=
586 Sec. (K), (I'5 )+ 1997
587 A# " 0e$er"l r1le, the KI' c)1l% $)t i##1e "$ "##e##/e$t $)tice -ith)1t ?r#t i##1i$0 "
!re-"##e##/e$t $)tice bec"1#e it i# !"rt )+ the %1e !r)ce## ri0ht# )+ " t".!",er t) be 0i8e$
$)tice i$ the +)r/ )+ " !re-"##e##/e$t $)tice, "$% +)r hi/ t) e.!l"i$ -h, he #h)1l% $)t be
the #1b:ect )+ "$ "##e##/e$t $)tice.
16
9
cE Inventory method
8??
for income
determination
8?>
dE <eopardy assessment
A delin*uency tax assessment made without the beneft of a
complete or partial investigation by a belief that the assessment and
collection of a defciency tax will be jeopardi!ed by delay caused by
the taxpayer3s failure toA
1. $omply with audit and investigation re*uirements to present
his books of accounts and6or pertinent records, or
2. #ubstantiate all or any of the deductions, exemptions or
credits claimed in his
return.
An assessment made demanding immediate payment of the tax
due without the usual formalities in instances when the $ommissioner
believes that if the tax will be collected under normal procedures, the
collection of such tax is at risk which might result in loss to the
government.
8>@
588 "l#) c"lle% (et>)rth*eth)%
589 See t"ble
"!!r)!ri"te )r th)r)10h e."/i$"ti)$ i$ 8ie- )+ the i/!e$%i$0 e.!ir"ti)$ )+ the !re#cri!ti8e !eri)% +)r "##e##/e$t. 7) !re8e$t the i##1"$ce )+ " :e)!"r%, "##e##/e$t, the t".!",er /", be re=1ire% t) e.ec1te " -"i8er )+ the #t"t1te)+ li/it"ti)$#.
I$#t"$ce# -he$ :e)!"r%, "##e##/e$t /", be i##1e%6
>he$ it #h"ll c)/e t) the 4$)-le%0e )+ the 5)//i##i)$er th"t " t".!",er i#6
1.retiri$0 +r)/ b1#i$e## #1b:ect t) t".; )r
2.i$te$%i$0
1.t) le"8e the Phili!!i$e# )r re/)8e hi# !r)!ert, there+r)/; )r
2. t) hi%e )r c)$ce"l hi# !r)!ert,;
3.!er+)r/i$0 "$, "ct te$%i$0
1. t) )b#tr1ct the !r)cee%i$0# +)r the c)llecti)$ )+ the t". +)r the !"#t )r
c1rre$t =1"rter )r ,e"r;
)r
2. t) re$%er the #"/e t)t"ll, )r !"rtl, i$e3ecti8e 1$le## #1ch !r)cee%i$0# "re
be01$ i//e%i"tel, (Sec. 6 (G), '.A. 8424)
De)!"r%, "##e##/e$t i# "$ i$%ic"ti)$ )+ the %)1bt+1l 8"li%it, )+ the "##e##/e$t,
he$ce it /", be #1b:ect t) " c)/!r)/i#e. ESec. 3.1 ("), 'e8. 'e0#. (). 6-2<<<F
17
<
eE ax delin*uency and tax
defciency
/elin*uency ax /efciency ax
A taxpayer is considered delin*uent
in the payment of taxes whenA
1. #elf-assessed tax per return fled
by the taxpayer on the prescribed
date was not paid at all
8>"
or only partially paid. or
2. /efciency tax assessed by the
2I0 becomes fnal and executory.
1. he amount by
which the tax
imposed by law
as determined
by the $I0 or his
authori!ed
representative
exceeds the
amount shown
as tax by the
taxpayer upon
his return.
8>'
or
2. If no amount
is shown as tax
by the taxpayer
upon his return
is made by the
taxpayer, then
the amount by
which the tax
8>(
exceeds the
amounts
previously
assessed or
collected
without
assessment as
defciency.
$o
lle
cti
on
$an immediately be
collect
ed
admini
strativ
ely
throug
h the
issuanc
e of a
warran
t of
distrai
nt and
levy,
and6or
judicial
action
$ivil Action
he fling of a civil
action for the
collection of the
delin*uent tax in the
ordinary court is a
proper remedy
he
flling of
a civil
action at
the
ordinary
court for
collectio
n during
the
pendenc
y of
protest
may be
the
subject
of a motion
to dismiss.
In addition
to a motion
to dismiss,
the
taxpayer
must fle a
petition
for
review
with the
$A to
toll the
running
of the
prescript
ive
period
)enalties
A delin*uent tax
is subject
toadministrativ
e penalties
such as '8O
surcha
rge,
interes
t, and
compr
omise
penalt
y
A
defcien
cy tax is
generall
y not
subjec
t to
the
'8O
surcha
rge,
althou
gh
subjec
t to
i
n
t
e
r
est
and
compr
omise
penalt
y
591
7he
t".!
",er
%i% $)t
?le "
ret1r
$
7he t".!", er ?le% "ret1r$ b1t the #"/e -"# %e?cie $t. Ge?cie $c, i# the %i3ere $ce bet-ee $ the t". %1e "$% the t". !"i%.
593
"#
%ete
r
/
i
$e%
b,
the
5I'
)r
hi#
"1th)ri2e%
re!re#e$t"ti8
e
171
2) )ower of the $ommissioner to make
assessments and prescribe additional
re*uirements for tax administration
and enforcement
aE )ower of the $ommissioner to
obtain information, and to
summon6examine, and take
testimony of persons
he $ommissioner is authori!edA
(1) o examine any book, paper, record, or other data which may
be relevant or material to such in*uiry.
(2) o obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
investigation, or from any o&ice or o&icer of the national and local
governments, government agencies and instrumentalities, including
the Bango !entral ng "ilipinas and government-owned or -controlled
corporations, any information such as, but not limited to, costs and
volume of production, receipts or sales and gross incomes of
taxpayers, and the names, addresses, and fnancial statements of
corporations, mutual fund companies, insurance companies, regional
operating head*uarters of multinational companies, joint accounts,
associations, joint ventures of consortia and registered partnerships,
and their members.
(3) o summon the person liable for tax or re*uired to fle a
return, or any o&icer or employee of such person, or any person
having possession, custody, or care of the books of accounts and other
accounting records containing entries relating to the business of the
person liable for tax, or any other person, to appear before the
$ommissioner or his duly authori!ed representative at a time and
place specifed in the summons and to produce such books, papers,
records, or other data, and to give testimony.
(4) o take such testimony of the person concerned, under oath,
as may be relevant or material to such in*uiry. and
(5) o cause revenue o&icers and employees to make a canvass
from time to time of any revenue district or region and in*uire after
and concerning all persons therein who may be liable to pay any
internal revenue tax, and all persons owning or having the care,
management or possession of any object with respect to which a tax is
imposed.
he $ommissioner has no authority to in*uire into bank deposits
other than as provided for in #ection 9D:E
8>-
of this $ode.
8>8
594 #ee 'e+ere$ce
595 Sec.
17
2
(E 7hen assessment is made
7hen it is released, mailed or sent by the collector of internal
revenue to the taxpayer within the three-year or ten-year period, as
the case may be.
8>9
aE )rescriptive period for
assessment
D"E :alse, fraudulent, and non-
fling of returns
en D"@E years from the discovery of the falsity, fraud or
omission to fle the return.
8>=
bE #uspension of running of statute
of limitations
1) )eriods suspendedA
(1) periods for assessment
(2) beginning of distraint or levy
(3) proceeding in court for collection
2) +rounds for suspension of prescriptive periodsA
1) $ommissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in
court and for 9@ days thereafter
2) axpayer re*uests for 0einvestigation which is
granted
8>?

3) axpayer cannot be located in the address given in the
return fled, except if the taxpayer informs the $ommissioner of
a change in address the prescriptive period will not be
suspended
4) 7hen the warrant is duly served upon the taxpayer and
no property could be located
8>>

5) 7hen the taxpayer is out of the )hils.
9@@

6)7hen there is an Answer fled by the 2I0 to the petition
for review in the $A
9@"
where the court justifed this by saying
that in the answer fled by the 2I0, it prayed for the collection of
taxes.
596 CIR v. !ascor, &.'. 12831, D1$e 29, 1999
597 Sec. 222
598 A re=1e#t +)r rec)$#i%er"ti)$ "l)$e %)e# $)t #1#!e$% the !eri)% t) "##e##Mc)llect. 599 !r)!er )$l, +)r #1#!e$#i)$ )+ the !eri)% t) c)llect
600 Sec. 223
17
3
4) +eneral provisions on additions to the
tax
1)$ivil penalties
2) Interest
9@'

Additions to the tax consist of theA
(1) civil penalty, otherwise known as surcharge, which may
either be '8O or 8@ O of the tax depending upon the nature of the
violation.
(2) interest either for a defciency tax or delin*uency as to
payment
9@(

(3) other civil penalties or administrative fnes such as for failure
to fle certain information returns and violations committed by
withholding agents.
9@-

601 /ermanos v. CIR, &'. (). L-24972. Se!t.3<, 1969
!erce$t (2<I) !er "$$1/, )r #1ch hi0her r"te "# /", be !re#cribe% , r1le# "$% re01l"ti)$#, +r)/ the %"te !re#cribe% +)r !",/e$t 1$til the "/)1$t i# +1ll, !"i%. (Sec. 249 EAF, 1997 (I'5)
cl"##i?e% i$t)6 1.Ge?cie$c, i$tere#t
A$, %e?cie$c, i$ the t". %1e #h"ll be #1b:ect t) the i$tere#t )+ 2<I !er "$$1/, )r
#1ch hi0her r"te "#
/", be !re#cribe% b, r1le# "$% re01l"ti)$#, -hich #h"ll be "##e##e% "$% c)llecte%
+r)/ the %"te !re#cribe% +)r it# !",/e$t 1$til the +1ll !",/e$t there)+ (Sec. 249 EKF,
1997 (I'5)
2.Geli$=1e$c, i$tere#t
7hi# 4i$% )+ i$tere#t i# i/!)#e% i$ c"#e )+ +"il1re t) !",6
1.7he "/)1$t )+ the t". %1e )$ "$, ret1r$ re=1ire% t) be ?le%, )r
2.7he "/)1$t )+ the t". %1e +)r -hich $) ret1r$ i# re=1ire%, )r
3. A %e?cie$c, t"., )r "$, #1rch"r0e )r i$tere#t there)$ )$ the %1e %"te
"!!e"ri$0 i$ the $)tice "$% %e/"$% )+ the 5)//i##i)$er.
6<4
&e$er"l 5)$#i%er"ti)$# )$ the A%%iti)$ t) t".
1.A%%iti)$# t) the t". )r %e?cie$c, t". "!!l, t) "ll t".e#, +ee#, "$% ch"r0e#
i/!)#e% i$ the 7". 5)%e.
2. 7he "/)1$t #) "%%e% t) the t". #h"ll be c)llecte% "t the #"/e ti/e, i$ the #"/e
/"$$er, "$% "# !"rt )+ the t"..
3. I+ the -ithh)l%i$0 "0e$t i# the 0)8er$/e$t )r "$, )+ it# "0e$cie#, !)litic"l
#1b%i8i#i)$# )r i$#tr1/e$t"litie#, )r " 0)8er$/e$t )-$e% )r c)$tr)lle% c)r!)r"ti)$,
the e/!l),ee there)+ re#!)$#ible +)r the -ithh)l%i$0 "$% re/itt"$ce )+ the t". #h"ll
be !er#)$"ll, li"ble +)r the "%%iti)$# t) the t". !re#cribe% (Sec. 247EbF, 1997 (I'5)
#1ch "# the 2I #1rch"r0e "$% the 2<I i$tere#t !er "$$1/ )$ the %eli$=1e$c,
(Sec#. 248 "$% 249 E5F, 1997 (I'5)
174
5) Assessment process
9@8

1)ax audit
he process of examining, going over, or scrutini!ing the books
and records of the taxpayer to ascertain the correctness of the tax
declared and paid by the taxpayer.
It can only be performed upon a 1etter of Authority issued by
the $ommissioner or 0egional /irector.
bE %otice of informal conference
A written notice informing a taxpayer that the fndings of the
audit conducted on his books of accounts and accounting records
indicate that additional taxes or defciency assessments have to be
paid.
If, after the culmination of an audit, a 0evenue 4&icer
recommends the imposition of defciency tax assessments, this
recommendation is communicated by the 2ureau to the taxpayer
concerned during an informal conference called for this purpose, the
taxpayer shall have "8 days from receipt of the notice of informal
conference to explain his side.
cE Issuance of preliminary
assessment notice D)A%E
$ommunication issued by the 0egional Assessment /ivision or
any other concerned 2I0 o&ice, informing a taxpayer who has been
audited of the fndings of the 0evenue 4&icer, following the review of
these fndings. he assessment shall be in writing, and should inform
the taxpayer of the law and the facts on which the assessment is
made. otherwise, the assessment is void.
dE ,xceptions to Issuance of )A%
(1) he fnding for any defciency tax is the result of
mathematical error in the computation of the tax as appearing on the
face of the return. or
(2) A discrepancy has been determined between the tax withheld
and the amount actually remitted by the withholding agent. or
(3) A taxpayer who opted to claim a refund or tax credit of
excess creditable withholding tax for a taxable period was determined
to have carried over and automatically applied the same amount
claimed against the estimated tax liabilities for the taxable *uarter or
*uarters of the succeeding taxable year. or
(4) he excise tax due on excisable articles has not been paid. or
6<
A##e##/e$t# prima facie c)rrect. 7". "##e##/e$t# b, t". e."/i$er# "re
!re#1/e% c)rrect "$% /"%e i$ 0))% +"ith. 7he t".!",er h"# the %1t, t) !r)8e
)ther-i#e. (&# !o v. CTA, &'( L- 81446 A101#t 18,1988.)
17
DeE he article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital e*uipment,
machineries and spare parts, has been sold, traded or transferred to
non-exempt persons.
9@9
eE 0eply
9@=
to )A%
7ithin "8 days, the taxpayer has to fle a written reply
contesting the proposed assessment if he disagrees with the fndings
of the )A%.
:ailure of the taxpayer to fle a reply would now enable the 04
to issue a :A%.
9@?
Cowever no liability for additional or defciency tax
arises from such failure.
fE Issuance of formal letter of
demand and assessment
notice6fnal assessment notice
9@>
%otice of Assessment is a formal letter of demand where a
declaration of defciency taxes is issued to a taxpayer who fails to
respond to a pre-assessment notice within the prescribed period of
time, or whose reply to the )A% was found to be without merit.
9"@
gE /isputed assessment
7hen the taxpayer, indicates its protest against the delin*uent
assessment of the 04 and re*uests for reconsideration, through a
letter. After the re*uest is fled and received by the 2I0, the
assessment becomes a disputed assessment.
9""
.
606 Sec. 3.1.3, '' 12-99
607 F)r !1r!)#e# )+ c)$te#ti$0 " PA(, the re01l"ti)$# 1#e% the -)r% re!l, t) %i#ti$01i#h it +r)/ the -ritte$ )b:ecti)$# t) " FA( -herei$ the 0e$eric -)r% !r)te#t )r #!eci?c ter/ re=1e#t +)r rec)$#i%er"ti)$ )r re=1e#t +)r rei$8e#ti0"ti)$ i# 1#e%.
"##e##/e$t $)tice #h"ll be i##1e% b, the A##e##/e$t Gi8i#i)$ )+ the 'e8e$1e 'e0i)$"l LBce )r the 5)//i##i)$er )r hi# "1th)ri2e% re!re#e$t"ti8e.
609 &e$er"l r1le6 7".e# "re #el+-"##e##i$0 "$% %) $)t re=1ire the i##1"$ce )+ "$
"##e##/e$t $)tice i$
)r%er t) e#t"bli#h the t". li"bilit, )+ "
t".!",er. ;.ce!ti)$#6
1.7". !eri)% )+ " t".!",er i# ter/i$"te% (Sec. 6 (%), (I'5)
2.Ge?cie$c, t". li"bilit, "ri#i$0 +r)/ " t". "1%it c)$%1cte% b, " KI' (#ec 6b,
(I'5)
3.7". lie$ (Sec. 219, (I'5)
4.Gi##)l8i$0 5)r!)r"ti)$ (Sec. 2 (c), (I'5)
610 7hi# i# c)//)$l, 4$)-$ "# the Fi$"l A##e##/e$t ()tice. A$ "##e##/e$t
c)$t"i$# $)t )$l, " c)/!1t"ti)$ )+ 1$%er%ecl"r"ti)$ )+ t"."ble #"le#, recei!t# )r
i$c)/e, )r " #1b#t"$ti"l )8er#t"te/e$t )+ %e%1cti)$#.
611 CIR v. Isabela Cultural Corp., &' 1321<, D1l, 11, 2<<1
17
6
jE Administrative decision on a
disputed assessment
he taxpayer may elevate the protest to the $I0 within (@ days
from receipt of the decision for a re*uest for reconsideration and that
his case is referred to the 2ureau3s Appellate /ivision. 4therwise, it
becomes fnal and appeal to the $A may be taken.
9"'
9E )rotesting assessment
It is the act by the taxpayer of *uestioning the validity of the
imposition of the corresponding delin*uency increments for internal
revenue taxes as shown in the notice of assessment and letter of
demand.
aE )rotest
9"(
of assessment by
taxpayer
D"E )rotested assessment
he taxpayer fles an administrative protest against the
assessment. #uch protest may either be a re*uest for reconsideration
or for reinvestigation.
)rescriptive 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 re*uests for its cancellation.
D'E 7hen to fle a protest
7ithin thirty D(@E days from receipt of assessment.
D(E :orms of protest
0e*uest for reconsideration 0e*uest for reinvestigation
A claim for re-evaluation of the
assessment based on existing
records without need of additional
evidence. It may involve a *uestion
of fact or law or both. It does not toll
the statute of limitations.
A claim for re-
evaluation of the
assessment
based on newly-
discovered or
additional
evidence. It may
also involve a
*uestion of fact
or law or both. It
tolls the statute
of limitations.
612
K1t -here the t".!",er
"%8er#el, "3ecte% h"# $)t
recei8e% the %eci#i)$ )r
r1li$0, he c)1l% $)t "!!e"l
the #"/e t)
the 57A
-ithi$ 3<
%",# +r)/
$)tice.
Ce$ce, it
c)1l% $)t
bec)/e ?$"l
"$%
e.ec1t)r,
(Republic vs.
+e la Rama,
18 S5'A
861)
*)ti)$ +)r rec)$#i%er"ti)$
#1#!e$%# the r1$$i$0 )+ the
3< - %", !eri)% )+ !er+ecti$0
"$ "!!e"l. *1#t "%8"$ce
$e- 0r)1$%# $)t !re8i)1#l,
"lle0e% t) t)ll the
re0le/e$t"r, !eri)%;
)ther-i#e, it -)1l% be /erel,
!r)-+)r/"(Roman Catholic
Archbishop vs. Coll., L-16683,
D"$. 31, 1962)
613
A 8it"l %)c1/e$t -hich i#
" +)r/"l %ecl"r"ti)$ )+
re#i#t"$ce )+
the t".!",er.
It i# "
re!)#it)r, )+
"ll
"r01/e$t#.
It c"$ be
1#e% i$ c)1rt
i$ c"#e )+
"%/i$i#tr"ti8
e re/e%ie#
h"8e bee$
e.h"1#te%. It i# "l#) the
+)r/"l "ct )+ the t".!",er
=1e#ti)$i$0 the )Bci"l
"ct1"ti)$# )+ the 5I'. 7hi# i#
e=1i8"le$t t) " !le"%i$0.
177
bE #ubmission of documents within
9@ days from fling of protest
All relevant documents should be fled, otherwise assessment
becomes fnal and cannot be appealed.
9"-
cE ,&ect of failure to protest
It makes the :A% fnal and executory, and the taxpayer loses his
right to contest the assessment, at the administrative and judicial
levels.
9"8
348 0endition of decision by
$ommissioner
1. /enial of protest
/irect /enial Indirect /enial
he decision of the $ommissioner
or his
a. $ommissioner did not rule on
the
duly rep. shall
taxpayer3s 50 of the assessment K
it was
only when respondent received
summons on
a. state the facts, applicable law,
rules and the civil action for the collection of
regulations or jurisprudence on
which his
defciency income tax that the
period to
protest is based, otherwise the
protest shall appeal commenced to run.
9"=
be considered void and without
force and
e&ect, in which case the same shall
not be
b. 0eferral by the $ommissioner of
re*uest
considered a decision a disputed
assessment
for reinvestigation to the #olicitor
+eneral
9"?
and
c. 0eiterating the demand for
immediate
b. that the same is his fnal
decision.
9"9
payment of the defciency tax due
to
taxpayer3s continued refusal to
execute
waiver
9">
d. )reliminary collection letter may
serve as
assessment notice
9'@
614
Sec. 228
S1b/i##i)$ )+ %)c1/e$t# -ithi$ the 6< %",# !eri)% i# )!ti)$"l t) the t".!",er.
7he rele8"$t #1!!)rti$0 %)c1/e$t# /e$ti)$e% i$ the l"- re+er# t) #1ch %)c1/e$t#
-hich the t".!",er +eel# -)1l% be $ece##"r, t) #1!!)rt hi# !r)te#t "$% $)t -h"t the
5)//i##i)$er +eel# #h)1l% be #1b/itte%, )ther-i#e the t".!",er -)1l% "l-",# be "t
the /erc, )+ the KI' -hich /", re=1ire !r)%1cti)$ )+ #1ch %)c1/e$t# -hich
t".!",er c)1l% $)t !r)%1ce. (&tandard Chartered *an< v. CTA, 5"#e (). 696, A10.
16, 2<<1)
61
7h1#, the ?li$0 )+ the !r)te#t -ithi$ 3< %",# +r)/ the recei!t )+ the "##e##/e$t
-)1l% be /"$%"t)r, +)r the t".!",er t) 1#e the )ther "%/i$i#tr"ti8e "$% :1%ici"l
re/e%ie#.
616 Sec. 3.1., '' 12-99
617 CIR vs. =nion &hipping Corp.
618 Republic vs. Lim Tian Teng &ons
619 CIR vs. A#ala &ecurities Corp
620 =nited Int>l !ictures vs. CIR
17
8
D"E $ommissioner3s actions
e*uivalent to denial of
protest
DaE :iling of criminal
action against
taxpayer
DbE Issuing a warrant
of distraint and
levy
hese actions of the $I0 serve as bases for appeal to the $A.
D'E Inaction by $ommissioner
he protest is not acted upon by the $ommissioner within "?@
days from submission of documents.
8) 0emedies of taxpayer to action by
$ommissioner
1)In case of denial of protest
Appeal the decision to the $ourt of ax Appeals D$AE within (@
days from receipt of decision denying the protest.
9'"
bE In case of inaction by
$ommissioner within "?@ days
from submission of documents
he taxpayer has two alternative optionsA
1. :ile a petition for review with the $A within (@ days after
the expiration of the "?@-day period. or
2. 7ait for the fnal decision of the $I0 on the disputed
assessment and appeal the fnal decision to the $A within (@ days
from the receipt of the decision.
cE ,&ect of failure to appeal
1. he decision or assessment becomes fnal and executory.
2. In an action for the collection of the tax by the government,
the taxpayer is barred from re-opening the *uestion already decided.
3. he assessment is considered correct which may be enforced
by summary or judicial remedies.
621
I+ the t".!",er ele8"te# hi# !r)te#t t) the 5I' -ithi$ 3< %",# +r)/ %"te )+
recei!t )+ the ?$"l %eci#i)$ )+ the5I'9# %1l, "1th)ri2e% re!re#e$t"ti8e, #1ch
%eci#i)$ -ill $)t be ?$"l "$% e.ec1t)r,.
179
4. In a proceeding for collection of tax by judicial action, the
taxpayer3s defenses are similar to those of the defendant in a case for
the enforcement of a judgment by judicial action.
5. he assessment which has become fnal and executory cannot
be superseded by a new assessment.
2. $ollection
1) 0e*uisites
$ollection is only allowed when there is already a fnal
assessment made for the determination of the tax due.
Assessments are deemed fnal whenA
1. he taxpayer failed to fle a protest (@ days from receipt of the
assessment
2. After the "?@ day period and the $I0 has not yet acted on the
protest the taxpayer fails to appeal it
3. After (@ days from the receipt of the decision of the $I0 the
taxpayer fails to
appeal.
2) )rescriptive periods
Assessment was made
:alse or fraudulent return or
failure to fle
a return,
2y distraint or levy or by a
proceeding in
A proceeding in court for the
collection of
court - within three D(E years
following the
such tax may be fled without
assessment - at
assessment released, mailed, or
sent.
9''
any time within ten D"@E years after
the
discovery of the falsity, fraud or
omission.
9'(
622 *!I v. CIR, &.'. 139736, Lct. 17, 2<<
623 Sec.222 E"F
18
<
(E /istraint of personal property
including garnishment
aE #ummary remedy of distraint of
personal property
D"E )rocedure for distraint
and garnishment
1. he o&icer serving the warrant shall make an account of the
goods distrained. A copy signed by him shall be left with the owner or
to the person in possession of the goods to which list shall be added a
statement of the sum demanded and note of the time and place of
sale.
2. #tocks and securities K warrant of distraint shall be served
upon the taxpayer and upon the president, manager, treasurer or
other responsible o&icer of cooperation, company or association,
which issued the said stocks.
3. /ebts and $redits K serving the warrant of distraint upon the
taxpayer and the person owing such debts. #uch warrant is su&icient
authority to the person owning the debts or having possession or
under his control any credits. he warrant of distraint is su&icient
authority to such person to pay the $ommissioner.
4. 2ank Accounts K serving the warrant upon the taxpayer and
upon the president, manager, treasurer and other responsible o&icer
of the bank. Bpon receipt of the warrant, the bank shall turn over to
the $ommissioner the amount su&icient to satisfy the claim.
9'-

(2) #ale of property
distrained and disposition
of proceeds
1. %otice of the sale must specify the time and place of sale
and the articles
distrained.
2. he %otice must be exhibited in not less than ' public places.
one of such places shall be at the 4&ice of the 5ayor.
3. he time of sale shall not be less than '@ days after notice to
the owner or possessor of the property and the publication or posting
of such notice.
4. he sale shall be at public auction to the highest bidder for
cash or with the approval of the $ommissioner, through duly licensed
commodity or stock exchanges.
5. In case of stocks or securities, the o&icer making the sale
shall execute a bill of sale which shall deliver to the buyer and a copy
thereof furnished the corporation, company, or association which
issued the stocks or other securities.
624
Sec. 2<8
181
f. 0esidue over and above what is re*uired to pay the entire
claim, including expenses, shall be returned to the owner of the
property sold.
9'8
DaE 0elease of
distrained property
upon payment prior
to sale
If at any time prior to the consummation of the sale, all proper
charges are paid to the o&icer conducting the sale, the goods or
e&ects distrained shall be restored to the owner.
9'9
D(E )urchase by the
government at sale upon
distraint
1. 7hen the amount for the bid property under distraint is not
e*ual to the amount
of the tax.
2. 7hen the amount for the bid is very much less than the actual
market value of the articles for sale.
he property purchased may be resold by the $ommissioner or
his deputy.
9'=

D-E 0eport of sale to 2I0
7ithin two D'E days after the sale, the o&icer making the same
shall make a report of his proceedings in writing to the $ommissioner
and shall himself preserve a copy of such report as an o&icial
record.
9'?
D8E $onstructive distraint to
protect the interest of the
government
he $ommissioner may place under constructive distraint the
property of a delin*uent taxpayer or any taxpayer who, in his opinion,
is retiring from any business subject to tax, or is intending to leave
the )hilippines 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.
he constructive distraint of personal property shall be a&ected
by re*uiring 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 .in any manner whatever, without the express
authority of the $ommissioner.
625 Sec. 2<9
626 Sec. 21< 627 Sec. 212
628 Sec. 211
18
2
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
revenue o&icer e&ecting the constructive distraint shall proceed to
prepare a list of such property and, in the presence of two D'E
witnesses, leave a copy thereof in the premises where the property
distrained is located, after which the said property shall be deemed to
have been placed under constructive distraint.
9'>
4) #ummary remedy of levy on real
property
1)Advertisement and sale
1. wenty days after levy, the o&icer 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 (@
days.
2. he notice of sale shallA
1. 2e posted at the main entrance of the municipal building.
and
2. public and conspicuous place in the barrio or district. and
3. be published once a week for three consecutive weeks in a
newspaper of general circulation.
3. 0ight of )re-emption K At any time before the day fxed for the
sale, the taxpayer may discontinue all proceedings by paying the
taxes, penalties, and interest.
4. 8 days after the sale, a return by the distraining or levying
o&icer of the proceedings shall be entered upon the records of the
0evenue $ollection 4&icer D0$4E, the 0/4 and 0evenue 0egional
/irector.
5. A certifcate of sale shall be delivered to the purchaser.
6. ,xcess of the proceeds of the sale shall be delivered to the
taxpayer.
9(@

2) 0edemption of property sold
7ithin one D"E year from the date of sale, the delin*uent
taxpayer, or any one for him, shall have the right of paying to the
0evenue /istrict 4&icer the amount of the public taxes, penalties, and
interest thereon from the date of delin*uency to the date of sale,
together with interest on said purchase price at the rate of ffteen
percent D"8OE per annum from the date of purchase to the date of
redemption, and such payment shall entitle the person paying to the
delivery of the certifcate issued to the purchaser and a certifcate
from the said 0evenue /istrict 4&icer that he has thus redeemed the
property, and the 0evenue /istrict 4&icer shall forthwith pay over to
the purchaser the amount by which such property has thus been
redeemed, and said property thereafter shall be free from the lien of
such taxes and penalties.
629 Sec. 2<6
630 Sec. 213
18
3
he owner shall not, however, 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.
9("
cE :inal deed of purchaser
In case the taxpayer shall not redeem the property, the 0evenue
/istrict 4&icer shall, as grantor, execute a deed conveying to the
purchaser so much of the property as has been sold, free from all liens
of any kind whatsoever, and the deed shall succinctly recite all the
proceedings upon which the validity of the sale depends.
9('
1 :orfeiture to government for want of
bidder
1 0emedy of enforcement of
forfeitures
D"E Action to contest
forfeiture of chattel
In case of the sei!ure of personal property under claim of
forfeiture, the owner desiring to contest the validity of the forfeiture
may, at any time before sale or destruction of the property, bring an
action against the person sei!ing the property or having possession
thereof to recover the same, and upon giving proper bond, may enjoin
the sale. or after the sale and within six D9E months, he may bring an
action to recover the net proceeds reali!ed at the sale.
9((
bE 0esale of real estate taken for
taxes
he $ommissioner shall have charge of any real estate obtained
by the +overnment of the )hilippines in payment or satisfaction of
taxes, penalties or costs or in compromise or adjustment of any claim
therefore, and said $ommissioner may, upon the giving of not less
than twenty D'@E days3 notice, sell and dispose of the same of public
auction or dispose of the same at private sale.
In either case, the proceeds of the sale shall be deposited with
the %ational reasury, and an accounting of the same shall be
rendered to the $hairman of the $ommission on Audit.
9(-
631 Sec. 214
632 Sec. 2<2 633 Sec. 231
634 Sec. 216
18
4
cE 7hen property to be sold or
destroyed
Bpon forfeiture, distilled spirits, li*uors, cigars, cigarettes,
other manufactured products of tobacco, and all apparatus used in or
about the illicit production of such articles may be destroyed by order
of the $ommissioner, when the sale of the same for consumption or
use would be injurious to public health or prejudicial to the
enforcement of the law.
9(8
:orfeited property shall not be destroyed until at least twenty
D'@E days after sei!ure.
9(9
dE /isposition of funds recovered
in legal proceedings or obtained
from forfeiture
All judgments and monies recovered and received for taxes, costs,
forfeitures, fnes and penalties shall be paid to the $ommissioner or his
authori!ed deputies as the taxes themselves are re*uired to be paid and
shall be accounted for and dealt with the same way.
9(=
9E :urther distraint or levy
he remedy by distraint of personal property and levy on realty
may be repeated if necessary until the full amount due, including all
expenses, is collected.
9(?
=E ax lien
9(>
A legal claim or charge on property, either real or personal,
established by law as a security in default of the payment of taxes.
63
All )ther "rticle# #1b:ect t) e.ci#e t"., -hich h"8e bee$ /"$1+"ct1re% )r
re/)8e% i$ 8i)l"ti)$ )+ the 5)%e, "# -ell "# %ie# +)r the !ri$ti$0 )r /"4i$0 )+ i$ter$"l
re8e$1e #t"/!# "$% l"bel# -hich "re i$ i/it"ti)$ )+ )r !1r!)rt t) be l"-+1l #t"/!#,
)r l"bel# /",, 1!)$ +)r+eit1re, be #)l% )r %e#tr),e% i$ the %i#creti)$ )+ the
5)//i##i)$er (Sec. 22)
636 ibi%.
637 Sec. 226
638 Sec. 217
639 Lther-i#e, " cle8er t".!",er -h) i# "l#) "ble t) c)$ce"l /)#t )+ the 8"l1"ble
!"rt )+ hi# !r)!ert,
-)1l% e#c"!e !",/e$t )+ hi# t". li"bilit, b, #"cri?ci$0 "$ i$#i0$i?c"$t
!)rti)$ )+ hi# h)l%i$0#.
639
("t1re6
A lie$ i$ +"8)r )+ the 0)8er$/e$t )+ the Phili!!i$e# -he$ " !er#)$ li"ble t) !", "
t". $e0lect# )r +"il# t) %) #) 1!)$ %e/"$%.
G1r"ti)$6
;.i#t#+r)/ ti/e "##e##/e$t i# /"%e b, the 5I' 1$til !"i%, -ith i$tere#t#,
!e$"ltie# "$% c)#t#. ;.te$t6
J!)$ "ll !r)!ert, "$% ri0ht# t) !r)!ert, bel)$0i$0 t)
the t".!",er. ;3ecti8it, "0"i$#t thir% !er#)$#6
L$l, -he$ $)tice )+ #1ch lie$ i# ?le% b, the 5I' i$ the 'e0i#ter )+ Gee%#
c)$cer$e%.
18
8) $ompromise
9-@

1) Authority of the $ommissioner
to compromise and abate
taxes
9-"

$ompromise the payment of any
internal Abate or cancel a tax liability
revenue tax
7henA 7henA
". here is reasonable doubt as to
the validity
". he tax or any portion thereof
appears to
of the claim against the taxpayer.
or
be unjustly or excessively
assessed. or
'. he fnancial position of the
taxpayer
'. he administration and
collection costs
demonstrates a clear inability to
pay the
involved do not justify the
collection of the
assessed tax.
9-'
amount due.
>E $ivil and criminal actions
aE #uit to recover tax based on
false or fraudulent returns
If tax is collected under an assessment that the list, statement
or return is false6fraudulently made, it cannot be recovered by any
suit unless it is proved that the said list, statement or return was not
false nor fraudulent L did not contain any understatement or
undervaluation.
9-(
640 5)$tr"ct -hereb, the !"rtie#, b, /"4i$0 reci!r)c"l c)$ce##i)$#, "8)i% liti0"ti)$ )r !1t
"$ e$% t) )$e "lre"%, c)//e$ce%.
641 7he !)-er t) c)/!r)/i#e )r "b"te #h"ll $)t be %ele0"te% b, the 5)//i##i)$er e.ce!t
i$ the +)ll)-i$0 c"#e#6
1.A##e##/e$t# i##1e% b, the 'e0i)$"l LBce# i$8)l8i$0 b"#ic t". )+ P <<,<<< )r
le##;
2. *i$)r cri/i$"l 8i)l"ti)$#
All cri/i$"l 8i)l"ti)$# /", be c)/!r)/i#e% e.ce!t6 (") th)#e "lre"%, ?le% i$
c)1rt, )r (b) th)#e i$8)l8i$0 +r"1% (Sec. 2<4 (A)(K))
All cri/i$"l 8i)l"ti)$# /", be c)/!r)/i#e% e.ce!t6 (") th)#e "lre"%, ?le% i$ c)1rt,
)r (b) th)#e i$8)l8i$0 +r"1% (Sec. 2<4 (A)(K))
642 *i$i/1/ 5)/!r)/i#e A/)1$t#6
1.Fi$"$ci"l i$c"!"cit, H 1<I )+ the b"#ic t". "##e##e%;
2.Lther c"#e# H 4<I )+ the b"#ic t". "##e##e%
>he$ "!!r)8"l )+ ;8"l1"ti)$ K)"r% $ece##"r,6
1.7he b"#ic t". i$8)l8e% e.cee%# )$e /illi)$ !e#)#;
2.>here the #ettle/e$t )3ere% i# le## th"$ the !re#cribe% /i$i/1/ r"te.
643
()t "!!lic"ble t) #t"te/e$t# )r ret1r$# /"%e )r t) be /"%e i$ 0))% +"ith
re0"r%i$0 "$$1"l %e!reci"ti)$ )+ )il )r 0"# -ell# V /i$e#.
186
3. 0efund
9--

1) +rounds and re*uisites for refund
+rounds 0e*uisites
a. ax is erroneously or illegally
collected.
a. here must be a written claim
with the
$I0, as it would enable the $I0 to
correct
b. #um collected is excessive or in
any
the errors of his subordinate and
to notify
manner wrongfully collected. the government.
c. )enalty is collected without
authority.
b. 5ust be a categorical claim for
refund or
credit.
c. 5ust be fled within ' years
after the
payment of the tax or penalty
otherwise no
refund or credit could be taken. %o
suit or
proceeding shall be instituted after
the
expiration of the ' year period
regardless of
any supervening cause that may
arise after
payment. and
d. )resent proof of payment of the
tax.
2) 0e*uirements for refund as laid down
by cases
1)%ecessity of written claim for
refund
his re*uirement is mandatory.
9-8
,xceptA
7here on the face of the return upon which payment is made,
such payment appears clearly to have been erroneous.
9-9
!e$"lt, )r #1/ h"# bee$ !"i% 1$%er !r)te#t )r %1re## (Sec. 229)
Si/il"rl,, !",/e$t 1$%er !r)te#t i# $)t $ece##"r, i$ re+1$% +)r l)c"l
t".e#. (Sec. 196 L&5), h)-e8er, 1$%er !r)te#t i# $ece##"r, t) cl"i/ +)r
1.re"l !r)!ert, t".e# (Sec. 22,L&5)
2.c1#t)/ %1tie# (Sec. 23<8,755)
645 'e"#)$#6
1. t) "3)r% the c)//i##i)$er "$ )!!)rt1$it, t) c)rrect the "cti)$ )+ #1b)r%i$"te
)Bcer "$%
2. t) $)ti+, the 0)8er$/e$t th"t the t".e# #)10ht t) be re+1$%e% "re 1$%er
=1e#ti)$ "$% th"t, there+)re, #1ch $)tice #h)1l% the$ be b)r$e i$ /i$% i$ e#ti/"ti$0
the re8e$1e "8"il"ble +)r e.!e$%it1re(*erme-o vs. CIR, 87 Phil 96)
646 Sec. 229
18
7
bE $laim containing a categorical
demand for reimbursement
cE :iling of administrative claim
for refund and the
suit6proceeding before the $A
within ' years from date of
payment regardless of any
supervening cause
9-=
he re*uirement is a condition precedent and non-compliance
therewith bars recovery.
9-?
It refers not only to the GadministrativeH claim that the taxpayer
should fle within ' years from date of payments with the 2I0, but
also the judicial claim or the action for refund the taxpayer should
commence with the $A.
9->
(E 1egal basis of tax refunds
1egal principle of *uasi-contracts or solutio indebiti.
6#$
he +overnment is within the scope of the principle of solutio
indebiti.
6#%
4) #tatutory basis for tax refund under
the ax $ode
1)#cope of claims for refund
he $ommissioner may credit or refund taxesA
1) ,rroneously or illegally assessed or collected internal
revenue taxes
2) )enalties imposed without authority
3) Any sum alleged to have been excessive or in any
manner wrongfully
collected.
98'

2) %ecessity of proof for claim or
refund
0efund claim partakes of the nature of an exemption which
cannot be allowed unless granted in the most explicit and categorical
language.
98(
:ailure to discharge burden of giving proof is fatal to claim.
647 Sec#.2<4 (c) V 229
648 !hil. Acet#lene Co. Inc, vs. Commissioner, 57A 5"#e (). 1321, ()8. 7, 1962 649 #ee "ibbs vs.. Collector of Internal Revenue, 1<7 Phil 232
650 #ee Art. 2142 V 214, 55
651 CIR vs. 2ireman>s 2und Insurance Co
652 Sec#. 2<4 "$% 2<9
653 CIR vs. ?ohnson and&ons
18
8
It must be shown that payment was an independent single act of
voluntary payment of a tax believed to be due, collectible and
accepted by the government, and which therefore, become part of the
state moneys subject to expenditure and perhaps already spent or
appropriated.
98-
cE 2urden of proof for claim of
refund
7ritten claim for refund or tax credit fled by the taxpayer with
the $ommissioner.
dE %ature of erroneously paid
tax6illegally assessed collected
axpayer pays under the mistake of fact, as for instance in a
case where he is not aware of the existing exemption in his favor
at the time payments were made.
A tax is illegally collected if payments are made under duress.
eE ax refund vis-;-vistax credit
988
ax refund ax credit
0e*uires a physical return of the
sum erroneously paid by the
taxpayer.
he taxpayer to whom the tax is
refunded would have the option,
among others, to invest for proft
the returned sum, an option not
proximately available if the taxpayer
chooses instead to receive a tax
credit.
989
+enerally refers
to an amount
that is
subtracted
directly from
one3s total tax
liability, an
allowance
against the tax
itself, or a
deduction from
what is owned.
0educes the tax
due, including K
whenever
applicable K the
income tax that
is determined
after applying
the
corresponding
tax rates to
taxable
income.
98=
fE
,ssential
re*uisites
for claim
of refund
1. he claim is
fled with the
$ommissio
ner of
Internal
0evenue
within the
two-year
period
from the
date of the
payment of
the tax.
2. It
is shown
on the
return of
the
recipient
that the income
payment received was
declared as part of the
gross income. and
$$9'(,Gec. 28, 1963
655 It /", be th"t there i#
$) e##e$ti"l %i3ere$ce
bet-ee$ " t". re+1$% "$% " t".
cre%it #i$ce b)th "re /)8e# )+
rec)8eri$0 t".e# err)$e)1#l,
)r ille0"ll, !"i% t) the
0)8er$/e$t. (Commissioner of
Customs v. !hilippine
!hosphate
2ertilizer
Corporation,
&. '. ().
14444<,
Se!te/ber 1,
2<<4)
656 Comm
issioner of
Customs v.
!hilippine
!hosphate
2ertilizer
Corporation,
ibi%.
657 Commissioner of
Internal Revenue v. Central
Luzon +rug Corporation, &.
'. (). 19647, A!ril 1,2<<
189
(. he 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.
98?
8E 7ho may claim6apply for tax
refund6tax credit
aE axpayer6withholding agents of
non-resident foreign
corporation
A withholding agent is subject to and liable for defciency
assessments, surcharges and penalties should the amount of the tax
withheld be fnally found to be less than the amount that should have
been withheld under the law.
A Gperson liable for taxH has been held to be a Gperson subject
to taxH and properly considered a Gtaxpayer.H xxx 2y any reasonable
standard, such a person should be regarded as a party in interest, or
as a person having su&icient legal interest, to bring a suit for refund
of taxes.
98>
6) )rescriptive period for recovery of tax
erroneously or illegally collected
wo D'E years from the date of payment of the tax or penalty.
7) 4ther consideration a&ecting tax
refunds
1) axpayer may fle an action for refund in the $A even before
the $ommissioner decides his pending claim in the 2I0.
99@

bE #uspension of the '-year prescriptive period may be had
whenA
1. there is a pending litigation between the two parties
Dgovernment and taxpayerE as to the proper tax to be paid and
of the proper interpretation of the taxpayer3s charter in relation
to the disputed tax. and
2. the commissioner in that litigated case agreed to abide
by the decision of the #upreme $ourt as to the collection of
taxes relative thereto.
99"

3) ,ven if the '-year period has lapsed, the same is not
jurisdictional and may be suspended for reasons of e*uity and other
special circumstances.
99'

4) '-year prescriptive period for fling of tax refund or credit
claim computed from date of payment of tax of penalty except in the
followingA
*"rch 27, 2<<7
659 CIR vs. !rocter and "amble !,C, 2<4 S5'A 377
660 Commissioner of Internal Revenue vs. !alanca, ?r., L-16626, Lct. 29, 1966
661 !ana# .lectric Co., Inc. vs. Collector of Internal Revenue, 1<3 Phil. 819
662 CIR vs. !hil. American Life Ins. Co., &.'. (). 1<2<8, *", 29, 199
19
<
i. $orporationsA
'-year prescriptive period for overpaid *uarterly
income tax is counted not from the date the corporation
fles its *uarterly income tax return, but from the date the
fnal adjusted return is fled after the taxable year.
99(
ii. axes payable in installmentA
'-year period is counted form the payment of the
last installment.
99-
iii. 7ithholding axes
)rescriptive period counted not from the date the
tax is withheld and remitted to the 2I0, but from the end
of the taxable year.
998
iv. JA 0egistered )erson whose sales are !ero-rated or
e&ectively !ero-rated
'-year period computed from the end of the taxable
*uarter when the sales transactions were made.
999
eE Interest on ax 0efundA
he +overnment cannot be re*uired to pay interest on taxes
refunded to the taxpayer unlessA
1. he $ommissioner acted with patent arbitrariness
99=
2. In case of Income ax withheld on the wages of
employees.
99?

663 Commissioner of Internal Revenue vs. T,@ &ales, Inc., &.'. ().83736, D"$. 1, 1992
664 CIR vs. !alanca, ?r., #1!r"
665 "ibbsvs. Commissioner of Internal Revenue, #1!r"
666 Sec. 112 (A)
!r)8i#i)$# (CIR vs.Aictorias ,illing Corp., Inc. L-196<7, ()8. 29,1966)
668 A$, e.ce## )+ the t".e# -ithhel% )8er the t". %1e +r)/ the t".!",er #h"ll be
ret1r$e% )r cre%ite% -ithi$ 3 /)$th# +r)/ the ?+tee$th (1th) %", )+ A!ril. 'e+1$% )r
cre%it "+ter #1ch ti/e e"r$ i$tere#t "t the r"te )+ 6I !er "$$1/, #t"rti$0 "+ter the
l"!#e )+ the 3-/)$th !eri)% t) the %"te the re+1$% )r cre%it i# /"%e (Sec 79 (c) (2))
19
1
2. +overnment 0emedies
a. Administrative remedies
1) ax lien
99>

2) 1evy and sale of real property
1evy - is the sei!ure of real property and interest in or rights to
such properties for the satisfaction of taxes due from the delin*uent
taxpayer.
he re*uisites are the same as that of distraint.
9=@
3) :orfeiture of real property to the
government for want of bidder
9="

Implies a divestiture of property without compensation, in
conse*uence of a default or o&ense.
Includes the idea of not only losing but also having the property
transferred to another without the consent of the owner and
wrongdoer.
4) :urther distraint and levy
9='

5) #uspension of business operation
9=(

6) %on-availability of injunction to
restrain collection of tax
%o court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue tax, fee or
charge imposed by the $ode.
9=-
669 #1!r"
670 Ibi%.
671 ;3ect6 7r"$#+er the title t) the #!eci?c thi$0 +r)/ the )-$er t) the
0)8er$/e$t. >he$ "8"il"ble6
1.() bi%%er +)r the re"l !r)!ert, e.!)#e% +)r #"le.
2.I+ hi0he#t bi% i# +)r "$ "/)1$t i$#1Bcie$t t) !", the t".e#, !e$"ltie# "$% c)#t#.
- >ithi$ t-) %",# there"+ter, " ret1r$ )+ the !r)cee%i$0
i# %1l, /"%e. C)- e$+)rce%6
1. I$ c"#e )+ !er#)$"l !r)!ert, H b, #ei21re "$% #"le )r %e#tr1cti)$ )+ the #!eci?c
+)r+eite% !r)!ert,.
2. I$ c"#e )+ re"l !r)!ert, H b, " :1%0/e$t )+ c)$%e/$"ti)$ "$% #"le i$ " le0"l
"cti)$ )r !r)cee%i$0,
ci8il )r cri/i$"l, "# the c"#e /", re=1ire.
672 #1!r" 673 Ibi%.
674 Sec. 218
19
2
,xceptionA
Injunction may be issued by the $A in aid of its appellate
jurisdiction.
9=8
b. <udicial remedies
9=9
$ivil Action
9==
$riminal Action
9=?
".
2y fling a civil case
9=>
to
collect internal
+enerally resorted to by the 2I0
when the
revenue taxes in regular courts
9?@
summary remedies for the
collection of taxes
'.
2y fling an answer to the
petition for
have proven ine&ective and
futile.
9?'
review fled by the taxpayer with
the $A
9?"
Instituted not to demand payment
but to
penali!e taxpayer for the violation
of the
%I0$.
675 J$%er Sec. 11 )+ '.A. 112, ("# "/e$%e% b, 'A 9282) - -he$ i$ the )!i$i)$ )+ the
5)1rt the c)llecti)$ /", :e)!"r%i2e the i$tere#t )+ the &)8er$/e$t "$%M)r the t".!",er, the
5)1rt, "t "$, #t"0e )+ the !r)cee%i$0, /", #1#!e$% the #"i% c)llecti)$ "$% re=1ire the
t".!",er either t) %e!)#it the "/)1$t cl"i/e% )r t) ?le " #1ret, b)$% +)r $)t /)re th"$
%)1ble the "/)1$t -ith the 5)1rt.
676 5i8il "$% 5ri/i$"l Acti)$#6
1.Kr)10ht i$ the $"/e )+ the &)8er$/e$t )+ the Phili!!i$e#.
2. 5)$%1cte% b, Le0"l LBcer )+ KI'
3. *1#t be -ith the "!!r)8"l )+ the 5I', i$ c"#e )+ "cti)$, +)r rec)8er, )+ t".e#, )r
e$+)rce/e$t )+ " ?$e, !e$"lt, )r +)r+eit1re.
677 F)r t". re/e%, !1r!)#e#, the#e "re "cti)$# i$#tit1te% b, the 0)8er$/e$t t) c)llect
i$ter$"l
re8e$1e t".e# i$ the re01l"r c)1rt# "+ter "##e##/e$t b, 5I' h"# bec)/e ?$"l "$%
e.ec1t)r,.
It i$cl1%e#, h)-e8er, the ?li$0 b, the 0)8er$/e$t )+ cl"i/# "0"i$#t the
%ece"#e% t".!",er -ith the !r)b"te c)1rt.
678 7he cri/i$"l ch"r0e i# ?le% %irectl, -ith the Ge!"rt/e$t )+ D1#tice -ith the
"!!r)8"l )+ the 5I'. 7hei$+)r/"ti)$#h)1l% be ?le%6
1. 57A - )$ cri/i$"l )3e$#e# "ri#i$0 +r)/ 8i)l"ti)$# )+ the (I'5 )r 7"ri3 "$%
51#t)/# 5)%e "$% )ther l"-# "%/i$i#tere% b, the KI' "$% the KL5 -here the
!ri$ci!"l "/)1$t )+ t".e# "$% +ee#, e.cl1#i8e )+ ch"r0e# "$% !e$"ltie#cl"i/e% i# P1
/illi)$ "$% "b)8e.
2. '75, *75, *e75 - )$ cri/i$"l )3e$#e# "ri#i$0 +r)/ 8i)l"ti)$# )+ the (I'5 )r 7"ri3
"$% 51#t)/# 5)%e "$% )ther l"-# "%/i$i#tere% b, the KI' "$% the KL5 -here the
!ri$ci!"l "/)1$t )+ t".e# "$% +ee#, e.cl1#i8e )+ ch"r0e# "$% !e$"ltie#cl"i/e% i# le##
th"$ P1 /illi)$. (Sec. 7, '.A. 9282)
679 -ithi$ ,e"r# +r)/ the %"te )+ the "##e##/e$t
680 '75 )r *75#, %e!e$%i$0 )$ the "/)1$t i$8)l8e%
>he$ "##e##/e$t /"%e h"# bec)/e ?$"l "$% e.ec1t)r, +)r +"il1re )r t".!",er t)6
1. Gi#!1te #"/e b, ?li$0 !r)te#t -ith 5I'
2. A!!e"l "%8er#e %eci#i)$ )+
5I' t) 57A D1ri#%icti)$6
I+ c"#e i$8)l8e# c)llecti)$ )+ "##e##e% !ri$ci!"l t".e# "/)1$ti$0 t)
1* )r /)re- 57A I+ l)-er th"$ 1*- '75 "$% )ther l)-er c)1rt#
681 I+ 5)//i##i)$er ?le# the c"#e- 'e!1blic )+ the Phil#. i# the !"rt, !l"i$ti3; -he$ it i# the
t".!",er -h) ?le# " !etiti)$ +)r re8ie- i$ 57A, the re#!)$%e$t i# the 5)//i##i)$er.
682 A %irect /)%e )+ c)llecti)$ )+ t".e#, the :1%0/e$t )+ -hich #h"ll $)t )$l, i/!)#e the
!e$"lt, b1t "l#) )r%er !",/e$t )+ t".e#.
683 A$ "##e##/e$t )+ " t". %e?cie$c, i# $)t $ece##"r, t) " cri/i$"l !r)#ec1ti)$
+)r t". e8"#i)$, !r)8i%e% therei# " !ri/" +"cie #h)-i$0 )+ -ill+1l "tte/!t t) e8"%e.
193
3. #tatutory 4&enses and
)enalties a. $ivil
penalties
hey are imposed in addition to the tax re*uired to be paid.
"E #urcharge
A civil penalty imposed by law as an addition to the main tax
re*uired to be paid. It is not a criminal penalty but a civil
administrative sanction provided primarily as safeguard for the
protection of the #tate revenue and to reimburse the government for
the expenses of investigation and the loss resulting from the
taxpayer3s fraud.
9?(
A surcharge added to the main tax is subject to interest.
2) Interest
1)In +eneral
Assessed and collected on any unpaid amount of tax at the rate
of twenty percent D'@OE per annum from the date prescribed for
payment until the amount is fully paid.
9?-
bE /efciency interest
he 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 '@O per annum,
9?8
from the date prescribed
for its payment until it is fully paid.
cE /elin*uency interest
he interest of '@O per annum re*uired to be paid in case of
failure to payA
(1) he amount of the tax due on any return to be fled, or
(2) he amount of the tax due for which no return is re*uired, or
(3) A defciency tax, or any surcharge or interest thereon on the
due date appearing in the notice and demand of the $ommissioner.
9?9

683 A #1rch"r0e "%%e% t) the /"i$ t". i# #1b:ect t) i$tere#t.
684 Sec. 249 (A)
685 )r #1ch hi0her r"te "# /", be !re#cribe% b, the r1le# "$% re01l"ti)$#
686 I%., (5)
19
4
dE Interest on extended payment
If any person re*uired to pay the tax is *ualifed and elects to
pay the tax on installment but fails to pay the tax or any installment
hereof, or any part of such amount or installment on or before the
date prescribed for its payment, or where the $ommissioner has
authori!ed an extension of time within which to pay a tax or a
defciency tax or any part thereof, there shall be assessed and
collected interest at the rate prescribed on the tax or defciency tax or
any part thereof unpaid from the date of notice and demand until it is
paid.
9?=
4. $ompromise and Abatement
of taxes
9??
a. $ompromise
Involves a mere reduction of the tax.
b. Abatement
A cancelation of the entire liability.
687 I%., (G)
688 #1!r"
19

7. 4rgani!ation and :unction of the 2ureau of Internal

0evenue
1. 0ule-making authority of the #ecretary of :inance
1. Authority of #ecretary of fnance to
promulgate rules and regulations
Bpon recommendation of the $ommissioner, for the e&ective
enforcement of the provisions of the $ode.
9?>
2. #pecifc provisions to be contained in rules
and regulations
(1) he time and manner in which 0evenue 0egional /irector
shall canvass their respective 0evenue 0egions for the purpose of
discovering persons and property liable to national internal revenue
taxes, and the manner in which their lists and records of taxable
persons and taxable objects shall be made and kept.
(2) he forms of labels, brands or marks to be re*uired on goods
subject to an excise tax, and the manner in which the labelling,
branding or marking shall be e&ected.
(3) he conditions under which and the manner in which goods
intended for export, which if not exported would be subject to an
excise tax, shall be labelled, branded or marked.
(4) he conditions to be observed by revenue o&icers respecting
the institutions and conduct of legal actions and proceedings.
(5) he conditions under which goods intended for storage in
bonded warehouses shall be conveyed thither, their manner of storage
and the method of keeping the entries and records in connection
therewith, also the books to be kept by 0evenue Inspectors and the
reports to be made by them in connection with their supervision of
such houses.
(6) he conditions under which denatured alcohol may be
removed and dealt in, the character and *uantity of the denaturing
material to be used, the manner in which the process of denaturing
shall be e&ected, so as to render the alcohol suitably denatured and
unft for oral intake, the bonds to be given, the books and records to
be kept, the entries to be made therein, the reports to be made to the
$ommissioner, and the signs to be displayed in the business ort by the
person for whom such denaturing is done or by whom, such alcohol is
dealt in.
(7) he manner in which revenue shall be collected and paid, the
instrument, document or object to which revenue stamps shall be
a&ixed, the mode of cancellation of the same, the manner in which the
proper books, records, invoices and other papers shall be kept and
entries therein made by the person subject to the tax, as well as the
manner in which licenses and stamps shall be gathered up and
returned after serving their purposes.
689
Sec. 244
196
(8) he conditions to be observed by revenue o&icers respecting
the enforcement of itle III imposing a tax on estate of a decedent,
and other transfers mortis causa, as well as on gifts and such other
rules and regulations which the $ommissioner may consider suitable
for the enforcement of the said itle III.
(9) he manner in which tax returns, information and reports
shall be prepared and reported and the tax collected and paid, as well
as the conditions under which evidence of payment shall be furnished
the taxpayer, and the preparation and publication of tax statistics.
(10) he manner in which internal revenue taxes
9>@
shall be paid
through the collection o&icers of the 2ureau of Internal 0evenue or
through duly authori!ed agent banks which are hereby deputi!ed to
receive payments of such taxes and the returns, papers and
statements that may be fled by the taxpayers in connection with the
payment of the tax.
3. %on-retroactivity of rulings
If the revocation, modifcation or reversal will be prejudicial to
the taxpayers, exceptA
(1) 7here the taxpayer deliberately misstates or omits material
facts from his return or any document re*uired of him by the 2ureau
of Internal 0evenue.
(2) 7here the facts subse*uently gathered by the 2ureau of
Internal 0evenue are materially di&erent from the facts on which the
ruling is based. or
(3)7here the taxpayer acted in bad faith.
9>"

2. )ower of the $ommissioner to suspend the
business operation of a taxpayer
9>'

69<
#1ch "# i$c)/e t"., i$cl1%i$0 -ithh)l%i$0 t"., e#t"te "$% %)$)rQ# t".e#, 8"l1e-
"%%e% t"., )ther !erce$t"0e t".e#, e.ci#e t".e# "$% %)c1/e$t"r, #t"/! t".e#
691 Sec. 246
692 #1!r"
19
7
61. !ocal Government Code of 1991, as amended
A. 1ocal +overnment axation
9>(

1. :undamental principles
9>-

1. axation shall be uniform
9>8
in each 1+B
2. axes, fees, charges and other impositions shall beA
1. ,*uitable and based on the taxpayer3s ability to pay.
2. :or public purpose.
9>9

3. %ot unjust, excessive, oppressive or confscatory.
4. %ot contrary to law, public policy, national economic
policy, or in restraint of trade.
3. he collection of local taxes, fees, charges and other
impositions shall in no case be 1et to any private person.
4. he revenue collected pursuant to the provisions of the 1+$
shall Inure solely
to the beneft of, and be subject to the disposition by, the local
government unit levying the tax, fee, charge or other imposition
unless otherwise specifcally provided herein. and
e. ,ach 1+B shall, as far as practicable, evolve a progressive
system of taxation.
9>=
693
7he !)-er t) t". -hich /", be e.erci#e% b, l)c"l le0i#l"ti8e b)%ie# i# $) l)$0er
/erel, b, $"t1re )+ " 8"li% %ele0"ti)$ "# be+)re b1t !1r#1"$t t) %irect "1th)rit,
c)$+erre% b, Sec. , Art. X )+ the 5)$#tit1ti)$ (,actan Ceb# Intn>l Airport vs. ,arcos,
&.'. (). 12<<82, Se!t 11, 1996)
>here there i# $either " 0r"$t $)r " !r)hibiti)$ b, #t"t1te, the t". !)-er /1#t be
%ee/e% t) e.i#t "lth)10h 5)$0re## /", !r)8i%e #t"t1t)r, li/it"ti)$# "$% 01i%eli$e#.
7he b"#ic r"ti)$"le +)r the c1rre$t r1le i# t) #"+e01"r% the 8i"bilit, "$% #el+-
#1Bcie$c, )+ l)c"l 0)8er$/e$t 1$it# b, %irectl, 0r"$ti$0 the/ 0e$er"l "$% br)"% t".
!)-er (,.RALCO vs. !rov. of Laguna, &.'. () 13139, *", , 1999
694 "l#) 4$)-$ "# the re=1i#ite# )+ /1$ici!"l t"."ti)$
"rticle# )+ the #"/e cl"## #h"ll be t".e% "t the #"/e r"te -ithi$ the #"/e territ)ri"l :1ri#%icti)$ )+ the t".i$0 "1th)rit,.
696 P1blic P1r!)#e H Pr)cee%# )bt"i$e% "re t) be 1#e% t) #1!!)rt the e.i#te$ce )+ the
L&J.
697
D1#t 7"."ti)$ H *1$ici!"l c)r!)r"ti)$# "re "ll)-e% " -i%e r"$0e i$ %eter/i$i$0 t".
r"te# )+ i/!)#"ble t".e# "$% lice$#e +ee#.
198
'. %ature and source of taxing power
1. +rant of local taxing power under the 1ocal
+overnment $ode
,ach local government unit shall exercise its power to create its
own sources of revenue and to levy taxes, fees, and charges subject to
the provisions herein, consistent with the basic policy of local
autonomy. #uch taxes, fees, and charges shall accrue exclusively to
the local government units.
9>?
b. Authority to prescribe penalties for tax
violations
he sanggunian of a local government unit is authori!ed to
prescribe fnes or other penalties for violation of tax ordinances but in
no case shall such fnes be less than 4ne thousand pesos D)",@@@.@@E
nor more than :ive thousand pesos D)8,@@@.@@E, nor shall
imprisonment be less than one D"E month nor more than six D9E
months. #uch fne or other penalty, or both, shall be imposed at the
discretion of the court.
he sangguniang barangay may prescribe a fne of not less than
4ne hundred pesos D)"@@.@@E nor more than 4ne thousand pesos
D)",@@@.@@E.
9>>
c. Authority to grant local tax exemptions
1ocal government units may, through ordinances duly approved,
grant tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.
=@@
d. 7ithdrawal of exemptions
ax exemptions or incentives granted to, or presently enjoyed by
all persons, whether natural or juridical, including government-owned
or -controlled corporations, except local water districts, cooperatives
duly registered under 0.A. %o. 9>(?, non -stock and non-proft
hospitals and educational institutions, are hereby withdrawn upon the
e&ectivity of this $ode.
=@"
e. Authority to adjust local tax rates
1+Bs are given authority to adjust the tax rates, but the
adjustment should be made not oftener than once every 8 years but in
no case shall the adjustment exceed "@O of the rates fxed under the
1+$.
=@'
698 Sec. 129
699 Sec. 16
700 Sec. 192
7he !)-er t) 0r"$t t". e.e/!ti)$#, t". i$ce$ti8e# "$% t". relie+# #h"ll $)t "!!l, t)
re01l"t)r, +ee# -hich "re le8ie% 1$%er the !)lice !)-er )+ theL&J.
701 Sec. 193
702 Sec 191
19
9
f. 0esidual taxing power of local governments
1+Bs may exercise the power to levy taxes, fees or charges on
any base or subject not otherwise specifcally enumerated herein or
taxed under the
1. 1ocal +overnment $ode.
2. %ational Internal 0evenue $ode. or
3. 4ther applicable laws.
=@(

g. Authority to issue local tax ordinances
he power to impose a tax, fee, or charge or to generate
revenue shall be exercised by the sanggunian of the local government
unit concerned through an appropriate ordinance.
=@-
3. 1ocal taxing authority
a. )ower to create revenues exercised
thru 1+Bs 1ocal governments are authori!ed to impose
and collect the following chargesA
1. 0easonable fees and charges for services rendered.
=@8

2. )ublic Btility $harges ifA
1. 4wned, operated and maintained
2. 7ithin their jurisdiction
=@9

3. ools, :ees or $harges forA
1. Bse of public road, pier or wharf, waterway bridge,
ferry or telecommunication system
2. :unded and constructed by the local government
=@=

703 Sec. 186
704 Sec. 132
705 Sec. 13 706 Sec. 14
707 Sec. 1
2<
<
2. )rocedure for approval and e&ectivity of tax
ordinances
1. he procedure applicable to local government ordinances in
general should be observed.
=@?

he following procedural details must be complied withA
1. %ecessity of *uorum
2. #ubmission for approval by the local chief executive
3. he matter of veto and overriding the same
4. )ublication and e&ectivity
=@>

2. )ublic hearings are re*uired before any local tax ordinance is
enacted.
="@

3. 7ithin "@ days after their approval, publication in full for (
consecutive days in a newspaper of general circulation. In the
absence of such newspaper in the province, city or municipality, then
the ordinance may be posted in at least two conspicuous and publicly
accessible places.
=""

4. #cope of taxing power
1. ,ach local government unit shall exercise its power to create
its own sources of revenue and to levy taxes, fees, and charges,
consistent with the basic policy of local autonomy. #uch taxes, fees,
and charges shall exclusively accrue to it.
="'

2. All local government units are granted general powers to levy
taxes, fees or charges on any base or subject not otherwise
specifcally enumerated herein or taxed under the provisions of the
%I0$, as amended, or other applicable laws. he levy must not be
unjust, excessive, oppressive, confscatory or contrary to a declared
national economic policy.
="(

3. %o such taxes, fees or charges shall be imposed without a
public hearing having been held prior to the enactment of the
ordinance.
="-

4. $opies of the provincial, city, 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.
="8

708 Sec. 187
709 Sec#. 4, , "$% 9
710 Sec. 187
711 Sec. 188 V 189
712 Sec. 129 713 Sec. 186
714 Sec. 187
2<
1
5. #pecifc taxing power of local
government unit D1+BsE a. axing
powers of provinces
1) ax on transfer of real property
="9
ownership
ransaction taxed
0ate
,xception from tax
ransaction taxed
ax 0ate
#
al
e,
b
ar
te
r,
or
a
n
y
ot
h
er
m
o
d
e
of
tr
a
ns
fe
rr
in
g
o
w
n
er
sh
ip
of
,
or
title to, real
property
At not more
than 8@O of
"O total
consideration.
="=
he sale,
transfer or
other
disposition of
real property
pursuant to
0.A. 998=.
="?
'E ax on
business
of printing
and
publicatio
n
2usiness of
printing and
publication of
books, cards,
posters,
leaMets,
handbills,
certifcates,
receipts,
pamphlets, and
other similar
nature
%ot exceeding 8@O
of "O of the gross
annual receipts for
the preceding
cal
en
da
r
ye
ar,
in
the case of
newly started
business, not
to exceed "6'@
of "O of the
capital
investment
,xception
188
716 'e"l
Pr)!ert, H
re+er# )$l, t)
l
"
$
%
#
,
b
1
i
l
%
i
$0#,
"$%
/"chi$
erie#
i$te$%e
% b,
the
)-$er
)+ the
l"$% )r
b1il%i$
0 +)r "$
i$%1#tr, )r -)r4#
-hich /", b, c"rrie%
)$ i$ " b1il%i$0 )r )$
" !iece )+ l"$% "$%
-hich
te$% %irectl, t) /eet
the $ee%# )+ the
i$%1#tr, )r -)r4#.
717 7". b"#e H
1. t)t"l
c)$#i%er"ti)$ )r
2. +"ir /"r4et
8"l1e,
-hiche8er i#
hi0her
718 5)/!rehe$#i8e
A0r"ri"$ 'e+)r/
L"-
2<2
:ranchis
e
ax 0ate
ax base
ax 0ate
Issuance of )ermit
(E
:ran
chis
e
tax
="
>
+ener
ally
refers
to a
privile
ge
confer
red by
the
govern
ment
on an
individ
ual or
corpor
ation,
which
does
not
belong
to the
citi!en
s by
common right
%ot exceeding 8@O of "O,
if newly started business,
"6'@ of " O
+ross annual receipts of
preceding calendar year
based onA
1) Incoming receipts, or
2) 0eali!ed within territorial
jurisdiction.
4) ax on sand, gravel and
other *uarry services
='@

%ot more than "@O of fair
market value
o permit to extract the
sand, gravel and other
*uarry resources shall be
issued exclusively by the
provincial governor
pursuant to the ordinance
of the sangguniang
panlalawigan
)+ Fr"$chi#e 7". H t) be i$ "%%iti)$ t) the +r"$chi#e t". i/!)#e% b, the $"ti)$"l 0)8er$/e$t )$ b1#i$e## -hich "re h)l%er# )+ +r"$chi#e e.ce!t -he$ )ther-i#e !r)hibite% b, l"-.
719

720 Gi#trib1
ti)$ )+ the
Pr)cee%# H
7he !r)cee%# )+ the t". #h"ll
be %i#trib1te% "# +)ll)-#
1.Pr)8i$ce H 3<I
2.5)/!)$e$t cit, )r
/1$ici!"lit, -here the
#"$%, etc "re e.tr"cte%
H 3<I
3. K"r"$0", -here the
#"$%, etc. "re e.tr"cte%
H 4<I
2<3
ax rate
7hen paid
7here
ax 0ate
,xemption
,xceptions to
exemption
8E )rofessional tax
='"
In such as !anggunian may
determine and in no case to
exceed )(@@
4n or before <an. '@
)aid on the place where you
practice your profession.
=''
9E Amusement tax
='(
%ot more than (@O of the
gross receipt from admission
fees
4peras, concerts, dramas,
recitals, painting and art
exhibitions, Mower shows,
musical programs, literary
and oratorical presentation
)op, rock, or similar concert.
=E ax on delivery
truck6van
ransa
ction
taxed
Bse of truck,
van vehicle in
the delivery or
distribution of
distilled
spirits,
fermented
li*
uo
rs,
so
ft
dr
in
ks
,
cigar and
cigarettes
and other
products,
determined
by the
!anggunian
to sales
outlets or
721
Pr)+
e##i
)$ H
" c"lli$0
-Mc
re=1ire#
the
!"##i$0 )+
"$
"
!
!
r
)
!
ri"te
0)8er$
/e$t
b)"r%
)r b"r
e."/i$
"ti)$, #1ch "# the
!r"ctice )+ l"-,
/e%ici$e, !1blic
"cc)1$ti$0,
e$0i$eeri$0, etc.
722 ("t1re
)+
7".
H
!r)+
e##i
)$"l
t".
"!!l
ie#
)$l,
t)
$"t
1r"l
)r
!h,
#ic"l
!er#)$#
"$% $)t t)
:1ri%ic"l
e$titie#.
S"i% t". i#
?.e% )$
the
!ri8ile0e
)+
e.erci#i$0
)r
e$0"0i$0
i$ "
!r)+e##i)$
.

7
h
e

t
"
.

i
#

$
)
t b"#e%
)$ the
"/)1$t
)+
e"r$i$0
# )+ the
t".!",
er.
723 0
)8er$
/e$t
e/!l
),ee#
"re
e.e/
!te%
+r)/
!",i$
0 P7
724 A
/1#e
/e$t
H
!le"#1r"ble
%i8er#i)$ "$%
e$tert"i$/e$t
A/1#e/e$t Pl"ce
H i$cl1%e# the"ter#,
ci$e/"#, c)$cert
h"ll#, circ1#e# "$%
)ther !l"ce# )+
"/1#e/e$t -here
)$e #ee4# "%/i##i)$
t) e$tert"i$ hi/#el+
b, #eei$0 )r 8ie-i$0
the #h)- )r
!er+)r/"$ce (Sec
131 (c))
2 <4
ax
rate
,xe
mpti
on
consumers.
%ot exceeding )8@@ for
every truck, van or any
vehicle used
,xempt from tax on
peddlers.
b. axing powers of cities
$
0ateA
c. axing powers of
municipalities
5un
icipa
lity
may
levy
taxe
s,
fees
and
char
ges
not
othe
rwis
e
levi
ed
by
prov
ince
s
and
cities
"E ax on various
types of
businesses
0ate
5anufacturers,
assemblers, repackers
of At graduated annual
fxed tax based on
li*uors, distilled spirits
and wines gross sales
or receipts for the
preceding
calendar year
in an amount
not to exceed
)9.8 5 or
more, a rate
not
exceeding (=
R of "O is
imposed
7
,xport
e +ra
duat
ed
ann
ual
fxe
d
rate based on
gross sales or
receipts not
exceeding )'5
or more, the
rate not
exceeding 8@O
of "O
%ot
exceedi
ng R of
the
rates
prescr
ibed in
DaE
and
DbE
='-
24

#1!r"
<
$ontracto
rs and other
independe
nt
+raduated annual fxed rate
when the
contractor
s
gross receipts exceeds )'5 the
rate is
not exceeding 8@O of "O
2anks and other
fnancial institutions
)eddlers
Any business not
otherwise specifed
%ot
exceed
ing
8@O of
"O on
the
gross
receip
ts of
preced
ing
calend
ar
year
%ot
exceed
ing
8@O
per
peddle
r
annual
ly
As the
!anggu
nian
may
deem
proper.
7hen
subject
to
excise,
JA or
percent
age tax,
it shall
not
exceed
'O of
gross
receipts
of the
precedi
ng
calenda
r
year.
='8
2)
he
municipalities
within the
5etropolitan
5anila Area
ma
y
lev
y
tax
es
at
rat
es
wh
ich
sh
all
no
t
ex
ce
ed
by
ffty
per
cen
t
D8@
OE
the
ma
xim
um
rat
es
pre
scri
bed
in
the
preceding
#ection.
='9
(E ax 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 di&erence
shall be paid
before the
business is
considered
o&icially
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 di&erence
sh
all
be
pai
d
bef
or
e
th
e
bu
sin
ess
is
co
nsi
de
re
d
o&
ici
ally
reti
red
.
='=
4)
t
sha
ll
be
pay
abl
e
for
eve
ry
sep
arate 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.
725 Sec. 143
726 Sec. 144
727 Sec. 14
2< 6
2. he tax on a business must be paid by the person conducting
the same.
3. In cases where a person conducts or operates ' or more of
the businessesA
1. subject to the same rate of tax - the tax shall be
computed on the combined total gross sales or receipts of the
said ' or more related businesses.
2. subject to di&erent 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) :ees and charges for regulation L
licensing
he municipality may impose and collect such reasonable fees
and charges on business and occupation except professional taxes
reserved for provinces.
='?
1. :ees for #ealing and 1icensing of 7eights and 5easures
='>

2. :ishery 0entals, :ees and $harges, including the authority to
grant fshery privileges within municipal waters, as well as issue
licenses for the operation of fshing vessels of three tons or less.
3. he sanggunian may penali!e the use of explosives, noxious
or poisonous substances, electricity, muro &ami, and other deleterious
methods of fshing and prescribe a criminal penalty therefore.
=(@

728 Sec. 147
729 Sec. 148
730 Sec. 149
2<
7
#ituation
7ith branch or sales
o&ice orwarehouse
7here there is no
branch or sales
o&ice or warehouse
.
9E #itus of tax
collected
0ecognition of sale
All sales made in the
locality where the
branch or o&ice
orwarehouse is
located
he municipality
where the sale or
transaction is made.
he sale shall be
recorded in the
principal o&ice along
with the sales made
by said principal
o&ice
)ayment of tax
he tax shall be
payable to the city or
municipality where
the same is located.
he tax shall accrue
to the city or
municipality where
said principal o&ice is
located
2ranch
o&ice K a
fxed
place in a
locality
which
conducts
operations
of the
business
as an
extension
of the
principal
o&ice.
)rincipal o&ice K head or main
o&ice of the business appearing in
pertinent documents submitted to
the #,$ and specifcally mentioned
in the Articles of Incorporation.
7her
e
there
is a
factor
y,
proje
ct
o&ice
,
plant
or
plant
ation
in
pursu
it of
busin
ess
If
planta
tion is
at a
place
other
than
where
the
factory
is
locate
d
If manufacturer,
contractor, etc. has
two or more factories,
project o&ices, plants
or plantations located
in di&erent localities.
All
sales
shall
be
recor
ded
in the
princi
pal
o&ice
4f
all
sales
recor
ded
in
the
princ
ipal
o&ic
eA
1. (@O
taxabl
e to
the
city or
munic
ipality
where
the
princi
pal
o&ice
is
locate
d.
2. =@O
taxabl
e to
the
city or
munici
pality
where
the
factory,
plant,
etc. is
located
.
he =@O DaboveE
shall be divided as
followsA
1. 9@O to the city
or municipality
where the factory
is.
2. -@O to the city or
m
un
ici
pa
lit
y
w
he
re
th
e
p
la
n
t
a
ti
o
n
is
lo
ca
te
d.
2<8
d. axing powers of barangays
axes on stores 6 retailers with
fxed
0ateA %ot exceeding "O on such
gross sales
business establishment with gross
sales or or receipts
receipts of the preceding calendar
year of
)8@,@@@ or less in the cities L
municipalities
#ervice :ees6 $harges
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
2arangay $learance
4ther fees L charges
%o
cit
y
mu
nic
ipa
lity
ma
y
iss
ue
an
y
lic
en
se6
pe
rm
it
for
an
y
bu
sin
ess
6
act
ivity is
located. :or
such
clearance,
the
sanggunian
g brgy. may
impose
reasonable
fee.
he brgy.
may levy
reasonable
fees L
charges
1) 4n
commercial
s breeding
of fghting
cocks L
cockpits.
2) 4n
places of
recreation w6c charge admission
fees. and
3) 4n billboards, signs boards, neon
sig
ns
an
d outdoor
advertiseme
nt
2
<
9
5. $ommon revenue raising powers
1) #ervice fees and charges
1+Bs may impose and collect such reasonable fees and charges
for services rendered.
=("
'E )ublic utility charges
1+Bs may fx the rates for the operation of public utilities
owned, operated and maintained by them within their jurisdiction.
=('
(E oll fees or charges
he sanggunian concerned may prescribe the terms and
conditions and fx the rates for the imposition of toll fees or charges
for the use of any public road, pier, or wharf,waterway, bridge, ferry
or telecommunication system funded and constructed by the local
government unit concerned.
=((
f. $ommunity tax
he community tax, which replaced the residence tax, is
essentially a poll or capitali!ation tax. It is of fxed amount imposed
upon certain inhabitants of the country without regard to the
property6 occupation in which they may be engaged.
7ho are authori!ed to levy
)ersons liable to tax
731 Sec. 13
732 Sec. 14 733 Sec. 1
734 S
ec
16
$ities or
municipalitie
s may levy a
community
tax, as well
as the rates
L accrual of
the proceeds
thereof.
=(-
".
Individuals K
0ateA )8.@@
an annual
additional
tax of )".@@
for every
)",@@@
income regardless of whether from
business, exercise of profession or
from property w6c in no case shall
exceed )8,@@@.
'. $orporations -
0ateA
Annua
l
comm
unity
tax of )8@@
and an
annual
additional
tax w6c in no
case shall
21<
exceed )"@,@@@
,xemptions from the $ommunity
ax
". /iplomatic and consular
representatives
and
'. ransient visitors when their
stay in the
)hil. /oes not exceed ( mos.
,states of deceased persons, being neither corporations nor
individuals, are not subject to the tax, but the heirs must declare
their proportionate shares of their income.
$ommunity ax $ertifcate K shall be issued to every person or
corporation upon payment of the community tax. It may also be
issued to any corporation6person not subject to the community
tax.
=(8
73
Sec 162
211
9. $ommon limitations on the taxing powers of
1+Bs
=(9
Bnless otherwise provided herein, the exercise of the taxing
power of provinces, cities, municipalities, and barangays shall not
extend to the levy of the followingA
1. Income tax
=(=

2. /ocumentary #tamp ax
3. ax on estates, inheritance, gifts, legacies and other
ac*uisitions mortis causa
'()

4. ,xcise taxes on articles enumerated under the %I0$,
=(>
as
amended, and taxes, fees or charges on petroleum products.
5. )ercentage or JA on sales, barters or exchanges or similar
transactions on goods or services exchanges or similar transactions
on goods or services except as otherwise provided herein
=-@

6. axes 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, land or water except as provided by
the code.
=-"

7. axes, fees and charges imposed under the ari& and $ustoms
$ode and other #pecial 1aws
8. $ustoms duties, registration fees of vessels and wharfage on
wharves, tonnage dues and all other kinds of customs fees, charges
and dues, except wharfage on wharves constructed and maintained by
1+B concerned.
9. axes, fees and charges and other Impositions which
contravene ,xisting +overnment )olicies or which are violative of the
:undamental )rinciples of axation.
736 Sec 133
737 ;.ce!ti)$6 b"$4# "$% )ther ?$"$ci"l i$#tit1ti)$#
738 ;.ce!ti)$6 t". )$ tr"$#+er )+ re"l !r)!ert, )-$er#hi!
739 7"."ble Article# e/b)%ie% i$ the (I'5 "re6
1. Alc)h)lic !r)%1ct#
2. 7)b"cc) !r)%1ct#
3. Petr)le1/ !r)%1ct#
4. *i#cell"$e)1# "rticle#
5. *i$er"l !r)%1ct#
L)c"l 0)8er$/e$t# c"$ t". the #elli$0 )+ the#e ?$i#he% !r)%1ct# )r the r"-
/"teri"l#.
740 Perce$t"0e )+ t".e# H i/!)#e% -he$ there i# #et )+ r"ti)$ bet-ee$ the "/)1$t )+ t".
"$% the 8)l1/e )+ #"le#.
hire "$% )ther %)/e#tic c"rrier# b, l"$%, "ir )r -"ter +)r tr"$#!)rt )+ !"##e$0er#, e.ce!t )-$er# )+ b"$c"# "$% )-$er# )+ "$i/"l %r"-$ t-)--heele% 8ehicle "re #1b:ect t) 3I !erce$t"0e t". )$ their 0r)## =1"rterl, recei!t (Sec 117, (I'5)
Sec. 117 )+ (I'5 #!eci?e# th"t the 0r)## recei!t )+ c)//)$ c"rrier# %eri8e% +r)/
their i$c)/i$0 "$% )1t0)i$0 +rei0ht #h"ll $)t be #1b:ecte% t) l)c"l t".e# i/!)#e%
1$%er L&5.
212
"@.axes, fees, and charges and other impositions upon goods
carried into or out of, or passing through, the territorial jurisdiction of
1+B in the guise of charges for wharfage, tolls for bridges or
otherwise, or other taxes, fees or charges in any form whatever upon
such goods or merchandise.
11. axes, fees, or charges on agricultural and a*uatic products
when sold by marginal farmers or fshermen.
12. axes on business enterprises certifed to by the 2oard of
Investment as pioneer or non-pioneer who enjoy tax holidays
=-'
for a period of 9 and - years, respectively from the date of
registration
13. axes on premiums paid by way of reinsurance or
retrocession.
14. axes, fees or other charges on )hilippine products actually
exported, excepted otherwise provided herein in the 1+$.
15. axes, fees or charges on $ountryside and 2aranggay
2usiness ,nterprises and $ooperative duly registered under 0A %o.
9?"@ and 0A 9>(? otherwise known as the $ooperative $ode of the
)hil. 0espectively.
16. axes, fees or charges of any kind on the %ational
+overnment, its agencies and instrumentalities and 1+B.
17. axes, fees, and charges imposed under special laws.
18. axes, fees or charges for registration of motor vehicles.
=-(

742 e.e/!ti)$ +r)/ i$c)/e t". )$l,
743 ;.ce!ti)$6 7ric,cle#
21
3
7. $ollection of business tax
a. ax period and manner of payment
he calendar year,
=--
whichmay be paid in *uarterly
installments.
=-8
b. Accrual of tax
4n the "
st
day of <anuary of each year.
=-9
%ew taxes, fees or charges or changes accrue on the "
st
day of
the *uarter next following the e&ectively of the ordinance imposing
such new rates.
=-=
c. ime of payment
7ithin the frst '@ days of <anuary or of each subse*uent
*uarter.
=-?
%ot exceeding 9 months K in case of extension of payment.
=->
d. )enalties on unpaid taxes, fees or charges
A surcharge not exceeding '=O of the amount of taxes, fees or
charges and an interest at the rate not exceeding 'O per month until
such amount is fully paid.
In no case the total interest on the unpaid amount or portion
thereof exceed (9 months
=8@
e. Authority of treasurer in collection and
inspection of books
All local taxes, fees, and charges shall be collected by the
provincial, city, municipal, or barangay treasurer, or their duly
authori!ed deputies. he provincial, city or municipal treasurer may
designate the barangay treasurer as his deputy to collect local taxes,
fees, or charges. In case a bond is re*uired for the purpose, the
provincial, city or municipal government shall pay the premiums
thereon in addition to the premiums of bond that may be re*uired
under this $ode.
=8"
he provincial, city, municipal or barangay treasurer may, by
himself or through any of his deputies duly authori!ed in writing,
examine the books, accounts, and other pertinent records of any
person, partnership, corporation, or association subject to local taxes,
fees
744 1$le## )ther-i#e!r)8i%e%
745 Sec. 16
746 1$le## )ther-i#e !r)8i%e%
747 Sec 166
748 1$le## )ther-i#e !r)8i%e%
749 Sec 167 750 Sec168
751 Sec. 17<
21
4
and charges in order to ascertain, assess, and collect the correct
amount of the tax, fee, or charge. #uch examination shall be made
during regular business hours, only once for every tax period, and
shall be certifed to by the examining o&icial. #uch certifcate shall be
made of record in the books of accounts of the taxpayer examined. In
case the examination herein authori!ed is made by a duly authori!ed
deputy of the local treasurer, the written authority of the deputy
concerned shall specifcally state the name, address, and business of
the taxpayer whose books, accounts, and pertinent records are to be
examined, the date and place of such examination, and the procedure
to be followed in conducting the same. :or this purpose, the records
of the revenue district o&ice of the 2ureau of Internal 0evenue shall
be made available to the local treasurer, his deputy or duly authori!ed
representative.
=8'
8. axpayer3s remedies
a. )eriods of assessment and collection of local
taxes, fees or charges
=8(

Assessment $ollection
1- within fve years from the date
they become due.
2- within "@ years, in case of
fraud of intent
to evade
payment
- within 8 years
from the date of
assessment by
administrative
or judicial action
2. )
r
o
t
e
s
t
o
f
a
s
s
e
s
s
m
e
n
t
1. As
se
ss
m
en
t
m
ad
e
by
th
e
loc
al
r
ea
su
re
r
2.
axpayer
has 9@
days from
receipt to
fle written
protest
with
reasurer,
otherwise
it shall
become
fnal and
executory
3. r
ea
su
re
r
ha
s
"@ days within
which to
decide.
=8-

752 Sec. 171
753 S1#!e$#i)$ )+ the
r1$$i$0 )+ the !re#cri!ti8e
Peri)% -
1.7re"#1rer le0"ll,
!re8e$te% +r)/ the
/"4i$0 the
"##e##/e$t )r
c)llecti)$
2.7".!",er re=1e#t# +)r
rei$8e#ti0"ti)$ "$%
e.ec1te# -"i8er i$
-riti$0
3. 7".!",er )1t )+ the
c)1$tr,
4.7".!",er c"$$)t be
l)c"te%
754 7re"#1rer c"$cel#
"##e##/e$t
7re"#1rer %e$ie# !r)te#t
1
-
7
"
.
!
"
,
e
r

"
!
!
e
"
l
#

-
i
t
h
i
$

3
<

%
"
,
#

"
+
t
e
r

r
e
c
e
i
!
t

)
+

%
e
$
i
"
l

7
r
e
"
#
1
r
e
r

%
)
e
#

$
)
t

"
c
t

-
i
t
h
i
$

6
<

%
"
,
#

2- 7".!",er h"#
3< %",# +r)/ the
l"!#e )+ 6< %",# t)
"!!e"l
21
3. $laim for refund of tax credit for
erroneously or illegally collected tax, fee or
charge
A written claim for refund or credit is fled with the local
reasurer within ' years from the date of payment of such tax, fee, or
charge, or from the date the taxpayer is entitled to a refund or credit
9. $ivil remedies by the 1+B for collection of
revenues
1. 1ocal government3s lien for delin*uent
taxes, fees or charges
1. #uperior to all items, charges or encumbrances in favor of
any person, enforceable by the administrative of judicial action
2. $overs not only property or rights subject to the lien but also
upon property used in business.
2. $ivil remedies, in general
1) Administrative action
1. /istraint of goods, chattels or e&ects and other personal
property of whatever
character
2. 1evy upon real property and interest in or rights to real
property
2) <udicial action
,ither of these remedies or all may be pursued concurrently or
simultaneously at the discretion of local government unit
concerned.
=88
DaE #ei!ure
3. )
1) /is
trai
nt
of
per
son
al
pro
per
ty
Bpon failure of
the person owing
any local tax, fee,
or charge to pay
the same at the
time re*uired, the
local treasurer or
his deputy may,
upon written
notice, sei!e or
confscate any
personal property belonging to
that person or any personal
property subject to the lien in
su&icient *uantity to satisfy the
tax, fee, or charge in *uestion,
together with any increment
thereto incident to delin*uency
and the expenses of sei!ure. In
s
u
c
h

c
a
s
e, the local
treasurer or his
deputy shall issue
a duly
authenticated
certifcate
7
Sec 174
2
based upon the records of his o&ice showing
the fact of
delin*uency and the amounts of the tax, fee, or
charge and
penalty due. #uch certifcate shall serve as
su&icient warrant
for the distraint of personal property
aforementioned,
subject to the taxpayerNs right to claim
exemption under the
provisions of existing laws. /istrained personal
property
shall be sold at public auction in the manner
hereon
provided for.
DbE Accounting of
distrained
he o&icer executing the distraint shall make
or cause to be
goods.
made an account of the goods, chattels or
e&ects distrained,
a copy of which signed by himself shall be left
either with
the owner or person from whose possession
the goods,
chattels or e&ects are taken, or at the dwelling
or place or
business of that person and with someone of
suitable age
and discretion, to which list shall be added a
statement of
the sum demanded and a note of the time and
place of sale.
DcE )ublication
he o&icer shall forthwith cause a notifcation
to be
exhibited in not less than three D(E public and
conspicuous
places in the territory of the local government
unit where
the distraint is made, specifying the time and
place of sale,
and the articles distrained. he time of sale
shall not be less
than twenty D'@E days after the notice to the
owner or
possessor of the property as above specifed
and the
publication or posting of the notice. 4ne place
for the
posting of the notice shall be at the o&ice of
the chief
executive of the local government unit in
which the property
is distrained.
(4) 0elease of distrained property
upon payment prior to sale
(5))rocedure of sale
If at any
time prior
to the
consumm
ation of
the sale,
all the
proper
charges
are paid
to the
o&icer
conductin
g the sale,
the goods
or e&ects distrained
shall be restored to
the owner.
At the time and place
fxed in the notice,
the o&icer conducting
the sale shall sell the
goods or e&ects so
distrained at public
auction to the highest
bidder for cash.
7ithin fve D8E days
after the sale, the
local treasurer shall
217
make a report of the proceedings in writing to
the local chief
executive concerned.
=89
DfE /isposition of
proceeds
he proceeds of the sale shall be applied to
satisfy the tax,
including the surcharges, interest, and other
penalties
incident to delin*uency, and the expenses of
the distraint
and sale. he balance over and above what is
re*uired to pay
the entire claim shall be returned to the owner
of the
property sold. he expenses chargeable upon
the sei!ure
and sale shall embrace only the actual
expenses of sei!ure
and preservation of the property pending the
sale, and no
charge shall be imposed for the services of the
local o&icer
or his deputy. 7here the proceeds of the sale
are insu&icient
to satisfy the claim, other property may, in like
manner, be
distrained until the full amount due, including
all expenses,
is collected.
=8=
'E 1evy of real property, procedure
After the expiration of the time re*uired to pay the delin*uent
tax, fee, or charge, real property may be levied on before,
simultaneously, or after the distraint of personal property belonging
to the delin*uent taxpayer. o this end, the provincial, city or
municipal treasurer, as the case may be, shall prepare a duly
authenticated certifcate showing the name of the taxpayer and the
amount of the tax, fee, or charge, and penalty due from him. #aid
certifcate shall operate with the force of a legal execution
throughout the )hilippines.
1evy shall be e&ected by writing upon said certifcate the
description of the property upon which levy is made. At the same
time, written notice of the levy shall be mailed to or served upon the
assessor and the 0egister of /eeds of the province or city where the
property is located who shall annotate the levy on the tax
declaration and certifcate of title of the property, respectively, and
the delin*uent taxpayer or, if he be absent from the )hilippines, to
his agent or the manager of the business in respect to which the
liability arose, or if there be none, to the occupant of the property in
*uestion.
In case the levy on real property is not issued before or
simultaneously with the warrant of distraint on personal property,
and the personal property of the taxpayer is not su&icient to satisfy
his delin*uency, the provincial, city or municipal treasurer, as the
case may be, shall within thirty D(@E days after execution of the
distraint, proceed with the levy on the taxpayerNs real property.
76
Sh)1l% the !r)!ert, %i#tr"i$e% be $)t %i#!)#e% )+ -ithi$ )$e h1$%re% "$%
t-e$t, (12<) %",# +r)/ the %"te )+ %i#tr"i$t, the #"/e #h"ll be c)$#i%ere% "# #)l%
t) the l)c"l 0)8er$/e$t 1$it c)$cer$e% +)r the "/)1$t )+ the "##e##/e$t /"%e
there)$ b, the 5)//ittee )$ A!!r"i#"l "$% t) the e.te$t )+ the #"/e
"/)1$t, the t". %eli$=1e$cie# #h"ll
be c"$celle%.
77
Sec. 16
218
A report on any levy shall, within ten D"@E days after receipt of
the warrant, be submitted by the levying o&icer to the sanggunian
concerned.
=8?
(E :urther distraint or levy
he remedies by distraint and levy may be repeated if necessary
until the full amount due, including all expenses, is collected.
=8>
4) ,xemption of personal property from
distraint or levy
(1) ools and implements necessarily used by the delin*uent
taxpayer in his trade or employment.
(2) 4ne D"E horse, cow, carabao, or other beast of burden, such
as the delin*uent taxpayer may select, and necessarily used by him in
his ordinary occupation.
(3)Cis necessary clothing, and that of all his family.
(4) Cousehold furniture and utensils necessary for
housekeeping and used for that purpose by the delin*uent taxpayer,
such as he may select, of a value not exceeding en thousand pesos
D)"@,@@@.@@E.
(5) )rovisions, including crops, actually provided for individual
or family use su&icient for four D-E months.
(6) he professional libraries of doctors, engineers, lawyers and
judges.
(7) 4ne fshing boat and net, not exceeding the total value of en
thousand pesos D)"@,@@@.@@E, by the lawful use of which a fsherman
earns his livelihood. and
(8) Any material or article forming part of a house or
improvement of any real
property.
=9@

5) )enalty on local treasurer for failure
to issue and execute warrant of
distraint or levy
Any local treasurer who fails to issue or execute the warrant of
distraint or levy after the expiration of the time prescribed, or who is
found guilty of abusing the exercise thereof by competent authority
shall be automatically dismissed from the service after due notice and
hearing.
=9"
758 Sec. 166
759 Sec. 184 760 Sec. 18
761 Sec. 177
21
9
4. )rocedure for judicial action
1) In any court of competent jurisdiction
2) :iled by local reasurer
3) 7ithin 8 years from the date taxes, fees or
charges become due
22
<
2. Real Propert" #a$ation
1. Fundamental principles
1) 0eal property shall be appraised at its current and fair
market value.
2) 0eal property shall be classifed for assessment purposes on
the basis of its actual use.
3) 0eal property shall be assessed on the basis of a uniform
standard within each local government unit.
4) he appraisal, assessment, and collection of real property tax
shall not be let to any private person. and
5. E he appraisal and assessment of real property shall be
e*uitable
=9'

2. Nature of real propert tax
)roperty taxes are assessed on all property, or all property of a
certain class located within a certain territory on a specifed date in
proportion to its value or in accordance with some other reasonable
method of apportionment.
=9(
In the )hilippines, a real property tax is an annual ad valorem
tax imposed by 1+B3s on real property within their jurisdiction,
determined on the basis of a fxed proportion of the value of the
property.
3. Imposition of real property tax
a. )ower to levy real property tax
A province or city or a municipality within the 5etropolitan
5anila Area may levy an annual ad valorem tax on real property such
as land, building, machinery, and other improvement not hereinafter
specifcally exempted.
=9-
762 Sec. 198
763 7he +1$cti)$ )+ " !r)!ert, t". i# t) r"i#e re8e$1e. S1ch t". %)e# $)t i/!)#e "$,
c)$%iti)$ $)r %)e# it
!l"ce "$, re#tricti)$ 1!)$ the 1#e )+ the
!r)!ert, t".e%.
764
Sec. 232
221
2. ,xemption from real property tax
=98

1. 0eal property owned by the 0epublic of the )hilippines or any
of its political subdivisions except when the benefcial use thereof has
been granted to a taxable person.
2. $haritable institutions, churches, parsonages, or convents
appurtenant thereto, mos*ues, non proft or religious cemeteries, and
all lands, buildings, and improvements actually, directly and
exclusively used for religious, charitable, or educational purposes.
3. All pieces of machinery and e*uipment that are actually,
directly, and exclusively used by local water districts, and government
K owned or controlled corporations engaged in the supply and
distribution of water and6or generation and transmission of electric
power.
4. All real property owned by duly registered cooperatives,
=99
and
5. 5achinery and e*uipment used for pollution control and
environmental
protection.
4. Appraisal and assessment of real property tax
1. 0ule on appraisal of real property at fair
market value
All real property, whether taxable or exempt, shall be appraised
at the current and fair market value prevailing in the locality where
the property is situated.
=9=
b. /eclaration of real property
It shall be the responsibility of the owner, administrator or their
representatives to declare, under oath, the true value of real property,
taxable or exempt, within 9@ days after the ac*uisition. he sworn
declaration shall be fled once every ( years before <une (@
th
of the
year commencing ">>'. he failure or refusal to make that
declaration within the prescribed period would authori!e the
provincial or city assessor to declare the property in the name of the
defaulting owner, if known, or against an unknown owner as the case
may be, and to assess the property for taxation.
=9?
765 'e"l !r)!ertie# )+ re8ie- #ch))l# "re #1b:ect t) t". (-h,O 5)$#i%ere% "$
)r%i$"r, c)r!)r"ti)$) ()$-#t)c4, $)$!r)?t !ri8"te #ch))l# "re e.e/!t.
Pr)!riet"r, #ch))l# (#t)c4 "$% !r)?t) %1l, "ccre%ite% b, G;5S )r 5C;G "re
e.e/!t, i+ !r)!ert, i# "ct1"ll,, %irectl, "$% e.cl1#i8el, 1#e% +)r e%1c"ti)$"l
!1r!)#e#.
7he ter/ @e.cl1#i8el,A 1$%er the 5)$#tit1ti)$ %)e# $)t /e"$ @#)lel,A b1t )$l,
@!ri/"ril,A (Roman Catholic Church v. /astings, Phil 7<1, !rovince of Abra v.
/ernando, 1<7 S5'A 1<4 V )ther c"#e#).
766 "# !r)8i%e% +)r 1$%er '.A. 6938 767 Sec. 2<1
768 Sec#. 2<1-2<4
22
2
3. 1isting of real property in assessment rolls
(1) In every province and city, including the municipalities within
the 5etropolitan 5anila Area, there shall be prepared and maintained
by the provincial, city or municipal assessor an assessment roll
wherein shall be listed all real property, whether taxable or exempt,
located within the territorial jurisdiction of the local government unit
concerned. 0eal property shall be listed, valued and assessed in the
name of the owner or administrator, or anyone having legal interest in
the property.
(2) he undivided real property of a deceased person may be
listed, valued and assessed in the name of the estate or of the heirs
and devisees without designating them individually. and undivided
real property other than that owned by a deceased may be listed,
valued and assessed in the name of one or more co-owners. #uch heir,
devisee, 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.
(3) he real property of a corporation, partnership, or
association shall be listed, valued and assessed in the same manner as
that of an individual.
(4) 0eal property owned by the 0epublic of the )hilippines, its
instrumentalities and political subdivisions, the benefcial use of
which has been granted, for consideration or otherwise, to a taxable
person, shall be listed, valued and assessed in the name of the
possessor, grantee or of the public entity if such property has been
ac*uired or held for resale or lease.
=9>

4. )reparation of schedules of fair market value
2efore any general revision of property assessment is made,
there shall be prepared a schedule of fair market values by the
provincial, city and municipal assessor of the municipalities within the
5etropolitan 5anila Area for the di&erent classes of real property
situated in their respective local government units for enactment by
ordinance of the sanggunian concerned. he schedule of fair market
values shall be published in a newspaper of general circulation in the
province, city or municipality concerned or in the absence thereof,
shall be posted in the provincial capitol, city or municipal hall and in
two other conspicuous public places therein.
==@
"E Authority of assessor to take evidence
:or the purpose of obtaining information on which to base the
market value of any real property, the assessor of the province, city or
municipality or his deputy may summon the owners of the properties
to be a&ected or persons having legal interest therein and witnesses,
administer oaths, and take deposition concerning the property, its
ownership, amount, nature, and value.
=="
769 Sec. 2<
770 Sec. 212
771 Sec. 213
22
3
'E Amendment of schedule of fair market
value
he provincial, city or municipal assessor may recommend to
the sanggunian concerned amendments to correct errors in valuation
in the schedule of fair market values. he sanggunian concerned shall,
by ordinance, act upon the recommendation within ninety
(90)days from receipt thereof.
=='

5. $lasses of real property
:or purposes of assessment, real property shall be classifed as
residential, agricultural, commercial, industrial, mineral, timberland
or special.
he city or municipality within the 5etropolitan 5anila Area,
through their respective sanggunian, shall have the power to classify
lands as residential, agricultural, commercial, industrial, mineral,
timberland, or special in accordance with their !oning ordinances.
==(
6.Actual use of property as basis of
assessment 0egardless of where located, whoever
owns it, and whoever uses it.
==-

7. Assessment of real property
1) Assessment levels
he assessment levels to be applied to the fair market value of
real property to determine its assessed value shall be fxed by
ordinances of the sangguniang panlalawigan, sangguniang
panlungsod or sangguniang bayan of a municipality within the
5etropolitan 5anila Area, at the rates not exceeding the followingA
DaE 4n 1andsA
$1A##A##,##5,% 1,J,1#
0esidential '@O
Agricultural -@O
$ommercial 8@O
Industrial 8@O
5ineral 8@O
imberland '@O
772 Sec. 214
773 Sec. 21
774 Sec. 217
22
4
DbE 4n 2uildings and 4ther #tructuresA
D"E 0esidential
:air market Jalue
4ver %ot 4ver
Assessment
1evels
)"=8,@@@.@@ @O
)"=8,@@@.@@
(@@,@@@.
@@ "@O
(@@,@@@.@@
8@@,@@@.
@@ '@O
8@@,@@@.@@
=8@,@@@.
@@ '8O
=8@,@@@.@@
",@@@,@@
@.@@ (@O
",@@@,@@@.@@
',@@@,@@
@.@@ (8O
',@@@,@@@.@@
8,@@@,@@
@.@@ -@O
8,@@@,@@@.@@
"@,@@@,@@
@.@@ 8@O
"@,@@@,@@@.@@ 9@O
D'E Agricultural
:air 5arket Jalue
4ver
%ot
4ver
Assessment
1evels
)(@@,@@@.@@ '8O
)(@@,@@@.@@
8@@,@@@.
@@ (@O
8@@,@@@.@@
=8@,@@@.
@@ (8O
=8@,@@@.@@
",@@@,@@
@.@@ -@O
",@@@,@@@.@@
',@@@,@@
@.@@ -8O
',@@@,@@@.@@ 8@O
D(E $ommercial 6 Industrial
:air 5arket Jalue
4ver %ot 4ver
Assessment
1evels
)(@@,@@@.@@ (@O
)(@@,@@@.@@
8@@,@@@.
@@ (8O
8@@,@@@.@@
=8@,@@@.
@@ -@O
=8@,@@@.@@
",@@@,@@
@.@@ 8@O
",@@@,@@@.@@
',@@@,@@
@.@@ 9@O
',@@@,@@@.@@
8,@@@,@@
@.@@ =@O
8,@@@,@@@.@@
"@,@@@,@@
@.@@ =8O
"@,@@@,@@@.@@ ?@O
22

D-E imberland
:air 5arket Jalue
4ver
)(@@,@@@.@@
)(@@,@@@.@@
8@@,@@@.@@
=8@,@@@.@@
8,@@@,@@@.@@
',@@@,@@@.@@
DcE 4n 5achineries
$lass Assessment
1evels
Agricultural -@O
0esidential 8@O
$ommercial ?@O
Industrial ?@O
DdE 4n #pecial
$lassesA he
assessment levels
for all lands
buildings,
machineries and
other
improvements.
Actual Bse Assessment 1evel
$ultural
#cientifc
Cospital
1ocal water districts
+overnment-owned
or controlled
corporations
engaged in the
supply and
distribution of water
and6or generation
and transmission of
electric power
"@O
==8
2) +eneral revisions
of assessments
and property
classifcation
7ithin two D'E years after the e&ectivity of
this $ode and every three D(E years thereafter, the
provincial, city or municipal assessor shall
undertake a general revision of real property
assessments.
==9
775 Sec. 218
776 Sec. 219
226
(E /ate of e&ectivity of assessment or
reassessment
5ade after the frst D"stE day of <anuary of any year - shall take
e&ect on the frst D"stE day of <anuary of the succeeding year.
===
-E Assessment of property subject to
back taxes
0eal property declared for the frst time shall be assessed for
taxes for the period during which it would have been liable but in no
case of more than ten D"@E years prior to the date of initial
assessment. #uch taxes shall be computed on the basis of the
applicable schedule of values in force during the corresponding
period.
==?
8E %otifcation of new or revised
assessment
7hen real property is assessed for the frst time or when an
existing assessment is increased or decreased, the provincial, city or
municipal assessor shall within thirty D(@E days give written notice of
such new or revised assessment to the person in whose name the
property is declared. he 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.
8. Appraisal and assessment of machinery
(1) he fair market value of a brand-new machinery shall be the
ac*uisition cost.
==>

(2) If the machinery is imported, the ac*uisition cost includes
freight, insurance, bank and other charges, brokerage, arrastre and
handling, duties and taxes, plus charges at the present site.
=?@

777
7he re"##e##/e$t )+ re"l !r)!ert, %1e t) it# !"rti"l )r t)t"l %e#tr1cti)$, )r t) "
/":)r ch"$0e i$ it# "ct1"l 1#e, )r t) "$, 0re"t "$% #1%%e$ i$N"ti)$ )r %eN"ti)$ )+
re"l !r)!ert, 8"l1e#, )r t) the 0r)## ille0"lit, )+ the "##e##/e$t -he$ /"%e )r t) "$,
)ther "b$)r/"l c"1#e, #h"ll be /"%e -ithi$ $i$et, (9<) %",# +r)/ the %"te "$, #1ch
c"1#e )r c"1#e# )cc1rre%, "$% #h"ll t"4e e3ect "t the be0i$$i$0 )+ the =1"rter $e.t
+)ll)-i$0 the re"##e##/e$t.
778 Sec. 222
779 I$ "ll )ther c"#e#, the +"ir /"r4et 8"l1e #h"ll be %eter/i$e% b, %i8i%i$0 the re/"i$i$0
ec)$)/ic li+e )+ the /"chi$er, b, it# e#ti/"te% ec)$)/ic li+e "$% /1lti!lie% b, the
re!l"ce/e$t )r re!r)%1cti)$ c)#t.
780 7he c)#t i$ +)rei0$ c1rre$c, )+ i/!)rte% /"chi$er, #h"ll be c)$8erte% t) !e#)
c)#t )$ the b"#i# )+ +)rei0$ c1rre$c, e.ch"$0e r"te# "# ?.e% b, the 5e$tr"l K"$4.
22
7
5. $ollection of real property tax
1. /ate of accrual of real
property tax 4n the frst day of <anuary.
=?"

2. $ollection of tax
1) $ollecting authority
he responsibility of the city or municipal treasurer concerned.
he city or municipal treasurer may deputi!e the barangay
treasurer to collect all taxes on real property located in the barangayA
)rovided, the barangay treasurer is properly bonded for the purpose
and the premium on the bond shall be paid by the city or municipal
government concerned.
=?'
2) /uty of assessor to furnish local
treasurer with assessment rolls
he provincial, city or municipal assessor shall prepare and
submit to the treasurer of the local government unit, on or before the
thirty -frst D("stE day of /ecember each year, an assessment roll
containing a list of all persons whose real properties have been newly
assessed or reassessed and the values of such properties.
=?(
(E %otice of time for collection of tax
4n or before the thirty-frst D("stE day of <anuary each year or
any other date to be prescribed by the sanggunian concerned6
#aid notice shall likewise be published in a newspaper of
general circulation in the locality once a week for two D'E consecutive
weeks.
c. )eriods within which to collect real property
tax
7ithin fve D8E years from the date they become due.
=?-
7ithin ten D"@E years from discovery - in case there is fraud or
intent to evade payment of the tax.
=?8
781
Fr)/ th"t %"te it #h"ll c)$#tit1te " lie$ )$ the !r)!ert, -hich #h"ll be #1!eri)r t)
"$, )ther lie$, /)rt0"0e, )r e$c1/br"$ce )+ "$, 4i$% -h"t#)e8er, "$% #h"ll be
e.ti$01i#he% )$l, 1!)$ the !",/e$t )+ the %eli$=1e$t t".(Sec. 246)
782 Sec. 247
783 Sec. 248
784 () "cti)$ +)r the c)llecti)$ )+ the t"., -hether "%/i$i#tr"ti8e )r :1%ici"l, #h"ll be
i$#tit1te% "+ter the
e.!ir"ti)$ )+ #1ch
!eri)%.
78
Sec. 27<
228
4. #pecial rules on payment
1) )ayment of real property tax in
installments
he owner of the real property or the person having legal
interest therein may pay the basic real property tax and the additional
tax for #pecial ,ducation :und D#,:E due thereon without interest in
four D-E e*ual installments. the frst installment to be due and payable
on or before 5arch hirty -frst D("stE. the second installment, on or
before <une hirty D(@E. the third installment, on or before #eptember
hirty D(@E. and the last installment on or before /ecember hirty-frst
D("stE, except the special levy the payment of which shall be governed
by ordinance of the sanggunian concerned.
)ayments of real property taxes shall frst be applied to prior
years delin*uencies, interests, and penalties, if any, and only after
said delin*uencies are settled may tax payments be credited for the
current period.
=?9
'E Interests on unpaid real property tax
wo percent D'OE per month, until the delin*uent tax shall have
been fully paid.
In no case shall the total interest on the unpaid tax or portion
thereof exceed thirty-six D(9E months.
=?=
(E $ondonation of real property tax
In case of a general failure of crops or substantial decrease in
the price of agricultural or agri-based products, or calamity in any
province, city or municipality, the sanggunian concerned, by
ordinance passed prior to the frst D"stE day of <anuary of any year and
upon recommendation of the 1ocal /isaster $oordinating $ouncil,
may condone or reduce, wholly or partially, the taxes and interest
thereon for the succeeding year or years in the city or municipality
a&ected by the calamity.
=??
he )resident of the )hilippines may, when public interest so
re*uires, condone or reduce the real property tax and interest for any
year in any province or city or a municipality within the 5etropolitan
5anila Area.
=?>
7he !eri)% )+ !re#cri!ti)$ -ithi$ -hich t) c)llect #h"ll be #1#!e$%e% +)r the ti/e
%1ri$0 -hich6
1. 7he l)c"l tre"#1rer i# le0"ll, !re8e$te% +r)/ c)llecti$0 the t".;
2. 7he )-$er )+ the !r)!ert, )r the !er#)$ h"8i$0 le0"l i$tere#t therei$ re=1e#t#
+)r rei$8e#ti0"ti)$ "$% e.ec1te# " -"i8er i$ -riti$0 be+)re the e.!ir"ti)$ )+ the
!eri)% -ithi$ -hich t) c)llect; "$%
3. 7he )-$er )+ the !r)!ert, )r the !er#)$ h"8i$0 le0"l i$tere#t therei$ i# )1t )+
the c)1$tr, )r
)ther-i#e c"$$)t be l)c"te% 786 Sec. 2<
787 Sec. 2 788 Sec. 276
789 Sec. 277
22
9
e. 0emedies of 1+Bs for collection of real
property tax
1) Issuance of notice of delin*uency for
real property tax payment
o be posted at the main hall and in a publicly accessible and
conspicuous place in each barangay of the local government unit
concerned. he notice of delin*uency shall also be published once a
week for two D'E consecutive weeks, in a newspaper of general
circulation in the province, city, or municipality.
=>@
'E 1ocal government3s lien
he basic real property tax and any other tax levied constitutes
a lien on the property subject to tax, superior to all liens, charges or
encumbrances in favor of any person, irrespective of the owner or
possessor thereof, enforceable by administrative or judicial action,
and may only be extinguished upon payment of the tax and the related
interests and expenses.
=>"
(E 0emedies in general
he local government unit concerned may avail of the remedies
by administrative action thru levy on real property or by judicial
action.
=>'
-E 0esale of real estate taken for taxes,
fees or charges
he sanggunian concerned may, by ordinance duly approved,
and upon notice of not less than twenty D'@E days, sell and dispose of
the real property ac*uired at public auction. he proceeds of the sale
shall accrue to the general fund of the local government unit
concerned.
=>(
79<
S1ch $)tice #h"ll #!eci+, the %"te 1!)$ -hich the t". bec"/e %eli$=1e$t "$%
#h"ll #t"te th"t !er#)$"l !r)!ert, /", be %i#tr"i$e% t) e3ect !",/e$t. It #h"ll
li4e-i#e #t"te th"t "$, ti/e be+)re the %i#tr"i$t )+ !er#)$"l !r)!ert,, !",/e$t )+ the
t". -ith #1rch"r0e#, i$tere#t# "$% !e$"ltie# /", be /"%e, "$% 1$le## the t".,
#1rch"r0e# "$% !e$"ltie# "re !"i% be+)re the e.!ir"ti)$ )+ the ,e"r +)r -hich the t".
i# %1e e.ce!t -he$ the $)tice )+ "##e##/e$t )r #!eci"l le8, i# c)$te#te%
"%/i$i#tr"ti8el, )r :1%ici"ll,, the %eli$=1e$t re"l !r)!ert, -ill be #)l% "t !1blic
"1cti)$, "$% the title t) the !r)!ert, -ill be 8e#te% i$ the !1rch"#er, #1b:ect,
h)-e8er, t) the ri0ht )+ the %eli$=1e$t )-$er )+ the !r)!ert, )r "$, !er#)$ h"8i$0
le0"l i$tere#t therei$ t) re%ee/ the !r)!ert, -ithi$ )$e (1) ,e"r +r)/ the %"te )+ #"le
(Sec. 24)
791 Sec. 27
792 Sec. 26
793 Sec. 264
23
<
8E :urther levy until full payment of
amount due
1evy may be repeated if necessary until the full amount due,
including all expenses, is collected.
=>-
6. 0efund or credit of real property tax
1. )ayment under protest
(1) %o protest shall be entertained unless the taxpayer frst pays
the tax. here shall be annotated on the tax receipts the words Qpaid
under protestQ. he protest in writing must be fled within thirty D(@E
days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within 5etropolitan
5anila Area, who shall decide the protest within sixty D9@E days from
receipt.
(2) he tax or a portion thereof paid under protest, shall be held
in trust by the treasurer concerned.
(3) In the event that the protest is fnally decided in favor of the
taxpayer, the amount or portion of the tax protested shall be refunded
to the protestant, or applied as tax credit against his existing or future
tax liability.
(4) In the event that the protest is denied or upon the lapse of
the sixty D9@E day period prescribed in subparagraph DaE, the taxpayer
may appeal.
=>8

2. 0epayment of excessive collections
7hen 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 taxpayer may fle a written claim for refund
or credit for taxes and interests with the provincial or city treasurer
within two D'E years from the date the taxpayer is entitled to such
reduction or adjustment.
he provincial or city treasurer shall decide the claim for tax
refund or credit within sixty D9@E days from receipt thereof. In case
the claim for tax refund or credit is denied, the taxpayer may
appeal.
=>9
794 Sec. 26
795 Sec. 22
796 Sec. 23
23
1
7. axpayer3s remedies
a. $ontesting an assessment of value of real
property
1) Appeal to the 1ocal 2oard of
Assessment Appeals D12AAE
7ithin sixty D9@E days from the date of receipt of the written
notice of assessment, any owner or person having legal interest in the
property who is not satisfed with the action of the provincial, city or
municipal assessor in the assessment of his property may appeal to
the 2oard of Assessment Appeals of the provincial or city by fling a
petition under oath in the form prescribed for the purpose, together
with copies of the tax declarations and such a&idavits or documents
submitted in support of the appeal.
=>=
2) Appeal to the $entral 2oard of
Assessment Appeals D$2AAE
7ithin thirty D(@E days after receipt of the decision of said
2oard, the owner of the property or the person having legal interest
therein or the assessor who is not satisfed with the decision of the
2oard, may appeal to the $entral 2oard of Assessment Appeals. he
decision of the $entral 2oard shall be fnal and executory.
=>?
(E ,&ect of payment of tax
Appeal on assessments of real property shall, in no case,
suspend the collection of the corresponding realty taxes on the
property involved as assessed by the provincial or city assessor,
without prejudice to subse*uent adjustment depending upon the fnal
outcome of the appeal.
=>>
2. )ayment of real property under protest
1) :ile protest with local treasurer
?@@

2) Appeal to the 1ocal 2oard of
Assessment Appeals
?@"

3) Appeal to the $entral 2oard of
Assessment Appeals
?@'

797 Sec. 226
798 Sec. 229 (c), l"#t !"r.
799 Sec. 231
800 See K. (6)("), 1$%er 'e+1$% )r cre%it )+ re"l !r)!ert, t"., #1!r"
801 See (")(1), #1!r"
802 See (")(2), #1!r"
23
2
-E Appeal to the $A
2y fling a petition for review
?@(
with the $A within thirty D(@E
days from the receipt of the decision or ruling or in the case of
inaction, from the expiration of the period fxed by law to act
thereon.
?@-
8E Appeal to the #$
2y fling with the said $ourt of Appeals a notice of appeal and
with the #upreme $ourt a petition for review, within thirty D(@E days
from the date he receives notice of the ruling, order or decision. If,
within the aforesaid period, he fails to perfect his appeal, the said
ruling, order or decision shall become fnal and conclusive against
him.
If no decision is rendered by the $ourt within thirty days from
the date a case is submitted for decision, the party adversely a&ected
by said ruling, order or decision may fle with said $ourt a notice of
his intention to appeal to the #upreme $ourt, and if, within thirty D(@E
days from the fling of said notice of intention to appeal, no decision
has as yet been rendered by the $ourt, the aggrieved party may fle
directly with the #upreme $ourt an appeal from said ruling, order or
decision, notwithstanding the foregoing provisions of this section.
If any ruling, order or decision of the $ourt of ax Appeals be
adverse to the +overnment, the $ollector of Internal 0evenue, the
$ommissioner of $ustoms, or the provincial or city 2oard of
Assessment Appeals concerned may likewise fle an appeal therefrom
to the #upreme $ourt in the manner and within the same period as
above prescribed for private parties.
?@8
5i8il Pr)ce%1re
804 Sec. 11, 'A (). 112
805 A$, !r)cee%i$0 %irectl, "3ecti$0 "$, r1li$0, )r%er )r %eci#i)$ )+ the 5)1rt )+ 7".
A!!e"l# #h"ll h"8e !re+ere$ce )8er "ll )ther ci8il !r)cee%i$0# e.ce!t h"be"# c)r!1#,
-)r4/e$Q# c)/!e$#"ti)$ "$% electi)$ c"#e#.
23
3
I%. #ari& and Customs Code of 197', as amended (#CC)
A. ari& and duties, defned
$ustom duties ari&
/uties which are one charged upon
commodities on their being
imported into or exported out of a
country.
A book of rates,
a table or
catalogue drawn
usually in
alphabetical
order containing
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.
2. +eneral
ruleA All
imported
articles
are
subject to
duty.
Importatio
n by the
governme
nt
taxable.
All articles when
imported from a foreign
country including those
previously exported
from the )hilippines are
subject to duty unless
otherwise specifcally
provided for in the ari&
and $ustoms $ode or
other laws.
?@9
$. )urpose
for
imposition
:or
the
protection
of
consumers
and
manufactu
rers, as
well as
)hil.
products
from
undue
competitio
n posed by
foreign-
made
products.
/
.
:
l
e
x
i
b
l
e

t
a
r
i
f
f
c
l
a
u
s
e
A
provision
in the
ari& and
$ustoms
$ode,
?@=
which
implement
s the
constitutio
nally
delegated
power to
the
$ongress
to further
delegate
to the
)resident
of the )hilippines, in
the interest of national
economy, general
welfare and6or national
security upon
recommendation of the
%,/A DaE to increase,
reduce or remove
existing protective
rates of import duty,
provided the increase
should not be higher
than "@@O ad valorem.
DbE to establish import
*uota or to ban imports
of any commodity, and
DcE to impose additional
duty on all imports not
exceeding "@O ad
valorem, among others.
806 Sec. 1<<
807 Sec. 4<1
234
5. 0e*uirements of importation
1. 2eginning and ending of importation
Importation begins when the carrying vessel or aircraft enters
the jurisdiction of the )hilippines with the intention to unload
?@?
therein.
Importation is deemed terminated upon payment of duties,
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, taxes and other
charges, until they have legally left the jurisdiction of the customs.
?@>
2. 4bligations of
importer a.
$argo
manifest
A cargo manifest shall in no case be changed or altered, except
after entry of the vessel, by means of an amendment by the master,
consignee, or agent thereof, under oath, and attached to the original
manifest.
?"@
b. Import entry
It is a declaration to the 24$ showing particulars of the
imported article that will enable the customs authorities to determine
the correct duties. An importer is re*uired to fle an import entry. It
must be accomplished from disembarking of last cargo from vessel.
c. /eclaration of correct weight or value
he declaration, ascertainment or verifcation of the correct
weight of the cargo at the port of loading is the duty or obligation of
the master, pilot, owner, o&icer or employee of the vessel.
?""
If he
omits or disregards this duty and a punishable discrepancy between
the declared weight and actual weight of the cargo exists, the
inevitable conclusion is that he is negligent or careless.
?"'
#imilarly, if
in the exercise or performance of this duty, he is negligent or careless
resulting in the commission of excessive discrepancy in the weight of
the shipNs cargo penali!ed under the law, carelessness or
incompetency is, nonetheless, imputable to him.
808 ;8e$ i+ $)t ,et 1$l)"%e%, "$% there i# 1$/"$i+e#te% c"r0), +)r+eit1re /", t"4e
!l"ce bec"1#e i/!)rt"ti)$ h"# "lre"%, be01$.
809 Sec. 12<2
810 Sec. 1228, 3
r%
!"r., 'e8. A%/. 5)%e
811 Sec. 223
812 See +elgado &hipping Agencies, Inc. vs. Commissioner of Customs, 5.7.A. 5"#e ().
268, Feb. 1, 1977; ,acondra# B Co., Inc. vs. Commissioner of Customs, 5.7.A. 5"#e (). 274
1, Feb. 3, 1977; ,acondra# B Co., Inc, vs. Commissioner of Customs, 5.7.A. 5"#e (). 266,
D"$1"r, 21, 1977 "$% c"#e# cite% therei$.
23

d. 1iability for payment of duties

he liability for duties, taxes, 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, taxes, fees and other charges legally accruing. 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.
?"(
e. 1i*uidation of duties
If the $ollector shall approve the returns of the appraiser and
the report of the weights, gauge or *uantity, the li*uidation shall be
made on the face of the entry showing the particulars thereof,
initiated by the li*uidating clerk, approved by the chief li*uidator, and
recorded in the record of li*uidations.
A daily record of all entries li*uidated shall be posted in the public
corridor of the customhouse, stating the name of the vessel or aircraft,
the port from which she arrived, the date of her arrival, the name of the
importer, and the serial number and date of the entry. A daily record
must also be kept by the $ollector of all additional duties, taxes and
other charges found upon li*uidation, and notice shall promptly be sent
to the interested parties.
?"-
If to determine the exact amount due under the law, some future
action is re*uired, the li*uidation shall be deemed to be tentative as
to the item or items a&ected and shall to that extent be subject to
future and fnal readjustment and settlement. he entry in such case
shall be stamped Qentative li*uidationQ.
?"8
7hen articles have been entered and passed free of duty or fnal
adjustment of duties made, with subse*uent delivery, such entry and
passage free of duty or settlement of duties will, after the expiration
of one year, from the date of the fnal payment of duties, in the
absence of fraud or protest, be fnal and conclusive upon all parties,
unless the li*uidation of the import entry was merely tentative.
?"9
In determining the total amount of duties, taxes, surcharges,
wharfage and6or other charges to be paid on entries, a fraction of a
peso less than ffty centavos shall be disregarded, and a fraction of a
peso amounting to ffty centavos or more shall be considered as one
peso. In case of overpayment or underpayment of duties, taxes,
surcharges, wharfage and6or other charges paid on entries, where the
amount involved is less than fve pesos, no refund or collection shall
be made.
?"=
f. Feeping of records
813 Sec. 12<4
814 Sec. 16<1
815 Sec. 16<2
816 Sec. 16<3
817 Sec. 16<4
23
6
6. Importation in violation of $$
1. #muggling
a. An act of any person who shallA
". :raudulently import any article contrary to law, or
'. Assist in so doing, or
(.
0eceive, conceal, buy, sell, facilitate, transport, conceal
or sell such
article knowing its illegal importation.
?"?
4. ,xport contrary to law.
?">

b. he )hilippines is divided into various ports of entry K entry
other than port of entry, will be smuggling.
'. 4ther 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, declaration, a&idavit, letter, paper, or by means of any false
statement, written or verbal, or by means of any false or fraudulent
practice whatsoever, or shall be guilty of any willful act or omission by
means of whereof the +overnment might be deprived of the lawful
duties, taxes and other charges accruing from the article or any
portion thereof, embraced or referred to in such invoice, declaration,
a&idavit, letter, paper, or statement, or a&ected by such act or
omission, shall, for each o&ense, be punished by a fne of not less than
six hundred pesos nor more than fve thousand pesos and by
imprisonment for not less than six months nor more than two D'E
years. If the o&ender is an alien, he shall be deported after serving the
sentence.
?'@
7. $lassifcation of goods
1. axable importation
All articles imported from any foreign country into the
)hilippines, upon each importation, even though previously exported
from the )hilippines, except as otherwise specifcally provided.
?'"
818 Sec. 36<1
819 Sec. 314 820 Sec. 36<2
821 Sec. 1<1
23
7
2. )rohibited importation
1. /ynamite, gunpowder, ammunitions and other explosives,
frearm and weapons of war, and detached parts thereof, except when
authori!ed by law.%awphil*
2. 7ritten or printed article in any form containing any matter
advocating or inciting treason, rebellion, insurrection or sedition
against the +overnment of the )hilippines, of forcible resistance to
any law of the )hilippines, or containing any threat to take the life of
or inMict bodily harm upon any person in the )hilippines.
3. 7ritten or printed articles, photographs, engravings,
lithographs, objects, paintings, drawings or other representation
of an obscene or immoral character.
4. Articles, instruments, drugs and substances designed,
intended or adapted for preventing human conception or producing
unlawful abortion, or any printed matter which advertises or
describes or gives directly or indirectly information where, how or by
whom human conception is prevented or unlawful abortion
produced.
5. 0oulette wheels, gambling outfts, loaded dice, marked cards,
machines, apparatus or mechanical devices used in gambling, or in
the distribution of money, cigars, cigarettes or other articles when
such distribution is dependent upon chance, including jackpot and
pinball machines or similar contrivances.
6.1ottery and sweepstakes tickets except those
authori!ed by the )hilippine +overnment, advertisements
thereof and lists of drawings therein.
7. Any article manufactured in whole or in part of gold silver or
other precious metal, or alloys thereof, the stamps brands or marks of
which do not indicate the actual fneness or *uality of said metals or
alloys.
8. Any adulterated or misbranded article of food or any
adulterated or misbranded drug in violation of the provisions of the
Q:ood and /rugs Act.Q
9. 5arihuana, opium poppies, coca leaves, or any other
narcotics or synthetic drugs which are or may hereafter be declared
habit forming by the )resident of the )hilippines, any compound,
manufactured salt, derivative, or preparation thereof, except when
imported by the +overnment of the )hilippines or any person duly
authori!ed by the $ollector of Internal 0evenue, for medicinal
purposes only.
10. 4pium pipes and parts thereof, of whatever material.
11. All other articles the importation of which is prohibited by
law.
?''

822
Sec. 1<2
238
8. $lassifcation of duties
1. 4rdinary60egular duties
Imposed on imported articles that enter the country of the
)hilippines in avoidance with the schedules and classifcations
provided under the ari& and $ustoms $ode.
1. Ad valorem. 5ethods of valuation
1) ransaction value
he price actually paid or payable for the goods when sold for
export to the )hilippines, adjusted by addingA
1. he 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 goodsA
1. $ommissions and brokerage fees.
?'(

2. $ost of containers.
3. he cost of packing, whether for labour or materials.
4. he value, apportioned as appropriate, of the following
goods and servicesA materials, components, parts and similar
items incorporated in the imported goods. tools. dies. moulds
and similar items used in the production of imported goods.
materials consumed in the production of the imported goods.
and engineering, development, artwork, design work and plans
and sketches undertaken elsewhere than in the )hilippines and
necessary for the production of imported goods, 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.
5. he amount of royalties and license fees related to the
goods being valued that the buyer must pay, either directly or
indirectly, as a condition of sale of the goods to the buyer.
2. he value of any part of the proceeds of any subse*uent
resale, disposal or use of the imported goods that accrues directly or
indirectly to the seller.
3. he cost of transport of the imported goods from the port of
exportation to the port of entry in the )hilippines.
4. 1oading, unloading and handling charges associated with the
transport of the imported goods from the country of exportation to the
port of entry in the )hilippines. and
823
e.ce!t b1,i$0 c)//i##i)$#
239
e. he cost of insurance.
?'-
'E ransaction value of identical goods
7here the dutiable value cannot be determined under method
one, the dutiable value shall be the transaction value of identical
goods sold for export to the )hilippines and exported at or about the
same time as the goods being valued.
QIdentical goodsQ shall mean goods which are the same in all
respects, including physical characteristics, *uality and reputation.
5inor di&erences in appearances shall not preclude goods otherwise
conforming to the defnition from being regarded as identical.
?'8
(E ransaction value of similar goods
7here the dutiable value cannot be determined under the
preceding method, the dutiable value shall be the transaction value of
similar goods sold for export to the )hilippines and exported at or
about the same time as the goods being valued.
Q#imilar goodsQ shall mean goods which, although not alike in
all respects, have like characteristics and like component materials
which enable them to perform the same functions and to be
commercially interchangeable. he *uality of the goods, their
reputation and the existence of a trademark shall be among the
factors to be considered in determining whether goods are similar.
?'9
xxx
-E /eductive value
2ased on the unit price at which the imported goods or identical
or similar imported goods are sold in the )hilippines, in the same
condition as when imported, in the greatest aggregate *uantity, at or
about the time of the importation of the goods being valued, to
persons not related to the persons from whom they buy such goods,
subject to deductions for the followingA
(1) ,ither the commissions usually paid or agreed to be paid or
the additions usually made for proft and general expenses in
connection with sales in such country of imported goods of the same
class or kind.
(2) he usual costs of transport and insurance and associated
costs incurred within the )hilippines. and
(3) 7here appropriate, the costs and charges referred to in
subsection DAE D(E, D-E and
D8E. and
625 Sec. 1 (A), '.A. 913, "/e$%i$0 Sec. 2<1 )+ 755
626 Sec. 1 (K), I%.
627 Sec. 1 (5), i%.
24
<
D-E he customs duties and other national taxes payable in the
)hilippines by reason of the importation or sale of the goods.
?'=
xxx
8E $omputed value
he sum ofA
(1) he cost or the value of materials and fabrication or other
processing employed in producing the imported goods.
(2) he amount for proft and general expenses e*ual to that
usually reMected 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 )hilippines.
(3) he freight, insurance fees and other transportation expenses
for the importation of the goods.
(4) Any assist, if its value is not included under paragraph D"E
hereof. and
(5) he cost of containers and packing, if their values are not
included under paragraph D"E hereof.
?'?
xxx
9E :allback value
If the dutiable value cannot be determined under the preceding
methods described above, it shall be determined by using other
reasonable means and on the basis of data available in the
)hilippines.
If the importer so re*uests, the importer shall be informed in
writing of the dutiable value determined under 5ethod #ix and the
method used to determine such value.
%o dutiable value shall be determined under 5ethod #ix on the
basis ofA
(1) he selling price in the )hilippines of goods produced in the
)hilippines.
(2) A system that provides for the acceptance for customs
purposes of the higher of two alternative values.
(3) he price of goods in the domestic market of the country of
exportation.
(4) he cost of production, other than computed values, that
have been determined for identical or similar goods in accordance
with 5ethod :ive hereof.
(5) he price of goods for export to a country other than the
)hilippines.
(6) 5inimum customs values. or
827 Sec. 1 (G), i%.
828 Sec. 1 (;), i%.
24
1
(7) Arbitrary or fctitious
values.
?
'>
b.
#pecifc
/uty based on the dutiable weight of goods number or
measurement.
'. #pecial duties
Imposed in addition to regular or ordinary duties principally in
order to protect local industries against unfair competition from
foreign manufacturers or procedures. consumer against possible
deceptions. and national interest.
a. /umping duties
Imposed by the #ecretary of :inance, upon the recommendation
of the ari& $ommission whenA
1. he price of the imported article is deliberately or
continually fxed at less than the fair market value or cost
of production. and
2. 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.
Amount of special dutyA extent of the underpricing.
b. $ountervailing duties
#pecial duty imposed on imported articles which are granted
any kind or form of subsidy by the government in the country or origin
or exportation, the importation of which has caused or threatens to
cause material injury to a domestic industry or has materially relaided
the growth or, prevents the establishment of a domestic industry.
?(@
c. 5arking duties
#pecial duty of fve percent D8OE ad valorem imposed or articles
properly marked, collected by the commissioner, except when such
article is exported or destroyed under the customs supervision and
prior to fnal li*uidation of the corresponding entry.
?("
829 Sec. 1 (F), i%.
830 '.A.
871
'e=1i#ite
#6
1. 7he le8, )+ "$ e.ci#e t". )r i$l"$% t". )r l)c"l 0))%# )+ the #"/e )r #i/il"r
cl"## "# the "rticle i/!)rte% )r the 0r"$t )+ #1b#i%, t) the +)rei0$ e.!)rter b, hi#
0)8er$/e$t; "$%
2. 7he i/!)rt"ti)$ i# li4el, t) i$#1re /"teri"ll, e#t"bli#he% l)c"l i$%1#trie# )r
!re8e$t their e#t"bli#h/e$t#.
A/)1$t )+ #!eci"l %1t,6 ;=1"l t) the b)1$t, )r #1b#i%, )r #1b8e$ti)$.
831 P1r!)#e6 7) !re8e$t !)##ible %ece!ti)$ )+ the c)$#1/er#.
24
2
d. 0etaliatory6/iscriminatory duties
Imposed on imported goods whenever it is found as a fact that
the country of origin discriminates against the commerce of the
)hilippines in such a manner as to place the commerce of the
)hilippines at a disadvantage compared with the commerce of any
foreign country.
e. #afeguard
#afeguard measures are emergency measures, including tari&s,
to protect domestic industries and producers from increased imports
which inMict or could inMict serious injury on them.
?('
he $A is vested with jurisdiction to review decisions of the
#ecretary of rade and Industry imposing safeguard measures.
?((
he /I #ecretary cannot impose the safeguard measures if the
ari& $ommission does not favorably recommend its imposition.
I. /rawbacks
A drawback is a refund or tax credit granted on duties that had
been paid on products that are subse*uently exported, such as on all
fuel imported into the )hilippines used for propulsion of vessels
engaged in trade with foreign countries, or in the coastwise trade, or
articles used as raw materials for items subse*uently exported.
A drawback is a device resorted to for enabling a commodity
a&ected by taxes to be exported and sold in foreign markets upon the
same terms as if it had not been taxed at all. It refers to duties or
taxes paid back or remitted by the government on the exportation of
that on which they were levied under the ari& and $ustoms $ode. It
refers to refund of duties on imported fuel used for provision of
vessels.
832 S"+e01"r%/e"#1re# th"t /", be i/!)#e%. A%%iti)$"l t"ri3#, i/!)rt =1)t"# )r b"$$i$0
)+ i/!)rt#.
833 "# !r)8i%e% 1$%er 'e!. Act (). 88<<, the S"+e01"r% *e"#1re# Act (S*A)
(&outhern Cross Cement Corporation v. The !hilippine Cement ,anufacturers Corp.,
et "l., &. '. (). 184<, D1l, 8, 2<<4)
24
3
10. 0emedies
1. +overnment
a. Administrative6,xtrajudicial
1) #earch, sei!ure, forfeiture, arrest
:or the enforcement of the customs and tari& laws, the
following persons are authori!ed to e&ect searches, sei!ures and
arrests conformably with the provisions of said lawsA
1. 4&icials of the 2ureau of $ustoms, collectors, assistant
collectors, deputy collectors, surveyors, security and secret-service
agents, inspectors, port patrol o&icers and guards of the 2ureau of
$ustoms.
2. 4&icers of the )hilippine %avy when authori!ed by the
$ommissioner.
3. Any person especially authori!ed in writing by the
$ommissioner.
4. 4&icers generally empowered by law to e&ect arrests and
execute processes of courts, when acting under direction of the
$ollector.
5. Any person especially authori!ed by a $ollector, subject to
restrictions.
)ersons exercising the powers hereinabove conferred shall, in
the exercise thereof, have the same authority, be entitled to the
proper protection, and shall be governed by the same law as other
o&icers exercising police authority in general.
?(-
)ersons acting under authority conferred pursuant to subsection
DeE may exercise their authority within the limits of the collection
district only and in or upon the particular vessel or aircraft, or in the
particular place, or in respect to the particular article specifed in the
appointment. All such appointments shall be in writing, and the
original shall be fled in the customhouse of the district where made.
All other persons exercising the powers hereinabove conferred
may exercise the same at any place within the jurisdiction of the
2ureau of $ustoms.
?(8
It shall be within the power of a customs o&icial or person
authori!ed as aforesaid, and it shall be his duty, to make sei!ure of
any vessel, aircraft, cargo, articles, animal or other movable property
when the same is subject to forfeiture or liable for any fne imposed
under customs and tari& laws, and also to arrest any person subject to
arrest for violation of any customs and tari& laws.
?(9
834 Sec. 22<3
835 Sec. 22<4
836 Sec. 22<.
24
4
It shall be the duty of any person exercising authority as
aforesaid, upon being *uestioned at the time of the exercise thereof,
to make known his o&icial character as an o&icer or o&icial of the
+overnment, and if his authority is derived from special authori!ation
in writing to exhibit the same for inspection, if demanded.
?(=
Any person exercising police authority under the customs and
tari& laws may demand assistance of any police o&icer when such
assistance shall be necessary to e&ect any search, sei!ure or arrest
which may be lawfully made or attempted by him. It shall be the duty
of any police o&icer upon whom such re*uisition is made to give such
lawful assistance in the matter as may be re*uired.
?(?
:or the more e&ective discharge of his o&icial duties, any
person exercising the powers herein conferred, may at anytime enter,
pass through, or search any land or enclosure or any warehouse, store
or other building, not being a dwelling house.
?(>
A warehouse, 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, nor will the fact that his
family stays there with him alter the case.
A dwelling house may be entered and searched only upon
warrant issued by a judge or justice of the peace, upon sworn
application showing probable case and particularly describing the
place to be searched and person or thing to be sei!ed.
?-@
It shall be lawful for any o&icial or person exercising police
authority under these provisions to go aboard any vessel or aircraft
within the limits of any collection district, and to inspect, search and
examine said vessel or aircraft and any trunk, package, box or
envelope on board, 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, to use all necessary force to compel compliance. and if it
shall appear that any breach or violation of the customs and tari&
laws of the )hilippines has been committed, whereby or in
conse*uence of which such vessels or aircrafts, or the article, or any
part thereof, on board of or imported by such vessel or aircraft, is
liable to forfeiture, to make sei!ure of the same or any part thereof.
he power of search shall extend to the removal of any false
bottom, partition, bulkhead or other obstruction, so far as may be
necessary to enable the o&icer to discover whether any dutiable or
forfeitable articles may be concealed therein.
%o proceeding herein shall give rise to any claim for the
damage thereby caused to article or vessel or aircraft.
?-"
837 Sec. 22<6
838 Sec. 22<7.
839 Sec. 22<8.
840 Sec. 22<9
841 Sec. 221<
24

It shall also be lawful for a person exercising authority as

aforesaid to open and examine any box, trunk, envelope or other
container, wherever found where he has reasonable cause to suspect
the presence therein of dutiable or prohibited article or articles
introduced into the )hilippines contrary to law, and likewise to stop,
search and examine any vehicle, beast or person reasonably
suspected of holding or conveying such article as aforesaid.
?-'
All persons coming into the )hilippines from foreign countries
shall be liable to detention and search by the customs authorities
under such regulations as may be prescribed relative thereto.
:emale inspectors may be employed for the examination and
search of persons of their own sex.
?-(
Bpon making any sei!ure, the $ollector shall issue a warrant for
the detention of the property. and if the owner or importer desires to
secure the release of the property for legitimate use, the $ollector
may surrender it upon the fling of a su&icient bond, in an amount to
be fxed by him, conditioned for the payment of the appraised value of
the article and6or any fne, expenses and costs which may be adjudged
in the case. he articles the importation of which is prohibited by law
shall not be released under bond.
?--
7hen a sei!ure is made for any cause, the $ollector of the
district wherein the sei!ure is e&ected shall immediately make report
thereof to the $ommissioner and to the Auditor +eneral.
?-8
he $ollector shall give the owner or importer of the property or
his agent a written notice of the sei!ure and shall give him an
opportunity to be heard in reference to the delin*uency which was the
occasion of such sei!ure.
:or the purpose of giving such notice and of all other
proceedings in the matter of such sei!ure, the importer, consignee or
person holding the bill of lading shall be deemed to be the QownerQ of
the article included in the bill.
:or the same purpose, QagentQ shall be deemed to include not
only any agent in fact of the owner of the sei!ed property but also any
person having responsible possession of the property at the DmissingE
of the sei!ure, if the owner or his agent in fact is unknown or cannot
be reached.
?-9
%otice to an unknown owner shall be e&ected by posting a
notice for ffteen days in the public corridor of the customhouse of the
district in which the sei!ure was made, and, in
842 Sec. 2211
843 Sec. 2212
844 Sec. 23<1
845 Sec. 23<2
846 Sec. 23<3
24
6
the discretion of the $ommissioner, by publication in a newspaper or
by such other means as he shall consider desirable.
?-=
he $ollector shall also cause a list and particular description of
the property sei!ed to be prepared and an appraisement or
classifcation of the same at its wholesale value in the local market in
the usual wholesale *uantities to be made by at least two appraising
o&icials, if there are such o&icials at or near the place of sei!ure. in
the absence of such o&icials, then by two competent and disinterested
citi!ens of the )hilippines, to be selected by him for that purpose,
residing at or near the place of sei!ure, which list and appraisement
shall be properly attested to by such $ollector and the persons
making the appraisal.
?-?
If, within ffteen days after the notifcation prescribed in section
twenty-three hundred and four
?->
of this $ode, no owner or agent can
be found or appears before the $ollector, the latter shall declare the
property forfeited to the government to be sold at auction in
accordance with law.
?8@
If, in any sei!ure case, the owner or agent shall, while the case
is yet before the $ollector of the district of sei!ure, pay to such
$ollector the fne imposed by him or, in case of forfeiture, shall pay
the appraised value of the property, or, if after appeal of the case, he
shall pay to the $ommissioner the amount of the fne as fnally
determined by him, or, in case of forfeiture, shall pay the appraised
value of the property, such property shall be forthwith surrendered,
and all liability which may or might attach to the property by virtue of
the o&ense which was the occasion of the sei!ure 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.
0edemption 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 o&ering to redeem the same
would be contrary to law.
?8"
2. <udicial
1) 0ules on appeal including jurisdiction
he party aggrieved by a ruling of the $ommissioner in any
matter brought before him upon protest or by his action or ruling in
any case of sei!ure may appeal to the $ourt of ax Appeals.
Bnless an appeal is made to the $ourt of ax Appeals, the action
or ruling of the $ommissioner shall be fnal and conclusive.
?8'
847 Sec. 23<4
848 Sec. 23<
849 #1!r"
850 Sec. 23<6.
851 Sec. 23<7
852 Sec. 24<2
24
7
2) axpayer
a. )rotest
7hen a ruling or decision of the $ollector is made whereby
liability for duties, fees, or other money charge is determined, except
the fxing of fnes in sei!ure cases, the party adversely a&ected may
protest such ruling or decision by presenting to the $ollector at the
time when payment of the amount claimed to be due the +overnment
is made, or within thirty D(@E days thereafter, a written protest setting
forth his objections to the ruling or decision in *uestion, together with
the reasons therefor. %o protest shall be considered unless payment
of the amount due after fnal li*uidation has frst been made.
?8(
In all cases subject to protest, the interested party who desires
to have the action of the $ollector reviewed, shall make a protest,
otherwise, the action of the $ollector shall be fnal and conclusive
against him, except as to matters correctible for manifest error.
?8-
,very protest shall point out the particular decision or ruling of
the $ollector to which exception is taken or objection made, and shall
indicate with reasonable precision the particular ground or grounds
upon which the protesting party bases his claim for relief.
he scope of a protest shall be limited to the subject matter of a
single adjustment or other independent transaction. 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.
Q#ingle adjustmentQ refers to the entire content of one
li*uidation, including all duties, fees, surcharges or fnes incident
thereto.
?88
If the nature of the articles permit, importers fling protests
involving *uestions of fact must, upon demand, supply the $ollector
with samples of the articles which are the subject matter of the
protests. #uch samples shall be verifed by the custom o&icial who
made the classifcation against which the protest are fled.
?89
7hen a protest in proper form is presented in a case where
protest in re*uired, the $ollector shall reexamine the matter thus
presented, and if the protest is sustained, in whole or in part, he shall
enter the appropriate order, the entry reli*uidated if necessary.
In sei!ure cases, the $ollector, after a hearing, shall in writing
make a declaration of forfeiture or fx the amount of the fne or take
such other action as may be proper.
?8=
he person aggrieved by the decision or action of the $ollector
in any matter presented upon protest or by his action in any case of
sei!ure may, within ffteen D"8E days after notifcation in writing by the
$ollector of his action or decision, give written notice to
853 Sec. 23<8
854 Sec. 23<9
855 Sec. 231<.
856 Sec. 2311
857 Sec. 2312
24
8
the $ollector of his desire to have the matter reviewed by the
$ommissioner. hereupon the $ollector shall forthwith transmit all
the records of the proceedings to the $ommissioner, who shall
approve, modify or reverse the action or decision of the $ollector and
take such steps and make such orders as may be necessary to give
e&ect to his decision.
?8?
%otice of the decision of the $ommissioner shall be given to the
party by whom the case was brought before him for review, and in
sei!ure cases such notice shall be e&ected by personal service if
practicable.
?8>
If in any case involving the assessment of duties the importer
shall fail to protest the ruling of the $ollector, and the $ommissioner
shall be of the opinion that the ruling was erroneous and unfavorable
to the +overnment, the latter may order a reli*uidation. and if the
ruling of the $ommissioner in any unprotested case should, in the
opinion of the department head, be erroneous and unfavorable to the
+overnment, the department head may re*uire the $ommissioner to
order a reli*uidation.
?9@
b. Abandonment
,xpress - when it is made direct to the $ollector by the
interested party in writing.
Implied K when an intention to abandon can be clearly inferred
from the action or omission of the interested party.
he failure of any interested party to fle the import entry within
ffteen days or any extension thereof from the discharge of the vessel
or aircraft shall be implied abandonment.
An implied abandonment shall not be e&ective until the article is
declared by the $ollector to have been abandoned after notice thereof
is given to the interested party as in sei!ure cases.
Any person who abandons an imported article renounces all his
interests and property rights therein.
?9"
he owner or importer of any articles may, within ten D"@E days
after fling of the import entry, abandon to the +overnment all or a
part of the articles included in an invoice, and, thereupon, he shall be
relieved from the payment of duties, taxes and all other charges and
expenses due thereon.
he portion so abandoned is not less than ten per cent D"@OE of
the total invoice and is not less than one package, except in cases of
articles imported for personal or family use. he article so abandoned
shall be delivered by the owner or importer at such place within the
port of arrival as the $ollector shall designate, and upon his failure to
so comply, the owner or importer shall be liable for all expenses that
may be incurred in connection with the disposition of the articles.
858 Sec. 2313
859 Sec. 2314
860 Sec. 231
861 Sec. 18<1
24
9
%othing 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.
?9'
he owner or importer of an article impliedly abandoned may, at
any time before it is sold or otherwise disposed of, reclaim such
article provided all legal re*uirements regarding its importation are
complied with and the corresponding duties, taxes and other charges
as well as all expenses incurred as a conse*uence of the
abandonment, are paid.
?9(
c. Abatement and refund
%o abatement of duties shall be made on account of damage
incurred or deterioration su&ered during the voyage of importation.
and duties will be assessed on the actual *uantity imported, as shown
by the return of weighers, gaugers, measures, examiners or
appraisers, as the case may be.
?9-
7hen any package or packages appearing on the manifest or
bill of lading are missing, a remission or refund of the duty thereon
shall be made if it is shown by proof satisfactory to the $ollector that
the package or packages in *uestion have not been imported into the
)hilippines.
?98
If, upon opening any package, a defciency or absence of any
article, or of part of the contents thereof, as called for by the invoice
shall be found to exist, such defciency shall be certifed to the
$ollector by the appraiser. and upon the production of proof
satisfactory to the $ollector showing that the shortage occurred
before the arrival of the article in the
)hilippines, the proper abatement or refund of the duty shall be
made.
011
A $ollector may abate or refund the amount of duties accruing
or paid, and may likewise make a corresponding allowance or credit
on the entry bond, or other document, upon satisfactory proof of the
injury, destruction, or loss by theft, fre or other causes of any article
as followsA
1. 7hile within the limits of any port of entry prior to unlading
under customs supervision.
2. 7hile remaining in customs custody after unlading.
3. 7hile in transit under bond from the port of entry to any port
in the )hilippines.
4. 7hile released under bond to export, except in case of loss by
theft.
?9=

862 Sec. 18<2
863 Sec. 18<3
864 Sec. 17<1
865 Sec. 17<2
866 Sec. 17<3
867 Sec. 17<4
2
<
7here it is satisfactorily shown to the $ollector that an animal
which is the subject of importation dies or su&ers injury before
arrival, or while in customs custody, the duty shall be correspondingly
abated by him, provided the carcass of any dead animal remaining on
board or in customs custody be removed in the manner re*uired by
the $ollector and at the expense of the importer.
?9?
he $ollector shall in all cases of allowances, abatements or
refunds of duties, cause an examination and report in writing to be
made as to any fact discovered during such examination which tends
to account for the discrepancy or di&erence and cause the
corresponding adjustment to be made on the import entry.
?9>
5anifest clerical errors made in an invoice or entry, errors in
return of weight, measure and gauge, when duly certifed to by the
surveyor or examining o&icial
?=@
and errors in the distribution of
charges on invoices not involving any *uestion of law and certifed to
by the examining o&icial, may be corrected in the computation of
duties, if such errors be discovered before the payment of duties, or, if
discovered within one year after the fnal li*uidation, upon written
re*uest and notice of error from the importer, or upon statement of
error certifed by the $ollector.
:or the purpose of correcting the specifed errors, the $ollector
is authori!ed to reli*uidate entries and collect additional charges, or
to make refunds on statement of error within the statutory time
limit.
?="
All claims for refund of duties shall be made in writing, and
forwarded to the $ollector to whom such duties are paid, who upon
receipt of such claim shall verify the same by the records of his o&ice,
and if found to be correct and in accordance with law, shall certify the
same to the $ommissioner with his recommendation together with all
necessary papers and documents. Bpon receipt by the $ommissioner
of such certifed claim he shall cause the same to be paid if found
correct.
?='
868 Sec. 17<
869 Sec. 17<6
870 -he$ there "re #1ch )Bci"l# "t the !)rt
871 Sec. 17<7
872 Sec. 17<8
2
1
22. (udicial Remedies
?=(

A. <urisdiction of the $ourt of ax Appeals
1. ,xclusive appellate jurisdiction over civil tax cases
a. $ases within the jurisdiction of the $ourt en
banc
(1)/ecisions or resolutions on motions for reconsideration or
new trial of the $ourt in /ivisions in the exercise of its exclusive
appellate jurisdiction overA
(1) $ases arising from administrative agencies K 2ureau of
Internal 0evenue, 2ureau of $ustoms, /epartment of :inance,
/epartment of rade and Industry, /epartment of Agriculture.
(2) 1ocal tax cases decided by the 0egional rial $ourts in
the exercise of their original jurisdiction. and
(3) ax collection cases decided by the 0egional rial
$ourts in the exercise of their original jurisdiction involving
fnal and executory assessments for taxes, fees, charges and
penalties, where the principal amount of taxes and penalties
claimed is less than one million pesos.
(2) /ecisions, resolutions or orders of the 0egional rial $ourts
in local tax cases decided or resolved by them in the exercise of their
appellate jurisdiction.
(3) /ecisions, resolutions or orders of the 0egional rial $ourts
in tax collection cases decided or resolved by them in the exercise of
their appellate jurisdiction.
(4) /ecisions, resolutions or orders on motions for
reconsideration or new trial of the $ourt in /ivision in the exercise of
its exclusive original jurisdiction over tax collection cases.
873
'e!1blic Act 112,"# "/e$%e%, "$% the 'e8i#e% '1le# )+ the 5)1rt )+ 7". A!!e"l#
7he 5)1rt )+ 7". A!!e"l# (57A) i# " c)1rt )+ #!eci"l "!!ell"te :1ri#%icti)$ "$% "
!"rt )+ )1r :1%ici"l #,#te/. 7he !r)cee%i$0# therei$ "re :1%ici"l i$ $"t1re "lth)10h
the 5)1rt i# $)t b)1$% b, the tech$ic"l r1le# )+ e8i%e$ce. (!ura<an !lantation Co. vs.
+omingo L-1871, 29 Lct. 1966)
It i# " re01l"r c)1rt 8e#te% -ith e.cl1#i8e "!!ell"te :1ri#%icti)$ )8er c"#e#
"ri#i$0 1$%er the6 1.("ti)$"l I$ter$"l 'e8e$1e 5)%e
2.7"ri3 "$% 51#t)/#
5)%e 3.A##e##/e$t
l"-
7he 57A i# " hi0hl, #!eci"li2e% b)%, #!eci"ll, cre"te% +)r the !1r!)#e )+ re8ie-i$0
t". c"#e#, it# ?$%i$0# -ill $)t be )r%i$"ril, be re8ie-e% "b#e$t " #h)-i$0 )+ 0r)##
err)r )r "b1#e )$ it# !"rt. 7he#e ?$%i$0# "re bi$%i$0 1!)$ the S1!re/e 5)1rt "$% i$
the "b#e$ce )+ #tr)$0 re"#)$# +)r the c)1rt t) %el8e )$ +"ct#, )$l, =1e#ti)$# )+ l"-
"re )!e$ +)r %eter/i$"ti)$.
2
2
(5)/ecisions of the $entral 2oard of Assessment Appeals D$2AAE
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.
(6) /ecisions, resolutions or orders on motions for
reconsideration or new trial of the $ourt in /ivision in the exercise of
its exclusive original jurisdiction over cases involving criminal
o&enses arising from violations of the %ational Internal 0evenue $ode
or the ari& and $ustoms $ode and other laws administered by the
2ureau of Internal 0evenue or 2ureau of $ustoms.
(7) /ecisions, resolutions or orders on motions for
reconsideration or new trial of the $ourt in /ivision in the exercise of
its exclusive appellate jurisdiction over criminal o&enses mentioned in
the preceding subparagraph. and
(8) /ecisions, resolutions or orders of the 0egional trial $ourts
in the exercise of their appellate jurisdiction over criminal o&enses
mentioned in subparagraph DfE.
?=-

2. $ases within the jurisdiction of the $ourt in
divisions
(1),xclusive original or appellate jurisdiction to review by
appeal the followingA
(1) /ecisions of the $ommissioner of Internal 0evenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the %ational Internal
0evenue $ode or other laws administered by the 2ureau of
Internal 0evenue.
(2) Inaction by the $ommissioner of Internal 0evenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the %ational Internal
0evenue $ode or other laws administered by the 2ureau of
Internal 0evenue, where the %ational Internal 0evenue $ode or
other applicable law provides a specifc period for action.
In case of disputed assessments, the inaction of the
$ommissioner of Internal 0evenue within the one hundred
eighty day-period under #ection ''?
?=8
of the %ational Internal
revenue $ode shall be deemed a denial for purposes of allowing
the taxpayer to appeal his case to the $ourt and does not
necessarily constitute a formal decision of the $ommissioner of
Internal 0evenue on the tax case.
#hould the taxpayer opt to await the fnal decision of the
$ommissioner of Internal 0evenue on the disputed assessments
beyond the one hundred eighty day-
874
'1le 4, Sec. 2, 'e8i#e% '1le# )+ the 5)1rt L+
7". A!!e"l#
87
#1!r"
23
period abovementioned, the taxpayer may appeal such fnal
decision to the $ourt under #ection (DaE, 0ule ?
?=9
of these
0ules.
In the case of claims for refund of taxes erroneously or
illegally collected, the taxpayer must fle a petition for review
with the $ourt prior to the expiration of the two-year period
under #ection ''>
?==
of the %ational Internal 0evenue $ode.
(3) /ecisions, resolutions or orders of the 0egional rial
$ourts in local tax cases decided or resolved by them in the
exercise of their original jurisdiction.
(4) /ecisions of the $ommissioner of $ustoms in cases
involving liability for customs duties, fees or other money
charges, sei!ure, detention or release of property a&ected, fnes,
forfeitures of other penalties in relation thereto, or other
matters arising under the $ustoms 1aw or other laws
administered by the 2ureau of $ustoms.
(5) /ecisions of the #ecretary of :inance on customs cases
elevated to him automatically for review from decisions of the
$ommissioner of $ustoms adverse to the +overnment under
#ection '("8
?=?
of the ari& and $ustoms $ode. and
(6) /ecisions of the #ecretary of rade and Industry, in the
case of nonagricultural product, commodity or article, and the
#ecretary of Agriculture, in the case of agricultural product,
commodity or article, involving dumping and countervailing
duties under #ection (@" and (@',
?=>
respectively, of the ari&
and $ustoms $ode, and safeguard measures under 0epublic Act
%o. ??@@, where either party may appeal the decision to impose
or not to impose said duties.
(2) ,xclusive jurisdiction over cases involving criminal o&enses,
to witA
(1) 4riginal jurisdiction over all criminal o&enses arising
from violations of the %ational internal 0evenue $ode or ari&
and $ustoms $ode and other laws
876
A !"rt, "%8er#el, "3ecte% b, " %eci#i)$, r1li$0 )r the i$"cti)$ )+ the
5)//i##i)$er )+ I$ter$"l 'e8e$1e )$ %i#!1te% "##e##/e$t# )r cl"i/# +)r re+1$% )+
i$ter$"l re8e$1e t".e#, )r b, " %eci#i)$ )r r1li$0 )+ the 5)//i##i)$er )+ 51#t)/#,
the Secret"r, )+ Fi$"$ce, the Secret"r, )+ 7r"%e "$% I$%1#tr,, the Secret"r, )+
A0ric1lt1re, )r " 'e0i)$"l 7ri"l 5)1rt i$ the e.erci#e )+ it# )ri0i$"l :1ri#%icti)$ /",
"!!e"l t) the 5)1rt b, !etiti)$ +)r re8ie- ?le% -ithi$ thirt, (3<) %",# "+ter recei!t )+
" c)!, )+ #1ch %eci#i)$ )r r1li$0, )r e.!ir"ti)$ )+ the !eri)% ?.e% b, l"- +)r the
5)//i##i)$er )+ I$ter$"l 'e8e$1e t) "ct )$ the %i#!1te% "##e##/e$t#. I$ c"#e )+
i$"cti)$ )+ the 5)//i##i)$er )+ I$ter$"l re8e$1e )$ cl"i/# +)r re+1$% )+ i$ter$"l
re8e$1e t".e# err)$e)1#l, )r ille0"ll, c)llecte%, the t".!",er /1#t ?le " !etiti)$ +)r
re8ie- -ithi$ the t-)-,e"r !eri)% !re#cribe% b, l"- +r)/ !",/e$t )r c)llecti)$ )+ the
t".e#.
877 #1!r"
5"#e#. Z I+ i$ "$, c"#e i$8)l8i$0 the "##e##/e$t )+ %1tie# the i/!)rter #h"ll +"il t) !r)te#t the r1li$0 )+ the 5)llect)r, "$% the 5)//i##i)$er #h"ll be )+ the )!i$i)$ th"t the r1li$0 -"# err)$e)1# "$% 1$+"8)r"ble t) the &)8er$/e$t, the l"tter /", )r%er " reli=1i%"ti)$; "$% i+ the r1li$0 )+ the 5)//i##i)$er i$ "$, 1$!r)te#te% c"#e #h)1l%, i$ the )!i$i)$ )+ the %e!"rt/e$t he"%, be err)$e)1# "$% 1$+"8)r"ble t) the &)8er$/e$t, the
%e!"rt/e$t he"% /", re=1ire the 5)//i##i)$er t) )r%er "
reli=1i%"ti)$.
879
#1!r"
24
administered by the 2ureau of Internal 0evenue of the 2ureau
of $ustoms, where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is one million pesos
or more. and
(2) Appellate jurisdiction over appeals from the judgments,
resolutions or orders of the 0egional rial $ourts in their
original jurisdiction in criminal o&enses arising from violations
of the %ational Internal 0evenue $ode or ari& and $ustoms
$ode and other laws administered by the 2ureau of Internal
0evenue or 2ureau of $ustoms, where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is
less than one million pesos or where there is no specifed
amount claimed.
(3),xclusive jurisdiction over tax collections cases, to witA
(1) 4riginal jurisdiction in tax collection cases involving
fnal and executory assessments for taxes, fees, charges and
penalties, where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is one million pesos
or more. and
(2) Appellate jurisdiction over appeals from the judgments,
resolutions or orders of the 0egional rial $ourts in tax
collection cases originally decided by them within their
respective territorial jurisdiction.
??@

2. $riminal cases
a. ,xclusive original jurisdiction
4ver all criminal cases arising from violations of the %I0$ or
ari& and $ustoms $ode and other laws administered by the 2I0 or
the 2ureau of $ustoms
7here the principal amount of taxes and fees, exclusive of
charges and penalties claimed is less than one million pesos D)",@@@,
@@@. @@E or where there is no specifed amount claimed - the o&enses
or penalties shall be tried by the regular courts and the jurisdiction of
the $A shall be appellate.
he criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall, at all times, be
simultaneously instituted with, and jointly determined in the same
proceeding by the $A, the fling of the criminal action being deemed
to necessarily carry with it the fling of the civil action, and no right to
reserve the fling of such civil action separately from the criminal
action will be recogni!ed.
b. ,xclusive appellate jurisdiction in criminal
cases
4ver appeals from the judgments, resolutions or orders of the
0$ in tax cases originally decided by them, in their respective
territorial jurisdiction.
88<
'1le 4, Sec. 3, 'e8i#e% '1le# )+ the 5)1rt L+ 7". A!!e"l#
2
4ver petitions for review of the judgments, resolutions, or
orders of the 0$ in the exercise of their appellate jurisdiction over
tax cases originally decided by the 5etropolitan rial $ourts,
5unicipal rial $ourts, and 5unicipal $ircuit rial $ourts in their
respective jurisdiction.
2. <udicial )rocedures
1. <udicial action for
collection of taxes a.
Internal revenue taxes
Bpon the issuance of any ruling, order or decision by the $A
favorable to the national government, the $A shall issue an order
authori!ing the 2ureau of Internal 0evenue, through the
$ommissioner to sei!e and distraint any goods, chattels, or e&ects,
and the personal property, including stocks and other securities,
debts, credits, bank accounts, and interests in and rights to personal
property and6or levy the real property of such persons in su&icient
*uantity to satisfy the tax or charge together with any increment
thereto incident to delin*uency. his remedy shall not be exclusive
and shall not preclude the $ourt from availing of other means under
the 0ules of $ourt.
??"
2. 1ocal taxes
1) )rescriptive period
:ive D8E years from date of assessment.
2. $ivil cases
a. 7ho may appeal, mode of appeal, e&ect of
appeal
Any party adversely a&ected by a decision, ruling or inaction of
the $ommissioner of Internal 0evenue, the $ommissioner of $ustoms,
the #ecretary of :inance, the #ecretary of rade and Industry or the
#ecretary of Agriculture or the $entral 2oard of Assessment Appeals
or the 0egional rial $ourts may fle an appeal with the $A within
thirty D(@E days after the receipt of such decision or ruling or after the
expiration of the period fxed by law for action as referred to in
#ection =DaED'E herein.
Appeal shall be made by fling a petition for review under a
procedure analogous to that provided for under 0ule -'
??'
of the ">>=
0ules of $ivil )rocedure with the $A within thirty D(@E days from the
receipt of the decision or ruling or in the case of inaction as herein
provided, from the expiration of the period fxed by law to act thereon.
A /ivision of the $A shall hear the appealA 7ith respect to decisions
or rulings of the $entral 2oard of Assessment Appeals and the
0egional rial $ourt in the exercise of its appellate jurisdiction appeal
shall be made by fling a petition for review under a procedure
analogous to that
881 Sec. 13, '.A. (). 112, "# "/e$%e% b, Sec. 9 )+ 'A (). 9282
882 See 'e+ere$ce
2
6
provided for under 0ule -(
??(
of the ">>= 0ules of $ivil )rocedure
with the $A, which shall hear the case en banc.
All other cases involving rulings, orders or decisions fled with
the $A as provided for in #ection = shall be raZed to its /ivisions. A
party adversely a&ected by a ruling, order or decision of a /ivision of
the $A may fle a motion for reconsideration of new trial before the
same /ivision of the $A within ffteens D"8E days from notice thereofA
)rovide, however, hat in criminal cases, the general rule applicable
in regular $ourts on matters of prosecution and appeal shall likewise
apply.
%o appeal taken to the $A from the decision of the
$ommissioner of Internal 0evenue or the $ommissioner of $ustoms or
the 0egional rial $ourt, provincial, city or municipal treasurer or the
#ecretary of :inance, the #ecretary of rade and Industry and
#ecretary of Agriculture, as the case may be shall suspend the
payment, levy, distraint, and6or sale of any property of the taxpayer
for the satisfaction of his tax liability as provided by existing law.
7hen in the opinion of the $ourt the collection by the aforementioned
government agencies may jeopardi!e the interest of the +overnment
and6or the taxpayer the $ourt any stage of the proceeding may
suspend the said collection and re*uire the taxpayer either to deposit
the amount claimed or to fle a surety bond for not more than double
the amount with the $ourt.
In criminal and collection cases covered respectively by #ection
=DbE and DcE of this Act, the +overnment may directly fle the said
cases with the $A covering amounts within its exclusive and original
jurisdiction.
??-
"E #uspension of collection of tax
aE Injunction not available to
restrain collection
#ec. "" of 0A %o. ""'8
??8
grants $A power to suspend
collection of tax if such collection works to serious prejudice of either
taxpayer or government.
Cowever, #ec. '"? of the ax $ode provides that Gno court may
grant injunction to restrain collection of any tax, fee or charge
imposed by ax $ode.H
??9
Appeal to the $A does not automatically suspend collection
unless $A issues suspension order at any stage of proceedings.
883 Ibi%.
884 Sec. 11 )+ '.A. (). 112, i%.
885 "# "/e$%e% b, Sec. 9 )+ 'A (). 9282
886 7he !r)8i#i)$ i$ the 7". 5)%e re+er# t) c)1rt# )ther th"$ the 57A (*laCuera vs.
Rodriguez, &' (). L-
1129, *"rch 29, 198)
27
'E aking of evidence
he $ourt may direct that a case, or any issue thereof, be
assigned to one of its members for the taking of evidence, when the
determination of a *uestion of fact arises upon motion or otherwise in
any stage of the proceedings, or when the taking of an account is
necessary, or when the determination of an issue of fact re*uires the
examination of a long account. he hearing before such member shall
proceed in all respects as though the same had been made before the
$ourt.
Bpon the recommendation of such hearing of such member, he
shall promptly submit to the $ourt his report in writing, stating his
fndings and conclusions. and thereafter, the $ourt shall render its
decisions on the case, adopting, modifying, or rejecting the report or
the $ourt may recommit it with instructions, or receive further
evidence.
??=
(E 5otion for reconsideration or %ew
trial
A party adversely a&ected by a decision or resolution of a
/ivision of the $ourt on a motion for reconsideration or new trial may
appeal to the $ourt by fling before it a petition for review within
ffteen days from receipt of a copy of the *uestioned decision or
resolution. Bpon 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 fxed, the $ourt may
grant an additional period not exceeding ffteen days from the
expiration of the original period within which to fle the petition for
review.
???
An appeal from a decision or resolution of the $ourt in /ivision
on a motion for reconsideration or new trial shall be taken to the
$ourt by petition for review.
??>
he $ourt en banc shall act on the
appeal.
?>@
b. Appeal to the $A, en banc
%o civil proceeding involving matter arising under the %ational
Internal 0evenue $ode, the ari& and $ustoms $ode or the 1ocal
+overnment $ode shall be maintained, until and unless an appeal has
been previously fled with the $A and disposed of.
?>"
QA party adversely a&ected by a resolution of a /ivision of the
$A on a motion for reconsideration or new trial, may fle a petition
for review with the $A en banc.
c. )etition for review on certiorari to the
#upreme $ourt
A party adversely a&ected by a decision or ruling of the $A en
banc may fle with the #upreme $ourt a verifed petition for review on
certiorari.
?>'
887 Sec. 12, '.A. 112
888 Sec. 3 (b), 'e8i#e% '1le# )+ the 57A
889 "# !r)8i%e% i$ '1le 43 )+ the '1le# )+ 5)1rt
890 Sec. 4 (b), 'e8i#e% '1le# )+ the 57A
891 Sec. 18, i%.
892 !1r#1"$tt) '1le 4 )+ the 1997 '1le# )+ 5i8il Pr)ce%1re (Sec. 19. I%.)
2
8
3. $riminal cases
a. Institution and prosecution of criminal
actions
1) Institution on civil action in criminal
action
In cases within the jurisdiction of the $ourt, 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. he fling of the criminal action shall necessarily carry
with it the fling of the civil action. %o right to reserve the fling of
such civil action separately from the criminal action shall be allowed
or recogni!ed.
?>(
b. Appeal and period to appeal
1) #olicitor +eneral as counsel for the
)eople and government o&icials sued
in their o&icial capacity
he #olicitor +eneral shall represent the )eople of the
)hilippines and government o&icials sued in their o&icial capacity in
all cases brought to the $ourt in the exercise of its appellate
jurisdiction. Ce may deputi!ed the legal o&icers of the 2ureau of
Internal 0evenue in cases brought under the %ational Internal
0evenue $ode or other laws enforced by the 2ureau of Internal
0evenue, or the legal o&icers of the 2ureau of $ustoms in cases
brought under the ari& and $ustoms $ode of the )hilippines or other
laws enforced by the 2ureau of $ustoms, to appear in behalf of the
o&icials of said agencies sued in their o&icial capacity. #uch duly
deputi!ed legal o&icers shall remain at all times under the direct
control and supervision of the #olicitor +eneral.
?>-
c. )etition for review on certiorari to the
#upreme $ourt
A party adversely a&ected by a decision or ruling of the $ourt
en banc may appeal therefrom by fling with the #upreme $ourt a
verifed petition for review on certiorari within ffteen D"8E days from
receipt of a copy of the decision or resolution.
?>8
If such party has fled
a motion for reconsideration or for new trial, the period herein fxed
shall run from the party3s receipt of a copy of the resolution denying
the motion for reconsideration or for new trial.
?>9
893 '1le 9, Sec. 11, i%.;, '1le 111, #ec. 1E"F, !"r. 1"; '1le# )+ 5)1rt
894 Sec. 1<, i%.
895 "# !r)8i%e% i$ '1le 4 )+ the '1le# )+ 5)1rt
896 '1le 16, Sec. 1, i%.
2
9
$. axpayer3s suit impugning the validity of tax measures
or acts of taxing authorities
a. axpayer3s suit, defned
A case where the act complained of directly involves the illegal
disbursement of public funds derived from taxation.
?>=
b. /istinguished from citi!en3s suit
he plainti& in a taxpayer3s suit is in a di&erent category from
the plainti& in a citi!en3s suit. In the former, the plainti& is a&ected by
the expenditure of public funds, while in the latter, he is but the mere
instrument of the public concern.
?>?
3. 0e*uisites for challenging the
constitutionality of a tax measure or act of
taxing authority
1) $oncept of locus standi as applied in
taxation
It is a party3s personal and substantial interest in the case, such
that the party has sustained or will sustain direct injury as a result of
the government act being challenged. It calls for more than just a
generali!ed grievance.
?>>
A party need not be a party to the contract to challenge its
validity.
>@@
'E /octrine of transcendental
importance
he $ourt has adopted a rule that even where the petitioners
have failed to show direct injury, they have been allowed to sue under
the principle of Qtranscendental importance.Q
>@"
232 S5'A 11< 'e=1i#ite# +)r " t".!",er9# !etiti)$6
1.7h"t /)$e, i# bei$0 e.tr"cte% "$% #!e$t i$ 8i)l"ti)$ )+
#!eci?c c)$#tit1ti)$"l !r)tecti)$# "0"i$#t "b1#e# )+ le0i#l"ti8e
!)-er
2. 7h"t !1blic /)$e, i# bei$0 %eNecte% t) "$, i/!r)!er !1r!)#e
3. 7h"t the !etiti)$er #ee4# t) re#tr"i$ re#!)$%e$t# +r)/ -"#ti$0 !1blic +1$%#
thr)10h the e$+)rce/e$t )+ "$ i$8"li% )r 1$c)$#tit1ti)$"l l"-.
7he S1!re/e 5)1rt h"# %i#creti)$ -hether )r $)t t) e$tert"i$ t".!",er# #1it "$%
c)1l% br1#h "#i%e l"c4 )+ locus standi (Dilos *a#an vs. "uingona)
286 *eauchamp v. &il<
A# hel% b, the (e- R)r4 S1!re/e 5)1rt i$ !eople e rel Case v. Collins 6 WI$
/"tter# )+ /ere !1blic ri0ht, h)-e8erYthe !e)!le "re the re"l !"rtie#YIt i# "t le"#t
the ri0ht, i+ $)t the %1t,, )+ e8er, citi2e$ t) i$ter+ere "$% #ee th"t " !1blic )3e$ce be
!r)!erl, !1r#1e% "$% !1$i#he%, "$% th"t " !1blic 0rie8"$ce be re/e%ie%.W >ith
re#!ect t) t".!",er9# #1it#, Terr v. ?ordan hel% th"t Wthe ri0ht )+ " citi2e$ "$% "
t".!",er t) /"i$t"i$ "$ "cti)$ i$ c)1rt# t) re#tr"i$ the 1$l"-+1l 1#e )+ !1blic +1$%#
t) hi# i$:1r, c"$$)t be %e$ie%.W
899 Aba#a v. .bdane, &. '. (). 167919, Febr1"r, 14, 2<<7
900 Ibi%.
901 +avid v. Arro#o, &.'. (). 171396 (2<<6)
26
<
he doctrine applies when paramount public interest is
involved.
(E 0ipeness for judicial determination
In our jurisdiction, the issue of ripeness is generally treated in
terms of actual injury to the plainti&. Cence, a *uestion is ripe for
adjudication when the act being challenged has had a direct adverse
e&ect on the individual challenging it.
>@'
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.
>@(
o be ripe for judicial adjudication, 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 $ourt.
>@-
A$ i##1e i# )+ tr"$#ce$%e$t"l i/!)rt"$ce bec"1#e )+ the
+)ll)-i$06 1. the ch"r"cter )+ the +1$%# )r )ther "##et#
i$8)l8e% i$ the c"#e;
2. the !re#e$ce )+ " cle"r %i#re0"r% )+ " c)$#tit1ti)$"l )r #t"t1t)r, !r)hibiti)$ b,
"$ i$#tr1/e$t"lit, )+the 0)8er$/e$t; "$%
3. the l"c4 )+ "$, )ther !"rt, -ith " /)re %irect "$% #!eci?c i$tere#t i$ r"i#i$0 the
=1e#ti)$. (Fr"$ci#c) 8#. C)1#e )+ 'e!re#e$t"ti8e#, 41 S5'A 44; Se$"te 8. ;r/it"
&.'. (). 169777 (2<<6))
9<2
"uingona, ?r. v. Courtof Appeals, 34 Phil. 41, 427-428 (1998).
9<3
2rancisco, ?r. v. /ouse of Representatives, 46< Phil. 83<, 9<1-9<2 (2<<3).
9<4
A*ADA+A "uro !art# List, etc., 8. P1ri#i/", etc., citi$0 Cruz v. &ecretar# of
.nvironment and 1atural
Resources, 4<< Phil. 9<4 (2<<<), Vit10, D., #e!"r"te )!i$i)$
261
Reference
National Internal Revenue Code of the Phils.
905
Sec . 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements
for Tax Administration and Enforcement.
xxx
!" Authorit# of the Commissioner to inquire into $ank %e&osit Accounts. '
(otwithstandin) an# contrar# &ro*ision of Re&ublic Act (o. +,-. and other )eneral or s&ecial
laws/ the Commissioner is hereb# authori0ed to inquire into the bank de&osits of1
(1)a decedent to determine his )ross estate2 and
(2) an# tax&a#er who has filed an a&&lication for com&romise of his tax liabilit# under Sec. 3-,
(1) 3" of this Code b# reason of financial inca&acit# to &a# his tax liabilit#.
4n case a tax&a#er files an a&&lication to com&romise the &a#ment of his tax liabilities on
his claim that his financial &osition demonstrates a clear inabilit# to &a# the tax assessed/ his
a&&lication shall not be considered unless and until he wai*es in writin) his &ri*ile)e under
Re&ublic Act (o. +,-. or under other )eneral or s&ecial laws/ and such wai*er shall constitute the
authorit# of the Commissioner to inquire into the bank de&osits of the tax&a#er.
Sec. 24
Sec. 32 (B)(6)(a)
'etirement 2enefits recei)ed under 'epu2lic Act No. 3145 and those recei)ed 2 officials and
emploees of pri)ate firms& whether indi)idual or corporate& in accordance with a reasona2le pri)ate
2enefit plan maintained 2 the emploer6 Pro)ided& That the retirin$ official or emploee has 2een in the
ser)ice of the same emploer for at least ten .57/ ears and is not less than fift .87/ ears of a$e at the
time of his retirement6 Provided, further& That the 2enefits $ranted under this su2para$raph shall 2e a)ailed
of 2 an official or emploee onl once. For purposes of this Su2section& the term 9reasona2le pri)ate
2enefit plan9 means a pension& $ratuit& stoc: 2onus or profit-sharin$ plan maintained 2 an emploer for
the 2enefit of some or all of his officials or emploees& wherein contri2utions are made 2 such emploer
for the officials or emploees& or 2oth& for the purpose of distri2utin$ to such officials and emploees the
earnin$s and principal of the fund thus accumulated& and wherein its is pro)ided in said plan that at no time
shall an part of the corpus or income of the fund 2e used for& or 2e di)erted to& an purpose other than for
the exclusi)e 2enefit of the said officials and emploees.
SEC. 33. Special Treatment of Fringe Benefit.-
(A) Imposition of Tax.- A final tax of thirt-four percent .;4</ effecti)e =anuar 5& 5>>0? thirt-
three percent .;;</ effecti)e =anuar 5& 5>>>? and thirt-two percent .;@</ effecti)e =anuar 5& @777 and
thereafter& is here2 imposed on the $rossed-up monetar )alue of frin$e 2enefit furnished or $ranted to the
emploee .except ran: and file emploees as defined herein/ 2 the emploer& whether an indi)idual or a
corporation .unless the frin$e 2enefit is re(uired 2 the nature of& or necessar to the trade& 2usiness or
profession of the emploer& or when the frin$e 2enefit is for the con)enience or ad)anta$e of the
9<
'.A. 8424, "# "/e$%e%
262
emploer/. The tax herein imposed is paa2le 2 the emploer which tax shall 2e paid in the same manner
as pro)ided for under Section 83 .A/ of this Code. The $rossed -up monetar )alue of the frin$e 2enefit
shall 2e determined 2 di)idin$ the actual monetar )alue of the frin$e 2enefit 2 sixt-six percent .11</
effecti)e =anuar 5& 5>>0? sixt-se)en percent .13</ effecti)e =anuar 5& 5>>>? and sixt-ei$ht percent
.10</ effecti)e =anuar 5& @777 and thereafter6 Provided, however, That frin$e 2enefit furnished to
emploees and taxa2le under Su2sections ."/& .C/& .D/ and .E/ of Section @8 shall 2e taxed at the
applica2le rates imposed thereat: Provided, further& That the $rossed -Ap )alue of the frin$e 2enefit shall
2e determined 2 di)idin$ the actual monetar )alue of the frin$e 2enefit 2 the difference 2etween one
hundred percent .577</ and the applica2le rates of income tax under Su2sections ."/& .C/& .D/& and .E/ of
Section @8.
(B) Fringe Benefit defined.- For purposes of this Section& the term "fringe benefit" means an
$ood& ser)ice or other 2enefit furnished or $ranted in cash or in :ind 2 an emploer to an indi)idual
emploee .except ran: and file emploees as defined herein/ such as& 2ut not limited to& the followin$6
(1) Bousin$?
(2) Expenseaccount?
.;/ ,ehicle of an :ind?
.4/ Bousehold personnel& such as maid& dri)er and others?
.8/ *nterest on loan at less than mar:et rate to the extent of the difference 2etween the mar:et rate
and actual rate $ranted?
.1/ Cem2ership fees& dues and other expenses 2orne 2 the emploer for the emploee in social
and athletic clu2s or other similar or$aniDations?
.3/ Expenses for forei$n tra)el?
.0/ Bolida and )acation expenses?
.>/ Educational assistance to the emploee or his dependents? and
.57/ #ife or health insurance and other non-life insurance premiums or similar amounts in excess
of what the law allows.
(C) Fringe Benefits Not Taxable. - The followin$ frin$e 2enefits are not taxa2le under this Section6
.5/ frin$e 2enefits which are authoriDed and exempted from tax under special laws?
.@/ Contri2utions of the emploer for the 2enefit of the emploee to retirement& insurance and
hospitaliDation 2enefit plans?
.;/ "enefits $i)en to the ran: and file emploees& whether $ranted under a collecti)e 2ar$ainin$
a$reement or not? and
.4/ De minimis 2enefits as defined in the rules and re$ulations to 2e promul$ated 2 the Secretar
of Finance& upon recommendation of the Commissioner.
SEC. 58. Returns and Payment of Taxes Witeld at Source. -
(A) !uarterly Returns and Payments of Taxes Witeld. - Taxes deducted and withheld under
Section 83 2 withholdin$ a$ents shall 2e co)ered 2 a return and paid to& except in cases where the
Commissioner otherwise permits& an authoriDed Treasurer of the cit or municipalit where the withholdin$
a$ent has his le$al residence or principal place of 2usiness& or where the withholdin$ a$ent is a corporation&
where the principal office is located.
The taxes deducted and withheld 2 the withholdin$ a$ent shall 2e held as a special fund in trust
for the $o)ernment until paid to the collectin$ officers.
The return for final withholdin$ tax shall 2e filed and the pament made within twent-fi)e .@8/
das from the close of each calendar (uarter& while the return for credita2le withholdin$ taxes shall 2e filed
and the pament made not later than the last da of the month followin$ the close of the (uarter durin$
which withholdin$ was made6 Provided& That the Commissioner& with the appro)al of the Secretar of
Finance& ma re(uire these withholdin$ a$ents to pa or deposit the taxes deducted or withheld at more
fre(uent inter)als when necessar to protect the interest of the $o)ernment.
263
(2) Statement of Income Payments "ade and Taxes Witeld. - E)er withholdin$ a$ent
re(uired to deduct and withhold taxes under Section 83 shall furnish each recipient& in respect to his or its
receipts durin$ the calendar (uarter or ear& a written statement showin$ the income or other paments
made 2 the withholdin$ a$ent durin$ such (uarter or ear& and the amount of the tax deducted and
withheld therefrom& simultaneousl upon pament at the re(uest of the paee& 2ut not late than the
twentieth .@7th/ da followin$ the close of the (uarter in the case of corporate paee& or not later than
Carch 5 of the followin$ ear in the case of indi)idual paee for credita2le withholdin$ taxes. For final
withholdin$ taxes& the statement should 2e $i)en to the paee on or 2efore =anuar ;5 of the succeedin$
ear.
(3) #nnual Information Return. - E)er withholdin$ a$ent re(uired to deduct and withhold taxes
under Section 83 shall su2mit to the Commissioner an annual information return containin$ the list of
paees and income paments& amount of taxes withheld from each paee and such other pertinent
information as ma 2e re(uired 2 the Commissioner. *n the case of final withholdin$ taxes& the return shall
2e filed on or 2efore =anuar ;5 of the succeedin$ ear& and for credita2le withholdin$ taxes& not later than
Carch 5 of the ear followin$ the ear for which the annual report is 2ein$ su2mitted. This return& if made
and filed in accordance with the rules and re$ulations appro)ed 2 the Secretar of Finance& upon
recommendation of the Commissioner& shall 2e sufficient compliance with the re(uirements of Section 10
of this Title in respect to the income paments.
The Commissioner ma& 2 rules and re$ulations& $rant to an withholdin$ a$ent a reasona2le
extension of time to furnish and su2mit the return re(uired in this Su2section.
(D) Income of Recipient. - *ncome upon which an credita2le tax is re(uired to 2e withheld at
source under Section 83 shall 2e included in the return of its recipient 2ut the excess of the amount of tax so
withheld o)er the tax due on his return shall 2e refunded to him su2Eect to the pro)isions of Section @74? if
the income tax collected at source is less than the tax due on his return& the difference shall 2e paid in
accordance with the pro)isions of Section 81.
All taxes withheld pursuant to the pro)isions of this Code and its implementin$ rules and
re$ulations are here2 considered trust funds and shall 2e maintained in a separate account and not
commin$led with an other funds of the withholdin$ a$ent.
(E) Registration $it Register of %eeds. - No re$istration of an document transferrin$ real
propert shall 2e effected 2 the 'e$ister of Deeds unless the Commissioner or his dul authoriDed
representati)e has certified that such transfer has 2een reported& and the capital $ains or credita2le
withholdin$ tax& if an& has 2een paid6 Provided, however& That the information as ma 2e re(uired 2 rules
and re$ulations to 2e prescri2ed 2 the Secretar of Finance& upon recommendation of the Commissioner&
shall 2e annotated 2 the 'e$ister of Deeds in the Transfer Certificate of Title or Condominium Certificate
of Title6 Provided, further, That in cases of transfer of propert to a corporation& pursuant to a mer$er&
consolidation or reor$aniDation& and where the law allows deferred reco$nition of income in accordance
with Section 47& the information as ma 2e re(uired 2 rules and re$ulations to 2e prescri2ed 2 the
Secretar of Finance& upon recommendation of the Commissioner& shall 2e annotated 2 the 'e$ister of
Deeds at the 2ac: of the Transfer Certificate of Title or Condominium Certificate of Title of the real
propert in)ol)ed6 Provided, finally, That an )iolation of this pro)ision 2 the 'e$ister of Deeds shall 2e
su2Eect to the penalties imposed under Section @1> of this Code.
Sec.. 75.
%eclaration of !uarterly &orporate Income Tax. - E)er corporation shall file in duplicate a
(uarterl summar declaration of its $ross income and deductions on a cumulati)e 2asis for the precedin$
(uarter or (uarters upon which the income tax& as pro)ided in Title ** of this Code& shall 2e le)ied& collected
and paid. The tax so computed shall 2e decreased 2 the amount of tax pre)iousl paid or
26
4
assessed durin$ the precedin$ (uarters and shall 2e paid not later than sixt .17/ das from the close of
each of the first three .;/ (uarters of the taxa2le ear& whether calendar or fiscal ear.
Sec. 106
(1) Export Sales. - The term Fexport salesF means6
(1) The sale and actual shipment of $oods from the Philippines to a forei$n countr& irrespecti)e
of an shippin$ arran$ement that ma 2e a$reed upon which ma influence or determine the transfer of
ownership of the $oods so exported and paid for in accepta2le forei$n currenc or its e(ui)alent in $oods or
ser)ices& and accounted for in accordance with the rules and re$ulations of the "an$:o Sentral n$ Pilipinas
."SP/?
(2) Sale of raw materials or pac:a$in$ materials to a nonresident 2uer for deli)er to a resident
local export-oriented enterprise to 2e used in manufacturin$& processin$& pac:in$ or repac:in$ in the
Philippines of the said 2uer9s $oods and paid for in accepta2le forei$n currenc and accounted for in
accordance with the rules and re$ulations of the "an$:o Sentral n$ Pilipinas ."SP/?
(3) Sale of raw materials or pac:a$in$ materials to export-oriented enterprise whose export sales
exceed se)ent percent .37</ of total annual production?
(4) Sale of $old to the "an$:o Sentral n$ Pilipinas ."SP/? and
(5) Those considered export sales under Executi)e Order NO. @@1& otherwise :nown as the
Omni2us *n)estment Code of 5>03& and other special laws.
(2) Foreign &urrency %enominated Sale. - The phrase "foreign currency denominated sale"
means sale to a nonresident of $oods& except those mentioned in Sections 54> and 587& assem2led or
manufactured in the Philippines for deli)er to a resident in the Philippines& paid for in accepta2le forei$n
currenc and accounted for in accordance with the rules and re$ulations of the "an$:o Sentral n$ Pilipinas
."SP/.
(3) Sales to persons or entities whose exemption under special laws or international a$reements to
which the Philippines is a si$nator effecti)el su2Eects such sales to Dero rate.
Sec. 108
."/ Transactions Su2Eect to Gero Percent .7</ 'ate. - The followin$ ser)ices performed in the Philippines
2 ,AT- re$istered persons shall 2e su2Eect to Dero percent .7</ rate.
(1) Processin$& manufacturin$ or repac:in$ $oods for other persons doin$ 2usiness outside the
Philippines which $oods are su2se(uentl exported& where the ser)ices are paid for in accepta2le forei$n
currenc and accounted for in accordance with the rules and re$ulations of the "an$:o Sentral n$ Pilipinas
."SP/?
(2)Ser)ices other than those mentioned in the precedin$ para$raph& the consideration for which is paid
for in accepta2le forei$n currenc and accounted for in accordance with the rules and re$ulations of the
"an$:o Sentral n$ Pilipinas ."SP/?
(3) Ser)ices rendered to persons or entities whose exemption under special laws or international
a$reements to which the Philippines is a si$nator effecti)el su2Eects the suppl of such ser)ices to Dero
percent .7</ rate? H
(4) Ser)ices rendered to )essels en$a$ed exclusi)el in international shippin$? and
26
.8/ Ser)ices performed 2 su2contractors andIor contractors in processin$& con)ertin$& of manufacturin$
$oods for an enterprise whose export sales exceed se)ent percent .37</ of total annual production.
SEC. 111. TransitionalIPresumpti)e *nput Tax Credits. -
(1) Transitional *nput Tax Credits. - A person who 2ecomes lia2le to )alue-added tax or an
person who elects to 2e a ,AT-re$istered person shall& su2Eect to the filin$ of an in)entor accordin$ to
rules and re$ulations prescri2ed 2 the Secretar of finance& upon recommendation of the Commissioner&
2e allowed input tax on his 2e$innin$ in)entor of $oods& materials and supplies e(ui)alent for ei$ht
percent .0</ of the )alue of such in)entor or the actual )alue-added tax paid on such $oods& materials and
supplies& whiche)er is hi$her& which shall 2e credita2le a$ainst the output tax.
(2) Presumpti)e *nput Tax Credits. -
(1) Persons or firms en$a$ed in the processin$ of sardines& mac:erel and mil:& and in
manufacturin$ refined su$ar and coo:in$ oil& shall 2e allowed a presumpti)e input tax& credita2le a$ainst
the output tax& e(ui)alent to one and one-half percent .5 5I@</ of the $ross )alue in mone of their
purchases of primar a$ricultural products which are used as inputs to their production.
As used in this Su2section& the term Fprocessin$F shall mean pasteuriDation& cannin$ and acti)ities
which throu$h phsical or chemical process alter the exterior texture or form or inner su2stance of a
product in such manner as to prepare it for special use to which it could not ha)e 2een put in its ori$inal
form or condition.
.@/ Pu2lic wor:s contractors shall 2e allowed a presumpti)e input tax e(ui)alent to one and one-
half percent .5 5I@</ of the contract price with respect to $o)ernment contracts onl in lieu of actual input
taxes therefrom.
SEC. 112. Refunds or Tax &redits of Input Tax. -
(1) 'ero-Rated or (ffecti)ely 'ero-Rated Sales. - an ,AT-re$istered person& whose sales are
Dero-rated or effecti)el Dero-rated ma& within two .@/ ears after the close of the taxa2le (uarter when the
sales were made& appl for the issuance of a tax credit certificate or refund of credita2le input tax due or
paid attri2uta2le to such sales& except transitional input tax& to the extent that such input tax has not 2een
applied a$ainst output tax6 Pro)ided& howe)er& That in the case of Dero-rated sales under Section 571.A/.@/
.a/.5/& .@/ and ."/ and Section 570 ."/.5/ and .@/& the accepta2le forei$n currenc exchan$e proceeds
thereof had 2een dul accounted for in accordance with the rules and re$ulations of the "an$:o Sentral n$
Pilipinas ."SP/6 Pro)ided& further& That where the taxpaer is en$a$ed in Dero-rated or effecti)el Dero-
rated sale and also in taxa2le or exempt sale of $oods of properties or ser)ices& and the amount of credita2le
input tax due or paid cannot 2e directl and entirel attri2uted to an one of the transactions& it shall 2e
allocated proportionatel on the 2asis of the )olume of sales.
(2) &apital *oods. - A ,AT-re$istered person ma appl for the issuance of a tax credit
certificate or refund of input taxes paid on capital $oods imported or locall purchased& to the extent that
such input taxes ha)e not 2een applied a$ainst output taxes. The application ma 2e made onl within two
(2) ears after the close of the taxa2le (uarter when the importation or purchase was made.
(3) &ancellation of +#T Registration. - A person whose re$istration has 2een cancelled due to
retirement from or cessation of 2usiness& or due to chan$es in or cessation of status under Section 571.C/ of
this Code ma& within two .@/ ears from the date of cancellation& appl for the issuance of a tax credit
certificate for an unused input tax which ma 2e used in pament of his other internal re)enue taxes.
26
6
(D) Period Witin Wic Refund or Tax &redit of Input Taxes Sall be "ade. - *n proper cases& the
Commissioner shall $rant a refund or issue the tax credit certificate for credita2le input taxes within one
hundred twent .5@7/ das from the date of su2mission of compete documents in support of the application
filed in accordance with Su2sections .A/ and ."/ hereof.
*n 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 prescri2ed a2o)e& the taxpaer affected ma&
within thirt .;7/ das from the receipt of the decision denin$ the claim or after the expiration of the one
hundred twent da-period& appeal the decision or the unacted claim with the Court of Tax Appeals.-
(E) "anner of *i)ing Refund. - 'efunds shall 2e made upon warrants drawn 2 the Commissioner or 2
his dul authoriDed representati)e without the necessit of 2ein$ countersi$ned 2 the Chairman&
Commission on audit& the pro)isions of the Administrati)e Code of 5>03 to the contrar notwithstandin$6
Pro)ided& That refunds under this para$raph shall 2e su2Eect to post audit 2 the Commission on Audit.
SEC. 113.
In)oicing and #ccounting Re,uirements for +#T-Registered Persons. -
(A) In)oicing Re,uirements. - A ,AT-re$istered person shall& for e)er sale& issue an in)oice or
receipt. *n addition to the information re(uired under Section @;3& the followin$ information shall 2e
indicated in the in)oice or receipt6
.5/ A statement that the seller is a ,AT-re$istered person& followed 2 his taxpaer9s identification
num2er .T*N/? and
.@/ The total amount which the purchaser pas or is o2li$ated to pa to the seller with the
indication that such amount includes the )alue-added tax.
(B) #ccounting Re,uirements. - Notwithstandin$ the pro)isions of Section @;;& all persons
su2Eect to the )alue-added tax under Sections 571 and 570 shall& in addition to the re$ular accountin$
records re(uired& maintain a su2sidiar sales Eournal and su2sidiar purchase Eournal on which the dail
sales and purchases are recorded. The su2sidiar Eournals shall contain such information as ma 2e re(uired
2 the Secretar of Finance.
Sec. 143. Tax on Business. - The municipalit ma impose taxes on the followin$ 2usinesses6
.a/ On manufacturers& assem2lers& repac:ers& processors& 2rewers& distillers& rectifiers& and
compounders of li(uors& distilled spirits& and wines or manufacturers of an article of commerce
of whate)er :ind or nature& in accordance with the followin$ schedule6
With $ross sales or receipts for the precedin$ Amount of Tax Per
calendar ear in the amount of6 Annum
#ess than 57&777.77 518.77
P 57&777.77 or more 2ut less than 58&777.77 @@7.77
58&777.77 or more 2ut less than @7&777.77 @7@.77
@7&777.77 or more 2ut less than ;7&777.77 447.77
;7&777.77 or more 2ut less than 47&777.77 117.77
47&777.77 or more 2ut less than 87&777.77 0@8.77
87&777.77 or more 2ut less than 38&777.77 5&;@7.77
26
7
38&777.77 or more 2ut less than 577&777.77 5&187.77
577&777.77 or more 2ut less than 587&777.77 @&@77.77
587&777.77 or more 2ut less than @77&777.77 @&387.77
@77&777.77 or more 2ut less than ;77&777.77 ;&087.77
;77&777.77 or more 2ut less than 877&777.77 8&877.77
877&777.77 or more 2ut less than 387&777.77 0&777.77
387&777.77 or more 2ut less than 5&777&777.77 57&777.77
5&777&777.77 or more 2ut less than @&777&777.77 5;&387.77
@&777&777.77 or more 2ut less than ;&777&777.77 51&877.77
;&777&777.77 or more 2ut less than 4&777&777.77 5>&777.77
4&777&777.77 or more 2ut less than 8&777&777.77 @;&577.77
8&777&777.77 or more 2ut less than 1&877&777.77 @4&;38.77
1&777&777.77 or more at a rate not exceedin$ thirt-se)en and a half percent
.;3J</ of one percent .5</
.2/ On wholesalers& distri2utors& or dealers in an article of commerce of whate)er :ind or nature
in accordance with the followin$ schedule6
With $ross sales or receipts for the precedin$ Amount of Tax Per
calendar ear in the amount of6 Annum
#ess than 5&777.77 50.77
P 5&777.77 or more 2ut less than @&777.77 ;;.77
@&777.77 or more 2ut less than ;&777.77 87.77
;&777.77 or more 2ut less than 4&777.77 3@.77
4&777.77 or more 2ut less than 8&777.77 577.77
8&777.77 or more 2ut less than 1&777.77 5@5.77
1&777.77 or more 2ut less than 3&777.77 54;.77
3&777.77 or more 2ut less than 0&777.77 518.77
0&777.77 or more 2ut less than 57&777.77 503.77
57&777.77 or more 2ut less than 58&777.77 @@7.77
58&777.77 or more 2ut less than @7&777.77 @38.77
@7&777.77 or more 2ut less than ;7&777.77 ;;7.77
;7&777.77 or more 2ut less than 47&777.77 447.77
47&777.77 or more 2ut less than 87&777.77 117.77
87&777.77 or more 2ut less than 38&777.77 >>7.77
38&777.77 or more 2ut less than 577&777.77 5&;@7.77
26
8
577&777.77 or more 2ut less than 587&777.77 5&037.77
587&777.77 or more 2ut less than @77&777.77 @&4@7.77
@77&777.77 or more 2ut less than ;77&777.77 ;&;77.77
;77&777.77 or more 2ut less than 877&777.77 4&477.77
877&777.77 or more 2ut less than 387&777.77 1&177.77
387&777.77 or more 2ut less than 5&777&777.77 0&077.77
5&777&777.77 or more 2ut less than @&777&777.77 57&777.77
@&777&777.77 or more at a rate not exceedin$ fift percent .87</ of one
percent .5</.
(3)On exporters& and on manufacturers & millers& producers& wholesalers& distri2utors& dealers or
retailers of essential commodities enumerated hereunder at a rate not exceedin$ one-half .J/ of the rates
prescri2ed under su2section .a/& .2/ and .d/ of this Section6
(1) 'ice and corn?
(2) Wheat or cassa)a flour& meat& dair products& locall manufactured& processed or
preser)ed food& su$ar& salt and other a$ricultural& marine& and fresh water products&
whether in their ori$inal state or not?
(3) Coo:in$ oil and coo:in$ $as?
(4) #aundr soap& deter$ents& and medicine?
(5)A$ricultural implements. e(uipment and post-har)est facilities& fertiliDers& pesticides&
insecticides& her2icides and other farm inputs?
(6) Poultr feeds and other animal feeds?
(7) School supplies? and
(8) Cement.
(4) On retailers.
With $ross sales or receipts for the precedin$ 'ate of Tax Per
calendar ear in the amount of6 Annum
P477&777.77 or less @<
more than P477&777.77 5<
Pro)ided& howe)er& That 2aran$as shall ha)e the exclusi)e power to le) taxes& as pro)ided
under Section 58@ hereof& on $ross sales or receipts of the precedin$ calendar ear of Fift
thousand pesos .P87&777.77/ or less& in the case of cities& and Thirt thousand pesos .P;7&777.77/
or less& in the case of municipalities.
.e/ On contractors and other independent contractors& in accordance with the followin$ schedule6
26
9
With $ross sales or receipts for the precedin$ Amount of Tax Per
calendar ear in the amount of6 Annum
#ess than 8&777.77 @3.87
P 8&777.77 or more 2ut less than P 57&777.77 15.17
57&777.77 or more 2ut less than 58&777.77 574.87
58&777.77 or more 2ut less than @7&777.77 518.77
@7&777.77 or more 2ut less than ;7&777.77 @38.77
;7&777.77 or more 2ut less than 47&777.77 ;08.77
47&777.77 or more 2ut less than 87&777.77 887.77
87&777.77 or more 2ut less than 38&777.77 007.77
38&777.77 or more 2ut less than 577&777.77 5&;@7.77
577&777.77 or more 2ut less than 587&777.77 5&>07.77
587&777.77 or more 2ut less than @77&777.77 @&147.77
@77&777.77 or more 2ut less than @87&777.77 ;&1;7.77
@87&777.77 or more 2ut less than ;77&777.77 4&1@7.77
;77&777.77 or more 2ut less than 477&777.77 1&517.77
477&777.77 or more 2ut less than 877&777.77 0&@87.77
877&777.77 or more 2ut less than 387&777.77 >&@87.77
387&777.77 or more 2ut less than 5&777&777.77 57&@87.77
5&777&777.77 or more 2ut less than @&777&777.77 55&877.77
@&777&777.77 or more at a rate not exceedin$ fift percent .87</ of one
percent .5</
(6) On 2an:s and other financial institutions& at a rate not exceedin$ fift percent .87</ of
one percent .5</ on the $ross receipts of the precedin$ calendar ear deri)ed from interest&
commissions and discounts from lendin$ acti)ities& income from financial leasin$& di)idends&
rentals on propert and profit from exchan$e or sale of propert& insurance premium.
(7) On peddlers en$a$ed in the sale of an merchandise or article of commerce& at a rate not
exceedin$ Fift pesos .P87.77/ per peddler annuall.
(8)On an 2usiness& not otherwise specified in the precedin$ para$raphs& which the san$$unian
concerned ma deem proper to tax6 Pro)ided& That on an 2usiness su2Eect to the excise& )alue-
added or percenta$e tax under the National *nternal 'e)enue Code& as amended& the rate of tax
shall not exceed two percent .@</ of $ross sales or receipts of the precedin$ calendar ear.
The san$$unian concerned ma prescri2e a schedule of $raduated tax rates 2ut in no case to exceed the
rates prescri2ed herein.
27
<
SEC. @;1. 'e$istration 'e(uirements. -
.A/
'e(uirem
ents. -
E)er
person
su2Eect to
an
internal
re)enue
tax shall
re$ister
once with
the
appropriat
e
'e)enue
District
Officer6
(1) W
ithi
n
ten
.57/
da
s
fro
m
date
of
emp
lo
men
t& or
(2) O
n or
2efo
re
the
com
men
cem
ent
of
2usi
ness
&or
(3) "
efore pament of an
tax due& or
(4) Apon filin$ of a
return& statement or
declaration as re(uired
in this Code.
The re$istration shall
contain the taxpaer9s name&
stle& place of residence&
2usiness and such other
information as ma 2e
re(uired 2 the
Commissioner in the form
prescri2ed therefor.
A person maintainin$ a head
office& 2ranch or facilit
shall re$ister with the
'e)enue District Officer
ha)in$ Eurisdiction o)er the
head office& 2rand or
facilit. For purposes of this
Section& the term FfacilitF
ma include 2ut not 2e
limited to sales outlets&
places of production&
warehouses or stora$e
places.
."/ Annual 'e$istration Fee.
- An annual re$istration fee
in the amount of Fi)e
hundred pesos .P877/ for
e)er separate or distinct
esta2lishment or place of
2usiness& includin$ facilit
tpes where sales
transactions occur& shall 2e
paid upon re$istration and
e)er ear thereafter on or
2efore the last da of
=anuar6 Pro)ided& howe)er&
That cooperati)es&
indi)iduals earnin$ purel
compensation income&
whether locall or a2road&
and o)erseas wor:ers are
not lia2le to the re$istration
fee herein imposed.
The re$istration fee shall 2e
paid to an authoriDed a$ent
2an:
located
within the
re)enue
district& or
to the
'e)enue
Collection
Officer& or
dul
authoriDed
Treasurer
of the cit
of
municipal
it where
each place
of
2usiness
or 2ranch
is
re$istered.
(3) 'e$ist
ration of
Each Tpe
of *nternal
'e)enue
Tax. -
E)er
person
who is
re(uired
to re$ister
with the
"ureau of
*nternal
'e)enue
under
Su2sectio
n .A/
hereof&
shall
re$ister
each tpe
of internal
re)enue
tax for
which he
is
o2li$ated&
shall file a
return and
shall pa
such
taxes& and
shall updates such
re$istration of an chan$es
in accordance with
Su2section .E/ hereof.
(4) Transfer of
'e$istration. - *n case a
re$istered person decides to
transfer his place of
2usiness or his head office
or 2ranches& it shall 2e his
dut to update his
re$istration status 2 filin$
an application for
re$istration information
update in the form
prescri2ed therefor.
(5) Other Apdates. - An
person re$istered in
accordance with this Section
shall& whene)er applica2le&
update his re$istration
information with the
'e)enue District Office
where he is re$istered&
specifin$ therein an
chan$e in tpe and other
taxpaer details.
(6)Cancellation of
'e$istration. - The
re$istration of an person
who ceases to 2e lia2le to a
tax tpe shall 2e cancelled
upon filin$ with the
'e)enue District Office
where he is re$istered an
application for re$istration
information update in a form
prescri2ed therefor.
(7) Persons Commencin$
"usiness. - An person& who
expects to realiDe $ross sales
or receipts su2Eect to )alue-
added tax in excess of the
amount prescri2ed under
Section 57>.D/ of this Code
for the next 5@-month period
from the commencement of
the 2usiness& shall re$ister
with the 'e)enue District
Office which has
Eurisdiction o)er the head
office or 2ranch and shall
pa the annual re$istration
fee
prescri2ed
in Su2section ."/ hereof.
271
(8) Persons "ecomin$ #ia2le to the ,alue-added Tax. - An person& whose $ross sales or receipts in an
5@-month period exceeds the amount prescri2ed under Su2section 57>.D/ of this Code for exemption from
the )alue-added tax shall re$ister in accordance with Su2section .A/ hereof& and shall pa the annual
re$istration fee prescri2ed within ten .57/ das after the end of the last month of that period& and shall 2e
lia2le to the )alue-added tax commencin$ from the first da of the month followin$ his re$istration.
(9) Optional 'e$istration of Exempt Person. - An person whose transactions are exempt from )alue-
added tax under Section 57>.D/ of this Code? or an person whose transactions are exempt from the )alue-
added tax under Section 57>.a/& .2/& .c/& and .d/ of this Code& who opts to re$ister as a ,AT taxpaer with
respect to his export sales onl& ma update his re$istration information in accordance with Su2section .E/
hereof& not later than ten .57/ das 2efore the 2e$innin$ of the taxa2le (uarter and shall pa the annual
re$istration fee prescri2ed in Su2section ."/ hereof.
*n an case& the Commissioner ma& for administrati)e reasons& den an application for re$istration
includin$ updates prescri2ed under Su2section .E/ hereof.
For purposes of Title *, of this Code& an person who has re$istered )alue -added tax as a tax tpe in
accordance with the pro)isions of Su2section .C/ hereof shall 2e referred to as ,AT-re$istered person who
shall 2e assi$ned onl one Taxpaer *dentification Num2er.
.=/ Supplin$ of Taxpaer *dentification Num2er .T*N/. - An person re(uired under the authorit of this
Code to ma:e& render or file a return& statement or other document shall 2e supplied with or assi$ned a
Taxpaer *dentification Num2er .T*N/ which he shall indicate in such return& statement or document filed
with the "ureau of *nternal 'e)enue for his proper identification for tax purposes& and which he shall
indicate in certain documents& such as& 2ut not limited to the followin$6
(1) Su$ar (uedans& refined su$ar release order or similar instruments?
(2) Domestic 2ills of ladin$?
(3) Documents to 2e re$istered with the 'e$ister of Deeds of Assessor9s Office?
(4) 'e$istration certificate of transportation e(uipment 2 land& sea or air?
(5) Documents to 2e re$istered with the Securities and Exchan$e Commission?
(6) "uildin$ construction permits?
(7) Application for loan with 2an:s& financial institutions& or other financial intermediaries?
(8) Application for maor9s permit?
(9) Application for 2usiness license with the Department of Trade K *ndustr? and
(10) Such other documents which ma hereafter 2e re(uired under rules and re$ulations to 2e
promul$ated 2 the Secretar of Finance& upon recommendation of the Commissioner.
*n cases where a re$istered taxpaer dies& the administrator or executor shall re$ister the estate of
the decedent in accordance with Su2section .A/ hereof and a new Taxpaer *dentification Num2er .T*N/
shall 2e supplied in accordance with the pro)isions of this Section.
*n the case of a nonresident decedent& the executor or administrator of the estate shall re$ister the
estate with the 'e)enue District Office where he is re$istered6 Pro)ided& howe)er& That in case such
executor or administrator is not re$istered& re$istration of the estate shall 2e made with the Taxpaer
*dentification Num2er .T*N/ supplied 2 the 'e)enue District Office ha)in$ Eurisdiction o)er his le$al
residence.
Onl one Taxpaer identification Num2er .T*N/ shall 2e assi$ned to a taxpaer. An person who
shall secure more than one Taxpaer *dentification Num2er shall 2e criminall lia2le under the pro)ision of
Section @38 on 9,iolation of Other Pro)isions of this Code or 'e$ulations in !eneral9.
27
2
Sec. 237.
*ssuance of 'eceipts or Sales or Commercial *n)oices. All persons su2Eect to an internal re)enue
tax shall& for each sale or transfer of merchandise or for ser)ices rendered )alued at Twent-fi)e pesos
.P@8.77/ or more& issue dul re$istered receipts or sales or commercial in)oices& prepared at least in
duplicate& showin$ the date of transaction& (uantit& unit cost and description of merchandise or nature of
ser)ice6 Pro)ided& howe)er& That in the case of sales& receipts or transfers in the amount of One hundred
pesos .P577.77/ or more& or re$ardless of the amount& where the sale or transfer is made 2 a person lia2le
to )alue-added tax to another person also lia2le to )alue-added tax? or where the receipt is issued to co)er
pament made as rentals& commissions& compensations or fees& receipts or in)oices shall 2e issued which
shall show the name& 2usiness stle& if an& and address of the purchaser& customer or client6 Pro)ided&
further& That where the purchaser is a ,AT-re$istered person& in addition to the information herein re(uired&
the in)oice or receipt shall further show the Taxpaer *dentification Num2er .T*N/ of the purchaser.
The ori$inal of each receipt or in)oice shall 2e issued to the purchaser& customer or client at the
time the transaction is effected& who& if en$a$ed in 2usiness or in the exercise of profession& shall :eep and
preser)e the same in his place of 2usiness for a period of three .;/ ears from the close of the taxa2le ear
in which such in)oice or receipt was issued& while the duplicate shall 2e :ept and preser)ed 2 the issuer&
also in his place of 2usiness& for a li:e period.
The Commissioner ma& in meritorious cases& exempt an person su2Eect to internal re)enue tax
from compliance with the pro)isions of this Section.
SEC. 248. &i)il Penalties. -
xxx
."/ *n case of willful ne$lect to file the return within the period prescri2ed 2 this Code or 2 rules
and re$ulations& or in case a false or fraudulent return is willfull made& the penalt to 2e imposed shall 2e
fift percent .87</ of the tax or of the deficienc tax& in case& an pament has 2een made on the 2asis of
such return 2efore the disco)er of the falsit or fraud6 Provided, That a su2stantial underdeclaration of
taxa2le sales& receipts or income& or a su2stantial o)erstatement of deductions& as determined 2 the
Commissioner pursuant to the rules and re$ulations to 2e promul$ated 2 the Secretar of Finance& shall
constitute prima facie e)idence of a false or fraudulent return6 Provided, further, That failure to report sales&
receipts or income in an amount exceedin$ thirt percent .;7</ of that declared per return& and a claim of
deductions in an amount exceedin$ .;7</ of actual deductions& shall render the taxpaer lia2le for
su2stantial underdeclaration of sales& receipts or income or for o)erstatement of deductions& as mentioned
herein.
SEC. 282.
*nformer9s 'eward to Persons *nstrumental in the Disco)er of ,iolations of the National *nternal 'e)enue
Code and in the Disco)er and SeiDure of Smu$$led !oods. -
.A/ For ,iolations of the National *nternal 'e)enue Code. - An person& except an internal
re)enue official or emploee& or other pu2lic official or emploee& or his relati)e within the sixth de$ree of
consan$uinit& who )oluntaril $i)es definite and sworn information& not et in the possession of the
"ureau of *nternal 'e)enue& leadin$ to the disco)er of frauds upon the internal re)enue laws or )iolations
of an of the pro)isions thereof& there2 resultin$ in the reco)er of re)enues& surchar$es and fees andIor
the con)iction of the $uilt part andIor the imposition of an of the fine or penalt& shall 2e rewarded in a
sum e(ui)alent to ten percent .57</ of the re)enues& surchar$es or fees reco)ered andIor fine or penalt
imposed and collected or One Cillion Pesos .P5&777&777/ per case& whiche)er is lower. The same amount
of reward shall also 2e $i)en to an informer where the offender has offered to compromise the )iolation of
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law committed 2 him and his offer has 2een accepted 2 the Commissioner and collected from the
offender6 Pro)ided& That should no re)enue& surchar$es or fees 2e actuall reco)ered or collected& such
person shall not 2e entitled to a reward6 Pro)ided& further& That the information mentioned herein shall not
refer to a case alread pendin$ or pre)iousl in)esti$ated or examined 2 the Commissioner or an of his
deputies& a$ents or examiners& or the Secretar of Finance or an of his deputies or a$ents6 Pro)ided&
finall& That the reward pro)ided herein shall 2e paid under rules and re$ulations issued 2 the Secretar of
Finance& upon recommendation of the Commissioner.
."/ For Disco)er and SeiDure of Smu$$led !oods. - To encoura$e the pu2lic to extend full
cooperation in eradicatin$ smu$$lin$& a cash reward e(ui)alent to ten percent .57</ of the fair mar:et
)alue of the smu$$led and confiscated $oods or One Cillion Pesos .P5&777&777/ per case& whiche)er is
lower& shall 2e $i)en to persons instrumental in the disco)er and seiDure of such smu$$led $oods.
The cash rewards of informers shall 2e su2Eect to income tax& collected as a final withholdin$ tax&
at a rate of ten percent .57</.
The pro)isions of the fore$oin$ Su2sections notwithstandin$& all pu2lic officials& whether incum2ent or
retired& who ac(uired the information in the course of the performance of their duties durin$ their
incum2enc& are prohi2ited from claimin$ informer9s reward.
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RULES OF COURT
RULE 42
Pett!" #!$ Re%e& F$!' t(e Re)!"a* T$a* C!+$t, t! t(e C!+$t !# A--ea*,
Sect!" 1. ow a!!eal ta"en? time for filing. L A part desirin$ to appeal from a decision of the
'e$ional Trial Court rendered in the exercise of its appellate Eurisdiction ma file a )erified petition for
re)iew with the Court of Appeals& pain$ at the same time to the cler: of said court the correspondin$
doc:et and other lawful fees& depositin$ the amount of P877.77 for costs& and furnishin$ the 'e$ional Trial
Court and the ad)erse part with a cop of the petition. The petition shall 2e filed and ser)ed within fifteen
.58/ das from notice of the decision sou$ht to 2e re)iewed or of the denial of petitioner9s motion for new
trial or reconsideration filed in due time after Eud$ment. Apon proper motion and the pament of the full
amount of the doc:et and other lawful fees and the deposit for costs 2efore the expiration of the
re$lementar period& the Court of Appeals ma $rant an additional period of fifteen .58/ das onl within
which to file the petition for re)iew. No further extension shall 2e $ranted except for the most compellin$
reason and in no case to exceed fifteen .58/ das. .n/
Sect!" 2. #orm and contents. L The petition shall 2e filed in se)en .3/ le$i2le copies& with the
ori$inal cop intended for the court 2ein$ indicated as such 2 the petitioner& and shall .a/ state the full
names of the parties to the case& without impleadin$ the lower courts or Eud$es thereof either as petitioners
or respondents? .2/ indicate the specific material dates showin$ that it was filed on time? .c/ set forth
concisel a statement of the matters in)ol)ed& the issues raised& the specification of errors of fact or law& or
2oth& alle$edl committed 2 the 'e$ional Trial Court& and the reasons or ar$uments relied upon for the
allowance of the appeal? .d/ 2e accompanied 2 clearl le$i2le duplicate ori$inals or true copies of the
Eud$ments or final orders of 2oth lower courts& certified correct 2 the cler: of court of the 'e$ional Trial
Court& the re(uisite num2er of plain copies thereof and of the pleadin$s and other material portions of the
record as would support the alle$ations of the petition.
The petitioner shall also su2mit to$ether with the petition a certification under oath that he has not
theretofore commenced an other action in)ol)in$ the same issues in the Supreme Court& the Court of
Appeals or different di)isions thereof& or an other tri2unal or a$enc? if there is such other action or
proceedin$& he must state the status of the same? and if he should thereafter learn that a similar action or
274
proceedin$ has 2een filed or is pendin$ 2efore the Supreme Court& the Court of Appeals& or different
di)isions thereof& or an other tri2unal or a$enc& he underta:es to promptl inform the aforesaid courts
and other tri2unal or a$enc thereof within fi)e .8/ das therefrom. .n/
Sect!" 3. $ffect of failure to com!ly with re%uirements. L The failure of the petitioner to compl
with an of the fore$oin$ re(uirements re$ardin$ the pament of the doc:et and other lawful fees& the
deposit for costs& proof of ser)ice of the petition& and the contents of and the documents which should
accompan the petition shall 2e sufficient $round for the dismissal thereof. .n/
Sect!" 4. &ction on the !etition. L The Court of Appeals ma re(uire the respondent to file a
comment on the petition& not a motion to dismiss& within ten .57/ das from notice& or dismiss the petition
if it finds the same to 2e patentl without merit& prosecuted manifestl for dela& or that the (uestions raised
therein are too insu2stantial to re(uire consideration. .n/
Sect!" 5. 'ontents of comment . L The comment of the respondent shall 2e filed in se)en .3/
le$i2le copies& accompanied 2 certified true copies of such material portions of the record referred to
therein to$ether with other supportin$ papers and shall .a/ state whether or not he accepts the statement of
matters in)ol)ed in the petition? .2/ point out such insufficiencies or inaccuracies as he 2elie)es exist in
petitioner9s statement of matters in)ol)ed 2ut without repetition? and .c/ state the reasons wh the petition
should not 2e $i)en due course. A cop thereof shall 2e ser)ed on the petitioner. .a/
Sect!" 6. Due course. L *f upon the filin$ of the comment or such other pleadin$s as the court
ma allow or re(uire& or after the expiration of the period for the filin$ thereof without such comment or
pleadin$ ha)in$ 2een su2mitted& the Court of Appeals finds !rima facie that the lower court has committed
an error of fact or law that will warrant a re)ersal or modification of the appealed decision& it ma
accordin$l $i)e due course to the petition. .n/
Sect!" 7. $levation of record. L Whene)er the Court of Appeals deems it necessar& it ma order
the cler: of court of the 'e$ional Trial Court to ele)ate the ori$inal record of the case includin$ the oral
and documentar e)idence within fifteen .58/ das from notice. .n/
Sect!" 8. Perfection of a!!eal? effect thereof. L .a/ Apon the timel filin$ of a petition for
re)iew and the pament of the correspondin$ doc:et and other lawful fees& the appeal is deemed perfected
as to the petitioner.
The 'e$ional Trial Court loses Eurisdiction o)er the case upon the perfection of the appeals filed in due
time and the expiration of the time to appeal of the other parties.
Bowe)er& 2efore the Court of Appeals $i)es due course to the petition& the 'e$ional Trial Court ma issue
orders for the protection and preser)ation of the ri$hts of the parties which do not in)ol)e an matter
liti$ated 2 the appeal& appro)e compromises& permit appeals of indi$ent liti$ants& order execution pendin$
appeal in accordance with section @ of 'ule ;>& and allow withdrawal of the appeal. .>a& '45/
.2/ Except in ci)il cases decided under the 'ule on Summar Procedure& the appeal shall sta the Eud$ment
or final order unless the Court of Appeals& the law& or these 'ules shall pro)ide otherwise. .a/
Sect!" .. (ubmission for decision. L *f the petition is $i)en due course& the Court of Appeals
ma set the case for oral ar$ument or re(uire the parties to su2mit memoranda within a period of fifteen
.58/ das from notice. The case shall 2e deemed su2mitted for decision upon the filin$ of the last pleadin$
or memorandum re(uired 2 these 'ules or 2 the court itself. .n/
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RULE 43
A--ea*, F$!' t(e C!+$t !# Ta/ A--ea*, a"0 1+a,-2+0ca* A)e"ce, t! t(e C!+$t !# A--ea*,
Sect!" 1. (co!e. L This 'ule shall appl to appeals from Eud$ments or final orders of the Court
of Tax Appeals and from awards& Eud$ments& final orders or resolutions of or authoriDed 2 an (uasi-
Eudicial a$enc in the exercise of its (uasi-Eudicial functions. Amon$ these a$encies are the Ci)il Ser)ice
Commission& Central "oard of Assessment Appeals& Securities and Exchan$e Commission& Office of the
President& #and 'e$istration Authorit& Social Securit Commission& Ci)il Aeronautics "oard& "ureau of
Patents& Trademar:s and Technolo$ Transfer& National Electrification Administration& Ener$ 'e$ulator
"oard& National Telecommunications Commission& Department of A$rarian 'eform under 'epu2lic Act
No. 1183& !o)ernment Ser)ice *nsurance Sstem& Emploees Compensation Commission& A$ricultural
*n)ention "oard& *nsurance Commission& Philippine Atomic Ener$ Commission& "oard of *n)estments&
Construction *ndustr Ar2itration Commission& and )oluntar ar2itrators authoriDed 2 law. .n/
Sect!" 2. 'ases not covered. L This 'ule shall not appl to Eud$ments or final orders issued
under the #a2or Code of the Philippines. .n/
Sect!" 3. )here to a!!eal. L An appeal under this 'ule ma 2e ta:en to the Court of Appeals
within the period and in the manner herein pro)ided& whether the appeal in)ol)es (uestions of fact& of law&
or mixed (uestions of fact and law. .n/
Sect!" 4. Period of a!!eal . L The appeal shall 2e ta:en within fifteen .58/ das from notice of
the award& Eud$ment& final order or resolution& or from the date of its last pu2lication& if pu2lication is
re(uired 2 law for its effecti)it& or of the denial of petitioner9s motion for new trial or reconsideration
dul filed in accordance with the $o)ernin$ law of the court or a$enc a %uo. Onl one .5/ motion for
reconsideration shall 2e allowed. Apon proper motion and the pament of the full amount of the doc:et fee
2efore the expiration of the re$lementar period& the Court of Appeals ma $rant an additional period of
fifteen .58/ das onl within which to file the petition for re)iew. No further extension shall 2e $ranted
except for the most compellin$ reason and in no case to exceed fifteen .58/ das. .n/
Sect!" 5. ow a!!eal ta"en. L Appeal shall 2e ta:en 2 filin$ a )erified petition for re)iew in
se)en .3/ le$i2le copies with the Court of Appeals& with proof of ser)ice of a cop thereof on the ad)erse
part and on the court or a$enc a %uo. The ori$inal cop of the petition intended for the Court of Appeals
shall 2e indicated as such 2 the petitioner.
Apon the filin$ of the petition& the petitioner shall pa to the cler: of court of the Court of Appeals the
doc:etin$ and other lawful fees and deposit the sum of P877.77 for costs. Exemption from pament of
doc:etin$ and other lawful fees and the deposit for costs ma 2e $ranted 2 the Court of Appeals upon a
)erified motion settin$ forth )alid $rounds therefor. *f the Court of Appeals denies the motion& the
petitioner shall pa the doc:etin$ and other lawful fees and deposit for costs within fifteen .58/ das from
notice of the denial. .n/
Sect!" 6. 'ontents of the !etition. L The petition for re)iew shall .a/ state the full names of the
parties to the case& without impleadin$ the court or a$encies either as petitioners or respondents? .2/ contain
a concise statement of the facts and issues in)ol)ed and the $rounds relied upon for the re)iew? .c/ 2e
accompanied 2 a clearl le$i2le duplicate ori$inal or a certified true cop of the award& Eud$ment& final
order or resolution appealed from& to$ether with certified true copies of such material portions of the record
referred to therein and other supportin$ papers? and .d/ contain a sworn certification a$ainst forum
shoppin$ as pro)ided in the last para$raph of section @& 'ule 4@. The petition shall state the specific
material dates showin$ that it was filed within the period fixed herein. .@a/
Sect!" 7. $ffect of failure to com!ly with re%uirements. L The failure of the petitioner to compl
with an of the fore$oin$ re(uirements re$ardin$ the pament of the doc:et and other lawful fees& the
276
deposit for costs& proof of ser)ice of the petition& and the contents of and the documents which should
accompan the petition shall 2e sufficient $round for the dismissal thereof. .n/
Sect!" 8. &ction on the !etition. L The Court of Appeals ma re(uire the respondent to file a
comment on the petition not a motion to dismiss& within ten .57/ das from notice& or dismiss the petition if
it finds the same to 2e patentl without merit& prosecuted manifestl for dela& or that the (uestions raised
therein are too unsu2stantial to re(uire consideration. .1a/
Sect!" .. 'ontents of comment. L The comment shall 2e filed within ten .57/ das from notice
in se)en .3/ le$i2le copies and accompanied 2 clearl le$i2le certified true copies of such material
portions of the record referred to therein to$ether with other supportin$ papers. The comment shall .a/ point
out insufficiencies or inaccuracies in petitioner9s statement of facts and issues? and .2/ state the reasons wh
the petition should 2e denied or dismissed. A cop thereof shall 2e ser)ed on the petitioner& and proof of
such ser)ice shall 2e filed with the Court of Appeals. .>a/
Sect!" 10. Due course. L *f upon the filin$ of the comment or such other pleadin$s or
documents as ma 2e re(uired or allowed 2 the Court of Appeals or upon the expiration of the period for
the filin$ thereof& and on the records the Court of Appeals finds !rima facie that the court or a$enc
concerned has committed errors of fact or law that would warrant re)ersal or modification of the award&
Eud$ment& final order or resolution sou$ht to 2e re)iewed& it ma $i)e due course to the petition? otherwise&
it shall dismiss the same. The findin$s of fact of the court or a$enc concerned& when supported 2
su2stantial e)idence& shall 2e 2indin$ on the Court of Appeals. .n/
Sect!" 11. Transmittal of record. L Within fifteen .58/ das from notice that the petition has
2een $i)en due course& the Court of Appeals ma re(uire the court or a$enc concerned to transmit the
ori$inal or a le$i2le certified true cop of the entire record of the proceedin$ under re)iew. The record to 2e
transmitted ma 2e a2rid$ed 2 a$reement of all parties to the proceedin$. The Court of Appeals ma
re(uire or permit su2se(uent correction of or addition to the record. .0a/
Sect!" 12. $ffect of a!!eal. L The appeal shall not sta the award& Eud$ment& final order or
resolution sou$ht to 2e re)iewed unless the Court of Appeals shall direct otherwise upon such .terms as it
ma deem Eust. .57a/
Sect!" 13. (ubmission for decision. L *f the petition is $i)en due course& the Court of Appeals
ma set the case for oral ar$ument or re(uire the parties to su2mit memoranda within a period of fifteen
.58/ das from notice. The case shall 2e deemed su2mitted for decision upon the filin$ of the last pleadin$
or memorandum re(uired 2 these 'ules or 2 the court of Appeals. .n/
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