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ACC 178: Updates in Tax and Business Regulations
Module #1 Teacher’s Guide
Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________
Lesson title: Orientation; Review and Updates in Taxation Materials:

Part 1 Pen, paper, calculator
Learning Targets:
At the end of the module, students will be able to: References:
1. Recall and Apply learnings in Principles of Taxation and Tax Reviewer by Enrico Tabag
Tax Remedies Taxation Reviewer by Manuel,
Soriano and Laco
REO Reviewer
A. LESSON PREVIEW/REVIEW
Hello students! You are now in your review subject. Your first topic in this module is the principles of
taxation and tax remedies. You already finish this during your lower years. This time, you need to
recall and apply your learnings with the topic.
“Difficult Roads often lead to beautiful destinations.”
B.MAIN LESSON
Content and Skill-Building
LO 1: Recall and Apply Learnings in Principles of Taxation and Tax Remedies
I. PRINCIPLES OF TAXATION
Definition of Taxation
1. Taxation is a power
2. Taxation is a process
3. Taxation is a mode of cost allocation
TAXATION AS A POWER OF GOVERNMENT
The Inherent Powers of the State

1. Power of Taxation
2. Police Power
3. Power of Eminent Domain
This document is the property of PHINMA EDUCATION


Taxation Police Power Eminent Domain
NATURE To raise gov’t funds Make and implement To take private

laws for the general property for public use
welfare with just compensation
AUTHORITY Government only Government only May be granted to
public/utility companies
PURPOSE Support for the gov’t For regulation and Acquire private
control property for public use
PERSONS Persons, property and Persons, property and Private property
AFFECTED exercise of right or exercise of right or
privilege privilege
LIMITATIONS Generally unlimited Limited to the amount Limited to the fair value
necessary to defray of the property
the cost of regulations
ACT INVOLVED Taxpayers pays taxes Restriction of personal Private property is
and/or property rights taken
BENEFIT IN Benefits and protection Protection and other Amount equivalent to
EXCHANGE OF THE from the government benefits from the just compensation
FOREGOING government
STATUS AS AGAINST Inferior Superior Superior
THE NON-
IMPAIRMENT
CLAUSE OF THE
CONSTITUTION
Similarities:
1. They are indispensable to government existence
2. They can exist independent of the constitution
3. They are means by which the state interferes with private rights and properties
4. They are generally exercised by the legislature
5. They contemplate an equivalent compensation or benefit
TAXATION AS A PROCESS
The Stages of Taxation

1. Levy or Imposition --------------------------------- Impact of Taxation Aspect of Taxation
2. Assessment of Tax Incident of Taxation
- these all comprises the taxation system
TAXATION AS A MODE OF COST ALLOCATION


The Life Blood Doctrine
Purpose of Taxation
1. Primary purpose – to raise revenue
2. Secondary purposes: (a) Regulatory; (b) Compensatory
TAXATION AS A MODE OF COST ALLOCATION

Modes of Cost Allocation
1. Benefit Received Theory
2. Ability to pay theory
The Theory and Basis of Taxation
a. Theory – The existence of the government is a necessity and it cannot continue without means to
support itself.
b. Basis – The government and the people have the reciprocal and mutual duties of support and
protection
THE SCOPE AND LIMITATIONS OF TAXATION
The Scope of Taxation: CUPS: Comprehensive, Unlimited, Plenary, Supreme. It includes the power to
destroy
LIMITATIONS
A. Constitutional
a. Observance of due process of law
b. Equal protection of the law
c. Uniformity in taxation
d. Progressive scheme of taxation
e. Non-imprisonment for non-payment debt or poll tax
f. Non-impairment of obligation and contracts
g. Free worship rule
h. Non-appropriation of public funds or property for the benefit of any church, sect, or system of
religion
i. Exemption of religious, charitable or educational entities, non-profit cemeteries, churches and
mosque from property taxes
j. Exemption of taxes of the revenues and assets of non-profit, non-stock educational institutions
including grants, endowments, donations or contributions for educational purposes
k. Concurrence of majority of all members of Congress for the passage of a law granting tax
exemption
l. Non-diversification of tax collection
m. Non delegation of power if taxation
Exception:
i. Power to tax was delegated to the President under the Flexibility of Clause of the Tariff
and Customs Code
ii. Power to tax was delegated to the local government units under the Local Government
Code


iii. Matters involving the expedient and effective administration and implementations of
assessment and collection of taxes or certain aspect of taxing process that are not
legislative in character
n. Non-impairment of the jurisdiction of the Supreme Court to review tax cases
o. Appropriations, revenue or tariff bills shall originate exclusively in the House of Representatives
but the Senate may propose or concur with amendments
p. Each local government unit shall exercise the power to create its own sources pf revenue and
shall have a just share in the national taxes
B. Inherent Limitations
a. Territoriality of taxation
b. Subject to International comity or treaty
c. Tax Exemption of the government
d. Tax is for Public purpose *
e. Non-Delegation of the power of taxation *
*also Constitutional limitations
SITUS OF TAXATION – The place of taxation

Application of situs
1. Persons – residence of the taxpayer
2. Community development tax – residence or domicile of the taxpayer
3. Business taxes – where the business was conducted or place where the transaction took place
4. Privilege or occupation tax – where the privilege is exercised
5. Real property tax – where the property is located
6. Personal property tax –
a. Tangible – where they are physically located
b. Intangible – domicile of the owner unless the property has acquired a situs elsewhere
7. Income – place where the income is earned or residence or citizenship of the taxpayer
8. Transfer taxes – residence or citizenship of the taxpayer or location of the property
9. Franchise tax – State that grants the franchise
10. Corporate taxes – depend on the law of incorporation
TAXES
Taxes are enforced proportional contributions levied by the state for the support of the government.
Essential characteristics, requisites or elements of a tax

a. A tax is an enforced contribution.
b. It is proportionate in character.
c. It is imposed pursuant to a legislative authority.
d. It is imposed for public purpose.
e. It is generally payable in money.
f. It is levied within the territorial and legal jurisdiction of a state.
CLASSIFICATION of taxes
1. As to subject matter:
a. Personal, poll or capitation tax


b. Property tax
c. Excise tax
2. As to who bears the burden:

a. Direct tax
b. Indirect tax
3. As to determination of amount:
a. Specific tax – tax based on weight, number or some other standards of weight or measurement.
b. Advalorem tax – tax imposed based on the value of the taxable item.
4. As to purpose:
a. General tax – tax imposed for general purposes of the government.
b. Special tax – tax imposed for a special purpose or purposes.
5. As to jurisdiction /scope or authority imposing tax:

a. National tax – tax imposed on a national and for the national/government.
b. Local tax – tax imposed on a local level for the support of local governments.
6. As to graduation or rate:
a. Proportional tax – the tax rate of which is fixed or constant.
b. Progressive tax - the tax rate increases as the taxable amount or tax bracket increases.
c. Regressive tax – the tax rate decreases as the taxable amount or tax bracket increases.
Tax distinguished from OTHER CHARGES and FEES

TAX TOLL
Demand of sovereignty Demand of proprietorship
Generally amount is unlimited Amount is limited to the cost and maintenance of public improvement.
For the support of the government For the use of another’s property
Imposed by the State only May be imposed by private individuals or entities
TAX SPECIAL ASSESSMENT

Imposed on persons, property rights and transactions Levied only on lands
Support of the Government Contribution to the cost of public improvement.
Regular exaction Exceptional as to time and place.
TAX LICENSE FEE

Imposed to raise revenue. For regulation.
Exercised under taxation power of the State. Exercised under police power of the state.
Generally, amount imposed is unlimited. Limited to the amount necessary to defray the cost of
regulation.
Non-payment does not make the activity Non payment makes the activity illegal.
illegal.
TAX DEBT


Based on law Based on contract

Not assignable Assignable
Payable in money Payable in kind or money
Non-payment may result to imprisonment No imprisonment
Bears interest only if delinquent Interest only if stipulated in writing
DOUBLE TAXATION
Direct double taxation – means taxing twice, on the same purpose, in the same year. To constitute double
taxation – the two or more taxes must be:
1. Imposed on the same property
2. By the same state or government
3. During the same taxing period, and
4. For the same purpose.
Tax Administration
It is a system involving assessment, collection and enforcement of taxes, including the execution of judgement
in all tax cases decided in favor of the BIR by the courts.
Powers and duties of the BIR

1. Assessment and collection of all national internal revenue taxes, fees and charges
2. Enforcement of all forfeitures, penalties and fines connected therewith
3. Execution of judgement in all cases decided in its favor by CTA and ordinary courts
4. Give effect to and administer the supervisory and police power conferred to it by the NIRC or other laws.
Chief official of the BIR

The BIR shall have a chief to be known as Commissioner of internal revenue and four assistant chiefs to be
known as Deputy Commissioners.
Chief Officials of the Bureau of Customs

1. Commissioner of Customs – 1 Chief official as mandated by the Customs Modernization and Tariff Act (CMTA)
and 5 Assistant Chiefs which are as follows:
Five Assistant Chiefs
a. Deputy Commissioner – Customs Revenue Collection Monitoring Group
b. Deputy Commissioner – Customs Assessment and Operations Coordinating Group
c. Deputy Commissioner – Management Information System and Technology Group
d. Deputy Commissioner – Intelligence Group
e. Deputy Commissioner – Enforcement Group
II. TAX REMEDIES

Tax remedies falls into two broad categories:
A. Remedies of the taxpayer
B. Remedies of the government
REMEDIES OF THE GOVERNMENT

1. Assessment of Tax


Assessment – the official action of an officer authorized by law in ascertaining the amount due and
giving notice to the taxpayer requiring payment within a specified time of the tax due from him,
including penalties and interests
Period of Limitation upon Assessment and Collection
Internal revenue tax shall be assessed within 3 years from the making of the return. If no assessment
ismade, no proceedings in court shall be begun after such 3 years. The 3 year period shall run from
the actual date of filing of the return or from the last day required for filing whichever is later.
Exception to the 3-year rule:
a. False or fraudulent return with intent to evade the tax was filed – within 10 years after the
discoveryof the falsity or fraud
b. Failure or omission to file return – within 10 years after the discovery of the failure or omission to
filereturn
c. Written agreement between the CIR and the taxpayer before the expiration of the 3-year
period forthe assessment of taxes
Note: the CIR have the authority to compromise the payment of internal revenue tax, cancel or
abatetax liability or credit or refund taxes.
2. Imposition of Surcharges and other penalties
3. Civil Remedies for the Collection of Delinquent Taxes
A. Summary remedies
a. Distraint of personal property – seizure by the government of real property of the taxpayer
Constructive Distraint – the act by a duly authorized revenue officer to require the
taxpayer orany other person having possession or control of such property to sign a
receipt covering theproperty 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 of Internal Revenue.
Constructive distraint may be effected when, in the opinion of the Commissioner, the
taxpayeris:
a. retiring from business subject to tax.
b. intending to leave the Philippines.
c. intending remove his property from the Philippines, hide or conceal his property or
tendingto obstruct the proceedings for collecting the tax due or which may be due.
Who shall implement distraint:

a. Commissioner or his duly authorized representative – if amount involved is more
thanP1,000,000.
b. Revenue District Officer – if amount involved is P1,000,000 or less.
b. Levy of real property – seizure of real property of taxpayer by the government
B. Judicial action – this may be brought within 3 years after the last day required for filing the
return orfrom the actual date of filing whichever is later
a. Ordinary civil action
b. Criminal action
Prescriptive Period for Collection:
a. Within 5 years from the assessment of the tax
b. Within the period agreed upon in writing before the expiration of the 5-year period


DEFICIENCY AND DELINQUENCY

Deficiency – failure of the taxpayer to pay the tax due on the date fixed by law or indicated in the
assessmentnotice or letter of demand
Deficiency tax – the amount of tax collectible under the tax code which exceeds the paid or declared by the
taxpayer
Only interest but not surcharge is imposed on deficiency tax and on the basic tax except when the amount
due,inclusive of penalties, is not paid on or before the due date stated in the letter of demand.
Penalties
A. 25% Penalty - this is applied for:
1. Failure to file any return and pay the tax due on time
2. Filing a return with an internal revenue officer other than those with whom the return is required
to befiled, unless authorized by the Commissioner of Internal Revenue
3. Failure to pay the deficiency tax within the prescribed time for its payment in the notice of assessment
4. Failure to pay the full or part of the amount of the tax shown on any return, or the full amount of the
taxdue for which no return is required to be filed
B. 50% Penalty - this is applied for:

A. Willfull neglect to file the return on time
- Willful neglect is presumed if the taxpayer files only after a BIR notice
- If without prior notice, the taxpayer files the return after the deadline, there is simple
neglect(25%)
B. False or fraudulent return is willfully made – willfully
madePrima facie evidence of false or fraudulent
return:
a. Substantial under-declaration (more than 30%) of taxable sales, receipt or income
b. Substantial overstatement (more than 30%) of deductions.
REMEDIES OF THE TAXPAYER

A. Administrative Remedies
1. Before payment of the tax
a. Filing a petition for reconsideration or investigation
b. Entering into compromise
Compromise is applicable only when:

a. Reasonable doubt as to the validity of claims against the taxpayer exists
b. Financial position of the taxpayer demonstrates clear inability to pay the assessed tax
Minimum compromise settlements:

a. Cases of financial incapacity – 10% of the basic assessed tax
b. Other cases – 40% of the basic assessed tax
If the basic tax exceeds P1 million, or where the settlement offered is less than the minimum rates,
theapproval of the Commissioner of the Internal Revenue and the four deputy commissioners are
required(the Evaluation Board).


Limitation of compromise:
All criminal violations may be compromised except:
a. those already filed in court, or
b. those involving fraud
2. After payment
a. Filing a claim for tax refund
b. Filing a claim for tax credit
Refund or credit of taxes is applicable when:

a. Tax is erroneously or illegally received
b. Penalty is imposed without authority
c. Internal revenue stamp is returned in good condition by the purchaser
d. Unused internal revenue stamp is rendered unfit for use or are proven destroyed
A return filed showing an overpayment shall be considered as written claim for credit or refund of
taxes.Limitation of refund:
The taxpayer must file in writing with the Commissioner a claim for credit or refund within two
yearsafter the payment of the tax or penalty.
Abatement or cancelation of tax liability

Abatement or cancelation is applicable only
when:
a. The tax or any portion thereof appears to be unjustly or excessively assessed; or
b. The administration and collection costs involved do not justify the collection of the amount due.
B. Judicial Remedies
1. Civil Action
a. Appeal to the Court of Tax Appeals
b. Action to contest forfeiture of chattels
c. Action for damages
2. Criminal Action – filing of criminal complaint against erring BIR officials and employees
DUE PROCESS OF TAXPAYER’S REMEDIES

A. Protesting an Assessment
1. Notice of Informal Conference – issued by the BIR after audit of the tax return and examination
of thebooks of the taxpayer if the BIR thinks that there is discrepancy between tax paid and tax
due
- The taxpayer must respond within 15 days
2. Pre-Assessment Notice – notification of the taxpayer of the findings of the BIR
- The taxpayer must respond within 15 days
3. Issuance of Assessment – the assessment shall inform the taxpayer in writing the law and the
facts onwhich the assessment is made otherwise it is void
4. Protest or Dispute the assessment – file a request for reconsideration or reinvestigation
- This must be done within 30 days from the receipt of the decision
5. Submit Supporting Documents – the taxpayer must submit all relevant supporting documents


- This must be done within 60 days from the filing of the protest
Note: decision of the BIR shall state the facts, the law, rules an regulations, or jurisprudence on
whichthe decision is based, otherwise it is void
Assuming the protest is finally denied:

a. By a duly authorized representative of the CIR
• The taxpayer may elevate the protest to the CIR within 30 days from the receipt of the
finaldecision of the authorized representative
Note: the decision of the representative is not considered final, executor or demandable
b. By the commissioner
• Appeal to the Court of Tax Appeals
6. Appeal to the Court of Tax Appeals

- This must be made within 30 days from the receipt of the final decision
In addition, the taxpayer can appeal to the Court of Tax Appeals if the motion for reconsideration is
notacted upon by the BIR within 180 days from the filing of the supporting documentations.
- This appeal must be made within 30 days from the lapse of such 180 days
7. Appeal to the Supreme Court – this is done when final unfavorable judgment is rendered by the
Courtof Tax Appeals
- This must be done within 15 days from the receipt of such decision
B. Recovery of Tax Erroneously or Illegally Paid

A. File a claim for tax refund
- This must be done within 2 years from the date of such illegal or erroneous payment
B. Appeal to the Court of Tax Appeals – if denied by the BIR
- This must be done within 30 days from the receipt of the adverse decision on the claim for
refund;AND
- The appeal must be within the same 2-year period
C. Appeal to the Supreme Court – this is made upon receipt of adverse decision from the CTA or
evenwithout CTA decision if the 2-year period is about to lapse
- This must be done within 15 days from receipt of the decision of the Court of Tax Appeals
THE COURT OF TAX APPEALS

Basis/Intent of Creation:
1. To have a centralized body well-versed in tax matters, a regular court forming part of the judicial
system,which would exclusively hear and determine tax cases
2. To prevent delay in their disposition in view of backlog of civil and criminal cases in the dockets of
theCourt of First Instance
Composition of CTA:
One presiding judge and two associate judges to be appointed by the President
Quorum in the CTA:
Any two judges constitute a quorum and the concurrence of two judges shall be necessary to promulgate any
decision of the court.


Jurisdiction of the CTA:

Exclusive jurisdiction to review by appeal:
1. decisions of the Commissioner of Internal Revenue in
a. cases involving disputed assessment, refunds of internal revenue taxes, fees or other charges
andpenalties imposed in relation thereto
b. other matters arising under the NIRC or other law or part of law administered by the BIR
2. decision of the Commissioner of Customs in
a. cases involving liability for customs duties, fees or other money charges; seizures,
detention orreleases of property affected, fines, forfeiture or other penalties imposed in
relation thereto
b. other matters arising from the Customs Law or other law or part of law administered by the BOC
3. decisions of Provincial or City Boards of Assessment
Appeals in:
a. cases involving the assessment and taxation of real property
b. other cases arising under the Local Government Code including rules and regulations relative thereto
Points to Remember with CTA:

1. The CTA has no criminal jurisdiction
2. The CTA has the power to punish for contempt
3. The CTA may take cognizance of a claim for damages by a taxpayer arising from the levy made on
hisproperty
4. Any person, association or corporation adversely affected by a decision or ruling of the Commissioner
ofInternal Revenue, Commissioner of Customs or any provincial or city Board of Assessment Appeals
mayfile an appeal in the Court of Tax Appeals within 30 days after the receipt of such decision or ruling
5. The CTA has the power to suspend the collection of tax cases pending appeal when:
a. In the opinion of the court, the collection pending appeal may jeopardize the interest of the
governmentand/or the taxpayer
b. The taxpayer is willing to deposit the amount claimed or to file a surety bond for not more than
doubleof the amount of the tax with the court when required
c. The taxpayer shows that the appeal is not frivolous nor for the purpose of merely to delay the
collectionof tax
6. The CTA may grant injunction without requiring the taxpayer to deposit the amount claimed or to file a
bondwhen the action of the Commissioner of Internal Revenue is found to be contrary to law.
Check for Understanding
Principles of Taxation
Directions: Encircle the correct answer.
1. Which of the following are basic principles of a sound tax system?

A. Fiscal-Adequacy, Economic Feasibility and Theoretical Justice
B. Fiscal-Adequacy, Administrative Feasibility and Theoretical Justice
C. Progressive Taxation, Ability to Pay, Symbolic Relationship
D. Fiscal Deficit, Administrative Feasibility and Ability to Pay


2. The concept of "situs of taxation” is based on which limitation of taxation?

A. Territoriality
B. International comity
C. Exemption of the government
D. Public purpose
3. Which of the following statements is/are CORRECT?

(I) The power to license includes the power to tax
(II) The power to tax may not include the power to destroy
(III) The power to tax includes the power to exempt
A. II and III
B. I and II
C. III only
D. I only
4. Which is correct?
A. Tax condonation is a general pardon granted by the government.
B. The BIR has five deputy commissioners.
C. The government can still collect tax in disregard of a constitutional limitation because taxesare the
lifeblood of the government.
D. The President of the Philippines can change tariff or imposts without necessity of callingCongress to
pass a law for that purpose.
5. Which of the following inappropriately describes the nature of taxation?

A. Inherent in sovereignty
B. Essentially a legislative function
C. Subject to inherent and constitutional limitation
D. Generally for public purpose
6. Which does not properly describe the scope of taxation?

a. Comprehensive c. Discretionary
b. Supreme d. Unlimited
7. All of these are secondary purposes of taxation except

a. To reduce social inequality
b. To protect local industries
c. To raise revenue for the support of the government
d. To encourage growth of local industries
8. International double taxation can be mitigated by any of the following except

a. Providing allowance for tax credit
b. Provision of reciprocity provisions in tax laws
c. Provision of tax exemptions
d. Entering into treaties to form regional trade blockage against the rest of the world


9. Statement 1: The benefit received theory presupposes that some taxpayers within the territorial jurisdiction
of the Philippines will be exempted from paying tax so long as they do not receive benefits from the
government.
Statement 2: The ability to pay theory suggests that some taxpayers may be exempted fromtax provided
they do not have the ability to pay the same.
Which statement is true?

a. Only statement 1 c. Both statements 1 and 2
b. Only statement 2 d. Neither statement 1 nor 2
10. What is the theory of taxation?

a. Reciprocal duties of support and protection
b. Necessity
c. Constitutionality
d. Public purpose
11. Statement 1: In the selection of the objects of taxation, the courts have no power to inquire into the wisdom,
objectivity, motive, expediency, or necessity of a tax law.
Statement 2: An imposition can be both a tax and a regulation. Taxes may be levied to providemeans for
rehabilitation and stabilization of threatened industry.
Which is correct?
a. Statement 1 only c. Both statements
b. Statement 2 only d. Neither statement
12. Which of the following acts in taxation is administrative by nature?

a. Determination of the amount to be imposed
b. Fixing the allocation of the amount to be collected between the local government and the national
government
c. Levy or distraint of taxpayers’ property for tax delinquency
d. Determining the purpose of the tax to impose
13. Which of the following statements does not support the principle that tax is not subject to
compensation or set-off?
a. The government and the taxpayer are not creditors and debtors of each other.
b. Tax is not in the nature of contract but it grows out of a duty wherein taxpayers are boundto obey
even without the personal consent of the taxpayer.
c. Taxes arise from law, not from contracts.
d. Both tax and debt partake the nature of an obligation.
14. Which of the following powers of the Commissioner of Internal Revenue cannot be delegated?
a. The examination of tax return and the determination of tax due thereon
b. To refund or credit tax liabilities in certain cases
c. The power to compromise or abate any tax liability involving basic deficiency tax ofP500,000
and minor criminal violations
d. The power to reverse a ruling of the Bureau of Internal Revenue


15. When the provisions of tax laws are silent as to the taxability of an item, which is true?
a. Taxation applies since taxation is the rule, exemption is the exception.
b. Exemption applies since vague tax laws are construed against the government.
c. Taxation applies due to the Lifeblood doctrine.
d. Exemption applies since obligation arising from law is presumed; ignorance of the law isnot an
excuse.
16. That all taxable articles or properties of the same class shall be taxed at the same rateunderscores
a. Equality in taxation
b. Equity of taxation
c. Uniformity in taxation.
d. None of these
17. An educational institution operated by a religious organization was being required by a localgovernment
to pay real property tax. Is the assessment valid?
a. Yes, with respect to all properties held by such educational institution.
b. Yes, with respect to properties not actually devoted to educational purposes.
c. No, with respect to any properties held by such educational institution.
d. No, with respect to properties not actually devoted to educational purposes.
18. Which is not a Constitutional limitation?

a. No tax law shall be passed without the concurrence of a majority of all members ofCongress.
b. Non-appropriation for religious purpose
c. No law impairing government obligations on contracts shall be passed.
d. Non-impairment of religious freedom
19. Which of the following is not an inherent limitation of the power to tax?
a. Tax should be levied for public purpose.
b. Taxation is limited to its territorial jurisdiction.
c. Tax laws shall be uniform and equitable.
d. Exemption of government agencies and instrumentalities.
20. The agreement among nations to lessen tax burden of their respective subjects is called
a. Reciprocity
b. International comity
c. Territoriality
d. Tax minimization
21. Which of the following is violative of the principle of non-delegation?

a. Requiring that legislative enactment must exclusively pertain to Congress
b. Authorizing the President to fix the amount of impost on imported and exportedcommodities
c. Authorizing certain private corporation to collect taxes
d. Allowing the Secretary of Finance and the BIR to issue regulation or rulings which gobeyond the
scope of a tax law
22. The Philippine Congress enacted a law requiring foreign banks to withhold taxes earned byFilipino


residents in their country and to remit the same to the Philippine government.
Is this a valid exercise of taxation power?
a. Yes, because foreign banks are within the territorial jurisdiction of the Philippines.
b. Yes, the Philippines can enforce tax requirements to subjects of foreign sovereignty evenif they are
outside the country.
c. No, as this leads to encroachment of foreign sovereignty.
d. No, this is prohibited by the Constitution.
23. The Japanese government invested P100,000,000 in a Philippine local bank and earned
P10,000,000 interest. Which is correct?
a. The income is exempt on grounds of territoriality.
b. The income is exempt due to international comity.
c. The income is subject to tax on the basis of sovereignty.
d. The income is subject to tax because the income is earned within the Philippines.
24. The inherent powers of the State are similar in the following respect, except:
a. They are inherent to the existence of the State.
b. They are exercisable without the need for an express Constitutional grant.
c. All are not exercised by private entities.
d. They are exercised primarily by the legislature.
25. Select the correct statement.

a. Eminent domain refers to the power to take public property for private use after paying just
compensation.
b. Police power being the most superior power of the State is not subject to any limitation.
c. Taxation power shall be exercised by Congress even without an express Constitutionalgrant.
d. Taxes may be collected even in the absence of a law since obligation arising from law isalways
presumed.
26. Which is wrong regarding the powers of the state?

I. Taxation power shall be exercised by Congress even without an express Constitutionalgrant.
II. Taxes may be collected even in the absence of a law since obligation arising from law isalways
presumed.
III. The property taken under eminent domain and taxation are preserved but that of policepower is
destroyed.
IV. Only eminent domain can be exercised by private entities.
a. I and II
b. I, II and III
c. II only
d. II and IV
27. When tax is collected upon someone who is effectively reimbursed by another, the tax isregarded as
a. direct.
b. indirect.
c. personal


d. illegal.
28. All are ad valorem taxes, except one. Select the exception.
a. Poll tax
b. Estate tax
c. Real property tax.
d. Capital gains tax on real property capital asset
29. Which is not a characteristic of tax?

a. It is an enforced contribution.
b. It is generally payable in money.
c. It is subject to assignment.
d. It is levied by the law-making body of the State having jurisdiction.
30. Tax as to source is classified as

a. Fiscal or regulatory
b. Direct or indirect tax
c. National or local tax
d. Specific or ad valorem tax
31. Which of the following is a local tax?

a. Value added tax c. Documentary stamp tax
b. Real property tax d. Other percentage taxes
32. Tax as to purpose is classified as

a. Fiscal or regulatory c. National or local tax
b. Direct or indirect tax d. Specific or ad valorem tax
33. Tax as to incidence is classified as

34. Tax as to determination of amount is classified as

35. Tax classifications as to object do not include

a. Poll tax c. Regulatory tax
b. Property tax d. Excise tax
36. Tax as to rates excludes

a. Specific tax c. Mixed tax
b. Progressive tax d. Proportional tax
37. Which is not an ad valorem tax?

a. Real property tax c. Income tax


b. Excise tax on cigar d. Donor’s tax
38. Philippine tax laws are, by nature,

a. political. c. political and civil.
b. civil. d. penal and civil.
39. Motor vehicles tax is an example of
a. Property tax c. Income tax
b. Privilege tax d. Indirect tax
40. A tax that is imposed upon the performance of an act, the enjoyment of a privilege or theengagement
in a profession is known as
a. income tax. c. excise tax.
b. license. d. transfer tax.
41. Which is a national tax?

a. Real property tax c. Income tax
b. Community tax d. Professional tax
42. Which of the following distinguishes license from tax?

a. Unlimited in imposition c. Does not renders business illegal
b. Imposed for revenue d. Pre-activity in application
43. Who/which issues revenue regulations?

a. Department of Finance c. Commissioner of Internal Revenue
b. Congress d. Commissioner of Customs
44. Tax rulings are issued by the

a. Secretary of Finance c. Court of Tax Appeals
b. Supreme Court d. Commissioner of Internal Revenue
45. Which of the following is limited in application?

a. Tax laws c. Tax treaties
b. Revenue Regulations d. BIR Ruling
46. Which is not an element of tax?

a. It must be for public purpose.
b. It must not violate Constitutional or inherent limitation.
c. It must be progressive by nature.
d. It must be uniform and equitable.
47. Which of the following is incorrect?

a. The collected tax is referred to as revenue.
b. Tax is the sole source of government revenue.
c. License is imposed before commencement of a business or profession.
d. Debt can be subject to compensation or set-off.


48. Which is not an application of a principle of a sound tax system?

a. Taxes should adjust based on government needs.
b. Taxation should be progressive.
c. Taxation should encourage convenient compliance.
d. None of these
49. Which is not a power of the Commissioner of Internal Revenue?

a. To change tax periods of taxpayers
b. To refund internal revenue taxes
c. To prescribe assessed value of real properties
d. To inquire into bank deposits only under certain cases
50. By which principle of a sound tax system is the elasticity in tax rates is justified?
a. Theoretical justice c. Administrative feasibility
b. Fiscal adequacy d. All of these
51. Violation of this principle will make a tax law invalid

a. Fiscal adequacy c. Administrative feasibility
b. Theoretical justice d. Economic consistency
52. Which is true with tax amnesty?

a. It is unconditional.
b. It covers both criminal and civil liability of the taxpayer.
c. It applies for past and future non-compliance.
d. All of these
53. The Commissioner of Internal Revenue is not empowered to

a. Make or amend a tax return for and in behalf of the taxpayer.
b. Obtain information and to summon, examine, and take testimony of persons to effect taxcollections.
c. Compromise tax liabilities of taxpayers.
d. Grant amnesty for erring taxpayers.
54. Exemption based upon which of the following is repealable?

a. Contract c. Law
b. Constitution d. None of these
55. In terms of financial measures, which of the following threshold for qualification as largetaxpayers is
incorrect?
a. Gross receipts exceeding P1B
b. Net worth exceeding P300M
c. Gross purchases exceeding P800M
d. Gross sales exceeding P1.5B


Tax Remedies
Directions: Encircle the correct answer.
1. The income tax return must be filed in

a. Duplicate b. Quadruplicate c. Triplicate d. Quintuplicate
2. Where the return is filed, as a general rule, the prescriptive period for assessment after the date the
returnwas due or was filed, whichever is later, is within
a. Three years c. Five years
b. Ten years d. Answer not given
3. The following are remedies available to the government to collect taxes, except?
a. Distraint and levy
b. Inquiring into bank deposit accounts of taxpayers
c. Entering into compromise of tax cases
d. Enforce forfeiture of property
4. The following are coercive means in the collection of taxes by the BIR, except one.
b. Seizure of goods on which Government has claim for unpaid taxes
c. Enforcement of tax lien
d. Compromise
5. The seizure by the government of personal property to enforce payment of taxes followed by a public
sale,if taxes were not voluntarily paid is called
a. Distraint c. Forfeiture
b. Levy d. Lien
6. A warrant of distraint may be issued against the taxpayer owing delinquent taxes on his
a. Real property c. Bank deposits
b. Personal property d. Property under custodia legis
7. A warrant of levy may be issued against the taxpayer owing delinquent taxes on his
a. Real property c. bank deposits
b. Personal property d. property under custodial legis.
8. A warrant of garnishment may be issued against the taxpayer owing delinquent taxes on his
a. Real property c. Bank deposits
b. Personal property d. Property under custodia legis
9. Alexander filed his 2021 Income Tax Return and paid the tax due thereon on April 1, 2022. The last
dayfor the Bureau of Internal Revenue to send an assessment is
a. April 1, 2025 c. April 15, 2025
b. April 15, 2027 d. April 15, 2032


10. Mr. Villar filed an income tax return for the for the calendar year 2021 on March 10, 2022. The
BIRassessed a deficiency income tax on April 10, 2008. When is the last day for the BIR to
make an assessment?
a. April 15, 2025 c. April 15, 2025
b. April 10, 2024 d. April 10, 2025
11. A taxpayer filed his Income Tax Return for taxable year 2021 on May 2, 2022. After an investigation, it
wasdiscovered that the tax paid was deficient. The last day for the BIR to send an assessment is
a. May 2, 2025 c. May 2, 2024
b. April 15, 2025 d. April 15, 2024
12. The income tax payable (net of withholding tax of P29,500) in the 2021 tax return of a taxpayer is
P1,950.The taxpayer filed the return on April 8, 2006. Assuming the taxpayer paid the balance in the
tax return onJune 28, 2022, the last day for the BIR to make assessment is -
a. June 28, 2025 c. July 15, 2025
b. April 15, 2025 d. April 8, 2025
13. A taxpayer filed his Income Tax Return for taxable year 2021 on March 20, 2022. Assuming that the
returnfiled is not false or fraudulent, the last day for the BIR to collect the tax by judicial action if no
assessment was made is
a. March 20, 2025 c. April 15, 2025
b. March 20, 2027 d. April 15, 2027
14. A taxpayer fraudulently filed an income tax return for the year 2005 on April 11, 2021. The BIR
discoveredthe fraud on February 20, 2022. The last day for the BIR to collect or send an assessment
notice is
a. April 11, 2024 c. April 15, 2031
b. April 15, 2024 d. February 20, 2032
15. In the immediately preceding problem, supposed the BIR sent a notice of assessment on the
deficiencyincome tax on April 4, 2022, the last day for the BIR to collect the deficiency income tax is
on
a. April 4, 2027 b. April 15, 2027 c. February 20, 2032 d. April 4, 2032
16. Ms. J Cruz filed an income tax return for the calendar year 2002 on March 10, 2021. The BIR issued
a deficiency assessment income tax on April 10, 2022, which has become final. When is the last day
for theBIR to collect?
a. April 10, 2027 b. April 15, 2024 c. April 15, 2026 d. March 10, 2024
17. A taxpayer filed a taxpayer on April 14, 2021. On May 20, 2022, he received an assessment from the BIR.
The last day for him to file a request for
reconsideration isa. April 15, 2024 c. June 20,
2022
b. April 14, 2024 d. June 19, 2022
18. A taxpayer filed an Income Tax Return on March 28, 2020. An assessment was issued by the BIR on
June20, 2022. The taxpayer made a request for reconsideration on July 4, 2022.


The last day to submit relevant supporting documents is

a. September 4, 2022 c. September 2, 2022
b. July 20, 2022 d. April 15, 2023
19. Assuming that the taxpayer have submitted the documents supporting his motion on August 26, 2022.
TheBIR should act on the protest not later than
a. September 26, 2022 c. February 26, 2022
b. April 15, 2023 d. February 22, 2023
20. Assuming the BIR did not act on the protest, the last day for the taxpayer to appeal to the Court of
TaxAppeals is
a. March 22, 2022 c. March 23, 2023
b. March 24, 2023 d. April 15, 2024
21. An income tax return was filed on May 12, 2021. The taxpayer received an assessment of
deficiency income tax on October 10, 2022. Protest was filed on October 30, 2022 and the
supporting documents were submitted on December 5, 2022. The protest was denied on April 20,
2023. The last day to appealthe decision of the BIR to the Court of Tax Appeals is
a. June 4, 2023 c. May 19, 2023
b. May 20, 2023 d. June 20, 2023
22. Where any national internal revenue tax is alleged to have been erroneously or illegally
collected thetaxpayer should first
a. File a claim for refund or credit
b. File an action for refund with the RTC
c. File an action for refund with the CTA
d. Answer not given
23. A taxpayer filed his 2021 Income Tax Return and paid the tax due thereon on April 1, 2022. In
case ofoverpayment, the last day to file claim for refund is on
a. April 1, 2024 c. April 1, 2025
b. April 15, 2024 d. April 15, 2027
24. On April 15, 2021, a tax was erroneously paid by a taxpayer. On February 18, 2022, a claim for tax
refundwas filed with the BIR. On March 5, 2023, a BIR decision of denial was received. The last day to
appeal tothe Court of Tax Appeals is
a. April 4, 2023 c. April 5, 2023
b. April 4, 2022 d. April 15, 2023
25. Date of tax erroneously paid June 10,

2021Date of claim for refund was filed with BIR March 3,
2023Date of BIR decision of denial was received March 5,
2023
The last day to appeal to the Court of Tax Appeals is

a. June 5, 2023 c. June 10, 2023


b. March 3, 2023 d. May 5, 2023
26. Juan dela Cruz paid excessive tax on April 15, 2021. On December 20, 2022, she filed a written claim
for refund. Her claim was denied by the BIR and she received the denial on March 20, 2023. Juan dela
Cruz filed a motion for reconsideration with the BIR on March 31, 2023. On April 18, 2023, she
received the finaldecision of the BIR. What will be the taxpayer’s remedy?
a. File another motion for reconsideration with the BIR within 30 days after the receipt of the final
decision
b. File an appeal with the CTA within 30 days after the receipt of the final denial
c. File an appeal with the CTA within 15 days after the receipt of the final denial
d. The taxpayer has no more remedy against the final decision
27. The distinction between actual distraint and constructive distraint is that
a. Actual distraint may be made on the property of any taxpayer whether delinquent or not
whileconstructive distraint is made on the property only of a delinquent taxpayer
b. In actual distraint, there is a taking of possession, while in constructive distraint, the taxpayer is
merelyprohibited from disposing the property
c. Actual distraint is effected by requiring the taxpayer to sign a receipt of the property or by the
revenueofficer preparing and leaving a list of the distrained property or by service of a warrant of
distraint or garnishment
d. Answer not given
28. The following are remedies available to the government to collect taxes except –
b. Inquiring into bank deposit accounts of taxpayers
c. Entering into compromise of tax cases
d. Enforcement of forfeiture of property
29. The following are coercive means in the collection of taxes by the BIR, except
b. Seizure of goods on which the government has a claim for unpaid taxes
c. Enforcement of tax lien
d. Compromise
30. Which of the following violations cannot be subject to compromise penalties?

a. Failure to keep/preserve books of accounts and accounting records
b. Failure to keep books of accounts or records in a native language or English
c. Failure to have books of accounts audited and have financial statements attached to income tax
returncertified by independent CPA
d. Keeping two sets of books of accounts or records
31. Which of the following statement is not true?

a. If a taxpayer is acquitted in a criminal violation of the Tax Code, this acquittal does not exonerate
himfrom his civil liability to pay the taxes
b. A conviction for tax evasion is not a bar for collection of unpaid taxes
c. A tax assessment is necessary to a criminal prosecution for willful attempt to defeat and


evadepayment of tax
d. Criminal proceedings under the Tax Code is now a mode of collection of internal revenue taxes,
feesand charges
32. The following are administrative remedies available to a taxpayer in connection with collection of
taxes,except one
a. Filing of claim for tax refund or credit
b. Filing a petition for reconsideration or reinvestigation
c. Filing for criminal complaints against erring BIR officials or employees
d. Entering into a compromise
33. Juan dela Cruz filed an income tax return for the calendar year 2021 on March 10, 2022. The BIR
issued adeficiency income tax on April 10, 2024 which has become final. When is the last day for the
BIR to collect?
a. April 10, 2029 c. April 15, 2027
b. April 15, 2025 d. March 10, 2025
34. Date when assessment was received 10/01/21

Petition for reconsideration was filed with BIR 10/09/21
Decision of denial was received 07/02/22
Second request for reconsideration was filed with BIR 07/15/22
Date of BIR revised final assessment was received 07/05/23
Last day to appeal to the Court of Tax Appeals is on

a. July 15, 2023 c. August 5, 2023
b. August 4, 2023 d. September 5, 2023
35. Which statement is wrong? The surcharge of 25% is imposed if

a. A tax return was not filed within the time prescribed by law
b. A tax was not paid within the time prescribed by law
c. A tax return was not filed within the time prescribed by law and at the same time the tax was not
paidwithin the time prescribed by law
d. None of these
36. Income tax return for the year ended December 31, 2019 was due for filing on April 15, 2020. The
taxpayer voluntarily filed his tax return on July 15, 2020 whereby the basic tax due is P100,000. The
totalamount due on July 15, 2020, excluding compromise penalty.
a. P128,000
b. P194,930
c. 165,000
d. P125,000
37. Income tax return for the year ended December 31, 2019 was due for filing on April 15, 2020. The
Taxpayer erred in identifying his Revenue District Office. Thus, his tax return was filed to a different
RDO. The total amount due on July 15, 2020, excluding compromise penalty.
a. P128,000


b. P194,930
c. P165,000
d. P125,000
38. Income tax return for the year ended December 31, 2019 was due for filing on April 15, 2020.
The Taxpayer failed to file his ITR on said date whereby the basic tax due was P100,000. He
received notice from the BIR to file his tax return. He was able to lodge his tax return only on
July 15, 2021.
The total amount due on July 15, 2021, excluding compromise
penaltya. P128,000
b. P194,930
c. P165,000
d. P125,000
39. The taxpayer timely filed his tax return on April 15, 2020. After tax investigation, the taxpayer
received an assessment for a deficiency income tax of P100,000. The final letter of demand
required him to pay on October 15, 2021. He was only able to pay on November 15, 2021. The
Total Amount due onNovember 15, 2021 assuming a compromise penalty of P50,000.
a. P128,000
b. P194,930
c. P165,000
d. P125,000
40. A taxpayer disclosed to you the following

information:Date of filing the Income Tax Return:
Mar. 28, 2018 Date assessment was received:
June 20, 2020 Request for reinvestigation was
filed: July 4, 2020
The last day for the taxpayer to submit relevant supporting documents is
a. September 4, 2020
b. September 2, 2020
c. July 20, 2020
d. April 15, 2020
C. LESSON WRAP-UP
Thinking about Learning

Congratulations for finishing this module! Shade the number of module that you finished.


Did you have challenges learning the concept in this module? If none, which parts of the module
helped you learn the concepts?
________________________________________________________________________________
_______________________________________________________
Some question/s I want to ask my teacher about this module is/are:
________________________________________________________________________________
_________________________________________________________
Key to Corrections
1. B 6. C 11. C 16. C 21. D 26. C 31. B 36. A 41. C 46. C 51. B
2. A 7. C 12. C 17. B 22. C 27. B 32. A 37. B 42. D 47. B 52. B
3. C 8. D 13. D 18. A 23. B 28. A 33. B 38. B 43. A 48. D 53. D
4. D 9. B 14. D 19. C 24. C 29. C 34. D 39. B 44. D 49. C 54. C
5. D 10. B 15. B 20. B 25. C 30. C 35. C 40. C 45. D 50. B 55. D
Tax Remedies
1. A 6. B 11. A 16. A 21. B 26. D 31. C 36. A
2. A 7. A 12. B 17. D 22. A 27. B 32. C 37. D
3. B 8. C 13. C 18. C 23. A 28. B 33. A 38. C
4. D 9. C 14. D 19. D 24. A 29. D 34. B 39. B
5. A 10. A 15. A 20. C 25. D 30. D 35. D 40. B


Lesson title: Income Taxation Materials:

Learning Targets: Pen, paper, calculator
At the end of the module, students will be able to:
1. Recall and Apply learnings in Principles of Taxation and References:
Tax Remedies Tax Reviewer by Enrico Tabag
Taxation Reviewer by Manuel,
Soriano and Laco
REO Reviewer
Hello students! You are now in your module 2 of your review subject. Your topic in this module is the
Income Taxation (Final Tax, Capital Gains Tax and Regular Income Tax). You already finish this
during your lower years. This time, you need to recall and apply your learnings with the topic.
“Difficult Roads often lead to beautiful destinations.”
B.MAIN LESSON
GROSS INCOME – All wealth which flows into the taxpayer other than a mere return of capital and includes
gains.
Basic Definitions:
Gross Income – refers to what is income for taxation purposes
Taxable Income – as the pertinent items of gross income that are subject to tax after allowable deductions
Tax Base – the value of a certain goods, or property for taxation purposes
Characteristics of Gross Income

1. Return on Capital
2. Realized benefit
3. Not exempted by law, contract, treaty or the Constitution
Taxation of Gross Income under the NIRC

A. Passive Income Tax
a. Capital gains tax – few final tax is imposed on certain gains on dealings on properties
b. Other withheld final tax – these are groups of passive income that are subject to withholding by
the income payor.
B. Regular (Active) Income Tax – applies to all items of gross income that are generated by the taxpayer
in the ordinary course of business or to those items of passive income that are nit covered by final tax.


Classification of Taxpayers
Income Taxable in the Philippines
Type of Taxpayers Earned Philippines Earned Abroad
I. Individual
A. Citizens
1. Resident / /
2. Non-resident /
B. Aliens
1. Resident /
2. Non-resident
a. In business /
b. Not in Business /
C. Estate and Trust Same rule with individuals
II. Corporations
A. Domestic / /
B. Foreign
1. Resident /
2. Non-Resident /
I. FINAL INCOME TAXATION

Final Tax Rates on Certain Passive Income (Sec. 24B, 25A (2), 27D, 28A (7); 28B (5), NIRC)
Passive Individual Corporations
Income Citizen Alien Domestic Resident Non-
Resident
Resident NR Resident NRA-E NRA-
NE
Interest:
Interest or yield
on local 20% 20% 20% 20% 25% 20% 20% 25%
currency
Interest Income
Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt
from Long term
Pre-termination of Long-term deposits or investments
Less than 3
20% 20% 20% 20%
years held
3 years to less
than 4 years 12% 12% 12% 12%
25% 20% 20% 25%
held
4 years to less
than 5 years 5% 5% 5% 5%
held
Interest Income
on FCDU 15% Exempt 15% Exempt Exempt 15% 15% Exempt
Deposits from


Depository
Bank
Interest Income
N/A 10% 10% N/A
by FCDU banks
Interest Income
on foreign N/A 20%
loans
Dividends
(Cash or
Property)
From a
Domestic
Corporation
- Jan 1, 1998 6% 6% 6%
earnings 20% 25% Exempt Exempt 15%*
- Jan 1, 1999 8% 8% 8%
earnings
- Jan 1, 2000 10% 10% 10%
earnings
From Foreign
Corporations
Regular Income Tax rules apply
(resident and
non-resident)
Note: Business partnerships are taxable similar to corporations. Partners share in the net income of
business partnership is subject to 10% final withholding tax. (Note Section 42 A(2) on Dividends)
Royalties
In general 20% 20% 20% 20% 25%
From books,
literary works 20% 20% 25%
10% 10% 10% 10% 25%
and musical
composition
Prizes
P10,000 and
Regular (Progressive) Income Tax Rules apply
below N/A **
Above 10,000 20% 20% 20% 20% 25%
Winnings
In general 20% 20% 20% 20% 25% N/A **
PCSO and
Up to P10,000 = exempt; above P10,000= 20%, except NRA-NETB and NRFC (25%)
Lotto winnings
INFORMER’S
10%
TAX REWARD
Cash reward – whichever is the lower of the following per case:
1. 10% of revenues, surcharges or fees recovered and or fine or penalty imposed and collected or
2. P1,000,000


II. CAPITAL GAINS TAX

Gains arising from sale of ordinary asset are called “ordinary gains”/ Gains arising from sale of capital assets
are called “capital gains tax”. All ordinary gains are taxable under regular income taxation. Capital gains are
taxable either under final tax or under regular income tax.
A. Capital gains tax on sale, barter, exchange and other disposition of domestic shares of stock directly to
buyer.
Requisites:
1. There is a net gain
2. The capital asset sold is a domestic stock
3. The sale is made directly to buyer
CAPITAL GAINS TAX RATES: 15%

Note: This rule on capital gains on sale of domestic stocks directly to buyer is uniform to all income
taxpayer (individuals or corporate) regardless of classification.
The rule does not apply to:

1. Gains on sale shares of stock if that is traded in the Philippine Stock Exchange (PSE)
▪ This is subject to a transaction tax (percentage tax) of 60% of 1% of selling price
2. Gains under similar conditions by security brokers or dealers
When to file Capital Gains Tax?

1. Per transaction basis: Within 30 days after each transactions
2. Annual Basis:
a. For individual – On or before April 15 of the following year
b. For corporation – On or before the 15th day of the fourth month following the close of
taxable year.
B. Sale, exchange or other disposition of real property in the Philippines classified as capital asset
Requisites:
1. The real property is located in the Philippines
2. The property is classified as capital assets
3. The taxpayer is an individual or a domestic corporation
4. The taxpayer is other than a foreign corporation
TAX RATE and TAX BASIS: 6% x (higher of Gross Selling Price or Fair Market Value)
Fair market value for the purpose of CGT is whichever is higher of: (1) Zonal value as prescribed by the
Commissioner of Internal Revenue, (2) Assessed Value as determined by the provincial or city
assessor’s office.
Location of Individual Corporations
Real Property Citizen Alien Domestic Resident Non-
Resident
Resident NR Resident NRA-E NRA-
NE
Philippines / / / / / / N/A
Abroad x x x x x x x x


Tax Exemption
The sale may be exempted from the payment of capital gains tax provided the following conditions are met:
1. The seller is an individual citizen or resident alien
2. The real property sold is his principal residence
3. The full proceed of the sale is utilized in acquiring another residence
4. A new residence must be acquired within 18 calendar months from the date of sale
5. The BIR is duly notified by the taxpayer of his intention to avail of the tax exemption within 30 days from
the date of sale through a prescribed return
6. The capital gains tax thereon is held in escrow in favor of the government
7. The exemption can only be availed once every 20 years
8. The historical cost or adjusted basis of the real property (principal residence) sold shall be carried of a
new principal residence built or acquired.
Any portion of the proceeds of sale not utilized:

(Gross selling price or FMV at the date of sale, w/ever is higher x Unutilized portion/Gross selling price) x 6%
Tax basis of new Principal Residence:

Less than full utilized of proceeds:
New Cost basis = (Utilized selling/Gross selling price) x Basis of he old principal residence
More than full utilization of proceeds:
New Cost basis = Basis of the old principal residence + Additional expenditure in excess of the proceeds
III. REGULAR INCOME TAXATION
Types of Regular Income Tax

1. Progressive Income Tax: Individuals, taxable estates and trusts


INDIVIDUAL INCOME TAXATION

Taxpayers: (1) Resident citizen; (2) Resident Alien; (3) Non-resident citizen; (4) Non-resident alien
engaged in trade or business; (5) Non-resident alien not engaged in trade or business.
Method of determining taxable income: Classification and Globalization Rule

Payment of the Regular Tax
a. Compensation income – subject to periodic withholding tax on compensation; reported
annually
b. Business/Professional income – subject to transactional expanded withholding tax; reported
quarterly then annually.
TAX OPTIONS FOR INDIVIDUALS

I. Regular Income Tax
II. 8% commuted Tax
2. Corporate Income Tax: 25% or 20% on taxable income: to corporations, partnership and
joint venture.
Under RA 11534 or the CREATE (Corporate Recovery and Tax Incentives for Enterprises Act)
TRAIN CREATE
DC (MSMEs)** Other DCs; RFCs NRFC
Gross Income xx xx xx xx
Allowable Deductions (xx) (xx) (xx) (xx)
Taxable Income xx xx xx xx
Rate 30% 20% 25% 25%***
RCIT/FWT xx xx xx xx
Note: Effectivity of the RCIT rates under CREATE
• For DC and RFC – Beg July 1, 2020


• For NRFC – Beg Jan 1, 2021

CREATE was published on March 27, 2021, took effect on April 11, 2021.
** Beg July 1, 2020, the applicable RCIT rate of DC with total assets of P100M and below AND net
taxable income of P5M and below (MSME) was reduced to 20%. Total Assets excludes the land.
All other domestic corporations are subject to RCIT rate of 25% beg July 1, 2020.
RFCs are subject to the revised RCIT rate of 25% beg July 1, 2020.
*** Revised FWT rate of 25% for NRFCs shall take effect beg Jan 1, 2021.
Special Corporation – subject to preferential rate subject to the predominance test

1. Proprietary educational institution – 10% (1% form 7/1/2020 to 6/30/2023) on global taxation
2. Non-profit hospital – 10% (1% form 7/1/2020 to 6/30/2023) on global taxation
MINIMUM CORPORATE INCOME TAX
Period MCIT Rate
On or before June 30, 2020 2%
July 1, 2020 to June 30, 2023 1%
Beg July 1, 2023 2%
Any excess of the MCIT over RCIT shall be carried forward and credited against the RCIT for the
three (3) immediately succeeding taxable years.
IV. COMPENSATION INCOME
Composition:
1. Regular compensation income – fixed benefits every payday
2. Supplemental compensation income
a. Variable performance – based pay
b. Excess 13th month pay and other benefits above 90,000
De minimis Benefits
1. Monetized unused vacation leave credits of private employees – not exceeding 10 days
2. Monetized unused vacation and sick leave credits paid to government officials and employees
3. Medical cash allowance to dependents of employees – not exceeding P1,500 per employee
per semester, or P250 per month
4. Rice subsidy – P1,500 or 1 sack of 50kg rice per month amounting to not more than P2,000
5. Uniform clothing allowance – not exceeding P6,000 per annum
6. Actual Medical Assistance - not exceeding P10,000 per annum
7. Laundry allowance - not exceeding P300 per month
8. Employee award, which must be in the form of tangible property other than cash or gift
certoficates, with an annual monetary value not exceeding P10,000 received by the employee
9. Gifts given during Christmas and major anniversary celebration not exceeding P5,000 per
employee per annum.
10. Daily meal allowance for overtime work and night or graveyard shift not exceeding 25% of the
basic minimum wage on a per region basis
11. Productivity incentive bonus and benefits under CBA amounting to P10,000


V. FRINGE BENEFIT TAX

Nature of the Fringe Benefit Tax
1. Final Tax
2. Imposed upon the fringe benefits of managerial or supervisory employee
3. Withheld at source; hence, paid by employers
4. Grossed-up tax
5. Quarterly tax
Tax rates for Fringe Benefits:

Types of employees Tax Rate Gross-up rate
Resident or citizens 35% 65%
NRA-NETB 25% 75%
Valuation of Taxable Fringe Benefits:

1. If granted in money or is directly paid by the employer, the value is the amount of granted or
paid for
2. If furnished by the taxpayer in property and ownership is transferred to the employee, the value
of the fringe benefit shall be the FMV of the property transferred.
3. If furnished by the taxpayer in property without transfer of ownership, the value of the fringe
benefit is equal to the depreciation value of the property.
- For this purpose, personal property is assumed a depreciable life of 5 years (20%) while real
property shall have a presumptive life of 20 years (5%).
- Furthermore, since the supervisory or managerial employee cannot reasonably be expected
to use the property all the time, it is assumed that usage is 50% for business use and 50% for
personal use.
Deductible Amount of Fringe Benefits:
General rule: Deductible amount = cash of book value of property given + FBT
Exception rule: FBT paid (if fringe benefit tax is based on the depreciation value, zonal value or
assessed value.)
VI. DEDUCTIONS FROM GROSS INCOME

- Pertains to expenses of doing business or expense of exercising a profession
- Pertain to period expenditures rather than capital expenditure
- Do not include personal living expenses. The TRAIN law provides for P250,000 annual income
tax exemption to individual taxpayer in lieu of personal, living expenses of individual taxpayers.
Modes of Claiming Deduction
1. Itemized deductions
2. Optional standard deduction: (1) 40% of gross sale or receipts for individual taxpayers; (2)
40% of gross income for corporations



Part 1. Encircle the correct answer
1.) Which statement is correct regarding final income tax?
A. Items of income subjected to final tax can still be subjected to regular tax.
B. Final tax applies only on certain passive income earned within the Philippines.
C. Items of income exempt under final tax are subject to regular tax.
D. Final income tax applies to all passive income from Philippines sources.
2.) Interest income from which of the following sources is subject to final income tax?
A. Lending C. Investment in corporate bonds
B. Mortgage loans D. Money market placements
3.) Which of the following is subject to 15% final tax on interest from foreign currency deposits made with
Philippine banks?
A. Non-resident corporation
B. Non-resident citizen
C. Non-resident alien not engaged in trade or business
D. Resident alien
4.) What is the final tax on interest income on 5-year deposit that is pre-terminated lessthan a year before
maturity?
A. 20% C. 5%
B. 12% D. 0%
5.) Royalty income of a domestic corporation from abroad is
A. subject to regular tax.
B. subject to final tax.
C. subject to either final tax or regular tax.
D. not subject to Philippine income tax.
6.) The winnings of a resident alien from abroad is
A. subject to regular tax.
B. subject to final tax.
C. subject to either final or regular tax.
D. not subject to Philippine income tax.
7.) Any dividends earned in the Philippines by non-resident foreign corporation is
A. Subject to regular tax
B. Exempt from income tax
C. Subject to 10% final tax
D. Subject to 25% final tax
8.) Which winning is not subject to a final tax?
A. P10,000 winnings from raffle
B. P10,001 PCSO winnings
C. P10,000 winnings from beauty contest
D. P20,000 prizes from a body building competition
9.) On January 1, 2020, Patricia invested P1,000,000 in Baguio Bank’s 5-year time deposit. The deposit
pays 10% interest annually. Alice pre-terminated the deposit onJuly 1, 2023. Compute the net proceeds.
A. P1,030,000
B. P1,024,000
C. P1,008,000
D. P980,000


10.) A debt instrument with a maturity of 10 years was held by Mr. X (a non-resident citizen) for 3 years and
transferred it to Mr. Y (a resident alien). Mr. Y held it for two years before subsequently transferring it to Mr. Z
(a resident citizen) who held it untilmaturity or 5 years. Which is not true?
A. X shall be subject to 12% final tax
B. Y shall be subject to 20% final tax
C. Z is subject to 5% final tax
D. If Z is NRA-NETB, he is subject to 25% final tax.
11.) Which is incorrect regarding dividend taxation?
A. It applies only to domestic dividends.
B. NRA-NETB recipients are subject to 25% final tax except when the tax sparing rule isapplicable.
C. Subject to 10% when received by a business partnership.
D. Intercorporate dividends are exempt.
12.)Which is not subject to final tax?
A. Service fees due to non-resident aliens not-engaged in trade or business
B. Fringe benefits of supervisory and managerial employees
C. Domestic income of non-resident foreign corporations
D. Interest income from foreign deposits by a resident citizen
13.) Which is not subject to final tax?
Financial Instruments Lenders at origination

A. Treasury notes 12
B. Investment certificate 20
C. Certificate of deposit 30
D. Investment certificate 18
14.) Jose Mari owns 20% of the capital and profits of a general professional partnership. The partnership
reported P500,000 profits in 2021. How much final taxwill be withheld from Jose Mari?
A. P 100,000 C. P10,000
B. P 50,000 D. P 0
15.) Peter Wow Ventures is a joint venture which operates under a service contract with the government.
Peter Wow is 30% owned by individual investors. The rest is owned by corporate oil exploration companies.
Peter Wow reported P2,000,000 profitwhich was to be distributed.
How much final tax will Peter Wow withhold?
A. P 200,000 C. P140,000
B. P 60,000 D. P 0
16.) Ms. Suzuki owns 40% of the capital and profits of a business partnership engaged in the trade of tourist
souvenirs. The partnership reported P200,000 taxableincome in 2021 and distributed half of its after tax
income to the partners. Compute the final tax to be withheld on Susuki’s profit sharing.
A. P3,000 C. P10,667
B. P6,000 D. P26,667
17.) A taxpayer wants to manually file his Monthly Remittance Return of Final Income Tax Withheld for the
month of February 2021. What is the deadline for the return?
A. February 14, 2021 C. March 10, 2021
B. February 28, 2021 D. April 15, 2021
18.) Bangko Illustrado failed to withhold the final tax on the P1,200,000 interest expense which was


credited to various accounts of individual depositors in the month of April 2022. It wants to settle the
unpaid final withholding tax on June 10,2022. Compute the surcharge and interest penalty due.
A. P 450,000 C. P 64,000
B. P 320,000 D. P 62,400
19.) The gain on sale of which of the following is NOT subject to capital gains tax
A. Domestic stock rights
B. Common stocks of a resident corporation
C. Domestic preferred stocks
D. Residential home
20.) The 6% capital gains tax applies to
A. Real property capital assets abroad
B. Real property capital assets sold by a foreign corporation
C. Unused real property held for sale
D. Residence sold by a realtor
21.) Which is a capital asset for a security dealer?
A. Domestic stocks C. Stocks held as investment
B. Foreign bonds D. Office equipment
22.) Which is not subject to the 6% capital gains tax?
A. Donation of property
B. Foreclosure of a mortgaged property
C. Expropriation of one’s property in favor of the government
D. Sale of property for a very minimal consideration
23.) What is the documentary stamp tax on the sale of real property capital assets
A. 1.5% of fair value or selling price, whichever is higher
B. P15/P1,000 of the gross selling price
C. Half of the documentary stamp tax paid in the immediately preceding sale
D. P1.50/P200 of the higher of the fair value or selling price
24.) The transactional 15% capital gains tax is to be paid
A. Within 30 days from the date of sale or exchange.
B. Within 30 days from the end of month of sale.
C. On the 15th day of the fourth month following the close of the quarter when the sale wasmade.
D. On the 15th day of the fourth month following the taxpayer’s year-end.
25.) The annual 15% capital gains tax return is due
A. within 30 days from the end of the month of sale.
B. within 30 days from the date of sale or exchange.
C. on or before the 15th day of the fourth month following the taxpayer’s year-end.
D. on or before the 15th day of the fourth month following the close of the quarter when the sale was
made
26.) Installment payments of the 6% capital gains tax is due
A. Within 10 days from the date of each installment payment.
B. Within 30 days from the date of each installment payment.
C. Within 15 days from the date of each installment payment.
D. Within 20 days from the date of each installment payment.
27.) Paulo indicated in his return his intent to avail of the exemption from the 6%capital gains tax. Under
what condition will he be exempted?
A. When the proceeds of the sale exceeds the cost basis of the property sold


B. When the proceeds of the sale exceeds the acquisition price of the new residence
C. When the cost basis of the property sold exceeds its selling price
D. When the acquisition price of the new property exceeds the proceeds of the old property sold
28.) Poe, a security dealer, sold domestic shares directly to a buyer. The shares which were held for two years
had a fair value of P300,000 and cost of P150,000 were sold atdiscount at P200,000. Compute the capital gains
tax.
A. P0 C. P7,500
B. P3,750 D. P15,000
29.) Mrs. San Marcelino, a resident citizen, purchased 100,000 shares of PhilHotdogs,a domestic listed
company. The shares were acquired at P200,000. She disposed the shares through the Philippine Stock
Exchange at a fair value of P250,000. Compute the capital gains tax.
A. P 0 C. P 7,500
B. P 2,500 D. P 10,000
30.) On June 20, 2021, Mr. Limon filed the capital gains tax return involving the sale of domestic stocks on
February 20, 2021. The net gain was P140,000. Compute the total amount due including penalties except
compromise penalty.
A. P 26,880 C. P 11,721
B. P 26,871 D. P 12,254

1. Which BIR return is applicable to a pure compensation income earner?
A. Form 1700 C. Form 1701-A
B. Form 1701 D. Form 1702
2. Mr. A is concurrently working under two employers. During the year, he received a dividend from B, Inc.
Which is correct?
A. A shall file BIR Form 1701-A to cover the dividend income.
B. A need not file a consolidated income tax return since dividends are subject to final tax.
C. Mr. A must file a consolidated return using BIR Form 1700
D. Mr. A must file consolidated return using BIR Form 1701.
3. Romeo derives income from a restaurant and practice of his profession. During the year, he also earned a
substantial income selling his antique collection. He is
A. A mixed income earner
B. Pure professional income earner
C. Pure business income earner
D. Purely self-employed
4. Which of the following return is filed quarterly and annually?

A. 1700 C. 1701-A
B. 1701 D. None of these
5. Mr. Americano, a resident alien, is employed abroad but is engaged in business in the Philippines. He
has no other sources of income. He is a
A. mixed income earner.
B. Pure compensation income earner but needs to file income tax return.


C. Purely engaged in business.

D. Pure compensation income earner but don’t need to file income tax return.
6. Which is not applicable to an individual taxpayer who wants to pay regular income tax?
A. Optional standard deduction C. Income tax table
B. Itemized deduction D. 8% commuted tax
7. A taxpayer had the following income:
Philippines Abroad
Compensation income P 1,000,000 -

Net income (loss) (400,000) P 900,000
Compute the taxable income if the taxpayer is a resident citizen. A.

P1,900,000 C. P1,000,000
B. P 1,500,000 D. P 600,000
8. The following pertains to the income of ABC Company:

- P1,200,000 net income from own operations
- P400,000 local branch income
- P200,000 loss on foreign branch income
- P500,000 share in income of foreign subsidiary
Compute the taxable income.

A. P2,100,000 C. P1,600,000
B. P1,900,000 D. P1,400,000
9. A domestic corporation had the following:

- P300,000 income subject to special tax
- P200,000 exempt income
Which ITR must be filed?

A. BIR Form 1702-RT C. BIR Form 1702-EX
B. BIR Form 1702-MX D. BIR Form 1701-A
10. A taxpayer filing BIR Form 1702Q for the third quarter September 31, 2022 must do so on or before
A. January 15, 2023 C. November 15, 2022
B. November 30, 2022 D. April 15, 2023
11. A mixed income taxpayer had a P200,000 compensation income, P1,000,000 rentals and P200,000
expenses. Compute his commuted tax.
A. P 80,000 C. P 60,000
B. P 76,000 D. P 48,000


12. Which is not a required attachment in the income tax return for a non-VAT taxpayer?
A. CPA certification
B. Account information form
C. Statement of management responsibility
D. Certificates of withholding tax withheld at source
13. A domestic corporation had the following income:
Philippines Abroad
Royalty P 1,000,000 P 500,000

Winnings 500,000 100,000
Compute the taxable income.

A. P 2,100,000 C. P 1,100,000
B. P 1,500,000 D. P 500,000
14. Which of the following is exempt?

A. Gain on assignment of life insurance policy at an amount in excess of premium payment
B. Interest on insurance proceeds
C. Insurance proceeds receivable by the employer as beneficiary
D. Gain realized by an assignee of an insurance policy
15. Income of donated properties is

A. Exempt from income tax
B. Taxable to the donor if earned prior to the donation
C. Taxable to the done if earned after the donation
D. A and B
16. John retired on is 50th birthday after having rendered 5 years in his current employment. He served a
total of 25 years on two employers. He received a total of P2,000,000. Which is true?
A. The retirement is exempt from income tax.
B. The retirement benefit is taxable since is his second retirement.
C. The retirement is subject to income tax for failing to meet the residency condition.
D. The retirement benefit is exempt for not exceeding P3,000,000
17. Employees retiring from employers with no retirement benefit plan may claim exemption if
A. he is at least 50 years old with at least 10 years rendered.
B. He is at least 60 years old with at least 10 years rendered.
C. He is at least 50 years old with at least 5 years of service.
D. He is at least 60 years old with at least 5 years of service.
18. After 9 years of employment as a gigolo, Romeo received P1,000,000 as separation pay from Gagamba, a
gay bar which closed during the pandemic. Which is true?
A. The separation pay is exempt if Romeo is 50 years old.


B. The separation is exempt if Romeo is 60 years old.

C. The separation pay is taxable since Romeo failed the service years requirement.
D. The separation pay is exempt without regard to the year of service and employee age.
19. After 15 years of employment, Angel availed of the early retirement offer of her employer which is suffering
from losses in Silicon Valley, California, USA. Angel retired with P40M at the age of 40. Which is true?
A. The retirement benefit is subject to income tax since Angel fall short of the age requirement.
B. The retirement benefit is exempt due to the involuntary nature of the severance of employment.
C. This is subject to tax since the termination of employment is voluntary.
D. Foreign employee benefits is exempt from tax.
20. Horace received payroll of P800,000 net of P100,000 withholding tax and P80,000 actual deductions for
SSS, PhilHealth, and HDMF. The SSS actual contribution was in excess of the mandatory amount by
P4,000 while the PhilHealth contribution was deficient by P3,000. Compute the taxable compensation
income.
A. P 904,000 C. P 900,000
B. P901,000 D. P 899,000
Part 3. Encircle the correct answer.

1.) Which is not an element of an employer-employee relationship?
a) Selection of applicants
b) Power of control
c) Power to dismissal
d) Applicants bidding and engagement.
2.) The following are relevant employee classification for purposes of taxation, except
a) Managerial employee
b) Supervisory employee
c) Rank and file employee
d) Special alien employee
3.) The following pertains to the employee benefits of a supervisory employee who received P800,000,
net of P20,000 withholding tax and contributions:
Employee Share Employer’s Share
Actual mandatory contributions P 80,000 P 70,000
Mandatory contributions P 70,000 P 63,500
Compute the taxable compensation income. P

810,000 C. P 830,000
P 820,000 D. P 836,500
4.) The following pertains to the employee benefits of a supervisory employee who received P800,000,
net of P20,000 withholding tax and contributions:


Employee Share Employer’s Share

Actual mandatory contributions P 80,000 P 70,000
Mandatory contributions P 70,000 P 63,500
Compute the total deductible expense of the
employer. P 890,000 C. P 973,500
P 970,000 D. P 975,000
5.) An employee had a total of P65,000 13th month pay and P40,000 excess of de minimis benefits.
How much shall be indicated under Row 17 of 1601-C as follows:
A. P0 C. P 90,000
B. P65,000 D. P 105,000
6.) Which is a wrong de minimis threshold?

A. Sick leave credits, 10 days
B. Vacation and sick leave credits to government employees, no limit
C. Rice subsidy, P1,500/month
D. Uniform and clothing allowance, P6,000/year
7.) Which of the following is an exempt de minimis?

A. Sick leave credits, 9 days
B. Productivity incentive bonus, P11,000
C. Employee achievement award, P10,000 in gift certificates
D. Laundry allowance, P300/month
8.) Which is false with respect to Filipinos employed by foreign embassies and international missions?
A. They are automatically exempt from income tax under the doctrine of international comity.
B. They must secure an exemption ruling from the BIR ITAD.
C. Filipino employees are required to file their income tax returns for their income.
D. The foreign embassies or international mission cannot be compelled to withhold
tax on compensation.
9.) The retirement exemption rule will least likely to apply to which of the following retiring employees?
A. A resident alien who is employed and assigned in the Philippines by a foreign firm
B. A resident citizen who left the Philippines upon filing his retirement application.


C. A resident citizen who arrived in the Philippines during the year after retiring abroad.
D. A 50-year old alien who is retiring for the second time after 10 years of service in the Philippines.
10.) An employee with a basic pay of P92,000/month has a perfect attendance during the year. He earned a
total overtime of P18,000, bonuses of P40,000 and total de minimis benefits of P32,000 including P4,000
excess
How much shall be indicated under Row 42.

A. P1,286,000 C. P 1,104,000
B. P1,194,000 D. P 182,000
11.) An employee with a basic pay of P92,000/month has a perfect attendance during the year. He
earned a total overtime of P18,000, bonuses of P40,000 and total de minimis benefits of P32,000
including P4,000 excess.
How much shall be indicated under Row 43?

A. P124,000 C. P 90,000
B. P118,000 D. P 28,000
12.) Which of the following is taxable to a minimum wage earner?

A. Basic minimum wage
B. COLA
C. Night shift differential pay
D. Tips and commissions
13.) Which is false with respect to stock option plans?

A. The benefit derived from stock option plans are considered de minimis benefits.
B. Stock option plan benefits are considered additional compensation if the employee is a


rank and file employee.

C. Stock option plan benefits are considered as fringe benefits if the employee is
managerial or supervisory employee.
D. Benefits is measured based on the higher of book value or fair value against the strike
price of the option.
14.) Which is not a nature of fringe benefits tax?

A. It is a final tax that is paid quarterly.
B. It is imposed on the monetary value of the benefit.
C. It is deductible by the employer.
D. The recipient employee does not have to file a return to report the income to the government.
15.) Which is not an exemption criterion to the fringe benefits tax?

A. Rank and file employee
B. Benefit is intended for the business of the employer.
C. Benefit is mandated by law.
D. Benefit is intended by the employer to develop employee goodwill.
16.) Which tax return is used to remit payments of fringe benefits tax?
A. 1601-FQ
B. 1602Q
C. 1603Q
D. 1604-F
17.) The following were advanced to a managerial employee who is assigned to establish a new
branch in a far-flung area:
Rental for office P 50,000
Rental for temporary residence 26,000
Compute the total fringe benefits expense.

A. P 0 C. P76,000
B. P 50,000 D. P83,000
18.) XYZ Corp. transferred ownership over a car with book value of P400,000 and fair value of
P520,000 to Manager A. The car is intended to be used partly for business and partly for the personal
use of Manager A.
Compute the total fringe benefit expense.
A. P 520,000 C. P 680,000
B. P400,000 D. P 800,000
19.) In January 2022, XYZ Corp. issued a car with a book value of P800,000 and a fair value of
P900,000 to Manager A for his personal and business use. The car can be rented for P6,500/month.
Compute the total fringe benefit expense.
A. P 996,923 C. P 42,000
B. P886,153 D. P 0


20.) CFO Khim Anunuevo is evaluating the financial impact of a company incentive giving company
officers of Tekla, Inc. a paid family vacation. The vacation expense would total P487,500 in all. He
asked you to determine the net effect on the company’s bottom line.
A. P 487,500 decrease C. P 562,500 decrease
B. P750,000 decrease D. No effect.

1.) Which of the following can claim deductions against gross income?
A. Non-resident alien not engaged in trade or business
B. Non-resident foreign corporation
C. Employees with multiple employment
D. Mixed income earner
2.) The concept of deduction is not applicable to which of the following taxpayer
A. Individual opting to be taxed under the 8% commuted tax option
B. Non-resident alien engaged in trade or business
C. A corporation that is subject to minimum corporate income tax
D. A minimum wage earner with a business
3.) Which is deductible to an individual income taxpayer?
A. Personal expenses of employees shouldered by the employer
B. Personal or family expenses of the taxpayer
C. Cost of fixed assets purchased by the taxpayer
D. Expenses of a business registered as a BMBE
4.)
I. Taxpayers under the cash basis method can deduct prepaid expenses.
II. Taxpayers under the accrual basis can deduct accrued yet unpaid expense.
Which is true?
A. I only C. Both I and II
B. II Only D. Neither I nor II
5.) Which is deductible against gross income of a domestic corporation?
A. Expenses of a foreign subsidiary
B. Expenses of a branch
C. Freight in transporting purchased inventory
D. Loss in impairment of property
6.) Which is deductible by a resident alien?

A. Commission expense of selling domestic stocks directly to buyer
B. Bad debt expense under the cash basis of accounting
C. Expenses of a foreign branch
D. Loss on disposal of office equipment

1. The following relates to a large corporate taxpayer:


Interest expense P 400,000

Interest income – time deposit, net 100,000
Compute the deductible interest expense.
A. P380,000 C. P367,000
B. P375,000 D. P333,000
2. The following relates to a taxpayer:

Interest expense P 400,000
Interest income – promissory notes 100,000
Compute the deductible interest expense
A. P400,000 C. P333,000
B. P367,000 D. P300,000
3. Which is deductible tax expense against gross income?

A. Documentary stamp tax
B. Donor’s tax
C. Estate tax
D. Foreign income tax claimed as tax credit
4. The following relate to a corporate taxpayer:

Capital loss – current year P 60,000
Capital gain – current year 140,000
Net capital loss 40,000
Net income 75,000
What is the net capital loss carry-
over?
A. P 0 c. P75,000
B. P40,000 d. P80,000
5. An individual income taxpayer reported the following:

Capital loss – current year P 50,000
Capital gain – current year 60,000
Net capital loss – last year 70,000
Compute the deductible capital loss against capital gain in the current
year.
A. a. P180,000 c. P60,000
B. b. P120,000 d. P50,000
6. Bad debts expenses include

A. uncollectible debts due to the taxpayer
B. securities becoming worthless.
C. Both a and b
D. Neither a nor b


7. The following relates to a taxpayer’s warehouse:

Cost P 2,000,000
Accumulated depreciation 600,000
Residual value 200,000
Current fair market value 2,500,000
Remaining useful life 12 years
Compute the deductible depreciation expense.
a. P208,333 c. P191,667
b. P200,000 d. P100,000
8. Which of these is a partially deductible contribution?

A. Donation to the government for public purpose
B. Donation to priority activities of the government
C. Donation to foreign institutions with treaty exemption
D. Donation to accredited charitable institutions
9. Waling Waling, Inc. maintained a defined contribution pension plan. The plan is contributory where
employees contribute 20% of the pension contributions. During the year, Waling Waling contributed
P1,000,000 inclusive of employee contribution which was pre-deducted through their salaries. Compute
the pension expense.
A. P1,000,000 C. P200,000
B. P800,000 D. Some other amount
10. Zambales Inc. made the following contributions during 2021:

Contributions to the government in non-priority activities P 60,000
Contributions to foreign charitable institutions 40,000
Contribution to accredited non-profit institution 30,000
Contributions to foreign organizations with treaty 100,000
exemption
Zambales Inc. has net income before contribution expense of P1M.

Compute the deductible contribution expense.
A. P230,000 C. P180,000
B. P190,000 D. P130,000

1.) An alien who stayed in the Philippines for 180 days during the year
A. Resident alien
B. Non-resident alien engaged in business
C. Non-resident alien not engaged in business
D. Special alien


2.) Who is not required to file income tax return?

A. Resident alien
B. Non-resident alien engaged in trade or business
C. Non-resident alien not engaged in trade or business
D. None of these
3.) Who is not required to withhold taxes?

A. A pure compensation income earner
B. A mixed income earner
C. A pure business income earner
D. None of these
4.) Which of the following tax rules do not apply to individual taxpayers?
A. Accounting period
B. Holding period
C. Optional standard deduction
D. Personal exemption
5.) Which individual can opt to use the 8% commuted tax?

A. A non-VAT registered businessman with a net loss during the year
B. An individual taxpayer whose only income is P2M compensation income
C. A jeepney operator with P2M gross receipts
D. A VAT-registered taxpayer with less than P3M gross receipt
6.) Which is not subject to final tax to an individual taxpayer?

A. Prizes and Winnings
B. Informer’s reward
C. Interest on loans
D. None of these
7.) An individual who not a businessman sold his principal residence to the government. Which is not true?
A. He can be exempt from tax if he purchase a replacement residence within 18 months.
B. He is exempt from business tax.
C. He is exempt from income tax as the sale is involuntary.
D. He can opt to be subjected to regular income tax on his gains on the sale of the property.
8.) The substituted filing system for individual income taxpayer still apply when
A. The employer incurred an error in withholding
B. The employee is successively employed on two employer during the year
C. The employee is concurrently employed on two employer during the year
D. The employee is a manager who also earn fringe benefits in addition to compensation income
9.) Which is not a required tax compliance to an employee who is also operating a water delivery as side
hustle in his residence?
A. BIR Form 1701Q
B. BIR Form 1701
C. BIR Form 2551Q


D. BIR Form 1601-C
10.) Which is not true with individual taxpayers?

A. OSD is computed as 40% of gross sales or receipts without deduction for cost of sales or
services.
B. Partially deductible contribution are allowed up to 10% of net income before contribution.
C. P250,000 income exemption is deducted in computing the annual income tax due.
D. Subject to tax only on Philippine income unless a resident citizen.
Part 7. Encircle the correct answer.

1.) Which is not taxable as a corporation?
A. An association
B. A partnership
C. One person corporation
D. An oil exploration joint venture
2.) A partnership reported a total assets of P104,000,000 after reporting a net income of P8,000,000
for 2022.
What is the applicable income tax rate?
A. 30% C. 22.5%
B. 25% D. 20%
3.) Which is not included in determining the corporate asset test?

A. Land held as a future plant site
B. Land held for speculation
C. Land inventory
D. Parking lot
4.) The following data relates to a resident corporation with total assets of P 80M:
Compute the income tax due.
A. P 1,500,000 C. P 500,000
B. P 600,000 D. P 400,000
Philippines Abroad Total
Gross Income P 10M P 15M P 25M
Deductions 8M 11M 19M
Net Income P2M P 4M P6M
5.) Which is a special corporation?

A. Public school
B. Non-profit school
C. Private hospital
D. Non-profit hospital
6.) The following data relates to a domestic corporation with total assets of P 60M:


Compute the income tax due.

A. P 1,500,000 C. P 500,000
B. P 1,200,000 D. P 400,000
Philippines Abroad Total
Deductions 8M 11M 19M
Net Income P2M P 4M P6M
7.) The following data relates to a corporate taxpayer with P200M total assets:
Compute the tax due assuming the taxpayer is private school.
A. P1,500,000 C. P 60,000
B. P1,200,000 D. P 40,000
Related Unrelated Total

Deductions 11 M 8M 19M
Net Income P 4M P 2M P6M
8.) The following data relates to a corporate taxpayer with P80M total assets:
Compute the tax due assuming the taxpayer is public school.
A. P1,500,000 C. P 60,000
B. P400,000 D. P 40,000
Related Unrelated Total

Deductions 11 M 8M 19M
Net Income P 4M P 2M P6M
9.) Which GOCC is subject to tax?

A. HDMF
B. PhilHealth
C. PCSO
D. Local Water Districts
10.) Which is not subject to 25% corporate income tax?
A. Foreign currency deposit unit
B. Offshore banking unit
C. Regional Operating Headquarters
D. Private hospital


C. LESSON WRAP-UP

Did you have challenges learning the concept in this module? If none, which parts of the module
helped you learn the concepts?
________________________________________________________________________________
_______________________________________________________
________________________________________________________________________________
_________________________________________________________
Key to Corrections
Part 1
1-10: B D D C A DDCCC
11-20: * D D D D BCDBD
21-30: C A A A C BDAAD
*INCORRECT: B and C
Part 2
1-10: A C D B C DBDBB
11-20: A A C C * CDDDB
*B and C
Part 3
1-10: D D C C C ADACA
11-20: B D A B D CAC*C
19.) 21,000
Part 4.
1-6: D A A B B D
Part 5.
1-10: B A A A C ADABC
Part 6
1-10 C C A D A CCDDC
Part 7
1-10: D B D C D ACBCA


Lesson title: Transfer Taxation Materials:

1. Recall and Apply learnings in Estate Tax and Donor’s References:
Tax Tax Reviewer by Enrico Tabag
Taxation Reviewer by Manuel, Soriano
and Laco
REO Reviewer
Hello students! You are now in your module 3 of your review subject. Your topic in this module is the Transfer
taxes covering the Estate tax and Donor’s Tax. You already finish this during your lower years. This time, you
need to recall and apply your learnings with the topic.
“A positive attitude really make dreams come true.”
B.MAIN LESSON
- Gratuitous transfer of property from one person to another
Rationalization of Transfer Taxes Nature of Transfer Taxes

1. Tax recoupment theory 1. Privilege tax
2. Benefit received theory 2. Ad valorem tax
3. State partnership theory 3. Proportional tax
4. Wealth redistribution theory 4. National tax
5. Ability to pay theory 5. Direct tax
6. Fiscal tax
Types of Transfer
1. Transfer Mortis Causa
2. Transfer inter vivos
Types of Transfer Taxpayers

1. Resident and citizens – taxable on global transfers, this encompasses
a. Resident citizen
b. Non-resident citizen
c. Resident alien
2. Non-resident alien – Taxable on Philippine transfers
The reciprocity Rule – The intangible properties of non-resident aliens are exempt from transfer taxes
provided that the country such alien is a citizen is a citizen also exempt the intangible properties of Filipino-
residents therein from transfer taxes.
ESTATE TAXATION – taxation of mortis causa transfer or succession


Succession - mode of transmission of the ownership, rights, interests and obligations over property by reason
of death of the owner in favor of certain persons designated by the owner himself or by operation of law.
Elements
1. Decedent Kinds of Succession
2. Successor 1. Testate (voluntary)
3. Estate 2. Intestate (involuntary)
ESTATE TAX – tax on privilege of the decedent to transmit his estate at death to his lawful heirs or
beneficiaries.
Gross Estate Computation

Properties existing at the point of Death xx
Taxable transfer xx
Exempt transfer (xx)
Exclusion by law (xx)
Gross Estate xx
MARRIED DECEDENTS
A. ABSOLUTE COMMUNITY OF PROPERTY
Exclusive Property
1. Property acquired before the marriage by either spouse who has legitimate descendants by former
marriage, and the fruit of such property
2. Property acquired during the marriage by gratuitous title by either spouse and the fruits thereof;
unless, it is expressly provided by the donor or testator that they shall form part of the community
property.
3. Property for personal and exclusive use of either spouse except jewelry
B. CONJUGAL PARTNERSHIP OF GAINS

Exclusive Property
1. That which one already owns before his or her marriage, except fruit of such property
2. That which one acquired after the marriage by gratuitous title (e.g. donation or inheritance) or by
exchange with an exclusive property, except fruit of such property.
Deductions from Gross Estate

1. Losses, Indebtedness and Taxes (LIT)
a. citizen or resident alien – deductible fully
b. non-resident alien – the deductible amount shall be prorated total world LIT by which the Philippines
gross estate bears with total world gross estate
2. Transfer for public purpose (government or any political subdivisions)
3. Deductions for properties previously taxes (vanishing deductions)
4. Family home with maximum value deductible not to exceed P10,000,000
5. Standard deduction for citizen or resident alien decedent only P5,000,000
6. Retirement benefit received by employees or private firms form private pension plan approved by the
BIR under RA 4917
7. Net share of the surviving spouse in the conjugal partnership property or community property as
diminished by the expenses properly chargeable to such property shall be deducted from the estate.


Vanishing Deductions
Percentage of Vanishing Deductions: based on the interval of the death of the present decedent and the
time of death of the prior decedent of the date of gift whichever is relevant
More than Not more than Percentage
- 1 year 100%
1 year 2 year 80%
2 year 3 year 60%
3 year 4 year 40%
4 year 5 year 20%
5 year - 0%
Value to take (lower between FMV at the time of death vs

FMV at the time of inheritance or donation) xx
Less: Mortgage paid by present decedent (on mortgaged assumed) (xx)
Initial Basis xx
Less: (IB/GE) x (LITE + TFPU) (xx)
Final Basis xx
Rate x%
VANISHING DEDUCTION xx
NET TAXABLE ESTATE

Unmarried decedent
Real Properties xx
Personal properties xx
Gross estate xx
Ordinary Deductions: LITE + TFPU + VD) (xx)
Special Deductions (FH and SD) (xx)
Net Taxable Estate xx
Married Decedent
Exclusive Common Total
Real Property xx xx xx
Personal Property xx xx xx
Gross Estate xx xx xx
Ordinary Deductions:
Other deductions xx xx (xx)
Net Estate after OD xx xx xx
Special Deductions:
Family home (xx)
Standard Deduction (xx)
Net Estate xx
Less: Share of surviving spouse (1/2 of net estate after OD Common) (xx)
Taxable Net Estate xx
Estate tax rate: 6%


DONOR’S TAX
- Tax on donation or gift, and is imposed on the gratuitous transfer between two or more persons who
are living at the time of the transfer. It shall apply whether the transfer is in trust or otherwise, whether
the gift is direct or indirect and whether the property is real or personal.
Essential Requisites of Donation

1. Capacity of the donor
2. Intention to Donate
3. Donative Act – actual or constructive
4. Acceptance by the done – required only in direct donation but not with indirect donation as in the case of
transfer with insufficient consideration
Citizen Alien/Resident Non resident

Properties located in the Philippines Include Include Include
Properties located abroad Include Include Exclude
Classification of Donor’s Tax

a. Proportional tax
b. Excise tax
c. Direct tax
d. Ad valorem tax
e. National tax
f. General tax
g. Annual tax
Mode of Execution of Donation

Depending on the property involved, donation can be executed by the following:
1. Real or immovable property
Issuance of a public instrument, Deed of Donation
Donation of real properties is not subject to donor’s tax but are subject to 6% of CGT. It should be noted
that the 6% CGT covers sale, exchange, or other disposition of real properties.
2. Personal Property
a. Tangible
i. P5,000 and below in value – oral is allowed
ii. More than P5,000 in value – donation and acceptance should be in writing for validity.
DONOR’S TAX: 6% of the net gift in excess of P250,000
Format of computation
FIRST DONATION OF THE YEAR Donor’s tax xx
Gross gift xx Less: Tax Credit (if applicable) xx
Exemptions/Deductions (xx) Donor’s Tax Payable xx
xx
Less: Tax Exempt gift (250,000)
Net taxable gift xx
Multiply: Donor’s tax rate 6% SUBSEQUENT DONATION WITHIN THE YEAR


Gross gift, current xx Multiply: Donor’s tax 6%

Exemptions/Deductions (xx) Donor’s tax due xx
xx Tax paid – prior (xx)
Add: Prior gift xx Tax credit (xx)
Less: Tax exempt gift (250,000) Donor’s tax payable xx
Net taxable gift xx

Encircle the correct answer.
1. Which of the following statement is false?
A. Transfer tax is an imposition to the transferor.
B. Non-resident transferors are taxable only on transfers made in the Philippines.
C. The situs of transfers is the place where the property is situated at the point of donation.
D. The taxpayer in donation mortis causa is the estate.
2. Which is not a nature of transfer tax?

A. Privilege tax
B. Direct fiscal tax
C. Ad valorem national tax
D. Progressive tax
3. Which is not subject to estate tax on global properties?

A. Resident citizen
B. Non-resident citizen
C. Resident alien
D. Domestic corporation
4. The reciprocity exemption in transfer taxation is applicable to

A. Resident citizen with respect of his intangible properties located abroad
B. Resident alien on his intangible properties situated in the Philippines
C. Non-resident alien with respect to his intangible properties situated in the Philippines
D. Non-resident alien with respect to his intangible properties situated abroad
5. Which is not subject to estate tax?

A. Donation made during the Ilfetime of the decedent but is intended to take effect upon death.
B. Donation intended by the decedent to save on income taxes,
C. Donation made after a relative's death anniversary celebration motivated by the decedent's thought of death.
D. Revocable transfers which the decedent failed to revoke during his lifetime.
6. Which of the following is not a motive associated with llfe?

A. To settle family dispute
B. To save on transfer tax
C. To see children financially independent
D. To relieve the donor of the burden of management of the property


7. A donated and delivered a property to B but ownership shall transfer to B conditional on him passing the
board exams, which is wrong?
A. The donation is subject to estate tax upon X's death should B failed to pass the exam before X's death.
B. The donation is subject to donor's tax should x pass the exam before A's death,
C. A shall pay donor's tax on the donation but the same shall be subject to estate tax upon his death. Any
donor's tax paid shall be claimed as tax credit.
D. None of these
8. On June 1, 2020, Mr. Danilo made a revocable transfer of an antique jar valued at P1,000,000 to Enteng for
P500,000. Danilo acquired this for P200,000 two years ago. Which is wrong?
A. P300,000 shall be subject to income tax subject to holding period rule.
B. P500,000 shall be subject to donor's tax.
C. P500,000 shall be subject to estate tax if Danilo fails to revoke the transfer.
D. The donation shall be subject to donor's tax If Danilo waives his right to revoke. The tax shall be based on
the fair value of the jar at the date of waiver.
9. Mr. Boni purchased a piece of land in 2011 for P500,000 when it was worth P450,000. He transferred the
property when it was worth P1,000,000. Subsequently, Mr. Boni died when the property was worth
P1,200,000. Assuming that the donation is a donation mortis causa, what is the value to be subjected to
estate tax?
A. P 450.000
B. P 500,000
C. P 1,000,000
D. P 1.200.000
10. Mr. Boni purchased a piece of land in 2011 for P500,000 when it was worth P450,000. He transferred the
property when it was worth P1,000,000. Subsequently, Mr. Boni died when the property was worth
P1,200,000. Assuming that the donation is a donation inter-vivos, what is the value to be subjected to donor's
tax?
A. 450,000
B. 500,000
C. 1,000,000
D. 1,200,000
11. Mr. Peter made a revocable transfer of his stock investments on July 4, 2021 in favor of his brother, Merto.
Peter died on December 15, 2021.
The stocks had the following fair values:

July 4, 2021 P 1,200,000
August 20, 2021 1,100,000
December 15, 2021 1,600,000
Assuming Mr. Peter did not revoke the property until the date of his death, what is the amount subject to
transfer tax and the type of transfer tax to apply?
A. P 1,200,000; donor's tax
B. P1,100,000; estate tax
C. P1,600,000; donor's tax


D. P1,600,000; estate tax
12. Mr. Jerick received in trust a property worth P1, 400,000. Jerick was entrusted to be the fiduciary heir to the
property left by his mother, Maria. While still living, Jerick transferred the same property to his younger
brother, Erwin, in accordance with the will of their mother, Marciana. The property was worth P1,500,000 at
the date of transfer. The property is
A. subject to donor's tax at P1,500,000.
B. subject to estate tax at P1,500,000.
C. subject to donor's tax at P1,400,000,
D. exempt from transfer tax.
13. Rhad was indebted to Zeus with a P 50,000 interest-bearing loan. Rhad rendered services worth P51,500
to Zeus. Zeus cancelled Rhad's indebtedness when it was worth P51,500 including interest. The cancellation
of indebtedness is
a. subject to donor's tax.
b. subject to estate tax.
c. exempt from transfer tax,
d. subject to both donor's tax and estate tax.
14. Don Virgilio died leaving behind his widow, Mrs. Virgilio, his legitimate children, Maximo and Rey, and
illegitimate children, Joan, Sylvia and Eunice, as heirs. Mr. and Mrs. Virgilio had the following properties:
Exclusive properties of Don Virgilio P 18.000 000
Exclusive properties of Mrs. Virgilio 16,000,000
Net common properties 36 000 000
Compute the net distributable estate.
A. P 18.000.000 C. P 24.000.000
B. P20,000,000 D. P 36.000.000
15. A decedent died intestate with P1,000,000 net estate. If he has four legitimate children and two illegitimate
children, how much shall each legitimate and each illegitimate child respectively receive?
A. PO; PO
B. P 200,000; P100,000
C. P 100, P50,000
D. P 166,667, P166,667
16. A married decedent died intestate leaving behind P1,500,000 of his separate property and P6,000,000
common properties with his surviving spouse. If he has three children and one illegitimate child. How much
shall each legitimate child receive?
A. P1,666,667
B. P 666.667
C. P1,000,000
D. P 333.333
17. Which is not deducted from the inventory list of properties in arriving at the gross estate?
A. Properties held as a trustee
B. Properties held as a fiduciary heir
C. Properties held under a general power of appointment


D. Properties held under a special power of appointment
18. Which is not added to the inventory list of properties in computing gross estate?
A. Transfer in contemplation of death
B. Revocable transfers
C. Transfers under general power of appointment
D. Merger of the usufruct in the owner of the naked title
19. The proceeds of life insurance designated by the decedent to his/her child is included in gross estate
A. if the designation is revocable,
B. if the designation is irrevocable.
C. without regard to the designation as revocable or irrevocable
D. in all circumstances view
20. Which is a correct statement?

A. The merger of the usufruct in the owner of the naked title is a transmission subject to estate tax
B. The transfer from the first heir to the second heir in accordance with the wishes of a predecessor is a taxable
transfer subject to estate tax.
C. The proceeds of life insurance taken by the decedent for himself/herself is always included in gross estate
if the beneficiary is the estate, executor or administrator.
D. The trustor need not include a property transferred in a revocable trust in his gross estate.
21. Which is not included in the gross estate of the wife?

A. Capital properties
B. Common properties
C. Paraphernal properties
D. None of these
22. Mr. Garcia devised in his will a piece of land to Mrs. Garcia. Mrs. Garcia shall enjoy usufructuary right over
the property and shall pass the same to Mr. Santos upon her death. Who shall include the property in his or
her gross estate upon death?
A. Mr. Garcia
B. Mrs. Garcia
C. Mr. Santos
D. Mr. Garcia and Mr. Santos
23. Mrs. A1 appointed Ms. B1 as fiduciary heir over an agricultural land which Ms. B1 shall turn over to Mr. C1
upon Ms. B1's death. Which is incorrect?
A. The land must be included in Mrs. A1's gross estate upon her death.
B. The land must be excluded in Ms. B1's gross estate upon her death.
C. The land must be excluded in Mr. C1's gross estate upon his death.
D. None of these
24. Which of this transfer mortis causa will more likely to be included in gross estate of the decedent?
Fair value at transfer Selling price at transfer Fair value at death
A. P 100,000 P 150.000 P 200,000
B. P 150,000 P 150,000 P 300,000


C. P 200.000 P 150,000 P 140.000

D. P 300,000 P 200,000 P 280,000
25. The decedent owns 200,000 shares of Saint Christian Corporation, a listed company.
Date of death Date of interment
Book value per share P23.50 P23.55
Closing price P48.20 P49.50
Average trading price P48.00 P49.60
The 200,000 shares shall be included in gross estate at
A. P 4,700.000
B. P 9,640,000
C. P 9.600.000
D. P 9,900,000
26. Mrs. Dely died on November 1, 2021. An inventory of her properties was conducted for estate tax purposes
on January 1, 2021. On that date, she had properties with an aggregate fair value of P7,000,000. This
amount includes P300,000 income received by the estate since her death and is net of P600,000 expenses
used during her funeral. What is the amount of gross estate?
A. P 7.900.000
B. P 7.300,000
C. P 7,000,000
D. P 6,700,000
27. Mr. Pogay had the following properties with their respective fair values in his possession at the date of his
death:
Agricultural land, held in trust P 200,000

Car, registered in the name of his brother 300,000
Motorcycle 80,000
Residential lot 900,000
Other personal properties 70,000
Compute the gross estate.
A. P 950,000
B. P 1,050,000
C. P 1,250,000
D. P 1,550,000
28. A non-resident alien decedent had the following interests at the point of death:
Interest in a business partnership organized abroad P 300,000
Shares in a foreign corporation 75% of the business
of which is situated in the Philippines 400,000
Shares of a foreign corporation traded in the
Philippine Stock Exchange 800,000
Claims from resident debtors 1,200,000
Compute the amount of properties considered situated in the Philippines.
A. P 800,000
B. P1,200,000


C. P 2,000,000
D. P 2,400,000
29. A Mexican citizen died in Tokyo, Japan. He had the following properties:
House and lot in Mexico P12,000,000
House and lot in Japan 18,000,000
Car in Japan 2,000,000
Shares of stock in a domestic corporation 4,000,000
Interest in a Philippine-based business 2,000,000
What is the amount to include in gross estate assuming that the reciprocity condition applies?
A. P0
B. P 6,000,000
C. P 26,000,000
D. P 38,000,000
30. A resident Japanese decedent died with the following properties:

A house and lot in Japan P2,000,000
Bank deposit, in the Philippines 800,000
A car in the Philippines 1,000,000
A residential lot in the USA 1,500,000
Compute the amount to be included in gross estate.
A. P0
B. P 2,000,000
C. P 1,800.000
D. P 5,300,000
31. Adie died on January 1, 2018 leaving among others the following charges and obligations:
Real property tax for the year 2017 100,000
Notarized interest bearing promissory note 100,000
Accrued interest on the promissory note at the time
Of death 20,000
Interest to accrue on the promissory note from the
Date of death to the date of maturity 10,000
Income tax due for 2017 200,000
How much were the allowable ordinary deductions from the gross estate?
A. 420,000
B. 430,000
C. 510,000
D. 520,000
32. Claims against the estate of the decedent who died on February 2018:
Notes payable for money borrowed, not notarized 500,000
Accounts payable for supplies used in business 200,000
Unpaid medical expenses, incurred 2 years prior to death 150,000
Unpaid medical expenses, within 4 months prior to death 100,000
Debts from gambling losses 120,000


How much is the deductible claims against the estate?

A. 200,000
B. 350,000
C. 470,000
D. 850,000
33. Statement 1: An estate with several properties but with a negative taxable estate is not required to an estate
tax return.
Statement 2: The BIR shall be notified of the death of the decedent if he has properties exceeding
P1,000,000.
Which is incorrect?
A. Statement 1
B. Statement 2
C. Both statements
D. Neither statement
34. The estate tax return shall be filed within

A. 30 days from the date of death.
B. 45 days from the date of death.
C. 6 months from the date of death.
D. 1 year from the date of death.
35. Which of the following losses is claimable as deduction against gross estate?
A. Losses claimed in the income tax return of the estate
B. Losses occurring before the death of the decedent
C. Losses occurring after one year of the decedent's death
D. Losses of separate properties of the decedent
36. On June 30, 2018, Cardo Dalisay passed away. The following unpaid taxes relate to his property, income
on his property, and estate. Estate tax was filed and paid early on December 31, 2018:
2017 Income tax from practice of profession 300,000
Income tax-practice of profession for Jan to June 2018 100,000
Income tax of the estate, July to Dec 2018 200,000
Real property taxes for 2017 150,000
Business tax for 2017 100,000
The total taxes that may be deducted from the gross estate is
A. 550,000
B. 750,000
C. 850,000
D. 650,000
37. A decedent died in a wild fire which totally guttered his home. Which is correct?
A. If the property is insured, the insurance reimbursement is included in gross estate and the loss is reported
as a deduction.
B. If the property is not insured, the insurance reimbursement is included in gross estate and a deduction for
loss is claimed.
C. No deduction is allowed with or without insurance reimbursement.


D. With or without reimbursement, a loss is claimable,
38. Which statement is incorrect?

A. Claims against insolvent persons are presented in gross estate and deductions against gross estate.
B. Claims against insolvent persons are presented separately from losses.
C. Non-resident alien decedents can claim deductions for losses, indebtedness, and taxes.
D. Properties subject to mortgage are presented in gross estate at an amount net of the mortgage.
39. Non-resident alien decedents can claim prorated amounts for the following deductions, except
A. Taxes
B. Indebtedness
C. Losses
D. Vanishing deductions
40. The following losses of properties occurred during the settlement of the estate of Mrs. Budoy:
Losses of separate properties of Mr. Budoy 60,000
Losses of common properties 40,000
Losses of separate properties of Mrs. Budoy 80,000
Compute the deductible losses from gross estate.
A. P 60.000
B. P 80.000
C. P 100,000
D. P 120,000
41. On September 4, 2019, Kama Ta Yan died leaving an apartment building which has a fair value of
P1,000,000 which he inherited from his mother. The property was valued at P990,000 at the time of
inheritance dated July 28, 2015. The building has a previous mortgage of P150,000 of which 50,000 was
paid by Kama Ta Yan prior his death. In computing for the vanishing deduction, what percentage will be
used and how much will be the vanishing deduction?
A. 40%, 306,000
B. 60%, 300,000
C. 40%, 323,000
D. 20%, 305,000
42. A nonresident alien decedent left the following assets:

Domestic shares 1,000,000
Foreign shares 3,000,000
Tangible personal property, Philippines 6,000,000
Losses, unpaid indebtedness and taxes 1,200,000
The country where the decedent is a citizen and resident does not impose transfer tax transmission of
intangibles of Filipinos not residing therein. The taxable net estate in the Philippines is
A. 3,800,000
B. 4,780,000
C. 4,800,000


D. 5,280,000
43. Losses may be deducted against gross estate if

A. incurred within 6 months after death.
B. Incurred 6 months before death.
C. incurred within one year after death
D. Incurred one year before death.
44. A nonresident alien died on March 20, 2018 leaving the following properties and deductions
Shares, domestic corporation 500,000
Shares, foreign corporation 500,000
Tangible personal property 1,500,000
Deductible losses, indebtedness and taxes 500,000
Assuming there is no reciprocity, the estate tax due is
A. 66,000
B. 103,000
C. 1,500,000
D. 1,600,000
45. Mr. Y, single, died leaving properties he inherited 2 ½ years ago with a current fair market value of P 800,000.
The property was inherited when it was worth P1,000,0000 and had a P850,000 unpaid mortgage. Mr. Y
paid P550,00D until his death. Other properties of Mr. Y had a fair market value of P1,200,000 at the time
of his death.
The losses, taxes, and transfer for public purpose and P140,000. How much was the vanishing deductions?
A. P 139,500
B. P 180,600
C. P117,000
D. P107,611
46. In computing the estate tax, which of the following shall not be allowed tax credit for taxes paid abroad?
a. Resident alien decedent
b. Non-resident alien decedent
c. Resident citizen decedent
d. Non-resident citizen decedent
47. Which of the following is not allowed with tax credit for payments of estate tax on foreign countries?
a. A resident alien
b. A non resident citizen
c. An alien who was a resident of his own country at the date of death
d. An American residing in the Philippines at the date of death
Next two (2) questions are based on the following:

A citizen-decedent died with the following data:
Philippines USA
Gross Estate P14,200,000 P4,400,000
Allowable Deductions 6,400,000 2,200,000


(excluding standard deduction)

Estate tax paid 150,000
48. How much is the estate tax payable in the Philippines assuming the decedent is a non-resident citizen?
a. P132,000
b. P150,000
c. P168.000
d. P300,000
49. How much is the estate tax payable in the Philippines assuming the decedent is a non-resident alien
a. P150,000
b. P168,000
c. P300.000
d. P438,000
50. Mr. Nanahimik, citizen decedent, died on April 10, 2019 with the following data:
Gross Estate Allowable Deductions Estate Tax Paid
Philippines 18,750,000 15,750,000 -
China 3,000,000 1,500,000 37,500
Japan 4,500,000 5,250,000 -
USA 6,000,000 2,250,000 180,000
The estate tax payable in the Philippines should be:
a. P270,000
b. P315,000
c. P217,500
d. P232,500
51. Loo Sot died in 2020 leaving a gross estate amounting to P1,500,000. No estate tax is due based on the
tax code, as amended under the TRAIN Law. The gross estate is composed of a vehicle worth P800,000,
shares of stocks valued at P500,000 and P200,000-time deposit. The administrator believes that only
notice of death should be filed since the value of the gross estate is exempt from tax. What will you tell
him?
a. Notice of death and estate tax return have to be filed because the gross estate exceeds P200,000 and
when the gross estate consists of registered or registrable properties, estate tax is required to be filed
regardless of the value of the gross estate.
b. Only notice of death is required to be filed because the gross estate exceeds P200,000. Estate tax return
is required to be filed only when the gross estate exceeds 200,000 and/or there is tax due.
c. Neither notice of death nor estate tax return need to be filed in this particular case
d. Only estate tax return has to be filed
52. A decedent died upon the effectivity of the TRAIN Law, under which of the following situations estate tax
return is not required to be filed?
a. Transfers which are subject to estate tax.
b. The estate consists of registered or registrable properties for which a clearance from the BIR is required


as a condition precedent for the transfer of ownership.

c. The gross value of the estate consisting of non-registrable properties does not exceed P5,000,000.
d. None of the above
53. Who shall file the estate tax return?

a. Executor, or administrator, or any of the legal heirs
b. Creditors of the decedent
c. Personal secretary of the decedent
d. Debtors of the decedent
54. The Estate Tax Return shall be filed and payment made with
a. An Authorized Agent Bank (AAB) of the Revenue District Office (RDO) having jurisdiction over the place of
residence of the decedent at the time of his/her death
b. If there is no AAB within the residence of the decedent, the Estate Tax Return must be filed and the
payment made with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer of the
RDO having jurisdiction over the place of residence of the decedent
c. If the required filer has no legal residence in the Philippines, the Estate Tax return will be filed with the
Office of the Commissioner or in the Philippine Embassy or Consulate in the country where the decedent
was residing at the time of his or her death.
d. All of the above
55. If the decedent died on or after January 1, 2018, the estate tax return should be filed
a. At the time of death
b. Within 30 days after death
c. Within six months after death
d. within one year
56. Which of the following is false?

a. Donor's tax applies also to juridical persons
b. For purposes of donor's tax, second cousins are strangers to each other
c. Encumbrance on the property donated, if assumed by the donor is deductible for donor's tax purposes
d. As a rule, donation between husband and wife during the marriage is void
57. Which of the following is subject to donor's tax?

a. Those made between persons who were guilty of adultery or concubinage at the time of the donation.
b. Those made to conceived and unborn children.
c. Those made to a public officer by reason of his office.
d. Those made between husband and wife during their marriage.
58. Who is not subject to the donor's tax?

a. An individual making a donation.
b. A corporation making a donation.
c. A partnership making a donation.
d. An employer who pays premiums on the life insurance of its employee.
59. Statement 1: In all cases, void donations are not subject to donor's tax.
Statement 2: Every donation between the spouses during the marriage shall be void.


a. Only is correct
b. Only Il is correct
c. Both I and II are correct
d. Both I and II are incorrect
60. A non-resident citizen donor is taxed on his donation of properties:

a. Situated in the Philippines only.
b. Wherever situated.
c. Situated outside the Philippines only.
d. Situated in the Philippines only subject to the rule of reciprocity.
61. Statement 1: Resident alien would be subject to donor's tax only on their donations of property located in
the Philippines.
Statement 2: A donation by a foreign corporation of its own shares of stock to resident employees is not
subject to gift tax but may be subjected to income tax.
a. Only the first statement is correct
b. Only the second statement is correct.
c. Both statements are correct.
d. Both statements are incorrect.
62. There is reciprocity, when the donor and the donated property is:
Donor Property
a. Non-resident alien Intangible Personal Property
b. Non-resident citizen Immovable
c. Non-resident alien Tangible Personal Property
d. Resident alien Any kind of property
63. Which of the following is taxable only with respect to properties donated within Philippines?
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Non-resident alien
64. If a donor is a non-resident alien and the rule of reciprocity applies, which of the following properties will
not form part of his gross gift?
a. Real properties in the Philippines
b. Tangible personal properties within the Philippines
c. Intangible personal properties within the Philippines
d. All of the choices
Next three (3) questions are based on the following data:

Juliet, a Filipina made the following donations.
a. To Nick, a land worth P450,000 in Manila
b. To Rosalee, jewelry worth P100,000 in Japan
c. To Adalind, PLDT shares amounting to P150,000.
d. To Renard, a building in Italy P1,600,000 mortgaged for P 50,000 assumed by the donee.
e. To Drew, land in Davao worth P300,000.


f. P300,000 cash, PNB New York to Hank

g. P200,000 receivable,50% condoned by Juliet
She has also transferred the following properties:
Selling Price FMV

Car, Makati P 200,000 P 300,000
Car, Malaysia 300,000 200,000
Rest house, Tagaytay 1,000,000 2,000,000
Rest house, Malaysia 1,500,000 2,500,000
65. How much is the gross gift?

a. P5,200,000
b. P4,200,000
c. P4,100,000
d. P3,200,000
66. If she is a non-resident Alien, her gross gift is:

a. P3,200,000
b. P1,200,000
c. P1,100,000
d. P850,000
67. If she is a non-resident alien, and there is reciprocity law, her gross gift is:
a. P850,000
b. P950,000
c. P1,050,000
d. P700,000
68. Which of the following renunciations shall be subject to donor's tax

I. Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community
after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person(s)
II. General renunciation by an heir, including the surviving spouse, of his or her share in the hereditary estate
left by the decedent.
III. General renunciation by an heir, including the surviving spouse, of his or her share in the hereditary estate
left by the decedent categorically in favor of identified heir(s) to the exclusion or disadvantage of other co-
heir(s).
a. I only
b. I and II only
c. I and III only
d. I, II and III
69. Which of the following events is not subject to donor's tax?

a. A Filipino citizen donated a parcel of land located in the United States to B, non- resident alien.
b. A resident alien made a gift of P200,000 to his daughter on account marriage.
c. A non-resident citizen gives his girlfriend a diamond ringworthP100,000 as birthday gift.
d. A and B are the only heirs of C. A renounces his share of inheritance in favor of B


70. A gift that is incomplete because of reserved powers, becomes complete when:
I. The donor renounces the power
II. The right of the donor to exercise the reserved power ceases because of the happening of some event or
contingency or the fulfillment of some condition, other than because of the donor's death
a. I and Il are correct

b. I and II are not correct
c. Only I is correct
d. Only Il is correct
71. If the gift is made in properties, it shall be appraised at its:

a. Fair market value as of the time the donor's tax return is filed.
b. Fair market value as of the time of donation.
c. Historical cost at the time the donated property was acquired.
d. Value in the hands of the donor.
72. Every donation or grant of gratuitous advantage, direct and indirect, between the spouses during the
marriage, shall be void except:
a. Moderate gifts which the spouses may give each other on the occasion of any family rejoicing.
b. Donation mortis causa
c. Donation propter nuptias which are given before the marriage.
d. All the choices are correct exceptions.
73. A tax minimization scheme which is done by spreading the gift over numerous calendar years to avail of
lower tax liability
a. Spread-out method
b. Donation of life insurance
c. Splitting of gift
d. Void donation
74. In 2018, Ronald gave a property with a fair market value of P2,000,000, with unpaid mortgage of P200,000
to be paid by him, to his son Daniel and Daniel's bride Emily, on account of their marriage 15 months ago.
The allowable deduction is:
a. P10,000
b. P20,000
c. P40,000
d. P0
75. The donor's tax payable should be:

a. P300,000
b. P344,000
c. P105,000
d. P120,000
Use the following data for the next four (4) questions:


Mr. and Mrs. Mapagbigay, made the following donations during 2019:
• Jan. 25:
To Oliver, their legitimate son, on account of marriage last January 20,2016, car worth P 400,000, with
P200,000 unpaid mortgage, ½ was assumed by the done.
May 31:
To John, brother of Mr. Mapagbigay, his capital property worth P 200,000 on account of marriage 6
months ago with a condition that the done will pay the donor’s tax thereon.
• July 15:
To Felicity, daughter of Mrs. Mapagbigay by former marriage, on account of her marriage 12 months ago,
Mrs. Queen’s paraphernal property worth P 100,000.
Aug. 20:
Conjugal car of the couple worth P400,000, with P200,000 unpaid mortgage, ½ assumed by Felicity and
P500,000 worth of land to their four sons on account of their graduation, 20% of which was owned by their
closest friend Roy, who agreed to donate his share through a public document.
76. The gift tax payable of Mr. Mapagbigay as of May 31 should be:
a. P8,000
b. P7,000
c. P7,200
d. P6,000
77. The gift tax payable of Mrs. Mapagbigay as of July 15, should be:
a. P1,000
b. P2,600
c. P15,000
d. P 0
78. The gift taxes payable of Mr. and Mrs. Mapagbigay on August 20 should be:
a. P27,000 & P21,000
b. P21,000 & P27,000
c. P21,000 & P21,000
d. P6,000 & P0
79. The gift tax payable of Roy on June 20 should be:

a. P 30,000
b. P 6,000
c. P45,000
d. P 0
C. LESSON WRAP-UP



Did you have challenges learning the concept in this module? If none, which parts of the module helped
you learn the concepts?
____________________________________________________________________________________
___________________________________________________
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Key to Corrections
1-10: D D D C B BCBDC
11-20: D D C D D CCDAC
21-30: A D C D C BBCAB
31-40: A A C D D DCDDD
41-50: A D C A C BCCDD
51-60: D C A D D CBDAB
61-70: B A D C C CACDA
71-79: B D C D C DDCD


Lesson title: Business Taxation Materials:

1. Recall and Apply learnings in Value Added Tax, Other References:
Percentage Tax, Special provisions of other special Tax Reviewer by Enrico Tabag
laws relating to business taxation, Senior Citizen’s law Taxation Reviewer by Manuel, Soriano
and Magna Carta for Disabled persons and Laco
REO Reviewer
Hello students! You are now in your module 4 of your review subject. Your topic in this module is the Business
taxation covering the Value Added Tax, Other Percentage Tax, Special provisions of other special laws relating
to business taxation, Senior Citizen’s law and Magna Carta for Disabled persons. You already finish this during
your lower years. This time, you need to recall and apply your learnings with the topic.
“You don’t have to be great to start, but you have to start to be great.”
B.MAIN LESSON
RATIONALE OF CONSUMPTION TAXES

1. Saving formation
2. Benefit received theory
3. Wealth redistribution
Types of Consumption: (1) Domestic; (2) Foreign

Types of Domestic Consumption: (1) Sales; (2) Importation
Types of Consumption Tax: (1) Business Tax; (2) VAT on importation
Types of Business Taxes

1. Value added tax
2. Other percentage tax
3. Excise tax
I. VALUE ADDED TAX

Exempt Sale of Goods or Properties (SECRET TaxFree Gold)
1. Sale of basic necessities of Senior Citizen and PWD
2. Exempt Goods: Agricultural/Marine Food products in original state; books, newspaper, magazines; vessels
and aircraft; prescription medicines, health care equipment, vaccines
3. Cooperatives
4. Residential property: socialized housing (house and lot, residential lot), capital asset; House and lot (SP
will not exceed 3,199,200 per unit)
5. Export sale by non-VAT taxpayer
6. Treaty exempt sale of goods


7. TaxFree exchange
8. Sale of Gold to BSP
Exempt Sale of Services (SEARCH2 VA TRIPS)

1. School – educational institution (private, non-profit, government), w/ accreditation of CHED, TESDA,
DepEd
2. Employees
3. Agricultural Contract Growers and Millers
4. Residential Leasing – Rental is equal or less than P15,000 per unit
5. Cooperative Services
6. Hospital Services – (private, non-profit, government); in-patients (not taxable)
7. Home owner associations
8. Vessels and Aircraft
9. Treaty exempt sale of service
10. Regional Head Quarter
11. International carriers
12. Printers and publishers – not for advertising purposes
13. Essential Services to Senior Citizen and PWD
VAT Registration
1. Mandatory registration:
General: Gross sales/receipt exceed P3,000,000
Special: Radio and/or television broadcasting companies whose annual gross receipts or the preceding
year exceeds P10,000,000
A person required to register as VAT taxpayer but failed to register
2. Optional Registration
3. Cancellation of VAT registration
Output Tax of Seller of Goods or Properties

Tax base Pxx
VAT rate 12%* *0% for vatable export sale
Output Tax Pxx
Input Tax
Requisite:
1. The taxpayer is a VAT-registered person;
2. The input tax is related to business subject to VAT (12% or 0%)
VAT on Local purchases and importation of capital goods

Capital goods – depreciable properties in which the useful life is more than 1 year
When is amortization required?
Purchases or importation of capital goods, the aggregate acquisition cost of which (net of VAT) in a
calendar month exceeds P1,000,000 regardless of the acquisition cost of each capital good, shall be
amortized.
Amount deductible = Input tax/Amortization period*
*shorter period of 60 months or useful life in months


If the 1M threshold is not breached, no need for amortization (input t ax is 100% deductible)
• TRANSITIONAL Input tax – 2%

Beginning inventory Pxx
Rate 2%
Pxx
Actual input VAT on beginning inventory xx
Transitional Input tax (higher amount) Pxx
• PRESUMPTIVE Input Tax – 4% (SAMAMICOPARE)

Sardines, Mackerel, Milk, Cooking Oil, Packed Noodles, Refined Sugar
Purchases of Primary Agricultural Products Pxx
Rate 4%
Presumptive Input Tax Pxx
Excess Input Tax

Kinds of Input Tax Treatment
Related to sales subject to 12% VAT Carryover
Related to 0% VAT a. Carryover; or
b. Refund; or
c. Convert into tax credit certificate
In case of cancellation of VAT registration a. Convert into tax credit certificate; or
b. In case it has no other tax liability, refund
VAT and DISCOUNT FOR SENIOR CITIZENS

Senior Citizen or Elderly – resident of the Philippines, 60 years old and above
VAT Exempt Sales to senior citizen (Section 4, RR 7-2010) – VAT exempt and entitled to minimum discount of
20%
Discount = (Total billing amount – VAT) x 20%

Amount due:
Total bill inclusive of VAT Pxx
Less: VAT (xx)
Total Bill exclusive of VAT Pxx
Less: 20% discount (xx)**
Total Amount due Pxx
**Discount = [(Total billing amount/ No. of customers) – VAT ] x 20%
Grant of 5% Special Discount to Senior Citizen (Section 5, RR 7-2010 as amended by RR 8-2010 and RMC
38-2012)
- Special discount of 5% of the regular retail price of basic necessities and prime commodities
Person with Disability (RA7277 – Magna Carta for Persons with Disability as amended by RA 9443 and RA
10754)


- Refer to an individual suffering from restriction or different abilities, as a result of mental, physical or
sensory impairment to perform an activity in a manner or within the range considered normal for human
being.
- Entitled to 20% discount and exempt from VAT
II. OTHER PERCENTAGE TAXES

Kinds of Percentage taxes
1. Tax on persons exempt from value added tax – gross receipts does not exceed P3,000,000
Tax base (gross sales/receipts) xx
Tax rate:
- Prior July 1, 2020 3%
- From July 1, 2020 to June 30, 2023 1%
- Beginning July 1, 2023 3%
Percentage tax due xx
2. Percentage tax on Domestic carriers and keepers of garage

Tax base xx
Tax rate 3%
Common Carrier’s tax xx
Summary Rules
Domestic Carrier Transporting Business Taxes
By land Passengers OPT Sec 117
Goods/cargoes VAT or Sec 116
By Air Passengers/ Goods/ Cargoes VAT or Sec 116
By Sea Passengers/ Goods/ Cargoes VAT or Sec 116
3. Percentage tax on International Carriers – 3%

Summary rules
International carrier transporting Business tax applicable
Passengers originating in the Ph Exempt
Goods and/or mail originating in the Ph OPT; Sec 118
4. Tax on Franchise
Grantor Type of Franchise Business tax

Radio/Television Broadcasting Companies 3% OPT or 12% vat of vat reg
or if GR > P10M of preceding yr
Gas and water utilities 2% OPT regardless of gross
Government
receipts
All other types of franchise 12% vat or 3% OPT if non vat
and GR <= P3M
Private Co.’s All types of franchise 12% vat or 3% OPT if non vat
and GR <= P3M
5. Tax on overseas, dispatch, message or conversation originating from Philippines

Person liable: The ser of facility


Payment for Services xx

Rate 10%
Overseas communication tax xx
6. Tax on banks and non-bank financial intermediaries – Gross Receipts Tax

Gross Receipts or income derived from
Interest, commissions and discounts from lending activities and Financial leasing:
a. Remaining maturity period in 5 years or less 5%
b. Remaining maturity period is more than 1%
Dividends and equity shares in net income of subsidiaries 0%
Royalties, rentals of property, real or personal, profits from exchange and all other 7%
items treated as gross income under the Tax Code
Net trading gains within the taxable year on foreign currency, debts securities, 7%
derivative and other similar financial instruments
7. Tax on other non-bank intermediaries

Gross Receipts or income derived from
Interest, commission, discounts, and all other items treated as gross income under 5%
the tax code
Interest, commissions and discounts from lending activities and Financial leasing:
a. Remaining maturity period in 5 years or less 5%
b. Remaining maturity period is more than 1%
8. Tax on life insurance premiums

Premiums collected Pxx
Rate 2%
Premiums tax Pxx
9. Tax on agents of foreign insurance companies

Premiums collected Pxx
Rate 4%
Premiums tax Pxx
10. Amusement taxes

Gross receipts Pxx
Rate xx%
Amusement tax Pxx
Amusement Places Tax
Place for boxing exhibition 10% or exempt
Place for professional basketball games 15%
Cockpits, cabarets, night or day club 18%
Jai-alai and ractracks 30%
11. Tax on winnings

Owner of the winning horse
Prize/winnings Pxx
Rate 10%


Tax on winnings Pxx
Bettor in a horse race or jai-alai\

Gross winnings Pxx
Cost of winning ticket (xx)
Net winnings Pxx
Rate x%**
Tax on winnings Pxx
** Ordinary winnings – 10%; Special winnings (applicable only to bettor) – double; forecast, quinella,
trifecta – 4%
12. Tax on sale, barter, exchange of shares of stock listed and traded through the local stock exchange or
through local stock exchange or through initial public offering

Value-added tax
1. The following are business taxes under the National Internal Revenue Code, except:
a. Value-added tax
b. Other Percentage tax
c. Excise tax on manufacturing and importation
d. Documentary stamp tax
2. The following are subject to the excise tax, as business tax:

a. Manufacturing and importation of cigar, cigarette, tobacco products;
b. Manufacturing and importation of wine, whisky and fermented spirit
c. Manufacturing and importation of automobile
d. Non-invasive cosmetic surgery
3. The following are the characteristics of the value-added tax, except:

a. Excise
b. Indirect
c. Progressive
d. Proportionate
e. National
f. General
g. Ad valorem
4. First Statement – Any person engaging in trade or business is liable to business tax. Second Statement –
the value-added (VAT) tax may be due provided the transaction is one of those subject to the VAT under the
Tax Code, 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.
a. True, True
b. True, False


c. False, False
d. False, True
5. Statement 1 – All sales of goods and services, in the course of trade or business, is subject to the VAT.
Statement 2 - Importation, whether for business or personal use, except those which are exempt from the VAT
by the Tax Code and other special laws, is subject to the VAT.
a. True, True
b. True, False
c. False, False
d. False, True
6. Statement 1 – Generally, a taxpayer whose gross sales or receipts, in a taxable year,

exceeded Php3,000,000 is subject to the VAT, even if he is not VAT registered.
Statement 2 – Service rendered in the Philippines by a non-resident alien, including a non-resident foreign
corporation (importation of service) is subject to the final withholding VAT.
a. True, True
b. True, False
c. False, False
d. False, True
7. Statement 1 – Sale of goods or services subject to the zero percent (0%) vat is also considered a VAT
exempt transaction.
Statement 2 – A non-vat registered person who issues a vat receipt on a given transaction is subject to the
VAT on the said transaction.
a. True, True
b. True, False
c. False, False
d. False, True
8. The following are the mandated information in a VAT invoice or VAT official receipt, except: a. TIN of the
seller and a statement he is VAT registered
b. Total amount that the purchaser pays or is obligated to pay with the indication that such amount includes
the VAT
c. The amount of VAT is shown as a separate item in the invoice or receipt
d. If the same is VAT exempt of VAT Zero-rated, it shall be printed or written prominently in the invoice or
receipt
e. In case of mixed sale in the same invoice or receipt, it shall indicate the breakdown, which is vatable, zero-
rated and/or exempt. Seller should not issue separate invoices for aforementioned components of the sale.
9. The following are the consequences of issuing a VAT invoice/receipt by a non-VAT registered person,
except:
a. Shall be liable to the percentage tax thereon, if any
b. Shall be liable to the 12% VAT
c. Shall not be allowed to claim input VAT thereon
d. Shall be liable to 25% surcharge
e. The purchaser in whose favor the VAT invoice/receipt was issued, shall be allowed to claim input VAT
thereon.


10. Persons who are exempt from the VAT may voluntarily register under the VAT system. Among the
consequences of optional registration are as follows, except
a. Shall be allowed to claim transitional input VAT during the first year of VAT registration b. Shall be allowed to
claim input VAT on all purchases of goods and services
c. Shall be required to submit a monthly VAT declaration and quarterly VAT return d. Optional VAT registration
shall be irrevocable for three years from the quarter the election was made ( forever for radio and television
networks)
11. Which among the following is subject to the VAT

a. Sale of rice
b. Sale of polished or husked rice
c. Sale of roasted chicken for take-out
d. Feed for race horse
12. The following importation are exempt from the VAT, except:
a. Importation personal or household effects of belonging to residents of the Philippines, provided said
importation is also exempt under the Tariff and Customs Code of the Philippines
b. Importation of fertilizers
c. Importation of newspaper
d. Importation of a motorcycle, intended for personal use of the importer
13. Which of the following transactions is exempt from value added tax.
a. Sale by an art gallery of literary works, musical composition, work of art and similar creations, or devices
performed for the production of such works.
b. Medical, dental hospital and veterinary services rendered by a professional.
c. Transportation of cargoes
d. Sale of books and any newspaper, magazine, review or bulletin, which appears at regular intervals with,
fixed prices for subscription and sale which is not devoted principally to the publication of paid
advertisements.
14. Statement 1: 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. Statement 2: Sale or importation of
agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer
thereof.
a. True, True
b. True, False
c. False, False
d. False, True
15. Statement 1 – Sale of real property held as capital asset is exempt from the VAT but subject to the 3%
other percentage tax.
Statement 2 – Sale of real property held as ordinary asset is subject to the VAT
a. True, True
b. True, False
c. False, False


d. False, True
16. The following sale of real property is exempt from the VAT, except:
a. Residential lot with gross selling price not exceeding Php1, 500,000
b. Residential house and lot and other residential dwellings valued at P2,500,000 and below c. Real property
utilized for low-cost and socialized housing as defined by the RA 7279 a.k.a Urban Development and Housing
Act of 1992
d. Beginning January 1, 2021 sale of residential dwelling valued at an amount exceeding P2,000,000
17. Statement 1- Sale by a real estate dealer of adjacent residential condominium units, valued at P2,000,000
each, to the same buyer and within a 12 month period is exempt from the VAT. Statement 2 – Sale of a
parking lot in a condominium project valued at P1,000,000 is exempt from the VAT.
a. True, True
b. True, False
c. False, False
d. False, True
18. Which among the following lease of residential units is subject to the VAT
No of Residential Units Monthly Rent per unit
a. 50 P10,000
b. 40 P15,000
c. 10 P17,000
d. 17 P15,500
19. The Villa Real Estate Corporation is a VAT registered real estate dealer. It was able to sell a unit with the
following details:
Selling Price – exclusive of the VAT Php8,000,000
Zonal Value 10,000,000
Assessed Value 9,000,000
The following are the payments made:
August 2019 Php1,000,000
October 2019 Php1,000,000
June 2020 Php3,000,000
December 2020 Php3,000,000
How much is the output VAT to be recognized on the August 2019 collection:
a. P1,200,000
b. P150,000
c. P857,143
d. P107,142
How much is the output VAT to be recognized in the December 2020 payment a. P450,000
b. P1,200,000
c. P960,000
d. P857,143
20. Statement 1 – the VAT on sale of goods shall be determined based on gross selling price. As such, output
on sale of goods is substantiated by the VAT invoice


Statement 2 – discounts determined and granted at the time of sale, which are expressly indicated in the
invoice, the amount thereof forming part of the gross sales duly recorded in the books of account, and sales
returns and allowances, are allowable deductions from the gross selling price a. True, True
b. True, False
c. False, False
d. False, True
21. On January 5, 2017, Acme Co., VAT-registered, sold on account goods for P112,000. The term was: 2/10,
n/30. Payment was made on January 10, 2017. The total amount due is:
a. P110,000
c. P112,000
b. P107,800
d. P109,760
22. During the year 2020, Mr. Cole Bee, a Certified Public Accountant is engaged in the practice of
his profession. He is not VAT registered. He had the following gross receipts during 2020 (Net of
any business tax)
1st quarter Php750,000
2nd quarter Php500,000
3rd Quarter Php1,800,000
4th Quarter Php1,000,000
Purchases from VAT Supplier Php 75,000
VAT payable is:
a. Php486,000
b. Php477,000
c. Php111,000
d. Php120,000
23. Ang Sarap Ah Restaurant (ASAR) reported the following sales during the quarter (exclusive of the VAT)
Regular Sales Php500,000
Sale to Senior Citizen 80,000
Sale to Persons with disability 100,000
The output VAT of ASAR during the quarter is:
a. P60,000
b. P81,600
c. P69,600
d. P72,000
24. A non-stock and non-profit organization operates a variety store. The profit of the said NSNP does not
redound to the benefit of any person rather it is rolled-over to the capital of the NSNP to fund its charitable
purposes. The annual gross receipts of the NSNP ranges between P2 million to P2.8 million in the past 3
years. It will be liable to the following tax/es:
a. 3% OPT
b. 0%-35% income tax
c. 8% optional income tax
d. 30% regular corporate income tax
25. One of the following is not a transaction deemed sale
a. Transfer use or consumption not in the ordinary course of business , of goods or properties originally
intended for sale or for use in the course of business
b. Distribution or transfer to shareholders or investors of goods or properties as share in the profits of a VAT-
registered person or to creditors in payment of debt


c. Retirement from or cessation of business, with respect to inventories of taxable goods on hand as of the
date of such retirement or cessation
d. Consignment of goods if actual sale is made within 60 days following the date such goods were consigned
26. Mxd Bznz Inc is a VAT registered taxpayer who deals with both Vatable and exempt transactions. You are
presented with the following transactions during the quarter ended December 31, 2020 (amount given are
exclusive of the VAT):
Sale during the quarter
VAT business P4,000,000
VAT exempt business 6,000,000
Purchases from VAT supplier
Used in VAT business 2,000,000
Used in VAT exempt-biz 3,000,000
Both VAT and Exempt biz 20,000
Operating Expenses 1,800,000
Determine the VAT Payable
a. P1,200,000
b. P600,000
c. P240,000
d. P239,040
27. The taxable income ( net income ) is:
a. P3,180,400
b. P2,750,000
c. P2,850,000
d. P2,818,560
28. Boom E Benta Merchandising is engaged in selling goods. It had the following result of operation for the
quarter ended October 30, 2020 :
Cash Sale P300,000
Sale on account 100,000
Sale on installment (downpayment is 40%) 100,000
Consignment made on June 30, 2020 100,000
The output VAT is:
a. P72,000
b. P60,000
c. 12,000
d. 36,000
29. The following are the data of Fiery Electronic Appliances Retailer (FEAR) for the last quarter of 2020:
Sales up to December 15, inclusive of the VAT P380,800
Purchases up to December 15, net of input taxes 150,000
Additional information:
On December 16, 2020, the Company retired from its business and the inventory valued at
P190,000 remained unsold. There is a deferred input tax from the third quarter of P3,500.
How much is the total value-added taxes payable by FEAR.
a. P42,100
b. P22,800
c. P21,500
d. P19,300
Numbers 30 and 31 are based on the following


30. Joker Gaming Technologies Inc is a software develop. One of its client is a company engaged in
casino operation. During the quarter ended June 30, 2021 it reported the following (amount given
are exclusive of the VAT):
Concluded Contract of service (casino OS Maintenance) with PAGCOR Php10,000,000 Acceptance fee of the
PAGCOR casino OS maintenance – paid in June 5, 2021 2,500,000 Cash received – Service contract for
maintenance of CAS of Dodong Corp (Dom. Corp) 8,500,000 Purchases from VAT supplier
On PAGCOR contract 700,000 On Dodong Corp 1,000,000 General and Administrative supplies 2,000,000
How much is the VAT payable of Joker Gaming Technologies, Inc for the quarter ended June 30, 2021
a. Php576,000
b. Php138,545.45
c, Php876,000
d. Php0
31. What is the amount of input VAT that Joker Gaming Tech can claim for refund or convert to tax credit
certificate
a. Php576,000
b. Php138,545.45
c, Php876,000
d. Php0
32. Vava Corp. imported an article from Japan. The invoice value of the imported articles was $ 7,000 ($1-
P50). The following are incurred in connection with the importation:
Insurance P 15,000
Freight 10,000
Postage 5,000
Wharfage 7,000
Arrastre charges 8,000
Brokerage fee 25,000
Facilitation fee 50,000
The imported article was subject to P50,000 customs duty and P30,000 excise tax. Vava Corp. spent P5,000,
exclusive of the VAT, for trucking from the customs warehouse on its way to its warehouse in Quezon City.
The VAT on importation is;
a. P 50,000 b. P 35,000 c. P50,500 d. P60,000
Assuming that the imported article was sold for P600,000, VAT exclusive, the VAT payable is: a. P 60,000 b.
P12,000 c. P11,400 d.P72,000
33. Transitional input VAT shall be:
a. The higher between 2% of the value of the beginning inventory, excluding purchases of VAT exempt goods,
or the actual VAT paid on the beginning inventory
b. The lower between 2% of the value of the beginning inventory, excluding purchases of VAT exempt goods,
or the actual VAT paid on the beginning inventory
c. The actual VAT paid on the beginning inventory
d. 2% of the value of the beginning inventory excluding purchases of VAT exempt goods.
34. All of the following except one are allowed presumptive input tax. Which one is it. a. Processor of sardines,
mackerel and milk.
b. Manufacturer of refined sugar and cooking oil.
c. Public works contractor with respect to government contracts only.
d. manufacturer of noodle based instant meal.
35. Which of the following input taxes can be refunded, converted into tax credit certificates or carried over to
the next quarter at the option of the VAT-registered taxpayer?


a. Input tax on purchase of raw materials.

b. Input tax on importation of supplies
c. Input tax on zero-rated sales of goods or services.
d. Input tax on purchase of services.
36. First statement: Unused input tax of persons whose registration has been cancelled may be converted into
tax credit certificate which may be used in payment of other NIRC taxes. Second statement – Claim for refund
or conversion to tax credit certificate of input arising from zero-rated transactions should be filed within 2 years
from the close of the quarter
a. True, True
b. True, False
c. False, False
d. False, True
37. Olmos Merc, VAT-registered, made the following purchases during the month of January, 2020:
Merchandise intended for sale, inclusive of VAT P 224,000
Office Supplies, exclusive of VAT 20,000 Office Computers, total invoice amount 56,000
Home appliances for use at residence, gross of VAT 17,600
Repair of store, total invoice amount evidenced by Non-VAT receipt 4,400
Creditable input taxes amounts to:
a. P 26,400 b. P 29,400 c. P 24,000 d. P 32,400
38. A taxpayer registered under the VAT system on January 1, 2020. His records during the month are as
follows:
Value of inventory as of December 31, 2019
purchased from VAT-registered persons P 50,000
VAT paid on inventory as of December 31, 2019 6,000
Value of inventory as of December 31, 2019
Vat exempt goods 60,000
Sales, net of VAT 140,000
Sales, gross of VAT 45,000
Purchases, net of VAT 70,000
VAT payable is:
a. P 11,100 b. P 7,221 c. P 3,100 d. P 18,100 33.
Numbers 39 to 40 are based on the following

39. A VAT registered person engages in both VAT and VAT exempt business. During the year total sales
amounted to P500,000, exclusive of the VAT. Sale of the VAT exempt business amounts to P200,000. During
the quarter, the business incurred the following: Input VAT arising from repairs amounting P6,000. On the
other hand, input on supplies, for common use amounted P1,200
The creditable input tax is:
a. P 6,000 b. P 7,200 c. P 1,000 d. P 4,320
40.. Using the data in no. 39 the VAT payable is:

a. P 24,000 b. P 25,000 c. P 31,680 d. P 26,400
41. Azucarera De Papa manufactures refined sugar. It had the following data during the first quarter of 2020:
Sale of refined sugar, net of VAT P 2,000,000
Purchases of sugar cane from farmers used In the manufacture of refined sugar 500,000


Purchase of packaging materials, inclusive of VAT 784,000

Purchase of labels, inclusive of VAT 112,000
The VAT payable is:
a. P 124,000 b. P 112,500 c. P 70,000 d. P 62,000

42. Daimos a VAT-registered person has the following data:
Export sales, total invoice amount P3,000,000
Domestic sales, exclusive of the VAT 6,000,000
Purchases used to manufacture Goods for export and domestic sales:
Raw Materials, VAT exclusive 550,000
Supplies, VAT exclusive 400,000
Equipment, useful life of 3 years, VAT exclusive 500,000
The amount of input tax which can be refunded or converted into tax credit certificates at the option of Daimos
is:
a.P174,000 c. P60,000
b.P116,000 d. P58,000
43. Based on the preceding number, if the refundable input taxes were not refunded but used as tax credit, the
VAT due is:
a. P500,000 c. P604,000
b. P650,000 d. P546,000
44. But assuming further that the taxpayer opted to claim them as refund, the VAT due is:
a. P500,000 c. P604,000
b. P650,000 d. P546,000
45. A VAT registered taxpayer purchased the following capitalizable assets during the quarter
ending September 2021
Date of Purchase Useful Life Cost
July 1 4 years 800,000
July 17 5 years 1,000,000
August 15 3 years 700,000
August 27 2 years 300,000
September 2 3 years 600,000
September 27 6 years 1,200,000
Input tax to be recognized in July 2021
a. P216,0000
b. P4,000
c. 136,400
d. P122,000
46. Input VAT to be recognized in the Month of August, 2021

a.P124,000
b. P120,000


c.P136,400
d P4,000
47. The input tax for the quarter ended September 2021 is
a. P8,400
b. P8,000
c. P248,400
d. P136,400
48. Assuming on January 5, 2022, the VAT Taxpayer acquired a delivery truck for a purchase price
of Php2,000,000 (exclusive of the VAT). The said delivery truck is capitalized with a useful life of 5 years. The
creditable input VAT for the month ending January 2022 is.
a. P8,400
b. P8,000
c. P248,400
d. P136,400
49. Magnitude Construction, Inc., a building contractor, showed to you the following data for the month of July
2020:
Cash received, inclusive of the VAT 2,240,000
Receivables, with VAT 3,360,000
Downpayment of client for project to be commenced (w/VAT) 1,120,000
Unpaid Purchases:
For materials, VAT excluded 500,000
For supplies, VAT excluded 100,000
For services of sub-contractors (VAT included) 1,848,000
How much is the value added tax payable?

a. P360,000
b. P330,000
c. P228,600
d. P90,000
50. Lolo Totoy had dinner with 4 of his grandchildren at Shookey’s Pizza Salon. When he asked for the bill, his
total bill amounts to Ph1,120 inclusive of the value-added tax. Lolo Totoy informed the service crew that he is
a senior citizen and presented his senior citizen card. He returned the invoice to adjust their bill accordingly.
How much would be the adjusted bill
a. P1,000
b. P1,096
c. P1,032
d. P1,056
Other Percentage Tax
Numbers 1 and 2 are based on the following

Basilio is a CPA-Lawyer who is currently employed as the Chief Executive Officer (CEO) of a large
conglomerate. He regularly earns a total salary of Php11, 990,000 from his employment. In addition, he


earns professional fees of Php250,000 from his personal clients. Considering the foregoing, he regularly
receives an amount totaling to Php12,240,000 annually.
1. The business tax liability of Basilio shall be:

a. 3% Other Percentage Tax
b. 12% VAT
c. Excise tax
d. None
2. For the year ending December 31, 2021, how much is the business tax liability of Basilio, assuming total
salary of Php15,000,000 and professional fees earned of Php800,000.
a. Php24,000
b. Php8,000
c. Php474,000
d. Php1,896,000
3. Romualdo is a CPA-Lawyer who is currently employed as the Chief Financial Officer (CFO) of a large
conglomerate. He regularly earns a total salary of Php11, 990,000 from his employment. In addition, he earns
professional fees of Php250,000 from his personal clients. In the first quarter of the current taxable year, he
opted to pay the 8% preferential income tax. Considering the foregoing, whereby he regularly receives an
amount totaling to Php12,240,000 annually.
The business tax liability of Rosauro shall be:
a. 3% Other Percentage Tax
b. 12% VAT
c. Excise tax
d. None
4. Momo is engaged in buying and selling of fresh fruits at the Blumentritt and Divisoria Markets. He is also
exporting fruit jams to Japan. In 2020, he made a gross sales of P2,500,000. The following conclusions are
incorrect, except :
a. He shall be required to register under the VAT system and shall be subjected to the VAT from the point of
his registration. As such, he may claim input VAT on his purchases from VAT suppliers.
b. He may register under the VAT system and be allowed to claim input VAT on his purchases from VAT
suppliers.
c. He shall not be required to register under the VAT system and be allowed to claim input VAT on his
purchases from VAT suppliers.
d. He may register under the VAT system and will not be allowed to claim input VAT on his purchases from
VAT suppliers.
5. Felix Buick, at his residence, regularly sells wines, whiskies and cigarettes which he has imported from
Russia. His annual gross receipt is P2,500,000 and he opted for VAT registration, he is liable for the payment
of the following taxes:
a. Excise tax, VAT and OPT.
b. Excise tax, VAT and income tax.
c. VAT, OPT and income tax.
d. Excise tax, income tax and amusement tax.


6. Sale or importation of prescription drugs and medicines for the following are exempt from both VAT and
OPT, except
a. Diabetes
b. High cholesterol
c. Hypertension
d. Androgenic alopecia
7. Sale or importation of the following are exempt from the VAT and OPT beginning January 1, 2021 to
December 31, 2023, except
a. Capital equipment, its spare parts and raw materials necessary for the production of personal protective
equipment components such as coveralls, gown, surgical cap, surgical mask, N-95 mask, scrub suits, goggles,
and face shield, double or surgical gloves, dedicated shoes, and shoe covers, for COVID-19 prevention
b. All drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of COVID
19
c. Drugs for the treatment of COVID 19 approved by the FDA for use in clinical trials, including raw materials
directly necessary for the production of such drugs
d. Prescription drug and medicines for cancer, mental illness, tuberculosis and kidney disease.
8. First Statement: Sale of precious metals to the BSP is exempt from the VAT.
Second Statement: Zero-rated sales and effectively zero-rated sales are synonymous.
a. True; True
b. False; False
c. True; False
d. False; True
9. Pantra Incorporated, VAT registered, operates a bus company plying the NCR and Northern Luzon. It had
the following result of operation for the quarter ended June 30, 2020, exclusive of the VAT:
Carriage of Passenger P2,500,000
Carriage of Cargo P750,000
Purchase of Diesel Fuel P150,000
Lease of Commercial space in bus station P100,000
Purchase of supplies from VAT supplier P22,500
How much is the common carrier’s tax
a. P75,000
b. P97,500
c. 81,300
d. 102,000
10. Based on the same problem, how much is the VAT payable
a. P75,000
b. P97,500
c. P81,300
d. 102,000
11. Wakanda Air, an international air carrier had the following gross receipts on transport of cargo and
passenger from the Philippines for the quarter ending September 30,2020:
Cargo 75,000,000


Passenger 150,000,000
How much percentage tax should Wakanda Air pay
a.P2,250,000
b.P6,750,000
c.P9,000,000
d.P27,000,000
12. Statement 1: Resident international carriers are exempt from the VAT on carriage of passengers from the
Philippines to a foreign destination.
Statement 2: Domestic international carriers are exempt from the VAT on carriage of passengers from the
Philippines to a foreign destination.
a. True; True
b. False; False
c. True; False
d. False; True
13. A franchise holder of gas and water utility reported a gross receipt of P375,000,000 for the quarter ending
December 31, 2020. How much is its percentage tax liability:
a. P11,250,000
b. P7,500,000
c. P45,000,000
d. P56,250,000
14. First Statement: Sale of electricity by an electric cooperative is subject to the VAT.
Second Statement: In all cases, optional VAT registration shall be irrevocable for three years.
a. True; True
b. False; False
c. True; False
d. False; True
15. ABSMNKD, a radio and television franchisee, reported a gross receipt of Php15,000,000 for the quarter
ending December 31, 2020. How much is the Franchise tax (OPT) liability for the said quarter
a. P1,800,000
b. P450,000
c. P0
d. P300,000
16. The following are exempt from the 10% Overseas communications tax, except:
a. Diplomatic community
b. News Organization
c. Government owned corporation
d. International Community
17. Gotham Universal Bank, operates as a bank and duly registered with the Bangko Sentral ng Pilipinas.
It reported the following for the month ended November 30,2020:
Rent Income from property acquired through foreclosure P750,000
Net trading gains from trading in foreign currency 235,000


Dividend from subsidiaries (domestic corporation) 25,000,000

Interest Income from lending activities
Long term-more than five (5) years 2,000,000
Short term – five years or less 4,500,000
For the month ended November 30, 2020, the gross receipts tax (OPT) due is:
a.P52,500
b.P225,000
c.P0
d.P313,950
18. Segrado Insurance Co reported the following during the month:

Life insurance premiums collected P55,000,000
Non-life insurance premiums collected 75,000,000
Non-life insurance collected, as an agent of a foreign insurance co. 5,000,000
Creditable input VAT outstanding 2,500,000
Percentage tax liability of Segrado Insurance as an agent of a foreign insurance company.
a. P200,000
b. P1,100,000
c. P6,500,000
d. P9,000,000
19. Percentage tax liability of Segrado Insurance from local life insurance collections
a. P200,000
b. P1,100,000
c. P6,500,000
d. P9,000,000
20. VAT Payable of Segrado Insurance for the month.

a. P200,000
b. P1,100,000
c. P6,500,000
d. P9,000,000
21. Stirayk Inc, operates a cockpit arena. It reported the following for the quarter ended September 30, 2020:
Food and Drinks 750,000
Entrance fee 300,000
Amusement tax due for the quarter of Stirayk is:
a. P126,000
b. P189,000
c. P31,500
d. P1,050,000
22.Frostee Night Club and Videoke operates daily, from dusk till dawn. It had the following gross receipts for
the 1st quarter of 2020: Cover Charge P100,000; Food and drinks P750,000; Bar Fines P800,000.
The business tax payable is:
a. P49,500
b. P297,000


c. P198,000
d.P495,000
23. Based on the immediately preceding number, Frostee Night Club opted to register under the VAT system.
The business tax payable is:
a.P49,500
b. P297,000
c. P198,000
d.P495,000
24. Manny Pacquiao earned USD12,000,000, when the forex rate is was P50:$1,from his boxing Match with
Mayleather at Las Vegas, Nevada, USA. The amusement tax which MP Promotions should pay is:
a. P60,000,000
b. P0
c. P86,400,000
d. P69,120,000
25. Manny Pacquiao through his MP Promotions, earned USD12,000,000 (P50:$1), as the boxing promoter,
from his boxing rematch for the World Championship belt with Mayleather at the Philippine Arena. The
amusement tax which MP Promotions should pay is:
a. P60,000,000
b. P0
c. P86,400,000
d. P69,120,000
26. Manny Pacquio, through MP Promotions, earned USD12,000,000 (P50:$1) as the promoter of an exhibition
match with the former UFC Champion Ewan Mcgregor, held at the Philippine Arena. The amusement tax which
MP Promotions should pay is
a. P60,000,000
b. P0
c. P86,400,000
d. P69,120,000
27. The following are the various amusement taxes and their respective tax rates, except:
a. 30% of gross receipts in case of Jai-Alai and race track
b. 15% of gross receipts in case of Professional Basketball games
c. 10% of gross receipts in case of boxing exhibitions
d. 30% in case of exhibition of cinematographic films
28. Harry is feeling lucky because it is his birthday. He went to the racetrack and won the following:
On a Trifecta where his bet isP500 P15,000
On regular bet where his bet is P100 P10,000
Harry’s winnings were subjected to percentage tax amounting to:
a. P1,570
b. P580
c. P990
d. P2,440


29. Sebastian Vettel, a professional race car driver, sold 1,000 shares of stocks of ABA Rice Mill Inc., a
domestic corporation, to his teammate Kimi for P85,000. The stocks had a cost to him of P100,000. The tax on
this transaction shall be.
a. P0
b. P600
c. P425
d. P10,200
30. Based on the immediately preceding number, assuming Sebastian Vettel sold the shares of stocks through
the Philippine Stock Exchange. The tax on the transaction is:
a. P0
b. P600
c.P510
d. P10,200
31. Based on the immediately preceding number, assuming Sebastian Vettel is a stock dealer and sold the
shares of stocks through the Philippine Stock Exchange. The tax on the transaction is:
a. P0
b. P600
c.P510
d. P10,200
32. The following sale of services are not exempt from the VAT, except:
a. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-
bank financial intermediaries.
b. Services rendered by doctors of medicine duly registered with the professional Regulatory Commission.
c. Services rendered by lawyers duly registered with the Integrated Bar of the Philippines.
d. Foreign artist performing in a one night concert in the Philippines.
C. LESSON WRAP-UP

____________________________________________________________________________________
___________________________________________________
________________________________________________________________________________
_________________________________________________________


Key to corrections
Answers: 25. D per CREATE law)
26. D 2. B
Value-added tax 27. D 3. D
28. A 4. B
1. D 29. A 5. B
2. D 30. A 6. D
3. C 31. B 7. D
4. D 32. D 8. B
5. D 33. A 9. A
6. A 34. C 10. B. Change to 96, 825
7. D 35. C 11. A
8. E 36. A 12. C
9. D 37. D 13. B
10. B 38. B 14. C
11. D 39. D 15. C
12. D 40. C 16. C
13. D 41. A 17. D
14. A 42. D 18. A
15. C 43. D 19. B
16. D 44. C 20. C
17. C 45. B 21. B
18. D 46. A 22. B
19. B & A 47. D 23. B
20. A 48. C 24. B
21. A 49. D 25. B
22. C. (Please put, assuming 50. D 26. A
he registered beginning 4th 27. D
quarter) Other Percentage Taxes 28. A
23. A 29. A
24. A (Beginning July 1, 2020 to 1. A (If the date falls between 30. C. 510
June 30, 2023, the OPT rate July 1, 2020 and 31. D
would be 1%, as amended by June 30, 2023, it will be 32. A
CREATE Law) subjected to 1% OPT as

Lesson title: Excise Tax and Documentary Stamp Tax Materials:

1. Recall and Apply learnings in Excise Tax and Documentary References:
Stamp Tax Tax Reviewer by Enrico Tabag
and Laco
REO Reviewer
Hello students! You are now in your module 5 of your review subject. Your topic in this module is the Excise
Tax and Documentary Stamp Tax. You already finish this during your lower years. This time, you need to recall
and apply your learnings with the topic.
“The way to get started is to quit talking and begin doing.”
B.MAIN LESSON
EXCISE TAXES
- In addition to the VAT (or OPT)

- Taxes which apply to certain goods manufactured or produced in the Philippines for domestic sale or
consumption, and to things imported.
- Excise tax shall also apply to certain services performed in the Philippines.1
- Deductible for income tax purposes
.
Purposes of Excise Tax:
1) To raise revenue;
2) To curtail the consumption of certain commodities;
3) To protect domestic industries;
Type of Excise Taxes
Specific Tax – excise tax imposed on

goods or articles based on weight or volume Ad Valorem Tax – excise tax imposed on goods or articles
capacity or any other physical unit of based on the selling price or other specified value of the
measurement. goods, exclusive of VAT and tariff and customs duties (if
imported).
(Note: But in computing VAT on importation, excise tax
and tariff and customs duties are included in the tax base.)
Excise tax on: Excise tax on:
ALCOHOL PRODUCTS 1) Distilled sprits
1) Distilled spirits (including proof spirits) –
whisky, brandy, rum, gin, and vodka, fortified 2) Cigars
wines;
2) Wines – sparkling wines, champagne, still 3) Automobiles excluding:
wines a) Buses, trucks6;

3) Fermented liquor – beer, lager beer, ale, b) Cargo vans;

porter and other fermented liquors except c) Jeepneys/jeepney substitutes;7
tuba, pasi, tapuy. d) Single cab chassis;
e) Special-purpose vehicles; and
TOBACCO PRODUCTS f) Automobiles used exclusively within the Freeport zones.
4) Tobacco products (except stemmed leaf
tobacco or tobacco by-products which are to Provided:
be exported or used in the manufacture of 1) Purely electric vehicles and pick-ups are exempt from
cigars and cigarettes) excise tax.
- Includes tobacco specially prepared for 2) Hybrid vehicles shall be taxed at 50% of the applicable
chewing excise tax rates.
NON-ESSENTIAL GOODS
- Heated tobacco products2 4) Jewelry, whether real or imitation; pearls;
- Vapor products3 precious and semi-precious stones and
5) Cigars NON-ESSENTIAL
imitations; GOODS
6) Cigarettes 4) Jewelry,
5) Goods whether
maderealof ororornamented,
imitation; pearls;
mounted
precious and
semi-precious
or fitted withstones
precious
and imitations;
metals or imitations
PETROLEUM PRODUCTS 5) Goods
thereof madeor ivory;
of or ornamented, mounted or fitted with
7) Lubricating oils and greases; precious metals or imitations thereof or ivory;
8) Processed gas; Except:
9) Waxes and petrolatum; Except:
a) surgical and dental instruments;
10) Denatured alcohol to be used for motive b) a)silver-plated
surgical and wares,
dental frames,
instruments;
or mountings
power; forb)spectacles
silver-plated
or eyeglasses;
wares, frames, andor mountings for
11) Naphtha, regular gasoline, and other similar c) spectacles
dental goldor oreyeglasses;
gold alloys and andother
products of distillation; precious
c) dentalmetals
gold used
or gold in alloys
filling, and
mounting,
other precious
or
12) Leaded and unleaded premium gasoline; fitting
metals
the used
teeth.in filling, mounting, or fitting the teeth.
13) Aviation turbo jet fuel; 6) 6)Opera
Opera glasses
glassesand andlorgnettes;
lorgnettes;
14) Asphalts 7) 7)Perfumes
Perfumes and
andtoilet
toilet
waters;
waters;
15) Kerosene; 8) 8)Yachts
Yachts andand
other
othervessels
vessels intended
intendedforfor pleasure
16) Diesel fuel oil; pleasure
or sports.
or sports.
17) Liquefied petroleum gas;
18) Bunker fuel oil. MINERAL
MINERAL PRODUCTS
PRODUCTS
9) Non-metallic
9) Non-metallic minerals
minerals
and quarry
and quarryresources such as
MINERAL PRODUCTS marble,
resources
granite,such
volcanic
as marble,
cinders,granite,
basalt, volcanic
tuff and rock
19) Coal and coke phosphate;
cinders, basalt, tuff and rock phosphate;
10) Metallic
10) Metallic
minerals:
minerals:
SWEETENED BEVERAGES4 - imposes a taxa) Copper a) Copperand other
and other
metallicmetallic
minerals;
minerals;
per liter of volume capacity on sweetened b) Gold
b) Gold
and chromite
and chromite
beverages.5 11) Indigenous
11) Indigenous petroleum
petroleum
includingincluding
locally-extracted
locally-
The following products are excluded from the mineral
extracted
oil, hydrocarbon
mineral oil, gas,
hydrocarbon
bitumen, crudegas, asphalt,
excise tax on sweetened beverages: mineral
bitumen,
gas. crude asphalt, mineral gas.
(a) All milk products;
(b) 100% natural fruit juices; Except:
Except:
(c) 100% natural vegetable juices; a) Locally-extracted
a) Locally-extracted naturalnatural
gas; andgas; and
(d) Meal replacement and medically indicated
beverages; and
(e) Coffee – ground coffee, instant soluble b) Locally-extracted liquefied natural gas.
coffee, and pre-packaged powdered coffee
products.

NON-ESSENTIAL SERVICES8 - 5% tax on gross receipts,

net of excise tax and VAT, derived from the performance of
invasive cosmetic surgeries, procedures, and body
enhancements for aesthetic/cosmetic purposes.
The following shall be exempt from the 5% excise tax:
(a) Procedures to ameliorate a deformity arising from or
directly related to a congenital or developmental defect or
abnormality, a personal injury resulting from an accident or
trauma, or disfiguring disease, tumor, virus, or infection;
and
(b) Cases or treatments covered by the National Health
Insurance Program.
Gross Selling Price of Goods Subject to Ad Valorem Tax

1) The price, excluding the VAT, at which the goods are sold at wholesale or through sales agents;
2) If the manufacturer also sells the goods at wholesale in another establishment of which he is the owner, the
wholesale price in the latter establishment shall be the gross selling price;
3) If the price is less than the cost of manufacturing plus expenses, the gross selling price shall equal such cost
+ expenses + a proportionate margin of profit (≥ 10% of the cost + expenses).
Persons Subject to Excise Tax

1) Domestic Products
a) Generally, the manufacturer or producer of the domestic products shall file the return and pay the
excise taxes before the removal of the domestic products from the place of production; or
b) Owner or person having possession of domestic products which were removed from place of
production without payment of the excise tax; or
c) The first buyer, purchaser, or transferee for local sale or transfer in the case of indigenous petroleum,
natural gas, or liquefied natural gas;
2) Imported Products
a) The importer shall file the return and pay the tax before removal of the imported goods from the
customhouse or customs custody; or
d) The person who is found in possession of articles which are exempt from excise taxes other than those
legally entitled to exemption.
Credit for Excise Taxes on Goods Actually Exported

Excise taxes paid on goods actually exported shall be credited or refunded upon submission of proof of actual
exportation and upon receipt of the foreign exchange payment.
Provided: Excise tax on mineral products (except coal and coke) shall not be creditable nor refundable even if
the mineral products are actually exported.
Changes under the TRAIN:
1) Cigarettes packed by hand, and packed by machines follow the same schedule of specific excise taxes.
2) Excise taxes on the following products were increased:

(a) Cigarettes packed by hand, and cigarettes packed by machine;

(b) Manufactured oils and other fuel oils;9
(c) Locally manufactured and imported automobiles;
(d) Domestic or imported coal and coke;
(e) Non-metallic and metallic minerals;
(f) Indigenous petroleum.
3) The following are exempt from excise tax:
(a) Naptha and pyrolysis gasoline used as raw material in the production of petrochemical products or in the
refining of petroleum products, or as replacement fuel for natural-gas-fired-combined cycle power plant;
(b) Production of petroleum products, whether or not they are classified as products of distillation, and for use
solely for production of gasoline;
(c) Liquefied petroleum gas when used as a raw material in the production of petrochemical products;
(d) Petroleum coke, when used as feedstock to any power generating facility;
(e) Purely electric vehicles, and pick-ups;10
(f) Under special laws:
(1) Importation from March 25, 2020 to December 19, 2020 of critical or needed healthcare equipment
or supplies intended to combat the COVID-19 public health emergency.
The importation of inputs, raw materials, and equipment necessary for the manufacture or production of
the abovementioned essential goods related to the containment or mitigation of COVID-19 shall be
exempt from excise taxes. Provided, the importing manufacturer is included in the Master List of the
DTI and other incentive granting bodies.11, 12, 13
(2) Importation of waste management equipment from June 25, 2020 to December 19, 2020
The importation from June 25, 2020 to December 19, 2020 of equipment for waste management
including, but not limited to waste segregation, storage, collection, sorting, treatment, and disposal
services, as approved by the Department of Environment and Natural Resources (“DENR”), DOH, or
other concerned regulatory agencies shall be exempt from excise taxes.14
(3) Importations, from September 15, 2020 to December 19, 2020, of personal computers, laptops,
tablets, or similar equipment appropriate for use in schools, which are donated for distribution to public
schools regardless of level, including state universities and colleges and vocational institutions under
TESDA, shall be exempt from import duties and taxes.
DOCUMENTARY STAMP TAX (DST)

- A national tax whose purpose is to raise revenue;
- Deductible for income tax purposes
- Defined as a tax upon documents, instruments, loan agreements, papers evidencing acceptances,
assignments, sales and transfers of obligations, rights or properties, and in respect of the transaction so had or
accomplished. It is levied and collected whenever the document is made, signed, issued, accepted, or
transferred when the obligation or right arises from Philippine sources, or the property is situated in the
Philippines.

However, the DST is actually an excise tax because it is imposed on the transaction rather than on the
document.16 The transactions entered into by the taxpayer need not be embodied in a document or
debt instrument for them to be subjected to DST.
Documents and Papers Subject to DST17 Documents and Papers Not Subject to DST
a) Original issue of shares of stock a) Policies of insurance or annuities

b) Bonds, debentures, certificates of made by a fraternal or beneficiary
stock/indebtedness issued in foreign society operated on the lodge system or
countries local cooperation plan;
c) Sales, agreements to sell, b) Certificates of oaths administered to
memoranda of sales; deliveries or any government official in his official
transfer of shares or certificates of capacity
stock c) Papers filed in court by or for the
d) Certificates of profits or interest in national, provincial, or municipal
property or accumulations governments
e) Bank checks, drafts, certificates of d) Affidavits to prove poverty;
deposit not bearing interest, and e) Statements and other compulsory
other instruments information required of persons
f) Debt instruments; exclusively for statistical purposes and
g) Bills of exchange or drafts; for the use of the government
h) Acceptance of bills of exchange; f) Certificates of the assessed value of
i) Foreign bills of exchange and lands ≤ ₱200
letters of credit; g) Borrowing and lending of securities
j) Life insurance policies; executed under the Securities
k) Insurance upon property; Borrowing and Lending Program (“SBL”)
l) Fidelity bonds and other insurance of a registered exchange
policies h) Loan agreements ≤ ₱250,000
m) Policies of annuities, and pre- executed by an individual for the
need plans purchase of a house and lot, motor
n) Indemnity bonds vehicle, appliance, or furniture for
o) Warehouse receipts personal use
p) Jai-alai, horse race tickets, lotto, or i) Sale, barter, or exchange of shares
other authorized numbers games listed and traded through the local stock
q) Bills of lading or receipts exchange
r) Proxies j) Assignment or transfer of mortgage,
s) Powers of attorney lease, or insurance policy if there is no
t) Leases and other hiring change in the maturity date
agreements k) Fixed income and other securities
u) Mortgages, pledges, and deeds of traded in the secondary market or
trust through an exchange;
v) Deeds of sale and conveyances of l) Derivatives
real property18 m) Interbranch or interdepartmental
w) Charter parties and similar advances within the same legal entity
instruments n) Forebearances arising from sales or
service contracts
o) Bank deposit accounts without a fixed
term
p) Contracts, deeds, documents and
transactions related to the conduct of
business of the BSP

x) Assignments and renewals of certain q) Transfer of property pursuant to tax-free

instruments exchanges
q) Transfer of property pursuant to tax-
y) Certificates r) Interbranch call loans with maturity ≤ 7 days
free exchanges
to coverr) deficiency
Interbranchincall loans including
reserves with maturity
those≤7
between daysor among
to coverbanks
deficiency
and quasi-banks
in reserves
including those between or among
banks and quasi-banks
Persons Subject:
The person making, signing, issuing, accepting, or transferring the document. When one party enjoys
exemption, the other party who is not exempt shall be the one directly liable for the tax.
Time of Filing and Payment:
Generally, the tax return shall be filed within 5 days after the close of the month when the document was
made, signed, accepted or transferred.
Place of Filing and Payment:
1) Authorized agent bank (AAB) within the territorial jurisdiction of the RDO which has jurisdiction over the
residence or principal place of business of the taxpayer; or
2) If there be no AAB, with the Revenue District Officer, collection agent, or duly authorized treasurer of the city
or municipality in which the taxpayer has his legal residence or principal place of business.
Modes of Payment:
1) The tax due on the return is paid at the time the return is filed; or
2) The tax may be paid through purchase and actual affixture of the DSTs on the document; or
3) By imprinting the DSTs, through a DST metering machine, on the taxable document.
Effect of Failure to Stamp a Taxable Document:

1) Shall not be recorded;
2) Shall not be admitted or used in evidence in any court;
3) The notary public shall not add his jurat or acknowledgement to the document
Until the DSTs are paid.
Documentary Stamp Tax (DST)

Documents/Transactions Tax Rate
In general
Original Issue of Shares of Stocks P 2.00 / P 200
Sales, Agreements to Sell, Memoranda of Sales, Deliveries P 1.50 / P 200
or Transfer of Shares or Certificates of Stock with par value
In case Stock without par value 50% of DST paid on original
issue
Bonds, Debentures, Certificates of Stock or Indebtedness Same tax rate on similar
issued in Foreign Countries instrument
Certificates of Profits or Interest in Property or P 1.00 / P 200
Accumulations
Bank Checks, Drafts, Certificates of Deposit not Bearing P 3.00/piece of check, draft,
Interest, and Other Instruments certificate, etc.
Original issue of all Debt Instruments P 1.50 / P 200 of issue price
or a fraction of 365 days for

instruments with term of less

than one (1) year
Acceptance of Bills of Exchange or Order drawn in a Foreign P 0.60 / P 200
Country but payable in the Philippines
Foreign Bills of Exchange and Letters of Credit P 0.60 / P 200
Life Insurance Policies amount: Exempt
Does not exceed P 100,000 P 20.00
Exceeds P 100,000 but does not exceed P 300,000 P 50.00
Exceeds P 750,000 but does not exceed P 1,000,000 P 200.00
Exceeds P 1,000,000
Policies of Insurance upon Property P 0.50 / P 4.00
Fidelity Bonds and Other Insurance Policies P 0.50 / P 4.00
Policies of Annuities P 1.00 / P 200 of the
premium or installment
payment on Contract Price
collected
Pre-need Plans P 0.40 / P 200 of the
premium or contribution
collected
Indemnity Bonds P 0.30 / P 4.00
Certificates (Sec. 188 of the Tax Code) P 30.00/certificate
Warehouse Receipts P 30.00 w/ value above P
200
Jai-alai, Horse Race Tickets, P 1.00 and below P 0.20
Lotto, or Other Authorized
Number Games
Above P 1.00 P 0.20 / P 1.00
Bills of Lading or Receipts P 100 to P 1000 P 2.00
Above P 1000 P 20.00
Proxies for Voting at Any Election P 30.00/issued proxy
Powers of Attorney P 30.00/power of Attorney
Leases and Other Hiring 1st P 2,000 P 6.00
Agreements
In excess P 2.00 / P 1,000
Mortgages, Pledges and 1st P 5000 P 40.00
Deeds of Trust
In excess P 20.00 / P 5000
On Assignments & Renewals of Certain Instruments Same rate as original
instrument
Bills of Exchange or Drafts P 0.60 on each P 200
On Deeds of Sale, First P 1,000 of the P 15
Conveyances, and consideration or FMV (zonal
Donations of Real Property or assessor’s value),
Note: Transfers exempt
from the donor’s tax shall
be exempt from the DST
imposed under Section
196.

whichever is highest19 P 15/ P1,000

In excess of P1,000
Charter Parties and Similar
Instrument if gross tonnage
of the Ship, Vessel or
Steamer is:
1,000 tons and below 1st 6 months P 1,000
In excess + P 100/month
1,001 to 10,000 tons 1st 6 months P 2,000
Over 10,000 tons 1st 6 months P 3,000

True or False
1. Excise taxes apply to taxes on goods manufactured or produced in the Philippines for domestic sales
or consumption or for any other disposition and to things imported as well as services performed in the
Philippine,which tax shall be in addition to the value-added tax.
2. Excise taxes are levied in addition to the value-added tax on goods manufactured or produced in the
Philippines for domestic sales, consumption, or any other disposition, as well as on items imported and
services rendered there..
3. Excise taxes may be considered taxes on production as they are collected only from the manufacturers
and producers.
4. Excise taxes is not considered taxes on production as they are collected only from the manufacturers
and producers.
5. Since they are solely collected from manufacturers and producers, excise taxes may be regarded as
taxes on production.
6. Excise tax is a direct tax, excise taxes are directly levied upon the manufacturer or importer upon
removal of the taxable goods from its place of production or from the customs custody.
7. Excise tax is a indirect tax, excise taxes are directly levied upon the manufacturer or importer upon
removal of the taxable goods from its place of production or from the customs custody.
8. Excise taxes are a type of direct tax that are imposed on the manufacturer or importer when the taxable
products are taken out of production or customs custody.
9. Excise taxes may be actually passed on to the end consumer as part of thetransfer value or selling price
of the goods sold, bartered or exchanged.
10. Excise taxes may actually be transferred to the buyer as a portion of the selling price or transfer value of the
products being bought, sold, bartered, or traded.
11. Excise taxes apply to goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition.
12. Products made or produced in the Philippines for domestic sales, consumption, or any other disposition
are subject to excise duties.
13. Excise taxes apply to things imported
14. Excise taxes does not apply to things imported
15. Excise taxes does not apply to services rendered in the Philippines
16. Excise taxes apply to services rendered in the Philippines

17. Excise taxes specifically apply to alcohol products, tobacco products, and petroleum products.
18. Excise taxes specifically does not apply to alcohol products, tobacco products, and petroleum products.
19. Excise taxes does not apply to miscellaneous articles such as automobiles and non-essential goods
and non-essential services.
20. Excise taxes apply to miscellaneous articles such as automobiles and non-essential goods and non-
essential services.
21. Excise taxes specifically apply to sweetened beverages, but not on mineral products.
22. Excise taxes specifically apply to sweetened beverages, and on mineral products.
23. The excise taxes imposed in goods subject to excise tax shall be in addition to the value added tax
imposed.
24. In addition to the value added tax, excise taxes must be applied on goods that are subject to them.
25. Excise tax is an ad valorem tax. It is an excise tax imposed and based on weight or volume capacity or
anyother physical unit of measurement.
26. Excise tax is a speicific tax. It is an excise tax imposed and based on weight or volume capacity or any
other physical unit of measurement.
27. Ad valorem tax is what excise tax is. It is based on weight, volume, or any other physical unit of
measurement and is levied as an excise tax.
28. Specific tax is what excise tax is. It is based on weight, volume, or any other physical unit of
measurement and is levied as an excise tax.
29. Excise tax is a specific tax. It is an excise tax imposed and based on selling price or other specified
value of the good.
30. Excise tax is an ad valorem tax. It is an excise tax imposed and based on selling price or other
specifiedvalue of the good.
31. Excise tax is a specific form of tax. It is an excise tax that is levied and determined by the selling price
or another set value of the good.
32. Excise tax is an ad valorem tax. It is an excise tax that is levied and determined by the selling price or
another set value of the good.
33. Excise tax on Cigarettes Packed by Hand, excise tax on Cigarettes Packed by Machine and excise tax
on petroleum products are examples of Specific tax.
34. Excise tax on Cigarettes Packed by Hand, excise tax on Cigarettes Packed by Machine and excise tax
on petroleum products are examples of Ad valorem tax.
35. Excise tax on mineral products, excise tax on sweetened beverages and excise tax on alcoholic
products are examples of ad valorem tax.
36. Excise tax on mineral products, excise tax on sweetened beverages and excise tax on alcoholic
products are not an examples of ad valorem tax.
37. Excise tax on cigars, excise tax on automobiles and excise tax on non-essential services are examples
of ad valorem tax.

38. Excise tax on cigars, excise tax on automobiles and excise tax on non-essential services are not
examples of ad valorem tax.
39. Excise tax on cigars, excise tax on automobiles and excise tax on non-essential services are not
examples of ad valorem tax.
40. Excise tax on cigars, excise tax on automobiles and excise tax on non-essential services are not an
examples of specific tax.
41. Every person liable to pay excise tax shall file a separate return for each place ofproduction
setting forth, among others: the description and quantity or volume of products to be removed, and the
applicable tax base and the amount of tax due thereon.
42. Every person responsible for paying excise duty is required to submit a separate return for each place
of production that includes information such as the kind and volume of items to be removed, the
applicable tax base, and the amount of tax owed thereupon..
43. Every person liable to pay excise tax shall file a separate return for each place ofproduction
setting forth, among others: the description and quantity or volume of products to be removed, and the
applicable tax base and the amount of tax due thereon.
44. For each place of production, each person responsible for paying excise duty is required to submit a
separate return that includes information such as the kind and volume of items to be removed, the
applicable tax base, and the amount of tax owed thereupon.
45. In the case of indigenous petroleum, natural gas or liquefied natural gas, the excise tax shall be paid by
the first buyer, purchaser or transferee for local sale, barter or transfer.
46. The first buyer, purchaser, or transferee for local sale, barter, or transfer shall pay the excise tax for
locally produced petroleum, natural gas, or liquefied natural gas.
47. Excise tax on exported products shall be paid by the owner, lessee, concessionaire or operator of the
mining claim.
48. The owner, lessee, concessionaire, or operator of the mining claim is responsible for paying excise duty
on goods that are exported.
49. Should domestic products be removed from the place of production without the paymentof the tax, the
owner or person having possession thereof shall be liable for the tax duethereon.
50. The owner or person in possession of domestic goods who remove them from the place of production
without paying the tax is responsible for paying the tax owed on those goods.
Documentary Stamp Tax

1. Statement 1: The issuance of stock dividends is subject to documentary stamp tax on original issue of
shares.
Statement 2: The documentary stamp tax on original issuance of shares is based on the consideration
received for the shares.
a. Only Statement 1 is true.
b. Only Statement 2 is true.

c. Both statements are true.

d. Both statements are not true.
2. In a deed of absolute sale of real property, who is statutorily liable to pay the documentary stamp tax?
a. The seller
b. The buyer
c. The seller or the buyer
d. The seller and the buyer, separately
3. Statement 1: Sale of debt instruments in the secondary market is exempt from documentary stamp tax.
Statement 2: Issuance of long-term bonds (i.e., bonds with a term of not less than five years) is exempt
from documentary stamp tax.
4. Which of the following is true regarding the taxability of shares sold through the local stock exchange?
a. The transaction is subject to percentage tax, income tax, and documentary stamp tax.
b. The transaction is subject to percentage tax and documentary stamp tax but is exempt from
income tax.
c. The transaction is subject to percentage tax but is exempt from documentary stamp tax and
income tax.
d. The transaction is exempt from percentage tax, income tax, and documentary stamp tax.
5. A transfer of real property in exchange for shares where transferor obtains control of the corporate buyer
who issued the shares is a transaction:
a. Exempt from income tax but is subject to VAT and DST.
b. Exempt from VAT but is subject to income tax and DST.
c. Exempt from DST but is subject to VAT and income tax.
d. Exempt from income tax, value-added tax, and documentary stamp tax.
6. Which of the following is subject to documentary stamp tax?
I. Donation of land
II. Lease of land
III. Mortgage of land
a. I only.
b. III only.
c. Both I and III.
d. I, II, and III
7. Which of the following is true regarding electronic documents?
a. Electronic documents are subject to DST at the same rate as the physical documents.
b. electronic documents are not subject to DST.
c. Electronic documents will only become subject to DST once it has been executed in physical
form.
d. Electronic documents, by virtue of their ephemerality, is subject to DST at double the rate imposed
on physical documents.
8. When is the deadline for the filing of the documentary stamp tax return?
a. Within five (5) days after the execution of the document
b. Within five (5) days after the close of the month when the document was executed
c. Within ten (10) days after the execution of the document
d. Within ten (10) days after the close of the month when the document was executed
9. Which of the following is not subject to DST?
a. Jai-alai tickets
b. Horse race tickets
c. lottery tickets

d. Movie tickets
10. A promissory note with real estate mortgage is:
a. Subject to single imposition of DST.
b. Considered as two documents and is therefore subject to two different DST rates.
c. Not a DST-subject document.
d. Shall be re-executed to reflect two separate documents.
Situational Problem No. 1: For items 11 to 15, refer to the following information:
Sour Corporation, a domestic corporation primarily engaged in the sale of strawberry ice cream, issued 12,000
shares to Olivia, a non-resident citizen. The shares have a par value of P20 and were issued to Olivia by fully
paying the market value of P23 per share. At a time when the market value is P33, Olivia sold half of her
shareholdings directly to Sabrina, a resident citizen.
11. Which of the following is true regarding Sour Corporation's issuance of shares to Olivia?
a. The excess of market value over the par value should be declared by Sour Corporation as part of its
gross income subject to income tax.
b. The P23 payment of Olivia is deductible for income tax
c. Olivia can claim the P3 excess of market value over par value as a purpose’s deduction for income tax
purposes.
d. The transaction has no income tax implication.
12. How much is the documentary stamp tax due on the issuance of shares by Sour Corporation to Olivia?
a. 1,200
b. 1,380
c. 2,400
d. 2,760
13. How much is the capital gains tax due on the sale of Olivia to Sabrina?
a. 0
b. 9,000
c. 11,700
d. 18,000
14. How much is the documentary stamp tax due on the sale of Olivia To Sabrina?
a. 1,035
b. 1,380
c. 2,070
d. 2,760
15. Assuming the documentary stamp tax on the transaction has not been paid, which of the following statements
is true?
a. The transfer cannot be effected on the stock and transfer books of the corporation.
b. The transfer is considered as void ab initio if not paid within five days from the close of the month when
the transfer was made.
c. If the corporation does not inform the BIR of the failure to pay DST, the corporation shall be liable to pay
the basic tax due plus interests and penalties.
d. With the failure to pay DST, the shares will be considered as watered stocks.
Situational Problem No. 2: For items 16 to 20, refer to the following information:
Rose is on the ground, and she wants to acquire more parcels of land for use on her upcoming resort project.
Jisoo is planning to sell her idle land to Rose The land has a zonal value of P4,000,000, an assessed value of
P4,200,000, and an appraised value of P4,350,000. Jisoo was able to sell it to Rose for P4,070,000. Rose paid
for the parcel of land in full cash. They executed a Contract to Sell and Deed of Absolute Sale to this effect.
16. How much is the capital gains tax due on the transaction?
a. 240,000
b. 44,200

c. 252,000
d. 261,000
17. How much is the documentary stamp tax due on the transaction?
a. 31,500
b. 61,050
c. 63,000
d. d. 65,250
18. Suppose that was sold by Jisoo is her principal residence, and Jisoo was able to use the entire proceeds to
acquire a new principal residence in six months, how much is the capital gains tax and documentary stamp tax
due on the transaction?
a. CGT, 0; DST, 63,000
b. CGT, 0; DST, 0
c. CGT, 252,000; DST, 63,000
d. CGT, 252,000; DST, 0
19. Suppose that instead of a sale, Jisoo instead donated the parcel of idle land to Rose, which of the following
statements is true?
a. The donation is subject to donor's tax, but not to documentary stamp tax.
b. The donation is subject to documentary stamp tax, but not to donor's tax.
c. The donation is not subject to both donor's tax and documentary stamp tax.
d. The donation is subject to both donor's tax and documentary stamp tax.
20. Which of the following is the document that evidences the payment of taxes, including DST, and will be
presented to the Registry of Deeds by Rose in order to effect the taxable transfer of title over the property from
Jisoo's name to hers?
a. Duly stamped DST returns
b. Certificate Authorizing Registration
c. VAT invoice covering the real property
d. Bank deposit slips
C. LESSON WRAP-UP

____________________________________________________________________________________
___________________________________________________
________________________________________________________________________________
_________________________________________________________
Key to Corrections
Excise Tax
1-10: T T T F T FTFTT
11-20: T T T F F TTFFT Documentary Tax
21-30: F T T T F TFTFT 1-10: A C A C D DABDA
31-40: F F T F F TFTFT 11-20: D D B C A CCADB
41-50: T T T T T TTTTT


Lesson title: Taxation Under the Local Government Code Materials:

1. Recall and Apply learnings in Local Government Taxation and References:
Real Property Taxation Under Local Government Code Tax Reviewer by Enrico Tabag
and Laco
REO Reviewer
Hello students! You are now in your module 6 of your review subject. Your topic in this module is Local
Government Taxation and Real Property Taxation Under Local Government Code. You already finish this
“The way to get started is to quit talking and begin doing.”
B.MAIN LESSON
LOCAL GOVERNMENT TAXES
Power To Levy Other Taxes, Fees or Charges

Local Government Units (“LGUs”) 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.3 (Sec. 186, LGC).
Notes:
(a) The aforementioned power includes the power to levy fees that are regulatory in nature.4
(b) Such power also includes the power to levy charges which are pecuniary liabilities such as rents or fees
against persons or property. An example would be the imposition of “goodwill fees” upon stall holders at the
municipal public market.5
(c) The requirements made mandatory by law for the levy of such taxes, fees, or charges must be observed.
Otherwise, such levy shall be void.
In Ongsuco, et. al. v. Hon. Malones, G.R. No. 182065 (October 27, 2009), since no public hearing had been
duly conducted prior to the enactment of an ordinance imposing “goodwill fees” upon stall holders at a public
market, said ordinance was declared void.
Fundamental Principles in Local Taxation

The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers
of LGUs:
(a) Taxation shall be uniform in each LGU;
(b) Taxes, fees, charges, and other impositions shall:
(1) Be equitable and based, as far as practicable, on the taxpayer’s ability to pay;
(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 the Local Government Code of 1991 (“LGC”) shall inure
solely to the benefit of, and be subject to the disposition by, the LGU levying the tax, fee, charge, or other
imposition unless otherwise specifically provided in the LGC;
(e) Each LGU shall, as far as practicable, evolve a progressive system of taxation; and
(f) Territoriality – an LGU cannot ordinarily tax property or persons unless the situs thereof is within its territory.
Taxing Authority
The power to impose a tax, fee, or charge, or to generate revenue under the LGC shall be exercised by the
sanggunian of the LGU concerned through an appropriate ordinance.
PROVINCES
The following are the local taxes that may be imposed by provinces:
1. Tax on Transfer of Real
Property Ownership
Tax imposed on: The sale, donation, barter, or on any other mode of transferring ownership
or title of real property.
Tax base The total consideration involved in the acquisition of the property or of the
fair market value7 thereof, whichever is higher.
Tax rate Not more than fifty percent (50%) of one percent (1%)
Time of Payment It shall be the duty of the seller, donor, transferor, executor or
administrator to pay the tax herein imposed within sixty (60) days from
the date of the execution of the deed or from the date of the decedent's
death (Sec. 135(b), LGC).
Exemption The sale, transfer or other disposition of real property pursuant to R.A. No.
6657 (the “Comprehensive Agrarian Reform Law of 1988”).
2. Tax on Business of Printing

and Publication
Tax imposed 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.
Tax base and tax rate:
(a) In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment8.
(b) In the succeeding calendar year, regardless of when the business
started to operate, the tax shall not exceed fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar
year or any fraction thereof.
Exemption 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.
3. Franchise Tax
Tax imposed on: Businesses enjoying a franchise.
Tax base and tax rate:
(a) In the case of a newly started business, the tax shall not
exceed one-twentieth (1/20) of one percent (1%) of the capital
investment.
(b) In the succeeding calendar year, regardless of when the
business started to operate, the tax shall not exceed fifty percent
(50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year or any fraction thereof.
4. Tax on Sand, Gravel, and Other

Quarry Resources
Tax imposed on: Ordinary stones, sand, gravel, earth, and other quarry resources, as
defined under Tax Code extracted from:
(a) public lands or
(b) the beds of seas, lakes, rivers, streams, creeks, and other public
waters
within the territorial jurisdiction of the province.

Tax base Fair market value in the locality
Tax rate Not more than ten percent (10%)

Professional Tax
Tax imposed on: Each person engaged in the exercise or practice of his profession
requiring government examination.
Tax Such amount and reasonable classification as the sangguniang
panlalawigan may determine but shall in no case exceed Three
Hundred Pesos (₱300.00).
Place of Payment Province, city, or the lone municipality within the MMA where where
taxpayer practices his profession or where he maintains his principal
office in case he practices his profession in several places. See Note
(a) below.
Time of Payment Annually, on or before the thirty-first (31st) day of January.
After January 31, if taxpayer first begins to practice his profession after
the month of January.
Exemption Professionals exclusively employed in the government
Notes:
(a) Cities and the lone municipality within the MMA may also levy and collect the professional tax. However,
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.9
(b) A line of profession does not become exempt even if conducted with some other profession for which the
tax has been paid.10
(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.11
(d) 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.12
(e) The professionals subject to this professional tax are only those who have passed the bar examinations, or
any board or other examination conducted by the Professional Regulation Commission (“PRC”). For example,
a lawyer who is also a Certified Public
Accountant (“CPA”) must pay the professional tax on lawyers and that fixed for CPAs, if he is to practice both
professions.13
(f) Before accepting payment of the professional tax for the current year, the provincial treasurer or his duly
authorized representative shall require from such professionals their current annual registration cards issued
by competent authority.14
(g) The PRC shall likewise require proof of payment of the professional tax before registration of professionals
or renewal of their licenses.
6. Amusement Tax
Tax imposed on: Proprietors, lessees, or operators of (a) theaters, (b) cinemas, (c)
concert halls, (d) circuses, (e) boxing stadia, and (f) other places of
amusement.
Tax Base Gross receipts from admission fees
Tax Rate Not more than ten percent (10%)
Exemption Operas, concerts, dramas, recitals, painting and art exhibitions, flower
shows, musical programs, literary and oratorical presentations shall be
exempt.

Exception: Pop, rock, or similar concerts shall not be exempt from the
amusement tax
Note: A percentage tax of 15% is imposed by the National Government on the gross receipts from professional
basketball games under Section 125 of the Tax Code. This precludes the province from imposing a local tax
thereon pursuant to Section 133(i) of the LGC.
Sale of movie tickets is subject to the local amusement tax, and not to VAT.
Annual Fixed Tax for Every Delivery

Truck or Van of Manufacturers or
Producers, Wholesalers of, Dealers,
or Retailers in, Certain Products
Tax imposed on: Every truck, van, or any vehicle used by manufacturers,
producers, wholesalers, dealers or retailers in the delivery or
distribution of distilled spirits, fermented liquors, soft drinks,
cigars and cigarettes, and other products to sales outlets, or
consumers, whether directly or indirectly, within the province.
Tax An amount not exceeding Five Hundred Pesos (₱500.00).
Note: The manufacturers, producers, wholesalers, dealers and retailers referred to above shall be exempt
from the tax on peddlers prescribed in Section 143(g) of the LGC.
MUNICIPALITIES
The following may be imposed by municipalities:
1. Tax on Business (“Local Business Tax”)16
(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of
whatever kind or nature, in accordance with the schedule found in Section 143(a) of the LGC.
The amount of tax per annum shall be a fixed amount that increases with the taxpayer’s domestic gross sales
or receipts for the preceding calendar year. However, when such gross sales or receipts is ₱6.5 Million or
more, the tax shall equal the sales/receipts multiplied by a tax rate not exceeding 37.5% of 1.0%.
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in
accordance with the schedule found in Section 143(b) of the LGC.
The amount of tax per annum shall be a fixed amount that increases with the taxpayer’s gross sales or receipts
for the preceding calendar year. However, when such gross sales or receipts is ₱2.0 Million or more, the tax
shall equal the sales/receipts multiplied by a tax rate not exceeding 50.0% of 1.0%.
Note: The businesses in paragraph (a) above shall no longer be subject to the tax on wholesalers, distributors,
or dealers provided in paragraph (b).
(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 (½) of the
rates prescribed under subsection (a), (b) and (d) of Section 143 of the LGC:17

(1) Rice and corn;

(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar,
salt and other agricultural, marine, and fresh water products, whether in their original state or not;
(3) Cooking oil and cooking gas;
(4) Laundry soap, detergents, and medicine;
(5) Agricultural implements, equipment and post-harvest facilities, fertilizers, pesticides, insecticides, herbicides
and other farm inputs;
(6) Poultry feeds and other animal feeds;
(7) School supplies; and
(8) Cement.
Note: For purposes of Section 143 of the LGC, the term “exporters” shall refer to those who are principally
engaged in the business of exporting goods and merchandise, as well as manufacturers and producers whose
goods or products are both sold domestically or abroad. The amount of export sales shall be excluded from the
total sales, and shall be subject to the rates not exceeding ½ of the rates prescribed in paragraphs (a), (b), and
(d) of Section 143 of the LGC.
(d) On retailers in accordance with the following schedule provided in Section 143(d) of the LGC:19
(1) The rate of 2% per annum shall be imposed on sales not exceeding ₱400,000. The rate of 1% per annum
shall be imposed on sales in excess of the first ₱400,000.
(2) The barangays shall have the exclusive power to levy taxes, as provided in Section 152 of the LGC on
gross sales or receipts of the preceding calendar year of Fifty Thousand Pesos (₱50,000.00) or less, in the
case of barangays in cities, and Thirty Thousand Pesos (₱30,000.00) or less, in the case of barangays in
municipalities.
(e) On contractors20 and other independent contractors, in accordance with the schedule provided in
Section 143(e) of the LGC.
The amount of tax per annum shall be a fixed amount that increases with the taxpayer’s gross sales or receipts
for the preceding calendar year. However, when such gross sales or receipts is ₱2.0 Million or more, the tax
shall equal the sales/receipts multiplied by a tax rate not exceeding 50.0% of 1.0%.
(f) On banks and other financial institutions21, at a rate not exceeding fifty percent (50%) of one
percent (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, and insurance premium.
Notes:
(1) All other income and receipts of banks and financial institutions not otherwise enumerated above shall be
excluded from the taxing authority of the LGU concerned.
(2) Dividends and interest earned are not subject to the LBT under Section 143(f) of the LGC, unless the
corporation is a bank or non-bank financial intermediary.
(g) On peddlers24 engaged in the sale of any merchandise or article of commerce, at a rate not
exceeding Fifty Pesos (₱50.00) per peddler annually.

Note: Delivery trucks, vans, or motor vehicles used by manufacturers, producers, wholesalers, or retailers
enumerated in Section 141 of the LGC shall be exempt from the peddler’s tax.
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax. Provided, that on any business subject to the excise tax, VAT or
OPT under the Tax Code, as amended, the rate of tax shall not exceed two percent (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 in the LGC.
Note: In line with existing national policy, any business engaged in the production, manufacture, refining,
distribution or sale of oil, gasoline, and other petroleum products shall not be subject to any local tax imposed
under Section 143(h) of the LGC.25
Notes:
(i) Newly started business entities shall not be subject to and/or liable to the payment of initial LBT,
and shall only be subject to the payment of Business Permit and other regulatory fees and charges.26
However, for a newly started business on printing and publication, and on a business enjoying a franchise, a
local tax based on capital investment may be imposed.27
(ii) Base of the local business tax (“LBT”) is the gross sales or receipts of the preceding calendar year.
Based on Section 143 of the LGC, the LGU may impose taxes on businesses based on their gross sales or
receipts28 of the preceding calendar year. If a taxpayer has submitted or declared its gross sales or receipts,
the local treasurer shall compute the LBT based on the gross receipts.
(1) In the absence of audited Financial Statements, the LBT shall be based on the Sworn Declaration of gross
sales or receipts by the taxpayer,29 or its ITR.30
In case of suspected underdeclaration of gross sales/receipts, the business may be subjected to examination
of its books of accounts by the local treasurer.31 Such examination shall be done after the business renewal
period.
(2) The Presumptive Income Level Assessment Approach (“PILAA”) may be used in computing the LBT only if
the taxpayer is unable to provide proof of its gross sales/receipts.32
Furthermore, the PILAA may be used in estimating a taxpayer’s gross sales/receipts provided that the PILAA is
in the local tax ordinance that has undergone public hearings and publication. Absent such ordinance
authorizing the use of the PILAA and embodying the presumptive income levels to be used by the Local
Treasurer, the collection of additional LBTs based on such PILAA is illegal.33
(iii) Rates of Tax Within the Metropolitan Manila Area – The municipalities within the Metropolitan Manila
Area (“MMA”) may levy taxes on businesses enumerated in Section 143 of the LGC at rates which shall not
exceed by Fifty Percent (50%) the maximum rates prescribed for said businesses under the same section of
the LGC.34
(iv) Retirement of Business - A business subject to tax on business pursuant to Section 143 of the LGC shall,
upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If it is
found that the retirement or termination of the business is legitimate, and 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 or terminated.35
(v) Payment of Business Taxes36 –
(a) The taxes imposed under Section 143 of the LGC shall be payable for every separate or distinct
establishment or place where business subject to the tax is conducted. One line of business does not become

exempt by being conducted with 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 two (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 two (2) or more related businesses.
(c) In cases where a person conducts or operates two (2) or more businesses mentioned in 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.
(vi) Situs of the Tax
(a) For purposes of collection of the business taxes under Section 143 of the LGC, the businesses maintaining
or operating a branch or sales outlet, or warehouse elsewhere shall record the sale in the branch or sales
outlet, or warehouse making the sale or transaction, and the tax thereon shall accrue and shall be paid to the
city/municipality where such branch or sales outlet, or warehouse is located.
In cases where there is no such branch or sales outlet or warehouse in the city or municipality where the sale
or transaction is made, the sale shall be duly recorded in the principal office along with the sales made by said
principal office, and the taxes due shall accrue and shall be paid to such city or municipality where said
principal office is located.37
(b) Where the taxpayer has a factory, project office, plant, or plantation, and all sales are recorded in the
principal office, the following sales allocation shall apply:
(1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality
where the principal office is located; and
(2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality
where the factory, project office, plant, or plantation is located.
(c) In case of a plantation located at a place other than the place where the factory is located, said seventy
percent (70%) mentioned in subparagraph (2) of subsection (b) above shall be divided as follows:
(1) Sixty percent (60%) to the city or municipality where the factory is located; and
(2) Forty percent (40%) to the city or municipality where the plantation is located.
(d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories,
project offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation
mentioned in subparagraph (2) of subsection (b) 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.
In the case of project offices of service and other independent contractors, the term “production” shall refer to
the cost of projects actually undertaken during the tax period.39
2. Fees and Charges
(a) Permits/Licenses
The municipality may impose and collect such reasonable fees and charges on business and occupation and,
except as reserved to the province in Section 13940 of the LGC, 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.
Provided that, such fees or charges shall only be commensurate to the cost of issuing the license or permit,
and the expenses incurred in the conduct of the necessary inspection or surveillance.
No such fee or charge shall be based on capital investment or gross sales or receipts of the person or
business liable therefor.41
Notes:

(1) The conduct or operation of 2 or more related businesses under Art. 143 of the LGC by any one person,
natural or juridical, shall require the issuance of a separate permit or license to each business.
(2) A professional who has paid his professional tax shall be exempt from the payment of the business permit
fee in the operation of his clinic or office. However, such professional must still secure a business permit, at no
cost, from the concerned LGU during the registration of his clinic/office and renewal thereof, subject to a duly
enacted local ordinance.
(b) Fees for Sealing and Licensing of Weights and Measures

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.
(c) Fishery Rentals, Fees, and Charges
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 Section 149 of the LGC.
Additional Taxing Power of Municipalities Within the Metropolitan Manila Area (“MMA”)
The municipalities within MMA, pursuant to Section 186 of the LGC, may also levy and collect the taxes which
may be imposed by the province under Sections 135 to 141 of the LGC at rates not exceeding those
prescribed therein.
CITIES
Scope of Taxing Powers of Cities
1) Except as otherwise provided in the LGC, the city may levy the taxes, fees, and charges which the province
or municipality may impose.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.43
Note: The rates of the following taxes shall be uniform for the city and the province:
(a) Professional tax which shall not exceed Three Hundred Pesos (₱300); and
(b) Amusement tax on paid admission, the rate of which shall not be more than ten percent (10%) of the gross
receipts from admission fees.
Provided, however, that the taxes, fees and charges levied and collected by highly urbanized and independent
component cities shall accrue to them and shall be distributed in accordance with the provisions of the LGC.44
2) The city may also levy and collect a percentage tax on any business not otherwise specified under
paragraphs (a) to (g) of Section 143 of the LGC at rates not exceeding three percent (3%) of the gross sales or
receipts of the preceding calendar year.
3) In addition to the annual fixed tax imposed under Section 141 of the LGC, cities may also collect from the
same manufacturers, producers, wholesalers, retailers, and dealers using route trucks, a mayor’s permit fee
which shall be imposed in a local tax ordinance pursuant to Section 147 in relation to Section 132 of the LGC.
BARANGAYS
The following may be imposed by barangays:
a) Taxes of Stores/Retailers
Tax imposed on: Stores or retailers with fixed business establishments with gross sales or
receipts of the preceding calendar year of:
(a) Not more than ₱50,000 for stores in a barangay within a city;

(b) Not more than ₱30,000 for stores in a barangay within a municipality.
Tax base Gross sales or receipts

Tax rate Not more than one percent (1%)
b) Service Fees or Charges

Barangays may collect reasonable fees or charges for services rendered in connection with the regulation or
the use of barangay-owned properties or service facilities such as palay, copra, or tobacco dryers.46
c) Barangay Clearance
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 seven (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.
d) Other Fees and Charges
The barangay may levy reasonable fees and charges:
(1) On commercial breeding of fighting cocks, cockfights and cockpits;
(2) On places of recreation49 which charge admission fees;

(3) On billboards, signboards, neon signs, and outdoor advertisements50 at rates not exceeding the rates
found in Section 240(d)(4) of the Implementing Rules.
COMMON REVENUE-RAISING POWERS

The following revenue-raising powers are available to all LGUs:
1) Service Fees and Charges
LGUs may impose and collect such reasonable fees and charges for services rendered.51
Such fees and charges must be in an amount reasonably commensurate to the service rendered by the LGU.
Provided, that no service charge shall be based on capital investments, or gross sales or receipts of the person
or business liable therefor.
2) Public Utility Charges
LGUs may fix the rates for the operation of public utilities owned, operated and maintained by them
within their jurisdiction.
The rates shall be fixed by the sanggunian concerned.
3) Toll Fees or Charges
LGUs may prescribe the terms and conditions, through an appropriate ordinance enacted by their
sanggunians, for the use of any public road, pier, or wharf, waterway, bridge, or ferry, or telecommunication
system. LGUs, thru ordinances, may also fix reasonable toll fees and service charges for the use thereof.
Provided, that no such toll fees or charges shall be collected from:
a) officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National
Police on mission,
b) post office personnel delivering mail,
c) persons who are physically-handicapped, and
d) disabled citizens who are sixty-five (65) years or older.
When the public safety and welfare so require, the sanggunian concerned may discontinue the collection of the
tolls and charges, and thereafter the said facility shall be free and open for public use.

A) FROM BUSINESS PERMIT (MAYOR’S PERMIT)

1) A professional who has paid his professional tax shall be exempt from the payment of the business
permit in the operation of his office/clinic. However, he is still required to secure a business permit, at no cost,
from the concerned LGU during the registration of his office/clinic.
Note: However, if a professional is actually engaged in any business activity that does not constitute a practice
of profession, he shall be liable to pay the annual local business tax to the city or municipality concerned.
2) Service contractors providing temporary and/or outsourced services to clients outside the LGU where it
maintains its principal office, branch office, and administrative office, are not required to secure a
mayor’s/business permit in those areas.
B) FROM LOCAL TAXES

1) BOI-registered business enterprises availing of the ITH and certified as pioneer and non-pioneer for a period
of 6 and 4 years, respectively, from the date of registration.
2) PEZA-registered enterprises under the ITH, except for: (a) RPT on land and buildings; and (b) the RPT on
machinery and equipment after the 3-year exemption from such RPT.
3) PEZA-registered business enterprises enjoying the 5% gross income tax in lieu of all other taxes, except for
RPT on land owned by developers.
4) Special Economic Zones, as may be provided by specific law.
5) Businesses engaged in the production, manufacturing, refining, distribution, or sale of oil, gasoline, and
other petroleum products.
6) All cooperatives duly registered with the Cooperative Development Authority, regardless of the amount of
accumulated reserves and undivided net earnings.
7) Non-stock, non-profit educational institutions. To avail of the exemption, such institution must factually prove
that it actually, directly, and exclusively used for educational purposes the revenues and incomes sought to be
exempted.
COMMUNITY TAX
What LGU Can Levy A Community Tax?
Cities or municipalities may levy a community tax in accordance with the provisions of Sections 156 to 164 of
the LGC.
Community Tax of Individuals
Individuals Liable to the Payment of Community Tax
(1) Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly employed on
a wage or salary basis for at least thirty (30) consecutive working days during any calendar year, or
(2) An individual who is engaged in business or occupation, or
(3) An individual who owns real property with an aggregate assessed value of One Thousand Pesos
(₱1,000.00) or more, or
(4) An individual who is required by law to file an income tax return.
Rate of Community Tax Payable by Individuals

(1) The rate of community tax that may be levied and collected from said individuals shall be:

a) An annual (basic) community tax of Five Pesos (₱5.00) plus

b) An annual additional tax of One Peso (₱1.00) for every One Thousand Pesos (₱1,000.00) of income
regardless of whether from business, exercise of profession or from property, which in no case shall exceed
Five Thousand Pesos (₱5,000.00).
(2) In the case of husband and wife, each of them shall be liable to pay the basic tax of ₱5.00, but the
additional tax imposable on the husband and wife shall be ₱1.00 for every ₱1,000 of income from the total
property owned by them and/or the total gross receipts or earnings derived by them.
Community Tax of Juridical Persons

Juridical Persons Liable to the Payment of Community Tax
Every corporation65 no matter how created or organized, whether domestic or resident foreign, engaged in or
doing business in the Philippines shall be liable to pay the community tax.
A cooperative enjoying exemption from local taxes, including the real property tax, is still required to secure a
Mayor’s permit and the Community Tax Certificate.
Rate of Community Tax Payable by Juridical Persons
(1) An annual community tax of Five Hundred Pesos (₱500.00) plus
(2) An annual additional tax, which, in no case, shall exceed Ten Thousand Pesos (₱10,000.00) in accordance
with the following schedule:
(a) For every Five Thousand Pesos (₱5,000.00) worth of real property in the Philippines owned by it during the
preceding year based on the valuation used for the payment of real property tax under existing laws, found in
the assessment rolls of the city or municipality where the real property is situated - Two Pesos (₱2.00); and
(b) For every Five Thousand Pesos (₱5,000.00) of gross receipts or earnings derived by it from its business in
the Philippines during the preceding year - Two Pesos (₱2.00).
Note: Dividends received by a corporation from another corporation shall, for the purpose of the additional tax,
be considered as part of the gross receipts or earnings of said corporation.
Exemptions from Payment of the Community Tax
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 three (3) months.
Place and Time of Payment of the Community Tax
The community tax shall be paid in the city/municipality where the individual resides, or in the city/municipality
where the principal office of the juridical entity is located regardless if the entity operates a branch or sales
office in any other LGU.
The community tax shall accrue on the first (1st) day of January of each year which shall be paid not later than
the last day of February of each year.
Corporations established and organized on or before the last day of June shall be liable for the community tax
for that year.
Corporations established and organized on or before the last day of March shall have twenty (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.
Penalties for Delinquency

If the community tax is not paid within the time prescribed above, there shall be added to the unpaid amount an
interest of twenty-four percent (24%) per annum from the due date until it is paid.
Note: The total interest on the unpaid amount or portion shall not exceed 36 months. Thus, the penalty for late
payment of the community tax shall not go beyond 36 months or 72% of the unpaid amount.
Community Tax Certificate
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 One Peso (₱1.00).
Presentation of Community Tax Certificate On Certain Occasions
(a) When an individual subject to the community tax:
(1) acknowledges any document before a notary public;
(2) takes the oath of office upon election or appointment to any position in the government service;
(3) receives any license, certificate, or permit from any public authority;
(4) pays any tax or fee;
(5) receives any money from any public fund;
(6) transacts other official business; or
(7) receives any salary or wage from any person 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.
However, 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 fifteenth (15th) of April each year, in which case, the
certificate issued for the preceding year shall suffice.
Collection of the Community Tax and Distribution of Proceeds

The city or municipal treasurer shall deputize the barangay treasurer to collect the community tax in their
respective jurisdictions: Provided, however, that said barangay treasurer shall be bonded in accordance with
existing laws.
COLLECTION OF LOCAL TAXES

Tax Period and Manner of Payment
Unless otherwise provided in the LGC, 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, as may be provided in the tax ordinance.
Accrual of Tax
Unless otherwise provided in the LGC, all local taxes, fees, and charges shall accrue on the first (1st) day of
January of each year.
However, new taxes, fees or charges, or changes in the rates thereof, shall accrue on the first (1st) day of the
quarter next following the effectivity of the ordinance imposing such new levies or rates.
Time of Payment
Unless otherwise provided in the LGC, all local taxes, fees, and charges shall be paid within the first twenty
(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 six (6) months.79
Penalties
Surcharges and Interest on Unpaid Taxes
The sanggunian may impose a surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or
charges not paid on time, and an interest at the rate not exceeding two percent (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 thirty-six (36) months.
Penalties for Violation of Tax Ordinances

The sanggunian of an LGU is authorized to prescribe fines and other penalties for the violation of tax
ordinances. Such fines shall not be less than One Thousand Pesos (₱1,000) nor shall it be more than Five
Thousand Pesos (₱5,000). The penalty of imprisonment shall not be less than one (1) month nor shall it be
more than six (6) months. Such fine or other penalty, or both, shall be imposed at the discretion of the court.
The sangguniang barangay may prescribe a fine of not less than One Hundred Pesos (₱100) nor more than
One Thousand Pesos (₱1,000).
Collection of Local Revenue by Treasurer

All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or barangay treasurer, or
their duly authorized deputies.
The 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 the LGC.
CIVIL REMEDIES FOR COLLECTION OF REVENUES

Local Government's Lien
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 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.
Civil Remedies
(1) Assessment
Local taxes, fees, or charges shall be assessed within five (5) years from the date they became due. No action
for the collection of such taxes, fees, or charges, whether administrative or judicial, shall be instituted after the
expiration of such period.
Note: Local taxes accrue on the 1st day of January of each year unless otherwise provided in the LGC.
However, new taxes, fees or charges, or changes in the rates thereof, accrue on the 1st day of the quarter next
following the effectivity of the ordinance imposing such new levies or rates.
Exception to the Period of Limitation

In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be assessed within
ten (10) years from discovery of the fraud or intent to evade payment.
(2) Collection
Period of Collection

Local taxes, fees, or charges may be collected within five (5) years from the date of assessment by
administrative or judicial action. No such action shall be instituted after the expiration of said period.87
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:
(i) 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
(ii) by levy upon real property and interest in or rights to real property; and
(b) By judicial action. The LGU concerned may enforce collection by civil action in any court of competent
jurisdiction. The case shall be filed by the local treasurer.
Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the LGU
concerned.
Personal Property Exempt from Distraint or Levy
The following properties 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:89
(a) Tools and implements necessarily used by the delinquent taxpayer in his trade or employment;
(b) One (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 Ten Thousand Pesos (₱10,000.00);
(e) Provisions, including crops, actually provided for individual or family use sufficient for four (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 (₱10,000.00), 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.
Suspension of the Running of the Prescriptive Periods
The running of the periods of prescription for assessment and collection of the local taxes, fees, and charges
shall be suspended for the time during which:
(1) The treasurer is legally prevented from making the assessment or collection;
(2) The taxpayer requests for a reinvestigation and executes a waiver in writing 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.
REAL PROPERTY TAXATION

Fundamental Principles
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.
Municipal Corporations That May Levy Real Property Taxes

Under Section 232 of the LGC, only the following municipal corporations may levy a real property tax, namely:
(1) Provinces;
(2) Cities; and
(3) Municipality within the Metropolitan Manila Area (“MMA”)
The above-mentioned LGUs may levy an annual ad valorem tax on real property such as land, building,
machinery, and other improvement not specifically exempted by the LGC.
Note: Municipalities outside the MMA have no power to levy real property taxes.
Persons Liable for Real Property Tax
The liability for the real property tax generally rests on the owner of the real property at the time the tax
accrues as a necessary repercussion of exclusive dominion. However, personal liability for real property taxes
may also expressly rest on the entity with the beneficial use of real property. In either case, the unpaid tax
attaches to the property, and is chargeable against the taxable person who had actual or beneficial use and
possession of it regardless of whether or not he is the owner.
A contractual assumption of the obligation to pay real property tax, by itself, is insufficient to make one liable
for taxes. The contractual assumption of tax liability must be supplemented by an interest that the party
assuming the liability had on the property. The person from whom payment is sought must also have acquired
the beneficial use of the property taxed. In other words, he must have the use and possession of the property.
Computation of Real Property Tax Due

Procedural steps in computing the real property tax:
(1) Ascertain the assessment level of the property.
(2) Multiply the market value by the applicable assessment level to get the assessed value.
(3) Find the tax rate which corresponds to the class of the property.
(4) Multiply the assessed value by the applicable tax rates.
APPRAISAL AND ASSESSMENT

Appraisal of Real Property
All real property, whether taxable or exempt, shall be appraised at the current and fair market value
prevailing in the locality where the property is situated.
Declaration of Real Property
a) By the Owner or Administrator,
b) By the Person Acquiring Real Property or Making Improvement Thereon, or
c) By the Assessor
Notes:
1) The declaration shall be in the form of a sworn statement declaring the true value of their property, whether
previously declared or undeclared, taxable or exempt, which shall be the current and fair market value of the
property, as determined by the declarant.
2) The local assessor shall declare only real property previously undeclared for taxation purposes.
Assessment
Listing of Real Property in the Assessment Rolls
In every province and city, including the municipalities within the Metropolitan Manila Area, there shall be
prepared and maintained by the provincial, city or municipal assessor an assessment roll wherein shall be
listed all real property, whether taxable or exempt, located within the territorial jurisdiction of the LGU
concerned.

Real property shall be listed, valued and assessed in the name of the owner or administrator, or anyone
having legal interest in the property.
Actual Use of Real Property as Basis for Assessment
Real property shall be classified, valued and assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it. (Sec. 217, LGC).
Classes of Real Property for Assessment Purposes
For purposes of assessment, real property shall be classified as:
(a) residential, (b) agricultural, (c) commercial, (d) industrial, (e) mineral103, (f) timberland, or (g) special104
by the provincial and city assessors, including the municipal assessors of the Metropolitan Manila Area.
The cities or municipalities within the Metropolitan Manila Area, through their respective sanggunian, shall
have the power to classify lands as residential, agricultural, commercial, industrial, mineral, timberland, or
special in accordance with their zoning ordinances provided such classification is on the basis of actual use as
provided in Section 217 of the LGC.105
Appraisal and Assessment of Machinery
(a) The fair market value of a brand new machinery shall be the acquisition cost (including the cost of
transportation, handling, and installation). In all other cases, the fair market value shall be determined
by dividing the remaining economic life of the machinery by its estimated economic life, and multiplied
by the replacement or reproduction cost.
(b) (b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other
charges, brokerage, arrastre and handling, duties and taxes, plus cost of inland transportation,
handling, and installation charges at the present site. The cost in foreign currency of imported
machinery shall be converted to peso cost on the basis of foreign currency exchange rates as fixed by
the Central Bank.
(c) Depreciation Allowance for Machinery
(d) For purposes of assessment, a depreciation allowance shall be made for machinery at a rate not
exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the case may
be, for each year of use.
(e) Provided, however, that the remaining value108 for all kinds of machinery shall be fixed at not less than
twenty percent (20%) of such original, replacement, or reproduction cost for so long as the machinery is
useful and in operation.
Assessment Levels
The assessment levels to be applied to the fair market value of real property to determine its assessed value
shall be fixed by ordinances of the sangguniang panlalawigan, sangguniang panlungsod, or sangguniang
bayan of a municipality within the Metropolitan Manila Area.
Real Property Tax Rates

(1) Basic Real Property Tax
(a) In the case of a province, at the rate not exceeding one percent (1%) of the assessed value of real
property; and
(b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not exceeding two
percent (2%) of the assessed value of real property.
Exemptions from Real Property Tax

The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and
GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives; and
(e) Machinery and equipment used for pollution control and environmental protection.
(f) PEZA-registered business enterprises which are non-developers and which are enjoying the 5% gross
income tax in lieu of all other taxes.
(g) PEZA-registered enterprises under the ITH shall be exempted from payment of the RPT on machineries
and equipment they acquire or use in their production operations, during the first three (3) years of use of such
machinery and equipment.
(2) Special Levies
(a) Additional Levy on Real Property for the Special Education Fund (“SEF”)
An annual tax of one percent (1%) on the assessed value of real property which shall be in addition to the
basic real property tax. The proceeds thereof shall exclusively accrue to the Special Education Fund (“SEF”).
(b) Additional Ad Valorem Tax on Idle Lands
A province or city, or a municipality within the Metropolitan Manila Area, may levy an annual tax on idle lands
at the rate not exceeding five percent (5%) of the assessed value of the property which shall be in addition to
the basic real property tax.
For purposes of real property taxation, idle lands shall include the following:
(a) Agricultural lands, more than one (1) hectare in area, suitable for cultivation, dairying, inland fishery, and
other agricultural uses, one-half (1/2) of which remain uncultivated or unimproved by the owner of the property
or person having legal interest therein.
Exceptions: The following shall not be considered idle land:

(1) Agricultural lands planted to permanent or perennial crops with at least fifty (50) trees to a hectare; and
(2) Lands actually used for grazing purposes.
(b) Lands, other than agricultural, located in a city or municipality, more than one thousand (1,000) square
meters in area, one-half (1/2) of which remain unutilized or unimproved by the owner of the property or person
having legal interest therein.
However, a province or city or a municipality within the Metropolitan Manila Area may exempt idle lands from
the additional levy by reason of force majeure, civil disturbance, natural calamity or any cause or circumstance
which physically or legally prevents the owner of the property or person having legal interest therein from
improving, utilizing or cultivating the same.
(c) Special Levy (Special Assessment) by Local Government Units
A province, city or municipality may impose a special levy on the lands comprised within its territorial
jurisdiction specially benefited by public works projects or improvements funded by the LGU concerned.
Provided, however, that:

(1) the special levy shall not exceed sixty percent (60%) of the actual cost of such projects and improvements,
including the costs of acquiring land and such other real property in connection therewith; and

(2) the special levy shall not apply to (a) lands exempt from basic real property tax, and (b) the remainder of
the land portions of which have been donated to the LGU concerned for the construction of such projects or
improvements.
COLLECTION OF REAL PROPERTY TAX

Date of Accrual of Tax
The real property tax for any year shall accrue on the first day of January and from that date it shall
constitute a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any
kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax.
Collection of Tax
The collection of the real property tax with interest thereon and related expenses, and the enforcement of the
remedies provided for in Title II of the LGC or any applicable laws, shall be the 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:
(a) the barangay treasurer is properly bonded for the purpose; and
(b) the premium on the bond shall be paid by the city or municipal government concerned.
Notes: Before any document of transfer, alienation, or encumbrance of real property may be registered, the
Registrar of Deeds shall require the presentation of a certificate or clearance issued by the Local Treasurer
concerned to the effect that all current and past year basic real property tax, the additional special educational
fund levy, other real property taxes, and the tax on transfer of real property ownership due on the subject
property, have been paid in full including interests or penalties due thereon.121
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:
(1) the first installment to be due and payable on or before March Thirty-one (31);
(2) the second installment, on or before June Thirty (30);
(3) the third installment, on or before September Thirty (30); and
(4) the last installment on or before December Thirty-one (31).
However, the payment of the special levy (special assessment) 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. Only after said delinquencies are settled may tax payments be credited for the current period.
Periods Within Which To Collect Real Property Taxes
The basic real property tax and any other tax levied under Title II of Book II of the LGC 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 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.
Note: For purposes of the ordinary prescriptive period of 5 years, the real property tax accrues on the 1st day
of January. The special levy accrues on the 1st day of the quarter following the effectivity of the ordinance
imposing the levy.

Suspension of the Running of the Prescriptive Period

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.

Encircle the Correct answer.
1. Is the power to tax inherent in local government units?
a. No. The power is only exercisable by the national government.
b. No The power is merely delegated by the mandate of the Constitution
c. Yes. Local government units are able to exercise the power of local
d. Yes. Local government units have unbridled discretion in setting taxation rates and objects of local taxation.
2. The power to impose tax by the local government can only be exercised through:
a. A valid ordinance as enacted by the Sanggunian.
b. A valid proclamation as issued by the local chief executive (mayors, barangay captains, etc.).
c. A valid publication as done by the local secretary in three consecutive weeks.
d. A valid circular as issued by the local treasurer
3. The following are the limitations to the practice of local taxation:
I. Inherent limitation
II. Constitutional limitations
III. Statutory or congressional limitations
a. I and II only.
b. I and III only.
c. II and III only.
d. I, II, and III.
4. With respect to local taxes, which agency or office primarily issues advisory tax rulings?
a. Bangko Sentral ng Pilipinas
b. Office of the Local Treasurer
c. Bureau of Local Government Finance
d. Bureau of Internal Revenue
5. The opinions of the Bureau of Local Government Finance are:
a. Conclusive
b. Mandatory
c. Directory
d. Final
6. Statement 1: As a general rule, local government units cannot impose income taxes.
Statement 2: As a general rule, local government units cannot impose estate taxes
7. Local government units can levy income taxes on:
a. Businesses engaged in general retail and merchandise.
b. Insurance and pre-need companies
c. Non-resident foreign corporations

d. Banks and other financial institutions

8. A franchise tax may be imposed by
a. Provinces and cities
b. Provinces and municipalities
c. Cities and municipalities
d. Provinces, cities, and municipalities
9. An amusement tax may be imposed by
a. Provinces and cities
b. Provinces and municipalities
c. Cities and municipalities
d. Provinces, cities, and municipalities
10. A sale of real property in the Philippines held as capital asset, if the transaction resulted in a loss, is subject
to:
a. Capital gains tax and documentary stamp tax only.
b. Capital gains tax and local transfer tax only.
c. Documentary stamp tax and local transfer tax only.
d. Capital gains tax, documentary stamp tax, and local transfer tax.
11. Which of the following transactions is subject to local transfer tax on real property ownership?
I. Sale of real property
II. Donation of real property Succession involving real property
a. I and II only.
b. I and III only.
c. II and III only.
d. I, II and III.
12. Who the following is not subject to the payment of professional tax?
a. Professionals not covered by the Professional Regulation Commission
b. Professionals exclusively employed in the government
c. Professionals practicing in less urbanized areas as determined by the National Economic Development
Authority
d. Professionals whose annual gross receipts do not exceed P3,000,000
13. Movie theater operators are subject to:
a. Amusement tax under the National Internal Revenue Code
b. Amusement tax under the Local Government Code
c. Amusement tax under the National Internal Revenue Code in addition to the amusement tax under the
Local Government Code
d. Amusement tax under the National Internal Revenue Code or the Local Government Code at the option
of the taxpayer
14. Which of the following most accurately describes local business tax?
a. It is a tax on the current year based on the gross sales or receipts of the current year.
b. It is a tax on the preceding year based on the gross sales or receipt of the preceding year.
c. It is a tax on the preceding year based on the gross sales or receipts of the current year.
d. It is a tax on the current year based on the gross sales or receipts of the preceding year.
15. Statement 1: In computing the local business tax, the value-added tax component is included as part of
gross receipts. Statement 2: In computing the local business tax, the excise tax component, if any, is
included as part of gross receipts.

c. Both statements are true

16. When does the local business tax accrue?
a. Evenly throughout the year
b. January 1
c. March 1
d. April 15
17. When is the annual deadline for the payment of local business taxes?
a. January 1
b. January 20
c. March 15
d. April 15
18. The interest rate for unpaid taxes is:
a. Double the legal interest rate.
b. The legal interest rate.
c. Six percent per annum.
d. Two percent per month.
19. The prescriptive period for local taxes, in case there is no finding of fraud,
a. Two (2) years
b. Three (3) years
c. Five (5) years
d. Seven (7) years
20. Statement 1: For purposes of real property tax, permanently attached machinery which are actually, directly,
and exclusively used to meet the needs of the particular industry, business or activity are considered as real
property.
Statement 2 For purposes of real property tax, temporarily attached machinery which are actually, directly,
and exclusively used to meet the needs of the particular industry, business or activity are considered as real
property.
b. Only Statement 2 is true
21. It is the act or process of determining the value of property as of a specified date for a specific purpose:
a. Valuation
b. Appraisal
c. Measurement
d. Assessment
22. A declaration of real property shall be made by owners or administrators of real property:
a. Annually
b. Once every two years
c. Once every three years
d. Once every five years
23. All of the following are classifications of real property for real property tax purposes, except:
a. Residential
b. Commercial
c. Agricultural
d. Manufacturing
24. Which of the following buildings have the lowest assessment level?

a. Hospitals
b. Factories
c. Houses
d. Offices
25. The maximum rate of real property tax that may be imposed by cities is:
a. 3%
b. 2%
c. 1%
d. 0.5%
26. For purposes of the Tax on Idle Lands, to be considered as an idle land, an agricultural land must be
I. More than one (1) hectare in area
II. More than 1,000 square meters in area
III. ½ of which remain uncultivated or unimproved
IV. ¾ of which remain uncultivated or unimproved
a. I and III.
b. I and IV.
c. II and III.
d. II and IV.
27. The rate for the tax on Special Education Fund is:
a. 3%
b. 2%
c. 1%
d. 0.5%
28. In contesting assessments, which of the following assessments require payment prior to filing a protest?
a. Assessment of national internal revenue taxes
b. Assessment of real property taxes
c. Assessment of local business taxes
d. Assessment of any kind of tax under the Local Government Code
29. If the protest on real property tax is denied by the Local Treasurer, an appeal must be made to:
a. Court of Tax Appeals Division
b. Local Board of Assessment Appeals
c. Secretary of Finance
d. Commissioner of Internal Revenue
30. Which of the following local government units may levy real property taxes?
a. Province only
b. Province and City only
c. Province, City and Municipality of Pateros
d. Province, City and all Municipalities
31. Which of the following local government comprehensive power of taxation?
a. Province
b. City
c. Municipality
d. Barangay
32. Who among the following is liable to pay community tax certificate?
a. Minimum wage income earner
b. Diplomat
c. Ambassador
d. Transient visitors when their stay in the Philippines does not exceed three (3) months

33. Who among the following is exempted from payment of professional tax?
a. Public Prosecutor exclusively employed by DOJ
b. CPA teaching in a private university
c. Doctor of Medicine practicing in a clinic
d. Engineer operating a construction firm
34. Which of the following is subject to local amusement tax?
a. Holding of operas
b. Holding of pop or rock concerts
c. Holding of literary and oratorical presentations
d. Holding of painting and art exhibitions
35. What is the maximum annual fixed tax for every delivery track or van of manufacturers or producers or
retailers of certain products under LGC of 1991?
a. P300 per delivery truck or van
b. P500 per delivery truck or van
c. P100 per delivery truck or van
d. P200 per delivery truck or van
36. Which of the following taxes may be imposed by a municipality?
a. Tax on transfer of real property ownership
b. Business tax
c. Franchise tax
d. Tax on business of printing and publication
37. In which type of tax is payment under protest jurisdictional for formal protest questioning the validity or
mandatory and reasonableness of assessment to prosper?
a. Local tax
b. Real property tax
c. Custom duties
d. National Internal Revenue Tax
38. Which of the following real property is subject to real property tax?
a. Real property owned by the Republic of the Philippines or any of its political subdivisions when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person;
b. All machineries and equipment that are actually, directly and exclusively used by local water districts and
government owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
c. All real property owned by duly registered cooperatives to Cooperative Development Authority under
Cooperative Code
d. Machinery and equipment used for pollution control and environmental protection.
39. Which of the following real property is subject to additional ad valorem tax idle lands?
a. Lands actually used for grazing
b. Agricultural lands planted to permanent or perennial crops with at least fifty (50) trees to a hectare
c. Lands, other than agricultural, located in a city or municipality, more than one thousand (1,000) square
meters in area one-half (1/2) of which remain unutilized or unimproved by the owner of the property or
person having legal interest therein
d. Agricultural lands, more than one (1) hectare in area, unsuitable for cultivation, dairying, inland fishery,
and other agricultural uses, one half (1/2) of which remain uncultivated or unimproved by the owner of
the property or person having legal interest therein
40. What is the maximum back real property taxes that may still be recovered by LGUs?
a. 2 years
b. 3 years

c. 5 years
d. 10 years
41. Who among the following is subject to payment of community tax?
a. Consul
b. Ambassador
c. Transient visitors whose stay in the country exceeds 3 months
42. What is the maximum professional tax?
a. P300 per year per profession
b. P400 per year per profession
c. P500 per year per profession
d. P200 per year per profession
43. It refers to the power local government units to create their own sources of revenue in addition to their
equitable share in the national taxes released by the national government, as well as the power to allocate
their resources in accordance with their own priorities
a. Local autonomy
b. Fiscal autonomy
c. Judicial independence
d. Economic efficiency
44. Which of the following is not a fundamental principle of taxation power of local government units?
a. Taxation shall be uniform in each local government unit.
b. The collection of local taxes, fees, charges and other impositions may be granted to a private person.
c. The revenue collected pursuant to the provisions of Local Government 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.
d. Each local government unit shall, as far as practicable, evolve a progressive system of taxation.
45. When may the local government units adjust the local tax rates provided in the Local Government Code?
a. Not oftener than once every 2 years
b. Not oftener than once every 3 years
c. Not oftener than once every 4 years
d. Not oftener than once every 5 years
46. Which of the following is not a limitation of residual taxing power of local government units?
a. The tax must not be covered by provisions of the National Internal Revenue Code, as amended, or
other applicable laws.
b. The taxes, fees, or charges shall not be unjust, excessive, oppressive. confiscatory or contrary to
declared national policy.
c. That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public
hearing conducted for the purpose.
d. The taxes shall be approved first by the Department of Finance.
47. Who among the following is not exempted from payment of toll fees or charges on the use of public road
constructed and funded by local government units?
a. Enlisted personnel of Armed Forces of the Philippines
b. Members of Philippine National Police on a mission
c. Personnel of common carrier delivering packages
d. Physically handicapped, and disabled citizens who are sixty-five (65) years or older
48. In what type of local tax is nonpayment immune from imprisonment?
a. Real property tax
b. Community tax

c. Business tax
d. Professional tax
49. Which of the following taxes may be imposed by a province?
a. Value added tax
b. Income tax
c. Documentary stamp tax
d. Tax on sand, gravel and other quarry resources
50. Which of the following charges may be imposed by a barangay?
a. Community tax
b. Fees for cockpits
c. Excise tax
d. Real property tax
C. LESSON WRAP-UP

____________________________________________________________________________________
___________________________________________________
________________________________________________________________________________
_________________________________________________________
Key to Corrections
1-10: BADCC CDAAD
11-20: DBBDD BBDCC
21-30: BCDAB CCBBC
31-40: BAABB BBACD
41-50: CABBD DCBDB

Lesson title: (1) Bases Conversion and Development Act Materials:

(BCDA) for purposes of determining tax liabilities and tax Pen, paper, calculator
incentives and (2) Special Economic Zone Act for purposes of
determining tax liabilities and tax incentives References:
Learning Targets: Tax Reviewer by Enrico Tabag
At the end of the module, students will be able to: Taxation Reviewer by Manuel, Soriano
Recall and apply learnings in PEZA and Bases Conversion and and Laco
Development Act REO Reviewer
“Enjoy the little things, for one day you may look back and realize they were the big things.”
B.MAIN LESSON
Bases Conversion and Development Act of 1992 (RA 7227), as amended
What is the objective of the Bases Conversion and Development Act of 1992?
RA 7227, otherwise known as the Bases Conversion and Development Act of 1992, was enacted into law on 13
March 1992. The objective of the Act is to accelerate the sound and balanced conversion and development of
the former United States military bases into special economic zones in order to promote the economic and social
development of Central Luzon in particular, and the country in general.
What are the agencies created to take charge in converting the former US Bases and administering incentives
to locators?
RA 7227 created two administrative bodies for the purpose of adopting, preparing, and implementing a
comprehensive development program for the conversion of the Clark and Subic military reservations and their
surrounding communities into special economic zones: (1) the Bases Conversion and Development Authority
(BCDA) and (2) the Subic Bay Metropolitan Authority (SBMA).
a. The BCDA is mandated to oversee and implement the conversion and development of Clark, John Hay
Air Station, Wallace Air Station, O’Donnell Transmitter Station, Mt. Sta. Rita Station, and those portions of Metro
Manila Military Camps which may be transferred to it through Presidential Proclamations.
b. The SBMA is mandated to oversee the implementation of the development programs of the Subic Bay
Naval Station, its environs and surrounding communities.
The Clark Development Corporation (CDC) is the operating and implementing arm of the BCDA to manage the
Clark Special Economic Zone and the Clark Freeport Zone (CFZ).
What are the applicable incentives to registered special economic zone enterprises under RA 7227?
The fiscal and non-fiscal incentives granted under either BCDA, SBMA, or CDC
are basically the same, as follows:
Fiscal Incentives
a. A final tax of five percent (5%) on gross income earned shall be paid in lieu

of all local and national taxes.

(Gross income refers to gross sales or gross revenues derived from the business activity within the zone, net of
sales discounts and sales returns and allowances and less cost of sales, cost of production or direct cost of
services.)
b. Tax and duty-free importation of raw materials and capital equipment
Non-fiscal Incentives
a. Permanent residency status for investors, their spouses and dependent children under twenty one (21)
years of age, provided they have continuing investments of not less than US$250,000.
b. Employment of foreign nationals.
What are the latest provisions amending RA 7227?

On 23 October 2003, the Philippine Supreme Court ruled on the exclusivity of the benefits granted under RA
7227 to the Subic Special Economic Zone which put the incentives granted to CSEZ companies as well as other
ecozone locators outside Subic in question. However, these gaps in the tax incentives were addressed by the
following laws that were enacted on 20 March 2007:
a. RA 9399 granted one-time tax amnesty to locators in CSEZ and other special economic zones such as
Poro Point Special Economic Zone and Freeport Zone, John Hay Special Economic Zone, and Morong
Special Economic Zone by making these locators pay an amnesty tax of PHP25,000; and
b. RA 9400 granted tax and duty incentives to the registered enterprises within the special ecozones of
John Hay, Poro Point, Morong, and Clark, similar to those enjoyed by the Subic Bay Freeport. It also declared
the 4,400 hectares under the CDC as a Freeport Zone.
The Special Economic Zone Act of 1995 (RA 7916), as amended
What is the Special Economic Zone Act of 1995 or RA 7916, as amended?

RA 7916 was enacted on 24 February 1995 to encourage and promote the establishment and development of
economic zones or “ecozones” in identified and selected areas in the country as a means to achieve sound and
balanced industrial, economic, and social development.
It also created the Philippine Economic Zone Authority (PEZA) as the agency mandated to enforce the provisions
and objectives of the law.
What are the types of enterprises/activities that will be eligible for incentives under RA 7916?
Under the current PEZA policies, the following may be eligible for incentives:
• Export manufacturing
• IT Service export
• Tourism
• Medical tourism
• Agro-industrial export manufacturing
• Agro-industrial bio-fuel manufacturing
• Logistics and warehousing services1
• Ecozone development/operation
– Manufacturing economic zone development/operation
– IT park development/operation2
– Tourism economic zone development/operation
– Medical tourism economic zone development/operation
– Agro-industrial economic zone development/operation3
– Retirement economic zone development/operation3
• Facilities providers
– Facilities for manufacturing enterprises
– Facilities for IT enterprises2

– Retirement facilities3
• Utilities
What are the incentives available to PEZA-registered enterprises?

PEZA-registered enterprises located within the ecozones administered by PEZA
may avail of the following incentives and benefits:
• All incentives under EO 226 which include ITH;
• Preferential final tax of five percent (5%) of gross income in lieu of all national and local taxes, after the
ITH period; (Alternatively, this incentive may be waived by the registered enterprise subject to certain conditions.)
• Tax and duty-free importation of capital equipment, spare parts, raw materials, and supplies which are
needed in the registered activity; and
• Tax credits for exporters using local materials as inputs under RA 7844 or the Export Development Act
of 1994.
An amount equivalent to one-half (1/2) of the value of training expenses incurred in developing skilled or unskilled
labor or for managerial or other management development programs incurred by a PEZA firm can be deducted
from the national government’s share of 3% (out of 5%) final tax.

Encircle the Correct Answer.
1. Statement 1: BOI-registered enterprises have the right to remit earnings from the investment in the
currency in which the investment was originally made.
Statement 2: There shall be no expropriation by the government of the property represented by
investments or of the property of the enterprise except for public use or in the interest of national welfare
or defense and upon payment of just compensation.
2. The tax incentives of BOI-registered enterprises are governed primarily by:
a. Omnibus Investments Code
b. Tax Code, as amended by CREATE Act
c. Special Economic Zone Act
d. Ease of Doing Business Act
3. The Philippine Economic Zone Authority is an agency under:
a. Department of Trade and Industry
b. Department of Finance
c. Department of Tourism
d. Department of Taxation
4. How many are the members of the Board of the Philippine Economic Zone Authority?
a. Five
b. Seven
c. Thirteen
d. Fifteen
5. In order to avail of the incentives afforded to PEZA-registered entities, an applicant must be:
a. 100% owned by Filipinos
b. At least 75% owned by Filipinos
c. At least 60% owned by Filipinos
d. None of the above. There is no ownership requirement for PEZA registered entities.
6. It is the final agreement executed by the PEZA and the ECOZONE Enterprise setting forth the terms and
conditions for the latter's operation of business or engaged of economic activity within the ECOZONE
a. Certificate of Registration

b. Registration Agreement
c. Project Feasibility Study
d. PEZA Prospectus
7. Which of the following are eligible activities under PEZA?
I. Export manufacturing
II. Medical tourism
III. Logistics and warehousing services
a. I and II only.
b. I and III only.
c. II and III only.
d. I, II, and III.
8. In order to qualify as a barangay micro-business enterprise, the total assets of the enterprise:
a. Must not exceed P1,500,000
b. Must not exceed P2,000,000
c. Must not exceed P2,500,000
d. Must not exceed P3,000,000
9. In the computation of the assets of an enterprise for purposes of determining whether such qualifies as a
barangay micro-business enterprise, which of the following is excluded?
a. Those arising from loans
b. Land where the particular business entity's office, plant and equipment are situated
c. Those purchased with foreign currency
d. Business entity's office, plant and equipesert directly and exclusively used in the enterprise's
registered activity.
10. Statement 1: A doctor's clinic may qualify as a barangay micro-business

Statement 2: A subsidiary of a large-scale enterprise may qualify as a enterprise micro-business
enterprise.
11. The application for registration to become a barangay micro-business enterprise is submitted to:
a. Barangay Councilor
b. Barangay Treasurer
c. City or Municipal Treasurer
d. Sangguniang Panlungsod or Bayan
12. All of the following are grounds for cancellation of registration of a barangay micro-business enterprise,
except:
a. The BMBE transfers its place of business to another locality
b. Acquisition of a land with a fair market value exceeding P3,000,000
c. The BMBE voluntarily surrenders its Certificate of Authority
d. Submission of fake or false or falsified documents
13. A barangay micro-business enterprise is
I. Exempt from income tax on its income derived from operations.
II. Exempt from percentage tax on gross receipts derived from operations.
b. I only.
c. II only.
d. Both I and II.
e. Neither I nor II.
14. A barangay micro-business enterprise is:
I. Exempt from the payment of the annual registration fee to the BIR.

II. Exempt from the obligation to remit taxes withheld on compensation of their employees
b. I only.
c. II only.
d. Both I and II.
e. Neither I nor II.
15. Which of the following is true regarding barangay micro-business enterprise?
a. A BMBE shall always be a non-VAT registered taxpayer.
b. A BMBE is exempt from the payment of excise tax.
c. A BMBE is exempt from the payment of documentary stamp tax.
d. A BMBE is exempt from the coverage of the minimum wage law.
16. Which of the following is prohibited?
a. Direct double taxation
b. Indirect double taxation
c. Double taxation in the broad sense
d. International double taxation
17. Domestic double taxation arises when:
a. The same taxes are imposed by the local and national government
b. The same taxes are imposed by the two States
c. The same taxes are imposed by a single ordinance
d. The same taxes are imposed over the same subject
18. It is an agreement under international law entered into by actors in international law, namely sovereign
states and international organizations.
a. Pact
b. Truce
c. Treaty
d. Executive agreement
19. The Most Favored National Clause
a. Allows the taxpayer of different states to avail of the best possible tax avoidance schemes
available in all treaties
b. Allows the application of reduced tax rates on the basis of international reciprocity
c. Allows the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to
which the country of residence of such taxpayer is also a party
d. Allows the Philippines to negotiate the most favorable tax rates available in various tax legislations
in foreign countries
20. Failure to file a Tax Treaty Relief Application:
a. Invalidates once claim of tax treaty benefits.
b. Is a criminal tax offense punishable under the National Internal Revenue Code.
c. May still allow a taxpayer to avail of the benefits of a tax treaty.
d. Is not subject to any fine or penalty.
For items 21-24, refer to the following information:

Tayrina Batumbakal is a resident of Brgy. Bactad East, Urdaneta City, Pangasinan. Tayrina is engaged in general
merchandise and is operating a sari-sari store with an annual income of P200,000. Tayrina owns a parcel of
land, where her residence and her sari-sari store stands. The parcel of land has a fair market value of
P2,500,000. Tayrina also owns shares in Minamina Corporation, a domestic corporation with principal office in
the same barangay. Details regarding Minamina Corporation are as follows:
Assets P 2,500,000
Gross receipts 1,500,000
Net income 350,000
21. How much is Tayrina's community tax?
a. 200

b. 205
c. 2,000
d. 2,005
22. Tayrina should pay the community tax on or before.
a. January 20
b. February 28
c. March 15
d. April 15
23. How much is Minamina Corporation's community tax?
a. 1,600
b. 1,640
c. 2,100
d. 2,240
24. Minamina Corporation's community tax should be paid with which local government unit?
a. Barangay Bactad East
b. Urdaneta City
c. Province of Pangasinan
d. Barangay Bactad East, Urdaneta City, or Province of Pangasinan, at the option of Minamina
Corporation
C. LESSON WRAP-UP

____________________________________________________________________________________
___________________________________________________
________________________________________________________________________________
_________________________________________________________
Key to Corrections
1-10: CBACD BDDBC
11-20: CBADD AACCC
21-24: BBCB

Lesson title: Materials:

• Omnibus Investments Code for purposes of Pen, paper, calculator
determining tax liabilities and tax incentives
• Basic principles of the tax treaty and specific References:
provisions of Double Taxation Agreement (DTA) Tax Reviewer by Enrico Tabag
models in determining the tax implications of various Taxation Reviewer by Manuel, Soriano
income items of non-residents and Laco
• Tax implications of transactions applying the tax rules REO Reviewer
and regulations, and sound tax planning strategies
within legal and ethical bounds to efficiently manage
tax liabilities.
Learning Targets:
1. To recall and apply learnings in Omnibus Investments
Code, Basic Principles of the Tax Treaty.
“When you have a dream, you’ve got to grab it and never let go.”
B.MAIN LESSON
Omnibus Investments Code of 1987 (EO 226), as amended
What is the Omnibus Investments Code of 1987 or EO 226? When did it become effective?
The Omnibus Investments Code of 1987, as amended, integrates the basic laws on investments, clarifying and
harmonizing their provisions to encourage and guide domestic and foreign investors. It was passed through EO
226, which took effect on 13 August 1987.
Who can qualify for incentives under EO 226? What is the IPP?
Qualified proponents who will invest in priority areas of activity listed in the Investment Priorities Plan (IPP) can
qualify for incentives. The IPP, which is issued on a yearly basis, identifies the investment areas eligible for
incentives under the Code. For 2012, these priority areas include: preferred activities; mandatory list; export
activities; and Autonomous Region of Muslim Mindanao (ARMM) list.
What are the preferred areas of activities under the 2012 IPP?
The 2012 IPP listed the following preferred areas of investments:
a. Agriculture/Agribusiness and Fishery − covers commercial production and commercial processing of
agricultural, herbal and fishery products (including their by-products and wastes), and agriculture- and fishery-
related activities such as irrigation, post harvest, cold storage, blast freezing, and the production of fertilizers and
pesticides.
b. Creative Industries/ Knowledge-Based Services − covers business process outsourcing (BPO) activities,
and IT and IT-enabled services that involve original content.

c. Shipbuilding − covers the construction and repair of ships, and

shipbreaking or shiprecycling.
d. Mass Housing − covers the development of low-cost mass housing and the manufacture of modular
housing components preferably using indigenous materials.
e. Iron and Steel − covers basic iron and steel products, long steel products (billets and reinforcing steel
bars), and flat hot/cold-rolled products.
f. Energy − covers the exploration, development, and/or utilization of
energy adopting environmentally-friendly technologies.
g. Infrastructure − covers transport, water, logistics, waste management facilities, physical infrastructure
(tollways, railways, and telecommunication facilities), and Public Private Partnership (PPP) projects.
h. Research and Development − covers R&D activities and the establishment of research/testing
laboratories, Centers of Excellence (COE), and technical vocational education and training institutions.
i. Green projects − covers the manufacture/assembly of goods and the establishment of energy efficiency-
related facilities (such as district cooling systems), where utilization of which would significantly lead to either
the efficient use of energy, natural resources, or raw materials; minimize/
prevent pollution; or reduce greenhouse gas emissions.
j. Motor Vehicles − covers the manufacture/assembly of motor vehicles, including alternative fuel vehicles
(AFVs) and electric vehicles (EVs) but excluding 2-stroke motorcycles, and manufacture of motor vehicles parts
and components.
k. Strategic Projects − covers projects that exhibit very high social economic returns that will significantly
contribute to the country’s economic development.
l. Hospital Medical Services − covers the establishment and operation of
primary secondary hospitals.
m. Disaster Prevention, Mitigation and Recovery Projects − covers projects that will prevent or mitigate
adverse impacts of calamities and disasters (e.g., installation of flood control systems, installation of early
warning systems for typhoons, earthquake occurrences, tsunami, volcanic eruptions, dikes, etc.), and rehabilitate
areas affected by calamities and disasters (e.g., rebuilding of roads and bridges after earthquakes/ flooding,
volcanic eruptions, oil spill clean-up, etc.).
This preferred activity likewise covers training for disaster preparedness, mitigation or
recovery/rehabilitation/reconstruction.
What are the mandatory inclusions?

These are areas/activities provided for under existing laws which specifically require their inclusion in the IPP,
such as: tree plantation; exploration, mining, quarrying, and processing of minerals; printing and publications;
and solid waste management, among others.
What are considered export activities under the 2012 IPP?

Export activities cover the production/manufacture of non-traditional export products and services and activities
in support of exporters as identified under the Medium-Term Philippine Development Plan for 2011-2016 and/or
the Philippine Export Development Plan for 2011-2013.
To qualify, the export requirement is 50% of the registered company’s output if Filipino-owned, or at least 70% if
foreign-owned.
What are the covered activities under ARMM List for 2012?
The ARMM List includes: export activities; agriculture; agribusiness/ aquaculture & fishery; basic industries (e.g.,
pharmaceuticals, textile and textile products, mining, cement, etc.); consumer manufactures; infrastructures and
services; industrial service facilities; engineering industries; logistics; BIMP - EAGA trade and investment
enterprises; tourism; health and education services and facilities; and Halal industry.

What is the equity ownership requirement?

Except as provided under the 1987 Philippine Constitution and the Foreign Investment Act (RA 7042, as
amended), there are no restrictions on the extent of foreign ownership of export oriented and/or pioneer
enterprise that will engage in the activities listed in the IPP.
In general, the minimum equity requirement to finance the project applied for registration with the Board of
Investments (BOI) shall be equal to 25% of the project cost. Equity could be in the form of paid-up capital or
retained earnings that has been converted into paid-up capital of the applicant firm. Excluded from the equity
requirement are projects with good track record in implementation, projects of publicly-listed companies, and
projects not entitled to ITH.
For large projects with a gestation period of more than one (1) year, the 25% equity requirement shall be based
on the annual capital requirement of the project, provided that the total equity requirement of 25% is complied
with on the first year of ITH availment.
Which government agency is authorized to register companies for incentive purposes under EO 226?
The BOI is the government agency tasked to accept and evaluate applications for registration to avail of
incentives under EO 226.
What are the incentive privileges that may be enjoyed by BOI- registered enterprises?
Incentive privileges may be enjoyed only upon registration. Registered enterprises are entitled to the following
incentives:
Tax Exemptions
a. Income Tax Holiday (ITH)
1. BOI registered enterprises shall be exempt from the payment of income tax reckoned from the approved
target or actual date of commercial operations, whichever comes first, but in no case earlier than the date of
registration, as follows:
• Six (6) years for new projects granted pioneer status;
• Six (6) years for projects located in Less Developed Areas (LDAs), regardless of status (pioneer or non-
pioneer) or type of projects (new or expansion);
• Four (4) years for new projects granted non-pioneer status; and
• Three (3) years for expansion and modernization projects. (As a general rule, ITH shall be limited only to
incremental sales given a specified base year).
2. New registered pioneer and non-pioneer enterprises and those located in LDAs may avail of a bonus
year in any of the following cases:
• The indigenous raw materials used in the manufacture of the registered product is at least fifty percent
(50%) of the total cost of raw materials for the preceding years prior to the extension unless the BOI prescribes
a higher percentage; or
• The ratio of total imported and domestic capital equipment to the number of workers for the project does
not exceed US$25,000 to one (1) direct labor; or
• The net foreign exchange savings or earnings amount to at least
US$500,000 annually during the first three (3) years of operation.
In no case shall a registered firm avail of ITH for a period exceeding
eight (8) years.
b. Exemption from taxes and duties on imported spare parts

A registered enterprise with a bonded manufacturing warehouse shall be exempt from customs duties and
national internal revenue taxes on its importation of required supplies/spare parts for consigned equipment or
those imported with incentives. The availment period shall not exceed ten
(10) years from date of registration.
c. Exemption from wharfage dues and export tax, duty, impost, and fees

All enterprises registered under the IPP will be given a ten (10) year period from the date of registration to avail
of the exemption from wharfage dues and any export tax, impost, and fees on its non-traditional export products.
d. Tax and duty-free importation of breeding stocks and genetic materials
Agricultural production and processing projects will be exempt from the payment of all taxes and duties on their
importation of breeding stocks and genetic materials within ten (10) years from the date of registration or
commercial operations.
Tax Credits
a. Tax credit on the purchase of domestic breeding stocks and genetic materials
A tax credit equivalent to one hundred percent (100%) of the value of national internal revenue taxes and
customs duties that would have been waived (had these been imported) on the purchase of local breeding stocks
and genetic materials within ten (10) years from the date of registration or commercial operations.
b. Tax credit on raw materials and supplies
Tax credit equivalent to the national internal revenue taxes and duties paid on raw materials, supplies, and semi-
manufactured products used in the manufacture of export products and forming part thereof.
Additional Deductions from Taxable Income

a. Additional deduction for labor expense (ADLE)
For the first five (5) years from date of registration, a registered enterprise shall be allowed an additional
deduction from taxable income equivalent to fifty percent (50%) of the wages of additional skilled and unskilled
workers in the direct labor force. This incentive shall be granted only if the enterprise meets a prescribed capital
to labor ratio and shall not be availed of simultaneously with ITH.
This additional deduction shall be doubled or become one hundred percent (100%) if the activity is located in an
LDA. The privilege, however, is not
granted to mining and forestry-related projects as they would naturally be located in certain areas to be near
their source of raw materials.
ADLE cannot be simultaneously availed of with ITH.
b. Additional deduction for necessary and major infrastructure work
A registered enterprise locating in LDAs or in areas deficient in infrastructure, public utilities, and other facilities
may deduct from taxable income an amount equivalent to the expenses incurred in the development of necessary
and major infrastructure works.
Zero-rated Value-Added Tax (VAT)

The BOI endorses to the BIR two types of zero percent (0%) VAT applications:
a. For purchases of raw materials and supplies used in the manufacture and which form part of the
registered export product; and
b. For purchases of goods, services, or properties of firms exporting one hundred percent (100%) of their
product. (Motor vehicles are not covered, except specialized vehicles such as backhoe, forklift, etc.)
Non-fiscal Incentives
a. Employment of foreign nationals
A registered enterprise may be allowed to employ foreign nationals in supervisory, technical, or advisory
positions for five (5) years from the date of registration. The position of president, general manager, and treasurer
of foreign-owned registered enterprises or their equivalent shall not, however, be subject to the foregoing
limitations.
b. Simplification of customs procedures for the importation of equipment,
spare parts, raw materials, and supplies and exports of processed products.
c. Importation of consigned equipment for a period of ten (10) years from the date of registration, subject to
posting of a re-export bond.

d. The privilege to operate a bonded manufacturing/trading warehouse subject to Customs rules and
regulations.
What is the policy on industry dispersal?

The BOI uses the incentive package under EO 226 to influence industry and encourage enterprises to locate
outside the National Capital Region (NCR). In this connection, the BOI limits incentives to firms that locate in
congested urban centers. Further, the law provides maximum incentives to registered enterprises that will locate
in LDAs or in the thirty (30) poorest Philippine provinces.
Projects that otherwise may not be covered by ITH may become entitled if the projects will be located in LDAs.
What is the most recent government initiative to promote priority industries?

The government has applied its model project of “industry clustering” to
the listed activities in the IPP. Clustering is the geographic concentrations of interconnected business entities
and support institutions, and encompasses an array of linked industries and other entities important to
competition. These may include suppliers of inputs, support facilities and service providers, and providers of
specialized infrastructures.
Clustering is seen as an effective strategy in contributing to the attainment of regional goals such as poverty
alleviation and enhancing economic productivity, within the context of the regional development strategies.
DOUBLE TAXATION AGREEMENTS
Nature and Purpose of DTAs

a. Avoidance of double taxation
b. Prevention of fiscal evasion with respect to taxes on income
Manner of Giving Relief from Double Taxation

In order to eliminate double taxation, a tax treaty resorts to several methods.
First, it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard
to certain classes of income or capital. In some cases, an exclusive right to tax is conferred and one of the
contracting states; however, for other items of income or capital, both states are given the right to tax, although
the amount of tax that may be imposed by the state of source is unlimited.
The second method for the elimination of double taxation applies whenever the state of source is given a full or
limited right to tax together with the state of residence. In this case, the treaties make it incumbent upon the state
of residence to allow relief in order to avoid double taxation. There are two methods of relief the exemption
method and the credit method. In the exemption method, the income or capital which is taxable in the state of
source or situs is exempted in the state of residence, although in some instances it may be taken into account
in determining the rate of tax applicable to the taxpayer's remaining income or capital. On the other hand, in the
credit method, although the income or capital which is taxed in the state of source is still taxable in the state of
residence, the tax paid in the former is credited against the tax levied in the latter. The basic difference between
the two methods is that in the exemption method, the focus is on the income or capital itself, whereas the credit
method focuses upon the tax.
Procedure for Availment of Tax Treaty Benefits

The taxpayer must secure a ruling from the Bureau of Internal Revenue (BIR) through the International Tax
Affairs Division (ITAD) that he may avail himself of preferential rates under existing tax treaties.
Under RMO 1-2000, taxpayers who wish to avail themselves of tax- treaty relief should accomplish BIR Form
0901-Application for Relief from Double Taxation-and file the same together with the supporting documents to

the ITAD at least 15 days before the transaction, I.e., payment of royalties, dividends, etc. RMO 1-2000, however,
does not specify the types of documents needed to support an application for tax-treaty relief.
Tax Treaty Relief Application

Notes: Thus, BIR Form No. 0901 [Application for Relief from Double Taxation] prescribed under RMO 1-2000
and BIR Form No. 1928 [Gains from Sale or Transfer of Shares of Stock in Philippine Corporation] prescribed
under RMO 30-2002 are hereby superseded.
The following Tax Treaty Relief Applications (TTRAs) forms shall henceforth be adopted to implement this RMO:
Form No. Purpose

BIR Form No. 0901-P For Business Profits
BIR Form No. 0901-T For Profits from Shipping and Air Transport
BIR Form No. 0901-D For Dividend Income
BIR Form No. 0901-I For Interest Income
BIR Form No. 0901-R For Royalty Income
BIR Form No. 0901-C For Capital Gains
BIR Form No. 0901-S For Income from Services
BIR Form No. 0901-0 For Other Income Earnings
In Case of Conflict between Tax Treaty and Domestic Laws

a. As a general rule, the provisions of the Philippine Tax Code (domestic law) shall apply on the income,
gain or profit of any person liable to income tax.
b. In case of conflict between the provisions of a tax treaty and domestic law the provisions of the tax treaty
generally prevail over the provisions of the domestic law.
c. Where the rate of tax imposed under the domestic law is lower than the rate imposed under the tax treaty,
the lower tax rate under the domestic law prevail.
SUMMARY OF RULES
In the Philippines: Filipino Citizens Aliens
Foreign embassy, missions or
organizations Taxable*
*Taxpayer must prove if there is an exemption grant under Exempt
contract or special law.
Philippine embassy or consulate
office N/A N/A
Abroad: Filipino Citizens Aliens

Foreign embassy, missions or
Exempt Exempt
organizations
Philippine embassy or consulate
Taxable Exempt
office
Documentary Requirements for the Tax Treaty Relief Application
(RM0 72-2010): SEC. 3 The 1. Proof of Residency Original copy of a consularized certification
following documents are the issued by the tax authority of the country of the
general documentary income earner to the effect that such income
requirements which shall be earner is a resident of such country for

attached to all duly purposes of the tax treaty being invoked in the
accomplished TTRAs (3 tax year concerned.
copies) which must be signed 2. Articles of Photocopy of the Articles of Incorporation
by the applicant who may Incorporation (For income (A0I) (or equivalent Fact of
either be the income earner or earner other than an Establishment/Creation/Organization) of the
the duly authorized individual) income earner with the original copy of a
representative of the income consularized certification from the issuing
earner, pursuant to existing agency, office or authority that the copy of
Philippine tax treaties: Articles of Incorporation (A0I) (or equivalent
Fact of Establishment/Creation/Organization)
is a faithful reproduction or photocopy.
3. Special Power of a. If applicant/filer is the withholding
Attorney agent of the income earner or the local
representative in the Philippines of the income
earner –
• Original copy of a
consularized Special Power
of Attorney (SPA) or a
consularized written
authorization duly executed by
the income earner authorizing
its withholding agent or local
representative in the
Philippines to file tax treaty
relief application.
b. If applicant/filer is the local
representative of the withholding
agent of the income earner
consularized Special Power
of Attorney (SPA) or a
consularized written
authorization duly executed by
the income earner authorizing
its withholding agent or local
representative in the
Philippines to file tax treaty
relief application; and
• Original copy of Letter of
Authorization from the
withholding agent authorizing
the local representative to file
the tax treaty relief application.
4. Certification of a. For Corporation or Partnership

Business Presence in the • Original copy of a
Philippines certification from the
Philippine Securities and
Exchange Commission that
the income earner is or is not

registered to engage in
business in the Philippines.
b. For an Individual
certification from the
Department of Trade and
Industry that the income
earner is or is not registered to
engage in business in the
Philippines.
5. Certificate of No Original copy of a sworn statement

Pending Case providing information on whether the
issue(s) or transaction involving directly or
indirectly the same taxpayer(s) which is/are the
subject of the request for ruling is/are under
investigation; covered by an on-going audit,
administrative protest, claim for refund or
issuance of tax credit certificate, collection
proceedings, or subject of a judicial appeal.
The following documents shall be submitted in addition to documents required
under Section 3 hereof together with three (3) copies of duly accomplished
BIR Form No. 0901-P when the "Business Profits" Article in relation to the
"Permanent Establishment" Article of the appropriate tax treaty is being
invoked, viz:
1. Original or certified copy of notarized contract.
2. Certified copy of passport (whole booklet) of the concerned
employee(s) of the income earner. If there are more than two
Business Profits employees concerned, the certified copy of their respective passports
must be accompanied by a notarized summary of the contents of the
passports, specifying the dates of arrival in and departure from the
Philippines, whenever applicable.
3. Notarized certification by the Philippine contractor as to the duration
of the service to be performed in the Philippines by the concerned
employee(s) of the income earner for the entire duration of the subject
contract.
The following documents shall be submitted in addition to the documents

required under Section 3 hereof together with three (3) copies of duly
accomplished BIR Form No. 0901-T when the "Shipping" Article, or its
equivalent Article, of the appropriate tax treaty is being invoked, viz:
Shipping 1. Certified copy of proof of Registry of Vessel.
2. Certified copy of notarized charter party or engagement contract.
3. Certified copy of the License to Transact Business in the Philippines,
as applicable.

Air Transport accomplished BIR Form No. 0901-T when the "Air Transport" Article, or its
equivalent Article, of the appropriate tax treaty is being invoked, viz:
1. Certified copy of proof of Registry of Airplane.

2. Certified copy of the License to Transact Business in the Philippines,

as applicable.

accomplished BIR Form No. 0901-D when the "Dividends" Article of the
appropriate tax treaty is being invoked, viz:
1. Certification from Corporate Secretary Original copy of a duly
notarized certificate executed by the Corporate Secretary of the
domestic corporation showing all the following information:
a. Details of dividend declaration (with attached related Board
Resolution);
b. Number, value and type of shares of the nonresident income earner
Dividend income as of the date of record/transaction, and as of the date of payment of the
subject dividends;
c. Percentage of ownership of the nonresident income earner as of the
date of record/transaction, and as of the date of the payment of subject
dividends;
d. Acquisition date(s) of the subject shares; and
e. Mode of acquisition of the subject shares.
2. Board of Investments (BOI) Registration, if applicable Certified copy
of Board of Investments registration of the payor of the dividends, including a
Sworn Statement that such registration has not been cancelled at the time of
the transaction.

accomplished BIR Form No. 0901-I when the "Interest" Article of the
1. If Interest Earnings a. Certification from the Corporate
are from Secretary Original copy of a duly notarized
Loans/Borrowings: certificate executed by the Corporate
Secretary of the corporate-borrower
showing all the following information:
1. Number, value and type of shares of
the nonresident income earner as of
the date of record/transaction;
2. Percentage of ownership of the
nonresident income earner as of the
date of record/transaction.
b. Loan Agreement
Original or certified copy of the
notarized contract of loan or loan
agreement. For Bangko Sentral ng
Pilipinas (BSP)-registered loans, the
contract need not be notarized, but a
certified copy of the BSP registration
must be submitted with the loan
document.
c. Proof of Inward Remittances

Interest Income Certified copy of proof inward

remittances of the proceeds of the
foreign loan.
d. Board of Investments (BOI)
Registration, if applicable
Certified copy of Board of Investments
registration of the payor of the interest,
including a Sworn Statement that such
registration has not been cancelled at
the time of the transaction.
e. Proof of Loan Guarantee
Certified copy of proof of loan
guarantee or insurance, or a
certification of financing (direct or
indirect) by the foreign government or
any financial institution wholly owned
by the foreign government or any
financial institution designated in the
treaty, if applicable.
f. Fact of Establishment (for the
guarantor/insurer), if applicable.
Certified copy of documents
establishing the foreign government
owned financial institution which
guaranteed or insured the subject loan
on instances when the name of the
financial institution is now different (i.e.
instances of change in name) from the
name indicated in the tax treaty being
invoked.
2. If Interest Earnings are Original copy of Bank Certification attesting to

from Investments or the nature/type and presence of
Deposits: investments/deposits on said bank including
the date the investments/accounts were
placed/opened.
accomplished BIR Form No. 0901-R when the "Royalties" Article of the
1. Original or certified copy of the duly notarized Royalty Agreement,
Technology Transfer Agreement, or Licensing Agreement.
2. When applicable,
Royalties
a. Certified copy of Board of Investments registration of the payor of the
royalties, including a Sworn Statement that such registration has not been
cancelled at the time of the transaction.
b. A certified copy of the registration of the payor of the income or
withholding agent with the Philippine Economic Zone Authority (PEZA) of the
payor of the royalties including a Sworn Statement that such registration has
not been cancelled at the time of the transaction.

c. Certified copy of Intellectual Property Office (IPO) registration.
Applications for relief from double taxation on gains from sale or transfer or
shares of stock in a Philippine Corporation as to the fees, are still covered by
Revenue Memorandum Order No. 30-2002 dated November 4, 2002. The
Capital gains following document shall be submitted in addition to the documents required
under Section 3 hereof together with three (3) copies of duly accomplished
BIR Form No. 0901-C when the "Capital Gains" Article of the appropriate tax
treaty is being invoked, viz:
Original or certified copy of the notarized Deed
of Absolute Sale or notarized Deed or Contract
a. Contract e.g. Deed of Assignment, which actually
transfers the ownership of the subject shares
of stock.
Certified copy of the Stock Certificate's or
b. Stock Certificates Subscription Contract covering the subject
shares of stock
Certified copy of the General Information
Sheet (GIS) filed with the SEC, showing the
c. General Information
name of the subscriber (when shares are not
Sheet
yet fully paid and as a consequence, stock
certificates have not been issued).
Original copy of the duly notarized certificate
executed by the Corporate Secretary of the
Philippine corporation whose shares of stock
were sold showing the following information:
a. number and value of the subject shares
of the seller as of the date of sale;
b. seller's percentage of ownership as of
d. Corporate Secretary the date of sale;
Certificate c. acquisition date(s) of the subject
shares;
d. mode of acquisition of the subject
shares, including dates of previous transfers
and parties involved in said transfers; and
e. buyer's percentage of ownership after
the transfer of the subject shares.
Original copy of the comparative schedule duly

certified by a responsible officer' of the
Philippine corporation, of the "real property or
real property interests" of the domestic
e. Comparative Schedule
corporation, reflecting the necessary
of Comparative Schedule
adjustment for the period from the last audited
of Property, Plant &
financial statement to the date of the interim
Equipment
unaudited financial statement submitted under
letter (f) of this Section, using the format and
observing the guidelines set forth in Part VII of
BIR Form No. 0901-C.
a. Certified copy of the audited financial
f. Financial Statement
statements of the Philippine corporation for the

year prior to the sale or transfer of the subject

shares of stock; and b. Original copy of the
audited financial statement of the Philippine
corporation as of the date of sale. In case the
audited financial statement as of the date of
the sale is not available, the most recent
unaudited or interim financial statement as of
the date of sale may be used. Necessary
adjustments made to reflect transactions made
during the period from the date of such
financial statement to the date of the sale must
be indicated in a Comparative Schedule of
Property, Plant and Equipment.'
g. Certified copy of BIR Form No. 0605 and the official receipt reflecting the
payment of the processing and certification fee with an authorized agent bank
under jurisdiction of Revenue District Office No. 39.
h. Certified copy of BIR Form No. 2000-OT and the official receipt reflecting
the payment of documentary stamp tax on the subject sale or transfer of the
shares stocks. If the documentary stamp tax shall be borne by the nonresident
seller and/or nonresident buyer, the tax shall be paid and the return shall be
filed with an authorized agent bank under the jurisdiction of Revenue District
Office No. 39. In case the buyer is a resident of the Philippines, the return
shall be filed and the tax shall be paid in accordance with Section 200(C) of
the National Internal Revenue Code of 1997, as implemented by the
prevailing Revenue Regulations.
For all other transactions not considered as a straight sale, as hereunder

defined, the applicant income earner, in addition to the abovementioned
documents, shall submit the contracts/agreements or any other document
evidencing the entire transaction, , e.g. transfers of shares of stock. A long
form ruling in lieu of the certification prescribed under RMO 30-2002 shall be
issued for applications involving the shares of stock that are not considered
as a straight sale.
accomplished BIR Form No. 0901-S when the "Independent Personal
Service" Article or the "Dependent Personal Service" Article, as the case may
be, or any of their equivalent Article, of the appropriate tax treaty is being
invoked, viz:
1. Original or certified copy of the notarized service contract.
Personal Services 2. 2. Certified copy of passport (whole booklet) of the concerned
employee(s) of the income earner. If there are more than two
employees concerned, the certified copy of their respective passports
must be accompanied by a notarized summary of the contents of the
passports, specifying the dates of arrival in and departure from the
Philippines, whenever applicable. 3. Original copy of notarized
certification by the Philippine contractor/employer as to the duration of
the service performed in the Philippines by the applicant.

The following document shall be submitted in addition to the documents

accomplished BIR Form No. 0901-0 when any Article of the appropriate tax
treaty, other than those above-mentioned is being invoked, viz:
1. A letter request signed by the income earner or the duly authorized
representative of the income earner is required providing information
on the subject transaction covered by the relevant tax treaty
provision(s), the requested tax treaty treatment for such transaction
Other Types of Income as well as the legal justification for the preferential tax treatment being
requested.
2. Original or certified copy of the subject contract, or other document(s)
(in its original or certified copies) pertaining to the transaction.
3. Notarized certification by the Philippine contractor as to the duration
of the service to be performed in the Philippines by the concerned
employee(s) of the income earner for the entire duration of the subject
contract.
• All tax treaty relief applications (updated BIR Forms No. 0901-D,
0901-1, 0901-R, 0901-P, 0901-S, 0901-T, 0901-0 and 0901-C)
relative to the implementation and interpretation of the provisions of
Philippine tax treaties shall only be submitted to and received by the
International Tax Affairs Division (ITAD).
• If the forms or any necessary documents are submitted to any other
When and Where to File the
TTRA BIR Office, the application shall be considered as improperly filed.
• Filing should always be made BEFORE the transaction. Transaction
for purposes of filing the TTRA shall mean before the occurrence of
the first taxable event.
• Failure to properly file the TTRA with ITAD within the period prescribed
herein shall have the effect of disqualifying the TTRA under this RMO.
• All rulings relative to the application, implementation and interpretation

of the provisions of Philippine tax treaties shall emanate from ITAD.
• ITAD is the sole office charged with the receiving of TTRA, so all filers
of TTRA are enjoined to submit their TTRA complete with all the
necessary documentary requirements as mentioned in Section 3 and
related Section of this RMO to The Chief, International Tax Affairs
Division.
• Within seven (7) working days from the actual receipt by ITAD of the
TTRA, ITAD shall notify the filer of lacking/missing/insufficient
documentary requirements with an instruction to submit within fifteen
Receiving and Processing
(15) working days from filer's receipt of the Notice of Submission of
of TTRA
Documents [format herein attached as Annex "B"] in accordance with
this RMO.
• If the taxpayer/applicant fails to submit the necessary documents on
the designated date mentioned in the Notice of Submission of
Documents, the TTRA shall be archived without prejudice to re-filing
of TTRA to be reckoned from the date of original TTRA filing covering
exactly the same transaction. A Notice of TTRA Archiving shall be
issued by ITAD to properly notify the taxpayer of such archiving of
TTRA. Taxpayers/applicants, re-filing an archived TTRA must submit
a copy of the original filing of TTRA together with the complete

documentary requirements as earlier required for the continuance of

its processing.
• Taxpayer/applicant shall not be allowed to withdraw any
TTRA/documents already filed with ITAD including those subjected for
archiving. In the event that the transaction is discontinued,
taxpayer/filer shall file a letter informing such fact to properly close the
TTRA but the filer/taxpayer shall not be allowed to withdraw as well,
all documents already filed with ITAD, the same shall remain with
ITAD for custodianship and safekeeping.
• Applications for confirmation of use of preferential tax treaty rates
under the treaty, shall be governed by the following rules:
Period Within Which To Issue The Ruling — The ruling must be

available for release after sixty (60) working days from the date of
receipt of the TTRA or from the date the complete documentary
requirements are received by ITAD, whichever comes later.
As for matters without issue on income characterization, the ruling

must be available for release after thirty (30) working days from the
date of receipt of the TTRA or from the date the complete
documentary requirements are received by ITAD, whichever comes
later. Of the said periods, the ITAD shall have forty (40) or twenty (20)
working days as the case may be to process and evaluate the said
application, while the Legal Service/Legal and Inspection Group shall
have twenty (20) or ten (10) working days, respectively.
Signatory Of The Ruling — The rulings issued under this Order shall
be signed by the Assistant Commissioner for the Legal Service and/or
the Deputy Commissioner for Legal and Inspection Group in
accordance with existing Revenue Delegation Authority Order
(RDAO). However, rulings of first impression or any ruling which will
cause the reversal, revocation or modification of any existing ruling
shall be signed by the Commissioner of Internal Revenue in
accordance with Section 7(B) of the Tax Code as amended.
Request For Review Of Rulings Adverse To The Taxpayer — Any

ruling issued which is adverse to the nonresident income earner may,
within thirty (30) days from the date of receipt of such ruling, seek its
review by the Secretary of Finance in accordance with Department
Order No. 23-01. No request for reconsideration of the said adverse
ruling shall be entertained by this Bureau.
• Requests for rulings not accompanied by complete documents as

herein prescribed and those which are based on hypothetical
transactions or future transactions are construed and identified as
"No Ruling" Area "No-Ruling Area"3.
• For this purpose, any request for ruling construed and identified as
such shall not be accepted by the ITAD. ITAD shall strictly implement
this rule.

• In the course of review of the tax treaty relief applications, the Bureau
thru ITAD reserves the right to request additional documents/revise or
Request for Additional update documentary requirements to properly process TTRA's
Documents keeping it abreast with changes/modernization of way transactions
are done by taxpayers through the issuance of an amendatory RMO
to be applied prospectively.
• The case and reviewing officers shall not disclose to any person,
including the tax treaty relief applicant or his/its representatives, the
draft BIR Ruling or recommendation for the action taken on the TTRA,
Confidentiality of the Draft unless and until the same has been signed by the proper
Rulings or signatory of this Bureau. [Section 3(d), Rules IV, Rules
Recommendations Implementing Republic Act No. 6713]. However, for transparency of
information, any applicant/filer can rightfully know the status of his/its
TTRA without disclosing the stand of the Bureau (i.e. whether the
same will be granted or denied) on the TTRA.
• The Chief, ITAD thru the ACIR, Legal Service shall prepare a monthly
report of signed and issued rulings, including a list of archived and
Reporting discontinued taxpayer transactions covered by a TTRA due every
10th day of the following month.
Individual Taxpayer
Employee benefits of non-filipino nationals and or non-permanent residents of the
Benefits Exempt Under Philippines from foreign government, embassies or diplomatic missions and
Treaty or International international organizations in the Philippines are exempt from income tax.
Agreements
Foreign embassies, diplomatic missions and international organizations are
immune from income tax including the obligation to withhold income tax by virtue
of international comity as embodied in several international agreements to which
the Philippine is a signatory.
However, this exemption from the obligation to withhold tax does not mean
income tax exemption to their Filipino employees. In fact, most of the international
agreements to which the Philippine is signatory limit exemption only to non-
Filipino nationals and/or non-residents of the Philippines.
Exemption from
withholding tax does Filipino employees of foreign governments, international missions and
not mean income tax organizations are taxable as a rule, except only to employees of the following
exemption organizations:
1. United Nations (UN)
2. Specialized Agencies of the United Nations
3. Australian Agency of International Development (AUSAID)
4. Food and Agriculture Organization (FAO)
5. World Health Organization (WHO)
6. United Nations Development Programme (UNDP)
7. International Organization for Migration (ION)
8. International Seabed Authority (ISA)

These organizations have exemption provision that extends even to their Filipino
employees. Other aid agencies or international organization may have tax free
provision in their articles of agreement on Filipino employees.
The exemption of Filipino employees is not automatic. Filipino claiming

exemptions under the terms of international agreements or under provisions of
special laws granting privileges to international organizations shall file an
Confirmation of Tax application for confirmation of tax exemption with the BIR's International Tax
Exemptions Affairs Divisions (ITAD). The confirmation shall serve as proof of exemption.
Without the confirmation certificate, the employee is taxable.
Employees of Philippine It should be recalled that employees working on Philippine embassies or

Embassies or Philippine consulate offices are not considered non-resident citizen and are
Consulate Offices therefore subject to Philippine income tax.
1. The Philippine Board of Investment is an agency under the

a. National Economic Development Authority
b. Department of Trade and Industry
c. Office of the President
d. Bureau of Domestic Trade
2. Which of the following is not a fiscal incentive to BOI-registered enterprises?

a. Exemption from VAT
b. Exemption from custom duty on importation of breeding stocks
c. Exemption from income tax
d. Tax credit on raw materials and supplies
3. Refers to the overall plan prepared by the Board of Investments

a. Comprehensive Land Use Plan
b. Investment Priorities Plan
c. Housing and Urban Development Plan
d. National Development Plan
4. The following are the requirements for registering with BOI, except
a. SEC Certificate of Registration
b. Audited Financial Statement (feasibility report that contains projected financial reports for the next five
(5) years) and Income Tax Return (for the past three (3) years if applicable
c. Board Resolution of a duly authorized company representative/signatory
d. Accomplished BOI Application Form 501 (has various versions per industry sector) and Project Report (a
report that contains activities listed or are related to those listed in the IPP)
e. All are requirements for registration with BOI.
5. Which of the following is a non-fiscal incentive to BOI-registered enterprises?

a. employment of Foreign Nationals
b. simplification of customs procedures for imported products
c. importation of consigned equipment
d. privilege to operate a bonded manufacturing/trading warehouse (subject to custom rules and regulations)

e. All are non-fiscal incentives.
II.
1. The following are the general documentary requirements for the Tax Treaty Relief Applications, except
a. Proof of Residency
b. Articles of Incorporation (for individual income earner)
c. Special Power of Attorney
d. All are general documentary requirements
2. What is/are the purpose(s) of Double Taxation Agreements?

a. Avoidance of double taxation
b. Prevention of fiscal evasion with respect to business taxes
c. Both A and B
3. The following are the methods in order to eliminate double taxation, except
a. Exemption method
b. Credit method
c. Both A and B
d. Elimination method
4. In the Philippines, the income of Filipino citizens employed in foreign embassy, diplomatic missions, and
international organizations is
a. Exempt
b. Taxable
c. Taxable, but can be exempt if the taxpayer can prove that there is an exemption grant under contract or
special law.
5. Abroad, income of aliens employed in foreign embassy, diplomatic missions, and international
organizations is
a. Exempt
b. Taxable
c. Taxable, but can be exempt if the taxpayer can prove that there is an exemption grant under contract or
special law.
C. LESSON WRAP-UP

____________________________________________________________________________________
___________________________________________________


________________________________________________________________________________
_________________________________________________________
Key to Corrections:
I. 1. B 2. A 3. B 4. E 5. E
II. 1. D 2. A 3. D 4. C 5. A

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ACC 178: Updates in Tax and Business Regulations

Module #1 Teacher’s Guide

Name: _________________________________________________________________ Class number: _______

Lesson title: Orientation; Review and Updates in Taxation Materials:

“Difficult Roads often lead to beautiful destinations.”

Content and Skill-Building

LO 1: Recall and Apply Learnings in Principles of Taxation and Tax Remedies

TAXATION AS A POWER OF GOVERNMENT

The Inherent Powers of the State

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

Taxation Police Power Eminent Domain

NATURE To raise gov’t funds Make and implement To take private

The Stages of Taxation

TAXATION AS A MODE OF COST ALLOCATION

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

The Life Blood Doctrine

TAXATION AS A MODE OF COST ALLOCATION

THE SCOPE AND LIMITATIONS OF TAXATION

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

SITUS OF TAXATION – The place of taxation

Essential characteristics, requisites or elements of a tax

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

2. As to who bears the burden:

5. As to jurisdiction /scope or authority imposing tax:

Tax distinguished from OTHER CHARGES and FEES

TAX SPECIAL ASSESSMENT

TAX LICENSE FEE

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

Based on law Based on contract

Powers and duties of the BIR

Chief official of the BIR

Chief Officials of the Bureau of Customs

II. TAX REMEDIES

REMEDIES OF THE GOVERNMENT

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

Who shall implement distraint:

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

DEFICIENCY AND DELINQUENCY

B. 50% Penalty - this is applied for:

REMEDIES OF THE TAXPAYER

Compromise is applicable only when:

Minimum compromise settlements:

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

Refund or credit of taxes is applicable when:

Abatement or cancelation of tax liability

DUE PROCESS OF TAXPAYER’S REMEDIES

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

Assuming the protest is finally denied:

6. Appeal to the Court of Tax Appeals

B. Recovery of Tax Erroneously or Illegally Paid

THE COURT OF TAX APPEALS

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

Jurisdiction of the CTA:

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _

Name: ___________________________________________________________ Class number: _