CLWTAXN Reviewer

Taxation
- Act of laying a tax: process of raising income to defray expenses of govt
- Inherent power of the state to demand enforced contribution for public purpose(s)

Purpose, rationale of taxation

● Includes every imposition of charge or burden for the use and support of the
government
● Provide funds or property that:
○ promotes general welfare and protection;
○ attain various social and economic objectives
● Pay for civilized society, without it = government would be paralyzed for lack of
motive power

Taxes
- Enforced proportional and pecuniary contributions levied by the state having
jurisdiction over subjects of burden

Characteristics of Tax
1) Enforced Contribution
- Not voluntary payment or donation
- Without representation/consent = contrary to principles of good
government
- Principle of representation: only applies to political communities
2) Proportionate in character
- According to their share on public burden
 - Based on ability to pay
3) Generally payable in money
- Unless specified by law
- Pecuniary burden = exaction discharged alone in legal tender
4) Levied on persons or property
- Imposed on acts, transactions, rights, privileges
- Only a person pays the tax
- Not all who pay tax shoulder its burden
5) Levied by a state which has jurisdiction over the person or property
- Object must be subject to jurisdiction of taxing state
- Stops at state boundary lines
6) Levied by the law-making body of the state
- Only congress can enact tax statutes
- Tax = statutory liability
a) Local legislative bodies are given direct authority to levy taxes and
fees
b) Martial law: President exercised the executive powers
c) President was given concurrent legislative authority under certain
conditions
7) Levied by the law-making body of the state
- Provide income for public purpose
- Cannot be used for purely private purposes or exclusive benefit of private
persons
8) Paid at regular or definite period
- Paid at regular periods or intervals annually
- ITR usually April 15
Theory and basis
1) Existence of government
- A necessity; cannot continue without paying expense
- Right to compel to pay

2) Reciprocal duties of state and inhabitants

- benefits received principle: taxpayer gets general advantages and
protection

3) Public purpose requirement for lawful taxation

a) Everyone can enjoy privileges and protection because it is owed by the state
b) Government renders no special or commensurate benefit to any particular
person or property
c) Benefit to taxpayer: enjoyment of privileges of living in organized society
d) Cannot object or resist payment since there’s no personal benefit

Nature of the power of taxation

1) Inherent in sovereignty
- Exists apart from constitutions without being expressly conferred by people
- Can be exercised by government even if the constitution is silent
a) Constitutional provisions: don’t operate as grants of power to the
government
b) Existence is recognized by the provisions relating to taxation

2) Legislative in character
- Can’t be exercised by executive or judicial branch; Only congress
- May be made by local legislative body subject to limitations

3) Subject to constitutional and inherent limitations

- Not absolute
 - Subject to limitations specifically provided in constitution or implied
- Taxation is unjust or oppressive does not render tax law invalid

Aspects of taxation/system
1) Levying/imposition of tax = Legislative
2) Assessment in collection / Collection of tax = Administrative
3) Payment = Compliance of taxpayer

Extent of legislative power

1) Subject or objects to be taxed
- Coverage and kind or nature of tax
- State is free to select the subject of taxation
- Power to tax carries the power to grant exemption or exclusion
2) Purpose or object of tax
- Make an appropriation provided for public purpose
- Supreme court can inquire if the purpose is public or private

Question: not a legislative but judicial function – Once settled: no other inquiry on the
objective
Judicial action is limited to review if:

● Determination of validity of tax in relation to constitutional precepts

● Determination in an appropriate case of the application

3) The amount or rate of tax

- May levy a tax of any amount or rate if it fits
- If oppressive: ballot box, election of new representatives

Power of tax involves the power to destroy

- Cannot be held invalid because power is manifested by its imposition
 - Taxation should be exercised with caution to minimize injury

4) Manner, means, and agencies of collection of the tax

- Administration of tax/laws
- Equally possess sole power to prescribe the mode or method its collect
Non-revenue objectives
1) Strengthen anemic enterprises or provide incentive to greater production
2) Import taxes increased/decreased to protect/encourage local industries against
foreign competition
3) Taxes on imported goods used as bargaining tool
4) Taxes may be increased in periods of prosperity to curb spending power and halt
inflation
5) Levied to reduce inequalities in wealth
6) Promote science and invention, finance educational acts, improve police efficiency,
increase to discourage behavior injurious to health
7) Implement of police power
8) Tax provisions enacted so low income pay little to no income tax
9) Provide incentives for certain desirable activities encouraging investments
10)Validity not affected by collateral purposes or motives

Basic principles of tax system

1) Fiscal adequacy
- Sources of revenue should be sufficient to meet demands of public
expenditures
- Revenues should be capable of expanding
2) Equality/theoretical justice
- Distributed in proportion to ability to pay
- Uniform and equitable
 3) Administrative feasibility
- Tax laws: capable of convenient, just, and effective administration or
enforcement
- Clear and plain

Errors on tax officials

- Do not bind prejudice right to collect taxes legally
- Never estoppel by mistakes
- Error may be corrected
Classification
1) Subject matter
● Personal, poll, capitation
- Person residing within specified territory
- Without regard to their property
● Property
- In proportion to value or other reasonable methods
● Excise
- Performance of an act, enjoyment of privilege, engaging in
occupation
- Based on voluntary action
- Not the same with excise tax in manufactured goods
2) Who bears the burden
● Direct
- Demanded from the very person who shoulders burden
- directly/primarily liable
● Indirect
- Paid by one person in expectation and intention that he indemnifies
himself at expense of another
 - Passing the burden of tax
3) Determination of amount
● Specific
- Fixed amount imposed by head or number, weight, or measurement
- Listing or classification
● Ad valorem
- Fixed proportion of value of the property with respect to tax
assessed
- Intervention of assessors to estimate value
- According to value
4) Purpose
● General, fiscal, or revenue
- Tax imposed for general purpose of government
● Special/regulatory
- For a special purpose
- Achieve social/economic ends (eg. protective tariffs)
5) Scope
● National
- Imposed by national government (eg. revenue taxes, custom duties)
● Municipal/Local
- Imposed by municipal corps or local government units
- Real estate tax, professional tax
6) Graduation/rate
● Proportional
- Fixed percentage of amount
- Remains constant for all levels
- flat/uniform tax
 ● Progressive/Graduated
- Rate increases as tax base increases
● Regressive
- Rate decreases as tax base increases

Regressive/progressive system of taxation

- More indirect taxes imposed than direct taxes
- Most affected are low-income sector and they bear the burden since they buy
more consumption goods

Tax Distinctions
Toll – sum of money for the use of something

Toll Tax

Demand of Demand of proprietorship Demand of sovereignty

Paid for Paid for the use of another’s Paid for the support of the
property government

The amount depends upon the There is generally no limit on the

Amount cost of construction or amount that may be imposed
maintenance of the public
improvement

Imposition May be imposed by either the May be imposed only by the

gov’t or private individuals or government
entities

Penalty – Sanction imposed as punishment for violation of law or acts deemed injurious

Penalty Tax

Purpose Designed to regulate conduct Intended to raise revenue

 May be imposed by either the gov’t May be imposed only by the
Imposition
or private individuals or entities government

Special assessment – Enforced proportional contribution from owners of lands

Special Assessment Tax

Levying Levied only on land Levied on persons or property

Personal Not a personal liability of the May be a personal liability of the

Liability person assessed person assessed

Basis Based wholly on benefits Based on necessity

Applications Exceptional, both as to time and Has general application

place

License or Permit fee – Charge imposed under the police power for purposes of regulation

License or Permit Fee Tax

Definition Legal compensation or reward of Enforced contribution assessed

an officer for specific services by sovereign authority to defray
public expenses

Purpose Imposed for regulation Levied for revenue

Inherent Power Involves exercise of police power Involves exercise of taxing power

Amount Amount should be limited to the There is generally no limit on the

necessary expenses of amount that may be imposed
inspection and regulation

Imposition Imposed on the right to exercise Imposed also on persons and

a privilege property

Failure to pay makes the act or business illegal does not necessarily make the act
or busines illegal
 Debt – something, typically money, that is owed oer due

Debt Tax

Basis Based on contract, Based on law

express/implied

Assignability Assignable Cannot be assigned

Payable in May be paid in kind Payable in money

Set-off May be the subject of set-off or Not subject to set-off or

compensation compensation

Non-payment Cannot be imprisoned for Imprisonment is sanction for

non-payment non-payment

Governed by the ordinary periods of the special prescriptive periods

prescription provided for in the Tax Code

Interest Draws interest when it is so Does not draw interest except

stipulated or when there is only when deliquent
defaut

Taxes are not subject to set-off (legal compensation)

- Government and taxpayer are not mutual creditors/debtors of each other
- Debts: corporate capacity; Taxes: sovereign capacity
- Exception: both claims to each other have become due, demandable, liquidated;
taxpayer may assign in favor of the municipality
- Not allowed setting off of excess taxes paid; commissioner of internal revenue is
authorized to grant refund or credit

Tax Distinguished from Other Terms

Subsidy Tax

Pecuniary aid directly granted by the Enforced proportional and pecuniary

government to an individual or private contributions from persons and property
commercial enterprise levied by the state

Granted to those deemed beneficial to the May be imposed to pay subsidy

public

Revenue Tax

All funds or income derived by the Enforced contributions from which income
government, whether from tax or not of the government is derived from

Refers more to amount collected Refers to the amount imposed

Internal Revenue Tax

Taxes imposed by the legislature other Enforced contributions from persons and
than duties on import and export property levied by the state

Customs Duties / Tariffs Tax

Duties payable or taxes imposed on goods Enforced contributions from persons and
imported or exported property levied by the state (broader
scope)

Distinctions and Similarities Among the Three Powers

Distinction Taxation Eminent Domain Police Power

As to Only by the government May be granted to public Only by the government

authority or its political service companies or or its political
which subdivisions public utilities subdivisions
exercises the
power

As to purpose Property is taken for the Property is taken for Use of property is
support of the public use or benefit;, it “regulated” to promote
government must be compensated general welfare; it is not
 compensable

As to persons Operate upon a Operates on an entity or Operate upon a

affected community or a class of individual as the owner community or a class of
entities or individuals of a particular property entities or individuals

As to effect Money contributed in There is a transfer of the There is no transfer of

the concept of taxes right to property title; at most there is
become part of the whether it be of restraint on the injurious
public funds ownership or a lesser use of property
right

As to benefits Those affected receive Those affected receive Those affected receive
received the equivalent of the tax the market value of the no direct and immediate
in the form of protection property taken from benefit but only as such
and benefits they them may aise from the
receive from the maintenance of a
government as such healthy economic
standard of society

As to amount There is generally no There is no amount The amount imposed

of imposition limit on the amount of imposed but rather the should not be more than
tax that may be imposed owner is paid the market sufficient to cover the
value of the property cost of the license and
taken the necessary expenses
if police surveillance and
inspection, examination
or regulation as nearly
as the same can be
estimated

As to The taxing power is Also inferior to the Relatively free from

relationship to subject to certain impairment prohibition constitutional
the constitutional so that the govt. cannot limitations and is
Constitution limitations including the exoropriate property superior to the
prohibition against the which under a contract it impairment provisions
impairment of the has previously bound
obligation of contracts itself to purchase from
other contracting party
Distinctions and Similarities Among the Three Powers (cont.)
Rest upon necessity because there can be no effective government without
them

Underlie and exist independently of the Constitution although the

conditions for their exercise may be prescribed by the Constitution and by
law
Similarities
Ways by which the State interferes with private rights and property

Legislative in nature and character, although the actual exercise thereof is

given to the executive authorities, national or local

Presuppose an equivalent compensation received, directly or indirectly, by

the persons affected by the exercise of these powers

Public finance
- Financial operations of all levels of the government
- Taxation is a part of public finance
- Budgeting, taxing, appropriating

Limitations of power of taxation

- Support of the government to provide for the general welfare
- Boundless range of power – unlimited force

Constitutional limitations
- Expressly found in the constitution or implied
Inherent limitations
- Restrict power although not embodied in constitution
Due process
- “No person shall be deprived of life, liberty, or property without due process of the
law”
a) Substantive due process
- Under the authority of law that is valid or the constitution
b) Procedural due process
- After compliance with fair and reasonable methods of procedure

Application
a) Private purpose tax = beyond jurisdiction of the government to levy and collect
offends; void or invalid
b) Judicially declared invalid: cannot be enforced. If paid: refunded (no one shall
unjustly enrich himself at expense of others)
c) Taxpayer may not be deprived of his property for non-payment of taxes without
notice
d) Tax law that denies a taxpayer a fair opportunity to assert substantial rights before
tribunal is invalid as violative of the same constitutional guarantee
Must be reasonable and not unjust or oppressive, or else it violates due process of law

Equal protection of the law

- All persons are treated alike under like circumstances and conditions

Class legislation
- Discriminates against some and favors others

Violation of inherent limitations = contravene constitutional injunction against

deprivation of property without due process
Uniformity and equity
Provision: “the rule of taxation shall be uniform and equitable”
Uniformity: taxed at same rate; uniform application without discrimination = Equality in
burden
Equity: apportionment of the tax burden
a) In the light of ability to shoulder burden: ability to pay
May be uniform but inequitable
b) Reasonable classification of entities
Progressive system of taxation: emphasize direct taxation (ability to pay = criterion)
Relationship with equal protection: equal protection: treatment of persons in like
circumstances; uniformity and equity: proper relative treatment

Absolute/perfect equality or uniformity = IMPOSSIBLE

Prohibition against imprisonment for non-payment of poll tax
“No person shall be imprisoned for debt or non-payment of poll tax”
- Penalty: payment of surcharge of interest at 24% per annum
- Subject to imprisonment for violation of community tax law

Prohibition against impairment of obligation of contracts

“No law impairing the obligation of contracts shall be passed”
Impaired: changed terms and conditions without consent of the other

Prohibition against infringement of religious freedom

- Free exercise and enjoyment of religious profession and worship without
discrimination is forever allowed
Prohibition against appropriation for religious purposes
“No public money/property shall be appropriated for the use or benefit of priest…, except
when thay are assigned to the armed forces or penal institution or government orphanage

Prohibition against taxation of religious charitable and educational entities

- Charitable institutions, churches,parsonages, or convents = Exempt from taxation
a) Use of property, not ownership
b) Actually, directly, and exclusively used
Exclusively = primarily (not wholly or partly lost bc of certain occasions)
c) Not limited to property indispensable. Extends to facilities incidental or
reasonably necessary for accomplishment

Prohibition against taxation of non-stock, non-profit educational institutions

“All revenues and assets used actually, directly, and exclusively for educational purposes
shall be exempt from tax”
- Grants, endowments, donations, contributions
- Covers income property, donors taxes, customs duties
a) Used actually, directly, and exclusively for educational purposes
b) religious/charitable entities = limited to property tax
c) Congress is authorized to grant similar exemptions to proprietary educational
institutions
d) Lands, buildings, and improvements are exempt from property tax, whether
proprietary or non-profit

Other constitutional limitations

1) Granting of tax exemptions
- Restricts exercise of legislative power to grant tax exemption
- Majority of the congress (½ + 1)
 - Prevent indiscriminate grant exemptions
2) Veto of appropriation, revenue, or tariff bills
- May veto any item but shall not the affect the item he doesn't object
3) Non-impairment of the jurisdiction of the supreme court
- Congress: power to define, prescribe, and apportion the jurisdiction of
various courts but may not deprive supreme court of its jurisdiction
- Supreme court: review, revise, reverse, modify, affirm on appeal or certiorari
- Congress cant take away from supreme court or reduce power given

Public Purpose
- Governmental purpose
- Purpose affecting inhabitants of the state
- First requisite of lawful taxation
- Reason: tax levied for private purpose constitutes taking of property without due
process = a robbery, done under the forms of law and called taxation
- Can be argued
- Private benefit can be incidental so long as rhw primary purpose is public

Instances:
a) Educational activities and programs
b) Promotion of science
c) Erection and maintenance of roads, bridges, piers
d) Aid for victims
e) Relief for the poor and unemployed
f) Payment of pensions and bonuses of public officers
g) Construction of experimental stations to seek increase of efficiency in sugar
production
Effect on incidental benefit to private interest
- Purpose does not need to be public
- Private individuals are directly benefited, it is valid if benefit is incidental
- Test is the character of purpose

Right to question purpose of tax

- Taxpayers have sufficient interest of preventing illegal expenditures of money
raised and may question court the constitutionality
- Not relieved form the obligation bc of the misappropriated belief: would be
hampered
- Taxpayer = no legal standing to question executive acts that dont involve use of
public funds: personal and substantive interest in the case

Prohibition against delegation of taxing power

1) Delegation to president
- Allows congress to authorize president to fix within specified limits and
subject to limitations
a) No ground for legal objection
b) Congress is prohibited to abdicate law making power over the
subjects

2) Delegation to local governments

- Universally recognized for so long
a) Principle: power to create municipal corporations for purposes of local
self-government carries with it
Municipal corp = instrumentalities of the state
 b) Each LGU is expressly given power to create own sources of revenue and
levy tax

3) Delegation to administrative agencies

- Some process are not legislative and need administrative bodies
- Not an exception to the rule
a) Power to value property
b) Assess and collect tax
c) Perform innumerable details of computation, appraisement, and adjustment
Cannot be delegated: determination of subjects, purpose, amount,mannear, means,
agencies, prescribing rules

Exemption of government agencies

- Levying tax would render new taxes on public property: government would tax
itself
- Rests on fundamental principles of government
- Reduce the amount of money handled by the government
- Only to government entities
- Government owned/controlled corporations performing proprietary functions are
subject to tax in the absence of tax exemption provisions

Limitation of international comity

- Property of foreign state or government may not be taxed by another
- Adopted generally acceptable principles of international law
1) Sovereign equality among states
- One state cannot exercise its sovereign powers over another
2) Usage among states
- Enters territory: not intend to degrade its dignity by placing itself
under the jurisdiction of state
 3) Foreign government may not be sued without its consent
- Useless to assess tax since it cannot be collected

Limitation of territorial jurisdiction

- May not tax property outside its borders or lay an excise/privilege tax
- Do not operate beyond territorial limits
- Property in another state cannot receive protection
- Privity relationship: capacity to provide benefits and protection

Situs of Taxation
- Place of taxation
- State that has jurisdiction
- State where the subject to be taxed has situs may rightfully levy and collect tax

Situs of subjects
1) Persons: people of the state
2) Real property: where it is located
3) Tangible personal property: where its physically located
4) Intangible personal property: at the domicile of the owner
5) Income: residents or citizens in taxing jurisdictions
6) Business, occupation, transaction: place where it is done
7) Gratuitous transfer of property: where transferor is a citizen/resident, or where
property is located

Multiplicity of situs
- All may receive the protection of the laws of jurisdiction
- Remedy: provide exemptions or allowance of deduction or tax credit for foreign
taxed; enter treaties
Double taxation
Strict sense
- Taxing twice, same taxing authority, within same jurisdiction, for same purpose, in
the same year
Broad Sense
- Taxation other than direct duplicate
- Extends to all cases there is a burden of 2 pecuniary impositions

Instances of double taxation (Broad)

- Mortgage as personal property and real estate
- Corporation for its property and upon shareholder

Constitutionality of double taxation

- Narrow: Unconstitutional
- Broad: constitution does not prohibit double taxation; may not be invoked as a
defense against validity of law
a) National gov. And another by city or municipality for same occupation
b) Dealer’s tax imposed for engaging in business of leasing real estate on
property leased and income tax

Forms of escape

Shifting
- Transfer or passing on burden of tax by original payer to someone else
- Exchange of commodities
1) Person imposed tax on might not be person who shoulders burden
2) Shifted, tax ceases to be tax bc it becomes part of price
Impact of taxation
- Point on which tax is originally imposed
Incidence of taxation
- Point where tax burden finally rests or settles down
- Shifting has been effected from the statutory taxpayer to another
Direct tax cannot be shifted
- Cannot be shifted if purely personal
- Tax is absorbed by statutory taxpayer
Kinds of shifting
1) Forward – From production through distribution until it settles on consumer
2) Backward –From consumer to distribution to production
3) Onward – Shifted 2 or more times ; Either forward or backward

Tax capitalization
- Reduction of price of taxed object equal to capitalized value of future taxes
1) Income producing property = buyer takes into account the taxes he will pay
as a new owner
2) Considered special form of backward shifting

Transformation
- Manufacturer or producer pays tax and recoup self by improving process of
production to have lower cost per unit

Tax evasion
- Illegal or fraudulent means to defeat or lessen tax payment
- Punishable by law, civil and criminal
Factors
1) End to be achieved
2) State of mind - in bad faith
 3) Course of action
Evidence
1) Failure to declare of true income for 2 consecutive yrs = indication of intent
2) Underdeclaration of income in tax returns for 4 consecutive years
No proceeds in tax evasion
- Tantamount to absence of taxation

Tax avoidance
- Legally permissible alternative tax rates or methods of assessing to avoid or reduce
tax
Not punishable by law
- Has legal right to decrease the amount which the law permits
1) May perform an act he honestly believes to be sufficient to exempt him from
taxes: does not commit fraud even if act is insufficient
2) Tax laws cannot be circumvented to avoid payment

Distinction between tax evasion and tax avoidance

Evasion
- Escape tax by breaking law
Avoidance
- Escape by legal procedures
- Sidesteps the law
Government’s loss on both

Exemption from taxation

- Immunity to particular persons or corporations from particular class from tax
- immunity/privilege, freedom from financial burden
Nature of power to grant
1) National government
- Free to select subjects of taxation and grant tax exemptions
2) Local government
- No inherent power to tax and exempt
- Legislature may delegate power to exempt from tax to same extent

Rationale of exemption
1) Public interest will be subserved by exemption allowed
2) Purpose is some public benefit or interest

Grounds for tax exemption

1) Based on contract: gov is to receive full equivalent
2) Based on some ground of public policy: encourage new and necessary industries/
charitable institution
3) In a treaty on grounds of reciprocity or lessen rigors of international or double
taxation

Nature of exemption
1) Personal privilege of the grantee: cannot be assigned or transferred
2) Revocable by the government
3) Implies a waiver to right to collect
4) Not discriminatory: reasonable foundation and rational basis

Kinds of exemption
1) Manner of creation
a) Express or affirmative – Express provision
 b) Implied or exemption by omission – Levied without mentioning other classes;
may be accidental or intentional
2) Scope/Extent
a) Total – All taxes
b) Partial – Certain taxes, entirely or partly
3) Object
a) Personal – Directly in favor of persons
b) Impersonal– In favor of pcertain class of property

Granting
- Voting must be separate house of representatives and senate, 50% + 1
Revocation
- All members voting separately (depends on houses)
- Easier because of lifeblood doctrine

Exemptions provided for in the Constitution – self-executing (need no legislation to

enforce)
1) From property tax
a) Charitable institutions, churches and parsonages or convents, mosques,
non-profit cemertaries and all lands, buildings, and improvements used
actually, directly, and exclusively for religious, charitable, or educational purposes
2) From taxes and dutues
a) All revenues and assers if non-stock, non-ptofit educational institutions used
actually, directly, and exclusively for educational purposes
Exemptions provided for in the Tax Code
1) From income tax
a) Labor, agricultural, or horticultural organization non organized principally
for profit
b) Cemetery company-owned and operated exclusively for the benefit of its
members;
c) Non-stock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes;
d) Business league, chamber of commerce or board of trade not organized for
profit and no part of the net income of which inures to the benefit of any
private stockholder or individual;
e) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;
f) A non-stock and non-profit educational institution, and government
educational institution;
g) Mutual savings bank not having a capital stock represented by shares and
cooperative banks without capital stock organized and operated for mutual
purposes and without profit; and development banks (Sec. 30, NIRC.); and
h) General professional partnership, which is formed by persons for the sole
purpose of exercising their common profession no part of the income of
which is derived from engaging in any trade or business. (Secs. 26, 22[B],
Ibid.)
2) From estate tax (tax on the privilege of a deceased person to transmit his property
to his heirs or beneficiaries):
a) The merger of the usufruct in the owner of the naked title;
b) The transmission or delivery of the inheritance or legacy by the fiduciary
heir or legatee to the fideicommissary;
 c) The transmission from the first heir, legatee, or done in favor of another
beneficiary, in accordance with the desire of the predecessor; and
d) All bequests to social welfare, cultural, and charitable institutions, subject to
certain conditions. (Sec. 87, Ibid.)
3) From donor's tax (tax on the privilege of an owner to transfer his property without
consideration):
a) Gifts made to or for the use of the national government or any entity
created by any of its agencies which is not conducted for profit, or to any of
its political subdivisions; and
b) Gifts in favor of educational and/or charitable, religious, cultural or social
welfare corporation, accredited non-government organization, trust or
philanthropic or research organizations or institutions. (see Sec. 101, [bid.)

Construction of Tax Exemption Statutes

● Not favored
● Construed stricissimi juris – against the taxpayer
● Taxpayer claiming exemption must point to a specific provision of law

Basic principles of sound system

● Fiscal Adequacy
- Revenue raised must be sufficient to meet the needs of the public and the
gov’t
- If collection goes beyond or below the amount needed: principle is violated
● Administrative Feasibility
- Tax system should be capable of being effectively administered and
enforced with the least inconvenience to the taxpayer
● Theoretical Justice
- The taxpayers' ability to pay the tax must be taken into consideration
 - The rule of taxation shall be uniform and equitable
> Equality
- Treated the same under circumstances
> Uniformity
- Same class = same rate
Agency Law
- Principal is bound by his actions of his assigned agent
Tax laws do not operate beyond their limit

Existing Tax Laws

National Taxes
1. NIRC of 1997, as amended (RA 10963 TRAIN law. RA 11467 Sin Tax Law, A 11534
CREATE ACT
2. The Tariff and Customs Code of 1978 — the Customs Modernization and Tariff Act
(RA 10863)
Local Taxes
1. Local Government Code (RA 7160)
2. tax ordinances of provinces, municipalities, cities, and barangays - as be limited by
the Local Government Code

Kinds of National Taxes under the NIRC

- Income Tax
- Estate and Donor's Tax
- Value-added Tax
- Other percentage taxes that you may see listed on page 101
- Excise taxes on certain goods
- Documentary Stamp Taxes
 - Other taxes to be imposed in the future and collected by the BIR

Mode of and Procedure of Payment of Taxes

1. Payment to the Authorized Agent Bank
- over the counter - max of Php 10,000
- Check
2. Payment of Checks
- manager's or cashier's check
- If other tupe of check: TIN must be indicated, signed current, not PDC, not
stale, not of secondary endorsement check
- check must cover one type of tax for one return period (DST AND CGT
payments separately drawn)
3. Tax Returns Paid through Tax Debit Memos (TDMs)
- a photocopy of the TCC (source of TDM) must be attached
- Not acceptable for payment of WHT, FBT, taxes, fees, and charges under
special schemes/programs
4. Payment via debit/credit/prepaid card system
- shall be voluntary and optional
- but these must be by ABs - as authorized to accept tax payments through
credit/debit/prepaid cards
- payment deemed made through:
(a) date and time appearing in the system-generated payment confirmation
(b) BUT, as long as, payment has been received by the BIR. So (a.) is not controlling.
- returns of taxes paid shall be filed electronically
Authority of the Secretary of Finance
- SoF promulgates all needed rules and regulations for the effective enforcement of
the Tax Code
- Revenue Regulations: define or prescribe rules
- Upon the recommendation of the CIR
- CIR may not delegate his recommendatory powers to his subordinates
SoF may revoke rulings of his predecessors
- SoF has the power to revoke, repeal, or abrogate the acts or previous rulings of his
predecessors in office
- Statutory construction - remember: acts are not binding on their successors if the
successors find that a different construction must be given

Requisites for the validity and effectivity of regulations

1. necessary for proper enforcement of law
2. must not be contrary to law and the Constitution, and
3. must be published in the Official Gazette
- RRs may take effect even before publication: Administrative Code of 1987 (E 292)
provided that government agencies must file 3 certified copies of the rules they
adopt with the UP Law Center. Such rules become effective 15 days from date of
filing unless a different date is fixed by law or specified in the rule in cases of
imminent danger to public health, safety, and welfare

Administrative Interpretations and opinions

- The power to interpret the provisions of the Tax Code and other tax laws
- Exclusive and original jurisdiction of the CIR, and subject to the review of the SoF
Towards this end:
Revenue Regulations
- formal interpretations of the provisions of the Tax Code and other laws by the SoF,
upon the recommendation of the CIR
BIR Rulings
- interpretations of tax laws at the administrative (BIR) level at the request of TP
- may be revoked by the SoF
- CIR may delegate authority to sign rulings, except a.) rulings of first impression
(new and important question), or b.] reversal, revocation. or modification of any
existing ruling of the BIR
Opinions of the SoJ
- Opinions on tax questions by the SoJ who is the chief legal officer of the
government
- generally binding and effective

Circular or memorandum
- merely interprets an existing tax law, BUT not binding on the courts

Delegated authority to sign rulings

- Regional Directors may sign rulings to be approved by the Assistant Commissioner
of the Legal Service Division (LSD] Assistant Commissioner of the LSD may sign
rulings (including tax treaty reliefs) to be approved by deputy of LSD

Non-retroactivity of repeal of regulations or rulings

General rule: any revocation, modification, or reversal of any rules and regulations or
circulars or rulings by the CIR cannot be given retroactive application
Except:
a. TP deliberately misstates or omits material facts from his return or in any
document required of him by the BIR
b. Facts subsequently gathered by the BIR are materially different from the facts on
which the rulings were based
c. TP acted in bad faith

Income Tax
- a type of tax imposed on individuals and corporations who generate income which
is realizable within one taxable year.

3 Main Functions of Income Tax

1. To provide revenues in massive amounts to the government.
2. To balance out consumption taxes as well as regressive sales.
3. To regulate and prevent acts of bad faith brought about by income and wealth
distribution inequalities.

Nature and Purpose of Income Tax

1. Considered as an excise tax or privilege tax wherein the item subject to tax is the
right of individuals or entities to earn income for the needs of the government
2. Self-assessing or self-computed
3. Primary purpose is to raise revenue

Income Tax System Under Tax Code

1. Under the global tax system, gross compensation income is aggregated
(globalized) with the income from business, trade, or profession or other sources to
arrive at the taxable income (after allowable exemptions) which taxable aggregate
 income is then subjected to one set of progressive, graduated tax rates in the case
of individuals.
2. Capital gains and other passive income subject to final withholding tax are subject
to different sets of preferential tax rates. The schedular approach applies with
respect to these incomes.

Criteria on Imposing Income Tax

1. Citizenship Principle – citizen residing in the Philippines is taxable on all income
derived from sources within and without the Philippines while a nonresident
citizen is taxable only on income derived from sources within the Philippines;
2. Residence Principle – All income derived by persons residing in the Philippines,
whether citizens or aliens, whether domestic or foreign corporations, shall be
subject to income tax on the income derived from sources within the Philippines;
3. Source principle – All income derived from sources within the Philippines shall be
subject to income tax.

Types of Taxable Income

Taxable income depends on the kind of taxpayer and the nature and source of income
1. Compensation Income
2. Business Income
3. Professional Income

Requisites for the Taxability of Income

● There must be gain or profit
● The gain must be received or realized
● The gain must not be excluded or exempted by law or treaty from taxation
Classification of Individual Taxpayers
may be classified depending on citizenship and residence
a. Resident Citizen (RC)
○ Someone who is both a citizen and a resident of the Philippines.
○ Income from sources within and outside of the Philippines is subject to tax
b. Non-resident Citizen (NRC)
○ Filipino Citizen who leaves the Philippines during the taxable year to reside
abroad, either as an immigrant or for employment on a permanent basis
○ Taxed for incomes derived within the Philippines only
c. Resident Alien (RA)
○ Foreigners who have residency in the Philippines
○ As a general rule, foreigners are considered residents when length of stay or
assignments are indefinite or exceeding 2 years.
○ Incomes derived abroad are not subject to Philippine taxation.
d. Non-resident Alien Engaged in Trade or Business (NRAETB)
○ Any foreign person who have not acquired residency, but are doing business
in the Philippines shall be considered as engaged in trade. stay for an
aggregate period of more than 180 days
e. Non-resident Alien Not Engaged in Trade or Business (NRANETB)
○ any foreign person who shall come in the Philippines and stay herein for an
aggregate period of not more than 180 days during any calendar year shall
be deemed as not doing business in the Philippines

Passive Income
- Income earned with very minimal involvement from the taxpayer and is generally
irregular in timing and amount.
 - Their existence can be difficult to predict while the actual amount may be difficult
to determine.
- Thus, the final withholding at source is the most favored scheme in taxing items of
passive income.
- Examples: interest, yields, royalties, prizes, winnings

Compensation Income
- All remuneration or payments for services performed by an employee for his
employer under an employer-employee relationship, unless specifically excluded by
the Code
- Examples:
- salaries and wages
- bonuses and other benefits - subject to P90,000 limit for tax exemption
- holiday pay, overtime pay, night shift differential pay, hazard pay
- allowances, tips, gratuities, emoluments, honoraria
- retirement pay and separation pay

Gross Income
- all income of whatever kind and derived by a taxpayer from whatever source but
not including exempt income (exclusions) and items of gross income (passive
income) subject to final income tax

Exclusions from Gross Income

Incomes that are exempt from the tax
1. Life insurance
2. Value of property acquired by inheritance or donation
3. Retirement benefits, pensions, etc.
 4. Prizes and awards in recognition of achievements 1
5. 3th-month pay and other benefits
6. GSIS, SSS, Medicare, Pag-IBIG and other contributions, and union dues of
individuals
7. Gains from sale, retirement of bonds, or other certificates of indebtedness with a
maturity of 5+ years
8. Realized gains by investor upon share stock redemption

Allowable Deductions from Gross Income

Optional Standard Deduction (OSD)

- an amount not exceeding 40% of the gross sales/receipts for individuals and gross
income for corporations
- Use if Expenses ≤ 40% of your income

Itemized Deductions
- an expense that can be subtracted from adjusted gross income (AGI) to reduce your
taxable income and therefore lower the amount of taxes that you owe
- Use if Expenses > 40% of your Income

8% Income Tax Rate Option

● 8% flat rate on the practice of professions is a law that requires all professionals
who are registered with the PRC to pay 8% tax on their gross income (including
sole proprietors and professional service firm employees; includes, but is not
limited to, doctors, lawyers, accountants, engineers, and architects)
● lower tax rate that will be applied to the gross income from the practice of
professions
 ● is a fixed rate which means that it does not change even if your income increases or
decreases
● may end up paying more tax if your income increases
● For Sole Proprietorship
○ 8% flat rate will be applied to the total revenue from the business
● For Professional Service
○ 8% flat rate will be applied to the total fees charged for services rendered by
employees who are members of the covered profession

Income Tax Computations

● Income Tax Expense Formula = Taxable Income * Tax Rate

Taxation of Non-Individual Taxpayers

● Domestic corporations, foreign corporations, partnerships, offshore banking units
– 25%
● Regional operating headquarters - 10%
● Interest income derived by resident foreign corporations from a depositary bank
under the Expanded Foreign Currency Deposit System - 15%
● Dividends received by domestic corporations from foreign sources are exempt, if
otherwise - 25%
● Capital gains from sale by foreign corps. of shares not traded in the stock exchange
- 15%
● Improperly accumulated earnings tax are exempt

Taxation of Partnership/Partners:
2 Types of Partnerships: Business partnerships and General Professional Partnerships
● Business Partnerships are treated the same as corporations - 25%
 ● General Professional Partneships are never subject to income taxation

Final Tax on Passive Income

● Final Tax is a kind of withholding tax which is prescribed on certain income
payments
● This applies to individual taxpayers
○ Interests - 20%
○ Cash and property dividends - 10%
○ Capital gains from real estate property - 6%
○ Cash rewards to informers - 10%

Capital Gains Tax

● Levied on real property capital gains upon sale, exchange, or disposition
● Does not include properties used for businesses, trade, or professions and those
which are used in a similar manner
● 2 Types:
○ Sale of real property - 6%
○ Sale of shares and stock of domestic outside the local stock exchange - 15%
(new provision)

Fringe Benefit Tax

● Imposed on the fringe benefits given to employees which include (but are not
limited to):
1. Housing;
2. Expense account;
3. Vehicle of any kind;
4. Household personnel, such as maid, driver and others;
 5. Interest on loan at less than market rate to the extent of the difference
between the market rate and actual rate granted;
6. Membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations;
7. Expenses for foreign travel;
8. Holiday and vacation expenses;
9. Educational assistance to the employee or his dependents; and
10. Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.
● Fringe Benefit Tax rates:
○ On manegerial/supervisory employees - 32%
○ On non-resident alien employees - 25%
○ On special alien employees (ROHQ, RHQ) - 15%

De Minimis Benefits
● Employee benefits of small values which are tax exempt
1. Unused vacation leave of employees (not exceeding 10 days) which are then
monetized (for private employees)
2. Sick leave and vacation leave credits which are monetized (for government
official and employees)
3. Medical cash allowance to dependents of employees not going over P1,500
per semester or P250 per month.
4. Given a rice subsidy equal to P2,000 or a 50kg sack of rice (not over P2,000
in value.)
5. The clothing or uniform allowance of P6,000.
6. Actual medical assistance such as maternity assistance, routine checks, and
annual medical not beyond P10,000 annually.
 7. Laundry allowance amounting to P300 per month.
8. Employee achievement awards or service awards of not beyond P10,000
(tangible personal property apart from cash or gift cards)
9. Gifts or tokens received during Christmas or company anniversary
celebrations must not go above P5,000 per employee annually.
10. Those with overtime work and night or graveyard shift with a daily meal
allocation must not exceed 25% of the basic minimum wage per region.
11. Any perks received by an employee due to a CBA or collective bargaining
agreement, along with other productivity incentive tokens, must not exceed
P10,000 per employee in a given taxable year.

Income Tax Returns

● Who are required to file these?
1. Every Filipino citizen who are residents in the country
2. Every Filipino citizen who are not residents in the country but earn income
within the Philippines.
3. Every alien who's sources of income are in the Philippines

● When can individuals file these?

1. The ITR shall be filed on or before the fifteenth (15th) day of April of each
year covering income for the preceding taxable year.
2. For individuals subject to tax on capital gains, they shall file their returns
from the sale or exchange of shares of stock not traded through a local stock
exchange within thirty (30) days after each transaction and a final
consolidated return on or before April 15 of each year covering all stock
transactions of the preceding taxable year.
3. For the sale or disposition of real property the return must be filed within
thirty (30) days following each sale or other disposition
 ● Failure to file tax returns
1. The liability includes the penalties given as per stated in the law
2. A fine of no less than P10,000
3. Imprisonment of not less than 1 year but not more than 10 years

Value-Added Tax
Meaning/Concept of VAT
● Uniform Tax (0% or 12%)
● Imposed on sale, barter, exchange, lease of goods or properties & services of a
business
● Tax being limited only to the value added to such goods, properties, or services by
the seller, transferor, or lesser
● Levied on importation
Nature of VAT
● VAT is a privilege tax.
○ Imposed on the privilege of selling or importing goods or properties, and
services
● Percentage tax (0% or 12%)
● It is an indirect tax and can be shifted
○ The final purchaser gets the burden
● It is tax on consumption
○ value added by the seller at each stage as the goods pass through the
supply/distribution chain

Persons Liable to VAT

● Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if the
 aggregate amount of actual gross sales or receipts exceed Three Million Pesos
(Php3,000,000.00)
● A person required to register as VAT taxpayer but failed to register
● Any person, whether or not made in the course of his trade or business, who
imports goods

Rate and Base of the VAT

ON SALE, ETC. OF ● 12% of the gross selling price or gross value in money of the
GOODS, OR goods or properties sold, bartered, or exchanged
PROPERTIES ● Barter or exchange is categorized in the same way as a sale.
● Other transactions deemed as "sale" is enumerated in the
Tax Code.
● General Rule: VAT applies to all goods or properties sold or
imported at all levels of distribution including those subject
to excise taxes

● 12% based on the total value used by BOC in determining

ON custom duties to which value shall be added the custom
IMPORTATION duties, excise taxes, and other charges payable by the
OF GOODS importer
● If, under law, the customs duties are determined based on
the qty. or volume of the goods, the VAT shall be based on
the landed cost of the goods + excise tax (if applicable)
○ Landed costs consist of the invoice amount + custom
duties + freight insurance + other charges
○ If the imported goods are subject to excise tax, that
should be part of the tax base

ON SALE, ETC. OF ● 12% of gross receipts derived by any person engaged in the
SERVICES, AND sale or exchange of services for a fee or consideration
USE OR LEASE OF including the use or lease of properties, whether real or
PROPERTIES personal
VAT INPUT VS. VAT OUTPUT

VAT INPUT VAT OUTPUT

● VAT or taxes that occur from the
purchase of goods and or services
● It is the VAT which is included in the
price when you purchase vatable
goods or services for your business
and is claimed back if your business is
registered as a VAT Vendor
● VAT or taxes that occur from the
sale of goods and or services
● It is the VAT that is included in the
price when you sell vatable goods
or services for your business and
is claimed back if your business is
registered as a VAT Vendor

Zero-Rated Tax
● Taxable transactions for the purposes of the VAT (not imposed)
● Seller is not liable to pay output tax
○ Allowed to credit or deduct input tax from his other tax liability
● Usually lower tax burden on lowincome households
● Ex. Certain food items and medical equipment

VAT-Exempt Transactions
● Government doesn't tax the sale of the good
● Seller is not allowed tax credit for input tax
○ Can be partially exempted
● Export sales are exempted if the taxpayer is not a VAT-registered person
● Ex. Insurance and certain services offered by doctors and dentists

Main Differences

Zero-Rated Sales VAT-Exempt Transactions

Resellers can claim VAT on these goods Resellers cannot claim VAT on these
and can credit input taxes products and is not allowed tax credits
 Both do not charge VAT on goods and services sold

Philippine Economic Zone Authority (PEZA)

● Under RA No. 7915, otherwise known as “The Special Economic Zone Act of 1995”
○ Government foreign investments mechanism
○ For foreign investors to establish businesses in the Philippines
● Purpose:
○ Generation of labor
○ Improvement of interaction between the Philippines and other
international territories
○ Revenue generation

Technical Importation
● The purchase of economic-zone registered entities from abroad to a non-ecozone
within the Philippines.
● Eco-zone is viewed as a separate customs territory, even though located within the
same country.

Specific Registrable Business Activities

● Registered as an ecozone under the Philippine Economic Zone Authority (PEZA).
○ Export Manufacturing - Economic Zone Export Manufacturing Enterprise
○ Information Technology Service Export - Economic Zone IT Enterprise or IT
Parks and Buildings
○ Medical Tourism - Medical Tourism Enterprise
○ Agro-industrial Bio-fuel Manufacturing - Agro-industrial Economic Zone
Developers or Operators and Locators
○ Economic zone development and operation
 ○ Facilities Provider
○ Utilities - Economic zone utilities enterprise

Prior Registration to Avail of Benefits and Incentives

● Not automatic and prior registration is required
● Can file during the stage of incorporation with SEC or after SEC approval
● Documentary Requirements: e.g. SEC corporate papers, business plan
● PEZA locators must be located in a particular ecozone
○ specific area registered by PEZA or building accredited as an IT building

Incentives to Registered Activities

● Registered is the particular business activity engaged into
○ One business activity = one registration
● Registered corporation may not be qualified tax and other incentives with respect
to non-registered activities

Specially Defined Fiscal and Non-Fiscal Incentives

● Fiscal Incentives
○ Income tax holiday of specific duration (4 or 6 years), and subject to
extension under certain conditions - not be liable to 30% income tax
○ 5% special income tax upon expiration of the income tax holiday. 5% is based
on the defined gross income where only specific enumerated expenses are
deductible from gross sales or gross receipts
○ Tax and duty-free importation 0% VAT on purchases of goods and services
for use in the registered activity
○ Exemption from withholding taxes on payments of local buyers from
customs territory
 ○ Exemption from payment of any and all local government fees, imposes,
licenses, or taxes
● Non-fiscal Incentives
○ Simplified import-export procedures
○ Employment of non-resident foreign nationals in supervisory, technical or
advisory positions
○ Special non-immigrant VISA to certain officers and employees
● Enactment of CREATE law introduces a targeted incentive system

Compliance of the Terms and Conditions

● Not a boundless privilege
● Subject to terms and conditions laid down in the Registration Agreement signed by
the representatives of the company and PEZA
○ Sample terms: amount of sales on annual basis, percentage of production
export, number of employees, submission of reports on a periodic basis,
environmental compliance
● Failure to abide with terms: penalties or cancellation of the certificate of
registration by PEZA

7-Step Registration Process

1. Submit application documents
2. Pay application fee of P 3,600.00 and secure official receipt
3. Submit duly accomplished application form with other required documents
4. Wait for receipt of Board Resolution
5. Submit pre-registration requirements stated
6. Pay registration fee of P 6,000.00
7. Sign registration agreement with PEZA
Documentary Requirements

For enterprise-level information:

● DTI or SEC Certificate of Registration, whichever is applicable
● Bureau of Internal Revenue (BIR) Certificate of Registration
● Tax Identification Number (TIN)
● General Company Information
● Business capitalization and Ownership Structure
● Authorized Business Representative Details
● Latest Audited Financial Statement (AFS), is applicable

For Project or Activity-level Information:

● Location address, contacts, activity representative details
● Description, classification, and type of activity
● Project or activity set-up timetable
● Committed investment capital and other related details
● Facility or utility requirements
● Projected financial performance
● Projected sales, raw materials, and production
● Projected employment, by type

Transactions Deemed Sale

● Transfer, use, or consumption not in the course of business of goods originally
intended for sale or for the use of the business.
● Distribution or Transfer to:
○ Shareholders or investors as share in the profits of the VAT-registered
person
○ Creditors in payment of debt
 ● Consignment of goods if actual sale is not made within 60 days from the date such
goods were consigned
● Retirement from or cessation of business, with respect to inventories or taxable
goods existing as of such retirement or cessation

Input VAT
● VAT due on or paid by a VAT registered person
● Importation of goods or local purchase of goods, properties, or services including
the lease of the use of property n the course of trade or business
● (Ex. importation of goods, purchase of real properties where VAT was actually paid,
presumptive input tax on the manufacture of certain products)

Transitional Input
● Any person who elects to be a VAT-registered person
● 2% of the value of the beginning inventory on hand
● 2% of the actual VAT paid on such goods, materials, and supplies whichever is
higher

Presumptive Input Tax

● Cannot determine actual input tax attributable in such processing of the product
● Processing of sardines, mackerel, and milk, and manufacturing refined sugar,
cooking oil, and packed noodle-based instant meals shall be allowed presumptive
input tax
● Equivalent to 4% of the gross value of money of their purchases of primary
agricultural products (used as inputs to production)
Withholding VAT
● Tax withheld by National Government Agencies and instrumentalities including
government-owned and controlled corporations and local government units,
 before making any payments to VAT registered taxpayers/suppliers/payees on
account of their purchases of goods and services

QUARTERLY VAT RETURNS

Documentary Requirements
1. Certificate of CredItable VAT Withheld at Source (BIR Form No. 2307)
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to
Withholding Tax at Source (SAWT)
3. Duly approved Tax Debit Memo
4. Duly approved Tax Credit Certificate
5. Previously filed return and proof of payment, for amended return
6. Authorization letter, if return is filed by authorized representative

Procedures
1. Fill up BIR Form 2550Q in triplicate copies (two copies for the BIR and one copy for
the taxpayer)
2. If there is payment:
a. File the Monthly VAT declarations, together with the required attachments,
and pay the VAT due to any Authorized Agent Bank
b. Accomplish and submit BIR-prescribed deposit slip (AAB receiving must
stamp mark the word "Received"
c. If place has no AAB, file Monthly VAT declaration with required attachments
and pay VAT due with the Revenue Collection Officer
3. If there is NO payment:
a. File the Quarterly VAT Return with required attachments with the
RDO/LTDO/Large Taxpayers Assistance division, Collection Agent having
jurisdiction over the registered address of the taxpayer (head office of the
business establishment)
Reminders:
● Only ONE consolidates Monthly VAT Declaration/Quarterly VAT Return shall be
filed covering the results of operation of the head office as well as the beanches for
all lines of business subject to VAT
● Sales and purchases data summaries need to be submitted in a Compact
Disk-Recordable (CDR) format following the guidelines in Section 4.114-3(g) of RR
No. 16-2005, as amended by RR No. 1-2012.
● Taxpayers under the Large Taxpayers Service (LTS) and those enrolled under the
eFPS need to submit the Quarterly Summary Lists of Sales and Purchases through
an electronic filing facility.

Deadline: Within twenty five (25) days following the close of thetaxable quarter

Computation:
● VAT Payable = Output tax - Input tax
● Output tax = Gross sales/receipt x 12%
● Input tax = Purchase of goods/properties/sales x 12%

Credit/Refund of Excess Input Tax

● If the input tax exceeds the output tax (Input > Output), then the taxpayer has an
option to be refunded or credited the balance.

Filing of Return of Payment of Tax

When:
● Filed within 25 days following close of each taxable quarter
● File 25 days before cancellation
○ If registration is cancelled on application of ceasing liability to VAT or
optionally registered although exempt
Where: (Filed and paid to:)
 ○ authorized agent bank,
○ Revenue District Officer,
○ Revenue Collection Officer, or
○ duly authorized treasurer of city/municipality.

Lease of Property
Residencial Units
● Used solely for dwelling places
○ Ex: apartments, houses, etc.
○ Except: motels, hotels, lodging houses, etc.
● If monthly rent is P15,000 or less, it is exempt from VAT aggregate annual gross
receipts (AGRs).
● If more than P15,000, subject to 12% VAT if AGRs exceed P3 million. Subject to 3%
percentage tax if AGRs doesn't exceed P3 million and tax payer is VAT registered
Commercial Units
● VAT registered
○ Subject to VAT regardless of amount of AGRs and monthly rental per unit
(more than P15,000).
● Not VAT registered
○ 3% percentage tax if AGR do not exceed P3 million.

Percentage Taxes
- are taxes measured by a certain percentage of the gross selling price or gross value in
money of goods sold, bartered, exchanged or imported, or gross receipts or earnings
derived by any person engaged in the sale of services.

Nature of Percentage Taxes

 ● Privilege taxes - imposed on the privilege to sell commodities or services

Basis of Percentage Taxes

- Tax is based on gross receipts unless the basis of tax is the premium collected
● Gross receipts – all amounts received by the prime or principal contractor
undiminished by any amount paid to any subcontractor under a subcontract
agreement, including income from television, radio, and motion picture rights, if
any

Percentage Taxes:
1) Tax on Small Business Enterprises
a) Liable: Those exempt from payment of VAT (because their annual gross sales
or receipts do not exceed ₱ 3 million) and are not VAT-registered
b) Amount: 3% of their gross quarterly sales or receipts
c) Exemptions: Cooperatives are exempt but required to register and are
subject to pay the annual registration fee of ₱ 500

2) Tax on Domestic Carriers and Keepers of Garage

a) Liable:
● Domestic carriers by land, for the transport of passengers (except for
bancas and owners of animal-drawn two-wheeled vehicles) such as:
○ Cars for rent or hire driven by the lessee
○ Transportation contractors
○ Persons who transport passengers for hire
● Keepers of Garages
b) Amount: 3% of their gross quarterly receipts which shall not be less than the
minimum provided in Sec. 117 of the NIRC:
● Jeepney for hire:
○ Manila and other cities = ₱ 2,400
 ○ Provincial = ₱ 1,200
● Public utility bus:
○ Not exceeding 30 passengers = ₱ 3,600
○ Exceeding 30 but not exceeding 50 passengers = ₱ 6,000
○ Exceeding 50 passengers = ₱ 7,200
● Taxis:
○ Manila and other cities = ₱ 3,600
○ Provincial = ₱ 2,400
● Car for hire:
○ with chauffer = ₱ 3,000
○ without chauffer = ₱ 1,800

3) Tax on International Carriers

a) Liable: International carriers, air or shipping, doing business in the
Philippines
b) Amount: 3% of their gross quarterly receipts derived from transport of cargo
from the Philippines to another country

4) Tax on Franchise Grantees

a) Liable: Franchise holders or grantees in respect to all franchises on radio
and/or television broadcasting companies whose annual gross receipts of
the preceding year do not exceed ₱10 million
b) Amount: 3% of their annual gross receipts (unless they opt to be registered
as VAT taxpayers)
a) Liable: Franchise holders or grantees in respect to all franchises on gas and
water utilities
b) Amount: 2% based on gross receipts derived from the business covered by
the law granting the franchise
 c) Additional: Electric utilities are subject to VAT instead of franchise tax

5) Overseas Communications Tax

a) Liable: Persons paying for transmission of overseas dispatches, messages or
conversations by telephone, telegraph, telewriter exchange, wireless and
other equipment services
b) Amount: 10% of the amount paid for such services
i) To be collected and remitted by the person rendering the services

6) Tax on banks and non-bank financial intermediaries performing quasi-banking

functions
a) Liable:
● Bank – may be a:
○ Commercial bank
○ Rural bank
○ Thrift bank
○ Development bank
○ Specialized government bank
● Financial Intermediary – is an entity authorized by the Central Bank
to perform quasi-banking activities which refer to:
○ Borrowing funds from 20 or more lenders at any one time, for
the borrower’s own account or for relending to a third party
b) Amount: The tax is based on gross receipts (calculated based on GAAP):
i) On interest, commissions and discounts from lending activities as
well as income from financial leasing on the basis of remaining
maturiries of instruments from which such receipts are derived:
(1) Maturity period is five (5) years or less ………………….... 5%
(2) Maturity period is more than five (5) years ……………..… 1%
 To which: in case the maturity is shortened through pretermination,
the maturity period shall be reckoned to end as of the date of
pretermination

ii) On dividends and equity shares in net income ofsubsidiaries ….. 0%

iii) On royalties, rentals of property, real or personal, profits form
exchange and all other items treated as gross income under Sec. 32 of
the Tax Code (NIRC) …………………………………………………………... 7%
iv) On net trading gains within the taxable year in foreign currency, debt
securities, derivatives and other similar financial instruments……. 7%
c) The Commissioner is empowered to impose the same tax above provided on
persons performing similar banking activities.

7) Tax on other non-bank financial intermediaries

a) Liable: Other non-bank financial intermediaries
b) Amount: The tax is based on gross receipts (calculated based on GAAP):
i) Tax is 5% based on the gross receipts derived from interest
commissions, discounts and all other items treated as gross income
ii) The interest, commissions and discounts from lending activities, as
well as income from financial leasing on the basis of remaining
maturiries of instruments from which such receipts are derived:
(1) Maturity period is five (5) years or less ………………….... 5%
(2) Maturity period is more than five (5) years ……………..… 1%

To which: in case the maturity is shortened through pretermination,

the maturity period shall be reckoned to end as od rhe date of
pretermination
 c) The Commissioner is empowered to impose the same tax above provided on
persons performing similar banking activities.

8) Tax on life insurance companies and agents of foreign insurance companies

a) Liable: Life insurance companies, agents of foreign insurance companies,
surety companies (deemed insurance companies for tax)
b) Amount: 2% of the total premiums collected by such companies

a) Liable: Agents of non-resident foreign insurance companies

b) Amount: 10% of the total premiums received

a) Liable: Owners of property obtaining insurance directly with foreign

insurance companies
b) Amount: 5% of the premiums paid
c) Exemptions:
Certain premiums mentioned by law are not included in the taxable
receipts:
i) Premiums refunded within six (6) months after payment on account
of rejection of risk or returned for other reason to a person insured
ii) Reinsurance premiums where the tax has been previously paid
iii) Premiums collected or received by any branch of a domestic
corporation, firm, or association doing business outside the
Philippines on account of any life insurance of the insured who is a
nonresident, if any tax on such premium is imposed by the foreign
country where the branch is established
iv) Premiums collected or received on account of any reinsurance , if the
insured, in case of personal insurance, resides outside the Philippines,
 if any tax on such premiums is imposed by the foreign country where
the original insurance has been issued or perfected;
v) Portion of the premiums collected or received by the insurance
companies on variable contracts (as defined in Section 232(2) of
Presidential Decree No. 612), in excess of the amounts necessary to
insure the lives of the variable contract workers.
9) Amusement Taxes
a) Liable: Proprietors, lessees or operators of amusement places
b) Amount: (as percentage of gross receipts)
Gross receipts – all receipts of the proprietor, lessee, or operator
● 18% – cockpits, cabarets, and night or day clubs
● 10% – boxing exhibitions
● 15% – professional basketball games
● 30% – jai-alai and race tracks

a) Liable: Winners in race horses or jai-alai

b) Amount:
● 10% of the winning or “dividends” – basedon the actual amount paid
to the winner for every winning after deducting the cost of the ticket
● 4% of winnings – from double, forecast/quinella and trifecta bets
● 10% of prizes –owners of winning race horses
c) Tax shall be deducted from the “dividends” corresponding to each winning
ticket and withheld by the operator, manager, or person in charge of the race
hosrses or jai-alai before paying the “dividends” to the person/s entitled
thereto.

Question: Is Amusement Tax a final tax?

Answer: No. Because it’s subject to OSD. It says there are deductions
Filing of Return and Payment of Percentage Taxes
1) When to file tax returns:
Quarterly percentage tax return of the amount of gross sales, receipts or
earning and payment of tax due thereon – within 25 days after the end of
each taxable quarter

a) Overseas communication tax and Amusement Tax – within 20 days after the
end of each quarter
b) Tax on winnings – within 20 dats from the date the tax was deducted and
withheld
c) Tax on sale, etc. of shares of stock listed and traded in local stock exchange
or in the case of primary offering– within 30 days from the date of the listing
of the shares of stock on the local stock exchange

2) Where to file (except as the Commissioner otherwiser permits):

Every liable person may file a separate return for each branch or place of business
or a consolidated return for all branches with:
a) An authorized agent bank
b) The Revenue District Officer (RDO)
c) The Revenue Collection Officer (RCO)
d) Duly appointed treasurer of the city or municipality where business is
principally located

3) Persons retiring from business:

a) shall notify the nearest internal revenue officer
b) file their returns
c) Pay the tax due thereon within 20 days after closing their business
Excise Taxes
- Taxes imposed on certain specified goods or articles manufactured or produced in
the Philippines for domestic sale or consumption or for any other disposition and to
things imported and services performed in the Philippines

Nature of Excise Taxes

- Fixed levies subjecting directly certain produce or goods to tax.
- Tax on property

Kinds of Excise Taxes

1. Specific tax – Based on weight
2. Ad Valorem tax – Based on selling price

Goods Subject to Excise Tax

Generally, goods subject to excise taxes are also subject to value-added tax (VAT).
1. Goods manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition;
2. Things imported from foreign countries;
3. Services rendered in the Philippines
Note: The first thing to be deducted when computing tax is excise tax.

Excise Tax is Refundable Excise Tax is

Non-Refundable

When goods locally produced or manufactured are removed If the goods exported
for exportation and are actually exported without returning to are mineral products,
the Philippines. Whether so exported in their original state or except coal and coke.
products.
Poducts Exclusively Subject to Excise Tax

Product Specific Tax Ad Valorem Tax

Alcohol Distilled spirits, Wine, Fermented Distilled Spirits, Wine

Alcohol

Tobacco Scraps, Cutting Etc., Tobacco etc., Cigar

Cigars, Cigarettes, Heated Tobacco
Products, Vapor Products

Petroleum Lubricating oil, Greases, Processed

gas, Waxes and petrolatum,
Denatured alcohol used for motive
power, Naptha, Gasoline, Kerosene,
Diesel fuel oil, Liquefied petroleum
gas, Aviation turbo fuel, Bunker fuel
oil, Asphalts

Miscellaneous Sweetened beverages, Carbonated Automobiles,

articles and Beverages, Powdered drinks not Non essential good:Real or
goods classified as milk, Juice, tea and imitation pearls, precious
coffee, Other non-alcoholic semi-precious stones and
beverages that contain added sugar imitations therefore of
precious metals or imitation
thereofe such as gold and
silver, Opera glasses,
Lorgnettes, perfume and
toilet waters, yacht and
other vehicles intended for
pleasure or sports.

Non-essential Performances of services on invasive

services cosmetic procedures surgeries and
body enhancement solely for patients
apperance
 Mineral Coal and coke Metallic, Non-metallic
minerals, Quarry resourced,
Indigenous petroleum

Ad valorem Tax on Automobile

Under RA No. 10963 (TRAIN)
Bracket 1:
● All vehicles with a net manufacturer or importer’s price selling up to 600,000 or
less is taxed 4%
Bracket 2:
● Cars priced not more than 600,000 >1,000,000 is taxed 10%
Bracket 3:
● Vehicles priced 1,000,000 - 4,000,0000 tax 20%
Bracket 4:
● All vehicles price is excess of 4,000,000 are taxed at 50%
Hybrid vehicles subject to 50% Purely electric vehicles and pick-ups exempt form excise tax
- The new system is ad valorem while the previous system is specific.

How Rates of Specific Tax are Levied

Volume As in the case of distilled spirits, wines, fermented liquor and petroleum
products

Length As in the case of tax formerly imposed on cinematographic films

Weight As in the case of manufactured products of tobacco

Number As in the case of cigars and cigarretes

Rates and Bases of Excise taxes

Distilled Spirits ● ad valorem tax equivalent to 22% of the net retail price (excluding
the excise tax and VAT)
● specific tax per proof liter of ₱47, ₱52, (2022); ₱59 (2023) and ₱66
(2024)

Wines ● Excise tax is ₱50 per liter volume capacity

● Rate of tax shall be increased by 6% every year thereafter 2020

Fermented Liquor ● Excise tax is based on net retail price per liter of volume capacity
● Tax shall be ₱35, ₱37 (2021), ₱39 (2022), ₱41 (2023), and ₱43
(2024)
● Rates shall be increased by 6% every year thereafter

Tobacco Products ● The excise tax is ₱1.75 on each kilogram

Heated Tobacco ● Excise tax is ₱25 per pack of 20 units or packaging combinations of
Products not more than 20 units
● ₱27.50 (2021), ₱30 (2022), ₱32.50 (2023)
● Rates shall be increased by 5% every year effective on 2024

Vapor Products For conventional "freebase" or "classic" nicotine

● Excise Tax is ₱45 per 10 milliliters or a fraction thereof

● ₱50 (2021), ₱55 (2022), and ₱60 (2023)
● Rates of tax shall be increased by 5% every year

Cigars ● Excise tax is based on the net retail price per cigar
● Specific tax rate of ₱5 will be increased by 5% effective January 1,
2024

Cigarettes ● For cigarettes packed by hand the tax is collected per pack
● For cigarettes packed by machines tax is based on the net retail
price per pack
● Excise tax on cigarettes is ₱45 per pack gradually increasing to ₱60
per pack

Petroleum ● Tax is computed per liter and/or kilogram in the case of lubricating
Products oils and greases etc. (₱10)
● Processed gas (₱10)
● Denatured alcohol for motive power (₱10)
● Naphtha and regular gasoline (₱10)
 ● Naphtha used as raw materials (₱0)
● Unleaded premium gasoline (₱10)
● Aviation turbo jet fuel (₱4)
● Kerosene (₱4)
● Waxes and Petroleum (₱10)
○ and if used for aviation fuel (₱4)
● Diesel Fuel Oil (₱6)
● Liquified petroleum gas (₱3)
○ and if used for motive power (₱6)
● Bunker oil fuel (₱6)
● Asphalts (₱10)
● Petroleum coke per metric ton (₱6)
○ if used as feedstock to any power generating facility (₱0)

Miscellaneous ● In the case of non-essential goods (jewelry, pearls, perfumes, toilet

Products water, yachts, and other vessels intended for pleasure or sports) tax
is 20% based on wholesale price or the value of the importation used
by the Bureau of Customs in determining tariff and customs duties
net of excise and value-added tax

Non-essential ● 5% tax imposed on gross receipts derived from the performance of

services services, net of excise tax and value-added tax, on invasive cosmetic
surgeries, surgeries, and body enhancements directed solely
towards improving, altering, or enhancing the patient's appearance
and not meaningfully promote the proper function of the body or
prevent or treat illness or disease.
● Tax does not apply to procedures necessary 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. Cases or treatments covered by the National Health
Insurance Program are also not subject to this tax.

Sweetened ● Tax of ₱6 per liter volume capacity is imposed on sweetened

Beverages beverages using purely caloric sweeteners and purely non-caloric
sweeteners or a mix of caloric and non-caloric sweeteners
● Does not apply to sweetened beverages using high fructose corn
syrup; sweetened beverages using purely coconut sap sugar and
purely steviol glycosides are exempt from this tax
● A tax of ₱12 per liter volume capacity is imposed on sweetened
 beverages using purely high fructose corn syrup or in combination
with any caloric or non-caloric sweetener

Mineral Products Taxes are computed as follows

● coal and coke per metric ton (₱50 / ₱100 / ₱150, 2018, 2019, 2020
respectively)
● non-metallic minerals and quarry resources and locally extracted
natural gas and liquefied natural gas, gold and chromite, ad valorem
tax (4%) is based on the actual market value of the gross output or
value of the importation
● indigenous petroleum ad valorem tax (6%) is based on the
international market price thereof
● Copper and other metallic minerals (4%)
● gold and chromite (4%)
● Gold that is sold or eventually sold to the Bangko Sentral ng Pilipinas
is exempt from the payment of excise tax

Filing for Return and Payment of excise Taxes

Persons Liable
● Every person liable to pay excise tax on domestic products shall file a separate
return for each place of production
● in the case of indigenous petroleum, natural gas, or liquefied natural gas, the excise
tax or domestic products shall be paid by the first buyer, purchaser, or transferee
for local sale, barter, or transfer
● excise tax on the exported product shall be paid by the owner, lessee,
concessionaire, or operator of the mining claim
● Should domestic products be removed from the place of production without the
payment of tax, the owner or person having possession thereof shall be liable for
the tax due thereon

Time for filing return and payment of tax

 ● Excise tax on manufactured petroleum shall be paid within 10 days from the date of
removal of such products from the place of production
● Excise tax on non-metallic mineral or mineral products, or quarry resources shall be
due and payable upon removal of such products from the locality where mined or
extracted
● Locally produced and extracted metallic mineral or mineral products the person
liable shall file a return and pay the tax within 15 days after the end of the calendar
quarter when such products were removed
● Taxpayer shall file a bond in an amount that approximates the amount of excise tax
due on the removals for the said quarter
● Imported mineral or mineral products the excise tax due thereon shall be paid
before their removal from customs duty

Place for filing return and payment of tax

Exceptions:
● The time for filing the return at intervals other than the time prescribed in the
preceding paragraphs
● the manner and time of payment of excise taxes other than as herein prescribed
under a tax prepayment, an advance deposit of similar schemes
○ In the case of locally produced or extracted minerals and mineral products
or quarry resources where the mine site or place of extraction is not the
same as the place of processing or production, the return shall be filed with
the tax aid to the Revenue District Office having jurisdiction over the
locality where the same are mined, extracted, or quarried
○ For metallic minerals processed aboard, a return shall be filed and the tax
due thereon paid to the Revenue District Office having jurisdiction over the
locality where the same are mined, extracted, or quarried
In the Case of Imported Articles
● They shall be paid by the owner or imported before the release from
customshouse, or by the person in possession of the articles which are exempt from
excise taxes other than the one legally entitled to exemption
● The Authority to Release Imported Goods (ATRIG) is the authority issued by the
BIR addressed to the Commissioner of Customs allowing the release of imported
goods from customs custody upon payment of applicable taxes or proof of
exemption from payment of applicable taxes or proof of exemption from the
payment thereof, whichever is applicable.
● Should an excisable item be released without the requisite ATRIG, a presumption
arises that the taxes due thereon were not paid or not paid properly

Documentary Stamp Taxes

- Is an excise tax
- it is imposed on the privilege of entering a transaction
- a document is only taxed because of the transaction
- The purpose of DST is to raise government revenue

Tax Forms for Paying DST:

● BIR Form 2000 (Documentary Stamp Tax Declaration Return);
● BIR Form 2000-OT Documentary Stamp Tax Declaration Return (One-Time
Transactions)

Documentary Requirements:
Mandatory
1. Photocopy of the document to which the documentary stamp shall be affixed
2. Proof of exemption under special laws, if applicable
 3. Proof of payment of documentary stamp tax paid upon the original issue of the
stock, if applicable

● According to Section 2 of RR 9-2000, the nature of Documentary Stamp Tax and

Persons Liable for the Tax is
○ In General:
■ The DST taxes under Title VII of the Code is a tax on certain
transactions.
■ It is imposed against "the person making, signing, issuing, accepting,
or transferring" the document or facility evidencing the aforesaid
transactions.
■ Thus, in general, it may be imposed on the transaction itself or upon
the document underlying such act.
■ Any of the parties thereto shall be liable for the full amount of the tax
due:
● Provided, however, That as between themselves, the said
parties may agree on who shall be liable or how they may
share on the cost of the tax.
● Exception: Whenever one of the parties to the taxable transaction is exempt from
the tax imposed under Title VII of the Code, the other party thereto who is not
exempt shall be the one directly liable for the tax.
● A DST is a tax on documents, instruments, loan agreements, and papers evidencing
the acceptance, assignment, sale, or transfer of an obligation, right, or property
incident thereto. The DST is actually an excise tax because it is imposed on the
transaction rather than on the document. (Philippine Bank of Communications v.
Commissioner, G.R. No. 194065, June 20, 2016)
Documents Subject to Tax
 ● NIRC sections 174 to 198, as amended, show the 25 major categories of
documents, instruments, or transactions that are taxed at various rates.
● The most common types of DST are:
○ Original Shares Issuance,
○ Leases,
○ Debt Instruments, and
○ Mortgages
Tax Rates
Tax Rates cont.
Tax Rates cont.
Tax Rates cont.
Tax Rates cont.

Documents Not Subject to Tax

Revenue Regulations No. 13-2004, Section 9, states that the following documents are not
subject to DST:
● Policies of insurance or annuities made or granted by a fraternal or beneficiary
society, order, association or cooperative company, operated on the lodge system
or local cooperation plan and organized and conducted solely by the members
thereof for the exclusive benefit of each member and not for profit
● Certificates of oaths administered by any government official in his official capacity
or acknowledgement by any government official in performance of his official duty
● Written appearance in any court by any government official in his official capacity
● Affidavits of poor persons for the purpose of proving poverty
● Statements and other compulsory information required of persons or corporations
by the rules and regulations of the national, provincial, city or municipal
 government exclusively for statistical purposes and which are wholly for the use of
the Bureau or office in which they are filed, and not at the instance or for the use or
benefit of the person filing them
● Certified copies and other certificates placed upon documents, instruments and
papers for the national, provincial, city or municipal governments made at the
instance and for the sole use of some other branch of the national, provincial, city
or municipal governments
● Certificates of the assessed value of lands, not exceeding P200 in value assessed,
furnished by the provincial, city or municipal Treasurer to applicants for
registration of title to land
● Borrowing and lending of securities executed under the Securities Borrowing and
Lending Program of a registered exchange, or in accordance with regulations
prescribed by the appropriate regulatory authority: Provided, however, That any
borrowing or lending of securities agreement as contemplated hereof shall be duly
covered by a master securities borrowing and lending agreement acceptable to the
appropriate regulatory authority, and which agreement is duly registered and
approved by the Bureau of Internal Revenue (BIR)
● Certificates of the administration of oaths to any person as to the authenticity of
any paper required to be filed in court by any person or party thereto, whether the
proceedings be civil or criminal
● Papers and documents filed in court by or for the national, provincial, city or
municipal governments
● Loan agreements or promissory notes, the aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000), or any such amount as may be
determined by the Secretary of Finance, executed by an individual for his purchase
on installment for his personal use or that of his family and not for business or
resale, barter or hire of a house, lot, motor vehicle, appliance or furniture:
 Provided, however, That the amount to be set by the Secretary of Finance shall be
in accordance with a relevant price index but not to exceed ten percent (10%) of
the current amount and shall remain in force at least for three (3) years
● Sale, barter or exchange of shares of stock listed and traded through the local stock
exchange (R.A 9648)
● Assignment or transfer of any mortgage, lease or policy of insurance, or the
renewal or continuance of any agreement, contract, charter, or any evidence of
obligation or indebtedness, if there is no change in the maturity date or remaining
period of coverage from that of the original instrument.
● Fixed income and other securities traded in the secondary market or through an
exchange.
● Derivatives: Provided, that for purposes of this exemption, repurchase agreements
and reverse repurchase agreements shall be treated similarly as derivatives
● Inter-branch or interdepartmental advances within the same legal entity
● All forbearances arising from sales or service contracts including credit card and
trade receivables: Provided, That the exemption be limited to those executed by
the seller or service provider itself.
● Bank deposit accounts without a fixed term or maturity
● All contracts, deeds, documents and transactions related to the conduct of
business of the Bangko Sentral ng Pilipinas
● Transfer of property pursuant to Section 40(C)(2) of the National Internal Revenue
Code of 1997, as amended
● Inter-bank call loans with maturity of not more than seven (7) days to cover
deficiency in reserves against deposit liabilities, including those between or among
banks and quasi-banks

Procedure of Filing and Paying of DST

Who?
● In the case of constructive affixture of documentary stamps, by the person making,
signing, issuing, accepting, or transferring documents, instruments, loan
agreements and papers, acceptances, assignments, sales and conveyances of the
obligation, right or property incident thereto wherever 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 at the same time
such act is done or transaction had;
● In the case of Electronic Documentary Stamp Tax (eDST) System user, by the taxpayers
belonging to the industries mandated to use the web-based eDST System in the
payment/remittance of DST liabilities and the affixture of the prescribed
documentary stamp on taxable documents and taxpayers who, at their option,
choose to pay the DST liabilities thru the eDST System pursuant to Revenue
Regulations (RR) No. 7-2009.

Note: Whenever one party to the taxable document enjoys exemption from the tax herein
imposed, the other party thereto who is not exempt shall be the one directly liable for the tax.

How?
● The return shall be filed within five (5) days after the close of the month when the
taxable document was made, signed, issued, accepted or transferred or upon
remittance by revenue collection agents of collection from the sale of loose
documentary stamps.
● The return shall be filed with the Authorized Agent Bank (AAB) within the
territorial jurisdiction of the Revenue District Office where the residence or place
of business of the taxpayer is located or where the collection agent is assigned. In
places where there are no AABs, the return shall be filed directly with the Revenue
 Collection Officer (RCO) within the Revenue District Office which has jurisdiction
over the residence or place of business of the taxpayer or where the collection
agent is assigned.
● Upon filing of this return, the total amount payable shall be paid to the AAB where
the return is filed within five (5) days after the close of the month when the taxable
document was made. In places where there are no AABs, the tax shall be paid with
the Revenue Collection Officer who shall issue an Electronic Revenue Official
Receipt (eROR) therefor.
● When the return is filed with an AAB, taxpayer must accomplish and submit
BIR-prescribed deposit slip, which the bank teller shall machine validate as
evidence that payment was received by the AAB. The AAB receiving the tax return
shall stamp mark the word “Received” on the return and also machine validate the
return as proof of filing the return and payment of the tax by the taxpayer,
respectively. The machine validation shall reflect the date of payment, amount paid
and transactions code, the name of the bank, branch code, teller’s code and teller’s
initial. Bank debit memo number and date should be indicated in the return for
taxpayers paying under the bank debit system.
● The document, instrument, or paper shall not be recorded in the government
registry;
● Such document, instrument, or paper or any record or transfer the same shall not
be admitted or used in evidence in any court until the requisite stamp or stamps
shall have been affixed thereon and cancelled
● No notary public or other officer authorized to administer oats shall add his jurat or
acknowledgement until the document is properly stamped
● In case of failure to affix the proper documentary stamps to a document or
instrument, there shall be, for every violation, to be imposed, in addition to the
amount of tax required to be paid, an amount equivalent to 25% of such unpaid
 amount as surcharge and 20% interest per annum. from the date prescribed for
payment until the amount is fully paid.

ORGANIZATIONAL STRUCTURE OF THE BUREAU OF INTERNAL REVENUS

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Organization of the Bureau of Internal Revenue

● The Bureau of Internal Revenue (BIR) is under one chief, namely the Commissioner
of Internal Revenue and has four Deputy Commissioners of Internal Revenue for
specific groups (Operations, Legal, Information Systems, Resource Management)
● As a national office, the function of the BIR is confined to general direction,
guidance, and control of the entire operations of internal revenue service, national
 policy formulation, and program planning for efficient and effective implementation
of internal revenue laws and regulations.

Commissioner of Internal Revenue

● Chief Executive Officer of the BIR
● Appointed by the President upon recommendation of the Secretary of Finance
● Formulates the policies and administers the activities of the Bureau
● Given full authority in matters of discipline and appointment of internal revenue
personnel
● With the approval of the Secretary of Finance, he may make the necessary rules
and regulations as may be needed to delineate the authority and the responsibility
of the various groups and services of the Bureau. (Sec. 28, E.O. No. 127.)

Deputy Commissioner of Internal Revenue

● Assists the Commissioner in supervising the administrative and operational
activities of the Bureau
● Appointed by the President upon the recommendation of the Commissioner and
approval of the Secretary of Finance

Powers and Duties of the Bureau of Internal Revenue

1. Principal Functions. The Bureau’s powers include the power:
a. To assess and collect all national internal revenue taxes, fees, and charges;
b. To enforce all forfeitures, penalties, and fines connected therewith;
c. To execute judgments in all cases decided in its favor by the Court of Tax
Appeals and ordinary courts, particularly the Regional Trial Courts and the
Metropolitan and Municipal Courts;
d. To give effect to and administer the supervisory and police power (see I,
infra.) conferred to it by law. (Sec. 2.) The Bureau of Internal Revenue may
claim police power only when necessary in the enforcement of its principal
 powers and duties in (a) and (b) above (Vera vs. Cuevas, 90 SCRA 379
[1979]);
e. To recommend to the Secretary of Finance all needful rules and regulations
for the effective enforcement of the provisions of the Tax Code (Sec. 245,
NIRC.); and
2. Other Functions.
a. accounting for all revenues collected;
b. exercising all legal requirements that are appropriate;
c. preventing and prosecuting tax evasions and other illegal economic
activities;
d. exercising supervision and control over its constituent units; and
e. performing such other functions as may be provided by law. (Sec. 28, E.O.
No. 127.)
Furthermore, there are constituted agents of the Commissioner:
● Commissioner of Customs - collection of national internal revenue taxes on
imported
● articles
● Head of Appropriate Government Office - collection of energy tax
● Duly Authorized Banks - receipt of payments of internal revenue taxes made under
them

Authority of Commissioner to delegate powers vested in him

● As a general rule, the Commissioner may delegate the powers vested in him according
the to the pertinent provisions of the Tax Code to any subordinate officials with the
ranks
equivalent of division chief or higher, subject to the limitations imposed by the
Secretary of Finance
 ● Exceptions (The following powers of the Commissioner cannot be delegated):
○ power to recommend the promulgation of rules and regulations by the
Secretary of Finance
○ power to issue rulings of first impression or to reverse, revoke, or modify
any existing ruling of the Bureau
○ power to compromise or abate (infra.) any tax liability
○ power to assign or reassign internal revenue officers to establishments
where articles subject to excise tax are produced or kept. (Sec. 7.)

Cooperative
- is an autonomous and duly registered association of persons, with a common bond
of interest, who have voluntarily joined together to achieve their social, economic,
and cultural needs and aspirations by making equitable contributions to the capital
required, patronizing their products and services and accepting a fair share of the
risks and benefits of the undertaking in accordance with universally accepted
cooperative principles (Republic Act 9520; Philippine Cooperative Code of 2008).

Types of Cooperatives
a. Credit Cooperative i. Cooperative Bank
b. Consumer Cooperative j. Dairy Cooperative
c. Producers Cooperative k. Education Cooperative
d. Marketing Cooperative l. Electric Cooperative
e. Service Cooperative m. Financial Service Cooperative
f. Multi-Purpose Cooperative n. Fishermen Cooperative
g. Advocacy Cooperative o. Health Services Cooperative
h. Agrarian Reform Cooperative p. Housing Cooperative
 q. Insurance Cooperative s. Water Service Cooperative
r. Transport Cooperative t. Workers Cooperative

Categories of Cooperative
● Primary
● Secondary
● Tertiary

Kinds of Memberships
● Regular – entitled to all rights and privileges of membership
● Associate – no right to vote nor be voted upon and shall be entitled only to such
rights and privileges as the bylaws
Brief History
● 1990
○ RA No. 6938 and RA No. 6939
○ Cooperative Code of the Philippines and CDA Charter, respectively.
● 2019
○ RA No. 11364
○ Cooperative Development Charter

Cooperative Development Authority

- is a proactive and responsive lead government agency for the promotion of
sustained growth and full development of the Philippines cooperatives for them to
become broad-based instruments of social justice, equity, and balanced national
progress.

Mandate
- The CDA is mandated by law to promote the viability and growth of cooperatives
as instruments of equity, social justice, and sustainable economic development.
Legal Basis
- Section 15, article XII of the Philippine Constitution: The Congress shall create an
agency to promote the viability and growth of cooperatives as instruments for
social justice and economic development.

Enforcement
- UNDER RA 6939
- Provide legal assistance
- Assist the Board and other bodies
- Handle administrative cases
- Assist in the promulgation of rules governing the operations of the
Authority
- Perform such other functions as may be provided by law

Functions of CDA
Sec.5 of the Executive Order no. 96 of RA 9520
● Conduct seminars and workshops
● Develop such operating and training manuals
● Provide information to the local government units
● Assist the local government units
● Provide the local government units with updated lists of cooperatives
● Coordinate the efforts of the private cooperative sector and the local government
units

Registration
● Step 1: Issuance of Cooperative Name Reservation Notice (CNRN)
 ○ Submission of Cooperative Name Reservation Report Form (CNRRF) shall
be submitted either to CDA Central Office or Regional Offices nationwide
through personal, postal mail, courier, electronic mail, or online.
○ Name Reservation:
■ Thirty (30) calendar days – Php 100.00
■ Sixty (60) calendar days – Php 200.00
■ Ninety (90) calendar days – Php 300.00
○ The cooperative name shall be in accordance with the prescribed guidelines.
○ All reserved names shall be valid in accordance with the period specified in
the Cooperative Name Reservation Notice.
● Step 2: Issuance of Certificate of Registration (COR)
● Step 3: Issuance of Certificate of Amendments
● Step 4: Issuance of Certificate of Authority (COA)
● Step 5: Issuance of Letter of Authority (LOA)
● Step 6: Issuance of Certificate of Recognition (CoR)
● Step 7: Issuance of Certificate of Merger or Consolidation

The initial registration fee to be imposed shall be 1/10 of 1% of the paid-up capital or the
basic fee below whichever is higher:
● Primary Co-ops - Php 500
● Secondary Co-ops - Php 2,000
● Tertiary Co-ops - Php 3,000
● Laboratory Co-ops - Php 50

Tax Exemption
(RMC No. 124-2020)
 ● Article 60 and 61 of RA No. 9520 provides that, "transactions of members with the
cooperative shall not be subject to any taxes and fees, including but not limited to
final taxes on members' deposits and documentary tax"
● Section 11 of the Joint IRR states that all members of the cooperative shall be liable
to pay all the necessary internal revenue taxes under the NIRC, as amended, except
any tax and fee but not limited to the final tax on member's deposit (otherwise
known as share capital with cooperatives) and documentary tax on transactions of
members with the cooperative.
● The cooperative is exempt from the assessment of the 1% and 2% creditable
withholding tax on isolated purchases of not more than P 10,000 each from
non-regular suppliers, provided that it is not considered a Top Withholding Agent

Classifications of Cooperatives According to the Extent of Tax Exemptions Granted:

1. Duly registered cooperatives that transact business with members only shall be
exempt from paying any taxes and fees, including but not limited to:
a. Income tax
b. VAT
c. Percentage tax
d. Donor's tax
e. Excise tax
f. Documentary Stamp tax
g. Annual registration fee
h. All taxes on transactions with insurance companies and banks, including but
not limited to 20% final tax on interest deposits and 7.5% final income tax on
interest income derived from a depository bank under the expanded foreign
currency deposit system
 2. Duly registered cooperatives that transact business with both members and
non-members are further subclassified:
a. Cooperatives with accumulated reserves and undivided net savings of not
more than ten million pesos(Php10,000,000); and
b. Cooperatives with accumulated reserves and undivided net savings of more
than ten million pesos (Php10,000,000).
i. With Members - shall be exempted from all national internal revenue
taxes
ii. With Non-members:
1. Pay the following taxes at a full rate:
a. Income Tax
b. VAT
i. Exempt transactions shall include sales made by
a (1) duly registered agricultural cooperative, (2)
gross receipts from lending activities, (3) sales
by non-agricultural, non-electric, non-credit
co-ops duly registered with the CDA (capital
contribution must not exceed Php15,000
c. Percentage Tax

Registration for Tax Exemption

● Sec. 2 → Submission to the Bureau of Internal Revenue (BIR) of the list of duly
registered cooperatives.
○ Registered Cooperatives Master List shall be updated within 30 days after
the close of every calendar year
○ 30 days after approval of IRR
 ● Sec. 3 → Submission to the LGUs of the list of duly registered cooperatives.
○ Provide LGUs an updated Master List
○ 60 days after the close of every calendar year
Requirements:
● Certified True Copies of the following (RMC No. 124-2020):
○ Articles of Cooperation and By-Laws (latest for renewal)
○ new Certificate of Registration
○ current Certificate of Good Standing
○ BIR Certificate of Registration of the cooperative
● Original Copy of Certification under Oath of the List of Cooperative Members with
their respective Taxpayer Identification Number (TIN) for new applications only.

Inactive Members:
● RMC No. 124-2020:
○ Not in good standing
○ Unknown whereabouts for the last continuous period of six (6) months
○ No transactions (or did not patronize) business of the cooperative for the
continuous period of at least six (6) months
○ No participation in activities for the last continuous period of six (6) months

NONETHELESS, the status of an inactive member reverts into an active member as

soon as he/she transacts business, patronizes, and/or participates in the activities
of the cooperative, and his/her whereabouts are known.
RMC No. 121-2021
● all members of cooperatives shall be liable to pay all the necessary internal revenue
taxes under the NIRC, as amended, except for “any tax and fee, including but not
limited to final tax on member's deposits or fixed deposits (otherwise known as
 share capital) with cooperatives, and documentary tax on transactions of members
with the cooperative”, among others.
● Member's deposit refers to savings and time deposits of both regular and associate
members while share capital refers to a member's paid-up capital.

RMC No. 48-2022

● revises the provisions on the submission of financial statements of cooperatives
registered under the Cooperative Development Authority (CDA) as a requirement
for the renewal of the Certificate of Tax Exemption (CTE) of cooperatives.
● cooperatives registered under the CDA whose gross annual sales, earnings,
receipts do not exceed the threshold of ₱ 3,000,000 shall not be required to submit
a Financial Statement audited by an independent CPA when renewing its
application for CTE.

Prohibition (Cooperative Development Authority Charter of 2019)

● Use of the word “cooperative”, “coop”, “co-op” and “koop”
○ imprisonment of not less than two (2) years nor more than five (5) year
○ fine not exceeding Php20,000
○ or both at the discretion of the court

Tax Remedies – The purpose is to maintian equilibrium between the interest of the state
and the taxpayer.

REMEDIES AVAILABLE TO THE GOVERNMENT

Administrative Remedies:
● Distraint of personal property
● Levy of real property
● Enforcement of forfeiture of property
 ● Enforcement of tax lien
● Entering into compromise of tax cases
● Requiring the filing of bonds
● Requiring proof of filing income tax returns
● Giving of rewards to informers
● Imposition of surcharge and interest
● Making arrest, search, and seizure
● Deportation of aliens
● Inspection and examination of books of accounts
● Use of the national tax register
● Obtaining information on tax liability of any person
● Inventory-taking of stock-in-trade and making surveillance
● Prescribing presumptive gross sales and receipts
● Termination of the tax period
● Prescribing real property values
● Inquiring into bank deposit account
● Requiring registration of taxpayers

Judicial Remedies
● Ordinary civil action
● Criminal action
Distraint vs. Levy

Distraint
- happens when the government seizes personal property, whether tangible or
intangible from a delinquent taxpayer. It is followed by a public sale of such
property and the earnings will be deemed as the payment for the unpaid taxes.

2 Kinds of Distraint
 1. Actual Distraint – There is a transfer of personal property ownership from the
taxpayer to the government
2. Constructive Distraint – It is a mere prohibition imposed to the taxpayer in exercising
their ownership rights

Levy
- similar to distraint as it also involves the government seizing property from a
delinquent taxpayer.
- The main difference is that the remedy of levy deals with real properties whereas
distraint deals with personal properties.

Requisites of Distraint and Levy

1. The taxpayer must be delinquent in the payment of tax
2. There must be a subsequent demand for its payment
3. The taxpayer must fail to pay the delinquent tax at the time required
4. The period within which to assess or collect the tax has not yet prescribed
Where constructive distraint is availed of, tax delinquency is not essential.

REMEDIES AVAILABLE TO THE TAXPAYERS

● The State and citizen stand on reasonably equal terms.
● The power of the State and the remedies of the citizens are, and should be
reciprocal.
● Every taxpayer has a right to a remedy for any actual wrong he may have suffered in the
collection of taxes. (Malcolm, Phil. Const. Law, 3rd Ed., pp.362-363; Roxas vs.
Rafferty, 37 Phil. 958 [1918].)
● A taxpayer has, in fact, several remedies available to him, depending on the nature of the
injury sustained and the kind of relief sought. It is for the courts to arbitrate the
controversy between the State and the citizen. (Ibid.)
Administrative Remedies
1. Before Payment
a. Request for reconsideration/reinvestigation
b. Entering into compromise
2. After payment
a. Filing a claim for tax refund
b. Filing a claim for tax credit

Judicial Remedies
1. Civil Action
a. Appeal to the Court of Tax Appeals
b. Action to contest forfeiture of chattel;
c. Action for damages
2. Criminal Action
a. Filing a criminal complaint against erring BIR officials and employees

Remedy Before Payment

● The taxpayer may question the legality or correctness of such assessment by filing
an administrative protest with the Commissioner of Internal Revenue or his duly
authorized representative (see "Protesting of assessment"- B, supra.), indicating in
his protest his reasons for contesting the assessment.
● He may ask the Commissioner for reconsideration or investigation if he is still
dissatisfied with the commissioner's decision.
● Thereafter, the assessment is deemed disputed.
○ the protest involves questions of facts; raises questions of law, and is
endorsed for study by the Bureau's Legal Service.
 a. Upon reconsideration or reinvestigation, the Commissioner may withdraw or
cancel the assessment or he may sustain the assessment in whole or in part. the
action of the Commissioner usually takes the form of a decision or ruling on the
petition of the taxpayer, and is contemplated by the law which may be in the form
of a letter addressed to the taxpayer informing him of the final action on his tax
liability.
b. Should the Commissioner decide the case adversely against the taxpayer, the
latter may pay the tax and thereafter file a claim for refund or credit or, without
paying the tax, he can appeal the decision on the disputed assessment to the Court
of Tax Appeals. (Sec. 7[a], 1, R.A. No. 1125, as amended.) The remedy then becomes
judicial.

● There is also another remedy available to the taxpayer. If he so desires, the

taxpayer can enter into a compromise as to the amount of tax to be paid by him in
settlement of the original claim. As earlier noted,a compromise has upon the
parties the effect of res judicata.

Remedy After Payment

- Where an internal revenue tax has been erroneously or illegally collected or penalty has
been imposed without authority, the taxpayer may file a claim for refund or credit with
the Commissioner of Internal Revenue before any suit in court (i.e., appeal to the Court of
Tax Appeals) is commenced. (see Sec. 229.)
1. The claim is one for refund where the taxpayer asks for restitution of the money
paid as tax; it is one for credit where the taxpayer asks that the money so paid be
applied to his existing tax liability.
2. The purpose of such claim before resorting to the courts is to afford the
Commissioner an opportunity to correct the mistake, if any, committed by him or
 by his subordinate officers. (Kiener Co. Ltd. vs. David, 92 Phil. 945 [1953].) It would
also serve to notify the government that the tax involved has been questioned and
the claim should then be borne in mind in estimating the revenue available for
expenditure.
3. Taxpayer has the burden to establish the facts which show the illegality of the tax
or penalty,or so that the determination thereoff is erroneous.
4. Previous objections to the tax may not take the place of the claim for refund or
credit because there may be some reasons to believe that, in paying, the taxpayer
has finally come to realize the validity of the assessment. (Bermejo vs. Coll., 87 Phil.
96 [1950]; Wee Poco vs. Posadas, 64 phil. 640 [1937].) Such claim is mandatory.
(Repibloic vs. Limaco and De Guzman Commercial Co.,Inc., 5 SCRA 990 [1962].)
5. In any case, no such suit or proceeding shall be begun after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment. (Sec. 229.)
6. A refund check or warrant issued by the BIR which shall remain unclaimed or
uncashed within five (5) years from the date the said warrant or check was mailed
or delivered shall be forfeited in favor of the government and the amount thereof
shall revert to the General Fund.
7. Similarly, a tax credit certificate that remains unutilized for five (5) years from the
date of issue shall, unless revalidated, be considered invalid, and shall not be
allowed as payment for internal revenue tax liabilities of the taxpayer and the
amount covered by the certificate shall revert to the General Fund. (Sec. 230, par.
2.)

Requisities for Tax Refund or Credit

 - The authority of the Commissioner of Internal Revenue to refund or credit taxes
erroneously or illegally received or penalties imposed without authority can only be
exercised upon compliance by the taxpayer with these conditions prescribed by law:

● Claim of the refund must be in writing

● Must be filed with the commissioner of internal revenue within 2 years after the
payment of the tax or penalty.
● It should state clearly the amount being claimed and the ground or grounds relied
upon;and should be accompanied with all pertinent papers in support of the claim
as to apprise the commissioner accordingly.

IMPORTANT TO REMEMBER: Objection to the payment of tax or payment under protest

does not amount to a request for refund or tax credit. But a return filed presenting an
overpayment shall be considered as a written claim for tax refund or credit.

Payment Under Protest not essential for Refund

● Payment under protest is not a prerequisite to a claim or action for refund or tax
credit. (Sec. 229.)
● Monies paid through error or mistake (see Art. 2154, Civil Code.), or under invalid
tax laws are refundable even if the payment were voluntary.
● The requirement of payment under protest is statutory – unless such requirement
is imposed by law, a claim for refund or credit may be maintained, whether or not
the tax or penalty has been paid under protest. (Sec. 229.)
When Written Claims is Not Necessary
1. If the taxpayer is clearly entitled to a tax refund or credit and the claim has been
approved by the Commissioner, the taxpayer may deduct the amount of the claim
from his existing tax liability. If the claim is still pending, the taxpayer may not
set-off the amount involved. Failure to pay the tax within the time prescribed by
 law will subject him to the imposition of surcharge and interest even if the claim is
subsequently approved. (see Philex Mining Corp. vs. Comm., 294 SCRA 687
[1998].)
2. "The Commissioner may, even without a written aim therefor, refund or credit any
tax, where on the face of the return upon which payment was made, such [tax]
appears clearly to have been erroneously paid." (Sec. 229.)

Interest on Refund of Taxes

1. Taxes improperly collected.
2. Taxes not shown to have been arbitrarily collected.
a. Thus, where the tax was collected pursuant to a law, it cannot be said that
the tax was arbitrarily collected.
b. There is also no arbitrariness where the figures used by the Commissioner in
his deficiency assessment were those reported by the taxpayer in its own
income tax returns; hence, the consequent error in tax assessment was
occasioned not by the Commissioner's arbitrary determination, but by the
taxpayer's admitted mistakes. (Coll. vs. Binalbagan Estate, Inc., 13 SCRA
1442 [1965].)
c. Likewise, it has been held that the delay in processing the claim for tax credit
was neither premeditated nor intentional where it was due to the splitting
into two (2) districts of a Regional District of the BIR where the claim was
filed, as a result of which the documents requesting for refund were
misplaced. (Atlas Fertilizer Corp. vs. Comm. and CTA, supra.)
3. Excess of taxes withheld upon wages

Effect of Failure to Appeal Assessments

When a taxpayer fails to appeal to the Court of Tax Appeals in due time, the decision or
assessment becomes final and executory.
 1. The taxpayer is thereafter barred, in an action for collection of the tax by the
government, from alleging in his defense that the assessment is excessive or illegal
or invoking any defense that will, in effect, reopen the question of his liability on
the merits, including that of prescription.
2. The assessment is considered correct and all that is necessary is for the
Commissioner to enforce the collection of the tax by summary remedies or by
judicial action. (see ), supra.)
3. In fact, the taxpayer may raise only questions of jurisdiction, collusion, or fraud.
(Republic vs. Lim Tian and Sons, 16 SCRA 584 [1966]; Mambulao Lumber Co. vs.
Republic, 132 SCRA1 [1984].)

Final Decision on the Motion for Reconsideration

● The rule is that the Commissioner should always indicate to the taxpayer (so that
the latter could determine when his right to appeal accrues) in clear language what
constitutes his final decision on the contested assessment, otherwise, the period to
appeal cannot be deemed to have commenced to run. It cannot be implied from the
mere issuance of a warrant of distraint or levy.
● But the filing of a suit for collection of tax may be considered a final denial of a
request for reconsideration. he period shall commence to run from receipt of
summons. (Comm. vs. Union Shipping Corp., 185 SCRÀ 547 (1990])

Requirement for Appeal in Refund and Tax Credit Cases

1. The tax has been paid;
2. The taxpayer has filed with the Commissioner of Internal Revenue a written claim
for refund or tax credit within two (2) years from the payment of the tax or penalty;
and
 3. The suit or proceeding is instituted in the Court of Tax Appeals also within the
same prescriptive period of two (2) years from the date of payment regardless of
any supervening cause that may arise after payment. (see Secs. 204, 229.)
Computation of Two-year Prescriptive Period
1. The statutory period of prescription fixed above starts from the date of payment in
as much as the collection is tainted with illegality or error from the beginning and.
Therefore, it is from that moment that the basis for the claim may be said to have
arisen.
2. Where, however, the tax was originally collected legally as where the basis for the
claim for refund is tax. Exemption subsequently granted, the prescriptive period
commences to run from the date of the occurrence of the supervening cause which
gave rise to the right of refund. (see Comm. vs. National Power Corp., 31 SCRA 112
[1970); Comm. vs. Central Azucarera Don Pedro, 49 SCRA 474 [1973].)

Remedy by Court of Tax Appeals

Where an adverse decision or ruling has been rendered by the Commissioner of Internal
Revenue with reference to a disputed assessment (the taxpayer has not paid the amount
demanded) or a claim for refund or credit (he has paid the amount demanded), the
taxpayer may appeal the same within 30 days after receipt thereof, or after the expiration
of the period fixed by law for action in case of inaction by the Commissioner (Sec. 11, RA.
No. 1125.), as amended. (see B -Protesting of assessments, supra.)
● The appeal by the taxpayer isequivalent to a judicial action
● Absent appeal, the decision becomes final and executory. But where the taxpayer
adversely affected had not received the decision or ruling, he could not appeal the
same to the Court of Tax Appeals within 30 days from notice.
● A motion for reconsideration of the decision of the Commissioner of Internal
Revenue suspends the runningof the 30-day period for perfecting appeal. The
 period shall resume to run again the day following the receipt by the taxpayer of
the Commissioner's denial of the motion of request for reconsideration.

Filing for Claim and Appeal Mandatory

● Both the claim for refund with the Bureau of Internal Revenue and the subsequent
appeal to the Court of Tax Appeals must be filed within the two-year period.
● These two (2) requirements are mandatory and non-compliance therewith would
be fatal to the action for refund or tax credit.

The taxpayer should not wait for the decision of the Commissioner because the filing of
the claim for refund with the Commissioner does not suspend the running of the
prescriptive period.

However, should the Commissioner deny the claim for refund within the two-year period,
the taxpayer has 30 days from receipt of the denial within which to appeal to the Court of
Tax Appeals (Sec.11,R.A. No. 1125, as amended; Coll. vs. C.I.A, and Hume Pipe and
Asbestos Co, Ine, 1 SCRA87 (1961]); otherwise, the court would not acquire jurisdiction
to entertain the appeal. (Philam Mining, Inc. vs, C.T.A., 34 SCRA 498 [1970].)

Remedy by Action Contesting Forfeiture of Chattel

In case of seizure of personal property under claim of forfeiture, the owner desiring to
contest the validity of the forfeiture may, at any time:
1. before sale or destruction of the property, bring an action against the person
seizing the property or having possession to recover the same and upon giving
proper bond may enjoin the sale;
2. after the sale and within six (6) months he may bring an action to recover the net
proceeds realized at the sale. (Sec. 231.)
The action referred to is obviously an ordinary civil action for recovery of personal
property (see Rule 60, Rules of Court.) or the net proceeds of its sale which must be
brought in the ordinary courts and not in the Court of Tax Appeals.

Remedy By Action for Damages Against Revenue Officers

1. The taxpayer may file an action for damages against any internal revenue officer by
reason of any act done in the performance of official duty or neglect of duty. If the
inaction can be characterized as willful neglect of duty, under Article 27 of the Civil
Code.
2. If the revenue officer has acted negligently, or inbad faith, or with willful
oppression, such officer would be personally liable. A tax officer unlawfully
attempting to enforce payment of tax ceases to be an officer of the law and
becomes a private wrongdoer. (51 Am. Jur. 1036.)

In the performance of governmental function, the State is not bound by the unlawful acts
or neglect of duty of is agents and officers. The government does not undertake to
guarantee to any person the fidelity of any officers or agents it employs, because a
contrary rule would involve the government in all its operations in endless
embarrassments and difficulties and losses which would be subversive of public interest.

Remedy by Filing Criminal Complaint Against Revenue Offers

1. extortion or willful oppression through the use of his office;
2. willful oppression and harassment of a taxpayer who refused, declined, turned
down or rejected any of his offers mentioned in No. (5);
3. knowingly demanding or receiving sums or compensation not authorized or
prescribed by law;
 4. willfully neglecting to give receipts as by law required or to perform any other
duties enjoined by law;
5. offering or undertaking to accomplish, file of submit a report or assessment on a
taxpayer without the appropriate examination of the books of accounts or tax
liability, or offering or undertaking to submit a report of assessment less than the
amount due the government for any consideration or compensation; or conspiring
of colluding with another or others to defraud the revenues of otherwise violate
the Tax Code;
6. neglecting or by design permitting the violation of the law by any other person;
7. making or signing any false entry or entries in any book, or any false certificate or
return;
8. allowing or conspiring or colluding with another to allow the unauthorized
withdrawal or recall of any return or statement after the same has been officially
received by the BIR;
9. having knowledge or information of any violation of the Tax Code, failure to report
such knowledge or information to their superior officer, or as otherwise required
by law;
10. without the authority of law, demanding/accepting money or other things of value
for the compromise or settlement of any charge or complaint for any violation of
the Tax Code
11. Deliberate failure to act on the application for refunds within the period provided
under Section 112 (Refunds or Tax Credits of Input Tax). (see Sec. 269.)

Remedies of the Taxpayer Under Special Tax Laws

Where Special Tax Law Administered by the BIR

 1. These Laws are governed by the general administrative provisions of Tax Code and
the remedies of the taxpayer already discussed under the said code are applicable
unless the law itself provides otherwise.
2. Decisions of the Commissioner of Internal Revenue in cases under special tax laws
administered by BIR are likewise cognizable by the Court of Tax Appeals.
3. Before the tax has become due and collectible, a taxpayer may bring an action for
declaratory relief to test the validity of a tax imposed bty a special law.

Where Special Tax Law Administered by the BIR

1. If the special tax laws that provide for the levy and collection of taxes are not
placed under the administration of the BIR such as the former Exchange Tax Law
(RA No. 601), Special Import Tax Law (RA No. 1394), the Tariff and Custom Code
(PD No. 1464), the Philippine Immigration Act (CA No. 614), then the the taxpayers
must avail himself of the remedies provided for in said special laws.
2. Questions arising from special laws not administered by the BIR are cognizable by
the courts of the jurisdiction and not by the Tax Court of Appeals except as
provided by Section 7 of RA No. 1125 as amended.