TAXATION 2 TAXATION LAW

TO COMPUTE FOR THE ESTATE TAX:

I. ESTATE TAX
Gross Estate
It is a tax on the gratuitous transfer of the decedent's
estate to a beneficiary. - Ordinary deductions
- Standard deductions
The tax is measured by the value of the property Net Estate
transmitted at the time of death, regardless of its Share of surviving spouse
-
appreciation or depreciation.
Net taxable estate
WHO: (schedule) Estate taxes due
From decedent---to beneficiary. - Tax credit/ payment to foreign income
Net tax due
Who are the taxpayers liable to pay estate tax?
1. Resident citizens
A. GROSS ESTATE
2. Non-resident citizens
3. Resident alien
4. Non-resident alien DETERMINATION OF GROSS ESTATE
Classification of decedent:
NOTE: Only natural persons can be held liable for Decedent Properties taxable
estate tax. A corporation cannot be liable for the Resident + Citizen All properties, whenever
obvious reason that they cannot die (naturally Resident + Alien situated
speaking). Citizen + Non-resident Tangible/Intangible
Non-resident aliens Properties in the Philippines
WHY: only; except for intangible
Because there is a shift of wealth. It is imposed on the property which is subject to
act of passing ownership of property (not on the the rule on reciprocity
property transferred).
RULE ON RECIPROCITY:
WHEN: Personal/real properties outside the Philippines is not
Upon the decedent's death, succession takes place and included in gross estate
the right of the state to tax vests instantly upon death,
regardless of the postponement of the beneficiary's Property is considered as situated in the Philippines if:
actual possession or enjoyment of the estate. a. Franchise which must be exercised in the
(LORENZO VS POSADAS) Philippines
b. Shares, obligations or bonds issued by any
domestic corp.
GOVERNING LAW c. Shares, obligations or bonds by foreign
statute in force at the time of death of decedent corporation, 85% of the business is located in the
Phil/ or have acquired situs in the Phil.
1. FILING OF NOTICE OF DEATH - Within two months d. Shares or rights in any partnership, business or
from the death of the decedent. industry established in the Phil.

2. FILING OF ESTATE TAX RETURN - Within six months
from death of the decedent.
3. PAYMENT OF ESTATE TAX - At the time the return
is filed subject to extension,
• 5 years if judicial settlement
• 2 years if extra judicial settlement
Note: NO PAYMENT, NO TRANSFER.
Provided: no tax on intangible property if:
• Decedent at time of death was a citizen and
resident of a foreign country which at the time of
his death did not impose a transfer tax of any
character, in respect of intangible personal
property of Filipino citizen not residing in that
foreign country; or
• If the laws of the foreign country of which the
decedent allows a similar exemption from transfer
or death taxes of every character or description in
respect of intangible personal props. owned by
non-resident Filipinos.

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GROSS ESTATE
All properties of the decedent.
NET ESTATE
Properties of the decedent whisch is part of gross
estate minus the deductions.
GROSS ESTATE IS COMPOSED OF THE FOLLOWING:
1. DECEDENT'S INTEREST
All properties existing at the time of death of the
decedent and which accrued thereto Properties
owned earned before death and which was only
received after the decedent’s death.
2. TRANSFER IN CONTEMPLATION OF DEATH
Interest of what the decedent has at the time he
made a transfer by trust or otherwise intended to
take effect in possession or enjoyment at or after
death, or
When he made the transfer, he has retained for his
life or for any period which does not in fact end
before his death:
• possession/enjoyment of, or the right of the
income from the properties; or
• the right in either alone or in conjunction with
any person, to designate the person who shall
possess or enjoy the property or the income
therefrom.
EXCEPT: bona fide sale for an adequate and full
consideration in money/ money's worth
General rule: if the transfer is effective upon execution:
DONATION = donor's tax.
3. REVOCABLE TRANSFERS
Transfer during his lifetime but the use and
enjoyment or possession is subject to his power to
alter, amend, revoke at the time of his death.
Rationale: Simply because he is still regarded as the
owner of the property at the time of his death.
Revocability of transfer is not affected by failure to
exercise it before his death.
4. PROPERTY PASSING UNDER A GENERAL POWER OF
APPOINTMENT
Property transferred to the decedent during his
lifetime under general terms where he can designate
any other person who shall posses the property upon
his death.
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TAXATION LAW
Decedent is the transferee of the property.
5. PROCEEDS OF LIFE INSURANCE
Included in the gross estate to the extent of the
amount receivable by the estate.
General rule: Proceeds of life insurance are part of
gross estate.
Exceptions:
• If the beneficiary is other than the estate and
the designation is irrevocable.
• Proceeds from group insurance taken by
employer.
• Benefits from SSS and GSIS.
If the beneficiary is the estate regardless of the
designation, it is part of gross estate. If other than
the estate and the designation is revocable, then it
is included if irrevocable the it is excluded.
6. TRANSFERS FOR INSUFFICIENT CONSIDERATION
Consideration is less than the fair market value.
The difference between the FMV at the time of
death and the consideration is the one included in
the gross estate.
Always choose what is smaller between the FMV at
the time of death or FMV at the time of sale then
subtract it with the consideration the total will be
the amount included in the gross estate.
7. PRIOR INTEREST
VALUATION OF GROSS ESTATE
REAL PROPERTIES
Whichever is higher between the zonal value and FMV
SHARES
If listed: arithmetic mean of the highest and lowest.
If unlisted: book value from audited financial statement
(SH's Equity/ # of shares outstanding = book
value/share)
• if Common stock = time of death
• if preferred = par value
USUFRUCT
Take into account the probable life of the beneficiary in
accordance with the latest Basic Standard Mortality
table, to be approved by the Secretary of finance upon
recommendation of the insurance commissioner
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EXCLUSIONS g. Merger or usufruct in the owner of the naked

(not included in computation of Gross Estate) title
h. Properties held in trust by the decedent
1. Capital of surviving spouse i. Acquisition and/or transfer expressly declared
as not taxable
Note: Under Section 86(C), the share of the surviving
spouse n the absolute community/conjugal partnership ALLOWABLE DEDUCTIONS
is considered as a deduction 1. Resident/Citizen

COMMUNITY PROPERTY
All properties owned by the spouse at time of marriage ORDINARY DEDUCTIONS
+ acquired there after Expenses (E)
Juridical Funeral
EXCLUDED FROM ACP: within 6mos reckoned Lower bet actual and %5
• Gratuitous donation during marriage from death of gross estate
• Personal & exclusive use of that spouse (except Losses (L)
jewelries) Casualty Bad Debts
• Properties acquired during the previous not later than the last claims against insolvent
marriage with descendants day of settlement of persons when included in
estate tax (within 6mo) the gross estate
EXCLUSIVE PROPERTIES IN CPG: and must be during the
• brought to marriage as his or her own estate proceedings
• acquired by gratuitous title during marriage Indebtedness (I)
• acquired by right of redemption, barter, Unpaid Mortgages must Claims vs. the estate
exchange at properties of one spouse be related to properties
• purchased with exclusive money of H&W in the gross estate
Taxes (T)
2. Proceeds of life insurance where designation of Transfer for public use
beneficiary is irrevocable Vanishing Deductions
Initial Value (IV) Property transferred (FMV) –
3. Exemptions of certain acquisitions or transmissions present decedent’s property in GE
Initial Basis (IB) IV less mortgage paid
The decedent transfers the property to the first heir (only if FMV has mortgage
(naked title) and the second heir (beneficial title), the indebtedness)
transfer from the first heir to the second heir is not Ratio Limit (RL) RL = [ELIT + transfer for
included in the decedent's estate. public use on present's
decedent] x [Initial
Decedent transfers the property to the fiduciary heir, Basis/GE]
who will then pass the property to the fidei Final Basis (FB) FB = (IB –Proper RL)
commissary; fiduciary and fideicommissary are both use the multiplier:
living and is related to 1 degree; decedent transfers the if within 1 year = 100%
property to the legatee (donee), who later transfers within 2 years = 80%
the same property to a second heir. within 3 years = 60%
within 4 years = 40%
4. Other exemptions under special laws within 5 years = 20%

a. GSIS proceeds/benefits SPECIAL DEDUCTIONS

b. Accruals from SSS Family Home
c. Proceeds of life insurance under a group Ceiling: P1m
insurance taken by employer Current FMV exceeding ceiling shall be taxed
d. War damage payments Must be included in the gross estate
e. Transfer by way of bona fide sales Medical Expenses
f. Transfer of property to the government or to Ceiling: P500k
any of its political subdivisions Standard Deduction: 1m w/o substantiation

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Employment benefits registrable properties, it needs clearance from the

NOTE: Sharing of surviving spouse deducted (if BIR before it can be transferred.
included in GE) = (1/2 of (CP – Conjugal ordinary • If Gross Estate exceeds P2M, it needs to be
deductions) certified by a CPA

2. Non-resident aliens Time for filing: within six (6) months from death
What may be deducted from the gross estate of non- Extension to file: not exceeding 30 days (must be
resident aliens? meritorious cases, filed with RDO)
Place of filing: RDO with jurisdiction:
Citizen or Resident Alien Non-resident alien • death or accredited agent bank
Decedents decedents • non-resident alien with administrator
Gross Estate - all property Gross Estate – includes • jurisdiction of TIN
at the time of death, only that part of the gross (if no administrator – secure one from the
wherever situated. estate located in the office of CIR)
Philippines
Deductions: Deductions: TIME OF PAYMENT OF ESTATE TAX:
1. Ordinary deductions 1. Ordinary deductions General rule: at the time the return is filed
a. Expenses, losses, 2. Share in conjugal Exception (Extension of time to pay):
indebtedness, taxes, property a. undue hardships, extend not longer than 5
etc (ELIT) years
i. Funeral Note: b. court settlement, 2 years
expenses (1) Non-resident alien c. extrajudicial settlement
ii. Judicial expenses decedent cannot avail of d. negligence, intentional disregard of rules and
iii. Claims against special deductions. regulations, fraud = no extension
the estate e. File bond with approval: twice the value of tax
iv. Claims against (2) No deduction shall be to be paid
insolvent allowed unless the
persons executor, administrator, No surcharge, but with interest (after due, before
v. Unpaid or anyone of the heirs as extinguished)
mortgage or the case may be includes
indebtedness on in the estate tax return of Payment by installment: only when cash estate is not
property the decedent, the value at sufficient to pay
vi. Taxes the time of his death that Liability for payment: paid by the executor before
vii. Losses part of the gross estate of delivery to the heirs.
the non-resident not 1. Solidary liability when there are multiple
b. Vanishing Deduction situated in the Philippines executors
c. Transfer for public (Section 86(D), Tax Code) 2. Heirs are subsidiary liable to their aliquot
use portion, extent of liability not to exceed value of
share in the inheritance

B. ESTATE TAX II. DONOR'S TAX

FILING OF NOTICE OF DEATH/ RETURNS/ It is tax on the gratuitous transfer of the DONOR's
PAYMENT OF ESTATE TAX property to a DONEE. The tax assessment is not on the
ownership of the property but on the right to receive.
FILING FOR NOTICE OF DEATH The tax is measured by the value of the property
A requirement only if gross estate exceeds 20k, w/in transmitted at the time of death, regardless of its
2mo after death, administrator/executor gives notice appreciation or depreciation.
to CIR
Nature: Not a property tax. It is a tax imposed on the
ESTATE TAX RETURNS: transfer of property by way of gift inter vivos. (Lladoc v.
Requirements: CIR)
• If Gross Estate exceeds P200,000 (even if exempt
from taxes) or regardless of value, contains Who are the taxpayers liable to pay estate tax?

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 TAXATION 2
1. Resident citizens
2. Non-resident citizens
3. Resident alien
4. Non-resident alien
Note: Only natural persons can be held liable for estate
tax. A corporation cannot be liable for the obvious
reason that they cannot die (naturally speaking).
WHY:
It is imposed on the act of passing ownership of
property (not on the property transferred) because
there is a shift of wealth.
• Supplement estate tax
• Prevent avoidance of income tax by splitting
income among donees
• Raise revenues for government
WHO:
From DONOR ----- to DONEE
Who is liable: Donor
REQUISITES OF A VALID DONATION:
1. Capacity of Donor – all person who may contract
and dispose of his property and does not extend to
donee
2. Donative intent – must always be present
3. Delivery – tax does not apply unless and until there
is a complete gift. completed at delivery, whether
constructive or actual, and the accepted by the
donee.
Guardians and trustees cannot donate the
property entrusted to them. Donation of real
properties must be in public instrument
4. Acceptance – the relevant time of taxation is the
time of acceptance (FMV), not the time of
donation
What are the requirements for a donation to be
subject to donor’s tax?
1. Property donated is not real property that is a
capital asset
2. The transfer is for less than or no adequate
consideration
3. The transfer is inter vivos
Transfers which may be constituted as donation:
SALE, EXCHANGE, TRANSFER OF PROPERTY FOR LESS
THAN ADEQUATE AND FULL CONSIDERATION
If for business and no donative intent, then no donor's
tax
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TAXATION LAW
• Capital assets = not taxed
• ordinary assets = taxed
Donative intent: applies only to deed of absolute sale,
not to conditional sales or contract to sell
Transfer involving properties other than real
properties, amount of which the Fair Market Value of
the property exceed the value of the property is
deemed a gift (for tax purposes)
Example: Property is acquired at P100, sold at P500,
but FMV at time of sale is P1000; then:
• 500-100 = P400 taxable income tax
• 1000-500 = P500 taxable donor's tax
CONDONATION/REMISSION OF DEBT
• If render service + condone payment = no
donation (only service income)
• If stockholder is the debtor, and the corporation is
the creditor; then there is no donation. Only
dividend income
• No consideration/condition at all = deemed
donation
RENUNCIATION OF INHERITANCE
• If renounced in favor of one other heir = subject to
tax
• If renounced entire inheritance = not subject to tax
LAW GOVERNING IMPOSITION OF DONOR'S TAX:
Law in force at time of perfection/completion of the
donation
DETERMINATION OF GROSS GIFT
Classification of donor & composition of gross gift
Citizens/residents: Non-resident aliens
Real properties located in the Phil
Tangible personal prop Tangible personal propr
located w/in & w/o Phils located w/in Phils
Intangible personal prop Intageble personal prop
located w/in & w/o Phil located w/in Phil (except
reciprocity see estate tax)
Gifts Exempt from Donation Tax
 TAXATION 2
1. Services/gifts made on account of marriage given
by parents to children. The first P10,000 given
before marriage or within one year after is
exempted. (Does not apply to gifts by a non-
resident alien)
2. Gifts made to or for the use of national
government, its agencies or any political entity. It
must not be conducted for profit.
3. Gifts in favor of educational and charitable
institutions, religious, cultural, social welfare,
accredited non-government organizations, trust or
philanthropic organizations, research institutions.
These institutions receive no compensation. If they
acquire income, all of it devoted to their specific
purpose, hence, they do not pay dividends.
4. Special laws exemptions
Valuation of Gifts made in Property:
Fair Market Value of gift on the time of donation
Real property valuation:
Whichever is higher:
• FMV determined by CIR or
• FMV fixed by provincial and city assessors
Computation of donor's tax
Cumulative over a period of 1 calendar year
Present Donation
+ Previous Donations
Total taxable value
- taxes previously paid
tax payable
NOTE: Tax credit for Donor's taxes paid to a foreign
country allowed
Tax rates:
If donee is a stranger = 30% of net gifts
If donee is not a stranger = graduated schedule of rates
PERSONS CONSIDERED NOT A STRANGER
• brother, sister (whole or half blood)
• spouse
• ancestor and lineal descendant
• relative by consanguinity in the collateral line
within 4th civil degree
RETURNS & PAYMENTS
Requirements in every donation
Must accomplish donor's tax return under oath stating:
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TAXATION LAW
• Each gift made during the calendar years which is
to be included in computing net gifts
• Deductions claimed and allowed
• Any previous net gifts made during the same
calendar year
• Names of donee
• Relationship of donor to donee
• Other information CIR may require
TIME OF FILING/PAYMENT
30 days after date of gift is made/completed
Payment coincides with the filing of return
PLACE OF FILING/PAYMENT:
Residents and Citizens: Residence/domicile of donor
Non-resident aliens: file with Philippine embassy/
consulate where he is domiciled at the time of transfer
III. VALUE ADDED TAX
It is a tax on consumption levied on the sale, barter,
exchange, or lease of goods or properties or services in
the Philippines and on importation of goods into the
Philippines.
Characteristics of VAT
1. It 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.
2. 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.
3. It is 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.
4. 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.
5. It is an ad valorem tax as its amount or rate is
based on gross selling price or gross value in
money or gross receipts derived from the
transaction.
VAT is imposed on any person who in the course of
trade of business, sells, barters, exchanges, or leases
goods or properties, renders services, and any person
who imports goods shall be liable to the tax.
• Manufacturers
 TAXATION 2
• Producers
• Wholesalers
• Retailers
• Traders
• Importers
• Sellers and lessors of properties
• Persons rendering selected services like
brokers, contractors, etc.
*With annual sales exceeding P1,919,500
(RR 16-2011 Effectivity: Jan 1, 2012).
The seller, and not the buyer or consumer, is the one
statutorily liable for the payment of the tax BUT the
amount of the output tax (VAT on taxable sale or
exchange) may be shifted or passed on to the buyer,
transferee or lessee.
However, in case of importation of taxable goods by an
individual or corporation, the tax is imposed whether
or not it is in the course of trade or business.
It promotes an efficient and simplified tax system by
eliminating a number of percentage taxes previously
imposed.
It provides a built-in self policing feature which ensures
proper collection of taxes at all stages of production
and distribution. The purchaser will be compelled to
ask for the sales invoice, as the basis for the tax credit
against his sales tax liability, when he sells his products.
The value added tax zero-rating mechanism boasts the
export industry by subjecting export sales to 0% rate,
thereby allowing refunds of all value-added taxes paid
on purchases of raw materials, supplies, capital goods,
and selected services used in the production of export
goods.
Since the expanded value-added law establishes a
wider tax base, it will enable the government to
generate much needed revenues for a more effective
administration in enhancing public services.
IMPACT OF TAX
The burden is on the seller upon whom the tax has
been imposed.
INCIDENCE OF TAX
The burden is on the final consumer, the place at which
the tax comes to rest.
TAX CREDIT METHOD
It is sometimes called “invoice method” which refers to
the manner by which the value added tax of a taxpayer
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TAXATION LAW
is computed using the invoice credit method.
Output tax versus Input tax
INPUT TAX
The actual payments, costs and expenses incurred by a
VAT-registered taxpayer in connection with his
purchase of goods and services.
Thus, "input tax" means the value-added tax paid by a
VAT-registered person/entity in the course of his/its
trade or business on the importation of goods or local
purchases of goods or services from a VAT-registered
person.
OUTPUT TAX
On the other hand, when that person or entity sells
his/its products or services, the VAT-registered
taxpayer generally becomes liable for 10% (now 12%)
of the selling price as output VAT or output tax. Hence,
"output tax" is the value-added tax on the sale of
taxable goods or services by any person registered or
required to register under the Tax Code.
Otherwise stated, output tax is the VAT due on the sale
or lease or taxable goods, properties or services by an
VAT-registered person. On the other hand, input tax is
the VAT due on or paid by a VAT-registered person on
importation of good or local purchases of goods or
services, including lease or use of properties, in the
course of his trade or business.
TAX CREDIT METHOD
Under the tax credit method, an entity can credit
against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and
imports.
The legal basis can be found in Section 110(A) of the
Tax Code which provides that any input tax evidenced
by a VAT invoice or official receipt on purchase or
importation of goods or for purchase of services shall
be creditable against output tax.
Under the VAT method of taxation, which is invoice-
based, an entity can subtract from the VAT charged on
its sales or outputs the VAT it paid on its purchases,
inputs and imports. (CIR v. Seagate Technology
[February 11, 2005]).
NOTE:
1) The Tax Credit method is the method used to
know the amount VAT to be paid. We will talk
about this in detail under the Determination of
output/input VAT. As discussed above, the
 TAXATION 2
taxpayer determines his tax liability by computing
the tax on the gross selling price or gross receipt
(output tax) and subtracting or crediting the earlier
VAT on the purchase or importation of goods or on
the purchase of service (input tax) against the tax
due on his own sale.
2) As explained in ABAKADA GURO PARTY LIST V.
ERMITA [SEPTEMBER 1, 2005], the VAT system was
previously a single stage system under a “cost
deduction method” and was payable only by the
original sellers. Now, the VAT system is a multi-
stage system.
DESTINATION PRINCIPLE/CROSS-BORDER DOCTRINE
The destination of the goods determines the taxation
or exemption from VAT. Goods and services are taxed
only in the country where they are consumed.
Export sale of goods are subject to zero percent (0%)
rate (or zero based) because the consumption of such
goods will be made outside the Philippines, while
imports of goods are subject to the regular value added
tax because they are for consumption within the
Philippines.
In case of export or import of services, the rule is
different. Consumption takes place where the service is
performed, following the “situs-of-service principle”
“IN THE COURSE OF TRADE OR BUSINESS”
Meaning: The regular conduct or pursuit of a
commercial or an economic activity, including
transactions incidental thereto, by any persons
regardless of whether or not the person engaged
therein is a non-stock, non-profit private organization
(irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their
guests), or government entity.
If the income from the main activity is subject to VAT,
the incidental income shall also be liable to VAT
following the general principle that “accessory follows
the principal,” provided that there is no particular
provision applicable to the specific transaction.
However, any business where the gross sales or
receipts do not exceed P100,000 during any 12-month
period shall be considered principally for subsistence or
livelihood and not in the course of trade or business.
The rule of regularity to the contrary notwithstanding,
services by non-resident foreign entity through its
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TAXATION LAW
employees in the Philippines shall be considered as
being rendered in the course of trade or business, and
becomes subject to VAT, if the threshold amount of
P1,919,500 for the preceding 12-month period id
exceeded.
REQUISITES OF VAT ON SALE OF GOODS/PROPERTIES
SALE OF GOODS AND INTANGIBE PROPERTIES
• There is an actual or deemed sale, barter or
exchange of goods or properties for a valuable
consideration
• The sale is undertaken in the course of trade or
business or exercise of profession in the
Philippines
• The goods or properties are located within the
Philippines and are for use or consumption
therein, and
• The sale is not exempt from value added tax under
Section 109 of the Tax Code, special law, or
international agreement binding upon the
government of the Philippines.
SALE OF REAL PROPERTIES
• The seller executes a deed of sale, including dacion
en pago, barter or exchange, assignment, transfer
or conveyance, or merely contract to sell involving
real property.
• The real property is located within the Philippines
• The seller or transferor is engaged in real estate
business either as a real estate dealer, developer,
or lessor;
• The real property is held primarily for sale or for
lease in the course of his/its trade or business; and
• The sale is not exempt from value added tax under
Section 109 of the Tax Code, special law, or
international agreement binding upon the
government of the Philippines.
NOTE: If one of the essential requisites is absent, the
transaction is exempt from VAT.
ZERO-RATED SALES OF GOODS OR PROPERTIES, AND
EFFECTIVELY ZERO-RATED SALES OF GOODS OR
PROPERTIES
REGISTRATION
Annual fee: P500
MANDATORY REGISTRATION
Any person who, in the course of trade or business,
sells, barters, or exchanges goods or properties or
engages in the sale or exchange of services shall be
liable to register if:
 TAXATION 2
• His gross sales or receipts for the past 12 months,
other than this exempt under Section 109(1)(A) to
(U) of the tax code, have exceeded P1,915.500.
• There are reasonable grounds to believe that his
gross sales or receipts for the next 12 months
other than those exempt under Section 109(1)(A)
to (U) of the tax code, will exceed P1,915.500.
Failure to register- if the persons mentions in (a) above
fail to register, he shall be liable to pay the output tax
as if he were a VAT-registered person without the
benefit of input tax credits for the period in which he
was not properly registered. [SEC. 236(G)]
Franchise grantees of radio and/or television
broadcasting stations whose gross annual receipts for
the preceding taxable year exceeded P10,000,000 shall
register within 30 days from the end of the taxable
year.
OPTIONAL REGISTRATION
Persons covered:
• Any person who is VAT-exempt under the tax code
may elect to be VAT-registered by registering with
the RDO which has jurisdiction over its head office
and paying the corresponding annual fee of P500
• Any person who is VAT registered, but enters into
a transaction exempt from VAT (mixed
transactions) may opt that the VAT apply to his
transaction, which would have been exempt under
[Sec. 109(1)-vat exempt transactions] the tax
code.
• Franchise grantees of radio and/or television
broadcasting stations whose gross annual receipts
for the preceding calendar year do not exceed
P10,000,000. Provided, that once they opted to
register as VAT taxpayers, such registration shall
be irrevocable.
• PEZA and other ecozone registered enterprises
enjoying the preferential tax rate of 5%, in lieu of
all taxes.
• SBMA and other Freeport zone-registered
enterprises enjoying the preferential tax rate of
5%, in lieu of all taxes.
Any person who elects to register under (1) and (2)
above shall not be allowed to cancel his registration for
the next 3 years.
REGISTRATION OF NON-VAT OR EXEMPT TAXPAYER
The following are required to register as non-VAT:
• VAT-exempt person who did not opt to register as
VAT taxpayers.
• Individuals engaged in business where the gross
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TAXATION LAW
sales or receipts do not exceed P100,000 during
any 12-month period. They are required to register
but will not be made to pay the registration fee of
P500.
• Non-stock, non-profit organization and association
engaged in trade or business, whose gross sales or
receipts do not exceed P1,915.500 for any 12-
month period or in any amount as adjusted
thereafter every 3 years.
• Cooperative other than electric cooperatives.
However they are not required to pay the
registration fee imposed in these regulations.
• Radio and TV broadcasting whose gross annual
receipt do not exceed P100,000,000 and which do
not opt to be VAT-registered.
• PEZA and other ecozone registered enterprises
enjoying the preferential tax rate of 5% in lieu of
all taxes.
• SBMA and other free port zone-registered
enterprises enjoying the preferential tax rate of 5%
in lieu of all taxes.
CANCELLATION OF VAT REGISTRATION:
He makes a written application and can demonstrate to
the satisfaction of CIR that his gross sales or receipts
for the following 12 months will not exceed P1, 500,
000.
He has ceased to carry on his trade or business and
does not expect to recommence this, within the next
12 months.
OTHER INSTANCES WHERE A VAT REGISTERED PERSON
MAY APPLY FOR CANCELLATION OF HIS REGISTRATION
• A person retired from business
• A person’s business has become exempt in
accordance with Section 9(b) of these regulations
• A change of the nature of the business itself from
the sale of taxable goods and/or services to
exempt sales and/or services.
• A change of ownership in case of single
proprietorship.
• Dissolution of a partnership or corporation.
• Merger or consolidation with respect to the
dissolved corporation.
• A person who has registered prior to planned
business commencement, but failed to actually
start the business.
• A person whose transactions are exempt from VAT
under Sec. 109 of the Tax code, who voluntarily
registered under the VAT system, who, after the
lapse of 3 years, applies for cancellation of his
regulation.
• A VAT-registered person whose gross sales or
 TAXATION 2
receipts for 3 consecutive years did not exceed
P1,919,500, or did not exceed P1,919,500 during
his first 12 months in business.
• Death of individual
• Full settlement of the tax liabilities of the estate
• Discovery of a taxpayer having multiple TINs
INSTANCES WHERE A TAXPAYER SHOULD UPDATE HIS
REGISTRATION BY SUBMITTING A DULY
ACCOMPLISHED REGISTRATION UPDATE FORM
• A person’s business has become exempt in
accordance with VAT regulations.
• A change I the nature of the business itself from
sale of taxable goods and/or services to exempt
sales and/or services.
• A person whose transactions are exempt from VAT
who voluntarily registered under the VAT system
and, who after the lapse of 3 years after his
registration applies for cancellation of such.
• A VAT registered person whose gross sales on
receipts for 3 consecutive years did not exceed
P1,915.500. Upon updating, he shall become liable
to percentage tax.
CLASSIFICATION OF SALES SUBJECT TO VAT
a. Sales to private entities subject to 12% (Sales
Taxable VAT)
b. Sales to private entities subject to 0% (Sales
Zero-rated)
c. Sales of exempt goods (Sales exempt)
d. Sales to government subject to final VAT
Withholding (Sales to government)
FORMAT OF COMPUTATION OF MONTHLY OR
QUARTERLY VAT
OUTPUT TAX
Exclusive: Gross selling price/receipts
Inclusive: Total invoice amount in sales/receipts x
1/9.333
This includes:
a. Sales of goods, properties, services, and lease of
properties in the ordinary course of trade or
business
• Sale of goods/properties
• Transactions deemed sale
• Sale of services and use/lease of properties
Less: Discounts/ Returns and allowances
b. Importation of goods: Whether used in business or
not.
10
TAXATION LAW
LESS: INPUT TAX
(Note: deductible only by VAT-registered person who
purchased from another VAT-registered person)
Exclusive: Gross selling price/receipts x 12%
Inclusive: Total invoice amount in sales/receipts x
1/9.333
This includes:
a. Purchase or importation of goods
• For sale; or
• For conversion into or intended to form part
of a finished product for sale, including
packaging materials; or
• For use as supplies in the course of
business; or
• For use in trade or business for which
deduction for depreciation or amortization
is allowed under the Tax Code.
b. Purchase of real properties for which a VAT has
actually been paid;
c. Purchase of services in which a VAT has actually
been paid;
d. Transactions “deemed sale” under Sec. 106 of the
Tax Code;
e. Transitional input tax allowed under Sec. 4.111 (a)
of these regulations.
f. Presumptive input tax allowed under Sec. 4.111 (b)
of these regulations;
g. Transitional input tax credits allowed under the
transitory and other provisions of these
regulations
B. COVERAGE OF THE VALUE ADDED TAX
SALE OF GOODS OR PROPERTIES
Nature: VAT is imposed and collected for every sale,
barter, or exchange of taxable le goods or properties at
the rate of 12% of the gross selling price or gross value
in money of the goods or properties sold, bartered, or
exchanged, or deemed sold in the Philippines.
TAX BASE ON SALES OF GOODS
Gross selling price means total amount of money or its
equivalent which the purchaser pays or is obligated to
pay to the seller in consideration of the sale, barter, or
exchange of goods excluding VAT. Excise tax, if there
are any, shall form part of the gross selling price.
TAX PRICE ON SALES OF PROPERTIES
Gross selling price shall mean the consideration stated
in the sales document, or the FMV, whichever is higher
of the value as determined by the Commissioner of the
BIR (zonal value) and the schedule of values of the
Provincial and City Assessors (Property tax declaration).
 TAXATION 2
In the absence of zonal value, the gross selling price
refers to the higher of the value as shown in the latest
real property tax declaration and consideration
received. If gross selling price is based on Zonal value,
it shall be deemed to be inclusive ova VAT. If Vat is not
billed separate, it is also deemed to be inclusive of VAT.
“Good or properties” refer to all tangible and
intangible objects which are capable of pecuniary
estimation and shall include, among others:
• Real properties held primarily for sale to
customers or held for lease in the ordinary course
of trade or business;
• The right or the privilege to use patent, copyright,
design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like
property or right;
• The right or the privilege to use any industrial
commercial or scientific equipment;
• The right or privilege to use motion picture films,
tapes, and discs; and
• Radio, television, satellite transmission, and cable
television time.
IMPORTANT FEATURES
Sale of real properties held primarily for sale to
customers or held for lease in the ordinary course of
trade or business of the seller shall be subject to VAT.
In the case of sale of real properties on the installment
plan, the real estate dealer shall be subject to VAT on
the installment payments, including interest and
penalties, actually and/or constructively received by
the seller.
Sale of residential lot exceeding P1,919,500 (previously
P1,500,000) (RR 16-2011 Effectivity: Jan 1, 2012)
residential house and lot or other residential dwellings
exceeding P3,199,200 (previously P2,500,000) where
the instrument of sale (whether the instrument is
nominated as a deed of absolute sale, deed of
conditional sale or otherwise).
Installment sale of residential house and lot or other
residential dwellings exceeding P1,000,000 where the
instrument is nominated as a deed of absolute sale,
deed of conditional sale or otherwise.
“Sale of real property on installment plan” means sale
of real property by a real estate dealer, the initial
payments of which in the year of sale do not exceed
25% of the gross selling price.
However, in the case of sale of real properties on the
11
TAXATION LAW
deferred-payment basis, not on the installment plan,
the transaction shall be treated as cash sale which
makes the entire selling price taxable in the month of
sale.
“Sale of real property by real estate dealer on a
deferred payment basis” means sale of real property,
the initial payments of which in the year of sale exceed
25% of the gross selling price.
“Initial payments” means payment which the seller
receives before or upon execution of the instrument of
sale and payments which he expects or scheduled to
receive in cash or property (other than evidence of
indebtedness of the purchases) during the year when
the sale or disposition of the real property was made. It
covers any down payment made and includes all
payments actually or constructively received during the
year of sale, the aggregate of which determines the
limit set by law.
Initial payments do not include the amount of the
mortgage on the real property sold except when such
mortgage exceeds the cost or other basis of the
property to the seller, in which case, the excess shall be
considered part of the initial payments. Also excluded
from the initial payments are notes or other evidence
of indebtedness issued by the purchaser to the seller at
the time of sale.
NOTE: For instruments of sale executed and notarized
on or after Nov. 1, 2005 but prior to Jan. 1, 2012, the
threshold amounts should appropriately be P1,500,000
and P2,500,000 respectively, and excess thereof shall
be subject to 10% output VAT, and starting Feb. 1,
2006, to 12% output VAT. (RR 3-2012, February 20,
2012).
Pre-selling of real estate properties by real estate
dealers shall be subject to VAT in accordance with the
rules prescribed above.
Transmission of property to a trustee shall not be
subject to VAT if the property is to be merely held in
trust for the trustor and/or beneficiary. However, if the
property transferred is one for sale, lease, or use in the
ordinary course of trade or business and the transfer
constitutes a completed gift, the transfer is subject to
VAT as deemed sale transaction pursuant to Sec.
4.106-7(a)(1) of these Regulations.
The transfer is a “completed gift” if the transferor
divests himself absolutely of control over the property,
i.e. irrevocable transfer of corpus and/or irrevocable
 TAXATION 2
designation of beneficiary.
TRANSACTIONS DEEMED SALE
Nature: Transfer, use, or consumptions not in the
course of business of goods or properties originally
intended for sale or for use in the course of the
business. Transfer of goods or properties not in the
course of business can take place when the VAT-
registered person withdraws goods from his business
for his personal use.
Distribution or transfer to:
• Shareholders or investors as share in the profits of
the VAT-registered person.
• Creditors in payment of debt or obligation.
Consignment of goods if actual sale is not made within
60 days following the date such goods was consigned.
Consigned goods returned by the consignee within the
60-day period are not deemed sold.
Retirement from or cessation of business with respect
to inventories of taxable goods existing as of such
retirement or cessation. Retirement from or cessation
of business with respect to all goods on hand, whether
capital goods, stock-in-trade, supplies or materials as of
the date of such retirement or cessation, whether or
not the business is continued by the new owner or
successor:
• Change of ownership of the business; and
• Dissolution of a partnership other than a general
professional partnership and creation of a new
partnership which takes over the business.
NOT SUBJECT TO OUTPUT TAX
Change of control of a corporation by the acquisition of
the controlling interest of such corporation by another
stockholder (individual or corporate) or group of
stockholders. The goods or properties used in the
business (including those held for lease) or those
comprising the stock-in-trade of the corporation,
having a change in corporate control, will not be
considered sold, bartered, or exchanged despite the
change in the ownership interest in the said
corporation. However, the exchange of goods or
properties, including the real estate properties used in
business or held for sale or for lease by the transferor,
for shares of stocks, whether resulting in corporate
control or not, is subject to VAT.
Change in the trade or corporate name of the business
Merger or consolidation of corporations. The unused
input tax of the dissolved corporation, as of the date of
12
TAXATION LAW
merger or consolidation, shall be absorbed by the
surviving or new corporation. (MAMALATEO)
SALE OF SERVICES AND USE OR LEASE OF PROPERTIES
Nature: It means the performance of all kinds of
services in the Philippines for others for a fee,
remuneration or consideration, including those
performed or rendered by the following:
• Construction and service contractors;
• Stock, real estate, commercial, customs and
immigration brokers;
• Lessors of property, whether personal or real;
• Persons engaged in warehousing services;
• Lessors or distributors of cinematographer films;
• Persons engaged in milling, processing,
manufacturing or repacking goods for others;
• Proprietors, operators, or keepers of hotels,
motels, rest houses, inns, resorts, theaters, and
movie houses;
• Proprietors of restaurants, refreshment parlors,
cafes and other eating places, including clubs and
caterers;
• Dealers in securities;
• Lending investors;
• Transportation contractors on their transport of
goods or cargoes; including persons who transport
goods or cargoes for hire and other domestic
common carriers by land relative to their transport
of goods or cargoes;
• Common carriers by air and sea relative to their
transport of passengers, goods, or cargoes from
one place in the Philippines to another place in the
Philippines;
• Sales of electricity by generation, transmission,
and/or distribution companies;
• Franchise grantees of electric utilities, telephone
and telegraph, radio and/or television
broadcasting and all other franchise grantees,
except franchise grantees of radio and/or
television broadcasting whose annual gross
receipts of the preceding year do not exceed
P10,000,000, and franchise grantees of gas and
water utilities;
• Non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity
and bonding companies; and
• Similar service regardless of whether or not the
performance thereof calls for the exercise or use
of the physical or mental faculties.
The phrase “sale or exchange of services” shall likewise
include:
• The lease or the use of or the right or privilege to
use any copyright, patent, design or model, plan,
 TAXATION 2
secret formula or processes, goodwill, trademark,
trade brand or other like property or right;
• The lease or the use of, or the right to use any
industrial, commercial or scientific equipment;
• The supply of scientific, technical, industrial or
commercial knowledge or information;
• The 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 subparagraph
b) hereof or any such knowledge or information as
is mentioned in subparagraph c) hereof; or
• The 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
of operation of any brand, machinery or other
apparatus purchased from such non-resident
person;
• The supply of technical advice, assistance or
services rendered in connection with technical
management or administration of any scientific,
industrial or commercial undertaking, venture,
project or scheme;
• The lease of motion picture films, film tapes and
discs;
• The lease or the use of, or the right to use, radio,
television, satellite transmission and cable
television time.
IMPORTANT FEATURE:
Lease of property is subject to VAT regardless of the
place where the contract of lease or licensing
agreement was executed if the personal property
leased or used is located in the Philippines.
VAT on rental and/or royalties payable to non-resident
foreign corporations or owners for the sale of services
and use or lease of properties in the Philippines shall
be based on the contract price agreed upon by the
licensor and the licensee. The licensee shall be
responsible for the payment of VAT of such rentals
and/or royalties in behalf of the non-resident foreign
corporation or owner.
In the lease contract, the advance payment by the
lessee may be:
• A loan to the lessor from the lessee;
• An option money for the property;
• A security deposit to insure the faithful
performance of certain obligations of the lessee to
the lessor; or
• Pre-paid rental.
If the advance payment is actually a loan to the lessor,
13
TAXATION LAW
or an option money for the property, or a security
deposit for the faithful performance of certain
obligations of the lessee, such advance payment is not
subject to VAT. However, a security deposit that is
applied to the rental shall be subject to VAT at the time
of its application.
If the advance payment constitutes a pre-paid rental,
then such payment is taxable to the lessor in the
month when received, irrespective of the accounting
method employed by the lessor.
A miller, a person who is engaged in milling for others
(except palay into rice, corn into corn grits, and
sugarcane into raw sugar), is subject to VAT on sale of
services, if the miller is paid in cash for his services, VAT
shall be based on his gross receipts for the month or
quarter. If he received a share of the milled products
instead of cash, VAT shall be based on the actual
market value of his share in the milled products. Sale
by the owner or the miller of his share of the milled
products (except rice, corn grits, and raw sugar) shall
be subject to VAT.
Domestic common carriers by air and sea are subject
to 12% VAT on their gross receipts from their transport
of passengers, goods, or cargoes from one place in the
Philippines to another place in the Philippines.
Sale of electricity by generation, transmission and
distribution companies shall be subject to VAT on their
gross receipts; Provided, that the sale 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 shall be subject to 0%
VAT.
“Gross receipts” under this subsection shall refer to
the following:
• Total amount charged by generation companies
for the sale of electricity and related ancillary
services, and/or
• Total amount charged by transmission companies
for transmission of electricity and related ancillary
services; and/or
• Total amount charged by distribution companies
and electric cooperatives for distribution and
supply of electricity, and related electric service.
The universal charge passed on and collected by
distribution companies and electric cooperatives
shall be excluded from the computation of the
Gross receipts.
 TAXATION 2
Dealers in securities and lending investors, shall be
subject to VAT on the basis of their gross receipts.
However, for Dealer in Securities, the term “gross
receipts” means gross selling price less cost of the
securities sold.
Services of franchise grantees of telephone and
telegraph, radio and/or television broadcasting, toll
road operations and all other franchise grantees,
except gas and water utilities, shall be subject to VAT in
lieu of franchising tax, pursuant to Sec. 20 of RA 7716,
as amended. However, franchise grantees of radio
and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed
P10,000,000 shall not be subject to VAT, but to the 3%
franchise tax imposed under Sec. 119 of the Tax Code,
subject to the optional registration provisions under
Sec. 9.236-1 (c) hereof.
Likewise, franchise grantees of gas and water utilities
shall be subject to 2% franchise tax on their gross
receipts derived from the business covered by the law
granting the franchise pursuant to Sec. 119 of the Tax
Code.
Gross receipts of all other franchisees, other than those
covered by Sec. 119 of the Tax Code, regardless of how
many their franchises may have been granted, shall be
subject to the 12% VAT imposed under Sec. 108 of the
Tax Code. This includes among others, PAGCOR and its
licenses or franchisees.
Franchise grantees of telephone and telegraph shall be
subject to VAT on their gross receipts derived from
their telephone, telegraph, telewriter exchange,
wireless and other communication equipment services.
However, amounts received for overseas dispatch,
message, or conversation originating from the
Philippines are subject to the percentage tax under
Sec. 120 of the Tax Code and hence exempt from VAT.
Non-Life insurance companies including surety,
fidelity, and indemnity and bonding companies are
subject to VAT. They are not liable to the payment of
the premium tax under Sec. 123 of the Tax Code.
The gross receipts from non-life insurance shall mean
total premiums collected, whether paid on money,
notes, credits or any substitute for money.
Non-life reinsurance premiums are subject to VAT.
Insurance and reinsurance commissions whether life or
non-life, are subject to VAT.
14
TAXATION LAW
Pre-need companies: As service providers, the
compensation for their services is the premiums or
payments received from the plan holders.
Health Maintenance Organizations (HMOs): gross
receipts shall be the total amount of money or its
equivalent representing the service fee actually or
constructively received during the taxable period for
the services performed or to be performed for another
person, excluding the VAT. The compensation for their
services representing their service fee, is presumed to
be the total amount received as enrollment fee from
their members plus other charges received.
NOTE:
Gross receipts: refers to the total amount of money or
its equivalent representing the contract price
compensation, service fee, rental or royalty including
the amount charged for materials supplied with the
services and deposits applied as payments for services
rendered and advance payment actually or
constructively received for the services performed or
to be performed for another person, excluding VAT.
Constructive receipt: occurs when the money
consideration or its equivalent is placed at the control
of the person who rendered the services without
restrictions by the payer.
VAT ON IMPORTATION OF GOODS
Nature: VAT is imposed on goods brought into the
Philippines whether for use in business or not.
The tax shall be based on the total value used by the
BOC in determining tariff and customs duties, plus
customs duties, excise tax, if any, and other charges
such as postage, commission, and similar charges, prior
to the release of the goods from customs custody.
In case the valuation used by the BOC in computing
customs duties is based on volume or quantity of the
imported goods, the landed cost shall be the basis for
computing VAT. Landed cost consists of the invoice
amount, customs duties, freight, insurance and other
charges. If the goods imported are subject to excise
tax, the excise tax shall form part of the tax base.
No VAT shall be collected on importation of goods
which are specifically exempted under Sec. 109 (1) of
the Tax Code.
In case of goods imported into the Philippines by VAT-
exempt persons, entities, or agencies which are
 TAXATION 2
subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the
latter shall be considered the importers thereof and
shall be liable for VAT due on such importation. The tax
due n such importation shall constitute a lien on the
goods, superior to all charges or liens, irrespective of
the possessor of said goods.
The VAT on importation shall be paid by the importer
prior to the release of such goods from customs duty.
NON-TAXABLE TRANSACTIONS
The VAT shall not apply to goods or properties which
are originally intended for sale or for use in the course
of business existing as of the occurrence of the
following as they are mere changes in form and not in
substance:
• Change of control of a corporation by the
acquisition of the controlling interest of such
corporation by another stockholder (individual or
corporate) or group of stockholders. The goods or
properties used in the business (including those
held for lease) or those comprising the stock in
trade of the corporation having a change in
corporate control will not be considered sold,
bartered, or exchanged despite the change in the
ownership interest in the said corporation.
However, the exchange of goods or properties
including the real estate properties used in
business or held for sale or lease by the transferor,
for shares of stocks, whether resulting in corporate
control or not is subject to VAT.
• Change in trade name or corporate names of the
business; or
• Merger or consolidation of corporations. The
unused input tax of the dissolved corporation, as
of the date of merger or consolidation, shall be
absorbed by the surviving corporation (RR 10-
2011).
C. DEDUCTIONS FROM OUTPUT TAX
Discounts determined and granted at the time of sale.
Sales returns and allowances for which a proper credit
or refund was made during the month or quarter to the
buyer for sales previously recorded as taxable sales.
D. CREDITABLE INPUT TAX
Nature: Input tax means the VAT due on or paid by a
VAT-registered person on importation of goods or local
purchases of goods, properties, or services, including
lease or use of properties, in the course of his trade or
business. It shall also include the transitional input tax
and the presumptive input tax determined in
accordance with Sec. 111 of the Tax Code.
15
TAXATION LAW
It includes input taxes which can be directly attributed
to transactions subject to the VAT plus a ratable
portion of any input tax which can’t be directly
attributed to either the taxable or exempt activity.
Any input tax evidenced by a VAT invoice or official
receipt issued by a VAT-registered person in
accordance with Sec. 113 and 237 of the Tax Code shall
be creditable against the output tax.
Sources:
a. Purchase or Importation of goods
• For sale;
• For conversion into or intended to form part
of a finished product for sale, including
packaging materials;
• For use as supplies in the course of business;
• For the use as raw materials supplied in the
sale of services; or
• For use in trade or business for which
deduction for depreciation or amortization is
allowed under the Tax Code.
b. Purchase of real properties for which a VAT has
actually been paid;
c. Purchase of services in which a VAT has actually
been paid;
d. Transactions “deemed sale” under Sec. 106 (b) of
the Code;
e. Transitional input tax allowed on Transitional Input
tax credits on Beginning Inventories;
f. Transitional input tax allowed on Presumptive
Input tax credits;
PERSONS WHO CAN AVAIL OF INPUT TAX CREDITS
• The Importer upon payment of VAT prior to the
release of goods from customs custody;
• The Purchaser of domestic goods or properties
upon consummation of the sale; or
• The Purchaser of services or the lessee or licensee
upon payment of the compensation, rental,
royalty, or fee.
DETERMINATION OF CREDITABLE INPUT TAX
Creditable Income Tax is determined by adding all
creditable input taxes during the month or quarter
AND any amount of input tax carried-over from the
preceding month or quarter, REDUCED by the amount
of claim for VAT refund or tax credit certificated and
other adjustments, such as purchase returns or
allowances, input tax attributable to exempt sales and
input tax attributable to sales subject to final VAT
withholding. (RR 16-2005, SEC 4.110-5)
 TAXATION 2
NOTE: The 70% cap on creditable input tax has already
been removed. (RA 9361 amended Sec. 110(B) NIRC).
E. TRANSITIONAL/PRESUMPTIVE INPUT TAX CREDITS
TRANSITIONAL INPUT TAX CREDITS ON BEGINNING
INVENTORIES
Taxpayers who became VAT-registered persons upon
exceeding the minimum turnover of P1,915,000 in any
12-month period, or who voluntarily register even if
their turnover does not exceed P1,915,000 (except
franchise grantees of radio and television broadcasting
whose threshold is P10,000,000) shall be entitled to a
transitional input tax on the inventory on hand as of
the effectivity of their VAT registration, on the
following:
• goods purchased for resale in their present
condition;
• materials purchased for further processing,
but which have not yet undergone processing;
• goods which have been manufactured by the
taxpayer;
• goods in process for sale; or
• goods and supplies for use in the course of the
taxpayer's trade or business as a VAT-
registered person.
The transitional input tax shall be 2% of the value of
the beginning inventory on hand or actual VAT paid on
such goods, materials, and supplies, whichever is
higher, which amount shall be creditable against the
output tax of VAT-registered person. The value allowed
for income tax purposes on inventories shall be the
basis for the computation of the 2% transitional input
tax, excluding goods that are exempt from Vat under
Sec. 1409 of the Tax Code.
PRESUMPTIVE INPUT TAX CREDITS
Persons or firms engaged in the processing of sardines,
mackerel, and milk, and in manufacturing refined
sugar, cooking oil and packed noodle-based instant
meals, shall be allowed a presumptive input tax,
creditable against the output tax, equivalent to 4% of
the gross value in money of their purchases of primary
agricultural products which are used as inputs to their
production.
The term “Processing” shall mean pasteurization,
canning, and activities which through physical or
chemical process alter the exterior texture or form or
inner substance of a product in such manner as to
prepare it for special use to which it could not have
been put in its original form or condition.
16
TAXATION LAW
CLAIM FOR INPUT TAX ON DEPRECIABLE GOODS
When a VAT registered person purchases or imports
capital goods, which are depreciable assets for income
tax purposes, the aggregate acquisition cost (exclusive
of VAT) in a calendar month exceeds P1,000,000
regardless of acquisition cost of each capital goods
shall be claimed as credit against output tax in the
following manner:
• If the estimated life is 5 years or more – the
input tax shall be divided by 60 months and
the claim for input tax begins on the month
the capital goods are acquired.
• If the estimated life is less than 5 years- the
input tax shall be divided by the actual
number of months comprising the estimated
useful life of the capital goods and the claim
for input tax commences on the month of
acquisition.
Where the aggregate acquisition cost (exclusive of VAT)
does not exceed P1,000,000- The total input tax will be
allowed as credit against output tax on the month of
acquisition.
The aggregate acquisition cost of a depreciable asset in
any calendar month refers to the total price agreed
upon for one or more assets acquired, and not on the
payment actually made.
If the depreciable capital goods is sold/transferred
within 5 years or prior to the exhaustion of the
amortized input tax thereon, the entire unamortized
input tax can be claimed as input tax on the month or
quarter, the sale or transfer was made.
DEDUCTION FROM INPUT TAX
The amount of input taxes creditable during a month
or quarter shall be determined by adding all creditable
input taxes arising from the transactions enumerated
under the preceding subsections during the month or
quarter plus any amount of input tax carried over from
the preceding month or quarter, reduced by:
• Amount of claim for VAT refund or tax credit
certificate;
• Purchase returns or allowances;
• Input tax attributable to exempt sales; and
• Input tax attributable to sales subject to final
VAT withholding.
APPORTIONMENT OF INPUT TAX ON MIXED
TRANSACTIONS
A VAT registered person who is also engaged in
 TAXATION 2
transactions not subject to VAT shall be allowed to
recognize input tax credit on transactions subject to
VAT as follows:
• All the input taxes that can be directly attributed
to transactions subject to VAT may be recognized
for input tax credit; Provided, that input taxes that
can be directly attributable to VAT taxable sales of
goods and services to the Government or any of its
political subdivisions, including GOCCs shall not be
credited against output taxes arising from sales to
non-Government entities; and
• If any input tax cannot be directly attributed to
either a VAT taxable or VAT-exempt transaction,
the input tax shall be pro-rated to the VAT taxable
and VAT-exempt transactions and only the ratable
portion pertaining to the transactions subject to
VAT may be recognized for input tax credit.
DETERMINATION OF THE OUTPUT AND UNOUT TAXES
AND COMPUTATION OF VAT PAYABLE
(EXCESS OUTPUT OR EXCESS INPUT TAX)
In the sale of goods or properties, the Output Tax is
computed by multiplying the gross selling price by the
regular rate of VAT (12%). For seller of services, the
output tax is computed by multiplying the gross
receipts by the regular rate of VAT (12%).
Where the basis of tax is either Gross selling price or
Gross receipts, but the amount is erroneously billed,
the total invoice amount shall be presumed correct and
multiplying this with 1/9.33333 to arrive at the correct
amount of VAT.
There shall be allowed as a deduction from output tax,
the amount of input tax as determined under these
regulations to arrive at VAT payable on the
monthly/quarterly returns.
VAT PAYABLE (EXCESS OUTPUT OR EXCESS INPUT TAX)
If at the end of any taxable month/quarter the output
tax exceeds the input tax, the excess shall be paid by
the VAT-registered person.
If the input tax, inclusive of the input tax carried over
from the previous months/quarters, exceeds the
output tax, the excess input tax shall be carried over to
the succeeding months/quarters.
FOR REFUND/TAX CREDIT CERTIFICATE OF INPUT TAX
TRANSACTION AFFECTED
• Zero rated and Effectively Zero-rated Sale of
Goods, Properties or Services
17
TAXATION LAW
Shall exclude the portion of input tax appled
against output tax.
Application should be filed within 2 years after the
close of the taxable quarter where such sales were
made.
In case of mixed transactions, only the
proportionate share of input taxes attributable to
Zero-rate/Effectively Zero-rated sales can be
claimed.
• Cancellation of VAT registration
Unused input tax after cancellation due to
retirement or cessation of business, or due to
changes in, or cessation of status, can be used for
tax credit application.
Should be applied within 2 years from the date of
cancellation.
May be used in payment of his other internal
revenue taxes, however he shall be entitled to a
refund, if he has no internal revenue tax liabilities
against which the tax credit certificate may be
utilized.
• Claimant-taxpayer must be a VAT-registered
person (MAMALATEO)
To prove that he is a VAT-registered person,
claimant must submit the BIR Certificate of
Registration (BIR Form 2303) signed by the
appropriate revenue office (LTS or RDO) where the
taxpayer has his principal place of business.
Admission from BIR Lawyer on this point in the
Joint Stipulation of Facts to be filed with the CTA
should be had, if possible.
• Written application for the issuance of a tax credit
certificate or refund is filed by the taxpayer with
the BIR within 2 years after the close of the taxable
quarter when the sales were made.
Where to file
Claim for refund/tax credit certificate shall be filed
with the appropriate BIR office having jurisdiction
over the principal place of business of the
taxpayer.
Period within which refund or tax credit
certificate/refund if input taxes shall be made
In proper cases, the CIR shall grant it within 120
days from date of submission of complete
 TAXATION 2
documents.
In case of full or partial denial by CIR, the taxpayer
concerned may appeal to the CTA within 30 days;
otherwise, the decision shall become final
If no action was taken by the CIR after 120 days
from date of submission if the complete
documents, the taxpayer may appeal to the CTA
within 30 days from lapse of the period.
• Manner of giving refund
• Destination Principle or cross-border doctrine
TREATMENT OF EXCESS INPUT TAX
Excess input tax shall be carried over to the succeeding
quarter or quarters.
Input tax attributable to zero-rate sales may, at the
option of a VAT-registered person, be refunded or
applied for a tax credit certificate which may be used in
the payment of internal revenue taxes.
ZERO-RATED TRANSACTIONS
A. ZERO-RATED SALES OF GOODS OR PROPERTIES
A zero-rated sale of goods or properties (by a VAT-
registered person) is a taxable transaction for VAT
purposes, but shall not result in any output tax.
However, the input tax on purchases of goods,
properties or services, related to such zero-rated sale,
shall be available as tax credit or refund in accordance
with these Regulations.
The following sakes by VAT-registered persons shall be
subject to zero percent (0%) rate:
Export sales
• The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon
which may influence or determine the transfer of
ownership of goods so exported, paid for in
acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance
with the rules and regulations of the BSP;
• The sale of raw materials or packaging materials to
a non-resident buyer for delivery to a resident
local export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in
the Philippines of the said buyer’s goods, paid for
in acceptable foreign currency, and accounted for
in accordance with the rules and regulations of the
BSP;
18
TAXATION LAW
• The sale of raw materials or packaging materials to
an export-oriented enterprise whose export sales
exceed 70% of total annual production;
• Sale of gold to the BSP; and
• Transactions considered as export sold under EO
226 (Omnibus Investment Code of 1987) and other
special laws.
Constructively Exported
(Without actual exportation under EO 226) means:
• Sales to bonded manufacturing warehouses of
export oriented manufacturers;
• Sales to export processing zones pursuant to RA
7916 amended by 7903, 7922 and other export
processing zones;
• Sales to enterprises duly registered and accredited
with the SBMA pursuant to RA 7227;
• Sales to registered export traders operating
bonded trading warehouses; supplying raw
materials in the manufacture of export products;
• Sales to diplomatic missions and other agencies
granted tax immunities of locally manufactured,
assembled, or repacked, whether paid in foreign
currency or not;
• Sale of goods, supplies, equipment, and fuel to
persons engaged in International shipping or
international air transport operations.
F. FOREIGN CURRENCY DENOMINATED SALE
Means the sale to a non-resident of goods, except
those mentioned in Secs. 149 and 150 of the Tax
Code, assembled or manufactured in the Philippines
for delivery to a resident in the Philippines, paid for in
accordance with the rules and regulations of the BSP.
Sales of locally manufactured or assembled goods for
household and personal use to Filipinos abroad and
other non-residents of the Philippines as well as
returning Overseas Filipinos under the Internal Export
Program of the government paid for in convertible
foreign currency and accounted for in accordance with
the rules and regulations of the BSP shall also be
considered export sales.
SALES TO PERSONS OR ENTITIES DEEMED TAX-EXEMPT
UNDER SPECIAL LAW OR INTERNATIONAL AGREEMENT
Sales of goods or property to persons or entities who
are tax exempt under special laws, e.g. sales to
enterprises duly registered and accredited with the
SBMA pursuant to RA 7227, sales to enterprises duly
registered and accredited with the PEZA or
international agreements to which the Philippines is a
signatory, such as Asian Development Bank (ADB),
 TAXATION 2
International Rice Research Institute (IRRI), etc., shall
be effectively subject to VAT or zero-rate.
ZERO-RATED SALES OF SERVICES
A Zero-rated sale of service (by a VAT-registered
person) is a taxable transaction for VAT purposes, but
shall not result in any output tax. However, the input
tax on the purchase of goods, properties or services
related to such zero-related sale shall be available as
tax credit or refund with these Regulations.
The following services performed in the Philippines by
a VAT-registered person shall be subject to zero
percent (0%) VAT rate:
a. Processing, manufacturing or repacking goods for
other persons doing business outside the
Philippines, which goods are subsequently
exported, where the services are paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
BSP;
b. Services other than processing, manufacturing or
repacking rendered to a person engaged in
business conducted outside the Philippines or to a
non-resident person not engaged in business who
is outside the Philippines when the services are
performed, the consideration for which is paid for
in accordance with the rules and regulations of
BSP;
c. Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to
zero percent (0%) rate;
d. Services rendered to persons engaged in
international shipping or air transport operations,
including leases of property for use thereof;
Provided, 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 Philippines to another place in the Philippines
the same being subject to 12% VAT under Sec. 108
of the Tax Code;
e. Services performed by subcontractors and/or
contractors in processing, converting, or
manufacturing goods for an enterprise whose
export sales exceed 70% of the total annual
production;
f. Transport of passengers and cargo by domestic air
or sea carriers from the Philippines to a foreign
country. Gross receipts of international air carriers
doing business in the Philippines and international
sea carriers doing business in the Philippines are
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TAXATION LAW
still liable to a percentage tax of 3% based on their
gross receipts as provided in Sec. 18 of the Tax
Code but shall not be liable to VAT; and
g. Sale of power or fuel generated through sources of
energy such as, but not limited to, biomass, solar,
wind hydropower, geothermal and steam, ocean
energy, and other emerging sources using
technologies such as fuel cells and hydrogen fuels;
Provided, however, that zero-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 the
said power.
G. TRANSACTIONS EXEMPT FROM VAT
Nature: VAT exempt transactions refers to the sale of
goods or properties and/or services and the use or
lease of properties that is not subject to VAT (output
tax) and the seller is not allowed any tax credit of VAT
(input tax) on purchases.
The person making the exempt sale of goods,
properties or services shall not bill any output tax to his
customers because the said transaction is not subject
to VAT.
EXEMPT TRANSACTIONS:
Sale or importation of agricultural and marine food
products in their original state, livestock and poultry of
a kind generally used as, or yielding or producing foods
for human consumption; and breeding stock and
generic materials therefore.
Livestock shall include cows, bulls and calves, pigs,
sheep, goats and rabbits. Poultry shall include fowls,
ducks, geese and turkey. Livestock or poultry does not
include fighting cocks, race horses, zoo animals and
other animals generally considered as pets.
Marine means belonging to or pertaining to the sea; it
is used to describe things relating to the sea or to the
animals and plants that live in the sea. Marine food
products shall include fish and crustaceans, such as,
but not limited to, eels, trout, lobster, shrimp, prawns,
oysters, mussels and clams.
Meat, fruit fish, vegetables and other agricultural and
marine food products classified under this paragraph
shall be considered in their original state even if they
have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping,
including those using advanced technological means of
 TAXATION 2
packaging, such as shrink wrapping in plastics, vacuum
packing, tetra-pack, and other similar packaging
methods.
Polished and/or husked rice, corn grits, raw cane sugar
and molasses, ordinary salt and copra shall be
considered as agricultural food products in their
original state.
Sugar whose content of sucrose by weight, in the dry
state, has a polarimeter reading of 99.5 degrees and
above are presumed to be refined sugar.
Can sugar produced from the following shall be
presumed, for internal revenue purposes, to be refined
sugar:
• product of a refining process;
• products of a sugar refinery; or
• product of a production line of a sugar mill
accredited by the BIR to be producing and/or
capable of producing sugar with polarimeter
reading of 99.5 degrees and above,
Bagasse is not included in the exemption provided for
under this section.
Sale or importation of fertilizers, seeds, seedlings and
fingerlings, fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds
(except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally
considered as pets);
“Specialty feeds” refers to non-agricultural feeds or
food for race horses, fighting cocks, aquarium,
fish, zoo animals and other animals generally
considered as pets.
Importation of personal and household effects
belonging to residents of the Philippines returning from
abroad and non-resident citizens coming to resettle in
the Philippines; Provided, that such goods are exempt
from customs duties under the Tariff and Customs
Code of the Philippines;
Importation of professional instruments and
implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel,
aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to
settle in the Philippines, for their own use and not for
sale, barter or exchange, accompanying such persons,
20
TAXATION LAW
or arriving within ninety (90) days before or after their
arrival, upon the production of evidence satisfactory to
the Commissioner of Internal Revenue, that such
persons are actually coming to settle in the Philippines
and that the change of residence is bonafide;
Services subject to percentage tax under Title V of the
Code, as enumerated below:
• Sale or lease of goods or properties or the
performance of services of non-VAT registered
persons, other than the treansactions mentioned
in paragraphs (A) to (U) of Sec. 109(1) of the Tax
Code, the gross annual sales and/or receipts of
which does not exceed the amount of P1,915,000;
• Services rendered by domestic commoncarriers by
land, for the transport of passengers and keepers
of garages 9Sec. 117);
• Services rendered by international air/shipping
carriers (Sec. 118);
• Services rendered by franchise grantees of radio
and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed
P10,000,000, and by granchise grantees of gas and
water utilities (Sec. 119);
• Service rendered for overseas dispatch, message
or conversation originating from the Philippines
(Sec. 120);
• Services rendered by any person, company or
corporation (except purely cooperative companies
or associations) doing life insurance business of
any sort in the Philippines 9Sec.123);
• Services rendered by fire, marine or miscellaneous
insurance agents of foreugn insurance companies
(Sec. 124);
• Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, Jai-Alai
and race tracks (Sec. 125); and
• Receipts on sale, barter or exchange of shares of
stock listed and traded through the locak stock
exchange or through initial public offering (Sec.
127).
Services by agricultural contract growers and milling for
others of palay into rice, corn into grits, and sugar cane
into raw sugar;
“Agricultural contract growers” refers to those
persons producing for others poultry, livestock
or other agricultural and marine food products in their
original state.
Medical, dental, hospital and veterinary services except
those rendered by professionals;
 TAXATION 2
Laboratory services are exempted. If the hospital or
clinic operates a pharmacy or drug store, the sale
of drugs and medicine is subject to VAT.
Educational services rendered by private educational
institutions duly accredited by the Department of
Education (DepED), the Commission on Higher
Education (CHED) and the Technical Education and
Skills Development Authority (TESDA) and those
rendered by the government educational institutions;
“Educational services” shall refer to academic,
technical or vocational education provided by private
educational institutions duly accredited by the DepED,
the CHED and TESDA and those rendered by
government educational institutions and it does not
include seminars, in-service training, review classes and
other similar services rendered by persons who are not
accredited by the mentioned agencies.
Services rendered by individuals pursuant to an
employer-employee relationship;
Services rendered by regional or area headquarters
established in the Philippines by multinational
corporations which act as supervisory, communications
and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and
do not earn or derive income from the Philippines;
Transactions which are exempt under international
agreements to which the Philippines is a signatory or
under special laws except those granted under P.D. No.
529 - Petroleum Exploration Concessionaires under the
Petroleum Act of 1949;
Sales by agricultural cooperatives duly registered and
in good standing with the Cooperative Development
Authority (CDA) to their members, as well as of their
produce, whether in its original state or processed
form, to non-members, their importation of direct farm
inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the
production and/or processing of their produce;
Sale by agricultural cooperatives to non-members can
only be exempted from VAT if the producer of the
agricultural products sold is the cooperative itself. If
the cooperative is not the producer (e.g. trader),
then only those sales to its members shall be
exempted from VAT.
Gross receipts from lending activities by credit or multi-
21
TAXATION LAW
purpose cooperatives duly registered and in good
standing with the Cooperative Development Authority;
Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with and in good standing
with CDA; Provided, that the share capital contribution
of each member does not exceed Fifteen Thousand
Pesos (P15,000.00) and regardless of the aggregate
capital and net surplus ratably distributed among the
members;
Importation by non-agricultural, non-electric and non-
credit cooperatives of machineries and equipment,
including spare parts thereof, to be used by them are
subject to VAT.
Export sales by persons who are not VAT-registered;
The following sales of real properties are exempt from
VAT, namely:
• Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course
of trade or business;
• Sale of real properties utilized for low-cost housing
as defined by RA No. 7279, otherwise known as
the "Urban Development and Housing Act of 1992"
and other related laws, such as RA No. 7835 and
RA No. 8763;
“Low-cost housing” refers to housing projects
intended for homeless low-income family beneficiaries,
undertaken by the Government or private developers,
which may either be a subdivision or a condominium
registered and licensed by the Housing and Land Use
Regulatory Board/Housing (HLURB) under BP 220, PD
957 or any other similar law, wherein the unit selling
price is within the selling price ceiling per unit of
P750,000 under RA 7279 (Urban Development and
Housing Act of 1992) and other laws, such as RA 7835
and RA 8763.
Sale of real properties utilized for specialized housing
as defined under RA No. 7279, and other related laws,
such as RA No. 7835 and RA No. 8763, wherein price
ceiling per unit is P400,000 or as may from time to time
be determined by the HUDCC and the NEDA and other
related laws; (MAMALATEO)
“Socialized housing” refers to the housing programs
and projects covering houses and lots or home lots
only undertaken by the Government or the private
sector for the underprivileged and homeless citizens
which shall include sites and services development,
long-term financing, liberated terms on interest
 TAXATION 2
payments, and such other benefits in accordance with
the provisions of RA 7279 (Urban Development and
Housing Act of 1992) and RA 7835 and RA 8763.
“Socialized housing” shall also refer to projects
intended for the underprivileged and homeless
wherein the housing package selling price is within the
lowest interest rates under th Unified Home Lending
Prgram (UHLP) or any equivalent housing program of
the Government, the private sector or non-government
organizations.
Sale of residential lot valued at P1,919,500 (previously
P1,500,000.00) (RR 16-2011 effective Jan. 1, 2012) and
below, or house and lot and other residential dwellings
valued at P3,199,200 (previously P2,500,000.00) and
below where the instrument of sale/ transfer/
disposition was executed on or after July 1, 2005;
If 2 or more adjacent residential lots are sold or
disposed in favor of 1 buyer, for the purpose of utilizing
the lots as 1 residential lot, the sale shall be exempt
from VAT only if the aggregate value of the lots do not
exceed P1,919,500. Adjacent residential lots, although
covered by the separate titles and/or separate tax
declarations, when sold or disposed to one and the
same buyer, whether covered by 1 or separate Deed of
Conveyance, shall be presumed as a sale of 1
residential lot.
Lease of residential units with a monthly rental per unit
not exceeding P12,800 (previously P10,000) (RR 16-
2011 effective Jan. 1, 2012), regardless of the amount
of aggregate rentals received by the lessor during the
year, provided that not later than January 31, 2009 and
every 3 years thereafter, the amounts stated herein
shall be adjusted to its present value using the
consumer price index, as published by the National
Statistics Office.
The foregoing notwithstanding, lease of residential
units where the monthly rental per unit exceeds
P12,800 but the aggregate of such rentals of the lessor
during the year do not exceed P1,915,000 shall likewise
be exempt from VAT, however the same shall be
subjected to 3% percentage tax.
The term “residential units” shall refer to apartments
and houses and lots used for residential purposes, and
buildings or parts or units thereof used solely as
dwelling places (e.g. dormitories, rooms and bed
spaces) except motels, motel rooms, hotels, hotel
rooms, lodging houses, inns and pension houses.
The term “unit” shall mean an apartment unit in the
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TAXATION LAW
case of apartments, house in the case of residential
houses; per person in the case of dormitories, boarding
houses and bed spaces; and per room in case of rooms
for rent.
Sale, importation, printing or publication of books and
any newspaper, magazine, review or bulletin which
appears at regular intervals with fixed prices for
subscription and sale and which is not devoted
principally to the publication of paid advertisements;
Sale, importation or lease of passenger or cargo vessels
and aircraft, including engine equipment and spare
parts thereof for domestic or international transport
operations; Provided, that the exemption from VAT on
the importation and local purchase of passenger
and/or cargo vessels shall be limited to those of one
hundred fifty (150) tons and above, including engine
and spare parts of said vessels; Provided, further, that
the vessels to be imported shall comply with the age
limit requirement, at the time of acquisition counted
from the date of the vessel's original commissioning, as
follows: (a) for passenger and/or cargo vessel, the age
limit is fifteen (15) years old, (b) for tankers, the age
limit is ten (10) year old, and (c) for high-speed
passengers crafts, the age limit is five (5) years old;
Provided, finally, that exemption shall be subject to the
provisions of of Sec. 4 of RA 9295 (The Domestic
Shipping Development Act of 2004);
Importation of life-saving equipment, safety and rescue
equipment and communication and navigational safety
equipment, steel plates and other metal plates
including marine-grade aluminum plates, used for
shipping transport operations; Provided, that the
exemption shall be subject to the provisions of Sec. 4
of RA 9295 (The Domestic Shipping Development Act of
2004);
Importation of capital equipment, machinery, spare
parts, life-saving and navigational equipment, steel
plates and other metal plates including marine-grade
aluminum plates to be used in the construction, repair,
renovation or alteration of any merchant marine vessel
operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the
provisions of Sec. 19 of RA 9295 (The Domestic
Shipping Development Act of 2004).
Importation of fuel, goods and supplies engaged in
international shipping or air transport operations;
Provided, that the said fuel, goods and supplies shall be
used exclusively or shall pertain to the transport of
goods and/or passenger from a port in the Philippines
 TAXATION 2
directly to a foreign port, or vice-versa, without
docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine
port is for the purpose of unloading passengers and/or
cargoes that originated form abroad, or to load
passengers and/or cargoes bound for abroad;
Provided, further, that if any portion of such fuel,
goods or supplies is used for purposes other that the
mentioned in the paragraph, such portion of fuel,
goods and supplies shall be subject to 12% VAT;
Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-
bank financial intermediaries, such as money changers
and pawnshops, subject to percentage tax under
Sections 121 and 122, respectively of the Tax Code;
Sale or lease of goods or properties or the performance
of services other than the transactions mentioned in
the preceding paragraphs, the gross annual sales
and/or receipts do not exceed the amount of One
P1,915,500.00, provided that not later than January 31,
2009 and every 3 years thereafter, the amounts stated
herein shall be adjusted to its present value using the
consumer price index, as published by the National
Statistics Office.
For purposes of threshold of P1,500,000, the husband
and the wife shall be considered separate taxpayers.
However, the aggregation rule for each taxpayer
shall apply, for instances, if a professional, aside
from the practice of his profession, also derives
revenue from other lines of business which are
otherwise subject to VAT, the same shall be
combined for purposes of determining whether the
threshold has been exceeded. Thus, the VAT-exempt
sale shall not be included in determining the threshold.
***WHAT ARE THE PREVIOUSLY EXEMPT
TRANSACTIONS THAT ARE NOW SUBJECT TO VAT?
• Medical services such as dental & veterinary
services rendered by professionals;
• Legal services;
• Non-food agricultural products;
• Marine and forest products;
• Cotton and cotton seeds;
• Coal and natural gas;
• Petroleum products;
• Passenger cargo vessels of more than 5,000 tons;
• Work of art, literary works, musical composition;
• Generation, transmission and distribution of
electricity including that of electric cooperatives;
• Sale of residential lot valued at more than
P1,500,000.00;
23
TAXATION LAW
• Sale of residential house & lot/dwellings valued at
more than P2,500,000.00;
• Lease of residential unit with a monthly rental of
more than P10,000;
TAX ON PERSONS EXEMPT FROM VAT
Any person whose sales or receipts are exempt under
Sec. 109 (t) of the Code from payment of VAT and who
is not a VAT-registered person shall pay a tax
equivalent to 3% of his gross sales or receipt; Provided,
that cooperatives shall be exempt from the 3% gross
receipts tax herein imposed.
Any business where the gross sales or receipts do not
exceed P100,000 during any 12-month period shall be
exempted from the payment of VAT and from the
applicable percentage tax imposed under the NIRC.
ACCOUNTING REQUIREMENTS OF VAT-REGISTERED
PERSON
INVOICING REQUIREMENTS:
Issuance:
A VAT invoice for every sale, barter or exchange of
goods or properties
A VAT official receipt for every lease of goods, or
properties and for every sale, barter or exchange of
services
Only VAT registered persons are required to present
their TIN, followed by the word “VAT” in their invoice
or official receipts
All purchases not covered by VAT invoice/VAT official
receipt shall not give rise to any input tax.
Information contained in VAT invoice or VAT official
receipt
A statement that the seller is a VAT-registered person,
followed by his TIN;
The total amount which the purchaser pays or is
obligated to pay to the seller with the indication that
such amount includes the VAT; Provided that:
• The amount of tax shall be shown as a separate
item in the invoice or receipt;
• If the sale is exempt from VAT, the term “VAT-
exempt sale” shall be written or printed
prominently on the invoice or receipt;
• If the sale is subject to zero percent (0%) VAT, the
term “zero-rated sale” shall be written or printed
prominently on the invoice or receipt;
• If the sale involves good, properties or services
some of which are subject to and some of which
 TAXATION 2
are VAT zero-rated or VAT-exempt, the invoice or
receipt shall clearly indicate the break-down of the
sale price between its taxable, exempt and zero-
rated components, and the calculation of the VAT
on each portion of the sale shall be shown on the
invoice or receipt. The seller has the option to
issue separate invoices or receipts for the taxable,
exempt, and zero-rated components of the sale.
CONSEQUENCES OF ISSUING ERRONEOUS VAT INVOICE
OR VAT OFFICIAL RECEIPT
Issuance of VAT invoice/receipts by non-VAT person
The non-VAT person shall be liable to:
• Percentage tax applicable to his transaction
• VAT due on the transaction without the benefit of
input tax credit
• A 50% surcharge
VAT shall be recognized as input tax credit to the
purchaser provided that the invoice issued contained
all its requisites.
Issuance of VAT invoice/receipts on an exempt
transaction
If a VAT-registered person issues a VAT invoice/receipt
on a VAT exempt transaction, but fails to display the
word “VAT-exempt sale” on the said document, the
said transaction shall be liable to VAT. The purchaser
shall be entitled to claim for input tax.
H. FILING OF RETURN AND PAYMENT OF TAX
Every person liable to pay VAT shall file a quarterly
return of the amount of his quarterly gross sales or
receipts within 25 days following the close of taxable
quarter using the latest version of Quarterly VAT
Return. The term “Taxable Quarter” shall mean the
quarter that is synchronized to the income tax quarter
of the taxpayer (i.e. the calendar quarter or fiscal
quarter)
Amounts reflected in the monthly VAT declaration for
the first 2 months of the quarter shall still be included
in the quarterly VAT return which reflects the
cumulative figured for the taxable quarter. Payments in
the monthly VAT declarations shall, however, be
credited in the quarterly VAT return to arrive at the net
of VAT payable or excess input tax/over-payment as of
the end of October.
The monthly VAT declarations (BIR Form 2550M of
taxpayers whether large or non-large shall be filed and
the taxes paid not later than the 20th day following the
end of each month.
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TAXATION LAW
I. WITHHOLDING OF VAT ON GOVERNMENT MONEY
PAYMENTS AND PAYMENTS TO NON-RESIDENTS
The government or any of its political subdivisions,
instrumentalities or agencies, including GOCCS shall,
before making payment on account of each purchase
of goods and/or of services taxed at 12% VAT pursuant
to Secs. 106 and 108 of the Tax Code, deduct and
withhold a final VAT due at the rate of 5% of the gross
payment thereof.
The 5% final VAT withholding rate shall represent the
net VAT payable of the seller. The remaining 7%
effectively accounts for the standard input VAT for
sales of goods or services to government or any of its
political subdivisions, in lieu of the actual input VAT
directly attributable or ratably apportioned to such
sales. Should actual input VAT exceed 7% of gross
payments, the excess may form part of the sellers'
expense or cost. On the other hand, if actual input VAT
is less than 7% of gross payment, the difference must
be closed to expense or cost.
The government or any of its political subdivisions,
instrumentalities or agencies, including GOCCS, as well
as private corporations, individuals, estates and trusts,
whether large or non-large taxpayers, shall withhold
12% Vat with respect to the following payments:
• Lease or use of properties or property rights
owned by non-residents;
• Services rendered to local insurance
companies, with respect to reinsurance
premiums payable to non-residents; and
• Other services rendered in the Philippines by
non-residents.
In remitting VAT withheld, the withholding agent shall
use BIR Form 1600- Remittances Return of VAT and
Other Percentage Tax Withheld.
VAT withheld and paid for the non-resident recipient,
which is VAT passed on to the resident withholding
agent by the non-resident recipient of the income, may
be claimed as input tax by said VAT-registered
withholding agent upon filing his own VAT Return,
subject to the rule on allocation of input tax among
taxable sales, zero-rated sales and except sales. The
duly filed BIR Form 1600 is the proof or documentart
substantiation for the claimed input tax or input VAT.
Nonetheless, if the resident withholding agent is a non-
VAT taxpater, said passed-on VAT by the non-resident
recipient of the income, evidenced by the duly filed BIR
Form 1600 shall form part of the cost of purchased
 TAXATION 2
services, which may be treated either as an “asset” or
“expense”, whichever is applicable, of the resident
withholding agent.
VAT withheld under this Section shall be remitted
within 10 days following the end of the month the
withholding was made.
IV. COMPLIANCE
REQUIREMENTS
A. REGISTRATION REQUIREMENTS
Sec. 236 (A) and (C), NIRC:
Compliance Requirements, Administrative
Provisions
(A) Requirements. - Every person subject to any
internal revenue tax shall register once with the
appropriate Revenue District Officer:
(1) Within ten (10) days from date of
employment, or
(2) On or before the commencement of
business,or
(3) Before payment of any tax due, or
(4) Upon filing of a return, statement or
declaration as required in this Code.
The registration shall contain the taxpayer's
name, style, place of residence, business and
such other information as may be required by
the Commissioner in the form prescribed
therefor.
A person maintaining a head office, branch or
facility shall register with the Revenue District
Officer having jurisdiction over the head office,
brand or facility. For purposes of this Section,
the term 'facility' may include but not be limited
to sales outlets, places of production,
warehouses or storage places.
(C) Registration of Each Type of Internal Revenue
Tax. - Every person who is required to register
with the Bureau of Internal Revenue under
Subsection (A) hereof, shall register each type of
internal revenue tax for which he is obligated,
shall file a return and shall pay such taxes, and
shall updates such registration of any changes in
accordance with Subsection (E) hereof.
What to file: Registration of:
25
TAXATION LAW
• Taxpayer’s details and
• Types of Internal Revenue Taxes obligated to pay
Who should file: Every person subject to any internal
revenue tax
Where to file: Appropriate RDO
When to file:
1. Within 10 days from date of employment, or
2. On or before the commencement of business,
or
3. Before payment of any tax due, or
4. Upon filing of a return, statement or
declaration as required in NIRC.
a. Annual Registration Fee
Sec. 236 (B), NIRC:
Compliance Requirements, Administrative Provisions
(B) Annual Registration Fee. - An annual registration
fee in the amount of Five hundred pesos (P500) for
every separate or distinct establishment or place of
business, including facility types where sales
transactions occur, shall be paid upon registration and
every year thereafter on or before the last day of
January: Provided, however, That cooperatives,
individuals earning purely compensation income,
whether locally or abroad, and overseas workers are
not liable to the registration fee herein imposed.
The registration fee shall be paid to an authorized
agent bank located within the revenue district, or to
the Revenue Collection Officer, or duly authorized
Treasurer of the city of municipality where each place
of business or branch is registered.
What is paid: Annual Registration Fee
Who pays: Every separate or distinct
establishment or place of business
Where to pay: AAB, RDO, or City Treasurer
When to pay:
a. Upon registration, and
b. Every year thereafter, on or before Jan 31
B. Updating the registration information
Sec. 236 (D), NIRC:
Compliance Requirements, Administrative Provisions
(D) Transfer of Registration. - In case a registered
person decides to transfer his place of business or his
head office or branches, it shall be his duty to update
his registration status by filing an application for
 TAXATION 2
registration information update in the form prescribed
therefor.
(E) Other Updates. - Any person registered in
accordance with this Section shall, whenever
applicable, update his registration information with the
Revenue District Office where he is registered,
specifying therein any change in type and other
taxpayer details.
SEC. 9.236-6, RR 16-05 (Consolidated VAT Regulations
2005), as amended
…Some instances where taxpayer will update his
registration by submitting a duly accomplished
Registration Update Form (BIR Form No. 1905):
1. A person’s business has become exempt in
accordance with Sec. 4.109-1(B) (1) of these
Regulations,
2. A change in the nature of the business itself
from sale of taxable goods and/or services to
exempt sales and/or services;
3. A person whose transactions are exempt from
VAT who voluntarily registered under VAT
system, who after the lapse of three years
after his registration, applies for cancellation
of his registration as such; and
4. A VAT-registered person whose gross sales or
receipts for three consecutive years did not
exceed P1,500,000.00 beginning July 1, 2005,
which amount shall be adjusted to its present
value every three years using the Consumer
Price Index, as published by the NSO. Upon
updating his registration, the taxpayer shall
become liable to the percentage tax imposed
in Sec. 116 of the Tax Code. A short period
return for the remaining period that he was
VAT-registered shall be filed within twenty five
(25) days from the date of cancellation of his
registration…
Any minor change in the original registration (such as
change of address within the same RDO, typographical
errors, and etc.) which may not necessitate
cancellation of the registration shall be effected by
accomplishing the Registration Update Form (BIR Form
No. 1905)….
When to update:
26
TAXATION LAW
1. If taxpayer transfers his place of business
2. If there are changes in taxpayer’s details
3. If there are changes relating to VAT exemption
C. Cancellation of registration
Sec. 236 (F), NIRC:
Compliance Requirements, Administrative Provisions
(F) Cancellation of Registration. - The registration of
any person who ceases to be liable to a tax type shall
be cancelled upon filing with the Revenue District
Office where he is registered an application for
registration information update in a form prescribed
therefor.
Why: Taxpayer ceases to be liable to a tax
type
How: File an application with the RDO
D. Suspension of operations for failure to register
Sec. 115, NIRC:
Value-Added Tax, Compliance Requirements
Power of the Commissioner to Suspend the Business
Operations of a Taxpayer. - The Commissioner or his
authorized representative is hereby empowered to
suspend the business operations and temporarily close
the business establishment of any person for any of the
following violations:
(a) In the case of a VAT-registered Person. -
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as
required under Section 114; or
(3) Understatement of taxable sales or
receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the
taxable quarter.
(b) Failure of any Person to Register as Required
under Section 236. -
The temporary closure of the establishment shall be for
the duration of not less than five (5) days and shall be
lifted only upon compliance with whatever
requirements prescribed by the Commissioner in the
closure order.
Duration: Not less than 5 days
How lifted: Upon taxpayer’s compliance
B. VAT REGISTRATION
A. MANDATORY
 TAXATION 2
Section 24.
REGISTRATION. -Sec. 9.236-1(b) and (c) of RR No.
16-2005 is hereby amended to read as follows:
“SEC. 9.236-1. Registration of VAT Taxpayers. –
(b) Mandatory:
Any person who, in the course of trade or business,
sells, barters or exchanges goods or properties or
engages in the sale or exchange of services shall be
liable to register if:
a. His gross sales or receipts for the past twelve (12)
months, other than those that are exempt under
Sec. 109 (1)(A) to (U) of the Tax Code, have
exceeded One million five hundred thousand
pesos (P1,919,500.00); or
b. ii. There are reasonable grounds to believe that his
gross sales or receipts for the next twelve (12)
months, other than those that are exempt under
Sec. 109 (1)(A) to (U) of the Tax Code, will exceed
One million five hundred thousand pesos
(P1,500,000.00).
Every person who becomes liable to be registered
under paragraph (1) of this subsection shall register
with the RDO which has jurisdiction over the head
office or branch of that person, and shall pay the
annual registration fee prescribed in subsection 9.236-
1(a) hereof. If he fails to register, he shall be liable to
pay the output tax under Secs. 106 and/or 108 of the
Tax Code as if he were a VAT-registered person, but
without the benefit of input tax credits for the period
in which he was not properly registered.
Moreover, franchise grantees of radio and
television broadcasting, whose gross annual
receipt for the preceding taxable year exceeded
P10,000,000.00 shall register within thirty (30) days
from the end of the taxable year.
B. OPTIONAL
(c) Optional VAT Registration
(1) Any person who is VAT-exempt under Sec. 4.109-1
(B) (1) (V) not required to register for VAT may, in
relation to Sec. 4.109-2, elect to be VAT-registered by
registering with the RDO that has jurisdiction over the
head office of that person, and pay the annual
registration fee of P500.00 for every separate and
distinct establishment.
(2) Any person who is VAT-registered but enters into
transactions which are exempt from VAT (mixed
transactions) may opt that the VAT apply to his
transactions which would have been exempt under
27
TAXATION LAW
Section 109(1) of the Tax Code, as amended. [Sec.
109(2)]
(3) Franchise grantees of radio and/or television
broadcasting whose annual gross receipts of the
preceding year do not exceed ten million pesos
(P10,000,000.00) derived from the business covered by
the law granting the franchise may opt for VAT
registration. This option, once exercised, shall be
irrevocable. (Sec. 119, Tax Code)
The above-stated taxpayers may apply for VAT
registration not later than ten (10) days before the
beginning of the taxable quarter and shall pay the
registration fee prescribed under sub-paragraph (a) of
this Section, unless they have already paid at the
beginning of the year. In any case, the
Commissioner of Internal Revenue may, for
administrative reason deny any application for
registration. Once registered as VAT person, the
taxpayer shall be liable to output tax and be
entitled to input tax credit beginning on the first
day of the month following registration.”
Section 25.
REGISTRATION OF NON-VAT OR EXEMPT
TAXPAYER. -Sec. 9.236-2 of RR No. 16-2005 is
hereby amended to read as
follows:
SEC. 9.236-2. Registration of Non-VAT or Exempt
Taxpayer. -
The following are required to register as non-VAT
persons and pay the applicable registration fee:
1) VAT-exempt persons under Sec. 109 of the Tax Code
who did not opt to register as VAT taxpayers;
2) Individuals engaged in business where the gross
sales or receipts do not exceed One Hundred Thousand
Pesos P100,000.00 during any 12-month period. They
are required to register but will not be made to pay the
registration fee of FIVE HUNDRED PESOS (P500.00).
3) Non-stock, non-profit organizations and associations
engaged in trade or business whose gross sales or
receipts do not exceed P1,500,000.00 for any 12-
month period or in an amount as adjusted thereafter
every three (3) years depending on the annual
Consumer Price Index as published by the NSO;
4) Cooperatives other than electric cooperatives.
However, they are not required to pay the registration
fee imposed in these Regulations.
 TAXATION 2
5) Radio and TV broadcasting whose gross annual
receipts do not exceed
ten million pesos (P10,000,000) and which do not
opt to be VAT registered;
6._PEZA and other ecozone registered enterprises
enjoying the preferential tax rate of 5% in lieu of all
taxes;
7.) SBMA and other free port zone-registered
enterprises enjoying the preferential tax rate of 5% in
lieu of all taxes.”
NOTE: Amended by RR 4-2007
C. CANCELLATION
SEC. 9.236-6, RR 16-05 (Consolidated VAT Regulations
2005), as amended
Cancellation of VAT Registration. -- A VAT-Registered
person may cancel his registration for VAT if:
a. He makes written application and can demonstrate
to the Commissioner of Internal Revenue’s satisfaction
that his gross sales or receipts for the following twelve
(12) months, other than those that are exempt under
Sec. 109 (1) (A) to (U) of the Tax Code, will not exceed
One Million Five Hundred Thousand pesos
(P1,919,500); or
b. He has ceased to carry on his trade or business, and
does not expect to recommence any trade or business
within the next twelve (12) months. Some other
instances where a VAT-registered person may apply for
cancellation of registration are:
1. A change of ownership, in the case of a single
proprietorship;
2. Dissolution of a partnership or corporation;
3. Merger or consolidation with respect to the
dissolved corporation(s);
4. A person who has registered prior to planned
business commencement, but failed to actually
start his business…
All applications for cancellation of registration due to
closure/cessation or termination of business shall be
subjected to immediate investigation by the BIR office
concerned to determine the taxpayer’s tax liabilities…
Any person, who opted to be registered as a VAT
taxpayer, may apply for cancellation of such
registration. However, the optional registration as a
VAT taxpayer of a franchise grantee of radio and/or
television broadcasting whose gross receipts for the
preceding year did not exceed P10,000,000.00 shall not
be revocable.
28
TAXATION LAW
When can there be cancellation of VAT registration:
1. If gross sales or receipts for the next 12 months
will not exceed P1.5M
2. Taxpayer’s business is terminated and he does not
expect to recommence business within the next 12
months.
3. Change of ownership in a single proprietorship
4. Dissolution of a partnership or corporation
5. VAT-registered person failed to start his business
6. 3 years after a VAT-exempt person, not required to
register, opted to register (except radio/television
broadcasting)
C. TAX IDENTIFICATION NUMBER (TIN)
Sec. 236, NIRC:
Administrative Provisions
(J) Supplying of Taxpayer Identification Number (TIN). -
Any person required under the authority of this Code
to make, render or file a return, statement or other
document shall be supplied with or assigned a
Taxpayer Identification Number (TIN) which he shall
indicate in such return, statement or document filed
with the Bureau of Internal Revenue for his proper
identification for tax purposes, and which he shall
indicate in certain documents, such as, but not limited
to the following:
(1) Sugar quedans, refined sugar release order or
similar instruments;
(2) Domestic bills of lading;
(3) Documents to be registered with the Register
of Deeds of Assessor's Office;
(4) Registration certificate of transportation
equipment by land, sea or air;
(5) Documents to be registered with the
Securities and Exchange Commission;
(6) Building construction permits;
(7) Application for loan with banks, financial
institutions, or other financial intermediaries;
(8) Application for mayor's permit;
(9) Application for business license with the
Department of Trade & Industry; and
(10) Such other documents which may hereafter
be required under rules and regulations to be
promulgated by the Secretary of Finance,
upon recommendation of the Commissioner.
In cases where a registered taxpayer dies, the
administrator or executor shall register the estate of
the decedent in accordance with Subsection (A) hereof
and a new Taxpayer Identification Number (TIN) shall
be supplied in accordance with the provisions of this
Section.
 TAXATION 2
In the case of a nonresident decedent, the executor or
administrator of the estate shall register the estate
with the Revenue District Office where he is registered:
Provided, however, That in case such executor or
administrator is not registered, registration of the
estate shall be made with the Taxpayer Identification
Number (TIN) supplied by the Revenue District Office
having jurisdiction over his legal residence.
Only one Taxpayer identification Number (TIN) shall be
assigned to a taxpayer. Any person who shall secure
more than one Taxpayer Identification Number shall be
criminally liable under the provision of Section 275 on
'Violation of Other Provisions of this Code or
Regulations in General'
Who are supplied with a TIN:
1. Person required by NIRC to make, render or file: a
return, statement or other document
2. Estate of a deceased person
D. INVOICING REQUIREMENTS
Sec. 237, NIRC:
Compliance Requirements, Administrative Provisions
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 Twenty-five pesos (P25.00) or
more, issue duly registered receipts or sales or
commercial invoices, prepared at least in duplicate,
showing the date of transaction, quantity, unit cost and
description of merchandise or nature of service:
Provided, however, That in the case of sales, receipts
or transfers in the amount of One hundred pesos
(P100.00) or more, or regardless of the amount, where
the sale or transfer is made by a person liable to value-
added tax to another person also liable to value-added
tax; or where the receipt is issued to cover payment
made as rentals, commissions, compensations or fees,
receipts or invoices shall be issued which shall show
the name, business style, if any, and address of the
purchaser, customer or client: Provided, further, That
where the purchaser is a VAT-registered person, in
addition to the information herein required, the
invoice or receipt shall further show the Taxpayer
Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to
the purchaser, customer or client at the time the
transaction is effected, who, if engaged in business or
in the exercise of profession, shall keep and preserve
29
TAXATION LAW
the same in his place of business for a period of three
(3) years from the close of the taxable year in which
such invoice or receipt was issued, while the duplicate
shall be kept and preserved by the issuer, also in his
place of business, for a like period.
The Commissioner may, in meritorious cases, exempt
any person subject to internal revenue tax from
compliance with the provisions of this Section.
Who are required to issue receipts or invoices:
All persons subject to an internal revenue tax for each
sale or service valued at P25 or more (regardless of the
amount if sale/service is made by person liable to VAT
to another person liable to VAT)
BIR AUTHORITY TO PRINT BEFORE PRINTING OF
RECEIPTS OR INVOICES
Sec. 238, NIRC:
Compliance Requirements, Administrative Provisions
Printing of Receipts or Sales or Commercial Invoices. -
All persons who are engaged in business shall secure
from the Bureau of Internal Revenue an authority to
print receipts or sales or commercial invoices before a
printer can print the same.
No authority to print receipts or sales or commercial
invoices shall be granted unless the receipts or invoices
to be printed are serially numbered and shall show,
among other things, the name, business style, Taxpayer
Identification Number (TIN) and business address of
the person or entity to use the same, and such other
information that may be required by rules and
regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner.
All persons who print receipt or sales or commercial
invoices shall maintain a logbook/register of taxpayers
who availed of their printing services. The
logbook/register shall contain the following
information:
(1) Names, Taxpayer Identification Numbers of
the persons or entities for whom the receipts
or sales or commercial invoices were printed;
and
(2) (2) Number of booklets, number of sets per
booklet, number of copies per set and the
serial numbers of the receipts or invoices in
each booklet.
 TAXATION 2
VAT INVOICING: REQUIREMENTS
SEC. 4.113-1, RR 16-05 (Consolidated VAT Regulations
2005), as amended
(A) A VAT-registered person shall issue: --
(1) A VAT invoice for every sale, barter or
exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods
or properties, and for every sale, barter or
exchange of services.
Only VAT-registered persons are required to print their
TIN followed by the word “VAT” in their invoice or
official receipts. Said documents shall be considered as
a “VAT Invoice” or VAT official receipt. All purchases
covered by invoices/receipts other than VAT
Invoice/VAT Official Receipt shall not give rise to any
input tax. VAT invoice/official receipt shall be prepared
at least in duplicate, the original to be given to the
buyer and the duplicate to be retained by the seller as
part of his accounting records.
(B) Information contained in VAT invoice or VAT
official receipt. – The following information shall be
indicated in VAT invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered
person, followed by his TIN;
(2) The total amount which the purchaser pays or
is obligated to pay to the seller with the
indication that such amount includes the VAT;
Provided, That:
a. The amount of tax shall be shown as a
separate item in the invoice or receipt;
b. If the sale is exempt from VAT, the term
“VAT-exempt sale” shall be written or
printed prominently on the invoice or
receipt;
c. If the sale is subject to zero percent (0%)
VAT, the term “zero-rated sale” shall be
written or printed prominently on the
invoice or receipt;
d. If the sale involves goods, properties or
services some of which are subject to and
some of which are VAT zero-rated or VAT-
exempt, the invoice or receipt shall clearly
indicate the break-down of the sale price
between its taxable, exempt and zero-
rated components, and the calculation of
the VAT on each portion of the sale shall
be shown on the invoice or receipt. The
seller has the option to issue separate
invoices or receipts for the taxable,
exempt, and zero-rated components of
the sale.
30
TAXATION LAW
(3) In the case of sales in the amount of one thousand
pesos (P1,000.00) or more where the sale or transfer is
made to a VAT-registered person, the name, business
style, if any, address and TIN of the purchaser,
customer or client, shall be indicated in addition to the
information required in (1) and (2) of this Section.
ERRONEOUS VAT INVOICING
SEC. 4. 113-4, RR 16-05 (Consolidated VAT Regulations
2005), as amended
Consequences of Issuing Erroneous VAT Invoice or VAT
Official Receipt. --
(A) Issuance of a VAT Invoice or VAT Receipt by a non-
VAT person. – If a person who is not VAT-registered
issues an invoice or receipt showing his TIN, followed
by the word “VAT”, the erroneous issuance shall result
to the following:
(1) The non-VAT person shall be liable to:
i. the percentage taxes applicable to his
transactions;
ii. VAT due on the transactions under Sec.
106 or 108 of the Tax Code, without the
benefit of any input tax credit; and
iii. a 50% surcharge under Sec. 248 (B) of the
Tax Code;
(2) VAT shall be recognized as an input tax credit to
the purchaser under Sec. 110 of
the Tax Code, provided the requisite information
required under Subsection 4.113-1 (B) of these
Regulations is shown on the invoice or receipt.
(B) Issuance of a VAT Invoice or VAT Receipt on an
Exempt Transaction by a VAT-registered Person – If a
VAT-registered person issues a VAT invoice or VAT
official receipt for a VAT-exempt transaction, but fails
to display prominently on the invoice or receipt the
words “VAT-exempt sale”, the transaction shall
become taxable and the issuer shall be liable to pay
VAT thereon. The purchaser shall be entitled to claim
an input tax credit on his purchase.
E. EXHIBITION OF CERTIFICATE OF PAYMENT OF TAXES
Sec. 241, NIRC:
Compliance Requirements, Administrative Provisions
Exhibition of Certificate of Payment at Place of
Business. - The certificate or receipts showing payment
of taxes issued to a person engaged in a business
 TAXATION 2 TAXATION LAW

subject to an annual registration fee shall be kept
conspicuously exhibited in plain view in or at the place
where the business is conducted; and in case of a
peddler or other persons not having a fixed place of
business, shall be kept in the possession of the holder
thereof, subject to production upon demand of any
internal revenue officer.
death, or in the case of a nonresident, not a
citizen of the Philippines, of that part of his
gross estate situated in the Philippines;
b. Itemized deductions from gross estate
allowed in Section 86; and
c. (c) The amount of tax due whether paid or still
due and outstanding.

F. FILING OF RETURNS AND PAYMENT ESTATE, Requirements in an Estate Tax Return (ETR):
DONOR’S, AND VALUE-ADDED TAX 1. Under oath
2. Contains the ff:
ESTATE TAX • a. value of the gross estate at the time
REQUIREMENTS FOR FILING AN ESTATE TAX RETURN of death
• deductions allowed
Sec. 90, NIRC: • other data
Estate and Donor’s Taxes, Estate Tax 3. If gross estate exceeds P2M, ETR must contain a
(A) Requirements. - In all cases of transfers subject to statement certified by a CPA with:
the tax imposed herein, or where, though exempt from • itemized assets
tax, the gross value of the estate exceeds Two hundred • itemized deductions
thousand pesos (P200,000), or regardless of the gross • tax due
value of the estate, where the said estate consists of
registered or registrable property such as real TIME OF FILING AND EXTENSION OF TIME
property, motor vehicle, shares of stock or other Sec. 90, NIRC:
similar property for which a clearance from the Bureau Estate and Donor’s Taxes, Estate Tax
of Internal Revenue is required as a condition (B) Time for filing. - For the purpose of determining the
precedent for the transfer of ownership thereof in the estate tax provided for in Section 84 of this Code, the
name of the transferee, the executor, or the estate tax return required under the preceding
administrator, or any of the legal heirs, as the case may Subsection (A) shall be filed within six (6) months from
be, shall file a return under oath in duplicate, setting the decedent's death.
forth:
A certified copy of the schedule of partition and the
(1) The value of the gross estate of the decedent
at the time of his death, or in case of a order of the court approving the same shall be
nonresident, not a citizen of the Philippines, of furnished the Commissioner within thirty (30) after the
that part of his gross estate situated in the promulgation of such order.
Philippines;
(2) The deductions allowed from gross estate in (C) Extension of Time. - The Commissioner shall have
determining the estate as defined in Section authority to grant, in meritorious cases, a reasonable
86; and extension not exceeding thirty (30) days for filing the
(3) Such part of such information as may at the return.
time be ascertainable and such supplemental
data as may be necessary to establish the
correct taxes. When to file: Within 6 months
from death
Provided, however, That estate tax returns showing a EXTENSION: Reasonable
gross value exceeding Two million pesos (P2,000,000) extension not exceeding
shall be supported with a statement duly certified to by 30 days, may be granted
a Certified Public Accountant containing the following: by CIR
a. Itemized assets of the decedent with their
corresponding gross value at the time of his

31
 TAXATION 2
PLACE OF FILING
Sec. 90, NIRC:
Estate and Donor’s Taxes, Estate Tax
(D) Place of Filing. - Except in cases where the
Commissioner otherwise permits, the return required
under Subsection (A) shall be filed with an authorized
agent bank, or Revenue District Officer, Collection
Officer, or duly authorized Treasurer of the city or
municipality in which the decedent was domiciled at
the time of his death or if there be no legal residence in
the Philippines, with the Office of the Commissioner.
Where to file:
AAB, RDO, Collection Officer, or Treasurer of place
where decedent was domiciled at the time of death.
Under RR 2-03 (Consolidated Revenue Regulations on
Estate Tax and Donor’s Tax)
If no legal residence in Philippines: RDO where
executor/administrator is registered
If no executor/administrator: CIR
TIME FOR PAYMENT AND EXTENSION OF TIME
Sec. 91, NIRC:
Estate and Donor’s Taxes, Estate Tax
(A) Time of Payment. - The estate tax imposed by
Section 84 shall be paid at the time the return is filed
by the executor, administrator or the heirs.
(B) Extension of Time. - When the Commissioner finds
that the payment on the due date of the estate tax or
of any part thereof would impose undue hardship upon
the estate or any of the heirs, he may extend the time
for payment of such tax or any part thereof not to
exceed five (5) years, in case the estate is settled
through the courts, or two (2) years in case the estate
is settled extrajudicially. In such case, the amount in
respect of which the extension is granted shall be paid
on or before the date of the expiration of the period of
the extension, and the running of the Statute of
Limitations for assessment as provided in Section 203
of this Code shall be suspended for the period of any
such extension.
Where the taxes are assessed by reason of negligence,
intentional disregard of rules and regulations, or fraud
on the part of the taxpayer, no extension will be
32
TAXATION LAW
granted by the Commissioner.
If an extension is granted, the Commissioner may
require the executor, or administrator, or beneficiary,
as the case may be, to furnish a bond in such amount,
not exceeding double the amount of the tax and with
such sureties as the Commissioner deems necessary,
conditioned upon the payment of the said tax in
accordance with the terms of the extension.
When to pay: At the time of filing the return
Ground for extension: Undue hardship upon the estate
or any of the heirs
Duration of extension:
Not exceeding 5 years, if estate settled judicially
Not exceeding 2 years if estate settled extrajudicially
No extension:Taxes are assessed because of taxpayer’s:
1. negligence
2. intentional disregard of rules and regulations
3. fraud
LIABILITY FOR PAYMENT
Sec. 91, NIRC:
Estate and Donor’s Taxes, Estate Tax
(C) Liability for Payment - The estate tax imposed by
Section 84 shall be paid by the executor or dministrator
before delivery to any beneficiary of his distributive
share of the estate. Such beneficiary shall to the extent
of his distributive share of the estate, be subsidiarily
liable for the payment of such portion of the estate tax
as his distributive share bears to the value of the total
net estate.
For the purpose of this Chapter, the term 'executor' or
'administrator' means the executor or administrator of
the decedent, or if there is no executor or
administrator appointed, qualified, and acting within
the Philippines, then any person in actual or
constructive possession of any property of the
decedent.
Who should pay:
1. Executor or administrator (if none, then any
persons in actual or constructive possession of
decedent’s property.
2. Beneficiaries of estate (subsidiarily liable to the
extent of their distributive share)
 TAXATION 2 TAXATION LAW

no legal residence in the Philippines, with the Office of

DONOR’S TAX the Commissioner. In the case of gifts made by a
REQUIREMENTS FOR FILING A RETURN nonresident, the return may be filed with the
Sec. 91, NIRC:
Philippine Embassy or Consulate in the country where
Estate and Donor’s Taxes, Donor’s Tax
he is domiciled at the time of the transfer, or directly
(A) Requirements. - any individual who makes any with the Office of the Commissioner.
transfer by gift (except those which, under Section 101,
are exempt from the tax provided for in this Chapter)
When to file: Within 30 days after the gift is made
shall, for the purpose of the said tax, make a return
When to pay: Same time the return is filed
under oath in duplicate. The return shall se forth:
Where to file and pay: AAB. RDO, Collection
1. Each gift made during the calendar year which
Officer, or Treasurer of place where donor was
is to be included in computing net gifts;
2. The deductions claimed and allowable; domiciled at the time of transfer
3. Any previous net gifts made during the same If no legal residence: CIR
calendar year; If non-resident: IR or Philippine Embassy/Consulate
4. The name of the donee; and where donor was domiciled at the time of transfer
5. Such further information as may be required
by rules and regulations made pursuant to
VALUE-ADDED TAX
law.
REQUIREMENTS & TIME FOR FILING RETURN &
PAYMENT OF VAT
REQUIREMENTS IN AN DONOR’S TAX RETURN (DTR): SEC. 4.114-1 (A), RR 16-05 (Consolidated VAT
1. Under oath
Regulations 2005), as amended
2. Contains the ff:
o gifts made during the (A) Filing of Return. – Every person liable to pay VAT
calendar year shall file a quarterly return of the amount of his
o deductions allowable quarterly gross sales or receipts within twenty five (25)
o previous net gifts made days following the close of taxable quarter using the
during the calendar year latest version of Quarterly VAT Return. The term
o donee’s name “taxable quarter” shall mean the quarter that is
o donor’s relationship to
synchronized to the income tax quarter of the taxpayer
done (RR 2-03)
o other information (i.e., the calendar quarter or fiscal quarter).
3. If gross estate exceeds P2M, ETR must contain a
statement certified by a CPA with: Amounts reflected in the monthly VAT declarations for
o itemized assets the first two (2) months of the quarter shall still be
o itemized deductions included in the quarterly VAT return which reflects the
o tax due
cumulative figures for the taxable quarter. Payments in
the monthly VAT declarations shall, however, be
TIME AND PLACE OF FILING AND PAYMENT
credited in the quarterly VAT return to arrive at the net
Sec. 91, NIRC:
VAT payable or excess input tax/over-payment as of
Estate and Donor’s Taxes, Donor’s Tax
the end of a quarter.
(B) Time and Place of Filing and Payment. - The return
of the donor required in this Section shall be filed
Example. — Suppose the accounting period adopted by
within thirty (30) days after the date the gift is made
the taxpayer is fiscal year ending October 2003, the
and the tax due thereon shall be paid at the time of
taxpayer has to file monthly VAT declarations for the
filing. Except in cases where the Commissioner
months of November 2002, December 2002, and for
otherwise permits, the return shall be filed and the tax
the months of February, March, May, June, August,
paid to an authorized agent bank, the Revenue District
and September for Year 2003, on or before the 20th day
Officer, Revenue Collection Officer or duly authorized
of the month following the close of the taxable month.
Treasurer of the city or municipality where the donor
His quarterly VAT returns corresponding to the
was domiciled at the time of the transfer, or if there be

33
 TAXATION 2
quarters ending January, April, July, and October 2003
shall, on the other hand, be filed and taxes due thereon
be paid, after crediting payments reflected in the
Monthly VAT declarations, on or before February 25,
May 25, August 25, and November 25, 2003,
respectively.
The monthly VAT Declarations (BIR Form 2550M) of
taxpayers whether large or nonlarge shall be filed and
the taxes paid not later than the 20th day following the
end of each month.
What to file:
1. Monthly VAT Declarations
When filed: not later than 20th day following the
end of each month
When paid: same
2. Quarterly VAT Return of quarterly gross sales or
receipts
When filed: within 25 days following the close of
taxable quarter
When paid: same (but payments reflected in the
monthly VAT declarations should be credited)
PLACE OF FILING A RETURN AND PAYMENT
SEC. 4.114-1 (D), RR 16-05 (Consolidated VAT
Regulations 2005), as amended
(D) Where to File and Pay
The monthly VAT declaration and quarterly return shall
be filed with, and VAT due thereon paid to, an AAB
(Authorized Agent Bank) under the jurisdiction of the
Revenue District/BIR Office where the taxpayer (head
office of the business establishment) is required to be
registered.
In cases where there are no duly accredited agent
banks within the municipality or city, the monthly VAT
declaration and quarterly VAT return, shall be filed
with and any amount due shall be paid to the RDO,
Collection Agent or duly authorized Treasurer of the
Municipality/City where such taxpayer (head office of
the business establishment) is required to be
registered.
The quarterly VAT return and the monthly VAT
declaration, where no payment is involved, shall be
filed with the RDO/LTDO/Large Taxpayers Assistance
34
TAXATION LAW
Division (LTAD), Collection Agent, duly authorized
Municipal/City Treasurer of Municipality/City where
the taxpayer (head office of the business
establishment) is registered or required to be
registered.”
Taxpayers filing via EFPS (Electronic Filing and Payment
System) shall comply with the provisions of the EFPS
Regulations.
Only one consolidated quarterly VAT return or monthly
VAT declaration covering the results of operation of the
head office as well as the branches for all lines of
business subject to VAT shall be filed by the taxpayer,
for every return period, with the BIR office where said
taxpayer is required to be registered.
NOTE: The above (4.114-1) is amended. Check RR 4-
2007
Where to file and pay the VAT due on:
1. Monthly VAT Declaration: AAB
2. Quarterly VAT Return: AAB
If no AAB:RDO, Collection Agent, or Treasurer where
taxpayer is required to be registered
Where to file the Declaration/Return, where no
payment is involved: RDO, Collection Agent, or
Treasurer where taxpayer is required to be registered
WITHHOLDING OF CREDITABLE VAT
Section 22
WITHHOLDING OF VAT
Sec. 4.114-2 of RR No. 16-2005 is hereby amended to
read as follows:
“SEC. 4.114-2. Withholding of VAT on Government
Money Payments and Payments to Non-Residents. –
(a) The government or any of its political subdivisions,
instrumentalities or agencies including government-
owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods
and/or of services taxed at twelve percent (12%) VAT
pursuant to Secs. 106 and 108 of the Tax Code, deduct
and withhold a final VAT due at the rate of five percent
(5%) of the gross payment thereof.
 TAXATION 2
The five percent (5%) final VAT withholding rate shall
represent the net VAT payable of the seller. The
remaining seven percent (7%) effectively accounts for
the standard input VAT for sales of goods or services to
government or any of its political subdivisions,
instrumentalities or agencies including GOCCs in lieu of
the actual input VAT directly attributable or ratably
apportioned to such sales. Should actual input VAT
attributable to sale to government exceeds seven
percent (7%) of gross payments, the excess may form
part of the sellers’ expense or cost. On the other hand,
if actual input VAT attributable to sale to government is
less than seven percent (7%)
of gross payment, the difference must be closed to
expense or cost.
(b) The government or any of its political subdivisions,
instrumentalities or agencies including GOCCs, as well
as private corporation, individuals, estates and trusts,
whether large or non-large taxpayers, shall withhold
twelve percent (12%) VAT, starting February 1, 2006,
with respect to the following payments:
1) Lease or use of properties or property rights
owned by non-residents; and
2) Other services rendered in the Philippines by
non-residents.
In remitting VAT withheld, the withholding agent shall
use BIR Form No. 1600- Remittance Return of VAT and
Other Percentage Taxes Withheld. VAT withheld and
paid for the non-resident recipient (remitted using BIR
Form No. 1600), which VAT is passed on to the resident
withholding agent by the non-resident recipient of the
income, may be claimed as input tax by said VAT-
registered withholding agent upon filing his own VAT
Return, subject to the rule on allocation of input tax
among taxable sales, zero-rated sales and exempt
sales. The duly filed BIR Form No. 1600 is the proof or
documentary substantiation for the claimed input tax
or input VAT.
Nonetheless, if the resident withholding agent is a non-
VAT taxpayer, said passed-on VAT by the non-resident
recipient of the income, evidenced by the duly filed BIR
Form No. 1600, shall form part of the cost of purchased
services, which may be treated either as an "asset" or
"expense", whichever is applicable, of the resident
35
TAXATION LAW
withholding agent. VAT withheld under this Section
shall be remitted within ten (10) days following the end
of the month the withholding was made.
V. TAX REMEDIES IN THE
NIRC
A. TAXPAYER'S REMEDIES
ASSESSMENT
Assessment is the official action of an administrative
officer in determining the amount of tax due from a
taxpayer, or it may be a notice to the effect that the
amount therein stated is due from the taxpayer as a
tax with a demand for payment of the tax or deficiency
stated therein.1
An assessment is the notice to the effect that the
amount therein stated is due from a taxpayer as a tax
with a demand for payment of the same within a
stated period of time. 2
An assessment contains not only a computation of tax
liabilities, but also a demand for payment within a
prescribed period. It also signals the time when
penalties and protests begin to accrue against the
taxpayer.3
REQUISITES FOR VALID ASSESSMENT
Presumption of Correctness
General Rule: Assessments are prima facie presumed
correct and made in good faith. 4
Exception: The prima facie correctness of a tax
assessment does not apply upon proof that an
assessment is utterly without foundation, meaning it is
arbitrary and capricious.5
REQUISITES
1. It must be in a written document (Commissioner
vs. PASCOR Realty);
2. It must be addressed to the taxpayer (Ibid.);
1 Aban, B. (2001). Law on Income Taxation in the Philippines, p. 175.
2 Commissioner v. CA, 27 SCRA 1159
3 Commissioner vs. PASCOR Realty, G.R. No. 128315, 29 June 1999.
4 CIR v CA, Atlas Consolidated Mining, GR No. 104151 10 March 1995.
5
CIR v. Hantex, G.R. No.136975, 31 March 2005.
 TAXATION 2
3. It must demand payment of the taxes described
therein within a specific period (Ibid.);
4. It must be duly sent to and received by the
taxpayer (Ibid.);and
5. It must state the factual and/or legal bases of the
assessment (Mamalateo, 2008);
Notice of assessment sent to taxpayer’s old office is not
a valid assessment (CIR vs. BPI, 411 SCRA 456)
Important Cases: CIR vs. PASCOR (G.R. No. 128315, 29
June 1999). CIR v. BPI (G.R. No. 134062, 17 April 2007).
CONSTRUCTIVE METHODS OF INCOME
DETERMINATION
PERCENTAGE OF RECEIPTS OR SALES METHOD
In the absences of adequate records, the
Commissioner of Internal Revenue can reconstruct
gross profit by ascertaining the total sales or receipts
and then applying an average of gross profit to such
sales or receipts. He can also rec0nstruct taxable
income by applying an average percentage of taxable
income to gross income. Such average might be taken
from return filed or from figures reflecting gross profit
and net profit of businesses similar to that of the
taxpayer.
EXCESS CASH EXPENDITURE METHOD
If the net worth of the taxpayer at the close of the year
is the same as it was in the beginning (or any difference
accounted for), but hi disbursements of a non-
deductible nature exceed the income he has reported,
it may be conducted, that he understated his income
for that year.
The expenditures method of determining income
should be applied by deducting the aggregate yearly
expenditures from the declared yearly income, not the
expenditures incurred each month from the declared
income therefore (Collector v. Jamir, 4 SCRA 718
[1962]).
Reconstruction of income through the use of evidence
of business dealings of taxpayers
Examination of customers’ or suppliers’ records
Examination of records of government agencies
Compilations of checks cashed
36
TAXATION LAW
INVENTORY METHOD FOR INCOME DETERMINATION
“If the government can prove wit reasonable certainty
the taxpayer’s net worth, that is, the excess of assets
over liabilities at a given year. If the taxpayer is on the
calendar year basis, and if the government is then able
to prove by independent evidence, such as bank
deposits or purchases of assets, that the taxpayer’s net
worth has increased at the end of the taxable year in
question, then the inference is reasonable and,
therefore, permissible that the increase is that net
worth plus a reasonable allowance for living expenses
for the period and plus or minus adjustments for other
items, such as taxes paid, insurance premiums,
depreciation and others, represents the income of the
taxpayer.” (Holland v. U.S., 348 US 121) – De Leon, The
Law on Income Taxation, pp. 455-461.
JEOPARDY ASSESSMENT
Sec. 6 (B), NIRC
(B) Failure to Submit Required Returns, Statements,
Reports and other Documents. - When a report
required by law as a basis for the assessment of any
national internal revenue tax shall not be forthcoming
within the time fixed by laws or rules and regulations
or when there is reason to believe that any such report
is false, incomplete or erroneous, the Commissioner
shall assess the proper tax on the best evidence
obtainable.
In case a person fails to file a required return or other
document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other
document, the Commissioner shall make or amend the
return from his own knowledge and from such
information as he can obtain through testimony or
otherwise, which shall be prima facie correct and
sufficient for all legal purposes.
It refers to a tax assessment which was assessed
without the benefit of complete or partial audit by an
authorized revenue officer, who has reason to believe
that the assessment and collection of a deficiency tax
will be jeopardized by delay because of the taxpayer's
failure to6:
6 R.R. No. 30-2002; R.R. No. 7-2001.
 TAXATION 2
a. Comply with audit and investigation
requirements to present his books of accounts
and/or pertinent records, or
b. Substantiate all or any of the deductions,
exemptions or credits claimed in his return
It is usually issued when statutory prescriptive periods
for the assessment or collection of taxes are about to
lapse due principally to the taxpayer’s fault
TAX DELINQUENCY AND TAX DEFICIENCY
Deficiency is the amount still due and collectible from a
taxpayer upon audit or investigation
The amount by which the tax imposed by law as
determined by the Commissioner or his authorized
representative exceeds the amount shown as tax by
taxpayer upon his return;
If no amount is shown as tax by the taxpayer upon his
return or if no return is made by the taxpayer, then the
amount by which the tax as determined by the
Commissioner or his authorized representative exceeds
the amounts previously assessed (or collected) without
assessment as deficiency
Delinquency is the failure of the taxpayer to pay the tax
due on the date fixed by law or indicated in the
assessment notice or letter of demand.
A taxpayer is considered delinquent in the payment of
his tax when he:
a. Self-assessed tax per return filed by the
taxpayer on the prescribed date was not paid
at all or only partially paid
b. Deficiency tax assessed by the BIR became
final and executory
Power of the commissioner to make assessments and
prescribe additional requirements for tax
administration and enforcement
Sec. 6, Title I, National Internal Revenue Code of the
Philippines: Power of the Commissioner to make
assessments and prescribe additional requirements
for tax administration and enforcement
a. Examination of returns and determination of tax
due
b. Failure to submit required returns, statements,
37
TAXATION LAW
reports and other documents
c. Authority to conduct inventory-taking, surveillance
and to prescribe presumptive gross and receipts
d. Authority to terminate taxable period
e. Authority of the Commissioner to prescribe real
property values
f. Authority of the Commissioner to inquire into bank
deposit account
g. Authority to accredit and register tax agent
h. Authority of the Commissioner to prescribe
additional procedural or documentary
requirements
Sec. 6 (A)
Examination of Returns and Determination of Tax Due.
- After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly
authorized representative may authorize the
examination of any taxpayer and the assessment of the
correct amount of tax: Provided, however; That failure
to file a return shall not prevent the Commissioner
from authorizing the examination of any taxpayer.
The tax or any deficiency tax so assessed shall be paid
upon notice and demand from the Commissioner or
from his duly authorized representative.
Any return, statement of declaration filed in any office
authorized to receive the same shall not be withdrawn:
Provided, That within three (3) years from the date of
such filing , the same may be modified, changed, or
amended: Provided, further, That no notice for audit or
investigation of such return, statement or declaration
has in the meantime been actually served upon the
taxpayer.
Sec. 6 (B), NIRC
(B) Failure to Submit Required Returns, Statements,
Reports and other Documents. - When a report required
by law as a basis for the assessment of any national
internal revenue tax shall not be forthcoming within the
time fixed by laws or rules and regulations or when
there is reason to believe that any such report is false,
incomplete or erroneous, the Commissioner shall assess
the proper tax on the best evidence obtainable.
In case a person fails to file a required return or other
document at the time prescribed by law, or willfully or
 TAXATION 2
otherwise files a false or fraudulent return or other
document, the Commissioner shall make or amend the
return from his own knowledge and from such
information as he can obtain through testimony or
otherwise, which shall be prima facie correct and
sufficient for all legal purposes.
Sec. 6 (C), NIRC
(C) Authority to Conduct Inventory-taking, surveillance
and to Prescribe Presumptive Gross Sales and Receipts.
- The Commissioner may, at any time during the
taxable year, order inventory-taking of goods of any
taxpayer as a basis for determining his internal revenue
tax liabilities, or may place the business operations of
any person, natural or juridical, under observation or
surveillance if there is reason to believe that such
person is not declaring his correct income, sales or
receipts for internal revenue tax purposes. The findings
may be used as the basis for assessing the taxes for the
other months or quarters of the same or different
taxable years and such assessment shall be deemed
prima facie correct.
When it is found that a person has failed to issue
receipts and invoices in violation of the requirements
of Sections 113 and 237 of this Code, or when there is
reason to believe that the books of accounts or other
records do not correctly reflect the declarations made
or to be made in a return required to be filed under the
provisions of this Code, the Commissioner, after taking
into account the sales, receipts, income or other
taxable base of other persons engaged in similar
businesses under similar situations or circumstances or
after considering other relevant information may
prescribe a minimum amount of such gross receipts,
sales and taxable base, and such amount so prescribed
shall be prima facie correct for purposes of
determining the internal revenue tax liabilities of such
person.
Sec. 6 (D)
(D) Authority to Terminate Taxable Period. _ When it
shall come to the knowledge of the Commissioner that
a taxpayer is retiring from business subject to tax, or is
intending to leave the Philippines or to remove his
property therefrom or to hide or conceal his property,
or is performing any act tending to obstruct the
38
TAXATION LAW
proceedings for the collection of the tax for the past or
current quarter or year or to render the same totally or
partly ineffective unless such proceedings are begun
immediately, the Commissioner shall declare the tax
period of such taxpayer terminated at any time and
shall send the taxpayer a notice of such decision,
together with a request for the immediate payment of
the tax for the period so declared terminated and the
tax for the preceding year or quarter, or such portion
thereof as may be unpaid, and said taxes shall be due
and payable immediately and shall be subject to all the
penalties hereafter prescribed, unless paid within the
time fixed in the demand made by the Commissioner.
Sec. 6 (E), NIRC
(E) Authority of the Commissioner to Prescribe Real
Property Values. - The Commissioner is hereby
authorized to divide the Philippines into different zones
or areas and shall, upon consultation with competent
appraisers both from the private and public sectors,
determine the fair market value of real properties
located in each zone or area. For purposes of
computing any internal revenue tax, the value of the
property shall be, whichever is the higher of;
(1) the fair market value as determined by the
Commissioner, or
(2) the fair market value as shown in the schedule of
values of the Provincial and City Assessors.
Sec. 6 (F), NIRC
(F) Authority of the Commissioner to inquire into Bank
Deposit Accounts. - Notwithstanding any contrary
provision of Republic Act No. 1405 and other general or
special laws, the Commissioner is hereby authorized to
inquire into the bank deposits of:
(1) a decedent to determine his gross estate; and
(2) any taxpayer who has filed an application for
compromise of his tax liability under Sec. 204
(A) (2) of this Code by reason of financial
incapacity to pay his tax liability.
In case a taxpayer files an application to compromise
the payment of his tax liabilities on his claim that his
financial position demonstrates a clear inability to pay
the tax assessed, his application shall not be
considered unless and until he waives in writing his
privilege under Republic act NO. 1405 or under other
general or special laws, and such waiver shall
 TAXATION 2 TAXATION LAW

constitute the authority of the Commissioner to inquire

into the bank deposits of the taxpayer. POWER OF THE COMMISSIONER TO OBTAIN
INFORMATION, AND TO SUMMON/EXAMINE, AND
TAKE TESTIMONY OF PERSONS
Sec. 6 (G)
Sec.5, NIRC
(G) Authority to Accredit and Register Tax Agents. - The
SEC. 5 Power of the Commissioner to Obtain
Commissioner shall accredit and register, based on
Information, and to Summon, Examine, and Take
their professional competence, integrity and moral
Testimony of Persons - In ascertaining the correctness
fitness, individuals and general professional
of any return, or in making a return when none has
partnerships and their representatives who prepare
been made, or in determining the liability of any
and file tax returns, statements, reports, protests, and
person for any internal revenue tax, or in collecting any
other papers with or who appear before, the Bureau
such liability, or in evaluating tax compliance, the
for taxpayers. Within one hundred twenty (120) days
Commissioner is authorized:
from January 1, 1998, the Commissioner shall create
a. To examine any book, paper, record, or other
national and regional accreditation boards, the
data which may be relevant or material to
members of which shall serve for three (3) years, and
such inquiry;
shall designate from among the senior officials of the
b. To obtain on a regular basis from any person
Bureau, one (1) chairman and two (2) members for
other than the person whose internal revenue
each board, subject to such rules and regulations as the
tax liability is subject to audit or investigation,
Secretary of Finance shall promulgate upon the
or from any office or officer of the national
recommendation of the Commissioner.
and local governments, government agencies
and instrumentalities, including the Bangko
Individuals and general professional partnerships and
Sentral ng Pilipinas and government-owned or
their representatives who are denied accreditation by
-controlled corporations, any information such
the Commissioner and/or the national and regional
as, but not limited to, costs and volume of
accreditation boards may appeal such denial to the
production, receipts or sales and gross
Secretary of Finance, who shall rule on the appeal
incomes of taxpayers, and the names,
within sixty (60) days from receipt of such appeal.
addresses, and financial statements of
Failure of the Secretary of Finance to rule on the
corporations, mutual fund companies,
Appeal within the prescribed period shall be deemed
insurance companies, regional operating
as approval of the application for accreditation of the
headquarters of multinational companies,
appellant.
joint accounts, associations, joint ventures of
consortia and registered partnerships, and
Sec. 6 (H), NIRC
their members;
(H) Authority of the Commissioner to Prescribe
c. To summon the person liable for tax or
Additional Procedural or Documentary Requirements. -
required to file a return, or any officer or
The Commissioner may prescribe the manner of
employee of such person, or any person
compliance with any documentary or procedural
having possession, custody, or care of the
requirement in connection with the submission or
books of accounts and other accounting
preparation of financial statements accompanying the
records containing entries relating to the
tax returns.
business of the person liable for tax, or any
other person, to appear before the
The BIR officials are charged with the assessment and
Commissioner or his duly authorized
collection of all national internal revenue taxes, fees
representative at a time and place specified in
and charges, including penalties and fines for violations
the summons and to produce such books,
of certain provisions of the 2005 National Internal
papers, records, or other data, and to give
Revenue Code and special laws administered by the BIR
testimony;
(Mamalateo, 2008).

39
 TAXATION 2
d. To take such testimony of the person
concerned, under oath, as may be relevant or
material to such inquiry; and
e. To cause revenue officers and employees to
make a canvass from time to time of any
revenue district or region and inquire after
and concerning all persons therein who may
be liable to pay any internal revenue tax, and
all persons owning or having the care,
management or possession of any object with
respect to which a tax is imposed.
The provisions of the foregoing paragraphs
notwithstanding, nothing in this Section shall be
construed as granting the Commissioner the authority
to inquire into bank deposits other than as provided for
in Section 6(F) of this Code.
WHEN ASSESSMENT IS MADE
Sec. 228, NIRC
SEC. 228. Protesting of Assessment. - When the
Commissioner or his duly authorized
representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his
findings xxx
General rule: Prescriptive period for assessment (3
years from last day to file a return)
If the taxpayer filed a return: taxes shall be assessed
within three (3) years after the last day prescribed by
law for the filing of the return.
No proceeding in court should begin after the 3 year
period.
No proceeding in court without assessment shall be
begun after the expiration of three (3) years.
If filed beyond the period prescribed by law, the
reckoning point is the day the return was filed.
If a return is filed beyond the period prescribed by law:
the three-year period shall be counted from the day
the return was filed.
Exception:
40
TAXATION LAW
If there is a mutual agreement to asses after such time
but this must be made before expiration of the original
period.
10 years in case of fraudulent return it will be reckoned
from discovery of fraud. In this case, there can be no
assessment made, the BIR can immediately procced
with a collection case in court and it should be made
within 10 years from discovery.
Sec. 203, NIRC
SEC. 203. Period of Limitation Upon Assessment and
Collection. - Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment
for the collection of such taxes shall be begun after the
expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by
law, the three (3)-year period shall be counted from
the day the return was filed.
For purposes of this Section, a return filed before
the last day prescribed by law for the filing thereof
shall be considered as filed on such last day. [emphasis
supplied]
COMPUTATION OF THE PRESCRIPTIVE PERIOD
In computing for the prescriptive period, years should
be understood as having 365 days each. Following this,
the 3-year prescriptive period shall have an aggregate
number of 1,095 days (365 days x 3 years = 1,095 days)
[RMC 48-90]
FALSE, FRAUDULENT, AND NON-FILING OF RETURNS
(10 YEARS AFTER DISCOVERY)
Sec. 222, NIRC.
SEC. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes.–
(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the tax
may be assessed, or a proceeding in court for the
collection of such tax may be filed without assessment,
at any time within ten (10) years after the discovery of
the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the
fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.
 TAXATION 2
The period to within which to assess tax is 10 years
from discovery of the fraud, falsification, or omission in
the following cases:
a. fraudulent returns
b. false returns with intent to evade tax
c. failure to file a return
SUSPENSION OF RUNNING OF STATUTE OF
LIMITATIONS
Sec. 223, NIRC
SEC. 223. Suspension of Running of Statute of
Limitations. - The running of the Statute of Limitations
provided in Sections 203 and 222 on the making of
assessment and the beginning of distraint or levy a
proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during
which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a
proceeding in court and for sixty (60) days thereafter;
when the taxpayer requests for a reinvestigation which
is granted by the Commissioner; when the taxpayer
cannot be located in the address given by him in the
return filed upon which a tax is being assessed or
collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of
the Statute of Limitations will not be suspended; when
the warrant of distraint or levy is duly served upon the
taxpayer, his authorized representative, or a member
of his household with sufficient discretion, and no
property could be located; and when the taxpayer is
out of the Philippines.
Suspension of running of statute of limitations
1. Period during which the commissioner is
Prohibited from making the assessment or
beginning distraint or levy or a proceeding in court,
and for sixty (60) days thereafter.
2. When the taxpayer requests for a Reinvestigation
which is granted by the Commissioner.
3. When the taxpayer Cannot be located in the
Address given by him in the return filed upon
which a tax is being assessed or collected, BUT if
the taxpayer informs the Commissioner of any
change in address, the running of the statute of
limitations shall not be suspended.
4. When the warrant of distraint or levy is duly
served upon the taxpayer, his authorized
representative, or a member of his household with
sufficient discretion, and No Property is located.
5. When the taxpayer is Out of the Philippines
41
TAXATION LAW
GENERAL PROVISIONS ON ADDITIONS TO THE TAX
Civil penalties
SURCHARGE
A civil penalty imposed by law as an addition to the
basic tax required to be paid. A surcharge added to the
main tax is subject to interest.
25% Surcharge [Sec. 248 (A), NIRC]
In addition to the tax required to be paid, a penalty
equivalent to 25% of the amount due, in the following
cases:
1. Failure to file any return and pay the tax due
thereon on the date prescribed; or
2. Filing a return with an unauthorized internal
revenue officer; or
3. Failure to pay the deficiency tax within the time
prescribed for its payment in the notice of
assessment; or
4. Failure to pay the full or part of the amount of tax
shown on any return, or the full amount of tax due
for which no return is required to be filed, on or
before the date prescribed for its payment.
50% Surcharge [Sec. 248 (B), NIRC]
A penalty of 50% of the tax or of the deficiency tax will
be imposed when:
1. There’s willful neglect to file the return within the
period prescribed by this Code or by rules and
regulations, or
2. A false or fraudulent return is willfully made
What constitutes as prima facie evidence of a false or
fraudulent return?
Substantial underdeclaration of taxable sales, receipts
or income, OR
(Failure to report sales, receipts or income in an
amount exceeding 30% of that declared per return)
A substantial overstatement of deductions, as
determined by the Commissioner pursuant to the rules
and regulations to be promulgated by the Secretary of
Finance
(A claim of deductions in an amount exceeding 30% of
actual deductions)
 TAXATION 2
INTEREST [SEC.249, NIRC]
General: 20% per annum on any unpaid amount of tax
from the date prescribed for payment until the amount
is fully paid (or such higher rate as may be prescribed
by rules and regulations)
Deficiency Interest
Deficiency is the amount by which the tax imposed by
this Title exceeds the amount shown as the tax in the
filed return [Sec.56 (B), par. 1, NIRC]
Delinquency Interest.
Charged when there’s:
1. Tax due on any return to be filed, or
2. Tax due for which no return is required, or
3. A deficiency tax, or any surcharge or interest
thereon on the due date appearing in the notice
and demand of the Commissioner
Interest on Extended Payment
Applies when the taxpayer is qualified and elects to pay
the tax on instalment, and:
1. There’s failure 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
2. Commissioner has authorized an extension of time
within which to pay a tax or a deficiency tax or any
part thereof (counted from date of notice)
ASSESSMENT PROCESS
Sec. 228, NIRC
SEC. 228. Protesting of Assessment. –
xxx
The taxpayers shall be informed in writing of the law and
the facts on which the assessment is made; otherwise,
the assessment shall be void.
Within a period to be prescribed by implementing rules
and regulations, the taxpayer shall be required to
respond to said notice.
If the taxpayer fails to respond, the Commissioner or his
duly authorized representative shall issue an assessment
based on his findings.
xxx
42
TAXATION LAW
Self-Assessment
The assessment process starts with the self-assessment
by the taxpayer of his tax liability, the filing of the tax
return, and the payment of the entire tax due shown in
his tax return in accordance with the methods and
within the dates prescribed in the law and regulations. 7
OVERVIEW OF THE PROCESS
a. Tax Audit
b. Notice for Informal Conference
c. Issuance of Preliminary Assessment Notice (PAN)
d. Notice of Informal Conference
e. Issuance of Formal Letter of Demand and
Assessment Notice/Final Assessment Notice (FAN)
f. Disputed Assessment – reply of Taxpayer
g. Administrative Decision on a Disputed Assessment
Tax audit
Exercised pursuant to Sec.5 of the NIRC
Made thru the issuance of Letter of Authority(LoA)
/Letter Notice/Tax Verification Notice (TVN). The audit
process commences with the issuance of a Letter of
Authority to a taxpayer who has been selected for
audit.8
Involves the revenue officer’s examination of books of
accounts and other accounting records of the taxpayer
to determine the correct tax liability
WHAT IS A LETTER OF AUTHORITY?
It is an official document that empowers a Revenue
Officer to examine and scrutinize a Taxpayer’s books of
accounts and other accounting records, in order to
determine the Taxpayer’s correct internal revenue tax
liabilities.9
WHO ISSUES IT?
a. Commissioner –for audit/investigation of taxpayers
under the jurisdiction of National Office
b. Regional Directors –for taxpayers under the
jurisdiction of Regional Offices10
WHAT IS THE PERIOD FOR CONDUCTING THE AUDIT?
Gen Rule: A Revenue Officer is allowed only 120 days
from the date of receipt of a LoA by the Taxpayer to
7Mamalateo, V. (2008). Reviewer on Taxation, p. 410.
8BIR Website
(http://www.bir.gov.ph/taxpayerrights/taxpayerrights.htm).
9 BIR Website
(http://www.bir.gov.ph/taxpayerrights/taxpayerrights.htm).
10 Ibid.
 TAXATION 2
conduct the audit and submit the required report of
investigation.11
Exception: The LoA may be re-sent to the Head Office
for revalidation and further extension of the period for
audit.
Notice of Informal Conference
WHEN ISSUED?
When the taxpayer does NOT agree with the findings of
the Revenue Officer after the audit
WHAT IS A NOTICE OF INFORMAL CONFERENCE?
A written notice informing a Taxpayer that the findings
of the audit conducted on his books of accounts and
accounting records indicate that additional taxes or
deficiency assessments have to be paid.12
WHAT IS THE PURPOSE OF THE INFORMAL
CONFERENCE?
To afford the taxpayer with an opportunity to present
his side of the case13
WITHIN WHAT PERIOD MUST THE TAXPAYER
RESPOND?
Within 15 days from date of receipt of the notice. If he
fails to do so, shall be considered in default. As a result,
it will be endorsed to the appropriate agency for
appropriate review and issuance of a deficiency tax
assessment14
Issuance of preliminary assessment notice
Sec. 3.1.2, R.R. NO. 12-99
3.1.2 Preliminary Assessment Notice (PAN).
If after review and evaluation by the Assessment
Division or by the Commissioner or his duly authorized
representative, as the case may be, it is determined
that there exists sufficient basis to assess the taxpayer
for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered mail, a
Preliminary Assessment Notice (PAN) for the proposed
assessment showing in detail, the facts and the law,
rules and regulations, or jurisprudence on which the
proposed assessment is based (see illustration in
ANNEX A hereof). If the taxpayer fails to respond within
11Ibid.
12 Ibid.
13 RR No. 12-99
14Ibid.
43
TAXATION LAW
fifteen (15) days from date of receipt of the PAN, he
shall be considered in default, in which case, a formal
letter of demand and assessment notice shall be
caused to be issued by the said Office, calling for
payment of the taxpayer's deficiency tax
liability, inclusive of the applicable penalties.
PAN is issued if it is the BIR determines that there
exists sufficient basis to assess the taxpayer for any
deficiency tax. It must show in detail the facts and the
law, rules and regulations, or jurisprudence on which
the proposed assessment is based. In case of failure to
respond within 15 days by the taxpayer, a formal letter
of demand and assessment notice shall be issued,
calling for payment of the taxpayer's deficiency tax
liability, inclusive of the applicable penalties.
Exceptions to Issuance of PAN
Sec. 3.1.3, R.R. NO. 12-99
3.1.3 Exceptions to Prior Notice of the Assessment.
The notice for informal conference and the preliminary
assessment notice shall not be required in any of the
following cases, in which case, issuance of the formal
assessment notice for the payment of the taxpayer's
deficiency tax liability shall be sufficient:
(1) When the finding
or any deficiency tax is the result of mathemat
cal error in the computation of the tax
appearing on the face of the tax return filed
by the taxpayer; or
(2) When a discrepancy has been determined bet
ween the tax withheld and theamount
actually remitted by the withholding agent; or
(3) When a taxpayer who opted to claim
a refund or tax credit of excess creditable
withholding tax for a taxable period was
determined to have carried over and
automatically applied the same amount
claimed against the estimated tax liabilities
for the taxable quarter or quarters of
the succeeding taxable year; or
(4) When the excise tax due on excisable
articles has not been paid; or
(5) (v) When an article locally purchased or impor
ted by an exempt person, such as, butnot
limited to, vehicles, capital equipment,
machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.
 TAXATION 2
Reply to PAN – 15 days from receipt. In meritorious
cases and upon written request, extension not
exceeding 10 days may be given the TP to respond.
(Sec. 3 (a), RR No. 12-85)
Issuance of formal letter of demand and assessment
notice/final assessment notice
Sec. 3.1.4, R.R. NO. 12-99
3.1.4 Formal Letter of Demand and Assessment Notice.
The formal letter of demand and assessment notice
shall be issued by the Commissioner or his duly
authorized representative. The letter of demand
calling for payment of the taxpayer's deficiency tax or
taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment
is based, otherwise, the formal letter of demand
and assessment notice shall be void (see illustration in
ANNEX B hereof). The same shall be sent to
the taxpayer only by registered mail or by personal
delivery. If sent by personal delivery, the taxpayer or
his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy of
the letter of demand, showing the following: (a) His
name; (b) signature; (c)designation and authority to act
for and in behalf of the taxpayer, if acknowledged
received by a person other than the taxpayer himself;
and (d) date of receipt thereof.
Disputed assessment
Sec. 3.1.5, R.R. NO. 12-99
3.1.5 Disputed Assessment.
The taxpayer or his duly authorized representative may
protest administratively against the aforesaid formal
letter of demand and assessment notice within thirty
(30) days from date of receipt thereof. If there
are several issues involved in the formal letter of
demand and assessment notice but the taxpayer only
disputes or protests against the validity of some of the
issues raised, the taxpayer shall be required to pay the
deficiency tax or taxes attributable to the undisputed
issues, in which case, a collection letter shall be issued
to the taxpayer calling for payment of the said
deficiency tax, inclusive of the applicable surcharge
and/or interest. No action shall be taken on the
taxpayer's disputed issues until the taxpayer has paid
the deficiency tax or taxes attributable to the said
undisputed issues. The prescriptive period for
44
TAXATION LAW
assessment or collection of the tax or
taxes attributable to the disputed issues shall be
suspended.
The taxpayer shall state the facts, the applicable law,
rules and regulations, or jurisprudence on which his
protest is based, otherwise, his protest shall be
considered void and without force and effect. If there
are several issues involved in the disputed assessment
and the taxpayer fails to state the facts, the applicable
law, rules and regulations, or jurisprudence in support
of his protest against some of the several issues on
which the assessment is based, the same shall be
considered undisputed issue or issues, in which case,
the taxpayer shall be required to pay the
corresponding deficiency tax or taxes attributable
thereto.
The taxpayer shall submit the required documents
in support of his protest within sixty (60) days from
date of filing of his letter of protest, otherwise,
the assessment shall become final, executor, and
demandable. The phrase "submit the required
documents" includes submission or presentation of the
pertinent documents for scrutiny and evaluation by the
Revenue Officer conducting the audit. The said
Revenue Officer shall state this fact in his report of
investigation.
If the taxpayer fails to file a valid protest against
the formal letter of demand and assessment notice
within thirty (30) days from date of receipt thereof, the
assessments hall become final, executor, and
demandable. If the protest is denied, in whole or in
part, by the Commissioner, the taxpayer may appeal to
the Court of Tax Appeals within thirty (30) days from
date of receipt of the said decision, otherwise, the
assessment shall become final, executory,
and demandable.
In general, if the protest is denied, in whole or in part,
by the Commissioner or his duly authorized
representative, the taxpayer may appeal to the Court
of Tax Appeals within thirty (30) days from date of
receipt of the said decision, otherwise, the assessment
shall become final, executory, and demandable:
Provided, however, that if the taxpayer elevates his
 TAXATION 2
protest to the Commissioner within thirty (30) days
from date of receipt of the final decision of the
Commissioner's duly authorized representative, the
latter's decision shall not be considered final, executor,
and demandable, in which case, the protest shall be
decided by the Commissioner.
If the Commissioner or his duly authorized
representative fails to act on the taxpayer's protest
within one hundred eighty (180) days from date of
submission, by the taxpayer, of the required
documents in support of his protest, the taxpayer may
appeal to the Court of Tax Appeals within thirty (30)
days from the lapse of the said 180-day period,
otherwise, the assessment shall become final,
executor, and demandable.
Administrative decision on a disputed assessment
Sec. 3.1.6, R.R. NO. 12-99
3.1.6 Administrative Decisionon a
Disputed Assessment.
The decision of the Commissioner or his duly
authorized representative shall (a) state the facts, the
applicable law, rules and regulations, or jurisprudence
on which such decision is based, otherwise, the
decision shall be void (see illustration in ANNEX C
hereof), in which case, the same shall not be
considered a decision on a disputed assessment; and
(b) that the same is his final decision.
Protesting assessment
Protest of assessment by taxpayer
Sec.228, NIRC
SEC. 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings:
xxx
The taxpayers shall be informed in writing of the law
and the facts on which the assessment is made;
otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules
and regulations, the taxpayer shall be required to
respond to said notice.
45
TAXATION LAW
If the taxpayer fails to respond, the Commissioner or
his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by
filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment
in such form and manner as may be prescribed by
implementing rules and regulations.
Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been
submitted; otherwise, the assessment shall become
final.
If the protest is denied in whole or in part, or is not
acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of one
hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and
demandable.
PROTESTED ASSESSMENT
It refers only to the FAN(Final Assessment Notice) and
FLD (Formal Letter of Demand) not the PAN
WHEN TO FILE A PROTEST:
When: 30 days from receipt of the assessment (Sec.7,
RR 12-85)
Where:
a. Regional Office cases: With the Collection
Branch of the region which has jurisdiction
over the case.
b. National Office cases: With the Collection
Office.
Forms of protest
Sec. 6, RR 12-85
SECTION 6. Protest. -The taxpayer may protest
administratively an assessment by filing a written
request for reconsideration or reinvestigation
specifying the following particulars:
a. Name of the taxpayer and address for the
immediate past three (3) taxable year.
b. Nature of request whether reinvestigation or
reconsideration specifying newly discovered
 TAXATION 2 TAXATION LAW

evidence he intends to present if it is a request for assessed tax.

investigation.
c. The taxable periods covered. The main difference between these two types of
d. Assessment number.
protests lies in the records or evidence to be examined
e. Date of receipt of assessment notice or letter of
demand. by internal revenue officers, whether these are existing
f. Itemized statement of the findings to which the records or newly discovered or additional evidence 15
taxpayer agrees as a basis for computing the tax
due, which amount should be paid immediately In requests for Reinvestigation, the period is tolled
upon the filing of the protest. For this purpose, the because it “entails the reception and evaluation of
protest shall not be deemed validly filed unless
additional evidence, will take more time than a
payment of the agreed portion of the tax is paid
reconsideration of a tax assessment, which will be
first.
g. The itemized schedule of the adjustments with limited to the evidence already at hand; this justifies
which the taxpayer does not agree. why the former can suspend the running of the statute
h. A statement of facts and/or law in support of the of limitations on collection of the assessed tax, while
protest. A request for reconsideration or the latter cannot.16”
reinvestigation of an assessment shall be
accompanied by a waiver of the Statute of
The taxpayer shall state the facts, the applicable law,
Limitations in favor of the government. For the
rules and regulations, or jurisprudence on which his
purpose of the protest herein –
protest is based, otherwise, his protest shall be
Request for reconsideration –refers to a plea of re- considered void and without force and effect. (RR 12-
evaluation of the assessment on the basis of existing 99, Sec. 3.1.5)
records without need of additional evidence. It may
involve both a question of fact or of law or both. SUBMISSION OF DOCUMENTS WITHIN 60 DAYS FROM
FILING OF PROTEST
Request for reinvestigation –refers to a plea of re-
The taxpayer shall submit the required documents in
evaluation of an assessment on the basis of newly
support of his protest within 60 days from date of filing
discovered or additional evidence that a taxpayer
of his letter of protest, otherwise, the assessment shall
intends to present in the reinvestigation. It may also
become final, executory and demandable. (RR 12-99,
involve a question of fact or law or both.
Sec. 3.1.5)

Two Forms of Protest

The phrase "submit the required documents" includes
Request for Request for
submission or presentation of the pertinent documents
Reconsideration Reinvestigation
for scrutiny and evaluation by the Revenue Officer
A plea for a re- A plea for re-evaluation of
conducting the audit. (RR 12-99, Sec. 3.1.5)
evaluation of an an assessment on the basis
assessment on the basis of newly-discovered
EFFECT OF FAILURE TO PROTEST
of existing records evidence or additional
If the taxpayer fails to file a valid protest against the
without need of evidence that a taxpayer
formal letter of demand and assessment notice within
additional evidence intends to present in the
30 days from date of receipt thereof, the assessment
investigation
shall become final, executory and demandable (RR 12-
May involve both a It may also involve a 99, Sec. 3.1.5)
question of fact or of question of fact or law or
law or both. both.
Does not toll the Tolls the running of the
running of the statute of limitations on 15 Commissioner of Internal Revenue vs. Phil. Global Communication,
prescription period for the collection of the Inc. (506 SCRA 427).
16 Bank of the Philippine Islands v. Commissioner of Internal Revenue,

the collection of an assessed tax G.R. No. 139736, 17 October 2005.

46
 TAXATION 2 TAXATION LAW

RENDITION OF DECISION BY COMMISSIONER A final demand letter for payment of delinquent taxes
Denial of protest may be considered a decision on a disputed or
Sec. 3.1.5, RR 12-99 protested assessment18
If the protest is denied, in whole or in part, by the
Commissioner, the taxpayer mayappeal to the Court of A letter reiterating the assessment from the Chief of
Tax Appeals within thirty (30) days from date of receipt BIR may constitute a decision on a letter of protest 19
of the saiddecision, otherwise, the assessment shall
become final, executory and demandable. IN CASE OF INACTION BY COMMISSIONER WITHIN 180
DAYS FROM SUBMISSION OF DOCUMENTS
COMMISSIONER’S ACTIONS EQUIVALENT TO DENIAL
OF PROTEST Within 30 days after the end of the 180-day period,
1. Filing of criminal action against taxpayer taxpayer may appeal case to the CTA; OR
2. Issuing a warrant of distraint and levy
Taxpayer may await decision of the CIR, thereafter
The Final Notice Before Seizure can be considered as
appeal within 30 days from receipt of denial.
the CIR’s decision disposing of the request for
reconsideration17
The taxpayer MUST file an appeal with the CTA once
the 180 day period lapses20
INACTION BY COMMISSIONER
Sec. 3.1.5, RR 12-99
EFFECT OF FAILURE TO APPEAL
xxx
If the Commissioner or his duly authorized The assessment becomes final, demandable and
representative fails to act on the taxpayer's protest executory
within one hundred eighty (180) days from date of
submission, by the taxpayer, of the required B. GOVERNMENT REMEDIES
documents in support of his protest, the taxpayer may
appeal to the Court of Tax Appeals within thirty (30) Overview:
days from the lapse of the said 180-day period,
otherwise, the assessment shall become final, Administrative remedies
executory and demandable (emphasis applied) 1. Distraint of Personal Property including
xxx garnishment deposit
2. Summary remedy of levy on real property
When there’s no decision from the CIR within 180 days 3. Forfeiture to the government for want of bidder
4. Further Distraint or Levy
following the submission by TP of the documents in
5. Tax Lien
support of his/its protest.
6. Compromise and Abatement
7. Penalties and Fines
Remedies of taxpayer to action by commissioner
IN CASE OF DENIAL OF PROTEST Judicial remedies
1. Civil
Appeal to the CA: Within 30 days from receipt of 2. Criminal
decision, taxpayer may appeal before the Court of Tax
Appeals SEC. 205. Remedies for the Collection of Delinquent
Taxes
Decision Appealable to CA: The civil remedies for the collection of internal revenue

18 Commissioner of Internal Revenue vs. Ayala Securities Corp., et al., 70

SCRA 204.
19 Oceanic Wireless Network v. CIR, 477 SCRA 205.
20 Commissioner Of Internal Revenue vs. Lascona Land Co., Inc. CA-G.R.
17Commissioner of Internal Revenue vs. Isabela Cultural Corp, 361 SCRA SP No. 58061. 25 October 2005.
71.

47
 TAXATION 2
taxes, fees or charges, and any increment thereto
resulting from delinquency shall be:
a. By distraint of goods, chattels, or effects, and
other personal property of whatever
character, including stocks and other
securities, debts, credits, bank accounts and
interest in and rights to personal property,
and by levy upon real property and interest in
rights to real property; and
b. By civil or criminal action.
Either of these remedies or both simultaneously may
be pursued in the discretion of the authorities charged
with the collection of such taxes: Provided, however,
That the remedies of distraint and levy shall not be
availed of where the amount of tax involve is not more
than One hundred pesos (P100).
The judgment in the criminal case shall not only impose
the penalty but shall also order payment of the taxes
subject of the criminal case as finally decided by the
Commissioner.
The Bureau of Internal Revenue shall advance the
amounts needed to defray costs of collection by means
of civil or criminal action, including the preservation or
transportation of personal property distrained and the
advertisement and sale thereof, as well as of real
property and improvements thereon.
Distraint of Personal Property
Distraint – remedy enforced on the goods, chattels, or
effects, and other personal property of whatever
character including stocks and other securities, debts,
credits, bank accounts, and interest in and rights to
personal property
Kinds of Distraint:
(1) Constructive Distraint
(2) Actual Distraint
SEC. 206. Constructive Distraint of the Property of A
Taxpayer.
To safeguard the interest of the Government, the
Commissioner may place under constructive distraint
the property of a delinquent taxpayer or any taxpayer
who, in his opinion, is retiring from any business
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subject to tax, or is intending to leave the Philippines or
to remove his property therefrom or to hide or conceal
his property or to perform any act tending to obstruct
the proceedings for collecting the tax due or which may
be due from him.
The constructive distraint of personal property shall be
affected by requiring the taxpayer or any person having
possession or control of such property to sign a receipt
covering the property distrained and obligate himself
to preserve the same intact and unaltered and not to
dispose of the same ;in any manner whatever, without
the express authority of the Commissioner.
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 officer
effecting the constructive distraint shall proceed to
prepare a list of such property and, in the presence of
two (2) witnessed, 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.
Constructive Distraint – may be placed by the
Commissioner on any taxpayer to safeguard the
interest of the Government Delinquency of the
taxpayer is not necessary.
Grounds for Constructive Distraint:
When in the opinion of the Commissioner,
1. the taxpayer is retiring from any business subject
to tax; or
2. the taxpayer is intending to leave the Philippines;
or
3. the taxpayer is intending to remove his property
from the Philippines or to hide or conceal his
property; or
4. the taxpayer is planning to perform any act
tending to obstruct the proceedings for collecting
the tax due or which may be due from him
How constructive distraint is effected:
1. Signing of receipt by the taxpayer
By requiring the taxpayer or any person having
possession or control of such property to sign a
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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 Commissioner
2. If the taxpayer refuses to sign the receipt: signing
of receipt by revenue officer in the presence of two
witnesses
In case the taxpayer or the person having the
possession and control of the property refuses or
fails to sign the receipt, the revenue officer
effecting the constructive distraint shall proceed to
prepare a list of such property and, in the presence
of two (2) witnesses, leave a copy thereof in the
premises where the property distrained is located
SEC. 207. Summary Remedies
(A) Distraint of Personal Property. - Upon the failure
of the person owing any delinquent tax or delinquent
revenue to pay the same at the time required, the
Commissioner or his duly authorized representative, if
the amount involved is in excess of One million pesos
(P1,000,000), or the Revenue District Officer, if the
amount involved is One million pesos (P1,000,000) or
less, shall seize and distraint any goods, chattels or
effects, and the personal property, including stocks and
other securities, debts, credits, bank accounts, and
interests in and rights to personal property of such
persons ;in sufficient quantity to satisfy the tax, or
charge, together with any increment thereto incident
to delinquency, and the expenses of the distraint and
the cost of the subsequent sale.
A report on the distraint shall, within ten (10) days
from receipt of the warrant, be submitted by the
distraining officer to the Revenue District Officer, and
to the Revenue Regional Director: Provided, That the
Commissioner or his duly authorized representative
shall, subject to rules and regulations promulgated by
the Secretary of Finance, upon recommendation of the
Commissioner, have the power to lift such order of
distraint: Provided, further, That a consolidated report
by the Revenue Regional Director may be required by
the Commissioner as often as necessary.
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(B) Levy on Real Property. - After the expiration of the
time required to pay the delinquent tax or delinquent
revenue as prescribed in this Section, real property
may be levied upon, before simultaneously or after the
distraint of personal property belonging to the
delinquent. To this end, any internal revenue officer
designated by the Commissioner or his duly authorized
representative shall prepare a duly authenticated
certificate showing the name of the taxpayer and the
amounts of the tax and penalty due from him. Said
certificate shall operate with the force of a legal
execution throughout the Philippines.
Levy shall be affected by writing upon said certificate a
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 Register of Deeds for the
province or city where the property is located and
upon the delinquent taxpayer, or if he be absent from
the Philippines, 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
question.
In case the warrant of 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 sufficient to satisfy his
tax delinquency, the Commissioner or his duly
authorized representative shall, within thirty (30) days
after execution of the distraint, proceed with the levy
on the taxpayer's real property.
Within ten (10) days after receipt of the warrant, a
report on any levy shall be submitted by the levying
officer to the Commissioner or his duly authorized
representative: Provided, however, That a consolidated
report by the Revenue Regional Director may be
required by the Commissioner as often as necessary:
Provided, further, That the Commissioner or his duly
authorized representative, subject to rules and
regulations promulgated by the Secretary of Finance,
upon recommendation of the Commissioner, shall have
the authority to lift warrants of levy issued in
accordance with the provisions hereof.
Procedure for Actual Distraint
1. Commencement of Distraint Proceedings:
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Who issues the warrant of distraint:
a. CIR or his DAR where the amount
involved is more than 1m
b. Revenue District Officer (RDO) where the
amount involved is 1m or less
2. Service of Warrant of Distraint
The proper officer shall seize and distraint any
goods, chattels, or effects, and the personal
property, including stocks and other securities,
debts, credits, bank accounts and interests in and
rights to personal property of the taxpayer in
sufficient quantity to satisfy the tax, expenses of
distraint and the cost of the subsequent sale.
3. Report on Distraint
A report shall be submitted by the distraining
officer to the Revenue District Officer, and to the
Revenue Regional Director.
4. Power of the CIR or proper officer to lift the order
of distraint
The taxpayer may request that the warrant be
lifted. The commissioner may, in his discretion,
allow the lifting of the order of distraint. He may
ask for a bond as a condition for the cancellation
of the warrant.
If the proceeds from the sale of the distrained
properties are not sufficient to satisfy the tax
delinquency, the Commissioner or his duly authorized
representative shall within thirty (30) days after
execution of the distraint, proceed with the levy on the
taxpayer’s real property.
When levy may be effected: after the expiration of time
required to pay the delinquent tax, real property may
be levied upon, before, simultaneously or after the
distraint of personal property belonging to the
delinquent.
In case the warrant of levy is NOT issued before or
simultaneously with the warrant of distraint on the
personal property AND the personal property of the
taxpayer is not sufficient to satisfy his tax delinquency:
the CIR or his duly authorized representative shall
within 30 days after execution of the distraint, proceed
with the levy on the taxpayer’s real property.
SEC. 208. Procedure for Distraint and Garnishment
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The officer serving the warrant of distraint shall make
or cause to be made an account of the goods, chattels,
effects or other personal property distrained, a copy of
which, signed by himself, shall be left either with the
owner or person from whose possession such goods,
chattels, or effects or other personal property were
taken, or at the dwelling or place of business of such
person and with someone of suitable age and
discretion, to which list shall be added a statement of
the sum demanded and note of the time and place of
sale.
Stocks and other securities shall be distrained by
serving a copy of the warrant of distraint upon the
taxpayer and upon the president, manager, treasurer
or other responsible officer of the corporation,
company or association, which issued the said stocks or
securities.
Debts and credits shall be distrained by leaving with
the person owing the debts or having in his possession
or under his control such credits, or with his agent, a
copy of the warrant of distraint. The warrant of
distraint shall be sufficient authority to the person
owning the debts or having in his possession or under
his control any credits belonging to the taxpayer to pay
to the Commissioner the amount of such debts or
credits.
Bank accounts shall be garnished by serving a warrant
of garnishment upon the taxpayer and upon the
president, manager, treasurer or other responsible
officer of the bank. Upon receipt of the warrant of
garnishment, the bank shall tun over to the
Commissioner so much of the bank accounts as may be
sufficient to satisfy the claim of the Government
Distraint of intangible properties
1. Stocks and other securities: by serving a copy of
the warrants of distraint on the taxpayer, AND
upon the president, manager, treasurer or other
responsible officer of the corporation, company or
association which issued the stocks or securities.
2. Debts and credits: by leaving with the person
owing the debts or having in his possession or
under his control such credits, or with his agent, a
copy of the warrant of distraint. The person owing
the debts shall then pay the Commissioner instead
 TAXATION 2
of his creditor (taxpayer) on the strength of such
warrant.
3. Bank accounts: by serving a warrant of
garnishment upon the taxpayer AND upon the
president, manager, treasurer or other responsible
officer of the bank. The bank shall then turn over
to the Commissioner so much of the bank
accounts as may be sufficient to satisfy the claim
of the Government.
SEC. 209. Sale of Property Distrained and Disposition
of Proceeds
The Revenue District Officer or his duly authorized
representative, other than the officer referred to in
Section 208 of this Code shall, according to rules and
regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner, forthwith
cause a notification to be exhibited in not less than two
(2) public places in the municipality or city where the
distraint is made, specifying; the time and place of sale
and the articles distrained. The time of sale shall not be
less than twenty (20) days after notice. One place for
the posting of such notice shall be at the Office of the
Mayor of the city or municipality in which the property
is distrained.
At the time and place fixed in such notice, the said
revenue officer shall sell the goods, chattels, or effects,
or other personal property, including stocks and other
securities so distrained, at public auction, to the
highest bidder for cash, or with the approval of the
Commissioner, through duly licensed commodity or
stock exchanges.
In the case of Stocks and other securities, the officer
making the sale shall execute a bill of sale which he
shall deliver to the buyer, and a copy thereof furnished
the corporation, company or association which issued
the stocks or other securities. Upon receipt of the copy
of the bill of sale, the corporation, company or
association shall make the corresponding entry in its
books, transfer the stocks or other securities sold in the
name of the buyer, and issue, if required to do so, the
corresponding certificates of stock or other securities.
Any residue over and above what is required to pay the
entire claim, including expenses, shall be returned to
the owner of the property sold. The expenses
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chargeable upon each seizure and sale shall embrace
only the actual expenses of seizure and preservation of
the property pending ;the sale, and no charge shall be
imposed for the services of the local internal revenue
officer or his deputy.
Sale at Public Auction
1. At the time of the public sale, the revenue officer
shall sell the goods, chattels, or effects, or other
personal property, including stocks and other
securities so distrained at a PUBLIC AUCTION, to
the HIGHEST BIDDER for CASHor with the approval
of the Commissioner, through a DULY LICENSED
COMMODITY or STOCK EXCHANGES.
2. Any residue over and above what is required to
pay the entire claim, including expenses of sale
and distraint, shall be RETURNED to the owner of
the property sold. Expenses shall be limited to
actual expenses of SEIZURE and PRESERVATION of
the property pending the sale, no charge shall be
imposed for the services of the local internal
revenue officer or his deputy.
SEC. 210. Release 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 officer conducting the
sale, the goods or effects distrained shall be restored to
the owner.
SEC. 211. Report of Sale to Bureau of Internal
Revenue
Within two (2) days after the sale, the officer making
the same shall make a report of his proceedings in
writing to the Commissioner and shall himself preserve
a copy of such report as an official record.
SEC. 212. Purchase by Government at Sale Upon
Distraint.
When the amount bid for the property under distraint
is not equal to the amount of the tax or is very much
less than the actual market value of the articles offered
for sale, the Commissioner or his deputy may purchase
the same in behalf of the national Government for the
amount of taxes, penalties and costs due thereon.
Property so purchased may be resold by the
Commissioner or his deputy, subject to the rules and
regulations prescribed by the Secretary of Finance, the
 TAXATION 2
net proceeds therefrom shall be remitted to the
National Treasury and accounted for as internal
revenue.
SEC. 213. Advertisement and Sale.
Within twenty (20) days after levy, the officer
conducting the proceedings shall proceed to advertise
the property or a usable portion thereof as may be
necessary to satisfy the claim and cost of sale; and such
advertisement shall cover a period of a least thirty (30)
days. It shall be effectuated by posting a notice at the
main entrance of the municipal building or city hall and
in public and conspicuous place in the barrio or district
in which the real estate lies and ;by publication once a
week for three (3) weeks in a newspaper of general
circulation in the municipality or city where the
property is located. The advertisement shall contain a
statement of the amount of taxes and penalties so due
and the time and place of sale, the name of the
taxpayer against whom taxes are levied, and a short
description of the property to be sold. At any time
before the day fixed for the sale, the taxpayer may
discontinue all proceedings by paying the taxes,
penalties and interest. If he does not do so, the sale
shall proceed and shall be held either at the main
entrance of the municipal building or city hall, or on
the premises to be sold, as the officer conducting the
proceedings shall determine and as the notice of sale
shall specify.
Within five (5) days after the sale, a return by the
distraining or levying officer of the proceedings shall be
entered upon the records of the Revenue Collection
Officer, the Revenue District officer and the Revenue
Regional Director. The Revenue Collection Officer, in
consultation with the Revenue district Officer, shall
then make out and deliver to the purchaser a
certificate from his records, showing the proceedings
of the sale, describing the property sold stating the
name of the purchaser and setting out the exact
amount of all taxes, penalties and interest: Provided,
however, That in case the proceeds of the sale exceeds
the claim and cost of sale, the excess shall be turned
over to the owner of the property.
The Revenue Collection Officer, upon approval by the
Revenue District Officer may, out of his collection,
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advance an amount sufficient to defray the costs of
collection by means of the summary remedies provided
for in this Code, including ;the preservation or
transportation in case of personal property, and the
advertisement and subsequent sale, both in cases of
personal and real property including improvements
found on the latter. In his monthly collection reports,
such advances shall be reflected and supported by
receipts.
SEC. 214. Redemption of Property Sold.
Within one (1) year from the date of sale, the
delinquent taxpayer, or any one for him, shall have the
right of paying to the Revenue District Officer the
amount of the public taxes, penalties, and interest
thereon from the date of delinquency to the date of
sale, together with interest on said purchase price at
the rate of fifteen percent (15%) per annum from the
date of purchase to the date of redemption, and such
payment shall entitle the person paying to the delivery
of the certificate issued to the purchaser and a
certificate from the said Revenue District Officer that
he has thus redeemed the property, and the Revenue
District Officer shall forthwith pay over to the
purchaser the amount by which such property has thus
been redeemed, and said property thereafter shall be
free form the lien of such taxes and penalties.
The 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.
SEC. 215. Forfeiture to Government for Want of
Bidder.
In case there is no bidder for real property exposed for
sale as herein above provided or if the highest bid is for
an amount insufficient to pay the taxes, penalties and
costs, the Internal Revenue Officer conducting the sale
shall declare the property forfeited to the Government
in satisfaction of the claim in question and within two
(2) days thereafter, shall make a return of his
proceedings and the forfeiture which shall be spread
upon the records of his office. It shall be the duty of the
Register of Deeds concerned, upon registration with his
office of any such declaration of forfeiture, to transfer
the title of the property forfeited to the Government
without the necessity of an order from a competent
 TAXATION 2
court.
Within one (1) year from the date of such forfeiture,
the taxpayer, or any one for him may redeem said
property by paying to the Commissioner or the latter's
Revenue Collection Officer the full amount of the taxes
and penalties, together with interest thereon and the
costs of sale, but if the property be not thus redeemed,
the forfeiture shall become absolute.
SEC. 216. Resale of Real Estate Taken for Taxes.
The Commissioner shall have charge of any real estate
obtained by the Government of the Philippines in
payment or satisfaction of taxes, penalties or costs
arising under this Code or in compromise or
adjustment of any claim therefore, and said
Commissioner may, upon the giving of not less than
twenty (20) days notice, sell and dispose of the same of
public auction or with prior approval of the Secretary
of Finance, dispose of the same at private sale. In
either case, the proceeds of the sale shall be deposited
with the National Treasury, and an accounting of the
same shall rendered to the Chairman of the
Commission on Audit.
SEC. 217. Further Distraint or Levy.
The remedy by distraint of personal property and levy
on realty may be repeated if necessary until the full
amount due, including all expenses, is collected.
SEC. 218. Injunction not Available to Restrain
Collection of Tax.
No court shall have the authority to grant an injunction
to restrain the collection of any national internal
revenue tax, fee or charge imposed by this Code.
SEC. 219. Nature and Extent of Tax Lien.
If any person, corporation, partnership, joint-account
(cuentas en participacion), association or insurance
company liable to pay an internal revenue tax, neglects
or refuses to pay the same after demand, the amount
shall be a lien in favor of the Government of the
Philippines from the time when the assessment was
made by the Commissioner until paid, with interests,
penalties, and costs that may accrue in addition
thereto upon all property and rights to property
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belonging to the taxpayer: Provided, That this lien shall
not be valid against any mortgagee purchaser or
judgment creditor until notice of such lien shall be filed
by the Commissioner in the office of the Register of
Deeds of the province or city where the property of the
taxpayer is situated or located.
SEC. 220. Form and Mode of Proceeding in Actions
Arising under this Code.
Civil and criminal actions and proceedings instituted in
behalf of the Government under the authority of this
Code or other law enforced by the Bureau of Internal
Revenue shall be brought in the name of the
Government of the Philippines and shall be conducted
by legal officers of the Bureau of Internal Revenue but
no civil or criminal action for the recovery of taxes or
the enforcement of any fine, penalty or forfeiture
under this Code shall be filed in court without the
approval of the Commissioner.
SEC. 221. Remedy for Enforcement of Statutory Penal
Provisions.
The remedy for enforcement of statutory penalties of
all sorts shall be by criminal or civil action, as the
particular situation may require, subject to the
approval of the Commissioner.
SEC. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes.
(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the
tax may be assessed, or a preceeding in court for
the collection of such tax may be filed without
assessment, at any time within ten (10) years after
the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in
Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in
writing to its assessment after such time, the tax
may be assessed within the period agreed upon.
The period so agreed upon may be extended by
subsequent written agreement made before the
expiration of the period previously agreed upon.
 TAXATION 2
(c) Any internal revenue tax which has been assessed
within the period of limitation as prescribed in
paragraph (a) hereof may be collected by distraint
or levy or by a proceeding in court within five (5)
years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed
within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected by
distraint or levy or by a proceeding in court within
the period agreed upon in writing before the
expiration of the five (5) -year period. The period
so agreed upon may be extended by subsequent
written agreements made before the expiration of
the period previously agreed upon.
(e) Provided, however, That nothing in the
immediately preceding and paragraph (a) hereof
shall be construed to authorize the examination
and investigation or inquiry into any tax return
filed in accordance with the provisions of any tax
amnesty law or decree.
SEC. 223. Suspension of Running of Statute of
Limitations.
The running of the Statute of Limitations provided in
Sections 203 and 222 on the making of assessment and
the beginning of distraint or levy a proceeding in court
for collection, in respect of any deficiency, shall be
suspended for the period during which the
Commissioner is prohibited from making the
assessment or beginning distraint or levy or a
proceeding in court and for sixty (60) days thereafter;
when the taxpayer requests for a reinvestigation which
is granted by the Commissioner; when the taxpayer
cannot be located in the address given by him in the
return filed upon which a tax is being assessed or
collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of
the Statute of Limitations will not be suspended; when
the warrant of distraint or levy is duly served upon the
taxpayer, his authorized representative, or a member
of his household with sufficient discretion, and no
property could be located; and when the taxpayer is
out of the Philippines.
SEC. 224. Remedy for Enforcement of Forfeitures.
The forfeiture of chattels and removable fixtures of any
sort shall be enforced by the seizure and sale, or
destruction, of the specific forfeited property. The
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TAXATION LAW
forfeiture of real property shall be enforced by a
judgment of condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may require.
SEC. 225. When Property to be Sold or Destroyed.
Sales of forfeited chattels and removable fixtures shall
be effected, so far as practicable, in the same manner
and under the same conditions as the public notice and
the time and manner of sale as are prescribed for sales
of personal property distrained for the non-payment of
taxes.
Distilled spirits, liquors, cigars, cigarettes, other
manufactured products of tobacco, and all apparatus
used I or about the illicit production of such articles
may, upon forfeiture, be destroyed by order of the
Commissioner, when the sale of the same for
consumption or use would be injurious to public health
or prejudicial to the enforcement of the law.
All other articles subject to excise tax, which have been
manufactured or removed in violation of this Code, as
well as dies for the printing or making of internal
revenue stamps and labels which are in imitation of or
purport to be lawful stamps, or labels may, upon
forfeiture, be sold or destroyed in the discretion of the
Commissioner.
Forfeited property shall not be destroyed until at least
twenty (20) days after seizure.
SEC. 226. Disposition of funds Recovered in Legal
Proceedings or Obtained from Forfeitures.
all judgments and monies recovered and received for
taxes, costs, forfeitures, fines and penalties shall be
paid to the Commissioner or his authorized deputies as
the taxes themselves are required to be paid, and
except as specially provided, shall be accounted for and
dealt with the same way.
SEC. 227. Satisfaction of Judgment Recovered Against
any Internal Revenue Officer.
When an action is brought against any Internal
Revenue officer to recover damages by reason of any
act done in the performance of official duty, and the
Commissioner is notified of such action in time to make
defense against the same, through the Solicitor
General, any judgment, damages or costs recovered in
 TAXATION 2
such action shall be satisfied by the Commissioner,
upon approval of the Secretary of Finance, or if the
same be paid by the person used shall be repaid or
reimbursed to him.
No such judgment, damages, or costs shall be paid or
reimbursed in behalf of a person who has acted
negligently or in bad faith, or with willful oppression.
C. STATUTORY OFFENSES AND PENALTIES
SEC. 247. General Provisions.
(a) The additions to the tax or deficiency tax
prescribed in this Chapter shall apply to all taxes,
fees and charges imposed in this Code. The
Amount so added to the tax shall be collected at
the same time, in the same manner and as part of
the tax.
(b) If the withholding agent is the Government or any
of its agencies, political subdivisions or
instrumentalities, or a government-owned or
controlled corporation, the employee thereof
responsible for the withholding and remittance of
the tax shall be personally liable for the additions
to the tax prescribed herein.
(c) (c) the term 'person', as used in this Chapter,
includes an officer or employee of a corporation
who as such officer, employee or member is under
a duty to perform the act in respect of which the
violation occurs.
SEC. 248. - Civil Penalties.
There shall be imposed, in addition to the tax required
to be paid, a penalty equivalent to twenty-five percent
(25%) of the amount due, in the following cases:
1. Failure to file any return and pay the tax due
thereon as required under the provisions of
this Code or rules and regulations on the date
prescribed; or
2. Unless otherwise authorized by the
Commissioner, filing a return with an internal
revenue officer other than those with whom
the return is required to be filed; or
3. Failure to pay the deficiency tax within the
time prescribed for its payment in the notice
of assessment; or
4. (4) Failure to pay the full or part of the
amount of tax shown on any return required
to be filed under the provisions of this Code or
rules and regulations, or the full amount of tax
due for which no return is required to be filed,
on or before the date prescribed for its
payment.
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In case of willful neglect to file the return within the
period prescribed by this Code or by rules and
regulations, or in case a false or fraudulent return is
willfully made, the penalty to be imposed shall be fifty
percent (50%) of the tax or of the deficiency tax, in
case, any payment has been made on the basis of such
return before the discovery of the falsity or fraud:
Provided, That a substantial underdeclaration of
taxable sales, receipts or income, or a substantial
overstatement of deductions, as determined by the
Commissioner pursuant to the rules and regulations to
be promulgated by the Secretary of Finance, shall
constitute prima facie evidence of a false or fraudulent
return: Provided, further, That failure to report sales,
receipts or income in an amount exceeding thirty
percent (30%) of that declared per return, and a claim
of deductions in an amount exceeding (30%) of actual
deductions, shall render the taxpayer liable for
substantial underdeclaration of sales, receipts or
income or for overstatement of deductions, as
mentioned herein.
SEC. 249. Interest.
(A) In General. - There shall be assessed and collected
on any unpaid amount of tax, interest at the rate of
twenty percent (20%) per annum, or such higher rate
as may be prescribed by rules and regulations, from
the date prescribed for payment until the amount is
fully paid.
(B) Deficiency Interest. - Any deficiency in the tax due,
as the term is defined in this Code, shall be subject to
the interest prescribed in Subsection (A) hereof, which
interest shall be assessed and collected from the date
prescribed for its payment until the full payment
thereof.
(C) Delinquency Interest. - In case of failure to pay:
1. The amount of the tax due on any return to be
filed, or
2. The amount of the tax due for which no return
is required, or
3. A deficiency tax, or any surcharge or interest
thereon on the due date appearing in the
notice and demand of the Commissioner,
there shall be assessed and collected on the
unpaid amount, interest at the rate prescribed
in Subsection (A) hereof until the amount is
 TAXATION 2
fully paid, which interest shall form part of the
tax.
(D) Interest on Extended Payment. - If any person
required to pay the tax is qualified and elects to pay
the tax on installment under the provisions of this
Code, 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
Commissioner has authorized an extension of time
within which to pay a tax or a deficiency tax or any part
thereof, there shall be assessed and collected interest
at the rate hereinabove prescribed on the tax or
deficiency tax or any part thereof unpaid from the date
of notice and demand until it is paid.
SEC. 250. Failure to File Certain Information Returns.
In the case of each failure to file an information return,
statement or list, or keep any record, or supply any
information required by this Code or by the
Commissioner on the date prescribed therefor, unless
it is shown that such failure is due to reasonable cause
and not to willful neglect, there shall, upon notice and
demand by the Commisssioner, be paid by the person
failing to file, keep or supply the same, One thousand
pesos (1,000) for each failure: Provided, however, That
the aggregate amount to be imposed for all such
failures during a calendar year shall not exceed
Twenty-five thousand pesos (P25,000).
SEC. 251. Failure of a Withholding Agent to Collect
and Remit Tax.
Any person required to withhold, account for, and
remit any tax imposed by this Code or who willfully
fails to withhold such tax, or account for and remit
such tax, or aids or abets in any manner to evade any
such tax or the payment thereof, shall, in addition to
other penalties provided for under this Chapter, be
liable upon conviction to a penalty equal to the total
amount of the tax not withheld, or not accounted for
and remitted.
SEC. 252. Failure of a Withholding Agent to refund
Excess Withholding Tax.
Any employer/withholding agent who fails or refuses
to refund excess withholding tax shall, in addition to
the penalties provided in this Title, be liable to a
penalty to the total amount of refunds which was not
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TAXATION LAW
refunded to the employee resulting from any excess of
the amount withheld over the tax actually due on their
return.
D. COMPROMISE AND ABATEMENT OF TAXES
SEC. 204. Authority of the Commissioner to
Compromise, Abate and Refund or Credit Taxes
The Commissioner may:
(A) Compromise the payment of any internal revenue
tax, when:
(1) A reasonable doubt as to the validity of the
claim against the taxpayer exists; or
(2) The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax.
The compromise settlement of any tax liability shall be
subject to the following minimum amounts:
• For cases of financial incapacity, a minimum
compromise rate equivalent to ten percent (10%)
of the basic assessed tax; and
• For other cases, a minimum compromise rate
equivalent to forty percent (40%) of the basic
assessed tax.
Where the basic tax involved exceeds One million
pesos (P1,000.000) or where the settlement offered is
less than the prescribed minimum rates, the
compromise shall be subject to the approval of the
Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners.
(B) Abate or cancel a tax liability, when:
(1) The tax or any portion thereof appears to be
unjustly or excessively assessed; or
(2) The administration and collection costs
involved do not justify the collection of the
amount due.
All criminal violations may be compromised except: (a)
those already filed in court, or (b) those involving
fraud.
(C) Credit or refund taxes erroneously or illegally
received or penalties imposed without authority,
refund the value of internal revenue stamps when they
are returned in good condition by the purchaser, and,
in his discretion, redeem or change unused stamps that
 TAXATION 2
have been rendered unfit for use and refund their
value upon proof of destruction. No credit or refund of
taxes or penalties shall be allowed unless the taxpayer
files in writing with the Commissioner a claim for credit
or refund within two (2) years after the payment of the
tax or penalty: Provided, however, That a return filed
showing an overpayment shall be considered as a
written claim for credit or refund.
A Tax Credit Certificate validly issued under the
provisions of this Code may be applied against any
internal revenue tax, excluding withholding taxes, for
which the taxpayer is directly liable. Any request for
conversion into refund of unutilized tax credits may be
allowed, subject to the provisions of Section 230 of this
Code: Provided, That the original copy of the Tax Credit
Certificate showing a creditable balance is surrendered
to the appropriate revenue officer for verification and
cancellation: Provided, further, That in no case shall a
tax refund be given resulting from availment of
incentives granted pursuant to special laws for which
no actual payment was made.
The Commissioner shall submit to the Chairmen of the
Committee on Ways and Means of both the Senate and
House of Representatives, every six (6) months, a
report on the exercise of his powers under this Section,
stating therein the following facts and information,
among others: names and addresses of taxpayers
whose cases have been the subject of abatement or
compromise; amount involved; amount compromised
or abated; and reasons for the exercise of power:
Provided, That the said report shall be presented to the
Oversight Committee in Congress that shall be
constituted to determine that said powers are
reasonably exercised and that the government is not
unduly deprived of revenues.
Compromise
Authority of the Commissioner to compromise and
abate taxes
Compromise- to reduce the amount of tax payable
Grounds for a compromise:
1. A REASONABLE DOUBT as to the validity of the
claim against the taxpayer exists; or
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TAXATION LAW
2. The financial position of the taxpayer
demonstrates a clear inability to pay the assessed
tax. (FINANCIAL INCAPACITY)
Limits of the Commissioner’s power to compromise:
1. For cases of financial incapacity: a minimum
compromise rate equivalent to ten percent (10%)
of the basic assessed tax
2. For other cases: a minimum compromise rate
equivalent to forty percent (40%) of the basic
assessed tax
Note: When the basic tax involved exceeds One Million
Pesos (P1,000,000), or where the settlement offered is
less than the prescribed minimum rates, the
compromise must be approved by the Evaluation
Board (composed of the Commissioner and deputy
commissioners)
Abatement- to cancel the entire amount of tax payable
When the Commissioner may abate or cancel a tax
liability:
1. The tax or any portion thereof appears to be
UNJUSTLY or EXCESSIVELY ASSESSED; or
2. The ADMINISTRATION and COLLECTION COSTS do
not justify the collection of the amount due.
ORGANIZATION AND FUNCTIONS OF THE BUREAU OF
INTERNAL REVENUE (Sec. 2-21, NIRC)
POWERS OF THE BIR
Sec. 2: Powers and duties of the BIR
•To assess and collect all taxes, fees and charges
•To enforce all forfeitures, penalties and fines in
connection therewith
•Includes execution of judgments in all cases decided
in its favor by the CTA and the ordinary courts
•The Bureau shall give effect to and administer the
supervisory and police powers conferred to it by
this Code or other laws
Structure of the BIR:
 TAXATION 2
The BIR is under the supervision and control of the
Department of Finance. It is headed by the CIR and
assisted by six (6) Deputy Commissioners. Each region
of the country has a Revenue Regional Director. The
country is also divided into Internal Revenue Districts
headed by Revenue District Officers.
POWERS OF THE CIR
1. To interpret tax laws and to decide cases (Sec. 4)
2. To obtain information and to summon, examine
and take testimony of persons (Sec. 5)
3. To make assessment and prescribe additional
requirements for tax administration and
enforcement (Sec. 6)
4. To delegate power (Sec. 7)
5. To ensure the provision and distribution of forms,
receipts, certificates, and appliances and
acknowledgment of payment of taxes (Sec. 8)
Sec. 4: Power to interpret laws and decide cases
CIR has the exclusive power to:
• Interpret the NIRC and other tax laws, subject to
review by the Secretary of Finance; and
• Decide:
▪ Disputed assessments
▪ Refunds of internal revenue taxes, fees,
penalties
▪ Other matters arising from the NIRC, subject
to review by the CTA
Power to interpret VERSUS Power to decide tax cases
The power to interpret tax laws is under the exclusive
and original jurisdiction of the CIR, subject to review by
the Secretary of Finance. (CIR v. San Roque)
The power to decide tax cases, although vested also in
the CIR, is subject to the exclusive appellate jurisdiction
of the CTA.
NOTE:
A general interpretative rule issued by the CIR may be
relied upon by taxpayers from the time the rule is
issued up to its reversal by the Commissioner or this
Court. (CIR v. San Roque)
The Secretary of Finance can motu proprio review the
rulings of the CIR or his deputies.
• DOF Order No. 007-02 (May 7, 2007) provides that
the Sec. of Finance may, of his own accord, review
a ruling issued by the CIR.
• The taxpayer must go to the Sec. of Finance within
30 days. (RMC 44-2001)
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When it comes to assessments, refunds, penalties and
other matters, recourse should be done to the CTA.
Sec. 5: Power to obtain information and to summon
and examine
Commissioner is authorized by law:
a. Ascertaining the correctness of any return, or
b. Making a return when none has been made, or
c. Collecting any such liability, or
d. Evaluating tax compliance, or
e. In determining the liability of any person for tax.
CIR is authorized to:
• Examine any document which may be relevant or
material to an inquiry;
• Obtain information from a third party in relation to
an investigation or audit of a taxpayer;
• Summon the taxpayer or any person holding
records of the taxpayer to appear before the CIR
and produce documents;
• Take testimonies of the person concerned;
• Cause BIR employees to canvass around and
inquire on persons who may be liable for any
internal revenue tax.
BIR:
▪ It can issue access letters addressed to third party
in relation to the investigation of a taxpayer.
▪ The law allows it access to all relevant or material
records and data in the person of the taxpayer.
▪ It can accept documents which cannot be admitted
in a judicial proceeding where the Rules of Court
are strictly observed. (Fitness by Design v. CIR)
Sec. 6: Power to make assessments and inquire into
bank deposits
CIR is authorized to:
• Conduct inventory-taking as a basis for
determining the taxpayer’s internal revenue tax
liabilities; or
• Place the business of any persons under
observation or surveillance.
• Divide the Philippines into different zones and
compute their fair market value.
RA 10021 or “Exchange of Information on Tax Matters
Act of 2009” amended Sec. 6 (f):
• Bank deposits can be examined by the CIR in the
following instances:
a. A decedent to determine his gross estate, or
b. Any taxpayer who has filed an application for
compromise, or
c. Pursuant to an international convention or tax
agreement, which the Philippines is a
 TAXATION 2
signatory of. (Read with the amendment to
Sec. 71 and 270.)
“Best Evidence Obtainable”
• This rule applies when a tax report is required by
law for the purpose of assessment and it is not
available, or when the tax report is incomplete or
fraudulent. (Sy Po v. CTA)
• The purpose of the law is to enable the BIR to get
the taxpayer’s records in whatever form they may
be kept. (CIR v. Hantex Trading Co. Inc.)
• However, this does not give the CIR the authority
to use mere photocopies of records or documents.
Such photocopies are mere scraps of paper and
have no probative value for any deficiency income
assessments against a taxpayer.
• The rule that assessments are presumed correct
and in good faith only apply when such assessment
was based on sufficient evidence. (CIR v. Hantex
Trading Co. Inc.)
Sec. 7: Authority to delegate power
CIR can delegate:
• The power to assess taxes to his subordinates
(Republic v. Hizon)
• The powers vested in him (i.e. implementation of
revenue regulations, filing of tax collection cases)
(EXCEPT only the enumeration below)
CIR cannot delegate the power:
• To recommend the promulgation of rules and
regulations by the Sec. of Finance
• To issue rulings of first impression or to reverse,
revoke or modify any existing ruling of the bureau
• To compromise or abate any tax liability
▪ But if P500,000 or less – he can delegate
• To assign or reassign officers to establishments
where excise tax articles are produced or kept
Sec. 8: Duty of the CIR to ensure provision and
distribution of forms, receipts, etc.
Powers and duties of a Revenue Regional Director:
1. To implement tax laws in the regional area
2. Administer and enforce tax laws including
assessments and collection of all internal
revenue taxes
3. Issue Letters of Authority (LOA) for the
examination of taxpayers in the region (Sec. 11)
Authority of a Revenue Officer:
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TAXATION LAW
Pursuant to a LOA, may examine taxpayers within the
jurisdiction of the district to collect tax or to
recommend the assessment of any deficiency tax (Sec.
13)
Tax-related administrative issuances and its
definitions
Revenue Issuances signed by the Secretary of
Regulations Finance, upon recommendation of the
Commissioner of Internal Revenue,
(RRs)
they specify, prescribe or define rules
and regulations for the effective
enforcement of the provisions of the
National Internal Revenue Code (NIRC)
and related statutes
Revenue Issuances that provide directives or
Memorandum instructions; prescribe guideline; and
Orders (RMOs) outline processes, operations,
activities, workflows, methods and
procedures necessary in the
implementation of stated policies,
goals, objectives, plans and programs of
the Bureau in all areas of operations,
except auditing
Revenue Rulings, opinions and interpretations of
Memorandum the Commissioner of Internal Revenue
Rulings with respect to the provisions of the
(RMRs) Tax Code and other tax laws, as applied
to a specific set of facts, with or
without established precedents, and
which the Commissioner may issue
from time to time for the purpose of
providing taxpayers guidance on the tax
consequences in specific situations. BIR
Rulings, therefore, cannot contravene
duly issued RMRs; otherwise, the
Rulings are null and void ab initio
Revenue Issuances that publish pertinent and
Memorandum applicable portions, as well as
Circular amplifications, of laws, rules,
regulations and precedents issued by
(RMCs)
the BIR and other agencies/offices
Revenue Periodic issuances, notices and official
Bulletins (RB) announcements of the Commissioner
of Internal Revenue that consolidate
the Bureau of Internal Revenue’s
positions of the Tax Code, relevant tax
 TAXATION 2
laws and other issuances for the
guidance of the public
BIR Rulings Official position of the Bureau to
Queries raised by taxpayers and other
stakeholders relative to clarification
and interpretation of tax laws
BIR ITAD Issued by the BIR International Tax
Affairs Division to rule on certain issues
Rulings
relating to interpretations of
international tax treaty provision under
which certain taxpayers or transactions
can avail of tax exemptions or
preferential tax rates
VII. LOCAL TAXATION
Republic Act No. 7160, Local Government Code (LGC)
of 1991, as amended
A. PRELIMINARY MATTERS
POWER TO TAX OF LOCAL GOVERNMENT UNITS
Sec. 5 Art. X, 1987 Constitution
Each local government unit shall have the power
to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide,
consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue
exclusively to the local governments.
Sec. 130, LGC
FUNDAMENTAL PRINCIPLES
The following fundamental principles shall govern
the exercise of the taxing and other revenue-
raising powers of local government units:
(a) Taxation shall be uniform in each local
government unit;
(b) Taxes, fees, charges and other impositions
shall:
1. be equitable and based as far as
practicable on the taxpayer's ability to
pay;
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TAXATION LAW
2. be levied and collected only for public
purposes;
3. not be unjust, excessive, oppressive, or
confiscatory;
4. not be contrary to law, public policy,
national economic policy, or in the
restraint of trade;
(c) The collection of local taxes, fees, charges and
other impositions shall in no case be let to any
private person;
(d) The revenue collected pursuant to the
provisions of this Code shall inure solely to the
benefit of, and be subject to the disposition by,
the local government unit levying the tax, fee,
charge or other imposition unless otherwise
specifically provided herein; and,
(e) Each local government unit shall, as far as
practicable, evolve a progressive system of
taxation.
Sec. 129, LGC
POWER TO CREATE SOURCES OF REVENUE
Each 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. Such taxes, fees, and charges
shall accrue exclusively to the local government
units.
Sec. 132, LGC
LOCAL TAXING AUTHORITY
The power to impose a tax, fee, or charge or to
generate revenue under this Code shall be
exercised by the sanggunian of the local
government unit concerned through an
appropriate ordinance.
CONSTRUCTION OF TAX ORDINANCES (SEC. 5B)
Rules of Interpretation
(b) In case of doubt, any tax ordinance or
revenue measure shall be construed strictly
against the local government unit enacting it, and
 TAXATION 2
liberally in favor of the taxpayer. Any tax
exemption, incentive or relief granted by any local
government unit pursuant to the provisions of
this Code shall be construed strictly against the
person claiming it.
REQUISITES OF A VALID LOCAL TAX ORDINANCE
1. It must not contravene the Constitution or
any statute
2. It must not be unfair or oppressive
3. It must not be partial or discriminatory
4. It must not prohibit but may regulate trade
5. It must be general and consistent with public
policy
6. It must not be unreasonable (Magtajas
v.Pryce Properties [234 SCRA 225]
PM Reyes
Sec. 187, LGC
PROCEDURE FOR APPROVAL AND EFFECTIVITY OF TAX
ORDINANCES AND REVENUE MEASURES; MANDATORY
PUBLIC HEARINGS
The procedure for approval of local tax
ordinances and revenue measures shall be in
accordance with the provisions of this Code:
Provided, That public hearings shall be conducted
for the purpose prior to the enactment thereof:
Provided, further, That any question on the
constitutionality or legality of tax ordinances or
revenue measures may be raised on appeal within
30 days from the effectivity thereof to the
Secretary of Justice who shall render a decision
within 60 days from the date of receipt of the
appeal:
Provided, however, That such appeal shall not
have the effect of suspending the effectivity of
the ordinance and the accrual and payment of the
tax, fee, or charge levied therein:
Provided, finally, That within 30 days after receipt
of the decision or the lapse of the sixty-day
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TAXATION LAW
period without the Secretary of Justice acting
upon the appeal, the aggrieved party may file
appropriate proceedings with a court of
competent jurisdiction.
Sec. 188, LGC
PUBLICATION OF TAX ORDINANCES AND REVENUE
MEASURES
Within 10 days after their approval, certified true
copies of all provincial, city, and municipal tax
ordinances or revenue measures shall be
published in full for 3 consecutive days in a
newspaper of local circulation:
Provided, however, That in provinces, cities and
municipalities where there are no newspapers of
local circulation, the same may be posted in at
least 2 conspicuous and publicly accessible places.
OTHER PRELIMINARY MATTERS
Sec. 186, LGC
RESIDUAL POWERS OF LGUS -POWER TO LEVY OTHER TAXES,
FEES OR CHARGES
Local government units may exercise the power to
levy taxes, fees or charges on any base or subject
not otherwise specifically enumerated herein or
taxed under the provisions of the National
Internal Revenue Code, as amended, or
other applicable laws:
Provided, That the taxes, fees, or charges shall not
be unjust, excessive, oppressive, confiscatory or
contrary to declared national policy:
Provided, further, That the ordinance levying,
such taxes, fees or charges shall not be enacted
without any prior public hearing conducted for
the purpose.
DOCTRINE OF PREEMPTION OR EXCLUSIONARY RULE
Preemption refers to an instance where the
national government elects to tax a particular
area, impliedly withholding from the local
 TAXATION 2
government the delegated power to tax the same
field. This doctrine primarily rests upon the
intention of Congress.
B. GENERAL PROVISIONS
Scope of taxing powers (Sec. 128)
The provisions herein shall govern the exercise by
provinces, cities, municipalities, and barangays
of their taxing and other revenue-raising
powers.
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Fundamental Principles (Sec. 130)
What are the fundamental principles of local
government taxation? Sec. 130, LGC
a. Uniformity
b. Taxes, fees, charges and other impositions
shall be equitable and based on ability to
pay for public purposes not unjust,
excessive oppressive or confiscatory, no
contrary to law, public policy, national
economic policy, or in restraint of trade
c. The levy and collection shall not be left to
any private person
d. Inures solely to the local government unit
levying the tax
e The progressivity principle must be
observed.
LIMITATIONS ON THE TAXING POWER OF THE
LGUS
As provided in SECTION 133, LGUs cannot
impose the following:
a. Income tax (except on bank and
financial entities
b. DST
c. Estate and Donor’s taxes
d. Customs Duties
e. Taxes on goods passing through the LGU
f. Taxes on agricultural and aquatic
products sold by marginal farmers and
fisherman
g. Taxes on BOI-registered enterprises
h. Excise taxes on articles under the Tax
Code and taxes on petroleum products
i. Percentage tax and VAT
j. Taxes on gross receipts of
transportation contractor
k. Taxes on premium paid by way
of reinsurance
l. Taxes on registration of motor vehicles
m. Taxes on Philippine products
actually exported
n. Taxes on Countryside and Barangay
Business Enterprises and cooperatives
o. Taxesand fees on the Nation
 TAXATION 2
INCOME TAX
Correlate with Sec. 143 (f) On banks and other
financial institutions, at a rate not exceeding 50%
of 1% on the gross receipts of the preceding
calendar year derived from interest, commissions
and discounts from lending activities, income
from financial leasing, dividends, rentals on
property and profit from exchange or sale of
property, insurance premium.
DOCUMENTARY STAMP TAX
TRANSFER TAXES
Correlate with Sec. 135
Tax on Transfer of Real Property Ownership.
(a) The province may impose a tax on the sale,
donation, barter, or on any other mode of
transferring ownership or title of real property at
the rate of not more than 50% of 1% of the total
consideration involved in the acquisition of the
property or of the fair market value in case the
monetary consideration involved in the transfer is
not substantial, whichever is higher.
The sale, transfer or other disposition of real
property pursuant to R.A. No. 6657 shall be
exempt from this tax.
CUSTOMS DUTIES
Customs duties, registration fees of vessels
(except license fees imposed under Section 149,
and Section 151 of the Code), wharfage on
wharves, tonnage dues and all other kinds of
customs fees, charges and dues except wharfage
on wharves constructed and maintained by the
local government unit concerned;
EXPN: Wharfage on wharves constructed and
maintained by the LGU
TAXES, FEES AND CHARGES (TFC) ON GOODS PASSING
THROUGH THE TERRITORIAL JURISDICTION OF LGUS
Taxes, fees, charges and other impositions upon
goods carried into or out of, or passing through,
the territorial jurisdictions of local governments in
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TAXATION LAW
the guise of charges for wharfage, tolls for bridges
or otherwise, or other taxes in any form whatever
upon such goods or merchandise;
Correlate with Sec. 155
Toll Fees or Charges. - The sanggunian concerned
may prescribe the terms and conditions and fix
the rates for the imposition of toll fees or charges
for the use of any public road, pier or wharf,
waterway, bridge, ferry or telecommunication
system funded and constructed by the local
government unit concerned:
Provided, That no such toll fees or charges shall be
collected from officers and enlisted men of the
Armed Forces of the Philippines and members of
the Philippine National Police on mission, post
office personnel delivering mail, physically-
handicapped, and disabled citizens who are 65
years or older. When public safety and welfare
so requires, the sanggunian concerned may
discontinue the collection of the tolls, and
thereafter the said facility shall be free and open
for public use.
An ordinance imposing fees on goods and the
vehicles passing through a municipality for police
surveillance is invalid. It violates this limitation. It
is also a restraint of trade. It is irrelevant if the
fees imposed are actually for police surveillance,
because any other form of imposition on goods
passing through the territorial jurisdiction of the
municipality is clearly prohibited. (Palma v
Municipality of Malangas
TFC ON PRODUCTS SOLD BY MARGINAL FARMERS OF
FISHERMEN
Definition of Marginalized Fishermen (Sec. 122)
"Marginal Farmer or Fisherman" refers to an
individual engaged in subsistence farming or
fishing which shall be limited to the sale, barter or
exchange of agricultural or marine products
produced by himself and his immediate family.
 TAXATION 2
TAXES ON BOI-REGISTERED ENTERPRISES (BOARD OF
INVESTMENTS)
Taxes on business enterprises certified by the
Board of Investments as pioneer or non-pioneer
for a period of six and four years, respectively,
from the date of registration;
EXCISE TAXES UNDER THE NIRC/TFC ON PETROLEUM
PRODUCTS
Excise taxes on articles enumerated under the
National Internal Revenue Code and taxes, fees,
or charges on petroleum products, but not a tax
on the business of importing, manufacturing or
producing said products
PERCENTAGE TAXES AND VAT
Percentage tax or value-added tax on sales,
barters or exchanges of goods or services or
similar transactions thereon (but not fixed
graduated taxes on gross sales or on volume of
production)
TAXES ON TRANSPORTATION CONTRACTORS AND
COMMON CARRIERS
Taxes on the gross receipts of transportation
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;
TAXES ON PREMIUMS
Taxes on premiums paid for reinsurance or
retrocession;
TFC FOR REGISTRATION OF MOTOR VEHICLES AND
ISSUANCE OF LICENSES FOR DRIVING
Taxes, fees or charges for the registration of
motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except
tricycles
TAXES, FEES, OR CHARGES ON PHILIPPINE PRODUCTS
ACTUALLY EXPORTED;
Taxes, fees, or other charges on Philippine
products actually exported exceptas provided by
the Code (the prohibition applies to any local
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TAXATION LAW
export tax, fee,or levy on Philippine export
products but not to any local tax, fee, or levy
thatmay be imposed on the business of exporting
said products);
Correlate with Sec. 143 (c)
On exporters, and on manufacturers, millers,
producers, wholesalers, distributors, dealers or
retailers of essential commodities enumerated
hereunder at a rate not exceeding one-half (1/2)
of the rates prescribed under subsections (a), (b)
and (d) of this Section:
TFC ON CBBES UNDER RA NO. 6810 AND RA 6983
Taxes, fees or charges on duly organized and
registered Countryside andBarangay Business
Enterprises (R.A. No. 6810) and on cooperatives
TFC ON THE NATIONAL GOVERNMENT, ITS AGENCIES
AND INSTRUMENTALITIES AND LGUS
Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities,
and local government units (Section 133, LGC)
C. SPECIFIC TAXING POWER OF LOCAL
GOVERNMENT UNITS
PROVINCES
Local Transfer Tax (Sec. 135)
(a) The province may impose a tax on the sale,
donation, barter, or on any other mode of
transferring ownership or title of real property at
the rate of not more than 50% of 1% of the total
consideration involved in the acquisition of the
property or of the fair market value in case the
monetary consideration involved in the transfer is
not substantial, whichever is higher.
The sale, transfer or other disposition of real
property pursuant to R.A. No. 6657 shall be
exempt from this tax.
(b) For this purpose, the Register of Deeds of the
province concerned shall, before registering any
 TAXATION 2
deed, require the presentation of the evidence
of payment of this tax. The provincial assessor
shall likewise make the same requirement before
cancelling an old tax declaration and issuing a new
one in place thereof. Notaries public shall furnish
the provincial treasurer with a copy of any deed
transferring ownership or title to any real
property within 30 days from the date of
notarization. It shall be the duty of the seller,
donor, transferor, executor or administrator to
pay the tax herein imposed within 60 days from
the date of the execution of the deed or from the
date of the decedent's death.
Business Tax on Printing and Publication (Sec. 136)
The province may impose a tax on the business of
persons engaged in the printing and/or
publication of books, cards, posters, leaflets,
handbills, certificates, receipts, pamphlets, and
others of similar nature, at a rate not exceeding
50% of 1% of the gross annual receipts for the
preceding calendar year. In the case of a newly
started business, the tax shall not exceed 1/20 of
1% of the capital investment. In the succeeding
calendar year, regardless of when the business
started to operate, the tax shall be based on the
gross receipts for the preceding calendar year, or
any fraction thereof, as provided herein. The
receipts from the printing and/or publishing of
books or other reading materials prescribed by
the Department of Education, Culture and Sports,
as school texts or references shall be exempt from
the tax herein imposed.
Franchise Tax (Sec. 137)
Notwithstanding any exemption granted by any
law or other special law, the province may impose
a tax on businesses enjoying a franchise, at a rate
not exceeding 50% of 1% of the gross annual
receipts for the preceding calendar year based on
the incoming receipt, or realized, within its
territorial jurisdiction. In the case of a newly
started business, the tax shall not exceed.
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TAXATION LAW
1/20 of 1% of the capital investment. In the
succeeding calendar year, regardless of when the
business started to operate, the tax shall be based
on the gross receipts for the preceding calendar
year, or any fraction thereof, as provided herein.
Tax on Sand, Gravel and Quarry Resources (Sec. 138)
The province may levy and collect not more than
10% of fair market value in the locality per cubic
meter of ordinary stones, sand, gravel, earth, and
other quarry resources, as defined under the
National Internal Revenue Code, as amended,
extracted from public lands or from the beds of
seas, lakes, rivers, streams, creeks, and other
public waters within its territorial jurisdiction. The
permit to extract sand, gravel and other quarry
resources shall be issued exclusively by the
provincial governor, pursuant to the ordinance
of the sangguniang panlalawigan. The proceeds
of the tax on sand, gravel and other quarry
resources shall be distributed as follows:
(1) Province - 30%; (2) Component city or
municipality where the sand, gravel, and other
quarry resources are extracted - 30%; and (3)
barangay where the sand, gravel, and other
quarry resources are extracted - 40%.
Professional Tax (Sec. 139)
(a) The province may levy an annual
professional tax on each person engaged in the
exercise or practice of his profession requiring
government examination at such amount and
reasonable classification as the sangguniang
panlalawigan may determine but shall in no case
exceed P300.00.
(b) Every person legally authorized to practice his
profession shall pay the professional tax to the
province where he practices his profession or
where he maintains his principal office in case he
practices his profession in several places:
 TAXATION 2
Provided, however, That such person who has
paid the corresponding professional tax shall be
entitled to practice his profession in any part of
the Philippines without being subjected to any
other national or local tax, license, or fee for the
practice of such profession.
(c) Any individual or corporation employing a
person subject to professional tax shall require
payment by that person of the tax on his
profession before employment and annually
thereafter.
(d) The professional tax shall be payable annually,
on or before the 31st day of January. Any person
first beginning to practice a profession after the
month of January must, however, pay the full tax
before engaging therein. A line of profession does
not become exempt even if conducted with some
other profession for which the tax has been
paid. Professionals exclusively employed in the
government shall be exempt from the payment of
this tax.
(e) Any person subject to the professional tax shall
write in deeds, receipts, prescriptions, reports,
books of account, plans and designs, surveys and
maps, as the case may be, the number of the
official receipt issued to him.
DEFINITION OF PROFESSIONALS (SEC. 238 (F) IRR OF THE
LGC)
Professional tax may be imposed by a
province or city but not by a municipality or
barangay.
Transaction taxed: Exercise or practice of profession
requiring government licensure examination.
Tax rate: Not be exceed P300.00.
Tax base: Reasonable classification by the
sanggunian.
Exception: Payment to one province or city no
longer subject to any other national or local tax,
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TAXATION LAW
license or fee for the practice of such profession in
any part of the Philippine professionals exclusively
employed in the government.
Date of payment: or on before January 31 or
engaging in the profession.
Place of payment: Province or city where the
professional practices his profession or where he
maintains his principal office in case he practices
his profession in several places.
Requirements: Any individual or corporation
employing a person subject to professional tax
shall require payment by that person of the tax on
his profession before employment and annually
thereafter.
Any person subject to the professional tax shall write in
deeds, receipts, prescriptions, reports, books of
account, plans and designs, surveys and maps, as the
case may be, the number of the official receipt issued
to him.
Exemption: Professionals exclusively employed in the
government shall be exempt from payment. (Sec. 139,
LGC)
PROFESSIONAL PRACTICES HIS PROFESSION IN SEVERAL
PLACES (SEC. 228 (B) IRR OF LGC).
Professionals who are subject to professional tax,
defined.
The professionals subject to the professional tax
are only those who have passed the bar
examinations, or any board or other examinations
conducted by the Professional Regulation
Commission (PRC). For example, a lawyer who is
also a Certified Public Accountant (CPA) must
pay the professional tax imposed on lawyers
and that fixed for CPAs, if he is to practice
both professions. [Sec. 238 (f), Rule XXX, Rules
and Regulations Implementing the Local
Government Code of 1991]
 TAXATION 2
SITUS OF PROFESSIONAL TAX
Professional tax is payable in the province where
the
taxpayer practices his profession or where
the principal office is located in case he
practices hisprofession in several places.
Note:
(1) The taxpayer has the option. Such
person whohas paid the corresponding
professional tax shall be entitled to practice his
profession in any part of the Philippines
without being subjected to any national or local
tax, license or fee for the practice of such
profession (see Section 139, LGC)
(2) Professional tax may be imposed by a province
or city but not by a municipality or barangay
(3) Professionals exclusively employed in
government shall be exempt from payment
AMUSEMENT TAX (SEC. 140) AS AMENDED BY RA NO. 9640
DATED MAY 21, 2009
(a) The province may levy an amusement tax to
be collected from the proprietors, lessees, or
operators of theaters, cinemas, concert halls,
circuses, boxing stadia, and other places of
amusement at a rate of not more than 30% of the
gross receipts from admission fees.
(b) In the case of theaters or cinemas, the tax shall
first be deducted and withheld by their
proprietors, lessees, or operators and paid to the
provincial treasurer before the gross receipts are
divided between said proprietors, lessees, or
operators and the distributors of the
cinematographic films.
(c) The holding of operas, concerts, dramas,
recitals, painting and art exhibitions, flower
shows, musical programs, literary and
oratorical presentations, except pop, rock, or
similar concerts shall be exempt from the
payment of the tax herein imposed.
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(d) The sangguniang panlalawigan may prescribe
the time, manner, terms and conditions for the
payment of tax. In case of fraud or failure to pay
the tax, the sangguniang panlalawigan may
impose such surcharges, interests and penalties as
it may deem appropriate.
(e)The proceeds from the amusement tax shall be
shared equally by the province and the
municipality where such amusement places are
located.
PBA v CA [AUGUST 8,2000], the Supreme Court held that
it was the National Government which could collect
amusement taxes from the PBA. While Section 13 of the
Local Tax Code mentions “other places of amusement,”
professional basketball games are definitely not within
its scope under the principle of ejusdem generis.
ANNUAL FIXED TAX ON DELIVERY TRUCKS / VANS (SEC. 141)
(a) The province may levy an annual fixed tax for
every truck, vanor any vehicle used by
manufacturers, producers, wholesalers, dealers
orretailers in the delivery or distribution of
distilled spirits, fermented liquors,soft drinks,
cigars and cigarettes, and other products as may
be determinedby the sangguniang panlalawigan,
to sales outlets, or consumers, whetherdirectly or
indirectly, within the province in an amount not
exceeding P500.00.
(b) The manufacturers, producers, wholesalers,
dealers, and retailersreferred to in the
immediately foregoing paragraph shall be exempt
from the tax on peddlers prescribed elsewhere in
this Code.
MUNICIPALITIES
Business Taxes (Sec. 143)
CATCH ALL PROVISION – SEC. 143 (H)
(h) On any business, not otherwise specified in the
preceding paragraphs, which the sanggunian
concerned may deem proper to tax:
 TAXATION 2
Provided, That on any business subject to the
excise, value-added or percentage tax under the
National Internal Revenue Code, as amended,
the rate of tax shall not exceed 2% of gross
sales or receipts of the preceding calendar year.
The sanggunian concerned may prescribe a
schedule of graduated tax rates but in no case to
exceed the rates prescribed herein.
RATES OF TAX WITHIN METROPOLITAN MANILA (SEC. 144)
The municipalities within the Metropolitan Manila
Area may levy taxes at rates which shall not
exceed by 50% the maximum rates prescribed in
the preceding Section.
RETIREMENT OF BUSINESS (SEC. 145)
A business subject to tax pursuant to the
preceding sections shall, upon termination
thereof, submit a sworn statement of its gross
sales or receipts for the current year. If the tax
paid during the year be less than the tax due on
said gross sales or receipts of the current year, the
difference shall be paid before the business is
considered officially retired.
PAYMENT OF BUSINESS TAXES (SEC. 146)
(a) The taxes imposed under Section 143 shall be
payable for every separate or distinct
establishment or place where 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. The tax on a business
must be paid by the person conducting the same.
(b) In cases where a person conducts or operates
2 or more of the businesses mentioned in Section
143 of this Code which are subject to the same
rate of tax, the tax shall be computed on the
combined total gross sales or receipts of the said
2 or more related businesses.
(c) In cases where a person conducts or
operates 2 or more businesses mentioned in
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TAXATION LAW
Section 143 of this Code which are subject to
different rates of tax, the gross sales or receipts of
each business shall be separately reported for the
purpose of computing the tax due from each
business.
Condominium corporations are generally exempt
from local business taxation under the Local
Government Code, irrespective of any local
ordinance that seeks to declare otherwise. They
are prohibited from doing activities for profit
under the Condominium Code, hence they are not
“businesses” under the Local Government Code.
(Yamane v BA Lepanto)
Who are covered by the local business tax
1 .Manufacturers, assemblersand producers
2. Wholesalers, dealers and distributors
3. Exporters, manufacturers of
essential commodities
4. Retailers (if both wholesale and retail,
then pay both taxes)
5. Contractors
6. Banks and other financial institutions
7. Peddlers
8. Other business not specified
Note: Those already subject to tax under (1) to (7)
can no longer be subject to tax under (8)
otherwise it will be deemed as double taxation.
(see City of Manila v. Coco-Cola Bottlers [August
4, 2009])
SITUS OF TAX (SEC. 150)
(a) For purposes of collection of the taxes under
Section 143 of this Code, manufacturers,
assemblers, repackers, brewers, distillers,
rectifiers and compounders of liquor, distilled
spirits and wines, millers, producers, exporters,
wholesalers, distributors, dealers, contractors,
banks and other financial institutions, and other
businesses, maintaining or operating branch or
 TAXATION 2
sales outlet elsewhere shall record the sale in the
branch or sales outlet making the sale or
transaction, and the tax thereon shall accrue and
shall be paid to the municipality where such
branch or sales outlet is located. In cases where
there is no such branch or sales outlet in the city
or municipality where the sale or transaction is
made, the sale shall be duly recorded in the
principal office and the taxes due shall accrue and
shall be paid to such city or municipality.
(b) The following sales allocation shall apply to
manufacturers, assemblers, contractors,
producers, and exporters with factories, project
offices, plants, and plantations in the pursuit of
their business:
i. 30% of all sales recorded in the principal
office shall be taxable by the city or
municipality where the principal office is
located; and
ii. 70% of all sales recorded in the principal
office shall be taxable by the city or city or
municipality where the factory is located;
and
iii. 40% to the city or municipality where the
plantation is located.
(c) In cases where a manufacturer, assembler,
producer, exporter or contractor has 2 or more
factories, project offices, plants, or plantations
located in different localities, the 70% sales
allocation mentioned in subparagraph (b) of
subsection (2) above shall be prorated among the
localities where the factories, project offices,
plants, and plantations are located in proportion
to their respective volumes of production during
the period for which the tax is due.
(d) The foregoing sales allocation shall be applied
irrespective of whether or not sales are made in
the locality where the factory, project office,
plant, or plan is located.
(1) With Branch or Sales Outlet - operating
branch or sales outlet elsewhere shall
record the sale in the branch or sales
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TAXATION LAW
outlet making the sale or transaction,
and the tax thereon shall accrue and
shall be paid to the municipality where
such branch or sales outlet is located
(2) No Branch Sales or Outlet - .
(3) With Factories, Project Offices, Plants and
Plantations
(4) Plantation Located at a place other than
the place where factory is located
(5) Two (2) or more factories, project offices,
plants or plantations in= different
localities
FEES AND CHARGES (SEC. 147)
The municipality may impose and collect such
reasonable fees and charges on business and
occupation and, except as reserved to the
province in Section 139 of this Code, on the
practice of any profession or calling, commensurate
with the cost of regulation, inspection and licensing
before any person may engage in such business or
occupation, or practice such profession or calling.
OTHERS (SEC. 148 AND SEC. 149)
Fees for Sealing and Licensing of Weights and
Measures.
(a) The municipality may levy fees for the sealing and
licensing of weights and measures at such reasonable
rates as shall be prescribed by the sangguniang
bayan.
(b) The sangguniang bayan shall prescribe the
necessary regulations for the use of such weights
and measures, subject to such guidelines as shall
be prescribed by the Department of Science and
Technology. The sanggunian concerned shall, by
appropriate ordinance, penalize fraudulent
practices and unlawful possession or use of
instruments of weights and measures and
prescribe the criminal penalty therefor in
accordance with the provisions of this Code.
Provided, however, That the sanggunian
concerned may authorize the municipal
treasurer to settle an offense not involving the
commission of fraud before a case therefor is filed
 TAXATION 2
in court, upon payment of a compromise penalty
of not less than P200.00.
Fishery Rentals, Fees and Charges. –
(a) Municipalities shall have the exclusive
authority to grant fishery privileges in the
municipal waters and impose rentals, fees or
charges therefor in accordance with the
provisions of this Section.
(b) The sangguniang bayan may:
(1) Grant fishery privileges to erect fish corrals,
oyster, mussels or other aquatic beds or bangus
fry areas, within a definite zone of the
municipalwaters, as determined by it:
• Provided, however, That duly registered
organizations and cooperatives of marginal
fishermen shall have the preferential right
to such fishery privileges:
• Provided, further, That the sangguniang
bayan may require a public bidding in
conformity with and pursuant to an
ordinance for the grant of such privileges:
• Provided, finally, That in the absence of such
organizations and cooperatives or their failure
to exercise their preferential right, other
parties may participate in the public bidding in
conformity with the above cited procedure.
(2) Grant the privilege to gather, take or catch
bangus fry, prawn fry or kawag-kawag or fry of
other species and fish from the municipal waters
by nets, traps or other fishing gears to marginal
fishermen free of any rental, fee, charge or any
other imposition whatsoever.
(3) Issue licenses for the operation of fishing
vessels of 3 tons or less for which purpose the
sangguniang bayan shall promulgate rules and
regulations regarding the issuances of such
licenses to qualified applicants under existing
laws.
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Provided, however, That the sanggunian
concerned shall, by appropriate ordinance,
penalize the use of explosives, noxious or
poisonous substances, electricity, muro-ami, and
other deleterious methods of fishing and
prescribe a criminal penalty therefor in
accordance with the provisions of this Code:
Provided, finally, That the sanggunian concerned
shall have the authority to prosecute any violation
of the provisions of applicable fishery laws.
CITIES (SEC. 151)
Scope of Taxing Powers.
Except as otherwise provided in this Code, the
city, may levy the taxes, fees, and charges which
the province or municipality may impose:
Provided, however, That the taxes, fees and
charges levied and collected by highly
urbanized and independent component cities
shall accrue to them and distributed in
accordance with the provisions of this Code. The
rates of taxes that the city may levy may
exceedthe maximum rates allowed for the
province or municipality by not more than 50%
except the rates of professional and amusement
taxes.
BARANGAY
TAX ON RETAILERS (SEC. 152 A)
(a) Taxes - On stores or retailers with fixed
business establishments with gross sales or
receipts of the preceding calendar year of
P50,000.00 or less, in the case of cities and
P30,000.00 or less, in the case of municipalities, at
a rate not exceeding 1% on such gross sales or
receipts.
SERVICE FEES OR CHARGES (SEC. 152 B)
(b) Service Fees or Charges - barangays may
collect reasonable fees or charges for services
rendered in connection with the regulation or the
 TAXATION 2
use of barangay-owned properties or service
facilities such as palay, copra, or tobacco
dryers.
BARANGAY CLEARANCE (SEC. 152 C)
No city or municipality may issue any license or
permit for any business or activity unless a
clearance is first obtained from the barangay
where such business or activity is located or
conducted. For such clearance, the sangguniang
barangay may impose a reasonable fee. The
application for clearance shall be acted upon
within 7 working days from the filing thereof. In
the event that the clearance is not issued within
the said period, the city or municipality may issue
the said license or permit
Other Fees (Sec. 152 b)
COMMON REVENUE RAISING POWERS
I. SERVICE FEES AND CHARGES (SEC. 154)
Local government units may fix the rates for the
operation of public utilities owned, operated and
maintained by them within their jurisdiction.
II. PUBLIC UTILITY CHARGES (SEC. 155)
The sanggunian concerned may prescribe the
terms and conditions and fix the rates for the
imposition of toll fees or charges for the use of
any public road, pier or wharf, waterway, bridge,
ferry or telecommunication system funded and
constructed by the local government unit
concerned:
Provided, That no such toll fees or charges shall be
collected from officers and enlisted men of the
Armed Forces of the Philippines and members of
the Philippine National Police on mission, post
office personnel delivering mail, physically-
handicapped, and disabled citizens who are 65
years or older. When public safety and welfare
so requires, the sanggunian concerned may
discontinue the collection of the tolls, and
thereafter the said facility shall be free and open
for public use.
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TAXATION LAW
III. TOLL FEES OR CHARGES (SEC. 156)
Cities or municipalities may levy a community tax
in accordance with the provisions of this Article.
Other Matters
AUTHORITY TO ADJUST TAX RATES (SEC. 191)
Local government units shall have the authority to
adjust the tax rates as prescribed herein not
oftener than once every 5 years, but in no case
shall such adjustment exceed 10% of the rates
fixed under this Code
AUTHORITY TO GRANT TAX EXEMPTIONS (SEC. 192)
Local government units may, through
ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms
and conditions as they may deem necessary.
WITHDRAWAL OF TAX EXEMPTION PRIVILEGES (SEC. 193)
Unless otherwise provided in this Code, tax
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 R.A.
No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn
upon the effectivity of this Code.
COMMUNITY TAX
Who may impose (Sec. 156)
Cities or municipalities may levy a community
tax in accordance with the provisions of this
Article.
Individuals Liable to pay (Sec. 157)
Every inhabitant of the Philippines 18 years of
age or over who has been regularly employed
on a wage or salary basis for at least 30
consecutive working days during any calendar
year, or who is engaged in business or occupation,
or who owns real property with an aggregate
assessed value of P1,000.00 or more, or who is
required by law to file an income tax return shall
pay an annual community tax of P5.00 and an
 TAXATION 2
annual additional tax of P1.00 for every P1,000.00
of income regardless of whether from business,
exercise of profession or from property which in
no case shall exceed P5,000.00. In the case of
husband and wife, the additional tax herein
imposed shall be based upon the total property
owned by them and the total gross receipts or
earnings derived by them.
Juridical Persons Liable to Community Tax (Sec. 158)
Every corporation no matter how created or
organized, whether domestic or resident
foreign, engaged in or doing business in the
Philippines shall pay an annual community tax
of P500.00 and an annual additional tax, which, in
no case, shall exceed P10,000.00 in accordance
with the following schedule:
(1) For every P5,000.00 worth of real property in
the Philippines owned by it during the
preceding year based on the valuation used
for the payment of the real property tax
under existing laws, found in the assessment
rolls of the city or municipality where the real
property is situated - P2.00; and
(2) For every P5,000.00 of gross receipts or
earnings derived by it from its business in the
Philippines during the preceding year -
P2.00. The dividends received by a
corporation from another corporation
however shall, for the purpose of the
additional tax, be considered as part of the
gross receipts or earnings of said corporation.
Exemptions (Sec. 159)
The following are exempt from the community
tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the
Philippines does not exceed 3 months.
Place of Payment (Sec. 160)
The community tax shall be paid in the place
of residence of the individual, or in the place where the
principal office of the juridical entity is located.
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TAXATION LAW
Time of Payment (Sec. 161)
(a) The community tax shall accrue on the 1st day
of January of each year which shall be paid not
later than the last day of February of each year. If
a person reaches the age of 18 years or otherwise
loses the benefit of exemption on or before the
last day of June, he shall be liable for the
community tax on the day he reaches such age or
upon the day the exemption ends. However, if a
person reaches the age of 18 years or loses
the benefit of exemption on or before the last
day of March, he shall have 20 days to pay the
community tax without becoming delinquent.
Persons who come to reside in the Philippines or
reach the age of 18 years on or after the 1st day
of July of any year, or who cease to belong to an
exempt class on or after the same date, shall not
be subject to the community tax for that year.
(b) Corporations established and organized on or
before the last day of June shall be liable for the
community tax for that year. But corporations
established and organized on or before the last
day of March shall have 20 days within which to
pay the community tax without becoming
delinquent. Corporations established and
organized on or after the first day of July shall not
be subject to the community tax for that year. If
the tax is not paid within the time prescribed
above, there shall be added to the unpaid amount
an interest of 24% per annum from the due date
until it is paid.
Community Tax Certificate (Sec. 162)
A community tax certificate shall be issued to
every person or corporation upon payment of the
community tax. A community tax certificate may
also be issued to any person or corporation
not subject to the community tax upon payment of
P1.00.
Presentation of CTC on certain occasions (Sec. 163)
(a) When an individual subject to the community
tax acknowledges any document before a notary
 TAXATION 2
public, takes the oath of office upon election or
appointment to any position in the government
service; receives any license, certificate, or permit
from any public authority; pays any tax or fee;
receives any money from any public fund;
transacts other official business; or receives any
salary or wage from any person or corporation, it
shall be the duty of any person, officer, or
corporation with whom such transaction is
made or business done or from whom any salary
or wage is received to require such individual to
exhibit the community tax certificate. The
presentation of community tax certificate shall
not be required in connection with the
registration of a voter.
(b) When, through its authorized officers, any
corporation subject to the community tax receives
any license, certificate, or permit from any public
authority, pays any tax or fee, receives money
from public funds, or transacts other official
business, it shall be the duty of the public official
with whom such transaction is made or business
done, to require such corporation to exhibit the
community tax certificate.
(c) The community tax certificate required in the
two preceding paragraphs shall be the one issued
for the current year, except for the period from
January until the 15th of April each year, in
which case, the certificate issued for the
preceding year shall suffice.
D. COLLECTION OF TAXES AND REMEDIES
COLLECTION OF TAXES
i. Tax Period and Manner of Payment (Sec. 165)
Unless otherwise provided in this Code, the tax
period of all local taxes, fees and charges shall be
the calendar year. Such taxes, fees and charges
may be paid in quarterly installments.
ii. Accrual of Tax (Sec. 166)
Unless otherwise provided in this Code, all local
taxes, fees, and charges shall accrue on the 1st day
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TAXATION LAW
of January of each year. However, new taxes, fees
or charges, or changes in the rates thereof, shall
accrue on the 1st day of the quarter next
following the effectivity of the ordinance imposing
such new levies or rates.
iii. Time of Payment (Sec. 167)
Unless otherwise provided in this Code, all local
taxes, fees, and charges shall be paid within the
first 20 days of January or of each subsequent
quarter, as the case may be. The sanggunian
concerned may, for a justifiable reason or cause,
extend the time for payment of such taxes, fees,
or charges without surcharges or penalties, but
only for a period not exceeding 6 months.
iv. Surcharges and Penalties (Sec. 168)
The sanggunian may impose a surcharge not
exceeding 25% of the amount of taxes, fees or
charges not paid on time and an interest at the
rate not exceeding 2% per month of the unpaid
taxes, fees or charges including surcharges, until
such amount is fully paid but in no case shall the
total interest on the unpaid amount or portion
thereof exceed 36 months.
v. Interests on Other Unpaid Revenues (Sec. 169)
Where the amount of any other revenue due a
local government unit, except voluntary
contributions or donations, is not paid on the date
fixed in the ordinance, or in the contract,
expressed or implied, or upon the occurrence of
the event which has given rise to its collection,
there shall be collected as part of that amount an
interest thereon at the rate not exceeding 2% per
month from the date it is due until it is paid, but in
no case shall the total interest on the unpaid
amount or a portion thereof exceed 36 months.
vi. Collection of Local Revenues by Treasurer (Sec.
170)
All local taxes, fees, and charges shall be collected
by the provincial, city, municipal, or barangay
treasurer, or their duly authorized deputies. The
 TAXATION 2
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 required for the purpose, the provincial, city or
municipal government shall pay the premiums
thereon in addition to the premiums of bond that
may be required under this Code.
vii. Examination of Books of Accounts and Pertinent
Records (Sec. 171)
The provincial, city, municipal or barangay
treasurer may, by himself or through any of his
deputies duly authorized in writing, examine
the books, accounts, and other pertinent
records of any person, partnership, corporation,
or association subject to local taxes, fees and
charges in order to ascertain, assess, and collect
the correct amount of the tax, fee, or charge. Such
examination shall be made during regular
business hours, only once for every tax period,
and shall be certified to by the examining official.
Such certificate shall be made of record in the
books of accounts of the taxpayer examined. In
case the examination herein authorized is made
by a duly authorized deputy of the local treasurer,
the written authority of the deputy concerned
shall specifically 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.
For this purpose, the records of the revenue
district office of the Bureau of Internal Revenue
shall be made available to the local treasurer, his
deputy or duly authorized representative.
REMEDIES OF THE GOVERNMENT
i. Local Government’s Lien (Sec. 173)
Local taxes, fees, charges and other revenues
constitute a lien, superior to all liens, charges or
encumbrances in favor of any person, enforceable
by appropriate administrative or judicial action,
not only upon any property or rights therein
which may be subject to the lien but also upon
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TAXATION LAW
property used in business, occupation, practice of
profession or calling, or exercise of privilege with
respect to which the lien is imposed. The lien
may only be extinguished upon full payment
of the delinquent local taxes fees and charges
including related surcharges and interest.
ii. Civil Remedies (Sec. 174)
The civil remedies for the collection of local taxes,
fees, or charges, and related surcharges and
interest resulting from delinquency shall be:
(a) By administrative action thru distraint of
goods, chattels, or effects, and other personal
property of whatever character, including stocks
and other securities, debts, credits, bank
accounts, and interest in and rights t personal
property, and by levy upon real property and
interest in or rights to real property; and
(b) By judicial action. Either of these remedies
or all may be pursued concurrently or
simultaneously at the discretion of the local
government unit concerned.
iii. Distraint (Sec. 175)
The remedy by distraint shall proceed as follows:
(a) Seizure - Upon failure of the person owing any
local tax, fee, or charge to pay the same at the
time required, the local treasurer or his
deputy may, upon written notice, seize or
confiscate any personal property belonging to
that person or any personal property subject
to the lien in sufficient quantity to satisfy the
tax, fee, or charge in question, together with
any increment thereto incident to
delinquency and the expenses of seizure. In
such case, the local treasurer or his deputy
shall issue a duly authenticated certificate
based upon the records of his office showing
the fact of delinquency and the amounts of
the tax, fee, or charge and penalty due. Such
certificate shall serve as sufficient warrant for
the distraint of personal property
aforementioned, subject to the taxpayer's
right to claim exemption under the provisions
 TAXATION 2
of existing laws. Distrained personal property
shall be sold at public auction in the manner
herein provided for.
(b) Accounting of distrained goods - The officer
executing the distraint shall make or cause to
be made an account of the goods, chattels or
effectsdistrained, a copy of which signed by
himself shall be left either with the owner or
person from whose possession the goods,
chattels or effects are taken, or at the
dwelling or place of 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.
(c) Publication - The officer shall forthwith cause
a notification to be exhibited in not less than 3
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. The
time of sale shall not be less than 20 days
after notice to the owner or possessor of the
property as above specified and the
publication or posting of the notice. One place
for the posting of the notice shall be at the
office of the chief executive of the local
government unit in which the property is
distrained.
(d) Release of distrained property upon payment
prior to sale - If at any time prior to the
consummation of the sale, all the proper
charges are paid to the officer conducting the
sale, the goods or effects distrained shall be
restored to the owner.
(e) Procedure of sale - At the time and place fixed
in the notice, the officer conducting the sale
shall sell the goods or effects so distrained at
public auction to the highest bidder for cash.
Within 5 days after the sale, the local
treasurer shall make a report of the
proceedings in writing to the local chief
executive concerned. Should the property
distrained be not disposed of within 120 days
from the date of distraint, the same shall be
considered as sold to the local government
unit concerned for the amount of the
assessment made thereon by the Committee
on Appraisal and to the extent of the same
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TAXATION LAW
amount, the tax delinquencies shall be
cancelled. Said Committee on Appraisal shall
be composed of the city or municipal
treasurer as chairman, with a representative
of the Commission on Audit and the city or
municipal assessor as members.
(f) Disposition of proceeds - The proceeds of the
sale shall be applied to satisfy the tax,
including the surcharges, interest, and other
penalties incident to delinquency, and the
expenses of the distraint and sale. The
balance over and above what is required to
pay the entire claim shall be returned to the
owner of the property sold. The expenses
chargeable upon the seizure and sale shall
embrace only the actual expenses of seizure
and preservation of the property pending the
sale, and no charge shall be imposed for the
services of the local officer or his deputy.
Where the proceeds of the sale are
insufficient to satisfy the claim, other
property may, in like manner, be distrained
until the full amount due, including all
iv. Levy of Real Property (Sec. 176)
After the expiration of the time required to pay
the delinquent tax, fee, or charge, real property
may be levied on before, simultaneously, or after
the distraint of personal property belonging to the
delinquent taxpayer. To this end, the provincial,
city or municipal treasurer, as the case may be,
shall prepare a duly authenticated certificate
showing the name of the taxpayer and the
amount of the tax, fee, or charge, and penalty due
from him. Said certificate shall operate with the
force of a legal execution throughout the
Philippines. Levy shall be effected by writing upon
said certificate 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 Registrar of
Deeds of the province or city where the property
is located who shall annotate the levy on the tax
declaration and certificate of title of the property,
respectively, and the delinquent taxpayer or, if he
be absent from the Philippines, to his agent or the
 TAXATION 2
manager of the business in respect to which the
liability arose, or if there be none, to the occupant
of the property in question. 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 sufficient to satisfy his
delinquency, the provincial, city or municipal
treasurer, as the case may be, shall within 30 days
after execution of the distraint, proceed with the
levy on the taxpayer's real property. A report on
any levy shall, within 10 days after receipt of the
warrant, be submitted by the levying officer to the
sanggunian concerned.
v. Advertisement and Sale (Sec. 178)
Within 30 days after levy, the local treasurer shall
proceed to publicly advertise for sale or auction
the property or a usable portion thereof as may
be necessary to satisfy the claim and cost of sale;
and such advertisement shall cover a period of at
least 30 days. It shall be effected by posting a
notice at the main entrance of the municipal
building or city hall, and in a public and
conspicuous place in the barangay where the real
property is located, and by publication once a
week for 3 weeks in a newspaper of general
circulation in the province, city or municipality
where the property is located. The advertisement
shall contain the amount of taxes, fees or charges,
and penalties due thereon, and the time and place
of sale, the name of the taxpayer against whom
the taxes, fees, or charges are levied, and a short
description of the property to be sold.
At any time before the date fixed for the sale, the
taxpayer may stay the proceedings by paying the
taxes, fees, charges, penalties and interests. If he
fails to do so, the sale shall proceed and shall be
held either at the main entrance of the provincial,
city or municipal building, or on the property to
be sold, or at any other place as determined by
the local treasurer conducting the sale and
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TAXATION LAW
specified in the notice of sale. Within 30 days after
the sale, the local treasurer or his deputy shall
make a report of the sale to the sanggunian
concerned, and which shall form part of his
records. After consultation with the sanggunian,
the local treasurer shall make and deliver to the
purchaser a certificate of sale, showing the
proceedings of the sale, describing the property
sold, stating the name of the purchaser and
setting out the exact amount of all taxes, fees,
charges, and related surcharges, interests, or
penalties:
Provided, however, That any excess in the
proceeds of the sale over the claim and cost of
sales shall be turned over to the owner of the
property. The local treasurer may, by ordinance
duly approved, advance an amount sufficient to
defray the costs of collection by means of the
remedies provided for in this Title, including
the preservation or transportation in case of
personal property, and the advertisement and
subsequent sale, in cases of personal and real
property including improvements thereon.
vi. Redemption of Property Sold (Sec. 179)
Within 1 year from the date of sale, the
delinquent taxpayer or his representative shall
have the right to redeem the property upon
payment to the local treasurer of the total
amount of taxes, fees, or charges, and related
surcharges, interests or penalties from the date of
delinquency to the date of sale, plus interest of
not more than 2% per month on the purchase
price from the date of purchase to the date of
redemption. Such payment shall invalidate the
certificate of sale issued to the purchaser and the
owner shall be entitled to a certificate of
redemption from the provincial, city or municipal
treasurer or his deputy. The provincial, city or
municipal treasurer or his deputy, upon surrender
by the purchaser of the certificate of sale
previously issued to him, shall forthwith return to
the latter the entire purchase price paid by him
 TAXATION 2
plus the interest of not more than 2% per month
herein provided for, the portion of the cost of sale
and other legitimate expenses incurred by him,
and said property thereafter shall be free from
the lien of such taxes, fees, or charges, related
surcharges, interests, and penalties. The owner
shall not, however, be deprived of the possession
of said property and shall be entitled to the
rentals and other income thereof until the
expiration of the time allowed for its redemption.
vii. Purchase of Property by LGU for want of bidder
(Sec. 181)
In case there is no bidder for the real property
advertised for sale as provided herein, or if the
highest bid is for an amount insufficient to pay the
taxes, fees, or charges, related surcharges,
interests, penalties and costs, the local treasurer
conducting the sale shall purchase the property in
behalf of the local government unit concerned to
satisfy the claim and within 2 days thereafter
shall make a report of his proceedings which
shall be reflected upon the records of his office. It
shall be the duty of the Registrar of Deeds
concerned upon registration with his office of any
such declaration of forfeiture to transfer the title
of the forfeited property to the local government
unit concerned without the necessity of an order
from a competent court.
Within 1 year from the date of such forfeiture, the
taxpayer or any of his representative, may redeem
the property by paying to the local treasurer the
full amount of the taxes, fees, charges, and
related surcharges, interests, or penalties, and the
costs of sale. If the property is not redeemed as
provided herein, the ownership thereof shall be
fully vested on the local government unit
concerned.
viii. Resale of Real Estate Tax for TFC
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TAXATION LAW
ix. Judicial Action (Sec. 183)
The local government unit concerned may enforce
the collection of delinquent taxes, fees, charges or
other revenues by civil action in any court of
competent jurisdiction. The civil action shall be
filed by the local treasurer within the period
prescribed in Section 194 of this Code.
x. Further Distraint and Levy (Sec. 184)
The remedies by distraint and levy may be
repeated if necessary until the full amount due,
including all expenses, is collected.
xi. Personal Property Exempt from Distraint or Levy
(Sec. 185)
The following property shall be exempt from
distraint and the levy, attachment or execution
thereof for delinquency in the payment of any
local tax, fee or charge, including the related
surcharge and interest:
(a) Tools and the implements necessarily used by
the delinquent taxpayer in his trade or
employment;
(b) 1 horse, cow, carabao, or other beast of
burden, such as the delinquent taxpayer may
select, and necessarily used by him in his
ordinary occupation;
(c) His necessary clothing, and that of all his
family;
(d) Household furniture and utensils necessary
for housekeeping and used for that purpose
by the delinquent taxpayer, such as he may
select, of a value not exceeding P10,000.00;
(e) Provisions, including crops, actually provided
for individual or family use sufficient for 4
months;
(f) The professional libraries of doctors,
engineers, lawyers and judges;
(g) One fishing boat and net, not exceeding the
total value of Ten thousand pesos
P10,000.00, by the lawful use of which a
fisherman earns his livelihood; and
(h) Any material or article forming part of a
house or improvement of any real property.
 TAXATION 2
TAXPAYER’S REMEDIES
i. Question Constitutionality of Ordinance (Sec. 187)
The procedure for approval of local tax
ordinances and revenue measures shall be in
accordance with the provisions of this Code:
Provided, That public hearings shall be conducted
for the purpose prior to the enactment thereof:
Provided, further, That any question on the
constitutionality or legality of tax ordinances or
revenue measures may be raised on appeal within
30 days from the effectivity thereof to the
Secretary of Justice who shall render a decision
within 60 days from the date of receipt of the
appeal:
Provided, however, That such appeal shall not
have the effect of suspending the effectivity of
the ordinance and the accrual and payment of the
tax, fee, or charge levied therein: Provided,
finally, That within 30 days after receipt of the
decision or the lapse of the sixty-day period
without the Secretary of Justice acting upon the
appeal, the aggrieved party may file appropriate
proceedings with a court of competent
jurisdiction.
ii. Publication (Sec. 188)
Within 10 days after their approval, certified true
copies of all provincial, city, and municipal tax
ordinances or revenue measures shall be
published in full for 3 consecutive days in a
newspaper of local circulation:
Provided, however, That in provinces, cities and
municipalities where there are no newspapers of
local circulation, the same may be posted in at
least 2 conspicuous and publicly accessible places.
iii. Periods of Assessment and Collection (Sec. 194)
(a) Local taxes, fees, or charges shall be assessed
within 5 years from the date they became due. No
action for the collection of such taxes, fees,
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TAXATION LAW
orcharges, whether administrative or judicial,
shall be instituted after the expiration of such
period:
Provided, That, taxes, fees or charges which have
accrued before the effectivity of this Code may be
assessed within a period of 3 years from the date
they became due.
(b) In case of fraud or intent to evade the
payment of taxes, fees, or charges, the same may
be assessed within 10 years from discovery of the
fraud or intent to evade payment.
(c) Local taxes, fees, or charges may be collected
within 5 years from the date of assessment by
administrative or judicial action. No such action
shall be instituted after the expiration of said
period:
Provided, however, That, taxes, fees or charges
assessed before the effectivity of this Code may
be collected within a period of 3 years from the
date of assessment.
(d) The running of the periods of prescription
provided in the preceding paragraphs shall be
suspended for the time during which:
(1) The treasurer is legally prevented from
making the assessment of collection;
(2) The taxpayer requests for a
reinvestigation and executes a waiver
inwriting before expiration of the period
within which to assess or collect; and
(3) The taxpayer is out of the country or
otherwise cannot be located.
iv. Protest of Assessment (Sec. 195)
When the local treasurer or his duly authorized
representative finds that correct taxes, fees, or
charges have not been paid, he shall issue a notice
of assessment stating the nature of the tax, fee or
charge, the amount of deficiency, the
surcharges, interests and penalties. Within 60
 TAXATION 2
days from the receipt of the notice of assessment,
the taxpayer may file a written protest with the
local treasurer contesting the assessment;
otherwise, the assessment shall become final and
executory.
The local treasurer shall decide the protest within
60 days from the time of its filing. If the local
treasurer finds the protest to be wholly or partly
meritorious, he shall issue a notice cancelling
wholly or partially the assessment. However, if
the local treasurer finds the assessment to
bewholly or partly correct, he shall deny the
protest wholly or partly with notice to the
taxpayer. The taxpayer shall have 30 days from
the receipt of the denial of the protest or from
the lapse of the 60 day period
prescribed herein within which to appeal with
the court of competent jurisdiction otherwise
the assessment becomes conclusive and
unappealable.
v. Appeal to the CTA
vi. Claim for Refund (Sec. 196)
No case or proceeding shall be maintained in any
court for the recovery of any tax, fee, or
charge erroneously or illegally collected until a
written claim for refund or credit has been filed
with the local treasurer. No case or proceeding
shall be entertained in any court after the
expiration of 2 years from the date of the
payment of such tax, fee, or charge, or from the
date the taxpayer is entitled to a refund or credit.
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TAXATION LAW
VII. REAL PROPERTY
TAXATION
A. FUNDAMENTAL PRINCIPLES
Sec. 198, LGC
The appraisal, assessment, levy and collection of
real property tax shall be guided by the following
fundamental principles:
(a) Real property shall be appraised at its current
and fair market value;
(b) Real property shall be classified for
assessment purposes on the basis of its actual
use;
(c) Real property shall be assessed on the basis of
a uniform classification within each local
government unit;
(d) The appraisal, assessment, levy and collection
of real property tax shall not be let to any
private person; and
(e) The appraisal and assessment of real property
shall be equitable.
B. NATURE OF REAL PROPERTY TAX
• It is a direct tax
• Indivisible single obligation
• Ad valorem tax based on the assessed value of
the property
• Local tax
• Imposed on the use and not on the ownership
of the property
• Progressive in character, depending to a
certain extent on the use and value of the
property
C. IMPOSITION OF REAL PROPERTY TAX
POWER TO LEVY REAL PROPERTY TAX
Sec. 200, LGC
The provinces and cities, including the
municipalities within the Metropolitan Manila
Area, shall be primarily responsible for the
property, efficient and effective administration of
the real property tax.
Sec. 232, LGC
A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad
 TAXATION 2 TAXATION LAW

valorem tax on real property such as land, APPRAISAL

building, machinery, and other improvement not Sec. 201, LGC

hereinafter specifically exempted. Appraisal of Real Property. - All real property,

whether taxable or exempt, shall be appraised at
Note: Only provinces, cities, and municipalities the current and fair market value prevailing in the
within Metro Manila may impose Real Property locality where the property is situated. The
Taxes. Department of Finance shall promulgate the
necessary rules and regulations for the
EXEMPTION FROM REAL PROPERTY TAXES classification, appraisal, and assessment of real
Sec. 234, LGC property pursuant to the provisions of this Code.
The following are exempted from payment of the
real property tax: ASSESSMENT
(a) Real property owned by the Republic of the Assessment is the act or process of determining
Philippines or any of its political subdivisions the value of a property or proportion thereof
except when the beneficial use thereof has subject to tax, including discovery, listing,
been granted, for consideration or otherwise, classification, and appraisal of properties.
to a taxable person;
(b) Charitable institutions, churches, parsonages
Sec. 218, LGC
or convents appurtenant thereto, mosques,
non-profit or religious cemeteries and all Assessment Levels. - The assessment levels to be
lands, buildings, and improvements actually, applied to the fair market value of real property to
directly, and exclusively used for religious, determine its assessed value shall be fixed by
charitable or educational purposes; ordinances of the sangguniang panlalawigan,
(c) All machineries and equipment that are sangguniang panlungsod or sangguniang bayan of
actually, directly and exclusively used by local a municipality within the Metropolitan Manila
water districts and government owned or
Area, at the rates not exceeding the following:
controlled corporations engaged in the supply
and distribution of water and/or generation
and transmission of electric power; (a) On Lands:
(d) All real property owned by duly registered CLASS ASSESSMENT LEVELS
cooperatives as provided for under R.A. No. Residential 20%
6938; and Agricultural 40%
(e) Machinery and equipment used for pollution
Commercial 50%
control and environmental protection.
Industrial 50%
Mineral 50%
Except as provided herein, any exemption from
Timberland 20%
payment of real property tax previously granted
to, or presently enjoyed by, all persons, whether
(b) On Buildings and Other Structures:
natural or juridical, including all government-
(1) Residential
owned or controlled corporations are hereby
Fair market Value
withdrawn upon the effectivity of this Code.
Over Not Over Assessment Levels
D. APPRAISAL AND ASSESSMENT OF REAL
PROPERTY TAX P175,000.00 0%
P175,000.00 300,000.00 10%
300,000.00 500,000.00 20%
500,000.00 750,000.00 25%

80
 TAXATION 2 TAXATION LAW

750,000.00 1,000,000.00 30% (c) On Machineries

1,000,000.00 2,000,000.00 35% Class Assessment Levels
2,000,000.00 5,000,000.00 40% Agricultural 40%
5,000,000.00 10,000,000.00 50% Residential 50%
10,000,000.00 Commercial 80%
60% Industrial 80%
(d) On Special Classes: The assessment levels for
(2) Agricultural all lands buildings, machineries and other
Fair Market Value improvements;
Over Not Over Assessment Levels
P300,000.00 Actual Use Assessment Level
25% Cultural 15%
P300,000.00 500,000.00 30% Scientific 15%
500,000.00 750,000.00 35% Hospital 15%
750,000.00 1,000,000.00 40% Local water districts 10%
1,000,000.00 2,000,000.00 45% Government-owned or controlled corporations
2,000,000.00 engaged in the supply and distribution of water
50% and/or generation and transmission of electric
power 10%
(3) Commercial / Industrial
Fair Market Value Note: The percentage, provided under Sec. 218,
Over Not Over Assessment Levels will be applied to the FMV of the real property to
P300,000.00 determine the taxable value of the property. Such
30% process is called assessment.
P300,000.00 500,000.00 35%
500,000.00 750,000.00 40% E. COLLECTION OF REAL PROPERTY TAX
750,000.00 1,000,000.00 50% DATE OF ACCRUAL OF REAL PROPERTY TAX AND
1,000,000.00 2,000,000.00 60% SPECIAL LEVIES
Sec. 246, LGC
2,000,000.00 5,000,000.00 70%
The real property tax for any year shall accrue on
5,000,000.00 10,000,000.00 75%
the first day of January and from that date it shall
10,000,000.00
constitute a lien on the property which shall be
80%
superior to any other lien, mortgage, or
encumbrance of any kind whatsoever, and shall
(4) Timberland
be extinguished only upon the payment of the
Fair Market Value
delinquent tax.
Over Not Over Assessment Levels
P300,000.00 45%
COLLECTION OF TAX
P300,000.00 500,000.00 50% Sec. 247, LGC
500,000.00 750,000.00 55% The collection of the real property tax with
750,000.00 1,000,000.00 60% interest thereon and related expenses, and the
5,000,000.00 2,000,000.00 65% enforcement of the remedies provided for in this
2,000,000.00 70% Title or any applicable laws, shall be the

81
 TAXATION 2
responsibility of the city or municipal treasurer
concerned.
The city or municipal treasurer may deputize the
barangay treasurer to collect all taxes on real
property located in the barangay: Provided, That
the barangay treasurer is properly bonded for the
purpose: Provided, further, That the premium on
the bond shall be paid by the city or municipal
government concerned.
Sec. 248, LGC
The provincial, city or municipal assessor shall
prepare and submit to the treasurer of the local
government unit, on or before the thirty-first
(31st) day of December 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.
Sec. 249, LGC
The city or municipal treasurer shall, on or before
the thirty-first (31st) day of January each year, in
the case of the basic real property tax and the
additional tax for the Special Education Fund (SEF)
or any other date to be prescribed by the
sanggunian concerned in the case of any other tax
levied under this title, post the notice of the dates
when the tax may be paid without interest at a
conspicuous and publicly accessible place at the
city or municipal hall. Said notice shall likewise be
published in a newspaper of general circulation in
the locality once a week for two (2) consecutive
weeks.
PERIODS WITHIN WHICH TO COLLECT REAL
PROPERTY TAXES
SEC. 270, LGC
The basic real property tax and any other tax
levied under this Title shall be collected within five
(5) years from the date they become due. No
action for the collection of the tax, whether
administrative or judicial, shall be instituted after
the expiration of such period. In case of fraud or
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TAXATION LAW
intent to evade payment of the tax, such action
may be instituted for the collection of the same
within ten (10) years from the discovery of such
fraud or intent to evade payment.
The period of prescription within which to collect
shall be suspended for the time during which:
(1) The local treasurer is legally prevented from
collecting the tax;
(2) The owner of the property or the person
having legal interest therein requests for
reinvestigation and executes a waiver in
writing before the expiration of the period
within which to collect; and
(3) The owner of the property or the person
having legal interest therein is out of the
country or otherwise cannot be located.
SPECIAL RULES ON PAYMENT
Sec. 250, LGC
Payment of Real Property Taxes in Installments. -
The owner of the real property or the person
having legal interest therein may pay the basic
real property tax and the additional tax for Special
Education Fund (SEF) due thereon without
interest in four (4) equal installments; the first
installment to be due and payable on or before
March Thirty-first (31st); the second installment,
on or before June Thirty (30); the third
installment, on or before September Thirty (30);
and the last installment on or before December
Thirty-first (31st), except the special levy the
payment of which shall be governed by ordinance
of the sanggunian concerned.
The date for the payment of any other tax
imposed under this Title without interest shall be
prescribed by the sanggunian concerned.
Payments of real property taxes shall first be
applied to prior years delinquencies, interests,
and penalties, if any, and only after said
delinquencies are settled may tax payments be
credited for the current period.
 TAXATION 2
Sec. 255, LGC
Interests on Unpaid Real Property Tax. - In case of
failure to pay the basic real property tax or any
other tax levied under this Title upon the
expiration of the periods as provided in Section
250, or when due, as the case may be, shall
subject the taxpayer to the payment of interest at
the rate of two percent (2%) per month on the
unpaid amount or a fraction thereof, until the
delinquent tax shall have been fully paid:
Provided, however, That in no case shall the total
interest on the unpaid tax or portion thereof
exceed thirty-six (36) months.
SEC. 276, LGC
Condonation or Reduction of Real Property Tax
and Interest. - In case of a general failure of crops
or substantial decrease in the price of agricultural
or agribased products, or calamity in any province,
city or municipality, the sanggunian concerned, by
ordinance passed prior to the first (1st) day of
January of any year and upon recommendation of
the Local Disaster Coordinating Council, may
condone or reduce, wholly or partially, the taxes
and interest thereon for the succeeding year or
years in the city or municipality affected by the
calamity.
SEC. 277, LGC
Condonation or Reduction of Tax by the President
of the Philippines. - The President of the
Philippines may, when public interest so requires,
condone or reduce the real property tax and
interest for any year in any province or city or a
municipality within the Metropolitan Manila Area.
REMEDIES OF LGUS FOR COLLECTION OF REAL
PROPERTY TAX
i.Issuance of notice of delinquency for real property
tax payment
SEC. 254, LGC
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TAXATION LAW
Notice of Delinquency in the Payment of the Real
Property Tax. -
(a) When the real property tax or any other tax
imposed under this Title becomes delinquent,
the provincial, city or municipal treasurer shall
immediately cause a notice of the delinquency
to be posted at the main hall and in a publicly
accessible and conspicuous place in each
barangay of the local government unit
concerned. The notice of delinquency shall
also be published once a week for two (2)
consecutive weeks, in a newspaper of general
circulation in the province, city, or
municipality.
(b) Such notice shall specify the date upon which
the tax became delinquent and shall state
that personal property may be distrained to
effect payment. It shall likewise state that any
time before the distraint of personal property,
payment of the tax with surcharges, interests
and penalties may be made in accordance
with the next following Section, and unless
the tax, surcharges and penalties are paid
before the expiration of the year for which
the tax is due except when the notice of
assessment or special levy is contested
administratively or judicially pursuant to the
provisions of Chapter 3, Title II, Book II of this
Code, the delinquent real property will be sold
at public auction, and the title to the property
will be vested in the purchaser, subject,
however, to the right of the delinquent owner
of the property or any person having legal
interest therein to redeem the property
within one (1) year from the date of sale.
ii. Local Government’s Lien
SEC. 257, LGC
Local Government’s Lien. - The basic real property
tax and any other tax levied under this Title
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.
 TAXATION 2
iii. Remedies in general (SEC. 256-269, LGC)
SEC. 256, LGC
Remedies For The Collection Of Real Property Tax.
- For the collection of the basic real property tax
and any other tax levied under this Title, the local
government unit concerned may avail of the
remedies by administrative action thru levy on
real property or by judicial action.
SEC. 258, LGC
Levy on Real Property. - After the expiration of the
time required to pay the basic real property tax or
any other tax levied under this Title, real property
subject to such tax may be levied upon through
the issuance of a warrant on or before, or
simultaneously with, the institution of the civil
action for the collection of the delinquent tax. The
provincial or city treasurer, or a treasurer of a
municipality within the Metropolitan Manila Area,
as the case may be, when issuing a warrant of levy
shall prepare a duly authenticated certificate
showing the name of the delinquent owner of the
property or person having legal interest therein,
the description of the property, the amount of the
tax due and the interest thereon. The warrant
shall operate with the force of a legal execution
throughout the province, city or a municipality,
within the Metropolitan Manila Area. The warrant
shall be mailed to or served upon the delinquent
owner of the real property or person having legal
interest therein, or in case he is out of the country
or cannot be located, the administrator or
occupant of the property. At the same time,
written notice of the levy with the attached
warrant shall be mailed to or served upon the
assessor and the Registrar of Deeds of the
province, city or municipality within the
Metropolitan Manila Area where the property is
located, who shall annotate the levy on the tax
declaration and certificate of title of the property,
respectively.
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TAXATION LAW
The levying officer shall submit a report on the
levy to the sanggunian concerned within ten (10)
days after receipt of the warrant by the owner of
the property or person having legal interest
therein.
iv. Resale of real estate taken for taxes, fees, or
charges
SEC. 264, LGC
Resale of Real Estate Taken for Taxes, Fees, or
Charges. - The sanggunian concerned may, by
ordinance duly approved, and upon notice of not
less than twenty (20) days, sell and dispose of the
real property acquired under the preceding
section at public auction. The proceeds of the sale
shall accrue to the general fund of the local
government unit concerned.
v. Further levy until full payment of amount due
SEC. 265, LGC
Further Distraint or Levy. - Levy may be repeated
if necessary until the full amount due, including all
expenses, is collected
vi. Refund or credit of real property tax
PAYMENT UNDER PROTEST
SEC. 252, LGC
Payment Under Protest. -
(a) No protest shall be entertained unless the
taxpayer first pays the tax. There shall be
annotated on the tax receipts the words "paid
under protest". The protest in writing must be
filed within thirty (30) days from payment of
the tax to the provincial, city treasurer or
municipal treasurer, in the case of a
municipality within Metropolitan Manila Area,
who shall decide the protest within sixty (60)
days from receipt.
(b) The tax or a portion thereof paid under
protest, shall be held in trust by the treasurer
concerned.
(c) In the event that the protest is finally 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.
 TAXATION 2 TAXATION LAW

(d) In the event that the protest is denied or upon
the lapse of the sixty day period prescribed in
subparagraph (a), the taxpayer may avail of
the remedies as provided for in Chapter 3,
Title II, Book II of this Code.
REPAYMENT OF EXCESSIVE COLLECTIONS
SEC. 253, LGC
Repayment of Excessive Collections. - When an
assessment of basic real property tax, or any
other tax levied under this Title, is found to be
illegal or erroneous and the tax is accordingly
reduced or adjusted, the taxpayer may file a
written claim for refund or credit for taxes and
interests with the provincial or city treasurer
within two (2) years from the date the taxpayer is
entitled to such reduction or adjustment.
PROCESS IN CONTESTING A REAL PROPERTY TAX
ASSESSMENT
1. Pay the tax under protest and an annotation
of “paid under protest” must be stated in the
receipt
2. File written protest with local treasurer within
30 days from payment of the tax
3. Treasurer must decide within 60 days from
receipt of the protest
4. Appeal to the LBAA within 60 days from the
treasurer’s decision or inaction
5. LBAA must decide within 120 days
6. Appeal the LBAA decision to the CBAA within
30 days from receipt of adverse decision
7. Appeal CBAA decision to CTA en banc within
30 days from receipt of the adverse decision
8. Appeal CTA en banc decision to the SC within
15 days from receipt of the adverse decision

The provincial or city treasurer shall decide the

claim for tax refund or credit within sixty (60) days
from receipt thereof. In case the claim for tax
refund or credit is denied, the taxpayer may avail
of the remedies as provided in Chapter 3, Title II,
Book II of this Code.

vii. Taxpayer’s remedies

If the taxpayer is questioning the validity of the
tax ordinance, the taxpayer may either question
the legality of the tax ordinance before the DOJ
Secretary under Sec. 187 of the LGC or question
the constitutionality of the ordinance before the
regular courts. In this case, payment under
protest is not necessary.

If the taxpayer is questioning the correctness,

reasonableness or excessiveness of the
assessment, the taxpayer will resort to
administrative remedies, under Sec. 226 to 231 of
the LGC. In this case, payment under protest is
necessary.

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 TAXATION 2 TAXATION LAW

TARIFF AND CUSTOMS DUTIES AND WHARFAGE DUES,

IX. TARIFF AND CUSTOMS DISTINGUISHED.
CODE OF 1978, AS AMENDED [Procter and Gamble Philippine Manufacturing Corporation vs.
Commissioner of Customs, 23 SCRA 691(1968)]
The first tariff and customs code was enacted into
law under Republic Act No. 1937, approved on Tariff&Customs duties Wharfage Dues
June 22, 1957 and effective on July 1, 1957. The Customs duties are Wharfage dues are
present Code was promulgated as Presidential governed by Book collectible pursuant to
Decree No. 1464 in June 11, 1978, during the I, Title I, of said Book II thereof, Title VII of
reign of Martial Law. The Code is divided into two Code, under the said book, under the
books: Book One relates to the Tariff Law, and headings "tariff caption "Fees and Charges
Book Two covers the Customs Law. Law" and "Import Collectible by the Bureau of
Tariff," Customs." (now by the
The primary source of Custom taxation is the 1987 respectively. Philippine Ports Authority
Constitution itself. (Nague) under P.D. 857)
1. Sec 24, Article VI - All appropriation, revenue Revenue derived Wharfage dues are
or tariff bills, … shall originate exclusively in
from customs charged, not for the use of
the House of Representatives, but the Senate
may propose or concur with amendments. duties form part of any wharf but for a special
2. Section 28 (1), Article VI - The rule of taxation the general funds fund to be known as "Port
shall be uniform and equitable. The Congress of the Works Fund" (as provided
shall evolve a progressive system of taxation. Government. in Act No. 3592 as
3. Section 28(2), Article VI - The Congress may, amended by
by law, authorize the President to fix … tariff
Commonwealth Act No.
rates, import and export quotas, tonnage and
wharfage dues, and other duties 130 and RA Nos. 1216 and
2695)
A. TARIFF AND DUTIES • for the study,
“Tariff” is a schedule or system, of duties imposed investigation, field
by a government on imported or exported goods. surveys, research,
planning, development,
(Black’s Law Dictionary, 9th ed.) The word is
construction,
derived from old Frenchtarife, “rate” which is improvement,
from Spanish tarifa, “price list”, “rate book”, from maintenance, and repair
Arabic ta’rif “notification”. (Nague) of ports, ports facilities
and port areas,
The term “tariff” strictly means a book of rates; warehouses, sheds and
offices, buoys,
the word however is interchangeably with custom
lighthouses and other
duties. (Vitug)
aides to navigation
including the purchase,
"Customs duties" is 'the name given to taxes on maintenance, rental
the importation and exportation of commodities, charges and replacement
the tariff or tax assessed upon merchandise of necessary equipment.
imported from, or exported to, a foreign country. Tariff rates or Wharfage fees are assessed
[Nestle Philippines vs. Honorable Court of customs duties are against the cargo of a
Appeals, G.R. No. 134114, July 6, 2001] prescribed only for vessel engaged in the
goods imported foreign trade, based on the

86
 TAXATION 2
into the quantity, weight or
Philippines. measure received and/or
discharged from said
vessels.
B. GENERAL RULE: ALL IMPORTED ARTICLES ARE
SUBJECT TO DUTY.
IMPORTATION BY THE GOVERNMENT TAXABLE
Except as otherwise specifically provided, all
importations by the government for its own use
or that of its subordinate branches on
instrumentalities, or corporations, agencies or
instrumentalities owned or controlled by the
government, shall be subject to the duties, taxes,
fees and other charges provided for in this Code:
Provided, however, That upon certification of the
head of the department or political subdivision
concerned, with the approval of the Auditor
General, that the imported article is actually being
used by the government or any of its political
subdivision concerned, the amount of duty, tax,
fee or charge shall be refunded to the
government or the political subdivision which paid
it. (Sec 1205, TCC)
C. PURPOSE FOR IMPOSITION
Both revenue-raising and for regulatory purposes.
Thus, it has been held that "customs duties" is
"the name given to taxes on the importation and
exportation of commodities, the tariff or tax
assessed upon merchandise imported from, or
exported to, a foreign country."
The levying of customs duties on imported goods
may have in some measure the effect of
protecting local industries -- where such local
industries actually exist and are producing
comparable goods.
Customs duties, which constitute taxes in the
sense of exactions the proceeds of which become
public funds -- have either or both the generation
87
TAXATION LAW
of revenue and the regulation of economic or
social activity as their moving purposes and
frequently, it is very difficult to say which, in a
particular instance, is the dominant or principal
objective. [Garcia vs. Executive Secretary, 211
SCRA 219 , July 03, 1992]
D. FLEXIBLE TARIFF CLAUSE
The term “flexible tariff clause” refers to the
authority given to the President to adjust the tariff
rates under Section 401 of the Tariff and Customs
Code, which is the enabling law that made
effective the delegation of the taxing power to the
President under the Constitution.21 (Bar 2001)
Under the flexible clause, the President may, upon
recommendation of NEDA, change the applicable
rates or include, exclude or exempt any product.
(Vitug, 357)
The Tariff and Customs Code which authorizes the
President, in the interest of national economy,
general welfare and/or national security, to, inter
alia, prohibit the importation of any commodity.
[Executive Secretary vs. Southwing Heavy
Industries, Inc., 482 SCRA 673(2006)]
Basis: The Congress may, by law, authorize the
President to fix within specified limits, and subject
to such limitations and restrictions as it may
impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or
imposts within the framework of the national
development program of the Government. (Sec
28[2], Article VI, 1987 Philippine Constitution)
POWERS OF THE PRESIDENT (SECTION 401(A),
TCC):
In the interest of national economy, general
welfare an/or national security, and subject to
21
Mamalateo, V. (2008). Reviewer on taxation. (Second ed., p.
613). Quezon City : Rex Printing Company, Inc.
 TAXATION 2
the limitations herein prescribed, the President,
upon recommendation of the National Economic
and Development Authority (NEDA), is hereby
empowered:
1. To increase, reduce or remove existing
protective rates of import duty (including any
necessary change in classification). The
existing rates may be increased or decreased
to any level, in one or several stages, but in no
case:
a. shall the reduced rate of import duty be
lower than the basic rate of 10% ad
valorem, nor
b. shall the increased rate of import duty be
higher than a maximum of one hundred
(100) per cent ad valorem;
2. to establish import quota or to ban imports of
any commodity, as may be necessary; and
3. to impose an additional duty on all imports
not exceeding ten 10% ad valorem whenever
necessary:
4. The power of the President to increase or
decrease rates of import duty shall include the
authority to modify tile form of duty. (Section
401(c), TCC)
EFFECTIVITY OF ORDER ISSUED BY THE PRESIDENT
(SECTION 401 (F), TCC)
Any Order issued by the President pursuant to the
provisions of this section shall take effect thirty
(30) days after promulgation,
EXCEPTION: In the imposition of additional duty
not exceeding ten (10) per cent ad valorem which
shall take effect at the discretion of President
DUTY OF THE COMMISSION (SECTION 401(B),
TCC):
Before any recommendation is submitted to the
President by the NEDA pursuant to the provisions
of this section, the Commission shall
a. Conduct an investigation in the course of
which they shall hold public hearings wherein
interested parties shall be afforded
reasonable opportunity to be present,
produce evidence and to be heard.
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TAXATION LAW
b. Hear the views and recommendations of any
government office, agency or instrumentality
concerned.
c. Submit their findings and recommendations
to the NEDA within thirty (30) days after the
termination of the public hearings.
EXCEPTION: In the imposition of an additional
duty not exceeding ten (10) per cent ad valorem,
the foregoing is not required.
Requirements of importation
Articles to Be Imported Only Through
Customhouse. — All articles imported into the
Philippines, whether subject to duty or not, shall
be entered through a customhouse at a port of
entry. (Sec 1201, TCC)
BEGINNING AND ENDING OF IMPORTATION
Importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines
with intention to unlade therein.
Importation is deemed terminated
a. upon payment of the duties, taxes and other
charges due upon the articles, or secured to
be paid, at a port of entry and
b. the legal permit for withdrawal shall have
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. (Sec 1202, TCC)
It has been held in several cases that removal of
goods from an Export Economic Zone into the
customs territory is considered as importation and
as such subject to customs duties and taxes.
(Vitug citing Filipino Metals Corporation, Maxima
Steel Mills Corporation, et al., vs. Secretary Of The
Department Of Trade And Industry, et al., G.R. No.
157498. July 15, 2005)
The Subic Special Economic Zone shall be
operated and managed as a separate customs
territory ensuring free flow or movement of goods
 TAXATION 2
and capital within, into and exported out of the
Subic Special Economic Zone, as well as provide
incentives such as tax and duty-free importations
of raw materials, capital and equipment.
HOWEVER: exportation or removal of goods from
the territory of the Subic Special Economic Zone
to the other parts of the Philippine territory shall
be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax
laws of the Philippines. (R.A. No. 7227, Sec 12(b))
Obligations of importer
Owner of the imported articles
All articles imported into the Philippines shall be
held to be the property of:
1. The person to whom the same are consigned;
and
2. The holder of a bill of lading duly indorsed by
the consignee therein named, or,
3. If consigned to order, by the consignor, shall
be deemed the consignee thereof.
4. The underwriters of abandoned articles and
the salvors of articles saved from a wreck at
sea, along a coast or in any area of the
Philippine may be regarded as the consignees.
(Sec. 1203, TCC)
WHO IS THE OWNER OF THE IMPORTED GOODS LIABLE FOR
THE CUSTOMS DUTIES?
AD Mfg. Phils is the importer owner and not the
entrusterPhiltrust. The entruster in a trust receipt
is not the owner of the goods but merely the
holder of the security title. If in the trust receipt,
the entruster bank is made to appear as owner, it
was an artificial expedient, more of legal fiction
than fact. To consider the bank as the true owner
from the inception of the transaction would be to
disregard the loan feature thereof. (Philtrust Bank
v. The Commissioner of Customs, CTA Case No.
5468, August 25 1998 citing Vintola v Insular Bank
of Asia and America 150 SCRA 578, Nacu v CA, 231
SCRA 237 and Sia v. People, 121 SCRA 655,
Domondon)
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TAXATION LAW
BRIEF SUMMARY OF IMPORTED CARGO CLEARANCE
PROCEDURE
1. Preparation of import entry and entry
lodgment or filing of import entry
2. Physical examination if required
3. Preparation of discrepancy report, if any
4. Protest on civil matters
5. Payment of the computed duties and taxes
and released of imported goods
6. Customs Compliance Audit/Post Audit
7. Finality of liquidation (Domondon)
CARGO MANIFEST
A manifest is a statement in official form showing
what merchandise the vessel carries.
It is a declaration of the entire cargo, the object of
which is to furnish the customs officers with a list
to check against, to inform our revenue officers
what goods are being brought into the country,
and to provide a safeguard against goods being
brought into this country on a vessel and then
smuggled ashore. (Nague citing Macondray and
Company Inc. vs. Acting Commissioner of
Customs, 62 SCRA 432)
A manifest is a record or statement in writing,
carried by a vessel, containing information with
respect to the vessel’s cargo, passengers, and
other matters required by statute or regulation.
(Nague citing 21A Am Jur 2d S78)
A manifest is a summary of all the bills of lading
for the cargo of a vessel
MANIFEST. REQUIRED
Every vessel from a foreign port must have on
board a complete manifest of all her cargo. (Sec.
1005, TCC)
The evident intent and object of these
requirements for the submission of manifests by
all vessels from foreign ports is to impose upon
the owners and officers of such vessels an
imperative obligation to submit lists of the entire
lading of the ship in the prescribed form, in order
 TAXATION 2
to facilitate the labors of the customs and
immigration officers, and to defeat any attempt to
make use of such vessels to secure the unlawfully
entry of persons or things into the Islands. No
exception is made in the statute, and the
recognition of any attempt to read an exception
into the statute could hardly fail to defeat the
purpose of its enactment. [United States vs.
Steamship "Rubi.", 32 Phil. 228, November 17,
1915]
All vessels, whether private or government-
owned, including ships of the Philippine navy,
coming from a foreign port, with the possible
exception of war vessels or vessels employed by
any foreign government, not engaged in the
transportation of merchandise in the way of
trade, are required to prepare and present a
manifest to the customs authorities upon arrival
at any Philippine Port. [Commissioner of Customs
vs. Lt. Col. Relunia, 105 Phil. 875(1959)]
IMPORT ENTRY
Import entry is required.
All imported articles, except containers for re-
export subject to conditionally free importation,
shall be subject to a formal or informal entry.
(1302, TCC as amended by RA No. 9135 in relation
to Sec 105(k), TCC)
Import entry.
A declaration to the Bureau of Customs showing
the description, value, tariff classification and
other particulars of the imported article to enable
the customs authorities to determine the correct
customs duties and internal revenue taxes due on
the importation.
It is also known as Import Entry and Internal
Revenue (IEIRD).
The IERD shall be based on self-assessment.
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TAXATION LAW
Import and export entry declaration shall be
signed only by a customs broker under oath based
on the covering documents submitted by the
importers (Sec 27, RA 9280, “Customs Brokers Act
of 2004”)
Period of filing Import entry.
Imported articles must be entered in the
customhouse at the port of entry within thirty
(30) days, which shall not be extendible, from the
date of discharge of the last package from the
vessel or aircraft. (Sec 1301, TCCP)
Kinds of Import entry,
FORMAL ENTRY
a. Immediate consumption (Consumption Entry)
b. Under irrevocable domestic letter of credit,
bank guarantee or bond (Warehousing Entry)
Articles to be cleared on an formal entry
The Commissioner may, upon instruction of the
Secretary of Finance, for the protection of
domestic industry or of the revenue, require a
formal entry, regardless of value, whatever be the
purpose and nature of the importation.
All importations entered under formal entry shall
be covered by a letter of credit or any other
verifiable document evidencing payment."
Types of Formal Entry
1. Consumption entry (immediate consumption)
This is use when the articles to be imported is
intended for immediate consumption or use and
therefore immediate release of the shipment is
desired by the importer and except those
exempted by law, customs duty is paid or secured
to be paid at once (Nague)
2. Warehousing entry
This is entry use for articles under (1) irrevocable
domestic letter of credit, bank guarantee or (2)
bond for:
 TAXATION 2
(a) Placing the article in customs bonded
warehouse;
(b) Constructive warehousing and immediate
transportation to other port of the
Philippines upon proper examination and
appraisal; or
(c) Constructive warehousing and immediate
exportation. (1302(3), TCC as amended by
RA 9135)
INFORMAL ENTRY (DOMONDON)
Articles to be cleared on an informal entry
The following articles shall be cleared on an
informal entry, whenever duty, tax or other
charges are collectible (1302, TCC as amended by
RA 9135)
• Articles of a commercial nature intended for
sale, barter or hire, the dutiable value of which
is Two thousand pesos (P2,000.00) or less,
• Personal and household effects or articles, not
in commercial quantity, imported in
passenger’s baggage, mail or otherwise, for
personal use.
Persons Authorized to Make Import Entry.
Imported articles must be entered in the
customhouse at the port of entry within thirty
(30) days, which shall not be extendible, from the
date of discharge of the last package from the
vessel or aircraft either
a. By the importer, being holder of the bill of
lading,
b. A duly licensed customs broker acting under
authority from a holder of the bill
c. A person duly empowered to act as agent or
attorney-in-fact for such holder of the bill of
lading. (Sec 1301, TCC as amended by RA
7651)
Declaration of correct weight or value
DECLARATION MADE BY THE IMPORTER
The importer and the custom broker shall make
• a complete and correct declaration of the
specifications and/or particulars of the
importation on the IERD and
• the Supplemental Declaration on Value (SDV)
form, which declaration shall be under oath
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TAXATION LAW
and subscribed to by the importer and the
Customs Broker
a. before a notary public or
b. a customs officer authorized to administer
such oath under pain of prosecution for
perjury.
• However, in the case of an SDV, Customer
Broker shall sign to attest to the authenticity
of the signature of the importer.
DECLARATION MADE BY OTHER THAN THE IMPORTER
Where the import entry is filed by a party other
than the importer, said importer shall himself be
required to declare under oath and under the
penalties of falsification or perjury that
declarations and statements contained in the
entry as true and correct.
Such statements under oath shall constitute prima
facie evidence of knowledge and consent of the
importer of violations against applicable
provisions of this Code when the importation is
found to be unlawful.
INSTANCES WHEN IMPORTED ARTICLES SHALL BE SUBJECT TO
PHYSICAL EXAMINATION
1. The government surveyor's seal on the
container has been tampered with or broken
or the container shows signs of having been
opened or having its identity changed;
2. The container is leaking or damaged;
3. The number, weight and nature of packages
indicated in the customs entry declaration
and supporting documents differ from that in
the manifest;
4. The shipment is covered by alert/hold orders
issued pursuant to existing orders;
5. The importer disagrees with the findings as
contained in the government surveyor's
report; or
6. The articles are imported through air freight
where the Commissioner or Collector has
knowledge that there is a variance between
the declared and true quantity, measurement,
weight, and tariff classification. (Sec 1401, TCC
amended by RA 7650)
 TAXATION 2 TAXATION LAW

X-ray scanning alternative to physical Source: Bureau of Customs website.

examination. (Sec IV.C.4, CMO No. 37-2001)
Liability for payment of duties
BASIC FORMULA: TOTAL DUTIES AND TAXES
Customs Duty
Value Added Tax
Import Processing Fee
Excise Tax (if applicable)
Total Duties and Taxes
HOW TO ARRIVE AT CUSTOMS DUTY?
Customs Value (Dutiable
Value)
Multiply by: Foreign
Exchange Rate (As published
weekly through Customs
Memorandum Circular)
Multiply by: Rate of Duty (As
per classification of goods
under AHTN, Section 104,
TCCP)
Customs Duty
Cost of Goods
Freight
Insurance
Other Charges and Costs
Dutiable Value
HOW TO ARRIVE AT VALUE ADDED TAX (VAT)?
VAT = 12% of Total Landed Cost (TLC)
Dutiable Value
Bank Charges
Customs Duty
Brokerage Fee
Arrastre Charge
Wharfage Due
Customs Documentary
Stamp (CDS) Fixed Amount
of P265.00
Import Processing Fee (IPF)
Total Landed Cost
Liquidation of duties
Liquidation of entries comes after the
examination and appraisal process. No release of
P xx importation declared on informal entry shall be
xx released unless the entry has undergone
xx liquidation and the assessed amount of duties,
xx taxes and other charges are paid.
P xxx
LIQUIDATION
Liquidation is the final computation and
P xx ascertainment by the Collector of the duties due
on imported merchandise, based on official
xx reports as to the quantity, character, and value
thereof, and the Collector’s own finding as tot
applicable rate of duty. (25 CJS “Custom Duties”
151)
xx
The sole purpose is to determine “exact amount
due under the law” (Sec 1601, TCC)
P xxx TENTATIVE LIQUIDATION
If to determine the exact amount due under the
law in whole or in part some future action is
P xx
required, the liquidation shall be deemed to be
xx
tentative as to the item or items affected and
xx
xx
Shall to that extent be subject to future and final
P xxx
readjustment and settlement within a six (6)
months from date of tentative liquidation.
P xx Mostly this refers to importations which may be
xx authorized for release under bond.
xx
SPECIFIC EXAMPLES
xx 1. Importation which fall under sub-section d of
xx Sec 105 of TCC (Conditionally-Free
xx Importation) on articles “brought in for repair,
xx processing or reconditioning”
2. Those fall under sub-section i on articles
“used exclusively for public entertainment,
and for display in public exposition or for
xx exhibition or competition for prizes and
P xxx devices for projecting pictures and parts”

92
 TAXATION 2
3. Duty and/or tax exempt importation which
may be released under bond conditioned on
submission of an endorsement from DPF that
the importation is qualified for duty and/or
tax free release (Nague)
FINAL LIQUIDATION
When articles have been entered and passed free
of duty or final adjustments of duties made, with
subsequent delivery, such entry and passage free
of duty or settlements of duties will, after the
expiration of three (3) years from the date of the
final payment of duties,
In the absence of fraud or protest or compliance
audit pursuant to the provisions of this Code, be
final and conclusive upon all parties,
UNLESS the liquidation of the import entry was
merely tentative.
The liquidation of an import entry shall be
deemed final and conclusive upon all parties after
the expiration of 3 years from the date of the final
payment of duties, except when:
1. Fraud
2. A protest has been filed under the provision
of Sec 2308 of TCC
3. Where the import entry is selected for post
audit within 3 years required for record-
keeping provide that once started, the audit
can be completed beyond said period
4. The liquidation of the import entry was
merely tentative.
Keeping of records
Required to keep at their principal
place of business, in the manner
prescribed by regulations to be issued
by the Commissioner of Customs
All Required for a period of three (3) years
importers from the date of importation,
• all the records of their importations
and/or books of accounts,
• business and computer systems
and
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TAXATION LAW
• all customs commercial data
including payment records relevant
for the verification of the accuracy
of the transaction value declared
by the importers/customs brokers
on the import entry.
Required to keep at their principal
place of business, in the manner
prescribed by regulations to be issued
by the Commissioner of Customs
All
brokers Required for a period of three (3) years
from the date of importation copies of
the above mentioned records covering
transactions that they handle." ( Sec
3514, TCC as amended by R.A. 9135)
COMPLIANCE AUDIT OR EXAMINATION OF RECORDS
The importers/customs brokers shall allow any
customs officer authorized by the Bureau of
Customs
1. to enter during office hours any premises or
place where the records are kept to conduct
audit examination, inspection, verification
and/or investigation of those records either in
relation
a. to specific transactions or
b. to the adequacy and integrity of the
manual or electronic system or systems by
which such records are created and
stored.
2. to have full and free access to all books,
records, and documents necessary or relevant
for the purpose of collecting the proper duties
and taxes.
3. to make copies of, or take extracts from any
such documents
4. not entitled to enter any premises under this
Section unless, before so doing, the officer
produces to the person occupying or
apparently in charge of the premises written
evidence of the fact that he or she is an
authorized officer. (Sec 3515, TCC as inserted
by RA 9135)
 TAXATION 2
E. IMPORTATION IN VIOLATION OF TAX CREDIT
CERTIFICATE
SMUGGLING
It is the over act of passing goods through the
lines of the customs authorities without paying or
securing the duties. It includes attempts to bring
dutiable articles without passing through the
customs house or submitting them to the revenue
officers.
Unlawful Importation or smuggling means any
person who shall
1. Fraudulently import or bring into the
Philippines, or
2. Assist in so doing, any article, contrary to law,
or
3. Shall receive, conceal, buy, sell, or in any
manner facilitate the transportation,
concealment, or
4. Sale of such article after importation, knowing
the same to have been imported contrary to
law
When the defendant is shown to have had
possession of the article in question, possession
shall be deemed sufficient evidence to authorize
conviction,
UNLESS: the defendant shall explain the
possession to the satisfaction of the court:
• Payment of the tax due after apprehension
shall not constitute a valid defense in any
prosecution. (Sec. 3601, TCC as amended by
RA 4712)
In order that a person may be deemed guilty of
smuggling or illegal importation under the
foregoing statute three requisites must concur:
1. That the merchandise must have been
fraudulently or knowingly imported contrary
to law;
2. That the defendant, if he is not the importer
himself, must have received, concealed,
bought, sold or in any manner facilitated the
transportation, concealment or sale of the
merchandise; and
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TAXATION LAW
3. That the defendant must be shown to have
knowledge that the merchandise had been
illegally imported. If the defendant, however,
is shown to have had possession of the
illegally imported merchandise, without
satisfactory explanation, such possession shall
be deemed sufficient to authorize conviction.
[Arturo G. Rimorin Sr. vs. People, G.R. No.
146481. April 30, 2003 citing Luis B. Reyes,
The Revised Penal Code, Vol. II, (14th ed.,
1998), p. 300.]
CONTRABAND
generally refers to "any property which is
unlawful to produce or possess." It refers to goods
which are exported and imported into a country
against its laws. [Magat, Jr. v. Court of Appeals,
G.R. No. 124221, August 4, 2000]
OTHER FRAUDULENT PRACTICES
Various fraudulent practices Against Customs Revenue
Any person who makes or attempts to make any
entry of imported or exported article
a. by means of any false or fraudulent invoice,
declaration, affidavit, letter, paper or
b. by any means of any false statement, written
or verbal,
c. by any means of any false or fraudulent
practice whatsoever, or knowingly effects any
entry of goods, wares or merchandise, at less
than true weight or Measures thereof or upon
a false classification as to quality or value,
d. by the payment of less than the amount
legally due,
e. knowingly and willfully files any false or
fraudulent entry or claim for the payment of
drawback or refund of duties upon the
exportation of merchandise,
f. makes or files any affidavit abstract, record,
certificate or other document, with a view to
securing the payment to himself or others of
any drawback, allowance, or refund of duties
on the exportation of merchandise, greater
than that legally due thereon (Sec. 3602, TCC)
Failure to Report Fraud
Any
• master, pilot in command or other officer,
 TAXATION 2 TAXATION LAW

• owner or agent of any vessel or aircraft
trading with or within the Philippines and
• any employee of the Bureau of Customs who,
1. having cognizance of any fraud on the
customs revenue,
2. shall fail to report all information relative
thereto to the Collector as by law
required. (Sec. 3603, TCC)
customs commercial data in the manner
prescribed
b. Importers/brokers who deny an authorized
customs officer full and free access to such
records, books of accounts, business and
computer systems, and all customs
commercial data including payment records.
(Sec. 3610, TCC)

Concealment or Destruction of Evidence of Fraud Failure to Pay Correct Duties and Taxes on Imported
Any person who willfully conceals or destroys, Goods
a. any invoice, book or paper relating to any Any person who, after being subjected to post-
article liable to duty after an inspection entry audit and examination found to have
thereof has been demanded by the Collector incurred deficiencies in duties and taxes paid for
of any collection district or imported goods, shall be penalized according to
b. at any time conceals or destroys any such three (3) degrees of culpability subject to any
invoice, book or paper for the purpose of
mitigating, aggravating or extraordinary factors
suppressing any evidence of fraud therein
that clearly established by the available evidence:
contained. (Sec. 3605, TCC)
(Sec. 3611, TCC)
Removal, Breakage, Alteration of Marks
Any person who without authority, willfully Degree of
Definition/Condition Penalty/Fine
Culpability
removes, breaks, injures, or defaces or alters any
custom seal or other fastening or mark placed When the it shall be
upon any vessel, vehicles, on land, sea or air, deficiency results determined to
warehouse or package containing merchandise or from an be negligent
baggage in bond or in customs custody. (Sec. offender’s failure, and punishable
3608, TCC) through an act or by a fine
acts of omission equivalent to
Removing Goods from Customs Custody Negligence or commission, to not less than
Any person who exercise one-half (1/2)
a. maliciously enters any warehouse, or any reasonable care but not more
vehicle laden with or containing merchandise and competence than two (2)
with intent unlawfully to remove therefrom to ensure that a times the
any merchandise or baggage in such vessels, statement made revenue loss
vehicle or warehouse or otherwise in customs
is correct
custody or control, or
b. receives or transports any merchandise or When a deficiency it shall be
baggage unlawfully removed from any such results from an determined to
vessel, vehicle or warehouse, or shall aid or act or acts of be grossly
abet such removal (Sec. 3609, TCC) omission or negligent and
Gross commission done punishable by a
Failure to Keep Importation Records and Give Full Negligence with actual fine equivalent
Access to Customs Officers
a. Any person who fails to keep all the records of knowledge or to not less than
importations and/or books of accounts, wanton disregard two and a half
business and computer systems and all for the relevant (2 ½) but not
facts and with more than

95
 TAXATION 2 TAXATION LAW

indifference to or four(4) times whether imported directly or indirectly of all

disregard for the the revenue foreign countries, which do not discriminate
offender’s loss. against Philippine export products.
obligation under
the statute EXAMPLES:

When the it shall be • Live Animals; Animal Products

• Vegetable Products
material false determined to
• Animal Or Vegetable Fats And Oils And Their
statement or act be fraudulent Cleavage Products; Prepared Edible Fats;
in connection with and be Animal Or Vegetable Waxes
the transaction punishable by a • Prepared Foodstuffs; Beverages, Spirits And
was committed or fine equivalent Vinegar; Tobacco And Manufactured Tobacco
omitted to not less than Substitutes
knowingly, five (5) times • Mineral Products
voluntarily and but not more • Products Of The Chemical Or Allied Industries
• Plastics And Articles Thereof; Rubber And
Fraud intentionally, as than eight (8)
Articles Thereof
established by times the
• Raw Hides And Skins, Leather, Furskins And
clear and revenue loss Articles Thereof; Saddlery And Harness; Travel
convincing and Goods Handbags And Similar Containers;
evidence imprisonment Articles Of Animal Gut (Other Than Silk-Worm
of not less than Gut)
two (2) years • Wood And Articles Of Wood; Wood Charcoal;
Cork And Articles Of Cork; Manufactures Of
but not more
Straw, Of Esparto Or Other Plaiting Materials;
than eight (8)
Basketware And Wickerwork
years. • Pulp Of Wood Or Of Other Fibrous Cellulosic
Material; Waste And Scrap Of Paper Or
Paperboard; Paper And Paperboard And
F. CLASSIFICATION OF GOODS Articles Thereof
TAXABLE IMPORTATION • Textiles And Textiles Articles
Articles, although previously exported from the • Footwear, Headgear, Umbrellas, Sun
Philippines, become dutiable from the entry of Umbrellas, Walking-Sticks, Seat-Sticks, Whips,
the vessel or aircraft into the Philippine Riding-Crops And Parts Thereof; Prepared
jurisdiction until the payment of duties, taxes and Feathers And Articles Made Therewith;
Artificial Flowers; Articles Of Human Hair
other charges and the issuance of the permit for
• Articles Of Stone, Plaster, Cement, Asbestos,
the withdrawal of said goods from the Mica Or Similar Materials; Ceramic Products;
customhouse (Sec 104. TCC cited by Vitug) Glass And Glassware

There shall be levied, collected, and paid upon all
imported articles the rates of duty indicated in the
Section under this Section except as otherwise
specifically provided for in this
Code: Provided, that the maximum rate shall not
exceed 100% ad valorem. The rates of duty
herein provided shall apply to all products
PROHIBITED IMPORTATION
These are commodities the importation of which
is not allowed or banned under exisiting Philippine
laws or rules and regulation. Articles of prohibited
importation are classified into
a. Articles which are absolutely prohibited
b. Articles which are merely qualifiedly or
conditionally prohibited

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 TAXATION 2
Absolutely Prohibited Importation
Written or printed articles in any form containing
any matter advocating or inciting treason, or
rebellion, insurrection, sedition, or subversion
against the Government of the Philippines, or
forcible resistance to any law of the Philippines, or
containing any threat to take the life of, or inflict
bodily harm upon any person in the Philippines;
(Sec 101 (b), TCC)
Written or printed articles, negatives or
cinematographic film, photographs, engravings,
lithographs, objects, paintings, drawings, or other
representation of an obscene or immoral
character; (Sec 101 (c), TCC)
Roulette wheels, gambling outfits, loaded dice,
marked cards, machines, apparatus or mechanical
devices used in gambling….; (Sec 101 (e), TCC)
Any adulterated or misbranded articles of food
or any adulterated or misbranded drug in
violation of the provisions of the "Food and Drugs
Act”; (Sec 101 (h), TCC)
Opium pipes and parts thereof, or whatever
material; (Sec 101 (j), TCC)
All other articles and parts thereof, the
importation of which is prohibited by law or rules
and regulations issued by competent authority as
amended by Presidential Decree (PD) No. 34. (Sec
101 (k), TCC)
Conditionally Prohibited Importation
Dynamite, gunpowder, ammunitions and other
explosives, firearms, and weapons of war, and
parts thereof, except when authorized by law;
(Sec 101 (a), TCC)
Articles, instruments, drugs and substances
designed, intended or adapted for producing
lawful abortion.…; (Sec 101 (d), TCC)
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TAXATION LAW
The distribution of money, cigars, cigarettes, or
other when such distribution is dependent on
chance, including jackpot and pinball machines or
similar contrivances, or parts thereof; (Sec 101 (e),
TCC)
Lottery and Sweepstakes tickets except those
authorized by the Philippine government,
advertisements thereof, and list of drawings
therein; (Sec 101 (f), TCC)
Any article manufactured in whole or in part of
gold, silver or other precious metals or alloys
thereof, the stamps, brands or marks or which do
not indicate the actual fineness of quality of said
metals or alloys; (Sec 101 (g), TCC)
Marijuana, opium, poppies, coca leaves, heroin or
any other narcotics or synthetic drugs, which are
or may hereafter be declared habit forming by the
President of the Philippines, or any compound,
manufactured salt, derivative, or preparation
thereof, except when imported by the
Government of the Philippines or any person duly
authorized by the Dangerous Drugs Board, for
medical purposes only. (Sec 101 (i), TCC)
Prohibited importation under other existing laws:
a. Used Clothing and Rags under Republic Act
(RA) 4653, dated 06 June 1966
b. Toy Guns under LOI 1264, dated 31 July 1982
c. Right-Hand Drive Vehicles under RA 8506
dated 13 February 1998
d. Laundry and Industrial Detergents containing
hard surfactants under RA 8970 dated 31
October 2000
CONDITIONALLY-FREE IMPORTATION
Certain imported articles are exempt from import
the payment of import duties upon compliance
with the formalities prescribed. These articles
include:
a. Those provided in Sec. 105 of TCC
 TAXATION 2
b. Those granted to the government agencies,
government-owned or controlled corporation
with agreements with foreign countries
c. Those given to international institutions
entitled to exemption by agreement or special
law; and
d. Those that may be granted by the President
upon NEDA’s recommendation
Note:
Any article sold, bartered, hired or used for
purposes other than that they were intended for
without prior payment of the duty, tax or other
charges shall be subject to forfeiture and the
importation shall constitute a fraudulent practice
against customs revenue punishable
A sale pursuant to a judicial order or in liquidation
of the estate of a deceased person shall be subject
to Sec 104, TCC, without prejudice to the payment
of duties, taxes and other charges
The President may upon recommendation of the
Secretary of Finance, suspend, disallow or
completely withdraw, in whole or in part, any of
the conditionally-free importation under Sec 105
TCC.
These articles include: (see chart)
G. CLASSIFICATION OF DUTIES
Custom duties are grouped into regular or
ordinary and special duties.
ORDINARY/REGULAR DUTIES
Ordinary or regular duties refer to those that are
imposed on dutiable articles (see Sec. 104, TCC). 22
Ad valorem
Ad valorem duty derived from the Latin word,
literally means “according to value.” A tax levied
22
Vitug, 362
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TAXATION LAW
which is equal to a certain percentage of the value
of the imported articles. (Nague)
METHODS OF VALUATION (2005, BAR)
The Philippines, being a signatory to the General
Agreement on Tariffs and Trade (GATT) and a
member of the World Trade Organization (WTO),
follows the Transaction Value (TV) System under
Article VII of the 1994 GATT, as basis for the
assessment of import duties and taxes on
imported goods, which is the price paid or payable
for the goods when sold for export to the
Philippines. (Nague)
The applicable provision is Sec 201 of the TCC as
amended by RA 8181, which provides for a shift
from the “fair market value” to “export value”
effective second quarter of 1996 until January 1,
2000 when the “transaction value” shall be used.
It is RA 9135 that introduced six methods of
determining transaction values of imported
goods.
HIERARCHICAL ORDER UNDER THE WTO VALUATION
AGREEMENT.
Methods are chosen successively. Hierarchical
order of application provides that, in determining
the correct customs valuation of an imported
articles, the application of the 6 methods of
valuation above, should be in STRICT ORDER from
method 1 to 6.
If first method failed to produce a correct value
then customs should proceed to apply the second
value, and so on.
EXCEPT: Upon request of the importer, Method 4
(Deductive value) and Method 5 (computed
value_ are reverse in application.
EXCEPTION TO EXCEPTION: If the Commissioner
of Customs finds difficulty in determining the
dutiable value of the imported article under
Method 5.
 TAXATION 2 TAXATION LAW

Price actually paid or payable for P xx

METHOD ONE - TRANSACTION VALUE (SEC. 1(A), RA 9135) the goods when sold for export to
The dutiable value of an imported article subject the Philippines
to an ad valorem rate of duty shall be the
+ Adjustments:
transaction value, which shall be the price xx
a. Commission and brokerage
actually paid or payable for the goods when sold fees
for export to the Philippines, adjusted by adding: b. Cost of containers xx
1. The following to the extent that they are c. Cost of packing xx
incurred by the buyer but are not included in xx
d. Assists
the price actually paid or payable for the
e. Royalties and license fees xx Xx
imported goods: (also known as
“adjustments”, referred in Sec. II.B.3[d], CAO + Proceeds of any subsequent Xx
4-2004) resale
a. Commissions and brokerage fees (except + Transportation cost Xx
buying commissions); + Insurance Cost Xx
b. Cost of containers; TRANSACTION VALUE P xxx
c. Cost of packing, whether for labor or
materials;
When not applicable:
d. The value of the following goods and
Method One shall not be used in determining the
services supplied directly or indirectly by
the buyer free of charge or at a reduced dutiable value of imported goods if:
cost for use in connection with the a. There are restrictions as to the disposition or
production and sale for export of the use of the goods by the buyer other than
imported goods: (also known as “assists”, restrictions which:
as defined in Sec. II.B.3[d], CAO 4-2004) i. Are imposed or required by law or by
i. Materials, components, parts and Philippine authorities;
similar items incorporated in the ii. Limit the geographical area in which
imported goods; the goods may be resold; or
ii. Tools; dies; molds and similar items iii. Do not substantially affect the value
used in the production of imported of the goods.
goods; b. The sale or price is subject to some condition
iii. Engineering, development, artwork, or consideration for which a value cannot be
design work and plans and sketches determined with respect to the goods being
undertaken elsewhere than in the valued;
Philippines and necessary for the c. Part of the proceeds of any subsequent
production of imported goods. resale, disposal or use of the goods by the
e. The amount of royalties and license fees buyer will accrue directly or indirectly to the
that the buyer must pay, either directly or seller,
indirectly, as a condition of sale. UNLESS: an appropriate adjustment can be
2. Proceeds of any subsequent resale, disposal made in accordance with the provisions
or use of the imported goods that accrues hereof; or
directly or indirectly to the seller. d. The buyer and the seller are related to one
3. Transportation cost from the port of another, and such relationship influenced the
exportation to the port of entry in the price of the goods.
Philippines.
4. Insurance cost

SUMMARY:

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 TAXATION 2 TAXATION LAW

METHOD TWO: TRANSACTION VALUE OF IDENTICAL GOODS identical or similar imported goods are sold in the
(SEC. 1(B), RA 9135)
Philippines,
Where the dutiable value cannot be determined
● In the same condition as when imported,
under method one, the dutiable value shall be the
● In the greatest aggregate quantity,
transaction value of identical goods sold for ● At or about the time of the importation of the
export to the Philippines and exported at or about goods being valued,
the same time as the goods being valued. ● To persons not related to the persons from
whom they buy such goods,
"Identical goods" shall mean goods which are
the same in all respects, including physical Subject to deductions for the following:
characteristics, quality and reputation. a. Either the commissions usually paid or agreed
to be paid or the additions usually made for
profit and general expenses in connection
Minor differences in appearances shall not
with sales in such country of imported goods
preclude goods otherwise conforming to the of the same class or kind;
definition from being regarded as identical. b. The usual costs of transport and insurance
and associated costs incurred within the
METHOD THREE: TRANSACTION VALUE OF SIMILAR GOODS Philippines; and
(SEC. 1(C), RA 9135) c. Where appropriate, the costs and charges
Where the dutiable value cannot be determined referred to in subsection (A) (3), (4) and (5);
under the preceding method, the dutiable value and
shall be the transaction value of similar goods d. The customs duties and other national taxes
sold for export to the Philippines and exported at payable in the Philippines by reason of the
or about the same time as the goods being importation or sale of the goods.
valued.
SUMMARY:
Unit price at which the imported goods P xx
"Similar goods" shall mean goods which, although or identical or similar imported goods
not alike in all respects, have like characteristics are sold in the Philippines
and like component materials which enable them - Commission Xx
to perform the same functions and to be - Usual costs of transport and Insurance Xx
commercially interchangeable.
- Transportation cost Xx
- Insurance cost Xx
The quality of the goods, their reputation and the
Customs duties and other national taxes Xx
existence of a trademark shall be among the -
payable in the Philippines
factors to be considered in determining whether DEDUCTIVE VALUE P xxx
goods are similar.
Note:
Note:
At or about the same time
The order of application of methods four and five
A period extending 45 days prior to and 45 days
can be reversed if the dutiable value still cannot
following the importation of the goods being
be determined through the successive application
valued.
of method four and five.

Unit price at which goods are sold in the greatest

DEDUCTIVE VALUE (SEC. 1(D), RA 9135)
The deductive value which shall be based on the aggregate quantity
unit price at which the imported goods or

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 TAXATION 2
Means the price at the greatest number of units is
sold in sales to persons who are not related to the
persons from whom they buy such goods at the
first commercial level after importation at which
such sales take place.
Example: Two (2) sales occur. In the first sale 500
units are sold at price of 95 currency units each. In
the second sale 400 units are sold at a price of 90
currency units each.
In this example, the greatest number of units sold
at a particular is 500; therefore the unit price in
the greatest aggregate quantity is 95. (Nague)
COMPUTED VALUE (SEC. 1(E), RA 9135)
The dutiable value under this method shall be the
computed value which shall be the sum of:
1. The cost or the value of materials and
fabrication or other processing employed in
producing the imported goods;
2. The amount for profit and general expenses
equal to that usually reflected in the sale of
goods of the same class or kind as the goods
being valued which are made by producers in
the country of exportation for export to the
Philippines;
3. The freight, insurance fees and other
transportation expenses for the importation
of the goods;
4. Any assist; and
5. The cost of containers and packing.
SUMMARY:
Sum of the following:
Cost or the value of materials and Pxx
fabrication
+ Amount for profit and general expenses Xx
Freight, insurance fees and other Xx
transportation expenses for the
+ importation of the goods
+ Any assist Xx
+ Cost of containers and packing Xx
COMPUTED VALUE P xxx
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TAXATION LAW
Non-resident not compelled for examination
The Bureau of Customs shall not require or
compel any person not residing in the Philippines
to produce for examination, or to allow access to,
any account or other record for the purpose of
determining a computed value.
However, information supplied by the producer of
the goods for the purposes of determining the
customs value may be verified in another country
with the agreement of the producer and provided
they will give sufficient advance notice to the
government of the country in question and the
latter does not object to the investigation.
FALLBACK VALUE (SEC. 1(F), RA 9135)
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
Philippines.
If the importer so requests, the importer shall be
informed in writing of the dutiable value
determined under Method Six and the method
used to determine such value.
No dutiable value shall be determined under
Method Six on the basis of:
(1) The selling price in the Philippines of goods
produced in the Philippines;
(2) A system that provides for the acceptance for
customs purposes of the higher of two
alternative values;
(3) The price of goods in the domestic market of
the country of exportation;
(4) The cost of production, other than computed
values, that have been determined for
identical or similar goods in accordance with
Method Five hereof;
(5) The price of goods for export to a country
other than the Philippines;
(6) Minimum customs values; or
(7) Arbitrary or fictitious values.
 TAXATION 2 TAXATION LAW

held or packed at the time

Note: Based on the above provision, the practice of of importation. (Sec.
the Bureau of Customs in adopting established or 202a)
published values in determining the dutiable value The dutiable weight
of the articles being values should be stopped, thereof shall be the
since it is now expressly prohibited as a basis for weight of same, together
determining customs value under Art. 7 of the with the weight of the
WTO Valuation Agreement, because these kind of immediate containers,
value id a form of “minimum value” holders and/or packing in
which such articles are
Also, the old practice of “whichever is higher rule” usually contained, held or
should now be discouraged, since it is prohibited Weight as of packed at the time of
under Article 7 of the WTO valuation system. the articles to importation and/or, when
(Nague) Legal the public in imported in retail
retail packages, at the time of
a) Specific quantities their sale to the public in
usual retail quantities:
Levied on importas that is proportional to the
number of items or units imported (i.e. based EXCEPTION:
on the weight, volume, gauge, or other
When articles are packed
measure of quantity or based upon or
in single container, the
regulated by value) without regard to its
value. (Nague) weight of the latter shall
be included in the legal
Ship owners and shipmasters or their weight. (Sec. 202b)
employees are required to verify and declare The dutiable weight
the correct weight of their cargo thereof shall be only the
[Commissioner vs. Delgado Shipping, 184 SCRA Weight as of actual weight of the
579] importation articles at the time of
less the importation, excluding the
Net
Rates are based on unit of weight number or immediate weight of the immediate
measurement. Weights may either be: (Vitug)
and all and all other containers,
containers holders or packing in
Basis of dutiable value if article is subject to a
which such articles are
specific rate of duty
contained, held or packed.

The dutiable weight

SPECIAL DUTIES
thereof shall be the
These are additional import duties imposed on
weight of same, together
On entire specific kinds of imported articles under certain
with the weight of all
Gross bulk conditions. It cannot be applied without the
containers, packages,
regular customs duties. It can only be applied in
holders and packings, of
the presence of a special order from government
any kind, in which said
officers.
articles are contained,

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 TAXATION 2
Dumping duties
It is a special duty imposed on the importation of
a product, commodity or article of commerce into
the Philippines at less than its normal value when
destined for domestic consumption in the
exporting country which is the difference between
the export price and the normal value39 of such
product, commodity or article.(see Section
301(s)(1), TCC)
Dumping duties are special duties imposed by the
Secretary of Finance, upon recommendation of
the Tariff Commission when it is found that: (Sec
301, TCC, as amended by RA 8752)
• the price of the imported articles is
deliberately or continually fixed at less than
the fair market value or cost of production or
• likely cause an injury to local industries
engaged in the manufacture or production of
the same or similar articles or prevent their
establishment.
Pending a final decision on the question of
whether the special duty should be imposed or
not, the goods may be released under cash bond
(Vitug citing As amended by RA 7843; modified by
RA 8752)
Dumping occurs when foreign producers sell their
products to an importer in the domestic market
a. at prices lower than in their own national
markets, or
b. at prices below cost of production
c. the sale or importation of which injures or
threatens to unjure a domestic industry
producing like or comparable products, or
d. retards the establishment of a potential
industry.
ELEMENTS OF DUMPING
In order to determine the presence of dumping in
the local market, the following elements are to be
considered:
1. Like product – product produced by the
domestic industry which is identical or alike in
all respects to the article under consideration,
or in the absence of such a product, another
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TAXATION LAW
product of which, although not alike in all
respects, has characteristics closely
resembling those of the products under
consideration.
2. Price difference – amount by which the
normal value (the price prevailing in the
exporting country) exceeds the export price
(selling price to an importer in the Philippines)
3. Injury – means material injury to a domestic
industry, threat of material injury or material
retardation of the establishment of a
domestic industry.
4. Causal Link – refers to a finding that the
material injury suffered by the domestic
industry is the direct result of the importation
of the dumped product. (Nague)
PURPOSE:
To prevent the continuous dumping of imported
articles into the local market of a country at a
price less than those prevailing in its domestic
markets, which has the effect of causing material
injury or threatening to retard the establishment
of a domestic industry producing the same
product.
VALUE OF THE SPECIAL DUTY:
The "dumping duty" shall be equal to the
difference between the purchase price or, in the
absence thereof, the exporter's sales price, and
the fair value of the article. The amount of the
special duty is the extent of the under-pricing.
(Sec 301(d), TCC)
The "fair value" of an article shall be its foreign
market value, or, in the absence of such value, its
cost of production.
The "purchase price" of an imported article shall
be the price at which such article has been
purchased or agreed to be purchased, prior to the
time of exportation, by the person by whom or for
whose account the article is imported plus other
cost enumerated under Sec 301(d)(2), TCC.
 TAXATION 2
The "exporter's sale price" of an imported article
shall be the price at which such article is sold or
agreed to be sold in the Philippines, before or
after the time of exportation
This special duty which is equal to the difference
between the actual price and the normal value of
the article.
ARTICLES EXEMPTED FROM ANTI-DUMPING MEASURE
1. Products imported by, or consigned to,
government agencies not organized for profit
and particularly designated by law or proper
authorities to import, directly or through
awardees; such as articles would stabilize
and/or supplement shortages; and
2. Conditionally duty-free importation under
Section 105 of the TCC. (Nague citing Tariff
Commission: A Primer on New Developments
in Trade and Tariff Policy, August 2003 Ed.)
Countervailing duties
It is a special duty imposed on the importation of
a product, commodity or article of commerce into
the Philippines when the same is granted directly
or indirectly by the government in the country of
origin or exportation any kind or form of specific
subsidy upon the production, manufacture or
exportation of such product, commodity or
article, and the importation of such subsidized
product, commodity or article has caused or
threatens to cause material injury to a domestic
industry or has materially retarded the growth or
prevents the establishment of a domestic industry
as determined by the Tariff Commission. (see
Section 302, TCC, as amended by RA 8751)
The countervailing duty shall be in addition to any
ordinary duties, taxes, and charges imposed by
law on such imported product or article
The countervailing duty is equivalent to the
bounty (cash award paid to an exporter), subsidy
(fiscal incentives, not in the form of cash award, to
encourage manufacturers or exporters) or
subvention (any assistance other than bounty or
subsidy).
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TAXATION LAW
The imposing authority for the countervailing
duties is the DTI Secretary in the case of non-
agricultural product, commodity, or article or the
DA Secretary in the case of agricultural product,
commodity or article.
ELEMENTS
1. Like Product- product produced by the
domestic industry which is identical or alike in all
respects to the article under consideration, or in
the absence of such a product, another product
which, although not alike in all respects, has
characteristics closely resembling those of the
product under consideration.
2. Subsidy- any financial assistance extended to
the production, manufacture, carriage or export
of goods.
Types of subsidies
a. Bounty – cash award paid to an exporter or
manufacturer
b. Subsidy – fiscal incentives not in the form of
direct cash award to encourage
manufacturers or exporters
c. Subvention – any assistance other than a
bounty or subsidy given by a government for
the manufacturer and/or exportation of an
article. (Domondon)
3. Injury- material injury to a domestic industry,
threat of material injury or material retardation of
the growth or the prevention of the establishment
of a domestic industry. Injury test must be based
on positive evidence and must involve an
objective examination of both
a. the volume of the subsidized imports and
the effect of subsidized imports on the
prices of like product in the domestic
market, and
b. the consequent impact of these imports
on domestic producers of such products.
4. Causal Link- the material injury suffered by the
domestic industry is the direct result of the
 TAXATION 2
importation of the subsidized product. (Tariff
Commission, Service Manual, October 2011)
PURPOSE:
To offset or forestall the subsidy or bounty
directly or indirectly granted by the government
of the exporting country or by a cartel upon the
manufacturer, production, or exportation of a
product imported in a country which has caused
or threatens to cause material injury to a
domestic industry or retard the establishment of a
domestic industry producing identical or like
articles.
VALUE OF THE SPECIAL DUTY:
A countervailing duty equal to the ascertained or
estimated amount of such bounty, subsidy or
subvention granted. Equal to the ascertained
amount of subsidy per unit of subsidized exported
product.
Marking duties
A marking duty are the additional customs duties
imposed on foreign articles (or its containers if the
article itself cannot be marked) not marked in any
official language in the Philippines in a
conspicuous place as legibly, indelibly and
permanently in such manner as to indicate to an
ultimate purchaser in the Philippines the name of
the country of origin. (See Section 303, TCC)
Since every article of foreign origin or its
container, imported into the Philippines shall be
marked in any official language of the Philippines
and in a conspicuous place as legibly, indelibly and
permanently as the nature of the article (or
container) will permit in such manner as to
indicate to an ultimate purchaser in the
Philippines the name of the country of origin of
the article. If at the time of importation any article
(or its container), is not marked in accordance
with the requirements, there shall be levied,
collected and paid upon such article a marking
duty (Sec. 303, TCC)
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TAXATION LAW
FAILURE OR REFUSAL TO MAKER
The failure or refusal of the owner or importer to
mark the articles as herein required within a
period of 30 days after due notice shall constitute
as an act of abandonment of said articles and
their disposition shall be governed by the
provisions of this Code relative to abandonment
of imported articles.
PURPOSE:
To prevent deception or mistake as to the origin
of the article or as to the origin of any other
article with which such imported article is usually
combined subsequent to importation but before
delivery to an ultimate purchaser
VALUE OF THE SPECIAL DUTY:
5 % ad valorem imposed on articles not properly
marked except when such article is exported or
destroyed under customs supervision and prior to
the final liquidation of the corresponding entry.
EXCEPTION OF ANY ARTICLE FROM THE REQUIREMENTS OF
MARKING IF:
1. Article is incapable of being marked;
2. Article cannot be marked prior to shipment to
the Philippines without injury;
3. Article cannot be marked prior to shipment to
the Philippines, EXCEPT at an expense
economically prohibitive of its importation;
4. The marking of a container of such article will
reasonably indicate the origin of such article;
5. Article is a crude substance;
6. Article is imported for use by the importer
and not intended for sale in its imported or
any other form;
7. Article is to be processed in the Philippines by
the importer or for his account otherwise
than for the purpose of concealing the origin
of such article and in such manner that any
mark contemplated by this section would
necessarily be obliterated, destroyed or
permanently concealed;
8. An ultimate purchaser, by reason of the
character of such article or by reason of the
circumstances of its importation must
necessarily know the country of origin of such
 TAXATION 2
article even though it is not marked to
indicate its origin;
9. Such article was produced more than twenty
years prior to its importation into the
Philippines; or
10. Such article cannot be marked after
importation EXCEPT at an expense which is
economically prohibitive, and the failure to
mark the article before importation was not
due to any purpose of the importer, producer,
seller or shipper to avoid compliance.
Retaliatory/discriminatory duties
It is a penalty duty in addition to the regular duty,
imposed by one country against the articles or
products of a country that unequally imposes
unreasonable charge or limitation which
discriminates against the product of the
discriminated country. (Nague)
BASIS FOR IMPOSITION:
The President, when he finds that the public
interest will be serves thereby, shall by
proclamation specify and declare new or
additional duties in an amount not exceeding
100% ad valorem upon articles wholly or in part
the growth or product of, or imported in a vessel
of, any foreign country whenever he shall find as a
fact that such country: (Sec 304a, TCC)
a. Imposes, directly or indirectly, upon the
disposition or transportation in transit
through or re-exportation from such country
of any article wholly or in part the growth or
product of the Philippines, any unreasonable
charge, exaction, regulation or limitation
which is not equally enforced upon the like
articles of every foreign country; or
b. Discriminates in fact against the commerce of
the Philippines, directly or indirectly, in such
manner as to place the commerce of the
Philippines at a disadvantage compared with
the commerce of any foreign country.
• by law or administrative regulation or
practice,
• by or in respect to any customs, tonnage,
or port duty, fee, charge, exaction,
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TAXATION LAW
classification, regulation, condition,
restriction or prohibition
If at any time the President shall find it to be a fact
that any foreign country maintained or increased
its said discrimination against the commerce of
the Philippines, the President is hereby
authorized, if he deems it consistent with the
interests of the Philippines, to issue a further
proclamation directing that such product of said
country or such article imported in its vessels as
he shall deem consistent with the public interests,
shall be excluded from importation into the
Philippines. (Sec 304b, TCC)
EXTENT OF THE PROCLAMATION:
Any proclamation issued by the President under
this section shall extend to the whole of any
foreign country or may be confined to any
subdivision or subdivisions thereof; and
The President shall, whenever he deems the
public interests require, suspend, revoke,
supplement or amend any such proclamation.
(Sec304c, TCC)
IMPORTATION CONTRARY, EFFECT:
All articles imported contrary to the provisions of
this section shall
• be forfeited to the Government of the
Philippines and
• be liable to be seized, prosecuted and
condemned in like manner and under the
same regulations, restrictions and provisions
as may from time to time be established for
the recovery, collection, distribution and
remission or forfeiture to the government by
the tariff and customs laws. (Sec304d, TCC)
DUTIES OF THE GOVERNMENT AUTHORITIES:
Commission
It shall be the duty of the Commission to ascertain
and at all informed whether any of the
discrimination against the commerce of the
Philippines are practiced by any country; and
 TAXATION 2
If and when such discriminatory acts are
disclosed, it shall be the duty of the Commission
to bring the matter to the attention of the
President, together with recommendations.
(Sec304e, TCC)
Secretary of Finance
The Secretary of finance shall make such rules and
regulations as are necessary for the execution of
such proclamation as the President may issue.
(Sec304f, TCC)
VALUE OF THE SPECIAL DUTY
Additional duties in an amount not exceeding
100% ad valorem
Safeguard Duty
Governed by RA 8800, otherwise known as
“Safeguard Measures Act”
This is a new multilateral measure in the form of
an “increase tariff” (in the case of industrial or
non-tariffed imports) or additional special
“safeguard duty” (in the case agricultural
products) levied in addition to the regular duty
against covered products
• being imported in an increased quantities, or
• its volume exceeds the trigger level or
• its C.I.F (Cost, Insurance and Freight) values
falls below the trigger price. (Nague)
Safeguard measures are emergency measures
including tariffs to protect domestic industries and
producers from increased imports which inflict or
could inflict serious injury on them.
EXCEPTION: A general safeguard measure shall not
be applied to a product originating from a
developing country if its share of total imports of
the product is less than three percent (3%):
Provided, however, That developing countries
with less than three percent (3%) share
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TAXATION LAW
collectively account for not more than nine
percent (9%) of the total imports. (Sec. 13)
The special safeguard duty shall not apply to the
volumes of the imported agricultural product
under consideration that are brought into the
country under the minimum access volume
mechanism. (Sec. 25)
CONDITIONS FOR THE APPLICATION OF GENERAL
SAFEGUARD MEASURES. (RA 8800)
The Secretary shall apply a general safeguard
measure upon
1. A positive final determination of the
Commission that a product is being imported
into the country in increased quantities,
whether absolute or relative to the domestic
production, as to be a substantial cause of
serious injury or threat thereof to the
domestic industry;
2. In the case of non-agricultural products, the
Secretary shall first establish that the
application of such safeguard measures will
be in the public interest. (Sec. 5)
Upon its positive determination, the Commission
shall recommend to the Secretary an appropriate
definitive measure, in the form of:
a. An increase in, or imposition of, any duty on
the imported product;
b. A decrease in or the imposition of a tariff-rate
quota (MAV) on the product;
c. A modification or imposition of any
quantitative restriction on the importation of
the product into the Philippines;
d. One or more appropriate adjustment
measures, including the provision of trade
adjustment assistance;
e. Any combination of actions described in
subparagraphs (a) to (d). (Sec 13)
PURPOSE:
To protect domestic industries and producers
from increased imports which cause or threaten
to cause serious injury to those domestic
industries and producers.
 TAXATION 2
VALUE OF THE SPECIAL DUTY:
The general safeguard measure shall be limited to
the extent of redressing or preventing the injury
and to facilitate adjustment by the domestic
industry from the adverse effects directly
attributed to the increased imports.
The special safeguard duty allowed to be imposed
on the basis of the volume test. (Sec. 23). The
additional duty allowed to be imposed on the
basis of the price test. (Sec. 24)
a. Volume test - its cumulative import volume in
a given year exceeds its trigger volume.
Section 21 (a)
b. Price test - its actual c.i.f. import price is less
than its trigger price. pursuant to Section 21
(b).
Southern Cross Cement Corporation V. Cement
Manufacturers, The Honorable Secretary Of
Trade, Et Al. [G.R. No. 158540, 3 August 2005]
It settled the issue that it is the Court of Tax
Appeal (CTA) which has jurisdiction not only over
the imposition of safeguard measures but also if
108
TAXATION LAW
there is none to be imposed. The Supreme Court
rejected the stand that CTA will only have
jurisdiction if there is an imposition of safeguard
measures and if none, it is the Court of Appeals
that has jurisdiction. The highest court states that
“precisely the split jurisdiction situation is
anathema to the orderly administration of
justice.” Undoubtedly, the phrase “in connection
with” not only qualifies but clarifies the
succeeding phrase “Imposition of a safeguard
measure,” the phrase also encompasses the
opposite or converse ruling which is the non-
imposition of a safeguard measure.
In this case also, it was held that the Secretary of
Trade and Industry shall only apply a general
safeguard measure upon positive formal
determination of the Tariff Commission and in
interest of the public. Under Section 12 of the
Safeguard Law, the negative determination by the
Tariff Commission binds the Secretary of Trade
and Industry. (Vitug)
 TAXATION 2 TAXATION LAW

DISTINGUISHED ALL THE SPECIAL CUSTOMS DUTIES (DOMONDON, DIZON)

Bar 1968, 1977, 2004
Basis
Is premised on importation and sale
of imported item at below their
normal value causing or likely to
cause injury to local industry
Anti-Dumping
Duty
Is imposed on imported items
Countervailing granted a specific subsidy upon their
Duty production, manufacture or
exportation
Imposed on articles of or imported
vessel of any foreign country which
Discriminatory in any manner places the commerce
Duty of the Philippines at a disadvantage
compared with the commerce of
any foreign country.
Is the failure to mark the article of
Marking Duty
the container
These are the emergency measure,
including tariffs, to protect domestic
industries and producers from
increased imports which inflicts or
could inflict serious injury on them.
Safeguard
Measure
Rates Authority Imposing
Equal to the difference Special Committee on Anti-
between the actual price dumping: (RA No. 7845)
and the normal value of a. Secretary of Finance
the article (Chairman)
b. Secretary of Agriculture,
if the article is an
agricultural product.
c. Secretary of Labor, if
the article is a non-
agricultural product
Shall be equivalent to Secretary of Finance
the subsidy, bounty or
subvention
Shall not exceed 100% President of the Philippines
ad valorem of the
articles
Should not exceed 5% ad Commissioner of Customs
valorem of the articles
The additional tariff Secretary of Agriculture, if
rates that may be the article is an agricultural
imposed by the product.
President has not been
limited under the Secretary of trade and
Safeguard Measures Act industry of the article is non-
agricultural product
Shall apply a general
safeguard measure upon,
and only upon, a positive
determination of the Tariff
Commission (Sec 5 RA 8800)

109
 TAXATION 2
H. DRAWBACKS
DRAWBACK, DEFINED.
An allowance made by the government upon the
duties due on imported merchandise when the
importer, instead of selling it here, re-export it;
or the refunding of such duties if already paid. A
governmental allowance or refund on import
duties when the importer reexports imported
products rather than selling them domestically.
(Black’s Law Dictionary, 9th ed.)
Is a device whereby goods affected by taxes are
re-exported as if they are not taxed at all. (Nague
citing M. Tejam, Customs Broker Review)
The term drawback, which literally means to
“draw back” or “refund”, is a device or a special
form of relief and benefit mechanism given to a
person to draw back or to claim a refund of
import duties, and if warranted includes internal
revenue taxes, he previously paid for importing
raw materials used fro manufacturing his export
products or importing goods devoted to
particular purposes or uses, after compliance
with all the conditions and documentary
requirements under the law and regulations
issued pursuant thereto. (Nague)
IS INTERNAL REVENUE TAX SUBJECT OF DRAWBACK?
Yes. If as a result of the refund or tax credit by
way of drawback of customs duties, there would
necessarily result a corresponding refund or
credit of internal revenue taxes on the same
importation, the Collector of Customs shall
likewise certify the same to the Commissioner of
Customs who shall cause the said refund or tax
credit of internal revenue taxes to be paid,
refunded or credited in favor of the importer,
with advice to the Commissioner of Internal
Revenue. (Sec 106e, TCC)
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TAXATION LAW
PURPOSE:
To make duty-free imported materials which are
manufactured here and then returned to the
country from which they came or to some other
foreign country.
Not only to build up an export trade, but to
encourage manufacturers in this country, where
such manufacturers are intended for exportation,
by granting a rebate of duties in the raw or
prepared materials imported.
To enable the manufacturer to compete in the
foreign markets with the same articles
manufactured in other countries. (Nague citing
15 Am Jur 57)
IMPORTATION OF GOODS SUBJECT TO
DRAWBACK:
Sec 106 of TCC provides from mechanism
wherein a refund of taxes is made on certain
goods affected by import duties after compliance
with all conditions and documentary provided for
by law and the rules and regulations issued
pursuant thereto.
CONDITION & REQUIREMENTS OF GOODS
Goods
On Fuel Used for Propulsion of Vessels.
a. That the imported fuel into the Philippines is
used for propulsion of vessels engaged in
trade with foreign countries, or in the
coastwise trade
b. That the refund or tax credit shall be allowed
not exceeding 99% of the duty imposed by law
on such fuel
“Coastwise trade” applies to vessels engaged in
the bay and river business, so that all vessel
plying between the Philippine ports are entitled
to a drawback of duty paid on imported fuel
(Nague citing Philippine Digest, Vol. 7, S13)
On Petroleum Oils and Oils Obtained from Bituminous
 TAXATION 2
Minerals, Crude Eventually Used for Generation of Electric
Power and for the Manufacture of City Gas.
That the said oils are sold directly or indirectly, in
the same form or after processing, to electric
utilities for the generation of electric power and
for the manufacture of city gas,
That the refund or tax credit shall be allowed not
exceeding 50% of the duty imposed by law upon
such oils.
On Articles Made from Imported Materials.
a. The actual use of the imported materials in
the production or manufacture of the article
exported with their quantity, value, and
amount of duties paid thereon, having been
established;
b. The duties refunded or credited shall not
exceed 100% of duties paid on imported
materials used;
c. There are no available locally produced or
manufactured competitive substitute for the
imported materials used at the time of the
importation as certified by National
Economic and Development Authority
(NEDA)
d. The exportation shall be made within one (1)
year after the importation of materials used
and claim of refund or tax credit shall be filed
within six (6) months from the date of
exportation;
e. When two or more products result from the
use of the same imported materials, an
apportionment shall be made on its equitable
basis
Note: “one year after importation” is construed as
not the date of termination of importation which
has technical meaning under Sec. 1202 of TCC,
but should mean as the date of arrival of the
vessel or aircraft or ordinarily the date when the
shipments arrived in the port of entry in the
Philippines and NOT the termination of
importation. (Nague)
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TAXATION LAW
PAYMENT OF DRAWBACK CLAIM
The Secretary of Finance may allow partial
payments of drawbacks.
Claim for drawback shall be filled with the
Drawback Unit under the Commissioner’s Office
or through the Collector’s Office of the Port of
Manila or in other ports of entry.
Claims for refund or tax credit eligible for such
benefits shall be paid or granted by the Bureau of
Customs to claimants within sixty (60) days after
receipt of properly accomplished claims
Not entitled to Drawback: A registered enterprise
under Republic Act No. 5186 (Investment
Incentives Act.) or RA No. 6135 (Export Incentives
Act of 1970) which has previously enjoyed tax
credit based on customs duties paid on imported
raw materials and supplies, shall not be entitled
to drawback under this section, with respect to
the same importation subsequently processed
and re-exported
Question: A Co. imported leather into the
Philippines with the intent of manufacturing the
same into shoes and exporting the finished
products afterwards. Upon arrival in Manila a
consumption entry was filed for the same
stamped with the words “SUBJECT TO
DRAWBACK”. When the shipment was opened at
the importer’s warehouse it was discovered that
the color of the leather was blotched. The
shipment was re-exported, as is, and the
importer filed a claim for refund by way of
drawback. The custom broker insisted that the
claim for drawback is proper since the article,
imported was subsequently exported. Is it
correct?
No drawback can be made because no
manufacture was made of the raw materials.
 TAXATION 2 TAXATION LAW

Drawback is authorized under Section 106(a) only manufacture of finished products that are later
on imported materials that are used in the exported. (Nague)

I. REMEDIES
TAXPAYER’S REMEDIES VS. GOVERNMENT REMEDIES UNDER NIRC AND TCC.
Bar 1996
Tax Payer’s Remedy Government’s Remedies
Before payment
NIRC TCC NIRC TCC
Administrative remedy None. Protest can only Administrative remedy None. Protest can only
which is the filing of be made after payment which is the filing of be made after payment
protest within 30 days of duties protest within 30 days of duties
from receipt of from receipt of
assessment assessment
Judicial Remedy which is the appeal of the adverse Judicial Remedy which is the appeal of the adverse
decision of the Commissioner on the protest with the decision of the Commissioner on the protest with the
CTA and finally with the Supreme Court CTA and finally with the Supreme Court
After payment
NIRC TCC NIRC TCC
Availed by paying the Administrative remedy Availed by paying the Administrative remedy
assessed tax within 30 consists of filing a claim assessed tax within 30 consists of filing a claim
days from receipt of for refund which may days from receipt of for refund which may
assessment and the filing take the form of assessment and the filing take the form of
of a claim for refund or tax abatement or drawback. of a claim for refund or tax abatement or drawback.
credit of these taxes on credit of these taxes on
grounds that they are The taxpayer can also file grounds that they are The taxpayer can also file
erroneously paid with 2 a protest within 15 days erroneously paid with 2 a protest within 15 days
years from the date of from payment if he years from the date of from payment if he
payment disagrees with the ruling payment disagrees with the ruling
or decision of the or decision of the
Collector Collector
If there is a denial of the If the decision of the If there is a denial of the If the decision of the
claim, appeal to the CTA Collector is adverse to claim, appeal to the CTA Collector is adverse to
shall be made within 30 the taxpayer, he can shall be made within 30 the taxpayer, he can
days from denial but notify the Collector days from denial but notify the Collector
within 2 years from the within 15 days from within 2 years from the within 15 days from
date of payment receipt of decision of his date of payment receipt of decision of his
desire to have his case desire to have his case
reviewed by the reviewed by the
Commissioner Commissioner
Adverse decision does not If the Collector made Adverse decision does not If the Collector made
automatically elevate decision adverse to the automatically elevate decision adverse to the
Government, it is Government, it is
automatically elevated to automatically elevated to
the Commissioner for the Commissioner for
review; If such affirmed, review; If such affirmed,
same shall be same shall be
automatically elevated to automatically elevated to
the Secretary of Finance the Secretary of Finance

112
 TAXATION 2
GOVERNMENT
Administrative/extrajudicial
TERRITORIAL JURISDICTION
Bureau of Customs shall have the right of
supervision and police authority over
a. All seas within the jurisdiction of the
Philippines and
b. Over all coasts, ports, airports, harbors, bays,
rivers, and inland waters whether navigable
or not from the sea.
c. Beyond the maritime zone, when a vessel
becomes subject to seizure by reason of an
act done in Philippine waters in violation of
the tariff and customs laws, a pursuit of such
vessel began within the jurisdictional waters
may continue.
JURISDICTION OVER PREMISES USED FOR CUSTOMS
PURPOSES
The Bureau of Customs shall for customs
purposes, have exclusive control, direction and
management of
a. customhouses,
b. warehouses,
c. offices,
d. wharves, and
e. other premises in the respective ports of
entry, in all cases without prejudice to the
general police powers of the city or
municipality and the Philippine Coast Guard
in the exercise of its functions wherein such
premises are situated.
Search, seizure, forfeiture, arrest
SEARCH AND SEIZURE
I. NO TRESPASS RULE
No person other than those with legitimate
business with, or employees of, the port or the
Bureau of Customs shall be allowed to enter the
customs premises without a written permission
of the Collector. (Sec. 2201, TCC)
II. NO OBSTRUCTION RULE
No person shall obstruct a customhouse,
warehouse, office, wharf, street or other
premises under the control of the Bureau of
1
TAXATION LAW
Customs, or in any approaches to that house or
premises. (Sec. 2201, TCC)
DOCTRINE OF HOT PURSUIT
Over vessels: When a vessel becomes subject to a
seizure by reason to an act done in Philippine
waters in violation of the Tariff and Customs Law
A pursuit of such vessel began within the
jurisdictional waters and may continue beyond
the maritime zone and the vessel may be seized
on the high seas.
Over Imported articles:Imported articles which may
be subject to seizure for violation of the tariff and
customs laws may be pursued in their
transportation in the Philippines by land, water,
or air and
Such jurisdiction exerted over them at any place
therein as may be necessary for the due
enforcement of the law (Sec 603, TCC)
SPECIAL SURVEILLANCE FOR PROTECTION OF CUSTOMS
REVENUE AND PREVENTION OF SMUGGLING
In order to prevent smuggling and to secure the
collection of the legal duties, taxes and other
charges, the customs service shall exercise
surveillance over the coast, beginning when a
vessel or aircraft enters Philippine territory and
concluding when the article imported therein has
been legally passed through the customhouse
(Sec 2202, TCC)
PERSONS HAVING POLICE AUTHORITY
For the enforcement of the tariff and customs
laws, the following persons are authorized to
effect searches, seizures and arrests conformably
with the provisions of said laws.
1. Officials of the Bureau of Customs, district
collectors, deputy collectors, police officers,
agents, inspectors and guards of the Bureau
of Customs;
 TAXATION 2 TAXATION LAW

2. Officers of the Philippine Navy and other Dwelling House the Court or such other
members of the Armed Forces of the responsible officers as may be
Philippines and national law enforcement authorize -sworn application
agencies when authorized by the
showing probable cause and
Commissioner;
3. Officials of the Bureau of Internal Revenue on particularly describing the place to
all cases falling within the regular be searched a thing to be seized
performance of their duties, when the (Sec. 2209, TCC)
payment of internal revenue taxes are To go abroad any vessel or aircraft
involved; within the limits of any collection
4. Officers generally empowered by law to
and to inspect, search and
effect arrests and execute processes of
examine said vessel or aircraft and
courts, when acting under the direction of
the Collector. any trunk, package, box or
envelope on board,
EXERCISE OF POWER OF SEIZURE AND ARREST
Right to Search
Bar 1992 To search any person on board
Vessels or
It shall be within the official or person authorized
Aircrafts and the said vessel or aircraft and to
as aforesaid, and it shall be his duty: Persons or this end to hail and stop such
1. Make seizure of any vessel, aircraft, cargo, Articles
vessel or aircraft if under way, to
article, animal or other movable property, Conveyed
when the same is subject to forfeiture use all necessary force to compel
imposed under tariff and customs laws, and compliance
2. To arrest any person subject to arrest for
violation of any customs and tariff laws, such Shall extend to the removal of any
power to be exercised in conformity with the false bottom, partition, bulkhead
law and the provisions of this Code. (Sec. or other obstruction (Sec 2210,
2205, TCC as discussed in Chavez)
TCC)
SUMMARY OF RIGHTS AND DUTIES OF PERSONS HAVING To open and examine any box,
AUTHORITY trunk, envelope or other
Bar 1992 container, found
Rights
when he has reasonable cause to
May demand assistance of any
suspect the presence of dutiable
police officer when such
Authority to or prohibited article introduced
assistance shall be necessary to
require Right to Search into the Philippines contrary to
assistance effect any search, seizure or arrest
Vehicles, Beats law, and
which may be lawfully made or and Persons To stop, search and examine any
attempted (Sec. 2207, TCC)
vehicle person reasonably
May at any time enter, pass
suspected of holding or conveying
Right of Police through, or search any land or
such article as aforesaid. (Sec
Officer to Enter inclosure or any warehouse, store
Inclosure 2211, TCC)
or other building, not being a
dwelling house (Sec 2208, TCC)
Authority to May be entered and search only
Search Persons All persons coming Philippines
Search of upon warrant issued by a Judge of Arriving From

2
 TAXATION 2 TAXATION LAW

Foreign from foreign countries shall be Forfeiture proceedings are proceedings in rem.
Countries (Commissioner of Customs v Court of Tax
liable to detention and search by
the customs authorities under Appleas, 138 SCRA 581, [1985]) and are directed
such regulations as may be against the res.
prescribed relative thereto. (Sec.
2212, TCC) Forfeiture shall be effected when and while the
article is in the custody or within the jurisdiction
of the customs authority or in the hands or
Bar 1996 subject to the control of some person who shall
Duties receive, conceal, buy, sell or transport the same
Duty of Officer or To make known his with knowledge that the article was imported
Official to Disclose official character as an contrary to law. (Vierneza, vs. The Commissioner
Official Character officer or official of the Of Customs, G.R. No. L-24348, July 30, 1968)
Government, and if his
authority is derived It is settled rule that acquittal in criminal case is
from special not a bar against the forfeiture of articles
authorization in writing imported, or attempted to be imported, illegally
to exhibit the same for or used in unlawful importation of such articles.
inspection, if (Tong Tek, et al. vs. The Commissioner Of
demanded. (Sec. 2206, Customs, G.R. No. L-11947, June 30, 1959)
TCC)
REQUISITES FOR FORFEITURE:
Duty to make seizure, 1. The wrongful making by the owner, importer,
search and arrest (Sec. exporter or consignee of any declaration or
2205, TCC) affidavit or the wrongful making or delivery
by the same persons of any invoice, letter, or
Note: Non-necessity of Search Warrant
paper – all touching on the importation or
a. Sec 2208, TCC – search on enclosure except exportation of merchandise.
Dwelling 2. That such declaration, affidavit, invoice,
b. Sec 2210, TCC – search on vessels or aircrafts, letter or paper is false. (Vitug citing Section
persons or articles 2530(m)(3) and (4), TCC)
c. Sec 2211, TCC – search on vehicles, animals
and persons THE PENALTY OF FORFEITURE IS IMPOSED IN THE
d. Sec 2212, TCC – search on persons arriving FOLLOWING CASES ON:
from abroad In Julio Llamado vs. Commissioner of Customs
(122 SCRA 118), a Cessna plane carrying persons
engaged in smuggling of untaxed “blue seal”
cigarettes, landed at an airstrip in Alabat, Quezon
Forfeiture Province. The Cessna plane was also used to
The divesture of the title to property from owner bring in “de gaza” kerosene lanterns and
to the sovereign power without compensation as kerosene. The “de gaza” lamps were used to light
a result of default or offense (Nague citing up the airstrip to facilitate the loading of
Barrons Law Dictionary) cigarettes brought to shore by a motorized banca

3
 TAXATION 2 TAXATION LAW

from a vessel lying off-shore. THE PLAINE WAS

HELD SIBJECT TO FORFEITURE.

Sec 2530(a) of TCC provides that “any vehicle,

vessel or aircraft, including cargo, which shall be
used unlawfully in the importation or exportation
of articles …. is subject to forfeiture”. It is not
necessary that the vessel or aircraft must itself
carry the contraband. Nor is it essential that the
vessel or aircraft must come from a foreign
country, as argued by the petitioner. (Vitug)

Imported articles which are undervalued are also

subject to forfeiture (Leuterio vs Commissioner,
101 Phil 223)

"Merchandise," when used with reference to

importations or exportations, includes goods,
wares, and in general anything that may be made
the subject of importation or exportation." We
held that US dollars, having ceased to be legal
tender in the Philippines, fall within the meaning
of the term "merchandise". The dollar bills in the
case at bar are therefore subject to forfeiture. It
is sufficiently clear and comprehensive to include
checks and money orders. (Bastida vs. Acting
Commissioner, 35 SCRA 448)

FORFEITURE OF COMMON CARRIER

GR: Common Carriers are not subject to
forfeiture
Expt: If the owner has knowledge of its use in
smuggling and was a consenting party

(2530, TCC as discussed as well in Vitug)

4
 TAXATION 2
Subject Matter
Any vehicle, vessel or aircraft,
including cargo,
Any vessel engaging in the
coastwise
Any vessel or aircraft
Any part of the cargo, stores or
supplies of a vessel or aircraft
arriving from a foreign port
Any article
Any article the importation or
exportation
Article found on any vessel or
aircraft
Sea stores or aircraft stores
Any package of imported
article
Boxes, cases, trunks, envelopes
and other containers of
whatever character
TAXATION LAW
Condition for Forfeiture Other Qualification to the Condition
which shall be used unlawfully in the The mere carrying or holding on board of
importation or exportation of articles or in contraband or smuggled articles in
conveying and/or transporting contraband or commercial quantities shall subject such
smuggled articles in commercial quantities vessel, vehicle, aircraft, or any other craft
into or from any Philippine port or place to forfeiture
Provided, That the vessel, or aircraft or any
other craft is not used as duly authorized
common carrier and as such a carrier it is
not chartered or leased
which shall have on board any article of
foreign growth, produce, or manufacture in
excess of the amount necessary for sea
stores, without such article having been
properly entered or legally imported
into which shall be transferred cargo unladen
contrary to law prior to the arrival of the
importing vessel or aircraft at her port of
destination
which is unladen before arrival at the vessel's but such cargo, ship or aircraft stores and
or aircraft's port of destination and without supplies shall not be forfeited if such
authority from the customs officials unlading was due to accident, stress of
weather or other necessity and is
subsequently approved by the Collector
which is fraudulently concealed in or removed
contrary to law from any public or private
warehouse, container yard or container
freight station under customs supervision
of which is effected or attempted contrary to
law, or in the opinion of the Collector, have
been used, are or were entered to be used as
instruments in the importation or the
exportation of the former
Unmanifested if manifest therefore is
required
adjudged by the Collector to be excessive,
when the duties assessed by the Collector
thereon are not paid or secured forthwith
upon assessment of the same
which is found by the examining official to Provided, That the Collector is of the
contain any article not specified in the invoice opinion that the misdeclaration was
or entry, including all other packages contrary to law
purportedly containing imported articles
similar to those declared in the invoice or
entry to be the contents of the misdeclared
package;
used as receptacle or as device to conceal
article which is itself subject to forfeiture
under the tariff and customs laws or which is
1
 TAXATION 2
Subject Matter
Any vehicle similarly used,
together with its equipage and
appurtenances including the
beast steam or other motive
power drawing or propelling
the same.
Any article sought to be
imported or exported
On foreign articles openly
offered for sale or kept in
storage
TAXATION LAW
Condition for Forfeiture Other Qualification to the Condition
so designed as to conceal the character of
such articles
Any conveyance actually being used for the The mere conveyance of contraband or
transport of articles subject to forfeiture smuggled articles by such beast or vehicle
under the tariff and customs laws, with its shall be sufficient cause for the outright
equipage or trappings, and seizure and confiscation of such beast or
vehicle
but the forfeiture shall not be effected if it
is established that the owner of the means
of conveyance used as aforesaid, is
engaged as common carrier and not
chartered or leased, or his agent in charge
thereof at the time, has no knowledge of
the unlawful act
Without going through a customhouse,
whether the act was consummated,
frustrated or attempted;
By failure to mention to a customs official,
articles found in the baggage of a person
arriving from abroad;
On the strength of a false declaration or
affidavit executed by the owner, importer,
exporter or consignee concerning the
importation of such article;
On the strength of a false invoice or other
document executed by the owner, importer,
exporter or consignee concerning the
importation or exportation of such article;
and
Through any other practice or device contrary
to law by means of which such articles was
entered through a customhouse to the
prejudice of the government.
The Commissioner of Customs and Collector
of Customs any other customs officer may
demand evidence of payment of duties and
taxes on foreign articles. If no such evidence
can be produced, such articles may be seized
and subjected to forfeiture proceedings (Sec
2356, TCC)
2
 TAXATION 2
PROPERTIES NOT SUBJECT TO FORFEITURE IN THE ABSENCE OF
PRIMA FACIE EVIDENCE
The forfeiture of the vehicle, vessel, or aircraft shall not
be effected if it is established that the owner thereof or
his agent in charge of the means of conveyance used as
aforesaid has no knowledge of or participation in the
unlawful act
Provided, however, That a prima facie presumption shall
exist against the vessel, vehicle or aircraft under any of
the following circumstances:
1. If the conveyance has been used for smuggling at
least twice before;
2. If the owner is not in the business for which the
conveyance is generally used; and
3. If the owner is not financially in a position to own
such conveyance.
BURDEN OF PROOF
Shall lie upon the claimant, provided, that probable
cause shall be first shown for the institution of such
proceedings and that seizure and/or forfeiture was
made under the circumstances and in the manner
described in the Code
EXTENT OF IMPORTER’S LIABILITY
The liability of an importer is limited to the value of the
imported merchandise. In case of forfeiture of the
seized merchandise, the maximum civil penalty is the
forfeiture itself (Mendoza vs David, 1 scra 791, Vitug)
It is no defense that the owner of the vessel sought to
be forfeited had no actual knowledge that his property
was used illegally. The absence or lack of actual
knowledge of such use is a defense personal to the
owner himself which cannot in any way absolve the
vessel from the liability of forfeiture. (The
Commissioner Of Customs, vs. Manila Star Ferry, Inc.,
United Navigation & Transport Corporation, Ceaba
Shipping Agency, Inc., And The Court' Of Tax Appeals,
GR Nos. L-31776-78)
May forfeiture cases be settled?
Yes. In general, settlement of cases by payment of fine
or redemption of forfeited property is allowed. (Dizon).
EXCEPT:
3
TAXATION LAW
a. Importation is absolutely prohibited
b. The surrender of the property to the person
offering to redeem would be contrary to law
c. When there is fraud (Sec. 2307, TCC)
OTHER EXTRAJUDICIAL REMEDIES
I. TAX LIEN
For the purpose of enforcing the lien for customs
duties, fees and other charges on any seized or
confiscated article in the custody of the Bureau of
Internal Revenue., the Bureau of Internal Revenue is
hereby authorized to impose and enforce the said lien.
(2533, TCC)
The 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.
(Sec. 1204, TCC)
II. DISPOSITION OF PROPERTY IN CUSTOMS CUSTODY
Property in customs custody shall be subject to sale
under the conditions hereinafter provided:
a. Abandoned articles;
b. Articles entered under warehousing entry not
withdrawn nor the duties and taxes paid thereon
within the period described under Section 1908 of
this Code;
c. Seized property, other than contraband, after
liability to sale shall have been established by
proper administrative or judicial proceedings in
conformity with the provisions of this code; and
d. Any article subject to a valid lien for customs duties,
taxes or other charges collectible by the Bureau of
Customs, after the expiration of the period allowed
for the satisfaction of the same (Sec. 2601, TCC as
amended R.A. 7651).
Goods in the collector’s possession or of customs
authorities pending payment of customs duties are
beyond the reach of attachment. As long as the
importation has not been terminated the imported
goods remain under the jurisdiction of the Bureau of
 TAXATION 2
Customs. Importation is deemed terminated only upon
payment of the duties, taxes and other charges upon
the articles, or secured to be paid, at the port of entry
and the legal permit for withdrawal shall have been
granted. (Viduya vs. Berdiago, 63 SCRA 553, Vitug)
III. SURCHARGES
The Code imposes surcharges for:
a. Failure to pay liquidated charges,
b. Unauthorized withdrawal of imported articles from
bonded warehouses
c. Failure to Supply the consular invoice when
required
d. Undervaluation, misclassification or misdeclaration
Undervaluation – when the dutiable value of the
imported article shall be so declared and entered
that the duties based on the declaration of the
importer on the face of the entry would be less by
at least 10% than should be legally collected. Prima
Facie existence of fraud for seizure of property
when the percentage difference exceeds 30%.
Misclassification – when an imported article shall be so
described and entered that the duties, based on the
importer’s description on the face of the entry,
would be less by at least 10% than should be legally
collected on the basis of the correct tariff
classification.
Misdeclaration in weight, measurement or quantity – when
the dutiable weight, measurement, or quantity of
imported article found upon examination to exceed
10% or more than the entered weight,
measurement, quantity.
e. Failure or refusal to give evidence or submit
documents for examination. (Sec 2502-2504, TCC as
amended by RA7651)
IV. FINE
A fine may be imposed in the following cases:
a. Any dutiable article is found in the baggage of an
arriving passenger which is not included in the
baggage declaration
b. Breach of bond
c. Unlawful boarding or leaving of vessel or aircraft
d. Unloading of cargo before arrival at ports of
destination, or at improper time or place after
arrival
4
TAXATION LAW
e. Failure to supply the requisite Manifest. (Sec. 2505-
2529, TCC)
JUDICIAL
The RTCs do not have jurisdiction over seizure and
forfeiture proceedings conducted by the Bureau of
Customs (BOC) and to interfere with these proceedings.
The Collector of Customs has exclusive jurisdiction over
all questions touching on the seizure and forfeiture of
dutiable goods.
No petitions for certiorari, prohibition or mandamus
filed with the RTC will lie because there are, in reality,
attempts to review the Commissioner’s actuations.
Neither will replevin filed with the RTC issue. Rationale:
Doctrine of Primary Jurisdiction.
Even if a customs seizure is illegal, exclusive jurisdiction
(to the exclusion of regular courts) still belongs to the
Bureau of Customs. (Dizon citing Jao vs. Court of
Appeals, Gr No. 104604, October 6, 1995)
Do the trial courts have jurisdiction in case there is abuse of
discretion on the part of the Collector of Customs?
No. Even if it be assumed that in the exercise of the
Collector of Customs of its exclusive jurisdiction over
seizure and forfeiture cases, a taint of illegality is
correctly imputed, the most that can be said is that
under these circumstances, grave abuse of discretion
may oust it of its jurisdiction. This does not mean,
however, that the trial court is vested with competence
to acquire jurisdiction over these seizure and forfeiture
cases.
The proceedings before the Collector of Customs are
not final. An appeal lies to the Commissioner of
Customs and thereafter to the Court of Tax Appeals. It
may even reach this Court through an appropriate
petition for review. The proper ventilation of the legal
issues is thus indicated. Certainly, the Regional Trial
Court is not included therein. Hence, RTC is devoid of
jurisdiction. (Zuno vs. Cabredo, A.M. NO. RTJ-03-1779.
April 30, 2003, Dizon)
Do Regional Trial Courts have jurisdiction over the validity or
regularity of seizure and forfeiture proceedings?
 TAXATION 2
No. There is no question that Regional Trial Courts are
devoid of any competence to pass upon the validity or
regularity of seizure and forfeiture proceedings
conducted by the Bureau of Customs and to enjoin or
otherwise interfere with these proceedings The
Collector of Customs sitting in seizure and forfeiture
proceedings has exclusive jurisdiction to hear and
determine all questions touching on the seizure and
forfeiture of dutiable goods. The Regional Trial Courts
are precluded from assuming cognizance over such
matters even through petitions of certiorari, prohibition
or mandamus. (Jao vs. Court of Appeals, Gr No. 104604,
October 6, 1995)
RULES ON APPEAL INCLUDING JURISDICTION
Customs search, seizure and forfeiture Procedure
1. Determination of probable cause and issuance of
warrant by the Collector of Customs
2. Customs authorities serve the warrant of seizure
and take physical custody of the articles.
3. The Collector shall also cause a list and particular
description and/or classification of the property
seized. To be prepared by at least two appraising
officials. If there are such officials at or near the
place of seizure.
In the absence of - those officials, then by two
competent and disinterested citizens of the Philippines,
to be selected by him for that purpose, residing at or
near the place of seizure, which list and appraisement
shall be properly attested to by the Collector and the
persons making the appraisal (2305, TCC)
4. Report of seizure to the Commissioner of Customs
and the Chairman, Commission on Audit. (2302,
TCC)
5. Upon making any, seizure, the Collector shall issue a
warrant for the detention of the property.
If the owner or importer desires to secure the release of
the property for legitimate use, the Collector shall, with
the approval of the Commissioner of Customs,
surrender it upon the filing of a cash bond,
Provided, That such importation shall not be released
under any bond when
a. there is prima facie evidence of fraud in the
importation of the article:
5
TAXATION LAW
b. articles the importation of which is prohibited
by law (R.A. 7651, June 04, 1993).
6. The Collector shall give the owner or importer of
the property or his agent a written notice of the
seizure and shall give him an opportunity to be
heard in reference to the delinquency which was
the occasion of such seizure. (2303, TCC)
7. Formal Hearing and the district collector shall
render decision.
APPEAL BY THE AGGRIEVED OWNER OR IMPORTER
Appeal to the Commissioner of Customs
1. Within 15 days after receipt of the notice its writing
of the decision of the Collector, file a written notice
to the Collector of Customs, copy furnished the
Commissioner of Customs
• Of his intention to appeal such action or
decision of the Collector of Customs to the
Commissioner of Customs.
• An Appeal filed beyond 15 days shall be
deemed dismissed.
2. Upon perfection of the appeal, the Collector if
Customs shall immediately transmit all the records
of the proceedings to the Commissioner of
Customs.
3. The Commissioner of Customs shall approve,
modify, or reverse the Collector of Customs’
decision or action and take steps and make
appropriate orders. (Sec 2313, TCC as amended by
RA 7651)
Appeal to the Court of Tax Appeals
If the importer is dissatisfied with the decision of the
Commissioner of Customs:
1. He shall appeal to the Court of Tax Appeals, through
a petition for review, Within 30 days from receipt of
such decision. (Secs 7 and 11 RA 1125, as
amended). A division of the CTA shall hear the
appeal.
2. The adverse decision of the CTA (division) may be
subjected of one motion for reconsideration or a
motion for new trial.
3. A denial of the motion may be appealed through a
verified petition for review filed with the Court of
Tax Appeals en banc, within 15 days from the
receipt of CTA division’s denial of the motion for
reconsideration. (Sec. 11 of RA 1125 as amended by
RA 9282)
 TAXATION 2
Supreme Court – Certiorari
The importer may file a motion for reconsideration of
an adverse decision of the CTA en banc, then a verified
petition for review on certiorari with the Supreme
Court, within 15 days from the receipt of the denial of
the motion for reconsideration.
Before the expiration of the reglementary period, the
Supreme Court may for justifiable reasons grant an
extension of 30 days only within which to file the
petition. (Sec 2, Rule 45 ROC in relation to Sec. 11, of RA
1125 as amended by RA 9282) (Domondon)
Automatic review, if decision adverse to the government
AUTOMATIC REVIEW BY THE COMMISSIONER OF CUSTOMS
An action or decision of the Collector of Customs
adverse to the government shall be automatically
reviewed by the Commissioner of Customs (Sec. 2313
TCC as amended by RA 7651)
The records of the case shall be elevated within 5 days
from the promulgation of the decision of the Collector
of Customs.
The Commissioner of Customs shall render a decision
on the automatic review within 30 days. The decision of
the Commissioner of Customs affirms the adverse
decision of the Collector of Customs shall be final
executor.
AUTOMATIC REVIEW BY THE SECRETARY OF FINANCE
Automatic Review by the Secretary of Finance:
If the value of imported article under seizure is P5
million or more, the adverse of the Collector of Customs
shall be deemed automatically appealed to the
Secretary of Finance
In case the Commissioner of Customs affirms the
adverse decision of the Collector of Customs, the
records of the proceedings shall be elevated to the
Secretary of Finance within 5 days from the
promulgation of the decision by the Commissioner of
Customs
In case the Commissioner of Customs fails to render a
decision on the adverse decision of the Collector within
6
TAXATION LAW
30 days from the receipt of records, the case shall be
deemed automatically appealed to the Secretary of
Finance.
If within 30 days from receipts of the records of the
proceedings by the Secretary of finance, no decision is
render, the Commissioner’s or Collector’s decision
under appeal may become final and executory.
APPEAL TO THE COURT OF TAX APPEALS
If the Secretary of Finance reverses the adverse decision
of the Collector or the Commissioner (affirming the
Collector), the importer shall appeal such decision to
the Court of Tax Appeals, through petition for review,
within 30 days from receipt of such decision.
The adverse decision of the CTA (division) may be
subjected of one motion for reconsideration or a
motion for new trial.
A denial of the motion may be appealed through a
verified petition for review filed with the Court of Tax
Appeals en banc, within 15 days from the receipt of CTA
division’s denial of the motion for reconsideration. (Sec.
11 of RA 1125 as amended by RA 9282)
SUPREME COURT – CERTIORARI
The importer may file a motion for reconsideration of
an adverse decision of the CTA en banc, then a verified
petition for review on certiorari with the Supreme
Court, within 15 days from the receipt of the denial of
the motion for reconsideration.
Before the expiration of the reglementary period, the
Supreme Court may for justifiable reasons grant an
extension of 30 days only within which to file the
petition. (Sec 2, Rule 45 ROC in relation to Sec. 11, of RA
1125 as amended by RA 9282) (Domondon)
SUMMARY DISCUSSION ON ADMINISTRATIVE AND JUDICIAL
PROCEDURES IN CUSTOMS SEIZURES AND FORFEITURES (DIZON)
Determination of probable cause and issuance of
warrant. (Domondon)
The Collector issues a warrant for the detention of the
property. (If the owner or importer desires to secure
 TAXATION 2
the release of the property for legitimate use, the
Collector may surrender it upon the filling of a sufficient
bond).
The Collector immediately reports the seizure to the
Commissioner of Customs and the Chairman of the
Commission on Audit.
The Collector gives the owner or importer of the
property or his agent a written notice of the seizure and
shall give him an opportunity to be heard.
The Collector causes a list and particular description of
the property seized to be prepared and an
appraisement or classification of the same.
The Collector, after a hearing, shall in writing make a
declaration of forfeiture or fix the amount of the fine or
take such other action as may be proper.
If owner or importer is aggrieved:
a. Appeal to the Commissioner of Customs, 15 days
from notice of the decision. (No hearing on this
appeal is required, Vitug)
b. Appeal to the CTA Division, within 30 days from
receipt of the Commissioner’s decision ( Secs 7 and
11, RA 1125; Sec. 2402. TCC)
c. Appeal to CTA en banc
d. Appeal to the Supreme Court
If Government is aggrieved by the decision:
a. Automatic Review by the Commissioner of Customs
b. Automatic Review by the Secretary of Finance
If within 30 days from receipt of the record of case by
the Commissioner or by the Secretary of Finance, as the
case maybe, no decision is rendered by either of them,
the decision under review shall become final and
executory.
If taxpayer is aggrieved by the decision of the
Commissioner or Secretary of Finance,
1. Appeal to the Commissioner of Customs
2. Appeal to the CTA Division, may appeal within 30
days from receipt of a copy of such decision
3. Appeal to CTA en banc
4. Appeal to the Supreme Court
7
TAXATION LAW
SEE FLOW CHART
TAXPAYER
Protest
Protest may be initiated thru and by the following:
1. Findings by the examiner/appraiser of the
erroneous value and classification of the imported
articles; and
2. Unfavorable decision of the Value and Classification
Review Committee (VCRC) (Nague)
Every protest shall
• be filed in accordance prescribed rules and
regulations and
• point out the particular de ruling, of the Collector to
which exception is taken or objection made, and
• indicate with reasonable precision the particular
ground or grounds upon which the protesting party
bases his claim for relief. (2310, TCC)
SCOPE OF PROTEST
The scope of a protest shall be limited to the subject
matter of a single adjustmentindependent transaction,
but any number of issue may be raised in a protest with
reference to the particular item or items constituting
the subject matter of the protest. (2310, TCC)
Single adjustment refers to the entire content of one
liquidation including all duties, surcharges, or fines
incident thereto. (Nague citing CAO 226)
Sample of article in a protest required:
1. When the protest involves question of fact;
2. When the Collector demands for it; and,
3. When the nature of the article permits it. (Sec.
2311, TCC)
REQUIREMENTS FOR A VALID PROTEST UNDER CUSTOMS LAW
1. It must be in writing
2. It must be filed at the time of payment or within 15
days thereafter
3. It must point out the particular decision or ruling of
the Collector to which objection is made
4. It must indicate with reasonable precision the basis,
grounds or reasons of protest;
5. It must be limited to the subject matter of a single
adjustment or other independent transaction
6. It must only be considered after the payment of
amount due after final liquidation has first been
made; and
 TAXATION 2
7. Payment of docket fee (CAO 2-2001)
8. Payment of documentary customs stamps of P200
(CAO 2-2001)
Outline of Procedure for Customs Protests (Vitug, Dizon)
When a ruling or decision of the Collector is made
whereby liability for duties, taxes, fees or other charges
are determined, except the fixing of fines in seizure
cases, the partly adversely affected may protest such
ruling or decision by present Collector at the time when
payment of the amount claimed to be due the
government is made, or wit, (15) days thereafter, a
written protest setting forth his objection to the ruling
or decision in question with the reason's therefore.
No protest shall be considered unless payment of the
amount due liquidation has first been made and the
corresponding docket fee, as provided for in Section
3301. (Sec. 2308, TCC)
• Meanwhile the imported may obtain the release of
the goods
• If not thus protested, the action taken by the
Collector shall be final and conclusive against the
taxpayer except as to manifest error (Sec 1707 in
relation to Sec. 2309)
• When a protest in proper form is presented in a
case where protest is required,
• the Collector shall issue an order for hearing within
fifteen (15) days from receipt of the protest and
hear the matter thus presented. (Sec. 2312, TCC)
• Upon the termination of the hearing, the Collector
shall render a decision within thirty (30) days.
DECISION IS ADVERSE TO THE GOVERNMENT
If the protest is sustained, in whole or in part, he shall
make the appropriate order, the entry reliquidated
necessary. (Sec. 2312, TCC)
Automatic Review by the Commissioner
Automatic Review by the Secretary of Finance
If the claimant is aggrieved by the decision of
Commissioner or Secretary of Finance:
a. Appeal to the Court of Tax Appeals within in the 30
days reglemantary period. (Sec. 2402, TCC in
relation to Sec. 7 RA 1125)
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TAXATION LAW
b. Appeal with the CTA en banc
c. Appeal by certiorari with the Supreme Court within
15 days
DECISION IS ADVERSE TO THE CLAIMANT
The person aggrieved by the decision or Collector in any
matter presented upon protest or by his action in any
case of seizure may,
1. within 15 days after notification on writing by
the Collector of his actions or decisions,
2. file a written notice to the Collector with a copy
furnished to the Commissioner of his intention
to appeal the action or decision of the Collector
to the Commissioner.
3. Thereupon the Collector shall forthwith
transmit all the records
4. When an appeal is filed beyond the period
herein prescribed, the same shall be deemed
dismissed. (2313, TCC)
No hearing on this appeal is still required.
If still unsatisfactory to him, the decision of the
Commissioner may then be appealed to the Court of
Tax Appeals within in the 30 days reglemantary period.
(Sec. 2402, TCC in relation to Sec. 7 RA 1125)
• Appeal with the CTA en banc
• Appeal by certiorari with the Supreme Court within
15 days
Nestle Philippines, Inc., (Formerly Filipro, Inc.), vs.
Honorable Court Of Appeals, [G.R. No. 134114, July 6,
2001]
[i]t appears that in all cases subject to protest, the claim
for refund of customs duties may be foreclosed only
when the interested party claiming refund fails to file a
written protest before the Collector of Customs. This
written protest which must set forth the claimant's
objection to the ruling or decision in question together
with the reasons therefor must be made either at the
time when payment of the amount claimed to be due
the government is made or within fifteen (15) days
thereafter.
The petitioner is mistaken in its contention that its
claims for refund of allegedly overpaid customs duties
are governed by Article 2154 of the New Civil Code on
 TAXATION 2
quasi-contract, or the rule on solutioindebiti, which
prescribes in six (6) years pursuant to Article 1145 of the
same Code.
SEE FLOW CHART
ABANDONMENT
To surrender, relinquishment, disclaimer or cession of
property or of rights.
The voluntary relinquishment of possession of thing by
owner with intention of terminating his ownership, but
without vesting it in any other person
The act by which a thing is voluntarily renounced
constitute an abandonment. (Nague citing Philippine
Law Dictionary, 1982 ed.)
Two (2) kinds of abandonment,
which, as clarified in CAO 5-93 & CMO 15-94, may be:
EXPRESS ABANDONMENT
When the owner, importer, consignee of the imported
article expressly signifies in writing to the Collector of
Customs his intention to abandon. (1801(a), TCC)
IMPLIED ABANDONMENT:
a. The owner, importer, consignee or interested party
after due notice, fails to file an entry within thirty
(30) days, which shall not be extendible, from the
date of discharge of the last package from the
vessel or aircraft,
b. Having filed such entry, fails to claim his
importation within fifteen (15) days, which shall not
likewise be extendible, from the date of posting of
the notice to claim such importation. (1801(b), TCC)
c. Failure or refusal to mark articles constitute
abandonment within a period of 30 days after due
notice shall constitute as an act of abandonment of
said articles. (Sec. 303(e), TCC)
Effects of Abandonment
Any person who abandons an article or who fails to
claim his importation shall be deemed to have
renounced all his interests and property rights therein
(Sec. 1801 TC as amended by R.A. 7651).
An abandoned article shall ipso facto be deemed the
property of the Government and shall be disposed of in
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TAXATION LAW
accordance with the provisions of this Code. (Sec. 1802,
TCC)
Nothing shall be construed as relieving the 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. (Sec. 1802,
TCC)
ABATEMENT AND REFUND
ABATEMENT
Diminution or decrease in the amount of tax imposed.
Abatement of taxes relieves property of its share of the
burdens of taxation after the assessment has been
made and tax levied. (Black’s law Dictionary 6th ed.)
The reduction or non-imposition of customs duties on
certain imported materials as a result of:
a. Damaged incurred during voyage
b. Deficiency in contents of packages
c. Loss or destruction of articles after arrival
d. Death or injury of animals.
In short, the customs authorities do not collect or
reduce the customs duties due on the imported articles.
(Domondon)
REFUND
Money received by the government or its officers
which, for any cause, are to be refunded or restored to
the parties paying them; such as excessive duties or
taxes, duties paid on goods destroyed by accident,
duties received on goods which are re-exported.
(Black’s law Dictionary 6th ed.)
Requirements for Refund of Duties and Taxes
1. Shall be in writing addressed to the District
Collector of the port concerned
2. The Collector shall verify the claim from the records
of his office
3. If found to be correct, and in accordance with law,
shall certify the same to the Commissioner of
Customs with his recommendation with all the
necessary papers and documents; and,
4. If meritorious, the Commissioner shall approve and
grant request for refund. (Nague citing 1708, TCC)
 TAXATION 2 TAXATION LAW
Investigation Required in Case of Abatements and Refunds.
The Collector shall, in all cases of allowances,
abatements, or refunds of duties, cause an examination
or report in writing to be made as to any fact discovered
during such examination which tends to account for the
discrepancy or difference and cause the corresponding
adjustment to be made on the import entry:

That no abatement or refund of duties, taxes and other

charges shall be allowed on articles lost or destroyed in
bonded public or private warehouses outside customs
zone. (1706, TCC)

PRESCRIPTIVE PERIOD WHICH A DULY REGISTERED ENTERPRISE

SHOULD OBSERVE IN APPLYING FOR A REFUND UNDER THE EPZA
LAW.
What is the prescriptive period which a duly registered
enterprise should observe in applying for a refund to
which it is entitled under the EPZA Law?

The EPZA Law (now PEZA) itself is silent on the matter,

and the prescriptive periods under the Tariff and
Customs Code and other revenue laws are inapplicable,
by specific mandate of Section 17(1) of the EPZA Law.

This does not mean though that prescription will not lie,
as the Civil Code provisions on solutioindebiti may find
application. The Civil Code is not a customs and internal
revenue law. The Court has in the past sanctioned the
application of the provisions on solutioindebiti in cases
when taxes were collected thru error or mistake.
Solutioindebiti is a quasi-contract, thus the claim for
refund must be commenced within six (6) years from
date of payment pursuant to Article 1145(2) of the New
Civil Code. Clearly then, Philphos’s right to refund has
not yet prescribed. (Commissioner of Customs, vs.
Philippine Phosphate Fertilizer Corporation, G.R. No.
144440, September 01, 2004)

Note: The above ruling does not find application to

instances where the applicant for refund is not an
EPZA/PEZA registrant. See Nestle Philippines, Inc.,
(Formerly Filipro, Inc.), vs. Honorable Court Of Appeals,
[G.R. No. 134114, July 6, 2001]

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