TAXATION NOTES

Syllabus for the 2011 Bar Examinations

TAXATION II Batch 2010-2011
Xavier University College of Law
Judge Gil Bollozos

I. GENERAL PRINCIPLES OF AND CONCEPTS TAXATION

A. )DEFINED TAXATION

Taxation is defined as:

1. A process or act of imposing a charged by governmental authority on property,
individuals or transactions to raise money for public purposes.
2. A power by which an independent state through its lawmaking body, raises and
accumulates revenue from its inhabitants to pay the necessary expenses of the
government.
3. A means by which the Sovereign (independent state) through demands for revenue in
order to support its existence and carry out its legitimate objectives.

As a power, it refers to the inherent power of a state, co- extensive with sovereignty,
to demand contributions for public purposes to support the government.

As a process, it passes a legislative undertaking through the enactment of tax laws
which will be implemented by the Executive Branch of the government to raise income
from inhabitants in order to pay the necessary expenses of the government. It is a way of
apportioning the cost of government among those who are privileged to enjoy its benefits.

Concept of Taxation

Taxation refers to the power of imposing enforced proportional contribution from
persons and property by the sovereign to accumulate revenue in order to support its
existence and carry out its legitimate objectives.

B. )THE NATURE OF TAXATION

The power to tax is an attribute of sovereignty qualities which are:

1. Inherent Power of Sovereignty

Taxation is as old as government itself. Its existence commences concurrently with
the four elements of state- people, territory, sovereignty and government. Starting from
the moment a state is born, the government having sovereignty can enforce contributions
upon its citizens even without specific provision in the Constitution authorizing it. It is
because the State has the supreme power to command and enforce obedience to its will
from the people within its jurisdiction.

Hence, tax power is existing inseparably with the State. The government can
exercise the power to tax even though the fundamental law of the land (Constitution)

Page | 1

does not previously mention about it because taxation is essentially for the existence of
the government.

Any provision in the Constitution regarding taxation does not create rights for the
sovereignty to have the power to tax but merely constitute limitations upon the
supremacy of tax power.

Notice that only the national government exercises the inherent power of taxation of
the state. Local government units or its political subdivisions do not possess the inherent
power.

In order for these government units or political subdivision to have the power to tax,
there must be an expressed constitutional provision granting them the power to tax. In the
absence of constitutional provision, at least there must be valid delegation of tax power
through the statute from the national legislature granting local government units or
political subdivisions to exercise such power.

2. Essentially a Legislative function

The law-making body of the government and its political subdivision exercises the
power of taxation. The power to enact laws and ordinances, and to impose and collect
taxes are given to the Congress (law-making body). The Congress is utilized by the
government in making of rules as to how much, for whom, when and from whom must
the money be collected

In its strict sense, the power to make tax laws cannot, in any way, be delegated to
other branches of the government. The power to tax is peculiarly and exclusively
legislative in nature and cannot be exercised by the executive or judicial branch.

Therefore, when the power to tax is delegated to the local government units (LGU),
only the legislative branch of the LGU government can exercise the power. Also, if
delegated to the President, it is limited to administrative discretion subject to valid
standards.

3. For Public Purpose

The power of taxation flows forth from the legitimate objective of supporting the
services of the government. Since public taxes are public money, they must be used to
finance recognized public needs- constructions and maintenance of roads to facilitate
mobility; providing health care; education; security; promotion of science, commerce,
industry, and others for the welfare of the general public.

Thus, in order to consider appropriation of taxes valid, it must be for the common good
of the people. No individual or particular person shall primarily be enriched or benefited
by the public funds.

Page | 2

It has been held that tax has been utilized for public purpose if the welfare of the nation
or the greater portion of its population has benefited for its use.

4. Strongest of all the inherent Powers of the Government.

In the absence of limitations provided by the Constitution, the power of taxation is
unlimited, complete (plenary), with wide extent of application ( comprehensive) and with
highest degree (supreme)and if there is any limitation at all, it is the sense of
responsibility by the members of the law making body to the people to restricts its
exercise.

Taxation power is the strongest of all inherent powers of the government because,
without money, the government can neither survive nor disperse any of its other powers
and functions effectively.

5. Territorial in Operation

As a rule, the power to tax can only be exercised within the territorial jurisdiction of
a taxing authority except when there exists a privity of relationship between the taxing
State and the object of tax.

The taxing authority determines whether it has the right of power to tax or it has the
proper jurisdiction over the object of taxation. This topic is discussed extensively in the
principle of “situs of taxation”.

6. Subject to Constitutional and Inherent Limitations

Although our Constitutional assumes the existence of taxation, it provides some
provisions to limit its exercise. Its main purpose is to protect the objects of taxation
against its abusive implementation. When a tax law under question fails to abide by the
commands of Constitution, such law shall be declared null.

As an inherent power, its very purpose and nature restrict taxation. Tax power should
be exercised for its very nature, purpose and jurisdiction.

A violation of these inherent limitations is tantamount of taking a property without
due process of law. Any tax law that contradicts the limitation of taxation is also
unconstitutional.

Page | 3

transactions. c.an exaction to be discharged alone in the form of money which must be in legal tender. the obligation of a tax is a statutory liability Page | 4 . It is ordinarily based on ability to pay. some people pay very high taxes. f. very small amounts or none at all. Although a state cab tax all persons subject to its jurisdiction for all their property left by them within its jurisdiction. It is levied by the state which has jurisdiction over the person or property The object to be taxed must be subject to the jurisdiction of the taxing state. It is proportionate in character A tax is laid by some rule of appointment according to which persons share the public burden. In each case.C. It is satisfied by their adequate representation in the legislative body which votes the tax. however. It is an enforced contribution A tax is not a voluntary payment or donation and its imposition is no way dependent upon the will or assents open or implied. applies only to political communities. taxation without representation or without the consenting some form of those who are to be taxed. It is levied on persons or property A tax may also be imposed on acts. is contrary to the fundamental principles of good government. e. however. It is levied by the law-making body of the state. The property is resorted to for the purpose of ascertaining the amount tax that must be paid and enforcing payment in case of default of the taxpayer. I t cannot reach over into another jurisdiction to seize upon person or property for purpose of taxation. The principle of representation. To be sure.) CHARATERISTIC OF TAXATION a. d. It is generally payable in money Unless qualified by law the term “taxes” or “tax” is usually understood to be a pecuniary burden. Accordingly. and not to individuals. it is only a person who pays the tax. of the person taxed. in practice. rights or privileges. as such. The power to tax is legislative power under which the Constitution only Congress can exercise through the enactment of tax statutes. But not all who pay a tax shoulder the burden of the tax. yet its taxing power necessarily stops at the state boundary lines. This is necessary in order that the tax can be enforced. b. Thus. others.

As to concept Taxation refers to the power of imposing enforced proportional contribution from persons and property by the sovereign to accumulate revenue in order to support its existence and carry out its legitimate objectives. The power to tax is no longer vested exclusively on Congress. the Constitution provides for the following conditions. and a tax constitutes. As to scope Police Power is broader in application because it is general power to make and implement laws on taxation is the power to raise money for the use and support of the government and eminent domain is merely the power to take private property for public use upon payment of just compensation. fees. For this reason. there must be observance of due process in the taking. or the payment of public expenses. and the third. public safety and the general welfare of the people. 3. second there must be a just compensation for the property. While Police power is the power of the state make and implement laws in relation to persons or property to promote public health.the support of the government. It is sometimes called expropriation. a charged or burden imposed to provide income for public purposes. First. D. Taxation involves. public morals.) POWER OF TAXATION COMPARED WITH OTHERS POWERS Taxation as distinguished from eminent domain and police power 1. 2. While in Eminent domain refers to the power of the state to tae private property for public use upon payment of just compensation ascertained by law. the administration of the law. As to Authority The power of eminent domain may be granted by the law to public service or public utility companies while the power of taxation and police power are both to be exercised only by the government or its political subdivisions. and other charges pursuant to the constitution subject to such guidelines and limitations as may be provided by law. the taking of property should be for public use. To exercise the power of eminent domain. Page | 5 . g. revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. It is levied for public purpose or purposes. Local legislative bodies are now given direct authority to levy taxes.

As to Benefits In Taxation. in Eminent Domain. Congress cannot delegate the power of taxation. As to Person Affected In Eminent Domain. As to Purpose In Taxation. issuance of the license and the necessary expenses of police surveillance. there is no imposition because the owner of the private property taken is paid at its market value. In Eminent Domain. The amount imposed under Police Power should only be sufficient to cover the cost of the regulation. the benefit received by the individual concerned is the market value of the specific property taken from him. Through Police Power. On the other hand. its power operates on the particular private property of an individual. an individual receives a benefit in the form of protection afforded by the government. On the other hand. As to Necessity of Delegation The exercise of the power of eminent domain and police power can be expressedly delegated to the local government units by the law making. Taxation and Police Power operate on the community or class of individual. 8. 7. the property is taken or destroyed to promote general welfare. 6. Page | 6 . the property is generally in the form of money which is taken for the support of the government while in police power. For Eminent Domain. the private property is taken for public use. 5. an individual receives indirect benefits through a healthy economic standard of society. As to Amount of Imposition Taxation has generally no limit on the amount of tax which may be imposed.4. However.

Taxation is under constraints of the inherent limitations and constitutional restrictions. As to Relationship to the Constitution The power to tax is subject to certain constitutional constraints and inherent limitations.9. eminent domain is inferior to the impairment provision because the government cannot expropriate a property that has previously bound itself to be purchased from the other contracting parties. there is a specific private property being taken by the government. Police Power and Eminent Domain ca defeat the constitutional rights of a person because these inherent powers subordinate the constitutional provisions except those directly affecting them.As to Limitation Police power is limited by the demand for public interest and requirement of due process. It is SUPERIOR to Non-impairment clause in the sense that it may override the said clause. As an exception. there is no specific property being taken by the government for it is generally payable in the form of money. In Eminent Domain. In Police Power. It is INFERIOR to the “Non-impairment Clause” in the sense that taxation should not violate the impairment clause of obligations and contracts. Eminent Domain is generally SUPERIOR to may override the Constitutional impairment provision because the welfare of the state is superior to any private contract. 10. 11. As to Importance Taxation is an indispensable function of existence of the government. Without it. there shall be no revenue to effect and permanently exercise the Eminent Domain and Police Power. there is a restriction in the use of property. Police Power is relatively free from constitutional limitations. 12. As to Property Taken In taxation. Page | 7 . Eminent Domain is bounded by public purpose and just compensation.

Taxes may be levied to promote science and invention or to finance educational activities or to improve the efficiency of local police forces in the maintenance of peace and order through grant of subsidy.) PURPOSE OF TAXATION Revenue Purpose The primary purpose of taxation is to raise revenue by collecting funds of property for the support of the government in promoting the general welfare and protecting its inhabitants. 3. their payers being the recipients of unearned wealth or mostly in the higher income brackets. 3. 6. 4. 7. Taxes on imports may be increased to protect local industries against foreign competition or decreased to encourage foreign trade. Taxation can strengthen anemic enterprises or provide incentive to greater production through grant of tax exemptions or the creation of conditions conducive to their growth. smoking). donor’s and income taxes.. the estate.E. The fiscal policy of the government expenditures. Taxation may be made as an implement of the police power (infra) to promote the general welfare. Taxes on imported goods may also be used as a bargaining tool by a country by setting tariff rates first at a relatively high level before trade negotiations are entered into with another country to enhance its bargaining power. 5. deductions.g.Thus: 1. The significant portion of the requires receipts is raised on taxation Non revenue objectives of Taxation Is often employed as device for regulation by means of which certain effects or conditions envisioned by the government may be achieved . Taxes may be increased in periods of prosperity to curb spending power and halt inflation or lowered in peri. Page | 8 . 8. or are designed to discourage certain socially undesirable practices. and tax credits. Taxes may be levied to reduce inequalities in wealth and incomes. Tax provisions may be enacted so that low income individuals pay little or no income taxes through a system of exclusions exemptions. 2. (e. Tax provision may provide incentives or certain desirable activities to encourage investments in productive assets or facilities that will lead to increased employment of a particularly low-and-middle-income workers. as for instance.ods of slump to expand business off depression.

Taxes may be used as a tool and weapon in international relations. It may be implemented to serve the general welfare of the people in the promotion of science and invention or in financial educational activities or in improving the efficiency of local police forces in the maintenance of peace and order through grant of subsidy. it can reduce taxes on importation. Likewise. On the other hand. It is an instrument to encourage foreign trade by providing tax incentives or protect local industries against foreign competition. and (3) to serve as key instrument for social control. Page | 9 . 2. if the Philippines would like to open trade relations with other countries.Regulatory Purpose Regulatory (also known as Sumptuary) is a secondary objective of imposing tax. It may be reduced to expand business and ward off depression in times of declining economic condition. or the creation of conditions conducive to their growth. This objective is accomplished (1) to regulate inflation. The amount taxes may be increased to curve spending power and minimize inflation in times of prosperity. Compensatory purpose Taxation is a way of giving back to the inhabitants the expected economic and social benefits in the following: 1. Higher custom duties and tariff could be imposed to support embargo against foreign countries. Taxes may be imposed for the equitable distribution of wealth and income in society. By imposing additional taxes on imported goods. In income taxation. (2) to achieve economic and social stability. In estate taxation. it can strengthen weak enterprises or provide incentive to greater production through grant of tax exemption. tax relief and incentives to attract investment that will create employment. if the Philippines would like to restrict trade relations with some foreign countries. the estate tax reduces the property received by the successor through the portion of the for the benefit of the public or to defray the expenses of the government. higher taxes are collected from those who earn more and use the funds collected for the welfare of the people in general. Taxes may be imposed to encourage economic growth by granting tax exemptions. it can impose higher custom and tariff rates to imported products. For example.

Section 28 of the Philippine Constitution. 2. Vl . Under Art. just and effective administration. Fiscal Adequacy The principle of fiscal adequacy states that the sources of revenue of the government should be sufficient to meet the demand of public expenditures regardless of business condition. Applications of administrative feasibility are: a. Page | 10 .) PRINCIPLES OF SOUND TAX SYSTEM 1. The revenue of the government should be capable of expanding or contracting annually in response to variations in public expenditures. Assigning of duly authorized banks to collect taxes c. The contribution of each individual to the government should be fair enough according to his earnings and wealth. and for those means. Theoretical Justice This principle states that the tax burden must be proportionate to the taxpayer’s ability to pay. Administrative Feasibility Tax laws must be capable of convenient.free from confusion and uncertainty. Collection of taxes at source (withholding tax) b. G. it cannot exist nor endure without the means to pay its expenses.)THEORY AND BASIS OF TAXATION 1. the government has the right to compel all its citizens and property within its limits to contribute in the form of taxes. F. They must be enforced uniformly by competent to public officials. and not burdensome or discouraging to business. It is based on the philosophy that “he who received more should give more”. time and mode of payment. the application of taxation should be equitable. Quarterly filing and payment of income taxes 3. their exercise should be convenient as to the place. Lifeblood Theory The existence of government is a necessity.

pay taxes to support the government in order that he may continuously be sustained with security and benefits of an organized society. residents and property within its territory to contribute money. This conforms to the principle of equity provided by the Constitution.g. on the other hand. The citizen. residents and property within its territory to compel all its citizens.2. 4. Where privity of relationship exists. Although the power of taxation is plenary and comprehensive in application.received principle’’the government collect taxes from the subjects of taxation in order that it may be able to perform its functions. The symbiotic relationship between the taxing authority and the subject of taxation is enough to justify the imposition of tax power. Page | 11 . the government has a right to compel all its citizens. the State has no power to imposed privilege tax on business transaction undertaken abroad unless there is privity or relationship between the taxing state and the object of the tax ( e. The right to tax should only be confined to its subjects to avoid great harm to subjects that are beyond its scope. citizenship in case of income tax). Consequently. Hence. It is because the government cannot exist without any means to pay its expenses. Taxation is exercised to raise revenue for the very existence of the government to serve the people for whose benefit taxes are collected. Hence. 3. Necessity Theory Based on the principle of necessity. Taxation is the “lifeblood” or the “bread and butter” of the government and every citizen must pay his taxes. a citizen’s income may be taxed even if he resides abroad as the personal jurisdiction of his government over him still remains. it is limited to subjects within the territorial jurisdiction of the state over which it can exercise dominion. Benefits-Protection Theory (Symbiotic Relationship) Under the” benefits. the state can still exercise its taxing powers over its citizen outside its territory. It is because the fundamental basis of the right to tax is the capacity of the government to provide benefits and protection to the object of the tax. Jurisdiction over subject and objects The tax laws of a State are effective and enforceable only within its territorial limits. it cannot tax property wholly and exclusively within the jurisdiction of another state since it does not afford protection on property beyond its territorial boundaries for which tax is supposed to be compensation.

Thus. the rule of ‘ex-facto” is not applicable for tax purposes.) DOCTRINE IN TAXATION 1. This kind of double taxation violates the constitutional provision of uniformity and equal protection. Imprescriptibility of Taxes. a. Prospectivity of Tax Laws The principle of prospectivity of tax laws states that a tax bill must only be applicable and operative after becoming a law. 3. for the same purpose and with the same kind of character of tax. Double Taxation Double Taxation means an act of the sovereign by taxing twice for the same purpose in the same year upon the same property or activity of the same person. be avoided to prevent injustice or unfairness. Consequently. Page | 12 . tax laws may be applied retroactively unless it produces harsh and oppressive consequences which violate the taxpayer’s constitutional rights regarding equity and due process. when it comes to civil penalties like fines and forfeiture (not including interest). the affectivity of the tax law commences upon its approval and its scope would only cover the present and future transactions. Strict sense It is prohibited because it comprises imposition of the same tax on the same property for the same purpose by the same state during the same taxing period. when it should be taxed once. The rule on “tax imprescriptibility” states that unless otherwise provided by law itself. taxes in general are not cancelable. However. unreasonable and inequitable. The prescriptive period shall start from the time the taxpayer files the tax return and declares his tax liability. Although the National Internal Revenue Codes provides for the limitation in the assessment and collection of taxes imposed such prescriptive period will only be applicable to those taxes that were returnable. H. as well as the principle that tax must not be excessive. The court held that there is no time on the right of the BIR Commissioner to assess taxes on unreasonable accumulated earnings of the corporation. such taxation should. 2. whenever and wherever possible. Therefore. The retroactive application of tax laws shall not be applied unless there is a clear intent of the legislature that such law shall also be imposed on past transactions.

Applications of Tax Exemptions 4. It is usually allowed as long as there is no violation of the equal protection and uniformity clauses of the constitution. d. The imposition of tax is transferred from the statutory taxpayer to another without violating the law. Price. Modes of eliminating double taxation 1. Backward shifting is the reverse of forward shifting. to avoid injustice and unfairness. This is best exemplified by indirect taxes like value-added tax. Escape of Taxation a. it is not valid defense against the validity of tax measure. decreases. Constitutionality of double Taxation The Supreme Court held that there is no constitutional prohibition against double taxation in the Philippines therefore.b. Therefore. therefore. Shifting of tax burden It is the transfer of tax burden to another. (Example: Tax is included in the final price of the product to be paid by the customer. Application of Allowance for Deductions such as vanishing deduction in Estate Tax 5. c. however. springs valid constitutional defense against oppression and inequality in the implementation of tax power. Page | 13 . This decision. Ways of shifting of tax burden a. is increases. doubts as to whether double taxation has been imposed should be resolved in favor of the taxpayer. c. Application of the Principle of Reciprocity 2. 1. For example. Forward shifting is the transfer of tax burden from the producer to distributor until it finally reaches the ultimate purchasers or consumers. the manufacture has agreed to buy the supplier’s product only if the price is reduced by the amount of the tax. therefore. Onward shifting the tax burden is shifted twice or more either forward or backward. Application of Tax Credit ( Input tax against output tax in Value Added Tax) 3. Price. Tax benefit agreement with foreign countries 4. Broad Sense It extends to all cases in which there is a burden of two or more pecuniary impositions. b.

the one on whom the tax is formally assessed. It is the process of controlling one’s actions so as to avoid undesirable tax consequences. as in transformation. 3. so as to avoid the application of those rules of law that would otherwise trigger a larger liability. c. In so far as the law is concerned. This is also known as tax dodging. namely saving fees. On the other hand. But the means by which that goal is sought are different.where the tax is Indirect. Incidence of Taxation. Avoidance is legal process of not conducting taxable transactions. the basic notions of tax avoidance and tax evasion are conceptually distinct. Both avoidance and evasion seek the same objective. the taxpayer is the person who must pay the tax to the government. Tax Evasion Tax evasion occurs when the taxpayer resorts to unlawful means to lessen or to get away with his tax liability. Page | 14 . He is also termed as statutory taxpayer. like estate tax and community tax.is that point on which the tax burden finally rests or settles down. b. tax evasion is illegal process of not complying with applicable provisions of the law once the transactions already exist. This is otherwise known as tax minimization. The law is not violated in any way. Tax avoidance is completely legal activity. shifting is possible only when there is an exchange of commodities. and thereby controlling those facts. Meaning of impact and incidence of taxation Impact of Taxation. Like capitalization. But there may be incidence without shifting. Taxes that can be shifted. taxes can be avoided by not engaging in those activities that are taxed. The person on whom the tax is imposed might not be the person who actually shoulders the burden of the tax. Examples of tax evasion are under declaration of sales.is that point on which tax is originally imposed. Rather. He is the subject of the tax. tax savings are achieved by arranging one’s affairs. What is transferred is not the payment of the tax but the burden of the tax. A tax cannot be shifted when it is purely personal-when it has no relation to any business dealings of the taxpayer. Just as the penalties of criminal law can be avoided by not committing a crime. others call it tax planning. It takes place when shifting has been effected from the statutory taxpayer to another or someone else who cannot pass on the burden further. Tax Avoidance Tax Avoidance happens when the taxpayer minimizes his tax liability by taking advantage of legally available tax planning opportunities. overstatement of expenses and backdating an important document While the dividing line may sometimes become hazy in practice.2.

such as. Page | 15 . Exemption from taxation a. it exist only by virtue of an express grant and must be strictly construed. exempted from all or certain taxes.5. or to persons or corporations of a particular class. and. statutes. Kinds of tax exemption 1. franchises. the former being considered a legal entity with a personality separate and distinct from the latter. It is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis. c. A legislative franchise in the nature of contract. Thus. 2. however maybe repealed or amended pursuant to the constitution. a tax exemption cannot be assigned or transferred by the person to whom it is granted without the consent of the legislature. by express provision. expressed or implied. it is freedom from financial charged or burden to which others are subjected. Express . ordinances. This exemption may be made by provisions of the Constitution. is prejudicial thereto. b. It is an immunity or privilege. Where. It implies a waiver on the part of the Government of its right to collect what otherwise would be due to it. to a particular person. 1. either or in part. treaties. An exemption from taxation is a mere personal privilege of the grantee.When certain persons.denotes a grant of immunity. or transactions are.Nature of tax exemption 1. 3. from a tax upon property or an exercise which persons and corporation generally within the same taxing district are obliged to pay. an exemption granted to a corporation does not apply to its stockholders. in this sense. and power and telephone lines. Hence. a franchise is a particular right or privilege granted by law to a person or corporation. It is generally revocable by the government unless the exemption is founded on a contract which is protected from impairment. property. however. Incidentally. no valid distinction exist. meaning of exemption of taxation . or contracts. such as the franchise for the operation of street railways. for example a valid cause of consideration. but the contract. An exemption provided for in a franchise. The legislative consent to the transfer may be given either in the original act granting the exemption or in a subsequent law. corporation. Being personal in nature. the exemption may be challenged as violative of the equal protection guarantee or the uniformity rule. electric light.

A person cannot refuse to pay tax on the basis that the government owes him an amount equal to or greater than the tax being collected. demandable and fully liquidated. 3. or to 4. in a very real sense. It may be based on some ground of public policy. e. Implied This occurs when tax is levied on certain classes of persons. It may be created in a treaty on grounds of reciprocity. or such as. Ordinarily. 3. which shall remain unclaimed or uncashed within 5 (five) years from the date the said warrant or check was mailed or Page | 16 . Rationale grounds for exemption 1.A refund check or warrant issued in accordance with the pertinent provisions of this Code. properties. at least makes the public at large interested in encouraging or favoring the class or interest in whose behalf the exemption is made. Tax exemption may be based on contract in which case the public represented by the government is supposed to receive a full equivalent therefor. Every tax statute. d. Forfeiture of Refund. such as. the government need not receive any consideration in return for tax exemption. Revocation of tax exemption a. An exception to this rule is where both claims of the government and the taxpayer against each other have already become due. 5. States that taxes are not subject to set-off or legal compensation because the government and the taxpayer are not mutual creditor and debtor of each other. for example to encourage new and necessary industries. Contractual Contractual tax exemptions are those lawfully entered into the government in contracts under existing laws.(supra). 2. The collection of tax cannot await the results of a lawsuit against the government. The omission may be either accidental or intentional. or to poster charitable and other benevolent institutions. makes exemptions since all those not mentioned are deemed exempted. the provisions of a contract of exemption from taxation are contained in the charter of the corporation (law under which is organized) to which the exemption is granted. without mentioning other classes. which are not contracts within the context of the non-impairment clause of the Constitution. or transactions. lessen the rigors of international double or multiple taxation which occurs where there are many taxing jurisdictions. 6. 7. as in the taxation of income and intangible personal property. In this case. 2. These exemptions must not be confused with the tax exemptions granted under franchises.

given to any public official to execute the compromise so as to render it effective. 4. The collection of tax cannot wait the results of a lawsuit against the government. delivered. A tax credit Certificate issued in accordance with the pertinent provisions of the Tax Code. There is no specific authority. 2. 6. shall unless revalidated. Page | 17 . The law allows the following persons to do compromise in behalf of the government. subject to approval by the Secretary of Finance. The customs Commissioner. and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer and the amount covered y the certificate shall revert to the general fund. COMPENSATION AND SET-OFF This doctrine states that all taxes are not subject to set-off or the legal compensation because the government and the taxpayer are not mutual creditor and debtor of each other. An exception to this rule is where both the claims of the government and the taxpayer against each other have already become due and demandable and fully liquidated. 3. however tax (not criminal) liability is not prohibited from being compromised. surcharges and forfeitures. Only the BIR Commissioner is expressly authorized by the Tax Code to enter into compromise for both civil and criminal liabilities subject to certain conditions. b. COMPROMISE This doctrine provides that compromises are generally allowed and enforceable when the subject matter thereof is not prohibited from being compromise is duly authorized to do so. The Collector of Customs is given the power to compromise legitimate authority is specifically granted such as in the remission of duties. be considered invalid. A person cannot refuse to pay taxes on the basis that the government owes him an amount of equal to or greater that the tax being collected. The Local Government Code has no provision regarding compromise. however. has the power to compromise cases involving the imposition of fines. which shall remain unutilized after five 5 years from the date of issuance. shall be forfeited in favor of the Government and the amount thereof shall revert to the general fund. 7. 1.

9. As a rule. As it is much like a tax exemption. the state through its law-making body has full power to exempt any person. CONSTRUCTION AND INTERPRETATION OF: A. corporation. expressed or implied. Tax exemptions are generally granted in the basis of (a. corporation or class of property from taxation. TAX AMNESTY a.8. The well-settled doctrine of “strict interpretation in the imposition of taxes and other burdens” shall be followed in the application of tax laws. (b) public policy and (c) contracts. tax amnesty. and tax condonations shall be governed with the following principles: 1. They are highly disfavored and may almost be said to be directly contrary to the intention of tax laws. 2. from tax upon property or an exercise which persons and corporation generally within the same taxing district are obliged to pay. Page | 18 . they are strictly construed against the taxpayer 3. Distinguished from tax exemption Exemption from taxation denotes grant immunity. tax laws must be construed with the view of carrying out their purpose and intent. They are not presumed. the terms of the amnesty must be construed strictly against the taxpayer and liberally in favor of the government.) reciprocity. Tax exemption as a privilege is personal and in any way cannot be transferred or assigned but the person to whom it is given without the consent of the state. If granted by the statute. including its equivalent provisions such as deductions. Tax laws The Supreme Court has the exclusive power of constructing and interpreting tax laws. it is never favored nor presumed in law. It partakes of an absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. to a particular person. Definition . In the exercise of its inherent power to tax. Tax amnesty is the general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of tax evasion or violation of revenue or tax law. or to persons or corporations of a particular class. b. Tax exemptions. It is not being imposed a financial burden to which others have to pay. When granted.

C. they are strictly construed against the taxpayer. Tax exemptions and exclusion Tax exemptions. tax exemptions cannot be established by mere implications but it must be clearly expressed by the law. They are not presumed 2. expressed or implied. tax donations and their equivalent provisions are not presumed and. the following rules are generally followed for the interpretation and application of various tax laws. Therefore. it is privilege of not being imposed a financial burden to which others have to pay. 2. from a tax upon the property or an exercise which persons and corporations generally within the same taxing district are obliged to pay. Specifically. Imposition of tax burden is not presumed Tax burden shall neither be imposed and presumed to be imposed beyond what the statute expressly and clearly states because tax statues should be construed strictly against the government. In other words. tax amnesty. and tax condonations shall be governed with the following principles: 1. tax amnesty. but doubts exist in determining such intent. or to persons or corporations of a particular class. to a particular person. when granted. B. the doubts must be resolved liberally in favor of taxpayers. Doubts should be resolved liberally in favor of the tax payer. There is no way to dispute the cardinal doctrine in the taxation that “exemptions therefrom are highly disfavored in law and he who claims tax exemptions must be able to justify his it claim right”. When granted. (c) contracts. and strictly against the taxing authority. (b) public policy and. Tax exemptions are generally granted in the basis of (a) reciprocity. 1. corporation. Tax rules and regulations Denotes a grant of immunity. “Tax exemptions” including its equivalent provisions such as deductions. Page | 19 . are strictly construed against the taxpayer because such provisions are highly disfavored by the government. When the primary consideration is the legislative intent.

the following rules are generally followed for the interpretation and application of various tax laws. tax donations and their equivalent provisions are not presumed and. tax amnesty. but doubts exist in determining such intent. he who claims tax exemptions must be able to justify his claim or right. Page | 20 . the doubts must be resolved liberally in favor of taxpayers. The well-settled doctrine of “strict interpretation in the imposition of taxes and other burdens” shall be followed in the application of tax laws. the state through its law-making body has full power to exempt any person. In the exercise of its inherent power to tax. and strictly against the taxing authority. The Supreme Court has the exclusive power of constructing and interpreting tax laws. 3. 3. Therefore. tax exemptions cannot be established by mere implications but it must be clearly expressed by the law. corporation or class of property from taxation. Tax exemption as a privilege is personal and in any way cannot be t or transferred or assigned by the person to whom it is given without consent of the state. Imposition of tax burden is not presumed Tax burden shall neither be imposed and presumed to be imposed beyond what the statute expressly and clearly states because tax statues should be construed strictly against the government. when granted. 1. Doubts should be resolved liberally in favor of the tax payer. There is no way to dispute the cardinal doctrine in the taxation that “exemptions therefrom are highly disfavored in law and he who claims tax exemptions must be able to justify his it claim right”. They are highly disfavored and may almost be said ‘to be directly contrary to the intention of tax laws. are strictly construed against the taxpayer because such provisions are highly disfavored by the government. 2. Tax exemptions are strictly construed and against the taxpayer Tax exemptions. When the primary consideration is the legislative intent.” Hence. tax laws must be construed with the view of carrying out their purpose and intent. Specifically. As a rule.

000. be subject to the penalties imposed herein as follows: 1. his CPA certificate shall be automatically revoked or cancelled upon the conviction. 2. Page | 21 . keep any record. If the offender is Certified Public Accountant. the penalty shall be imposed on the partner. Amount of Penalty The fines to be imposed for any violation of the provision of this Code shall not be lower than the fines imposed therein or twice the amount of taxes. he shall be dismissed from the public service and perpetually disqualified from holding any public office.000. or supply such correct and accurate information.d.00 but not more that P20. who willfully fails to pay such tax. Penal provisions of tax laws Any person convicted of crime penalized by this Code shall. general manager. and employees responsible for the violation.00 and suffer imprisonment of not less than 10 years. treasurer.000. partnerships or corporations. or supply correct and accurate information.00 but more than P100. If the offender is a public officer or employee. in addition to other penalties provided by the law. make a return. the maximum penalty prescribed for the offense shall be imposed and. president.000. 4. be punished by a fine of not less than P 10. be punished by a fine not less than P30. in addition to being liable for the payment of the tax. at the time/times required by law. interest and surcharges due from the taxpayer. upon conviction thereof. make such return. Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax. provided that the conviction or acquittal obtained shall not be bar to the filling of a civil suit for the collection of taxes. whichever is higher. In the case of associations. Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof. If the offender is not a citizen of the Philippines. in addition. keep such record. upon conviction thereof.00 and suffers imprisonment of not less than two (2) years but not more than (4) years. Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp or receipt of an internal revenue office wherein the same was actually filed shall upon conviction thereof.000. officer in-charge. he shall be deported immediately after serving the sentence without further proceedings of deportation.00 and suffer imprisonment of not less than 1 year but not more than 3 years. shall. or withhold or remit taxes withheld on compensation. branch manager. 3. be punished by a fine of not less than P10.

sales or commercial invoice. sales or commercial invoices. TIN. Rectifying. Printing of unnumbered receipt.000. Whenever a tax on property does not apply to all property within the jurisdiction of the taxing authorities. Page | 22 . or employee. Sales or Commercial Invoices.000. Non-retroactive application to taxpayers A tax statute must be applicable and operative only upon becoming a law. sales or commercial invoices. Unlawful pursuit of Corporation Any corporation. 4. association or general co-partnership liable for any acts or omissions penalized under this code. a fine of not less than P1. 3. Upon conviction. sales or commercial invoices.000. he shall upon conviction for each act or omission.00 and suffer imprisonment of not less than 6 months but not more than 2 years.000.00 but not more than P50.00 and suffer imprisonment of not less than 2 years but not more than 4 years. Tax laws are given retroactive effect only if there is clear legislative intent in that regard. 6.00 but not more than P10. not bearing the name. e.000. 7. Using multiple or double receipts. Issuance of receipts. and business address of the person or entity.00 and suffer imprisonment of not less than one (1) year but not more than 2 years shall be imposed upon conviction of the persons who failed to obey BIR summons and failed to produce required records by the BIR. Refusal to issue the required receipts. sales or commercial invoices which do not reflect or contain all the information required to be shown therein. 2. compounding or manufacturing any article subject to excise tax. In the case of a person engaged in the business of distilling. be punished by a fine of not less than P30. 1. Printing of receipts or sales or commercial invoices without authority from BIR. Violation for Printing and Issuance of Receipts.00 and not more than P50. re-packing.000.00 but not more than P20.000.00 and suffer imprisonment of not less than 2 years but not more than 4 years for the following violations. business style. The property not taxed is said to be exempted. Failure to Obey Summons A fine of not less than P 5. In addition to the penalties imposed therein upon responsible corporate officers. 5. shall upon conviction for each act or omission be punished by a fine of not less than P 5.000. Printing of multiple sets of receipts. partners.

It cannot be exercised in aid of enterprises strictly private. The grant of immunity expressed implied to a particular persons or corporations of a particular class. Inherently Legislative 1) General Rule Taxation is purely a legislative matter and the Congress cannot delegate the power to others. a. 2) Exceptions a) Delegation to local governments It has been held that the general principle against the delegation of legislative powers as a consequence of the theory of separation of powers is subject to one well- established exception. not the immediate result of the expenditure but rather the ultimate. Although private individuals are directly benefited. Scope and Limitation of Taxation 1. for the benefit of individuals. Test in determining Public Purposes in tax: a. b. but the character of the purpose for which it is expended. The test is not as to who receives the money. Public Purpose The right of taxation can only be used in aid of a public object. I. from a tax upon property or an excise tax which persons or corporations generally within the same taxing districts are obliged to pay. as a government. an object which is within the purpose for which government established. Inherent Limitations These are limitations which exist despite the absence of an express constitutional provision thereon. namely. Duty Test – whether the thing to be threatened by the appropriation of public revenue is something which is the duty of the State. b. the tax would still be valid provided such benefit is only incidental. The purposes to be accomplished by taxation need not be exclusively public. that legislative power may Page | 23 . Promotion of General Welfare Test – whether the law providing the tax directly promotes the welfare of the community in equal measure. though in a remote or collateral way. the public may be benefited thereby.

1) Situs of Taxation a) Meaning Situs of Taxation means“place of taxation” depending on the nature of taxes being imposed. Income tax is properly exacted from persons who are residents or citizens in the taxing jurisdiction and even those who are neither residents nor citizens provided the income is derived from sources within the taxing state. Customs duties which are assessed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue-raising and regulatory purposes c) Delegation to administrative agencies c. 2) Property which is wholly and exclusively within the jurisdiction of another state receives none of the protection for which a tax is supposed to be compensation. and excise within the territory of the taxing power because:1) Tax laws do not operate beyond a country’s territorial limit. even if he is outside the taxing state. However. b) Situs of Income Tax The situs is where the income is derived. where there is between him and the taxing state. a privity of relationship justifying the levy. tariff rates and other duties and imposts include tariffs rates even for revenue purposes only. The theory of non- delegation of legislative powers does not apply in matters of local concern. be delegated to local governments. It is an inherent mandate that taxation shall only be exercised on persons. b) Delegation to the President The power granted to Congress under this constitutional provision to authorize the President to fix within specified limits and subject to such limitations and restrictions as it may impose. Page | 24 . Territorial The taxing power should be exercised only within the territorial boundaries of the taxing authority. properties. the fundamental basis of the right to tax is the capacity of the government to provide benefits and protection to the object of the tax. A person may be taxed.

The country of citizenship is the situs of taxation. he must support it. This is where he is given protection. hence. Domicilliary theory . Source law . Nationality theory . Page | 25 .Theories: 1. 2.The location where the income earner resides is the situs of taxation.) giving rise to royalties  Gain on sale of Real property: Location of property  Gain on sale of Personal Property other than shares of stock in a domestic corporation purchased in one country and sold in another: Place of Sale  Gain on sale of shares of stock in a domestic corporation: Philippines regardless of where sold (2) From sources without the Philippines (3) Income partly within and partly without the Philippines Gain from sale of personal property produced in whole or in part in one country and sold in another country. (1) From sources within the Philippines  Interests: Residence of Debtor  Dividends from domestic corporation: Income within  Services (Compensation for labor/personal services): Place of performance of service  Rentals: Location of the property/interest in such property  Royalties: Place of use or location of intangibles (such as patents trademarks. 3. This is so because a citizen is given protection by his country no matter where he is found or no matter where he earns his income. where one of the countries is the Philippines is income derived from sources partly within and partly outside the Philippines. etc.The country which is the source of the income or where the activity that produced the income is the situs of taxation.

In case of intangible property. obligations or bonds have acquired a business situs in the Philippines 5. This principle. Franchise which must be exercised in the Philippines 2. Shares. however. it is taxable in the state where it has actual situs – where it is physically located. Shares. Shares or rights in any partnership. c) Situs of Property Taxes (1) Taxes on Real Property It is subject to taxation in the State in which it is located whether the owner is a resident or non- resident. Intangible properties which are considered by law as situated in the Philippines: 1. obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines 4. although the owner resides in another jurisdiction. business or industry established in the Philippines Page | 26 . is not controlling when it is inconsistent with express provisions of statute or when justice demands that it should be. obligations or bonds issued by any foreign corporation if such shares.Gains from the purchase of personal property within and sold without the Philippines or the purchase of personal property without and its sale within the Philippines shall be treated as derived entirely from sources within the country in which it was sold. This is so because the taxing authority has control over the property which is of a fixed and stationary character. as where the property has in fact a situs elsewhere. (2) Taxes on Personal Property In case of tangible personal property. Obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines 3. and is taxable only there. in accordance with the principle “mobilia sequuntur persnam”. the situs or the domicile of the owner.

Page | 27 .2) In order that the functions of the government shall not be unduly impede.and a. (1) Estate Tax (2) Donor’s Tax e) Situs of Business Tax The power to levy an excise tax depends upon the place where the business is done. Agencies. or where the property is located. a. The grounds for the above rule are: 1) sovereign equality among states 2) usage among states that when one enter into the territory of another. the property of a foreign state or government may not be taxed by another. and not merely the place of the perfection of the contract. associated with the delivery of the things which are the subject matter of the contract that determines the situs of the contract for purposes of taxation. (1) Sale of Real Property (2) Sale of Personal Property (3) VAT d.3) To reduce the amount of money that has to be handed by the government in the course of its operations. or from a decedent to his heirs may be subject to taxation in the state where the transferor was a citizen or resident. the government would be taxing itself to raise money to pay over to itself. and Instrumentalities To levy tax upon public property would render necessary new taxes on other public property for the payment of the tax so laid and thus. there is an implied understanding that the power does not intend to degrade its dignity by placing itself under the jurisdiction of the latter 3) foreign government may not be sued without its consent so that it is useless to assess the tax since it cannot be collected 4) reciprocity among states e. International Comity Comity is the respect accorded by nations to each other because they are equals. As such. It is the place of the consummation of the sale. d) Situs of Excise Tax The transmission of property from donor to donee. Exemption of Government Entities.

and other duties or imposts within the framework of the national development program of the Government. III. Thus.(Sec. the exemption applies only to government entities through which the government immediately and directly exercises its sovereign powers Notwithstanding the immunity. a person is subject to imprisonment for violation of the community tax law other than for non-payment of the tax and for non-payment of other taxes as prescribed by law. (Sec. LGC) The prohibition is against“imprisonment” for “non-payment of poll tax”. Unless otherwise provided by law. 3) Grant by Congress of authority to the President to impose tariff rates The Congress may. Government-owned or controlled corporations. 20. similarly situated must be treated alike and must not be classified in an arbitrary manner. and subject to such limitations and restrictions as it may impose. authorize the President to fix within specified limits. import and export quotas. 28(2). by law. tariff rates. 161. 2) Uniformity and equality of taxation The rule on uniformity and equality in taxation requires that all subjects or objects of taxation. the government may tax itself in the absence of any constitutional limitations. Art. VI. a. 1987 Constitution) The only penalty for delinquency in payment is the payment of surcharge in the form of interest at the rate of 24% per annum which shall be added to the unpaid amount from due date until it is paid. Provisions Directly Affecting Taxation 1) Prohibition against imprisonment for non-payment of poll tax No person shall be imprisoned for debt or non-payment of poll tax. (Sec. Art. Constitutional Limitations These are limitations are expressly provided for in the constitution. tonnage and wharfage dues. 2. 1987 Constitution) Page | 28 . when performing proprietary functions are generally subject to tax in the absence of tax exemption provisions in their charters or law creating them.

and educational entities Charitable institutions. 28(3) Art. The constitutional exemption applies only to property tax. and custom duties. The word “exclusively” mean“primarily’. the revenue. charitable or educational purposes shall be exempt from taxation. churches and parsonages or convents appurtenant thereto.4) Prohibition against taxation of religious.( Sec. the property must be actually. Tax exemptions. 101(9)(3). directly and exclusively for educational purposes shall be exempt from tax. XIV. charitable entities. However. In the case or religious and charitable entities and non-profit cemeteries. gifts made in favor or religious charitable and educational organizations would nevertheless qualify for donor’s gift tax exemption. (Sec. donations or contributions used actually. directly and exclusively for educational purpose. VI. non-profit institutions Subject to the conditions prescribed by law. Their tax exemption is not self-executing. building. and improvements actually. nonprofit educational institution covers income. and all lands. property or donation must be used actually. To be exempt from tax or duty. assets. all grants. 1987 Constitution) Lest of the tax exemption: the use and not ownership of the property To be tax-exempt. property. non-profit educational institution is self-executing. and donor’s taxes. however. endowments. the exemption is limited to property tax. 1987 Constitution) The exemption granted to non-stock. it would seem that under existing law. mosques. 4(4) Art. NIRC) 5) Prohibition against taxation of non-stock. (Sec. directly and exclusively used for the purposes mentioned. The said constitutional provision granting tax exemption to non- stock. of proprietary (for profit) educational institutions require prior legislative implementation. Page | 29 . non-profit cemeteries. directly and exclusively used for religious. The exemption is not limited to property actually indispensable but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes.

Lands, Buildings, and improvements actually, directly, and
exclusively used for educational purposed are exempt from
property tax, whether the educational institution is proprietary or
non-profit.

6) Majority vote of Congress for grant of tax exemption
No law granting any tax exemption shall be passed without the
concurrence of a majority of all the members of the Congress.
(Sec. 28(4) Art. VI, 1987 Constitution)

7) Prohibition on use of tax levied for special purpose
All money collected or any tax levied for a special purpose shall be
treated as a special fund and paid out for such purpose only. It the
purpose for which a special fund was created has been fulfilled or
abandoned the balance, if any, shall be transferred to the general
funds of the government. (Sec. 29(3), Art. VI, 1987 Constitution)

8) President’s veto power on appropriation, revenue, tariff bills
The President shall have the power to veto any particular item or
items in an Appropriation, Revenue or Tariff bill but the veto shall
not affect the item or items to which he does not object. (Sec.
27(2), Art. VI, 1987 Constitution)

9) Non-impairment of jurisdiction of the Supreme Court
The Congress shall have the power to define, prescribe, and
apportion the jurisdiction of the various courts but may not deprive
the Supreme Court of its jurisdiction over cases enumerated in Sec.
5 hereof. (Sec. 5 (2) Art. VIII, 1987 Constitution)

The Supreme Court shall have the following powers: xxx (2)
Review, revise, modify or affirm on appeal or certiorari xxx final
judgments and orders of lower courts in xxx all cases involving the
legality of any tax, impost, assessment, or toll or any penalty
imposed in relation thereto. (Sec. 5 (2b) Art. VIII, 1987
Constitution)

10) Grant of power to the local government units to create its
own sources of revenue
Local Government units shall have a just share, as determined by
law, in the national taxes which shall be automatically released to
them. (Sec. 6, Art. X, 1987 Constitution)

11) Flexible tariff clause
The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions as
it may impose, tariff rates, import and export quotas, tonnage and

Page | 30

wharfage dues, and other duties or imposts within the framework
of the national development program of the government.( Sec.
28(2) Art. VI, 1987 Constitution)

12) Exemption from real property taxes

13) No appropriation or use of public money for religious
purposes
No public money or property shall be appropriated, applied, paid
or employed, directly or indirectly for the use, benefit, support of
any sect, church, denomination, sectarian institution, or system of
religion or of any priest, preacher, minister, or other religious
teacher or dignitary as such except when such priest, preacher,
minister or dignitary is assigned to the armed forces or to any penal
institution, or government orphanage or leprosarium. (Sec. 29(2),
Art. VI, 1987Constitution)

b. Provisions Indirectly Affecting Taxation

1) Due process
No person shall be deprived of life, liberty or property without due
process of law x x x. (Sec. 1, Art. III, 1987 Constitution)

Requisites :
1. The interest of the public generally as distinguished from those
of a
particular class require the intervention of the state;
2. The means employed must be reasonably necessary to the
accomplishment for the purpose and not unduly oppressive;
3. The deprivation was done under the authority of a valid law or
of the constitution; and
4. The deprivation was done after compliance with fair and
reasonable method of procedure prescribed by law.

In order that due process of law must not be done in an arbitrary,
despotic, capricious, or whimsical manner.

2) Equal protection
xxx Nor shall any person be denied the equal protection of the
laws.(Sec. 1, Article III, 1987 Constitution)

Equal protection of the laws signifies that all persons subject to
legislation shall be treated alike, under like circumstances and
conditions both in privileges conferred and liabilities imposed.
This doctrine prohibits class legislation which discriminates
against some and favors others.

Page | 31

Requisites for a Valid Classification:
1. Must not be arbitrary
2. Must not be based upon substantial distinctions which
make fore real differences
3. Must be germane to the purpose of law.
4. Must not be limited to existing conditions only; and
5. Must play equally to all members of a class.

3) Religious freedom
The free exercise and enjoyment of religious profession and
worship, without discrimination or preference shall forever be
allowed. (Sec. 5, Art. III, 1987 Constitution)

Religious activities, which are simply and purely for propagation
of faith, are exempt from taxation. Thus, income even of religious
organizations from any activity conducted for profit or from any of
their property, real or personal, regardless of disposition of such
income, is taxable.

License fees/taxes would constitute a restraint on the freedom of
worship as they are actually in the nature of a condition or permit
of the exercise of the right. However, the Constitution or the Free
Exercise of Religion clause does not prohibit imposing a generally
applicable sales and use tax
on the sale of religious materials by a religious organization.

4) Non-impairment of obligations of contracts
No law impairing the obligation of contract shall be passed. (Sec.
10, Article III, 1987 Constitution)

The power of taxation cannot be exercised in a manner that would
impair the obligation of contracts. What is prohibited is that a
statute be passed that would alter the relative rights of the parties
with each other. The mere fact that a tax makes the conduct of a
business more expensive or the activity more difficult does not
result in the impairment of the obligation of contracts. Contract is
impaired only if the relative position of the parties to a contract is
disturbed by the operation of a taxing statute.

• Rules
(a) When government is party to contract, granting exemption
cannot be withdrawn without violating non impairment clause
(b) When exemption generally granted by law, withdrawal does
not violate

Page | 32

(c) When exemption granted under a franchise, may be revoked;
Consti provides that franchise is subject to amendment, alteration,
or repeal by Congress.

J. STAGES OF TAXATION

1. Levy

Levy is the act of imposition by the legislature , such as by enactment of the law.
The term is understood to include not only the mandate on when and how the tax is
imposed, but also, whenever it my be appropriate, to grant tax exemptions, tax amnesties
or tax donations.

2. Assessment and Collection

The terms refer to the act of administration and implementation of the tax laws by
the executive, through its administrative agencies. The term “assessment,” which here
means notice and demand of for payment of a tax liability, should not be confused with
the “assessment” relative to real property taxation, which refers to the listing and
valuation of taxable real property.

3. Payment

This is the act of compliance by the taxpayer, including such options, schemes or
remedies as may be legally open or available to him.

4. Refund

This refers to the recovery of tax erroneously or illegally assessed or collected.

K. DEFINITION, NATURE AND CHARACTERISTICS OF TAXES

Tax refers to the burden of enforced contribution imposed upon persons,
properties and right to provide public revenues for its use and support. Taxes can be
imposed even without notification and prior approval from the taxpayer. It creates civil
liability and sometimes, criminal liability. Taxes are purely legislative in nature, created
by the House of Representatives and the Senate through tax laws. These tax laws are for
public purpose. They are paid in money or amount of property in case of forfeiture of
properties to cover the unpaid obligations.

Page | 33

imposed by the state within its jurisdiction. These are necessary to be paid for the entry of goods into a country. 2. However. 5) The tax must not infringe the inherent and constitutional limitations of the power of taxation. 4) That the assessment and collection be in consonance with the due process clause.properties or imposed on articles and properties rights. 9. imported and exported.The essential characteristics of taxes are the following: 1. L. proportionate in character. 5. paid in regular intervals. covers customs duties a component or part of taxation Page | 34 . imposed to raise government revenues. 7. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS Tariff or Customs Duties Tariff or Customs Duties are taxes imposed on the import or export of goods. imposed for public purpose. generally paid in money. 6. 3) That either the person or property taxed be within the jurisdiction of the taxing authority. properties or rights and obligations. Tax Tariff imposed on persons. imposed upon persons. legislative in nature. 8. The following are the requisites of a valid tax: 1) It should be for a public purpose. 3. their collection should not be tainted with arbitrariness. M. REQUISITES OF A VALID TAX Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. a type of enforced contribution. 4. 2) The rule of taxation should be uniform.

taxpayer is only subject to penalty Ex: mayor’s permit and licenses and fines. It is national in scope.Toll Toll refers to the amount charged by the owner for the use of his/her property and/or its improvements and to sustain the necessary operating expenses of the property. and the Skyway. (Power entire Philippines such that a is delegated by the national Filipino citizen.) subject to income tax. property. The owner also expects returns from the investment. the cost of the property. if not exempted is government. purposes of regulation. The best examples of tolling agencies are the NLEX. Failure to pay the tax does not Failure to pay renders the business make the business illegal. Tax Toll imposed by the government as a imposed by the owner of the sovereign state. power of the state. Tax License Fee imposed by the government to raise imposed by the government for revenues for the public funds. Page | 35 . it covers the It is generally local in scope. used as public funds for used by the owner to recover government expenditures. the or occupation illegal. License Fee License fee is a fee imposed by the government to regulate people’s activities for the general welfare of its citizens. the South Diversion Road. imposed by the use of power of imposed by the use of the police taxation of the state.

Usually. It is payable in terms of money and/or property.Special Assessment Special Assessment refers to the assessment in value of real property because of improvements done by the local government in the place or locality. such as Community Tax. Capitation or Poll Tax This refers to that fixed amount imposed upon a certain class of persons. Imposed by the national or local Imposed by the local government. The primary source of income of the banks is interest income. profession or occupation. It cannot be assigned to just any It can be assigned to any third third person due to its being person as long as both parties permit personal in nature and has penalty it. banks and other financial institutions lend money on interest for business and/or personal use of the debtor. collection. Page | 36 . Tax Special Assessment Imposed on persons. Enforced or mandated Imposed to recover the cost of contributions. It is generally payable in money. no imprisonment and there is no criminal liability therefor. Personal. public improvements or betterments. KINDS OF TAXES 1. A regular or recurring imposition by Situational and not a regular the government. As to Object a. properties and Imposed on land and its betterments rights. It is based on contract between parties. or upon persons residing within the territorial jurisdiction of the state regardless of their property. Tax Debt It is based on law. and improvements. Debt Debt refers to a contractual obligation of the creditor to impose interest on the debtor for the use of his or her money for a period of time. nonpayment of the debt requires for imprisonment for non-payment. N. unless there is employment of deceit. government.

whose amount is determined based on the sale price of other specified values of properties. Ad Valorem Refers to that imposed upon properties and rights. All taxes that do not fall under the personal or property tax shall be deemed as excise tax. donor’s tax. Privilege Tax or Excise Tax This refers to that imposed on the taxpayer’s exercise of right or privilege to perform an act or engage in occupation. real or personal. (Ex: excise tax on wines and liquor) b. but which are permitted by law to be shifted or transferred to other persons for payment. 2. As to Burden or incidence a. b. (Ex: Value-Added Tax) 3. which cannot be passed on or shifted to other persons for payment. Indirect That which is imposed upon persons liable to pay said taxes. Property Tax This refers to that imposed by upon property.e. within the territorial jurisdiction of the state in proportion to its value or some other reasonable method of apportionment. Direct That which is imposed upon persons directly bound to pay the tax. As to Tax Rates a. Mixed Page | 37 . whose amount is determined based on weight or volume capacity or any physical unit of measurement. c. (Ex: value Added Tax) c. (Ex: individual income tax and community tax) b. Specific Refers to that imposed upon properties and rights. i.

Excise Tax and Documentary Stamp Tax) b. Estate Tax. Page | 38 . As to Authority to Impose a. Progressive Refers to that imposed upon persons. cities. properties and rights the amount of which increases as the bracket increases. municipalities and provinces. Regressive Refers to that imposed upon persons. Municipal tax Refers to that imposed by the local governments such as barangays. (Ex: Real Property Tax) c. (Ex: Donor’s Tax. Real Property Tax. Special. income or other basis to be taxed. (Ex: Estate Tax. As to Purpose a. General or Fiscal Imposed for general purposes. (Ex: Travel Tax and Immigration Tax) 5. Business Tax. (ex: Community Tax. National Refers to that imposed by the national government and which is enforced and collected by the Bureau of Internal Revenue or Bureau of Customs. Professional Tax and barangay clearance imposed on new businesses. Percentage Tax. As to Graduation a. Income Tax) b.) 6. the proceeds of which go to the national funds. Local – Real Property Tax. the amount of which may decrease as the tax base or bracket increases.4. Proportionate The tax rate is based on a fixed percentage of the amount of property. Regulatory or Sumptuary Imposed for special purposes. (Ex: Income Tax. the proceeds of which go to certain special funds. Income Tax and Value-Added Tax) b.

capital gain and passive income and other income not subject to final tax. are deducted from the gross income to arrive at the net taxable income subject to the graduated income tax rate. the residence principle. business or professional income. the taxable income is subjected to one set of graduated tax rates or normal corporate income tax rate. capital gain and passive income not subject to the final withholding income tax. c) Semi-Schedular or Semi-Global Tax System – The compensation income. in the case of individual taxpayers.II. NATIONAL INTERNAL REVENUE CODE F 1997 AS AMENDED (NIRC) A. in the case of corporations. in the case of qualified individuals. as well as personal and additional exemptions. of the total allowable deductions only. b) Progressive Tax – Income tax is progressive since the tax base increases as the tax rate increases. INCOME TAXATION 1. Income Tax Systems a) Global Tax System – Under the global tax system. With respect to the incomes not subject to final withholding tax. d) Semi-Schedular or Semi-Global Tax System – Same is adopted in the Philippines although certain passive investment incomes and capital gains from sale of capital asset. The applicable tax rate will depend on the classification of the taxable income and the basis could be gross income. Features of the Philippine Income Tax Law a) Direct Tax – Income tax is direct tax because the burden is borne by the income recipient upon whom the tax is imposed. 2. c) Comprehensive – The Philippines has adopted the most comprehensive system of imposing income tax by adopting the citizenship principle. the total allowable deductions as well as personal and additional exemptions. the computation of income tax is “global”. b) Schedular Tax System – Different types of incomes are subject to different sets of graduated or flat income tax rates. It is founded on the ability pay principle and is consistent with the constitutional principle that “Congress shall evolve a progressive system of taxation. namely: (a) shares of stocks of domestic Page | 39 . and the source principle. and after deducting the sum of allowable deductions from business or professional income. and other income are added together to arrive at the gross income. in the case of corporations. in the case of corporations.

rent. 3. hence the income of a non-resident citizen from sources outside the Philippines shall be exempt from Philippine income tax. d) Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers which are made by law as equivalent to testamentary disposition. or other disposition of capital assets located in the Philippines. a resident alien is now liable to pay Philippine income tax only on his income from sources outside the Philippines. exchange. sale or transfer of an obligation. Thus. profits and the like. b) Documentary Stamp Tax is a tax on documents. e) Income Tax is a tax on all yearly profits arising from property. including pacto de retro sales and other forms of conditional sale. Thus. if he resides in the Philippines. or property incident thereto. despite the fact that he has not set foot in the Philippines. if he qualifies as a non-resident citizen. or (b) only on his income from within the Philippines. interest. 4. corporations. loan agreements and papers evidencing the acceptance. Page | 40 . and (b) are real property are subject to final taxes at preferential tax rates. Criteria in Imposing Philippine Income Tax a) Citizenship Principle – A citizen of the Philippines is subject to income tax (a) on his worldwide income from within and without the Philippine. c) Source Principle – An alien is subject to Philippine income tax because he derives income from sources within the Philippines. and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer. profession. c) Donor’s Tax is a tax on a donation or gift. b) Residence Principle – An alien is subject to Philippine income tax on his worldwide income because of his residence in the Philippines. emoluments. such as dividend. instruments. or royalty. assignment. a non-resident alien is liable to pay Philippine income tax on his income from sources within the Philippines. trades or offices or as a tax on a person’s income. rights. Types of Philippine Income tax a) Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller from the sale.

b) Fiscal Period – Fiscal Year is always referred to by the date. thus. corporations.Income Computed on Basis of Short Period. properties or services in the course of trade or business whose gross annual sales or receipts do not exceed P550. c) Short Period .  Expanded Withholding Tax is a kind of withholding tax which is prescribed only for certain payors and is creditable against the income tax of the payee for the taxable year. . h) Withholding Tax on Compensation is the tax withheld from individuals receiving purely compensation income. f) Percentage Tax is a business tax imposed on persons or entities who sell or lease goods. Page | 41 . upon recommendation of the Commissioner. Taxable Period a) Calendar Period – Period from January to December. not on when it begins. g) Value-Added Tax is a business tax imposed and collected from the seller in the course of trade or business on every sale of properties (real or personal) lease of goods or properties (real or personal) or vendors of services.  Withholding Tax on Government Money Payments is the withholding tax withheld by government offices and instrumentalities. It is an indirect tax. A fiscal year can begin on any month but always ends on the twelfth month. including government-owned or -controlled corporations and local government units. 5. it can be passed on to the buyer.000 and are not VAT- registered. to be made for a fractional part of a year. before making any payments to private individuals.  Final Withholding Tax is a kind of withholding tax which is prescribed only for certain payors and is creditable against the income of the payee for the taxable year. partnerships and/or associations.Where a separate final or adjustment return is made under Subsection (A) on account of a change in the accounting period. then the income shall be computed on the basis of the period for which separate final or adjustment return is made. on which the accounting period ends. and in all other cases where a separate final or adjustment return is required or permitted by rules and regulations prescribed by the Secretary of Finance.

Every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with the rules and regulations to be prescribed by the Secretary of Finance. Non-Resident Foreign Corporation – is a foereign corporation not engaged in Trade or Business in the Philippines. (Sec.  Engaged in Trade or Business . he shall be deemed a non-resident alien not doing business in the Philippines. . he shall be deemed a non-resident alien doing business in the Philippines.  Aliens a. Resident Foreign Corporation – is one engaged in Trade or business in the Philippines. Minimum Wage Earner . Sec. 22 [C])  Foreign Corporations a. or five thousand pesos (P5.  Not Engaged in Trade or Business . That no withholding of a tax shall be required where the total compensation income of an individual does not exceed the statutory minimum wage.  Special Class of Individual Employees a.00) per month.(A) Requirement of Withholding. Kinds Of Tax Payers a) Individual Tax payers  Citizens a. 22 (G) of the 1997 Tax Code notwithstanding. Non-resident Alien – Further classified into engaged or not engaged in trade or business in the Philippines. Non-resident Citizen – Taxable only on his income from sources within the Philippines and exempt on his income from sources outside the Philippines.000.If his aggregate stay in the Philippines does not exceed 180 days during any calendar year. 79. b.. upon recommendation of the Commissioner: Provided. Page | 42 .6. Resident Aliens – An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for income tax purposes.If his aggregate stay in the Philippines is more than 180 days during any calendar year. Resident Citizen – Taxable on his worldwide income. b. however. NIRC) b) Corporations  Domestic Corporation – When applied to corporation means created or organized in the Philippines or under its laws. b. whichever is higher. (Sec.

b) Net Income – Means gross income less statutory deductions and exemptions. tax treaty or statute. For tax purposes. 7. the Tax Code considers any other type of partnership as a corporation subject to income tax. whether distributed to them or not. 8. It is referred to as “taxable income” under sec. and the co-ownership is not considered as a separate taxable entity. unless exempt from tax under the constitution. shall be allowed as deduction in computing taxable income of the estate or trust. legal or illegal. f) Co-ownership – There is co-ownership when the undivided ownership of an undivided thing or right belongs to different persons. Income a) “Income” means an amount of money coming to a person or corporation within a specified time. which in reality are also partnerships. whether as payment for services. no part of the income of which is derived from engaging in any trade or business. the individual co-owners report their share of the income from the property owned in common by them in their individual tax returns of the year. gain or profit subject to tax. except that the amount of income for the year which is to be distributed currently by the fiduciary to the beneficiaries. d) General Professional Partnership – A partnership formed by persons for the sole purpose of exercising their common profession. It includes compensation for personal and professional services. profits and income derived from any source. Income Taxation a) Gross Income – Means income. interest or profit from investment. c) Partnerships – Except for a general professional partnership and an unincorporated joint venture or consortium engaged in construction or energy related projects. Page | 43 . but the amount so allowed as deduction shall included in computing the taxable income of the beneficiaries. e) Estates and Trusts – Taxable estates and trusts are taxed in the same manner and on the same basis as in the case of an individual. 31 of the tax code. business income. and the mount of the income collected by a guardian of an infant which is to be held or distributed as the court may direct.

is taxable. irrespective of the voluntary or involuntary action of the taxpayer in producing the income. and other income are added together to arrive at the amount of gross income of an individual. (2) Gross income derived from the conduct of trade or business or the exercise of Page | 44 . Gross Income a. the graduated income tax rates ranging from 5% to 32% are applied on the resulting net taxable income to arrive at the income tax due and payable. capital gains and passive income not subject to final income tax. including. whatever may have been the mode by which it is effected. business and professional income. c) When income is taxable – Under Philippine tax system. Definition  gross income means all income derived from whatever means from legal or illegal sources b. wages. and other income as well as personal and additional exemptions.  Income from Whatever Source – All income not expressly excluded or exempted from the class of taxable income. and similar items. 9. if qualified. commissions. regardless of the source of the income.b) It is a flow or service rendered by capital by the payment of money from it or any other benefit rendered by a fund of capital in relation to such fund through a period of time. is taxable. salaries. d) Tests to determine whether income is earned for tax purposes  Realization Test – There is no taxable income until there is a separation from capital of something of exchangeable value. capital gains and passive income not subject to final income tax. but not limited to fees. including (but not limited to) the following items: (1) Compensation for services in whatever form paid.  Economic Benefit test – Any economic benefit to the employee that increases his networth. Concept of income from whatever source derived  means all income derived from whatever source. thereby supplying the realization or transmutation which would result in the result of income. and after deducting the allowable deductions from business and professional income. compensation income.  Claim of Right Doctrine – A taxable gain is conditioned upon the presence of a claim of right to the alleged gain and the absence of a definite unconditional obligation to return or repay that which would otherwise constitute a gain.

(3) Gains derived from dealings in property.Compensation for labor or personal services performed in the Philippines. a profession. (10) Pensions.Interests derived from sources within the Philippines. unless less than fifty percent (50%) of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends or for such part of such period as the corporation has been in existence) was derived from sources within the Philippines as determined under the provisions of this Section. (6) Royalties. (8) Annuities. c. Gross Income vis-à-vis Net Income vis-à-vis Taxable Income  Gross income .all income derived from whatever source means from legal or illegal sources before taxes and deductions  Net Income . Classification of Income as to Source 1) Gross income and taxable income from sources within the Philippines  The following items of gross income shall be treated as gross income from sources within the Philippines: (1) Interests. corporate or otherwise. and (11) Partner's distributive share from the net income of the general professional partnership. but only in an amount which bears the same ration to such dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to its gross income from all sources. . (4) Interests. (5) Rents. less deductions and/or personal and additional exemptions. (3) Services.Total revenue in an accounting period less all expenses during the same period  Taxable Income .The amount received as dividends: (a) from a domestic corporation. notes or other interest-bearing obligation of residents. . and (b) from a foreign corporation. (7) Dividends. d. (2) Dividends. . and interests on bonds.means “Gross Income”. (9) Prizes and winnings. Page | 45 .

and is furnished as a means of enabling the application or enjoyment of. venture. commercial or scientific equipment. technical. (f) Technical advice. and (iii) Tapes for use in connection with radio broadcasting. trade brands. trademark. industrial or commercial knowledge or information. assistance or services rendered in connection with technical management or administration of any scientific. industrial or commercial undertaking. and (g) The use of or the right to use: (i) Motion picture films. 2) Gross income and taxable income from sources without the Philippines  1) Interests (other than those derived from sources within the Philippines)  2) Dividends (other than those derived from sources within the Philippines)  3) Compensation for labor or personal services performed w/o the Philippines  4) Rentals or royalties from property located w/o the Philippines or from any interest in such property including rentals/royalties for the use of or for the privilege of using w/o the Philippines. (4) Rentals and Royalties. (d) The supply of any assistance that is ancillary and subsidiary to. secret formula or process. and (6) Sale of Personal Property. machinery or other apparatus purchased from such nonresident person. trademarks. patent. patents. including rentals or royalties for - (a) The use of or the right or privilege to use in the Philippines any copyright. any such equipment as is mentioned in paragraph (b) or any such knowledge or information as is mentioned in paragraph (c). goodwill. (c) The supply of scientific. or the right to use in the Philippines any industrial. as determined in Subsection (E) of this Section. copyrights. or the installation or operation of any brand.Rentals and royalties from property located in the Philippines or from any interest in such property. (ii) Films or video tapes for use in connection with television. plan. any such property or right as is mentioned in paragraph (a). (e) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to. project or scheme. franchises & other like properties Page | 46 . design or model. . . profits and income from the sale of real property located in the Philippines. profits and income from the sale of personal property.Gains. secret processes & formulas.Gains. . goodwill. trade brand or other like property or right. (5) Sale of Real Property. (b) The use of.

 5) Gains. 1999. whether an individual or a corporation (unless the fringe benefit is required by the nature of. Income from sale of personal property produced (in whole or in part) within and sold without the Philippines. a) Special treatment of fringe benefits  Imposition of Tax. except if:  The FB is required by the nature of the employment. or necessary to the trade. The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by sixty-six percent (66%) effective January 1. including. profits & income from the sale of real property located w/o the Philippines 3) Income partly within or partly without the Philippines  These are:  1. The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57 (A) of this Code.  2. 2000 and thereafter: Provided. business or profession of the employer. (C).. however. but not limited to fees.  Rank and file employees are exempt from Fringe Benefit Tax (FBT)  Only supervisory or managerial employee are liable to pay FBT. sixty- seven percent (67%) effective January 1. Income from sale of personal property produced (in whole or in part) without and sold within the Philippines. Income from services rendered partly within and partly without. That fringe benefit furnished to employees and taxable under Subsections (B). commissions. wages. 1998. (D) and (E) of Section 25 shall be taxed Page | 47 .  FB is for the convenience and advantage of the employer. and  3. business or profession of the employer. and thirty-two percent (32%) effective January 1. or when the fringe benefit is for the convenience or advantage of the employer).A final tax of thirty-four percent (34%) effective January 1. d.  Necessary to the trade. thirty-three percent (33%) effective January 1. is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees as defined herein) by the employer. and similar items 2) Fringe Benefits  this tax is imposed to the employee but payable by the employer under the withholding tax system. 1998. Sources of income subject to tax 1) Compensation Income  Compensation for services in whatever form paid. salaries. and sixty-eight percent (68%) effective January 1. 1999. 2000 and thereafter.

(C). (3) Benefits given to the rank and file employees. the following: (1) Housing. insurance and hospitalization benefit plans. (3) Vehicle of any kind. upon recommendation of the Commissioner  Fringe Benefits Taxable such as. but not limited to. driver and others. Page | 48 . . and (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance. such as maid. but not limited to.The following fringe benefits are not taxable under this Section: (1) fringe benefits which are authorized and exempted from tax under special laws. (7) Expenses for foreign travel. (6) Membership fees. (9) Educational assistance to the employee or his dependents. (D). dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations. (8) Holiday and vacation expenses. (3) Vehicle of any kind. (2) Expense account. That the grossed -Up value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) and the applicable rates of income tax under Subsections (B). (2) Expense account. (5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. the following: (1) Housing. whether granted under a collective bargaining agreement or not. (4) Household personnel. service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees as defined herein) such as. and (E) of Section 25 b) Definition  means any good. further. (2) Contributions of the employer for the benefit of the employee to retirement. and (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows c) Taxable and non-taxable fringe benefits  Fringe Benefits Not Taxable. at the applicable rates imposed thereat: Provided.

(7) Expenses for foreign travel. but does not include : (a) stock in trade of taxpayer (b) property which would properly be included in an inventory of the taxpayer. (6) Membership fees. (5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted.Capital asset means property held by the taxpayer (whether or not connected with his trade or business). dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations. such as maid. (8) Holiday and vacation expenses. (9) Educational assistance to the employee or his dependents. driver and others. if on hand (c) merchandise inventory (d) depreciable assets used in the trade/business (e) real property used in trade/business (2) Capital assets .Ordinary asset refers to all properties specifically excluded from the definition of capital assets under Sec. 39 (A)(1) of the NIRC these are: (a) stock in trade of taxpayer (b) property which would properly be included in an inventory of the taxpayer. if on hand (c) merchandise inventory (d) depreciable assets used in the trade/business (e) real property used in trade/business Page | 49 . (4) Household personnel. and (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows 3) Professional Income  income derived from the the exercise of a profession 4) Income from Business  income derived from conduct of trade or business 5) Income from Dealings in Property  Gains derived from dealings in property a) Types of Properties (1) Ordinary assets .

or other disposition of real property located in the Philippines. b) Types of Gains from dealings in property (1) Ordinary income vis-à-vis Capital gain  Ordinary income. including estates and trusts. including estates and trusts.means the excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges.  Presumed gain . including pacto de retro sales and other forms of conditional sales. by individuals. 1913. (2) Actual gain vis-à-vis Presumed gain Actual gain .  Short term capital gain . exchange.gains presumed to have been realized from the sale. or Page | 50 . classified as capital assets. exchange. Net capital loss  Net capital gain .means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges. (4) Net capital gain. or other disposition of real property located in the Philippines. classified as capital assets. (3) Long term capital gain vis-à-vis Short term capital gain  Long term capital gain .  Net Capital Loss .includes any gain from the sale or exchange of property which is not a capital asset or property.means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges.  Capital gain . by individuals. (5) Computation of the amount of gain or loss (a) Cost or basis of the property sold  The basis of property shall be - (1) The cost thereof in the case of property acquired on or after March 1.Gain on the sale of a capital asset held for more than one year. if such property was acquired by purchase.Gain on the sale of a capital asset held for one year or less.gains actually realized from the sale. including pacto de retro sales and other forms of conditional sales.

or (3) If the property was acquired by gift. the basis shall be such fair market value. which is a party to the merger or consolidation. exchanges property solely for stock in a corporation. alone or together with others. not exceeding four (4) persons. solely for stock or securities in such corporation. or (4) If the property was acquired for less than an adequate consideration in money or money's worth. a party to the merger or consolidation. the entire amount of the gain or loss. or (c) A security holder of a corporation. the basis of such property is the amount paid by the transferee for the property. which is a party to the merger or consolidation. solely for the stock of another corporation also a party to the merger or consolidation. That stocks issued for services shall not be considered as issued in return for property. gains control of said corporation: Provided. which is a party to a merger or consolidation. except that if such basis is greater than the fair market value of the property at the time of the gift then. exchanges his securities in such corporation. shall be recognize except:. or (b) A shareholder exchanges stock in a corporation. No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange said person. (b) Cost or basis of the property exchanged in corporate readjustment. as the case may be. which is a party to the merger or consolidation. [2] Consolidation  No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation - Page | 51 . if the same was acquired by inheritance. or (5) The basis as defined in paragraph (C)(5) of Section 40 of NIRC. the basis shall be the same as if it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift. for the purpose of determining loss.(2) The fair market price or value as of the date of acquisition. [1] Merger  No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation - (a) A corporation.. if the property was acquired in a transaction where gain or loss is not recognized under paragraph (C)(2) of Section 40 NIRC.

a party to the merger or consolidation. gains control of said corporation (c) Recognition of gain or loss in exchange of property The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis or adjusted basis for determining gain. alone or together with others. which is a party to a merger or consolidation. and the loss shall be the excess of the basis or adjusted basis for determining loss over the amount realized. alone or together with others.(a) A corporation. exchanges property solely for stock in a corporation.  no gain or loss shall be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such corporation of which as a result of such exchange said person. not exceeding four (4) persons. No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange said person. exchanges his securities in such corporation. the entire amount of the gain or loss. solely for the stock of another corporation also a party to the merger or consolidation. or (b) A shareholder exchanges stock in a corporation. as the case may be. The amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property (other than money) received. [3] Transfer to a controlled corporation (tax-free exchanges)  are not subject to Income Tax under relevant provisions of the same Code. which is a party to the merger or consolidation. shall be recognized Page | 52 . solely for stock or securities in such corporation. or (c) A security holder of a corporation. which is a party to the merger or consolidation. not exceeding four persons. gains control of said corporation: Provided. [1] General rule Except as provided in NIRC. upon the sale or exchange or property. which is a party to the merger or consolidation. That stocks issued for services shall not be considered as issued in return for property.

finally . (6) Income tax treatment of capital loss (a) Capital loss limitation rule (applicable to both corporations and individuals)  Losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges. That in determining whether the property transferred constitutes a substantial portion of the property of the transferor. shall mean ownership of stocks in a corporation possessing at least fifty-one percent (51%) of the total voting power of all classes of stocks entitled to vote. control securities  The term 'merger' or 'consolidation'. That for a transaction to be regarded as a merger or consolidation within the purview of this Section. when used in this Section. If a bank or trust company incorporated under the laws of the Philippines. Page | 53 . with interest coupons or in registered form. [a] Where no gain or loss shall be recognized  No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation - [2] Exceptions [a] Meaning of merger. That in determining whether a bona fide business purpose exists. each and every step of the transaction shall be considered and the whole transaction or series of transaction shall be treated as a single unit: Provided. sells any bond. or (ii) the acquisition by one corporation of all or substantially all the properties of another corporation solely for stock: Provided. a substantial part of whose business is the receipt of deposits. further. or certificate or other evidence of indebtedness issued by any corporation (including one issued by a government or political subdivision thereof). the term 'property' shall be taken to include the cash assets of the transferor. any loss resulting from such sale shall not be subject to the foregoing limitation and shall not be included in determining the applicability of such limitation to other losses. it must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of taxation: Provided. when used in this Section. debenture. [b] Transfer of a controlled corporation  The term 'control'. note. consolidation. shall be understood to mean: (i) the ordinary merger or consolidation.

(b) Net loss carry-over rule (applicable only to individuals)  if any taxpayer. including pacto de retro sales and other forms of conditional sales. exchange. as defined herein. exchange. at the option of the taxpayer. including estates and trusts: Provided. bartered. exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the local stock exchange: Page | 54 . or other disposition of real property located in the Philippines. exchanged or otherwise disposed which shall be paid by the seller or transferor. bartered. exchanged or otherwise disposed in accordance with the proportion of shares of stock sold. barter. a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code. (8) Dealings in shares of stock of Philippine corporations (a) Shares listed and traded in the stock exchange  There shall be levied. assessed and collected on every sale. bartered. or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities. whichever is higher. a tax at the rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross value in money of the shares of stock sold. on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24 (A) or under this Subsection. assessed and collected on every sale. exchange or other disposition through initial public offering of shares of stock in closely held corporations. classified as capital assets. (7) Dealings in real property situated in the Philippines  The provisions of Section 39(B of NIRC notwithstanding. (b) Shares not listed and traded in the stock exchange  There shall be levied. other than a corporation. if any. That the tax liability. by individuals. such loss (in an amount not in excess of the net income for such year) shall be treated in the succeeding taxable year as a loss from the sale or exchange of a capital asset held for not more than twelve (12) months. is hereby imposed upon capital gains presumed to have been realized from the sale. barter. sustains in any taxable year a net capital loss. a tax at the rates provided hereunder based on the gross selling price or gross value in money of the shares of stock sold.

whichever is higher. that if there is no full utilization of the proceeds of sale or disposition. That the said tax exemption can only be availed of once every ten (10) years: Provided. if pre-terminated after 4 years to less than 5 years Page | 55 . That the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption herein mentioned: Provided. Exempt if investment is held for more than five years b. 6) Passive Investment Income a) Interest Income Interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements – 20% Interest income derived by a resident individual or domestic corporation (Note: non-resident citizen not included) from a depository bank under the expanded foreign currency deposit system – 7. the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax. the gross selling price or fair market value at the time of sale. If investment is pre-terminated. interest income on such investment shall be subject to the following rates: 20% . (9) Sale of principal residence  from the sale or disposition of their principal residence by natural persons. the proceeds of which is fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of sale or disposition. finally. if pre-terminated after 3 years to less than 4 years 5% . That the historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired: Provided. shall be exempt from the capital gains tax imposed under this Subsection: Provided.5% Interest income from long-term deposit or investment evidenced by certificates prescribed by BSP a. shall be multiplied by a fraction which the unutilized amount bears to the gross selling price in order to determine the taxable portion and the tax prescribed under paragraph (1) of this Subsection shall be imposed thereon. For this purpose. still further. if pre-terminated in less than 3 years 12% . further.

as well as other literary works and musical compositions – 20% Royalties on books. insurance or mutual fund companies and regional operating headquarters of multinational companies. whichever is applicable. It shall be taxable only if subsequently cancelled and redeemed by the corporation. except on books. whether in money or in other property. (3) Property dividend Ten percent (10%) final tax on Property dividend actually or constructively received from a domestic corporation or from a joint stock company.b) Dividend Income “Dividends” means any distribution made by a corporation to its shareholders out of its earnings on profits and payable to its shareholders. the gain realized or loss sustained by the stockholder. literary works and musical compositions – 10% Page | 56 . (4) Liquidating dividend Where a corporation distributes all its assets in complete liquidation or dissolution. insurance or mutual fund companies and regional operating headquarters of multinational companies. (1) Cash dividend Ten percent (10%) final tax on Cash dividend actually or constructively received from a domestic corporation or from a joint stock company. (2) Stock dividend A stock dividend representing the transfer of surplus to capital account shall not be subject to tax. c) Royalty Income Royalties. It is also taxable if it leads to a substantial alteration in the proportion of tax ownership in a corporation. is a taxable income or deductible loss. whether individual or corporation.

Pre-paid rental. also called “full payout lease” is a contract involving payment over an obligatory period (also called primary or basic period) of specified rental amounts for the use of a lessor’s property. or iv. but looks for the recovery of the balance of his costs and for the rests of his profits from the sale or re-lease of the returned assets at the end of the primary lease period. or ii. An option money for the property. (c) Advance rental/long term lease Advance payment can be in the form of: i.d) Rental Income An operating lease is a contract under which the asset is not wholly amortized during the primary period of the lease. A security deposit to insure the faithful performance of certain obligations of the lessee to the lessor. sufficient in total to amortize the capital outlay of the lessor and to provide for the lessor’s borrowing costs and profits. and where the lessor does not rely solely on the rentals during the primary period for his profits. or iii. it is not subject to VAT Page | 57 . A loan to the lessor from the lessee. • If the advance payment is for the faithful performance of certain obligations of the lessee. (1) Lease of personal property (2) Lease of real property (3) Tax treatment of (a) Leasehold improvements by lessee (b) VAT added to rental/paid by the lessee VAT on rental for the use or lease of properties in the Philippines shall be based on the contract price agreed upon by the lessor and the lessee. Finance lease.

then such payment is taxable to the lessor in the month when received. • If the advance payment constitutes a prepaid rental. • A security deposit that is applied to rental shall be subject to VAT at the time of its application. pensions and other similar benefits received by resident or non-resident citizens or resident aliens from foreign government agencies and other institutions. except PCSO and lotto. retirement benefit.  Amount received by an official or employee or by his heirs from the employer due to separation from the service because of death.000 + 32% of excess over P500. private or public. 7641 or a reasonable private benefit plan. or separation pay Excluded from the computation of Gross Income are the following:  Retirement benefits under RA No. irrespective of the accounting method employed by the lessor.00 are included in the income tax of the individual subject to the schedular rate of 5% up to P125. derived from sources within the Philippines – 20% 9) Pensions. Proceeds from life insurance or other types of insurance 8) Prizes and awards Prizes over P10.00 – 20% Note: Prizes less than P10.000.00) Other winnings.  Benefits received from or enjoyed under the Social Security System.000.  Social security benefits. Page | 58 . 7) Annuities. retirement gratuities.  Payment of benefits to a resident person under the United States Veterans Administration. sickness or other physical disability or for any cause beyond the control of the official or employee.000.

any purpose other than for the exclusive benefit of the said officials and employees. for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated. The separation from the service of the official or employee must not be asked for or initiated by him. gratuity. and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for. sickness or other physical disability or for any cause beyond the control of the said official or employee is excluded from gross income. [Section 2. Separation pay and amounts received due to involuntary separation Any amount received by an official or employee or by his heirs from the employer due to death. Reasonable private benefit plan It means a pension.78. It must be received under RA 7641 or in accordance with a reasonable private benefit plan maintained by the employer. Revenue Page | 59 . including retirement gratuity received by government officials and employees. Requisites for exclusion of retirement benefits 1.  Benefits received from the Government Service Insurance System. 2. stock bonus or profit sharing plan maintained by an employer for the benefit of some or all of his officials or employees.1. or both. Benefits granted under the provision shall be availed of by an official or employee only once. Cause beyond the control of the employee The phrase “for any cause beyond the control of the said official or employee” connotes involuntariness on the part of the official or employee. 3. Retiring employee or official has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement. or be diverted to.

income to that amount is realized by the debtor as compensation for his service. Terminal leave pay Commutation of leave credits or terminal leave pay are given not only at the same time but also for the same policy considerations governing retirement benefits. Revenue Regulations 2] b) Recovery of accounts previously written off Recovery or collection of accounts previously written of shall be considered as income. or 3. a gift.  If. [Zialcita case. 190 SCRA 851] 10) Income from any source whatever a) Forgiveness of indebtedness The cancellation and forgiveness of indebtedness may. however. a payment of income. Regulation 2-98] The separation was not of his own making and therefore involuntary. a capital transaction. terminal pay is not subject to income tax.  If. Court of Appeals. a creditor merely desires to benefit a debtor and without any consideration thereof cancels the debt.  If a corporation to which a stockholder is indebted forgives the debt. 203 SCRA 72] Terminal leave pay is exempt from income tax. an individual performs services for a creditor who. [Section 50. [Commissioner v. 2. the amount of the debt is a gift from the creditor to the debtor and need not be included in the latter’s gross income. Page | 60 . in consideration thereof cancels the debt. dependent upon the circumstances. Thus. the transaction has the effect of payment of a dividend. not being part of the gross salary or income but a retirement benefit. for example. amount to: 1.

shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction. d) Income from any source whatever Recovery of damages (compensation for injury. Territorial) Situs of Taxation is the place or authority that has the right to impose and collect taxes. from tortious acts) – Not Taxable Return of Capital – Taxable Income derived from Illegal business . residence of the debtor 2) Dividends - a) From a domestic corporation – deemed income from within the Philippines b) From a foreign corporation – deemed income from without provided more than 50% of the corporation’s worldwide income is not derived from Philippine sources. trademarks. c) Receipt of tax refunds or credit Taxes previously allowed as deductions. Source rules in determining income from within and without 1) Interests . Situs of Income Taxation (See page 2 under Inherent Limitations. when refunded or credited.) giving rise to royalties. etc. The state where the subject to be taxed has a situs may rightfully levy and Page | 61 . 6) Sale of real property Location of Property 7) Sale of personal property Place of sale 8) Shares of stock of domestic corporation Philippine source f. 3) Services Place of Performance 4) Rentals Location of Property 5) Royalties Place of use or location of intangibles (such as patents.Taxable Recovery of lost earnings .Taxable e.

Exclusions from Gross Income 1) Rationale for the exclusions Exclusion refers to income received or earned but is not taxable as income because it is exempted by law or by treaty. Exclusion refers to income received or earned but is not taxable as income because exempted by law or by treaty. 4) Under the Constitution a) Income derived by the government or its political subdivisions from the exercise of any essential governmental function. Revenue Regulation 2] Tax credit refers to the taxpayer’s right to deduct from the income tax due the amount of tax he has paid to a foreign country subject to limitations. [Section 61. The situs is necessarily in the state which has jurisdiction or which exercises dominion over the subject in question. Such tax-free income is not to be included in the income tax return unless information regarding it is specifically called for. collect the tax. 5) Under the Tax Code a) Proceeds of life insurance policies Proceeds of life insurance policies paid to the heirs/beneficiaries upon the death of the insured: Page | 62 . Such tax-free income is not to be included in the income tax return unless information regarding it is specifically called for. 2) Taxpayers who may avail of the exclusions 3) Exclusions distinguished from deductions and tax credit Deduction is an amount allowed by law to be subtracted from gross income to arrive at taxable income. g. Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government or to any political subdivision thereof shall be excluded from the computation of Gross Income.

bequest.  Most critical consideration is the giver’s intention or motive. endowment. received either during the term or at the maturity of the terms or upon surrender of the contract. received either during the term or at the maturity of the terms or upon surrender of the contract. If he survives.  Can be a gift if given on account of filial relationship. proceeds cannot qualify as a gift. or annuity contracts. income from such property shall be included in Gross Income.  Must be characterized by disinterested generosity and pure liberality.  If given under a) constraining force of any moral or legal duty or b) from the incentive of an anticipated benefit of an economic nature or c) where it is a return for services rendered. or annuity contracts. Page | 63 .  Insured must die to avail of total exemption. c) Amounts received under life insurance.  Difficult to establish gift situations if there is an Employer- Employee relationship (A bonus/assistance as recognition of service rendered is not exempt). e) Amount received through accident or health insurance Compensation for Injuries or Sickness: • Received through Accident/Health Insurance or Workmen’s Compensation Act. the interest payments shall be included in the Gross Income. endowment. d) Value of property acquired by gift. endowment or annuity contracts Amount Received by Insured as Return of Premium under life insurance. as compensation for personal injuries/sickness plus amount of damages received on account of such injuries/sickness. there/s only partial exemption to the extent that the proceeds constitute return of capital (total amount of premiums paid) b) Return of premium paid Amount Received by Insured as Return of Premium under life insurance.  If such amounts are held by the insurer under an agreement to pay interest. devise or descent  But.

literary or civic achievement. and awards. damages for car wreckage will only be exempt to the extent of the amount of the actual damage. including those in sports competition Prizes and awards in recognition of religious. If no personal injury. charitable. f) Income exempt under tax treaty Income Exempt under Treaty shall be exempt to the extent required by any treaty. not injury to rights. Page | 64 .) • Must be physical injury. prizes. Prizes and awards must be granted to athletes in local and international sports competitions and tournaments. 3. The recipient was selected without any action on his part to enter the contest or proceeding. Made primarily in recognition of religious. artistic. however. literary or civic achievement 1. The recipient is not required to render substantial future services as a condition to receiving the prize or award. 2. 2. pensions. Sports competition or tournament must be sanctioned by their natural sports associations. scientific. if damages only amount to return of capital. artistic. h) Winnings. Sports competition or tournament held either in the Philippines or abroad. educational. etc. 3. Damages from car accident exempt only if claim includes compensation for personal injury. g) Retirement benefits. it is exempt (Ex. charitable. Prizes and awards in sports competitions 1. educational. • Damages will be exempt only if they arise together with personal injury. gratuities. scientific.

000 = 4. It must be for property used for employment in trade or business or out of its not being used temporarily during the year. (ii) Methods [1] Straight-line Method COST – SALVAGE VALUE Estimated Life example: cost=50. The allowance for depreciation must be reasonable. 2.00. productivity incentives & Christmas bonus). debentures or other certificates of indebtedness with a maturity of more than 5 years. c) Gains form the sale of bonds. Medicare. The allowance must be charged off.000. b) GSIS.000 estimated life=10 years 50. (i) Requisites 1. the use of which in trade or business is of limited duration. Schedule on the allowance must be attached to the return. Depreciation commences with the acquisition of the property or with its erection. d) Gains from redemption of shares in mutual fund. Pag-ibig contributions & union dues of individuals.000 Salvage Value=10. 6) Under a Tax Treaty 7) Under Special Laws a) 13th month pay & other benefits (i.000 .e. provided that total exclusion shall not be more than P30. 3. It also applies to amortization of intangible assets. wear and tear and normal obsolescence.000 10 years Page | 65 . 4. (f) Depreciation Depreciation is the gradual diminution in the service or useful value of tangible property due from exhaustion. SSS.10.

4 x (50.accumulated depreciation x rate estimated life example: rate= 200% year 1 -. It must be given to the organizations specified in the code.333.50. 3.000 10 year 2 -. (ii) Amount that may be Deducted Contributions or gifts actually paid or made within the taxable year to: 1.0 x 200% = 10.000) = 13.33 15 year 2 -. 2.000 x 200% = 8.000 – 10. Or for the use of the Government of the Philippines or any of its agency or any political subdivision thereof exclusively for public purposes.000) = 10. 5 x (50.666.10.salvage value) sum of the years digits example: Sum of the years digit is 5+4+3+2+1 = 15 year 1 -. The net income of the institution must not inure to the benefit of any private stockholder or individual.000 .000 .66 15 (g) Charitable and other Contributions (i) Requisites for Deductibility 1.000 .[2] Declining.50. The contribution or gift must be actually paid.10.balance method cost .000 10 [3] Sum-of-the-years-digit method nth period x (cost . Page | 66 .

No part of the net income of which inures to the benefit of any private stockholder or individual in an amount not in excess of 10% in the case of an individual. Donations to Accredited Non-Government Organizations (h) Contributions to pension trusts i. and 6. except non-resident aliens An individual subject to tax under Section 24. Donations to Certain Foreign Institutions or International Organizations 3. Contributions deductible in Full: 1. 4. or to NGO’s. business or profession as computed without the benefit of the following subparagraphs. 5. may elect a standard deduction in an amount not exceeding forty percent (40%) of his gross sales or gross receipts. 2. 3. The pension plan is reasonable and actuarially sound. and 5% in the case of a corporation. Requisites for Deductibility 1. Individuals. scientific. may elect a standard deduction in an amount not exceeding forty percent (40%)of its gross income. cultural or educational purposes or for the rehabilitation of veterans. Accredited domestic corporations or associations organized and operated exclusively for religious. Corporation. youth and sports development. or to social welfare institutions. full or with limitation. b. The employer must have established a pension or retirement plan to provide for the payment of reasonable pensions to his employees. The amount contributed must be no longer subject to the control and disposition of the employer. (4) Optional Standard Deduction (OSD) a. The deduction is apportioned in equal parts over a period of 10 consecutive years beginning with the year in which the transfer of payment is made. 2. as the case may be. The contribution is given to a juridical person. charitable. except non-resident foreign corporation A corporation subject to tax. It must be funded by the employer. of the taxpayer’s taxable income derived from trade. Donations to the Government 2. Page | 67 . other than a nonresident alien. The payment has not yet been allowed as a deduction.

in full for such a year. or becomes 21 years old or becomes gainfully employed during the taxable year.000 for each dependent not exceeding four (4). when made in the return. The additional exemption for dependents shall be claimed by only one of the spouses in the case of married individuals. illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than 21 years of age. (b) Additional exemptions for taxpayers with dependents A dependent means a legitimate. that an individual who is entitled to and claimed for the OSD shall not be required to submit with his tax return such financial statements otherwise required in this Code. In the case of legally separated spouses. is incapable of self- support because of mental or physical defect. his estate may still claim the personal and additional exemptions for himself and his dependents as if he died at the close of the year. shall be irrevocable for the taxable year for which the return is made: Provided. additional exemptions may be claimed only by the spouse who has custody of the child or children. 9504 Minimum Wage Earner Law) (a) Basic Personal Exemptions Individuals have personal exemptions only on their taxable income. regardless of age. the taxpayer may claim the corresponding additional exemption. or married.000 regardless of status. the taxpayer may still claim the same exemptions as if the spouse or any of the dependents died. (5) Personal and additional exemptions (RA No. There shall be allowed an additional exemption of P25. If the spouse or any of the dependents dies or if any of such dependents marries. (c) Status at the end of the year Rule If the taxpayer marries or should have additional dependents as defined above during the taxable year. unmarried and not gainfully employed or if such dependent. as the case may be. If the taxpayer dies during the taxable year. that the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions allowed. or Page | 68 . Provided. The basic exemption is P50. An election of an OSD.

living or family expenses. (b) Losses from sales or Exchange of Property In computing net income. with respect to the taxable year of the corporation preceding the date of the sale of exchange was under the law applicable to such taxable year. between two corporations more than fifty percent (50%) in value of the outstanding stock of which is owned. For purposes of this paragraph. ancestors. spouse. and lineal descendants. or (3) Except in the case of distributions in liquidation. a personal holding company or a foreign personal holding company. no deduction shall in any case be allowed in respect to - (1) Personal. or of any person financially interested in any trade or business carried on by the taxpayer. (6) Items not deductible (a) General Rules In computing net income. by or for such individual. no deductions shall in any case be allowed in respect of losses from sales or exchanges of property directly or indirectly - (1) Between members of a family. (3) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made. between an individual and corporation more than fifty percent (50%) in value of the outstanding stock of which is owned. became 21 years old or became gainfully employed at the close of such year. or (2) Except in the case of distributions in liquidation. Page | 69 . individual or corporate. or (4) Premiums paid on any life insurance policy covering the life of any officer or employee. when the taxpayer is directly or indirectly a beneficiary under such policy. directly or indirectly. directly or indirectly. by or for the same individual if either one of such corporations. (2) Any amount paid out for new buildings or for permanent improvements. the family of an individual shall include only his brothers and sisters (whether by the whole or half-blood). or betterments made to increase the value of any property or estate. This Subsection shall not apply to intangible drilling and development costs incurred in petroleum operations which are deductible under Subsection (G) (1) of Section 34 of this Code.

(2) payments made: 1.(4) Between the grantor and a fiduciary of any trust. if indebtedness is payable in periodic amortizations. spouse. more than 50% in value of outstanding stock owned by same individual. ancestors. interest on preferred stock which in reality is dividend 9. between Fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust 6. between 2 corps. between an individual & a corporation more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation) 3. between Fiduciary & a beneficiary of a trust 7. (c) Non-deductible Interest (1) interest paid in advance through discount or otherwise(in case of cash basis taxpayer) is allowed as deduction in the year the debt is paid. interest is deducted in proportion of the amount of the principal paid. between members of a family (include only brothers & sisters. (5) Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust. between grantor & fiduciary of any trust 5. indebtedness is incurred by a service contractor to finance petroleum corporation 8. or (6) Between a fiduciary of a trust and beneficiary of such trust. & lineal descendants) 2. interest on unpaid salaries and bonuses Page | 70 . if either one is a personal holding company or a foreign holding company during the taxable year preceding the date of sale/exchange 4.

interest calculated for cost keeping on account of capital or surplus invested in business which does not represent charges arising under interest-bearing obligation 11. Non-deduction of wash sales does not apply if the dealer’s transaction of stocks and securities is made in the ordinary course of business. being in the nature of income tax (6) special assessments (e) Losses from Wash Sales of Stock or Securities Wash Sale is a taxpayer scheme to recognize a deductible loss in his tax return by selling shares at a loss when the shares sold are substantially identical stock or securities of that which were purchased or acquired beginning 30 days before the date of sale and ending 30 days after the sale. 10. Wash sales losses are not deductible from gains derived from wash sales transactions. interest paid when there is no stipulation for the payment thereof (d) Non-deductible Taxes (1) Philippine income tax (but FBT can be deducted from gross income RR 8- 98) (2) income tax imposed by authority of any foreign country (except when the taxpayer signifies his desire to avail of the tax credit for taxes of foreign countries) (3) estate & donor’s taxes (4) taxes assessed against local benefits of a kind tending to increase the value of the property assessed (5) final taxes. J. Exempt Corporations (A) Labor. Page | 71 . agricultural or horticultural organization not organized principally for profit.

mutual ditch or irrigation company. order. organizer. (E) Nonstock corporation or association organized and operated exclusively for religious. fruit growers'. and (K) Farmers'. shall be subject to tax imposed under this Code. athletic. real or personal. Notwithstanding the provisions in the preceding paragraphs. (G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare. mutual or cooperative telephone company. not organized for profit and no part of the net income of which inures to the benefit of any private stock-holder. or individual. Page | 72 . accident. or mutual aid association or a nonstock corporation organized by employees providing for the payment of life. and fees collected from members for the sole purpose of meeting its expenses. (I) Government educational institution. or like organization of a purely local character. or board of trade. sickness. no part of its net income or asset shall belong to or inures to the benefit of any member. and cooperative bank without capital stock organized and operated for mutual purposes and without profit. or from any of their activities conducted for profit regardless of the disposition made of such income. the income of which consists solely of assessments. the income of whatever kind and character of the foregoing organizations from any of their properties. or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales. less the necessary selling expenses on the basis of the quantity of produce finished by them. or for the rehabilitation of veterans. or nonstock corporation or their dependents. dues. (F) Business league chamber of commerce. order or association. (D) Cemetery company owned and operated exclusively for the benefit of its members. (J) Farmers' or other mutual typhoon or fire insurance company.(B) Mutual savings bank not having a capital stock represented by shares. scientific. charitable. or association. or cultural purposes. officer or any specific person. (C) A beneficiary society. (H) A nonstock and nonprofit educational institution. or other benefits exclusively to the members of such society. operating fort he exclusive benefit of the members such as a fraternal organization operating under the lodge system.

000……………P50.500+15% of the excess over P30..000+34% of the excess over P500.. the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. That if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses.500+25% of the excess over P140...5% Over P10.000 but not over P30.000 Over P30. P125.000 Over P70.000 but not over P500. Taxation on Compensation Income (1) Inclusions (a) Monetary Compensation (i) Regular salary/wage The tax shall be computed in accordance with and at the rates established in the following schedule: Not over P10.000……. General Rule: Resident Citizens – Taxable on Income from all Sources within and without the Philippines A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines.………P8.000………………P2.500+20% of the excess over P70..000…………………………………. shall compute separately their individual income tax based on their respective total taxable income: Provided..000……………P22. that minimum wage earners shall be exempt from the payment of income tax on their taxable income: Provided.10. Taxation of Resident Citizens. Non-resident Citizens.000 Over P500.000+30% of the excess over P250. further. that the holiday pay. and Resident Aliens a.000 but not over P70.000………………P500+10% of the excess over P10. overtime pay. For married individuals. Provided.000 Over P140.000 but not over P250.000 but not over P140.000 in 1998.. b. night shift differential pay and hazard Page | 73 . subject to the provision of Section 51 (D) hereof.000 Over P250.. the husband and wife.000 ………………………….

Only supervisory or managerial employees are liable to pay Fringe Benefit Tax. The Fringe benefit is required by the nature of the employment. services or other benefit furnished or granted or furnished in cash or in kind by an employer to an individual employee. except if: 1. that the total exclusion under this subparagraph shall not exceed P30. (b) Non-monetary compensation (i) Fringe Benefit not Subject to Tax Fringe benefits are goods. pay received by such minimum wage earners shall likewise be exempt from income tax. If the company has no BIR approved retirement plan. (2) Exclusions (a) Fringe Benefit Subject to Tax Only supervisory or managerial employees are liable to pay Fringe Benefit Tax. an employee who is separated against his will but who signed a CBA. (ii) Separation pay/retirement benefit not otherwise exempt Retirement under a Collective Bargaining Agreement is taxable for being voluntary. the retirement benefits under the CBA is taxable because by signing the CBA.000. Fringe Benefit Tax is imposed to the employee but payable by the employer under the withholding tax system. Fringe benefits which are authorized and exempted from tax under special laws. Page | 74 . and other benefits not exempt These are gross benefits received by officials and employees of public and private entities. Contributions of the employer for the benefit of the employee to retirement. Rank and file employees are exempt from Fringe Benefit Tax. (iii) Bonuses. insurance and hospitalization benefit plans are also non-taxable Fringe Benefits. Provided. 13th month pay. it makes his separation voluntary.

Page | 75 . it is no longer subject to tax as compensation income. medical benefits. Tax on Nonresident Alien Individuals. It is for the convenience and advantage of the employer. monthly bonus. quarterly bonus. (3) Deductions (a) Personal exemptions and additional exemptions Previously discussed. (b) De minimis benefits De minimis benefits mean benefits of small value. such as laundry allowance. and all other such as the different MWSS bonus. the excess would be subjected to income tax. (c) 13th Month Pay and other Benefits and payments specifically excluded from taxable compensation income Thirteenth month pay are exempted if received by public or private entities. It is necessary to the trade. 2. The term “other benefits” includes Christmas bonus. for himself and members of his family during the taxable year. Fringe benefit given to employees which are non-residents alien individual not engaged in trade or business within the Philippines including special alien individuals shall not be subject to Fringe Benefit Tax but regular rates under section 25. These benefits are exmpted both from Fringe benefit and compensation income tax. and uniform allowance. it would still be subject to compensation income tax. (b) Health and hospitalization Insurance Health and hospitalization insurance is the amount of premium on health and or hospitalization paid by an individual taxpayer (head of family or married). 3. The first P30. unless the employee is also exempted from the income tax. if it is exempted from Fringe Benefit Tax. business or profession of the employer. Moreover.000 would be exempted. If the Fringe Benefit is already subjected to Fringe benefit tax.

b. further. Night shift Differential. 2. and Hazard pay Minimum wage shall be exempt from the payment of income tax on their taxable income: Provided. overtime pay. That said family had a gross income of not more than P250. night shift differential pay and hazard Page | 76 . or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned. In case of married individuals. Insurance must have actually been taken. Individual taxpayers earning business income or in practice of his profession whether availing of itemized or optional standard deductions during the year.Requisites for Deductibility: a. Who may Avail of this deduction: 1. (c) Taxation of compensation income of a minimum wage earner (i) Statutory Minimum Wage The term 'statutory minimum wage' shall refer to rate fixed by the Regional Tripartite Wage and Productivity Board. as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE) (ii) Minimum Wage Earner The term 'minimum wage earner' shall refer to a worker in the private sector paid the statutory minimum wage. That the holiday pay.000 for the taxable year. d. (iii) Income also Subject to Tax Exemption: Holiday pay. c. Overtime pay. only the spouse claiming additional exemption shall be entitled to this deduction. The amount of premium deductible from gross income does not exceed P2400 per family or P200 per month during the taxable year. Individual taxpayers earning purely compensation income during the year.

cash dividend or property dividend paid by a domestic corporation was exempt from income tax pursuant to the provisions of the 1977 Tax Code. Beginning Januar 1. a. c. insurance or mutual fund company. Interest income has to be examined closely to determine whether it is taxable in the Philippines. Dividend is paid by a domestic corporation Recipient is a citizen or resident alien Up to Dec. Where a person pays royalty to another for the use of its intellectual property. such royalty is a passive income of the owner thereof subject to final withholding tax. the dividends are taxable. in which case. any gain derived therefrom is considered as an active business income subject to the normal corporate income tax. As long as the issuing corporation is a domestic corporation. unless they are exempt from tax or subject to final tax at preferential rate under the 1997 Tax Code or under the applicable tax treaty. (c) Royalties Royalty is a valuable property that can be developed and sold on a regular basis for a consideration. as amended. interest received or credited to the account of the depositing or investor are included in their gross income. pay received by such minimum wage earners shall likewise be exempt from income tax. Taxation of Business Income/ Income from Practice of Profession d. and if so. Taxation of Passive Income (1) Passive income subject to final tax (a) Interest Income In general. (c) Dividends from Domestic Corporation Dividends issued by domestic corporation are always considered as income derived from sources within the Philippines. There is no further requirement. cash dividend or property dividend paid by a domestic corporation or a joint stock company. or on the share of a individual in the distributable net income after tax of a partnership (except a general professional Page | 77 . 31. 1998. 1997. what kind of income tax and what rate of tax shall apply to it.

Recipient is a non-resident alien engaged in trade or business in teh Philippines Cash and/or property dividends shall be subject to 20% final withholding tax. Taxation of capital gains (1) Income from sale of shares of stock of a Philippine corporation (a) Shares traded and listed in the stock exchange The transaction is subject to a final percentage tax of ½ of 1% of the gross selling price. resident alien or non-resident alien engaged in trade or business in the Philippines. The appropriate tax rate to be deducted and withheld on the cash dividend by teh paying corporation shall be the rate prescribed in the year of receipt of such dividend (not the rate in the year of declaration of such dividend. However. the prizes and other winnings are added to the corporation’s operating income and the net income is subject to 35% corporate income tax.beginning January 1. or 8% . is generally subject to the ff final withholding tax rates: 6% . 1999. 2000. if the recipient is a non-resident alien not engage in trade or business in the Philippines. Recipient is a non-resident alien not engaged in trade or business in the Philippines Cash and/or property dividends shall be subject to the final withholding tax rate of 2% (d) Prizes and other winnings Prizes (except prizes amounting to P10. partnership) of which he is a partner. out of its earning or profits in 1998 or succeeding years. Page | 78 .beginning January 1.beginning January 1. 1998. The tax is imposed regardless of whether a gain is derived or not. if received by a citizen. or joint venture or consortium taxable as a corporation of which he is a member or co- venturer. or 10%. (2) Passive income not subject to final tax e. joint account. the prizes and other winnings shall be subject to 25% final withholding tax.000 or less) and other winnings (except PSCO and lotto winnings) from sources within the Philippines shall be subject to 20% final withholding tax. And if the recipient is a corporation (domestic or foreign). or on the share of an individual in the net income after tax of a association.

General Rules A non-resident alien individual engaged in trade or business in the Philippines shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual. Or Regional Operating Headquarters of Multinational company. Joint Venture Taxable as a Corporation or Association. (2) Income from the sale. The transaction shall only be subject to tax if it results into a gain. exchange or disposition of land and/or buildings which are classified as capital assets. whichever is higher. Page | 79 . or other disposition of other capital assets A final income tax of 6% is imposed on the gain presumed to have been realized on the sale. and real properties shall be subject to the tax prescribed under Subsections (C) and (D) of Section 24. Cash and /or property dividends Cash and/or property dividends from a domestic corporation or Joint stock company. Capital Gains Capital gains realized from sale. the real properties which can be subject under this provision are only land and/or buildings. barter or exchange of shares of stock in domestic corporations not traded through the local stock exchange. and other Winnings shall be subject to an income tax of 20% on the total amount thereof c. however. or Share in the Distributable Net Income of a Partnership (except a General Professional Partnership). The rules on individuals taxpayers with respect to sale of real property which is a capital asset located in the Philippines is also applicable to domestic corporations. unlike in the case of individuals which includes all the immovable properties enumerated in Art 415 of the civil code. A non-resident alien engage in trade or business in the Philippines is a foreigner not residing but: (1) engaged in trade or business therein. or Insurance or Mutual Fund Co. Interests. 11. Prizes. or (3) comes and stays therein for an aggregate period of one hundred eighty days (180) during one calendar year. based on the gross selling price or FMV. exchange. (2) engaged in the exercise of profession therein. (b) Shares not listed and traded in the stock exchange The net capital gain is subject to a final capital gains tax of 5%-10%. Taxation of Non-resident Aliens Engaged in Trade or Business a. Royalties. on taxable income received from all sources within the Philippines. b. Joint Account.

Exclude Non-resident Aliens Not Engaged in Trade or Business 13. beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations. when the minimum income tax is greater than the tax computed under Subsection (A) of this Section for the taxable year (b) Carry forward of excess minimum tax Any excess of the MCIT over the net income tax shall be carried forward and credited against the net income tax for the three (3) immediately succeeding taxable years. Tax Payable (1) Regular Tax (2) Minimum Corporate Income Tax (MCIT) (a) Imposition of MCIT A minimum corporate income tax of two percent (2%0 of the gross income as of the end of the taxable year. legitimate business reverses. (c) Relief from the MCIT under certain conditions The Secretary of Finance is authorized to suspend the imposition of the minimum corporate income tax of 2% on any corporation which suffers losses on account of: 1. the necessary rules and regulation that shall define the terms and conditions under which he may suspend the imposition of the minimum corporate income tax in a meritorious case (d) Corporations exempt from the MCIT The following domestic corporations are exempt from the imposition of the MCIT: Page | 80 . force majeure 3. prolonged labor dispute 2. is hereby imposed on a corporation taxable under this Title. as defined herein.12. Individual Taxpayers Exempt from Income Tax a. upon recommendation of the Commissioner. The Secretary of Finance is hereby authorized to promulgate.

non-resident aliens engaged in trade or business in the Philippines. and Page | 81 . There is. The following resident foreign corporatons are likewise exempt from the imposition of the MCIT: 1. Non-profit hospitals. 1. All non resident foreign corporations are not subject to MCIT. 3. Domestic corporation enjoying special tax privileges under the Bases Conversion Development Act and Republic Acts 7916 and 7227 otherwise known as the PEZA law. no limit to the amount that may be claimed. Proprietary educational institutions. Depository banks under the expanded foreign currency deposit system (foreign Currency Deposit Units). International air and shipping carriers. resident aliens. Allowable deductions (1) Itemized deductions It is a means of claiming deductible expenses wherein the specific types of expenses are listed down and substantiated by receipts and other evidences. Resident foreign corporations enjoying special tax privileges under the Bases Conversion Development Act and Republic Acts 7916 and 7227 otherwise known as the PEZA law. 4. 2. 5. (e) Applicability of the MCIT where a corporation is governed both under the regular tax system and a special income tax system b. non resident citizens. 3. partnerships and corporations. Regional operating headquarters of resident foreign corporations. 3. and 4. 2. 2. resident citizens. Itemized deduction may be availed by the following taxpayers: 1. likewise. Offshore Banking Units (OBU’s). and 4.

Partnerships and corporations c. With respect to bank interest. and (2) royalties. there is no need to substantiate the expenses by way of receipts and other evidences. non resident citizens. Optional standard deduction may be availed by the following taxpayers: 1. there are two passive incomes mentioned: (1) Bank interest. (2) Optional standard deduction It is a means of claiming deductible expenses wherein ten percent (10%) of the gross income may be deducted. to be considered passive. Taxation of Passive Income (1) Passive income subject to tax (a) Interest from deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangement and royalties Under this provision. 6. it must be derived from sources within the Philippines. Furthermore. However. estates and trusts. estates and trusts. 2. resident aliens. 3. However. resident citizens. There is no limit to the amount that may be claimed. Non-resident aliens. and 4. the following taxpayers may not avail of the optional standard deduction: 1. regardless whether or not they are engaged in trade or business in the Philippines. It will be considered derived from sources within the Philippines if the bank from which the interest is earned is located in the Philippines. Page | 82 . a non-resident alien not engaged in trade or business in the Philippines may not claim the itemized deduction. and 2.

(2) classified as capital assets. (c) Intercorporate dividends Under this provision. all royalties derived by domestic corporation from sources within the Philippines are subject to a final income tax rate of twenty percent (20%) (b) Capital gains from the sale of shares of stock not traded in the Stock exchange The rules on individuals are also applicable to domestic corporations. or disposition of lands and/or buildings. The income received by the former from the latter in the form of dividends shall be exempt from income tax. (c) Income derived under the expanded foreign currency deposit system The rules on domestic corporations are applicable to resident foreign corporations. The capital gains from the sale of shares of stock not traded in the stock exchange shall be subject to final income tax provided the elements are present: (1) the shares are shares in a domestic corporation. Unlike the final income tax of individuals. a domestic corporation is not exempt from final income tax for long-term deposits. (Section 24 (D) (1). Page | 83 . (2) located in the Philippines. the resident foreign corporation is a stockholder of a domestic corporation. The only difference is that under Section 28 (A) (7)(b). the following elements must be present for final income tax to apply: (1) the property sold is real property. the lower rate of ten percent (10%) which is applicable to individual taxpayers. shall be imposed on capital gains presumed to have been realized from the sale. exchange. and (3) the shares are not listed and traded in the local stock exchange. whichever is higher. exchange or other disposition of real property located in the Philippines. Based on the foregoing. the income earner is a resident foreign corporation depository bank under the expanded foreign currency deposit system. and (3) classified as a capital asset. does not apply to domestic corporations. As regards royalties. (e) Capital gains realized from the sale. classified as capital asset. A final income tax of six percent (6%) based on the gross selling price or fair market value.

(5)the taxpayer should inform the BIR of his intention to avail of the exemption within 30 days from the sale or disposition. provided. their gross income from unrelated trade. f. However. and (6) the tax exemption can only be availed of once every ten years. or the TESDA. the following elements are present. Tax on government-owned or controlled corporations. The Philippine health Insurance Commission 3. business or other activity. Page | 84 . must have been issued a permit to operate from DECS. (3) the acquisition or construction of the new residence is within eighteen (18) months from the date of sale or disposition. GSIS. if any. d. does not exceed fifty percent (50%) of their gross income from all sources. and 4. By way of exception. and 4. (1) the property sold or otherwise disposed of is the principal residence of the taxpayer. The Social Security System 2. it must be a stock and non-profit institution 2. agencies or instrumentalities ` The tax imposed by section 27 (A) is applicable to all corporations. propriety educational institutions and hospitals are liable for net income tax at a rate of only ten percent (10%). (2) the proceeds of which is fully utilized in acquiring or constructing a new principal residence. the following requisites should concur: 1. (4) the historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired. Taxation of Capital Gains (1) Income from sale of shares of stock (2) Income from the sale of real property situated in the Philippine (3) Income from the sale. agencies. exchange. (2) Passive income not subject to tax Capital gains presumed to have been realized from the sale or disposition of the principal residence by natural persons shall be exempt from final income tax. it must be a private educational institution or hospital 3. or other disposition of other capital assets e. The Philippine Charity Sweepstakes office. or CHED. Tax on propriety educational institutions and hospitals The net income tax rate imposed on domestic corporation is 35%. or instrumentalities owned or controlled by the Government except the following: 1.

General Rule: 35% of the taxable income from all sources within the Philippines. Effective January 1.5%. 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards) Page | 85 .10% 3. 16. With respect to their income from sources within the Philippines: 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards) c. Taxation of Non-Resident Foreign Corporations a.00 10% 4. b. Exception: Interest income from a depositary under the expanded foreign currency deposit system . General Rule: Gross income from all sources within the Philippines (except Capital Gains on sale of domestic shares subject to final tax). 2. Intercorporate dividends .not subject to tax. offshore banking units in the Philippines.00 5% On any amount in excess of PhP 100. and similar arrangements and royalties - final income tax at the rate of 20% of such interest. trust funds.000. Minimum Corporate Income Tax: 2% of the gross income. 15. Capital gain from sale of shares of stock not traded in the stock exchange - Not over PhP 100. Tax on certain income: 1.000. 2009. Exception: interest income from foreign currency loans by such depositary banks other than offshore banking units in the Philippines or other depositary banks under the expanded system .7. except net income from such transactions as may be specified by the Secretary of Finance. Income derived under the Expanded Foreign Currency Deposit System :  if with nonresidents. upon recommendation by the Monetary Board. d. the rate shall be 30%.exempt from all taxes. Taxation of Resident Foreign Corporations a. The corporations enumerated herein are exempt from income tax without any condition or qualification. Interest from deposits and yield or any other monetary benefit from the deposit substitutes. local commercial banks including branches of foreign banks that may be authorized by the BSP .

order. (F) Business league. b. or other benefits exclusively to the members of such society. or cultural purposes. organizer. charitable. Exemptions from tax on Corporations The following organizations shall not be taxed in respect to income received by them as such: (A) Labor. and (c) Insurance companies. or a mutual aid association or a non-stock corporation organized by employees providing for the payment of life. (B) Mutual savings bank not having a capital stock represented by shares. Capital gain from sale of shares of stock not traded in the stock exchange - Not over PhP 100. Improperly Accumulated Earnings of Corporations General Rule: 10%of the improperly accumulated taxable income of domestic and closely-held corporations Exceptions: (a) Publicly-held corporations. 2. sickness. (G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare. Page | 86 . Tax on Certain Income 1. or board of trade. operating for the exclusive benefit of the members such as fraternal organization operating under the lodge system.000. order or association. officer or any specific person. or non-stock corporation or their dependents. accident. or association. Interest on Foreign Loans . 1986. no part of its net income or asset shall belong to or inure to the benefit of any member. (b) Banks and other non-bank financial intermediaries. (E) Non-stock corporation or association organized and operated exclusively for religious. chamber of commerce.20% on the amount of interest on foreign loans contracted on or after August 1.00 10% 17. (C) A beneficiary society. scientific. or a mutual aid association.15% on the amount on cash and/or property dividends received from a domestic corporation 3.000.00 5% On any amount in excess of PhP 100. and cooperative bank without capital stock organized and operated for mutual purposes and without profit. agricultural or horticultural organization not organized principally for profit. 18. Intercorpoarate Dividends . athletic. not organized for profit and n part of the net income of which inured to the benefit of private stockholder or individual. or for the rehabilitation of veterans. (D) Cemetery company owned and operated exclusively for the benefit of its members.

for the benefit of unborn or unascertained person or persons with contingent interests.  all other partnerships no matter how created or organized. b. (J) Farmers' of other mutual typhoon or fire insurance company. it is not subject to income tax. fruit growers'. coal and other energy operation under a service contract with the government. Taxation of Partnerships  taxable as an entity . their distributive share is taxed as dividends. 20. Taxation of General Professional Partnerships  established solely for purpose of exercising common profession and not part of income derived from engaging in trade or business. (I) Government educational institution. Partners are liable for income tax on their distributive share and report it as part of his gross income. and Page | 87 . less the necessary selling expenses on the basis of the quantity of produce finished by them. dues. or from any of their activities conducted for profit regardless of the disposition made of such income. fees collected from the members for the sole purpose of meeting its expenses. or like organization of a purely local character. Exception: the income of whatever kind and character from any of their properties. 19. (H) A non-stock and non-profit educational institution. mutual ditch or irrigation company.  as an entity. or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales. engaged in petroleum.  includes unregistered joint ventures and business partnerships. undertaking construction projects. (K) Farmers'.ordinary corporate income tax.  partners are considered as stockholders. mutual or cooperative telephone company. 21. the income of which consists solely of assessments. Income accumulated in trust a. Application of tax: 1. real or personal. Taxation on Estates and Trust a.  joint ventures are not taxable as corporations when its purpose is either: a.

for any part of the corpus or income to be (within the taxable year or thereafter) used for. Exception: Employee's trust which forms part of the pension. b. in the discretion of the fiduciary. or profit-sharing plan of an employer for the benefit of some or all of his employees 1. 2. Income received by estates of deceased persons during the period of administration or settlement of the estate. b. or diverted to. Income: a. income accumulated or held for future distribution under the terms of the will or trust. Determination of Tax 1. if contributions are made to the trust by such employer. 3. and 2. collected by a guardian of an infant which is to be held or distributed as the court may direct.  Creator of the trust in each instance is the same person.  Tax computed on such consolidated income  proportion of each tax shall be assessed and collected from each truste 2. Taxable Income  Computed in the same manner and on the same basis as in the case Page | 88 . Consolidation of Income of Two or More Trusts  Requisites:  Two or more trusts exist. or employees. stock bonus. c. at any time prior to the satisfaction of all liabilities with respect to employees under the trust. or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan. Income which. and 4. may be either distributed to the beneficiaries or accumulated. and b. it is impossible. purposes other than for the exclusive benefit of the employees. if under the trust instrument. to be distributed currently by the fiduciary to the beneficiaries. and  Beneficiary in each instance is the same.

of an individual. properly paid or credited during such year to any legatee. 3. Income received by estate of deceased person during the period of administration or settlement of the estate ii. in the discretion of the fiduciary. Except: a. may be either distributed to the beneficiary or accumulated iii. Additional deduction: amount of the income of the estate/trust for its taxable year. the amount of income included in the return of said trust shall not be included in computing the income of the beneficiaries. Amount deducted is included in taxable income of the legatee. Amount allowed as deduction under this subsection will not be allowed as deduction under (b) hereof b. Income which. heir or beneficiary applies to cases of: i. Revocable trusts  Requisites: the power to re-vest in the grantor title to any part of the corpus of the trust is vested: Page | 89 . Deduction allowed: amount of income of the estate/trust for the taxable year which is to be distributed currently by the fiduciary to the beneficiaries and the amount of the income collected by the guardian of an infant which is to be held or distributed as the court may direct i. Amount allowed as deduction is included as taxable income of the beneficiaries whether distributed or not ii. heir or beneficiary  For trust administered in a foreign country: deduction in (a) and (b) are not allowed provided.

 Expanded Withholding Tax is a kind of withholding tax which is prescribed on certain income payments and is creditable against the income tax due of the payee for the taxable quarter/year in which the particular income was earned. a. May be applied to the payment of premiums upon policies of insurance on the life of the grantor  Effect: such part of the income will be included in computing the taxable income of the grantor. 5. 4. May be distributed to the grantor iii. Concept  Withholding Tax on Compensation is the tax withheld from income payments to individuals arising from an employer-employee relationship. 22.  Final Withholding Tax is a kind of withholding tax which is prescribed on Page | 90 . In any person not having a substantial adverse interest in the disposition of such part of the corpus/income therefrom. or in the discretion of the grantor or any person not having a substantial adverse interest in the disposition of such part of the income i. May be held or accumulated for future distribution of the grantor ii. Income for benefit of grantor  Requisites: where any part of the income of a trust is. b.  Effect: the income of such trust shall be included in computing the taxable income of the grantor. Meaning of “in the discretion of the grantor”  means in the discretion of the grantor. either alone or in conjunction with any person not having substantial adverse interest in the disposition of the part of the income in question. Withholding tax a. In the grantor either alone or in conjunction with any person not having substantial adverse interest in the disposition of such part of the corpus/income therefrom.

before making any payments to VAT registered taxpayers/suppliers/payees on account of their purchases of goods and services. Page | 91 . 2. including government-owned and controlled corporations (GOCCs) and local government units (LGUs).  Withholding Tax on Government Money Payments (GMP) . at the rate of not less than (1%) but not more than (32%) thereof. the tax so required to be deducted and withheld shall not be collected from the employer. every employer making payment of wages shall deduct and withhold upon such a tax determined by the rules and regulations to be prescribed by the Secretary of Finance upon recommendation by the Commissioner. Income Tax withheld constitutes the full and final payment of the Income Tax due from the payee on the particular income subjected to final withholding tax. Requirement of withholding Except in the case of a minimum wage earner. before making any payments to non-VAT registered taxpayers/suppliers/payees  Withholding Tax on GMP .is the tax withheld by NationalGovernment Agencies (NGAs) and instrumentalities. certain income payments and is not creditable against the income tax due of the payee on other income subject to regular rates of tax for the taxable year.Value Added Taxes (GVAT) . Withholding on wages 1. but shall in no case relieve the employer from liability for any penalty or addition to the tax. c.Percentage Taxes . b. 2. by the payor- corporations/persons as provided for by law. including government-owned and controlled corporations (GOCCs) and local government units (LGUs). Withholding of creditable tax at source The withholding of a tax on the items of income payable to natural or juridical persons. residing in the Philippines.is the tax withheld by National Government Agencies (NGAs) and instrumentalities. Tax paid by recipient If the employer fails to deduct and withhold the tax as required herein and thereafter the tax against which such tax may be credited is paid. Withholding of final tax on certain incomes The filing of income tax return by certain income payees shall be withheld by payor-corporation and/or person. Kinds 1.

The difference between the tax due from the employee for the entire year and the sum of taxes withheld from January to November shall either be withheld from his salary in December of the current calendar year or refunded to the employee not later than January 25 of the succeeding year. Employees – any excess of the taxes withheld over the tax due from taxpayer shall be returned or credited within (3) months from the 15th of April. Liability for tax i. Excess taxes withheld by the employer shall not be refunded if due to: 1. ii. ii. 4. false and inaccurate information d. if fails to file withholding exemption certificate or supplies inaccurate/false information. Page | 92 . if failed to withhold and remit. employer is liable for the tax plus penalties and additions to the tax. 5. failure or refusal to file the withholding exemption certificate 2. the employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year. Employee a. b. before making payment on account of each purchase of goods and/or services taxed at 12% VAT. Withholding of VAT The government or any of its political subdivisions. Employer – shall be made to the employer only to the extent that the amount of such overpayment was not deducted and withheld by the employer. instrumentalities or agencies including GOCCs shall. liable for withholding and remittance of the correct amount of tax b. the tax shall be collected from him plus penalties and additions to the tax. Employer a. Year-end adjustment On or before the end of the calendar year but prior to the payment of the compensation for the last payroll period. starting from the lapse of the three—month period to the date of refund of credit is made. Refunds or credits made after such time shall earn interest al 6% per annum. Refunds or credits i. deduct and withhold a final due at the rate of 5% of the gross payment thereof. 3.

or the duly authorized treasurer of the city or municipality where the employer has his legal residence or principal place of business. and e. C. where the principal office is located. Final withholding tax at source The amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. on the same day of which the last payment of wages is made. e. f. The return shall be filed and the payment made within 25 days from the close of each calendar quarter. Extension of time The commissioner m ay grant to any employer a reasonable extension of time to furnish and submit the abovementioned statements and returns. b. Collection Agent. or in case of a corporation. The liability for payment of the tax rests primarily on the payor as a withholding Page | 93 . Filing of return and payment of taxes withheld 1. the total amount of compensation income of each employee. such other information as may be deemed necessary. Every employer required to deduct and withhold a tax shall furnish to each such employee in respect of his employment during the calendar year. a written statement confirming the wages paid by the employer. copies of the statement in (A). Statement and returns A. the total amount of taxes withheld therefrom during the year. submit to the Commissioner an annual information return containing: a. c. or if his employment is terminated before the close of such calendar year. B. a list of employees. 2. and the amount of taxes withheld. Taxes deducted and withheld by the employer shall be covered by a return and paid to an authorized agent bank. d. Annual information returns Every employer required to deduct and withhold the taxes in respect of wages of his employees shall. on or before January 31 of the succeeding year. on or before January31 of the succeeding year.

Creditable withholding tax Taxes withheld on certain income payments are intended to equal to or at least approximate the tax due of the payee on said income. depending on time frame)  How is the monetary value of a fringe benefit computed? In general. The FBT is imposed on the Grossed-up Monetary Value of fringe benefits at the following rates: Effective January 1. the computation of the fringe benefits tax is done by: a) evaluating the benefit granted.agent.000 a year whichever is higher h. does not exceed the statutory minimum wages. 1. The income recipient is still required to file an income tax return. professional partnership or a corporation (regardless of whether the corporation is taxable or not). an amount computed in accordance with the regulations. 1999 – 33% Effective January 1. This tax is effective regardless of whether the employer is an individual. to report the income and/or the difference between the tax withheld and the tax due on the income.57 (A) of RR 2-98). g.000 pesos monthly or 60. Exception: where such compensation income on an individual: i. or ii. 5. the deficiency tax shall be collected from the payor/withholding agent. Withholding tax on compensation Every employer must withhold from compensation paid. in case of his failure to withhold the tax or in case of underwithholding. The payee is not required to file an income tax return for the particular income (Sec. Thus. 2. 1999 – 67% Effective January 1. 2000 – 68% (Grossed-up Monetary Value = Monetary Value / 67% or 68%. 2000 – 32% (FBT = Grossed-up Monetary Value x 33% or 32%. Fringe benefit tax The FBT is a final withholding tax on the grossed-up monetary value of the fringe benefit granted by the employer to an employee who holds a managerial or supervisory position. and Page | 94 . depending on time frame) The grossed-up monetary value of the fringe benefit is determined by dividing the monetary value of the fringe benefit by the following percentages: Effective January 1.

Page | 95 . In other words. Basic Principles Transfer taxes are taxes imposed upon the gratuitous disposition of private property. the tax is laid neither on the property. b) If the fringe benefit is granted by in property and ownership is transferred to the employee. but on the right of the decedent to transmit his estate. thereby creating an ability to pay the tax. it is an excise tax.) An excise tax the object of which is to tax the shifting of economic benefits and enjoyment of property from the dead to the living. the equivalent of testamentary disposition. Definition Estate tax is the tax on the right to transmit property at death and on certain transfer which are made by the statute. c) If the fringe benefit is granted or furnished by the employer in property but ownership is not transferred to the employee. nor on the transferor or the transferee. nor is it a capitation tax. Purpose or Object a. b. ESTATE TAX 1. that is. c. 3. the value of the fringe benefit is equal to the depreciation value of the property. the transfer taxes are the estate tax and the donor’s tax.) Their imposition is also justified on the ground that it clearly conforms to the widely accepted principle of ability to pay since the beneficiaries receive assets which are in the nature of unearned wealth or windfall. They are not taxes on property as such because their imposition does not rest upon general ownership but on the passing of the property. b) determining the proportion or percentage of the benefit which is subject to the FBT. 4. Nature It is not a direct tax on property. then the value is the amount granted. 2. B. then the value of the fringe benefit is the fair market value of the property.  The valuation of fringe benefits is as follows: a) If the fringe benefit is granted in money.) They are imposed at high rates to help reduce undue concentration of wealth in society to which the receipt of inheritance is a contributing factor. Under the Tax Code.

8. situated within or outside of the Philippines. that in case of a nonresident who at the time of his death was not a citizen of the Philippines. whichever is the higher of: the fair market value as determined by the Commissioner.) Non-resident alien decedent 7. Gross estate vis-à-vis Net estate a. the appraised value of real property as of the time of death shall be. To determine the value of the right of usufruct. or the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors. tangible or intangible.) Resident citizen decedent b. only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. whether real or personal.) Non-resident citizen decedent d. Classification of decedent a. the equivalent of testamentary disposition. Determination of gross estate and net estate a. tangible or intangible. In the case of a non-resident alien decedent. wherever situated: Provided. Page | 96 . as well as that of annuity. however. upon recommendation of the Insurance Commissioner. The estate shall be appraised at its fair market value as of the time of death. However.) The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property. use or habitation. belonging to the decedent at he time of his death. real or personal. to be approved by the Secretary of Finance. where such decedent was a resident or citizen of the Philippines. there shall be taken into account the probable life of the beneficiary in accordance with the latest Basic Standard Mortality Table.) Gross estate is the total value of all property.5. 6.) Resident alien decedent c. it shall include only property situated in the Philippines.) Net estate means gross estate less allowable deductions and specific exemptions. b. Time and Transfer of Properties Estate tax is the tax on the right to transmit property at death and on certain transfer which are made by the statute.

) Capital of the surviving spouse 10.) Unpaid mortgages f.) Real property situated in the Philippines.) Funeral expenses. and g.) Special deductions—they are the other deductions provided in the law: Page | 97 .) Prior interests g. Composition of gross estate a. Items to be included in the gross estate a. b.) Transfers for insufficient consideration h.) Tangible personal property situated in the Philippines. They include: 1.) Real property wherever situated.) Ordinary deductions—they refer to such amounts for: a.) Claims against insolvent persons e.) Intangible personal property with a situs in the Philippines.) Unpaid taxes. 3. b. Deductions from estate The allowable deductions consist of the amounts permitted by law to be deducted from the value of the gross estate. 2.) Judicial expenses of proceedings c. by deducting from the value of the gross estate the expenses. unless exempted on the basis of reciprocity 11.) Decedent’s interest b.) Non-resident alien decedent: 1. 9.) Transfers in contemplation of death c. losses.) Casualty losses 2.) Proceeds of life insurance f. b.) Claims against the estate d.) The value of the net estate shall be determined: In the case of a citizen or resident of the Philippines. 2. indebtedness. 3.) Property passing under general power of appointment e.) Tangible personal property wherever situated.) Intangible personal property wherever situated.) Citizen and resident alien decedent: 1.) Revocable transfers d. and taxes.

A.S.D. Page | 98 .) Retirement benefits received by the heirs under R. No. 1146) and bequests.) The merger of usufruct in the owner of the naked title. insurance proceeds from the GSIS (P.) Medical expenses.A. 14.) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken.) Family home d. No. Veterans Administration (R. a. and f.) The transmission or the delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary.) Transfers for public use c. No. 227). 13.A. Tax credit for estate taxes paid in a foreign country 1. 4917.D. and b. Exemption of certain acquisitions and transmissions The following shall not be taxed: a. No. which the decedent’s net estate situated outside the Philippines bears to his entire net estate. 360).) In General.000. benefits received by beneficiaries residing in the Philippines under laws administered by the U.) The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken. e. Exclusions from estate Specific exemptions are those which are declared by law as expressly exempt from the tax.) Standard deduction equivalent to P1.) Limitations on credit: a. which the decedent’s net estate situated within such country bears to his entire net estate. 3. 2. 507). b. Properties or transfers which are exempt by law from estate tax are not taken into account in the computation of the gross estate. b.) The so called “vanishing deduction” (property previously taxed).000. No.) Share of the surviving spouse 12. legacies or donations mortis causa to social welfare. payment of war damage (R. cultural or charitable organizations or institutions (P. Examples are: merger of the usufruct in the owner of the naked title. the tax imposed shall be credited with the amounts of any estate tax imposed by the authority of a foreign country.

however. or b. 16.) All bequests. motor vehicle shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee. or any of the legal heirs. Filing of notice of death The executor. DONOR’S TAX 1. legacies or transfers shall be used by such institutions for administration purposes. the return shall be filed with an authorized or Accredited Agent Bank or the Revenue District Officer.) Regardless of the gross value of the estate.000.) The transmission from the first heir. though exempt from the estate tax. where the said estate consists of registered or registerable real property.) Where the gross value of the estate exceeds P200.) When – The return shall be filed within 6 months from the decedent’s death. with the Office of the Commissioner of Internal Revenue. That no more than 30% of the said bequests. There is also a donation when a person gives to another a thing or right on account of the latter’s merits or of the services rendered by him to the donor provided they do not constitute a demandable debt or when the gift Page | 99 . or duly authorized treasurer of the city or municipality where the decedent was domiciled at the time of his death. or if there be no legal residence in the Philippines. administrator. as the case may be. Basic principles Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. legatee or done in favor of another beneficiary. c.) By whom – An estate tax return under oath is required by law to be filed by the executor. C.) Where – Except in cases where the Commissioner of Internal Revenue otherwise permits. or any of the legal heirs: a. Estate tax return 1. devises. 3. in accordance with the desire of the predecessor. 2. such as real property. and d. no part of the net income of which inures to the benefit of any individual: Provided. devises. legacies or transfers to social welfare. Revenue Collection Officer. cultural and charitable institutions. is required to give a written notice of death to the Commissioner within 2 months after the decedent’s death or after qualifying as such executor or administrator. 15. administrator.

) It is an excise tax. It is not a tax on property as such because the imposition does not rest upon general ownership.) Condonation or remission of debt 7.) Acceptance of the gift by the done. 2.) Capacity of the donor to make the donation. and 4. 3.) Sale. Requisites of valid donation 1. 6.) Delivery. 2.) The tax is imposed without reference to the death of the donor unlike in the case of estate tax.)The donor’s tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerous donees with the donor thereby escaping the effect of the progressive rates of income taxation. Transfer for less than adequate and full consideration Where property. other than real property classified as capital asset is transferred for less than an adequate and full consideration in money or money’s worth. It is not a property tax but an excise tax imposed on the privilege of the owner to give. Nature 1. Transfers which may be constituted as donation a. Definition Donor’s tax is a tax levied on the act of giving. of the gift. 2. the property would be subjected to the said taxes. Purpose or object 1. whether actual or constructive. It extends to sales or exchanges for less than adequate and full consideration in money or money’s worth. exchange or transfer of property for insufficient consideration b. 4.) Donative intent or intent on the part of the donor to make a gift. through the taxation of gifts inter vivos without which. it is not a tax on property as such because the imposition does not rest upon general ownership.imposes upon the done a burden which is less than the value of the thing given. 3.) The donor’s tax was enacted originally to supplement the estate tax by preventing their avoidance by those who give away property and money in anticipation of death. then the Page | 100 . 5. it supplements the estate tax. 2.

If the gift is made in property. the fair market value thereof at the time of the gift shall be considered the amount of the gift.) Non-resident citizen d. which the net gifts situated within such country bears to his entire net gifts. the fair market value thereof at the time of the gift shall be considered the amount of the gift.) Resident alien c. Classification of donor a.) Resident citizen b. 2. and Page | 101 . Determination of gross gift The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year in accordance with the schedule of tax rates prescribed in the law. Tax credit for donor’s taxes paid in a foreign country 1. shall apply to the valuation of gifts made in real property. and sales or exchanges for less than adequate and full consideration in money or money’s worth made during the calendar year.)Limitations on credit: a. 8. 12. 10. Valuation of gifts made in property If the gift is made in property. the tax imposed upon a donor who was a citizen or a resident at the time of the donation shall be credited with the amount of any donor’s taxes of any character and description imposed by the authority of a foreign country. Composition of gross gift Donations. shall apply to the valuation of gifts made in real property. The provisions of Section 88 applicable to the determination of the value of the gross estate.) The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken.) Non-resident alien 9. The provisions of Section 88 applicable to the determination of the value of the gross estate.amount by which the fair market value of the property exceeded the value of the consideration shall be deemed a gift.) In General. 11. and shall be included in computing the amount of gifts made during the calendar year.

)The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken. make a return under oath in duplicate.) Gifts in favor of an educational or charitable. accredited non-government organization. 15. religious. institution. Exemptions of gifts from donor’s tax The following gifts or donations shall be exempt from donor’s tax: A. That not more than 30% of said gifts shall be used by such done for administration purposes. cultural or social welfare corporation. recognized natural. however. however. 2. 14.000.) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate. and 2.)In the case of gifts made by a resident: 1. religious.) 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 adopted children to the extent of the first P10. which the donor’s net gifts situated outside the Philippines bears to his entire net gifts. trust or philanthropic organization or research institution or organization: Provided. accredited non-government organization. b. or to any political subdivision of the said government. or to any political subdivision of the said government. cultural or social welfare corporation. Tax basis The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year.) Gifts in favor of an educational or charitable. Page | 102 . Persons liable An individual who makes any transfer by gift (except those which are exempt from the tax) shall for the purpose of the said tax. B. trust or philanthropic organization or research institution or organization: Provided.) In the case of gifts made by a non-resident alien 1. 13. and 3.) 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. institution. That not more than 30% of said gifts shall be used by such done for administration purposes.

transferor or lessor. Tax credit method This refers to the manner by which the value added tax of a taxpayer is computed. 2. properties or services in the Philippines. properties or services. Although the seller is the person legally liable to pay the tax.) It is an indirect tax.” 7. properties. or services in the course of trade or business as they pass along the production and distribution chain. property or service reaches the final consumer. the tax being limited only to the value added to such goods. 3.) It is collected through the tax credit method. Incidence of tax The person statutorily liable to pay the tax. or lease of goods. whether or not in the course of trade or business.) There is no cascading in the value-added tax system. Concept Value-Added tax (VAT) is a uniform tax (0% or 10%) imposed on each sale. Impact of tax This refers to the burden of taxation. properties. 3. The input taxes shifted by the sellers to the buyer are credited against the buyer’s output taxes when he in turn sells the taxable goods. Characteristics 1.) It is a tax on value added of a taxpayer. It is also levied on every importation of goods. Page | 103 . 5. The tax is shifted when the buyer of goods. barter. VALUE ADDED TAX (VAT) 1.) It is a transparent form of sales tax. properties or services used in the production or distribution process passes the input tax forward to his buyer.) The Philippines adopted the “tax-inclusive method. 2. 4. the seller shifts the burden of the tax to the intermediate buyers who successively pass on the tax to their buyers until the goods. exchange. 6. 4.) It is a broad-based tax on consumption of goods. or services by the seller. 5. or backward to his supplier. D.

person or firm rendering the service.” Export sales of goods are subject to 0% rate.) The seller or transferor is engaged in real estate business either as real estate dealer. 3. 3.) The sale is not exempt from value-added tax under Section 109 of the Tax Code. 4. transferor. or renders services or engages in similar transactions. whether for business or non- business purposes. Some rulings referred to the destination principle as “cross-border doctrine. the tax is paid by the seller. Persons liable Generally. all of the following requirements must be met: 1. any person (individual or entity) who. and 5. 2. Destination principle The destination of the goods determines taxation or exemption from tax. Requisites of taxability of goods or properties 1. barter or exchange.) The real property is located within the Philippines. 2. or exchanges goods or properties. and 4. in the course of trade or business. special law or international agreement. Page | 104 . barters.)undertaken in the course of trade or business. Thus.) The seller executes a deed of sale.) The sale of goods must be an actual or deemed sale of goods or properties for a valuable consideration. VAT on sale of goods or properties a. while imports of goods are subject to 12% value added tax.) The real property is held primarily for sale or for lease in the ordinary course of his trade or business.) for the use or consumption in the Philippines. or contract to sell. With respect to sale or exchange of real property. developer or lessor.) not exempt from value-added tax under the Tax Code. sells.6. of real property. lessor or importer. and any person who imports goods. assignment or conveyance. special law or international agreement binding upon the government of the Philippines. 8. 7. is subject to the value-added tax.

investors or creditors c. Retirement from or cessation of business with respect to inventories on hand The tax base for transactions deemed sale mentioned in a. The reason for this requirement is that the buyer of the goods or services is located within the Philippines.) An application for zero-rating must be filed and the BIR approval is necessary before the transactions may be considered as effectively zero- rated.) There is no need to file an application form and to secure BIR approval thereof. and 2. as shown by his address in the sales invoice and shipping documents.9. 11. Zero-rated sales of goods or properties. Subject to VAT (Output Tax) (1) Change of business activity from VAT. Consignment of goods if actual sale not made within 60 days from date of consignment d. or he is located outside the Philippines merely by fiction of law. use or consumption not in the course of business of goods or properties originally intended for sale or use in the course of business b. whichever is lower. is located outside the Philippines. and effectively zero-rated sales of goods or properties Automatic zero-rating: 1. The reason for this requirement is that the buyer. Effectively zero-rated transactions 1. Transactions deemed sale a. However. the tax base shall be the acquisition cost or the current market price of the goods. in the case of retirement or cessation of business. Change or cessation of status as VAT-registered person a. Transfer. 2. 10.taxable status to VAT-exempt status Page | 105 .) The word “ZERO-RATED” is not required to be stamped on the face of the VAT invoice or receipt to be issued by the seller of goods or services. b and c is the market value of such goods as of the occurrence of the transaction deemed sale.) The word “ZERO-RATED” must be stamped on the face of the VAT invoice or receipt to be issued by the seller of goods or services. Distribution or transfer to shareholders.

(2) Change in the trade or corporate name (3) Merger or consolidation of corporations The unused input tax of the dissolved corporation. which is a taxable activity but discontinues the same and is now engaged in selling or importing fertilizers. 12. 107 (b).5 M but who failed to exceed this amount during the first 12 months of operation. shall be absorbed by the surviving or new corporation. (3) Approval of request for cancellation of registration due to desire to revert to exempt status after lapse of 3 consecutive years. Not subject to Output VAT (1) Change of control of a corporation This is due to acquisition of the controlling interest of such corporation by another stockholder or group of stockholders. b. transferees or recipients shall be considered IMPORTER. Transfer of goods by tax-exempt persons In the case of goods imported into the Philippines by VAT-exempt persons. will not be considered sold. the purchasers. Sec. An example is a VAT-registered person engaged in importing luxury cars. who shall be liable for any internal revenue tax on such importation. NIRC Page | 106 . or exchange despite the change in the ownership interest in the said corporation. This is from the time of the registration by a person who voluntarily registered despite being exempt under Sec. bartered. 109(2) of the Tax Code. The goods or properties used in business or those comprising the stock-in trade of the corporation. entities or agencies which are subsequently sold. entities. having a change in corporate control. transferred or exchanged in the Philippines to non-exempt persons. (2) Approval of request for cancellation of a registration due to reversion to exempt status. as of the date of merger or consolidation. VAT on importation of goods a. (4) Approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipts exceeding P1.

real estate. operators. VAT on sale of service and use or lease of properties Sale of exchange of services. Requisites for taxability To be subject to VAT on sale or exchange of service. and movie houses viii. and 5. the service is performed or to be performed in the Philippines 3. motels. 4. Construction and service contract ii. 2006. there is a sale or exchange of service or lease of property enumerated in the law or other similar services. the following requisites must be met. the service is performed or to be performed for a valuable consideration actually or constructively received. Proprietors. 2. refreshment parlors. rest houses. Persons engaged in warehouse services v.13. Sale or exchange of services means the performance of all kind of services in the Philippines for others for a fee. Lessors of property. pension houses. resorts. Transportation contractors on their transport of goods or cargoes. special law or international agreement Note: Absent one of the requisites. processing. as defined in Section 108 (A) of NIRC shall be subject to VAT of 12% of the gross receipts(excluding VAT) starting February 1. whether personal or real iv. including clubs and caterers ix. Lending investor xi. Stock. Lessors or distributors of cinematographic film vi. as well as the use or lease of properties. Proprietors or operators of restaurants. cafes and other eating places. 1. including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes Page | 107 . Dealers in securities x. theatres. such transaction is exempt from VAT but it may be subject to Other Percentage Tax A. or keepers of hotels. customs and immigration brokers iii. the service in not exempt under the Tax Code. inns. commercial. the service is performed or to be performed in the course of the taxpayer’s trade or business or profession. whether in cash or in kind i. a. Persons engaged in milling. manufacturing or repacking goods for others vii. remuneration or consideration.

xv. No. the destination principle has well-recognized exceptions. transmission and/or distribution companies xiv. or cargoes from one place in the Philippines to another place in the Philippines xiii. June 29. e. 000. fidelity. the sale or exchange of particular service is completely freed from the VAT. the tax that is included in the cost of purchases attributable to the sale or exchange. Common carriers by air and sea relative to their transport of passenger. under which the supply of services shall be zero rated. Franchise grantees of electric utilities. It is paid in acceptable foreign currency to the BSP. including surety. by way of refund or as an input tax credit. manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported. telephone and telegraph. because the seller is entitled to recover. (CIR vs. 000. radio and/or television and all other franchise grantees of radio and/or television broadcasting whose annual gross receipt of the preceding year do not exceed P 1. where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. Similar services regardless of whether or not the performance calls for the exercise or use of the physical or mental faculties 14. Under this concept. 2005).00 and franchise grantees of gas and water utilities. However. i. American Express G. The services are within the categories provided for under the Tax Code. Non – life insurance companies (except crop insurances). Sales of electricity by generation. the following must concur: b. 152609. indemnity and bonding companies xvi. goods. Such zero-rated transactions are taxable transactions for VAT purposes but the seller is not liable to pay output tax. Zero-rated sale of services The VAT system generally uses the destination principle which holds that the goods and services are taxed only in the country where they are consumed. Processing. Page | 108 .R. The following services by VAT registered persons are subject to 0% rate. To be exempt from the destination principle. The recipient of the service performed in the Philippines must be a person doing business outside of the Philippines d. xii. The service is performed in the Philippines c.

without regard to the tax status of the party in transaction. biomass. 108 of the Tax Code. G. ii. 2005.. the Supreme Court define exempt transaction as one involving goods or services which. 118 of the Tax Code. VAT-exempt transactions a. but not limited to. v. solar. But zero-rating shall not apply strictly to the sale of power or fuel generated through renewable sources of energy. are specifically listed in and expressly exempted from VAT. ocean energy. goods or cargoes from one place in the Philippines. February 11. Services other than processing. No. hydropower. including leases of property for use thereof. and shall not extend to the sale of services related to the maintenance or operation of plants generating said power. iv. such as. Services rendered to persons engaged in international shipping or international air transport operations. in general In the case of CIR vs. converting. 153866.R. but shall not be liable to VAT. Seagate Technology Phils. Sale of power or fuel generated through renewable sources of energy. the consideration for which is paid for in acceptable foreign currency and accounted for accordance with the rules and regulations of the BSP iii. Services performed by subcontractors and/or contractors in processing. or manufacturing goods for an enterprise whose export sales exceeds 70% of total annual production vi. 15. Page | 109 . under the Tax Code. VAT-exempt transactions. the same subject to regular VAT under Sec. manufacturing or repacking rendered to a person engaged in business conducted outside the Philippines or to a non – resident person not engaged in business who is outside of the Philippines when the services are performed. Gross receipts of international air carriers doing business and international sea carriers doing business in the Philippines are still liable to a percentage tax of 3% based on their gross receipts as provided for in Sec. vii. by their nature. Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate. and other emerging sources suing technologies such as fuel cells and hydrogen fuels. The services referred to shall not apply to those already made to common carriers by air and sea relative to their transport of passengers. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country. geothermal and steam. wind.

fish. v. iv. and personal household effects (except any vehicle. wearing apparel. corn grits and sugar cane into raw sugar. broiling. Importation of professional instruments and implements. Exempt transactions. viii. Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market. used in the manufacture of finished foods (except specialty feeds for race horses. iii. or yielding or producing foods for human consumption. including ingredients. raw cane sugar and molasses. for their own use and not for sale. and breeding stock and genetic materials thereof. accompanying such persons. enumerated i. or exchange. livestock and poultry feeds. zoo animals and other animals generally considered as pets). Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as Page | 110 . dental. Medical. roasting. or arriving within 90 days before or after their arrival. vessel. Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the Philippines: Provided such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines. and that the change of residence is bona fide. aquarium fish. Services by agricultural contract growers and milling for others of palay into rice. seedlings and fingerlings. such as freezing. vii. upon the production of evidence satisfactory to the Commissioner. ii. ix. barter. seeds. Services subject to percentage tax under Title V. drying. salting. fighting cocks. Sale or importation of fertilizers. livestock and poultry of or kind generally used as. aircraft. machinery other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines. hospital and veterinary services except those rendered by professionals. Educational services rendered by private educational institutions duly accredited by the Department of Education and TESDA and those rendered by government educational institutions. domestic animals. prawn. Sale or importation of agricultural and marine food products in their original state. and ordinary salt shall be considered in their original state. Services rendered by individuals pursuant to an employer-employee relationship. smoking or stripping. that such persons are actually coming to settle in the Philippines.b. vi. corn grits. Polished and/or husked rice. x. whether locally produced or imported.

Export sales by persons who are not VAT-registered. that the share capital contribution of each member does not exceed P 15. 2009 and every 3 years thereafter. that not later than January 31. house and lot and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P 2. the amount herein stated shall be adjusted to their present values using the Consumer Price Index. the amount herein stated shall be adjusted to their present values using the Consumer Price Index. Sale. Sale by agricultural cooperatives duly registered with CDA to their members as well as sale of their produce. xiii. supervisory. to non-members. xii. xx. including spare parts thereof. xvii. as published by NSO. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low cost and socialized housing as defined under RA 7279 otherwise known as Urban Development and Housing Act of 1992 and other related laws. Lease of residential unit with a monthly rental of P 10. as published by NSO. 500. xix.00 and regardless of the aggregate capital and net surplus ratably distributed among the members. 000. except those under PD 529. xvi. importation or lease of passenger or cargo vessels and aircraft. their importation of direct form inputs. 000. residential lot valued at One Million Five Hundred Thousand Pesos (P 1. xi. printing or publication of books and any newspaper. whether in its original state or processed form. Sale. to be used directly and exclusively in the production and /or processing of their produce.00. That not later than January 31. Importation of fuel. 000. importation. Provided. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws. subsidiaries or branches in the Asia-Pacific region and do not earn or derive income from the Philippines. 000. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with CDA. xviii. including engine. goods and supplies by persons engaged in international shipping or air transport operations. magazine review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements.00) and below: Provided. Page | 111 . xv. 500. machineries and equipment. communications and coordinating centers for their affiliates. non-electric and non-credit cooperatives duly registered with the CDA: Provided. xiv. 2009 and every 3 years thereafter.00) and below. Sale by non-agricultural. equipment and spare parts thereof for domestic or international transport operations.

It includes the tax paid on raw materials. 000. properties or local purchases of goods or services including use or lease of property from a VAT-registered person. properties or services by a VAT-registered person or person required to register under the law. Purchase or importation of goods i. xxii. Purchase of services in which VAT has actually been paid d. For use as materials supplied in the sale of service. Page | 112 . defined Input tax – VAT due from or paid by a VAT-registered person in the course of his trade or business on importation of goods. 110 of NIRC. services or properties may arise from any of the following. Sources of input tax Input taxes passed on by the sellers of goods. For sale. and other non-bank financial intermediaries. xxi. Input tax and output tax. Sec.00): Provided that not later than January 31. 16. a. 500. supplies and equipment. Sec. Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs. or iv. Services of banks. The principle behind this type of sale is to capture the VAT that was claimed as input tax at the time of the purchase. the gross annual sales and /or receipts do not exceed One Million Five Hundred Thousand Pesos (P 1. the amount herein stated shall be adjusted to their present values using the Consumer Price Index. For conversion into or intended to form part of a finished product for sale including packaging materials. or ii. as published by the NSO. Purchase of real properties for which a VAT has actually been paid c. 17. For use in trade or business for which deduction for depreciation or amortization allowed under the Tax Code b. or iii. 110(A). NIRC Output tax – VAT due on the sale or lease of taxable goods. Transactions deemed sale A type of sale wherein the seller is also the buyer and no valuable consideration is thus paid. non-bank financial intermediaries performing quasi-banking functions. 2009 and every 3 years thereafter. v. For use as supplies in the course of business.

f. 1-3 above shall be based on the market value of the goods deemed sold as of the time of sale. provided he is eligible. Presumptive input tax Persons or firms engaged in the processing of sardines. Transitional input tax There are three (3) situations where a person may claim transitional input tax on his beginning inventories of goods. and in manufacturing refined sugar. When he becomes liable to VAT for the first time under a new legislation or when his taxable transactions exceed the VAT – registration threshold. cooking oil. creditable against the output tax. equivalent to 4% of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. but it becomes a taxable transaction under a new or amendatory law. use or consumption not in the course of business of goods or properties originally intended for sale or use in the course of the business. iii. and iv. The output tax on nos. When he elects to register as a VAT-registered person. with respect to inventories of taxable goods existing as of such retirement or cessation. ii. Page | 113 . Distribution or transfer to shareholders or investors as share in the profits of the VAT-registered persons or to creditors in payment of debt. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. materials and supplies: i. e. 4 above. In no. Retirement from or cessation of business. and packed noodle-based instant meals. The following are considered deemed sales: i. Transfer. canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition. whichever is lower. shall be allowed a presumptive input tax. iii. the sale of which is exempt. the tax base shall be the acquisition cost or the current market price of the goods or properties. ii. If he is already a VAT-registered person and also deals in goods or properties. mackerel and milk. Process -means pasteurization.

shall be allowed. reduced by the amount of claim for VAT refund or tax credit certificate and other adjustments. or iii. Persons who can avail of the input tax credit The input tax on importation of goods or local purchases of goods. To the purchaser of services or the lessee or licensee upon payment of the compensation. whichever is higher. For goods purchased with the object of resale in their present condition. Determination of output tax In sale of goods or properties. which are not intended for further processing and are on hand. such as purchases returns or allowances. properties or services by a VAT-registered person shall be creditable: i. To the purchaser of the domestic goods or properties upon consummation of sale. Transitional input tax credits allowed under the transitory and other provisions of the regulations i. g. or supplies not for sale but purchased for use in business in their present condition. For goods. the output tax is computed by multiplying the gross receipts by the regular rate of VAT b. Page | 114 . the output tax is computed by multiplying the gross selling price by the regular rate of VAT. a transitional input tax equivalent to 2% of the value of the beginning inventory on hand or actual VAT paid on such goods. as of the last day immediately preceding the effectivity of RA 9337. For sellers of services. To the importer upon payment of VAT prior to release of goods from customs custody ii. 18. input tax attributable to exempt sales and input tax attributable to sales subject to final VAT withholding. Determination of input tax creditable The amount of input taxes creditable during a month or quarter shall be determined by adding all creditable input taxes arising from the transactions enumerated under Secs. ii. materials or supplies. the tax is 2% of the value of such goods unsold or actual VAT paid thereon. materials. Determination of output/input tax: VAT payable: Excess input tax credits a. 113 and 237 which are evidenced by VAT invoice or OR issued by a VAT-registered person during a month or quarter plus any amount of input tax carried-over from the preceding month or quarter. whichever is higher. rental. royalty or fee 19.

Page | 115 . the input tax shall prorated to the VAT taxable and only the ratable portion pertaining to transactions subject to VAT maybe recognized for input tax credit. Allocation of input tax on mixed transactions A VAT-registered person who is also engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on transactions subject to VAT as follows. and One Stop Shop and Drawback Center of the Department of Finance should be deducted from the allowable input tax that are attributable to zero-rated sales: ii. Provided. whether such input taxes shall be credited against zero-rated sale. including GOCCs shall not be credited against output taxes arising from sales to non-government entities. Determination of the output tax and VAT payable Computation of Output Tax 1. If any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt transaction. non-zero-rated sales. that input taxes that can be directly attributable to VAT taxable sales of goods and services to the Government. i. 113 and 237 of the Tax Code. ii. or subjected to the 5% Final Withholding VAT. For the domestic purchase of goods and properties-invoice showing the information required Secs. d. BOI. Input taxes for the importation of goods or the domestic purchase of goods. c. properties or services is made in the course of trade or business. and Claims for VAT refund/tax credit certificate with the BIR. must be substantiated and supported by the following documents. Substantiation of input tax credits a. or any of its political subdivisions. For the importation of goods-import entry or other equivalent document showing actual payment of VAT on the imported goods. Goods or properties: Gross Selling Price x VAT Rate 2. All the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit. and must be reported in the information returns required to be submitted to the BIR: i. instrumentalities or agencies. Sellers of service: Gross Receipts x VAT rate Computation of VAT Payable Output Tax less Input Tax 20.

a taxpayer may apply for a refund or issuance of a tax credit certificate for input taxes attributable to such sales upon compliance with the following requisites. i. f. The creditable input tax due or paid must be attributable to such sales. deed of conditional sale. etc. those with Zero-rated and Effectively Zero-rated sales. 21. the acceptable foreign currency exchange proceeds had been duly accounted for in accordance with the rules and regulations of Bangko Sentral ng Pilipinas. iv. iv. 113 and 237 of the Tax Code. and those who would be cancelling their VAT registration. A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit only if it shows the information required under Secs. together with VAT invoice issued by the seller. except the transitional input tax. The taxpayer is engaged in sales which are zero-rated (like export sales) or effectively zero-rated. there are only 2 kinds of VAT-registered taxpayers who may apply for the issuance of a tax credit certificate or refund of input taxes Page | 116 . d. Who may claim for refund/apply for issuance of tax credit certificate Under RA 9337. iii. there are only 2 kinds of VAT-registered taxpayers who may apply for the issuance of a tax credit certificate or refund of input taxes namely. contract/agreement to sell. In zero-rated or effectively zero-rated transactions. For the purchase of real property-public instrument i. Input tax on “deemed sale” transactions shall be substantiated with invoice e. The claim must be filed within 2 years after the close of the taxable quarter when such sales were made. Note: Input taxes derived from importation or local purchases of capital goods to the extent that such input taxes have not been applied against output taxes a. In case of zero-rated sales.. Input tax from payments made to non-residents shall be supported by a copy of the Monthly Remittance of Return VAT Withheld filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due. 113 and 237 of the Tax Code. iii.. Advance VAT on sugar shall be supported by the Payment Order showing payment of the advance VAT. c. Refund or tax credit of excess input tax Under RA 9337.e. ii. deed of absolute sale. For the purchase of services-official receipt showing the information required under Secs. The taxpayer is VAT-registered. Transitional input tax shall be supported by an inventory of goods as shown in a detailed list to be submitted to BIR. to the extent that such input tax has not been applied against the output tax and v.

Destination principle or cross border doctrine Destination principle: VAT is imposed in the country in which the products or services are actually consumed or used. imports taxable Cross Border Doctrine: No VAT shall be imposed to form part of the cost of goods sold destined for consumption outside of the territorial border of the taxing authority. Taxpayer may appeal to the CTA within 30 days from receipt of whole or partial denial. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. Manner of giving refund Refund shall be made upon warrants drawn by the CIR or duly authorized representative and provided that refunds be post-audited by COA d. Period to file claim for issuance of TCC The CIR shall grant a Tax Credit Certificate/refund for creditable input taxes within 120 days from the date of submission of complete documents in support of the application. c. If no action on the claim for refund has been taken by the CIR after the 120 day period from date of submission of the application. and those who would be cancelling their VAT registration. taxpayer may appeal to CTA within 30 days from lapse of 120 day period. 22. those with Zero-rated and Effectively Zero-rated sales. namely. Export sales. Ex. VAT invoice/official receipt shall be prepared at least in duplicate. barter or exchange of goods or properties. the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. Page | 117 . and for every sale. b. Invoicing requirements in general A VAT-registered person shall issue:  VAT invoice for every sale. and  VAT official receipt for every lease of goods or properties. Invoicing Requirements a. barter or exchange of services Only VAT-registered persons are required to print their TIN followed by word VAT in their invoice or official receipts.

without the benefit of any input tax credit. Consequences of issuing erroneous VAT invoice or VAT official receipt A. an invoice must be prepared at the time of the occurrence of the transaction which should include all the information required such as TIN followed by word VAT. use or consumption not in the course of business of goods or properties originally intended for sale or use in the business. c. 110 of the Tax Code Issuance of a VAT Invoice or VAT Official Receipt on an exempt transaction by a VAT-registered person: If a vat registered person issues a VAT invoice or receipt for a VAT-exempt transaction. An invoice must be prepared for the entire inventory which shall be the basis of the entry in the subsidiary sales journal.VAT shall be recognized as an input tax credit to the purchaser under Sec. an inventory must be prepared and submitted to RDO who has jurisdiction over the taxpayer’s principal place of business not later than 30 days after retirement or cessation of business. a memorandum entry in the subsidiary sales journal to record withdrawal of goods for personal use is required. The non-VAT person shall be liable to:  Percentage taxes applicable to his transactions. 248(B) of the Tax Code. It must be recorded in the subsidiary sales journal. ii. Issuance of a VAT invoice or VAT Official Receipt by a Non-VAT Person: If a person who is not VAT.registered issues an invoice or receipt showing his TIN. Invoicing and recording deemed sale transactions In case of transfer. and  50% surcharge under Sec. the erroneous issuance shall result to the ff: i. The total amount of deemed sale shall be included in the return to be filed for the month or quarter. 106 or 108 of the Tax Code.b. If transaction is the distribution or transfer to shareholders or investors as share in the profits of the VAT-registered persons or to creditors in payment of debt and the Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. It need not enumerate the specific items but must show total amount. In case of retirement from or cessation of business. but fails to display prominently on the Page | 118 .  VAT due on transactions under Sec. followed by word VAT.

be credited in the quarterly VAT return to arrive at the net VAT payable or excess input tax/overpayment as of the end of a quarter. “Taxable quarter” – quarter that is synchronized to the income tax quarter of the taxpayer Amounts reflected in the monthly VAT declarations for the first 2 months of the quarter shall still be included in the quarterly VAT return which reflects the cumulative figures for the taxable quarter. 23. Should actual input VAT attributable to sale to government exceeds 7% of gross payments. in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. 24. On the other hand. including GOCCs. the difference must be closed to expense or cost. instrumentalities or agencies. however. shall before making payment on account of each purchase of goods and /or services taxed at 12% VAT pursuant to Sec. The government or any of its political subdivisions. The 5% final VAT withholding rate shall represent the net VAT payable of the seller. Page | 119 . 106 and 108 of the Tax Code and withhold a final VAT due at the rate of 5% of the gross payment thereof. invoice or receipt the words “VAT-exempt sale”. if actual input VAT attributable to sale to government is less than 7% of gross payment. the transaction shall be:  Taxable transaction and the issuer shall be liable to pay VAT thereon  Purchaser shall be entitled to claim an input tax credit on the purchase. The remaining 7% effectively accounts for the standard input VAT for sales of goods or services to the government. Filing of Return Every person liable to pay VAT shall file a quarterly return of the amount of his quarterly gross sales or receipt within 25 days following the close of the taxable quarter. Withholding of final VAT on sales to government A. Payment in the monthly VAT declarations shall. Filing of return and payment A. the excess may form part of the seller’s expense or cost.

2006.00 before the start of the business and every year thereafter on or before the 31st day of January. (3) Transfer of registration In case of a registered person who decides to transfer his place of business or his head office or branches. statement or declaration as required in the Tax Code The registration shall contain the taxpayer’s name. instrumentalities or agencies. starting February 1. including GOCCs. with respect to the following payments. (2) Registration of each type of internal revenue tax Every person required to register with BIR shall register each type of internal revenue tax he is obligated to file. shall withhold 12% VAT. The government or any of its political subdivisions. it shall be his duty to update his registration status by filing an application for registration update. shall file a return and pay taxes. residence or other information as CIR may require. B. Compliance Requirements (Internal Revenue Taxes) 1. Page | 120 . individuals. and  Other services rendered in the Philippines by non- residents E. as well as private corporations. whether large or non-large taxpayers. Administrative requirements a. (1)Annual registration fee P 500. Registration Requirements Every person subject to any internal revenue tax shall register once with appropriate RDO: * within 10 days from date of employment * on or before the commencement of the business * before payment of any tax due * upon filing of a return. style.  Lease or use of properties or property rights owned by non-residents. estates and trusts.

in the course of trade or business.. other than those that are exempt under Sec. specifying any change in tax type and other details. sells. or Page | 121 . (6) Power of the Commissioner to suspend the business operations of any person who fails to register In the case of a VAT-registered persons-  Failure to issue receipts or invoices  Failure to file a VAT return required under Sec. 114  Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipts for the taxable quarter Failure of any person to register as required under Sec. The temporary closure shall be for a period of not less than 5 days and shall be lifted upon compliance with the requirements prescribed by the CIR.. Persons required to register for VAT Any person.5 M or. (4) Other updates Any registered person shall. 109 (A) to (U). who. 236. or engages in the sale or exchange of services. barters or exchanges goods or properties. Instances of cancellation of VAT tax registration:  Makes written application and can demonstrate the CIR’s satisfaction that his gross sales or receipts for the following 12 mos.5M. update his registration information with the RDO where he is registered. have exceeded P 1. other than those that are exempt under Sec. and does not expect to recommence any trade or business within the next 12 mos.109 (A) to (U). b.  His gross sales or receipts for the past 12 mos. will not exceed P 1. shall be liable to register for VAT if.  Has ceased to carry on his trade or business. whenever applicable. (5) Cancellation of registration General Rule: The registration of any person who ceases to be liable to a tax type shall be cancelled upon filing with the RDO where he is registered.

(2) Cancellation of VAT registration  Makes written application and can demonstrate the CIR’s satisfaction that his gross sales or receipts for the following 12 mos. other than those that are exempt under Sec. Except: Franchise grantees of radio and or television broadcasting whose annual gross receipts of the preceding year do not exceed P 10M derived from the business covered by law granting the franchise. once exercise shall be IRREVOCABLE. will exceed P1.  A person who has registered prior to planned business commencement.  Any person who elects to register shall not be entitled to cancel his registration for the next 3 years. and paying the annual registration fee. if it opt to register for VAT. who after the lapse of 3 years after his Page | 122 .  Dissolution of a partnership or corporation. other than those that are exempt under Sec. but failed to actually start a business Some instances where a taxpayer will update his registration:  A person’s business has become exempt  A change in the nature of the business itself from sale of taxable goods and/or services to exempt sales and/or services  A person whose transactions are exempt from VAT who voluntarily registered under VAT system. will not exceed P 1.  There are reasonable grounds to believe that his gross sales or receipts for the past 12 mos.  Has ceased to carry on his trade or business. (1) Optional registration for VAT – exempt persons  Any person who not required to register for VAT may elect to register with the RDO that has jurisdiction over the head office of that person.5 M or.109 (A) to (U). in case of single proprietorship.  Merger or consolidation with respect to the dissolved corporation..5M. and does not expect to recommence any trade or business within the next 12 mos..  A change in ownership. 109 (A) to (U).

registration. c. Approval of request for cancellation of a registration due to reversion to exempt status. Change of business activity from VAT. Not subject to Output VAT e. The goods or properties used in business or those comprising the stock- in trade of the corporation. will not be considered sold. bartered. This is from the time of the registration by a person who voluntarily registered despite being exempt under Sec.taxable status to VAT- exempt status An example is a VAT-registered person engaged in importing luxury cars. which amount shall be adjusted to its present value every 3 years using the Consumer Price Index. Approval of request for cancellation of registration due to desire to revert to exempt status after lapse of 3 consecutive years. Approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipts exceeding P1. (3) Changes in or cessation of status of a VAT-registered person Subject to VAT (Output Tax) a. 109(2) of the Tax Code. Page | 123 . 2005.5M beginning July 1. d.5 M but who failed to exceed this amount during the first 12 months of operation. b. as published by NSO. having a change in corporate control. which is a taxable activity but discontinues the same and is now engaged in selling or importing fertilizers. or exchange despite the change in the ownership interest in the said corporation. Change of control of a corporation This is due to acquisition of the controlling interest of such corporation by another stockholder or group of stockholders. applies for cancellation of his registration  A VAT-registered person whose gross sales or receipts for 3 consecutive years did not exceed P 1.

his/her administrator or executor shall register the estate of the decedent. showing the date of transaction. as recommended by the CIR If registered taxpayer dies. prepared at least in duplicate. Issue duly registered receipts or sales or commercial invoices. d.00 or more. f. c. Merger or consolidation of corporations The unused input tax of the dissolved corporation. 275 of NIRC. or file a return or other document shall be supplied or assigned with a TIN which he shall indicate in such return or documents submitted to the BIR for proper identification and shall indicate in certain documents like:  Sugar quedans. sea or air  Documents to be registered with the Securities and Exchange Commission  Building construction permits  Application for loan with banks. refined sugar release order or similar instruments  Documents to be registered with the Register of Deeds  Registration certificate of transportation equipment by land. For each sale or transfer of merchandise or ii. otherwise he shall be criminally liable under Sec. quantity. In case of a non-resident decedent. render. Supplying Taxpayer Identification Number Any person required to make. Page | 124 . Change in the trade or corporate name g. his/her administrator or executor shall register the estate with the RDO where he is registered Only 1 TIN shall be assigned to a taxpayer. For services rendered valued at P 25. financial institutions. i. and other financial intermediaries  Application for mayor’s permit  Application for business license with the DTI  Such other document which may be required by the Secretary of Finance. unit cost or description of merchandise or nature of service. shall be absorbed by the surviving or new corporation. as of the date of merger or consolidation. Issuance of receipts or sales or commercial invoices All persons subject to an internal revenue tax shall.

must keep said receipt/invoice. the receipt/invoice must also indicate the TIN of the purchaser.  Names. business style. business style. (1) Printing of receipts or sales or commercial invoices All persons who are engaged in business shall secure from the BIR an Authority to Print receipts. barter or exchange of goods or properties. and  VAT official receipt for every lease of goods or properties. All persons who print receipt or sales or commercial invoices shall maintain a logbook of taxpayers who availed of their printing services and it shall contain. or sales or commercial invoices before a printer can print the same. TIN of persons/entities for whom the receipts/invoices were printed  Number of booklets. Original of receipt/invoice must be issued at the time of the transaction. No authority to print shall be granted unless the receipts/invoices to be printed are serially numbered and shall show the name. If issued by a VAT-registered person. shall be issued which shall show the name. number of copies/set and serial numbers of receipts/invoices (2) Invoicing requirements for VAT A VAT-registered person shall issue. address of purchaser. barter or exchange of services Page | 125 . if any. TIN and business address of person/entity to use the same. and for every sale. compensations. or fees.Where receipt is issued to cover payment made as rentals. the original and duplicate shall be kept and preserved in his place of business/profession for 3 yrs. receipts or invoices. customer or client. commissions. If engaged in business or profession.  VAT invoice for every sale. set per booklet.

address and TIN of the purchaser. exempt and zero-rated components. properties or services some of which are subject to and some of which are VAT zero-rated or VAT- exempt.  Amount of the tax shall be shown as a separate item  If sale is exempt from VAT. the term “VAT- exempt sale” shall be written or printed prominently on the invoice or receipt  If the sale is subject to 0% VAT. A statement that the seller is a VAT-registered person. customer or client. the term “Zero-rated sale” shall be written or printed prominently on the invoice or receipt. the erroneous issuance shall result to the ff: The non-VAT person shall be liable to:  Percentage taxes applicable to his transactions.00) or more where the sale or transfer is made to a VAT- registered person. followed by TIN ii. iii.  the sale involves goods. exempt. In the case of sales in the amount of One Thousand Pesos (P 1. and the calculation of the VAT on each portion of the sale shall be shown on the invoice or receipt. the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable. (a) Information contained in the VAT invoice or VAT or Official Receipt i. 000.registered issues an invoice or receipt showing his TIN. business style. the name. The seller has the option to issue separate invoices or receipts for the taxable. followed by word VAT. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT. and zero-rated components of the sale. Page | 126 . shall be indicated in addition to the information (b) Consequences of issuing erroneous VAT invoice of official receipts Issuance of a VAT invoice or VAT Official Receipt by a Non-VAT Person: If a person who is not VAT. provided that. if any.

Page | 127 . without the benefit of any input tax credit. That the person or persons interested in the estate should. Continuation of business of deceased person When any individual who has paid the annual registration fee dies. no additional payment shall be required for the residue of the term of which the tax was paid: Provided however. but fails to display prominently on the invoice or receipt the words “VAT-exempt sale”.  VAT due on transactions under Sec. Exhibition of certificate of payment at place of business The certificate or receipts showing payment of taxes issued to a person engaged in a business subject to annual registration fee shall be kept conspicuously exhibited in plain view in or at the place where the business is conducted. and in case of a peddler or other persons not having a fixed place of business. upon recommendation of the Commissioner. 248(B) of the Tax Code. f. VAT shall be recognized as an input tax credit to the purchaser under Sec. subject to production upon demand of any internal revenue officer. submit to the Bureau of Internal Revenue or the Regional or Revenue District Office inventories of goods or stocks had at the time of such death. 106 or 108 of the Tax Code. the transaction shall be:  Taxable transaction and the issuer shall be liable to pay VAT thereon  Purchaser shall be entitled to claim an input tax credit on the purchase. Removal of business to other location Any business for which the annual registration fee has been paid may. 110 of the Tax Code. subject to the rules and regulations prescribed by the Secretary of Finance. within 30 days from the death of the decedent. e. g. and  50% surcharge under Sec. shall be kept in the possession of the holder thereof. and the same business is continued by the person or persons interested in his estate. Issuance of a VAT Invoice or VAT Official Receipt on an exempt transaction by a VAT-registered person: If a vat registered person issues a VAT invoice or receipt for a VAT- exempt transaction. be removed and continued in any other place without the payment of additional tax during the term for which the payment was made.

Resident citizen -within and without the Philippines 2. Provided. Individual citizen of the Philippines -income from sources within working or deriving income from abroad the Philippines as overseas contract worker 4. Alien individual. III.TAX RETURNS A. Every Filipino citizen residing outside the Philippines. the same shall be divided EQUALLY between the spouses for the purpose of determining their respective taxable income. whether -only on income derived from sources engaged in trade or business within the Philippines in Philippines I. when the donor’s tax has been paid on such property Page | 128 . Every nonresident alien engaged in trade or business or in the exercise of profession in the Philippines. Return of Husband and wife -shall compute separately their individual income tax based on their respective total taxable income. Domestic Corporation -within and without the Philippines 6. d. that if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses. except: 1. Foreign Corporation. Every Filipino citizen residing in the Philippines. Every alien residing in the Philippines. resident or not -only on income derived from sources within the Philippines 5. on income derived from sources within the Philippines. II. c. Return of Parent to Include Income of Children -the income of unmarried minor derived from property received from a living parent shall be included in the return of the parent. Individual Tax Return The following are required to file an income tax returns: a. Non-resident -income derived from sources within the Philippines 3. on his income from sources within the Philippines. b. Income Tax Returns Except when otherwise provided in this Code: Individual Taxable on income: 1.

Return of individual: on or before 15th day of April of each year covering income for the preceding taxable year. An individual with respect to pure compensation income. a citizen and any alien individual engaged in business or practice profession within the Philippines shall file an income tax return. Payment of Capital Gains Tax 1. Provided. e. authorized representative 3. d. IV. Return of Persons under Disability -If taxpayer unable to make his own return. the return maybe made by: 1. other person charged with the care of his property or person. c. false. 2. -They shall assume responsibility for erroneous. guardian 4. b. Revenue District Officer c. An individual whose sole income has been subjected to withholding tax. When to File 1. An individual whose gross income does not exceed his total personal and additional exemptions for dependents under Sec. Individuals subject to tax on capital gains: a. 2. V. VI. in the absence of legal residence VII. Authorized agent bank b. From the sale or disposition of real property: within 30 days following each sale or disposition. or fraudulent returns. regardless of the amount of gross income. Who are not required to file a return? a. 35. Duly Authorized Treasurer of the City or Municipality which such person has legal residence or principal place of business.general or special. Where to file: a. duly authorized agent 2. From the sale or exchange of shares of stocks not traded thru a local stock exchange: within 30 days after each transaction and a final consolidated return on or before April 15 of each year. Office of the Commissioner. when the transfer of such property is exempt from donor’s tax. Capital gains from Sale of Shares of Stock not Traded in the Stock Exchange Page | 129 . Collection Agent d. VIII. Provided. A minimum wage earner or exempt from income tax pursuant to law. that an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return. b. derived from sources within the Philippines.

5. Historical cost or adjusted basis of real property carried over to new principal residence built. Capital Gains from Sale of Real Property -final tax of 6% based on the gross selling price or current fair market value. Said exemption can be availed only once every 10 years. or other disposition of shares of stock in domestic corporation. pactro de retro sales b. Commissioner notified by taxpayer within 30 days from the date of sale through prescribed return of his intention to avail of exemption. subject to capital gain tax B. 6. Revenue district Officer c. whichever is higher presumed to have been realized from sale. the portion of gain presumed. Quarterly Corporate Income Tax 1. Vice President or other principal officer. Time of filing the Income Tax return -the corporate quarterly declaration shall be filed within 60 days following the close of each of the first 3 quarters of the taxable year. the proceeds of which is fully utilized in acquiring or constructing new principal residence within 18 calendar months from sale or disposition.000 and 10% on the amount in excess of 100. 3. . authorized agent banks b. and shall be sworn to by such officer and by the treasurer or assistant treasurer. Requirements . Collection Agent d. Place of filing -except in cases where the Commissioner otherwise permits: a. 2.000 is imposed upon the net capital gains realized during the taxable year from the sale. exchange. 4. Page | 130 . capital gains realized from sale or disposition of their principal residence by natural persons. duly authorized Treasurer of the city or municipality having jurisdiction over the location of the principal office of the corporation. II. including estates and trusts. exchange or other disposition of real property located in the Philippines. CORPORATE RETURNS I. If no full utilization of proceeds. It includes a. EXCEPTION: 1. 2.The return shall be filed by the President. 2. -a final tax at the rate of 5% if not over 100.other forms of conditional sales. except shares sold or disposed through the stock exchange.Ever corporation subject to tax shall render in duplicate a true and accurate quarterly income tax return and final or adjustment return.

Time of Payment of Income Tax -It shall be paid at the time the declaration or return is filed in the manner prescribed by the Commissioner. III. other than an individual. Provided. changes the basis of computing net income from fiscal to calendar year. IV. 3. Final Adjustment Return -If a taxpayer. Taxable Year of Corporation -A corporation may employ either CALENDAR year or FISCAL year as basis for filing its annual income tax return. including a corporation which has been notified of possible dissolution by the SEC. Return of Corporation Contemplating Dissolution or Reorganization -Every corporation shall within 30 days after: 1.or 3. upon recommendation of the Commissioner. as the case may be. the corporation shall not change the accounting period employed without prior approval from the Commissioner. a return shall be made for the period between the close of the former fiscal year and the date designated as the close of the new fiscal year. for its reorganization Render a correct return to the Commissioner. in meritorious cases. shall. verified under oath. secure a certificate of tax clearance from the BIR which shall be submitted to the SEC. Extension of Time to File the Return -The Commissioner may. prescribe. VI. the adoption by the corporation of a resolution or plan for its dissolution. a separate final or adjustment return shall be made for the period between the close of the last fiscal year for which the return was made and the following December 31 -If the change is from calendar to fiscal year. or on or before the 15th day of the 4th month following the close of the fiscal year. by rules and regulations. prior to the issuance by the SEC of the Certificate of Dissolution and Reorganization. return shall be made for the period between the close of the last calendar year for which the return was made and the date designated as the close of the fiscal year. Page | 131 . Note: The dissolving or reorganizing corporation shall. for the liquidation of the whole or any part of its capital stock. V. setting forth the terms of such resolution or plan and such other information as the Secretary of Finance. or 2. -the final adjustment return shall be filed on or before the 15th day of April. with approval of the Commissioner. grant a reasonable extension of time for filing returns of income or final and adjustment returns in cases of corporation in accordance with Section 56 of this Code. -If the change is from one fiscal year to another fiscal year.

estate or trust has a gross income of 20. trustees. deductions allowed c. Return on Capital Gains Realized from the Sale of Shares of Stocks not Traded in the Local Stock Exchange -It shall file a return within 30 days after the transaction and a final consolidated return of all transactions during the taxable year on or before the 15th day of the 4th month following the close of the taxable year. which apply to individuals in case such person. Returns of Receivers. a return of its income. except income exempt under Sec. the items of gross income b. acting in any fiduciary capacity. Conservators -Such fiduciary or person filing the return shall take oath that he has sufficient knowledge of the affairs of the person. Executors d. Receivers f. in the same manner and form as such organization is hereinbefore required to make returns. trust or estate for whom or which they act. assignees shall make returns of the net income as and for such corporation. in duplicate. IX. addresses and shares of each of the partner X.000 or over during the taxable year. Trustees c. Fiduciary Returns -All persons or corporations.VII. Returns of General Partnership -It shall in duplicate. that to the best of his knowledge and belief the return is true and correct Page | 132 . and shall be subject to all provisions of Title II. 32 (B). taxpayer TIN d. a return of the income of the person. Administrators e. trust or estate. VIII. Guardians b. Any tax due shall be collected and assessed in the same manner as if assessed directly against organizations of whose businesses or properties they have custody or control. Trustees in Bankruptcy or Assignees -Such Receivers. -It shall set forth: a. Who has fiduciary capacity? a. the names. shall render.

3. or in case of nonresident alien. or though exempt. setting forth: 1. 2. the return shall be filed with: 1. such information as may at the time be ascertainable necessary to establish correct taxes. administrator. of that part of his gross estate situated in the Philippines. Place of filing -Except in cases permitted by the Commissioner. Revenue district Officer 3. 2. II. or any of the legal heirs. as the case maybe. collection officer 4. where the estate consists of registered or registrable property such as real property. Notice of Death to be Filed -In all cases of transfers subject to tax. in meritorious cases. shall give a written notice thereof to the Commissioner. within two months after the decedent’s death.000 or regardless of the gross estate. However. Requirements -In all cases of transfers subject to tax. though exempt from tax. shares of stocks or other similar property for which a clearance from the BIR is required as a condition precedent for the transfer of ownership shall file a return. a reasonable extension not exceeding 30 days for filing the return. if the gross value of estate tax returns exceeds 2million. c. ESTATE TAX RETURNS I. the executor. b. or within a like period after qualifying as such executor or administrator. the gross value exceeds 20. authorized treasurer of the city or municipality which the decedent was domiciled 5. it shall be supported with a statement duly certified by a CPA. The Commissioner shall have the authority to grant. the gross value of the estate exceeds 20. the value of the gross estate of the decedent at the time of his death. or where. under oath in duplicate. Time for filing and extension of time -The estate tax returns shall be filed within 6 months from the decedent’s death.C. Estate Tax Returns a. the deductions allowed from the gross estate. authorized agent bank.000. motor vehicle. Office of the Commissioner Page | 133 .

or government officer who intervenes in the preparation of documents regarding partition or disposal of donation inter vivos or mortis causa. b. or any heir. Regional Director. or if application is made before the return is filed. administrator. Liability for Payment -The estate tax imposed shall be paid by the executor or administrator before delivery to any beneficiary of his distributive share. the Commissioner shall notify the executor or administrator of the amount of tax within 1 year from the making of such application. -They shall immediately notify the Commissioner. bond or right by way of gift inter vivos or mortis causa.III. business. or industry organized or established in the Philippines any share. to the extent of his distributive share of the estate. notary public. VII. Meaning of Deficiency a. -Any lawyer. then the amount by which the tax exceeds the amount previously assessed. Revenue District Officer or Revenue Collection Officer or Treasurer of the City or municipality where their offices are located. be subsidiarily liable for the payment of such portion of the estate tax as his distributive share bears to the value of the total net estate. administrator or any of his heirs upon his return. V. Payment of Tax Antecedent to the Transfer of Shares. Discharge of Executor or Administrator from Personal Liability -If the executor or administrator makes a written application to the Commissioner for the determination of the amount of the estate tax and discharge from personal liability. Revenue District Officer with copies of such documents and any information which may facilitate the collection of tax. Duties of Certain Officers and Debtors -Any document transferring real property or real rights therein or any chattel mortgage. within 1 year after the return is filed. upon payment of the amount of which he is notified shall be discharged from personal liability for any deficiency in the tax thereafter found to be due and shall be entitled to the receipt or writing showing such discharge. Bonds or Rights -A certification from the Commissioner that the taxes fixed have been paid must be issued before a transfer to any new owner in the books of corporation. IV. -The executor or administrator. by way of gifts inter vivos or mortis causa. of the non payment of taxes discovered by them. legacy or inheritance by reason of their office shall have the duty of furnishing the Commissioner. sociedad anonima. Page | 134 . obligation. VI. partnership.) The amount by which the tax imposed by this Chapter exceeds the amount shown by the executor. Regional Director. Such beneficiary shall. legacy or inheritance. administrator or any of his heirs upon his return. legacy or inheritance shall not be registered in the Registry of Property unless a certification from the Commissioner that the tax fixed and actually due thereon has been paid.) If no amount is shown in the tax by the executor. or if no return is made by the executor.

the return maybe filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer or directly with the Commissioner. 2. each gift made during the calendar year which is to be included in computing net gifts. that only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches. or duly authorized city or municipal treasurer in the Page | 135 . name of the done 5. -Any person whose registration has been cancelled shall file a return and pay the tax due thereon within 25 days from the date of cancellation of registration: Provided. E. -Debtor of the deceased shall not pay his debts to heirs. duly authorized treasurer where donor was domiciled or in the office of the Commissioner. legatee. they shall have the right to the restitution of the proportional part of the tax paid. such further information as maybe required by rules and regulations II. The return shall be filed and the tax paid to an authorized bank. revenue collection officer. II. Where to File the Return and Pay the Tax -The return shall be filed with and the tax paid to an authorized agent bank. VAT RETURNS I. VAT registered person shall pay the VAT on a monthly basis. executor or administrator unless there is a certification that the tax due has been paid. any previous net gifts made during the same calendar year 4. DONOR’S TAX RETURN I. revenue district officer. D. VIII. shall make a return under oath in duplicate. Requirements -Any individual who makes any transfer by gift. In General -Every person liable to pay the VAT shall file a quarterly return of the amount of his gross sales or receipts within 25 days following the close of each taxable quarter prescribed for each taxpayer: Provided. new obligation of the decedent shall appear and the persons interested shall have satisfied them by order of the court. Time and Place of Filing -The return of the donor shall be filed within 30 days after the date of the gift is made and the tax due thereon shall be paid at the time of the filing. the deductions claimed and allowable 3. The return shall set forth: 1. Exception: he may pay without the certification if included in the inventory of the estate of the decedent. Restitution of Tax Upon Satisfaction of Outstanding Obligations -If after the payment of the estate tax. except those who are exempt. In case of nonresident.

list of payees ad income payments. Time of filing Return -For final withholding tax. duly authorized Treasurer of the city or municipality where withholding agent resides 2. not later than March 1 of the following year for which annual report is submitted. Annual Information Return -Every withholding agent required to deduct and withhold taxes shall submit to the Commissioner an annual information return containing: 1. grant to any withholding agent a reasonable extension of time to furnish and submit the return required Page | 136 . F. such other information required by Commissioner III. WITHHOLDING TAX RETURNS I. amount of taxes withheld from each payee 3. by rules and regulations. It shall be filed on or before January 31 of the succeeding year. Revenue district Officer c. Time of filing -the return for final withholding tax shall be filed and the payment made within 25 days from the close of the calendar quarter. an authorized agent bank b.Philippines located within the revenue district where the taxpayer is registered ore required to register. Collection Agent d. Quarterly Returns and Payments of Taxes Withheld 1. Note: The taxes withheld and deducted by the withholding agent shall be held as special fund in trust for the government until paid to the collecting officers. 2. may require these withholding agents to pay or deposit the taxes deducted or withheld at more frequent intervals when necessary to protect the interest of the government. The Commissioner may. with the approval of the Secretary of Finance. Provided. -the return for creditable withholding taxes shall be filed and the payment not later than the last day of the month following the close of the quarter during which withholding was made. Place of filing -except in cases where the Commissioner otherwise permits: a. II. -For creditable withholding taxes. that the Commissioner.

and appraisal of properties.  An assessment is the official action of an administrative officer in determining the amount of tax due from a taxpayer. In case the Commissioner and the taxpayer agree in writing to a different period before the expiration of the original prescriptive period. or b. Taxpayer’s Remedies A. classification. including the discovery. Assessment Tax assessment General Rule  Assessment shall be made within three (3) years after the last day prescribed by law for the filing of the return or from the day the return was filed in case the return was filed beyond the period prescribed by law. listing. Tax Remedies under the NIRC 1.  The Local Government Code defines assessment as the act or process of determining the value of a property or portion thereof subject to tax.f. It is also a notice to the effect that the amount stated therein is due as tax and is a demand for payment thereof. Exceptions 1. Assessment may be made within ten (10) years after the discovery of the falsity. The period so agreed upon may be extended by subsequent written agreement before the expiration of the period previously agreed upon. Page | 137 . 2. or it may be a notice to the effect that the amount therein stated is due from a taxpayer as a tax with a demand for payment of the tax or deficiency stated therein. fraud or omission in the following cases: a.  An assessment is a finding by the taxing agency that the taxpayer has not paid his current taxes. failure to file a return. in case of a false or fraudulent return with intent to evade tax.

4. send the taxpayer a notice of such decision together with a request for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter. 3. Issue jeopardy assessments and terminate the taxable period  A jeopardy assessment is one issued by the Commissioner if he believes that the collection of the tax is in jeopardy due to delay and other causes. The BIR assessment is usually embodied in a demand letter or in a BIR form known as the assessment notice. or c. Post-reporting notice or notice for an informal conference after the tax audit.  The Commissioner may issue a jeopardy assessment when it comes to his knowledge that a taxpayer is: 1. Requisites of a valid assessment 1. unless paid within the time fixed in the demand made by the Commissioner. The taxpayers shall be informed in writing of the law and the facts upon which the assessment is made. or 3. declare the tax period of such taxpayer terminated any time. performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective. Among others. Page | 138 .  In such cases. Assessment must be made within the prescriptive period. the Commissioner may assess and collect the tax immediately without the usual formalities.  Said taxes shall be due and payable immediately and shall be subject to all the penalties prescribed by law. to remove his property therefrom. to hide or conceal his property. or 2. or such portion thereof as may be unpaid. 2. except in several instances. the Commissioner shall: 1. intending a. and 2. or b. to leave the Philippines. retiring from business subject to tax. Pre-assessment notice sent to the taxpayer.

or other payments due the taxpayer. 7. the assessment is deemed made on time even though the same is actually received by the taxpayer after the expiration of the prescription period. refunds. When is assessment deemed made?  It is not the issue date of the demand and/or notice that is the reckoning point in prescription but rather it is the date when the demand letter is released. 3. 21 SCRA 17] The law does not require that the demand or notice be received within the prescriptive period. Inc. 2.  The Supreme Court held in a case that so long as the release thereof is effected before prescription sets in. Accredit and register tax agents. Commissioner.e. Power of the Commissioner to make assessments and prescribe additional requirements for tax administration and enforcement 1. 8. Issue jeopardy assessments and terminate the taxable period. Inquire into bank deposit accounts. Assess the proper tax on the best evidence obtainable. v. the amount a taxpayer is deficient in his tax payments. Prescribe additional procedural or documentary requirements. 5. 6. Examination of returns and determination of the tax due. [Basilan Estates. delinquency  Deficiency is the amount by which the tax due exceeds the sum of the amount of the tax shown on a taxpayer’s return plus amounts previously assessed or collected as deficiency. mailed or sent to the taxpayer that constitutes an actual assessment.  Delinquency is the state of a person upon whom the personal obligation to pay the tax has been fixed by lawful assessment and he thereafter fails to pay the tax within the time prescribed by law. i. Prescribe real property values. Conduct inventory-taking. Page | 139 .Deficiency v. less any credits. surveillance and to prescribe presumptive gross sales and receipts 4.

What are the additions to the tax?

1. Civil penalty or surcharge
2. Interest
3. Other civil penalties and administrative fines

Civil penalty or surcharge

 The civil penalty or surcharge may either be 25% or 50% of the tax depending on
the nature of the violation.

 The payment of the surcharge is mandatory and the Commissioner is not vested
with any authority to waive or dispense with the collection thereof.

 An extension of time to pay taxes granted by the Commissioner does not excuse
payment of the surcharge.

 The 50% surcharge is not a criminal penalty but a civil or administrative sanction
provided primarily as a safeguard for the protection of the State revenue and to
reimburse the government for the heavy expense of investigation and the loss
resulting from the taxpayer’s fraud.

Interest

 This is an increment on any unpaid amount of tax assessed at the rate of 20% per
annum or such higher rate as may be prescribed by the regulations from the date
prescribed for payment until the amount is fully paid.

Classes of interest
1. Deficiency interest
2. Delinquency interest
3. Interest on extended payment

Deficiency interest

 Any deficiency in the tax due shall be subject to the interest of 20% per annum
which shall be assessed and collected from the date prescribed for its payment
until the full payment thereof.

Page | 140

When delinquency interest imposed?

 Delinquency interest is imposed in case of failure to pay:

1. The amount of the tax due on any return required to be filed; or
2. The amount of tax due for which no return is required; or
3. A deficiency tax or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner.

 Rate is 20% per annum until the amount is fully paid which interest shall form
part of the tax.

Interest on extended payment

 This is imposed when taxpayer has opted to pay by installment but he fails to pay
the tax or any installment on the prescribed date for payment.
 It is also imposed where Commissioner has authorized the extension of the time
for payment of the tax.

Assessment Process

1. Notice of Assessment

When the local treasurer or his duly authorized representative finds that correct taxes,
fees, or charges have not been paid, he shall issue a notice of assessment stating the
nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests
and penalties. [Section 195, Local Government Code]

2. Written protest

Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may
file a written protest with the local treasurer contesting the assessment; otherwise, the
assessment shall become final and executory. [Section 195, Local Government Code]

Page | 141

3. Decision

The local treasurer shall decide the protest within sixty (60) days from the time of its
filing. If the treasurer fins the protest to be wholly or partly meritorious, he shall issue
a notice canceling wholly or partially the assessment. However, if the local treasurer
finds the assessment to be wholly or partly correct, he shall deny the protest wholly or
partly with notice to the taxpayer. [Section 195, Local Government Code]

4. Appeal

The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or
from the lapse of the sixty-day period prescribed within which to appeal with the
court of competent jurisdiction; otherwise, the assessment becomes conclusive and
unappealable. [Section 195, Local Government Code]

Protest of Assessment

Procedure

 Taxpayer may protest administratively the assessment by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment.
 Within sixty (60) days from the filing of the protest, taxpayer shall submit all
relevant supporting documents, otherwise the assessment becomes final.
 If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the decision or from the lapse of the one hundred eighty
(180)-day period; otherwise, the decision shall become final, executory and
demandable. [Section 228, NIRC]
 Decision of the Court of Tax Appeals may be appealed to the Court of Appeals
through a verified petition for review within fifteen (15) days from receipt of
decision of the CTA. This may be extended for another fifteen (15) days upon
proper motion and the payment of the full amount of the docket fee before the
expiration of the reglementary period. No further extension shall be granted
except for the most compelling reason and in no case to exceed 15 days. [Section
4, Rule 43, Rules of Court]

Page | 142

 Decision of the Court of Appeals is appealable to the Supreme Court through a
petition for review by certiorari within fifteen (15) days from receipt of the CA
decision.

Remedies of taxpayer

a. Remedy before payment of tax: Protest of assessment
b. Remedy after payment of tax: Claim for tax refund or credit

Effect of failure of the taxpayer to file an administrative protest or to appeal the
Commissioner’s decision to the Court of Tax Appeals

 The assessment becomes final and unappealable. As such, it makes the assessed
tax collectible.

Collection

General Rule

 Collection may be instituted within five (5) years following the assessment of the
tax. [Section 222©]

Exception

 A proceeding in court for collection, without assessment, may be instituted within
ten (10) years after the discovery of falsity, fraud, or omission in the case of a
false or fraudulent return with intent to evade tax or failure to file a return.
[Section 222(a), NIRC]

When does the three-year prescriptive period start to run?

 The period of limitation to collect is counted from the assessment of the tax.
 Assessment is deemed made at the time the demand or assessment notice has been
sent, released or mailed to the taxpayer.
 The actual sending or release to the taxpayer of the assessment notice or demand
is, therefore, necessary in order to determine the actual date when the tax being
collected was assessed.

Page | 143

A proceeding in court for collection – without assessment – may be instituted within ten years after the discovery of falsity. and 5.  If collection is to be effected through judicial remedies. fraud. When the taxpayer requests for a reinvestigation which is granted by the Commissioner. Page | 144 . the collection of the tax is begun by the filing of the complaint with the proper court. 3. Commissioner. When the taxpayer is out of the Philippines. Inc. 19 SCRA 790] Suspension of the running of the Statute of Limitations  The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection. When the warrant of distraint or levy is duly served upon the taxpayer. or a member of his household with sufficient discretion. When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected. [Guagua Electric Co. his authorized representative.. in respect of any deficiency. and no property could be located. unless the taxpayer has informed the Commissioner of any change in address. v. [Section 222(a). shall be suspended under any of the following circumstances: 1. 4. the collection of the tax is considered begun when the government files its answer to the taxpayer’s petition for review.When is the tax deemed collected for purposes of the prescriptive period?  Collection through summary remedies is effectuated by summary methods when the government avails of the distraint and levy procedure. NIRC]  Prescription of the government’s right to recover an erroneously refunded tax  Same as the three-year prescriptive period for making assessments. 2. if the decision of the Commissioner on a protested assessment is appealed to the Court of Tax Appeals. When the Commissioner is prohibited from making the assessment or beginning the distraint or levy or proceeding in court and for sixty (60) days thereafter. or omission in the case of a false or fraudulent return with intent to evade tax or failure to file a return.  However. May there be a judicial action to collect a tax liability even if there is no previous assessment?  Yes.

sell and dispose the property through a public auction or a private sale with the approval of the Secretary of Finance. Ltd. the forfeiture shall become absolute. penalties and costs. Ker & Co. together with the interest thereon and the cost of sale. If the property is not redeemed. He must pay the full amount of taxes and penalties. The BIR Commissioner shall be in charge of the real state taken subject to taxes. 18 SCRA 207] 2.Examples when the Commissioner is prohibited from assessing or collecting the tax 1.. Section 22 of the NIRC enumerates the instances when prescription is interrupted. When the Court of Tax Appeals enjoins the collection of the tax under Section 11 of RA 1125. the taxpayer. The forfeiture need not be for the whole tax liability which will merely be for the amount equivalent to the fair market value of the property. The serving of an extrajudicial demand is not one of them. (5) Forfeiture to government for want of bidder In case there is no bidder for real property exposed for sale or if the highest bid for an amount insufficient to pay the taxes. Request for reinvestigation which should be granted or acted upon by the Commissioner  It should be emphasized that a mere request for reinvestigation without any corresponding action on the part of the Commissioner does not interrupt the running of the prescriptive period. [Republic v. Will an extrajudicial demand on the taxpayer interrupt prescription?  No. Within one year from the date of such forfeiture.. upon giving of not less than 20 days notice. Page | 145 . He also may. or any one for him may redeem the property. the internal revenue officer conducting the sale shall declare the property forfeited to the government for the satisfaction of the claim in question. The filing of a petition for review in the Court of Tax Appeals from the decision of the Commissioner on a protested assessment interrupts the running of the prescriptive period for collection.

231. or costs arising upon nder the Tax Code or in compromise or adjustment of any claim therefor: (1) He may upon giving of not less than 20 days notice. Page | 146 . the owner deciding to contest the validity of the forfeiture may. and an account of the same shall be rendered to the Commission on Audit. sell and dispose of the same at public auction or. 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. liquors. (a) Remedy of enforcement of forfeitures i. 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. NIRC) The action referred to is an ordinary action for recovery of personal property (See Rule 60. (d) Resale of real estate taken for taxes The Commissioner of Internal Revenue shall have charge of any real estate obtained by the government in payment or satisfaction of taxes. Action to contest forfeitures of chattel In case of seizure of personal property under claim for forfeiture. penalties. with the approval of the Secretary of Finance. other manufactured products of tobacco be destroyed when the sale of the same for consumption or use would be injurious to public health and prejudicial to the enforcement of law. The Commissioner may order that upon forfeiture distilled spirits. cigarettes. (Sec. (c) When property to be sold or destroyed The sales of chattels of removable fixtures which are forfeited shall be effected as far as practicable in the same manner and conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for the failure to pay taxes. (2) In either case. the proceeds of the sale shall be deposited in the National Treasury. at any time: (1) before sale or destruction of the property. or (2) after the sale and within six (6) months he may an action to recover the net proceeds realized at the sale. cigars. may dispose of the same at the private sale.

(d) Disposition of funds recovered in legal proceedings or obtained from forfeiture All judgments and monies obtained and received for taxes. Unless expressly made so by statute. costs. upon forfeiture. The lien shall not be valid against any mortgagee. Tax Lien Tax lien is the legal claim or charge on property. Forfeited property shall not be destroyed until at least twenty (20) days after seizure. and are not to be given a retrospective operation unless plainly required by its terms. There is no tax lien where there is no obligation to pay a tax. The lien secures only the payment of the tax. 7. and costs that may accrue in addition thereto. A tax lien does not arise from implication from the mere power to tax. be sold or destroyed in the discretion of the Commissioner: all other articles subject to excise tax which have been manufactured or removed in violation of the NIRC. Further distraint or levy The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due. a tax is not a lien even upon a property against which it is assessed. Tax liens created by statutes are strictly construed. or judgment creditor until notice of such lien shall be filed by the CIR in the Office of the Register of Deeds in the province or city where the property of the taxpayer is located. dies for printing or making of internal revenue stamps or labels which are in imitation or purport to be lawful stamps or labels. lien attaches to the property irrespective of ownership or transfer thereof. established by law as a security in default in payment of taxes. except as especially provided. The tax. and shall be accounted for and dealt within the same manner. The following may. is lien upon all property and rights to property belonging to the taxpayer. either real or personal. penalties. forfeitures. Generally. Page | 147 . together with interest. fines and penalties shall be paid to the Commissioner or his authorized deputies as the taxes themselves are required to be paid. 6. is collected. purchaser. including all expenses. A lien is a charge on the property and gives right to resort to the property for payment of the tax.

The Tax Code prohibits the Commissioner to delegate to any of his subordinate officials the power to compromise or abate (reduce or lessen) any tax liability. courts have no power to compel him to exercise his discretion one way or the other.000 or less. which in the opinion of the Commissioner was false or fraudulent or contained any statement or undervaluation. However. the power to compromise civil and criminal cases arising from violations of the Tax Code is vested solely upon the CIR. statement or return. As a rule. Civil and criminal actions (a) Suit to recover tax based on false or fraudulent returns When an assessment is made in case of any list. Subordinate officials may preliminarily enter into a compromise which is not final and may be reviewed by the CIR. Page | 148 . no tax collected under such assessment shall be recovered by any suit unless it is proved that the said list. But the subordinate’s rejection of an offer of compromise is final and binding unless revoked or set aside by the Commissioner. (a) Authority of the Commissioner to compromise and abate taxes Under the law. by reciprocal concessions. and (3) There must be an acceptance (by the taxpayer or the Commissioner) of the offer in settlement of the original claim. The following may be considered as requirements to a compromise of taxes: (1) The taxpayer must have a tax liability. The power is purely discretionary. and minor criminal violations (as determined by the rules and regulations) discovered by regional and district officials may be compromised by Regional Evaluation Board. tax assessments issued by the Regional Offices involving the basic deficiency taxes of P500. avoid a litigation or put an end to one already commenced. this does not apply to statements or returns made or to be made in good faith with respect to annual depreciation of oil or gas wells and mines. The lien attaches when the taxpayer neglects or refuses to pay the tax after demand but relates back from the time the assessment was made by the CIR or from the time the tax became due and payable. 9. statement or return was not false nor fraudulent and did not contain any understatement or undervaluation. (2) There must be an offer (by the taxpayer or the Commissioner) of an amount to be paid by the taxpayer. However. (8) Compromise Compromise is a contract whereby the parties.

L-3228) (b) Claim containing a categorical demand for reimbursement In Bermejo vs. the claim for refund must be a categorical demand for reimbursement. Inc. CIR. (2) It must be filed with the CIR within two years after the payment of tax or penalty. (Panay Electric Co. the taxpayer can appeal to the Court of Tax Appeals within thirty (30) days after receipt of the decision of the refund. or of any penalty claimed to have been collected without authority. (c) Filing of administrative claim for refund and the suit/proceeding before the CTA within two years from date of payment regardless of any supervening cause The two year period is mandatory. If the CIR fails to act on the refund and the two year period is about to lapse. vs. (2) If there is an agreement between the taxpayer and the agent of the Commissioner that they would wait for a decision by the Supreme Court to guide them in the settlement of the question/s involved in the refund. Refund (1) Grounds and requisites for refund (1) The claim for refund or credit must be in writing. (Gibbs vs.. (Bermejo vs CIR. The delay of the Commissioner in rendering the decision does not extend the peremptory period fixed by law. and the notice should be then borne in mind in estimating the revenue available for expenditure. (3) It (a) should clearly state the amount being claimed and the ground/s relied upon and should be accompanied with all pertinent papers (2) Requirements for refund as laid down by cases (a) Necessity of proof of written claim for refund It is necessary to require the filing of the written claim for refund of tax prior to recourse to a court in order to afford the Commissioner of Internal Revenue the opportunity to correct the action of the subordinate officers and to notify the government that such taxes have been questioned. without waiting for the decision of the Commissioner. Commissioner of Internal Revenue. L-10574) (3) Legal basis of tax refunds No suit shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected. or of any sum alleged to have been excessively or in any manner Page | 149 . L-13453) The following are special circumstances that may suspend the running of the two year period: (1) If the CIR made the taxpayer asking for a refund believe that he would be credited for the overpayment. If the CIR denied the claim for refund.c. the taxpayer should institute an appeal with the CTA.CIR.

until a claim for a refund or credit has been duly filed with the Commissioner. That the Commissioner may. (c) Burden of proof for claim of refund The burden of proving the claim of refund falls on the taxpayer. (Section 229.wrongfully collected. where on the face of the return upon which payment was made. refund or credit any tax. It will be noted that the section uses the term “any internal revenue tax. (e) Tax refund vis-à-vis tax credit A tax credit is a claim for the issuance of tax credit certificate. no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening event. (d) Nature of erroneously paid tax/illegally assessed collected Refunds are in the nature of tax exemptions and are construed strictly against the person claiming the same. and (2) To notify the government that such taxes have been questioned. even without a written claim therefor. however. penalty. Provided. (b) Necessity of proof for claim of refund The reasons for requiring the filing of a claim for refund of tax before recourse to court is had are the following: (1) To afford the CIR the opportunity to correct the action of subordinate officers. NIRC) (4) Statutory basis for tax refunds under the Tax Code (a) Scope of claims for refunds Section 229 applies to all internal revenue taxes in the Tax Code. but such suit or proceeding may be maintained. such payment appears clearly to have been erroneously paid. whether or not such tax. or sum has been paid under protest or duress. showing an amount owing from the government to the taxpayer which the latter is legally authorized to credit or offset against the national internal taxes payable by him except withholding taxes. and the notice should then be borne in mind in estimating the revenue available for expenditure. He who claims a refund or exemption from taxes has the burden of justifying by words too plain to be mistaken and too categorical to be misinterpreted. In any case.” Section 229 does not apply to tax assessed under a city or municipal ordinance. Page | 150 .

(f) Essential requisites for claim of refund The authority of CIR to refund or credit taxes erroneously or illegally received or penalties imposed without authority can only be exercised upon compliance by the taxpayer with the following conditions prescribed by law: (1) The claim for refund or credit must be in writing. (7) Other considerations affecting tax refunds The Court of Tax Appeals cannot order the payment of interest on refund or tax claimed to be illegally or erroneously collected. The two year period under Section 306 is counted from the date of payment. Page | 151 . The taxpayer in order to claim a refund or tax credit must comply with the procedures in claiming a refund of. and (b) should be accompanied with all the pertinent papers. the two year period is counted from the date of final payment. (2) It must be filed with the CIR within two years after payment of the tax or penalty. However. when the improper collection of the tax was characterized by arbitrariness. because under the law. said agent is the one who is held liable for any violation of the withholding tax law should such violation occur. the government must pay interest on the refundable amount. On the other hand. (3) It should (a) should state clearly the amount being claimed and the ground /s relied upon. A withholding agent of a non-resident foreign corporation should be allowed to claim for tax refund. If the tax is paid in installments. a refund is claim for the payment of cash for taxes erroneously or illegally paid by the taxpayer to the government. taxes and penalties which he alleges to have been erroneously or illegally or excessively assessed or collected. regardless of any supervening cause that may arise after the payment. (5) Who may claim/apply for tax refund/tax credit (a) Taxpayer/withholding agents of non-resident foreign corporation The proper person to claim refund or tax credit is the person on whom the tax is imposed by the statute. or a tax credit for. (6) Prescriptive period for recovery of tax erroneously or illegally collected No suit in any court for the recovery of any national revenue tax erroneously or illegally collected shall be begun after the expiration of two years from the date of payment of tax or penalty.

surcharges. no part of the proceeds goes to the taxpayer because the property is confiscated in favor of the government. 2. penalties and costs. (2) Levy and sale of real property Levy is the remedy whereby the collection of delinquent taxes is imposed upon the real property belonging to the delinquent taxpayer. At the same time. or if there be none. the proceeds of the property sold are applied to satisfy the tax liability and the excess thereof shall be returned to the taxpayer. irrespective of who is the possessor thereof. By seizure. a description of the property upon which levy is made. written notice of the levy shall be mailed to and served upon the Register of Deeds of the province or city where the property is located and upon the delinquent taxpayer. Administrative remedies (1) Tax lien A tax lien is a legal claim granted to the government to secure the proper payment of tax. to the occupant to the property in question. By forfeiture. the Internal Revenue conducting the sale shall declare the property forfeited to the government in satisfaction of the claim in question. The taxpayer’s willingness to pay the tax is not a waiver to raise defenses against the tax’s legality. If the taxpayer had already lost his right to appeal. Page | 152 . he could not avail of Section 306 (now Section 229) by paying the tax and then asking for refund. and (b) by a sale of the property. It is enforced by (a) seizure of the property. This lien is not valid against any mortgage. to his agent or the manager of his business in respect to which the liability arose. purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the office of the Register of Deeds of the province or city where the property of the taxpayer is located. Government Remedies a. Levy shall be effected by writing upon an authenticated certificate showing the name of the taxpayer and the amount of tax and penalty. A tax lien is directed to the property subject to tax regardless of the owner of the property. interest and costs on all property subject to levy or distraint. or if he is absent from the Philippines. (3) Forfeiture of real property to the government for want of bidder In case there is no bidder for real property exposed for sale or if the highest bid is for an amount insufficient to pay the taxes.

However. (4) Further distraint or levy The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due. (6) Non-availability of injunction to restrain collection of tax No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax. If the property is not redeemed. the Commissioner or his authorized representative is empowered to suspend the business operations and temporarily close the business establishment of any person for any of the following violations: (a) In case of VAT-registered person – (1) Failure to issue receipts or invoices. or charge imposed by the NIRC. may redeem said property. (b) Failure of any person to register as required under Section 236 – The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order. Page | 153 . the courts. (5) Suspension of business operation Under the NIRC. (2) Failure to file value-added tax return as required under Section 114. and the costs of sale. is collected. the taxpayer or any one for him. The forfeiture need not be for the whole tax liability which will merely be for the amount equivalent to the fair market value of the property. fee. together with the interest thereon. or (3) Understatement of taxable sales or receipts by thirty percent or more of his correct taxable sales or receipts for the taxable quarter. the forfeiture shall become absolute. He must pay the full amount of taxes and penalties. in the exercise of their equity jurisdiction may enjoin the enforcement of an invalid tax regulation where irreparable injury to property rights would result or where persons would be subject to a multiplicity of suits incurred by reason of the penalty attached to a recurring act or omission. Within one year of such forfeiture. including all expenses.

as determined by the Commissioner shall constitute prima facie evidence of a false or fraudulent return – deficiency tax and a 50% surcharge (2) Interest (a) In general The taxpayer is still liable to pay interest at the rate of 20% per annum or such higher rate as may be prescribed by rules and regulations from the date prescribed for payment until the amount is fully paid. Civil penalties (1) Surcharge Surcharge is the amount imposed by law as an addition to the main tax in case of delinquency. receipts or income (exceeding 30% of that declared). (b) Willful neglect to file return – 50% of the tax. voluntarily files such return. only 25% surcharge shall be imposed for late filing and late payment of tax. Statutory Offenses and Penalties a. without notice from the Commissioner or his duly authorized representative. or a substantial overstatement of deductions (exceeding 30% of actual deductions). If the taxpayer. The CIR shall impose surcharges on the amount due as follows: (a) False or fraudulent returns willfully made – 50%of the tax or delinquency tax where payment has been made on the basis of such return before the discovery of the falsity or fraud. It must appear that the taxpayer had the intention to evade the payment of tax in filing the false return. Judicial remedies 3. or (3) to pay the full or part of the amount of tax shown on any return required to be filed or the full amount of tax due which no return is required to be filed – on or before the prescribed for its payment. It is not enough that the return is false to justify the 50% surcharge. (c) Neglect to file return and pay tax not willful in case of failure: (1) to file return and pay tax as required on the date prescribed (2) to pay deficiency tax within the time prescribed for its payment in the notice of assessment. b. The BIR cn onsiders the failure to file return as due to willful neglect in case it is discovered before the taxpayer could voluntarily file such return even without notice from the BIR. not due to willful neglect – 25% of the amount due (d) Return filed not with the officer designated by law – 25% of the amount due (e) A substantial under declaration of taxable sales. Page | 154 .

or where the Commissioner has authorized an extension time within which to pay the tax which is not paid on the date of notice and demand. or any surcharge or interest thereon – on the due date appearing in the notice and demand of the Commissioner. or (b) the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. by reciprocal concessions. 4. Compromise and abatement of taxes a. shall be subject to interest which shall be assessed and collected from the date prescribed by law for its payment until the full payment thereof (c) Delinquency interest In case of failure to pay: (1) the amount of the tax due on any return to be filed. avoid litigation or put an end to one already commenced. If the deficiency tax is paid within the due date appearing in the notice and demand. (b) Deficiency interest. The Commissioner may compromise any national internal revenue tax when (a) a reasonable doubt as to the validity of the claim against the taxpayer exists. No surcharge or penalty is due. or (3) a deficiency tax. there shall be assessed and collected interest from such date until it is paid. the interest is based on the amount of the deficiency tax. (d) Interest on extended payment Where a tax is payable on installment and the tax or any installment thereof is not paid on or before the date prescribed by law for its payment. The compromise settlement of any tax liability shall be subject to the following minimum amounts: (1) for cases of financial incapacity – 10% of the basic tax assessed (2) for other cases – 40% of the basic tax assessed Page | 155 . or (2) the amount of the tax due for which no return is required. there shall be assessed and collected interest on the unpaid amount until it is fully paid which interest shall form part of the tax. as the term is defined in the Tax Code. Compromise Compromise is a contract whereby the parties. Any deficiency in the tax due.

in conjunction with the CIR. i. Authority of the Secretary of Finance to promulgate rules and regulations The Secretary of Finance may promulgate.000. upon recommendation of the Commissioner. to promulgate all needful rules and regulations for the effective enforcement of the internal revenue laws cannot be controverted. branding or marking shall be effected.000. (4) Published in the Official Gazette The authority of the Secretary of Finance.00 or less.. Rule-making authority of the Secretary of Finance a. Abatement When the tax or any portion thereof appears to be unjustly or excessively assessed. b. b.e. Where the basic tax involved exceeds P 1. except in the following cases: (a) assessments issued by regional offices involving basic taxes of P500. brands or marks to be required on goods subject to excise tax. (2) Reasonable.000. and (b) minor criminal violations. These cases may be compromised by a regional evaluation board. The power to compromise or abate shall not be delegated by the Commissioner. These rules and regulations must be: (1) Consistent and in harmony with law. Specific provisions to be contained in the rules and regulations The rules and regulations of BIR shall among other things contain provisions prescribing or defining: (a) The time and manner in which Revenue Regional Directors shall canvass their respective Revenue Region for the purpose of discovering persons and property liable to national internal revenue taxes and the manner in which their lists and records of taxable persons and taxable objects shall be made and kept. Page | 156 . Organization and Functions of the Bureau of Internal Revenue 1. G. the tax may be abated. and the manner in which the labeling. the entire tax liability of the taxpayer is cancelled. the compromise shall be subject to the approval of the Evaluation Board. ordinarily should deserve weight and respect by the court. (b) The forms of labels. or when the administration and collection costs involved do not justify the collection of the amount due. (3) Useful and necessary.00 or where the settlement offered is less than the prescribed minimum rates. all needful rules and regulations for the effective enforcement of the Code. Neither can it be disputed that such rules and regulations as well as administrative rulings and opinions.

papers and statements and taxes of large taxpayers be filed and paid. also the books to be kept by Revenue Inspectors and the reports to be made by them in connection with their supervision of such houses. such as income tax. the books and records to be kept. so as to render the alcohol suitably denatured and unfit for oral intake. respectively. excise taxes. document or objects to which revenue stamps shall be affixed. (c) The condition under which the manner in which goods intended for export. That notwithstanding the other provisions of this Code prescribing the place of filing the returns and payment of taxes. (j) The manner in which internal revenue taxes. (f) The conditions under which denatured alcohol may be removed and dealt in. branded or marked. the instrument. (h) The conditions to be observed by the revenue officers respecting the enforcement of Title III imposing a tax on the estate of a decedent. the Commissioner my. further. as well as on gifts and such other rules and regulations which the Commissioner may consider suitable for the enforcement of the said Title III. however. as well as the conditions under which evidence of payment shall be furnished the taxpayer. and the signs to be displayed in the business or by the person for whom such denaturing is done or by whom. the reports to be made to the Commissioner. value added tax. the entries to be made therein. That the Commissioner shall exercise this power within six (6) years from the Page | 157 . and other transfers mortis causa. their manner of storage and the method of keeping the entries and records in connection therewith. invoices and other papers shall be kept and entries therein made by the person subject to tax. the manner in which the proper books. (e) The conditions under which goods intended for storage in bonded warehouses shall be conveyed thither. estate and donor’s taxes. the bonds to be given. and documentary stamp taxes shall be paid through the collection officers of the BIR or through duly authorized agent banks which are hereby deputized to receive payments of such taxes and the returns. by rules and regulations. which if not exported would be subject to an excise tax. shall be labeled. records. (g) The manner in which revenue shall be collected and paid. including withholding tax. (d) The conditions to be observed by revenue officers respecting the institutions and conduct of legal actions and proceedings. other percentage taxes. information and reports shall be prepared and reported and the tax collected and paid. such alcohol is dealt in. as well as the manner in which licenses and stamps shall be gathered up and returned after serving their purposes. the character and quantity of the denaturing material to be used. and the preparation and publication of tax statistics. papers and statements that may be filed by the taxpayers in connection with the payment of the tax: Provided. require that the tax returns. the mode of cancellation of the same. (i) The manner in which tax returns. through collection officers or through duly authorized agent banks: Providded. the manner in which the process of denaturing is effected.

approval of Republic Act No. shall not be given retroactive effect if the same would be prejudicial to a taxpayer. or (3) Understatement of taxable sales or receipts by thirty percent or more his correct taxable sales or receipts for the taxable quarter. modification or reversal of such rules and regulations. Page | 158 . Non-retroactivity of rulings Any revocation. Visayas and Mindanao areas may be designated for the filing of tax returns and payment of taxes by said large taxpayers. Power of the Commissioner to suspend the business operation of a taxpayer The Commissioner or his authorized representative is empowered under the NIRC to suspend the business operations and temporarily close the business establishments of any person for any of the following violations: (a) In case of VAT – registered person – (1) Failure to issue receipts or invoices. c. or (c) where the taxpayer acted in bad faith. That separate venues for the Luzon. whichever comes earlier: Provided. except in the case of rulings: (a) where the taxpayer deliberately misstates or omits material facts. 2. (2) Failure to file a value added tax return as required under section 114. finally. 7646 or the completion of its comprehensive computerization program. (b) Failure of any person to register as required Section 236 – The temporary closure of the establishment will be for the duration of not less than five (5) days and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order. including rulings and circulars of the Commissioner. (b) where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling was based.

Taxes. LGC). excessive. fees. b. as amended A. .000. charges and other impositions shall in no case be let to any private person. The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of. Fundamental Principles a. or confiscatory. d. Penalties for Violation of Tax ordinances. as far as practicable. b. national economic policy. municipalities have no implied power of taxation and must look to the statutory grant for such authority as they possess in the imposition of taxes (Reyes v Cornista.The Sanggunian of a local government unit is authorized to prescribe fines or other penalties for violation of tax ordinances but in no case shall such fines be less than One thousand pesos (Php1. public policy. 2. The collection of local taxes. consistent with the basic policy of local autonomy. fee. Local Government Taxation 1. Taxation shall be uniform in each local government unit. fees. c. SECTION 516. Each local government unit shall.III. a.00) nor more than Five thousand pesos (Php5000. evolve a progressive system of taxation. 92Phil 838). and subject to disposition by. 129. Page | 159 . charges and other impositions shall: o Be equitable and based as far as practicable on the taxpayer’s ability to pay. and charges subject to the provisions herein. Such taxes. and e. o Be levied and collected only for public purposes. and charges shall accrue exclusively to the local government units (Sec. or on restraint of trade. LOCAL GOVERNMENT CODE OF 1991. Authority to prescribe penalties for tax violations A local government unit has authority to prescribe fines or penalties for violation of tax ordinances. In other words. Taxation is a sovereign state governmental power not possessed by the municipalities or municipal divisions unless delegated to them. Grant of Local Taxing Power under the Local Government Code Each local government unit shall exercise its power to create its own sources of revenues and to levy taxes. fees. the local government unit levying the tax. o Not be contrary to law. o Not be unjust.00). Nature and source of taxing power The power to levy taxes is not inherent in municipal corporations. fees. charge or other imposition unless otherwise specifically provided herein. oppressive.

(b) Charitable institutions. No. Page | 160 . .00) nor more than One thousand pesos (Php1. . SECTION 168. or presently enjoyed by all persons.Local government units may. shall be imposed at the discretion of the court. Surcharges and Penalties on unpaid Taxes. . nonprofit or religious cemeteries and all lands.000. Authority to grant local tax exemptions SECTION 192. parsonages or convents appurtenant thereto. churches.The Sanggunian may impose a surcharge not exceeding twenty-five percent (25%) of the amount of taxes. whether natural or juridical. Except as provided herein. directly. Exemptions from Real Property Tax. buildings. (d) All real property owned by duly registered cooperatives as provided for under R. Withdrawal of exemptions SECTION 193. and improvements actually. for consideration or otherwise. including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code. nor shall imprisonment be less than one (1) month nor more than six (6) months. 6938. grant tax exemptions. until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed thirty-six (36) months. No. or both. non-stock and non-profit hospitals and educational institutions. SECTION 234.The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted. fees or charges not paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes. are hereby withdrawn upon the effectivity of this Code. c. and (e) Machinery and equipment used for pollution control and environmental protection. d. Such fine or other penalty. (c) All machineries and equipment that are actually. whether natural or juridical. through ordinances duly approved. The Sangguniang Barangay may prescribe a fine of not less than One hundred pesos (Php100. or presently enjoyed by. . incentives or reliefs under such terms and conditions. as they may deem necessary. directly and exclusively used by local water districts and government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. Withdrawal of Tax Exemption Privileges.A. cooperatives duly registered under R. fees or charges including surcharges. to a taxable person. fees. including government- owned or -controlled corporations. charitable or educational purposes. and exclusively used for religious. 6938. except local water districts. tax exemptions or incentives granted to. any exemption from payment of real property tax previously granted to. A. mosques. Authority to Grant Tax Exemption Privileges.Unless otherwise provided in this Code. A local government unit has authority to impose surcharges and penalties on unpaid taxes. all persons. or Charges.00). fees. or charges.

Authority to issue local tax ordinances As a rule. SECTION 187. the Sangguniang Panlungsod for the city.Local legislative power shall be exercised by the Sangguniang Panlalawigan for the province. fees. . Authority to issue local tax ordinances The power to impose and collect a tax or other revenue is vested in the local government through the Sanggunian thereof. fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code. Local Taxing Authority . but in no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code.Local units shall have the authority to adjust the tax rates as prescribed herein not oftener than once every five (5) years. . said power is subject to limitation that said taxes. 186. excessive. f. or other applicable laws (Sec. requires conduct of public hearings prioe to their enactments. fee. as amended. e. the enactment of tax ordinances. . confiscatory or contrary to declared national policy and that the ordinance levying such taxes. Procedure for Approval and Effectivity of Tax ordinances and Revenue Measures. the Sangguniang bayan for the municipality. Mandatory Public Hearings. or charge or to generate revenue under this Code shall be exercised by the Sanggunian of the local government unit concerned through an appropriate ordinance. and the Sangguniang Barangay for the Barangay. Local taxing authority a. unlike ordinary local tax ordinances or resolutions.The procedure for approval of local tax ordinances and revenue measures shall be in accordance Page | 161 . oppressive. or charges shall not be unjust. This constitutes residual local taxing power. Local Legislative Power. 186. fees or charges shall not be enacted without any prior public hearing conducted for the purpose (Sec. Residual Taxing power of local governments Local government units may exercise the power to levy taxes.The power to impose a tax. Of course. 3. LGC). Authority of Local Government Units to Adjust Rates of Tax ordinances. SECTION 48. g. LGC). SECTION 132. Authority to adjust local tax rates SECTION 191.

which may proceed to reconsider the same. fee. or Sangguniang bayan shall be presented to the provincial governor or city or municipal mayor. fee. the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. be signed by the Punong Barangay. as the case may be. Power To Levy Other Taxes. That the ordinance levying such taxes. SECTION 187. That public hearings shall be conducted for the purpose prior to the enactment iii. Fees or Charges. as amended.The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided. Passage SECTION 132. Procedure for Approval and Effectivity of Tax ordinances and Revenue Measures. Local Taxing Authority . fees. Page | 162 . fees or charges shall not be enacted without any prior public hearing conducted for the purpose. he shall affix his signature on each and every page thereof. That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided. Approval SECTION 54. b. That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax. the ordinance shall be deemed approved as if he had signed it. or charges shall not be unjust. however. Procedure for approval and effectivity of tax ordinances i. That within thirty (30) days after receipt of the decision or the lapse of the sixty- day period without the Secretary of Justice acting upon the appeal. That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided. thereby making the ordinance or resolution effective for all legal intents and purposes. and ten (10) days in the case of a city or a municipality. Approval of Ordinances. . or charge or to generate revenue under this Code shall be exercised by the Sanggunian of the local government unit concerned through an appropriate ordinance. otherwise. . Mandatory Public Hearings. fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code. confiscatory or contrary to declared national policy: Provided. with the provisions of this Code: Provided. . oppressive. That the taxes. The Sanggunian concerned may override the veto of the local chief executive by two-thirds (2/3) vote of all its members. further. Sangguniang Panlungsod. or other applicable laws: Provided.Local government units may exercise the power to levy taxes.(a) Every ordinance enacted by the Sangguniang Panlalawigan. further. he shall veto it and return the same with his objections to the Sanggunian. ii. If the local chief executive concerned approves the same. otherwise. (b) The veto shall be communicated by the local chief executive concerned to the Sanggunian within fifteen (15) days in the case of a province. (c) ordinances enacted by the Sangguniang Barangay shall. excessive. or charge levied therein: Provided. upon approval by the majority of all its members. Public hearing SECTION 186. finally.The power to impose a tax.

further. Power to Create Source of Revenue . (c) The gist of all ordinances with penal sanctions shall be published in a newspaper of general circulation within the province where the local legislative body concerned belongs. or Barangay hall in at least two (2) conspicuous places in the local government unit concerned not later than five (5) days after approval thereof. stating the dates of approval and posting. That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided. Review/Question of Constitutionality SECTION 187. and in at least two (2) other conspicuous places in the local government unit concerned. 4. the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. In the absence of any newspaper of general circulation within the province. That in the absence thereof the ordinance or resolution shall be published in any newspaper of general circulation. the same shall take effect after ten (10) days from the date a copy thereof is posted in a bulletin board at the entrance of the provincial capitol or city. That within thirty (30) days after receipt of the decision or the lapse of the sixty- day period without the Secretary of Justice acting upon the appeal. be published once in a local newspaper of general circulation within the city: Provided. posting of such ordinances shall be made in all municipalities and cities of the province where the Sanggunian of origin is situated. v.Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes. Scope of taxing power SECTION 129. (a) Unless otherwise stated in the ordinance or the resolution approving the local development plan and public investment program. consistent with the Page | 163 . or charge levied therein: Provided. as the case may be. the main features of the ordinance or resolution duly enacted or adopted shall.The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided. (b) The secretary to the Sanggunian concerned shall cause the posting of an ordinance or resolution in the bulletin board at the entrance of the provincial capitol and the city. and charges subject to the provisions herein. or Barangay hall. fee. finally. Effectivity SECTION 59. municipal. municipal. . iv. however. That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided. That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax. and the secretary to the Sanggunian shall record such fact in a book kept for the purpose. (d) In the case of highly urbanized cities. in addition to being posted. Mandatory Public Hearings. fees. Effectivity of Ordinances or Resolutions. Procedure for Approval and Effectivity of Tax ordinances and Revenue Measures. The text of the ordinance or resolution shall be disseminated and posted in Filipino or English and in the language or dialect understood by the majority of the people in the local government unit concerned.

Publication of Tax ordinances and Revenue Measures. Fees or Charges. further. oppressive. excessive. Procedure for Approval and Effectivity of Tax ordinances and Revenue Measures. fees. fee. - Within ten (10) days after their approval. or charge levied therein: Provided. 6657 shall be exempt from this tax. The sale. the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. the Register of Deeds of the province concerned shall. or other applicable laws: Provided. No. as amended. before registering any deed. confiscatory or contrary to declared national policy: Provided. That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided. The provincial assessor shall likewise make the same requirement before canceling an old tax declaration and issuing a new one in place thereof. SECTION 187. 5. finally. basic policy of local autonomy. and charges shall accrue exclusively to the local government units. Specific Taxing Power of local government units a. Mandatory Public Hearings. fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code.A. whichever is higher. That in provinces. Tax on Transfer of Real Property Ownership. Taxing power of provinces i. transfer or other disposition of real property pursuant to R. That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided. That the ordinance levying such taxes. further. or charges shall not be unjust. That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax. fees or charges shall not be enacted without any prior public hearing conducted for the purpose. certified true copies of all provincial. . donation. Power To Levy Other Taxes. however. require the presentation of the evidence of payment of this tax. That the taxes. fees.The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided. barter. SECTION 188. cities and municipalities where there are no newspapers of local circulation.(a) The province may impose a tax on the sale. Such taxes. however. . Tax on transfer of real property ownership SECTION 135. Notaries public shall furnish the provincial treasures with a copy of any deed Page | 164 . SECTION 186. city.Local government units may exercise the power to levy taxes. That within thirty (30) days after receipt of the decision or the lapse of the sixty- day period without the Secretary of Justice acting upon the appeal. the same may be posted in at least two (2) conspicuous and publicly accessible places. (b) For this purpose. or on any other mode of transferring ownership or title of real property at the rate of not more than fifty percent (50%) of one percent (1%) of the total consideration involved in the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not substantial. and municipal tax ordinances or revenue shall be published in full for three (3) consecutive days in a newspaper of local circulation: Provided. .

The receipts from the printing and/or publishing of books or other reading materials prescribed by the Department of Education. gravel and other quarry resources shall be issued exclusively by the provincial governor. iii. within its territorial jurisdiction. or any fraction thereof. the tax shall be based on the gross receipts for the preceding calendar year. pamphlets.Thirty percent (30%). transferor. The permit to extract sand. sand. as provided herein. Tax on business of printing and publication SECTION 136. . In the case of a newly started business. as provided herein.Notwithstanding any exemption granted by any law or other special laws. Culture and Sports as school texts or reference shall be exempt from the tax herein imposed. as amended. regardless of when the business started to operate. It shall be the duty of the seller. posters. at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year. and other public waters within its territorial jurisdiction. leaflets. the province may impose a tax on business enjoying a franchise. executor or administrator to pay the tax herein imposed within sixty (60) days from the date of the execution of the deed or from the date of the decedent's death. (5) Component City or Municipality where the sand. extracted from public lands or from the beds of seas. or realized. In the case of a newly started business. cards. earth. The proceeds of the tax on sand. and Page | 165 . pursuant to the ordinance of the Sangguniang Panlalawigan. gravel and other quarry resources shall be distributed as follows: (4) Province . iv. as defined under the National Internal Revenue Code. Tax on Business of Printing and Publication. gravel. gravel and other quarry services SECTION 138.The Province may impose a tax on the business of persons engaged in the printing and/or publication of books. Franchise Tax . creeks. Tax on sand. In the succeeding calendar year. certificates. receipts. and other of similar nature. Gravel and Other Quarry Resources . transferring ownership or title to any real property within thirty (30) days from the date of notarization. at a rate exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt.Thirty percent (30%). ii. the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. the tax shall be based on the gross receipts for the preceding calendar year. the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year.The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones. Franchise tax SECTION 137. or any fraction thereof. rivers. and other quarry resources are extracted . streams. lakes. donor. handbills. and other quarry resources. Tax on Sand. regardless of when the business started to operate. gravel.

receipts. lessees. surveys and maps. the Sangguniang Panlalawigan may impose such surcharges. books of account. The proceeds from the amusement tax shall be shared equally by the province and the municipality where such amusement places are located. and other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees. A line of profession does not become exempt even if conducted with some other profession for which the tax has been paid. (1) Any individual or corporation employing a person subject to professional tax shall require payment by that person of the tax on his profession before employment and annually thereafter. gravel. The holding of operas. cinemas. vi. license. however. (3) Any person subject to the professional tax shall write in deeds. circuses. Amusement tax SECTION 140. prescriptions. musical programs. terms and conditions for the payment of tax. recitals. or similar concerts shall be exempt from the payment of the tax herein imposed. lessees. That such person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subjected to any other national or local tax. Page | 166 . and other quarry resources are extracted - Forty percent (40%). literary and oratorical presentations. lessees. concert halls. or operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors. v. (2) The professional tax shall be payable annually on or before the thirty first (31st) day of January must. pay the full tax before engaging therein.00) (b) Every person legally authorized to practice his profession shall pay the professional tax to the province where he practices his profession or where he maintains his principal office in case he practices his profession in several places: Provided. flower shows. Professional Tax . concerts. however. dramas. the number of the official receipt issued to him. except pop. painting and art exhibitions. plans and designs. Amusement Tax . interests and penalties. Professional tax SECTION 139. In the case of theaters of cinemas. boxing stadia. or free for the practice of such profession. In case of fraud or failure to pay the tax. rock. as the case may be. The Sangguniang Panlalawigan may prescribe the time. the tax shall first be deducted and withheld by their proprietors. reports. manner. Professionals exclusively employed in the government shall be exempt from the payment of this tax. or operators of theaters.(a) The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession requiring government examination as such amount and reasonable classification as the Sangguniang Panlalawigan may determine but shall in no case exceed Three hundred pesos (P300.(a) The province may levy an amusement tax to be collected from the proprietors. (6) Barangay where the sand. or operators and the distributors of the cinematographic films.

00). rectifiers. or dealers in any article of commerce of whatever kind or nature at fixed annual tax ranging from a minimum of P 18. Certain Products. Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers. fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this code. or Retailers in. consumers. the city. assemblers. i. Page | 167 . wholesalers. fermented liquors. repackers.5% of 1% based on the gross sales or receipts for the preceding calendar year. LGC). . distilled spirits. 142. producers. Tax on delivery truck/van SECTION 141. vii. processors. distillers. brewers. and wines or manufacturers of any article of commerce of whatever kind at fixed annual tax ranging from a minimum of P 165. dealers or retailers in the delivery or distribution of distilled spirits. c. Dealers. and charges which the province or municipality may impose at rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes (Sec. o On wholesalers. distributors. Taxing power of municipalities Except as otherwise provided in this Code. Tax on various types of businesses o On manufacturers. to sales outlets. b. cigars and cigarettes. may levy the taxes. and compounders of liquors.00 to a maximum of 50% of 1% based on the gross sales or receipts for the preceding calendar year. The manufacturers. fees. wholesalers. soft drinks. and charges not otherwise levied by provinces (Sec. Wholesalers of. fees. and retailers referred to in the immediately foregoing paragraph shall be exempt from the tax on peddlers prescribed elsewhere in this Code. within the province in an amount not exceeding Five hundred pesos (P500.00 to a maximum of 37. 151. producers. dealers.(a) The province may levy an annual fixed tax for every truck. and other products as may be determined by the Sangguniang Panlalawigan. Taxing power of cities Except as otherwise provided in this Code. van or any vehicle used by manufacturers. municipalities may levy taxes. whether directly or indirectly. Note: That the taxes. LGC).

not otherwise specified in the preceding paragraphs. whether in their original state or not. Provided. which the Sanggunian concerned may deem proper to tax at the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year. and fresh water products. marine. Wheat or cassava flour. herbicides and other farm inputs. and Cement ) at a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a). processed or preserved food. at a rate not exceeding fifty percent (50% of one percent (1) on the gross receipts of the preceding calendar year derived from interest. rentals on property and profit from ex change or sale of property. value- added or percentage tax under the National Internal Revenue Code. dairy products. millers. Provided. insurance premium. Poultry feeds and other animal feeds. locally manufactured. detergents. Page | 168 . dealers or retailers of essential commodities ( Rice and corn. LGC). income from financial leasing. School supplies. as amended (Sec. distributors. however. on gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P50. o On peddlers engaged in the sale of any merchandise or article or commerce.00) or less in the case of municipalities. and medicine. at a rate not exceeding Fifty pesos (P50. sugar. pesticides. o On banks and other financial institutions. commissions and discounts from lending activities. (b) and (d) of this Section. o On any business.o On exporters. Laundry soap. meat. o On retailers at fixed annual tax of 1% or 2% of the gross sales or receipts for the preceding calendar year. wholesalers. producers. fertilizers. insecticides.000. equipment and post harvest facilities. salt and other agricultural.00) per peddler annually. Agricultural implements. as provided under Section 152 hereof.50 to a maximum of 50% of 1% based on the gross receipts for the preceding calendar year. dividends. and on manufacturers. 143. Cooking oil and cooking gas. That Barangays shall have the exclusive power to levy taxes. That on any business subject to the excise. o On contractors and other independent contractors at fixed annual tax ranging from a minimum of P 27.

iv. on the practice of any profession or calling. LGC). Ceiling on business tax impossible on municipalities within Metro Manila The municipalities within the Metropolitan Manila Area may levy taxes at rates which shall not exceed by fifty percent (50%) the maximum rates prescribed in the Section 143 (Sec. (b) In cases where a person conducts or operates two (2) or more of the businesses mentioned in Section 143 of this Code which are subject to the same rate of tax. submit a sworn statement of its gross sales or receipts for the current year. commensurate with the cost of regulation.ii. Page | 169 . the difference shall be paid before the business is considered officially retired (Sec. the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business (Sec. Rules on payment of business tax (a) The taxes imposed under Section 143 shall be payable for every separate or distinct establishment or place where business subject to the tax is conducted and one line of business does not become exempt by being conducted with some other business for which such tax has been paid. upon termination thereof. v. 144. Tax on retirement on business A business subject to tax pursuant to the preceding sections shall. If the tax paid during the year be less than the tax due on said gross sales or receipts of the current year. LGC). The tax on a business must be paid by the person conducting the same. inspection and licensing before any person may engage in such business or occupation. LGC). (Sec.147.146. (c) In cases where a person conducts or operates two (2) or more businesses mentioned in Section 143 of this Code which are subject to different rates of tax. except as reserved to the province in Section 139 of this Code. LGC). Fees and charges for regulation and licensing The municipality may impose and collect such reasonable fees and charges on business and occupation and.145. or practice such profession or calling. . iii. the tax shall be computed on the combined total gross sales or receipts of the said two (2) or more related businesses.

distilled spirits and wines. maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction. assemblers. and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. vi.00) (Sec. That the Sanggunian concerned may authorize the municipal treasurer to settle an offense not involving the commission of fraud before a case therefore is files in court. (b)The Sangguniang bayan shall prescribe the necessary regulations for the use of such weights and measures. The Sanggunian concerned shall. distillers. contractors. contractors. producers. subject to such guidelines as shall be prescribed by the Department of Science and Technology. assemblers. however. dealers. – (a) The municipality may levy fees for the sealing and licensing of weights and measures at such reasonable rates as shall be prescribed by the Sangguniang Bayan. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made. and plantations in the pursuit of their business:  Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located. and Page | 170 . LGC). project offices. producers. the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality. millers. wholesalers. manufacturers. upon payment of a compromise penalty of not less than Two hundred pesos (P200. banks and other financial institutions.148. brewers. plants. Provided. by appropriate ordinance. repackers. penalize fraudulent practices and unlawful possession or use of instruments of weights and measures and prescribe the criminal penalty therefore in accordance with the provisions of this Code. rectifiers and compounders of liquor. Situs of tax collected (a) For purposes of collection of the taxes under Section 143 of this Code. distributors. and other businesses. exporters. (b) The following sales allocation shall apply to manufacturers.Fees for Sealing and Licensing of Weights and Measures. and exporters with factories.

which shall exclusively accrue to them. as provided in this Article. or plantations located in different localities. project office. fees. project offices. plants. or tobacco dryers. (e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the factory. plants.000. assembler. d. copra. exporter or contractor has two (2) or more factories. (c) In case of a plantation located at a place other than the place where the factory is located. said seventy percent (70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows:  Sixty percent (60%) to the city or municipality where the factory is located. and plantations are located in proportion to their respective volume or production during the period for which the tax is due. producer. plant or plan is located.Barangays may collect reasonable fees or charges for services rendered in connectioin with the regulation or the use of Barangay-owned properties or service facilities such as palay. and  Forty percent (40%) to the city or municipality where the plantation is located. at a rate not exceeding one percent (1%) on such gross sales or receipts.  Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory. project office. in the case of cities and Thirty thousand pesos (P30. project offices. plant.000. o Taxes . or plantation is located. o Service Fees or Charges . and charges. (d) In case where a manufacturer. in the case of municipalities. the seventy percent (70%) mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories.00) or less. Page | 171 .00) or less. Taxing power of barangay The Barangays may levy taxes.On stores or retailers with fixed business establishments with gross sales or receipts of the preceding calendar year of Fifty Thousand pesos (P50.

Provided. Page | 172 . LGC). the city or municipality may issue the said license or permit. Service fees and charges Local government units may impose and collect such reasonable fees and charges for services rendered. e. neon signs. ferry or telecommunication system funded and constructed by the local government unit concerned. o Other Fees and Charges . cockfighting and cockpits. When public safety and welfare so requires. post office personnel delivering mail. 155. ii.The Barangay may levy reasonable fees and charges: (1) On commercial breeding of fighting cocks. LGU). Common revenue-raising powers i. The application for clearance shall be acted upon within seven (7) working days from the filing thereof. That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National Police on mission. and disabled citizens who are sixty-five (65) years or older. and (3) On billboards.No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the Barangay where such business or activity is located or conducted. bridge. the Sanggunian concerned may discontinue the collection of the tolls. waterway. o Barangay Clearance . pier or wharf. and outdoor advertisements (Sec. For such clearance. signboards. Public utility charges/ Toll fees and charges The Sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road. and thereafter the said facility shall be free and open for public use(Sec. 152. (2) On places of recreation which charge admission fees. physically- handicapped. In the event that the clearance is not issued within the said period. the Sangguniang Barangay may impose a reasonable fee.

00).000. LGC). on no case. for the purpose of the additional tax.f. 158. i. Community tax Cities or municipalities may levy a community tax in accordance with the provisions of this Article (Sec.000. Page | 173 . be considered as part of the gross receipts or earnings of said corporation (Sec. the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them (Sec.00) and an annual additional tax of One peso (P1. whether domestic or resident foreign. or o is engaged in business or occupation.00_ for every One thousand pesos (P1.000.00). ii. shall exceed Ten thousand pesos (P10. or o is required by law to file an income tax return shall pay an annual community tax of Five pesos (P5. or who owns real property with an aggregate assessed value of One thousand pesos (P1.000. which.000. and (2) For every Five thousand pesos (P5.000.Two pesos (P2. Juridical Persons Liable to Community Tax Every corporation no matter how created or organized.00). 157. LGC). In the case of husband and wife. engaged in or doing business in the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an annual additional tax.00) worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of the real property tax under existing laws. Individuals Liable to Community Tax Every inhabitant of the Philippines eighteen (18) years of age or over who: o has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year.00) of income regardless of whether from business. LGC).00) in accordance with the following schedule: (1) For every Five thousand pesos (P5. The dividends received by a corporation from another corporation however shall.00) or more.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year . 156.Two pesos (P2. exercise of profession or from property which in no case shall exceed Five thousand pesos (P5. found in the assessment rolls of the city or municipality where the real property is situated .

except when levied on banks and other financial institutions. cities. tonnage dues. legacies and other acquisitions mortis causa. Common Limitations on the taxing powers of LGUs The exercise of the taxing powers of provinces. LGC). or charges on agricultural and aquatic products when sold by marginal farmers or fishermen. inheritance. tolls for bridges or otherwise. iii. Page | 174 . Exemptions The following are exempt from the community tax: (1) Diplomatic and consular representatives. 6. (2) Documentary stamp tax. (7) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and (4) four years. registration fees vessels and wharfage on wharves. (5) Taxes. gifts. 159. the territorial jurisdictions of local government units in the guise of charges for wharfage. fees. charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned. fees or charges in any form whatsoever upon such goods or merchandise. except as otherwise provided herein. and Barangays shall not extend to the levy of the following: (1) Income tax. (4) Customs duties. or passing through. as amended. and all other kinds of customs fees. respectively from the date of registration. fee and charges and other impositions upon goods carried into or out of. and (2) Transient visitors when their stay in the Philippines does not exceed three (3) months (Sec. (3) Taxes on estates. (6) Taxes. barters or exchanges or similar transactions on goods or services except as otherwise provided herein. and taxes. fees or charges on petroleum products. municipalities. or other taxes. (9) Percentage or value added tax (VAT) on sales. (8) Excise taxes on articles enumerated under the National Internal Revenue Code.

Time of payment Unless otherwise provided in this Code. fees.A. (12) Taxes. as the case may be. or charges without surcharges or penalties. The Sanggunian concerned may. fees or charges. on Countryside and Barangay Business Enterprises and cooperatives duly registered under R. new taxes. land or water. or charges. the tax period of all local taxes. its agencies and instrumentalities. 166. fees or charges. fees and charges shall be the calendar year. all local taxes. fees. and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter. 167. or changes in the rates thereof. No. except tricycles. No. Page | 175 . fees and charges may be paid in quarterly installments (Sec. Collection of business tax a. 165. (13) Taxes. and local government units (Sec. LGC). Such taxes. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R. (14) Taxes. Accrual of tax Unless otherwise provided in this Code. all local taxes. of any kind on the National Government. LGC). fees.A. 6938) otherwise known as the "Cooperatives Code of the Philippines" respectively. LGC). shall accrue on the first (1st) day of the quarter next following the effectivity of the ordinance imposing such new levies or rates (Sec. Tax period and manner of payment Unless otherwise provided in this Code. 7. fees or charges on Philippine products actually exported. (10) Taxes on the gross receipts of transaction contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air. b. and (15) Taxes. LGC). and charges shall accrue on the first (1st) day of January of each year. extend the time of payment of such taxes. except as otherwise provided herein. 133. fees. (11) Taxes on premium paid by way or reinsurance or retrocession. However. for a justifiable reason or cause. but only for a period not exceeding six (6) months (Sec. c. fees or charges for the registration of motor vehicle and for the issuance of all kinds of licenses or permits for the driving thereof. except as provided in this Code.

the same may be assessed within ten (10) years from discovery of the fraud or intent to evade payment (Sec. fees or charges not paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes. fees. e. examine the books. d. fees or charges which have accrued before the effectivity of this Code may be assessed within a period of three (3) years from the date they became due. his deputy or duly authorized representative (Sec. corporation. Authority of treasurer in collection and inspection of book The provincial. city. only once for every tax period. and shall be certified to by the examining official. 194. That. No action for the collection of such taxes. by himself or through any of his municipal or Barangay treasurer may. 171. partnership. Such certificate shall be made of record in the books of accounts of the taxpayer examined. until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed thirty-six (36) months (Sec. or charge. In case of fraud or intent to evade the payment of taxes. LGC). municipal or Barangay treasurer may. the date and place of such examination. LGC). Periods of assessment and collection of local taxes. whether administrative or judicial. and collect the correct amount of the tax. address. or association subject to local taxes. fee. Penalties on unpaid taxes. fees. the written authority of the deputy concerned shall specifically state the name. or charges. accounts. shall be instituted after the expiration of such period: Provided. by himself or through any of his deputies duly authorized in writing. and other pertinent records of nay person. Such examination shall be made during regular business hours. fees and charges in order to ascertain. or charges. the records of the revenue district office of the Bureau of Internal Revenue shall be made available to the local treasurer. and pertinent records are to be examined. fees and charges The Sanggunian may impose a surcharge not exceeding twenty- five percent (25%) of the amount of taxes. In case the examination herein authorized is made by a duly authorized deputy of the local treasurer. or charges shall be assessed within five (5) years from the date they became due. accounts. assess. Taxpayer’s Remedies a. and the procedure to be followed in conducting the same. fees or charges including surcharges. 8. For this purpose. Page | 176 . LGC). fees. Assessment Local taxes. 168. and business of the taxpayers whose books. taxes. fees or charges i.

iii. fees or charges assessed before the effectivity of this Code may be collected within a period of three (3) years from the date of assessment. fees. Suspension of payments The running of the periods of prescription provided in the preceding paragraphs shall be for the time during which: (1) The treasurer is legally prevented from making the assessment of collection. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable (Sec. b. or charges may be collected within five (5) years from the date of by or judicial action. 195. or charge erroneously or illegally collected until a written claim for refund or credit has been filed with the local treasurer. LGC). LGC). If the local treasurer finds the protest to be wholly or partly meritorious. Claim for refund or tax credit for erroneously or illegally collected tax. fee or charge No case or proceeding shall be maintained in any court for the recovery of any tax. the assessment shall become final and executory. Protest of assessment Within sixty (60) days from the receipt of the notice of assessment form the treasurer. Collection Local taxes. if the local treasurer finds the assessment to be wholly or partly correct. That. c. he shall issue a notice canceling wholly or partially the assessment. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. (2) The taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of the period within which to assess or collect. and (3) The taxpayer is out of the country or otherwise cannot be located (Sec. However. fee. he shall deny the protest wholly or partly with notice to the taxpayer. otherwise. No case or proceeding shall be entertained in any court after Page | 177 . No such action shall be instituted after the expiration of said period: Provided. however. ii. taxes. 194. the taxpayer may file a written protest with the local local treasurer contesting the assessment.

charges and other revenue which shall superior to all liens. charges or encumbrances in favor of any person. LGC). not only upon any property or rights therein which may be subject to the lien but also upon property used in business. credits. or effects. 173). The lien may only be extinguished upon full payment of the delinquent local taxes fees and charges including related surcharges and interest (Sec. and other personal of whatever character. 174. Procedure for administrative action i. occupation. c. practice of profession or calling. and by levy upon real property and interest in or rights to real property. including stocks and other securities. 9. ii. in general The Local Government Code provides for the civil remedies for the collection of local taxes. Distraint of personal property Page | 178 . chattels. and interest in and rights to personal property. Civil remedies by the LGUs for collection of revenues a. debts. LGC). Judicial action By judicial action . enforceable by appropriate administrative or judicial action. fees.either of these remedies or all may be pursued concurrently or at the discretion of the local government unit concerned (Sec. or exercise of privilege with respect tot which the lien is imposed. the expiration of two (2) years from the date of the payment of such tax. fee. fees. or charge. or and surcharges and interest resulting from delinquency. i. bank accounts.a lien on any unpaid local taxes. Civil remedies. b. Administrative action By administrative action thru distraint of goods. or from the date the taxpayer is entitled to a refund or credit (Sec. 196. Local government’s lien for delinquent taxes. fees or charges Local Government's Lien .

to which list shall be added a statement of the sum demanded and a note of the time and place of sale (Sec. Distrained personal property shall be sold at public auction in the manner herein provided for (Sec. subject to the taxpayer's right to claim exemption under the provisions of existing laws. together with any increment thereto incident to delinquency and the expenses of seizure. and the articles distrained. chattels or effects are taken. or charge to pay the same at the time required. LGC). (d) Release of distrained property upon payment prior to sale – Page | 179 . or charge in question. fee. specifying the time and place of sale.The remedy by distraint shall proceed as follows: (a) Seizure – Upon failure of the person owing any local tax. seize or confiscate any personal property belonging to that person or any personal property subject to the lien in sufficient quantity to satisfy the tax. the local treasurer or his deputy shall issue a duly authenticated certificate based upon the records of his office showing the fact of delinquency and the amounts of the tax. fee. upon written notice. chattels or effects distrained. LGC). or charge and penalty due. 175. The time of sale shall not be less than twenty (20) days after notice to the owner or possessor of the property as above specified and the publication or posting of the notice. (b) Accounting of distrained goods – The officer executing the distraint shall make or cause to be made an account of the goods. or at the dwelling or place of business of that person and with someone of suitable age and discretion. a copy of which signed by himself shall be either with the owner or person from whose possession the goods. fee. LGC). (c) Publication – The officer shall forthwith cause a notification to be exhibited in not less than (3) public and conspicuous places in the territory of the local government unit where the distraint is made. 175. the local treasurer or his deputy may. Such certificate shall serve as sufficient warrant for the distraint of personal property aforementioned. One place for the posting of the notice shall be at the office of the chief executive of the local government unit in which the property is distrained (Sec. In such case. 175.

or charge. Where the proceeds of the sale are insufficient to satisfy the claim. Should the property distrained be not disposed of within one hundred and twenty (120) days from the date of distraint. the tax delinquencies shall be cancelled. LGC). LGC). Within five (5) days after the sale. including the surcharges. or after the distraint of personal property belonging to the delinquent taxpayer. 175. fee. the goods or effects distrained shall be restored to the owner (Sec. If at any time prior to the sale. Levy of real property. in like manner. and the expenses of the distraint and sale. 175. LGC). Said Committee on Appraisal shall be composed of the city or municipal treasurer as chairman. 175. (e) Procedure of sale – At the time and place fixed in the notice. ii. (f) Disposition of proceeds – The proceeds of the sale shall be applied to satisfy the tax. interest. and other penalties incident to delinquency. the same shall be considered as sold to the local government unit concerned for the amount of the assessment made thereon by the Committee on Appraisal and to the extent of the same amount. collected (Sec. including all expenses. simultaneously. other property may. procedure (a) Levy  Real property may be levied after the expiration of the time required to pay the tax. all the proper charges are paid to the officer conducting the sale. the officer conducting the sale sell the goods or effects so distrained at public auction to the highest bidder for cash. and no charge shall be imposed for the services of the local officer or his deputy. Page | 180 . be distrained until the full amount due. with a representative of the Commission on Audit and the city or municipal assessor as members (Sec. The balance over and above what is required to pay the entire claim shall be returned to the owner of the property sold.  It may be pursued before. the local treasurer shall make a report of the proceedings in writing to the local chief executive concerned. The expenses chargeable upon the seizure and sale shall embrace only the actual expenses of seizure and preservation of the property pending the sale.

city or municipality where the property is located. city or municipal treasurer. respectively.  In case the levy on real property is not issued before or simultaneously with the warrant of distraint on personal property.  A report on any levy shall. and in a public and conspicuous place in the Barangay where the real property is located. shall within thirty (30) days after execution of the distraint. to his agent or the manager of the business in respect to which the liability arose. LGC). the local treasurer proceed to publicly advertise for sale or auction the property or a usable portion thereof as may be necessary to satisfy the claim and cost of sale. and the delinquent taxpayer or.  Written notice of the levy shall be mailed to or served upon the assessor and the Registrar of Deeds of the province or city where the property is located who shall annotate the levy on the tax declaration and certificate of title of the property. proceed with the levy on the taxpayer's real property. be submitted by the levying officer to the Sanggunian concerned (Sec. 176. fees or charges. The advertisement shall contain the amount of taxes. the taxpayer may stay the proceedings by paying the taxes. charges. as the case may be. or charge. the name of the taxpayer against whom the taxes. fees. city or municipal treasurer. and a short description of the property to be sold. Page | 181 .  The provincial. shall prepare a duly authenticated certificate showing the name of the taxpayer and the amount of the tax. fee. or if there be none. if he be absent from the Philippines. and penalty due from him. and penalties due thereon. and by publication once a week for three (3) weeks in a newspaper of general circulation in the province. (c) Stay of sale At any time before the date fixed for the sale. as the case may be. to the occupant of the property in question. the provincial. (b) Publication Within thirty (30) days after levy.  Levy shall be effected by writing upon said certificate the description of the property upon which levy is made. fees. Said certificate shall operate with the force of a legal execution throughout the Philippines. or charges are levied. and such advertisement shall cover a period of at least thirty (30) days. and the time and place of sale. It shall be effected by posting a notice at the main entrance of the municipal building or city hall. and the personal property of the taxpayer is not sufficient to satisfy his delinquency. within ten (10) days after receipt of the warrant.

describing the property sold. or on the property to be sold. or at any other place as determined by the local treasurer conducting the sale and specified in the notice of sale. LGC). the sale shall proceed and shall be held either at the main entrance of the provincial. and the advertisement and subsequent sale. the local treasurer or his deputy shall make a report of the sale to the Sanggunian concerned. including the preservation or transportation in case of personal property. iii. city or municipal building. however. the local treasurer shall make and deliver to the purchaser a certificate of sale. including the related surcharge and interest: (a) Tools and the implements necessarily used by the delinquent taxpayer in his trade or employment. stating the name of the purchaser and setting out the exact amount of all taxes. Further distraint or levy The remedies by distraint and levy may be repeated if necessary until the full amount due. charges. advance an amount sufficient to defray the costs of collection by means of the remedies provided for in this Title. and which shall form part of his records. After consultation with the Sanggunian. is collected (Sec. city or municipal building. attachment or execution thereof for delinquency in the payment of any local tax. fee or charge. the sale shall proceed and shall be held either at the main entrance of the provincial. interests. by ordinance duly approved. 184. iv. or on the property to be sold. penalties and interests. in cases of personal and real property including improvements thereon. showing the proceedings of the sale. including all expenses. (d) Sale If the delinquent taxpayer fails to settle his obligations in full. or at any other place as determined by the local treasurer conducting the sale and specified in the notice of sale. Within thirty (30) days after the sale. and related surcharges. or penalties: Provided. Exemption of personal property from distraint or levy The following property shall be exempt from distraint and the levy. fees. The local treasurer may. That any excess in the proceeds of the sale over the claim and cost of sales shall be turned over to the owner of the property. Page | 182 . If he fails to do so.

such as he may select. and (h) Any material or article forming part of a house or improvement of any real property (Sec. B. (b) One (1) horse.00). Real Property Taxation 1. such as the delinquent taxpayer may select. (g) One fishing boat and net. (d) Household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer. 177. (f) The professional libraries of doctors. LGC). Page | 183 . carabao.000. charges or other revenues by civil action in any court of competent jurisdiction. (e) Provisions. Procedure for judicial action The local government unit concerned may enforce the collection of delinquent taxes. d. actually provided for individual or family use sufficient for four (4) months. Penalty on local treasurer for failure to issue and execute warrant of distraint or levy Without prejudice to criminal under the Revised Penal Code and other applicable laws.000. any local treasurer who fails to issue or execute the warrant of distraint or levy after the expiration of the time prescribed. v. not exceeding the total value of Ten thousand pesos (Php10.00). (c) His necessary clothing. of a value not exceeding Ten thousand pesos (Php10. or who is found guilty of abusing the exercise thereof by competent authority shall be automatically dismissed from the service after due notice and hearing (Sec. LGC). The civil action shall be filed by the local treasurer within the period prescribed in Section 194 of this Code (Sec. and that of all his family. including crops. lawyers and judges. 183. cow. 185. and necessarily used by him in his ordinary occupation. LGC). Fundamental principles The appraisal and assessment of real property for taxation purposes shall be guided by the following fundamental principles: (1) Real property shall be appraised at its current fair market value. or other beast of burden. engineers. fees. by the lawful use of which a fisherman earns his livelihood.

to a taxable person. directly and exclusively used by local water districts and government-owned or - controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. building. nonprofit or religious cemeteries and all lands. tax. (2) Real property shall be classified for assessment purposes on the basis of its actual use. 233 and 271. the real property tax is an annual ad valorem tax imposed by local government units on the basis of a fixed proportion of the value of the property. 3. LGC) 2. and improvements actually. and other improvement not specifically exempted by the Local Government Code (Sec. and (5) The appraisal and assessment of real property shall be equitable. and exclusively used for religious. assessment. No. (3) All machineries and equipment that are actually. parsonages or convents appurtenant thereto. (2) Charitable institutions. buildings. Exemption from real property tax The following are exempted from payment of the real property tax: (1) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted. and Page | 184 . (Sec. not a local. It has always been imposed by the national lawmaking body. (4) The appraisal. LGC). It is enforced throughout the Philippines and not in a particular political subdivision. although the bulk of the tax proceeds accrue to the various local government units where the property is located (Secs. (4) All real property owned by duly registered cooperatives as provided for under R. directly. 232. It has been considered as a national. b. mosques. A. for consideration or otherwise. In the Philippines. churches. Nature of real property tax The real property tax is a tax on property. Imposition of real property tax a. LGC). 198. (3) Real property shall be assessed on the basis of a uniform standard of value within each local government unit. charitable or educational purposes. machinery. 6938. Power to levy real property tax A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land. levy and collection of real property tax shall not be let to any private person.

which shall be the current and fair market value of the property. LGC). Appraisal and assessment of real property tax a. whether natural or juridical. any exemption from payment of real property tax previously granted to. within sixty (60) days after the acquisition of such property or upon completion or occupancy of the improvement. or cause to be prepared. a sworn statement declaring the true value of subject property. whichever comes earlier (Sec 203. including the improvements therein. and file with the provincial. Declaration of real property (1) By the owner or administrator It shall be the duty of all persons. including all government-owned or - controlled corporations are hereby withdrawn upon the effectivity of this Code (Sec. within a city or municipality. to prepare. taxable or exempt.) b. acquiring at any time real property in any municipality or city or making any improvement on real property. 234. Such declaration shall contain a description of the property sufficient in detail to enable the assessor or his deputy to identify the same for assessment purposes. to prepare. or presently enjoyed by. (5) Machinery and equipment used for pollution control and environmental protection. whether previously declared or undeclared. all persons. or their duly authorized representative. Except as provided herein. or cause to be prepared. city or municipal assessor. natural or juridical. whether taxable or exempt. Rule on appraisal of real property at fair market value All real property. LGC). (2) By the Assessor Page | 185 . or his authorized representative. a sworn statement declaring the true value of their property. 4. and file with the provincial. shall be appraised at the current and fair market value prevailing in the locality where the property is situated (Sec 201. as determined by the declarant. LGC. LGC). city or municipal assessor. owning or administering real property. It shall also be the duty of any person. The sworn declaration of real property herein referred to shall be filed with the assessor concerned once every three (3) years during the period from January first (1st) to June thirtieth (30th) commencing with the calendar year 1992 (Sec 202.

grantee or of the public entity if such property has been acquired or held for resale or lease (Sec 205. or association: In the same manner as that of an individual. located within the territorial jurisdiction of the local government unit concerned. natural or juridical. valued and assessed as follows: (1) In the case of an individual: In the name of the owner or administrator. if known. When any person. (2) In the case of an undivided property of a deceased person: In the name of the estate or of the heir and devisees without designating them individually (3) In the case of an undivided property other than that owned by a deceased: In the name of one or more co-owners. That in (2) and (3). such heir. or co-owner shall be liable severally and proportionately for all the obligations imposed and the payment of real property tax with respect to the undivided property. the provincial. devisees. No oath shall be required of a declaration thus made by the provincial. Listing of real property in assessment rolls In every province and city including the municipalities within the Metropolitan Manila Area. by whom real property is required to be declared under Section 202. Page | 186 . (5) In the case of real property owned by the Republic of the Philippines. (4) In the case of a corporation. city or municipal assessor shall prepare and maintain an assessment roll wherein shall be listed all real property. to a taxable person: In the name of the possessor. city and municipal assessors of the municipalities within the Metropolitan Manila Area shall prepare a schedule of fair market values for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. as the case may be. city or municipal assessor shall himself declare the property in the name of the defaulting owner. the provincial. the beneficial use of which has been granted for consideration or otherwise. refuses or fails for any reason to make such declaration within the time prescribed. Provided. city or municipal assessor (Sec. and shall assess the property for taxation. whether taxable or exempt. or anyone having legal interest in the property. or against an unknown owner. LCG). however. its instrumentalities and political subdivisions. partnership. Preparation of schedules of fair market value Before any revision of property assessment is made. LGC). c. d. the provincial. 204. Real property shall be listed.

act upon the recommendation within ninety (90) days from receipt thereof (Sec. The city or municipality within the Metropolitan Manila Area. 214. (1) Authority of assessor to take evidence For the purpose of obtaining information on which to base the market value of any real property. Mineral f. mineral. shall be posted in the provincial capital. Residential b. city or municipal assessor may recommend to the sanggunian concerned amendments to correct errors in valuation in the schedule of fair market values. Classes of real property For purposes of assessment. or scientific purposes. f. The sanggunian concerned shall. city or municipality concerned. directly and exclusively used for hospitals. e. buildings. the assessor of the province. Timberland g. shall have the power to classify lands as residential. industrial. city or municipal hall and in two other conspicuous public places therein (Sec. LGC). nature. or special in accordance with their zoning ordinances (Sec 215. Section 215 of the Local Government Code provides the following classes of real property: a. and those owned and used by local water districts. Actual use of property as basis of assessment Page | 187 . 213. commercial. Special – refers to all lands. Agricultural c. and government-owned or -controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power (Sec. Commercial d. The schedule of fair market values shall be published in a newspaper of general circulation in the province. 216. amount. LGC). its ownership. agricultural. and take deposition concerning the property. and value (Sec. cultural. through their respective sanggunian. administer oaths. (2) Amendment of schedule of fair market value The provincial. LGC). 212. by ordinance. or in the absence thereof. LGC). timberland. Industrial e. city or municipality or his deputy may summon the owners of the properties to be affected or persons having legal interest therein and witnesses. LGC). and other improvements thereon actually.

000.000.00 1. at the rates not exceeding the following: (a) On Lands: CLASS ASSESSMENT LEVELS Residential 20% Agricultural 40% Commercial 50% Industrial 50% Mineral 50% Timberland 20% (b) On Buildings and Other Structures: (1) Residential Fair market Value Over Not Over Assessment Levels P175.000.000.00 750.000. sangguniang panlungsod or sangguniang bayan of a municipality within the Metropolitan Manila Area. Real property shall be classified. LGC).00 35% 2.00 500.00 5.00 300.000.000.000.000. valued and assessed on the basis of its actual use regardless of where located.000.000.00 2.000.000. Assessment of real property (1) Assessment levels The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of the sangguniang panlalawigan.00 40% Page | 188 .000.00 0% P175.000.00 25% 750. g.00 10% 300.00 30% 1.000. 217.000.000.00 20% 500. whoever owns it and whoever uses it (Sec.

000.000.00 70% 5.00 10.00 30% 500.00 1.000.000.00 45% 2.00 35% 500.000.00 25% P300.000.000.000.00 80% (4) Timberland Fair Market Value Over Not Over Assessment Levels Page | 189 .00 2.000.00 50% 1.00 750.000.00 5.000.000.000.00 75% 10.000.000.000.000.000.000.000.000. 5.00 60% (2) Agricultural Fair Market Value Over Not Over Assessment Levels P300.000.000.000.000.000.000.000.000.00 10.00 50% (3) Commercial / Industrial Fair Market Value Over Not Over Assessment Levels P300.00 40% 1.000.000.000.00 2.000.000.00 30% P300.000.00 500.00 500.000.000.00 1.00 50% 10.000.00 40% 750.000.000.00 35% 750.00 60% 2.000.000.00 750.

00 750.00 60% 5.000.000. 219. city or municipal assessor shall undertake a general revision of real property assessments within two (2) years after the effectivity of this Code and every three (3) years thereafter (Sec.000.00 45% P300.000. 218.000.000.000.000. LGC).000. Actual Use Assessment Level Cultural 15% Scientific 15% Hospital 15% Local water districts 10% Government-owned or 10% controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power (Sec.000. LGC). (2) General revisions of assessments and property classification The provincial.00 1.00 70% (c) On Machineries Class Assessment Levels Agricultural 40% Residential 50% Commercial 80% Industrial 80% (d) On Special Classes: The assessment levels for all lands buildings.00 55% 750.000.000.00 50% 500.00 500. Page | 190 .00 65% 2. machineries and other improvements. P300.000.00 2.000.

The notice may be delivered personally or by registered mail or through the assistance of the punong barangay to the last known address of the person to be served (Sec. city or municipal assessor shall within thirty (30) days give written notice of such new or revised assessment to the person in whose name the property is declared. no interest for delinquency shall be imposed thereon. to any great and sudden inflation or deflation of real property values. 222. That the reassessment of real property due to: a. LGC). and shall take effect at the beginning of the quarter next following the reassessment (Sec. 223. or c. to any other abnormal cause.shall be the acquisition cost. the provincial. 221. That such taxes shall be computed on the basis of the applicable schedule of values in force during the corresponding period. to the gross illegality of the assessment when made or e. its partial or total destruction. (5) Notification of new or revised assessment When real property is assessed for the first time or when an existing assessment is increased or decreased. h. or d. LGC). LGC). otherwise. or b. (4) Assessment of property subject to back taxes Real property declared for the first time shall be assessed for taxes for the period during which it would have been liable but in no case for more than ten (10) years prior to the date of initial assessment: Provided. (3) Date of effectivity of assessment of reassessment All assessments or reassessments made after the first (1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year: Provided. to a major change in its actual use. such taxes shall be subject to an interest at the rate of two percent (2%) per month or a fraction thereof from the date of the receipt of the assessment until such taxes are fully paid (Sec. If such taxes are paid on or before the end of the quarter following the date the notice of assessment was received by the owner or his representative. Appraisal and assessment of machinery (a) Fair market value of machinery: (1) Brand-new machinery . however. Page | 191 . however. shall be made within ninety (90) days from the date any such cause or causes occurred.

224. city or municipal assessor shall prepare and submit to the treasurer of the local government unit. and shall be extinguished only upon the payment of the delinquent tax (Sec. or encumbrance of any kind whatsoever. plus cost of inland transportation. The city or municipal treasurer may deputize the barangay treasurer to collect all taxes on real property located in the barangay: Provided. LGC). further. Collection of real property tax a. (2) Duty of assessor to furnish local treasurer with assessment rolls The provincial. LGC). b. 5. insurance. (2) In all other cases . shall be the responsibility of the city or municipal treasurer concerned. and the enforcement of the remedies or any applicable laws. Collection of tax (1) Collecting authority The collection of the real property tax with interest thereon and related expenses. bank and other charges. brokerage. arrastre and handling. and installation charges at the present site. duties and taxes. 246. The cost in foreign currency of imported machinery shall be converted to peso cost on the basis of foreign currency exchange rates as fixed by the Central Bank (Sec. That the premium on the bond shall be paid by the city or municipal government concerned Sec. Date of accrual of real property tax The real property tax for any year shall accrue on the first day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien.shall be determined by dividing the remaining economic life of the machinery by its estimated economic life and multiplied by the replacement or reproduction cost. the acquisition cost includes freight. That the barangay treasurer is properly bonded for the purpose: Provided. on or before the thirty-first (31st) day of December each year. 247. mortgage. (3) Notice of time for collection of tax Page | 192 . (b) If the machinery is imported. LGC). handling. an assessment roll containing a list of all persons whose real properties have been newly assessed or reassessed and the values of such properties (Sec 248. LGC).

In case of fraud or intent to evade payment of the tax. on or before the thirty-first (31st) day of January each year. the third installment. except the special levy the payment of which shall be governed by ordinance of the sanggunian concerned. whether administrative or judicial. in the case of the basic real property tax and the additional tax for the Special Education Fund (SEF) or any other date to be prescribed by the sanggunian concerned in the case of any other tax levied under this title. shall be instituted after the expiration of such period. and the last installment on or before December Thirty-first (31st). the second installment. LGC). post the notice of the dates when the tax may be paid without interest at a conspicuous and publicly accessible place at the city or municipal hall. The period of prescription within which to collect shall be suspended for the time during which: (1) The local treasurer is legally prevented from collecting the tax. LGC). on or before June Thirty (30). the first installment to be due and payable on or before March Thirty-first (31st). such action may be instituted for the collection of the same within ten (10) years from the discovery of such fraud or intent to evade payment. on or before September Thirty (30). d. c. No action for the collection of the tax. and (3) The owner of the property or the person having legal interest therein is out of the country or otherwise cannot be located (Sec. Special rules on payment (1) Payment of real property tax in installments The owner of the real property or the person having legal interest therein may pay the basic real property tax and the additional tax for Special Education Fund (SEF) due thereon without interest in four (4) equal installments. Said notice shall likewise be published in a newspaper of general circulation in the locality once a week for two (2) consecutive weeks (Sec 249. Periods within which to collect real property tax The basic real property tax and any other tax levied under this Title shall be collected within five (5) years from the date they become due. 270. (2) The owner of the property or the person having legal interest therein requests for reinvestigation and executes a waiver in writing before the expiration of the period within which to collect. Page | 193 . The city or municipal treasurer shall.

Remedies of LGUs for collection of real property tax (1) Issuance of notice of delinquency for real property tax payment When the real property tax or any other tax imposed under this Title becomes delinquent. as the case may be. and penalties. however. (3) Condonation of real property tax In case of a general failure of crops or substantial decrease in the price of agricultural or agribased products. 278. LGC). or calamity in any province. or when due. 250. The date for the payment of any other tax imposed under this Title without interest shall be prescribed by the sanggunian concerned. wholly or partially. interests. in a newspaper of general circulation in the province. 276. if any. LGC). The notice of delinquency shall also be published once a week for two (2) consecutive weeks. when public interest so requires. the provincial. Payments of real property taxes shall first be applied to prior years delinquencies. until the delinquent tax shall have been fully paid: Provided. the taxes and interest thereon for the succeeding year or years in the city or municipality affected by the calamity (Sec. The President of the Philippines may. shall subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof. city. Page | 194 . the sanggunian concerned. LGC). city or municipality. and only after said delinquencies are settled may tax payments be credited for the current period (Sec. 255. city or municipal treasurer shall immediately cause a notice of the delinquency to be posted at the main hall and in a publicly accessible and conspicuous place in each barangay of the local government unit concerned. by ordinance passed prior to the first (1st) day of January of any year and upon recommendation of the Local Disaster Coordinating Council. or municipality. condone or reduce the real property tax and interest for any year in any province or city or a municipality within the Metropolitan Manila Area (Sec. e. LGC). That in no case shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months (Sec. (2) Interests on unpaid real property tax In case of failure to pay the basic real property tax or any other tax levied under this Title upon the expiration of the periods as provided in Section 250. may condone or reduce.

subject. It shall likewise state that any time before the distraint of personal property. Such notice shall specify the date upon which the tax became delinquent and shall state that personal property may be distrained to effect payment. LGC). interests and penalties may be made. the local government unit concerned may avail of the remedies by administrative action thru levy on real property or by judicial action (Sec. sell and dispose of. irrespective of the owner or possessor thereof. The proceeds of the sale shall accrue to the general fund of the local government unit concerned (Sec 264. (4) Resale of real estate taken for taxes. at public auction. and the title to the property will be vested in the purchaser. superior to all liens. (5) Further levy until full payment of amount due Levy may be repeated if necessary until the full amount due. (3) Remedies in general For the collection of the basic real property tax and any other tax levied under this Title. 257. payment of the tax with surcharges. to the right of the delinquent owner of the property or any person having legal interest therein to redeem the property within one (1) year from the date of sale (Sec. Payment under protest Page | 195 . however. (2) Local government’s lien The basic real property tax and any other tax levied under this Title constitutes a lien on the property subject to tax. LGC). 256. 265. real property acquired through purchase by the local government unit for want of bidder. enforceable by administrative or judicial action. and upon notice of not less than twenty (20) days. charges or encumbrances in favor of any person. 254. surcharges and penalties are paid before the expiration of the year for which the tax is due except when the notice of assessment or special levy is contested administratively or judicially. is collected (Sec. the delinquent real property will be sold at public auction. LGC). 6. and unless the tax. by ordinance duly approved. and may only be extinguished upon payment of the tax and the related interests and expenses (Sec. LGC). fees or charges The sanggunian concerned may. including all expenses. LGC). Refund or credit of real property tax a.

after hearing. Repayment of excessive collections When an assessment of basic real property tax. No protest shall be entertained unless the taxpayer first pays the tax. or any other tax levied under this Title. the taxpayer may avail of the remedies as provided in Chapter 3. city or municipal assessor in the assessment of his property may. Book II of the Local Government Code (Sec. is found to be illegal or erroneous and the tax is accordingly reduced or adjusted. In case the claim for tax refund or credit is denied. The Board shall decide the appeal within one hundred twenty (120) days from the date of receipt of such appeal. LGC). city treasurer or municipal treasurer. In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph (a). LGC) b. LGC). appeal to the Board of Assessment appeals of the province or city by filing a petition under oath in the form prescribed for the purpose. The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned. Appeal to the Local Board of Assessment Appeals (LBAA) Any owner or person having legal interest in the property who is not satisfied with the action of the provincial. There shall be annotated on the tax receipts the words "paid under protest". In the event that the protest is finally decided in favor of the taxpayer. 252. shall render its decision based on substantial evidence or such relevant evidence Page | 196 . in the case of a municipality within Metropolitan Manila Area. the taxpayer may avail of the remedies as provided for in Chapter 3. Taxpayer’s Remedies a) Contesting an assessment of value of real property 1. The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial. the amount or portion of the tax protested shall be refunded to the protestant. together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal (Sec. or applied as tax credit against his existing or future tax liability. Title II. who shall decide the protest within sixty (60) days from receipt. Title II. within sixty (60) days from the date of receipt of the written notice of assessment. 226. The Board. 7. The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days from receipt thereof. the taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city treasurer within two (2) years from the date the taxpayer is entitled to such reduction or adjustment. Book II of the Local Government Code (Sec 253.

without prejudice to subsequent adjustment depending upon the final outcome of the appeal (Sec. 231. it shall be his duty to notify the owner of the property or the person having legal interest therein of such fact using the form prescribed for the purpose. LGC). LGC). 3. appeal to the Central Board of Assessment appeals. shall be held in trust by the treasurer concerned. 229. There shall be annotated on the tax receipts the words "paid under protest". 2. may. Appeal to the LBAA In the event that the protest is denied or upon the lapse of the prescribed sixty day period. LGC). Appeal to the Central Board of Assessment Appeals (CBAA) In case the provincial or city assessor concurs in the revision or the assessment. city treasurer or municipal treasurer. The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial. within thirty (30) days after receipt of the decision of said Board. 2. in the case of a municipality within Metropolitan Manila Area. The owner of the property or the person having legal interest therein or the assessor who is not satisfied with the decision of the Board. 252. the taxpayer may appeal to the Local Board of Assessment Appeals (LBAA) (Sec. (c) In the event that the protest is finally decided in favor of the taxpayer. Page | 197 . suspend the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city assessor. or applied as tax credit against his existing or future tax liability. LGC). 229. File protest with the local treasurer (a) No protest shall be entertained unless the taxpayer first pays the tax. b) Contesting an assessment of value of real property 1. in no case. Effect of appeal on payment of tax Appeal on of real property made under the provisions of this Code shall. who shall decide the protest within sixty (60) days from receipt. on record as a reasonable mind might accept as adequate to support the conclusion (Sec. The decision of the Central Board shall be final and executory (Sec. the amount or portion of the tax protested shall be refunded to the protestant. as herein provided. (b) The tax or a portion thereof paid under protest.

the taxpayer may appeal to the Central Board of Assessment Appeals (CBAA)(Sec. Appeal to the Court of Tax Appeals A special civil action of certiorari would be available as a remedy to question the decision of the Central Board of Assessment Appeals (CBAA). LGC). Appeal to the CBAA In the event that the protest is denied or upon the lapse of the prescribed sixty day period. 252. Page | 198 . 5. Appeal to the Supreme Court A special civil action of certiorari would be available as a remedy to question the decision of the Court of Tax Appeals. 4.3. This is in line with the recognized rule of the underlying power in courts to scrutinize the acts of administrative agencies exercising quasi- judicial power on questions of law and jurisdiction.

Tariff and Duties defined Tariff may refer to two things: first. fees. Page | 199 . Except as otherwise specifically provided. fines and penalties accruing under the tariff and customs laws. charges. the amount of duty. or corporations. B. that the imported article is actually being used by the government or any of its political subdivision concerned.100 TCC Importation by the government taxable. as the duties payable on articles or merchandise imported or exported. D. as amended (TCC) A. Purpose of Imposition The assessment and collection of the lawful revenues from imported articles and all other dues. when imported from any foreign country into the Philippines. with the approval of the Auditor General. even though previously exported from the Philippines. taxes. shall be subject to the duties.401 of the Tariff and Custom Code.IV. all importations by the government for its own use or that of its subordinate branches on instrumentalities. That upon certification of the head of the department or political subdivision concerned. The enforcement of tariff and customs laws and all other laws. All articles. The second definition is synonymous with custom duties. The prevention and suppression of smuggling and other frauds upon the customs. tax. Second. fee or charge shall be refunded to the government or the political subdivision which paid it C. Sec. as a book of rates which lists down different kinds of articles or merchandise along with the duties imposed upon the same. General Rule: All imported articles are subject to duty. Flexible Tariff Clause The authority given to the President to adjust the tariff rates under Sec. which is the enabling law that made effective the delegation of the taxing power to the President under the Constitution. rules and regulations relating to the tariff and customs administration. however. fees and other charges provided for in this Code: Provided. agencies or instrumentalities owned or controlled by the government. TARIFF and CUSTOMS CODE of 1978. except as otherwise specifically provided for in this Code in other laws. shall be subject to duty upon each importation.

b. except in the imposition of an additional duty not exceeding ten (10) per cent ad valorem. the President may cause a gradual reduction of protection levels granted in Section One Hundred and Four of this Code. The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this section. as may be necessary. The Commissioner of Customs shall regularly furnish the Commission a copy of all customs import entries as filed in the Bureau of Customs. reduce or remove existing protective rates of import duty (including any necessary change in classification). and (3) to impose an additional duty on all imports not exceeding ten (10%) per cent ad valorem whenever necessary. d. and subject to the limitations herein prescribed. The Commission shall also hear the views and recommendations of any government office. the President. produce evidence and to be heard. The Commission or its duly authorized representatives shall have access to. Before any recommendation is submitted to the President by the NEDA pursuant to the provisions of this section. agency or instrumentality concerned. except in the imposition of Page | 200 . upon recommendation of the National Economic and Development Authority (hereinafter referred to as NEDA). f.401 Flexible Clause a. (2) to establish import quota or to ban imports of any commodity. In modifying the form of duty. The Commission shall submit their findings and recommendations to the NEDA within thirty (30) days after the termination of the public hearings. in one or several stages but in no case shall the increased rate of import duty be higher than a maximum of one hundred (100) per cent ad valorem. That upon periodic investigations by the Tariff Commission and recommendation of the NEDA.Sec. The existing rates may be increased or decreased to any level. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a" shall include the authority to modify the form of duty. including those subsequently granted pursuant to this section. Provided. general welfare and/or national security. the corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal competing foreign country for the most recent representative period shall be used as bases. the Commission shall conduct an investigation in the course of which they shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present. Any Order issued by the President pursuant to the provisions of this section shall take effect thirty (3) days after promulgation. e. In the interest of national economy. c. and the right to copy all liquidated customs import entries and other documents appended thereto as finally filed in the Commission on Audit. is hereby empowered: (1) to increase.

except by means of an amendment by the master. additional duty not exceeding ten (10) per cent ad valorem which shall take effect at the discretion of the President. 2. Cargo manifest Sec. Page | 201 . no amendment of the manifest shall be allowed. taxes and other charges due upon the articles and the granting of the legal permit for withdrawal of the same. Requirements of Importation 1. Every vessel from a foreign port must have on board complete manifests of passengers and their baggage. under oath. however. Importation is deemed ended upon the payment of the duties. the veracity of the amendment shall be examined by the Commissioner of Customs for the purpose of invoking penal provision under Sections 2503 and 3602 of this Act. E. Beginning and ending of importation Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unload therein. in the prescribed form. is carried from the port of departure to the port of destination in the Philippines. — Every vessel from a foreign port must have on board a complete manifest of all its cargo. Each manifest shall include the port of departure and the port of delivery with the marks. consignee or agent thereof. quantity and description of the packages and the names of the consignees thereof. and every such vessel shall have prepared for presentation to the proper customs official upon arrival in ports of the Philippines a complete list of all sea stores then on board. discovery of which could not have been made until after examination of the importation has been completed. numbers. That after the invoice and/or entry covering an importation have been received and recorded in the office of the appraiser. as the case may be. setting forth their destination and all particulars required by the immigration laws. Obligations of importer a. A cargo manifest shall in no case be changed or altered after entry of the vessel. 1005. and attached to the original manifest:Provided. Manifest Required of Vessel From Foreign Port. Prior to release of the cargo. without any fraudulent intent. except when it is obvious that a clerical error or any other discrepancy has been committed in the preparation of the manifest. If the vessel does not carry cargo or passengers the manifest must show that no cargo or passenger. All of the cargo intended to be landed at a port in the Philippines must be described in separate manifests for each port of call therein.

Page | 202 . mail or otherwise. Import entry Sec. shall be subject to a formal or informal entry. or under irrevocable domestic letter of credit. bank guarantee or bond shall be subject to the provisions of Title V. bank guarantee or bond for: (a) Placing the article in customs bonded warehouse. A formal entry may be for immediate consumption. and that nothing has been omitted therefrom or concealed whereby the Government of the Republic of the Philippines might be defrauded of any part of the duties lawfully due on the articles. or (c) Constructive warehousing and immediate exportation. All importations entered under formal entry shall be covered by a letter of credit or any other verifiable document evidencing payment. not in commercial quantity. whatever be the purpose and nature of the importation. b. regardless of value. Sec. for the protection of domestic industry or of the revenue. 1302.00) or less. Import entries under irrevocable domestic letter of credit. containing statements of substance as follows: a. one hundred and five of this Code. All imported articles. (b) Constructive warehousing and immediate transportation to other port of the Philippines upon proper examination and appraisal. shall be cleared on an informal entry whenever duty. including and specifying the value of all containers or coverings. Articles of a commercial nature intended for sale. require a formal entry. Import Entries. imported in passenger's baggage. tax or other charges are collectible. — Except in case of informal entry. Declaration of the Import Entry. upon instruction of the Secretary of Finance.000. no entry of imported article shall be effected until there shall have been submitted to the Collector a written declaration. 1304. land personal and household effects or articles. except importations admitted free of duty under Subsection "k". in such form as shall be prescribed by the Commissioner. That the entry delivered to the Collector contains a full and true statement of all the articles which are the subject of the entry. Sec. That the invoice and entry contain a just and faithful account of the actual cost of said articles. for personal use. The Commissioner may. Book II of this Code.b. the dutiable value of which is Two thousand pesos (P2. barter or hire.

gauge or quantity. and were made by the person by whom the same purport to have been made. the invoice and all bills of lading relating to the articles are the only ones in existence relating to the importation in question and that they are in the state in which they were actually received by him. and the values of the several classes of articles shall be separately declared according to their respective rates of duty. Liquidation and Record of Entries. Liquidation of duties Sec. respectively. furthermore. and recorded in the record of liquidations. if in bulk. A Collector may also. to the best of the declarant's information and belief. and the nature of the articles contained therein. consignee or holder of the bill. and its value as set forth in a proper invoice to be presented in duplicate with the entry. 1601. and shall contain the names of the importing vessel and master. invoice and bill of lading. or the quantity. c. c. by its manager. Form and Contents of Import Entry. in tariff terms. When it is impracticable to obtain a declaration thus signed. Sec. 1306. in his discretion. the Page | 203 . or in case of a corporation. Sec. the number and marks of packages. stating the name of the vessel or aircraft. and. — The description of the articles in the import entry shall be in customary terms or communal designation. if feasible and practical. the entry. or. Description of Articles. require that the declaration shall be sworn to by the person signing the same. By Whom to be Signed. A daily record of all entries liquidated shall be posted in the public corridor of the customhouse. and the totals of each class duly shown. 1305. approved by the chief liquidator. initiated by the liquidating clerk. — Import entries shall be in the required number of copies in such form as prescribed by regulations. That. They shall be signed by the person making the entry of the articles. — The declaration shall be signed by the importer. by or for whom the entry is effected. port of departure and date of arrival. That. and the declaration thereon are in all respects genuine and true. if such person is an individual. the Collector may allow it to be signed by some person in interest having first and best knowledge of the facts. and in the currency of the invoice. firm or association. — If the Collector shall approve the returns of the appraiser and the report of the weights. 1307. or by a licensed customs broker duly authorized to act for either of them. to the best of declarant's information and belief. Sec. the liquidation shall be made on the face of the entry showing the particulars thereof.

port from which she arrived, the date of her arrival, the name of the
importer, and the serial number and date of the entry. A daily record must
also be kept by the Collector of all additional duties, taxes and other
charges found upon liquidation, and notice shall promptly be sent to the
interested parties.

Sec. 1602. Tentative Liquidation. — If to determine the exact amount due
under the law in whole or in part some future action is required, the
liquidation shall be deemed to be tentative as to the item or items affected
and shall to that extent be subject to future and final readjustment and
settlement. The entry in such case shall be stamped "Tentative
liquidation".

Sec. 1603. Finality of Liquidation. — When articles have been entered and
passed free of duty or final adjustment of duties made, with subsequent
delivery, such entry and passage free of duty or settlement of duties will,
after the expiration of one year, from the date of the final payment of
duties, in the absence of fraud or protest, be final and conclusive upon all
parties, unless the liquidation of the import entry was merely tentative.

Sec. 1604. Treatment of Fractions in the Liquidation. — In determining
the total amount of duties, taxes, surcharges, wharfage and/or other
charges to be paid on entries, a fraction of a peso less than fifty centavos
shall be disregarded, and a fraction of a peso amounting to fifty centavos
or more shall be considered as one peso. In case of overpayment or
underpayment of duties, taxes, surcharges, wharfage and/or other charges
paid on entries, where the amount involved is less than five pesos, no
refund or collection shall be made.

d. Keeping of records

Requirement to Keep Records. - All importers are required to keep at their
principal place of business, in the manner prescribed by regulations to be
issued by the Commissioner of Customs and for a period three (3) years
from the date of importation, all the records of their importations and/or
books of accounts, business and computer systems and all customs
commercial data including payment records relevant for the verification of
the accuracy of the transaction value declared by the importers/customs
brokers on the import entry.

All brokers are required to keep at their principal place of business, in the
manner prescribed by regulations to be issued by the Commissioner of
Customs and for a period of three (3) years from the date of importation
copies of the above mentioned records covering transactions that they
handle."

Page | 204

F. Importation in violation of TCC

1. Smuggling

Smuggling is the illegal transport of goods, especially across borderlines.
Smuggling is engaged in to avoid taxation or to obtain goods which are
prohibited in a certain region. Items that are often involved in smuggling
include alcohol, tobacco, illegal drugs, arms, and even immigrants.

Kinds of Smuggling:

1.Outright smuggling-There are no documents involved, no import entries
are seen…all you see are the goods:scooters, bags of rice, second hand
vehicles, garments, shoes, vegetables,etc. being sold at dirt cheap prices as
they did not pay any corresponding duties at all. They are simply sneaked
in through the coastlines of the country.With a coastline longer than
the United States, truly, the Philippines can be a haven for outright
smugglers.

2.Technical smuggling-There are import documents but the mischief
happens through undervaluation, underdeclaration of the volume shipped,
diversion of cargo and misclassification.

2. Other fraudulent practices

a. For sailing or operating without proper certificate of inspection and special
permit, fifty pesos for each offense;

b. For sailing or operating with expired license or permit, one hundred pesos for
each offense;

c. For engaging in the business of transporting passengers in the coastwise trade
without license or permit, one hundred pesos for each offense;

d. For navigating without sufficient life preservers, belts or rafts required by
customs regulations, one hundred pesos for each offense;

e. For navigating without fire-fighting apparatus and/or medical supplies required
by customs regulations, fifty pesos for each offense;

f. For sailing with excess passengers, twenty pesos for each passenger in excess of
the authorized number, but in no case less than the fare payable by each passenger
to his place of destination;

g. For sailing with overloaded cargo, fifty pesos for each offense in case of
vessels of fifty tons gross or less; one hundred pesos in case of vessels of not less

Page | 205

than fifty tons nor more than one hundred tons gross; and not less than two
hundred pesos nor more than five hundred pesos in case of vessels of one hundred
tons gross or more;

h. A vessel shall be fined in an amount hereafter fixed for:

(1) Anchoring at any dock, pier, wharf, quay or bulkhead without rat guards, fifty
pesos for coastwise vessels, and two hundred pesos for overseas vessels;

(2) Dumping garbage or slops over the side in port, one hundred pesos;

(3) Dumping or causing to spread crude oil, kerosene or gasoline in the bay or at
the piers while in port, two hundred pesos for each offense;

(4) Loading gasoline at a place other than that designated by the regulations, four
hundred pesos for each offense.

G. Classification of goods

1. Taxable importation

Articles, although previously exported from the Philippines, become
dutiable from the entry of the vessel or aircraft into the Philippine jurisdiction
until the payment of duties, taxes and other charges and the issuance of the permit
for the withdrawal of said goods from the customhouse.

The collector shall cause all articles entering the jurisdiction of his district,
and destined for importation through his port, to be entered at the customhouse,
shall cause all such articles to be appraised and classified and shall assess and
collect the duties, taxes, charges thereof.

2. Prohibited importation

Sec. 102. Prohibited Importations. — The importation into the Philippines of
the following articles is prohibited:
a. Dynamite, gunpowder, ammunitions and other explosives, firearm and
weapons of war, and detached parts thereof, except when authorized by law.

b. Written or printed article in any form containing any matter advocating or
inciting treason, rebellion, insurrection or sedition against the Government of
the Philippines, of forcible resistance to any law of the Philippines, or
containing any threat to take the life of or inflict bodily harm upon any person
in the Philippines.

Page | 206

c. Written or printed articles, photographs, engravings, lithographs, objects,
paintings, drawings or other representation of an obscene or immoral
character.

d. Articles, instruments, drugs and substances designed, intended or adapted
for preventing human conception or producing unlawful abortion, or any
printed matter which advertises or describes or gives directly or indirectly
information where, how or by whom human conception is prevented or
unlawful abortion produced.

e. Roulette wheels, gambling outfits, loaded dice, marked cards, machines,
apparatus or mechanical devices used in gambling, or in the distribution of
money, cigars, cigarettes or other articles when such distribution is dependent
upon chance, including jackpot and pinball machines or similar contrivances.

f. Lottery and sweepstakes tickets except those authorized by the Philippine
Government, advertisements thereof and lists of drawings therein.

g. Any article manufactured in whole or in part of gold silver or other precious
metal, or alloys thereof, the stamps brands or marks of which do not indicate
the actual fineness or quality of said metals or alloys.

h. Any adulterated or misbranded article of food or any adulterated or
misbranded drug in violation of the provisions of the "Food and Drugs Act."

i. Marihuana, opium poppies, coca leaves, or any other narcotics or synthetic
drugs which are or may hereafter be declared habit forming by the President
of the Philippines, any compound, manufactured salt, derivative, or
preparation thereof, except when imported by the Government of the
Philippines or any person duly authorized by the Collector of Internal
Revenue, for medicinal purposes only.

j. Opium pipes and parts thereof, of whatever material.

k. All other articles the importation of which is prohibited by law.

3. Conditionally-free importation

Sec. 105. Conditionally Free Importations. — The following articles shall be
exempt from the payment of import duties upon compliance with the
formalities prescribed in, or with the regulations which shall be promulgated
by the Commissioner of Customs with the approval of the department head:
a. Animals and plants for scientific, experimental, propagation, botanical,
breeding, zoological and national defense purposes: Provided, That no live
trees, shoots, plants and moss, and bulbs, tubers and seeds for propagation
purposes may be imported under this section, except by order of the

Page | 207

duly registered in the book of record established for that breed: AndProvided. Aquatic products (e. and the excess of the consignment may be entered in bond. and pedigree of such animal duly authenticated by the proper custodian of such book of record. the value of any single importation of which does not exceed ten thousand pesos. Equipment for use in the salvage of vessels or aircraft.g. fish oil. propellers. in such quantity and of such dimensions or construction as to render them unsalable or of no appreciable commercial value. the character of which. or in default thereof. marine animals. the payment of the corresponding duties. taxes and other charges. if so landed. fish. conditioned for the exportation of said samples within six months from the date of the acceptance of the import entry. e.. mollusks. upon identification and the giving of a bond in an amount equal to one and one-half times the ascertained duties. conditioned for the Page | 208 . finally. crustaceans. That the free entry of animals for breeding purposes shall be restricted to animals of a recognized breed. taxes and other charges thereon.. including binnacles. further. the importer thereof may select any portion of same not exceeding in value ten thousand pesos for entry under the provisions of this subsection. b. models not adapted for practical use and samples of medicine properly marked "physicians' samples not for sale".g. and the like. or repair of vessels and aircraft. that such animal is the identical animal described in said certificate of record and pedigree. further. caught or gathered by vessels of Philippine registry: Provided. and jewelry set with precious or semi-precious stones). That they are imported in such vessels or in crafts attached thereto: AndProvided. and life-preservers and life buoys. cut or uncut. except those that are not readily and easily identifiable (e. taxes and other charges thereon. shall be produced and submitted to the Collector of Customs. seaweed. If the value of any single consignment of such commercial samples exceeds ten thousand pesos. or for consumption. as imported. c. roe). they have been landed solely for transshipment without having been advanced in condition. including preparations or manufactures thereof. Commercial samples. Samples of the kind. equipment.Government of the Philippines or other duly authorized institutions: Provided. precious and semi-precious stones. That they have not been landed in any foreign territory or. as the importer may elect. That certificate of such record. prevents their use for other purposes than the construction. Articles. which are necessary for the take-off and landing and for the safe navigation of vessels and aircraft. together with affidavit of the owner or importer. upon the giving of a bond in an amount equal to one and one-half times the ascertained duties. related equipment and parts and accessories thereof. d.

articles of the same kind and class purchased in foreign countries by residents of the Philippines during their absence abroad and accompanying them upon their return to the Philippines. g. the export value of which does not exceed five hundred pesos. while in the regular course of her voyage or flight was compelled by stress of weather or other casualty to put into a foreign port to make such repairs in order to secure the safety seaworthiness or airworthiness of the vessel or aircraft to enable her to reach her port of destination. Cost of repairs made in foreign countries upon vessels or aircraft documented. upon proof satisfactory to the Collector of Customs (1) that adequate facilities for such repairs are not afforded in the Philippines. taxes and other charges within six months from the date of acceptance of the import entry: Provided. h. cups and other small articles bestowed as trophies or prizes. registered or licensed in the Philippines. That the Collector of Customs may. sale or hire: Provided. taxes and other charges for a term not exceeding six months from the expiration of the original period. Wearing apparel and household effects. require the giving of a bond in an amount equal to one and one-half times the ascertained duties. upon proof satisfactory to the Collector Page | 209 . such article or articles shall be subject to duty only on the amount in excess of five hundred pesos. and belonging to residents of the Philippines returning from abroad.exportation thereof or payment of the corresponding duties. Articles brought into the Philippines for repair. upon the identity of such articles being established to the satisfaction of the Collector of Customs. processing or reconditioning: Provided. That in the event the total export value of the imported article or articles exceeds the amount of five hundred pesos. processing or reconditioning to be re-exported upon completion of the repair. including those articles provided for under subsections "j" and "k". taxes and other charges thereon. solely for personal or household use but not imported for the account of any other person nor intended for barter. That such returning residents have not received the benefit of any exemption hereunder within one hundred and eighty days from and after the date of the last exemption granted: And Provided. Medals. or arriving within a reasonable time which in no case shall exceed ninety (90) days before or after the owner's return. in his discretion. taxes and other charges within six months from the date of acceptance of the import entry. personal and household effects brought into the Philippines by returning residents. further. which were exported from the Philippines by such returning residents upon their departure therefrom or during their absence abroad. That the Collector of Customs may extend the time for exportation or payment of duties. or (2) that such vessels or aircraft. badges. i. conditioned for the exportation thereof or payment of the corresponding duties. f . or those received or accepted as honorary distinctions.

in the discretion of the Collector of Customs. j. articles in any single shipment consigned to any single person when the total export value of such shipment does not exceed one hundred pesos:Provided. Vehicles. k. That this exemption shall not be held to apply to articles intended for other persons or for barter. in use of and necessary and appropriate for the wear or use of such persons according to their profession or position for the immediate purposes of their journey and their present comfort and convenience: Provided. finally. portable tolls and instruments. further. occupation or employment. upon identification and the giving of a bond in an amount equal to one and one-half times the ascertained duties. Professional instruments and implements. That when the export value exceeds the amount of one hundred pesos. furniture. taxes and other charges for a term not exceeding six months from the expiration of the original period. only the amount in excess of one hundred pesos shall be subject to duty. require a bond in an amount equal to one and one-half times the ascertained duties. within six months from the date of acceptance of the import entry: And Provided. in the discretion of the Collector of Customs. sale or hire: Provided. including those of the kind and class provided for under subsections "j" and "k" and belonging to persons coming to settle in the Philippines. taxes and other charges thereon. conditioned for the exportation thereof or payment of the corresponding duties. musical instruments and personal effects of like character. taxes and other charges for a term not exceeding six months from the expiration of the original period. and personal and household effects. before or after the owners. tools of trade. toilet articles. horses. accompanying travelers or tourists in their baggage or arriving within a reasonable time. That the Collector of Customs may extend the time for exportation or payment of duties. and similar personal effects. for their own use and not for barter or sale. taxes and other charges upon articles classified under this subsection. in quantities and of the class suitable to the profession. rank or position of the person importing them. or arriving within a reasonable time. bed and table linen.of Customs that same have been in their use abroad for more than one year. in his discretion. upon the production of evidence satisfactory to the Collector of Page | 210 . before or after the arrival of their owners. harness. wearing apparel. That the Collector of Customs may extend the time for exportation or payment of duties. articles of personal adornment. owned and imported by travelers or tourists for their convenience and comfort. taxes and other charges within six months from the date of acceptance of the import entry: Provided. taxes and other charges. That the Collector of Customs may. conditioned for the exportation thereof or payment of the corresponding duties. domestic animals. accompanying such persons. l. Wearing apparel. theatrical costumes. finally. table service.

and devices for projecting pictures and parts and appurtenances therefor. the proceeds therefrom shall be subject to confiscation. properties. and not to be exhibited for profit: Provided. m. whether or not developed.Customs that such persons are actually coming to settle in the Philippines. saddlery. circus and theatrical equipment. costumes. sceneries. conditioned for exportation thereof or payment of the corresponding duties. panoramas. that the articles are brought from their former place of abode. Negative films. Page | 211 . taxes and other charges thereon. cultural and scientific institutions. wax figures and similar objects for public entertainment. and other articles for display in public expositions. the terms "actors" and "artists" include the persons working the photographic camera or other photographic and sound recording apparatus by means of which the film is made. sound recording. properties. As used in this paragraph. unexposed motion picture films) brought by foreign producers for making or recording motion pictures on location in the Philippines. taxes and other charges within six months from the date of acceptance of the import entry: Provided. conditioned for exportation thereof or payment of the corresponding duties. and that the privilege of free entry under this subsection has never been previously granted to them: Provided. or for exhibition or competition for prizes. taxes and other charges thereon. animals. nor machinery or other articles for use in manufacture. photographic.. upon affidavit by the importer that such exposed films are the same films previously exported from the Philippines. undeveloped. and technical and scientific films when imported by technical.g. Animals. shall be classified under this subsection. electrical and other equipment. portable theaters. vehicles. taxes and other charges. supplies. taxes and charges within six months from the date of acceptance of the import entry. That the Collector of Customs may extend the time for exportation or payment of duties. that change of residence is bona fide. may be reexported free of import duties. Unexposed motion picture films allowed free entry under bond for exportation falling within this subsection and subsequently exposed. apparel. Articles (e. in addition to the penalty provided under section three thousand six hundred and ten of this Code. That if any of the said films is exhibited for profit. That neither merchandise of any kind. exposed outside the Philippines by resident Filipino citizens or by producing companies of Philippine registry where the principal actors and artists employed for the production are Filipinos. including musical instruments. vehicles. n. upon identification and the giving of a bond in an amount equal to one and one-half times the ascertained duties. taxes and other charges for a term not exceeding six months from the expiration of the original period. upon identification and the giving of a bond in an amount equal to one and one-half times the ascertained duties.

That the provisions of this subsection shall apply to books not exceeding two copies of any one work when imported by any individual for his own use. s. educational. sale or hire. nor personal property of individuals. incorporated or established solely for philosophical. That the country which any such person represents accords like privileges to corresponding officials of the Philippines. technical and vocational books specially imported for the bona fide use and by the order of any society or institution. Regalia. further. and not for barter.o. That the privilege may be granted only upon specific instructions of the Department of Finance in each instance which will be issued only upon request of the Department of Foreign Affairs. consular officers and other representatives of foreign government: Provided. public library. and not for barter. charitable or literary purposes. or for the bona fide use and by the order of any institution of learning in the Philippines. or for the encouragement of the fine arts. educational. consular officers and other representatives of foreign governments: Provided. legations. scientific. orphan asylum or hospital. and not for barter. philosophical. economic. or. regalia and other articles. or for the encouragement of the fine arts. sale or hire. scientific. or charitable purposes. p. legations. specimens or casts of sculptures imported for the bona fide use and by the order of any society incorporated or established solely for religious. or ordinary wearing apparel. historical. sale or hire:Provided. scientific or literary purposes. or for the bona fide use of and by the order of any institution of learning in the Philippines: Provided. scientific. Costumes. or for the use and by the order of any institution of learning. Articles imported for the personal or family use of the members and attaches of foreign embassies. museum. That such privilege shall be accorded under special agreements between the Philippines and the countries which they represent: And Provided. Philosophical. including office supplies and equipment. imported for the official use of members and attaches of foreign embassies. Scientific apparatus. expressly for presentation thereto. statuary. r. That the term "regalia" shall be held to embrace only such insignia of rank or office or emblems as may be worn upon the person or borne in the hand during public exercises or ceremonies of the society or institution. and shall not include articles of furniture or fixtures. instruments and utensils specially imported for the bona fide use and by the order of any society or institution incorporated or established solely for educational. Page | 212 . or for the encouragement of the fine arts. gems. Musical organs imported for the bona fide use and by the owner of any society incorporated or established for religious or educational purposes. q.

house-building and sanitary-construction materials. typhoon. or within such limits and subject to such conditions as the President may. be subject to a duty under this subsection equal to the amount of such drawback or bounty. health. missals. t. w. relief.Bibles. koran. and textbooks prescribed for use in any school in the Philippines: Provided. in the opinion of the Collector of Customs. That any Philippine article falling under this subsection upon which drawback or bounty has been allowed shall. flood and similar conditions: Provided. drought. That the importation free of duty of articles described in this herein subsection shall continue only during the existence of such emergency. when imported by or directly for the account of any victim. refugee. sufferer. survivor or any other person affected thereby. cholera. u. not operated for profit. Food. philanthropic or religious purposes. by his proclamation. for scientific or educational purposes. Newsprint. plague. famine. for free distribution among. drums. and foreign articles when returned after having been loaned and exported for use temporarily abroad solely for exhibition. Philippine articles previously exported from the Philippines and returned without having been advanced in value or improved in condition by any process of manufacture or other means. or by or for the account of any relief organization. taxes and Page | 213 . ahadith and other religious books of similar nature and extracts therefrom. subject to identification: Provided. earthquake. casks and other similar receptacles of metal. x. by proclamation. specially prepared books. prayerbooks. demijohns. pestilence. clothing.. whenever imported by or for publishers for the exclusive use in the publication of newspapers. or exclusive use of. scientific. hymnal and hymns for religious uses. cylinders. charitable. upon re- importation thereof. Articles donated to public or private institutions established solely for educational. examination or experimentation. surgical and other supplies for use in emergency relief work. for distribution among the distressed individuals. mute or blind. glass or other material) which are. v. That complete books published in parts in periodical form shall not be classified herein. declare an emergency to exist by reason of a state of war. whenever the President shall. Large containers (e.g. music and other instrumental aids for the deaf. and upon which no drawback or bounty has been allowed. the needy. cultural. of such a character as to be readily identifiable may be delivered to the importer thereof upon identification and the giving of a bond in an amount equal to one and one-half times the ascertained duties. fire. deem necessary to meet the emergency. and medical. and foreign containers packed with exported Philippine articles and returned empty if imported by or for the account of the person or institution who exported them from the Philippines and not for sale.

. Articles of easy identification exported from the Philippines for repairs abroad and subsequently reimported: Provided. a. not merchandise. Methods of valuation (1) Method One. including such articles transferred from a bonded warehouse in any collection district to any vessel engaged in foreign trade. Coffins or urns containing human remains. Articles and salvage from vessels recovered after the period of two years from the date of filing the marine protest or the time when the vessel was wrecked or abandoned as determined by the Collector of Customs. bb. Transaction Value. satisfactory to the Collector of Customs. Ordinary/Regular duties Refers to those that . conditioned for the exportation thereof on payment of the corresponding duties. adjusted by adding: Page | 214 . That the cost of the repairs made to any such article shall pay a rate of duty of twenty-five per cent ad valorem. supplies which are intended for the reasonable requirements of the vessel in her voyage outside the Philippines. and all articles for ornamenting said coffins or urns and accompanying same. taxes and other charges within one year from the date of acceptance of the import entry. for use or consumption of the passengers or its crew on board such vessel as sea stores. That any surplus or excess of such ship. That articles and salvage recovered within the said period of two years shall be dutiable according to the corresponding heading or subheading. or articles purchased abroad for sale on board a vessel as saloon stores or supplies: Provided. H. Supplies or ship stores listed as such for the use of the vessel. bones or ashes. Ad valorem. or such part of Philippine vessel or her equipment. which shall be the price actually paid or payable for the goods when sold for export to the Philippines. upon identification as such.The dutiable value of an imported article subject to an ad valorem rate of duty shall be the transaction value. Classification of duties 1. sea or saloon stores arriving from foreign ports shall be dutiable according to the corresponding heading or subheading. other charges thereon.as a matter of course. z. used personal and household effects. are imposed on dutiable articles. of deceased persons. aa. y. wrecked or abandoned in Philippine waters or elsewhere: Provided.

(1) The following to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods: (a) Commissions and brokerage fees (except buying commissions). parts and similar items incorporated in the imported goods. design work and plans and sketches undertaken elsewhere than in the Philippines and necessary for the production of imported goods. and (5) The cost of insurance. (b) Cost of containers. where such goods and services are supplied directly or indirectly by the buyer free of charge or at a reduced cost for use in connection with the production and sale for export of the imported goods. of the following goods and services: materials. dies. (3) The cost of transport of the imported goods from the port of exportation to the port of entry in the Philippines. All additions to the price actually paid or payable shall be made only on the basis of objective and quantifiable data. development. (4) Loading. moulds and similar items used in the production of imported goods. and engineering. artwork. : Provided. either directly or indirectly. as a condition of sale of the goods to the buyer. (2) The value of any part of the proceeds of any subsequent resale. disposal or use of the imported goods that accrues directly or indirectly to the seller. (e) The amount of royalties and license fees related to the goods being valued that the buyer must pay. (c) The cost of packing. (d) The value. unloading and handling charges associated with the transport of the imported goods from the country of exportation to the port of entry in the Philippines. tools. components. materials consumed in the production of the imported goods. No additions shall be made to the price actually paid or payable in determining the customs value except as provided in this Sec. That Method One shall not be used in determining the dutiable value of imported goods if: Page | 215 . whether for labour or materials. apportioned as appropriate.

sole distributor or sole concessionaire. or (iii) Do not substantially affect the value of the goods. or (viii) They are members of the same family. Persons who are associated in business with one another in that one is the sole agent. (ii) They are legally recognized partners in business. or (d) The buyer and the seller are related to one another. disposal or use of the goods by the buyer will accrue directly or indirectly to the seller. (b) The sale or price is subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued. and such relationship influenced the price of the goods. (iv) Any person directly or indirectly owns. (vi) Both of them are directly or indirectly controlled by a third person. Page | 216 . (ii) Limit the geographical area in which the goods may be resold.(a) There are restrictions as to the disposition or use of the goods by the buyer other than restrictions which: (i) Are imposed or required by law or by Philippine authorities. however described. controls or holds five percent (5%) or more of the outstanding voting stock or shares of both seller and buyer. (c) Part of the proceeds of any subsequent resale. (iii) There exists an employer-employee relationship between them. including those related by affinity or consanguinity up to the fourth civil degree. of the other shall be deemed to be related for the purposes of this Act if they fall within any of the eight (8) cases above. (v) One of them directly or indirectly controls the other. Such persons shall be deemed related if: (i) They are officers or directors of one another's businesses. unless an appropriate adjustment can be made in accordance with the provisions hereof. (vii) Together they directly or indirectly control a third person.

Transaction Value of Similar Goods. when the dutiable value still cannot be determined under that method. Where the dutiable value cannot be determined under the preceding method. Page | 217 . The dutiable value of the imported goods under this method shall be the deductive value which shall be based on the unit price at which the imported goods or identical or similar imported goods are sold in the Philippines. Minor differences in appearances shall not preclude goods otherwise conforming to the definition from being regarded as identical. quality and reputation. although not alike in all respects. have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable. except that. in the greatest aggregate quantity. Transaction Value of Identical Goods. the dutiable value shall be the transaction value of identical goods sold for export to the Philippines and exported at or about the same time as the goods being valued. at the request of the importer. (3) Method Three.(2) Method Two. the order of application of methods four and five shall be reversed: Provided. the dutiable value shall be the transaction value of similar goods sold for export to the Philippines and exported at or about the same time as the goods being valued. their reputation and the existence of a trademark shall be among the factors to be considered in determining whether goods are similar. That if the Commissioner of Customs deems that he will experience real difficulties in determining the dutiable value using method five. "Identical goods" shall mean goods which are the same in all respects. The quality of the goods. if it can be so determined. subject to deductions for the following: (1) Either the commissions usually paid or agreed to be paid or the additions usually made for profit and general expenses in connection with sales in such country of imported goods of the same class or kind. to persons not related to the persons from whom they buy such goods. the Commissioner of Customs may refuse such a request in which event the dutiable value shall be determined under method four. at or about the time of the importation of the goods being valued. including physical characteristics. Deductive Value. in the same condition as when imported. the dutiable value shall be determined under method four or. Where the dutiable value cannot be determined under method one. "Similar goods" shall mean goods which. (4) Method Four. If the dutiable value still cannot be determined through the successive application of the two immediately preceding methods. under method five. however.

if the importer so requests. (4) Any assist. insurance fees and other transportation expenses for the importation of the goods. if its value is not included under paragraph (1) hereof.(2) The usual costs of transport and insurance and associated costs incurred within the Philippines. (3) The freight. the costs and charges referred to in subsection (A) (3). after further processing. and Page | 218 . (5) Method Five. (2). Computed Value. the dutiable value shall be based on the unit price at which the imported goods. be based on the unit price at which the imported goods or identical or similar imported goods sold in the Philippines in the condition as imported at the earliest date after the importation of the goods being valued but before the expiration of ninety (90) days after such importation. If neither the imported goods nor identical nor similar imported goods are sold at or about the time of importation of the goods being valued in the Philippines in the conditions as imported. (2) The amount for profit and general expenses equal to that usually reflected in the sale of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to the Philippines. (4) and (5). then. (3) and (4) hereof. the customs value shall. subject to the conditions set forth in the preceding paragraph hereof. are sold in the greatest aggregate quantity to persons in the Philippines who are not related to the persons from whom they buy such goods. The dutiable value under this method shall be the computed value which shall be the sum of: (1) The cost or the value of materials and fabrication or other processing employed in producing the imported goods. and (3) Where appropriate. and (4) The customs duties and other national taxes payable in the Philippines by reason of the importation or sale of the goods. subject to allowance for the value added by such processing and deductions provided under Subsections (D)(1). If neither the imported goods nor identical nor similar imported goods are sold in the Philippines in the condition as imported.

(6) Method Six. if their values are not included under paragraph (1) hereof. (5) The price of goods for export to a country other than the Philippines. Fallback Value. (4) The cost of production. any account or other record for the purpose of determining a computed value. (2) A system that provides for the acceptance for customs purposes of the higher of two alternative values. However. other than computed values. The Bureau of Customs shall not require or compel any person not residing in the Philippines to produce for examination. (3) The price of goods in the domestic market of the country of exportation. information supplied by the producer of the goods for the purposes of determining the customs value may be verified in another country with the agreement of the producer and provided they will give sufficient advance notice to the government of the country in question and the latter does not object to the investigation. or (7) Arbitrary or fictitious values. that have been determined for identical or similar goods in accordance with Method Five hereof. If the importer so requests. If the dutiable value cannot be determined under the preceding methods described above. or to allow access to. Page | 219 .(5) The cost of containers and packing. No dutiable value shall be determined under Method Six on the basis of: (1) The selling price in the Philippines of goods produced in the Philippines. (6) Minimum customs values. it shall be determined by using other reasonable means and on the basis of data available in the Philippines. the importer shall be informed in writing of the dutiable value determined under Method Six and the method used to determine such value.

adjusted in accordance with the provisions of Subsection (A) hereof. based on weight. the customs administration shall communicate to the importer in writing its decision and the grounds therefor. however. That goods. document or declaration presented for customs valuation purposes. his grounds for doubting the truth or accuracy of the particulars or documents produced and give the importer a reasonable opportunity to respond. it becomes necessary to delay the final determination of such dutiable value. Specific On articles that are subject to specific rate of duty. If. the Collector of Customs shall communicate to the importer. Before taking a final decision. When articles are dutiable by the gross weight. including documents or other evidence. a deposit. or in the absence of a response. the dutiable weight thereof shall be the weight of same. the importation of which is prohibited by law shall not be released under any circumstance whatsoever. holders and packings. without prejudice to an importer's right to appeal pursuant to Article 11 of the World Trade Organization Agreement on customs valuation. be deemed that the customs value of the imported goods cannot be determined under Method One. the duty shall be ascertained as follows: a." b. after receiving further information. the importer shall nevertheless be able to secure the release of the imported goods upon the filing of a sufficient guarantee in the form of a surety bond. together with the weight of all containers. Nothing in this Sec. of any kind. in which said Page | 220 . shall be construed as restricting or calling into question the right of the Collector of Customs to satisfy himself as to the truth or accuracy of any statement. in writing if requested. the customs administration may ask the importer to provide further explanation. that the declared value represents the total amount actually paid or payable for the imported goods. When a final decision is made. the customs administration still has reasonable doubts about the truth or accuracy of the declared value. cash or some other appropriate instrument in an amount equivalent to the imposable duties and taxes on the imported goods in question conditioned upon the payment of customs duties and taxes for which the imported goods may be liable: Provided. If in the course of determining the dutiable value of imported goods. When a declaration has been presented and where the customs administration has reason to doubt the truth or accuracy of the particulars or of documents produced in support of this declaration. it may. packages.

holders or packing in which such articles are contained. held or packed at the time of importation and/or. excluding the weight of the immediate and all other containers. b. or subvention upon the articles of the same class manufactured at home or subsidies to foreign producers or manufacturers by their respective governments. When articles are dutiable by the net weight. holders and/or packing in which such articles are usually contained. b. the weight of the latter shall be included in the legal weight. articles are contained. at the time of their sale to the public in usual retail quantities: Provided. b. the dutiable weight thereof shall be only the actual weight of the articles at the time of importation. The importation is likely to injure materially established local industries or prevent their establishment Page | 221 . 2. The price of the imported articles is deliberately or continually fixed at less than the fair market value or cost of production. When articles are dutiable by the legal weight. c. That when articles are packed in single container. The importation would cause or likely cause an injury to local industries engaged in thr manufacture or production of the same or similar articles or prevent their establishment. the dutiable weight thereof shall be the weight of same. b. Dumping duties Special duties imposed by the secretary of finance upon the recommendation of the Tariff Commission when it is found that: a. together with the weight of the immediate containers. Countervailing duties Special duties imposed by the secretary of finance upon prior investigation and report of the Tariff Commission to offset any bounty. Special duties a. The requisites in the imposition of countervailing duties are: a. The levy of an excise or inland tax on local goods of the same or similar class as the articles imported or the grant of subsidy to the foreign exporter by his government. when imported in retail packages.subsidy. held or packed. held or packed at the time of importation.

The purpose of the surtax is to present possible deception of the consumers. including the packing. putting up. there shall be allowed a drawback equal in Page | 222 . Marking duties Special duty of five percent 5% ad valorem imposed on articles not properly marked. Drawbacks a. less one per cent thereof. such question to be determined by the Collector of Customs. or from similar domestic materials of equal quantity and productive manufacturing quality and value. On Articles Made from Imported Materials or Similar Domestic Materials and Wastes Thereof . I.exported. 106. On Fuel Used for Propulsion of Vessels. c. b. — On all fuel imported into the Philippines which is afterwards used for the propulsion of vessels of Philippine registry engaged in trade with foreign countries. Drawbacks The money collected by customs on imported merchandise and remitted if the goods are re. in an amount not exceeding one hundred percent 100% ad valorem. — Upon the exportation of articles manufactured or produced in the Philippines. which shall be paid under such rules and regulations as may be prescribed by the Commissioner of Customs with the approval of the department head. Safeguard Special duty imposed when there is an unexpected increase of import of a particular product that they cause or threaten to cause serious injury to domestic producers of like or directly competitive products. or in the coastwise trade. Sec. a refund shall be allowed equal to the duty imposed by law upon such fuel. imposed by the President of the Philippines against goods of a foreign country which discriminates against Philippine commerce or against goods coming from the Philippines and shipped to such foreign country. d. covering. Retaliatory/Discriminatory duties Special duty. c. marking or labeling thereof. collected by the commissioner except when such article is exported or destroyed under customs supervision and prior final liquidation of the corresponding entry. either in whole or in part of imported materials.

arrest In order to prevent smuggling and to secure the collection of the legal duties. the customs service shall exercise surveillance over the coast. assistant collectors. the following persons are authorized to effect searches. the imported materials. less one per cent thereof: Provided. security and secret-service agents. For the enforcement of the customs and tariff laws. deputy collectors. to the duties paid on the equivalent imported similar materials. and that the fact of their exportation shall be established. if the domestic materials. seizure. shall be ascertained. or where similar domestic materials are used. and the refund if made shall be paid to the manufacturer. beginning when a vessel or aircraft enters Philippine territory and concluding when the article imported therein has been legally passed through the customhouse. that the quantity of such materials used and the amount of duty paid thereon or. That when the articles exported or coverings thereof are in part of materials grown or produced in the Philippines not entitled to drawback under this section. Officials of the Bureau of Customs. or the similar domestic materials entitled to drawback under this section for which drawback is claimed. port patrol officers and guards of the Bureau of Customs. Officers of the Philippine Navy when authorized by the Commissioner. J. inspectors. finally. producer. further. That the imported materials. under and in accordance with such rules and regulations as the Commissioner of Customs shall prescribe with the approval of the department head. b. or exporter. or the similar domestic materials of equal quantity and productive manufacturing quality and value entitled to drawback. surveyors. That the exportation shall be made within three years after the importation of the foreign material used or constituting the basis for drawback: And Provided. Remedies 1. or to the duly authorized agent of any of them. Administrative/Extrajudicial 1) Search. shall be identified. Government a. taxes and other charges. shall so appear in the completed articles or packages that the quantity or measure thereof may be ascertained: And Provided. seizures and arrests conformably with the provisions of said laws: a. collectors. Page | 223 . forfeiture. paid upon its equivalent.amount to the duties paid on the imported materials so used.

articles. have the same authority. aircraft. subject to the restrictions stated in the next succeeding section. Officers generally empowered by law to effect arrests and execute processes of courts. It shall be the duty of any person exercising authority as aforesaid. Persons exercising the powers hereinabove conferred shall. d. upon sworn application showing probable case and particularly describing the place to be searched and person or thing to be seized. seizure or arrest which may be lawfully made or attempted by him. and shall be governed by the same law. when acting under direction of the Collector. animal or other movable property when the same is subject to forfeiture or liable for any fine imposed under customs and tariff laws. Any person exercising police authority under the customs and tariff laws may demand assistance of any police officer when such assistance shall be necessary to effect any search. not inconsistent with the provisions of this section. be entitled to the proper protection. such power to be exercised in conformity with the law and the provisions of this Code. cargo. to make seizure of any vessel. and it shall be his duty. Right to Search Vessels or Aircrafts and Persons or Articles Conveyed Therein. Any person especially authorized in writing by the Commissioner. It shall be the duty of any police officer upon whom such requisition is made to give such lawful assistance in the matter as may be required. — It shall be lawful for any official or person exercising police authority under the provisions of this Code to go abroad any vessel or aircraft within the limits of any collection to Page | 224 . to make known his official character as an officer or official of the Government. if demanded. in the exercise thereof. upon being questioned at the time of the exercise thereof. and if his authority is derived from special authorization in writing to exhibit the same for inspection. It shall be within the power of a customs official or person authorized as aforesaid. e. A dwelling house may be entered and searched only upon warrant issued by a judge or justice of the peace. Any person especially authorized by a Collector. and also to arrest any person subject to arrest for violation of any customs and tariff laws. as other officers exercising police authority in general.c.

or the article. package. judicial action against the importer may then be instituted. so far as may be necessary to enable the officer to discover whether any dutiable or forfeitable articles may be concealed therein. No proceeding herein shall give rise to any claim for the damage thereby caused to article or vessel or aircraft. is liable to forfeiture. Right to Search Vehicles. beast or person reasonably suspected of holding or conveying such article as aforesaid. trunk. to make seizure of the same or any part thereof. Judicial When the goods are released and the tax lien is lost. although released. bulkhead or other obstruction. go aboard any vessel or aircraft within the limits of any collection district. envelope or other container. search and examine said vessel or aircraft and any trunk. and likewise to stop. Note: When the goods are prohibited or imported irregularly. box or envelope on board. whereby or in consequence of which such vessels or aircrafts. — It shall also be lawful for a person exercising authority as aforesaid to open and examine any box. b. the goods are still subject to seizure. to use all necessary force to compel compliance. wherever found where he has reasonable cause to suspect the presence therein of dutiable or prohibited article or articles introduced into the Philippines contrary to law. search and examine any vehicle. or any part thereof. and if it shall appear that any breach or violation of the customs and tariff laws of the Philippines has been committed. Search of Persons Arriving From Foreign Countries. and to inspect. partition. Page | 225 . — All persons coming into the Philippines from foreign countries shall be liable to detention and search by the customs authorities under such regulations as may be prescribed relative thereto. The power of search hereinabove given shall extend to the removal of any false bottom. Beasts and Persons. Female inspectors may be employed for the examination and search of persons of their own sex. on board of or imported by such vessel or aircraft. and to search any person on board the said vessel or aircraft and to this end to hail and stop such vessel or aircraft if under way.

the interested party who desires to have the action of the Collector reviewed. or other money charge is determined. except as to matters correctible for manifest error in the manner prescribed in section one thousand seven hundred and seven hereof. Unless an appeal is made to the Court of Tax Appeals in the manner and within the period prescribed by laws and regulations. the action or ruling of the Commissioner shall be final and conclusive. the action of the Collector shall be final and conclusive against him.If legality of assessment or appraisal is questioned. No protest shall be considered unless payment of the amount due after final liquidation has first been made. otherwise. Taxpayer a. and shall indicate Page | 226 . or within thirty days thereafter. fees. shall make a protest. Form and Scope of Protest. Protest. Protest Exclusive Remedy in Protestable Case. in the manner and within the period prescribed by law and regulations. a written protest setting forth his objections to the ruling or decision in question. 2. — Every protest shall be filed in accordance with the prescribed rules and regulations promulgated under this section and shall point out the particular decision or ruling of the Collector to which exception is taken or objection made. When a ruling or decision of the Collector is made whereby liability for duties. together with the reasons therefor. the party adversely affected may protest such ruling or decision by presenting to the Collector at the time when payment of the amount claimed to be due the Government is made. The party aggrieved by a ruling of the Commissioner in any matter brought before him upon protest or by his action or ruling in any case of seizure may appeal to the Court of Tax Appeals. — In all cases subject to protest. judicial action and proceedings instituted on behalf of the Government pursuant to the provisions of this Code shall be subject to the supervision and control of the Commissioner. except the fixing of fines in seizure cases.In the absence of special provision.

with reasonable precision the particular ground or grounds upon which the protesting party bases his claim for relief. the Collector. the Collector shall reexamine the matter thus presented. fees. "Single adjustment". Page | 227 . The failure to file the import entry within 30 days from the discharge of the goods shall be deemed an implied abandonment or having filed an entry fails to claim within 15 days but it shall not be effective until so declared by the collector. Abandonment The owner or importer may abandon expressly the importation in favor of the Government thus relieving himself of the tax liability. and if the protest is sustained. In seizure cases. chan robles virtual law library Samples to be Furnished by Protesting Parties. but any number of issue may be raised in a protest with reference to the particular item or items constituting the subject matter of the protest. he shall enter the appropriate order. surcharges or fines incident thereto. The scope of a protest shall be limited to the subject matter of a single adjustment or other independent transaction. shall in writing make a declaration of forfeiture or fix the amount of the fine or take such other action as may be proper. in whole or in part. importers filing protests involving questions of fact must. upon demand. Decision or Action by Collector in Protest and Seizure Cases. b. — When a protest in proper form is presented in a case where protest in required. as hereinabove used. supply the Collector with samples of the articles which are the subject matter of the protests. refers to the entire content of one liquidation. — If the nature of the articles permit. after a hearing. including all duties. Such samples shall be verified by the custom official who made the classification against which the protest are filed. the entry reliquidated if necessary.

c. dead or injured animals. NOTE: Abandonment relieves the owner-importer from the payment of duties. A written claim for refund may be submitted by the importer in abatement cases.The owner or importer may reclaim the articles impliedly abandoned at any time before said goods are sold or otherwise disposed of by complying with the legal requirements regarding the importation and paying the corresponding duties and other charges. Abatement and refund- An Abatement or drawback (if importation is missing or deficient or if re-exported). articles lost or destroyed after such arrival. and in drawback cases where the goods are re-exported. deficiencies in the contents of packages or shortages before arrival of the goods in the Philippines. Page | 228 . such as on missing packages. taxes and other charges but not from possible criminal liability. and for manifest clerical errors.

as amended. commodity or article. and safeguard measures under RA No. fees or other money charges. refunds of internal revenue taxes. (f) Decisions of the Secretary of Finance – on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code. seizure. or other matters arising under the NIRC or other laws administered by the BIR. refunds of internal revenue taxes. and the Revised Rules of the Court of Tax Appeals A. orders or resolutions of the RTC – in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction. or other matters arising under the NIRC or other laws administered by the BIR. respectively. commodity or article. where either party may appeal the decision to impose or not to impose said duties. Jurisdiction of the Court of Tax Appeals 1.V. in cases involving disputed assessments. detention or release of property affected. where the NIRC provides a specific period for action. Cases within the jurisdiction of the Court en banc The Court en banc shall exercise exclusive appellate jurisdiction to review by appeal the following: Page | 229 . (b) Inaction by the Commissioner of Internal Revenue 1. in cases involving disputed assessments. 8800. 2. in which case the inaction shall be deemed a denial. (g) Decisions of the Secretary of Trade and Industry in the case of nonagricultural product. a. (c) Decisions. of the Tariff and Customs Code. fines. and the Secretary of Agriculture in the case of agricultural product. penalties in relation thereto. – involving dumping and countervailing duties under Secs. fees or other charges. Republic Act 1125 The Act that Created the Court of Tax Appeals (CTA). or other matters arising under the Customs Law or other laws administered by the Bureau of Customs. fees or other charges. in cases involving liability for customs duties. 2. Exclusive appellate jurisdiction over civil tax cases (a) Decisions of the Commissioner of Internal Revenue 1. (e) Decisions of the Central Board of Assessment Appeals – in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals. 2. forfeitures or other penalties in relation thereto. 301and 302. penalties in relation thereto. (d) Decisions of the Commissioner of Customs 1. Judicial Remedies.

resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding subparagraph. Department of Finance. fees. resolutions or orders of the Regional trial Courts in the exercise of their appellate jurisdiction over criminal offenses mentioned in subparagraph (f). resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over tax collection cases. Department of Trade and Industry. and (h) Decisions. where the principal amount of taxes and penalties claimed is less than one million pesos. Page | 230 . (2) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction. and (3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original jurisdiction involving final and executory assessments for taxes. (e) Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals. Bureau of Customs. (c) Decisions. resolutions or orders of the Regional Trial Courts in tax collection cases decided or resolved by them in the exercise of their appellate jurisdiction. charges and penalties. (d) Decisions. (b) Decisions. (f) Decisions. resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs. (g) Decisions. Department of Agriculture.(a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over: (1) Cases arising from administrative agencies – Bureau of Internal Revenue. resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in the exercise of their appellate jurisdiction.

detention or release of property affected. forfeitures of other penalties in relation thereto. still further. refunds of internal revenue taxes.b. Cases within the jurisdiction of the Court in divisions The Court in Divisions shall exercise: (a) Exclusive original or appellate jurisdiction to review by appeal the following: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments. the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case. that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned. fees or other charges. Rule 8 of these Rules. that in the case of claims for refund of taxes erroneously or illegally collected. (4) Decisions of the Commissioner of Customs in cases involving liability for customs duties. the taxpayer may appeal such final decision to the Court under Section 3(a). or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. or other matters arising under the Customs Law or other laws administered by the Bureau of Customs. penalties in relation thereto. or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. Provided. fees or other charges. (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments. fees or other money charges. fines. the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code. refunds of internal revenue taxes. penalties in relation thereto. seizure. resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in the exercise of their original jurisdiction. (5) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs Page | 231 . that in case of disputed assessments. where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided. and Provided. further. (3) Decisions.

where the principal amount of taxes and fees. and safeguard measures under Republic Act No. where the principal amount of taxes and fees. commodity or article. exclusive of charges and penalties. involving dumping and countervailing duties under Section 301 and 302. claimed is less than one million pesos or where there is no specified amount claimed. respectively. where the principal amount of taxes and fees. (c) Exclusive jurisdiction over tax collections cases. and (2) Appellate jurisdiction over appeals from the judgments. exclusive of charges and penalties. Criminal cases a. resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them within their respective territorial jurisdiction. to wit: (1) Original jurisdiction over all criminal offenses arising from violations of the National internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue of the Bureau of Customs. exclusive of charges and penalties claimed is less than one million pesos (P1. 000. resolutions or orders of the Regional Trial Courts in their original jurisdiction in criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs. (n) 2. to wit: (1) Original jurisdiction in tax collection cases involving final and executory assessments for taxes. in the case of nonagricultural product. charges and penalties. of the Tariff and Customs Code. fees. 000. exclusive of charges and penalties. claimed is one million pesos or more. 00) or Page | 232 . and (2) Appellate jurisdiction over appeals from the judgments. and the Secretary of Agriculture. where the principal amount of taxes and fees. adverse to the Government under Section 2315 of the Tariff and Customs Code. commodity or article. and (6) Decisions of the Secretary of Trade and Industry. in the case of agricultural product. 8800. (b) Exclusive jurisdiction over cases involving criminal offenses. claimed is one million pesos or more. where either party may appeal the decision to impose or not to impose said duties. Exclusive original jurisdiction over all criminal cases arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the BIR or the Bureau of Customs  Provided however.

and no right to reserve the filing of such civil action separately from the criminal action will be recognized. resolutions. the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with. Judicial Procedures 1. by the filing by the government of its answer to the taxpayer’s petition for review wherein payment of the tax is prayed for. Non-compliance with the condition laid down in the approval of the protest. in their respective territorial jurisdiction. Municipal Trial Courts. the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action. Judicial action for tax collection is commenced by: a. 2.  Any provision of law or the Rules of Court to the contrary notwithstanding. It Page | 233 . Judicial tax collection arises: a. repeated or some or all of them simultaneously until there is full settlement of the taxpayer’s liability. Over petitions for review of the judgments. B. b. Civil action of collection can be resorted to by filing a collection case in the regular court where the assessment is already final and demandable. or orders of the RTC in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts. Hold-order against the departure of erring taxpayer. where there is no specified amount claimed . Filing of a complaint with the proper court. Over appeals from the judgments. b. 2.the offenses or penalties shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. Internal Revenue Taxes 1. c. and jointly determined in the same proceeding by the CTA. d. If the self-assessed tax shown in the return was not paid within the date prescribed by law. Ordinary civil action a. Failure to file a timely appeal to the CTA on the final decision of the CIR or his authorized representative on the disputed assessment. Where the assessment is on appeal in the CTA. Final assessment is not protested administratively within 30 days from date of receipt. Court collection filed in Court. or b. and Municipal Circuit Trial Courts in their respective jurisdiction. Criminal action-pursuing criminal prosecution of taxpayer. b. resolutions or orders of the RTC in tax cases originally decided by them. Exclusive appellate jurisdiction in criminal cases 1. Judicial Action for Collection of Taxes a. Note: The Government my use these remedies singly or independently of each other.

No such action shall be instituted after the expiration of said period: Provided. or charges may be collected within five (5) years from the date of assessment by administrative or judicial action. fees or charges assessed before the effectivity of this Code may be collected within a period of three (3) years from the date of assessment. That. Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the local government unit concerned. and interest in and rights to personal property. and (3) The taxpayer is out of the country or otherwise cannot be located. however. the Secretary of Trade and Industry. the Secretary of Finance. or effects. ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes. b. (2) The taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of the period within which to assess or collect. effect of appeal Who may appeal. fees. or by a decision or ruling of the Commissioner of Customs. 2. or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling. Prescriptive period Local taxes. – (a) A party adversely affected by a decision. bank accounts. chattels. and (b) By judicial action. Civil Cases The civil remedies for the collection of local taxes. or charges. Who may appeal. debts. and related surcharges and interest resulting from delinquency shall be: (a) By administrative action thru distraint of goods. or Page | 234 . The running of the periods of prescription provided on assessments and collection shall be suspended for the time during which: (1) The treasurer is legally prevented from making the assessment of collection. Local Taxes 1. and by levy upon real property and interest in or rights to real property. period to file petition. mode of appeal. credits. fees. the Secretary of Agriculture. including stocks and other securities. a. taxes. should be noted that no civil action for the recovery of taxes shall begun without the approval of the CIR. and other personal property of whatever character.

(n) MODES OF APPEAL (1) By filing a petition for review under a procedure analogous to that provided for under Rule 42 of 1997 Rules on Civil Procedure  decision. (Rules of Court. (Dayrit vs. (n) (b) A party adversely affected by a decision or resolution of a Division of the Court on a motion for reconsideration or new trial may appeal to the Court by filing before it a petition for review within fifteen days from receipt of a copy of the questioned decision or resolution. the Secretary of Trade and Industry or the Secretary of Agriculture or the Regional Trial Courts  this appeal shall be heard by a Division of the CTA (2) By filing a petition for review under a procedure analogous to that provided for under Rule 43 of 1997 Rules on Civil Procedure  decisions or rulings of the Central Board of Assessments Appeals and the Regional Trial Courts in the exercise of its appellate jurisdiction  this appeal shall be heard by the CTA en banc. Rule 42. Upon proper motion and the payment of the full amount of the docket and other lawful fees and deposit for costs before the expiration of the reglementary period herein fixed. executory and demandable. sec. 1a) (c) A party adversely affected by a decision or ruling of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of their appellate jurisdiction may appeal to the Court by filing before it a petition for review within thirty days from receipt of a copy of the questioned decision or ruling. 16 May 1967.expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. Commissioner of Customs. In case of inaction of the Commissioner of Internal revenue on claims for refund of internal revenue taxes erroneously or illegally collected. L-23501. without substantial variation.) Page | 235 . or inaction of the Commissioner of Internal Revenue. the taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the taxes. vs Comm. Cruz 165 SCRA 571) The 30-day period of appeal to the CTA is non-extendible. ruling. (Filipinas Investment Corp. A tax payer may not delay indefinitely a tax assessment by reiterating his original defenses over and over again. the Court may grant an additional period not exceeding fifteen days from the expiration of the original period within which to file the petition for review.. Effect of Failure to Appeal to the CTA Failure of the taxpayer to appeal to the CTA within the reglamentary period makes a tax assessment final. the Secretary of Finance.

Vs. 2) 1. 3. No. 2. Page | 236 . by levy. and/or sale of any property of the taxpayer for the satisfaction of his liability.A. sec. levy. distraint. (par. It does not preclude the Commissioner of Internal Revenue from making a reassessment by increasing or decreasing a previous assessment (Coll. may jeopardized the interest of the Government or the taxpayer. etc. 1a) When to file: The motion for the suspension of the collection of the tax may be filed together with the petition for review or with the answer. levy or distraint. 1. Suspension of Collection of Tax No appeal taken to the Court shall suspend the payment. local government taxes. local taxes and real property taxes. (RCTA. R. or by whatever means. Rule 12. 31. Injunction not available to restrain collection General Rule: No court shall have the authority to enjoin or restrain the collection of any national internal revenue tax. 1125) 2. (Comm. (RCTA. distraint or sale of any property of the taxpayer. or in a separate motion filed by the interested party at any stage of the proceedings. The government may not file a counterclaim for an amount not included in the original assessment which has been appealed by the taxpayer. an interested party may file a motion for the suspension of the collection of the tax liability. Jan. sec. L-19074 & L-12089. fee or charge or any other tax including customs duties. Batangas trans Co. The taxpayer is not prejudiced considering that the CTA is authorized to scrutinize the legal and factual bases of the new assessment. Under RA No 9282.Effect of Appeal to the CTA 1. Vs. Rule 12. 102 Phil 822) for a contrary rule would enable a taxpayer to feign an appeal to hide a connivance with unscrupulous officials for a low assessment. (n) Who may file: Where the collection of the amount of the taxpayer’s liability. Guerrero. the no injunction rule extends to all kinds of taxes. or sale of any property of the taxpayer for the satisfaction of his tax liability as provided under existing laws. tariff and customs duties. whether internal revenue. Sec 11. except as hereinafter prescribed. real property taxes. sought by means of a demand for payment. The appeal taken to the Court of Tax Appeals from the decision of the commissioner of Internal Revenue or Commissioner of Customs does not suspend payment. 1967. as provided under existing laws.

1125 as amended by Sec. The court may require the taxpayer either to deposit the amount claimed or file a surety bond for not more than double the amount with the court. 2. distraint. or any issue therein. This is also true for other taxing authorities. Rule 4 of these Rules. the Secretary of Trade and Industry. and Secretary of Agriculture. Taking of evidence by a justice The Court may. 11. If in its opinion the same may jeopardize the interest of the government and/or taxpayer. Reason: Lifeblood theory. Taking of evidence Power of the Court to receive evidence: The Court may receive evidence in the following cases: (a) In all cases falling within the original jurisdiction of the Court in Division pursuant to Section 3. Exception: No “injunction” rule does not apply to Court of Tax Appeals The provisions of RA 1125 which authorizes the Court of Tax Appeals. 9282) The Supreme Court may enjoin the collection of taxes under its general judicial power. and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law. levy. f. e. In this instance. and (b) In appeals in both civil and criminal cases where the Court grants a new trial pursuant to Section 2. the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court” (Sec. but it should be apparent that the source of the power is not statutory but constitutional. No. provincial. Rule 124 of the Rules of Court. direct that a case. Conditions for issuance of an injunction by Court of Tax Appeals: The Court of Tax Appeals may enjoin the collection of taxes. as the case may be shall suspend the payment. R. R. or when the Page | 237 . motu proprio or upon proper motion. 9. city or municipal treasurer or the Secretary of Finance. When in the opinion of the CTA “the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer.A. Rule 53 and Section 12. No appeal taken to the CTA from the decision of the CIR or the Commissioner of Customs or the Regional Trial Court.A. No. when the determination of a question of fact arises at any stage of the proceedings. to issue an injunction prohibiting the Bureau of Internal Revenue from collecting the tax assessed is considered as an exception to the no injunction rule contained in Section 218 of the NIRC. be assigned to one of its members for the taking of evidence.

taking of an account is necessary, or when the determination of an issue of fact requires
the examination of a long account. The hearing before such justice shall proceed in all
respects as though the same had been made before the Court.

Upon the completion of such hearing, the justice concerned shall promptly submit to the
Court a written report thereon, stating therein his findings and conclusions. Thereafter,
the Court shall render its decision on the case, adopting, modifying, or rejecting the
report in whole or in part, or, the Court may, in its discretion, recommit it to the justice
with instructions, or receive further evidence.

Taking of evidence by Court official:

In default or ex parte hearings, or in any case where the parties agree in writing, the Court
may delegate the reception of evidence to the Clerk of Court, the Division Clerks of
Court, their assistants who are members of the Philippine bar, or any Court attorney. The
reception of documentary evidence by a Court official shall be for the sole purpose of
marking, comparison with the original, and identification by witnesses of such
documentary evidence. The Court official shall have no power to rule on objections to
any question or to the admission of exhibits, which objections shall be resolved by the
Court upon submission of his report and the transcripts within ten days from termination
of the hearing. (Rules of Court, Rule 30, sec. 9a)

3. Motion for Reconsideration or New Trial

Who may and when to file motion. – Any aggrieved party may seek a reconsideration or
new trial of any decision, resolution or order of the Court. He shall file a motion for
reconsideration or new trial within fifteen days from the date he received notice of the
decision, resolution or order of the Court in question. (RCTA, Rule 13, sec. 1a)

Grounds of motion for new trial. – A motion for new trial may be based on one or more
of the following causes materially affecting the substantial rights of the movant:

(a) Fraud, accident, mistake or excusable negligence which ordinary prudence
could not have guarded against and by reason of which such aggrieved party has
probably been impaired in his rights; or

(b) Newly discovered evidence, which he could not, with reasonable diligence,
have discovered and produced at the trial and, which, if presented, would
probably alter the result.

A motion for new trial shall include all grounds then available and those not included
shall be deemed waived.

Page | 238

Requisites for motion for new trial based on newly discovered evidence
1. The evidence was discovered after the trial.
2. Such evidence could not have been discovered and produced at the trial with
reasonable diligence.
3. It is material, not merely cumulative, corroborative or impeaching and
4. It is of such weight, if admitted will probably change the judgment.

4. Appeal to the CTA, en banc
Decisions or resolution of the Court of Tax Appeals en banc that should be
the subject of a petition for review under Rule 43 of the Rules of Court
before filing a petition for review on certiorari with the Supreme Court
under Rule 45 of the Rules of Court.

a. Petition for review on certiorari to the Supreme Court
A party adversely affected by a decision or ruling of the Court en banc may appeal
therefrom by filing with the Supreme Court a verified petition for review on certiorari
within fifteen days from receipt of a copy of the decision or resolution, as provided in
Rule 45 of the Rules of Court. If such party has filed a motion for reconsideration or for
new trial, the period herein fixed shall run from the party’s receipt of a copy of the
resolution denying the motion for reconsideration or for new trial. (n)
3. Criminal Cases

a. Institution and prosecution of criminal actions
Institution of criminal actions. – All criminal actions before the Court in Division in the
exercise of its original jurisdiction shall be instituted by the filing of an information in the
name of the People of the Philippines. In criminal actions involving violations of the
National Internal Revenue Code and other laws enforced by the Bureau of Internal
Revenue, the Commissioner of Internal Revenue must approve their filing. In criminal
actions involving violations of the tariff and Customs Code and other laws enforced by
the Bureau of Customs, the Commissioner of Customs must approve their filing. (Rules
of Court, Rule 110, sec. 2a; n)
The institution of the criminal action shall interrupt the running of the period of
prescription.
Prosecution of criminal actions. – All criminal actions shall be conducted and
prosecuted under the direction and control of the public prosecutor. In criminal actions
involving violation of the National Internal Revenue Code or other laws enforced by the
Bureau of Internal Revenue, and violations of the Tariff and Customs Code or other laws
enforced by the Bureau of Customs, the prosecution may be conducted by their respective
duly deputized legal officers.

1. Institution on civil action in criminal action
In cases within the jurisdiction of the Court, the criminal action and the corresponding
civil action for the recovery of civil liability for taxes and penalties shall be deemed
jointly instituted in the same proceeding. The filing of the criminal action shall
necessarily carry with it the filing of the civil action. No right to reserve the filing of such

Page | 239

civil action separately from the criminal action shall be allowed or recognized. (Rules of
Court, Rule 111, sec. 1[a], par. 1a)

b. Appeal and period to appeal
(a) An appeal to the Court in criminal cases decided by a Regional Trial Court in the
exercise of its original jurisdiction shall be taken by filing a notice of appeal pursuant to
Sections 3(a) and 6, Rule 122 of the Rules of Court within fifteen days from receipt of a
copy of the decision or final order with the court which rendered the final judgment or
order appealed from and by serving a copy upon the adverse party. The Court in Division
shall act on the appeal.
(b) An appeal to the Court en banc in criminal cases decided by the Court in Division
shall be taken by filing a petition for review as provided in Rule 43 of the Rules of Court
within fifteen days from receipt of a copy of the decision or resolution appealed from.
The Court may, for good cause, extend the time for filing of the petition for review for an
additional period not exceeding fifteen days.
(c) An appeal to the Court in criminal cases decided by the Regional Trial Courts in the
exercise of their appellate jurisdiction shall be taken by filing a petition for review as
provided in Rule 43 of the Rules of Court within fifteen days from receipt of a copy of
the decision or final order appealed from. The Court en banc shall act on the appeal. (n)

1. Solicitor General as counsel for the People and government officials sued in their
official capacity
The Solicitor General shall represent the People of the Philippines and government
officials sued in their official capacity in all cases brought to the Court in the exercise of
its appellate jurisdiction. He may deputized the legal officers of the Bureau of Internal
Revenue in cases brought under the National Internal Revenue Code or other laws
enforced by the Bureau of Internal Revenue, or the legal officers of the Bureau of
Customs in cases brought under the Tariff and Customs Code of the Philippines or other
laws enforced by the Bureau of Customs, to appear in behalf of the officials of said
agencies sued in their official capacity: Provided, however, such duly deputized legal
officers shall remain at all times under the direct control and supervision of the Solicitor
General. (n)

c. Petition for review on certiorari to the Supreme Court
From the CTA en banc’s decision, the losing party may file with the Supreme
Court a unified petition for review on certiorari pursuant to Rule 45 of the 1997Rules of
Civil Procedure.

C. Taxpayer’s suit impugning the validity of tax measures or acts of taxing
authorities

a. Taxpayer’s suit, defined
A case where the act complained of directly involves the illegal disbursement of public
funds derived from taxation.

b. Distinguished from citizen’s suit

Page | 240

In taxpayer’s suit, the plaintiff is affected by the expenditure of public funds while in
citizen’s suit, he is but the mere instrument of the public concern.
In a citizen’s suit, which is in the matter of public right, the people are the real parties, it
is at least the right, if not the duty, of every citizen to intervene and see that a public
offence be properly pursued and punished, and a public grievance be remedied while with
respect to taxpayer’s suit, the right of a citizen and a taxpayer to maintain an action in
courts to restrain the unlawful use of public funds to his injury cannot be denied.

c. Requisites for challenging the constitutionality of a tax measure or act of taxing
authority
a. The case should involve constitutional issues;
b. For taxpayers, there must be a claim of illegal disbursement of public funds or
that the tax measure is unconstitutional.
c. For voters, there must be a showing of obvious interest in the validity of the
election law in question.
d. For concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early.
e. For legislators, there must be a claim that the official action complained of
infringes upon their prerogatives as legislators.

1. Concept of locus standi as applied in taxation
Locus standi is “a right of appearance in a court of justice on a given question.
(Abaya v. Ebdane, G. R. No. 167919, February 14, 2007)
It is a party’s personal and substantial interest in the case, such that the party has
sustained or will sustain (Ibid.)direct injury as a result of the government act being
challenged. It calls for more than just a generalized grievance.
A party need not be a party to the contract to challenge its validity. (Ibid.)
2. Doctrine of transcendental importance
In cases of paramount importance where serious constitutional questions are involved, the
standing requirements may be relaxed and a suit may be allowed to prosper even where
there is no direct injury to the party claiming the right of judicial review.

3. Ripeness for judicial determination

A. Nature of actual case or controversy
An actual case or controversy involves a conflict of legal rights, an assertion of opposite
legal claims susceptible of judicial adjudication. (ABAKADA Guro Party List, etc., v.
Purisima, etc., et al., G. R. No. 166715, August 14, 2008 citing Cruz, Isagani,
PHILIPPINE CONSTITUTIONAL LAW, 1995 edition, p. 23)

B. Criteria of being ripe for judicial determination
A closely related requirement is ripeness, that is, the question must be ripe for
adjudication. And a constitutional question is ripe for adjudication when the
governmental act being challenged has a direct adverse effect on the individual
challenging it. (ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R. No.
166715, August 14, 2008 citing Bernas, Joaquin, THE 1987 CONSTITUTION OF

Page | 241

The grave nature of their allegations tends to cast a cloud on the presumption of constitutionality in favor of the law. 400 Phil. G.. v. 01 December 2004. Secretary of Environment and Natural Resources. This notwithstanding. Purisima. to be ripe for judicial adjudication. 2008 citing Tañada v. et al. aside from the general claim that the dispute has ripened into a judicial controversy by the mere enactment of the law even without any further overt act. etc. 338 Phil. [ABAKADA Guro Party List. 546 (1997)] -------------------------------------------------------------------------------------- Page | 242 .. (ABAKADA Guro Party List. pp. et al... 904 (2000). 166715. etc. 1996 edition. etc. v.. Angara. No...R. the petitioner must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision of the Court. J. Constitutionality of law is exception to the doctrine of “ripe for judicial determination”.. Personal injury must be shown for judicial controversy to be ripe for judicial determination In this case. Ramos. supra. G. R. 166715. etc. Vitug. etc. 127882. it becomes not only the right but in fact the duty of the judiciary to settle the dispute. public interest requires the resolution of the constitutional issues raised by petitioners. August 14. separate opinion] C. No. Purisima. Inc. G. citing Cruz v. August 14. 848- 849) Thus.. v. R. 2008 citing La Bugal-B’Laan Tribal Association. etc. 445 SCRA 1) Thus. v. [ABAKADA Guro Party List. supra) D. where petitioners fail either to assert any specific and concrete legal claim or to demonstrate any direct adverse effect of the law on them or are unable to show a personal stake in the outcome of this case or an injury to themselves their petition is procedurally infirm.. Purisima. And where an action of the legislative branch is alleged to have infringed the Constitution.THE REPUBLIC OF THE PHILIPPINES: A COMMENTARY. (ABAKADA Guro Party List. No. etc.

Rufeliz Ann Baliton. Jessica Uno. Czarina Golda Salic. Malucar Bingona. Palayogan Tirariray. Monalisa Musni. Stevenson Macarayan. Norhalisa Tomolin. Francis Edmund Pangandaman Jr. Hannah Joy Page | 243 . Patrick Bryan Dangazo. Louie Abbu. Nolan Ferraren. Muammar John Ortiz. Ryan Galas. John Bryan Absin. Mavel Cainglet. Maichel Rick Maquiling. Jedyl Villarta.TAXATION II STUDENTS 2010-2011 Abragan.

Sign up to vote on this title
UsefulNot useful