Exemption may be on a person or on the transaction.

One good example of an exemption on a person:

-Importation

WHAT IS NOW THE EFFECT IF THE ONE IMPORTING IS EXEMPTED AND THE
IMPORTER IS ALSO EXEMPTED AND WILL SELL THAT IMPORTED GOODS TO A NON-
EXEMPTED PERSON?
The answer to this question is under Section 107 B:
(B) Transfer of Goods by Tax-exempt Persons. - In the case of tax-free importation
of goods into the Philippines by persons, entities or agencies exempt from tax
where such goods are subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the purchasers, transferees or
recipients shall be considered the importers thereof, who shall be liable for any
internal revenue tax on such importation. The tax due on such importation shall
constitute a lien on the goods superior to all charges or liens on the goods,
irrespective of the possessor thereof.
-In short, A tax exempt person under special laws bought goods from Nonresident
foreign corporation abroad and sells it to a non-exempt person for purposes of the
value added tax, this non-exempt person will be considered as the importer. And
Section 105 says, whoever is the importer is the person liable to pay vat.
So even if you are a tax-exempt person, you are the only one who will
benefit from the exemption, if you transfer it to another person, then that person
(transferee) will pay the vat viability.

THERE ARE SITUATIONS WHERE THE EXEMPTIONS ARE NOT IN THE PERSON, BUT TO
THE TRANSACTION.
Under the NIRC there are 28 tax exemptions:
Although the title is tax exempt transaction this is only for VAT.

Sec. 109. Tax Exempt Transactions. - (1) Subject to the provisions of Subsection (2)
hereof, the following transactions shall be exempt from the value-added tax:
(A) Sale or importation of agricultural and marine food products in their original
state, livestock and poultry of or king generally used as, or yielding or producing
foods for human consumption; and breeding stock and genetic materials
therefor.

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. Polished and/or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt and copra shall be considered in their original state;
- Letter “A” is the most controversial transaction as this is always the source
of bar exam question.

Sale, importation and exchange of agricultural and marine products they

are considered basic goods.

RATIONALE ON EXEMPTION IN BASIC GOODS:

Remember when we talk about value added tax, one of the
characteristics is that it is a tax on consumption and everyone is a consumer. So

JOSE RIZAL
UNIVERSITY
 #GOALDIGGERS
when you put a tax on these basic goods, it will affect even the poorest of the
level of the society because they are also consumers.
The only way we can make this regressive types of tax less burdensome or
in order for us to help and the society to have less impact on them is to exempt
the basic goods, and one of the basic goods are agricultural and marine products.
Agricultural products -from the soil, from the farm etc.

THE POSSIBLE ISSUE: WHAT ABOUT THE FEEDS OR FERTILIZER THAT WILL BE USED?
BECAUSE IF YOU EXEMPT THE AGRICULTURAL AND MARINE PRODUCTS, BUT TAX THE
FEEDS AND FERTILIZERS IT WILL INCREASE THE COST.
(B) 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);

Letter A and B are complimenting each other, when you exempt from VAT
the agricultural and marine products it should go with it the feeds, seeds, fingerlings
etc. that you will be using in order for them to grow, THAT IS VERY IMPORTANT,
PLEASE REMEMBER.

Letter A and B should also be complimented with “the original state”

Please take note of the phrase ORIGINAL STATE, there is a technical definition of
the original state. The technical definition must be able to clarify the issue.

WHAT IS ORIGINAL STATE? MEMORIZE!!

If they have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying, salting, broiling, roasting,
smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt and copra. (2nd paragraph of Letter A)

TRANSFER TAX – these are taxes imposed upon the privilege of passing ownership of property
without any valuable consideration.

2 CATEGORIES OF ESTATE TAXATION:

1. ESTATE TAX – a tax arising from a lawful or valid succession; (estate is liable to pay not
the heir)
a. is an excise tax imposed upon the privilege of transmitting property at the time of
death and on the privilege that a person is given in controlling to a certain extent
the disposition of his property to take effect upon death. Estate tax laws rest in their
essence upon the principle that death is the generating source from which the taxing
power takes its being, and that it is the power to transmit or the transmission from
the dead to the living on which the tax is more immediately based;
2. DONOR’S TAX – a tax arising from a valid donation;
a. is an excise tax imposed on the privilege of transferring property by way of a gift
inter vivos based on pure act of liberality without any or less than adequate
consideration and without any legal compulsion to give.

***USE AT YOUR OWN RISK JOSE RIZAL

UNIVERSITY
SCHOOL
OF LAW
 #GOALDIGGERS

*both are set at 6% by the TRAIN law

Estate Tax
- Tax arising from the lawful or valid succession
- Paid by the estate through an executor (via will) or an administrator (via courts)
- Without death, there is no life to estate tax (mortis causa)
o Includes “donations in contemplation of death”
- Procedure for determining amount:
1. Inventory of assets
2. Determine the fair market value at the time of the death
 FMV1 – published by BIR (zonal value)
 FMV2 – assessed value by the Barangay
3. Compare FMVs and use whatever is higher
4. Less deductions:
 Standard deductions (PhP 5M)
 Family home (PhP 10M)
 Medical expenses one year before death (proved by reciepts up to Php
500,000)
 Judicial expenses (both in-court and out-of-court expenses)
 Share of surviving spouse
 Vanishing deductions (a.k.a “property previously taxed)
 Eg. Lolo transfers to Tatay, then Tatay transfers to Son
 w/in 1 year = 100%
 w/in 2 years = 80%
 w/in 3 years = 60%
 w/in 4 years = 40%
 w/in 5 years = 20%
 beyond 5 years = 0%
5. after getting net, multiply by tax rate (6%)
- Procedure upon death:
1. Establish residence w/in 60 days from death (via Barangay Certificate)
2. Inform RDO
3. Pay estate tax w/in 6 months from death
4. Get Certificate Authorizing Registration (CAR)

Donor’s Tax
- Tax arising from a valid donation
- Exists “inter vivos” (during the lifetime of both donor and donee)
- Procedure for determing amount:
1. Get gross value of property to be donated using FMV
2. Multiply by tax rate (6%)

***USE AT YOUR OWN RISK JOSE RIZAL

UNIVERSITY
SCHOOL
OF LAW
 #GOALDIGGERS

LOCAL TAXES – taxes set by the Local Government Code

- Types of Local Governments (Art. 10, 1987 Constitution):
o Barangay;
o Municipality;
o City;
o Provincial;
o Cordillera Autonomus Region (CAR)
o Autonomous Region of Muslim Mindanao (ARMM)
- Bar question: Can a gov’t tax itself?
o It depends.
 Nat’l Gov’t vs LGU = yes
 LGU vs Nat’l Gov’t = no (except GOCCs with their own charters acting
proprietarily)
- Power to tax is vested in the law-making body (i.e. Sangguniang Pang-barangay/Pang-
lungsod/Pang-lalawigan)
- Finals question: Is public hearing and publication required for a local tax ordinance?
o Yes (Sec. 187, LGC)

 public hearings shall be conducted for the purpose prior to the enactment
thereof;
 any question on the constitutionality or legality of tax ordinances or revenue
measures may be raised on appeal within thirty (30) days from the effectivity
thereof to the Secretary of Justice who shall render a decision within sixty
(60) days from the date of receipt of the appeal;
- Questions regarding the legality/validity of local tax ordinances
o File w/ DOJ (Sec. 187, LGC)

- Publication of Tax Ordinances and Revenue Measures. –

o Within ten (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 three
(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 two (2) conspicuous and publicly
accessible places.
- General principles regarding local taxation (Sec. 130, LGC)
1. If it is already imposed by the Nat’l Gov’t, it cannot be imposed by LGU
2. If it is already imposed by an LGU, the other units in the same LG cannot impose
(i.e. if barangay has a tax: city, municipality, provincial cannot tax (and vice-versa))
- Can LG grant tax exemption privileges?

o Yes (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.

***USE AT YOUR OWN RISK JOSE RIZAL

UNIVERSITY
SCHOOL
OF LAW
 #GOALDIGGERS
- WHAT ARE TAXES THAT CAN ONLY BE IMPOSED BY BARANGAY? PROVINCE? CITY?
MUNICIPALITY?
o PROVINCE
 Tax on transfer of Real Property Ownership;
 Tax on business of printing and publication;
 Franchise Tax
 Tax on Sand, Gravel & Other Quarry Resources;
 Professional Tax;
 Amusement Tax;
 Anuual Fixed Tax for every delivery truck/van of manufacturers/producers,
wholesalers of dealers, or retailers, certain products;
o MUNICIPALITIES
 Tax on Business;
 Retirement Business;
 Fees for sealing and licensing of weights & measures;
 Fishery rentals, fees and charges
o CITIES
 may levy the taxes, fees and charges which province and municipality may
impose
o BARANGAY
 Tax on stores/retailers with fixed business establishments with gross sales of
receipts of 50k or less;
 Service fees/charges for services rendered in connection with the
regulations/the use of brgy. Owned properties or service facilities such as
palay, copra or tobacco dryers;
 Barangay Clearance;
 Other Fees and Charges on:
 Commercial breeding of fighting cocks, cockfights & cockpits;
 On places of recreation which charge admission fees;
 On billboards, signboards, neon lights and outdoor advertisements

Community Tax (cedula)

- Personal tax/poll tax
- “No person shall be imprisoned for non-payment of poll tax” (1987 Constitution)

Real Estate Tax

- Formerly a national tax, now a local tax (via LGC)
- Imposition:
o Can be imposed on the intent to make property fixed on the land
 Storage units intended to be a permanent fixture of the property (even if it
had wheels on)
o Can be imposed on the actual use of the property
 Commercial/agricultural/residential
 Between a lessor and lessee, ideally it is the lessee that should pay
 However, in practicality, it the lessor who pays because payment of
RET can be a basis for an adverse claim on the property
- Payment under protest (Sec. 252 LGC)

***USE AT YOUR OWN RISK JOSE RIZAL

UNIVERSITY
SCHOOL
OF LAW
 #GOALDIGGERS
o Only applicable for RET
- Maximum interest for late payment penalty = 36 months
- Jurisprudence:
o UP Diliman vs City Treasuer of QC (June 19, 2019)

TARIFF AND CUSTOMS DUTIES

- Tax law for external revenues
- Comes from international sources

Types of duties:
1. Regular duty – to raise revenue
2. Special duties
a. Marking duty
 penalty imposed on parties who do not follow int’l standards for marking or
labelling of packages
 an example of how taxation is used as police power to protect H.O.M.E.S
b. Anti-dumping duty
 Tax imposed on over-importation to protect domestic products from
exceedingly chaper imported products

 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.
c. Counterveiling duty
 A subsidy provided so that imported and local products will be priced
competitively with each other
d. Anti-discriminatory duty
 Tax imposed to “level the playing field”
 For the purpose of self-preservation of an industry

***USE AT YOUR OWN RISK JOSE RIZAL

UNIVERSITY
SCHOOL
OF LAW